I 
108TH CONGRESS 
1ST SESSION H. R. 1776
To amend the Internal Revenue Code of 1986 to make today’s retirement 
savings opportunities permanent, to expand and improve retirement sav-
ings vehicles, to extend pension coverage through regulatory simplification 
and small business incentives, to enhance fairness and pension portability, 
to revitalize defined benefit plans, to provide additional defined contribu-
tion plan protections, to assist individuals in preserving their income 
throughout retirement, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 11, 2003
Mr. PORTMAN (for himself, Mr. CARDIN, Mrs. JOHNSON of Connecticut, Mr. 
POMEROY, Mr. BLUNT, Mr. MOORE, Mr. UPTON, Mrs. TAUSCHER, Mr. 
GALLEGLY, and Mr. WYNN) introduced the following bill; which was re-
ferred to the Committee on Ways and Means, and in addition to the 
Committee on Education and the Workforce, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such 
provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to make 
today’s retirement savings opportunities permanent, to 
expand and improve retirement savings vehicles, to ex-
tend pension coverage through regulatory simplification 
and small business incentives, to enhance fairness and 
pension portability, to revitalize defined benefit plans, 
to provide additional defined contribution plan protec-
tions, to assist individuals in preserving their income 
throughout retirement, and for other purposes.
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 
‘‘Pension Preservation and Savings Expansion 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. 
TITLE I—MAKING TODAY’S RETIREMENT SAVINGS 
OPPORTUNITIES PERMANENT 
Sec. 101. Pensions and individual retirement arrangement provisions of Eco-
nomic Growth and Tax Relief Reconciliation Act of 2001 made 
permanent. 
Sec. 102. Saver’s credit made permanent. 
TITLE II—PRESERVING RETIREMENT ASSETS 
Sec. 201. Simplification and updating of the minimum distribution rules. 
Sec. 202. Treatment of unclaimed benefits. 
Sec. 203. Facilitation under fiduciary rules of certain rollovers and annuity dis-
tributions. 
Sec. 204. Equalizing treatment of defined benefit plans and defined contribu-
tion plans. 
Sec. 205. Study concerning defined contribution plan losses due to market vola-
tility. 
TITLE III—ENHANCING FAIRNESS AND PENSION PORTABILITY 
Sec. 301. Allow transfers to spouse’s retirement plans.
Sec. 302. Faster vesting of employer nonelective contributions. 
Sec. 303. Rollovers by nonspouse beneficiaries. 
Sec. 304. Allow direct rollovers from retirement plans to ROTH IRAs. 
Sec. 305. Exclusion of percentage of lifetime annuity payments. 
Sec. 306. Rollover of after-tax amounts in annuity contracts. 
Sec. 307. Fair treatment under substantially equal periodic payments rule. 
Sec. 308. Treatment of subsequent qualified domestic relations orders. 
Sec. 309. Treatment of delayed qualified domestic relations orders. 
Sec. 310. Treatment of annuity contracts. 
Sec. 311. Preservation of pension plans. 
Sec. 312. Certain plan transfers and mergers. 
TITLE IV—INCREASING RETIREMENT PLAN PARTICIPATION AND 
SAVINGS 
Sec. 401. Expansion of the Saver’s credit. 
Sec. 402. Acceleration of scheduled increases in pension plan contribution lim-
its. 
Sec. 403. Removing barriers to automatic contribution trust arrangements. 
Sec. 404. Disposition of unused health benefits in cafeteria plans and flexible 
spending arrangements. 
Sec. 405. Updating deduction rules for combination of plans. 
TITLE V—EXPANDING RETIREMENT PLAN COVERAGE TO 
EMPLOYEES OF SMALL BUSINESSES 
Sec. 501. Additional nonelective employer contributions to simple plans. 
Sec. 502. Matching contribution rules for Simple IRAs and Simple 401(k)s con-
formed. 
Sec. 503. Salary-reduction only Simple plans. 
Sec. 504. Permit a mid-year change from a Simple plan to another plan. 
Sec. 505. Elimination of higher penalty on certain Simple distributions. 
Sec. 506. Simple plan portability. 
Sec. 507. Correction of Simplified Employee Pension compensation inconsist-
ency. 
Sec. 508. Equalization of tax treatment of retirement plan contributions of the 
self-employed. 
TITLE VI—STRENGTHENING INDIVIDUAL RETIREMENT 
ARRANGEMENTS 
Sec. 601. Acceleration of increases in IRA contribution limits. 
Sec. 602. Acceleration and expansion of certain scheduled increases in eligibility 
for IRAs and elimination of IRA marriage penalty. 
Sec. 603. IRA eligibility for the disabled. 
Sec. 604. Protecting IRA assets. 
TITLE VII—REVITALIZING DEFINED BENEFIT PLANS 
Sec. 701. Multiple employer plans permitted to elect separate or aggregate 
treatment for purposes of applying the funding rules and de-
duction limitations. 
Sec. 702. Treatment of employee contributions to contributory defined benefit 
plans. 
Sec. 703. Reform of the minimum participation rule. 
Sec. 704. Plan valuation data collection.
Sec. 705. Replacement of interest rate on 30-year Treasury securities with in-
terest rate on conservatively-invested long-term corporate 
bonds. 
Sec. 706. Interest rate range for additional funding requirements. 
Sec. 707. Asset valuation. 
Sec. 708. Multiemployer plan emergency investment loss rule. 
Sec. 709. Mortality table adjustment. 
TITLE VIII—SIMPLIFY AND STREAMLINE RETIREMENT PLAN 
RULES 
Sec. 801. Excise tax on excess contributions. 
Sec. 802. Excess benefit plans. 
Sec. 803. Paperless technologies in retirement plans. 
Sec. 804. Elimination of unintended consequences attributable to use of base 
pay or rate of pay. 
Sec. 805. Repeal of the gateway test. 
Sec. 806. Intermediate sanctions for inadvertent failures. 
Sec. 807. Qualified preretirement survivor annuity. 
Sec. 808. Cost-of-living adjustment of $5,000 cash-out amount. 
Sec. 809. Catch-up contributions. 
Sec. 810. Reverse match salary reduction arrangement simplified employee an-
nuity. 
Sec. 811. Level dollar contributions to SEPs. 
Sec. 812. Tax on nondeductible contributions not to apply to certain nontrade 
or business SEP contributions. 
Sec. 813. Clarification of fiduciary duty. 
Sec. 814. Multiemployer plan clarification. 
Sec. 815. Clarification of status of Young Men’s Christian Association Retire-
ment Fund. 
TITLE IX—EXPANDING RETIREMENT SAVINGS OPPORTUNITIES 
FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS AND GOV-
ERNMENTS 
Sec. 901. Deferred compensation plans of tax-exempt organizations. 
Sec. 902. Inapplicability of 10 percent additional tax on early distributions of 
pension plans of public safety employees. 
Sec. 903. Clarifications regarding purchase of permissive service credit. 
Sec. 904. Certain rollovers of benefits permitted 
Sec. 905. Minimum distribution rules. 
Sec. 906. Church plan rule. 
Sec. 907. Plans maintained by governments and tax-exempt organizations. 
TITLE X—RESTRICTING EXCESSIVE REMUNERATION 
Sec. 1001. Golden parachute excise tax to apply to excessive employee remu-
neration paid by corporation after declaration of bankruptcy. 
TITLE XI—DEFINED CONTRIBUTION PLAN PROTECTIONS 
Sec. 1101. Provision of investment education notices to participants. 
Sec. 1102. Notice of blackout periods to participant or beneficiary under de-
fined contribution plan. 
Sec. 1103. Diversification requirements for defined contribution plans that hold 
employer securities. 
Sec. 1104. Treatment of qualified retirement planning services.
Sec. 1105. Special rules. 
TITLE XII—OTHER TAX PROVISIONS RELATING TO PENSIONS 
Sec. 1201. Amendments to Retirement Protection Act of 1994. 
Sec. 1202. Reporting simplification. 
Sec. 1203. Improvement of employee plans compliance resolution system. 
Sec. 1204. Extension to all governmental plans of moratorium on application 
of certain nondiscrimination rules applicable to State and local 
plans. 
Sec. 1205. Notice and consent period regarding distributions. 
Sec. 1206. Reduced PBGC premium for new plans of small employers. 
Sec. 1207. Reduction of additional PBGC premium for new and small plans. 
Sec. 1208. Authorization for PBGC to pay interest on premium overpayment 
refunds. 
Sec. 1209. Substantial owner benefits in terminated plans. 
Sec. 1210. Qualified group legal services plans. 
Sec. 1211. Studies. 
TITLE XIII—STOCK OPTIONS 
Sec. 1301. Exclusion of incentive stock options and employee stock purchase 
plan stock options from wages. 
TITLE XIV—OTHER ELEMENTS OF RETIREMENT SECURITY 
Sec. 1401. Employee pre-tax payments for retiree health. 
Sec. 1402. Encouraging employers to maintain retiree health plans. 
TITLE XV—REDUCING REGULATORY BURDENS 
Sec. 1501. Provisions relating to plan amendments. 
TITLE XVI—SOCIAL SECURITY AND MEDICARE HELD HARMLESS 
Sec. 1601. Protection of Social Security and Medicare.
TITLE I—MAKING TODAY’S RE-
TIREMENT SAVINGS OPPOR-
TUNITIES PERMANENT 
SEC. 101. PENSIONS AND INDIVIDUAL RETIREMENT AR-
RANGEMENT 
PROVISIONS 
OF 
ECONOMIC 
GROWTH AND TAX RELIEF RECONCILIATION 
ACT OF 2001 MADE PERMANENT. 
(a) IN GENERAL.—Section 901 of the Economic 
Growth and Tax Relief Reconciliation Act of 2001 is
amended by adding at the end the following new sub-
section: 
‘‘(c) EXCEPTION.—Subsections (a) and (b) shall not 
apply to the provisions of, and amendments made by, sub-
titles (A) through (F) of title VI (relating to pension and 
individual retirement arrangement provisions).’’. 
(b) CONFORMING AMENDMENTS.—Section 901(b) of 
such Act is amended—
(1) by striking ‘‘and the Employee Retirement 
Income Security Act of 1974’’ in the text, and 
(2) by striking ‘‘OF CERTAIN LAWS’’ in the 
heading. 
SEC. 102. SAVER’S CREDIT MADE PERMANENT. 
(a) IN GENERAL.—Section 25B (relating to elective 
deferrals and IRA contributions by certain individuals) is 
amended by striking subsection (h). 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
TITLE II—PRESERVING 
RETIREMENT ASSETS 
SEC. 201. SIMPLIFICATION AND UPDATING OF THE MIN-
IMUM DISTRIBUTION RULES. 
(a) REQUIRED DISTRIBUTIONS.—
(1) INCREASE IN AGE FOR REQUIRED BEGIN-
NING
DATE.—Clauses (i) and (ii) of section 
401(a)(9)(C) (relating to required beginning date) 
are amended by striking ‘‘age 701⁄2’’ each place it 
appears and inserting ‘‘the applicable age’’. 
(2) MANDATORY DISTRIBUTION AGE.—Para-
graph (9) of section 401(a) (relating to required dis-
tributions) is amended by inserting at the end the 
following new subparagraph: 
‘‘(H) APPLICABLE AGE.—For purposes of 
this paragraph, the applicable age shall be de-
termined in accordance with the following table:
‘‘Calendar year: 
Applicable age is: 
2004 and 2005 .............................................................
2006 and 2007 .............................................................
2008 and 2009 .............................................................
2010 and thereafter .....................................................
75.’’.
(3) SPOUSE BENEFICIARIES.—Subclause (I) of 
section 401(a)(9)(B)(iv) (relating to special rule for 
surviving spouse of employee) is amended by striking 
‘‘age 701⁄2’’ and inserting ‘‘the applicable age’’. 
(4) ACTUARIAL
ADJUSTMENT
OF
BENEFIT 
UNDER
DEFINED
BENEFIT
PLAN.—Clause (iii) of 
section 401(a)(9)(C) (relating to actuarial adjust-
ment) is amended to read as follows: 
‘‘(iii) ACTUARIAL ADJUSTMENT.—
‘‘(I) IN GENERAL.—In the case 
of a defined benefit plan, an employ-
ee’s accrued benefit shall be actuari-
ally increased to take into account the 
period after the applicable date during 
which the employee was not receiving 
any benefits under the plan. 
‘‘(II) APPLICABLE
DATE.—For 
purposes of clause (I), the term ‘appli-
cable date’ means April 1 of the cal-
endar year following the calendar year 
in which the employee attains age 
701⁄2.’’.
(b) PREVENTING TWO REQUIRED DISTRIBUTIONS IN 
A YEAR.—
(1) IN GENERAL.—The portion of clause (i) of 
section 401(a)(9)(C) that precedes subclause (I) is 
amended to read as follows: 
‘‘(i) IN
GENERAL.—The term ‘re-
quired beginning date’ means the Decem-
ber 31 of the later of—’’. 
(2) DATE OF RETIREMENT.—Clause (i) of sec-
tion 401(a)(9)(C) is amended by adding at the end 
the following: ‘‘Solely for purposes of subclause (II), 
an employee who retires during December of a cal-
endar year shall be treated as retiring in the fol-
lowing calendar year.’’.
(c) REDUCTION IN EXCISE TAX.—Subsection (a) of 
section 4974 (relating to excise tax on certain accumula-
tions in qualified retirement plans) is amended by striking 
‘‘50 percent’’ and inserting ‘‘20 percent’’. 
(d) 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, 
2003. 
(2) SPECIAL RULE.—In the case of a partici-
pant who attains age 701⁄2 prior to January 1, 2004, 
the amendments made by this section shall apply to 
years beginning after December 31, 2003, as if such 
amendments had been effective in years beginning 
before January 1, 2004. 
SEC. 202. TREATMENT OF UNCLAIMED BENEFITS. 
(a) AMENDMENTS TO INTERNAL REVENUE CODE OF 
1986.—
(1) AMENDMENT TO SECTION 401(a)(34).—Sec-
tion 401(a)(34) (relating to benefits of missing par-
ticipants) is amended to read as follows: 
‘‘(34) UNCLAIMED BENEFITS.—A trust forming 
part of a plan shall not be treated as failing to con-
stitute a qualified trust under this section merely be-
cause the plan of which such trust is a part treats
unclaimed benefits in a manner that satisfies the re-
quirements of section 414(y).’’. 
(2) AMENDMENT TO SECTION 414.—Section 414 
(relating to definitions and special rules) (as amend-
ed by this Act) is amended by adding at the end the 
following new subsection: 
‘‘(y) UNCLAIMED BENEFITS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection only if—
‘‘(A) ONGOING PLANS.—In the case of an 
ongoing plan, the plan provides for one or more 
of the following with respect to unclaimed bene-
fits: 
‘‘(i) In the case of an unclaimed ben-
efit to which section 401(a)(31)(B) applies, 
a transfer under section 401(a)(31)(B). 
‘‘(ii) A transfer to the Pension Benefit 
Guaranty Corporation, in accordance with 
section 4050(e) of the Employee Retire-
ment Income Security Act of 1974. 
‘‘(iii) Any other treatment permitted 
under rules prescribed by the Secretary. 
‘‘(B) TERMINATED PLANS.—In the case of 
a terminated plan, the plan provides for the fol-
lowing with respect to unclaimed benefits:
‘‘(i) DEFINED
BENEFIT
PLANS.—In 
the case of a defined benefit plan, one or 
more of the following: 
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined benefit plan 
maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(a) or 
4050(e) (as applicable) of the Em-
ployee Retirement Income Security 
Act of 1974. 
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary. 
‘‘(ii) 
DEFINED
CONTRIBUTION 
PLANS.—In the case of a defined contribu-
tion plan, one or more of the following:
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined contribution 
plan maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(d) or 
4050(e) (as applicable) of the Em-
ployee Retirement Income Security 
Act of 1974. 
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary. 
‘‘(2) TREATMENT OF TRANSFERS TO PENSION 
BENEFIT GUARANTY CORPORATION.—
‘‘(A) TRANSFERS
TO
PBGC.—Amounts 
transferred from a plan to the Pension Benefit 
Guaranty Corporation pursuant to paragraph
(1) shall be treated as a transfer under section 
401(a)(31)(A). 
‘‘(B) DISTRIBUTIONS
FROM
PBGC.—Ex-
cept as provided in rules prescribed by the Sec-
retary, amounts distributed by the Pension 
Benefit Guaranty Corporation shall be treated 
as distributed by an individual retirement plan 
under section 408(d) (without regard to para-
graphs (4), (5) and (7) thereof). Rules similar 
to the rules of section 402(c)(4) shall apply. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) UNCLAIMED
BENEFIT.—The term 
‘unclaimed benefit’ means—
‘‘(i) any benefit of a participant or 
beneficiary which is distributable under the 
terms of the plan to the participant or ben-
eficiary, if the distribution of the benefit 
has not commenced within 1 year after the 
later of the date on which the benefit first 
became so distributable or the participant’s 
severance from employment; 
‘‘(ii) any benefit or other amount of a 
participant or beneficiary which is distrib-
utable under the terms of the plan with re-
spect to a missing participant, or 
‘‘(iii) any benefit to which section 
401(a)(31)(B) applies or would apply if 
subclause (I) of section 401(a)(31)(B)(i) 
did not require the distribution to exceed 
$1,000. 
A benefit otherwise described in clause (i) shall 
not be treated as an unclaimed benefit under 
clause (i) if the participant or beneficiary elects 
not to have such treatment apply. Any such 
participant or beneficiary shall be given reason-
able notice of the opportunity to make such an 
election. If the participant or beneficiary fails to 
make such an election within a reasonable pe-
riod specified in the notice, any subsequent elec-
tion shall not be given effect and the benefit 
shall be treated as an unclaimed benefit. A no-
tice mailed to the last known address of the 
participant or beneficiary shall be treated as a 
notice to the participant or beneficiary for pur-
poses of this paragraph. 
‘‘(B) ONGOING PLAN.—The term ‘ongoing 
plan’ means any plan which has neither termi-
nated nor is in the process of terminating.
‘‘(C) TERMINATED PLAN.—The term ‘ter-
minated plan’ means any plan which has termi-
nated or is in the process of terminating. 
‘‘(D) MISSING
PARTICIPANT.—The term 
‘missing participant’ shall have the meaning 
given to such term by section 4050(b)(1) of the 
Employee Retirement Income Security Act of 
1974.’’. 
(3) CONFORMING AMENDMENT.—Subparagraph 
(B) of section 401(a)(31) is amended by adding at 
the end the following: 
‘‘(iii) 
OTHER
PERMITTED
TRANS-
FERS.—A plan administrator shall be 
treated as having complied with the re-
quirements of this subparagraph if such 
plan administrator complies with the re-
quirements of section 414(y).’’. 
(b) AMENDMENTS TO EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—
(1) IN
GENERAL.—Subsection (b) of section 
4050 of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1350) is amended by adding 
at the end the following paragraph: 
‘‘(3) UNCLAIMED
BENEFIT.—The term ‘un-
claimed benefit’ means—
‘‘(A) any benefit of a participant or bene-
ficiary which is distributable under the terms of 
the plan to the participant or beneficiary, if the 
distribution of the benefit has not commenced 
within 1 year after the later of the date on 
which the benefit first became so distributable 
or the participant’s severance from employment; 
‘‘(B) any benefit or other amount of a par-
ticipant or beneficiary which is distributable 
under the terms of the plan with respect to a 
missing participant, or 
‘‘(C) 
any 
benefit 
to 
which 
section 
401(a)(31)(B) of the Internal Revenue Code of 
1986 applies or would apply if subclause (I) of 
section 401(a)(31)(B)(i) of such Code did not 
require the distribution to exceed $1,000. 
A benefit otherwise described in subparagraph (A) 
shall not be treated as an unclaimed benefit under 
subparagraph (A) if the participant or beneficiary 
elects not to have such treatment apply. Any such 
participant or beneficiary shall be given reasonable 
notice of the opportunity to make such an election. 
If the participant or beneficiary fails to make such 
an election within a reasonable period specified in 
the notice, any subsequent election shall not be given
effect and the benefit shall be treated as an un-
claimed benefit. A notice mailed to the last known 
address of the participant or beneficiary shall be 
treated as a notice to the participant or beneficiary 
for purposes of this paragraph.’’. 
(2) OTHER
AMENDMENTS.—Section 4050 of 
such Act is amended by redesignating subsection (c) 
as subsection (f) and by inserting after subsection 
(b) the following new subsections: 
‘‘(c) MULTIEMPLOYER
PLANS.—The corporation 
shall prescribe rules similar to the rules in subsection (a) 
for multiemployer plans covered by this title that termi-
nate under section 4041A. 
‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—
‘‘(1) TRANSFER TO CORPORATION.—The plan 
administrator of a plan described in paragraph (4) 
may elect to transfer a missing participant’s benefits 
to the corporation upon termination of the plan. 
‘‘(2) INFORMATION TO THE CORPORATION.—To 
the extent provided in regulations, the plan adminis-
trator of a plan described in paragraph (4) shall, 
upon termination of the plan, provide the corpora-
tion information with respect to the benefits of a 
missing participant if the plan transfers such bene-
fits—
‘‘(A) to the corporation, or 
‘‘(B) to an entity other than the corpora-
tion or a plan described in paragraph (4)(B)(ii). 
‘‘(3) PAYMENT BY THE CORPORATION.—If ben-
efits of a missing participant were transferred to the 
corporation under paragraph (1), the corporation 
shall, upon location of the participant or beneficiary, 
pay to the participant or beneficiary the amount 
transferred (or the appropriate survivor benefit) ei-
ther—
‘‘(A) in a single sum (plus interest), or 
‘‘(B) in such other form as is specified in 
regulations of the corporation. 
‘‘(4) PLANS DESCRIBED.—A plan is described 
in this paragraph if—
‘‘(A) the plan is a pension plan (within the 
meaning of section 3(2))—
‘‘(i) to which the provisions of this 
section do not apply (without regard to 
this subsection), and 
‘‘(ii) which is not a plan described in 
paragraphs (2) through (11) of section 
4021(b), and 
‘‘(B) at the time the assets are to be dis-
tributed upon termination, the plan—
‘‘(i) has missing participants, and 
‘‘(ii) has not provided for the transfer 
of assets to pay the benefits of all missing 
participants to another pension plan (with-
in the meaning of section 3(2)). 
‘‘(5) 
CERTAIN
PROVISIONS
NOT
TO 
APPLY.—Subsections (a)(1) and (a)(3) shall not 
apply to a plan described in paragraph (4). 
‘‘(e) UNCLAIMED BENEFITS.—
‘‘(1) TRANSFER TO CORPORATION.—The plan 
administrator of a plan described in paragraph (6) 
may elect to transfer unclaimed benefits to the cor-
poration. 
‘‘(2) INFORMATION
TO
THE
CORPORATION.—
The corporation may impose such conditions on 
transfers of unclaimed benefits to the corporation as 
the corporation determines are necessary to facilitate 
administration of this subsection and are not incon-
sistent with the purposes of this subsection. Such 
conditions may include requirements that the trans-
ferring plan provide to the corporation specified in-
formation and documentation. 
‘‘(3) PAYMENT TO THE CORPORATION.—With 
respect to any participant, any transfer of an un-
claimed benefit to the corporation shall—
‘‘(A) in the case of a defined benefit plan, 
be a transfer of the participant’s designated 
benefit, or 
‘‘(B) in the case of an individual account 
plan, be a transfer of the participant’s vested 
account balance under the plan. 
‘‘(4) PAYMENT BY THE CORPORATION.—Subject 
to such reasonable restrictions as may be prescribed 
in regulations of the corporation (relating to invest-
ment limitations and otherwise)—
‘‘(A) unclaimed benefits of a participant or 
beneficiary which are transferred to the cor-
poration pursuant to this subsection shall be 
distributed by the corporation to the participant 
or beneficiary not later than upon application 
filed by the participant or beneficiary with the 
corporation in such form and manner as may 
be prescribed in regulations of the corporation, 
and 
‘‘(B) such benefits shall—
‘‘(i) in the case of an individual ac-
count plan, be paid in a single sum (plus 
interest) or in such other form as is speci-
fied in regulations of the corporation, or
‘‘(ii) in the case of a defined benefit 
plan, be paid—
‘‘(I) in an amount based on the 
designated benefit and the assump-
tions prescribed by the corporation at 
the time that the corporation received 
the benefit, and 
‘‘(II) in a form determined under 
regulations of the corporation. 
‘‘(5) NOTICE.—Any transfer of unclaimed bene-
fits of a participant or beneficiary to the corporation 
pursuant to this subsection may occur only after 
reasonable advance notice of such transfer is pro-
vided by the plan administrator to the participant or 
beneficiary. The plan administrator shall also pro-
vide to the participant or beneficiary notice of any 
such transfer not later than 30 days after the date 
of the transfer. Notice mailed to the last known ad-
dress of the participant or beneficiary shall be treat-
ed as a notice to the participant or beneficiary for 
purposes of this paragraph. Any such notice shall in-
clude information regarding procedures for obtaining 
the distribution of benefits from the corporation in 
accordance with paragraph (4).
‘‘(6) PLANS DESCRIBED.—A plan is described 
in this paragraph if the plan is a pension plan (with-
in the meaning of section 3(2)—
‘‘(A)(i) which has neither terminated nor is 
in the process of terminating, or 
‘‘(ii) in the case of an unclaimed benefit to 
which section 401(a)(31)(B) of the Internal 
Revenue Code of 1986 applies (other than an 
unclaimed benefit of a missing participant), 
which has terminated or is in the process of ter-
minating, and 
‘‘(B) which is not a plan described in para-
graphs (2) through (11) of section 4021(b). 
‘‘(6) CERTAIN PROVISIONS NOT TO APPLY.—
Subsections (a)(1) and (a)(3) shall not apply to a 
plan described in paragraph (6).’’. 
(3) 
CONFORMING
AMENDMENT.—Section 
4021(b) of such Act (29 U.S.C. 1321(b)(1)) is 
amended by striking ‘‘This’’ and inserting ‘‘Except 
to the extent provided in subsections (d) and (e) of 
section 4050, this’’. 
(c) ESCHEAT LAWS SUPERSEDED.—Section 514(b) 
of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1144 (b) (as amended by this Act) is further 
amended—
(1) by redesignating paragraph (10) as para-
graph (11), and 
(2) by inserting after paragraph (9) the fol-
lowing new paragraph: 
‘‘(10) Any escheat or similar law of any State 
shall be superseded to the extent inconsistent with 
any transfer or other treatment of unclaimed bene-
fits (as defined in section 4050(b)(3)) permitted 
under the Internal Revenue Code of 1986.’’. 
(d) EFFECTIVE DATES AND RELATED RULES.—
(1) IN GENERAL.—The amendments made by 
subsections (a) and (b) shall apply to years begin-
ning after December 31, 2004. 
(2) REGULATIONS.—The Pension Benefit Guar-
anty Corporation shall issue regulations necessary to 
carry out the amendments made by subsection (b) 
not later than December 31, 2004. 
(3) 
ESCHEAT
LAWS
SUPERSEDED.—The 
amendment made by subsection (c) shall apply as of 
the date of enactment of this Act.
SEC. 203. 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 
because 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, or similar fluctuating criteria. The avail-
ability of a commutation benefit, a minimum period of 
payments certain, or a minimum amount to be paid in 
any event shall not affect the treatment of an annuity con-
tract as an annuity contract described in this subpara-
graph. 
‘‘(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. 204. EQUALIZING TREATMENT OF DEFINED BENEFIT 
PLANS AND DEFINED CONTRIBUTION PLANS. 
The Secretary of Treasury would be directed to per-
mit defined benefit plans to satisfy the required distribu-
tion rules of section 401(a)(9) of the Internal Revenue 
Code of 1986 (and provisions which cross reference section 
401(a)(9) of such Code) by satisfying Temporary Treas-
ury Regulation 1.401(a)(9)–6T Q&A 4(b) (the rules appli-
cable to annuity contracts distributed under defined con-
tribution plans) or by satisfying any final regulations to 
the extent that such final regulations permit additional 
means of satisfying section 401(a)(9) of such Code. 
SEC. 205. STUDY CONCERNING DEFINED CONTRIBUTION 
PLAN LOSSES DUE TO MARKET VOLATILITY. 
(a) IN GENERAL.—The Secretary of the Treasury 
shall conduct a study to evaluate possible ways to lessen
defined contribution plan losses due volatility of the eco-
nomic markets. 
(b) REQUIREMENTS.—In conducting the study, the 
Secretary shall investigate—
(1) the extent to which both long- and short-
term stock market volatility affects defined contribu-
tion savings, 
(2) the effect that this volatility has on the con-
tinuation and creation of defined contribution plans, 
(3) investment alternatives and lifetime dis-
tribution options for defined contribution plans that 
may help to ameliorate market risks, and 
(4) what legislative or administrative steps may 
be taken to lessen defined contribution plan losses in 
the future. 
(c) REPORT.—The Secretary shall transmit to the 
Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate, 
within 1 year after the date of enactment of this Act, a 
report containing the findings and conclusions of such 
study, together with recommendations for any legislation 
or administrative actions which the Secretary considers 
appropriate.
TITLE 
III—ENHANCING 
FAIR-
NESS AND PENSION PORT-
ABILITY 
SEC. 301. ALLOW TRANSFERS TO SPOUSE’S RETIREMENT 
PLANS. 
(a) IN GENERAL.—Paragraph (6) of section 408(d) 
(relating to transfers incident to divorce) is amended by—
(1) striking ‘‘his spouse or former spouse under 
a divorce or separation instrument described in sub-
paragraph (A) of section 71(b)(2)’’ and inserting 
‘‘his spouse (or his former spouse under a divorce or 
separation instrument described in subparagraph 
(A) of section 71(b)(2))’’, and 
(2) striking the heading and inserting ‘‘TRANS-
FER
OF
ACCOUNT
TO
SPOUSE
OR
FORMER 
SPOUSE.—’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after the date 
of the enactment of this Act. 
SEC. 302. 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. 303. 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 a distribution attributable to the em-
ployee, not as a distribution attributable to 
the designated beneficiary. 
‘‘(iii) CERTAIN TRUSTS TREATED AS 
BENEFICIARIES.—For purposes of this 
paragraph, to the extent provided in rules 
prescribed by the Secretary, a trust main-
tained for the benefit of one or more des-
ignated beneficiaries shall be treated in the 
same manner as a designated bene-
ficiary.’’. 
(2) SECTION 403(a) PLANS.—Subparagraph (B) 
of section 403(a)(4) (relating to rollover amounts) is 
further amended by striking ‘‘and (9)’’ and inserting 
‘‘, (9), and (11)’’.
(3) SECTION 403(b) PLANS.—Subparagraph (B) 
of section 403(b)(8) (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) (relating to rollover amounts) is 
amended by striking ‘‘and (9)’’ and inserting ‘‘, (9), 
and (11)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2003. 
SEC. 304. 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. 305. EXCLUSION OF PERCENTAGE OF LIFETIME ANNU-
ITY PAYMENTS. 
(a) IN GENERAL.—
(1) QUALIFIED PLANS.—Subsection (e) of sec-
tion 402 (relating 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 from a qualified trust 
(within the meaning of subsection (c)(8)(A)) to 
a qualified distributee, gross income shall not 
include the applicable percentage of the amount
otherwise includible in gross income (deter-
mined without regard to this paragraph). 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), applicable per-
centage shall be determined in accordance with 
the following table:
‘‘For taxable years beginning 
The applicable 
in calendar year—
percentage is—
2004, 2005, 2006, and 2007 .......................................
2008 and thereafter .....................................................
10.
‘‘(C) LIMITATION.—With respect to any 
qualified distributee, subparagraph (A) shall 
not apply to any lifetime annuity payment to 
the extent that such payments, when added to 
all previous payments under such annuity to 
such qualified distributee during the taxable 
year, exceed 50 percent of the applicable 
amount 
for 
such 
year 
under 
section 
415(c)(1)(A). For purposes of this subpara-
graph, all lifetime annuity payments received by 
a qualified distributee shall be taken into ac-
count to the extent that such payments are sub-
ject to this paragraph or to rules similar to the 
rules of this paragraph. 
‘‘(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) 
EXCEPTIONS.—Annuity 
payments shall not fail to be treated 
as part of a series of substantially 
equal periodic payments because the 
amount of the periodic payments may 
vary in accordance with investment 
experience, reallocations among in-
vestment options, actuarial gains or 
losses, cost of living indices, or similar 
fluctuating criteria. The availability of 
a commutation benefit, a minimum 
period of payments certain, or a min-
imum amount to be paid in any event 
shall not affect the treatment of a dis-
tribution as a lifetime annuity pay-
ment. In the case of lifetime annuity 
payments being made to a qualified 
trust, payments 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) the applicable percentage of 
a lifetime annuity payment is not in-
cludible in gross income by reason of 
subparagraph (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. 
‘‘(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) PHASE-OUT 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 shall not exceed the in-
come-adjusted limit. 
‘‘(ii) INCOME-ADJUSTED LIMIT.—For 
purposes of this subparagraph, the income-
adjusted limit shall be—
‘‘(I) the product of the applicable 
percentage described in subparagraph 
(B) and the limitation described in 
subparagraph (C), reduced (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, $150,000, 
‘‘(II) in the case of any other 
taxpayer (other than a married indi-
vidual 
filing 
a 
separate 
return), 
$75,000, 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.’’. 
(2) SECTION 403(a) PLANS.—Paragraph (4) of 
section 403(a) (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) 
(relating to purchased annuities) is amended by add-
ing 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) (relating 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) (relat-
ing 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, 2003. 
SEC. 306. 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. 
307. 
FAIR 
TREATMENT 
UNDER 
SUBSTANTIALLY 
EQUAL PERIODIC PAYMENTS RULE. 
(a) IN GENERAL.—Paragraph (4) of section 72(t) 
(relating to change in substantially equal payments) is 
amended by inserting at the end the following new sub-
paragraphs: 
‘‘(C) CHANGE
IN
PERMISSIBLE
METH-
ODS.—If—
‘‘(i) the taxpayer changes from one 
permissible method of determining sub-
stantially equal periodic payments to an-
other permissible method for purposes of 
such determination, and 
‘‘(ii) such change results in an initial 
reduction in the amount of payments re-
quired to be made, 
such change shall not be treated as a modifica-
tion under subparagraph (A)(ii). 
‘‘(D) 
ROLLOVERS
TO
SUBSEQUENT 
PLAN.—If—
‘‘(i) payments satisfying paragraph 
(2)(A)(iv) are being made from a qualified 
retirement plan, 
‘‘(ii) a transfer or a rollover from the 
qualified retirement plan is made to an-
other qualified retirement plan of all or a 
portion of the taxpayer’s benefit under the 
transferor plan, and 
‘‘(iii) distributions from the transferor 
and transferee plans would in combination 
continue to satisfy paragraph (2)(A)(iv) if 
made only from the transferor plan, 
such transfer or rollover shall not be treated as 
a modification under subparagraph (A)(ii) and 
compliance with paragraph (2)(A)(iv) shall be 
determined on the basis of the combined dis-
tributions described in clause (iii). 
‘‘(E) INTEREST RATE.—Any reasonable in-
terest rate may be used in determining whether 
payments are substantially equal under para-
graph (2)(A)(iv).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to any series of payments com-
mencing on or after the date of enactment of this Act.
SEC. 308. TREATMENT OF SUBSEQUENT QUALIFIED DOMES-
TIC RELATIONS ORDERS. 
(a) AMENDMENT TO ERISA.—Section 206(d)(3)(B) 
of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1056(d)(3)(B)) is amended by adding at the 
end of the following flush sentence: ‘‘A domestic relations 
order otherwise meeting the requirements to be treated as 
a qualified domestic relations order shall not fail to be so 
treated solely because it is issued after, or revises, another 
qualified domestic relations order, but only with respect 
to amounts payable after the date the order is determined 
to be qualified.’’. 
(b) AMENDMENT TO INTERNAL REVENUE CODE.—
Section 414(p)(1)(A) is amended by adding at the end the 
following flush sentence: ‘‘A domestic relations order oth-
erwise meeting the requirements to be treated as a quali-
fied domestic relations order shall not fail to be so treated 
solely because it is issued after, or revises, another quali-
fied domestic relations order, but only with respect to 
amounts payable after the date the order is determined 
to be qualified.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to transfers made after De-
cember 31, 2003.
(2) PRIOR TRANSFERS.—Transfers made prior 
to January 1, 2004 under qualified domestic rela-
tions orders that were issued after, or that revised, 
a prior qualified domestic relations order shall not 
be deemed invalid by reason of the amendments 
made by this section.
SEC. 309. TREATMENT OF DELAYED QUALIFIED DOMESTIC 
RELATIONS ORDERS. 
(a) AMENDMENT TO ERISA.—Section 206(d)(3)(B) 
of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1056(d)(3)) (as amended by this Act) is 
amended by adding at the end the following flush sen-
tence: ‘‘A domestic relations order otherwise meeting the 
requirements to be treated as a qualified domestic rela-
tions order shall not fail to be to be treated (subject to 
subparagraph (H)) solely because of the time at which it 
is issued.’’. 
(b) AMENDMENT TO INTERNAL REVENUE CODE.—
Section 414(p)(1)(A) (as amended by this Act) is amended 
by adding at the end the following flush sentence: ‘‘A do-
mestic relations order otherwise meeting the requirements 
to be treated as a qualified domestic relations order shall 
not fail to be so treated (subject to paragraph (7)) solely 
because of the time at which it is issued.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section apply to transfers made after December 
31, 2003.
(2) PRIOR ORDERS.—Transfers made prior to 
January 1, 2004 under qualified domestic relations 
orders that were issued subsequent to the events giv-
ing rise to such orders shall not be deemed invalid 
by reason of the amendments made by this section.
SEC. 310. TREATMENT OF ANNUITY CONTRACTS. 
(a) IN GENERAL.—Clause (i) of section 402(e)(4)(D) 
is amended by adding after ‘‘section 401(c)(1).’’ the fol-
lowing: ‘‘A distribution of an annuity contract from a trust 
or annuity plan referred to in the first sentence of this 
clause may be treated as a part of a lump sum distribu-
tion.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect as if included in section 
1401(b)(1) of the Small Business Job Protection Act of 
1996. 
SEC. 311. PRESERVATION OF PENSION PLANS. 
(a) Section 1612 of the Social Security Act is amend-
ed—
(1) in subsection (b)—
(A) in paragraph (21), by striking ‘‘; and’’ 
and inserting ‘‘;’’;
(B) by striking the period at the end of 
paragraph (22) and inserting ‘‘; and’’; 
(C) by adding at the end the following 
paragraph: 
‘‘(23) except as otherwise provided in this para-
graph, retirement benefits to which the individual is 
or may become entitled, including any balances cred-
ited to the individual’s account and any other ac-
crued benefits, under a qualifying retirement plan.’’; 
and 
(2) adding at the end the following new sub-
section: 
‘‘RULES RELATING TO QUALIFIED RETIREMENT PLANS 
‘‘(c)(1) For purposes of subsection (b)(23), a quali-
fying retirement plan is a qualified retirement plan as de-
fined in section 4974(c) of the Internal Revenue Code of 
1986, an eligible deferred compensation plan under section 
457(b) of such Code, or a trust as described in section 
501(c)(18) of such Code. 
‘‘(2) Subsection (b)(23) shall not require the Com-
missioner to exclude the aggregate value of qualifying re-
tirement plan balances of an individual to the extent they 
exceed $75,000. 
‘‘(3) Except as provided in paragraph (4), in the case 
of an individual who has attained the age specified in sec-
tion 72(t)(2)(A)(i) of the Internal Revenue Code of 1986,
subsection (b)(23) shall not require the Commissioner to 
exclude an amount up to the monthly annuity value of the 
current aggregate value of qualifying retirement plan bal-
ances of the individual as determined under a schedule 
issued by the Commissioner. 
‘‘(4) Upon determining that an applicant for or re-
cipient of benefits has attained the age specified in section 
72(t)(2)(A)(i) of the Internal Revenue Code of 1986 and 
is entitled to benefits under a qualifying retirement plan, 
the Commissioner shall—
‘‘(A) notify the applicant or recipient of the 
provisions of this subsection and of the importance 
of obtaining competent financial advice on the possi-
bility of converting the value of the plan into an an-
nuity; 
‘‘(B) continue to exclude the value of the quali-
fying retirement plan without regard to paragraph 
(3) for a period of one year following the provision 
of the notice specified in subparagraph (A). 
‘‘(C) after the period specified in subparagraph 
(B), not count as monthly income more than the 
monthly annuity value of any current balance of the 
qualifying retirement plan as determined under a 
schedule issued by the Commissioner.
‘‘(5) Nothing in subsection (b)(23) shall be construed 
to authorize or require any benefits to be reduced or de-
nied to any individual because of a qualifying retirement 
plan (including defined benefit retirement plans) whose 
consideration is excluded under any other provision of 
law.’’. 
(b) Section 1613 of the Social Security Act is amend-
ed—
(1) in subsection (a)—
(A) in paragraph (12), by striking ‘‘; and’’ 
and inserting ‘‘;’’; 
(B) by striking the period at the end of 
paragraph (13) and inserting ‘‘; and’’; and 
(C) by adding after paragraph (13) the fol-
lowing paragraph: 
‘‘(14) benefits to which the individual is or may 
become entitled, including any balances credited to 
the individual’s account and any other accrued bene-
fits, qualifying retirement plan.’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘RULES RELATING TO QUALIFIED RETIREMENT PLANS 
‘‘(f)(1) For purposes of subsection (a)(14) a quali-
fying retirement plan is a qualified retirement plan as de-
fined in section 4974(c) of the Internal Revenue Code of 
1986, an eligible deferred compensation plan under section
457(b) of such Code, or a trust as described in section 
501(c)(18) of such Code. 
‘‘(2) Subsection (a)(14) shall not require the Com-
missioner to exclude—
‘‘(A) funds that have been distributed from a 
qualifying retirement plan; or 
‘‘(B) the value of a qualifying retirement plan 
to the extent the aggregate value of qualifying re-
tirement plan balances of an individual exceed 
$75,000. 
‘‘(3) Nothing in subsection (a)(14) shall be construed 
to authorize or require any benefits to be reduced or de-
nied to any individual because of a qualifying retirement 
plan (including defined benefit retirement plans) whose 
consideration is excluded under any other provision of 
law.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply as of the date of enactment of this 
Act.
SEC. 312. CERTAIN PLAN TRANSERS AND MERGERS. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.—Section 414 (relating to definitions and special 
rules) (as amended by this Act) is amended by adding at 
the end the following new subsection: 
‘‘(z) 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) to an annuity contract described in sec-
tion 403(b), 
‘‘(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) to a defined con-
tribution plan described in section 401(a) or 
section 403(a), or 
‘‘(C) a merger of a defined contribution 
plan described in section 401(a) or section 
403(a) with an annuity contract described in 
section 403(b), 
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.—Except to the extent 
provided in paragraphs (3) and (4), amounts trans-
ferred or merged pursuant to paragraph (1) shall be 
distributed solely in accordance with the terms of 
the transferee 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 treated in the same manner as 
amounts in a plan to which section 401(a)(11) 
or section 205 of the Employee Retirement In-
come Security Act of 1974 applies to the extent 
that such sections applied to such amounts in 
the transferor 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 section 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 or the Employee Retirement Income Security 
Act of 1974 that is provided for prior benefits, prior 
periods of time, or certain individuals in connection 
with a change in the applicable law. 
‘‘(5) CONSENT.—In the case of an annuity con-
tract described in section 403(b) with respect to 
which transfers may be made only with the consent 
of a participant or beneficiary pursuant to the terms
of such contract or pursuant to applicable law, a 
transfer from such contract pursuant to paragraph 
(1) may be made only if such participant or bene-
ficiary consents to such transfer. For purposes of 
this paragraph, a merger of an annuity contract de-
scribed in section 403(b) with a plan described in 
section 401(a) or 403(a) shall be treated as a trans-
fer from the predecessor plan or contract to the 
merged plan or contract. 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.’’. 
(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(z) of the Internal Revenue Code of 
1986 to the extent necessary to comply with the require-
ments of such section. Transfers or mergers permitted 
under such section shall be treated as satisfying the re-
quirements of this title.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to years beginning after the 
Secretary of the Treasury prescribes rules under sec-
tion 414(z) of the Internal Revenue Code of 1986. 
(2) RULES.—The Secretary of the Treasury 
shall issue rules under section 414(z) of the Internal 
Code of 1986 within 1 year after the date of enact-
ment of this Act.
TITLE IV—INCREASING RETIRE-
MENT PLAN PARTICIPATION 
AND SAVINGS 
SEC. 401. EXPANSION OF THE SAVER’S CREDIT. 
(a) IN GENERAL.—The table contained in subsection 
(b) of section 25B (relating to applicable percentage) is 
amended to read as follows:
‘‘Adjusted Gross Income 
Applicable per-
centage 
Joint return 
Head of a household 
All other cases 
Over 
Not over 
Over 
Not over 
Over 
Not over 
$30,000
$22,500
$15,000
30,000
40,000
22,500
30,000
15,000
20,000
40,000
50,000
30,000
37,500
20,000
25,000
50,000
60,000
37,500
45,000
25,000
30,000
60,000
45,000
30,000
0’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 402. ACCELERATION OF SCHEDULED INCREASES IN 
PENSION PLAN CONTRIBUTION LIMITS. 
(a) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Section 402(g)(1) (relating 
to general rule for limitation on exclusion for elective 
deferrals) is amended—
(A) in subparagraph (A) by striking ‘‘the 
applicable 
dollar 
amount’’ 
and 
inserting 
‘‘$15,000’’, 
(B) by striking subparagraph (B) and re-
designating subparagraph (C) as subparagraph 
(B). 
(2) CONFORMING AMENDMENTS.—
(A) Section 402(g)(1)(B) (as redesignated 
by paragraph (1)) is amended by striking ‘‘ap-
plicable dollar amount under subparagraph 
(B)’’ and inserting ‘‘amount in effect under 
subparagraph (A)’’. 
(B) Section 402(g)(4) is amended—
(i) by striking ‘‘2006’’ and inserting 
‘‘2004’’, 
(ii) by striking ‘‘paragraph (1)(B)’’ 
and inserting ‘‘paragraph (1)(A)’’, and 
(iii) by striking ‘‘2005’’ and inserting 
‘‘2003’’. 
(b) DEFERRED COMPENSATION PLANS OF STATE 
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—
(1) IN GENERAL.—Subsection (b)(2)(A) of sec-
tion 457 (defining eligible deferred compensation 
plan) is amended by striking ‘‘the applicable dollar 
amount’’ and inserting ‘‘$15,000’’. 
(2) 
CONFORMING
AMENDMENT.—Paragraph 
(15) of section 457(e) is amended to read as follows: 
‘‘(15) COST-OF-LIVING ADJUSTMENTS.—In the 
case of taxable years beginning after December 31, 
2003, the Secretary shall adjust the $15,000 
amount in subsection (b)(2)(A) at the same time 
and in the same manner as under section 415(d), 
except that the base period shall be the calendar 
quarter beginning July 1, 2002, and any increase 
under this paragraph which is not a multiple of 
$500 shall be rounded to the next lowest multiple of 
$500.’’. 
(c) SIMPLE RETIREMENT ACCOUNTS.—
(1) IN
GENERAL.—Clause (ii) of section 
408(p)(2)(A) (relating to general rule for qualified 
salary reduction arrangement) is amended by strik-
ing ‘‘the applicable dollar amount’’ and inserting 
‘‘$10,000’’. 
(2) CONFORMING AMENDMENT.—Subparagraph 
(E) of section 408(p)(2) is amended to read as fol-
lows:
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
SEC. 403. REMOVING BARRIERS TO AUTOMATIC CONTRIBU-
TION TRUST ARRANGEMENTS. 
(a) IN GENERAL.—
(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 paragraph: 
‘‘(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 trust arrangement. 
‘‘(B) For purposes this paragraph, the term ‘auto-
matic contribution trust arrangement’ means an arrange-
ment—
‘‘(i) which meets the requirements of subpara-
graph (C), 
‘‘(ii) under which a participant may elect to 
have the employer make payments as contributions
to a trust under the plan on behalf of the partici-
pant, 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 specifically elects not to have such 
contributions made (or specifically 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. 
‘‘(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 trust arrangement applies for such plan year no-
tice 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 em-
ployee.’’. 
(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) Any law of a State which would directly or indi-
rectly prohibit or restrict the inclusion in any plan of an
automatic contribution trust 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.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to plan years beginning after 
December 31, 2003. 
(2) 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 1 year after the date 
of enactment of this Act.
SEC. 404. 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) CONTRIBUTIONS 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.
SEC. 405. UPDATING DEDUCTION RULES FOR COMBINA-
TION OF PLANS. 
(a) IN GENERAL.—Subparagraph (C) of section 
404(a)(7) (relating to limitation on deductions where com-
bination of defined contribution plan and defined benefit
plan) is amended by adding after clause (ii) the following 
new clause: 
‘‘(iii) In the case of employer con-
tributions to 1 or more defined contribu-
tion plans, this paragraph shall only apply 
to the extent that such contributions (other 
than elective deferrals (as defined in sec-
tion 402(g)(3)) exceed 6 percent of the 
compensation otherwise paid or accrued 
during the taxable year to the beneficiaries 
under such plans. For purposes of this 
clause, amounts carried over from pre-
ceding taxable years under subparagraph 
(B) shall be treated as employer contribu-
tions to 1 or more defined contributions to 
the extent attributable to employer con-
tributions to such plans in such preceding 
taxable years.’’. 
(b) CONFORMING AMENDMENTS.—Subparagraph (A) 
of section 4972(c)(6) (relating to nondeductible contribu-
tions) is amended to read as follows: 
‘‘(A) so much of the contributions to 1 or 
more defined contribution plans which are not 
deductible when contributed solely because of
section 404(a)(7) as does not exceed the sum 
of—
‘‘(i) the amount of contributions de-
scribed in section 401(m)(4)(A), plus 
‘‘(ii) the amount of contributions de-
scribed in section 402(g)(3)(A), or’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
TITLE V—EXPANDING RETIRE-
MENT PLAN COVERAGE TO 
EMPLOYEES OF SMALL BUSI-
NESSES 
SEC. 501. ADDITIONAL NONELECTIVE EMPLOYER CON-
TRIBUTIONS TO SIMPLE PLANS. 
(a) IN GENERAL.—
(1) MODIFICATION TO DEFINITION.—Subpara-
graph (A) of section 408(p)(2) (defining qualified 
salary reduction arrangement) is amended by strik-
ing ‘‘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) (defining qualified salary reduction arrange-
ment) 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), as redesignated by 
subsection (a), is amended by striking ‘‘or (iii)’’ and 
inserting ‘‘, (iii), or (iv)’’. 
(2) Paragraph (8) of section 408(p) is amended 
by inserting ‘‘, the employer contribution actually 
made under paragraph (2)(A)(iv) of this sub-
section,’’ after ‘‘paragraph (2)(A)(ii) of this sub-
section’’. 
(3) Section 401(k)(11)(B)(i) is amended by 
striking ‘‘and’’ at the end of subclause (II), by re-
designating subclause (III) as subclause (IV), and 
by inserting after subclause (II) the following 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), as redesig-
nated 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, 2003. 
SEC. 502. MATCHING CONTRIBUTION RULES FOR SIMPLE 
IRAS AND SIMPLE 401(k)S CONFORMED. 
(a) 
IN
GENERAL.—Subclause 
(II) 
of 
section 
401(k)(11)(B)(i) (relating to general rule for contribution 
requirements) is amended by striking ‘‘3 percent’’ and in-
serting ‘‘the applicable 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, 2003.
SEC. 503. SALARY-REDUCTION ONLY SIMPLE PLANS. 
(a) SIMPLE RETIREMENT ACCOUNTS.—
(1) IN
GENERAL.—Paragraph (2) of section 
408(p) (defining qualified salary reduction arrange-
ment) is amended—
(A) by redesignating subparagraphs (C), 
(D), and (E) as subparagraphs (D), (E), and 
(F), respectively; and 
(B) by inserting after subparagraph (B) 
the following: 
‘‘(C) EMPLOYER MAY ELECT SALARY RE-
DUCTION ONLY ARRANGEMENT.—
‘‘(i) IN GENERAL.—An employer shall 
be treated as meeting the requirements of 
subparagraph (A)(iii) for any year if, in 
lieu of the contributions described in such 
subparagraph, the employer elects to limit 
the amount which an employee may elect 
under subparagraph (A)(i) to a total of 
$5,000 for the year. If an employer makes 
an election under this subparagraph for 
any year, the employer shall notify employ-
ees of such election within a reasonable pe-
riod of time before the 60-day period for 
such year under paragraph (5)(C).
‘‘(ii) 
EXCEPTION.—This 
subpara-
graph shall not apply to an employer if 
such employer (or any predecessor em-
ployer) maintained another qualified plan 
(as defined in subparagraph (E)(ii)) with 
respect to which contributions were made, 
or benefits were accrued, for service during 
the year in which the arrangement de-
scribed in clause (i) became effective or ei-
ther of the 2 preceding years. If only indi-
viduals other than employees described in 
subparagraph (A) of section 410(b)(3) are 
eligible to participate in the arrangement 
described in clause (i), the preceding sen-
tence shall be applied without regard to 
any qualified plan in which only employees 
so described are eligible to participate.’’. 
(2) SPECIAL RULE FOR ACQUISITIONS, DISPOSI-
TIONS, 
AND
SIMILAR
TRANSACTIONS.—Subpara-
graph (B) of section 408(p)(10) (relating to special 
rules for acquisitions, dispositions, and similar 
transactions) is amended by striking ‘‘and’’ at the 
end of clause (ii), by striking the period at the end 
of clause (iii) and inserting ‘‘; and’’, and by inserting 
after clause (iii) the following:
‘‘(iv) the requirement under para-
graph (2)(C) that the employer not have 
maintained another qualified plan de-
scribed therein.’’. 
(3) COST-OF-LIVING
ADJUSTMENT.—Subpara-
graph (F) of section 408(p)(2) (as so redesignated) 
is amended by striking ‘‘In’’ and inserting ‘‘(i) In’’ 
and by adding after clause (i) the following new 
clause: 
‘‘(ii) In the case of a year beginning 
after December 31, 2004, the Secretary 
shall adjust the $5,000 amount in sub-
paragraph (C)(i) at the same time and in 
the same manner as under section 415(d), 
except that the base period taken into ac-
count shall be the calendar quarter begin-
ning July 1, 2003, and any increase under 
this subparagraph which is not a multiple 
of $500 shall be rounded to the next lower 
multiple of $500.’’. 
(4) COORDINATION
WITH
MAXIMUM
LIMITA-
TION.—Paragraph (8) of section 408(p) (relating to 
coordination with maximum limitation under sub-
section (a)) is amended by striking ‘‘paragraph 
(2)(A)(ii) of this subsection’’ and inserting ‘‘sub-
paragraph (A)(ii) or (C) of paragraph (2) of this 
subsection, whichever is applicable,’’. 
(5) CONFORMING AMENDMENT.—Clause (ii) of 
section 408(p)(10)(B) is amended by striking ‘‘para-
graph (2)(D)’’ and inserting ‘‘paragraph (2)(E)’’.
(b) ADOPTION OF SIMPLE PLAN TO MEET NON-
DISCRIMINATION TESTS.—Subparagraph (B) of section 
401(k)(11) (relating to contribution requirements) is 
amended by redesignating clause (iii) as clause (iv) and 
by inserting after clause (ii) the following new clause: 
‘‘(iii) EMPLOYER MAY ELECT SALARY 
REDUCTION ONLY ARRANGEMENT.—
‘‘(I) IN GENERAL.—An employer 
shall be treated as meeting the re-
quirements of clause (i)(II) for any 
year if, in lieu of the contributions de-
scribed in such clause, the employer 
elects to limit the amount which an 
employee may elect under clause (i) to 
the amount in effect under section 
408(p)(2)(C)(i) for the year. If an 
employer makes an election under this 
clause for any year, the employer shall 
notify employees of such election with-
in a reasonable period of time before
the 60-day period for such year under 
clause (iv)(II). 
‘‘(II) EXCEPTION.—This clause 
shall not apply to an employer if such 
employer (or any predecessor em-
ployer) maintained another qualified 
plan 
(as 
defined 
in 
section 
408(p)(2)(E)(ii)) 
with 
respect 
to 
which contributions were made, or 
benefits were accrued, for service dur-
ing the year in which the arrangement 
described in subclause (I) became ef-
fective or either of the 2 preceding 
years. This subclause shall not apply 
if such contributions or benefits were 
solely on behalf of employees who are 
not eligible to participate in the ar-
rangement described in subclause 
(I).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2004.
SEC. 504. PERMIT A MID-YEAR CHANGE FROM A SIMPLE 
PLAN TO ANOTHER PLAN. 
(a) IN GENERAL.—Clause (i) of section 408(p)(2)(E) 
(relating to arrangement may be only plan of employer) 
is amended by striking ‘‘An arrangement’’ and inserting 
‘‘Except as provided in regulations prescribed by the Sec-
retary, an arrangement’’. 
(b) 
CONFORMING
AMENDMENT.—Section 
401(k)(11)(C) is amended by inserting ‘‘, except as pro-
vided in regulations prescribed by the Secretary,’’ after 
‘‘if’’. 
(c) REGULATIONS.—Not later than December 31, 
2004, the Secretary shall issue final regulations under 
which an employer can cease to maintain a qualified salary 
reduction arrangement in a year and begin maintaining 
a qualified plan (within the meaning of section 
408(p)(2)(E)(ii) of the Internal Revenue Code of 1986). 
Such regulations shall provide safeguards to ensure that 
changing from such an arrangement to such a plan during 
a year is not used to circumvent otherwise applicable lim-
its or rules. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2004.
SEC. 505. 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 strik-
ing ‘‘applies’’ and inserting ‘‘applied on the day be-
fore the date of the enactment of the Pension Pres-
ervation and Savings Expansion 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. 506. SIMPLE PLAN PORTABILITY. 
(a) REPEAL OF LIMITATION.—Paragraph (3) of sec-
tion 408(d) (relating to rollover contributions), as amend-
ed by this Act, is amended by striking subparagraph (G)
and redesignating subparagraph (H) as subparagraph 
(G). 
(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. 507. CORRECTION OF SIMPLIFIED EMPLOYEE PEN-
SION COMPENSATION INCONSISTENCY. 
(a) IN GENERAL.—Subparagraph (A) of section 
402(h)(2) (relating to limitations on employer contribu-
tions) is amended by striking ‘‘414(s)) from such employer 
includible in the employee’s gross income’’ and inserting 
‘‘415(c)(3)) from such employer’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 508. EQUALIZATION OF TAX TREATMENT OF RETIRE-
MENT PLAN CONTRIBUTIONS OF THE SELF-
EMPLOYED. 
(a) IN GENERAL.—Subsection (b) of section 1402 
(defining self-employment income) is amended by striking 
‘‘or’’ at the end of paragraph (1), by striking the period 
at the end of paragraph (2) and inserting ‘‘; or’’, and by 
inserting after paragraph (2) the following: 
‘‘(3) any payment made to, or on behalf of, an 
individual—
‘‘(A) from or to a trust described in sec-
tion 401(a) which is exempt from tax under 
section 501(a) at the time of such payment un-
less—
‘‘(i) such payment is made to the indi-
vidual by the trust as remuneration for 
services rendered and not as a beneficiary 
of the trust, or 
‘‘(ii) such payment is treated as an 
employer contribution under a qualified 
cash or deferred arrangement (as defined 
in section 401(k)) to the extent not in-
cluded in gross income by reason of section 
402(e)(3), 
‘‘(B) under or to an annuity plan which, at 
the time of such payment, is a plan described
in section 403(a), other than any elective defer-
rals (within the meaning of section 402(g)(3)), 
‘‘(C) under a simplified employee pension 
(as defined in section 408(k)(1)), other than 
any contributions described in section 408(k)(6) 
or 408(k)(7), 
‘‘(D) under or to an annuity contract de-
scribed in section 403(b), other than a payment 
for the purchase of such contract which is made 
by reason of a salary reduction agreement 
(whether evidenced by a written instrument or 
otherwise), or 
‘‘(E) under an arrangement to which sec-
tion 408(p) applies, other than any elective con-
tributions under paragraph (2)(A)(i) thereof.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
TITLE VI—STRENGTHENING IN-
DIVIDUAL RETIREMENT AR-
RANGEMENTS 
SEC. 601. ACCELERATION OF INCREASES IN IRA CONTRIBU-
TION LIMITS. 
(a) DEDUCTIBLE AMOUNT.—The table in subpara-
graph (A) of section 219(b)(5) (relating to general rule 
for deductible amount) is amended to read as follows:
‘‘For taxable years 
The deductible 
beginning in: 
amount is:
2002 through 2003 ......................................................
$3,000
2004 and thereafter .....................................................
$5,000.’’.
(b) CATCH-UP CONTRIBUTIONS.—The table in clause 
(ii) of section 219(b)(5)(B) (relating to applicable 
amount) is amended to read as follows:
‘‘For taxable years 
The applicable 
beginning in: 
amount is:
2002 through 2003 ......................................................
$500
2004 and thereafter .....................................................
$1,000.’’.
(c) 
CONFORMING
AMENDMENTS.—Section 
219(b)(5)(C) is amended—
(1) by striking ‘‘2007’’ and inserting ‘‘2003’’, 
and 
(2) by striking ‘‘2008’’ and inserting ‘‘2004’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 602. ACCELERATION AND EXPANSION OF CERTAIN 
SCHEDULED INCREASES IN ELIGIBILITY FOR 
IRAS AND ELIMINATION OF IRA MARRIAGE 
PENALTY. 
(a) INCREASE IN LIMITATION ON DEDUCTION FOR 
ACTIVE PARTICIPANTS IN CERTAIN PENSION PLANS.—
The table in clause (i) of section 219(g)(3)(B) (defining 
applicable dollar amount for taxpayers filing joint returns) 
is amended to read as follows:
The applicable 
‘‘For taxable years beginning in: 
dollar amount is: 
2003 .........................................................................................
$60,000
2004 .........................................................................................
$70,000
2005 .........................................................................................
$75,000
2006 .........................................................................................
$80,000
2007 .........................................................................................
$85,000
2008 .........................................................................................
$90,000
2009 .........................................................................................
$95,000
2010 and thereafter .................................................................
$100,000.’’.
(b) ROTH IRA INCREASE IN APPLICABLE DOLLAR 
AMOUNT FOR TAXPAYERS FILING JOINT RETURNS.—
(1) IN
GENERAL.—Subclause (I) of section 
408A(c)(3)(C)(ii) 
(defining 
applicable 
dollar 
amount) is amended by striking ‘‘$150,000’’ and in-
serting ‘‘$190,000’’. 
(2) PHASE-OUT RANGE.—Clause (ii) of section 
408A(c)(3)(A) is amended to read as follows: 
‘‘(ii) $15,000 ($30,000 in the case of 
a joint return). 
(c) ELIMINATION OF MARRIAGE PENALTY ON IRA 
DEDUCTION
FOR
ACTIVE
PENSION
PLAN
PARTICI-
PANTS.—Section 219(g) (relating to limitation on deduc-
tion for active participants in certain pension plans) is 
amended—
(1) by striking ‘‘or the individual’s spouse’’ in 
paragraph (1), and 
(2) by striking paragraph (7). 
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS
(A)
AND
(B).—The amend-
ments made by subsection (a) shall apply to taxable 
years beginning after December 31, 2003. 
(2) SUBSECTION (C).—The amendments made 
by subsection (c) shall apply to taxable years begin-
ning after December 31, 2006. 
SEC. 603. IRA ELIGIBILITY FOR THE DISABLED. 
(a) IN GENERAL.—Subsection (f) of section 219 (re-
lating to other definitions 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 age 701⁄2 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, 2003. 
SEC. 604. PROTECTING IRA ASSETS. 
The Secretary of the Treasury shall, no later than 
December 31, 2004, establish a correction procedure that 
specifically allows an individual to rescind one or more dis-
tributions from an individual retirement plan (as defined 
in section 7701(a)(37) of the Internal Revenue Code of 
1986) (whether or not in the same taxable year) to correct 
errors that result from the individual’s misunderstanding 
of applicable rules or an error of the trustee, custodian, 
or issuer of the individual retirement plan in processing 
a transaction in the form of a distribution rather than a 
transfer, rollover, or similar transaction. Such procedure 
shall provide for rescission of distributions without a filing 
with the Secretary in the case of errors that are corrected 
within a reasonable time as defined by the Secretary and 
may provide for other self-correction safe harbors. Such 
procedure shall also include appropriate conditions on the 
correction procedure to prevent abuse.
TITLE VII—REVITALIZING 
DEFINED BENEFIT PLANS 
SEC. 701. MULTIPLE EMPLOYER PLANS PERMITTED TO 
ELECT SEPARATE OR AGGREGATE TREAT-
MENT FOR PURPOSES OF APPLYING THE 
FUNDING RULES AND DEDUCTION LIMITA-
TIONS. 
(a) IN GENERAL.—Paragraph (4) of section 413(c) 
(relating to funding) is amended—
(1) in subparagraph (A) by striking ‘‘In the 
case of’’ and inserting ‘‘Except as provided in sub-
paragraph (C), in the case of’’, and 
(2) in subparagraph (B)—
(A) by striking ‘‘In the case of’’ and in-
serting ‘‘Except as provided in subparagraph 
(C), in the case of’’, 
(B) by striking ‘‘unless’’ and all that fol-
lows and inserting a period, and 
(C) by inserting after subparagraph (B) 
the following: 
‘‘(C) ELECTION TO BE TREATED AS SEPA-
RATE OR AGGREGATE PLAN.—The plan admin-
istrator may elect with respect to a plan—
‘‘(i) to have subparagraph (A) apply 
to the plan, or
‘‘(ii) to have the requirements of sec-
tion 412 be determined as if all partici-
pants in the plan were employed by a sin-
gle employer. 
An election under the preceding sentence shall 
take effect for the plan year in which made 
and, once made, may be revoked only with the 
consent of the Secretary.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 413(c) is amend-
ed—
(A) by striking ‘‘In the case of’’ and in-
serting ‘‘Except provided in subparagraph (C), 
in the case of’’, and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(C) ELECTION.—If with respect to a 
plan—
‘‘(i) paragraph (4)(A) applies, sub-
paragraph (A) of this paragraph shall 
apply, and 
‘‘(ii) paragraph (4)(B) applies, sub-
paragraph (B) of this paragraph shall 
apply.
(2) Section 413(c)(6)(B)(i) is amended by strik-
ing ‘‘except’’ and all that follows and inserting ‘‘ex-
cept as provided in subparagraph (C).’’. 
(3) Section 210(a)(3) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 
1060(a)(3)) is amended by striking ‘‘The’’ and in-
serting ‘‘Except as provided in section 413(c)(4) of 
the Internal Revenue Code of 1986, the’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
SEC. 702. TREATMENT OF EMPLOYEE CONTRIBUTIONS TO 
CONTRIBUTORY DEFINED BENEFIT PLANS. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.—Subsection (e) of section 402 (relating to other 
rules applicable to exempt trusts) is amended by adding 
at the end the following new paragraph: 
‘‘(7) 
CONTRIBUTORY
DEFINED
BENEFIT 
PLANS.—For purposes of sections 72 and 451, an 
amount shall not be treated as received by an em-
ployee if such amount is—
‘‘(A) contributed—
‘‘(i) to an employee’s trust described 
in section 401(a) which is maintained in 
connection with a defined benefit plan, or
‘‘(ii) under a defined benefit plan de-
scribed in section 403(a), and 
‘‘(B) such contributions would be described 
in section 414(h)(2) if the plan were established 
by an entity described therein. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in years be-
ginning after December 31, 2003. 
SEC. 703. REFORM OF THE MINIMUM PARTICIPATION RULE. 
(a) IN GENERAL.—Subparagraph (A) of section 
401(a)(26) (relating to additional participation require-
ments) is amended by striking ‘‘In the case of’’ and insert-
ing ‘‘‘To the extent provided in regulations prescribed by 
the Secretary, in the case of’’. 
(b) REGULATIONS.—Not later than December 31, 
2003, the Secretary of the Treasury shall issue final regu-
lations under which the application of section 401(a)(26) 
of the Internal Revenue Code of 1986 is restricted to—
(1) 
arrangements 
described 
in 
section 
1.401(a)(26)-2(d)(1)(iii) of the Treasury Regula-
tions (as in effect on the date of the enactment of 
this Act), and 
(2) other arrangements that use multiple de-
fined benefit plans in a manner inconsistent with the
purposes of the nondiscrimination rules or with the 
intended nature of a defined benefit plan. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date of enactment 
of this Act. 
SEC. 704. PLAN VALUATION DATA COLLECTION. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.—
(1) PLAN’S LIABILITY.—
(A) IN GENERAL.—Subparagraph (B) of 
section 412(c)(9) (relating to annual valuation) 
is amended by adding at the end the following: 
‘‘(v) VALUATION OF PLAN’S LIABIL-
ITY.—Valuation of the plan’s liability for 
purposes of this paragraph may be based 
on data determined as of a date within the 
plan year to which the valuation refers or 
as of a date within the plan year prior to 
the year to which the valuation refers.’’. 
(B) 
CONFORMING
AMENDMENT.—The 
heading for section 412(c)(9)(B) is amended by 
striking ‘‘VALUATION
DATE’’ and inserting 
‘‘VALUATION
OF
EXPERIENCE
GAINS
AND 
LOSSES’’.
(2) PLAN’S ASSETS.—Subparagraph (B) of sec-
tion 412(c)(9) (relating to annual valuation) is 
amended by adding at the end the following: 
‘‘(vi) VALUATION
OF
PLAN’S
AS-
SETS.—The valuation of a plan’s assets 
may be made as of a date later than the 
date as of which the plan’s liabilities are 
valued if—
‘‘(I) the asset valuation date is 
not later than the end of the plan 
year to which the valuation refers, 
and 
‘‘(II) the value of such assets is 
adjusted back to the date as of which 
the plan’s liabilities are valued based 
on the interest rate in subsection 
(b)(5)(A) or (b)(5)(B), as applicable, 
and adjusting for cash flows that are 
not taken into account in the interest 
assumption and that occur between 
the date that the liabilities are valued 
and the date that the assets are val-
ued.’’. 
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—
(1) PLAN’S LIABILITY.—Subparagraph (B) of 
section 302(c)(9) of the Employee Retirement In-
come 
Security 
Act 
of 
1974 
(29 
U.S.C. 
1082(c)(9)(B)) is amended by adding at the end the 
following: 
‘‘(iv) Valuation of the plan’s liability for purposes of 
this paragraph may be based on data determined as of 
a date within the plan year to which the valuation refers 
or as of a date within the plan year prior to the year to 
which the valuation refers.’’. 
(2) PLAN’S ASSETS.—Subparagraph (B) of sec-
tion 302(c)(9) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1082(c)(9)(B)) is 
amended by adding at the end the following: 
‘‘(v) The valuation of a plan’s assets may be made 
as of a date later than the date as of which the plan’s 
liabilities are valued if—
‘‘(I) the asset valuation date is not later than 
the end of the plan year to which the valuation re-
fers, and 
‘‘(II) the value of such assets is adjusted back 
to the date as of which the plan’s liabilities are val-
ued based on the interest rate in subsection 
(b)(5)(A) or (b)(5)(B), as applicable, and adjusting 
for cash flows that are not taken into account in the
interest assumption and that occur between the date 
that the liabilities are valued and the date that the 
assets are valued.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
sections (a)(2) and (b)(2) shall apply to years begin-
ning after December 31, 2002. 
(2) SPECIAL RULE.—The amendments made by 
subsections (a)(1) and (b)(1) shall take effect as if 
included in section 661(a) of the Economic Growth 
and Tax Relief Reconciliation Act of 2001. 
SEC. 705. REPLACEMENT OF INTEREST RATE ON 30-YEAR 
TREASURY 
SECURITIES 
WITH 
INTEREST 
RATE ON CONSERVATIVELY-INVESTED LONG-
TERM CORPORATE BONDS. 
(a) INTERNAL REVENUE CODE OF 1986.—
(1) IN
GENERAL.—Subclause (I) of section 
412(b)(5)(B)(ii) and subclause (II) of section 
417(e)(3)(A)(ii) are each amended by striking ‘‘30-
year Treasury securities’’ and inserting ‘‘amounts 
conservatively 
invested 
in 
long-term 
corporate 
bonds’’. 
(2) REGULATIONS.—
(A) 
Subclause 
(I) 
of 
section 
412(b)(5)(B)(ii) is amended by adding at the
end the following: ‘‘The Secretary shall, by reg-
ulation, prescribe a method for determining the 
rate of interest on amounts conservatively in-
vested in long-term corporate bonds, based on 
one or more indices, as determined from time to 
time by the Secretary.’’. 
(B) 
Subclause 
(II) 
of 
section 
417(e)(3)(A)(ii) is amended by adding at the 
end the following: ‘‘The Secretary shall, by reg-
ulations, prescribe a method for determining 
this interest rate based on one or more indices, 
as determined from time to time by the Sec-
retary.’’. 
(3) CONFORMING AMENDMENTS.—
(A) Section 412(b)(5)(B)(iii)(II) is amend-
ed to read as follows: 
‘‘(II) consistent with the rate of 
return with respect to amounts con-
servatively invested in long-term cor-
porate bonds.’’. 
(B) Section 415(b)(2)(E)(ii) is amended by 
striking ‘‘the applicable interest rate (as defined 
in section 417(e)(3))’’ and inserting ‘‘5.5 per-
cent’’.
(4) PHASEIN
OF
INTEREST
RATE
ON
LONG-
TERM CORPORATE BONDS.—Section 417(e)(3)(A)(ii) 
is amended by adding at the end the following: 
‘‘(III) PHASEIN
OF
INTEREST 
RATE
ON
LONG-TERM
CORPORATE 
BONDS.—In the case of a plan year 
specified in the table in subclause 
(IV), the interest rate for purposes of 
subclause (II) shall be the lower of 
(aa) the rate specified in subclause 
(II) (without regard to this sub-
clause), or (bb) the 30-year Treasury 
securities rate plus the applicable per-
centage of the excess of the rate speci-
fied in subclause (II) (without regard 
to this subclause) over the 30-year 
Treasury securities rate. 
‘‘(IV) 
APPLICABLE
PERCENT-
AGE.—For 
purposes 
of 
subclause 
(III), the applicable percentage shall 
be determined in accordance with the 
following table:
‘‘Plan year beginning in calendar year: 
Applicable 
percentage: 
2006 .............................................................................
2007 .............................................................................
2008 .............................................................................
2009 .............................................................................
80.
‘‘(V) SPECIAL
RULE
FOR
COL-
LECTIVELY
BARGAINED
PLANS.—In 
the case of a plan maintained pursu-
ant to one or more collective bar-
gaining agreements between employee 
representatives and one or more em-
ployers ratified by the date of the en-
actment of this subclause, in lieu of 
the 4 calendar years specified in sub-
clause (IV), the years corresponding 
to the applicable percentages in sub-
clause (IV) shall be the first 4 years 
in which subclause (III) applies to 
employees covered by any such agree-
ment. This subclause shall only apply 
to such employees.’’. 
(b) EMPLOYEE RETIREMENT INCOME SECURITY ACT 
OF 1974.—
(1) IN
GENERAL.—Subclause (II) of section 
205(g)(3)(A)(ii), 
subclause 
(I) 
of 
section 
302(b)(5)(B)(ii), and subclause (II) of section 
4006(a)(3)(E)(iii) of the Employee Retirement In-
come Security Act of 1974 are each amended by 
striking ‘‘30-year Treasury securities’’ and inserting
‘‘amounts conservatively invested in long-term cor-
porate bonds’’. 
(2) REGULATIONS.—
(A) 
Subclause 
(II) 
of 
section 
205(g)(3)(A)(ii) of the Employee Retirement 
Income Security Act of 1974 is amended by 
adding at the end the following: ‘‘The Secretary 
of the Treasury shall, by regulation, prescribe a 
method for determining this interest rate based 
on one or more indices, as determined from 
time to time by the Secretary of the Treasury.’’. 
(B) 
Subclause 
(I) 
of 
section 
302(b)(5)(B)(ii) of the Employee Retirement 
Income Act of 1974 is amended by adding at 
the end the following: ‘‘The Secretary of the 
Treasury shall, by regulation, prescribe a meth-
od for determining the rate of interest on 
amounts conservatively invested in long-term 
corporate bonds, based on one or more indices, 
as determined from time to time by the Sec-
retary of the Treasury.’’. 
(C) 
Subclause 
(II) 
of 
section 
4006(a)(3)(E)(iii) of the Employee Retirement 
Income Security Act of 1974 is amended by 
adding at the end the following: ‘‘The Secretary
100
of the Treasury shall, by regulation, prescribe a 
method for determining such annual yield based 
on one or more indices, as determined from 
time by the Secretary of the Treasury.’’. 
(3) 
CONFORMING
AMENDMENT.—Section 
302(b)(5)(B)(iii)(II) of such Act is amended to read 
as follows: 
‘‘(II) consistent with the rate of 
return with respect to amounts con-
servatively invested in long-term cor-
porate bonds.’’. 
(4) PHASEIN
OF
INTEREST
RATE
ON
LONG-
TERM CORPORATE BONDS.—Section 205(g)(3)(A)(ii) 
is amended by adding at the end the following: 
‘‘(III) In the case of a plan year specified 
in the table in subclause (IV), the interest rate 
for purposes of subclause (II) shall be the lower 
of (aa) the rate specified in subclause (II) 
(without regard to this subclause), or (bb) the 
30-year Treasury securities rate plus the appli-
cable percentage of the excess of the rate speci-
fied in subclause (II) (without regard to this 
subclause) over the 30-year Treasury securities 
rate.
101
‘‘(IV) For purposes of subclause (III), the 
applicable percentage shall be determined in ac-
cordance with the following table:
‘‘Plan year beginning in calendar year: 
Applicable 
percentage: 
2006 .............................................................................
2007 .............................................................................
2008 .............................................................................
2009 .............................................................................
80.
‘‘(V) SPECIAL
RULE
FOR
COLLECTIVELY 
BARGAINED
PLANS.—In the case of a plan 
maintained pursuant to one or more collective 
bargaining agreements between employee rep-
resentatives and one or more employers ratified 
by the date of the enactment of this subclause, 
in lieu of the 4 calendar years specified in sub-
clause (IV), the years corresponding to the ap-
plicable percentages in subclause (IV) shall be 
the first 4 years in which subclause (III) ap-
plies to employees covered by any such agree-
ment. This subclause shall only apply to such 
employees.’’. 
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graphs (2), (3), (4), and (5), the amendments made 
by this section shall apply to years beginning after 
December 31, 2003.
102
(2) SURVIVOR ANNUITIES.—Except as provided 
in paragraphs (3) and (4), in the case of amend-
ments 
made 
by 
this 
section 
to 
section 
417(e)(3)(A)(ii) of the Internal Revenue Code of 
1986 and to section 205(g)(3)(A)(ii) of the Em-
ployee Retirement Income Security Act of 1974, and 
for purposes of section 411(a)(11)(B) of the Internal 
Revenue Code of 1986 and section 203(e)(2) of the 
Employee Retirement Income Security Act of 1974, 
such amendments shall apply to years beginning 
after December 31, 2005. 
(3) LOOKBACK RULES.—For purposes of apply-
ing all applicable lookback rules in years beginning 
on or after the otherwise applicable effective date de-
termined under paragraph (1), (2), or (4), the 
amendments made by this section shall be applied as 
if such amendments had been in effect for all years 
beginning before such effective date. For purposes of 
this paragraph, a lookback rule is a rule that uses 
data from a prior year in determining requirements 
applicable to the current year. 
(4) COLLECTIVE BARGAINING AGREEMENTS.—
Except as provided in paragraph (3), in the case of 
a plan maintained pursuant to one or more collective 
bargaining agreements between employee representa-
103
tives and one or more employers ratified by the date 
of the enactment of this Act, the amendments de-
scribed in paragraph (2) shall not apply to employ-
ees 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. 
(5) NO REDUCTION REQUIRED.—In the case of 
any participant or beneficiary, the amount payable 
under any form of benefit subject to section 
417(e)(3) of the Internal Revenue Code of 1986 
shall not be required to be reduced below the 
amount determined as of the last day of the last 
plan year beginning before January 1, 2004, merely 
because of the amendments made by subsection 
(a)(3)(B).
104
SEC. 706. INTEREST RATE RANGE FOR ADDITIONAL FUND-
ING REQUIREMENTS. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
(1) SPECIAL RULE.—Subclause (III) of section 
412(1)(7)(C)(i) is amended—
(A) by striking ‘‘2002 or 2003’’ in the text 
and inserting ‘‘2001, 2002, or 2003’’, and 
(B) by striking ‘‘2002 AND 2003’’ in the 
heading and inserting ‘‘2001, 2002, AND 2003’’. 
(2) QUARTERLY
CONTRIBUTIONS.—Paragraph 
(7) of section 412(m) is amended to read as follows: 
‘‘(7) SPECIAL RULE FOR 2002.—In any case in 
which the interest rate used to determine current li-
ability 
is 
determined 
under 
subsection 
(1)(7)(C)(i)(III), for purposes of applying para-
graphs (1) and (4)(B)(ii) for plan years beginning in 
2002, the current liability for the preceding plan 
year shall be redetermined using 120 percent as the 
specified percentage determined under subsection 
(1)(7)(C)(i)(II).’’
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—
(1) SPECIAL RULE.—Subclause (III) of section 
302(d)(7)(C)(i) of the Employee Retirement Income
105
Security Act of 1974 (29 U.S.C. 1082(d)(7)(C))(i)) 
is amended—
(A) by striking ‘‘2002 or 2003’’ in the text 
and inserting ‘‘2001, 2002, or 2003’’, and 
(B) by striking ‘‘2002 AND 2003’’ in the 
heading and inserting ‘‘2001, 2002, AND 2003’’. 
(2) QUARTERLY
CONTRIBUTIONS.—Paragraph 
(7) of section 302(e) is amended to read as follows: 
‘‘(7) SPECIAL RULE FOR 2002.—In any case in 
which the interest rate used to determine current li-
ability 
is 
determined 
under 
subsection 
(d)(7)(C)(i)(III), for purposes of applying para-
graphs (1) and (4)(B)(ii) for plan years beginning in 
2002, the current liability for the preceding plan 
year shall be redetermined using 120 percent as the 
specified percentage determined under subsection 
(d)(7)(C)(i)(II).’’
(c) 
PBGC.—Subclause 
(IV) 
of 
section 
4006(a)(3)(E)(iii) 
of 
such 
Act 
(29 
U.S.C. 
1306(a)(3)(E)(iii)) is amended to read as follows: 
‘‘(IV) In the case of plan years 
beginning after December 31, 2001, 
and before January 1, 2004, sub-
clause (II) shall be applied by sub-
stituting ‘100 percent’ for ‘85 percent’
106
and by substituting ‘115 percent’ for 
‘100 percent’. Subclause (III) shall be 
applied for such years without regard 
to the preceding sentence. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in the amend-
ments made by section 405 of the Job Creation and Work-
er Assistance Act of 2002.
SEC. 707. ASSET VALUATION. 
(a) 
IN
GENERAL.—Clause 
(iv) 
of 
section 
4006(a)(3)(E) is amended by striking ‘‘1986’’ and insert-
ing ‘‘1986 (determined without regard to subclause (I) of 
section 412(c)(7)(A)(ii) of such Code)’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to the determination of premiums 
for plan years ending after December 31, 2003. 
SEC. 708. MULTIEMPLOYER PLAN EMERGENCY INVEST-
MENT LOSS RULE. 
(a) AMENDMENT TO THE INTERNAL REVENUE CODE 
OF 1986.—Paragraph (7) of section 412(b) (relating to 
special rules for multiemployer plans) is amended by add-
ing at the end the following new subparagraph: 
‘‘(F) 
EMERGENCY
INVESTMENT
LOSS 
METHOD.—
107
‘‘(i) IN GENERAL.—In lieu of amor-
tizing its experience loss as prescribed in 
paragraph (2)(B)(iv), a multiemployer plan 
may elect to use the emergency investment 
loss method described in this subpara-
graph, starting with the first plan year in 
which it has an emergency investment loss. 
‘‘(ii) 
EMERGENCY
INVESTMENT 
LOSS.—An emergency investment loss is 
the difference between the market value of 
the plan’s assets as of the last day of a 
plan year beginning on or after July 1, 
1999 and ending before January 1, 2004, 
and what that market value would have 
been if the plan’s earnings had been equal 
to the projected investment return based 
on the actuarial interest rate under para-
graph (5)(A) for the plan year, applied to 
the market value of assets as of the begin-
ning of the year and noninvestment cash 
flows during the year. 
‘‘(iii) AMORTIZATION OF EMERGENCY 
INVESTMENT LOSS.—The funding standard 
account shall be charged with the amounts 
necessary to amortize in equal annual in-
108
stallments (until fully amortized) the 
plan’s emergency investment loss, over a 
period of 30 plan years. 
‘‘(iv) ADJUSTED NET ACTUARIAL EX-
PERIENCE.—The adjusted net actuarial ex-
perience is the amount produced by sub-
tracting the emergency investment loss 
from the net experience gain or loss for the 
plan year as otherwise determined for pur-
poses of paragraph (2)(B)(iv) or (3)(B)(ii) 
of this subsection. 
‘‘(v) AMORTIZATION
OF
ADJUSTED 
NET
ACTUARIAL
EXPERIENCE.—The ad-
justed net actuarial experience is treated 
as a net experience gain or loss and 
charged or credited to the funding stand-
ard account under paragraph (2)(B)(iv) or 
(3)(B)(ii), as applicable.’’. 
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Paragraph (7) of sec-
tion 302(b) of the Employee Retirement Income Security 
Act of 1974 is amended by adding at the end the following 
new subparagraph: 
‘‘(F)(i) In lieu of amortizing its experience loss as 
prescribed in paragraph (2)(B)(iv), a multiemployer plan
109
may elect to use the emergency investment loss method 
described in this subparagraph, starting with the first plan 
year in which it has an emergency investment loss. 
‘‘(ii) An emergency investment loss is the difference 
between the market value of the plan’s assets as of the 
last day of a plan year beginning on or after July 1, 1999 
and ending before January 1, 2004, and what that market 
value would have been if the plan’s earnings had been 
equal to the projected investment return based on the ac-
tuarial interest rate under paragraph (5)(A) for the plan 
year, applied to the market value of assets as of the begin-
ning of the year and noninvestment cash flows during the 
year. 
‘‘(iii) The funding standard account shall be charged 
with the amounts necessary to amortize in equal annual 
installments (until fully amortized) the plan’s emergency 
investment loss, over a period of 30 plan years. 
‘‘(iv) The adjusted net actuarial experience is the 
amount produced by subtracting the emergency invest-
ment loss from the net experience gain or loss for the plan 
year as otherwise determined for purposes of paragraph 
(2)(B)(iv) or (3)(B)(ii) of this subsection. 
‘‘(v) The adjusted net actuarial experience is treated 
as a net experience gain or loss and charged or credited
110
to the funding standard account under paragraph 
(2)(B)(iv) or (3)(B)(ii), as applicable.’’. 
(c) ELECTION PROCEDURE.—
(1) IN
GENERAL.—The Secretary shall pre-
scribe a procedure under which multiemployer plans 
that elect to use the emergency investment loss 
method, as described in section 412(b)(7)(F) of the 
Internal Revenue Code of 1986 and section 
302(b)(7)(F) of the Employee Retirement Income 
Security Act of 1974, may do so either by starting 
the special amortization periods in the actuarial 
valuations for each of the affected plan years or by 
starting with a cumulative emergency investment 
loss and adjusted net actuarial experience (based on 
the outstanding balance of the experience gain bases 
for the affected plan years, reduced by the cumu-
lative emergency investment loss) in the actuarial 
valuation for the last plan year ending before Janu-
ary 1, 2004. 
(2) FILING PERIOD.—The procedures described 
in paragraph (1) shall provide a period of not less 
than 210 days after the date of enactment of this 
Act for multiemployer plans to file Schedule Bs to 
the Form 5500 Annual Reports for the plan years 
for which the emergency investment loss method is
111
elected, including amended Schedule Bs for annual 
reports previously filed. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after June 30, 
1999.
SEC. 709. MORTALITY TABLE ADJUSTMENT. 
(a) AMENDMENT
TO
THE
INTERNAL
REVENUE 
CODE.—Subparagraph (C) of section 412(l)(7) is amend-
ed by adding at the end the following clause: 
‘‘(iv) SEPARATE MORTALITY TABLES 
FOR
BLUE-COLLAR
WORKERS.—Notwith-
standing clause (ii), in the case of plan 
years beginning after December 31, 2003, 
the Secretary shall establish mortality ta-
bles which may be used (in lieu of the ta-
bles under clause (ii)) to determine current 
liability under this subsection for individ-
uals who are blue-collar workers (as de-
fined under rules prescribed by the Sec-
retary). For this purpose, the Secretary 
shall take into account the Society of Actu-
aries RP–2000 Mortality Table, as ad-
justed to take into account the collar ad-
justment prescribed in such Table to re-
flect the workforce covered by the plan.’’.
112
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Subparagraph (C) of 
section 302(d)(7) of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1082(d)(7)) is amended by 
adding at the end the following clause: 
‘‘(iv) SEPARATE MORTALITY TABLES 
FOR
BLUE-COLLAR
WORKERS.—Notwith-
standing clause (ii), in the case of plan 
years beginning after December 31, 2003, 
the Secretary shall establish mortality ta-
bles which may be used (in lieu of the ta-
bles under clause (ii)) to determine current 
liability under this subsection for individ-
uals who are blue-collar workers (as de-
fined under rules prescribed by the Sec-
retary). For this purpose, the Secretary 
shall take into account the Society of Actu-
aries RP–2000 Mortality Table, as ad-
justed to take into account the collar ad-
justment prescribed in such Table to re-
flect the workforce covered by the plan.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall be effective as of the date of enactment 
of this Act.
113
TITLE 
VIII—SIMPLIFY 
AND 
STREAMLINE 
RETIREMENT 
PLAN RULES 
SEC. 801. EXCISE TAX ON EXCESS CONTRIBUTIONS. 
(a) EXPANSION OF CORRECTIVE DISTRIBUTION PE-
RIOD.—Subsection (f) of section 4979 is amended—
(1) in paragraph (1) by striking ‘‘21⁄2 months’’ 
and inserting ‘‘6 months’’, and 
(2) in the heading by striking ‘‘21⁄2 MONTHS’’ 
and inserting ‘‘6 MONTHS’’. 
(b) 
INCREASE
IN
DE
MINIMIS
DISTRIBUTION 
AMOUNT.—Subparagraph (B) of section 4979(f)(2) is 
amended by striking ‘‘$100’’ and inserting ‘‘$1,000’’. 
(c) MODIFICATION OF DE MINIMIS RULE.—Subpara-
graph (B) of section 4972(f)(2) is amended by striking 
‘‘If’’ and inserting ‘‘To the extent that’’ and by striking 
‘‘are less than’’ and inserting ‘‘do not exceed’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 802. EXCESS BENEFIT PLANS. 
(a) IN GENERAL.—Section 3(36) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1002(36)) is amended to read as follows:
114
‘‘(36) The term ‘excess benefit plan’ means a plan, 
without regard to whether such plan is funded, maintained 
by an employer solely for the purpose of providing benefits 
to employees in excess of any limitation imposed by section 
401(a)(17), 401(k)(3)(A)(ii), 401(m)(2), or 415 of the In-
ternal Revenue Code of 1986. To the extent that a sepa-
rable part of a plan (as determined by the Secretary of 
Labor) maintained by an employer is maintained for such 
purpose, that part shall be treated as a separate plan 
which is an excess benefit plan.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to plan years beginning after De-
cember 31, 2003. 
SEC. 803. PAPERLESS TECHNOLOGIES IN RETIREMENT 
PLANS. 
(a) PAPERLESS TECHNOLOGIES.—Not later than De-
cember 31, 2004, except as provided in subsection (c), the 
Secretary of the Treasury and the Secretary of Labor 
shall, by regulation, allow the use of paperless technologies 
for purposes of—
(1) notices, elections, and spousal consents re-
quired under sections 401(a)(11) and 417 of the In-
ternal Revenue Code of 1986 and section 205 of 
Employee Retirement Income Security Act of 1974,
115
(2) providing information to satisfy the condi-
tions for a hardship distribution under section 
401(k)(2)(B)(i)(IV) of such Code, and 
(3) other plan transactions for which the Secre-
taries determine that the use of paperless tech-
nologies is appropriate. 
(b) CONDITION
OF
USING
PAPERLESS
TECH-
NOLOGIES.—Technologies permitted pursuant to sub-
section (a) shall not—
(1) undermine the rights of any participant, 
any spouse of a participant, or any other beneficiary, 
or 
(2) weaken the policy purposes of any rule for 
which such technologies are permitted. 
(c) REPORT IN CASES WHERE PAPERLESS TECH-
NOLOGY NOT USED.—
(1) IN GENERAL.—Not later than December 31, 
2004, if the Secretary of the Treasury or the Sec-
retary of Labor determines that permitting the use 
of paperless technologies for a particular purpose is 
unworkable or would jeopardize individuals’ rights or 
public policy objectives, the applicable Secretary 
shall not permit the use of paperless technologies for 
such purpose, but rather shall submit a report to the 
Committee on Ways and Means and the Committee
116
on Education and the Workforce of the House of 
Representatives and the Committee on Finance and 
the Committee on Health, Education, Labor and 
Pensions of the Senate. 
(2) CONTENTS
OF
REPORT.—The applicable 
Secretary shall set forth in the report required by 
subsection (a) the determination with respect to 
each such purpose and recommendations for any 
changes in law that would facilitate the greater use 
of paperless technologies.
SEC. 804. ELIMINATION OF UNINTENDED CONSEQUENCES 
ATTRIBUTABLE TO USE OF BASE PAY OR 
RATE OF PAY. 
Not later than December 31, 2003, the Secretary of 
the Treasury shall issue final regulations under which the 
rules in Treasury Regulation 1.414(s)–1 (without regard 
to paragraph (d)(3) thereof) apply for purposes of the safe 
harbor rules under Treasury Regulation 1.401(a)(4)–3(b). 
SEC. 805. REPEAL OF THE GATEWAY TEST. 
(a) IN GENERAL.—Paragraph (5) of section 410(b) 
(relating to line of business exception) is amended to read 
as follows: 
‘‘(5) LINE OF BUSINESS EXCEPTION.—If, under 
section 414(r), an employer is treated as operating 
separate lines of business for a year, the employer
117
may apply the requirements of this subsection for 
such year separately with respect to employees in 
each separate line of business.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this subsection shall apply to years beginning after De-
cember 31, 2003. 
SEC. 806. INTERMEDIATE SANCTIONS FOR INADVERTENT 
FAILURES. 
(a) IN GENERAL.—Section 401(a) (relating to quali-
fied pension, profit-sharing, and stock bonus plans) is 
amended by inserting after paragraph (34) the following: 
‘‘(35) PROTECTION
FROM
DISQUALIFICATION 
UPON TIMELY CORRECTION OR PAYMENT OF FINE.—
A trust shall not fail to constitute a qualified trust 
under this section if the plan of which such trust is 
a part has made good faith efforts to meet the re-
quirements of this section, has inadvertently failed 
to satisfy 1 or more of such requirements, and ei-
ther—
‘‘(A) substantially corrects (to the extent 
possible) such failure before the date the plan 
becomes subject to a plan examination for the 
applicable year (as determined under rules pre-
scribed by the Secretary), or
118
‘‘(B) substantially corrects (to the extent 
possible) such failure on or after such date. 
If the plan satisfies the requirement under subpara-
graph (B), the Secretary may require the sponsoring 
employer to make a payment to the Secretary in an 
amount that does not exceed an amount that bears 
a reasonable relationship to the severity of the plan’s 
failure to satisfy the requirements of this section.’’. 
(b) APPLICATION TO CASH OR DEFERRED ARRANGE-
MENTS.—Section 401(k) is amended by inserting after 
paragraph (12) the following new paragraph:
‘‘(13) PROTECTION FROM DISQUALIFICATION.—
Rules similar to the rules set forth in section 
401(a)(35) shall apply for purposes of determining 
whether a cash or deferred arrangement is a quali-
fied cash or deferred arrangement.’’. 
(c) APPLICATION TO SECTION 403(b) ANNUITY CON-
TRACTS.—Section 403(b) is amended by inserting after 
paragraph (12) the following: 
‘‘(13) CORRECTION OF ERRORS.—For purposes 
of determining whether the exclusion from gross in-
come under paragraph (1) is applicable to an em-
ployee for any taxable year, rules similar to the rules 
set forth in section 401(a)(35) shall apply to any an-
nuity contract purchased under this subsection or
119
any plan established to meet the requirements of 
this subsection.’’. 
(d) INCOME INCLUSION FOR DISQUALIFICATION NOT 
APPLICABLE
TO NONHIGHLY COMPENSATED EMPLOY-
EES.—Section 402(b) (relating to taxability of beneficiary 
of nonexempt trust) is amended by striking paragraph (4) 
and inserting the following: 
‘‘(4) INCOME
INCLUSION
FOR
DISQUALIFICA-
TION
NOT
APPLICABLE
TO
NONHIGHLY
COM-
PENSATED
EMPLOYEES.—Paragraphs (1) and (2) 
shall not apply to employees who are not highly com-
pensated employees. 
‘‘(5) FAILURE
TO
MEET
REQUIREMENTS
OF 
SECTION 401(a)(26) OR 410(b).—If 1 of the reasons 
a trust is not exempt from tax under section 501(a) 
is the failure of the plan to meet the requirements 
of section 401(a)(26) or 410(b), then a highly com-
pensated employee shall, in lieu of the amount deter-
mined under paragraph (1) or (2), include in gross 
income for the taxable year with or within which the 
taxable year of the trust ends an amount equal to 
the vested accrued benefit of such employee (other 
than the employee’s investment in the contract) as 
of the close of such taxable year of the trust.
120
‘‘(6) HIGHLY COMPENSATED EMPLOYEE.—For 
purposes of this subsection, the term ‘highly com-
pensated employee’ has the meaning given such term 
by section 414(q).’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of enactment of 
this Act. 
SEC. 807. QUALIFIED PRERETIREMENT SURVIVOR ANNU-
ITY. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
(1) REPEAL OF AGE 35 WAIVER LIMITATION.—
Subparagraph (B) of section 417(a)(6) (defining ap-
plicable election period) is amended by striking ‘‘the 
plan year in which the participant attains age 35’’ 
and inserting ‘‘plan participation’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 417(a)(6) is amended by strik-
ing the last sentence. 
(B) Section 417(a)(3)(B) is amended—
(i) in clause (ii) by striking subclause 
(I) and redesignating subclause (II), (III), 
and (IV) as subclause (I), (II), and (III), 
respectively, and 
(ii) striking the last sentence.
121
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—
(1) REPEAL OF AGE 35 WAIVER LIMITATION.—
Subparagraph (B) of section 205(c)(7) of the Em-
ployee Retirement Income Security Act of 1974 (29 
U.S.C. 1055(c)(7)(B)) is amended by striking ‘‘the 
plan year in which the participant attains age 35’’ 
and inserting ‘‘plan participation’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 205(c)(7) of such Act is 
amended by striking the last sentence. 
(B) Section 205(c)(3)(B) of such Act is 
amended—
(i) in clause (ii) by striking subclause 
(I) and redesignating subclause (II), (III), 
and (IV) as subclause (I), (II), and (III), 
respectively, and 
(ii) striking the last sentence. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to years beginning after De-
cember 31, 2003. 
(2) SPECIAL RULES.—A plan shall not be treat-
ed as having failed to comply with section 
417(a)(3)(B) of the Internal Revenue Code of 1986
122
and section 205(c)(3)(B) of the Employee Retire-
ment Income Security Act of 1974 due to the failure 
to provide an explanation required by reason of the 
amendments made by this section if such expla-
nation is provided by a date that is one year after 
the date of enactment of this Act or by a later date 
(not later than 3 years after the date of enactment 
of this Act) determined under rules prescribed by 
the Secretary of the Treasury. With respect to a 
participant, if an explanation required by such sec-
tion 417(a)(3)(B) and such section 205(c)(3)(B) is 
permitted to be provided at a later date by reason 
of the preceding sentence, an election under section 
417(a)(1)(A)(i) 
of 
such 
Code 
and 
section 
205(c)(1)(A)(i) of the Employee Retirement Income 
Security Act of 1974 to waive a qualified preretire-
ment survivor annuity shall not take effect unless 
such explanation has been provided with respect to 
such participant by a date that is no later than a 
reasonable period prior to the date of the election. 
SEC. 808. COST-OF-LIVING ADJUSTMENT OF $5,000 CASH-
OUT AMOUNT. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
123
(1) IN GENERAL.—Paragraph (11) of section 
411(a) (relating to restrictions on certain mandatory 
distributions) is amended by adding at the end the 
following new subparagraph: 
‘‘(E) COST-OF-LIVING ADJUSTMENT.—The 
Secretary shall adjust annually the $5,000 
amount in subparagraph (A) for increases in 
the cost-of-living at the same time and in the 
same manner as adjustments under section 
415(d); except that the base period shall be the 
calendar quarter beginning July 1, 2003, and 
any increase which is not a multiple of $500 
shall be rounded to the next lowest multiple of 
$500.’’. 
(2) CONFORMING AMENDMENT.—Clause (ii) of 
section 401(a)(31)(B) is amended by striking 
‘‘$5,000’’ and inserting ‘‘the amount in effect under 
section 411(a)(11)(A)’’. 
(b) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Subsection (e) of sec-
tion 203 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1053(e)) is amended by adding at the 
end the following new paragraph: 
‘‘(5) The Secretary of the Treasury shall adjust an-
nually the $5,000 amount in paragraph (1) for increases
124
in the cost-of-living at the same time and in the same 
manner as adjustments under section 415(d) of the Inter-
nal Revenue Code of 1986; except that the base period 
shall be the calendar quarter beginning July 1, 2003, and 
any increase which is not a multiple of $500 shall be 
rounded to the next lowest multiple of $500.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 809. CATCH-UP CONTRIBUTIONS. 
(a) NONDISCRIMINATION REQUIREMENT MOVED.—
(1) IN
GENERAL.—Paragraph (4) of section 
401(a) (relating to nondiscrimination requirements 
for qualification) is amended to read as follows: 
‘‘(4) NONDISCRIMINATION.—
‘‘(A) IN GENERAL.—If the contributions or 
benefits provided under the plan do not dis-
criminate in favor of highly compensated em-
ployees (within the meaning of section 414(q)). 
‘‘(B) CERTAIN EMPLOYEES EXCLUDED.—
For purposes of this paragraph, there shall be 
excluded from consideration employees de-
scribed in section 410(b)(3)(A) and (C). 
‘‘(C) SPECIAL RULES RELATING TO CATCH-
UP CONTRIBUTIONS.—
125
‘‘(i) IN GENERAL.—An applicable em-
ployer plan shall be treated as failing to 
meet the nondiscrimination requirements 
under subparagraph (A) with respect to 
benefits, rights, and features unless the 
plan allows all eligible participants to make 
the same election with respect to the addi-
tional elective deferrals under section 
414(v). 
‘‘(ii) AGGREGATION.—Except as pro-
vided in regulations prescribed by the Sec-
retary, for purposes of clause (i), all plans 
maintained by employers who are treated 
as a single employer under subsection (b), 
(c), (m), or (o) of section 414 shall be 
treated as 1 plan, except that a plan de-
scribed 
in 
clause 
(i) 
of 
section 
410(b)(6)(C) shall not be treated as a plan 
of the employer until the expiration of the 
transition period with respect to such plan 
(as determined under clause (ii) of such 
section). 
‘‘(iii) DEFINITIONS.—For purposes of 
this subparagraph, the terms ‘applicable 
employer plan’, ‘eligible participants’, and
126
‘elective deferral’ have the meaning given 
such terms by section 414(v).’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
414(v) is amended by striking paragraph (4) and re-
designating paragraphs (5) and (6) as paragraphs 
(4) and (5), respectively. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 
631(a) of the Economic Growth and Tax Relief Reconcili-
ation Act of 2001. 
SEC. 810. REVERSE MATCH SALARY REDUCTION ARRANGE-
MENT SIMPLIFIED EMPLOYEE ANNUITY. 
(a) IN GENERAL.—Subsection (k) of section 408 (de-
fining simplified employee pension) is amended by redesig-
nating paragraphs (7), (8), and (9) as paragraphs (8), (9), 
and (10), respectively, and by inserting after paragraph 
(6) the following new paragraph: 
‘‘(7) REVERSE MATCH SALARY REDUCTION AR-
RANGEMENT SIMPLIFIED EMPLOYEE ANNUITY.—
‘‘(A) EMPLOYEE MAY ELECT SALARY RE-
DUCTION ARRANGEMENT.—
‘‘(i) IN GENERAL.—A simplified em-
ployee pension shall not fail to meet the re-
quirements of this subsection for a year 
merely because, under the terms of the
127
pension, an employee may elect to have the 
employer make payments—
‘‘(I) as elective employer con-
tributions to the simplified employee 
pension on behalf of the employee, or 
‘‘(II) to the employee directly in 
cash. 
‘‘(ii) LIMITATIONS ON ELECTIVE DE-
FERRALS.—Clause (i) shall not apply to a 
simplified employee pension unless the re-
quirements of section 401(a)(30) are met. 
‘‘(B) EXCEPTION WHERE MORE THAN 25 
EMPLOYEES.—This paragraph shall not apply 
with respect to any year in the case of a sim-
plified employee pension maintained by an em-
ployer with more than 25 employees who were 
eligible to participate (or would have been re-
quired to be eligible to participate if a pension 
was maintained) at any time during the pre-
ceding year. For purposes of this subparagraph, 
rules 
similar 
to 
the 
rules 
of 
sections 
408(p)(2)(C)(ii) and 408(p)(10) shall apply. 
‘‘(C) DEFERRAL PERCENTAGE.—
‘‘(i) IN GENERAL.—The deferral per-
centage for any employee for a year may
128
not exceed double the percentage which is 
the ratio that—
‘‘(I) the amount of employer con-
tributions (other than elective or 
matching contributions) actually paid 
over to the simplified employee pen-
sion on behalf of the employee for the 
year, bears to 
‘‘(II) the employee’s compensa-
tion (not in excess of the amount in 
effect under paragraph (6)(D)(ii)) for 
the year. 
‘‘(ii) DEFINITION.—For purposes of 
this paragraph, the deferral percentage of 
an employee for a year shall be the ratio 
which—
‘‘(I) the amount of elective em-
ployer contributions actually paid over 
to the simplified employee pension on 
behalf of the employee for the year, 
bears to 
‘‘(II) the employee’s compensa-
tion (not in excess of the amount in 
effect under paragraph (6)(D)(ii)) for 
the year.
129
‘‘(D) EXCEPTION FOR STATE AND LOCAL 
AND TAX-EXEMPT PENSIONS.—This paragraph 
shall not apply to a simplified employee pension 
maintained by a State or local government or 
political subdivision thereof, or any agency or 
instrumentality thereof.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 402(h)(1) is 
amended by striking ‘‘408(k)(6)’’ and inserting 
‘‘408(k)(6) or 408(k)(7)’’. 
(2) Paragraph (2) of section 408(k) is amended 
by striking ‘‘subsection (k)(6)’’ and inserting ‘‘sub-
section (k)(6) or (k)(7)’’. 
(3) Subparagraphs (C) and (D) of section 
408(k)(3) are each amended by striking ‘‘paragraph 
(6)’’ and inserting ‘‘paragraph (6) or (7)’’. 
(4) Subpargraph (C) of section 414(u)(1) is 
amended by striking ‘‘408(k)(6)’’ and inserting 
‘‘408(k)(6), 408(k)(7)’’. 
(5) Subparagraph (C) of section 3121(a)(5) is 
amended by striking ‘‘408(k)(6)’’ and inserting 
‘‘408(k)(6) or 408(k)(7)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
130
SEC. 811. LEVEL DOLLAR CONTRIBUTIONS TO SEPS. 
(a) IN GENERAL.—Subparagraph (C) of section 
408(k)(3) (relating to contributions must bear uniform re-
lationship 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 employee.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2003. 
SEC. 812. TAX ON NONDEDUCTIBLE CONTRIBUTIONS NOT 
TO APPLY TO CERTAIN NONTRADE OR BUSI-
NESS SEP CONTRIBUTIONS. 
(a) IN GENERAL.—Subparagraph (B) of section 
4972(c)(6) (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, 2003.
131
SEC. 813. CLARIFICATION OF FIDUCIARY DUTY. 
(a) IN GENERAL.—Paragraph (3) of section 404(c) 
of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1104(c)(3)) is amended to read as follows: 
‘‘(3) In the case of a pension plan which makes 
a transfer to an individual retirement account or an-
nuity of a designated trustee or issuer under section 
401(a)(31)(B) of the Internal Revenue Code of 
1986, the fiduciary who selects the individual retire-
ment account or annuity and the initial investments 
thereunder shall be subject to this part only with re-
spect to such initial selections. Such fiduciary shall 
have no liability under this title if such selections are 
made in a manner consistent with guidance provided 
by the Secretary.’’. 
(b) EFFECTIVE DATE.—The amendment made this 
section shall take effect as if included in section 657 of 
the Economic Growth and Tax Relief Reconciliation Act 
of 2001. 
SEC. 814. MULTIEMPLOYER PLAN CLARIFICATION. 
(a) IN GENERAL.—Subsection (b) of section 413 is 
amended by adding at the end the following: 
‘‘(10) TREAMENT
AS
NOT
AN
EMPLOYER 
PLAN.—The Secretary may prescribe rules under 
which, for purposes of one or more specified provi-
sions of this part relating directly or indirectly to
132
nondiscrimination in benefits or coverage, a plan de-
scribed in section 414(f) is not treated as a plan of 
or maintained by the employers of the participating 
employees.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply as of the date of enactment of this 
Act. 
SEC. 815. CLARIFICATION OF STATUS OF YOUNG MEN’S 
CHRISTIAN 
ASSOCIATION 
RETIREMENT 
FUND. 
(a) IN GENERAL.—Section 1012(c)(4)(C)(i) of the 
Tax Reform Act of 1986 (100 Stat. 2394) is amended 
by adding before the comma at the end thereof the fol-
lowing: ‘‘(whose retirement plans (including the reserve 
accounts for such plans) are deemed to be plans described 
in section 403(b)(9)(B) of the Internal Revenue Code of 
1986 for years beginning on or after January 1, 2003)’’. 
(b) CLARIFICATION OF SCOPE OF CHURCH PLAN 
STATUS.—
(1) NONDISCRIMINATION TESTING.—Any fund 
or plan described in subsection (a) shall be subject 
to the nondiscrimination requirements of section 
403(b)(12) of such Code and shall not be treated as 
a contract purchased by a church for purposes of 
section 403(b)(1)(D) of such Code.
133
(2) APPLICABILITY OF 403(b)(9) RULES GEN-
ERALLY.—Nothing in this section shall exempt the 
retirement fund of the YMCA from complying with 
the rules otherwise applicable to a plan described in 
section 403(b)(9)(B) of such Code in order for the 
treatment described in section 403(b)(1) of such 
Code to apply. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2002. 
TITLE IX—EXPANDING RETIRE-
MENT SAVINGS OPPORTUNI-
TIES 
FOR 
EMPLOYEES 
OF 
TAX-EXEMPT ORGANIZATIONS 
AND GOVERNMENTS 
SEC. 901. DEFERRED COMPENSATION PLANS OF TAX-EX-
EMPT ORGANIZATIONS. 
(a) IN GENERAL.—Subpart B of part II of sub-
chapter E of chapter 1 (relating to taxable year for which 
items of gross income included) is amended by inserting 
after section 458 the following new section: 
‘‘SEC. 459. DEFERRED COMPENSATION PLANS OF TAX-EX-
EMPT ORGANIZATIONS. 
‘‘(a) IN GENERAL.—In the case of a plan of an orga-
nization (other than a governmental unit) exempt from tax
134
under this subtitle providing for a deferral of compensa-
tion—
‘‘(1) the excess deferred compensation shall be 
included in the gross income of the participant or 
beneficiary for the 1st taxable year in which there 
is no substantial risk of forfeiture of the rights to 
such compensation, and 
‘‘(2) the tax treatment of any amount made 
available under the plan to a participant or bene-
ficiary shall be determined under section 72 (relat-
ing to annuities, etc.). 
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply 
to—
‘‘(1) a plan described in section 401(a) which 
includes a trust exempt from tax under section 
501(a), 
‘‘(2) an annuity plan or contract described in 
section 403, 
‘‘(3) that portion of any plan which consists of 
a transfer of property described in section 83, and 
‘‘(4) that portion of any plan which consists of 
a trust to which section 402(b) applies. 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
135
‘‘(1) EXCESS DEFERRED COMPENSATION.—The 
term ‘excess deferred compensation’ means with re-
spect to a participant for any taxable year the excess 
of the present value of the participant’s deferred 
compensation for such year over the greater of—
‘‘(A) one third of the sum of such value 
plus the participant’s compensation (as defined 
in Code section 415(c)(3)) for such year, or 
‘‘(B) the amount in effect for such year 
under section 457(b)(2) (as modified by any ad-
justment permitted under subsection (b)(3) or 
section 414(v)). 
‘‘(2) PLAN INCLUDES ARRANGEMENTS, ETC.—
The term ‘plan’ includes any agreement or arrange-
ment. 
‘‘(3) SUBSTANTIAL RISK OF FORFEITURE.—The 
rights of a person to compensation are subject to a 
substantial risk of forfeiture if such person’s rights 
to such compensation are conditioned upon the fu-
ture performance of substantial services by any indi-
vidual. 
‘‘(4) SPECIAL
RULES.—Rules similar to the 
rules of section 457(b)(6) and paragraphs (2), (3), 
(4), (6), (7), (8), (9) (as in effect before the enact-
ment of the Pension Preservation and Savings Ex-
136
pansion Act of 2003), (10), (11), (12), and (13) of 
section 457(e) shall apply for purposes of this sec-
tion.’’. 
(b) CONFORMING AMENDMENTS.—
(1) The heading for section 457 is amended by 
striking 
‘‘AND 
TAX-EXEMPT 
ORGANIZA-
TIONS’’. 
(2) Section 457(a)(1) is amended by striking 
‘‘income—’’ and inserting ‘‘and all that follows and 
inserting the following: ‘‘income is paid to the par-
ticipant or other beneficiary.’’. 
(3) Section 457(b) is amended by striking 
‘‘which is established and maintained by an em-
ployer which is described in subsection (e)(1)(A) 
and’’. 
(4) Section 457(d)(1)(C) is amended by strik-
ing ‘‘in the case of a plan maintained by an em-
ployer described in subsection (e)(1)(A),’’. 
(5) Section 457(d)(3) is amended—
(A) by striking ‘‘of an employer described 
in subsection (e)(1)(A)’’, and 
(B) by striking ‘‘FOR GOVERNMENT PLAN’’. 
(6) Paragraph (9) of section 457(e) is amended 
to read as follows:
137
‘‘(9) EXCEPTION TO DISTRIBUTION REQUIRE-
MENTS.—
‘‘(A) A plan shall not be treated as failing 
to meet the distribution requirements of sub-
section (d) by reason of a distribution to which 
this paragraph applies. 
‘‘(B) This paragraph applies to a distribu-
tion if—
‘‘(i) the distribution includes the total 
amount payable to a participant under the 
plan, 
‘‘(ii) the portion of such amount 
which is not attributable to rollover con-
tributions 
(as 
defined 
in 
section 
411(a)(11)(D)) does not exceed the dollar 
limit under section 411(a)(11)(A), 
‘‘(iii) 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 
‘‘(iv) there has been no prior distribu-
tion under the plan to which this para-
graph applied.’’. 
(7) Section 457(e)(1) is amended to read as fol-
lows:
138
‘‘(1) ELIGIBLE EMPLOYER.—The term ‘eligible 
employer’ means a State, political subdivision of a 
State, and any agency or instrumentality of a State 
or political subdivision of a State.’’. 
(8) Section 457(e)(16)(A) is amended by strik-
ing ‘‘established and maintained by an employer de-
scribed in subsection (e)(1)(A)’’. 
(9) Section 457(g) is amended—
(A) in paragraph (1) by striking ‘‘main-
tained by an eligible employer described in sub-
section (e)(1)(A)’’, and 
(B) in the heading by striking ‘‘GOVERN-
MENTAL’’. 
(10) Section 25B(d)(1)(B)(ii) is amended by 
striking ‘‘of an eligible employer described in section 
457(e)(1)(A)’’. 
(11) Section 72(t)(9) is amended by striking 
‘‘of an eligible employer described in section 
457(e)(1)(A)’’. 
(12) Section 402(c)(8)(B)(v) is amended by 
striking ‘‘which is maintained by an eligible em-
ployer described in section 457(e)(1)(A)’’. 
(13) Section 408(q)(3)(A) is amended by strik-
ing ‘‘of an eligible employer described in section 
457(e)(1)(A)’’.
139
(14) Section 414(v)(6)(A)(iii) is amended by 
striking ‘‘of an eligible employer described in section 
457(e)(1)(A)’’. 
(15) Section 3401(a)(12)(E) is amended by 
striking ‘‘which is maintained by an eligible em-
ployer described in section 457(e)(1)(A)’’. 
(16) Section 3405(d)(2)(B)(iv) is amended by 
striking ‘‘and which is maintained by an eligible em-
ployer described in section 457(e)(1)(A)’’. 
(17) Section 4980G(f)(2)(B) (as added by this 
Act) is amended by striking ‘‘of an eligible employer 
described in section 457(e)(1)(A)’’. 
(18) Section 414(w)(5)(B)(ii) (as added by this 
Act) is amended by striking ‘‘of an eligible employer 
described in section 457(e)(1)(A)’’. 
(19) Section 414(x)(8(A)(ii) is amended by 
striking ‘‘of an eligible employer described in section 
457(e)(1)(A)’’. 
(c) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart B of part 
II of subchapter E of chapter 1 is amended by in-
serting after the item relating to section 458 the fol-
lowing new item:
‘‘Sec. 459. Deferred compensation plans of tax-exempt organiza-
tions.’’.
140
(2) The item in the table of sections for subpart 
B of part II of subchapter E of chapter 1 relating 
to section 457 is amended to read as follows:
‘‘Sec. 457. Deferred compensation plans of State and local gov-
ernments.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 902. INAPPLICABILITY OF 10 PERCENT ADDITIONAL 
TAX ON EARLY DISTRIBUTIONS OF PENSION 
PLANS OF PUBLIC SAFETY EMPLOYEES. 
(a) IN GENERAL.—Section 72(t)(2) 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 subsection: 
‘‘(G) DROP DISTRIBUTIONS TO QUALIFIED 
PUBLIC
SAFETY
EMPLOYEES
IN
GOVERN-
MENTAL PLANS.—
‘‘(i) IN
GENERAL.—Distributions to 
an individual who is a qualified public safe-
ty employee from a governmental plan 
within the meaning of section 414(d) to 
the extent such distributions are attrib-
utable to a DROP benefit. 
‘‘(ii) DEFINITIONS.—For purposes of 
this subparagraph—
141
‘‘(I) The term ‘DROP benefit’ 
means a feature of a governmental 
plan under which an employee elects 
to receive credits to an account (in-
cluding a notional account) in the 
plan in lieu of increases in the em-
ployee’s accrued pension benefit based 
on years of service after the effective 
date of the DROP election. 
‘‘(II) The term ‘qualified public 
safety employee’ means any employee 
of any police department or fire de-
partment organized and operated by a 
State or political subdivision of a 
State if the employee provides police 
protection, firefighting services, or 
emergency medical services for any 
area within the jurisdiction of such 
State or political subdivision.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after the date of 
enactment of this Act.
142
SEC. 903. 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))’’ and by adding at the end 
the following sentence: ‘‘Amounts transferred under this 
paragraph shall be distributed solely in accordance with 
the terms of such defined benefit plan.’’. 
(c) SERVICE
CREDIT.—Clause 
(ii) 
of 
section 
415(n)(3)(A) 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.
143
SEC. 904. 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 Code section 457(e)(9) as in ef-
fect prior to the enactment of the Small Business 
Job Protection Act of 1996.
SEC. 905. MINIMUM DISTRIBUTION RULES. 
The Secretary of the Treasury shall issue regulations 
under which a governmental plan (as defined in section
144
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. 906. CHURCH PLAN RULE. 
(a) IN GENERAL.—Paragraph (11) of section 415(b) 
is amended by adding at the end the following: ‘‘Subpara-
graph (B) of paragraph (1) shall not apply to a plan main-
tained 
by 
an 
organization 
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 highly compensated employee (as de-
fined in section 414(q)) of the organization described in 
section 3121(w)(3)(A). For purposes of applying para-
graph (1)(B) to highly compensated benefits, all benefits 
of the employee otherwise taken into account (without re-
gard to this paragraph) shall be taken into account.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
145
SEC. 907. PLANS MAINTAINED BY GOVERNMENTS AND TAX-
EXEMPT ORGANIZATIONS. 
(a) IN GENERAL.—Subparagraph (F) of section 
415(b)(2) is amended to read as follows: 
‘‘(F) PLANS
MAINTAINED
BY
GOVERN-
MENTS AND TAX EXEMPT ORGANIZATIONS.—
‘‘(i) IN GENERAL.—In the case of a 
governmental plan (within the meaning of 
section 414(d)), a plan maintained by an 
organization (other than a governmental 
unit) exempt from tax under this subtitle, 
or a qualified merchant marine plan, sub-
paragraph (C) shall be applied as if the 
following sentence were added at the end: 
‘The reduction under this subparagraph 
shall not reduce the limitation of para-
graph (1)(A) below (i) $130,000 if the 
benefit begins at or after age 55, or (ii) if 
the benefit begins before age 55, the equiv-
alent of the $130,000 limitation at age 
55.’. 
‘‘(ii) DEFINITIONS.—For purposes of 
this subparagraph—
‘‘(I) QUALIFIED MERCHANT MA-
RINE PLAN.—The term ‘qualified mer-
chant marine plan’ means a plan in
146
existence on January 1, 1986, the 
participants in which are merchant 
marine officers holding licenses issued 
by the Secretary of Transportation 
under title 46, United States Code. 
‘‘(II) 
EXEMPT
ORGANIZATION 
PLAN.—A plan shall be treated as a 
plan maintained by an organization 
(other than a governmental unit) ex-
empt from tax under this subtitle if at 
least 50 percent of the employees ben-
efiting under the plan are employees 
of an organization (other than govern-
mental unit) exempt from tax under 
this subtitle. If less than 50 percent 
of the employees benefiting under a 
plan are employees of an organization 
(other than a governmental unit) ex-
empt from tax under this subtitle, the 
plan shall be treated as a plan main-
tained by an organization (other than 
a governmental unit) exempt from tax 
under this subtitle only with respect 
to employees of such an organiza-
tion.’’.
147
(b) COST-OF-LIVING ADJUSTMENTS.—
(1) PLANS MAINTAINED BY GOVERNMENTS AND 
TAX
EXEMPT
ORGANIZATIONS.—Paragraph (1) of 
section 415(d) is amended by striking ‘‘and’’ at the 
end of subparagraph (B), by redesignating subpara-
graph (C) as subparagraph (D), and by inserting 
after subparagraph (B) the following new subpara-
graph: 
‘‘(C) the $130,000 amount in subsection 
(b)(2)(F), and’’. 
(2) BASE PERIOD.—Paragraph (3) of section 
415(d) is amended by redesignating subparagraph 
(D) as subparagraph (E) and by inserting after sub-
paragraph (C) the following new subparagraph: 
‘‘(D) $130,000 AMOUNT.—The base period 
taken into account for purposes of paragraph 
(1)(C) is the calendar quarter beginning July 1, 
2003.’’. 
(3) ROUNDING RULE RELATING TO DEFINED 
BENEFIT
PLANS.—Subparagraph (B) of section 
415(d)(4) is amended to read as follows: 
‘‘(B) $130,000 AND
$40,000
AMOUNTS.—
Any increase under subparagraph (C) or (D) of 
paragraph (1) which is not a multiple of $1,000
148
shall be rounded to the next lowest multiple of 
$1,000.’’. 
(4) CONFORMING AMENDMENT.—Subparagraph 
(E) of section 415(d)(3) (as amended by paragraph 
(2)) is amended by striking ‘‘paragraph (1)(C)’’ and 
inserting ‘‘paragraph (1)(D)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2003.
TITLE X—RESTRICTING 
EXCESSIVE REMUNERATION
SEC 1001. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO 
EXCESSIVE EMPLOYEE REMUNERATION PAID 
BY CORPORATION AFTER DECLARATION OF 
BANKRUPTCY. 
(a) IN GENERAL.—Section 4999 (relating to golden 
parachute payments) is amended by redesignating sub-
section (c) as subsection (d) and by inserting after sub-
section (b) the following new subsection: 
‘‘(c) TAX ON EXCESSIVE EMPLOYEE REMUNERATION 
IN THE CASE OF BANKRUPTCY.—
‘‘(1) IN GENERAL.—There is hereby imposed a 
tax on any person who is a covered employee equal 
to 50 percent of any payment of excessive employee 
remuneration from a corporation which becomes a
149
debtor in a title 11 or similar case (as defined in 
section 368(a)(3)(A) of this title, but not including 
a case under chapter 12 of title 11, United States 
Code). The tax imposed under subsection (a) shall 
not apply to the extent that a tax is imposed under 
this subsection. 
‘‘(2) SPECIAL RULES RELATING TO EXCESSIVE 
EMPLOYEE REMUNERATION.—For purposes of this 
subsection—
‘‘(A) EXCESS EMPLOYEE REMUNERATION 
DEFINED.—The term ‘excess employee remu-
neration’ means remuneration paid directly or 
indirectly to a covered employee during the 
bankruptcy period— 
‘‘(i) for which a deduction is not al-
lowed under chapter 1 by reason of the ap-
plication of section 162(m) or would not be 
allowed if section 162(m) applied to the 
covered employee at the time of payment, 
or 
‘‘(ii) in the case of remuneration to a 
covered employee of a corporation that is 
not a publicly held corporation described in 
section 
162(m)(2), 
that 
exceeds 
$1,000,000, other than remuneration that
150
meets requirements similar to the stand-
ards for performance-based compensation 
under section 162(m)(4)(C). 
‘‘(B) Such term shall not include—
‘‘(i) remuneration that, on the date 
immediately prior to the beginning of the 
bankruptcy period, was payable to the cov-
ered employee under a binding obligation 
and not subject to a substantial risk of for-
feiture, 
‘‘(ii) remuneration attributable to con-
tributions to or benefits from an excess re-
tirement plan to the extent that such plan 
is maintained solely for the purpose of pro-
viding benefits to employees in excess of 
the limitations imposed by 1 or more of 
sections 401(a)(17), 401(k), 401(m), and 
415, 
‘‘(iii) contributions to or benefits from 
a qualified employer plan (as defined in 
section 132(m)), or 
‘‘(iv) any payment that is avoided or 
approved by a bankruptcy trustee. 
‘‘(C) BANKRUPTCY
PERIOD.—The term 
‘bankruptcy period’ means any time during the
151
period beginning 2 years before the date on 
which the corporation becomes a debtor de-
scribed in paragraph (1) and ending on the 
date such corporation ceases to be such a debt-
or. 
‘‘(D) COVERED
EMPLOYEE.—The term 
‘covered employee’—
‘‘(i) has the meaning given such term 
by section 162(m)(3), except that such 
term shall include an individual who is not 
a 
covered 
employee 
under 
section 
162(m)(3) for the taxable year in which 
such remuneration is paid but who pre-
viously was a covered employee within the 
meaning of section 162(m)(3) during the 
bankruptcy period, and 
‘‘(ii) with respect to an employee of a 
corporation that is not subject to section 
162(m), includes any employee of such cor-
poration who would be subject to the re-
quirement 
described 
in 
section 
162(m)(3)(B) (as modified by this para-
graph) if such corporation were a publicly 
held corporation (as defined in section 
162(m)(2)).
152
‘‘(E) 100 PERCENT TAX FOR GROSS UP 
PAYMENTS.—Subsection (b) shall be applied by 
substituting ‘100 percent’ for ‘50 percent’ to 
the extent that any payment is made during the 
bankruptcy period that is contingent upon a tax 
being imposed under this section. 
‘‘(F) CHANGE
IN
OWNERSHIP
CONTIN-
GENCY NOT TO APPLY.—Subsection (b) shall be 
applied without regard to clause (i) of section 
280G(b)(2)(A).’’. 
(b) EFFECTIVE DATE.—The amendment made this 
section shall apply to payments received after the date of 
the enactment of this Act with respect to any title 11 or 
similar case (as defined in section 4999(c) of the Internal 
Revenue Code of 1986) commenced after such date.
TITLE XI—DEFINED CONTRIBU-
TION PLAN PROTECTIONS
SEC. 1101. PROVISION OF INVESTMENT EDUCATION NO-
TICES TO PARTICIPANTS. 
(a) IN GENERAL.—Section 414 (relating to defini-
tions and special rules) is amended by adding at the end 
the following: 
‘‘(w) PROVISION OF INVESTMENT EDUCATION 
NOTICES TO PARTICIPANTS.—
153
‘‘(1) IN GENERAL.—The plan administrator of 
an applicable pension plan shall provide to each ap-
plicable individual an investment education notice 
described in paragraph (2) at the time of the enroll-
ment of the applicable individual in the plan and not 
less often than quarterly thereafter. 
‘‘(2) INVESTMENT EDUCATION NOTICE.—An in-
vestment education notice is described in this para-
graph if such notice contains—
‘‘(A) an explanation, for the long-term re-
tirement security of participants and bene-
ficiaries, of generally accepted investment prin-
ciples, including principles of risk management 
and diversification, and 
‘‘(B) a discussion of the risk of holding 
substantial portions of a portfolio in the secu-
rity of any one entity, such as employer securi-
ties. 
‘‘(3) UNDERSTANDABILITY.—Each notice re-
quired by paragraph (1) shall be written in a man-
ner calculated to be understood by the average plan 
participant and shall provide sufficient information 
(as determined in accordance with guidance provided 
by the Secretary) to allow recipients to understand 
such notice.
154
‘‘(4) FORM AND MANNER OF NOTICES.—The 
notices required by this subsection shall be in writ-
ing, except that such notices may be in electronic or 
other form to the extent that such form is reason-
ably accessible to the applicable individual. 
‘‘(5) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) APPLICABLE INDIVIDUAL.—The term 
‘applicable individual’ means—
‘‘(i) any participant in the applicable 
pension plan, 
‘‘(ii) any beneficiary who is an alter-
nate payee (within the meaning of section 
414(p)(8)) under a qualified domestic rela-
tions order (within the meaning of section 
414(p)(1)(A)), and 
‘‘(iii) any beneficiary of a deceased 
participant or alternate payee. 
‘‘(B) APPLICABLE
PENSION
PLAN.—The 
term ‘applicable pension plan’ means—
‘‘(i) a plan described in clause (i), (ii), 
or (iv) of section 219(g)(5)(A), and 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an
155
eligible employer described in section 
457(e)(1)(A), 
which permits any participant to direct the in-
vestment of some or all of his account in the 
plan or under which the accrued benefit of any 
participant depends in whole or in part on hy-
pothetical investments directed by the partici-
pant. Such term shall not include a one-partici-
pant retirement plan. 
‘‘(C) 
ONE-PARTICIPANT
RETIREMENT 
PLAN DEFINED.—The term ‘one-participant re-
tirement plan’ means a retirement plan that—
‘‘(i) on the first day of the plan 
year—
‘‘(I) covered only the employer 
(and the employer’s spouse) and the 
employer owned the entire business 
(whether or not incorporated), or 
‘‘(II) covered only one or more 
partners (and their spouses) in a busi-
ness partnership (including partners 
in an S or C corporation), 
‘‘(ii) meets the minimum coverage re-
quirements of section 410(b) without being 
combined with any other plan of the busi-
156
ness that covers the employees of the busi-
ness, 
‘‘(iii) does not provide benefits to any-
one except the employer (and the employ-
er’s spouse) or the partners (and their 
spouses), 
‘‘(iv) 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 
‘‘(v) does not cover a business that 
leases employees. 
‘‘(6) CROSS REFERENCE.—For provisions relat-
ing to penalty for failure to provide the notice re-
quired by this subsection, see section 6652(m).’’. 
(b) PENALTY FOR FAILURE TO PROVIDE NOTICE.—
Section 6652 (relating to failure to file certain information 
returns, registration statements, etc.) is amended by re-
designating subsection (m) as subsection (n) and by in-
serting after subsection (1) the following new subsection: 
‘‘(m) FAILURE TO PROVIDE INVESTMENT EDU-
CATION
NOTICES
TO
PARTICIPANTS
IN
CERTAIN 
PLANS.—In the case of each failure to provide a notice 
as required by section 414(w) with respect to an applicable
157
individual (as defined in such section), at the time pre-
scribed therefore, unless it is shown that such failure is 
due to reasonable cause and not to willful neglect, there 
shall be paid, on notice and demand of the Secretary and 
in the same manner as tax, by the person failing to provide 
such notice, an amount equal to $100 for each such fail-
ure, but the total amount imposed on such person for all 
such failures during any calendar year shall not exceed 
$500,000.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (3), the amendments made by this section 
shall apply with respect to plan years beginning 
after December 31, 2003. 
(2) MODEL
INVESTMENT
PRINCIPLES.—Not 
later than the earlier of January 1, 2004, or 120 
days after the date of the enactment of this Act, the 
Secretary of the Treasury, in consultation with the 
Secretary of Labor, shall issue guidance and model 
notices which meet the requirements of section 
414(w) of the Internal Revenue Code of 1986 (as 
added by this section). 
(3) GOVERNMENTAL PLANS.—In the case of a 
governmental plan (as defined in section 414(d) of 
the Internal Revenue Code of 1986), the amend-
158
ments made by this section shall apply with respect 
to plan years beginning after December 31, 2005.
SEC. 1102. NOTICE OF BLACKOUT PERIODS TO PARTICI-
PANT OR BENEFICIARY UNDER DEFINED 
CONTRIBUTION PLAN. 
(a) IN GENERAL.—Section 414 (relating to defini-
tions and special rules) (as amended by this Act) is 
amended by adding at the end the following: 
‘‘(x) NOTICE OF BLACKOUT PERIODS TO PARTICI-
PANT OR BENEFICIARY UNDER APPLICABLE PENSION 
PLAN.—
‘‘(1) DUTIES
OF
PLAN
ADMINISTRATOR.—In 
advance of the commencement of any blackout pe-
riod with respect to an applicable pension plan, the 
plan administrator shall notify the plan participants 
and beneficiaries who are affected by such action in 
accordance with this subsection. 
‘‘(2) NOTICE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The notices described 
in paragraph (1) shall be written in a manner 
calculated to be understood by the average plan 
participant and shall include—
‘‘(i) the reasons for the blackout pe-
riod,
159
‘‘(ii) an identification of the invest-
ments and other rights affected, 
‘‘(iii) the expected beginning date and 
length of the blackout period, 
‘‘(iv) in the case of investments af-
fected, a statement that the participant or 
beneficiary should evaluate the appro-
priateness of their current investment deci-
sions in light of their inability to direct or 
diversify assets credited to their accounts 
during the blackout period, and 
‘‘(v) such other matters as the Sec-
retary may require by regulation. 
‘‘(B) NOTICE
TO
PARTICIPANTS
AND 
BENEFICIARIES.—Except as otherwise provided 
in this subsection, notices described in para-
graph (1) shall be furnished to all participants 
and beneficiaries under the plan to whom the 
blackout period applies at least 30 days in ad-
vance of the blackout period. 
‘‘(C) EXCEPTION TO 30-DAY NOTICE RE-
QUIREMENT.—In any case in which—
‘‘(i) a deferral of the blackout period 
would violate the requirements of subpara-
graph (A) or (B) of section 404(a)(1) of
160
the Employee Retirement Income Security 
Act of 1974, and a fiduciary of the plan 
reasonably so determines in writing, or 
‘‘(ii) the inability to provide the 30-
day advance notice is due to events that 
were unforeseeable or circumstances be-
yond the reasonable control of the plan ad-
ministrator, and a fiduciary of the plan 
reasonably so determines in writing, 
subparagraph (B) shall not apply, and the no-
tice shall be furnished to all participants and 
beneficiaries under the plan to whom the black-
out period applies as soon as reasonably pos-
sible under the circumstances unless such a no-
tice in advance of the termination of the black-
out period is impracticable. 
‘‘(D) WRITTEN
NOTICE.—The notice re-
quired to be provided under this subsection 
shall be in writing, except that such notice may 
be in electronic or other form to the extent that 
such form is reasonably accessible to the recipi-
ent. 
‘‘(E) NOTICE TO ISSUERS OF EMPLOYER 
SECURITIES SUBJECT TO BLACKOUT PERIOD.—
In the case of any blackout period in connection
161
with an applicable pension plan, the plan ad-
ministrator shall provide timely notice of such 
blackout period to the issuer of any employer 
securities subject to such blackout period. 
‘‘(3) EXCEPTION
FOR
BLACKOUT
PERIODS 
WITH
LIMITED
APPLICABILITY.—In any case in 
which the blackout period applies only to 1 or more 
participants or beneficiaries in connection with a 
merger, acquisition, divestiture, or similar trans-
action involving the plan or plan sponsor and occurs 
solely in connection with becoming or ceasing to be 
a participant or beneficiary under the plan by reason 
of such merger, acquisition, divestiture, or trans-
action, the requirement of this subsection that the 
notice be provided to all participants and bene-
ficiaries shall be treated as met if the notice required 
under paragraph (1) is provided to such participants 
or beneficiaries to whom the blackout period applies 
as soon as reasonably practicable. 
‘‘(4) CHANGES IN LENGTH OF BLACKOUT PE-
RIOD.—If, following the furnishing of the notice pur-
suant to this subsection, there is a change in the be-
ginning date or length of the blackout period (speci-
fied 
in 
such 
notice 
pursuant 
to 
paragraph 
(2)(A)(iii)), the administrator shall provide affected
162
participants and beneficiaries notice of the change as 
soon as reasonably practicable. In relation to the ex-
tended blackout period, such notice shall meet the 
requirements of paragraph (2)(D) and shall specify 
any material change in the matters referred to in 
clauses (i) through (v) of paragraph (2)(A). 
‘‘(5) REGULATORY
EXCEPTIONS.—The Sec-
retary may provide by regulation for additional ex-
ceptions to the requirements of this subsection which 
the Secretary determines are in the interests of par-
ticipants and beneficiaries. 
‘‘(6) GUIDANCE
AND
MODEL
NOTICES.—The 
Secretary shall issue guidance and model notices 
which meet the requirements of this subsection. 
‘‘(7) BLACKOUT PERIOD.—For purposes of this 
subsection—
‘‘(A) IN
GENERAL.—The term ‘blackout 
period’ means, in connection with an applicable 
pension plan, any period for which any ability 
of participants or beneficiaries under the plan, 
which is otherwise available under the terms of 
such plan, to direct or diversify assets credited 
to their accounts, to obtain loans from the plan, 
or to obtain distributions from the plan is tem-
porarily suspended, limited, or restricted, if
163
such suspension, limitation, or restriction is for 
any period of more than 3 consecutive business 
days. 
‘‘(B) EXCLUSIONS.—The term ‘blackout 
period’ does not include a suspension, limita-
tion, or restriction— 
‘‘(i) which occurs by reason of the ap-
plication of the securities laws (as defined 
in section 3(a)(47) of the Securities Ex-
change Act of 1934), 
‘‘(ii) which is a change to the plan 
which provides for a regularly scheduled 
suspension, limitation, or restriction which 
is disclosed to participants or beneficiaries 
through any summary of material modi-
fications, any materials describing specific 
investment alternatives under the plan, or 
any changes thereto, or 
‘‘(iii) which applies only to 1 or more 
individuals, each of whom is the partici-
pant, an alternate payee (as defined in sec-
tion 414(p)(8), or any other beneficiary 
pursuant to a qualified domestic relations 
order (as defined in section 414(p)(1)(A)). 
‘‘(8) APPLICABLE PENSION PLAN.—
164
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘applicable pension plan’ 
means—
‘‘(i) a plan described in clause (i), (ii), 
or (iv) of section 219(g)(5)(A), and 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an 
eligible employer described in section 
457(e)(1)(A), 
which maintains accounts for participants 
under the plan or under which the accrued ben-
efit of any participant depends in whole or in 
part on hypothetical investments directed by the 
participant. 
‘‘(B) EXCEPTIONS.—Such term shall not 
include a one-participant retirement plan or a 
plan to which section 101(i) of the Employee 
Retirement Income Security Act of 1974 ap-
plies. 
‘‘(C) 
ONE-PARTICIPANT
RETIREMENT 
PLAN.—For purposes of this paragraph, the 
term ‘one-participant retirement plan’ means a 
retirement plan that— 
‘‘(i) on the first day of the plan 
year—
165
‘‘(I) covered only the employer 
(and the employer’s spouse) and the 
employer owned the entire business 
(whether or not incorporated), or 
‘‘(II) covered only one or more 
partners (and their spouses) in a busi-
ness partnership (including partners 
in an S or C corporation (as defined 
in section 1361(a)), 
‘‘(ii) meets the minimum coverage re-
quirements of section 410(b) (as in effect 
on the date of the enactment of the Sar-
banes-Oxley Act of 2002) without being 
combined with any other plan of the busi-
ness that covers the employees of the busi-
ness, 
‘‘(iii) does not provide benefits to any-
one except the employer (and the employ-
er’s spouse) or the partners (and their 
spouses), 
‘‘(iv) 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
166
‘‘(v) does not cover a business that 
leases employees.’’. 
‘‘(9) CROSS REFERENCE.—For provisions relat-
ing to penalty for failure to provide the notice re-
quired by this section, see section 6652(n).’’. 
(b) PENALTY FOR FAILURE TO PROVIDE NOTICE.—
Section 6652 (relating to failure to file certain information 
returns, registration statements, etc.) (as amended by this 
Act) is amended by redesignating subsection (n) as sub-
section (o) and by inserting after subsection (m) the fol-
lowing new subsection: 
‘‘(n) FAILURE TO PROVIDE BLACKOUT PERIOD NO-
TICE TO PARTICIPANTS OR BENEFICIARIES.—In the case 
of each failure to provide a notice as required by section 
414(x) with respect to a participant or beneficiary entitled 
to such a notice under such section, at the time prescribed 
therefor, unless it is shown that such failure is due to rea-
sonable cause and not to willful neglect, there shall be 
paid, on notice and demand of the Secretary and in the 
same manner as tax, by the person failing to provide such 
notice, an amount equal to $100 for such failure but the 
total amount imposed on such person for all such failures 
during any calendar year shall not exceed $500,000.’’. 
(c) PLAN AMENDMENTS.—If any amendment made 
by this subsection requires an amendment to any plan,
167
such plan amendment shall not be required to be made 
before the third plan year beginning on or after the effec-
tive date of this section, if—
(1) during the period after such amendment 
made by this subsection takes effect and before such 
third plan year, the plan is operated in good faith 
compliance with the requirements of such amend-
ment made by this subsection, and 
(2) such plan amendment applies retroactively 
to the period after such amendment made by this 
subsection takes effect and before such third plan 
year. 
(d) EFFECTIVE DATE.—The provisions of this sec-
tion (including the amendments made thereby) shall take 
effect two years after the date of the enactment of this 
Act.
SEC. 1103. DIVERSIFICATION REQUIREMENTS FOR DE-
FINED CONTRIBUTION PLANS THAT HOLD 
EMPLOYER SECURITIES. 
(a) IN GENERAL.—Subsection (a) of section 401 (re-
lating to requirements for qualification) is amended by 
adding at the end the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.—
168
‘‘(A) IN GENERAL.—In the case of a de-
fined contribution plan described in this sub-
section that includes a trust which is exempt 
from tax under section 501(a) and which holds 
employer securities that are readily tradable on 
an established securities market, such trust 
shall not constitute a qualified trust under this 
section unless such plan meets the requirements 
of subparagraphs (B), (C), and (D). 
‘‘(B) ELECTIVE
DEFERRALS
AND
EM-
PLOYEE
CONTRIBUTIONS
INVESTED
IN
EM-
PLOYER SECURITIES.—In the case of the por-
tion of the account attributable to elective de-
ferrals and employee contributions which is in-
vested in employer securities, a plan meets the 
requirements of this subparagraph if each ap-
plicable individual in such plan may elect to di-
rect the plan to divest up to the applicable per-
centage of such securities in the individual’s ac-
count and to reinvest an equivalent amount in 
other investment options which meet the re-
quirements of subparagraph (E). 
‘‘(C) MATCHING
AND
CERTAIN
OTHER 
CONTRIBUTIONS.—
169
‘‘(i) IN GENERAL.—In the case of the 
portion of the account attributable to con-
tributions to which this subparagraph ap-
plies and which is invested in employer se-
curities, a plan meets the requirements of 
this subparagraph if each applicable 3-year 
individual in the plan may elect to direct 
the plan to divest up to the applicable per-
centage of such securities in the individ-
ual’s account and to reinvest an equivalent 
amount in other investment options which 
meet the requirements of subparagraph 
(E). 
‘‘(ii) CONTRIBUTIONS TO WHICH THIS 
SUBPARAGRAPH
APPLIES.—This subpara-
graph shall apply to—
‘‘(I) matching contributions (as 
defined in subsection (m)(4)(A)), 
‘‘(II) qualified nonelective con-
tributions (as defined in subsection 
(m)(4)(C)), and 
‘‘(III) 
contributions 
made 
in 
order to meet the requirements of 
subsection (k)(12)(C).
170
‘‘(iii) 
APPLICABLE
3-YEAR
INDI-
VIDUAL.—For purposes of clause (i), the 
term ‘applicable 3-year individual’ means 
any individual who would be an applicable 
individual if only participants in the plan 
who have completed at least 3 years of 
service 
(as 
determined 
under 
section 
411(a)) were taken into account under 
subparagraph (G)(i)(I). 
‘‘(D) 
OTHER
EMPLOYER
CONTRIBU-
TIONS.—
‘‘(i) IN GENERAL.—In the case of the 
portion of the account attributable to em-
ployer contributions (other than contribu-
tions to which subparagraph (B) or (C) 
applies) which is invested in employer se-
curities, a plan meets the requirements of 
this subparagraph if each applicable 5-year 
individual described in clause (ii) may elect 
to direct the plan to divest up to the appli-
cable percentage of such securities in the 
individual’s account and to reinvest an 
equivalent amount in other investment op-
tions which meet the requirements of sub-
paragraph (E).
171
‘‘(ii) 
APPLICABLE
5-YEAR
INDI-
VIDUAL.—For purposes of clause (i), the 
term ‘5-year individual’ means any indi-
vidual who would be an applicable indi-
vidual if only participants in the plan who 
have completed at least 5 years of service 
(as determined under section 411(a)) were 
taken into account under subparagraph 
(G)(i)(I). 
‘‘(E) INVESTMENT OPTIONS.—The require-
ments of this subparagraph are met if the plan 
offers not less than 3 investment options (not 
inconsistent with regulations prescribed by the 
Secretary) other than employer securities. 
‘‘(F) ELECTION.—Elections under this 
paragraph maybe made not less frequently than 
quarterly. 
‘‘(G) OTHER DEFINITIONS AND RULES.—
For purposes of this paragraph—
‘‘(i) APPLICABLE
INDIVIDUAL.—The 
term ‘applicable individual’ means—
‘‘(I) any participant in the plan, 
‘‘(II) any beneficiary who is an 
alternate payee (within the meaning 
of section 414(p)(8)) under an appli-
172
cable 
qualified 
domestic 
relations 
order (within the meaning of section 
414(p)(1)(A)), and 
‘‘(III) any beneficiary of a de-
ceased participant or alternate payee. 
‘‘(ii) 
ELECTIVE
DEFERRALS.—The 
term ‘elective deferrals’ means an employer 
contribution 
described 
in 
section 
402(g)(3)(A). 
‘‘(iii) EMPLOYER
SECURITIES.—The 
term ‘employer securities’ shall have the 
meaning given such term by section 
407(d)(1) of the Employee Retirement In-
come Security Act of 1974. 
‘‘(iv) 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). 
‘‘(v) APPLICABLE PERCENTAGE.—
‘‘(I) IN GENERAL.—The applica-
ble percentage shall be as follows:
‘‘Plan years 
Applicable 
beginning in: 
percentage: 
2004 ...................................................
2005 ...................................................
2006 ...................................................
2007 ...................................................
2008 or thereafter ..............................
100.
173
‘‘(II) 
ELECTIVE
DEFERRALS 
TREATED AS SEPARATE PLAN NOT IN-
DIVIDUAL
ACCOUNT
PLAN.—In the 
case of elective deferrals and employee 
contributions (and any earnings allo-
cable thereto) held within a plan 
treated as a separate plan as of the 
date of the enactment of this para-
graph under section 407(b)(2) of the 
Employee Retirement Income Security 
Act of 1974, for purposes of subpara-
graph (B) the applicable percentage 
shall be 100 percent. 
‘‘(III) 
CONTRIBUTIONS
HELD 
WITHIN AN ESOP.—In the case of con-
tributions (other than elective defer-
rals and employee contributions) held 
within an employee stock ownership 
plan, in the case of years 2004 and 
2005, the applicable percentage shall 
be the greater of the amount deter-
mined under subclause (I) or the per-
centage determined under paragraph 
(28) (determined as if paragraph (28)
174
applied to a plan described in this 
paragraph). 
‘‘(vi) COORDINATION
WITH
PARA-
GRAPH (28).—Subparagraphs (B), (C), and 
(D) shall apply to the extent that the 
amount attributable to the applicable per-
centage under such subparagraph exceeds 
the amount to which a prior election under 
such subparagraph or paragraph (28) ap-
plies. 
‘‘(H) EXCEPTION FOR CERTAIN ESOPS.—
This paragraph shall apply to an employee 
stock ownership plan only if the plan holds 
amounts attributable to deferrals or contribu-
tions to which subparagraph (B) or (C) apply.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 401(a)(28) 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.’’. 
(2) Section 409(h)(7) is amended by inserting 
before the period at the end ‘‘or subparagraph (B), 
(C), or (D) of section 401(a)(35)’’.
175
(3) Section 4980(c)(3)(A) is amended by strik-
ing ‘‘if—’’ and all that follows and inserting ‘‘if the 
requirements of subparagraphs (B), (C), and (D) 
are met.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to plan years beginning after December 
31, 2003.
(2) EXCEPTION.—The amendments made by 
this section shall not apply to employer securities 
held by an employee stock ownership plan which are 
not subject to section 401(a)(28) of the Internal 
Revenue Code of 1986 by reason of section 
1175(a)(2) of the Tax Reform Act of 1986 (100 
Stat. 2519). 
SEC. 1104. 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-
176
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, 2003. 
SEC. 1105. SPECIAL RULES. 
In the case of a plan maintained pursuant to 1 or 
more collective bargaining agreements between employee 
representatives and 1 or more employers ratified on or be-
fore the date of the enactment of this Act, the amend-
177
ments made by this title shall not apply to plan years be-
ginning before the earlier of—
(1) the later of—
(A) January 1, 2005, 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) January 1, 2006. 
TITLE XII—OTHER TAX PROVI-
SIONS 
RELATING 
TO 
PEN-
SIONS 
SEC. 1201. AMENDMENTS TO RETIREMENT PROTECTION 
ACT OF 1994. 
(a) TRANSITION RULE MADE PERMANENT.—Para-
graph (1) of section 769(c) of the Retirement Protection 
Act of 1994 is amended—
(1) by striking ‘‘transition’’ each place it ap-
pears in the heading and the text, and 
(2) by striking ‘‘for any plan year beginning 
after 1996 and before 2010’’. 
(b) SPECIAL RULES.—Paragraph (2) of section 
769(c) of the Retirement Protection Act of 1994 is amend-
ed to read as follows:
178
‘‘(2) SPECIAL RULES.—The rules described in 
this paragraph are as follows: 
‘‘(A) For purposes of section 412(l)(9)(A) 
of the Internal Revenue Code of 1986 and sec-
tion 302(d)(9)(A) of the Employee Retirement 
Income Security Act of 1974, the funded cur-
rent liability percentage for any plan year shall 
be treated as not less than 90 percent. 
‘‘(B) For purposes of section 412(m) of 
the Internal Revenue Code of 1986 and section 
302(e) of the Employee Retirement Income Se-
curity Act of 1974, the funded current liability 
percentage for any plan year shall be treated as 
not less than 100 percent. 
‘‘(C) For purposes of determining un-
funded 
vested 
benefits 
under 
section 
4006(a)(3)(E)(iii) of the Employee Retirement 
Income Security Act of 1974, the mortality 
table shall be the mortality table used by the 
plan.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2002.