538 
retary of Labor, after consultation with the Securi-
ties and Exchange Commission, shall issue regula-
tions regarding the content of policies and proce-
dures required to be adopted by an investment man-
ager under section 408(b)(19) of the Employee Re-
tirement Income Security Act of 1974. 
(h) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to transactions occurring after the date 
of the enactment of this Act. 
(2) BONDING RULE.—The amendments made 
by subsection (b) shall apply to plan years beginning 
after such date. 
SEC. 612. CORRECTION PERIOD FOR CERTAIN TRANS-
ACTIONS INVOLVING SECURITIES AND COM-
MODITIES. 
(a) AMENDMENT OF EMPLOYEE RETIREMENT IN-
COME SECURITY ACT OF 1974.—Section 408(b) of the 
Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1108(b)), as amended by sections 601 and 611, 
is further amended by adding at the end the following new 
paragraph: 
‘‘(20)(A) Except as provided in subparagraphs 
(B) and (C), a transaction described in section 
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ccoleman on PROD1PC71 with BILLS
539 
406(a) in connection with the acquisition, holding, 
or disposition of any security or commodity, if the 
transaction is corrected before the end of the correc-
tion period. 
‘‘(B) Subparagraph (A) does not apply to any 
transaction between a plan and a plan sponsor or its 
affiliates that involves the acquisition or sale of an 
employer security (as defined in section 407(d)(1)) 
or the acquisition, sale, or lease of employer real 
property (as defined in section 407(d)(2)). 
‘‘(C) In the case of any fiduciary or other party 
in interest (or any other person knowingly partici-
pating in such transaction), subparagraph (A) does 
not apply to any transaction if, at the time the 
transaction occurs, such fiduciary or party in inter-
est (or other person) knew (or reasonably should 
have known) that the transaction would (without re-
gard to this paragraph) constitute a violation of sec-
tion 406(a). 
‘‘(D) For purposes of this paragraph, the term 
‘correction period’ means, in connection with a fidu-
ciary or party in interest (or other person knowingly 
participating in the transaction), the 14-day period 
beginning on the date on which such fiduciary or 
party in interest (or other person) discovers, or rea-
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sonably should have discovered, that the transaction 
would (without regard to this paragraph) constitute 
a violation of section 406(a). 
‘‘(E) For purposes of this paragraph— 
‘‘(i) The term ‘security’ has the meaning 
given such term by section 475(c)(2) of the In-
ternal Revenue Code of 1986 (without regard to 
subparagraph (F)(iii) and the last sentence 
thereof). 
‘‘(ii) The term ‘commodity’ has the mean-
ing given such term by section 475(e)(2) of 
such Code (without regard to subparagraph 
(D)(iii) thereof). 
‘‘(iii) The term ‘correct’ means, with re-
spect to a transaction— 
‘‘(I) to undo the transaction to the ex-
tent possible and in any case to make good 
to the plan or affected account any losses 
resulting from the transaction, and 
‘‘(II) to restore to the plan or affected 
account any profits made through the use 
of assets of the plan.’’. 
(b) AMENDMENT OF INTERNAL REVENUE CODE OF 
1986.— 
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541 
(1) IN
GENERAL.—Subsection (d) of section 
4975 of the Internal Revenue Code of 1986 (relating 
to exemptions), as amended by sections 601 and 
611, is amended by striking ‘‘or’’ at the end of para-
graph (21), by striking the period at the end of 
paragraph (22) and inserting ‘‘, or’’, and by adding 
at the end the following new paragraph: 
‘‘(23) except as provided in subsection (f)(11), 
a transaction described in subparagraph (A), (B), 
(C), or (D) of subsection (c)(1) in connection with 
the acquisition, holding, or disposition of any secu-
rity or commodity, if the transaction is corrected be-
fore the end of the correction period.’’. 
(2) SPECIAL RULES RELATING TO CORRECTION 
PERIOD.—Subsection (f) of section 4975 of such 
Code (relating to other definitions and special rules), 
as amended by sections 601 and 611, is amended by 
adding at the end the following new paragraph: 
‘‘(11) CORRECTION PERIOD.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (d)(23), the term ‘correction period’ 
means the 14-day period beginning on the date 
on which the disqualified person discovers, or 
reasonably should have discovered, that the 
transaction would (without regard to this para-
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542 
graph and subsection (d)(23)) constitute a pro-
hibited transaction. 
‘‘(B) EXCEPTIONS.— 
‘‘(i) EMPLOYER
SECURITIES.—Sub-
section (d)(23) does not apply to any 
transaction between a plan and a plan 
sponsor or its affiliates that involves the 
acquisition or sale of an employer security 
(as defined in section 407(d)(1)) or the ac-
quisition, sale, or lease of employer real 
property (as defined in section 407(d)(2)). 
‘‘(ii) KNOWING
PROHIBITED
TRANS-
ACTION.—In the case of any disqualified 
person, subsection (d)(23) does not apply 
to a transaction if, at the time the trans-
action is entered into, the disqualified per-
son knew (or reasonably should have 
known) that the transaction would (with-
out regard to this paragraph) constitute a 
prohibited transaction. 
‘‘(C) ABATEMENT OF TAX WHERE THERE 
IS
A
CORRECTION.—If a transaction is not 
treated as a prohibited transaction by reason of 
subsection (d)(23), then no tax under sub-
section (a) and (b) shall be assessed with re-
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543 
spect to such transaction, and if assessed the 
assessment shall be abated, and if collected 
shall be credited or refunded as an overpay-
ment. 
‘‘(D) DEFINITIONS.—For purposes of this 
paragraph and subsection (d)(23)— 
‘‘(i) SECURITY.—The term ‘security’ 
has the meaning given such term by sec-
tion 475(c)(2) (without regard to subpara-
graph (F)(iii) and the last sentence there-
of). 
‘‘(ii) COMMODITY.—The term ‘com-
modity’ has the meaning given such term 
by section 475(e)(2) (without regard to 
subparagraph (D)(iii) thereof). 
‘‘(iii) CORRECT.—The term ‘correct’ 
means, with respect to a transaction— 
‘‘(I) to undo the transaction to 
the extent possible and in any case to 
make good to the plan or affected ac-
count any losses resulting from the 
transaction, and 
‘‘(II) to restore to the plan or af-
fected account any profits made 
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544 
through the use of assets of the 
plan.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to any transaction which the fidu-
ciary or disqualified person discovers, or reasonably should 
have discovered, after the date of the enactment of this 
Act constitutes a prohibited transaction. 
Subtitle C—Fiduciary and Other 
Rules 
SEC. 621. INAPPLICABILITY OF RELIEF FROM FIDUCIARY 
LIABILITY DURING SUSPENSION OF ABILITY 
OF PARTICIPANT OR BENEFICIARY TO DI-
RECT INVESTMENTS. 
(a) IN GENERAL.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1104(c)) is amended— 
(1) in paragraph (1)— 
(A) by redesignating subparagraphs (A) 
and (B) as clauses (i) and (ii), respectively, and 
by inserting ‘‘(A)’’ after ‘‘(c)(1)’’, 
(B) in subparagraph (A)(ii) (as redesig-
nated by paragraph (1)), by inserting before the 
period the following: ‘‘, except that this clause 
shall not apply in connection with such partici-
pant or beneficiary for any blackout period dur-
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ccoleman on PROD1PC71 with BILLS
545 
ing which the ability of such participant or ben-
eficiary to direct the investment of the assets in 
his or her account is suspended by a plan spon-
sor or fiduciary’’, and 
(C) by adding at the end the following new 
subparagraphs: 
‘‘(B) If a person referred to in subparagraph (A)(ii) 
meets the requirements of this title in connection with au-
thorizing and implementing the blackout period, any per-
son who is otherwise a fiduciary shall not be liable under 
this title for any loss occurring during such period. 
‘‘(C) For purposes of this paragraph, the term ‘black-
out period’ has the meaning given such term by section 
101(i)(7).’’; and 
(2) by adding at the end the following: 
‘‘(4)(A) In any case in which a qualified change 
in investment options occurs in connection with an 
individual account plan, a participant or beneficiary 
shall not be treated for purposes of paragraph (1) 
as not exercising control over the assets in his ac-
count in connection with such change if the require-
ments of subparagraph (C) are met in connection 
with such change. 
‘‘(B) For purposes of subparagraph (A), the 
term ‘qualified change in investment options’ means, 
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546 
in connection with an individual account plan, a 
change in the investment options offered to the par-
ticipant or beneficiary under the terms of the plan, 
under which— 
‘‘(i) the account of the participant or bene-
ficiary is reallocated among one or more re-
maining or new investment options which are 
offered in lieu of one or more investment op-
tions offered immediately prior to the effective 
date of the change, and 
‘‘(ii) the stated characteristics of the re-
maining or new investment options provided 
under clause (i), including characteristics relat-
ing to risk and rate of return, are, as of imme-
diately after the change, reasonably similar to 
those of the existing investment options as of 
immediately before the change. 
‘‘(C) The requirements of this subparagraph 
are met in connection with a qualified change in in-
vestment options if— 
‘‘(i) at least 30 days and no more than 60 
days prior to the effective date of the change, 
the plan administrator furnishes written notice 
of the change to the participants and bene-
ficiaries, including information comparing the 
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547 
existing and new investment options and an ex-
planation that, in the absence of affirmative in-
vestment instructions from the participant or 
beneficiary to the contrary, the account of the 
participant or beneficiary will be invested in the 
manner described in subparagraph (B), 
‘‘(ii) the participant or beneficiary has not 
provided to the plan administrator, in advance 
of the effective date of the change, affirmative 
investment instructions contrary to the change, 
and 
‘‘(iii) the investments under the plan of the 
participant or beneficiary as in effect imme-
diately prior to the effective date of the change 
were the product of the exercise by such partici-
pant or beneficiary of control over the assets of 
the account within the meaning of paragraph 
(1).’’. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to plan years beginning after 
December 31, 2007. 
(2) SPECIAL
RULE
FOR
COLLECTIVELY
BAR-
GAINED AGREEMENTS.—In the case of a plan main-
tained pursuant to 1 or more collective bargaining 
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548 
agreements between employee representatives and 1 
or more employers ratified on or before the date of 
the enactment of this Act, paragraph (1) shall be 
applied to benefits pursuant to, and individuals cov-
ered by, any such agreement by substituting for 
‘‘December 31, 2007’’ the earlier of— 
(A) the later of— 
(i) December 31, 2008, or 
(ii) the date on which the last of such 
collective bargaining agreements termi-
nates (determined without regard to any 
extension thereof after such date of enact-
ment), or 
(B) December 31, 2009. 
SEC. 622. INCREASE IN MAXIMUM BOND AMOUNT. 
(a) IN GENERAL.—Section 412(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1112), as amended by section 611(b), is amended by add-
ing at the end the following: ‘‘In the case of a plan that 
holds employer securities (within the meaning of section 
407(d)(1)), this subsection shall be applied by substituting 
‘$1,000,000’ for ‘$500,000’ each place it appears.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to plan years beginning after De-
cember 31, 2007. 
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549 
SEC. 623. INCREASE IN PENALTIES FOR COERCIVE INTER-
FERENCE WITH EXERCISE OF ERISA RIGHTS. 
(a) IN GENERAL.—Section 511 of the Employment 
Retirement Income Security Act of 1974 (29 U.S.C. 1141) 
is amended— 
(1) by striking ‘‘$10,000’’ and inserting 
‘‘$100,000’’, and 
(2) by striking ‘‘one year’’ and inserting ‘‘10 
years’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to violations occurring on and after 
the date of the enactment of this Act. 
SEC. 624. TREATMENT OF INVESTMENT OF ASSETS BY PLAN 
WHERE PARTICIPANT FAILS TO EXERCISE IN-
VESTMENT ELECTION. 
(a) IN GENERAL.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1104(c)), as amended by section 622, is amended by add-
ing at the end the following new paragraph: 
‘‘(5) 
DEFAULT
INVESTMENT
ARRANGE-
MENTS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), a participant in an individual ac-
count plan meeting the notice requirements of 
subparagraph (B) shall be treated as exercising 
control over the assets in the account with re-
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550 
spect to the amount of contributions and earn-
ings which, in the absence of an investment 
election by the participant, are invested by the 
plan in accordance with regulations prescribed 
by the Secretary. The regulations under this 
subparagraph shall provide guidance on the ap-
propriateness of designating default investments 
that include a mix of asset classes consistent 
with capital preservation or long-term capital 
appreciation, or a blend of both. 
‘‘(B) NOTICE REQUIREMENTS.— 
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if each par-
ticipant— 
‘‘(I) receives, within a reasonable 
period of time before each plan year, 
a notice explaining the employee’s 
right under the plan to designate how 
contributions and earnings will be in-
vested and explaining how, in the ab-
sence of any investment election by 
the participant, such contributions 
and earnings will be invested, and 
‘‘(II) has a reasonable period of 
time after receipt of such notice and 
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551 
before the beginning of the plan year 
to make such designation. 
‘‘(ii) FORM OF NOTICE.—The require-
ments of clauses (i) and (ii) of section 
401(k)(12)(D) of the Internal Revenue 
Code of 1986 shall apply with respect to 
the notices described in this subpara-
graph.’’. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to plan years beginning after 
December 31, 2006. 
(2) REGULATIONS.—Final regulations under 
section 404(c)(5)(A) of the Employee Retirement In-
come Security Act of 1974 (as added by this section) 
shall be issued no later than 6 months after the date 
of the enactment of this Act. 
SEC. 625. CLARIFICATION OF FIDUCIARY RULES. 
(a) IN GENERAL.—Not later than 1 year after the 
date of the enactment of this Act, the Secretary of Labor 
shall issue final regulations clarifying that the selection 
of an annuity contract as an optional form of distribution 
from an individual account plan to a participant or bene-
ficiary— 
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552 
(1) is not subject to the safest available annuity 
standard under Interpretive Bulletin 95–1 (29 
C.F.R. 2509.95–1), and 
(2) is subject to all otherwise applicable fidu-
ciary standards. 
(b) EFFECTIVE DATE.—This section shall take effect 
on the date of enactment of this Act. 
TITLE VII—BENEFIT ACCRUAL 
STANDARDS 
SEC. 701. BENEFIT ACCRUAL STANDARDS. 
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.— 
(1) RULES RELATING TO REDUCTION IN RATE 
OF BENEFIT ACCRUAL.—Section 204(b) of the Em-
ployee Retirement Income Security Act of 1974 (29 
U.S.C. 1054(b)) is amended by adding at the end 
the following new paragraph: 
‘‘(5) SPECIAL RULES RELATING TO AGE.— 
‘‘(A) COMPARISON
TO
SIMILARLY
SITU-
ATED YOUNGER INDIVIDUAL.— 
‘‘(i) IN GENERAL.—A plan shall not 
be treated as failing to meet the require-
ments of paragraph (1)(H)(i) if a partici-
pant’s accrued benefit, as determined as of 
any date under the terms of the plan, 
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553 
would be equal to or greater than that of 
any similarly situated, younger individual 
who is or could be a participant. 
‘‘(ii) SIMILARLY SITUATED.—For pur-
poses of this subparagraph, a participant 
is similarly situated to any other individual 
if such participant is identical to such 
other individual in every respect (including 
period of service, compensation, position, 
date of hire, work history, and any other 
respect) except for age. 
‘‘(iii) DISREGARD
OF
SUBSIDIZED 
EARLY RETIREMENT BENEFITS.—In deter-
mining the accrued benefit as of any date 
for purposes of this clause, the subsidized 
portion of any early retirement benefit or 
retirement-type 
subsidy 
shall 
be 
dis-
regarded. 
‘‘(iv) ACCRUED
BENEFIT.—For pur-
poses of this subparagraph, the accrued 
benefit may, under the terms of the plan, 
be expressed as an annuity payable at nor-
mal retirement age, the balance of a hypo-
thetical account, or the current value of 
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554 
the accumulated percentage of the employ-
ee’s final average compensation. 
‘‘(B) 
APPLICABLE
DEFINED
BENEFIT 
PLANS.— 
‘‘(i) INTEREST CREDITS.— 
‘‘(I) IN GENERAL.—An applicable 
defined benefit plan shall be treated 
as failing to meet the requirements of 
paragraph (1)(H) unless the terms of 
the plan provide that any interest 
credit (or an equivalent amount) for 
any plan year shall be at a rate which 
is not greater than a market rate of 
return. A plan shall not be treated as 
failing to meet the requirements of 
this subclause merely because the plan 
provides for a reasonable minimum 
guaranteed rate of return or for a 
rate of return that is equal to the 
greater of a fixed or variable rate of 
return. 
‘‘(II) PRESERVATION
OF
CAP-
ITAL.—An interest credit (or an 
equivalent amount) of less than zero 
shall in no event result in the account 
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555 
balance or similar amount being less 
than the aggregate amount of con-
tributions credited to the account. 
‘‘(III) MARKET
RATE
OF
RE-
TURN.—The Secretary of the Treas-
ury may provide by regulation for 
rules governing the calculation of a 
market rate of return for purposes of 
subclause (I) and for permissible 
methods of crediting interest to the 
account (including fixed or variable 
interest rates) resulting in effective 
rates of return meeting the require-
ments of subclause (I). 
‘‘(ii) SPECIAL RULE FOR PLAN CON-
VERSIONS.—If, after June 29, 2005, an 
applicable plan amendment is adopted, the 
plan shall be treated as failing to meet the 
requirements of paragraph (1)(H) unless 
the requirements of clause (iii) are met 
with respect to each individual who was a 
participant in the plan immediately before 
the adoption of the amendment. 
‘‘(iii) RATE OF BENEFIT ACCRUAL.— 
Subject to clause (iv), the requirements of 
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556 
this clause are met with respect to any 
participant if the accrued benefit of the 
participant under the terms of the plan as 
in effect after the amendment is not less 
than the sum of— 
‘‘(I) the participant’s accrued 
benefit for years of service before the 
effective date of the amendment, de-
termined under the terms of the plan 
as in effect before the amendment, 
plus 
‘‘(II) the participant’s accrued 
benefit for years of service after the 
effective date of the amendment, de-
termined under the terms of the plan 
as in effect after the amendment. 
‘‘(iv) SPECIAL RULES FOR EARLY RE-
TIREMENT
SUBSIDIES.—For purposes of 
clause (iii)(I), the plan shall credit the ac-
cumulation account or similar amount with 
the amount of any early retirement benefit 
or retirement-type subsidy for the plan 
year in which the participant retires if, as 
of such time, the participant has met the 
age, years of service, and other require-
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557 
ments under the plan for entitlement to 
such benefit or subsidy. 
‘‘(v) 
APPLICABLE
PLAN
AMEND-
MENT.—For purposes of this subpara-
graph— 
‘‘(I) IN
GENERAL.—The term 
‘applicable plan amendment’ means 
an amendment to a defined benefit 
plan which has the effect of con-
verting the plan to an applicable de-
fined benefit plan. 
‘‘(II) SPECIAL
RULE
FOR
CO-
ORDINATED BENEFITS.—If the bene-
fits of 2 or more defined benefit plans 
established or maintained by an em-
ployer are coordinated in such a man-
ner as to have the effect of the adop-
tion of an amendment described in 
subclause (I), the sponsor of the de-
fined benefit plan or plans providing 
for such coordination shall be treated 
as having adopted such a plan amend-
ment as of the date such coordination 
begins. 
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558 
‘‘(III) 
MULTIPLE
AMEND-
MENTS.—The Secretary of the Treas-
ury shall issue regulations to prevent 
the avoidance of the purposes of this 
subparagraph through the use of 2 or 
more plan amendments rather than a 
single amendment. 
‘‘(IV) 
APPLICABLE
DEFINED 
BENEFIT PLAN.—For purposes of this 
subparagraph, the term ‘applicable de-
fined benefit plan’ has the meaning 
given such term by section 203(f)(3). 
‘‘(vi) 
TERMINATION
REQUIRE-
MENTS.—An applicable defined benefit 
plan shall not be treated as meeting the re-
quirements of clause (i) unless the plan 
provides that, upon the termination of the 
plan— 
‘‘(I) if the interest credit rate (or 
an equivalent amount) under the plan 
is a variable rate, the rate of interest 
used to determine accrued benefits 
under the plan shall be equal to the 
average of the rates of interest used 
under the plan during the 5-year pe-
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ccoleman on PROD1PC71 with BILLS
559 
riod ending on the termination date, 
and 
‘‘(II) the interest rate and mor-
tality table used to determine the 
amount of any benefit under the plan 
payable in the form of an annuity 
payable at normal retirement age 
shall be the rate and table specified 
under the plan for such purpose as of 
the termination date, except that if 
such interest rate is a variable rate, 
the interest rate shall be determined 
under the rules of subclause (I). 
‘‘(C) CERTAIN
OFFSETS
PERMITTED.—A 
plan shall not be treated as failing to meet the 
requirements of paragraph (1)(H)(i) solely be-
cause the plan provides offsets against benefits 
under the plan to the extent such offsets are al-
lowable in applying the requirements of section 
401(a) of the Internal Revenue Code of 1986. 
‘‘(D) PERMITTED
DISPARITIES
IN
PLAN 
CONTRIBUTIONS
OR
BENEFITS.—A plan shall 
not be treated as failing to meet the require-
ments of paragraph (1)(H) solely because the 
plan provides a disparity in contributions or 
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benefits with respect to which the requirements 
of section 401(l) of the Internal Revenue Code 
of 1986 are met. 
‘‘(E) INDEXING PERMITTED.— 
‘‘(i) IN GENERAL.—A plan shall not 
be treated as failing to meet the require-
ments of paragraph (1)(H) solely because 
the plan provides for indexing of accrued 
benefits under the plan. 
‘‘(ii) PROTECTION
AGAINST
LOSS.— 
Except in the case of any benefit provided 
in the form of a variable annuity, clause (i) 
shall not apply with respect to any index-
ing which results in an accrued benefit less 
than the accrued benefit determined with-
out regard to such indexing. 
‘‘(iii) INDEXING.—For purposes of 
this subparagraph, the term ‘indexing’ 
means, in connection with an accrued ben-
efit, the periodic adjustment of the accrued 
benefit by means of the application of a 
recognized investment index or method-
ology. 
‘‘(F) EARLY RETIREMENT BENEFIT OR RE-
TIREMENT-TYPE
SUBSIDY.—For purposes of 
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this paragraph, the terms ‘early retirement ben-
efit’ and ‘retirement-type subsidy’ have the 
meaning given such terms in subsection 
(g)(2)(A). 
‘‘(G) BENEFIT ACCRUED TO DATE.—For 
purposes of this paragraph, any reference to the 
accrued benefit shall be a reference to such ben-
efit accrued to date.’’. 
(2) DETERMINATIONS OF ACCRUED BENEFIT AS 
BALANCE
OF
BENEFIT
ACCOUNT
OR
EQUIVALENT 
AMOUNTS.—Section 203 of such Act (29 U.S.C. 
1053) is amended by adding at the end the following 
new subsection: 
‘‘(f) SPECIAL RULES FOR PLANS COMPUTING AC-
CRUED BENEFITS BY REFERENCE TO HYPOTHETICAL AC-
COUNT BALANCE OR EQUIVALENT AMOUNTS.— 
‘‘(1) IN GENERAL.—An applicable defined ben-
efit plan shall not be treated as failing to meet— 
‘‘(A) subject to paragraph (2), the require-
ments of subsection (a)(2), or 
‘‘(B) the requirements of section 204(c) or 
section 205(g) with respect to contributions 
other than employee contributions, 
solely because the present value of the accrued ben-
efit (or any portion thereof) of any participant is, 
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ccoleman on PROD1PC71 with BILLS
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under the terms of the plan, equal to the amount ex-
pressed as the balance in the hypothetical account 
described in paragraph (3) or as an accumulated 
percentage of the participant’s final average com-
pensation. 
‘‘(2) 3-YEAR VESTING.—In the case of an appli-
cable defined benefit plan, such plan shall be treated 
as meeting the requirements of subsection (a)(2) 
only 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. 
‘‘(3) APPLICABLE DEFINED BENEFIT PLAN AND 
RELATED
RULES.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—The term ‘applicable 
defined benefit plan’ means a defined benefit 
plan under which the accrued benefit (or any 
portion thereof) is calculated as the balance of 
a hypothetical account maintained for the par-
ticipant or as an accumulated percentage of the 
participant’s final average compensation. 
‘‘(B) REGULATIONS TO INCLUDE SIMILAR 
PLANS.—The Secretary of the Treasury shall 
issue regulations which include in the definition 
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ccoleman on PROD1PC71 with BILLS
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of an applicable defined benefit plan any de-
fined benefit plan (or any portion of such a 
plan) which has an effect similar to an applica-
ble defined benefit plan.’’. 
(b) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.— 
(1) RULES RELATING TO REDUCTION IN RATE 
OF BENEFIT ACCRUAL.—Subsection (b) of section 
411 of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new para-
graph: 
‘‘(5) SPECIAL RULES RELATING TO AGE.— 
‘‘(A) COMPARISON
TO
SIMILARLY
SITU-
ATED YOUNGER INDIVIDUAL.— 
‘‘(i) IN GENERAL.—A plan shall not 
be treated as failing to meet the require-
ments of paragraph (1)(H)(i) if a partici-
pant’s accrued benefit, as determined as of 
any date under the terms of the plan, 
would be equal to or greater than that of 
any similarly situated, younger individual 
who is or could be a participant. 
‘‘(ii) SIMILARLY SITUATED.—For pur-
poses of this subparagraph, a participant 
is similarly situated to any other individual 
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if such participant is identical to such 
other individual in every respect (including 
period of service, compensation, position, 
date of hire, work history, and any other 
respect) except for age. 
‘‘(iii) DISREGARD
OF
SUBSIDIZED 
EARLY RETIREMENT BENEFITS.—In deter-
mining the accrued benefit as of any date 
for purposes of this clause, the subsidized 
portion of any early retirement benefit or 
retirement-type 
subsidy 
shall 
be 
dis-
regarded. 
‘‘(iv) ACCRUED
BENEFIT.—For pur-
poses of this subparagraph, the accrued 
benefit may, under the terms of the plan, 
be expressed as an annuity payable at nor-
mal retirement age, the balance of a hypo-
thetical account, or the current value of 
the accumulated percentage of the employ-
ee’s final average compensation. 
‘‘(B) 
APPLICABLE
DEFINED
BENEFIT 
PLANS.— 
‘‘(i) INTEREST CREDITS.— 
‘‘(I) IN GENERAL.—An applicable 
defined benefit plan shall be treated 
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as failing to meet the requirements of 
paragraph (1)(H) unless the terms of 
the plan provide that any interest 
credit (or an equivalent amount) for 
any plan year shall be at a rate which 
is not greater than a market rate of 
return. A plan shall not be treated as 
failing to meet the requirements of 
this subclause merely because the plan 
provides for a reasonable minimum 
guaranteed rate of return or for a 
rate of return that is equal to the 
greater of a fixed or variable rate of 
return. 
‘‘(II) PRESERVATION
OF
CAP-
ITAL.—An interest credit (or an 
equivalent amount) of less than zero 
shall in no event result in the account 
balance or similar amount being less 
than the aggregate amount of con-
tributions credited to the account. 
‘‘(III) MARKET
RATE
OF
RE-
TURN.—The Secretary may provide by 
regulation for rules governing the cal-
culation of a market rate of return for 
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ccoleman on PROD1PC71 with BILLS
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purposes of subclause (I) and for per-
missible methods of crediting interest 
to the account (including fixed or 
variable interest rates) resulting in ef-
fective rates of return meeting the re-
quirements of subclause (I). 
‘‘(ii) SPECIAL RULE FOR PLAN CON-
VERSIONS.—If, after June 29, 2005, an 
applicable plan amendment is adopted, the 
plan shall be treated as failing to meet the 
requirements of paragraph (1)(H) unless 
the requirements of clause (iii) are met 
with respect to each individual who was a 
participant in the plan immediately before 
the adoption of the amendment. 
‘‘(iii) RATE OF BENEFIT ACCRUAL.— 
Subject to clause (iv), the requirements of 
this clause are met with respect to any 
participant if the accrued benefit of the 
participant under the terms of the plan as 
in effect after the amendment is not less 
than the sum of— 
‘‘(I) the participant’s accrued 
benefit for years of service before the 
effective date of the amendment, de-
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ccoleman on PROD1PC71 with BILLS
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termined under the terms of the plan 
as in effect before the amendment, 
plus 
‘‘(II) the participant’s accrued 
benefit for years of service after the 
effective date of the amendment, de-
termined under the terms of the plan 
as in effect after the amendment. 
‘‘(iv) SPECIAL RULES FOR EARLY RE-
TIREMENT
SUBSIDIES.—For purposes of 
clause (iii)(I), the plan shall credit the ac-
cumulation account or similar amount with 
the amount of any early retirement benefit 
or retirement-type subsidy for the plan 
year in which the participant retires if, as 
of such time, the participant has met the 
age, years of service, and other require-
ments under the plan for entitlement to 
such benefit or subsidy. 
‘‘(v) 
APPLICABLE
PLAN
AMEND-
MENT.—For purposes of this subpara-
graph— 
‘‘(I) IN
GENERAL.—The term 
‘applicable plan amendment’ means 
an amendment to a defined benefit 
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plan which has the effect of con-
verting the plan to an applicable de-
fined benefit plan. 
‘‘(II) SPECIAL
RULE
FOR
CO-
ORDINATED BENEFITS.—If the bene-
fits of 2 or more defined benefit plans 
established or maintained by an em-
ployer are coordinated in such a man-
ner as to have the effect of the adop-
tion of an amendment described in 
subclause (I), the sponsor of the de-
fined benefit plan or plans providing 
for such coordination shall be treated 
as having adopted such a plan amend-
ment as of the date such coordination 
begins. 
‘‘(III) 
MULTIPLE
AMEND-
MENTS.—The Secretary shall issue 
regulations to prevent the avoidance 
of the purposes of this subparagraph 
through the use of 2 or more plan 
amendments rather than a single 
amendment. 
‘‘(IV) 
APPLICABLE
DEFINED 
BENEFIT PLAN.—For purposes of this 
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ccoleman on PROD1PC71 with BILLS
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subparagraph, the term ‘applicable de-
fined benefit plan’ has the meaning 
given 
such 
term 
by 
section 
411(a)(13). 
‘‘(vi) 
TERMINATION
REQUIRE-
MENTS.—An applicable defined benefit 
plan shall not be treated as meeting the re-
quirements of clause (i) unless the plan 
provides that, upon the termination of the 
plan— 
‘‘(I) if the interest credit rate (or 
an equivalent amount) under the plan 
is a variable rate, the rate of interest 
used to determine accrued benefits 
under the plan shall be equal to the 
average of the rates of interest used 
under the plan during the 5-year pe-
riod ending on the termination date, 
and 
‘‘(II) the interest rate and mor-
tality table used to determine the 
amount of any benefit under the plan 
payable in the form of an annuity 
payable at normal retirement age 
shall be the rate and table specified 
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ccoleman on PROD1PC71 with BILLS
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under the plan for such purpose as of 
the termination date, except that if 
such interest rate is a variable rate, 
the interest rate shall be determined 
under the rules of subclause (I). 
‘‘(C) CERTAIN
OFFSETS
PERMITTED.—A 
plan shall not be treated as failing to meet the 
requirements of paragraph (1)(H)(i) solely be-
cause the plan provides offsets against benefits 
under the plan to the extent such offsets are al-
lowable in applying the requirements of section 
401(a). 
‘‘(D) PERMITTED
DISPARITIES
IN
PLAN 
CONTRIBUTIONS
OR
BENEFITS.—A plan shall 
not be treated as failing to meet the require-
ments of paragraph (1)(H) solely because the 
plan provides a disparity in contributions or 
benefits with respect to which the requirements 
of section 401(l) are met. 
‘‘(E) INDEXING PERMITTED.— 
‘‘(i) IN GENERAL.—A plan shall not 
be treated as failing to meet the require-
ments of paragraph (1)(H) solely because 
the plan provides for indexing of accrued 
benefits under the plan. 
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ccoleman on PROD1PC71 with BILLS
571 
‘‘(ii) PROTECTION
AGAINST
LOSS.— 
Except in the case of any benefit provided 
in the form of a variable annuity, clause (i) 
shall not apply with respect to any index-
ing which results in an accrued benefit less 
than the accrued benefit determined with-
out regard to such indexing. 
‘‘(iii) INDEXING.—For purposes of 
this subparagraph, the term ‘indexing’ 
means, in connection with an accrued ben-
efit, the periodic adjustment of the accrued 
benefit by means of the application of a 
recognized investment index or method-
ology. 
‘‘(F) EARLY RETIREMENT BENEFIT OR RE-
TIREMENT-TYPE
SUBSIDY.—For purposes of 
this paragraph, the terms ‘early retirement ben-
efit’ and ‘retirement-type subsidy’ have the 
meaning given such terms in subsection 
(d)(6)(B)(i). 
‘‘(G) BENEFIT ACCRUED TO DATE.—For 
purposes of this paragraph, any reference to the 
accrued benefit shall be a reference to such ben-
efit accrued to date.’’. 
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(2) DETERMINATIONS OF ACCRUED BENEFIT AS 
BALANCE
OF
BENEFIT
ACCOUNT
OR
EQUIVALENT 
AMOUNTS.—Subsection (a) of section 411 of such 
Code is amended by adding at the end the following 
new paragraph: 
‘‘(13) SPECIAL RULES FOR PLANS COMPUTING 
ACCRUED
BENEFITS
BY
REFERENCE
TO
HYPO-
THETICAL
ACCOUNT
BALANCE
OR
EQUIVALENT 
AMOUNTS.— 
‘‘(A) IN GENERAL.—An applicable defined 
benefit plan shall not be treated as failing to 
meet— 
‘‘(i) subject to paragraph (2), the re-
quirements of subsection (a)(2), or 
‘‘(ii) the requirements of subsection 
(c) or section 417(e) with respect to con-
tributions other than employee contribu-
tions, 
solely because the present value of the accrued 
benefit (or any portion thereof) of any partici-
pant is, under the terms of the plan, equal to 
the amount expressed as the balance in the hy-
pothetical account described in paragraph (3) 
or as an accumulated percentage of the partici-
pant’s final average compensation. 
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‘‘(B) 3-YEAR VESTING.—In the case of an 
applicable defined benefit plan, such plan shall 
be treated as meeting the requirements of sub-
section (a)(2) only if an employee who has com-
pleted at least 3 years of service has a non-
forfeitable right to 100 percent of the employ-
ee’s accrued benefit derived from employer con-
tributions. 
‘‘(C) APPLICABLE DEFINED BENEFIT PLAN 
AND RELATED RULES.—For purposes of this 
subsection— 
‘‘(i) IN GENERAL.—The term ‘applica-
ble defined benefit plan’ means a defined 
benefit plan under which the accrued ben-
efit (or any portion thereof) is calculated 
as the balance of a hypothetical account 
maintained for the participant or as an ac-
cumulated percentage of the participant’s 
final average compensation. 
‘‘(ii) REGULATIONS TO INCLUDE SIMI-
LAR
PLANS.—The Secretary shall issue 
regulations which include in the definition 
of an applicable defined benefit plan any 
defined benefit plan (or any portion of 
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