665 
‘‘(C) Payments described in subparagraph 
(A)(i)(IV) may be made from such trust during 
a taxable year only to the extent that the aggre-
gate amount of such payments during such tax-
able year does not exceed the excess (if any), as 
of the close of the preceding taxable year, of— 
‘‘(i) the fair market value of the as-
sets of the trust, over 
‘‘(ii) 110 percent of the present value 
of the liability described in subparagraph 
(A)(i)(I) of such person.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 863. TREATMENT OF DEATH BENEFITS FROM COR-
PORATE-OWNED LIFE INSURANCE. 
(a) IN GENERAL.—Section 101 of the Internal Rev-
enue Code of 1986 (relating to certain death benefits) is 
amended by adding at the end the following new sub-
section: 
‘‘(j) TREATMENT OF CERTAIN EMPLOYER-OWNED 
LIFE INSURANCE CONTRACTS.— 
‘‘(1) GENERAL RULE.—In the case of an em-
ployer-owned life insurance contract, the amount ex-
cluded from gross income of an applicable policy-
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ccoleman on PROD1PC71 with BILLS
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holder by reason of paragraph (1) of subsection (a) 
shall not exceed an amount equal to the sum of the 
premiums and other amounts paid by the policy-
holder for the contract. 
‘‘(2) EXCEPTIONS.—In the case of an employer- 
owned life insurance contract with respect to which 
the notice and consent requirements of paragraph 
(4) are met, paragraph (1) shall not apply to any of 
the following: 
‘‘(A) EXCEPTIONS
BASED
ON
INSURED’S 
STATUS.—Any amount received by reason of 
the death of an insured who, with respect to an 
applicable policyholder— 
‘‘(i) was an employee at any time dur-
ing the 12-month period before the in-
sured’s death, or 
‘‘(ii) is, at the time the contract is 
issued— 
‘‘(I) a director, 
‘‘(II) a highly compensated em-
ployee within the meaning of section 
414(q) (without regard to paragraph 
(1)(B)(ii) thereof), or 
‘‘(III) a highly compensated indi-
vidual within the meaning of section 
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105(h)(5), except that ‘35 percent’ 
shall be substituted for ‘25 percent’ in 
subparagraph (C) thereof. 
‘‘(B) EXCEPTION FOR AMOUNTS PAID TO 
INSURED’S
HEIRS.—Any amount received by 
reason of the death of an insured to the ex-
tent— 
‘‘(i) the amount is paid to a member 
of the family (within the meaning of sec-
tion 267(c)(4)) of the insured, any indi-
vidual who is the designated beneficiary of 
the insured under the contract (other than 
the applicable policyholder), a trust estab-
lished for the benefit of any such member 
of the family or designated beneficiary, or 
the estate of the insured, or 
‘‘(ii) the amount is used to purchase 
an equity (or capital or profits) interest in 
the applicable policyholder from any person 
described in clause (i). 
‘‘(3) EMPLOYER-OWNED LIFE INSURANCE CON-
TRACT.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘employer-owned life insur-
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ccoleman on PROD1PC71 with BILLS
668 
ance contract’ means a life insurance contract 
which— 
‘‘(i) is owned by a person engaged in 
a trade or business and under which such 
person (or a related person described in 
subparagraph (B)(ii)) is directly or indi-
rectly a beneficiary under the contract, and 
‘‘(ii) covers the life of an insured who 
is an employee with respect to the trade or 
business of the applicable policyholder on 
the date the contract is issued. 
For purposes of the preceding sentence, if cov-
erage for each insured under a master contract 
is treated as a separate contract for purposes of 
sections 817(h), 7702, and 7702A, coverage for 
each such insured shall be treated as a separate 
contract. 
‘‘(B) APPLICABLE
POLICYHOLDER.—For 
purposes of this subsection— 
‘‘(i) IN GENERAL.—The term ‘applica-
ble policyholder’ means, with respect to 
any employer-owned life insurance con-
tract, the person described in subpara-
graph (A)(i) which owns the contract. 
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‘‘(ii) RELATED PERSONS.—The term 
‘applicable policyholder’ includes any per-
son which— 
‘‘(I) bears a relationship to the 
person described in clause (i) which is 
specified 
in 
section 
267(b) 
or 
707(b)(1), or 
‘‘(II) is engaged in trades or 
businesses with such person which are 
under common control (within the 
meaning of subsection (a) or (b) of 
section 52). 
‘‘(4) NOTICE AND CONSENT REQUIREMENTS.— 
The notice and consent requirements of this para-
graph are met if, before the issuance of the contract, 
the employee— 
‘‘(A) is notified in writing that the applica-
ble policyholder intends to insure the employee’s 
life and the maximum face amount for which 
the employee could be insured at the time the 
contract was issued, 
‘‘(B) provides written consent to being in-
sured under the contract and that such cov-
erage may continue after the insured terminates 
employment, and 
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ccoleman on PROD1PC71 with BILLS
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‘‘(C) is informed in writing that an appli-
cable policyholder will be a beneficiary of any 
proceeds payable upon the death of the em-
ployee. 
‘‘(5) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) EMPLOYEE.—The term ‘employee’ in-
cludes an officer, director, and highly com-
pensated employee (within the meaning of sec-
tion 414(q)). 
‘‘(B) 
INSURED.—The 
term 
‘insured’ 
means, with respect to an employer-owned life 
insurance contract, an individual covered by the 
contract who is a United States citizen or resi-
dent. In the case of a contract covering the 
joint lives of 2 individuals, references to an in-
sured include both of the individuals.’’. 
(b) REPORTING REQUIREMENTS.—Subpart A of part 
III of subchapter A of chapter 61 of the Internal Revenue 
Code of 1986 (relating to information concerning persons 
subject to special provisions) is amended by inserting after 
section 6039H the following new section: 
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‘‘SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO 
EMPLOYER-OWNED LIFE INSURANCE CON-
TRACTS. 
‘‘(a) IN GENERAL.—Every applicable policyholder 
owning 1 or more employer-owned life insurance contracts 
issued after the date of the enactment of this section shall 
file a return (at such time and in such manner as the 
Secretary shall by regulations prescribe) showing for each 
year such contracts are owned— 
‘‘(1) the number of employees of the applicable 
policyholder at the end of the year, 
‘‘(2) the number of such employees insured 
under such contracts at the end of the year, 
‘‘(3) the total amount of insurance in force at 
the end of the year under such contracts, 
‘‘(4) the name, address, and taxpayer identifica-
tion number of the applicable policyholder and the 
type of business in which the policyholder is en-
gaged, and 
‘‘(5) that the applicable policyholder has a valid 
consent for each insured employee (or, if all such 
consents are not obtained, the number of insured 
employees for whom such consent was not obtained). 
‘‘(b) RECORDKEEPING REQUIREMENT.—Each appli-
cable policyholder owning 1 or more employer-owned life 
insurance contracts during any year shall keep such 
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ccoleman on PROD1PC71 with BILLS
672 
records as may be necessary for purposes of determining 
whether the requirements of this section and section 
101(j) are met. 
‘‘(c) DEFINITIONS.—Any term used in this section 
which is used in section 101(j) shall have the same mean-
ing given such term by section 101(j).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 101(a) of the In-
ternal Revenue Code of 1986 is amended by striking 
‘‘and subsection (f)’’ and inserting ‘‘subsection (f), 
and subsection (j)’’. 
(2) The table of sections for subpart A of part 
III of subchapter A of chapter 61 of such Code is 
amended by inserting after the item relating to sec-
tion 6039H the following new item: 
‘‘Sec. 6039I. Returns and records with respect to employer-owned life insurance 
contracts.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to life insurance contracts issued 
after the date of the enactment of this Act, except for a 
contract issued after such date pursuant to an exchange 
described in section 1035 of the Internal Revenue Code 
of 1986 for a contract issued on or prior to that date. 
For purposes of the preceding sentence, any material in-
crease in the death benefit or other material change shall 
cause the contract to be treated as a new contract except 
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673 
that, in the case of a master contract (within the meaning 
of section 264(f)(4)(E) of such Code), the addition of cov-
ered lives shall be treated as a new contract only with re-
spect to such additional covered lives. 
SEC. 864. TREATMENT OF TEST ROOM SUPERVISORS AND 
PROCTORS WHO ASSIST IN THE ADMINISTRA-
TION OF COLLEGE ENTRANCE AND PLACE-
MENT EXAMS. 
(a) IN GENERAL.—Section 530 of the Revenue Rec-
onciliation Act of 1978 is amended by adding at the end 
the following new subsection: 
‘‘(f) TREATMENT OF TEST ROOM SUPERVISORS AND 
PROCTORS WHO ASSIST
IN
THE ADMINISTRATION
OF 
COLLEGE ENTRANCE AND PLACEMENT EXAMS.— 
‘‘(1) IN GENERAL.—In the case of an individual 
described in paragraph (2) who is providing services 
as a test proctor or room supervisor by assisting in 
the administration of college entrance or placement 
examinations, this section shall be applied to such 
services performed after December 31, 2006 (and 
remuneration paid for such services) without regard 
to subsection (a)(3) thereof. 
‘‘(2) APPLICABILITY.—An individual is de-
scribed in this paragraph if the individual— 
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ccoleman on PROD1PC71 with BILLS
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‘‘(A) is providing the services described in 
subsection (a) to an organization described in 
section 501(c), and exempt from tax under sec-
tion 501(a), of the Internal Revenue Code of 
1986, and 
‘‘(B) is not otherwise treated as an em-
ployee of such organization for purposes of sub-
title C of such Code (relating to employment 
taxes).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to remuneration for services per-
formed after December 31, 2006. 
SEC. 865. GRANDFATHER RULE FOR CHURCH PLANS 
WHICH SELF-ANNUITIZE. 
(a) IN GENERAL.—In the case of any plan year end-
ing after the date of the enactment of this Act, annuity 
payments provided with respect to any account maintained 
for a participant or beneficiary under a qualified church 
plan shall not fail to satisfy the requirements of section 
401(a)(9) of the Internal Revenue Code of 1986 merely 
because the payments are not made under an annuity con-
tract purchased from an insurance company if such pay-
ments would not fail such requirements if provided with 
respect to a retirement income account described in sec-
tion 403(b)(9) of such Code. 
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675 
(b) QUALIFIED CHURCH PLAN.—For purposes of 
this section, the term ‘‘qualified church plan’’ means any 
money purchase pension plan described in section 401(a) 
of such Code which— 
(1) is a church plan (as defined in section 
414(e) of such Code) with respect to which the elec-
tion provided by section 410(d) of such Code has not 
been made, and 
(2) was in existence on April 17, 2002. 
SEC. 866. EXEMPTION FOR INCOME FROM LEVERAGED 
REAL ESTATE HELD BY CHURCH PLANS. 
(a) IN GENERAL.—Section 514(c)(9)(C) of the Inter-
nal Revenue Code of 1986 is amended by striking ‘‘or’’ 
after clause (ii), by striking the period at the end of clause 
(iii) and inserting ‘‘; or’’, and by inserting after clause (iii) 
the following: 
‘‘(iv) a retirement income account de-
scribed in section 403(b)(9).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning on 
or after the date of enactment of this Act. 
SEC. 867. CHURCH PLAN RULE. 
(a) IN GENERAL.—Paragraph (11) of section 415(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following: ‘‘Subparagraph (B) of para-
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676 
graph (1) shall not apply to a plan maintained by an orga-
nization described in section 3121(w)(3)(A) except with 
respect to highly compensated benefits. For purposes of 
this paragraph, the term ‘highly compensated benefits’ 
means any benefits accrued for an employee in any year 
on or after the first year in which such employee is a high-
ly compensated employee (as defined in section 414(q)) 
of the organization described in section 3121(w)(3)(A). 
For purposes of applying paragraph (1)(B) to highly com-
pensated benefits, all benefits of the employee otherwise 
taken into account (without regard to this paragraph) 
shall be taken into account.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2006. 
SEC. 868. GRATUITOUS TRANSFER FOR BENEFITS OF EM-
PLOYEES. 
(a) IN GENERAL.—Subparagraph (E) of section 
664(g)(3) of the Internal Revenue Code of 1986 is amend-
ed by inserting ‘‘(determined on the basis of fair market 
value of securities when allocated to participants)’’ after 
‘‘paragraph (7)’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act. 
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TITLE 
IX—INCREASE 
IN 
PEN-
SION PLAN DIVERSIFICATION 
AND 
PARTICIPATION 
AND 
OTHER PENSION PROVISIONS 
SEC. 901. DEFINED CONTRIBUTION PLANS REQUIRED TO 
PROVIDE EMPLOYEES WITH FREEDOM TO IN-
VEST THEIR PLAN ASSETS. 
(a) AMENDMENTS OF INTERNAL REVENUE CODE.— 
(1) QUALIFICATION
REQUIREMENT.—Section 
401(a) of the Internal Revenue Code of 1986 (relat-
ing to qualified pension, profit-sharing, and stock 
bonus plans) is amended by inserting after para-
graph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
CERTAIN DEFINED CONTRIBUTION PLANS.— 
‘‘(A) IN GENERAL.—A trust which is part 
of an applicable defined contribution plan shall 
not be treated as a qualified trust unless the 
plan meets the diversification requirements of 
subparagraphs (B), (C), and (D). 
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND 
ELECTIVE DEFERRALS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of an 
applicable individual’s account attributable to 
employee contributions and elective deferrals 
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678 
which is invested in employer securities, a plan 
meets the requirements of this subparagraph if 
the applicable individual may elect to direct the 
plan to divest any such securities and to rein-
vest an equivalent amount in other investment 
options meeting the requirements of subpara-
graph (D). 
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED
IN
EMPLOYER
SECURITIES.—In the 
case of the portion of the account attributable 
to employer contributions other than elective 
deferrals which is invested in employer securi-
ties, a plan meets the requirements of this sub-
paragraph if each applicable individual who— 
‘‘(i) is a participant who has com-
pleted at least 3 years of service, or 
‘‘(ii) is a beneficiary of a participant 
described in clause (i) or of a deceased 
participant, 
may elect to direct the plan to divest any such 
securities and to reinvest an equivalent amount 
in other investment options meeting the re-
quirements of subparagraph (D). 
‘‘(D) INVESTMENT OPTIONS.— 
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679 
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if the plan 
offers not less than 3 investment options, 
other than employer securities, to which an 
applicable individual may direct the pro-
ceeds from the divestment of employer se-
curities pursuant to this paragraph, each 
of which is diversified and has materially 
different risk and return characteristics. 
‘‘(ii) TREATMENT
OF
CERTAIN
RE-
STRICTIONS AND CONDITIONS.— 
‘‘(I) TIME FOR MAKING INVEST-
MENT CHOICES.—A plan shall not be 
treated as failing to meet the require-
ments of this subparagraph merely be-
cause the plan limits the time for di-
vestment and reinvestment to peri-
odic, reasonable opportunities occur-
ring no less frequently than quarterly. 
‘‘(II) 
CERTAIN
RESTRICTIONS 
AND
CONDITIONS
NOT
ALLOWED.— 
Except as provided in regulations, a 
plan shall not meet the requirements 
of this subparagraph if the plan im-
poses restrictions or conditions with 
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respect to the investment of employer 
securities which are not imposed on 
the investment of other assets of the 
plan. This subclause shall not apply to 
any restrictions or conditions imposed 
by reason of the application of securi-
ties laws. 
‘‘(E) APPLICABLE
DEFINED
CONTRIBU-
TION PLAN.—For purposes of this paragraph— 
‘‘(i) IN GENERAL.—The term ‘applica-
ble defined contribution plan’ means any 
defined contribution plan which holds any 
publicly traded employer securities. 
‘‘(ii) 
EXCEPTION
FOR
CERTAIN 
ESOPS.—Such term does not include an 
employee stock ownership plan if— 
‘‘(I) there are no contributions to 
such plan (or earnings thereunder) 
which are held within such plan and 
are subject to subsection (k) or (m), 
and 
‘‘(II) such plan is a separate plan 
for purposes of section 414(l) with re-
spect to any other defined benefit plan 
or defined contribution plan main-
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681 
tained by the same employer or em-
ployers. 
‘‘(iii) EXCEPTION FOR ONE PARTICI-
PANT PLANS.—Such term does not include 
a one-participant retirement plan. 
‘‘(iv) ONE-PARTICIPANT RETIREMENT 
PLAN.—For purposes of clause (iii), the 
term 
‘one-participant 
retirement 
plan’ 
means a retirement plan that— 
‘‘(I) on the first day of the plan 
year covered only one individual (or 
the individual and the individual’s 
spouse) and the individual owned 100 
percent of the plan sponsor (whether 
or not incorporated), or covered only 
one or more partners (or partners and 
their spouses) in the plan sponsor, 
‘‘(II) meets the minimum cov-
erage requirements of section 410(b) 
without being combined with any 
other plan of the business that covers 
the employees of the business, 
‘‘(III) does not provide benefits 
to anyone except the individual (and 
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682 
the individual’s spouse) or the part-
ners (and their spouses), 
‘‘(IV) does not cover a business 
that is a member of an affiliated serv-
ice group, a controlled group of cor-
porations, or a group of businesses 
under common control, and 
‘‘(V) does not cover a business 
that uses the services of leased em-
ployees (within the meaning of section 
414(n)). 
For purposes of this clause, the term ‘part-
ner’ includes a 2-percent shareholder (as 
defined in section 1372(b)) of an S cor-
poration. 
‘‘(F) CERTAIN PLANS TREATED AS HOLD-
ING
PUBLICLY
TRADED
EMPLOYER
SECURI-
TIES.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in regulations or in clause (ii), a plan 
holding employer securities which are not 
publicly traded employer securities shall be 
treated as holding publicly traded employer 
securities if any employer corporation, or 
any member of a controlled group of cor-
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