I
107TH CONGRESS
1ST SESSION
H. R. 3488
To amend the Internal Revenue Code of 1986 to expand pension benefits
to those without retirement plans and provide additional protections
to those who participate in the current system.
IN THE HOUSE OF REPRESENTATIVES
DECEMBER 13, 2001
Mr. COYNE (for himself, Mr. RANGEL, and Mr. MATSUI) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means,
and in addition to the Committee on Education and the Workforce, for
a period to be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the jurisdiction of the com-
mittee concerned
A BILL
To amend the Internal Revenue Code of 1986 to expand
pension benefits to those without retirement plans and
provide additional protections to those who participate
in the current system.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Retirement Opportunity Expansion Act of 2001’’.
(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.—
Sec. 1. Short title, etc.
TITLE I—REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR
ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS
Sec. 101. Refundable credit to certain individuals for elective deferrals and IRA
contributions.
TITLE II—EXPANSION OF COVERAGE TO LOW-WAGE WORKERS
Sec. 201. Exclusion for payroll deduction contributions to individual retirement
accounts.
TITLE III—IMPROVEMENT OF PENSION COVERAGE FOR WOMEN
Sec. 301. Modifications of joint and survivor annuity requirements.
Sec. 302. Spousal consent required for distributions from section 401(k) plans.
Sec. 303. Full vesting upon death or disability.
Sec. 304. Predetermination protection for potential qualified domestic relations
order alternate payee.
Sec. 305. Promotion of pension plan participation by women and other under-
represented groups.
Sec. 306. Periods of family and medical leave treated as hours of service for
pension participation and vesting.
TITLE IV—INCENTIVES FOR SMALL BUSINESSES TO OFFER
PENSION BENEFITS
Sec. 401. Credit for qualified pension plan contributions of small employers.
Sec. 402. Secure money annuity or retirement (SMART) trusts.
Sec. 403. Definition of highly compensated employees.
TITLE I—REFUNDABLE CREDIT
TO 
CERTAIN 
INDIVIDUALS
FOR 
ELECTIVE 
DEFERRALS
AND IRA CONTRIBUTIONS
SEC. 101. REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS
FOR ELECTIVE DEFERRALS AND IRA CON-
TRIBUTIONS.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 (relating to refundable credits) is
amended by redesignating section 35 as section 36 and
by inserting after section 34 the following new section:
‘‘SEC. 35. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS
BY CERTAIN INDIVIDUALS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year an
amount equal to the applicable percentage of so much of
the qualified retirement savings contributions of the eligi-
ble individual for the taxable year as do not exceed the
deductible amount (as defined in section 219(b)).
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the applicable percentage is the percentage
determined in accordance with the following table:
Adjusted Gross Income
Applica-
ble 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
Adjusted Gross Income
Applica-
ble per-
centage
Joint return
Head of a household
All other cases
Over
Not over
Over
Not over
Over
Not over
30,000
32,500
22,500
24,375
15,000
16,250
32,500
50,000
24,375
37,500
16,250
25,000
50,000
37,500
25,000
‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘eligible indi-
vidual’ means any individual who has attained the
age of 18 as of the close of the taxable year.
‘‘(2) DEPENDENTS AND FULL-TIME STUDENTS
NOT ELIGIBLE.—The term ‘eligible individual’ shall
not include—
‘‘(A) any individual with respect to whom
a deduction under section 151 is allowable to
another taxpayer for a taxable year beginning
in the calendar year in which such individual’s
taxable year begins, and
‘‘(B) any individual who is a student (as
defined in section 151(c)(4)).
‘‘(d) QUALIFIED RETIREMENT SAVINGS CONTRIBU-
TIONS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified retirement savings contribu-
tions’ means the sum of—
‘‘(A) the amount of the qualified retire-
ment contributions (as defined in section
219(e)) made by the eligible individual,
‘‘(B) the amount of—
‘‘(i) any elective deferrals (as defined
in section 402(g)(3)) of such individual,
and
‘‘(ii) any elective deferral of com-
pensation by such individual under an eli-
gible deferred compensation plan (as de-
fined in section 457(b)) of an eligible em-
ployer described in section 457(e)(1)(A),
and
‘‘(C) the amount of voluntary employee
contributions by such individual to any qualified
retirement plan (as defined in section 4974(c)).
‘‘(2) ADJUSTMENT
FOR
CERTAIN
DISTRIBU-
TIONS.—
‘‘(A) IN GENERAL.—The amount of quali-
fied retirement savings contributions of an indi-
vidual otherwise taken into account under sub-
section (a) for a taxable year shall be reduced
(but not below zero) by the sum of—
‘‘(i) any distribution from a qualified
retirement plan (as defined in section
4974(c)), or from an eligible deferred com-
pensation plan (as defined in section
457(b)), received by the individual during
the testing period which is includible in
gross income, and
‘‘(ii) any distribution in such taxable
year from a Roth IRA received by the indi-
vidual during the testing period which is
not a qualified rollover contribution (as de-
fined in section 408A(e)) to a Roth IRA.
‘‘(B) TESTING PERIOD.—For purposes of
subparagraph (A), the testing period, with re-
spect to a taxable year, is the period which
includes—
‘‘(i) such taxable year,
‘‘(ii) the 2 preceding taxable years,
and
‘‘(iii) the period after such taxable
year and before the due date (including ex-
tensions) for filing the return of tax for
such taxable year.
‘‘(C) EXCEPTED
DISTRIBUTIONS.—There
shall not be taken into account under subpara-
graph (A)—
‘‘(i) any distribution referred to in
section 
72(p), 
401(k)(8), 
401(m)(6),
402(g)(2), 404(k), or 408(d)(4),
‘‘(ii) any distribution to which section
408A(d)(3) applies, and
‘‘(iii) any distribution before January
1, 2002.
‘‘(D) TREATMENT OF DISTRIBUTIONS RE-
CEIVED BY SPOUSE OF INDIVIDUAL.—For pur-
poses of determining whether an individual is
an eligible individual for any taxable year, any
distribution received by the spouse of such indi-
vidual shall be treated as received by such indi-
vidual if such individual and spouse file a joint
return for such taxable year and for the taxable
year during which the spouse receives the dis-
tribution.
‘‘(e) ADJUSTED GROSS INCOME.—For purposes of
this section, adjusted gross income shall be determined
without regard to sections 911, 931, and 933.
‘‘(f) INVESTMENT
IN
THE CONTRACT.—Notwith-
standing any other provision of law, a qualified retirement
savings contribution shall not fail to be included in deter-
mining the investment in the contract for purposes of sec-
tion 72 by reason of the credit under this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subpart A of part IV of subchapter A of
chapter 1 is amended by striking section 25B and
the table of sections for such subpart is amended by
striking the item relating to section 25B.
(2) Paragraph (2) of section 1324(b) of title
31, United States Code, is amended by inserting be-
fore the period ‘‘, or from section 35 of such Code’’.
(3) The table of sections for subpart C of part
IV of subchapter A of chapter 1 is amended by
striking the last item and inserting the following
new items:
‘‘Sec. 35. Elective deferrals and IRA contributions by certain indi-
viduals.
‘‘Sec. 36. Overpayments of tax.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE II—EXPANSION OF COV-
ERAGE TO LOW-WAGE WORK-
ERS
SEC. 201. EXCLUSION FOR PAYROLL DEDUCTION CON-
TRIBUTIONS TO INDIVIDUAL RETIREMENT
ACCOUNTS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (r) as subsection (s) and by inserting after sub-
section (q) the following new subsection:
‘‘(r) QUALIFIED PAYROLL DEDUCTION ARRANGE-
MENT FOR IRA CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘qualified payroll deduction arrangement’
means a written arrangement of an employer under
which—
‘‘(A) an employee eligible to participate in
the arrangement may elect to have the employer
make payments—
‘‘(i) to the employee directly in cash,
or
‘‘(ii) as elective employer contributions
to an individual retirement plan (as de-
fined in section 7701(a)(37)), other than
an individual retirement plan described in
section 408(k), 408(p), or 408A(b), on be-
half of the employee for the taxable year in
which the payments otherwise would have
been made to the employee directly in
cash,
‘‘(B) the amount which the employee may
elect under subparagraph (A) for any year may
not exceed the deductible amount for such year
(as defined in section 219(b)),
‘‘(C) no other contributions may be made
other than contributions described in subpara-
graph (A),
‘‘(D) the employee’s rights to any contribu-
tions made to an individual retirement plan are
nonforfeitable (for this purpose, rules similar to
the rules of subsection (k)(4) shall apply), and
‘‘(E) the employer makes the elective em-
ployer contributions under subparagraph (A)
not later than the close of the 30-day period
following the last day of the month with respect
to which the contributions are to be made.
‘‘(2) ELECTION
NOT
TO
HAVE
SUBSECTION
APPLY.—An employer that maintains an arrange-
ment otherwise described in paragraph (1) may elect
to have contributions treated as though they were
not made under such an arrangement. If an em-
ployer does not make an election described in the
preceding sentence, an employee may elect, before
any contributions are made for the calendar year, to
have contributions on behalf of the employee treated
as though they were not made under an arrange-
ment described in paragraph (1). An employer shall
be deemed to have made an election under this para-
graph for a year if the employer maintained a quali-
fied plan with respect to which contributions were
made or benefits were accrued for such year. For
purposes of the preceding sentence, the term ‘quali-
fied plan’ means a plan, contract, pension, or trust
described in subparagraph (A) or (B) of section
219(g)(5).’’.
(b) TAX TREATMENT OF EMPLOYER CONTRIBUTIONS
MADE UNDER A QUALIFIED PAYROLL DEDUCTION AR-
RANGEMENT.—
(1) COORDINATION
WITH
DEDUCTION
UNDER
SECTION 219.—
(A) Section 219(b) (relating to maximum
amount of deduction) is amended by adding at
the end the following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
CONTRIBUTIONS
UNDER
A
QUALIFIED
PAYROLL
DEDUCTION
AR-
RANGEMENT.—This section shall not apply with re-
spect to any amount contributed under a qualified
payroll deduction arrangement described in section
408(r)(1) (for which an election has not been made
under section 408(r)(2)).’’.
(B) Section 219(g)(1) (relating to the limi-
tation on deduction for active participants) is
amended to read as follows:
‘‘(1) IN GENERAL.—If (for any part of any plan
year ending with or within a taxable year) an indi-
vidual is an active participant, each of the dollar
limitations contained in subsections (b)(1)(A) and
(c)(1)(A) for such taxable year shall be reduced (but
not below zero) by the sum of—
‘‘(A) the amount determined under para-
graph (2), and
‘‘(B) the amount contributed for the tax-
able year under a qualified payroll deduction ar-
rangement described in section 408(r)(1) (for
which an election has not been made under sec-
tion 408(r)(2)).’’.
(2) DEDUCTIBILITY OF EMPLOYER CONTRIBU-
TIONS.—Section 404 (relating to deductions for con-
tributions of an employer to pension, etc., plans) is
amended by adding at the end the following new
subsection:
‘‘(o) SPECIAL RULES FOR CONTRIBUTIONS UNDER
A QUALIFIED PAYROLL DEDUCTION ARRANGEMENT.—
Rules similar to the rules of subsection (m) shall apply
to employer contributions made under a qualified payroll
deduction arrangement described in section 408(r)(1) (for
which an election has not been made under section
408(r)(2)).’’.
(3) CONTRIBUTIONS
AND
DISTRIBUTIONS.—
Section 402 (relating to taxability of beneficiary of
employees’ trust) is amended by adding at the end
the following new subsection:
‘‘(l) TREATMENT
OF CONTRIBUTIONS
AND DIS-
TRIBUTIONS UNDER A QUALIFIED PAYROLL DEDUCTION
ARRANGEMENT.—Rules similar to the rules of paragraphs
(1) and (3) of subsection (h) shall apply to contributions
and distributions made with respect to an individual re-
tirement plan under a qualified payroll deduction arrange-
ment described in section 408(r)(1) (for which an election
has not been made under section 408(r)(2)), except that
contributions made by an employer on behalf of an em-
ployee for a taxable year shall be excluded from income
only to the extent such contributions would have been de-
ductible for such taxable year under section 219, if such
section applied, without regard to section 219(g)(1)(B).
Contributions that are not excluded from income under
the preceding sentence shall be treated as designated non-
deductible contributions under section 408(o).’’.
(c) EXEMPTION FROM WITHHOLDING.—Subsection
(a) of section 3401 (defining wages) is amended by strik-
ticipant while both the participant and the spouse
are alive,
‘‘(B) which is the actuarial equivalent of a sin-
gle annuity for the life of the participant, and
‘‘(C) which, for all other purposes of this Act,
is treated as a qualified joint and survivor annuity.’’.
(2) ILLUSTRATION REQUIREMENT.—Clause (i)
of section 205(c)(3)(A) of such Act (29 U.S.C.
1055(c)(3)(A)) is amended to read as follows:
‘‘(i) the terms and conditions of each qualified
joint and survivor annuity and qualified joint and 3⁄4
survivor annuity offered, accompanied by an illustra-
tion of the benefits under each such annuity for the
particular participant and spouse and an acknowl-
edgement form to be signed by the participant and
the spouse that they have read and considered the
illustration before any form of retirement benefit is
chosen,’’.
(b) AMENDMENTS TO INTERNAL REVENUE CODE.—
(1) AMOUNT OF ANNUITY.—
(A) IN
GENERAL.—Clause (i) of section
401(a)(11)(A) (relating to requirement of joint
and survivor annuity and preretirement survivor
annuity) is amended by inserting ‘‘or, at the
election of the participant, shall be provided in
the form of a qualified joint and 3⁄4 survivor an-
nuity’’ after ‘‘survivor annuity,’’.
(B) DEFINITION.—Section 417 (relating to
definitions and special rules for purposes of
minimum survivor annuity requirements) is
amended by redesignating subsection (f) as sub-
section (g) and by inserting after subsection (e)
the following new subsection:
‘‘(f) DEFINITION OF QUALIFIED JOINT AND 3⁄4 SUR-
VIVOR ANNUITY.—For purposes of this section and section
401(a)(11), the term ‘‘qualified joint and 3⁄4 survivor an-
nuity’’ means an annuity—
‘‘(1) for the participant while both the partici-
pant and the spouse are alive with a survivor annu-
ity for the life of surviving individual (either the par-
ticipant or the spouse) equal to 75 percent of the
amount of the annuity which is payable to the par-
ticipant while both the participant and the spouse
are alive,
‘‘(2) which is the actuarial equivalent of a sin-
gle annuity for the life of the participant, and
‘‘(3) which, for all other purposes of this title,
is treated as a qualified joint and survivor annuity.’’.
(2) ILLUSTRATION REQUIREMENT.—Clause (i)
of section 417(a)(3)(A) (relating to explanation of
joint and survivor annuity) is amended to read as
follows:
‘‘(i) the terms and conditions of each
qualified joint and survivor annuity and
qualified joint and 3⁄4 survivor annuity of-
fered, accompanied by an illustration of
the benefits under each such annuity for
the particular participant and spouse and
an acknowledgement form to be signed by
the participant and the spouse that they
have read and considered the illustration
before any form of retirement benefit is
chosen,’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 2001.
(2) SPECIAL
RULE
FOR
COLLECTIVELY
BAR-
GAINED PLANS.—In the case of a plan maintained
pursuant to 1 or more collective bargaining agree-
ments between employee representatives and 1 or
more employers ratified on or before the date of en-
actment of this Act, the amendments made by this
section shall apply to the first plan year beginning
on or after the earlier of—
(A) the later of—
(i) January 1, 2004, or
(ii) the date on which the last of such
collective bargaining agreements termi-
nates (determined without regard to any
extension thereof after the date of enact-
ment of this Act).
(3) PLAN
AMENDMENTS.—If any amendment
made by this section requires an amendment to any
plan, such plan amendment shall not be required to
be made before the first plan year beginning on or
after January 1, 2004, if—
(A) during the period after such amend-
ment made by this section takes effect and be-
fore such first plan year, the plan is operated
in accordance with the requirements of such
amendment made by this section, and
(B) such plan amendment applies retro-
actively to the period after such amendment
made by this section takes effect and such first
plan year.
A plan shall not be treated as failing to provide defi-
nitely determinable benefits or contributions, or to
be operated in accordance with the provisions of the
plan, merely because it operates in accordance with
this paragraph.
SEC. 302. SPOUSAL CONSENT REQUIRED FOR DISTRIBU-
TIONS FROM SECTION 401(k) PLANS.
(a) IN GENERAL.—Paragraph (2) of section 401(k)
(defining qualified cash or deferred arrangement) is
amended by striking ‘‘and’’ at the end of subparagraph
(C), by striking the period at the end of subparagraph (D)
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new subparagraph:
‘‘(E) which provides that a distribution of
not more than 10 percent of the balance in an
arrangement may be made in any taxable year
unless—
‘‘(i) the spouse of the employee (if
any) consents in writing (during the 90-
day period ending on the date of the dis-
tribution) to such distribution, and
‘‘(ii) requirements comparable to the
requirements of section 417(a)(2) are met
with respect to such consent.
For purposes of the preceding sentence, an em-
ployer may ask for spousal consent but is not
required to verify marital status.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions in plan years be-
ginning after December 31, 2000.
SEC. 303. FULL VESTING UPON DEATH OR DISABILITY.
(a) IN GENERAL.—Paragraph (2) of section 411(a)
(relating to employer contributions) is amended—
(1) in the matter preceding subparagraph (A),
by inserting ‘‘and (C)’’ after ‘‘or (B)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(C) FULL VESTING UPON DEATH OR DIS-
ABILITY.—A plan satisfies the requirements of
this paragraph if an employee has a nonforfeit-
able right to 100 percent of the employee’s ac-
crued benefit derived from employer contribu-
tions in the case that the participant dies or be-
comes disabled (as defined by section 72(m)(7))
before the earlier of the employee—
‘‘(i) attaining normal retirement age
(as defined in paragraph (8)), or
‘‘(ii) having a nonforfeitable right to
100 percent of the employee’s accrued ben-
efit derived from employer contributions.’’.
(b) AMENDMENT OF ERISA.—Paragraph (2) of sec-
tion 203(a) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1053(a)) is amended—
(1) in the matter preceding subparagraph (A),
by inserting ‘‘and (C)’’ after ‘‘or (B)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(C) A plan satisfies the requirements of
this paragraph if an employee has a nonforfeit-
able right to 100 percent of the employee’s ac-
crued benefit derived from employer contribu-
tions in the case that the participant dies or be-
comes disabled (as defined by section 72(m)(7))
before the earlier of the employee—
‘‘(i) attaining normal retirement age
(as defined in section 3(24)), or
‘‘(ii) having a nonforfeitable right to
100 percent of the employee’s accrued ben-
efit derived from employer contributions.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 304. PREDETERMINATION PROTECTION FOR POTEN-
TIAL 
QUALIFIED 
DOMESTIC 
RELATIONS
ORDER ALTERNATE PAYEE.
(a) IN GENERAL.—Paragraph (6) of section 414(p)
(relating to plan procedures with respect to orders) is
amended by adding at the end the following new subpara-
graph:
‘‘(C) HOLD ON CERTAIN PLAN ACTIVITY
AFTER NOTICE OF PREPARATION OF ORDER.—
A plan administrator may not make any dis-
tribution or loan, or accept any investment di-
rection, with respect to a participant’s benefit
under the plan during the 90-day period begin-
ning on the date of the receipt by the plan ad-
ministrator of written notice from either the
participant or an alternate payee that a domes-
tic relations order affecting the participant’s
benefits under the plan is being prepared. The
Secretary may prescribe such exceptions as the
Secretary determines necessary or appropriate
to achieve the purposes of the preceding sen-
tence, including a shorter period.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to notices received after December
31, 2001.
SEC. 305. STUDY ON PENSION PLAN PARTICIPATION BY
WOMEN AND OTHER UNDERREPRESENTED
GROUPS.
The Secretary of Labor shall conduct a study on the
participation in pension plans by women and by other
groups determined by the Secretary by reference to the
most recent census to be underrepresented in their partici-
pation in pension plans. The study shall assess participa-
tion by income level and type of pension plan. Not later
than one year after the date of the enactment of this Act,
the Secretary shall submit the results of such study, to-
gether with such recommendations as the Secretary deter-
mines appropriate to increase participation in pension
plans by women and such groups, to the Committee on
Ways and Means of the House of Representatives and the
Committee on Finance of the Senate.
SEC. 306. PERIODS OF FAMILY AND MEDICAL LEAVE
TREATED AS HOURS OF SERVICE FOR PEN-
SION PARTICIPATION AND VESTING.
(a) AMENDMENTS OF INTERNAL REVENUE CODE.—
(1) PARTICIPATION.—
(A) IN GENERAL.—Paragraph (3) of sec-
tion 410(a) (relating to minimum participation
standards) is amended by adding at the end the
following new subparagraph:
‘‘(E) FAMILY AND MEDICAL LEAVE TREAT-
ED AS SERVICE.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, in the case of an individual
who is absent from work on leave required
to be given to such individual under the
Family and Medical Leave Act of 1993,
the plan shall treat as hours of service—
‘‘(I) the hours of service which
otherwise would normally have been
credited to such individual but for
such absence, or
‘‘(II) in any case in which the
plan is unable to determine the hours
described in subclause (I), 8 hours of
service per day of absence.
‘‘(ii) YEAR
TO
WHICH
HOURS
ARE
CREDITED.—The hours described in clause
(i) shall be treated as hours of service as
provided in this subparagraph—
‘‘(I) only in the year in which the
absence from work begins, if section
411(a)(5)(E)(ii)(I) requires hours to
be credited to the year in which the
absence from work begins, or
‘‘(II) in any other case, in the
immediately following year.’’
(B) COORDINATION WITH TREATMENT OF
MATERNITY AND PATERNITY ABSENCES UNDER
BREAK IN SERVICE RULES.—Subparagraph (E)
of section 410(a)(5) is amended—
(i) by inserting ‘‘NOT UNDER FAMILY
AND MEDICAL LEAVE ACT OF 1993’’ after
‘‘ABSENCES’’ in the heading, and
(ii) by adding at the end of clause (i)
the following new sentence: ‘‘The preceding
sentence shall apply to an absence from
work only if no part of such absence is re-
quired to be given under the Family and
Medical Leave Act of 1993.’’
(2) VESTING.—
(A) IN GENERAL.—Paragraph (5) of sec-
tion 411(a) (relating to minimum vesting stand-
ards) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(E) FAMILY AND MEDICAL LEAVE TREAT-
ED AS SERVICE.—
‘‘(i) IN
GENERAL.—For purposes of
this subsection, in the case of an individual
who is absent from work on leave required
to be given to such individual under the
Family and Medical Leave Act of 1993,
the plan shall treat as hours of service—
‘‘(I) the hours of service which
otherwise would normally have been
credited to such individual but for
such absence, or
‘‘(II) in any case in which the
plan is unable to determine the hours
described in subclause (I), 8 hours of
service per day of absence.
‘‘(ii) YEAR
TO
WHICH
HOURS
ARE
CREDITED.—The hours described in clause
(i) shall be treated as hours of service as
provided in this subparagraph—
‘‘(I) only in the year in which the
absence from work begins, if the par-
ticipant’s rights in his accrued benefit
derived from employer contributions
are to any extent not nonforfeitable
and the participant would have a year
of service solely because the period of
absence is treated as hours of service
as provided in clause (i); or
‘‘(II) in any other case, in the
immediately following year.’’
(B) COORDINATION WITH TREATMENT OF
MATERNITY AND PATERNITY ABSENCES UNDER
BREAK IN SERVICE RULES.—Subparagraph (E)
of section 411(a)(6) is amended—
(i) by inserting ‘‘NOT UNDER FAMILY
AND MEDICAL LEAVE ACT OF 1993’’ after
‘‘ABSENCES’’ in the heading, and
(ii) by adding at the end of clause (i)
the following new sentence: ‘‘The preceding
sentence shall apply to an absence from
work only if no part of such absence is re-
quired to be given under the Family and
Medical Leave Act of 1993.’’
(C) ACCRUED
BENEFITS.—Subparagraph
(A) of section 411(b)(4) is amended by insert-
ing the following before the end thereof: ‘‘or
which is included in a period of service required
to be taken into account under subsection
(a)(5)(E)’’.
(b) AMENDMENTS OF ERISA.—
(1) PARTICIPATION.—
(A) IN GENERAL.—Paragraph (3) of sec-
tion 202(a) of the Employee Retirement Income
Security Act of 1974 (relating to minimum par-
ticipation standards) is amended by adding at
the end the following new subparagraph:
‘‘(E)(i) For purposes of this subsection, in the case
of an individual who is absent from work on leave required
to be given to such individual under the Family and Med-
ical Leave Act of 1993, the plan shall treat as hours of
service—
‘‘(I) the hours of service which otherwise would
normally have been credited to such individual but
for such absence, or
‘‘(II) in any case in which the plan is unable to
determine the hours described in subclause (I), 8
hours of service per day of absence.
‘‘(ii) The hours described in clause (i) shall be treated
as hours of service as provided in this subparagraph—
‘‘(I) only in the year in which the absence from
work begins, if section 203(b)(2)(E)(ii)(I) requires
hours to be credited to the year in which the absence
from work begins, or
‘‘(II) in any other case, in the immediately fol-
lowing year.’’
(B) COORDINATION WITH TREATMENT OF
MATERNITY AND PATERNITY ABSENCES UNDER
BREAK IN SERVICE RULES.—Subparagraph (A)
of section 202(b)(5) of such Act is amended by
adding at the end of clause (i) the following
new sentence: ‘‘The preceding sentence shall
apply to an absence from work only if no part
of such absence is required to be given under
the Family and Medical Leave Act of 1993.’’
(2) VESTING.—
(A) IN GENERAL.—Paragraph (2) of sec-
tion 203(b) of such Act (relating to minimum
vesting standards) is amended by adding at the
end the following new subparagraph:
‘‘(E)(i) For purposes of this subsection, in the case
of an individual who is absent from work on leave required
to be given to such individual under the Family and Med-
ical Leave Act of 1993, the plan shall treat as hours of
service—
‘‘(I) the hours of service which otherwise would
normally have been credited to such individual but
for such absence, or
‘‘(II) in any case in which the plan is unable to
determine the hours described in subclause (I), 8
hours of service per day of absence.
‘‘(ii) The hours described in clause (i) shall be treated
as hours of service as provided in this subparagraph—
‘‘(I) only in the year in which the absence from
work begins, if the participant’s rights in his ac-
crued benefit derived from employer contributions
are to any extent not nonforfeitable and the partici-
pant would have a year of service solely because the
period of absence is treated as hours of service as
provided in clause (i); or
‘‘(II) in any other case, in the immediately fol-
lowing year.’’
(B) COORDINATION WITH TREATMENT OF
MATERNITY AND PATERNITY ABSENCES UNDER
BREAK IN SERVICE RULES.—Clause (i) of sec-
tion 203(b)(3)(E) of such Act is amended by
adding at the end of clause (i) the following
new sentence: ‘‘The preceding sentence shall
apply to an absence from work only if no part
of such absence is required to be given under
the Family and Medical Leave Act of 1993.’’
(C) ACCRUED
BENEFITS.—Subparagraph
(A) of section 204(b)(4) of such Act is amended
by inserting the following before the end there-
of: ‘‘or which is included in a period of service
required to be taken into account under
203(b)(2)(E)’’.
(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, 2001.
(2) APPLICATION TO CURRENT EMPLOYEES.—
The amendments made by this section shall not
apply to any employee who does not have at least 1
hour of service in any plan year beginning after De-
cember 31, 2001.
TITLE 
IV—INCENTIVES 
FOR
SMALL 
BUSINESSES 
TO
OFFER PENSION BENEFITS
SEC. 401. CREDIT FOR QUALIFIED PENSION PLAN CON-
TRIBUTIONS OF SMALL EMPLOYERS.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following new
section:
‘‘SEC. 45G. SMALL EMPLOYER PENSION PLAN CONTRIBU-
TIONS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of an eligible employer, the small employer pen-
sion plan contribution credit determined under this section
for any taxable year is an amount equal to 50 percent
of the amount which would (but for subsection (f)(1)) be
allowed as a deduction under section 404 for such taxable
year for qualified employer contributions made to any
qualified retirement plan on behalf of any nonhighly com-
pensated employee.
‘‘(b) CREDIT LIMITED TO 3 Years.—The credit allow-
able by this section shall be allowed only with respect to
the period of 3 taxable years beginning with the taxable
year in which the qualified retirement plan becomes effec-
tive.
‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For
purposes of this section—
‘‘(1) DEFINED CONTRIBUTION PLANS.—In the
case of a defined contribution plan, the term ‘quali-
fied employer contribution’ means the amount of
nonelective and matching contributions to the plan
made by the employer on behalf of any nonhighly
compensated employee to the extent such amount
does not exceed 3 percent of such employee’s com-
pensation from the employer for the year.
‘‘(2) DEFINED BENEFIT PLANS.—In the case of
a defined benefit plan, the term ‘qualified employer
contribution’ means the amount of employer con-
tributions to the plan made on behalf of any non-
highly compensated employee to the extent that the
accrued benefit of such employee derived from such
contributions for the year do not exceed the equiva-
lent of 3 percent of such employee’s compensation
from the employer for the year. For purposes of the
preceding sentence, compensation shall be as deter-
mined under regulations prescribed by the Secretary
and without regard to permitted disparity rules of
section 401(l) and to contributions and benefits
under the Social Security Act.
‘‘(d) QUALIFIED RETIREMENT PLAN.—
‘‘(1) IN GENERAL.—The term ‘qualified retire-
ment plan’ means any plan described in section
401(a) which includes a trust exempt from tax
under section 501(a) if the plan meets—
‘‘(A) the contribution requirements of
paragraph (2),
‘‘(B) the vesting requirements of para-
graph (3), and
‘‘(C) the distributions requirements of
paragraph (4).
‘‘(2) CONTRIBUTION REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met if, under the plan—
‘‘(i) the employer is required to make
nonelective contributions of at least 1 per-
cent of compensation (or the equivalent
thereof in the case of a defined benefit
plan) for each nonhighly compensated em-
ployee who is eligible to participate in the
plan, and
‘‘(ii) except as provided in subpara-
graph (B)(i), allocations of nonelective em-
ployer contributions are either—
‘‘(I) in equal dollar amounts for
all employees covered by the plan, or
‘‘(II) bear a uniform relationship
to the total compensation (within the
meaning of section 414(s) and deter-
mined without regard to section
401(l)) of the employees covered by
the plan.
‘‘(B) SPECIAL RULES FOR DEFINED BEN-
EFIT
PLANS.—For purposes of subparagraph
(A)—
‘‘(i) NONELECTIVE
EMPLOYER
CON-
TRIBUTIONS.—In the case of a defined
benefit plan, the requirements of subpara-
graph (A)(ii) shall be treated as met if al-
locations of nonelective employer contribu-
tions are equivalent to that required by
subclause (I) or (II) of subparagraph
(A)(ii), as determined under regulations
prescribed by the Secretary.
‘‘(ii) COMPENSATION.—For purposes
of subparagraph (A), in the case of defined
benefit plan, compensation shall be as de-
termined under regulations prescribed by
the Secretary and without regard to per-
mitted disparity rules of section 401(l) and
to contributions and benefits under the So-
cial Security Act.
‘‘(C) COMPENSATION
LIMITATION.—The
compensation taken into account under sub-
paragraph (A) for any year shall not exceed the
limitation in effect for such year under section
401(a)(17).
‘‘(3) VESTING
REQUIREMENTS.—The require-
ments of this paragraph are met if the plan satisfies
the requirements of subparagraph (A) or (B).
‘‘(A) 3-YEAR
VESTING.—A plan satisfies
the requirements of this subparagraph if an em-
ployee 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.
‘‘(B) 6-YEAR
GRADED
VESTING.—A plan
satisfies the requirements of this subparagraph
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.
‘‘(4) DISTRIBUTION REQUIREMENTS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the requirements of this
paragraph are met if, under the plan—
‘‘(i) in the case of a profit-sharing or
stock bonus plan, amounts are distribut-
able 
only 
as 
provided 
in 
section
401(k)(2)(B), and
‘‘(ii) in the case of a pension plan,
amounts are distributable subject to the
limitations applicable to other distributions
from the plan.
‘‘(B) DISTRIBUTIONS
WITHIN
YEARS
AFTER SEPARATION, ETC.—In no event shall a
plan meet the requirements of this paragraph
unless, under the plan, amounts distributed—
‘‘(i) after separation from service or
severance from employment, and
‘‘(ii) within 5 years after the date of
the earliest employer contribution to the
plan,
may be distributed only in a direct trustee-to-
trustee transfer to a plan having the same dis-
tribution restrictions as the distributing plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) ELIGIBLE EMPLOYER.—The term ‘eligible
employer’ has the meaning given such term by sec-
tion 408(p)(2)(C)(i). For purposes of the preceding
sentence, all employers treated as a single employer
under subsection (b), (c), (m) or (o)) shall be treated
as a single employer.
‘‘(2) 
NONHIGHLY
COMPENSATED
EMPLOY-
EES.—The term ‘highly compensated employee’ has
the meaning given such term by section 414(q) (de-
termined without regard to section 414(q)(1)(B)(ii)).
‘‘(f) SPECIAL RULES.—
‘‘(1) DISALLOWANCE OF DEDUCTION.—No de-
duction shall be allowed for that portion of the quali-
fied employer contributions paid or incurred for the
taxable year which is equal to the credit determined
under subsection (a).
‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This
section shall not apply to a taxpayer for any taxable
year if such taxpayer elects to have this section not
apply for such taxable year.
‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON-
TRIBUTIONS.—If any accrued benefit which is forfeitable
by reason of subsection (d)(3) is forfeited, the employer’s
tax imposed by this chapter for the taxable year in which
the forfeiture occurs shall be increased by 35 percent of
the employer contributions from which such benefit is de-
rived to the extent such contributions were taken into ac-
count in determining the credit under this section.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
the abuse of the purposes of this section through the use
of multiple plans.
‘‘(i) TERMINATION.—This section shall not apply to
any plan established after December 31, 2009.’’
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (defining current year busi-
ness credit) is amended by striking ‘‘plus’’ at the end of
paragraph (14), by striking the period at the end of para-
graph (15) and inserting ‘‘, plus’’, and by adding at the
end the following new paragraph:
‘‘(16) in the case of an eligible employer (as de-
fined in section 45G(e)), the small employer pension
plan contribution credit determined under section
45G(a).’’
(c) CONFORMING AMENDMENTS.—
(1) Section 39(d) is amended by adding at the
end the following new paragraph:
‘‘(11) NO
CARRYBACK
OF
SMALL
EMPLOYER
PENSION PLAN CONTRIBUTION CREDIT BEFORE JAN-
UARY 1, 2002.—No portion of the unused business
credit for any taxable year which is attributable to
the small employer pension plan contribution credit
determined under section 45G may be carried back
to a taxable year beginning before January 1,
2002.’’
(2) Subsection (c) of section 196 is amended by
striking ‘‘and’’ at the end of paragraph (9), by strik-
ing the period at the end of paragraph (10) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(11) the small employer pension plan contribu-
tion credit determined under section 45G(a).’’
(3) The table of sections for subpart D of part
IV of subchapter A of chapter 1 is amended by add-
ing at the end the following new item:
‘‘Sec. 45G. Small employer pension plan contributions.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions paid or incurred
in taxable years beginning after December 31, 2001.
SEC. 402. SECURE MONEY ANNUITY OR RETIREMENT
(SMART) TRUSTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 is amended by inserting after section 408A
the following new section:
‘‘SEC. 408B. SMART PLANS.
‘‘(a) EMPLOYER ELIGIBILITY.—
‘‘(1) IN GENERAL.—An employer may establish
and maintain a SMART annuity or a SMART trust
for any year only if—
‘‘(A) the employer is an eligible employer
(as defined in section 408(p)(2)(C)), and
‘‘(B) the employer does not maintain (and
no predecessor of the employer maintains) a
qualified plan (other than a permissible plan)
with respect to which contributions were made,
or benefits were accrued, for service in any year
in the period beginning with the year such an-
nuity or trust became effective and ending with
the year for which the determination is being
made.
The period described in subparagraph (B) shall in-
clude the period of 5 years before the year such
trust or annuity became effective with respect to
qualified plans which are defined benefit plans or
money purchase pension plans.
‘‘(2) DEFINITIONS.—For purposes of paragraph
(1)—
‘‘(A) QUALIFIED PLAN.—The term ‘quali-
fied plan’ has the meaning given such term by
section 408(p)(2)(D)(ii).
‘‘(B) PERMISSIBLE PLAN.—The term ‘per-
missible plan’ means—
‘‘(i) a SIMPLE plan described in sec-
tion 408(p),
‘‘(ii) a SIMPLE 401(k) plan de-
scribed in section 401(k)(11),
‘‘(iii) an eligible deferred compensa-
tion plan described in section 457(b),
‘‘(iv) a collectively bargained plan but
only if the employees eligible to participate
in such plan are not also entitled to a ben-
efit described in subsection (b)(5) or
(c)(5), or
‘‘(v) a plan under which there may be
made only—
‘‘(I) elective deferrals described
in section 402(g)(3), and
‘‘(II) employer matching con-
tributions 
not 
in 
excess 
of 
the
amounts described in subclauses (I)
and (II) of section 401(k)(12)(B)(i).
‘‘(b) SMART ANNUITY.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SMART annuity’ means an individual re-
tirement annuity (as defined in section 408(b) with-
out regard to paragraph (2) thereof and without re-
gard to the limitation on aggregate annual pre-
miums contained in the flush language of section
408(b)) if—
‘‘(A) such annuity meets the requirements
of paragraphs (2) through (7), and
‘‘(B) the only contributions to such annu-
ity are nonelective employer contributions.
Nothing in this section shall be construed as pre-
venting an employer from using a group annuity
contract which is divisible into individual retirement
annuities for purposes of providing SMART annu-
ities.
‘‘(2) PARTICIPATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any year only if all
employees of the employer who—
‘‘(i) received at least $5,000 in com-
pensation from the employer during any 2
consecutive preceding years, and
‘‘(ii) received at least $5,000 in com-
pensation during the year,
are entitled to the benefit described in para-
graph (5) for such year.
‘‘(B) EXCLUDABLE EMPLOYEES.—An em-
ployer may elect to exclude from the require-
ments under subparagraph (A) employees de-
scribed in subparagraph (A) or (C) of section
410(b)(3).
‘‘(3) VESTING.—The requirements of this para-
graph are met if the employee’s rights to any bene-
fits under the annuity are nonforfeitable.
‘‘(4) BENEFIT
FORM.—The requirements of
this paragraph are met if the accrued benefit may
be paid only in the form of—
‘‘(A) a benefit payable annually in the
form of a single life annuity with monthly pay-
ments (with no ancillary benefits) beginning at
age 65, or
‘‘(B) any other form of benefit which is the
actuarial equivalent (based on the assumptions
specified in the SMART annuity) of the benefit
described in subparagraph (A).
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BEN-
EFIT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any plan year if the
accrued benefit of each participant derived from
employer contributions for such year, when ex-
pressed as a benefit described in paragraph
(4)(A), equals the applicable percentage of the
participant’s compensation for such year.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble percentage’ means 2 percent.
‘‘(ii) ELECTION OF DIFFERENT PER-
CENTAGE.—Except as provided by para-
graph (8), an employer may elect to apply
an applicable percentage of 1 percent for
any year for all employees eligible to par-
ticipate in the plan for such year, if the
employer notifies the employees of such
percentage within a reasonable period be-
fore the beginning of such year. An em-
ployer may also elect to apply an applicable
percentage of 3 percent for any of the first
5 years that the plan is effective for all
employees eligible to participate in the plan
for such year, if the employer so notifies
the employees.
‘‘(C) COMPENSATION LIMIT.—
‘‘(i) IN GENERAL.—The compensation
taken into account under this paragraph
for any year shall not exceed $100,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
The Secretary shall adjust annually the
$100,000 amount in clause (i) for in-
creases in the cost-of-living at the same
time and in the same manner as adjust-
ments under section 415(d), and any in-
crease which is not a multiple of $5,000
shall be rounded to the next lowest mul-
tiple of $5,000.
‘‘(D) CREDIT FOR SERVICE BEFORE PLAN
ADOPTED.—
‘‘(i) IN GENERAL.—An employer may
elect to take into account a specified num-
ber of years of service (not greater than
10) performed before the adoption of the
plan (each hereinafter referred to as a
‘prior service year’) as service under the
plan if the same specified number of years
is available to all employees eligible to par-
ticipate in the plan for the first plan year.
‘‘(ii) ACCRUAL
OF
PRIOR
SERVICE
BENEFIT.—Such an election shall be effec-
tive for a prior service year only if the re-
quirements of this paragraph are met for
an eligible plan year (with respect to em-
ployees entitled to credit for such prior
service year) by doubling the applicable
percentage (if any) for such plan year. For
purposes of the preceding sentence, an eli-
gible plan year is a plan year in the period
of consecutive plan years (but not more
than the number specified under clause (i))
beginning with the first plan year that the
plan is in effect.
‘‘(iii) ELECTION MAY NOT APPLY TO
CERTAIN
PRIOR
SERVICE
YEARS.—This
subparagraph shall not apply with respect
to any prior service year of an employee
if—
‘‘(I) for any part of such prior
service year such employee was an ac-
tive participant (within the meaning
of section 219(g)(5)) under any de-
fined benefit plan of the employer (or
any predecessor thereof), or
‘‘(II) such employee received dur-
ing such prior service year less than
$5,000 in compensation from the em-
ployer.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met only if the employer is
required to contribute to the annuity for each
plan year the amount necessary to purchase a
SMART annuity in the amount of the benefit
accrued for such year for each participant enti-
tled to such benefit. Such contribution must be
made no later than 81⁄2 months after the end
of the plan year.
‘‘(B) PENALTY FOR FAILURE TO MAKE RE-
QUIRED CONTRIBUTION.—The taxes imposed by
section 4971 shall apply to a failure to make
the contribution required by this paragraph in
the same manner as if the amount of the failure
were an accumulated funding deficiency to
which such section applies.
‘‘(7) LIMITATION ON DISTRIBUTIONS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met only if distributions
may be paid only when the employee attains
age 65, has a severance from employment, dies,
or becomes disabled (within the meaning of sec-
tion 72(m)(7)).
‘‘(B) LIMITATION ON DISTRIBUTIONS ON
SEPARATION
FROM
SERVICE
OF
EMPLOYEES
WHO HAVE NOT ATTAINED AGE 65.—Subpara-
graph (A) shall apply to a distribution on sepa-
ration of service of an employee who has not at-
tained age 65 only if—
‘‘(i) the aggregate cash value of an
employee’s SMART annuity does not ex-
ceed the dollar limit in effect under section
411(a)(11)(A), or
‘‘(ii) the distribution is a direct trust-
ee-to-trustee transfer of the entire balance
to the credit of the employee to a SMART
trust 
described 
in 
subsection 
(c), 
a
SMART rollover plan, or a SMART annu-
ity for the benefit of such employee.
‘‘(8) JOINT AND SURVIVOR ANNUITY RULES AP-
PLICABLE.—The requirements of this paragraph are
met only if the annuity satisfies section 401(a)(11).
‘‘(9) DEFINITIONS AND SPECIAL RULE.—
‘‘(A) DEFINITIONS.—The definitions in
section 408(p)(6) shall apply for purposes of
this subsection.
‘‘(B) USE OF DESIGNATED FINANCIAL IN-
STITUTIONS.—A rule similar to the rule of sec-
tion 408(p)(7) (without regard to the last sen-
tence thereof) shall apply for purposes of this
subsection.
‘‘(C) SMART ROLLOVER PLAN.—For pur-
poses of this section, the term ‘SMART rollover
plan’ means an individual retirement plan for
the benefit of the employee to which a rollover
was made from a SMART Annuity, SMART
trust, or another SMART Rollover plan.
‘‘(c) SMART TRUST.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SMART trust’ means a trust forming part
of a defined benefit plan if—
‘‘(A) such trust meets the requirements of
section 401(a) as modified by subsection (d),
‘‘(B) such plan meets the requirements of
paragraphs (2) through (8), and
‘‘(C) the only contributions to such trust
are employer contributions.
‘‘(2) PARTICIPATION REQUIREMENTS.—A plan
meets the requirements of this paragraph for any
year only if the requirements of subsection (b)(2)
are met for such year.
‘‘(3) VESTING.—A plan meets the requirements
of this paragraph for any year only if the require-
ments of subsection (b)(3) are met for such year.
‘‘(4) BENEFIT FORM.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a plan meets the require-
ments of this paragraph only if the trustee dis-
tributes a SMART annuity that satisfies sub-
section (b)(4) where the annual benefit de-
scribed in subsection (b)(4)(A) is no less than
the accrued benefit determined under para-
graph (5).
‘‘(B) DIRECT TRANSFERS TO INDIVIDUAL
RETIREMENT
PLAN
OR
SMART
ANNUITY.—A
plan shall not fail to meet the requirements of
this paragraph by reason of permitting, as an
optional form of benefit, the distribution of the
entire balance to the credit of the employee. If
the employee is under age 65, such distribution
must be in the form of a direct trustee-to-trust-
ee transfer to a SMART annuity, another
SMART trust, or a SMART rollover plan (or,
in the case of a distribution that does not ex-
ceed the dollar limit in effect under section
411(a)(11)(A), any other individual retirement
plan).
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BEN-
EFIT.—A plan meets the requirements of this para-
graph for any year only if the requirements of sub-
section (b)(5) are met for such year.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—A plan meets the re-
quirements of this paragraph for any year only
if—
‘‘(i) the requirements of subparagraph
(A) of subsection (b)(6) are met for such
year,
‘‘(ii) in the case of a plan which has
an unfunded annuity amount with respect
to the account of any participant, the plan
requires that the employer make an addi-
tional contribution to such plan (at the
time the annuity contract to which such
amount relates is purchased) equal to the
unfunded annuity amount, and
‘‘(iii) in the case of a plan which has
an unfunded prior year liability with re-
spect to the account of any participant as
of the close of such plan year, the plan re-
quires that the employer make an addi-
tional contribution to such plan for such
year equal to the amount of such unfunded
prior year liability no later than 81⁄2
months following the end of the plan year.
‘‘(B) UNFUNDED ANNUITY AMOUNT.—For
purposes of this paragraph, the term ‘unfunded
annuity amount’ means, with respect to the ac-
count of any participant for whom an annuity
is being purchased, the excess (if any) of—
‘‘(i) the amount necessary to purchase
an annuity contract which meets the re-
quirements of subsection (b)(4) in the
amount of the participant’s accrued benefit
determined under paragraph (5), over
‘‘(ii) the balance in such account at
the time such contract is purchased.
‘‘(C) UNFUNDED
PRIOR
YEAR
LIABIL-
ITY.—For purposes of this paragraph, the term
‘unfunded prior year liability’ means, with re-
spect to any plan year, the excess (if any) of—
‘‘(i) the aggregate present value of the
participants’ accrued benefits under the
plan as of the close of the prior plan year,
over
‘‘(ii) the value of the plan’s assets de-
termined under section 412(c)(2) as of the
close of the plan year (determined without
regard to any contributions for such plan
year).
Such present value shall be determined using
the assumptions specified in subparagraph (D).
‘‘(D) ACTUARIAL ASSUMPTIONS.—In deter-
mining the amount required to be contributed
under subparagraph (A)—
‘‘(i) the assumed interest rate shall be
5 percent per year,
‘‘(ii) the assumed mortality shall be
determined under the applicable mortality
table (as defined in section 417(e)(3), as
modified by the Secretary so that it does
not include any assumption for preretire-
ment mortality), and
‘‘(iii) the assumed retirement age
shall be 65.
‘‘(E) CHANGES IN MORTALITY TABLE.—If
the applicable mortality table under section
417(e)(3) for any plan year is not the same as
such table for the prior plan year, the Secretary
shall prescribe regulations which phase in the
effect of the changes over a reasonable period
of plan years determined by the Secretary.
‘‘(F) PENALTY FOR FAILURE TO MAKE RE-
QUIRED CONTRIBUTION.—The taxes imposed by
section 4971 shall apply to a failure to make
the contribution required by this paragraph in
the same manner as if the amount of the failure
were an accumulated funding deficiency to
which such section applies.
‘‘(7) 
SEPARATE
ACCOUNTS
FOR
PARTICI-
PANTS.—A plan meets the requirements of this
paragraph for any year only if the plan provides—
‘‘(A) for an individual account for each
participant, and
‘‘(B) for benefits based solely on—
‘‘(i) the amount contributed to the
participant’s account,
‘‘(ii) any income, expenses, gains and
losses, and any forfeitures of accounts of
other participants which may be allocated
to such participant’s account, and
‘‘(iii) the amount of any unfunded an-
nuity amount with respect to the partici-
pant.
‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH
ARE NOT READILY TRADABLE.—A plan meets the
requirements of this paragraph only if the plan pro-
hibits the trust from holding directly or indirectly se-
curities which are not readily tradable on an estab-
lished securities market. Nothing in this paragraph
shall prohibit the trust from holding insurance com-
pany products regulated by State law.
‘‘(9) DEFINITIONS.—The definitions applicable
under subsection (b)(8) shall apply for purposes of
this subsection.
‘‘(d) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—For purposes of section 401(a), a SMART an-
nuity and a SMART trust shall be treated as meeting the
requirements of the following provisions:
‘‘(1) Section 401(a)(4) (relating to non-
discrimination rules).
‘‘(2) Section 401(a)(26) (relating to minimum
participation).
‘‘(3) Section 410 (relating to minimum partici-
pation and coverage requirements).
‘‘(4) Section 411(b) (relating to accrued benefit
requirements).
‘‘(5) Section 416 (relating to special rules for
top-heavy plans).’’
(b) DEDUCTION RULES.—
(1) IN GENERAL.—Section 404 (as amended by
section 201) is further amended by adding at the
end the following new subsection:
‘‘(p) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—
‘‘(1) IN GENERAL.—Employer contributions to
a SMART annuity shall be treated as if they are
made to a plan described in paragraph (1) of sub-
section (a).
‘‘(2) DEDUCTIBLE LIMIT.—For purposes of sec-
tion 404(a)(1)(A)(i), the amount necessary to satisfy
the minimum funding requirement of section
408B(b)(6) or (c)(6) shall be treated as the amount
necessary to satisfy the minimum funding require-
ment of section 412.’’
(2) COORDINATION
WITH
DEDUCTION
UNDER
SECTION 219.—
(A) Section 219(b) (as amended by section
201) is further amended by adding at the end
the following new paragraph:
‘‘(7) SPECIAL RULE FOR SMART ANNUITIES.—
This section shall not apply with respect to any
amount contributed to a SMART annuity estab-
lished under section 408B(b).’’
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (v) and by adding at the end the
following new clause:
‘‘(vii) any SMART trust or SMART
annuity (within the meaning of section
408B), or’’.
(c) CONTRIBUTIONS AND DISTRIBUTIONS.—
(1) Section 402 (as amended by section 201) is
amended by adding at the end the following new
subsection:
‘‘(m) TREATMENT OF SMART ANNUITIES.—Rules
similar to the rules of paragraphs (1) and (3) of sub-
section (h) shall apply to contributions and distributions
with respect to SMART annuities under section 408B.’’
(2) Section 408(d)(3) is amended by adding at
the end the following new subparagraph:
‘‘(H) SMART 
ANNUITIES.—This para-
graph shall not apply to any amount paid or
distributed out of a SMART annuity (as de-
fined in section 408B) unless it is paid in a
trustee-to-trustee transfer into a SMART roll-
over plan.’’
(3)(A) Section 412(h) is amended by striking
‘‘or’’ at the end of paragraph (5), by striking the pe-
riod at the end of paragraph (6) and inserting ‘‘,
or’’, and by inserting after paragraph (6) the fol-
lowing new paragraph:
‘‘(7) any plan providing for the purchase of any
SMART annuity or any SMART trust.’’
(B) Section 301(a) of Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1081) is
amended by striking ‘‘or’’ at the end of paragraph
(9), by striking the period at the end of paragraph
(10) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(11) any plan providing for the purchase of
any SMART annuity or any SMART trust (as such
terms are defined in section 408B of such Code).’’
(4) Section 415(b) is amended by adding at the
end the following new paragraph:
‘‘(12) TREATMENT OF SMART ANNUITIES AND
TRUSTS.—A SMART annuity and a SMART trust
shall be treated as meeting the requirements of this
section, but distributions from such an annuity or
trust shall be taken into account in determining
whether any other plan satisfies the requirements of
this section.’’
(d) 
INCREASED
PENALTY
ON
EARLY
WITH-
DRAWALS.—Section 72(t) (relating to additional tax on
early distributions) is amended by adding at the end the
following new paragraph:
‘‘(9) SPECIAL
RULES
FOR
SMART
ANNUITIES
AND TRUSTS.—In the case of any amount received
from a SMART annuity, a SMART trust, or a
SMART rollover plan (within the meaning of section
408B), paragraph (1) shall be applied by sub-
stituting ‘20 percent’ for ‘10 percent’ and paragraph
(2) shall be applied by substituting ‘age 65’ for ‘age
591⁄2’.’’
(e) SIMPLIFIED EMPLOYER REPORTS.—
(1) SMART ANNUITIES.—Section 408(l) (relat-
ing to simplified employer reports) is amended by
adding at the end the following new paragraph:
‘‘(3) SMART ANNUITIES.—
‘‘(A) SIMPLIFIED REPORT.—The employer
maintaining any SMART annuity (within the
meaning of section 408B) shall file a simplified
annual return with the Secretary containing
only the information described in subparagraph
(B).
‘‘(B) CONTENTS.—The return required by
subparagraph (A) shall set forth—
‘‘(i) the name and address of the em-
ployer,
‘‘(ii) the date the plan was adopted,
‘‘(iii) the number of employees of the
employer,
‘‘(iv) the number of such employees
who are eligible to participate in the plan,
‘‘(v) the total amount contributed by
the employer to each such annuity for such
year and the minimum amount required
under section 408B to be so contributed,
‘‘(vi) the percentage elected under sec-
tion 408B(b)(5)(B),
‘‘(vii) the name of the issuer,
‘‘(viii) 
the 
employer 
identification
number,
‘‘(ix) the name of the plan, and
‘‘(x) the date of the contribution.
‘‘(C) REPORTING BY ISSUER OF SMART AN-
NUITY.—
‘‘(i) IN GENERAL.—The issuer of each
SMART annuity shall provide to the owner
of the annuity for each year a statement
setting forth as of the close of such year—
‘‘(I) the benefits guaranteed at
age 65 under the annuity, and
‘‘(II) the cash surrender value of
the annuity.
‘‘(ii) SUMMARY
DESCRIPTION.—The
issuer of any SMART annuity shall pro-
vide to the employer maintaining the annu-
ity for each year a description containing
the following information:
‘‘(I) The name and address of
the employer and the issuer.
‘‘(II) The requirements for eligi-
bility for participation.
‘‘(III) The benefits provided with
respect to the annuity.
‘‘(IV) The procedures for, and ef-
fects of, withdrawals (including roll-
overs) from the annuity.
‘‘(D) TIME
AND
MANNER
OF
REPORT-
ING.—Any return, report, or statement required
under this paragraph shall be made in such
form and at such time as the Secretary shall
prescribe.’’
(2) SMART TRUSTS.—Section 6059 (relating
to actuarial reports) is amended by redesignating
subsections (c) and (d) as subsections (d) and (e),
respectively, and by inserting after subsection (b)
the following new subsection:
‘‘(c) SMART TRUSTS.—In the case of a SMART
trust (within the meaning of section 408B), the Secretary
shall require a simplified actuarial report which
contains—
‘‘(1) information similar to the information re-
quired in section 408(l)(3)(B),
‘‘(2) the fair market value of the assets of the
trust,
‘‘(3) the amounts distributed directly to partici-
pants,
‘‘(4) the amounts transferred to SMART roll-
over plans, and
‘‘(5) the present value of the annual accrued
benefits under the plan to which the trust relates.’’
(f) CONFORMING AMENDMENTS.—
(1) Section 280G(b)(6) is amended by striking
‘‘or’’ at the end of subparagraph (C), by striking the
period at the end of subparagraph (D) and inserting
‘‘, or’’ and by adding after subparagraph (D) the
following new subparagraph:
‘‘(E) a SMART annuity described in sec-
tion 408B.’’
(2) Subsections (b), (c), (m)(4)(B), and
(n)(3)(B) of section 414 are each amended by in-
serting ‘‘408B,’’ after ‘‘408(p),’’.
(3) Section 4972(d)(1)(A) is amended by strik-
ing ‘‘and’’ at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ‘‘,
and’’, and by adding after clause (iv) the following
new clause:
‘‘(v) any SMART annuity (within the
meaning of section 408B).’’
(g) REPORTING REQUIREMENTS UNDER ERISA.—
Section 101 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1021) is amended by redesig-
nating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
‘‘(h) SMART ANNUITIES.—
‘‘(1) NO EMPLOYER REPORTS.—Except as pro-
vided in this subsection, no report shall be required
under this section by an employer maintaining a
SMART annuity under section 408B(b) of the Inter-
nal Revenue Code of 1986.
‘‘(2) SUMMARY
DESCRIPTION.—The issuer of
any SMART annuity shall provide to the employer
maintaining the annuity for each year a description
containing the following information:
‘‘(A) The name and address of the em-
ployer and the issuer.
‘‘(B) The requirements for eligibility for
participation.
‘‘(C) The benefits provided with respect to
the annuity.
‘‘(D) The procedures for, and effects of,
withdrawals (including rollovers) from the an-
nuity.’’
‘‘(3) EMPLOYEE NOTIFICATION.—The employer
shall provide each employee eligible to participate in
the SMART annuity with the description described
in paragraph (2) at the same time as the notifica-
tion required under section 408B(b)(5)(B) of the In-
ternal Revenue Code of 1986.’’
(h) $5 PER PARTICIPANT PBGC PREMIUM.—Sub-
paragraph (A) of section 4006(a)(3) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1306)
is amended—
(1) by inserting ‘‘not described in clause (iv)’’
after ‘‘in the case of a single-employer plan’’ in
clause (i),
(2) by striking the period at the end of clause
(iii) and inserting ‘‘; and’’, and
(3) by inserting after clause (iii) the following
new clause:
‘‘(iv) in the case of a single-employer plan de-
scribed in section 408B(c) of the Internal Revenue
Code of 1986, an amount equal to $5 for each par-
ticipant.’’.
(i) CLERICAL AMENDMENT.—The table of sections
for subpart A of part I of subchapter D of chapter 1 is
amended by inserting after the item relating to section
408A the following new item:
‘‘Sec. 408B. SMART plans.’’
(j) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
SEC. 403. DEFINITION OF HIGHLY COMPENSATED EMPLOY-
EES.
(a) IN GENERAL.—Subparagraph (B) of section
414(q)(1) (defining highly compensated employee) is
amended to read as follows:
‘‘(B) for the preceding year had compensa-
tion from the employer in excess of $80,000.’’.
(b) CONFORMING AMENDMENTS.—
(1)(A) Subsection (q) of section 414 is amended
by striking paragraphs (3), (5), and (7) and by re-
designating paragraphs (4), (6), (8), and (9) as
paragraphs (3) through (6), respectively.
(B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii),
408(k)(2)(C), and 416(i)(1)(D) are each amended
by striking ‘‘section 414(q)(4)’’ and inserting ‘‘sec-
tion 414(q)(3)’’.
(C) Section 416(i)(1)(A) is amended by striking
‘‘section 
414(q)(5)’’ 
and 
inserting 
‘‘section
414(r)(9)’’.
(2)(A) Section 414(r) is amended by adding at
the end the following new paragraph:
‘‘(9) EXCLUDED EMPLOYEES.—For purposes of
paragraph (2)(A), the following employees shall be
excluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
‘‘(C) Employees who normally work during
not more than 6 months during any year.
‘‘(D) Employees who have not attained the
age of 18.
‘‘(E) Except to the extent provided in reg-
ulations, employees who are included in a unit
of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee rep-
resentatives and the employer.’’.
(B) Subparagraph (A) of section 414(r)(2) is
amended by striking ‘‘subsection (q)(5)’’ and insert-
ing ‘‘paragraph (9)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2001.
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