151 
Section 414 of the Internal Revenue Code of 1986 
(relating to definitions and special rules) is amended 
by adding at the end the following: 
‘‘(aa) PROVISION OF INVESTMENT EDUCATION NO-
TICES TO PARTICIPANTS IN CERTAIN PLANS.— 
‘‘(1) IN GENERAL.—The plan administrator of 
an applicable pension plan shall provide to each ap-
plicable individual an investment education notice 
described in paragraph (2) at the time of the enroll-
ment of the applicable individual in the plan and not 
less often than annually thereafter. 
‘‘(2) INVESTMENT EDUCATION NOTICE.—An in-
vestment education notice is described in this para-
graph if such notice contains— 
‘‘(A) an explanation, for the long-term re-
tirement security of participants and bene-
ficiaries, of generally accepted investment prin-
ciples, including principles of risk management 
and diversification, and 
‘‘(B) a discussion of the risk of holding 
substantial portions of a portfolio in the secu-
rity of any one entity, such as employer securi-
ties. 
‘‘(3) UNDERSTANDABILITY.—Each notice re-
quired by paragraph (1) shall be written in a man-
152 
ner calculated to be understood by the average plan 
participant and shall provide sufficient information 
(as determined in accordance with guidance provided 
by the Secretary) to allow recipients to understand 
such notice. 
‘‘(4) FORM AND MANNER OF NOTICES.—The 
notices required by this subsection shall be in writ-
ing, except that such notices may be in electronic or 
other form (or electronically posted on the plan’s 
website) to the extent that such form is reasonably 
accessible to the applicable individual. 
‘‘(5) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) APPLICABLE INDIVIDUAL.—The term 
‘applicable individual’ means— 
‘‘(i) any participant in the applicable 
pension plan, 
‘‘(ii) any beneficiary who is an alter-
nate payee (within the meaning of section 
414(p)(8)) under a qualified domestic rela-
tions order (within the meaning of section 
414(p)(1)(A)), and 
‘‘(iii) any beneficiary of a deceased 
participant or alternate payee.
153 
‘‘(B) APPLICABLE
PENSION
PLAN.—The 
term ‘applicable pension plan’ means— 
‘‘(i) a plan described in clause (i), (ii), 
or (iv) of section 219(g)(5)(A), and 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an 
eligible employer described in section 
457(e)(1)(A), 
which permits any participant to direct the in-
vestment of some or all of his account in the 
plan or under which the accrued benefit of any 
participant depends in whole or in part on hy-
pothetical investments directed by the partici-
pant. Such term shall not include a one-partici-
pant retirement plan or a plan to which section 
105 of the Employee Retirement Income Secu-
rity Act of 1974 applies. 
‘‘(C) 
ONE-PARTICIPANT
RETIREMENT 
PLAN DEFINED.—The term ‘one-participant re-
tirement plan’ means a retirement plan with re-
spect to which the following requirements are 
met: 
‘‘(i) on the first day of the plan 
year—
154 
‘‘(I) the plan covered only one in-
dividual (or the individual and the in-
dividual’s spouse) and the individual 
owned 100 percent of the plan spon-
sor (whether or not incorporated), or 
‘‘(II) the plan covered only one 
or more partners (or partners and 
their spouses) in the plan sponsor; 
‘‘(ii) the plan meets the minimum cov-
erage requirements of 410(b) without 
being combined with any other plan of the 
business that covers the employees of the 
business; 
‘‘(iii) the plan does not provide bene-
fits to anyone except the individual (and 
the individual’s spouse) or the partners 
(and their spouses); 
‘‘(iv) the plan does not cover a busi-
ness that is a member of an affiliated serv-
ice group, a controlled group of corpora-
tions, or a group of businesses under com-
mon control; and 
‘‘(v) the plan does not cover a busi-
ness that leases employees.
155 
‘‘(6) CROSS REFERENCE.—For provisions relat-
ing to penalty for failure to provide the notice re-
quired by this section, see section 6652(m).’’. 
(2) PENALTY FOR FAILURE TO PROVIDE NO-
TICE.—Section 6652 of such Code (relating to fail-
ure to file certain information returns, registration 
statements, etc.) is amended by redesignating sub-
section (m) as subsection (n) and by inserting after 
subsection (l) the following new subsection: 
‘‘(m) FAILURE
TO PROVIDE INVESTMENT EDU-
CATION
NOTICES
TO
PARTICIPANTS
IN
CERTAIN 
PLANS.—In the case of each failure to provide a written 
explanation as required by section 414(aa) with respect 
to an applicable individual (as defined in such section), 
at the time prescribed therefor, unless it is shown that 
such failure is due to reasonable cause and not to willful 
neglect, there shall be paid, on notice and demand of the 
Secretary and in the same manner as tax, by the person 
failing to provide such notice, an amount equal to $100 
for each such failure, but the total amount imposed on 
such person for all such failures during any calendar year 
shall not exceed $50,000.’’.
156 
SEC. 602. INAPPLICABILITY OF RELIEF FROM FIDUCIARY 
LIABILITY DURING BLACKOUT PERIODS. 
(a) IN GENERAL.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1104(c)) is amended by adding at the end the following 
new paragraph: 
‘‘(4)(A) Paragraph (1)(B) shall not apply in connec-
tion with the direction or diversification of assets credited 
to the account of any participant or beneficiary during a 
blackout period if, by reason of the imposition of such 
blackout period, the ability of such participant or bene-
ficiary to direct or diversify such assets is suspended, lim-
ited, or restricted. 
‘‘(B) If the fiduciary authorizing a blackout period 
meets the requirements of this title in connection with au-
thorizing such blackout period, no person who is a fidu-
ciary shall be liable under this title for any loss occurring 
during the blackout period as a result of any exercise by 
the participant or beneficiary of control over assets in his 
or her account prior to the blackout period. Matters to 
be considered in determining whether a fiduciary has met 
the requirements of this title include whether such fidu-
ciary— 
‘‘(i) has considered the reasonableness of the 
expected length of the blackout period,
157 
‘‘(ii) has provided the notice required under sec-
tion 101(i)(2), and 
‘‘(iii) has acted in accordance with the require-
ments of subsection (a) in determining whether to 
enter into the blackout period. 
‘‘(C) If a blackout period arises in connection with 
a change in the investment options offered under the plan, 
a participant or beneficiary shall be deemed to have exer-
cised control over the assets in his or her account prior 
to the blackout period, if, after reasonable notice of the 
change in investment options is given to such participant 
or beneficiary before such blackout period, assets in the 
account of the participant or beneficiary are transferred— 
‘‘(i) to plan investment options in accordance 
with the affirmative election of the participant or 
beneficiary, or 
‘‘(ii) in any case in which there is no such elec-
tion, in the manner set forth in such notice. 
‘‘(D) Any imposition of any limitation or restriction 
that may govern the frequency of transfers between invest-
ment vehicles shall not be treated as the imposition of a 
blackout period to the extent such limitation or restriction 
is disclosed to participants or beneficiaries through the 
summary plan description or materials describing specific 
investment alternatives under the plan.
158 
‘‘(E) For purposes of this paragraph, the term ‘black-
out period’ has the meaning given such term by section 
101(i)(7).’’. 
(b) GUIDANCE.—The Secretary of Labor shall, on or 
before December 31, 2006, issue interim final regulations 
providing guidance on how plan sponsors or any other af-
fected fiduciaries can satisfy their fiduciary responsibilities 
during any blackout period during which the ability of a 
participant or beneficiary to direct the investment of as-
sets in his or her individual account is suspended. 
SEC. 603. DIVERSIFICATION REQUIREMENTS FOR DEFINED 
CONTRIBUTION 
PLANS 
THAT 
HOLD 
EM-
PLOYER SECURITIES. 
(a) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Section 204 of the 
Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1054) is amended— 
(1) by redesignating subsection (j) as sub-
section (k); and 
(2) by inserting after subsection (i) the fol-
lowing new subsection: 
‘‘(j) DIVERSIFICATION REQUIREMENTS
FOR INDI-
VIDUAL ACCOUNT PLANS THAT HOLD EMPLOYER SECU-
RITIES.—
159 
‘‘(1) IN GENERAL.—An applicable individual ac-
count plan shall meet the requirements of para-
graphs (2) and (3). 
‘‘(2) EMPLOYEE
CONTRIBUTIONS
AND
ELEC-
TIVE DEFERRALS INVESTED IN EMPLOYER SECURI-
TIES.—In the case of the portion of the account at-
tributable to employee contributions and elective de-
ferrals which is invested in employer securities, a 
plan meets the requirements of this paragraph if 
each applicable individual may elect to direct the 
plan to divest any such securities in the individual’s 
account and to reinvest an equivalent amount in 
other investment options which meet the require-
ments of paragraph (4). 
‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN 
EMPLOYER SECURITIES.— 
‘‘(A) IN GENERAL.—In the case of the por-
tion of the account attributable to employer 
contributions (other than elective deferrals to 
which paragraph (2) applies) which is invested 
in employer securities, a plan meets the require-
ments of this paragraph if, under the plan— 
‘‘(i) each applicable individual with a 
benefit based on 3 years of service may 
elect to direct the plan to divest any such
160 
securities in the individual’s account and 
to reinvest an equivalent amount in other 
investment options which meet the require-
ments of paragraph (4), or 
‘‘(ii) with respect to any employer se-
curity allocated to an applicable individ-
ual’s account during any plan year, such 
applicable individual may elect to direct 
the plan to divest such employer security 
after a date which is not later than 3 years 
after the end of such plan year and to re-
invest an equivalent amount in other in-
vestment options which meet the require-
ments of paragraph (4). 
‘‘(B) APPLICABLE INDIVIDUAL WITH BEN-
EFIT
BASED
ON
YEARS
OF
SERVICE.—For 
purposes of subparagraph (A), an applicable in-
dividual has a benefit based on 3 years of serv-
ice if such individual would be an applicable in-
dividual if only participants in the plan who 
have completed at least 3 years of service (as 
determined under section 203(b)) were referred 
to in paragraph (5)(B)(i). 
‘‘(4) INVESTMENT OPTIONS.—The requirements 
of this paragraph are met if—
161 
‘‘(A) the plan offers not less than 3 invest-
ment options, other than employer securities, to 
which an applicable individual may direct the 
proceeds from the divestment of employer secu-
rities pursuant to this subsection, each of which 
is diversified and has materially different risk 
and return characteristics, and 
‘‘(B) the plan permits the applicable indi-
vidual to choose from any of the investment op-
tions made available under the plan to which 
such proceeds may be so directed, subject to 
such restrictions as may be provided by the 
plan limiting such choice to periodic, reasonable 
opportunities occurring no less frequently than 
on a quarterly basis. 
‘‘(5) DEFINITIONS AND RULES.—For purposes 
of this subsection— 
‘‘(A) APPLICABLE
INDIVIDUAL
ACCOUNT 
PLAN.—The term ‘applicable individual account 
plan’ means any individual account plan, except 
that such term does not include an employee 
stock ownership plan (within the meaning of 
section 4975(e)(7) of the Internal Revenue 
Code of 1986) unless there are any contribu-
tions to such plan (or earnings thereon) held
162 
within such plan that are subject to subsection 
(k)(3) or (m)(2) of section 401 of the Internal 
Revenue Code of 1986. 
‘‘(B) APPLICABLE INDIVIDUAL.—The term 
‘applicable individual’ means— 
‘‘(i) any participant in the plan, and 
‘‘(ii) any beneficiary of a participant 
referred to in clause (i) who has an ac-
count under the plan with respect to which 
the beneficiary is entitled to exercise the 
rights of the participant. 
‘‘(C) ELECTIVE
DEFERRAL.—The term 
‘elective deferral’ means an employer contribu-
tion described in section 402(g)(3)(A) of the In-
ternal Revenue Code of 1986 (as in effect on 
the date of the enactment of this subsection). 
‘‘(D) EMPLOYER
SECURITY.—The term 
‘employer security’ shall have the meaning 
given such term by section 407(d)(1) of this 
Act (as in effect on the date of the enactment 
of this subsection). 
‘‘(E) 
EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock ownership 
plan’ shall have the same meaning given to 
such term by section 4975(e)(7) of the Internal
163 
Revenue Code of 1986 (as in effect on the date 
of the enactment of this subsection). 
‘‘(F) ELECTIONS.—Elections under this 
subsection may be made not less frequently 
than quarterly. 
‘‘(6) EXCEPTION WHERE THERE IS NO READILY 
TRADABLE STOCK.—This subsection shall not apply 
if there is no class of stock issued by the employer 
(or by a corporation which is an affiliate of the em-
ployer (as defined in section 407(d)(7))) that is 
readily tradable on an established securities market 
(or in such other circumstances as may be deter-
mined jointly by the Secretary of Labor and the Sec-
retary of the Treasury in regulations). 
‘‘(7) TRANSITION RULE.— 
‘‘(A) IN GENERAL.—In the case of any in-
dividual account plan which, on the first day of 
the first plan year to which this subsection ap-
plies, holds employer securities of any class that 
were acquired before such date and on which 
there is a restriction on diversification otherwise 
precluded by this subsection, this subsection 
shall apply to such securities of such class held 
in any plan year only with respect to the num-
ber of such securities equal to the applicable
164 
percentage of the total number of such securi-
ties of such class held on such date. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage shall be as follows: 
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year ......................................................................................
2nd plan year .....................................................................................
3rd plan year ......................................................................................
4th plan year ......................................................................................
5th plan year or thereafter ................................................................
100. 
‘‘(C) ELECTIVE DEFERRALS TREATED AS 
SEPARATE
PLAN
NOT
INDIVIDUAL
ACCOUNT 
PLAN.—For purposes of subparagraph (A), the 
applicable percentage shall be 100 percent with 
respect to— 
‘‘(i) employee contributions to a plan 
under which any portion attributable to 
elective deferrals is treated as a separate 
plan under section 407(b)(2) as of the date 
of the enactment of this paragraph, and 
‘‘(ii) such elective deferrals. 
‘‘(D) COORDINATION
WITH
PRIOR
ELEC-
TIONS.—In any case in which a divestiture of 
investment in employer securities of any class 
held by an employee stock ownership plan prior 
to the effective date of this subsection was un-
dertaken pursuant to other applicable Federal
165 
law prior to such date, the applicable percent-
age (as determined without regard to this sub-
paragraph) in connection with such securities 
shall be reduced to the extent necessary to ac-
count for the amount to which such election ap-
plied. 
‘‘(8) REGULATIONS.—The Secretary of the 
Treasury shall prescribe regulations under this sub-
section in consultation with the Secretary of 
Labor.’’. 
(b) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.— 
(1) IN GENERAL.—Section 401(a) of the Inter-
nal Revenue Code of 1986 (relating to requirements 
for qualification) is amended by inserting after para-
graph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.— 
‘‘(A) IN GENERAL.—An applicable defined 
contribution plan shall meet the requirements 
of subparagraphs (B) and (C). 
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND 
ELECTIVE DEFERRALS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of the
166 
account attributable to employee contributions 
and elective deferrals which is invested in em-
ployer securities, a plan meets the requirements 
of this subparagraph if each applicable indi-
vidual in such plan may elect to direct the plan 
to divest any such securities in the individual’s 
account and to reinvest an equivalent amount 
in other investment options which meet the re-
quirements of subparagraph (D). 
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED IN EMPLOYER SECURITIES.— 
‘‘(i) IN GENERAL.—In the case of the 
portion of the account attributable to em-
ployer contributions (other than elective 
deferrals to which subparagraph (B) ap-
plies) which is invested in employer securi-
ties, a plan meets the requirements of this 
subparagraph if, under the plan— 
‘‘(I) each applicable individual 
with a benefit based on 3 years of 
service may elect to direct the plan to 
divest any such securities in the indi-
vidual’s account and to reinvest an 
equivalent amount in other investment