contribution relates is treated as an excess contribu-
tion under paragraph (2) or an excess deferral under 
section 402(g)(2)(A). 
‘‘(6) CROSS
REFERENCE.—For excise tax on 
certain excess contributions, see section 4979. 
‘‘(g) 
DISTRIBUTIONS
UPON
TERMINATION
OF 
PLAN.— 
‘‘(1) IN GENERAL.—An event described in this 
subsection is the termination of the plan without es-
tablishment or maintenance of another defined con-
tribution plan (other than an employee stock owner-
ship plan as defined in section 4975(e)(7)). 
‘‘(2) DISTRIBUTIONS MUST BE LUMP SUM DIS-
TRIBUTIONS.— 
‘‘(A) IN
GENERAL.—A termination shall 
not be treated as described in paragraph (1) 
with respect to any employee unless the em-
ployee receives a lump sum distribution by rea-
son of the termination. 
‘‘(B) LUMP-SUM DISTRIBUTION.—For pur-
poses of this paragraph, the term ‘lump-sum 
distribution’ has the meaning given such term 
by section 402(e)(4)(D) (without regard to sub-
clauses (I), (II), (III), and (IV) of clause (i)
thereof). Such term includes a distribution of 
an annuity contract from— 
‘‘(i) a trust which forms a part of a 
plan described in section 401(a) and which 
is exempt from tax under section 501(a), 
or 
‘‘(ii) an annuity plan described in sec-
tion 403(a). 
‘‘(h) SPECIAL RULES FOR SMALL EMPLOYERS.— 
‘‘(1) IN
GENERAL.—An arrangement main-
tained by an eligible employer shall not fail to meet 
the requirements of this section merely because con-
tributions under the arrangement on behalf of any 
employee are made to an individual retirement plan 
(as defined under section 7701(a)(37)) established 
on behalf of the employee. 
‘‘(2) ELIGIBLE
EMPLOYER.—For purposes of 
paragraph (1), the term ‘eligible employer’ means, 
with respect to any year, an employer which had no 
more than 10 employees who received at least 
$5,000 of compensation from the employer for the 
preceding year. An eligible employer who establishes 
and maintains an arrangement under this subsection 
for 1 or more years and who fails to be an eligible 
employer for any subsequent year shall be treated as
an eligible employer for the 2 years following the 
last year the employer was an eligible employer. If 
such failure is due to any acquisition, disposition, or 
similar transaction involving an eligible employer, 
the preceding sentence shall not apply. 
‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations permitting ap-
propriate aggregation of plans and contributions. 
‘‘(j) TRANSITION RULES.— 
‘‘(1) 
DEEMED
ERSAS.—Any 
arrangement 
which, as of December 31, 2005— 
‘‘(A) is part of a plan meeting the require-
ments of section 401(a), and 
‘‘(B) is— 
‘‘(i) a qualified cash or deferred ar-
rangement 
(as 
defined 
in 
section 
401(k)(2)), or 
‘‘(ii) subject to the requirements of 
section 401(m), 
shall be treated as an employer retirement savings 
account arrangement and subject to the require-
ments of this title applicable to such an arrangement 
for plan years beginning after December 31, 2005. 
‘‘(2) ELECTABLE ERSAS.—
‘‘(A) IN GENERAL.—If an employer makes 
an election under this paragraph with respect to 
any applicable arrangement, such arrangement 
shall be treated as an employer retirement sav-
ings account arrangement and subject to the re-
quirements of this title applicable to such an 
arrangement for plan years beginning after De-
cember 31, 2005. 
‘‘(B) APPLICABLE
ARRANGEMENT.—For 
purposes of subparagraph (A), the term ‘appli-
cable arrangement’ means an arrangement 
which, as of December 31, 2005, is— 
‘‘(i) an arrangement under which 
amounts are contributed by an individual’s 
employer for an annuity contract described 
in section 403(b), 
‘‘(ii) an eligible deferred compensation 
plan (within the meaning of section 
457(b)) maintained by an eligible employer 
described in section 457(e)(1)(A), 
‘‘(iii) a simplified employee pension 
(within the meaning of section 408(k)) for 
which an election is in effect under para-
graph (6) thereof, or