I
107TH CONGRESS
2D SESSION
H. R. 3640
To amend the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code of 1986 to ensure that individual account plans
protect workers by limiting the amount of employer stock each worker
may hold and encouraging diversification of investment of plan assets,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 29, 2002
Mr. PASCRELL introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Edu-
cation and the Workforce, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned
A BILL
To amend the Employee Retirement Income Security Act
of 1974 and the Internal Revenue Code of 1986 to
ensure that individual account plans protect workers by
limiting the amount of employer stock each worker may
hold and encouraging diversification of investment of
plan assets, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Pension Protection and
Diversification Act of 2002’’.
SEC. 2. 20-PERCENT LIMITATION ON EMPLOYER STOCK
AND REAL PROPERTY HELD BY PARTICIPANT
IN CERTAIN INDIVIDUAL ACCOUNT PLANS.
(a) IN GENERAL.—Section 407 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1107)
is amended by adding at the end the following:
‘‘(g) DIVERSIFICATION REQUIREMENTS APPLICABLE
TO CERTAIN INDIVIDUAL ACCOUNT PLANS.—
‘‘(1) IN GENERAL.—An applicable individual ac-
count plan shall not be treated as an eligible indi-
vidual account plan (as defined in subsection (d)(3))
unless the plan meets—
‘‘(A) the acquisition and holding require-
ments of paragraph (2), and
‘‘(B) the divestment requirement of para-
graph (3).
‘‘(2) ACQUISITION
AND
HOLDING
REQUIRE-
MENTS.—A plan meets the requirements of this
paragraph only if—
‘‘(A) the plan may not acquire qualifying
employer securities or qualifying employer real
property to the extent that, immediately after
the acquisition, the fair market value of all
qualifying employer securities and qualifying
employer real property allocated (or to be allo-
cated) to any participant or beneficiary would
exceed 20 percent of the fair market value of all
assets allocated (or to be allocated) to such par-
ticipant or beneficiary under the plan, and
‘‘(B) as of the last day of any calendar
quarter, the fair market value of all qualifying
employer securities and qualifying employer real
property allocated (or to be allocated) to any
participant or beneficiary does not exceed 20
percent of the fair market value of all assets al-
located (or to be allocated) to such participant
or beneficiary.
‘‘(3) OPPORTUNITY FOR EMPLOYEE TO DIVEST
EMPLOYER SECURITIES.—A plan meets the require-
ments of this paragraph if each employee who has
a nonforfeitable right to 100 percent of the employ-
ee’s accrued benefit derived from employer contribu-
tions may, at any time after the 90th day following
the allocation of any qualifying employer securities
or qualifying employer real property to the employee
under the plan, direct the plan to divest the employ-
ee’s account of such securities or property and rein-
vest an equivalent amount in other assets.
‘‘(4) DIVESTITURE.—
‘‘(A) IN
GENERAL.—The Secretary shall
prescribe regulations under which—
‘‘(i) a plan is given a reasonable pe-
riod of time to divest itself of qualifying
employer securities and qualifying em-
ployer real property in order to meet the
requirements of this subsection, and
‘‘(ii) in the case of a plan in which a
participant or beneficiary exercises control
over assets in an account, the participant
is given reasonable notice of the require-
ment, and a reasonable period of time, to
make such divestiture.
‘‘(B) WAIVER IN DE MINIMIS CASES.—The
Secretary may by regulations waive the applica-
tion of paragraph (2)(B) in cases where the
failure with respect to any participant or bene-
ficiary is de minimis and due solely to market
fluctuation.
‘‘(5) DEFINITIONS AND SPECIAL RULES.—For
purposes of this subsection—
‘‘(A) APPLICABLE
INDIVIDUAL
ACCOUNT
PLAN.—The term ‘applicable individual account
plan’ means an individual account plan other
than an employee stock ownership plan as de-
fined in section 4975(e)(7) of the Internal Rev-
enue Code of 1986.
‘‘(B) AGGREGATION.—All applicable indi-
vidual account plans (other than multiemployer
plans) maintained by the same employer shall
be treated as a single plan.
‘‘(6) TRANSITION RULES.—
‘‘(A) IN GENERAL.—If, as of December 31,
2002, the fair market value of qualifying em-
ployer securities and qualifying employer real
property allocated (or to be allocated) under
any plan to any one participant or beneficiary
exceeds 20 percent of the fair market value of
all assets so allocated (or to be allocated), the
plan shall be treated as meeting the require-
ments of paragraph (2)(B). This subparagraph
shall cease to apply if any such securities or
property are allocated after December 31,
2002, to the participant or beneficiary without
the requirements of paragraph (2)(A) or sub-
paragraph (B) being met.
‘‘(B) CONTRACTUAL
REQUIREMENTS.—If
qualifying employer securities or qualifying em-
ployer real property are acquired after Decem-
ber 31, 2002, pursuant to a contract in effect
on the date of enactment of this subsection and
at all times thereafter, the fair market value of
such securities or property as of December 31,
2002, shall be taken into account under sub-
paragraph (A).’’
(b) CONFORMING AMENDMENT.—Section 407(b)(1)
of such Act (29 U.S.C. 1107(b)(1)) is amended by striking
‘‘Subsection (a)’’ and inserting ‘‘Subject to subsection (g),
subsection (a)’’.
SEC. 3. IMPROVEMENTS IN ABILITY OF EMPLOYEES TO DI-
VERSIFY ASSETS IN ESOPS.
(a) IN GENERAL.—Subparagraph (B)(iii) of section
401(a)(28) of the Internal Revenue Code of 1986 (relating
to additional requirements for employee stock ownerships
plans) is amended—
(1) by striking ‘‘10 years’’ and inserting ‘‘5
years’’, and
(2) by striking ‘‘age 55’’ and inserting ‘‘age
35’’.
(b) TRUSTEE-TO-TRUSTEE TRANSFER REQUIRED.—
Clause (ii) of section 401(a)(28)(B) of such Code is
amended by adding at the end the following new flush sen-
tence:
‘‘In the case of a qualified participant who
has not attained the age of 55 on or before
the date of any distribution described in
subclause (I), a plan shall be treated as
meeting the requirements of subclause (I)
only if such distribution is made in the
form of a direct trustee-to-trustee transfer
to an eligible retirement plan (as defined
in paragraph (31)(D)) specified by the
participant.’’
SEC. 
4. 
REDUCTION 
IN 
DEDUCTION 
FOR 
EMPLOYER
MATCHING 
CONTRIBUTIONS 
TO 
DEFINED
CONTRIBUTION PLANS MADE IN EMPLOYER
SECURITIES.
Section 404(a) of the Internal Revenue Code of 1986
(relating to deduction for contributions of an employer to
an employee trust, etc.) is amended by adding at the end
the following:
‘‘(12) LIMITATIONS ON DEDUCTIONS FOR EM-
PLOYER MATCHING CONTRIBUTIONS MADE IN EM-
PLOYER SECURITIES.—In the case of an employer
matching contribution of employer securities (as de-
fined in section 409(l)) to a defined contribution
plan other than an employee stock ownership plan
(as defined in section 4975(e)(7)), the amount of the
deduction allowed shall be equal to 50 percent of the
amount allowable without regard to this paragraph.’’
SEC. 5. EFFECTIVE DATES.
(a) IN GENERAL.—The amendments made by this
Act shall apply to years beginning after December 31,
2002.
(b) COLLECTIVE BARGAINING AGREEMENTS.—In the
case of a plan maintained pursuant to one or more collec-
tive bargaining agreements between employee representa-
tives and one or more employers ratified by the date of
the enactment of this Act, the amendments made by this
Act shall not apply with respect to employees covered by
any such agreement for plan years beginning before the
earlier of—
(1) the later of—
(A) the date on which the last of such col-
lective bargaining agreements terminates (de-
termined without regard to any extension there-
of on or after such date of enactment), or
(B) January 1, 2003, or
(2) January 1, 2005.
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