‘‘(h) ADJUSTMENT FOR INFLATION.— 
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning after December 31, 2008, each dollar 
amount in the table contained in subsection (b) in 
the columns under the heading ‘All other cases’ shall 
be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar 
year by substituting ‘calendar year 2007’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase under the preceding sentence is not 
a multiple of $1,000, such increase shall be rounded 
to the nearest multiple of $1,000. 
‘‘(2) ADJUSTMENT OF AMOUNTS RELATING TO 
JOINT RETURN AND HEAD OF HOUSEHOLD.—In the 
case of any taxable year beginning after December 
31, 2008— 
‘‘(A) there shall be substituted for each 
dollar amount in the table contained in sub-
section (b) in the columns under the heading 
‘Joint return’ a dollar amount equal to twice 
the corresponding dollar amount in such table
in the columns under the heading ‘All other 
cases’ (as increased under paragraph (1)), and 
‘‘(B) there shall be substituted for each 
dollar amount in the table contained in sub-
section (b) in the columns under the heading 
‘Head of household’ a dollar amount equal to 
11⁄2 times the corresponding dollar amount in 
such table in the columns under the heading 
‘All other cases’ (as increased under paragraph 
(1)).’’. 
(c) TESTING PERIOD.—Subparagraph (B) of section 
25B(d)(2) of such Code is amended to read as follows: 
‘‘(B) TESTING PERIOD.—For purposes of 
subparagraph (A), the testing period, with re-
spect to a taxable year, is the period which in-
cludes— 
‘‘(i) such taxable year, and 
‘‘(ii) the 3 preceding taxable years.’’. 
(d) TREATMENT AS REFUNDABLE.— 
(1) CREDIT MOVED TO SUBPART RELATING TO 
REFUNDABLE CREDIT.— 
(A) IN
GENERAL.—Section 25B of such 
Code, as amended by this Act, is hereby moved 
to subpart C of part IV of subchapter A of
chapter 1 (relating to refundable credits) and 
inserted after section 35. 
(B) TECHNICAL AMENDMENTS.— 
(i) Section 36 of such Code is redesig-
nated as section 37. 
(ii) Section 25B of such Code (as 
moved by subparagraph (A)) is redesig-
nated as section 36. 
(iii) The table of sections for subpart 
A of such part is amended by striking the 
item relating to section 25B. 
(iv) The table of sections for subpart 
C of such part is amended by redesig-
nating the item relating to section 36 as 
an item relating to section 37 and by in-
serting after section 35 the following new 
item: 
‘‘Sec. 36. Elective deferrals and IRA contributions by certain individuals.’’. 
(2) MANDATORY DEPOSIT INTO QUALIFIED AC-
COUNT.— 
(A) NO REDUCTION OF TAX.—Subsection 
(a) of section 36 of such Code, as moved and 
redesignated by paragraph (1), is amended by 
striking ‘‘credit against the tax imposed by this 
subtitle’’ and inserting ‘‘tax credit’’.
(B) 
DEPOSIT
INTO
QUALIFIED
AC-
COUNT.—Subsection (g) of section 36 of such 
Code, as moved and redesignated by paragraph 
(1), is amended to read as follows: 
‘‘(g) DEPOSIT INTO QUALIFIED ACCOUNT.— 
‘‘(1) IN GENERAL.—Any amount allowed as a 
tax credit under subsection (a) shall not be allowed 
as a credit against any tax imposed by this subtitle 
but instead shall be treated as an overpayment 
under section 6401(b) and— 
‘‘(A) shall be paid on behalf of the indi-
vidual taxpayer to an applicable retirement plan 
designated by the individual to be invested in a 
manner designated by the individual, except 
that in the case of a joint return, each spouse 
shall be entitled to designate an applicable re-
tirement plan and investments with respect to 
payments attributable to such spouse, or 
‘‘(B) in the case of taxpayer who does not 
properly designate an applicable retirement plan 
in a timely manner or who designates an appli-
cable retirement plan that does not accept such 
amount in a timely manner, shall be paid or 
credited on behalf of the individual taxpayer in 
a manner determined under rules prescribed by
the Secretary that provides treatment com-
parable to the treatment under subparagraph 
(A). 
‘‘(2) APPLICABLE
RETIREMENT
PLAN.—For 
purposes of this subsection, the term ‘applicable re-
tirement plan’ means a plan that elects to accept de-
posits under this subsection and that is described in 
clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B) 
or in section 408A(b). 
‘‘(3) TREATMENT OF DIRECT PAYMENTS.—All 
amounts paid under this subsection shall be treated 
for purposes of this title as income attributable to— 
‘‘(A) an RSA contribution in the case of a 
payments to an individual retirement plan, or 
‘‘(B) a designated RSA contribution in the 
case of a payment to an applicable retirement 
plan described in section 402A(e).’’. 
(e) REGULATION AND PROMOTION.—Section 36 of 
such Code, as amended and redesignated by this section, 
is amended by adding at the end the following new sub-
section: 
‘‘(i) REGULATION AND PROMOTION.—The Secretary 
may prescribe such regulations and other guidance as may 
be necessary or appropriate to carry out this section. The 
Secretary shall also take such steps as he determines nec-
essary and appropriate to increase public awareness of the 
credit provided under this section.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 203. FASTER VESTING OF EMPLOYER NONELECTIVE 
CONTRIBUTIONS. 
(a) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.— 
(1) IN
GENERAL.—Paragraph (2) of section 
411(a) of the Internal Revenue Code of 1986 (relat-
ing to employer contributions) is amended to read as 
follows: 
‘‘(2) EMPLOYER CONTRIBUTIONS.— 
‘‘(A) DEFINED BENEFIT PLANS.— 
‘‘(i) IN GENERAL.—In the case of a 
defined benefit plan, a plan satisfies the 
requirements of this paragraph if it satis-
fies the requirements of clause (ii) or (iii). 
‘‘(ii) 5-YEAR VESTING.—A plan satis-
fies the requirements of this clause if an 
employee who has completed at least 5 
years of service has a nonforfeitable right 
to 100 percent of the employee’s accrued
benefit derived from employer contribu-
tions. 
‘‘(iii) 3 TO 7 YEAR VESTING.—A plan 
satisfies the requirements of this clause if 
an employee has a nonforfeitable right to 
a percentage of the employee’s accrued 
benefit derived from employer contribu-
tions determined under the following table: 
The nonforfeitable 
‘‘Years of service 
percentage is: 
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
6 .........................................................................................................
7 or more ...........................................................................................
100. 
‘‘(B) DEFINED CONTRIBUTION PLANS.— 
‘‘(i) IN GENERAL.—In the case of a 
defined contribution plan, a plan satisfies 
the requirements of this paragraph if it 
satisfies the requirements of clause (ii) or 
(iii). 
‘‘(ii) 3-YEAR VESTING.—A plan satis-
fies the requirements of this clause if an 
employee 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 contribu-
tions.
‘‘(iii) 2 TO 6 YEAR VESTING.—A plan 
satisfies the requirements of this clause if 
an employee has a nonforfeitable right to 
a percentage of the employee’s accrued 
benefit derived from employer contribu-
tions determined under the following table: 
The nonforfeitable 
‘‘Years of service 
percentage is: 
2 .........................................................................................................
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
6 .........................................................................................................
100.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
411(a) of such Code (relating to general rule for 
minimum vesting standards) is amended by striking 
paragraph (12). 
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.— 
(1) IN
GENERAL.—Paragraph (2) of section 
203(a) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to 
read as follows: 
‘‘(2)(A)(i) In the case of a defined benefit plan, 
a plan satisfies the requirements of this paragraph 
if it satisfies the requirements of clause (ii) or (iii). 
‘‘(ii) A plan satisfies the requirements of this 
clause if an employee who has completed at least 5 
years of service has a nonforfeitable right to 100
percent of the employee’s accrued benefit derived 
from employer contributions. 
‘‘(iii) A plan satisfies the requirements of this 
clause 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: 
3 .........................................................................................................
4 .........................................................................................................
5 .........................................................................................................
6 .........................................................................................................
7 or more ...........................................................................................
100. 
‘‘(B)(i) In the case of an individual account 
plan, a plan satisfies the requirements of this para-
graph if it satisfies the requirements of clause (ii) or 
(iii). 
‘‘(ii) A plan satisfies the requirements of this 
clause if an employee 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. 
‘‘(iii) A plan satisfies the requirements of this 
clause 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.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
203(a) of such Act is amended by striking para-
graph (4). 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to contributions for plan years beginning 
after December 31, 2005. 
(2) COLLECTIVE BARGAINING AGREEMENTS.— 
In the case of a plan maintained pursuant to one or 
more collective bargaining agreements between em-
ployee representatives and one or more employers 
ratified before the date of the enactment of this Act, 
the amendments made by this section shall not apply 
to contributions on behalf of employees covered by 
any such agreement for plan years beginning before 
the earlier of— 
(A) the later of— 
(i) the date on which the last of such 
collective bargaining agreements termi-
nates (determined without regard to any