H. R. 2617—875 
SEC. 203. INSURANCE-DEDICATED EXCHANGE-TRADED FUNDS. 
(a) IN GENERAL.—Not later than the date which is 7 years 
after the date of the enactment of this Act, the Secretary of the 
Treasury (or the Secretary’s delegate) shall amend the regulation 
issued by the Department of the Treasury relating to ‘‘Income 
Tax; Diversification Requirements for Variable Annuity, Endow-
ment, and Life Insurance Contracts’’, 54 Fed. Reg. 8728 (March 
2, 1989), and make any necessary corresponding amendments to 
other regulations, in order to facilitate the use of exchange-traded 
funds as investment options under variable contracts within the 
meaning of section 817(d) of the Internal Revenue Code of 1986, 
in accordance with subsections (b) and (c) of this section. 
(b) 
DESIGNATE
CERTAIN
AUTHORIZED
PARTICIPANTS
AND 
MARKET MAKERS AS ELIGIBLE INVESTORS.—The Secretary of the 
Treasury (or the Secretary’s delegate) shall amend Treas. Reg. 
section 1.817–5(f)(3) to provide that satisfaction of the requirements 
in Treas. Reg. section 1.817–5(f)(2)(i) with respect to an exchange- 
traded fund shall not be prevented by reason of beneficial interests 
in such a fund being held by 1 or more authorized participants 
or market makers. 
(c) DEFINE RELEVANT TERMS.—In amending Treas. Reg. section 
1.817–5(f)(3) in accordance with subsection (b), the Secretary of 
the Treasury (or the Secretary’s delegate) shall provide definitions 
consistent with the following: 
(1) EXCHANGE-TRADED FUND.—The term ‘‘exchange-traded 
fund’’ means a regulated investment company, partnership, 
or trust— 
(A) that is registered with the Securities and Exchange 
Commission as an open-end investment company or a unit 
investment trust; 
(B) the shares of which can be purchased or redeemed 
directly from the fund only by an authorized participant; 
and 
(C) the shares of which are traded throughout the 
day on a national stock exchange at market prices that 
may or may not be the same as the net asset value of 
the shares. 
(2) 
AUTHORIZED
PARTICIPANT.—The 
term 
‘‘authorized 
participant’’ means a financial institution that is a member 
or participant of a clearing agency registered under section 
17A(b) of the Securities Exchange Act of 1934 that enters 
into a contractual relationship with an exchange-traded fund 
pursuant to which the financial institution is permitted to 
purchase and redeem shares directly from the fund and to 
sell such shares to third parties, but only if the contractual 
arrangement or applicable law precludes the financial institu-
tion from— 
(A) purchasing the shares for its own investment pur-
poses rather than for the exclusive purpose of creating 
and redeeming such shares on behalf of third parties; and 
(B) selling the shares to third parties who are not 
market makers or otherwise described in Treas. Reg. sec-
tion 1.817–5(f) (1) and (3). 
(3) MARKET MAKER.—The term ‘‘market maker’’ means a 
financial institution that is a registered broker or dealer under 
section 15(b) of the Securities Exchange Act of 1934 that main-
tains liquidity for an exchange-traded fund on a national stock
H. R. 2617—876 
exchange by being always ready to buy and sell shares of 
such fund on the market, but only if the financial institution 
is contractually or legally precluded from selling or buying 
such shares to or from persons who are not authorized partici-
pants or otherwise described in Treas. Reg. section 1.817– 
5(f) (2) and (3). 
(d) EFFECTIVE DATE.—This section shall apply to segregated 
asset account investments made on or after the date which is 
7 years after the date of the enactment of this Act. 
SEC. 204. ELIMINATING A PENALTY ON PARTIAL ANNUITIZATION. 
(a) ELIMINATING A PENALTY ON PARTIAL ANNUITIZATION.—The 
Secretary of the Treasury (or the Secretary’s delegate) shall amend 
the regulations under section 401(a)(9) of the Internal Revenue 
Code of 1986 to provide that if an employee’s benefit is in the 
form of an individual account under a defined contribution plan, 
the plan may allow the employee to elect to have the amount 
required to be distributed from such account under such section 
for a year to be calculated as the excess of the total required 
amount for such year over the annuity amount for such year. 
(b) DEFINITIONS.—For purposes of this section— 
(1) TOTAL REQUIRED AMOUNT.—The term ‘‘total required 
amount’’, with respect to a year, means the amount which 
would be required to be distributed under Treas. Reg. section 
1.401(a)(9)–5 (or any successor regulation) for the year, deter-
mined by treating the account balance as of the last valuation 
date in the immediately preceding calendar year as including 
the value on that date of all annuity contracts which were 
purchased with a portion of the account and from which pay-
ments are made in accordance with Treas. Reg. section 
1.401(a)(9)–6. 
(2) ANNUITY AMOUNT.—The term ‘‘annuity amount’’, with 
respect to a year, is the total amount distributed in the year 
from all annuity contracts described in paragraph (1). 
(c) CONFORMING REGULATORY AMENDMENTS.—The Secretary of 
the Treasury (or the Secretary’s delegate) shall amend the regula-
tions under sections 403(b)(10), 408(a)(6), 408(b)(3), and 457(d)(2) 
of the Internal Revenue Code of 1986 to conform to the amendments 
described in subsection (a). Such conforming amendments shall 
treat all individual retirement plans (as defined in section 
7701(a)(37) of such Code) which an individual holds as the owner, 
or which an individual holds as a beneficiary of the same decedent, 
as one such plan for purposes of the amendments described in 
subsection (a). Such conforming amendments shall also treat all 
contracts described in section 403(b) of such Code which an indi-
vidual holds as an employee, or which an individual holds as 
a beneficiary of the same decedent, as one such contract for such 
purposes. 
(d) EFFECTIVE
DATE.—The modifications and amendments 
required under subsections (a) and (c) shall be deemed to have 
been made as of the date of the enactment of this Act, and as 
of such date— 
(1) all applicable laws shall be applied in all respects as 
though the actions which the Secretary of the Treasury (or 
the Secretary’s delegate) is required to take under such sub-
sections had been taken, and
H. R. 2617—877 
(2) until such time as such actions are taken, taxpayers 
may rely upon their reasonable good faith interpretations of 
this section. 
TITLE III—SIMPLIFICATION AND CLARI-
FICATION 
OF 
RETIREMENT 
PLAN 
RULES 
SEC. 301. RECOVERY OF RETIREMENT PLAN OVERPAYMENTS. 
(a) OVERPAYMENTS
UNDER
ERISA.—Section 206 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1056) 
is amended by adding at the end the following new subsection: 
‘‘(h) SPECIAL RULES APPLICABLE TO BENEFIT OVERPAYMENTS.— 
‘‘(1) GENERAL RULE.—In the case of an inadvertent benefit 
overpayment by any pension plan, the responsible plan fidu-
ciary shall not be considered to have failed to comply with 
the requirements of this title merely because such fiduciary 
determines, in the exercise of its discretion, not to seek recovery 
of all or part of such overpayment from— 
‘‘(A) any participant or beneficiary, 
‘‘(B) any plan sponsor of, or contributing employer to— 
‘‘(i) an individual account plan, provided that the 
amount needed to prevent or restore any impermissible 
forfeiture from any participant’s or beneficiary’s 
account arising in connection with the overpayment 
is, separately from and independently of the overpay-
ment, allocated to such account pursuant to the non-
forfeitability requirements of section 203 (for example, 
out of the plan’s forfeiture account, additional employer 
contributions, or recoveries from those responsible for 
the overpayment), or 
‘‘(ii) a defined benefit pension plan subject to the 
funding rules in part 3 of this subtitle B, unless the 
responsible plan fiduciary determines, in the exercise 
of its fiduciary discretion, that failure to recover all 
or part of the overpayment faster than required under 
such funding rules would materially affect the plan’s 
ability to pay benefits due to other participants and 
beneficiaries, or 
‘‘(C) any fiduciary of the plan, other than a fiduciary 
(including a plan sponsor or contributing employer acting 
in a fiduciary capacity) whose breach of its fiduciary duties 
resulted in such overpayment, provided that if the plan 
has established prudent procedures to prevent and mini-
mize overpayment of benefits and the relevant plan fidu-
ciaries have followed such procedures, an inadvertent ben-
efit overpayment will not give rise to a breach of fiduciary 
duty. 
‘‘(2) REDUCTION
IN
FUTURE
BENEFIT
PAYMENTS
AND 
RECOVERY FROM RESPONSIBLE PARTY.—Paragraph (1) shall not 
fail to apply with respect to any inadvertent benefit overpay-
ment merely because, after discovering such overpayment, the 
responsible plan fiduciary— 
‘‘(A) reduces future benefit payments to the correct 
amount provided for under the terms of the plan, or
H. R. 2617—878 
‘‘(B) seeks recovery from the person or persons respon-
sible for the overpayment. 
‘‘(3) EMPLOYER
FUNDING
OBLIGATIONS.—Nothing in this 
subsection shall relieve an employer of any obligation imposed 
on it to make contributions to a plan to meet the minimum 
funding standards under part 3 of this subtitle B or to prevent 
or restore an impermissible forfeiture in accordance with section 
203. 
‘‘(4) RECOUPMENT FROM PARTICIPANTS AND BENEFICIARIES.— 
If the responsible plan fiduciary, in the exercise of its fiduciary 
discretion, decides to seek recoupment from a participant or 
beneficiary of all or part of an inadvertent benefit overpayment 
made by the plan to such participant or beneficiary, it may 
do so, subject to the following conditions: 
‘‘(A) No interest or other additional amounts (such 
as collection costs or fees) are sought on overpaid amounts 
for any period. 
‘‘(B) If the plan seeks to recoup past overpayments 
of a non-decreasing annuity by reducing future benefit 
payments— 
‘‘(i) the reduction ceases after the plan has recov-
ered the full dollar amount of the overpayment, 
‘‘(ii) the amount recouped each calendar year does 
not exceed 10 percent of the full dollar amount of 
the overpayment, and 
‘‘(iii) future benefit payments are not reduced to 
below 90 percent of the periodic amount otherwise 
payable under the terms of the plan. 
Alternatively, if the plan seeks to recoup past overpayments 
of a non-decreasing annuity through one or more install-
ment payments, the sum of such installment payments 
in any calendar year does not exceed the sum of the reduc-
tions that would be permitted in such year under the 
preceding sentence. 
‘‘(C) If the plan seeks to recoup past overpayments 
of a benefit other than a non-decreasing annuity, the plan 
satisfies requirements developed by the Secretary of Labor 
for purposes of this subparagraph. 
‘‘(D) Efforts to recoup overpayments are— 
‘‘(i) not accompanied by threats of litigation, unless 
the responsible plan fiduciary makes a determination 
that there is a reasonable likelihood of success to 
recover an amount greater than the cost of recovery, 
and 
‘‘(ii) not made through a collection agency or 
similar third party, unless the participant or bene-
ficiary ignores or rejects efforts to recoup the overpay-
ment following either a final judgment in Federal or 
State court or a settlement between the participant 
or beneficiary and the plan, in either case authorizing 
such recoupment. 
‘‘(E) Recoupment of past overpayments to a participant 
is not sought from any beneficiary of the participant, 
including a spouse, surviving spouse, former spouse, or 
other beneficiary. 
‘‘(F) Recoupment may not be sought if the first overpay-
ment occurred more than 3 years before the participant