102
(i) by striking ‘‘State or political sub-
division of a State’’ and inserting ‘‘State, 
Indian tribal government (as defined in 
section 7701(a)(4)), or political subdivision 
thereof’’, and 
(ii) by striking ‘‘such State or political 
subdivision’’ and inserting ‘‘such State, In-
dian tribal government (as defined in sec-
tion 7701(a)(4)), or political subdivision 
thereof’’. 
(2) AMENDMENTS TO EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Section 4021(b) of 
the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1321(b)) is amended—
(A) in paragraph (12), by striking ‘‘or’’ at 
the end; 
(B) in paragraph (13), by striking ‘‘plan.’’ 
and inserting ‘‘plan; or’’; and 
(C) by adding at the end the following new 
paragraph: 
‘‘(14) established and maintained for its em-
ployees by an Indian tribal government (as defined 
in section 7701(a)(40) of the Internal Revenue Code 
of 1986), a subdivision of an Indian tribal govern-
ment (determined in accordance with section
103
7871(d) of such Code), an agency or instrumentality 
of an Indian tribal government or subdivision there-
of, or an entity established under tribal, Federal, or 
State law which is wholly owned or controlled by any 
of the foregoing.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning before, on, or 
after the date of the enactment of this Act. 
SEC. 407. DEFERRAL AGREEMENTS. 
(a) IN GENERAL.—Paragraph (4) of section 457(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing the following after ‘‘month’’: ‘‘or, in the case of a plan 
of an eligible employer described in subsection (e)(1)(A), 
before the date on which the compensation is currently 
available’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 408. PLANS MAINTAINED BY STATE OR LOCAL GOV-
ERNMENTS. 
(a) IN GENERAL.—Subparagraph (F) of section 
415(b)(2) of the Internal Revenue Code of 1986 is amend-
ed to read as follows: 
‘‘(F) PLANS
MAINTAINED
BY
STATE
OR 
LOCAL GOVERNMENTS.—
104
‘‘(i) IN GENERAL.—In the case of a 
governmental plan (within the meaning of 
section 414(d)) maintained by a State of 
local government or political subdivision 
thereof (or agency or instrumentality 
thereof), subparagraph (C) shall be applied 
as if the following sentence were added at 
the end: ‘The reduction under this sub-
paragraph shall not reduce the limitation 
of paragraph (l)(A) below (i) $130,000 if 
the benefit begins at or after age 55, or 
(ii) if the benefit begins before age 55, the 
equivalent of the $130,000 limitation at 
age 55.’ ’’. 
(b) COST-OF-LIVING ADJUSTMENTS.—
(1) PLANS MAINTAINED BY STATE OR LOCAL 
GOVERNMENTS.—Paragraph (1) of section 415(d) of 
such Code is amended by striking ‘‘and’’ at the end 
of subparagraph (B), by redesignating subparagraph 
(C) as subparagraph (D), and by inserting after sub-
paragraph (B) the following new subparagraph: 
‘‘(C) the $130,000 amount in subsection 
(b)(2)(F), and’’. 
(2) BASE PERIOD.—Paragraph (3) of section 
415(d) of such Code is amended by redesignating
105
subparagraph (D) as subparagraph (E) and by in-
serting after subparagraph (C) the following new 
subparagraph: 
‘‘(D) $130,000 AMOUNT.—The base period 
taken into account for purposes of paragraph 
(l)(C) is the calendar quarter beginning July 1, 
2005.’’. 
(3) ROUNDING RULE RELATING TO DEFINED 
BENEFIT
PLANS.—Subparagraph (B) of section 
415(d)(4) of such Code is amended to read as fol-
lows: 
‘‘(B) $130,000 AND
$40,000
AMOUNTS.—
Any increase under subparagraph (C) or (D) of 
paragraph (1) which is not a multiple of $1,000 
shall be rounded to the next lowest multiple of 
$1,000.’’. 
(4) CONFORMING AMENDMENT.—Subparagraph 
(E) of section 415(d)(3) of such Code (as amended 
by paragraph (2)) is amended by striking ‘‘para-
graph (l)(C)’’ and inserting ‘‘paragraph (l)(D)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005.
106
SEC. 409. CLARIFICATION OF TREATMENT OF SECTION 
403(b) PROGRAMS. 
(a) ADMINISTRATION.—The Secretary of the Treas-
ury shall not issue any rules which would impose materi-
ally greater burdens and responsibilities on employers with 
respect to the administration of a program described in 
section 403(b) of the Internal Revenue Code of 1986 than 
are imposed as of the date of enactment of this Act. 
(b) TRANSFERS.—Under rules prescribed by the Sec-
retary of the Treasury, participants shall be permitted to 
directly transfer all or part of their interest in a section 
403(b) annuity contract or custodial account to another 
section 403(b) annuity contract or custodial account with-
out violating the prohibitions against in-service with-
drawals in sections 403(b)(7) and 403(b)(11) of such 
Code. These rules shall be consistent with the principles 
of Revenue Ruling 90–24. 
(c) PROPOSED REGULATIONS.—The Secretary of the 
Treasury shall not finalize proposed regulations published 
on November 15, 2004, unless such regulations reflect the 
requirements of this section. 
(d) EFFECTIVE DATE.—The provisions of this sec-
tion shall take effect on the date of enactment of this Act.
107
TITLE V—SIMPLIFICATION AND 
EQUITY 
SEC. 501. UPDATING AND SIMPLIFYING THE MINIMUM DIS-
TRIBUTION RULES. 
(a) REQUIRED DISTRIBUTIONS.—
(1) INCREASE IN AGE FOR REQUIRED BEGIN-
NING
DATE.—Clauses (i) and (ii) of section 
401(a)(9)(C) of the Internal Revenue Code of 1986 
(relating to required beginning date) are amended by 
striking ‘‘age 701⁄2’’ each place it appears and in-
serting ‘‘the applicable age’’. 
(2) MANDATORY
DISTRIBUTION
AGE.—Para-
graph (9) of section 401(a) of such Code (relating 
to required distributions) is amended by inserting at 
the end the following new subparagraph: 
‘‘(H) APPLICABLE AGE.—
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, the applicable age shall be 
701⁄2, adjusted pursuant to clause (ii). 
‘‘(ii) ADJUSTMENT.—The Secretary 
shall increase the applicable age annually 
in a manner proportional to increases in 
life expectancy (as determined by the Sec-
retary) that occur on or after January 1, 
2005, except that no adjustment shall be
108
made until the applicable age as adjusted 
would equal or exceed age 72. Any applica-
ble age which is not a whole number shall 
be rounded to the next lower whole num-
ber.’’. 
(3) SPOUSE BENEFICIARIES.—Subclause (I) of 
section 401(a)(9)(B)(iv) of such Code (relating to 
special rule for surviving spouse of employee) is 
amended by striking ‘‘age 701⁄2’’ and inserting ‘‘the 
applicable age’’. 
(4) ACTUARIAL
ADJUSTMENT
OF
BENEFIT 
UNDER
DEFINED
BENEFIT
PLAN.—Clause (iii) of 
section 401(a)(9)(C) of such Code (relating to actu-
arial adjustment) is amended to read as follows: 
‘‘(iii) ACTUARIAL ADJUSTMENT.—
‘‘(I) IN GENERAL.—In the case 
of a defined benefit plan, an employ-
ee’s accrued benefit shall be actuari-
ally increased to take into account the 
period after the applicable date during 
which the employee was not receiving 
any benefits under the plan. 
‘‘(II) APPLICABLE
DATE.—For 
purposes of clause (I), the term ‘appli-
cable date’ means April 1 of the cal-
109
endar year following the calendar year 
in which the employee attains age 
701⁄2.’’. 
(b) REDUCTION IN EXCISE TAX.—Subsection (a) of 
section 4974 of such Code (relating to excise tax on cer-
tain accumulations in qualified retirement plans) is 
amended by striking ‘‘50 percent’’ and inserting ‘‘25 per-
cent’’. 
(c) SIMPLIFICATION FOR INDIVIDUALS.—
(1) IN GENERAL.—Section 408(a) of such Code 
is amended by redesignating subsection (r) as sub-
section (s) and by inserting after subsection (q) the 
following subsection—
‘‘(r) MINIMUM
DISTRIBUTION
EXEMPTION
FOR 
SMALL ACCOUNTS.—
‘‘(1) IN
GENERAL.—Subsections (a)(6) and 
(b)(3) shall not apply to the individual retirement 
accounts and individual retirement annuities of an 
individual described in paragraph (2). 
‘‘(2) INDIVIDUALS AFFECTED.—
‘‘(A) IN GENERAL.—An individual is de-
scribed in this paragraph for a taxable year if, 
as of the last day of the preceding taxable year, 
the individual’s vested interest in all affected
110
retirement plans has a combined value that 
does not exceed $100,000. 
‘‘(B) LIFE ANNUITY RULE.—For purposes 
of subparagraph (A), an individual’s vested in-
terest in an affected retirement plan shall not 
be taken into account to the extent that such 
interest has been used to purchase an annuity 
contract under which payments described in 
section 402(e)(7)(D)(i) are made. 
‘‘(3) AFFECTED RETIREMENT PLANS.—
‘‘(A) IN GENERAL.—With respect to an in-
dividual, the term ‘affected retirement plan’ 
means any plan described in paragraph (3), (4), 
or (5) of section 4974(c), other than an RSA. 
‘‘(B) SPECIAL RULE.—A plan described in 
section 4974(c)(3) shall not be treated as an af-
fected retirement plan with respect to an indi-
vidual for any year prior to the first year for 
which a distribution would be required under 
section 403(b)(10) (without regard to this sub-
section). 
‘‘(4) LIMITATION
ON
TOTAL
REQUIRED
DIS-
TRIBUTIONS.—Under rules prescribed by the Sec-
retary, in the case of an individual not described in 
paragraph (2), the total amount required to be dis-
111
tributed under subsections (a)(6) and (b)(3), in com-
bination with the total amount required to be dis-
tributed under section 403(b)(10), shall not exceed 
the excess of the combined value of the individual’s 
vested interest in all affected retirement plans over 
$100,000. 
‘‘(5) COST-OF-LIVING ADJUSTMENT.—The Sec-
retary shall adjust the $100,000 amount in para-
graphs (2) and (4) at the same time and in the 
same manner as under section 415(d), except that 
the base period shall be the calendar quarter ending 
September 30, 2005.’’. 
(2) PARALLEL
RULE
FOR
SECTION
403(b) 
PLANS.—Paragraph (10) of section 403(b) of such 
Code is amended by adding at the end the following: 
‘‘For purposes of applying the requirements of this 
paragraph, rules similar to the rules of section 
408(r) shall apply.’’. 
(3) CONFORMING AMENDMENTS.—
(A) Paragraph (6) of section 408(a) of 
such Code is amended by striking ‘‘Under regu-
lations’’ and inserting ‘‘Except as provided in 
subsection (r), under regulations’’. 
(B) Paragraph (3) of section 408(b) of 
such Code is amended by striking ‘‘Under regu-
112
lations’’ and inserting ‘‘Except as provided in 
subsection (r), under regulations’’. 
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to years beginning after December 31, 
2005. 
(2) TRANSITION.—A plan shall not be treated 
as failing to meet the requirements of section 
401(a)(9) of the Internal Revenue Code of 1986 
merely because, in years beginning after December 
31, 2005, no distribution is made to an employee be-
fore the employee’s required beginning date, as de-
termined in accordance with the amendments made 
by this section. 
SEC. 502. CLARIFICATION OF CATCH-UP CONTRIBUTIONS. 
(a) EXCEPTION TO NONDISCRIMINATION RULES.—
(1) IN
GENERAL.—Paragraph (4) of section 
414(v) of the Internal Revenue Code of 1986 (relat-
ing to application of nondiscrimination rules) is 
amended by redesignating subparagraph (B) as sub-
paragraph (C) and by inserting after subparagraph 
(A) the following new subparagraph: 
‘‘(B) EXCEPTION.—An applicable employer 
plan shall not fail to satisfy the requirements of
113
this subparagraph solely because another appli-
cable employer plan maintained by the employer 
that is qualified under Puerto Rico law does not 
provide for additional elective deferrals under 
this subsection.’’. 
(2) EXCEPTION
TO
AGGREGATION
RULES.—
Subparagraph (C) of section 414(v)(4) of such Code, 
as redesignated by paragraph (1), is amended by 
adding at the end the following new sentence: ‘‘In 
addition, employees described in section 410(b)(3) 
shall be excluded from consideration. For any year 
in which an employer complies with section 410(b) 
on the basis of separate lines of business pursuant 
to section 410(b)(5), the employer may apply sub-
paragraph (A) for such year separately with respect 
to employees in each separate line of business.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as if included in section 
631(a) of the Economic Growth and Tax Relief Reconcili-
ation Act of 2001. 
SEC. 503. TREATMENT OF UNCLAIMED BENEFITS. 
(a) AMENDMENTS TO INTERNAL REVENUE CODE OF 
1986.—
(1) AMENDMENT
TO
SECTION 401(a)(34).—
Section 401(a)(34) of the Internal Revenue Code of
114
1986 (relating to benefits of missing participants) is 
amended to read as follows: 
‘‘(34) UNCLAIMED BENEFITS.—A trust forming 
part of a plan shall not be treated as failing to con-
stitute a qualified trust under this section merely be-
cause the plan of which such trust is a part treats 
unclaimed benefits in a manner that satisfies the re-
quirements of section 414(y).’’. 
(2) AMENDMENT TO SECTION 414.—Section 414 
of such Code (relating to definitions and special 
rules) (as amended by this Act) is amended by add-
ing at the end the following new subsection: 
‘‘(y) UNCLAIMED BENEFITS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection only if—
‘‘(A) ONGOING PLANS.—In the case of an 
ongoing plan, the plan provides for one or more 
of the following with respect to unclaimed bene-
fits: 
‘‘(i) In the case of an unclaimed ben-
efit to which section 401(a)(31)(B) applies, 
a transfer under section 401(a)(31)(B). 
‘‘(ii) A transfer to the Pension Benefit 
Guaranty Corporation, in accordance with
115
section 4050(e) of the Employee Retire-
ment Income Security Act of 1974. 
‘‘(iii) Any other treatment permitted 
under rules prescribed by the Secretary. 
‘‘(B) TERMINATED PLANS.—In the case of 
a terminated plan, the plan provides for the fol-
lowing with respect to unclaimed benefits: 
‘‘(i) DEFINED
BENEFIT
PLANS.—In 
the case of a defined benefit plan, one or 
more of the following: 
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined benefit plan 
maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(a) or 
4050(e) (as applicable) of the Em-
116
ployee Retirement Income Security 
Act of 1974. 
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary. 
‘‘(ii) 
DEFINED
CONTRIBUTION 
PLANS.—In the case of a defined contribu-
tion plan, one or more of the following: 
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined contribution 
plan maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(d) or 
4050(e) (as applicable) of the Em-
ployee Retirement Income Security 
Act of 1974.
117
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary. 
‘‘(2) TREATMENT OF TRANSFERS TO PENSION 
BENEFIT GUARANTY CORPORATION.—
‘‘(A) TRANSFERS
TO
PBGC.—Amounts 
transferred from a plan to the Pension Benefit 
Guaranty Corporation pursuant to paragraph 
(1) shall be treated as a transfer under section 
401(a)(31)(A). 
‘‘(B) DISTRIBUTIONS
FROM
PBGC.—Ex-
cept as provided in rules prescribed by the Sec-
retary, amounts distributed by the Pension 
Benefit Guaranty Corporation shall be treated 
as distributed by an individual retirement plan 
under section 408(d) (without regard to para-
graphs (4), (5) and (7) thereof). Rules similar 
to the rules of section 402(c)(4) shall apply. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) UNCLAIMED
BENEFIT.—The term 
‘unclaimed benefit’ means—
‘‘(i) any benefit of a participant or 
beneficiary which is distributable under the 
terms of the plan to the participant or ben-
118
eficiary, if the distribution of the benefit 
has not commenced within 1 year after the 
later of the date on which the benefit first 
became so distributable or the participant’s 
severance from employment; 
‘‘(ii) any benefit or other amount of a 
participant or beneficiary which is distrib-
utable under the terms of the plan with re-
spect to a missing participant; or 
‘‘(iii) any benefit to which section 
401(a)(31)(B) applies or would apply if 
subclause (I) of section 401(a)(31)(B)(i) 
did not require the distribution to exceed 
$1,000. 
A benefit otherwise described in clause (i) shall 
not be treated as an unclaimed benefit under 
clause (i) if the participant or beneficiary elects 
not to have such treatment apply. Any such 
participant or beneficiary shall be given reason-
able notice of the opportunity to make such an 
election. If the participant or beneficiary fails to 
make such an election within a reasonable pe-
riod specified in the notice, any subsequent elec-
tion shall not be given effect and the benefit 
shall be treated as an unclaimed benefit. A no-