I 
112TH CONGRESS 
1ST SESSION H. R. 3656 
To amend the Internal Revenue Code of 1986 to provide for death and 
disability protection for loans from qualified employer plans. 
IN THE HOUSE OF REPRESENTATIVES 
DECEMBER 13, 2011 
Mr. SESSIONS 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 Internal Revenue Code of 1986 to provide 
for death and disability protection for loans from quali-
fied employer plans. 
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 ‘‘Retirement Savings 
Security Act of 2011’’. 
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SEC. 2. PARTICIPANT LOAN DEATH AND DISABILITY PRO-
TECTION. 
(a) QUALIFIED PARTICIPANT LOAN PROTECTION AR-
RANGEMENT.—Section 414 of the Internal Revenue Code 
of 1986 is amended by inserting at the end the following 
new subsection: 
‘‘(y) QUALIFIED PARTICIPANT LOAN PROTECTION 
ARRANGEMENT.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
the term ‘qualified participant loan protection ar-
rangement’ means an arrangement under which a 
participant or beneficiary who receives (directly or 
indirectly) any amount as a loan from an eligible re-
tirement plan described in clause (iii), (iv), or (vi) of 
section 402(c)(8)(B) has the option to obtain protec-
tion against death and disability in the manner de-
scribed in paragraph (2). 
‘‘(2) MANNER
OF
PROVIDING
PROTECTION.— 
For purposes of paragraph (1)— 
‘‘(A) MANNER
OF
PROTECTION.—Protec-
tion against death and disability described in 
this paragraph is protection provided through— 
‘‘(i) a group insurance policy issued to 
the plan for the sole purpose of providing 
participant and beneficiary loan death and 
disability insurance, or 
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‘‘(ii) a debt protection product in 
which debt protection is provided through 
appropriate commercial contractual liabil-
ity insurance. 
‘‘(B) COST
OF
DEBT
PROTECTION.—For 
purposes of subparagraph (A)(ii), a product 
shall not be treated as a debt protection prod-
uct unless the cost of such product is allocated 
to the accounts of participants or beneficiaries 
with outstanding loans. 
‘‘(C) REIMBURSEMENT
REQUIREMENT.— 
An arrangement shall not be treated as pro-
viding protection against death and disability 
for purposes of paragraph (1) unless under 
such arrangement— 
‘‘(i) the plan, upon death or disability 
of the participant or beneficiary, is re-
quired to cancel any outstanding loan bal-
ance, and 
‘‘(ii) such protection provides for pay-
ment to the plan of— 
‘‘(I) an amount equal to the out-
standing loan balance of the partici-
pant or beneficiary, and 
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‘‘(II) the amount taken into ac-
count under section 402(m)(1)(B). 
‘‘(D) ELECTION
TO
OPT
OUT
OF
COV-
ERAGE.—Protection against death and dis-
ability under a qualified participant loan protec-
tion arrangement shall apply unless a partici-
pant or beneficiary elects in writing to receive 
a loan without protection against participant 
death or disability. Any such election shall be 
irrevocable. 
‘‘(3) RATE OF INTEREST.—A loan described in 
paragraph (1) shall not be treated as failing to bear 
a reasonable rate of interest for purposes of any re-
quirement of law solely because the rate of interest 
under the loan is reduced by the cost of the death 
and disability protection provided pursuant to this 
subsection, and such protection may be taken into 
account in determining whether a loan bears a rea-
sonable rate of interest. 
‘‘(4) DEFINITIONS.—For purpose of this sub-
section— 
‘‘(A) DEBT PROTECTION PRODUCT.—The 
term ‘debt protection product’ means a loan 
term or contractual arrangement modifying 
loan terms under which a plan agrees to— 
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‘‘(i) cancel all or part of a partici-
pant’s or beneficiary’s obligation to repay 
an extension of credit from that plan upon 
the occurrence of a specified event; and 
‘‘(ii) in the event of a participant’s or 
beneficiary’s death or disability, credit to 
the account of such participant or bene-
ficiary of an additional amount equal to 
the amount taken into account under sec-
tion 402(m)(1)(B). 
Such loan term or contractual arrangement 
may be separate from or a part of other loan 
documents. 
‘‘(B) DISABILITY.—The term ‘disability’ 
means an impairment described in section 
72(m)(7) that causes a participant to be dis-
abled within the meaning of section 72(m)(7). 
‘‘(5) SPECIAL RULE.—A debt protection prod-
uct used in connection with a qualified participant 
loan protection arrangement shall not be treated as 
a swap (as defined by section 1a(47) of the Com-
modity Exchange Act (7 U.S.C. 1a(47))) or as a se-
curity-based swap (as defined by section 3(a)(68) of 
the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(68))).’’. 
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(b) DEEMED DISTRIBUTION IN EVENT OF DEATH OR 
DISABILITY.—Paragraph (2) of section 72(p) of the Inter-
nal Revenue Code of 1986 is amended by redesignating 
subparagraph (D) as subparagraph (E) and by inserting 
after subparagraph (C) the following new subparagraph: 
‘‘(D) QUALIFIED PARTICIPANT LOAN PRO-
TECTION ARRANGEMENT.—In the event of the 
death or disability of a participant or bene-
ficiary, the amount of any outstanding loan to 
the participant or beneficiary that is cancelled 
pursuant to a group insurance policy or debt 
protection product that was made available 
under a qualified participant loan protection ar-
rangement described in section 414(y) shall 
be— 
‘‘(i) paid to the plan and credited to 
the interest in the plan of the participant 
or beneficiary, 
‘‘(ii) deemed distributed to such par-
ticipant or beneficiary (or his or her speci-
fied beneficiaries) on the date of such pay-
ment, and 
‘‘(iii) treated as an amount described 
in paragraph (1)(A) on the date of such 
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payment and not as an amount described 
in section 61(a)(12).’’. 
(c) EXCEPTION TO INCOME INCLUSION RULES RE-
LATING
TO PURCHASE
OF LIFE INSURANCE PROTEC-
TION.—Subparagraph (B) of section 72(m)(3) of the In-
ternal Revenue Code of 1986 is amended by adding at the 
end the following new sentence: ‘‘This subparagraph shall 
not apply to any amount that is a repayment of a loan 
to a participant or beneficiary by a plan described in sub-
paragraph (A)(i) or a trust described in subparagraph 
(A)(ii), if that repayment is applied to the purchase of 
participant and beneficiary loan death and disability pro-
tection pursuant to a qualified participant loan protection 
arrangement described in section 414(y).’’. 
(d) EXCLUSION FROM GROSS INCOME FOR CERTAIN 
DISTRIBUTIONS PURSUANT TO CANCELLED LOAN.—Sec-
tion 402 of the Internal Revenue Code of 1986 (relating 
to the taxability of beneficiary of employees’ trust) is 
amended by inserting at the end the following new sub-
section: 
‘‘(m) CERTAIN DISTRIBUTIONS PURSUANT TO CAN-
CELLED LOAN.— 
‘‘(1) IN GENERAL.—In the case of an employee 
to whom paragraph (2) applies (or the beneficiary of 
such employee), gross income of such employee (or 
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such beneficiary) does not include any distribution 
from the eligible retirement plan described in para-
graph (2)(A) to the extent that— 
‘‘(A) such distribution is made on or before 
the day prescribed by law (including extensions 
of time) for filing such employee’s or bene-
ficiary’s return for the taxable year in which 
such employee dies or becomes disabled, and 
‘‘(B) the aggregate amount of such dis-
tributions does not exceed the excess of— 
‘‘(i) the proceeds of the group insur-
ance policy or debt protection product 
through which the protection described in 
paragraph (2)(B) is provided, over 
‘‘(ii) the amount of the deemed dis-
tribution described in paragraph (2)(D). 
For purposes of clause (i), not more than 135 
percent of the amount described in clause (ii) 
shall be taken into account. 
‘‘(2) 
APPLICATION.—This 
paragraph 
shall 
apply to an employee who— 
‘‘(A) receives a loan from an eligible retire-
ment plan described in clause (iii), (iv) or (vi) 
of subsection (c)(8)(B), 
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‘‘(B) obtains the protection described in 
section 414(y)(2) pursuant to a qualified partic-
ipant and beneficiary death and disability pro-
tection arrangement described in section 414(y) 
with respect to such loan, 
‘‘(C) dies or becomes disabled, and 
‘‘(D) is deemed to receive a distribution 
pursuant to section 72(p)(2)(D) following such 
death or disability with respect to such loan. 
‘‘(3) DISTRIBUTION.—A distribution described 
in paragraph (1) shall be treated as not violating the 
requirements of sections 401(k)(2), 403(b)(7)(A)(ii), 
and 403(b)(11). 
‘‘(4) OTHERWISE DISTRIBUTABLE AMOUNT.—A 
group insurance policy or debt protection product 
may provide that the amount that would otherwise 
be distributable pursuant to this subsection may be 
paid directly by the issuer of such group insurance 
policy or debt protection product to the employee. 
Any such amount shall be treated as paid to the eli-
gible retirement plan and distributed to the em-
ployee pursuant to this subsection.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall be take effect with respect to loans made 
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after the one year period beginning on the day after the 
date of enactment of this Act. 
(f) APPLICATION OF FIDUCIARY STANDARDS UNDER 
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 
1974 WITH RESPECT
TO A QUALIFIED PARTICIPANT 
LOAN PROTECTION ARRANGEMENT.—No person that, as 
a fiduciary of an eligible retirement plan described in 
clause (iii), (iv) or (vi) of section 402(c)(8)(B) of the In-
ternal Revenue Code of 1986, whether or not such person 
has adopted a qualified participant loan protection ar-
rangement (as defined section 414(y) of such Code (added 
by subsection (a) of this section)), shall be deemed to have 
violated section 404 or 406 of the Employee Retirement 
Income Security Act of 1974 in connection with adopting 
or not adopting such an arrangement. 
Æ 
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