163
‘‘(ii) in any case in which there is no such elec-
tion, in the manner set forth in such notice. 
‘‘(D) Any imposition of any limitation or restriction 
that may govern the frequency of transfers between invest-
ment vehicles shall not be treated as the imposition of a 
blackout period to the extent such limitation or restriction 
is disclosed to participants or beneficiaries through the 
summary plan description or materials describing specific 
investment alternatives under the plan. 
‘‘(E) For purposes of this paragraph, the term ‘black-
out period’ has the meaning given such term by section 
101(i)(7).’’. 
(b) GUIDANCE.—The Secretary of Labor shall, on or 
before December 31, 2006, issue interim final regulations 
providing guidance on how plan sponsors or any other af-
fected fiduciaries can satisfy their fiduciary responsibilities 
during any blackout period during which the ability of a 
participant or beneficiary to direct the investment of as-
sets in his or her individual account is suspended. 
SEC. 603. DIVERSIFICATION REQUIREMENTS FOR DEFINED 
CONTRIBUTION 
PLANS 
THAT 
HOLD 
EM-
PLOYER SECURITIES. 
(a) AMENDMENT TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—Section 204 of the
164
Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1054) is amended—
(1) by redesignating subsection (j) as sub-
section (k); and 
(2) by inserting after subsection (i) the fol-
lowing new subsection: 
‘‘(j) DIVERSIFICATION REQUIREMENTS
FOR INDI-
VIDUAL ACCOUNT PLANS THAT HOLD EMPLOYER SECU-
RITIES.—
‘‘(1) IN GENERAL.—An applicable individual ac-
count plan shall meet the requirements of para-
graphs (2) and (3). 
‘‘(2) EMPLOYEE
CONTRIBUTIONS
AND
ELEC-
TIVE DEFERRALS INVESTED IN EMPLOYER SECURI-
TIES.—In the case of the portion of the account at-
tributable to employee contributions and elective de-
ferrals which is invested in employer securities, a 
plan meets the requirements of this paragraph if 
each applicable individual may elect to direct the 
plan to divest any such securities in the individual’s 
account and to reinvest an equivalent amount in 
other investment options which meet the require-
ments of paragraph (4). 
‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN 
EMPLOYER SECURITIES.—
165
‘‘(A) IN GENERAL.—In the case of the por-
tion of the account attributable to employer 
contributions (other than elective deferrals to 
which paragraph (2) applies) which is invested 
in employer securities, a plan meets the require-
ments of this paragraph if, under the plan—
‘‘(i) each applicable individual with a 
benefit based on 3 years of service may 
elect to direct the plan to divest any such 
securities in the individual’s account and 
to reinvest an equivalent amount in other 
investment options which meet the require-
ments of paragraph (4), or 
‘‘(ii) with respect to any employer se-
curity allocated to an applicable individ-
ual’s account during any plan year, such 
applicable individual may elect to direct 
the plan to divest such employer security 
after a date which is not later than 3 years 
after the end of such plan year and to re-
invest an equivalent amount in other in-
vestment options which meet the require-
ments of paragraph (4). 
‘‘(B) APPLICABLE INDIVIDUAL WITH BEN-
EFIT
BASED
ON
YEARS
OF
SERVICE.—For
166
purposes of subparagraph (A), an applicable in-
dividual has a benefit based on 3 years of serv-
ice if such individual would be an applicable in-
dividual if only participants in the plan who 
have completed at least 3 years of service (as 
determined under section 203(b)) were referred 
to in paragraph (5)(B)(i). 
‘‘(4) INVESTMENT OPTIONS.—The requirements 
of this paragraph are met if—
‘‘(A) the plan offers not less than 3 invest-
ment options, other than employer securities, to 
which an applicable individual may direct the 
proceeds from the divestment of employer secu-
rities pursuant to this subsection, each of which 
is diversified and has materially different risk 
and return characteristics, and 
‘‘(B) the plan permits the applicable indi-
vidual to choose from any of the investment op-
tions made available under the plan to which 
such proceeds may be so directed, subject to 
such restrictions as may be provided by the 
plan limiting such choice to periodic, reasonable 
opportunities occurring no less frequently than 
on a quarterly basis.
167
‘‘(5) DEFINITIONS AND RULES.—For purposes 
of this subsection—
‘‘(A) APPLICABLE
INDIVIDUAL
ACCOUNT 
PLAN.—The term ‘applicable individual account 
plan’ means any individual account plan, except 
that such term does not include an employee 
stock ownership plan (within the meaning of 
section 4975(e)(7) of the Internal Revenue 
Code of 1986) unless there are any contribu-
tions to such plan (or earnings thereon) held 
within such plan that are subject to subsection 
(k)(3) or (m)(2) of section 401 of the Internal 
Revenue Code of 1986. 
‘‘(B) APPLICABLE INDIVIDUAL.—The term 
‘applicable individual’ means—
‘‘(i) any participant in the plan, and 
‘‘(ii) any beneficiary of a participant 
referred to in clause (i) who has an ac-
count under the plan with respect to which 
the beneficiary is entitled to exercise the 
rights of the participant. 
‘‘(C) ELECTIVE
DEFERRAL.—The term 
‘elective deferral’ means an employer contribu-
tion described in section 402(g)(3)(A) of the In-
168
ternal Revenue Code of 1986 (as in effect on 
the date of the enactment of this subsection). 
‘‘(D) EMPLOYER
SECURITY.—The term 
‘employer security’ shall have the meaning 
given such term by section 407(d)(1) of this 
Act (as in effect on the date of the enactment 
of this subsection). 
‘‘(E) 
EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock ownership 
plan’ shall have the same meaning given to 
such term by section 4975(e)(7) of the Internal 
Revenue Code of 1986 (as in effect on the date 
of the enactment of this subsection). 
‘‘(F) ELECTIONS.—Elections under this 
subsection may be made not less frequently 
than quarterly. 
‘‘(6) EXCEPTION WHERE THERE IS NO READILY 
TRADABLE STOCK.—This subsection shall not apply 
if there is no class of stock issued by the employer 
(or by a corporation which is an affiliate of the em-
ployer (as defined in section 407(d)(7))) that is 
readily tradable on an established securities market 
(or in such other circumstances as may be deter-
mined jointly by the Secretary of Labor and the Sec-
retary of the Treasury in regulations).
169 
‘‘(7) TRANSITION RULE.— 
‘‘(A) IN GENERAL.—In the case of any in-
dividual account plan which, on the first day of 
the first plan year to which this subsection ap-
plies, holds employer securities of any class that 
were acquired before such date and on which 
there is a restriction on diversification otherwise 
precluded by this subsection, this subsection 
shall apply to such securities of such class held 
in any plan year only with respect to the num-
ber of such securities equal to the applicable 
percentage of the total number of such securi-
ties of such class held on such date. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage shall be as follows: 
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year ......................................................................................
2nd plan year .....................................................................................
3rd plan year ......................................................................................
4th plan year ......................................................................................
5th plan year or thereafter ................................................................
100. 
‘‘(C) ELECTIVE DEFERRALS TREATED AS 
SEPARATE
PLAN
NOT
INDIVIDUAL
ACCOUNT 
PLAN.—For purposes of subparagraph (A), the 
applicable percentage shall be 100 percent with 
respect to—
170
‘‘(i) employee contributions to a plan 
under which any portion attributable to 
elective deferrals is treated as a separate 
plan under section 407(b)(2) as of the date 
of the enactment of this paragraph, and 
‘‘(ii) such elective deferrals. 
‘‘(D) COORDINATION
WITH
PRIOR
ELEC-
TIONS.—In any case in which a divestiture of 
investment in employer securities of any class 
held by an employee stock ownership plan prior 
to the effective date of this subsection was un-
dertaken pursuant to other applicable Federal 
law prior to such date, the applicable percent-
age (as determined without regard to this sub-
paragraph) in connection with such securities 
shall be reduced to the extent necessary to ac-
count for the amount to which such election ap-
plied. 
‘‘(8) REGULATIONS.—The Secretary of the 
Treasury shall prescribe regulations under this sub-
section in consultation with the Secretary of 
Labor.’’. 
(b) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
171
(1) IN GENERAL.—Section 401(a) of the Inter-
nal Revenue Code of 1986 (relating to requirements 
for qualification) is amended by inserting after para-
graph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.—
‘‘(A) IN GENERAL.—An applicable defined 
contribution plan shall meet the requirements 
of subparagraphs (B) and (C). 
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND 
ELECTIVE DEFERRALS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of the 
account attributable to employee contributions 
and elective deferrals which is invested in em-
ployer securities, a plan meets the requirements 
of this subparagraph if each applicable indi-
vidual in such plan may elect to direct the plan 
to divest any such securities in the individual’s 
account and to reinvest an equivalent amount 
in other investment options which meet the re-
quirements of subparagraph (D). 
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED IN EMPLOYER SECURITIES.—
172
‘‘(i) IN GENERAL.—In the case of the 
portion of the account attributable to em-
ployer contributions (other than elective 
deferrals to which subparagraph (B) ap-
plies) which is invested in employer securi-
ties, a plan meets the requirements of this 
subparagraph if, under the plan—
‘‘(I) each applicable individual 
with a benefit based on 3 years of 
service may elect to direct the plan to 
divest any such securities in the indi-
vidual’s account and to reinvest an 
equivalent amount in other investment 
options which meet the requirements 
of subparagraph (D), or 
‘‘(II) with respect to any em-
ployer security allocated to an applica-
ble individual’s account during any 
plan year, such applicable individual 
may elect to direct the plan to divest 
such employer security after a date 
which is not later than 3 years after 
the end of such plan year and to rein-
vest an equivalent amount in other in-
173
vestment options which meet the re-
quirements of subparagraph (D). 
‘‘(ii) APPLICABLE
INDIVIDUAL
WITH 
BENEFIT
BASED
ON
YEARS
OF
SERV-
ICE.—For purposes of clause (i), an appli-
cable individual has a benefit based on 3 
years of service if such individual would be 
an applicable individual if only participants 
in the plan who have completed at least 3 
years of service (as determined under sec-
tion 411(a)) were referred to in subpara-
graph (E)(ii)(I). 
‘‘(D) INVESTMENT OPTIONS.—The require-
ments of this subparagraph are met if—
‘‘(i) the plan offers not less than 3 in-
vestment options, other than employer se-
curities, to which an applicable individual 
may direct the proceeds from the divest-
ment of employer securities pursuant to 
this paragraph, each of which is diversified 
and has materially different risk and re-
turn characteristics, and 
‘‘(ii) the plan permits the applicable 
individual to choose from any of the invest-
ment options made available under the
174
plan to which such proceeds may be so di-
rected, subject to such restrictions as may 
be provided by the plan limiting such 
choice to periodic, reasonable opportunities 
occurring no less frequently than on a 
quarterly basis. 
‘‘(E) DEFINITIONS AND RULES.—For pur-
poses of this paragraph—
‘‘(i) APPLICABLE DEFINED CONTRIBU-
TION PLAN.—The term ‘applicable defined 
contribution plan’ means any defined con-
tribution plan, except that such term does 
not include an employee stock ownership 
plan (within the meaning of section 
4975(e)(7)) unless there are any contribu-
tions to such plan (or earnings thereon) 
held within such plan that are subject to 
subsection (k)(3) or (m)(2). 
‘‘(ii) APPLICABLE
INDIVIDUAL.—The 
term ‘applicable individual’ means—
‘‘(I) any participant in the plan, 
and 
‘‘(II) any beneficiary of a partici-
pant referred to in clause (i) who has 
an account under the plan with re-
175
spect to which the beneficiary is enti-
tled to exercise the rights of the par-
ticipant. 
‘‘(iii) 
ELECTIVE
DEFERRAL.—The 
term ‘elective deferral’ means an employer 
contribution 
described 
in 
section 
402(g)(3)(A) (as in effect on the date of 
the enactment of this paragraph). 
‘‘(iv) 
EMPLOYER
SECURITY.—The 
term ‘employer security’ shall have the 
meaning given such term by section 
407(d)(1) of the Employee Retirement In-
come Security Act of 1974 (as in effect on 
the date of the enactment of this para-
graph). 
‘‘(v) EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock owner-
ship plan’ shall have the same meaning 
given to such term by section 4975(e)(7) 
of the Internal Revenue Code of 1986 (as 
in effect on the date of the enactment of 
this paragraph). 
‘‘(vi) ELECTIONS.—Elections under 
this paragraph may be made not less fre-
quently than quarterly.
176
‘‘(F) EXCEPTION
WHERE
THERE
IS
NO 
READILY
TRADABLE
STOCK.—This paragraph 
shall not apply if there is no class of stock 
issued by the employer that is readily tradable 
on an established securities market (or in such 
other circumstances as may be determined 
jointly by the Secretary of the Treasury and the 
Secretary of Labor in regulations). 
‘‘(G) TRANSITION RULE.—
‘‘(i) IN GENERAL.—In the case of any 
defined contribution plan which, on the ef-
fective date of this subsection, holds em-
ployer securities of any class that were ac-
quired before such date and on which there 
is a restriction on diversification otherwise 
precluded by this paragraph, this para-
graph shall apply to such securities of such 
class held in any plan year only with re-
spect to the number of such securities 
equal to the applicable percentage of the 
total number of such securities of such 
class held on such date. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the applicable per-
centage shall be as follows:
177 
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year ......................................................................................
2nd plan year .....................................................................................
3rd plan year ......................................................................................
4th plan year ......................................................................................
5th plan year or thereafter ................................................................
100. 
‘‘(iii) ELECTIVE DEFERRALS TREATED 
AS SEPARATE PLAN NOT INDIVIDUAL AC-
COUNT PLAN.—For purposes of clause (i), 
the applicable percentage shall be 100 per-
cent with respect to— 
‘‘(I) employee contributions to a 
plan under which any portion attrib-
utable to elective deferrals is treated 
as a separate plan under section 
407(b)(2) of the Employee Retirement 
Income Security Act of 1974 as of the 
date of the enactment of this para-
graph, and 
‘‘(II) such elective deferrals. 
‘‘(iv) CONTRIBUTIONS HELD WITHIN 
AN
ESOP.—In the case of contributions 
(other than elective deferrals and employee 
contributions) held within an employee 
stock ownership plan, in the case of the 1st 
and 2nd plan years referred to in the table 
in clause (ii), the applicable percentage 
shall be the greater of the amount deter-
178
mined under clause (ii) or the percentage 
determined under paragraph (28) (deter-
mined as if paragraph (28) applied to a 
plan described in this paragraph). 
‘‘(v) 
COORDINATION
WITH
PRIOR 
ELECTIONS
UNDER
PARAGRAPH
(28).—In 
any case in which a divestiture of invest-
ment in employer securities of any class 
held by an employee stock ownership plan 
prior to the effective date of this para-
graph was undertaken pursuant to an elec-
tion under paragraph (28) prior to such 
date, the applicable percentage (as deter-
mined without regard to this clause) in 
connection with such securities shall be re-
duced to the extent necessary to account 
for the amount to which such election ap-
plied. 
‘‘(H) REGULATIONS.—The Secretary shall 
prescribe regulations under this paragraph in 
consultation with the Secretary of Labor.’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 401(a)(28) of such Code is 
amended by adding at the end the following 
new subparagraph:
179
‘‘(D) APPLICATION.—This paragraph shall 
not apply to a plan to which paragraph (35) ap-
plies.’’. 
(B) Section 409(h)(7) of such Code is 
amended by inserting before the period at the 
end ‘‘or subparagraph (B) or (C) of section 
401(a)(35)’’. 
(C) Section 4980(c)(3)(A) of such Code is 
amended by striking ‘‘if—’’ and all that follows 
and inserting ‘‘if the requirements of subpara-
graphs (B), (C), and (D) are met.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2) and section 604, the amendments made by 
this section shall apply to plan years beginning after 
December 31, 2005, and with respect to employer 
securities allocated to accounts before, on, or after 
the date of the enactment of this Act. 
(2) EXCEPTION.—The amendments made by 
this section shall not apply to employer securities 
held by an employee stock ownership plan which are 
acquired before January 1, 1987. 
SEC. 604. EFFECTIVE DATES AND RELATED RULES. 
(a) IN GENERAL.—Except as otherwise provided in 
the preceding provisions of this title or in subsection (c),
180
the amendments made by this title shall apply with respect 
to plan years beginning on or after the general effective 
date. 
(b) GENERAL EFFECTIVE DATE.—For purposes of 
this section, the term ‘‘general effective date’’ means the 
date which is 1 year after the date of the enactment of 
this Act. 
(c) SPECIAL RULE FOR COLLECTIVELY BARGAINED 
PLANS.—In the case of a plan maintained pursuant to 1 
or more collective bargaining agreements between em-
ployee representatives and 1 or more employers ratified 
on or before the date of the enactment of this Act, sub-
section (a) shall be applied to benefits pursuant to, and 
individuals covered by, any such agreement by substituting 
for ‘‘the general effective date’’ the date of the commence-
ment of the first plan year beginning on or after the ear-
lier of—
(1) the later of—
(A) the date which is 1 year after the gen-
eral effective date, or 
(B) the date on which the last of such col-
lective bargaining agreements terminates (de-
termined without regard to any extension there-
of after the date of the enactment of this Act), 
or
181
(2) the date which is 2 years after the general 
effective date. 
TITLE VII—OTHER TAX PROVI-
SIONS 
RELATING 
TO 
PEN-
SIONS 
SEC. 701. REPORTING SIMPLIFICATION. 
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR 
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treas-
ury and the Secretary of Labor shall modify the re-
quirements for filing annual returns with respect to 
one-participant retirement plans to ensure that such 
plans with assets of $250,000 or less as of the close 
of the plan year need not file a return for that year. 
(2) ONE-PARTICIPANT RETIREMENT PLAN DE-
FINED.—For purposes of this subsection, the term 
‘‘one-participant retirement plan’’ means a retire-
ment plan with respect to which the following re-
quirements are met: 
(A) on the first day of the plan year—
(i) the plan covered only one indi-
vidual (or the individual and the individ-
ual’s spouse) and the individual owned 100 
percent of the plan sponsor (whether or 
not incorporated), or
182
(ii) the plan covered only one or more 
partners (or partners and their spouses) in 
the plan sponsor; 
(B) the plan meets the minimum coverage 
requirements of section 410(b) of the Internal 
Revenue Code of 1986 without being combined 
with any other plan of the business that covers 
the employees of the business; 
(C) the plan does not provide benefits to 
anyone except the individual (and the individ-
ual’s spouse) or the partners (and their 
spouses); 
(D) the plan does not cover a business that 
is a member of an affiliated service group, a 
controlled group of corporations, or a group of 
businesses under common control; and 
(E) the plan does not cover a business that 
leases employees. 
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the 
Internal Revenue Code of 1986 shall have the re-
spective meanings given such terms by such section. 
(4) EFFECTIVE DATE.—The provisions of this 
subsection shall apply to plan years beginning on or 
after January 1, 2005.
183
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR 
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case 
of plan years beginning after December 31, 2006, the Sec-
retary of the Treasury and the Secretary of Labor shall 
provide for the filing of a simplified annual return for any 
retirement plan which covers less than 25 employees on 
the first day of a plan year and which meets the require-
ments described in subparagraphs (B), (D), and (E) of 
subsection (a)(2). 
SEC. 702. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM. 
The Secretary of the Treasury shall continue to up-
date and improve the Employee Plans Compliance Resolu-
tion System (or any successor program) giving special at-
tention to—
(1) increasing the awareness and knowledge of 
small employers concerning the availability and use 
of the program; 
(2) taking into account special concerns and 
circumstances that small employers face with respect 
to compliance and correction of compliance failures; 
(3) extending the duration of the self-correction 
period under the Self-Correction Program for signifi-
cant compliance failures;
184
(4) expanding the availability to correct insig-
nificant compliance failures under the Self-Correc-
tion Program during audit; and 
(5) assuring that any tax, penalty, or sanction 
that is imposed by reason of a compliance failure is 
not excessive and bears a reasonable relationship to 
the nature, extent, and severity of the failure. 
The Secretary of the Treasury shall have full authority 
to effectuate the foregoing and to implement the Employee 
Plans Compliance Resolution System (or any successor 
program) and any other employee plans correction poli-
cies, including the authority to waive income, excise, or 
other taxes to ensure that any tax, penalty, or sanction 
is not excessive and bears a reasonable relationship to the 
nature, extent, and severity of the failure. 
SEC. 703. EXTENSION OF MORATORIUM ON APPLICATION 
OF CERTAIN NONDISCRIMINATION RULES TO 
ALL GOVERNMENTAL PLANS. 
(a) IN GENERAL.—
(1) Subparagraph (G) of section 401(a)(5) and 
subparagraph (G) of section 401(a)(26) of the Inter-
nal Revenue Code of 1986 are each amended by 
striking ‘‘section 414(d))’’ and all that follows and 
inserting ‘‘section 414(d)).’’.
185
(2) Subparagraph (G) of section 401(k)(3) of 
such Code and paragraph (2) of section 1505(d) of 
the Taxpayer Relief Act of 1997 (26 U.S.C. 401 
note) are each amended by striking ‘‘maintained by 
a State or local government or political subdivision 
thereof (or agency or instrumentality thereof)’’. 
(b) CONFORMING AMENDMENTS.—
(1) The heading for subparagraph (G) of sec-
tion 401(a)(5) of such Code is amended to read as 
follows: ‘‘GOVERNMENTAL PLANS.—’’. 
(2) The heading for subparagraph (G) of sec-
tion 401(a)(26) of such Code is amended to read as 
follows: ‘‘EXCEPTION FOR GOVERNMENTAL PLANS.—
’’. 
(3) Subparagraph (G) of section 401(k)(3) of 
such Code is amended by inserting ‘‘GOVERN-
MENTAL PLANS.—’’ after ‘‘(G)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005. 
SEC. 704. NOTICE AND CONSENT PERIOD REGARDING DIS-
TRIBUTIONS. 
(a) EXPANSION OF PERIOD.—
(1) AMENDMENT
OF
INTERNAL
REVENUE 
CODE.—
186
(A) IN
GENERAL.—Subparagraph (A) of 
section 417(a)(6) of the Internal Revenue Code 
of 1986 is amended by striking ‘‘90-day’’ and 
inserting ‘‘180-day’’. 
(B) MODIFICATION
OF
REGULATIONS.—
The Secretary of the Treasury shall modify the 
regulations under sections 402(f), 411(a)(11), 
and 417 of the Internal Revenue Code of 1986 
to substitute ‘‘180 days’’ for ‘‘90 days’’ each 
place it appears in Treasury Regulations sec-
tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)–
1(b). 
(2) AMENDMENT OF ERISA.—
(A) IN GENERAL.—Section 205(c)(7)(A) of 
the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1055(c)(7)(A)) is amended 
by striking ‘‘90-day’’ and inserting ‘‘180-day’’. 
(B) MODIFICATION
OF
REGULATIONS.—
The Secretary of the Treasury shall modify the 
regulations under part 2 of subtitle B of title 
I of the Employee Retirement Income Security 
Act of 1974 to the extent that they relate to 
sections 203(e) and 205 of such Act to sub-
stitute ‘‘180 days’’ for ‘‘90 days’’ each place it 
appears.
187
(3) EFFECTIVE DATE.—The amendments made 
by paragraphs (1)(A) and (2)(A) and the modifica-
tions required by paragraphs (1)(B) and (2)(B) 
shall apply to years beginning after December 31, 
2005. 
(b) CONSENT REGULATION INAPPLICABLE TO CER-
TAIN DISTRIBUTIONS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the regulations under section 
411(a)(11) of the Internal Revenue Code of 1986 
and under section 205 of the Employee Retirement 
Income Security Act of 1974 to provide that the de-
scription of a participant’s right, if any, to defer re-
ceipt of a distribution shall also describe the con-
sequences of failing to defer such receipt. 
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—The modifications re-
quired by paragraph (1) shall apply to years be-
ginning after December 31, 2005. 
(B) REASONABLE NOTICE.—In the case of 
any description of such consequences made be-
fore the date that is 90 days after the date on 
which the Secretary of the Treasury issues a 
safe harbor description under paragraph (1), a 
plan shall not be treated as failing to satisfy the
188
requirements of section 411(a)(11) of such 
Code or section 205 of such Act by reason of 
the failure to provide the information required 
by the modifications made under paragraph (1) 
if the Administrator of such plan makes a rea-
sonable attempt to comply with such require-
ments. 
SEC. 705. QUALIFIED GROUP LEGAL SERVICES PLANS. 
(a) IN GENERAL.—Subsection (e) of section 120 of 
the Internal Revenue Code of 1986 is amended to read 
as follows: 
‘‘(e) APPLICATION OF SECTION.—This section and 
section 501(c)(20) shall apply to taxable years begin-
ning—
‘‘(1) after December 31, 1976, and before July 
1, 1992, and 
‘‘(2) after December 31, 2005, and before Jan-
uary 1, 2009.’’. 
(b) INCREASE IN MAXIMUM EXCLUSION.—The last 
sentence of section 120(a) of such Code is amended by 
striking ‘‘$70’’ and inserting ‘‘$150’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005.
189
SEC. 706. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT PLANS FOR CHARITABLE PUR-
POSES. 
(a) IN GENERAL.—Subsection (d) of section 408 of 
the Internal Revenue Code of 1986 (relating to individual 
retirement accounts) is amended by adding at the end the 
following new paragraph: 
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—No amount shall be 
includible in gross income by reason of a quali-
fied charitable distribution. 
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the 
term ‘qualified charitable distribution’ means 
any distribution from an individual retirement 
plan other than a plan described in subsection 
(k) or (p) of section 408—
‘‘(i) which is made on or after the 
date that the individual for whose benefit 
the plan is maintained has attained age 
701⁄2, and 
‘‘(ii) which is made directly by the 
trustee—
‘‘(I) to an organization described 
in section 170(c), or
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‘‘(II) to a split-interest entity. 
A distribution shall be treated as a qualified 
charitable distribution only to the extent that 
the distribution would be includible in gross in-
come without regard to subparagraph (A) and, 
in the case of a distribution to a split-interest 
entity, only if no person holds an income inter-
est in the amounts in the split-interest entity 
attributable to such distribution other than one 
or more of the following: the individual for 
whose benefit such plan is maintained, the 
spouse of such individual, or any organization 
described in section 170(c). 
‘‘(C) CONTRIBUTIONS
MUST
BE
OTHER-
WISE DEDUCTIBLE.—For purposes of this para-
graph—
‘‘(i) DIRECT CONTRIBUTIONS.—A dis-
tribution to an organization described in 
section 170(c) shall be treated as a quali-
fied charitable distribution only if a deduc-
tion for the entire distribution would be al-
lowable under section 170 (determined 
without regard to subsection (b) thereof 
and this paragraph).
191
‘‘(ii) SPLIT-INTEREST GIFTS.—A dis-
tribution to a split-interest entity shall be 
treated as a qualified charitable distribu-
tion only if a deduction for the entire value 
of the interest in the distribution for the 
use of an organization described in section 
170(c) would be allowable under section 
170 (determined without regard to sub-
section (b) thereof and this paragraph). 
‘‘(D) APPLICATION OF SECTION 72.—Not-
withstanding section 72, in determining the ex-
tent to which a distribution is a qualified chari-
table distribution, the entire amount of the dis-
tribution shall be treated as includible in gross 
income without regard to subparagraph (A) to 
the extent that such amount does not exceed 
the aggregate amount which would have been so 
includible if all amounts distributed from all in-
dividual retirement plans were treated as 1 con-
tract under paragraph (2)(A) for purposes of 
determining the inclusion of such distribution 
under section 72. Proper adjustments shall be 
made in applying section 72 to other distribu-
tions in such taxable year and subsequent tax-
able years.
192
‘‘(E) SPECIAL RULES FOR SPLIT-INTEREST 
ENTITIES.—
‘‘(i) 
CHARITABLE
REMAINDER 
TRUSTS.—Notwithstanding section 664(b), 
distributions made from a trust described 
in subparagraph (G)(i) shall be treated as 
ordinary income in the hands of the bene-
ficiary to whom is paid the annuity de-
scribed in section 664(d)(1)(A) or the pay-
ment described in section 664(d)(2)(A). 
‘‘(ii) POOLED
INCOME
FUNDS.—No 
amount shall be includible in the gross in-
come of a pooled income fund (as defined 
in subparagraph (G)(ii)) by reason of a 
qualified charitable distribution to such 
fund, and all distributions from the fund 
which are attributable to qualified chari-
table distributions shall be treated as ordi-
nary income to the beneficiary. 
‘‘(iii) 
CHARITABLE
GIFT
ANNU-
ITIES.—Qualified charitable distributions 
made for a charitable gift annuity shall not 
be treated as an investment in the con-
tract.
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‘‘(F) DENIAL
OF
DEDUCTION.—Qualified 
charitable distributions shall not be taken into 
account in determining the deduction under sec-
tion 170. 
‘‘(G) SPLIT-INTEREST ENTITY DEFINED.—
For purposes of this paragraph, the term ‘split-
interest entity’ means—
‘‘(i) a charitable remainder annuity 
trust or a charitable remainder unitrust 
(as such terms are defined in section 
664(d)) which must be funded exclusively 
by qualified charitable distributions, 
‘‘(ii) a pooled income fund (as defined 
in section 642(c)(5)), but only if the fund 
accounts separately for amounts attrib-
utable to qualified charitable distributions, 
and 
‘‘(iii) a charitable gift annuity (as de-
fined in section 501(m)(5)).’’. 
(b) MODIFICATIONS RELATING TO INFORMATION RE-
TURNS BY CERTAIN TRUSTS.—
(1) RETURNS.—Section 6034 of such Code (re-
lating to returns by trusts described in section 
4947(a)(2) or claiming charitable deductions under 
section 642(c)) is amended to read as follows: