627 
gate cost (including administrative ex-
penses) of such benefits or coverage 
which would have been allowable as a 
deduction to the employer (if such 
benefits or coverage had been pro-
vided directly by the employer and the 
employer used the cash receipts and 
disbursements method of accounting) 
is at least 5 percent of the gross re-
ceipts of the employer (determined in 
accordance with the last sentence of 
subsection (c)(2)(E)(ii)(II)) for such 
taxable year, or a plan maintained by 
a successor to such employer. 
‘‘(ii) USE
OF
ASSETS.—Any assets 
transferred to a health benefits account in 
a collectively bargained transfer (and any 
income allocable thereto) shall be used only 
to pay collectively bargained retiree health 
liabilities (other than liabilities of key em-
ployees not taken into account under para-
graph (6)(B)(iii)) for the taxable year of 
the transfer or for any subsequent taxable 
year during the collectively bargained cost 
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628 
maintenance period (whether directly or 
through reimbursement). 
‘‘(3) COORDINATION
WITH
OTHER
TRANS-
FERS.—In applying subsection (b)(3) to any subse-
quent transfer during a taxable year in a transfer 
period or collectively bargained cost maintenance pe-
riod, qualified current retiree health liabilities shall 
be reduced by any such liabilities taken into account 
with respect to the qualified future transfer or col-
lectively bargained transfer to which such period re-
lates. 
‘‘(4) SPECIAL DEDUCTION RULES FOR COLLEC-
TIVELY BARGAINED TRANSFERS.—In the case of a 
collectively bargained transfer— 
‘‘(A) 
the 
limitation 
under 
subsection 
(d)(1)(C) shall not apply, and 
‘‘(B) notwithstanding subsection (d)(2), an 
employer may contribute an amount to a health 
benefits account or welfare benefit fund (as de-
fined in section 419(e)(1)) with respect to col-
lectively bargained retiree health liabilities for 
which transferred assets are required to be used 
under subsection (c)(1)(B), and the deduct-
ibility of any such contribution shall be gov-
erned by the limits applicable to the deduct-
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629 
ibility of contributions to a welfare benefit fund 
under a collective bargaining agreement (as de-
termined under section 419A(f)(5)(A)) without 
regard to whether such contributions are made 
to a health benefits account or welfare benefit 
fund and without regard to the provisions of 
section 404 or the other provisions of this sec-
tion. 
The Secretary shall provide rules to ensure that the 
application of this paragraph does not result in a de-
duction being allowed more than once for the same 
contribution or for 2 or more contributions or ex-
penditures relating to the same collectively bar-
gained retiree health liabilities. 
‘‘(5) TRANSFER PERIOD.—For purposes of this 
subsection, the term ‘transfer period’ means, with 
respect to any transfer, a period of consecutive tax-
able years (not less than 2) specified in the election 
under paragraph (1) which begins and ends during 
the 10-taxable-year period beginning with the tax-
able year of the transfer. 
‘‘(6) TERMS RELATING TO COLLECTIVELY BAR-
GAINED
TRANSFERS.—For purposes of this sub-
section— 
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630 
‘‘(A) COLLECTIVELY
BARGAINED
COST 
MAINTENANCE PERIOD.—The term ‘collectively 
bargained cost maintenance period’ means, with 
respect to each covered retiree and his covered 
spouse and dependents, the shorter of— 
‘‘(i) the remaining lifetime of such 
covered retiree and his covered spouse and 
dependents, or 
‘‘(ii) the period of coverage provided 
by the collectively bargained health plan 
(determined as of the date of the collec-
tively bargained transfer) with respect to 
such covered retiree and his covered spouse 
and dependents. 
‘‘(B) COLLECTIVELY BARGAINED RETIREE 
HEALTH LIABILITIES.— 
‘‘(i) IN GENERAL.—The term ‘collec-
tively bargained retiree health liabilities’ 
means the present value, as of the begin-
ning of a taxable year and determined in 
accordance with the applicable collective 
bargaining agreement, of all collectively 
bargained health benefits (including ad-
ministrative expenses) for such taxable 
year and all subsequent taxable years dur-
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631 
ing the collectively bargained cost mainte-
nance period. 
‘‘(ii) REDUCTION FOR AMOUNTS PRE-
VIOUSLY SET ASIDE.—The amount deter-
mined under clause (i) shall be reduced by 
the value (as of the close of the plan year 
preceding the year of the collectively bar-
gained transfer) of the assets in all health 
benefits accounts or welfare benefit funds 
(as defined in section 419(e)(1)) set aside 
to pay for the collectively bargained retiree 
health liabilities. 
‘‘(iii) KEY EMPLOYEES EXCLUDED.— 
If an employee is a key employee (within 
the meaning of section 416(I)(1)) with re-
spect to any plan year ending in a taxable 
year, such employee shall not be taken into 
account in computing collectively bargained 
retiree health liabilities for such taxable 
year or in calculating collectively bargained 
employer cost under subsection (c)(3)(C). 
‘‘(C) COLLECTIVELY BARGAINED HEALTH 
BENEFITS.—The term ‘collectively bargained 
health benefits’ means health benefits or cov-
erage which are provided to— 
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ccoleman on PROD1PC71 with BILLS
632 
‘‘(i) retired employees who, imme-
diately before the collectively bargained 
transfer, are entitled to receive such bene-
fits upon retirement and who are entitled 
to pension benefits under the plan, and 
their spouses and dependents, and 
‘‘(ii) if specified by the provisions of 
the collective bargaining agreement gov-
erning the collectively bargained transfer, 
active employees who, following their re-
tirement, are entitled to receive such bene-
fits and who are entitled to pension bene-
fits under the plan, and their spouses and 
dependents. 
‘‘(D) COLLECTIVELY BARGAINED HEALTH 
PLAN.—The term ‘collectively bargained health 
plan’ means a group health plan or arrange-
ment for retired employees and their spouses 
and dependents that is maintained pursuant to 
1 or more collective bargaining agreements.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers after the date of the 
enactment of this Act. 
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ccoleman on PROD1PC71 with BILLS
633 
SEC. 842. TRANSFER OF EXCESS PENSION ASSETS TO MUL-
TIEMPLOYER HEALTH PLAN. 
(a) IN GENERAL.—Section 420 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by striking ‘‘(other than a multiemployer 
plan)’’ in subsection (a), and 
(2) by adding at the end of subsection (e) the 
following new paragraph: 
‘‘(5) 
APPLICATION
TO
MULTIEMPLOYER 
PLANS.—In the case of a multiemployer plan, this 
section shall be applied to any such plan— 
‘‘(A) by treating any reference in this sec-
tion to an employer as a reference to all em-
ployers maintaining the plan (or, if appropriate, 
the plan sponsor), and 
‘‘(B) in accordance with such modifications 
of this section (and the provisions of this title 
relating to this section) as the Secretary deter-
mines appropriate to reflect the fact the plan is 
not maintained by a single employer.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to transfers made in taxable years 
beginning after December 31, 2006. 
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ccoleman on PROD1PC71 with BILLS
634 
SEC. 843. ALLOWANCE OF RESERVE FOR MEDICAL BENE-
FITS OF PLANS SPONSORED BY BONA FIDE 
ASSOCIATIONS. 
(a) IN GENERAL.—Section 419A(c) of the Internal 
Revenue Code of 1986 (relating to account limit) is 
amended by adding at the end the following new para-
graph: 
‘‘(6) ADDITIONAL RESERVE FOR MEDICAL BEN-
EFITS OF BONA FIDE ASSOCIATION PLANS.— 
‘‘(A) IN GENERAL.—An applicable account 
limit for any taxable year may include a reserve 
in an amount not to exceed 35 percent of the 
sum of— 
‘‘(i) the qualified direct costs, and 
‘‘(ii) the change in claims incurred 
but unpaid, 
for such taxable year with respect to medical 
benefits (other than post-retirement medical 
benefits). 
‘‘(B) APPLICABLE
ACCOUNT
LIMIT.—For 
purposes of this subsection, the term ‘applicable 
account limit’ means an account limit for a 
qualified asset account with respect to medical 
benefits provided through a plan maintained by 
a bona fide association (as defined in section 
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ccoleman on PROD1PC71 with BILLS
635 
2791(d)(3) of the Public Health Service Act 
(42 U.S.C. 300gg–91(d)(3))’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 844. TREATMENT OF ANNUITY AND LIFE INSURANCE 
CONTRACTS WITH A LONG-TERM CARE IN-
SURANCE FEATURE. 
(a) EXCLUSION FROM GROSS INCOME.—Subsection 
(e) of section 72 of the Internal Revenue Code of 1986 
(relating to amounts not received as annuities) is amended 
by redesignating paragraph (11) as paragraph (12) and 
by inserting after paragraph (10) the following new para-
graph: 
‘‘(11) SPECIAL RULES FOR CERTAIN COMBINA-
TION CONTRACTS PROVIDING LONG-TERM CARE IN-
SURANCE.—Notwithstanding paragraphs (2), (5)(C), 
and (10), in the case of any charge against the cash 
value of an annuity contract or the cash surrender 
value of a life insurance contract made as payment 
for coverage under a qualified long-term care insur-
ance contract which is part of or a rider on such an-
nuity or life insurance contract— 
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636 
‘‘(A) the investment in the contract shall 
be reduced (but not below zero) by such charge, 
and 
‘‘(B) such charge shall not be includible in 
gross income.’’. 
(b) TAX-FREE EXCHANGES AMONG CERTAIN INSUR-
ANCE POLICIES.— 
(1) ANNUITY CONTRACTS CAN INCLUDE QUALI-
FIED LONG-TERM CARE INSURANCE RIDERS.—Para-
graph (2) of section 1035(b) of such Code is amend-
ed by adding at the end the following new sentence: 
‘‘For purposes of the preceding sentence, a contract 
shall not fail to be treated as an annuity contract 
solely because a qualified long-term care insurance 
contract is a part of or a rider on such contract.’’. 
(2) LIFE INSURANCE CONTRACTS CAN INCLUDE 
QUALIFIED LONG-TERM CARE INSURANCE RIDERS.— 
Paragraph (3) of section 1035(b) of such Code is 
amended by adding at the end the following new 
sentence: ‘‘For purposes of the preceding sentence, 
a contract shall not fail to be treated as a life insur-
ance contract solely because a qualified long-term 
care insurance contract is a part of or a rider on 
such contract.’’. 
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637 
(3) EXPANSION OF TAX-FREE EXCHANGES OF 
LIFE INSURANCE, ENDOWMENT, AND ANNUITY CON-
TRACTS FOR LONG-TERM CARE CONTRACTS.—Sub-
section (a) of section 1035 of such Code (relating to 
certain exchanges of insurance policies) is amend-
ed— 
(A) in paragraph (1) by inserting ‘‘or for 
a qualified long-term care insurance contract’’ 
before the semicolon at the end, 
(B) in paragraph (2) by inserting ‘‘, or (C) 
for a qualified long-term care insurance con-
tract’’ before the semicolon at the end, and 
(C) in paragraph (3) by inserting ‘‘or for 
a qualified long-term care insurance contract’’ 
before the period at the end. 
(4) TAX-FREE
EXCHANGES
OF
QUALIFIED 
LONG-TERM
CARE
INSURANCE
CONTRACT.—Sub-
section (a) of section 1035 of such Code (relating to 
certain exchanges of insurance policies) is amended 
by striking ‘‘or’’ at the end of paragraph (2), by 
striking the period at the end of paragraph (3) and 
inserting ‘‘; or’’, and by inserting after paragraph 
(3) the following new paragraph: 
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638 
‘‘(4) a qualified long-term care insurance con-
tract for a qualified long-term care insurance con-
tract.’’. 
(c) TREATMENT OF COVERAGE PROVIDED AS PART 
OF A LIFE INSURANCE OR ANNUITY CONTRACT.—Sub-
section (e) of section 7702B of such Code (relating to 
treatment of qualified long-term care insurance) is amend-
ed to read as follows: 
‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART 
OF A LIFE INSURANCE OR ANNUITY CONTRACT.—Except 
as otherwise provided in regulations prescribed by the Sec-
retary, in the case of any long-term care insurance cov-
erage (whether or not qualified) provided by a rider on 
or as part of a life insurance contract or an annuity con-
tract— 
‘‘(1) IN GENERAL.—This title shall apply as if 
the portion of the contract providing such coverage 
is a separate contract. 
‘‘(2) DENIAL OF DEDUCTION UNDER SECTION 
213.—No deduction shall be allowed under section 
213(a) for any payment made for coverage under a 
qualified long-term care insurance contract if such 
payment is made as a charge against the cash sur-
render value of a life insurance contract or the cash 
value of an annuity contract. 
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