‘‘(D) MEMBER OF FAMILY.—For purposes of
this paragraph, the term ‘member of the family’
means, with respect to any individual—
‘‘(i) the spouse of the individual,
‘‘(ii) an ancestor or lineal descendant
of the individual or the individual’s spouse,
‘‘(iii) a brother or sister of the indi-
vidual or the individual’s spouse and any
lineal descendant of the brother or sister,
and
‘‘(iv) the spouse of any individual de-
scribed in clause (ii) or (iii).
A spouse of an individual who is legally sepa-
rated from such individual under a decree of di-
vorce or separate maintenance shall not be treat-
ed as such individual’s spouse for purposes of
this subparagraph.
‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For
purposes of paragraphs (3) and (4), in the case of a
person who owns synthetic equity in the S corpora-
tion, except to the extent provided in regulations, the
shares of stock in such corporation on which such
synthetic equity is based shall be treated as out-
standing stock in such corporation and deemed-owned
shares of such person if such treatment of synthetic
equity of 1 or more such persons results in—
‘‘(A) the treatment of any person as a dis-
qualified person, or
‘‘(B) the treatment of any year as a non-
allocation year.
For purposes of this paragraph, synthetic equity shall
be treated as owned by a person in the same manner
as stock is treated as owned by a person under the
rules of paragraphs (2) and (3) of section 318(a). If,
without regard to this paragraph, a person is treated
as a disqualified person or a year is treated as a non-
allocation year, this paragraph shall not be construed
to result in the person or year not being so treated.
‘‘(6) 
DEFINITIONS.—For 
purposes 
of 
this
subsection—
‘‘(A) 
EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock ownership
plan’ has the meaning given such term by sec-
tion 4975(e)(7).
‘‘(B) EMPLOYER
SECURITIES.—The term
‘employer security’ has the meaning given such
term by section 409(l).
‘‘(C) SYNTHETIC EQUITY.—The term ‘syn-
thetic equity’ means any stock option, warrant,
restricted stock, deferred issuance stock right, or
similar interest or right that gives the holder the
right to acquire or receive stock of the S corpora-
tion in the future. Except to the extent provided
in regulations, synthetic equity also includes a
stock appreciation right, phantom stock unit, or
similar right to a future cash payment based on
the value of such stock or appreciation in such
value.
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection.’’.
(b) COORDINATION WITH SECTION 4975(e)(7).—The
last sentence of section 4975(e)(7) (defining employee stock
ownership plan) is amended by inserting ‘‘, section 409(p),’’
after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION OF TAX.—Subsection (a) of sec-
tion 4979A (relating to tax on certain prohibited allo-
cations of employer securities) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1), and
(B) by striking all that follows paragraph
(2) and inserting the following:
‘‘(3) there is any allocation of employer securi-
ties which violates the provisions of section 409(p), or
a nonallocation year described in subsection (e)(2)(C)
with respect to an employee stock ownership plan, or
‘‘(4) any synthetic equity is owned by a dis-
qualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or owner-
ship equal to 50 percent of the amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (defining li-
ability for tax) is amended to read as follows:
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid—
‘‘(1) in the case of an allocation referred to in
paragraph (1) or (2) of subsection (a), by—
‘‘(A) the employer sponsoring such plan, or
‘‘(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case
may be), and
‘‘(2) in the case of an allocation or ownership re-
ferred to in paragraph (3) or (4) of subsection (a), by
the S corporation the stock in which was so allocated
or owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (relating to
definitions) is amended to read as follows:
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) DEFINITIONS.—Except as provided in para-
graph (2), terms used in this section have the same
respective meanings as when used in sections 409 and
4978.
‘‘(2) SPECIAL RULES RELATING TO TAX IMPOSED
BY REASON OF PARAGRAPH (3) OR (4) OF SUBSECTION
(a).—
‘‘(A) 
PROHIBITED
ALLOCATIONS.—The
amount involved with respect to any tax imposed
by reason of subsection (a)(3) is the amount allo-
cated to the account of any person in violation
of section 409(p)(1).
‘‘(B) SYNTHETIC EQUITY.—The amount in-
volved with respect to any tax imposed by reason
of subsection (a)(4) is the value of the shares on
which the synthetic equity is based.
‘‘(C) SPECIAL
RULE
DURING
FIRST
NON-
ALLOCATION
YEAR.—For purposes of subpara-
graph (A), the amount involved for the first non-
allocation year of any employee stock ownership
plan shall be determined by taking into account
the total value of all the deemed-owned shares of
all disqualified persons with respect to such
plan.
‘‘(D) STATUTE OF LIMITATIONS.—The stat-
utory period for the assessment of any tax im-
posed by this section by reason of paragraph (3)
or (4) of subsection (a) shall not expire before the
date which is 3 years from the later of—
‘‘(i) the allocation or ownership re-
ferred to in such paragraph giving rise to
such tax, or
‘‘(ii) the date on which the Secretary is
notified of such allocation or ownership.’’.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 2001.
(2) EXCEPTION
FOR
CERTAIN
PLANS.—In the
case of any—
(A) employee stock ownership plan estab-
lished after July 11, 2000, or
(B) employee stock ownership plan estab-
lished on or before such date if employer securi-
ties held by the plan consist of stock in a cor-
poration with respect to which an election under
section 1362(a) of the Internal Revenue Code of
1986 is not in effect on such date,
the amendments made by this section shall apply to
plan years ending after July 11, 2000.
TITLE VI—REDUCING
REGULATORY BURDENS
SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) IN GENERAL.—Paragraph (9) of section 412(c)(9)
(relating to annual valuation) is amended to read as fol-
lows:
‘‘(9) ANNUAL VALUATION.—
‘‘(A) IN
GENERAL.—For purposes of this
section, a determination of experience gains and
losses and a valuation of the plan’s liability
shall be made not less frequently than once every
year, except that such determination shall be
made more frequently to the extent required in
particular cases under regulations prescribed by
the Secretary.
‘‘(B) VALUATION DATE.—
‘‘(i) CURRENT YEAR.—Except as pro-
vided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of
a date within the plan year to which the
valuation refers or within one month prior
to the beginning of such year.
‘‘(ii) ELECTION TO USE PRIOR YEAR
VALUATION.—The valuation referred to in
subparagraph (A) may be made as of a date
within the plan year prior to the year to
which the valuation refers if—
‘‘(I) an election is in effect under
this clause with respect to the plan,
and
‘‘(II) as of such date, the value of
the assets of the plan are not less than
125 percent of the plan’s current liabil-
ity (as defined in paragraph (7)(B)).
‘‘(iii) 
ADJUSTMENTS.—Information
under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to re-
flect significant differences in participants.
‘‘(iv) ELECTION.—An election under
clause (ii), once made, shall be irrevocable
without the consent of the Secretary.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2000.
SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT
LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL.—Section 404(k)(2)(A) (defining ap-
plicable dividends) is amended by striking ‘‘or’’ at the end
of clause (ii), by redesignating clause (iii) as clause (iv),
and by inserting after clause (ii) the following new clause:
‘‘(iii) is, at the election of such partici-
pants or their beneficiaries—
‘‘(I) payable as provided in clause
(i) or (ii), or
‘‘(II) paid to the plan and rein-
vested in qualifying employer securi-
ties, or’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CER-
TAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL.—Paragraph (4) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by subsection
(a) shall apply to plan years beginning after December 31,
2000.
SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—The Secretary of the Treasury shall
modify Treasury Regulations section 1.410(b)–6(g) to pro-
vide that employees of an organization described in section
403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who
are eligible to make contributions under section 403(b) of
such Code pursuant to a salary reduction agreement may
be treated as excludable with respect to a plan under section
401(k) or (m) of such Code that is provided under the same
general arrangement as a plan under such section 401(k),
if—
(1) no employee of an organization described in
section 403(b)(1)(A)(i) of such Code is eligible to par-
ticipate in such section 401(k) plan or section 401(m)
plan; and
(2) 95 percent of the employees who are not em-
ployees of an organization described in section
403(b)(1)(A)(i) of such Code are eligible to partici-
pate in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification required by
subsection (a) shall apply as of the same date set forth in
section 1426(b) of the Small Business Job Protection Act
of 1996.
SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-
PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL.—Subsection (a) of section 132 (relat-
ing to exclusion from gross income) is amended by striking
‘‘or’’ at the end of paragraph (5), by striking the period
at the end of paragraph (6) and inserting ‘‘, or’’, and by
adding at the end the following new paragraph:
‘‘(7) qualified retirement planning services.’’.
(b) QUALIFIED RETIREMENT PLANNING SERVICES DE-
FINED.—Section 132 is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following:
‘‘(m) QUALIFIED
RETIREMENT
PLANNING
SERV-
ICES.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘qualified retirement planning services’
means any retirement planning service provided to
an employee and his spouse by an employer main-
taining a qualified employer plan.
‘‘(2) 
NONDISCRIMINATION
RULE.—Subsection
(a)(7) shall apply in the case of highly compensated
employees only if such services are available on sub-
stantially the same terms to each member of the group
of employees normally provided education and infor-
mation regarding the employer’s qualified employer
plan.
‘‘(3) QUALIFIED EMPLOYER PLAN.—For purposes
of this subsection, the term ‘qualified employer plan’
means a plan, contract, pension, or account described
in section 219(g)(5).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2000.
SEC. 606. REPORTING SIMPLIFICATION.
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treasury
shall modify the requirements for filing annual re-
turns 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 that—
(A) on the first day of the plan year—
(i) covered only the employer (and the
employer’s spouse) and the employer owned
the entire business (whether or not incor-
porated); or
(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration);
(B) meets the minimum coverage require-
ments of section 410(b) of the Internal Revenue
Code of 1986 without being combined with any
other plan of the business that covers the employ-
ees of the business;
(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse) or
the partners (and their spouses);
(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of busi-
nesses under common control; and
(E) does not cover a business that leases em-
ployees.
(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 respec-
tive meanings given such terms by such section.
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
of a retirement plan which covers less than 25 employees
on the first day of the plan year and meets the requirements
described in subparagraphs (B), (D), and (E) of subsection
(a)(2), the Secretary of the Treasury shall provide for the
filing of a simplified annual return that is substantially
100
similar to the annual return required to be filed by a one-
participant retirement plan.
(c) EFFECTIVE DATE.—The provisions of this section
shall take effect on January 1, 2001.
SEC. 607. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to update
and improve the Employee Plans Compliance Resolution
System (or any successor program) giving special attention
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 cir-
cumstances that small employers face with respect to
compliance and correction of compliance failures;
(3) extending the duration of the self-correction
period under the Administrative Policy Regarding
Self-Correction for significant compliance failures;
(4) expanding the availability to correct insig-
nificant compliance failures under the Administrative
Policy Regarding Self-Correction during audit; and
(5) assuring that any tax, penalty, or sanction
that is imposed by reason of a compliance failure is
101
not excessive and bears a reasonable relationship to
the nature, extent, and severity of the failure.
SEC. 608. REPEAL OF THE MULTIPLE USE TEST.
(a) IN GENERAL.—Paragraph (9) of section 401(m) is
amended to read as follows:
‘‘(9) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection and subsection (k),
including regulations permitting appropriate aggre-
gation of plans and contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
2000.
SEC. 
609. 
FLEXIBILITY 
IN 
NONDISCRIMINATION, 
COV-
ERAGE, AND LINE OF BUSINESS RULES.
(a) NONDISCRIMINATION.—
(1) IN GENERAL.—The Secretary of the Treasury
shall, by regulation, provide that a plan shall be
deemed to satisfy the requirements of section
401(a)(4) of the Internal Revenue Code of 1986 if
such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect be-
fore January 1, 1994, but only if—
102
(A) the plan satisfies conditions prescribed
by the Secretary to appropriately limit the
availability of such test; and
(B) the plan is submitted to the Secretary
for a determination of whether it satisfies such
test.
Subparagraph (B) shall only apply to the extent pro-
vided by the Secretary.
(2) EFFECTIVE DATES.—
(A) REGULATIONS.—The regulation re-
quired by paragraph (1) shall apply to years be-
ginning after December 31, 2000.
(B) CONDITIONS
OF
AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under paragraph (1)(A) shall not apply
before the first year beginning not less than 120
days after the date on which such condition is
prescribed.
(b) COVERAGE TEST.—
(1) IN GENERAL.—Section 410(b)(1) (relating to
minimum coverage requirements) is amended by add-
ing at the end the following:
‘‘(D) In the case that the plan fails to meet
the requirements of subparagraphs (A), (B) and
(C), the plan—
103
‘‘(i) satisfies subparagraph (B), as in
effect immediately before the enactment of
the Tax Reform Act of 1986,
‘‘(ii) is submitted to the Secretary for
a determination of whether it satisfies the
requirement described in clause (i), and
‘‘(iii) satisfies conditions prescribed by
the Secretary by regulation that appro-
priately limit the availability of this sub-
paragraph.
Clause (ii) shall apply only to the extent pro-
vided by the Secretary.’’.
(2) EFFECTIVE DATES.—
(A) IN
GENERAL.—The amendment made
by paragraph (1) shall apply to years beginning
after December 31, 2000.
(B) CONDITIONS
OF
AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under regulations prescribed by the Sec-
retary under section 410(b)(1)(D) of the Internal
Revenue Code of 1986 shall not apply before the
first year beginning not less than 120 days after
the date on which such condition is prescribed.
(c) LINE OF BUSINESS RULES.—The Secretary of the
Treasury shall, on or before December 31, 2000, modify the
104
existing regulations issued under section 414(r) of the Inter-
nal Revenue Code of 1986 in order to expand (to the extent
that the Secretary determines appropriate) the ability of
a pension plan to demonstrate compliance with the line of
business requirements based upon the facts and cir-
cumstances surrounding the design and operation of the
plan, even though the plan is unable to satisfy the mechan-
ical tests currently used to determine compliance.
SEC. 610. EXTENSION TO ALL GOVERNMENTAL PLANS OF
MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES APPLICABLE TO
STATE AND LOCAL PLANS.
(a) IN GENERAL.—
(1) Subparagraph (G) of section 401(a)(5) and
subparagraph (H) of section 401(a)(26) are each
amended by striking ‘‘section 414(d))’’ and all that
follows and inserting ‘‘section 414(d)).’’.
(2) Subparagraph (G) of section 401(k)(3) and
paragraph (2) of section 1505(d) of the Taxpayer Re-
lief Act of 1997 are each amended by striking ‘‘main-
tained by a State or local government or political
subdivision thereof (or agency or instrumentality
thereof)’’.
(b) CONFORMING AMENDMENTS.—
105
(1) The heading for subparagraph (G) of section
401(a)(5) is amended to read as follows: ‘‘GOVERN-
MENTAL PLANS’’.
(2) The heading for subparagraph (H) of section
401(a)(26) is amended to read as follows: ‘‘EXCEP-
TION FOR GOVERNMENTAL PLANS’’.
(3) Subparagraph (G) of section 401(k)(3) is
amended by inserting ‘‘GOVERNMENTAL
PLANS.—’’
after ‘‘(G)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2000.
SEC. 611. NOTICE AND CONSENT PERIOD REGARDING DIS-
TRIBUTIONS.
(a) EXPANSION OF PERIOD.—
(1) IN GENERAL.—Subparagraph (A) of section
417(a)(6) is amended by striking ‘‘90-day’’ and in-
serting ‘‘180-day’’.
(2) MODIFICATION OF REGULATIONS.—The Sec-
retary of the Treasury shall modify the regulations
under sections 402(f), 411(a)(11), and 417 of the In-
ternal Revenue Code of 1986 to substitute ‘‘180 days’’
for ‘‘90 days’’ each place it appears in Treasury Reg-
ulations sections 1.402(f)–1, 1.411(a)–11(c), and
1.417(e)–1(b).
106
(3) EFFECTIVE DATE.—The amendment made by
paragraph (1) and the modifications required by
paragraph (2) shall apply to years beginning after
December 31, 2000.
(b) CONSENT REGULATION INAPPLICABLE TO CERTAIN
DISTRIBUTIONS.—
(1) IN GENERAL.—The Secretary of the Treasury
shall modify the regulations under section 411(a)(11)
of the Internal Revenue Code of 1986 to provide that
the description of a participant’s right, if any, to
defer receipt of a distribution shall also describe the
consequences of failing to defer such receipt.
(2) EFFECTIVE
DATE.—The modifications re-
quired by paragraph (1) shall apply to years begin-
ning after December 31, 2000.
TITLE VII—PLAN AMENDMENTS
SEC. 701. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to any plan
or contract amendment—
(1) such plan or contract shall be treated as
being operated in accordance with the terms of the
plan during the period described in subsection
(b)(2)(A); and
107
(2) such plan shall not fail to meet the require-
ments of section 411(d)(6) of the Internal Revenue
Code of 1986 by reason of such amendment.
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to
any amendment to any plan or annuity contract
which is made—
(A) pursuant to any amendment made by
this Act, or pursuant to any regulation issued
under this Act, and
(B) on or before the last day of the first
plan year beginning on or after January 1,
2003.
In the case of a governmental plan (as defined in sec-
tion 414(d) of the Internal Revenue Code of 1986),
this paragraph shall be applied by substituting
‘‘2005’’ for ‘‘2003’’.
(2) CONDITIONS.—This section shall not apply to
any amendment unless—
(A) during the period—
(i) beginning on the date the legislative
or regulatory amendment described in para-
graph (1)(A) takes effect (or in the case of
a plan or contract amendment not required
by such legislative or regulatory amend-
108
ment, the effective date specified by the
plan); and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date the
plan or contract amendment is adopted),
the plan or contract is operated as if such plan
or contract amendment were in effect; and
(B) such plan or contract amendment ap-
plies retroactively for such period.
Union Calendar No. 433
106TH CONGRESS
2D SESSION
H. R. 4843
[Report No. 106–753]
A BILL
To amend the Internal Revenue Code of 1986 to
provide for retirement security and pension reform.
JULY 17, 2000
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union,
and ordered to be printed