‘‘(c) PROCEDURES FOR NOTICE.—Not later than 6 
months after the date of the enactment of this section, 
the Secretary shall prescribe and implement procedures 
for obtaining from employers confirmation that such em-
ployers are in compliance with the requirements of sub-
section (d). The Secretary, in the Secretary’s discretion, 
may prescribe that the confirmation shall be obtained on 
an annual or less frequent basis, and may use for this 
purpose the annual report or quarterly report for employ-
ment taxes, or such other means as the Secretary may 
deem advisable. 
‘‘(d) REQUIREMENT TO PROVIDE EMPLOYEE ACCESS 
TO PAYROLL DEPOSIT IRA ARRANGEMENTS.—The re-
quirements of this subsection are met if the employer 
meets the requirements of section 408B.’’. 
(e) COORDINATION WITH ERISA FIDUCIARY DU-
TIES.—Section 404(c)(2) of Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(c)(2)) is amend-
ed— 
(1) by inserting ‘‘or an individual retirement 
plan designated by the employer under section 408B 
of such Code’’ after ‘‘1986’’, 
(2) by inserting ‘‘(7 days after notice has been 
given to an employee that an individual retirement 
plan has been established on behalf of the employee 
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under section 408B of such Code)’’ after ‘‘estab-
lished’’ in subparagraph (C), and 
(3) by inserting ‘‘or with respect to an indi-
vidual retirement plan designated by an employer 
under section 408B of such Code’’ after ‘‘arrange-
ment’’ in the last sentence. 
(f) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart A of part 
I of subchapter A of chapter 1 is amended by insert-
ing after the item relating to section 408A the fol-
lowing new item: 
‘‘Sec. 408B. Right to payroll deposit IRA arrangements at work.’’. 
(2) The table of sections for chapter 43 is 
amended by adding at the end the following new 
item: 
‘‘Sec. 4980H. Requirements for employers to provide employees access to pay-
roll deposit IRA arrangements.’’. 
(g) PREEMPTION OF CONFLICTING STATE LAWS.— 
The amendments made by this section shall supersede any 
law of a State that would directly or indirectly prohibit 
or restrict the establishment or operation of a payroll de-
posit IRA arrangement meeting the requirements of sec-
tion 408B of the Internal Revenue Code of 1986 (includ-
ing the inclusion in any such arrangement of an automatic 
enrollment arrangement as defined in section 408B(g) of 
such Code). 
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(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
December 31, 2008. 
SEC. 102. CREDIT FOR SMALL EMPLOYERS MAINTAINING 
PAYROLL DEPOSIT IRA ARRANGEMENTS. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following new 
section: 
‘‘SEC. 45O. SMALL EMPLOYER PAYROLL DEPOSIT IRA AR-
RANGEMENT COSTS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible employer maintaining a payroll 
deposit IRA arrangement meeting the requirements of sec-
tion 408B (without regard to whether or not the employer 
is required to maintain the arrangement), the small em-
ployer payroll deposit IRA arrangement cost credit deter-
mined under this section for any taxable year is the 
amount determined under subsection (b). 
‘‘(b) AMOUNT OF CREDIT.— 
‘‘(1) IN GENERAL.—The amount of the credit 
determined under this section for any taxable year 
with respect to an eligible employer shall be equal to 
the lesser of— 
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‘‘(A) $25 multiplied by the number of ap-
plicable employees (within the meaning of sec-
tion 408B(c)) for whom contributions are made 
under the payroll deposit IRA arrangement re-
ferred to in subsection (a) for the calendar year 
in which the taxable year begins, or 
‘‘(B) $250. 
‘‘(2) DURATION OF CREDIT.—No credit shall be 
determined under this section for any taxable year 
other than a taxable year which begins in the first 
2 calendar years in which the eligible employer 
maintains a payroll deposit IRA arrangement meet-
ing the requirements of section 408B. 
‘‘(3) COORDINATION
WITH
SMALL
EMPLOYER 
STARTUP CREDIT.—No credit shall be allowed under 
this section for any taxable year if a credit is deter-
mined under section 45E for the taxable year. 
‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this 
section, the term ‘eligible employer’ means, with respect 
to any calendar year in which the taxable year begins, an 
employer which maintains a payroll deposit IRA arrange-
ment meeting the requirements of section 408B and 
which, on each day during the preceding calendar year, 
had no more than 100 employees.’’. 
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(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (defining current year busi-
ness credit) is amended by striking ‘‘plus’’ at the end of 
paragraph (30), by striking the period at the end of para-
graph (31) and inserting ‘‘, plus’’, and by adding at the 
end the following new paragraph: 
‘‘(32) in the case of an eligible employer (as de-
fined in section 45O(c)) maintaining a payroll de-
posit IRA arrangement meeting the requirements of 
section 408B, the small employer payroll deposit 
IRA arrangement cost credit determined under sec-
tion 45O(a).’’ 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item: 
‘‘Sec. 45O. Small employer payroll deposit IRA arrangement costs.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 103. ESTABLISHMENT OF AUTOMATIC IRAS. 
(a) IN GENERAL.—Subpart A of part I of subchapter 
A of chapter 1 (relating to pension, profit-sharing, stock 
bonus plans, etc.), as amended by section 101, is amended 
by inserting after section 408B the following new section: 
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‘‘SEC. 408C. AUTOMATIC IRAS. 
‘‘(a) GENERAL RULE.—An automatic IRA shall be 
treated for purposes of this title in the same manner as 
an individual retirement plan. An automatic IRA may also 
be treated as a Roth IRA for purposes of this title if it 
meets the requirements of section 408A. 
‘‘(b) AUTOMATIC IRA.—For purposes of this section, 
the term ‘automatic IRA’ means an individual retirement 
plan (as defined in section 7701(a)(37)) which meets the 
investment and fee requirements under the regulations 
under subsection (c). 
‘‘(c) INVESTMENT AND FEE REQUIREMENTS.— 
‘‘(1) IN GENERAL.—The TSP II Board, in con-
sultation with the Secretary and the Secretary of 
Labor, shall, not later than 1 year after the date of 
the enactment of this section, prescribe regulations 
which set forth the requirements of this subsection 
which an individual retirement plan must meet in 
order to be treated as an automatic IRA. 
‘‘(2) INVESTMENT
OPTIONS.—The regulations 
under paragraph (1) shall provide that an automatic 
IRA shall allow the individual on whose behalf the 
individual retirement plan is established to invest 
contributions to, and earnings of, the plan in all of 
the following investment options: 
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(b) STUDIES OF SPOUSAL CONSENT REQUIREMENTS 
AND PROMOTION OF CERTAIN LIFETIME INCOME AR-
RANGEMENTS.— 
(1) IN GENERAL.—The Secretary of the Treas-
ury and the Secretary of Labor shall jointly conduct 
a separate study of the feasibility and desirability of 
each of the following: 
(A) Extending to automatic IRAs spousal 
consent requirements similar to, or based on, 
those that apply under the Federal employees’ 
Thrift Savings Plan, including consideration of 
whether modifications of such requirements are 
necessary to apply them to automatic IRAs. 
(B) Promoting the use of low-cost annu-
ities, longevity insurance, or other guaranteed 
lifetime income arrangements in automatic 
IRAs, including consideration of— 
(i) appropriate means of arranging 
for, or encouraging, individuals to receive 
at least a portion of their distributions in 
some form of low-cost guaranteed lifetime 
income, and 
(ii) issues presented by possible addi-
tional differences in, or uniformity of, pro-
visions governing different IRAs. 
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(2) REPORT.—Not later than 18 months after 
the date of the enactment of this Act, the Secre-
taries shall report the results of each study con-
ducted under subsection (a), together with any rec-
ommendations for legislative changes, to the Com-
mittees on Finance and Health, Education, Labor, 
and Pensions of the Senate and the Committees on 
Ways and Means and Education and Labor of the 
House of Representatives. 
(c) 
MANDATORY
TRANSFERS.—Section 
401(a)(31)(B) is amended— 
(1) by inserting ‘‘(including an automatic 
IRA)’’ after ‘‘individual retirement plan’’ each place 
it appears, and 
(2) by adding at the end the following new sen-
tence: ‘‘Any amount so transferred (and any earn-
ings thereon) shall be invested in a default invest-
ment described in section 408B(g)(5).’’ 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part I of subchapter A of chapter 1 is 
amended by inserting after the item relating to section 
408B the following new item: 
‘‘Sec. 408C. Automatic IRAs.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning on or 
after the date on which proposed and temporary or final 
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regulations described in section 408C(c) of the Internal 
Revenue Code of 1986 (as added by this Act) are issued. 
SEC. 104. ESTABLISHMENT OF TSP II BOARD. 
(a) ESTABLISHMENT.—There is established in the ex-
ecutive branch of the Government a TSP II Board. The 
board shall be established and maintained in the same 
manner as the Federal Retirement Thrift Investment 
Board under subchapter VII of chapter 84 of title 5, 
United States Code. 
(b) EXECUTIVE DIRECTOR.—The TSP II Board shall 
appoint an Executive Director in a similar manner and 
with similar functions as the Executive Director of the 
Federal Retirement Thrift Investment Board under sec-
tion 8474 of title 5, United States Code. 
(c) DUTIES OF BOARD.—The TSP II Board shall es-
tablish policies and procedures for— 
(1) establishment and maintenance of individual 
retirement plans under section 408B(f)(3) of the In-
ternal Revenue Code of 1986, 
(2) the investment and management of con-
tributions to such individual retirement plans, 
(3) the amount of contributions, and the invest-
ment of such contributions, under automatic con-
tribution arrangements under section 408B(g) of 
such Code, including the designation of investment 
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funds in which such contributions may be invested, 
and 
(4) the establishment of automatic IRAs under 
section 408C of such Code, including the issuance of 
regulations under subsection (c) of such section. 
(d) BEST PRACTICES.—The TSP II Board shall, on 
a continual basis, prescribe and encourage best practices 
(including cost efficiencies and innovations) in enrollment, 
investment, distribution, and other procedures or arrange-
ments relating to retirement savings and investment. In 
carrying out its responsibilities under this section, the 
TSP II Board may implement (by contract or otherwise) 
pilot projects to help assess the efficacy and workability 
of specific practices and arrangements. 
(e) EXPANSION
OF USE
OF IRAS
BY SELF-EM-
PLOYED AND OTHER INDIVIDUALS.—The TSP II Board 
shall establish procedures to disseminate information 
(through use of the Internet and other appropriate means) 
to facilitate and encourage— 
(1) the use by self-employed and other individ-
uals of automatic debit and similar arrangements for 
investment in individual retirement plans, including 
automatic IRAs, 
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(2) efforts by voluntary associations to promote 
savings in individual retirement plans, including 
automatic IRAs, by their members and others, and 
(3) the direct deposit of Federal and State in-
come tax refunds in individual retirement plans, in-
cluding automatic IRAs. 
(f) EXCLUSIVE INTEREST.—The members of the 
TSP II Board shall discharge their responsibilities solely 
in the interest of participants and beneficiaries under indi-
vidual retirement plans described in section 408B of the 
Internal Revenue Code of 1986. 
(g) OTHER PROVISIONS MADE APPLICABLE.—The 
provisions of subsections (f)(3), (g), (i), and (j) of section 
8472 of title 5, United States Code, shall apply to the 
TSP II Board. 
Subtitle B—Other Provisions 
SEC. 111. MODIFICATIONS TO COMPUTATION OF SAVER’S 
CREDIT; SAVER’S CREDIT MADE REFUND-
ABLE. 
(a) IN GENERAL.—Section 25B(b) (defining applica-
ble percentage), as amended by section 833 of the Pension 
Protection Act of 2006, is amended to read as follows: 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 
this section— 
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‘‘(1) IN GENERAL.—The applicable percentage 
is 50 percent reduced (but not below zero) by 1 per-
centage point for each phaseout amount by which 
the taxpayer’s adjusted gross income for the taxable 
year exceeds the threshold amount. 
‘‘(2) 
PHASEOUT
AMOUNT; 
THRESHOLD 
AMOUNT.—The phaseout amount and the threshold 
amount shall be determined as follows: 
‘‘In the case of: 
The 
phaseout 
amount 
is: 
The 
threshold 
amount 
is: 
A joint return .........................................................
$200 
$50,000
A head of household return ....................................
$150 
$37,500
Any other return .....................................................
$100 
$25,000. 
‘‘(3) INFLATION ADJUSTMENT.— 
‘‘(A) JOINT RETURNS.—In the case of any 
taxable year beginning in a calendar year after 
2009, the $50,000 amount under paragraph (2) 
shall be increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar 
year 2008’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof. 
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Any increase determined under the preceding 
sentence shall be rounded to the nearest mul-
tiple of $500. 
‘‘(B) OTHER
RETURNS.—In the case of 
any taxable year for which there is an increase 
under subparagraph (A)— 
‘‘(i) the $37,500 under paragraph (2) 
shall be increased to an amount equal to 
75 percent of the amount determined 
under subparagraph (A), and 
‘‘(ii) the $25,000 amount under para-
graph (2) shall be increased to an amount 
equal to 50 percent of the amount deter-
mined under subparagraph (A).’’. 
(b) CREDIT MADE REFUNDABLE.— 
(1) TRANSFER
OF
CREDIT
TO
REFUNDABLE 
CREDITS.— 
(A) 
IN
GENERAL.—Section 
25B, 
as 
amended by subsection (a), is hereby moved to 
subpart C of part IV of subchapter A of chap-
ter 1 (relating to refundable credits) and in-
serted after section 35. 
(B) CONFORMING AMENDMENTS.— 
(i) Section 24(b)(3)(B) is amended by 
striking ‘‘and 25B’’. 
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(ii) Section 25(e)(1)(C)(ii) is amended 
by striking ‘‘, 25B’’. 
(iii) Section 25D(c)(2) is amended by 
striking ‘‘24, and 25B’’ and inserting ‘‘and 
24’’. 
(iv) Section 26(a)(1) is amended by 
striking ‘‘24, and 25B’’ and inserting ‘‘and 
24’’. 
(v) Section 25B, as moved by sub-
paragraph (A), is redesignated as section 
36. 
(vi) Section 904(i) is amended by 
striking ‘‘24, and 25B’’ and inserting ‘‘ 
and 24’’. 
(vii) Section 1400C(d)(2) is amended 
by striking ‘‘, 25B’’. 
(viii) The table of sections for subpart 
C of part IV of subchapter A of chapter 1 
is amended by striking the item relating to 
section 36 and inserting the following: 
‘‘Sec. 36. Elective deferrals and IRA contributions by certain individuals. 
‘‘Sec. 37. Overpayments of tax.’’. 
(ix) The table of sections for subpart 
A of part IV of subchapter A of chapter 1 
is amended by striking the item relating to 
section 25B. 
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(x) Section 1324 of title 31, United 
States Code, is amended by inserting ‘‘, or 
enacted by the Women’s Retirement Secu-
rity Act of 2008’’ before the period at the 
end. 
(2) MANDATORY DEPOSIT INTO QUALIFIED AC-
COUNT.— 
(A) NO REDUCTION OF TAX.—Subsection 
(a) of section 36, as moved and redesignated by 
paragraph (1), is amended by striking ‘‘credit 
against the tax imposed by this subtitle’’ and 
inserting ‘‘tax credit’’. 
(B) 
DEPOSIT
INTO
QUALIFIED
AC-
COUNT.—Subsection (g) of section 36, as moved 
and redesignated by paragraph (1), is amended 
to read as follows: 
‘‘(g) DEPOSIT INTO QUALIFIED ACCOUNT.— 
‘‘(1) IN GENERAL.—Any amount allowed as a 
tax credit under subsection (a) shall not be allowed 
as a credit against any tax imposed by this subtitle 
but instead shall be treated as an overpayment 
under section 6401(b) and— 
‘‘(A) shall be paid on behalf of the indi-
vidual taxpayer to an applicable retirement plan 
designated by the individual to be invested in a 
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manner designated by the individual, except 
that in the case of a joint return, each spouse 
shall be entitled to designate an applicable re-
tirement plan and investments with respect to 
payments attributable to such spouse, or 
‘‘(B) in the case of taxpayer who does not 
properly designate an applicable retirement plan 
in a timely manner or who designates an appli-
cable retirement plan that does not accept such 
amount in a timely manner, shall be paid or 
credited on behalf of the individual taxpayer in 
a manner determined under rules prescribed by 
the Secretary that provides treatment com-
parable to the treatment under subparagraph 
(A). 
‘‘(2) APPLICABLE
RETIREMENT
PLAN.—For 
purposes of this subsection, the term ‘applicable re-
tirement plan’ means a plan that elects to accept de-
posits under this subsection and that is described in 
clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B) 
or in section 408A(b). 
‘‘(3) TREATMENT OF DIRECT PAYMENTS.—All 
amounts paid under this subsection shall be treated 
for purposes of this title as income attributable to— 
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‘‘(A) a Roth IRA contribution in the case 
of a payments to an individual retirement plan, 
or 
‘‘(B) a designated Roth contribution in the 
case of a payment to an applicable retirement 
plan described in section 402A(e).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS 
MUST 
ALLOW 
LONG-TERM 
EMPLOYEES 
WORKING MORE THAN 500 BUT LESS THAN 
1,000 HOURS PER YEAR TO PARTICIPATE. 
(a) PARTICIPATION REQUIREMENT.— 
(1) IN GENERAL.—Subparagraph (D) of section 
401(k)(2) (defining qualified cash or deferred ar-
rangement) is amended to read as follows: 
‘‘(D) which does not require, as a condi-
tion of participation in the arrangement, that 
an employee complete a period of service with 
the employer (or employers) maintaining the 
plan extending beyond the close of the earlier 
of— 
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‘‘(i) the period permitted under sec-
tion 410(a)(1) (determined without regard 
to subparagraph (B)(i) thereof), or 
‘‘(ii) subject to the provisions of para-
graph (14), the first period of 3 consecu-
tive 12-month periods during each of which 
the employee has at least 500 hours of 
service.’’. 
(2) SPECIAL RULES.—Subsection (k) of section 
401 (relating to cash or deferred arrangements) is 
amended by adding at the end the following new 
paragraph: 
‘‘(14) SPECIAL RULES FOR PARTICIPATION RE-
QUIREMENT
FOR
LONG-TERM, PART-TIME
WORK-
ERS.—For purposes of paragraph (2)(D)(ii)— 
‘‘(A) AGE REQUIREMENT MUST BE MET.— 
Paragraph (2)(D)(ii) shall not apply to an em-
ployee unless the employee has met the require-
ment of section 410(a)(1)(A)(i) by the close of 
the last of the 12-month periods described in 
such paragraph. 
‘‘(B) 
NONDISCRIMINATION
AND
TOP- 
HEAVY RULES NOT TO APPLY.— 
‘‘(i) NONDISCRIMINATION RULES.—In 
the case of employees who are eligible to 
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participate in the arrangement solely by 
reason of paragraph (2)(D)(ii)— 
‘‘(I) notwithstanding subsection 
(a)(4), an employer shall not be re-
quired to make nonelective or match-
ing contributions on behalf of such 
employees even if such contributions 
are made on behalf of other employees 
eligible to participate in the arrange-
ment, and 
‘‘(II) an employer may elect to 
exclude such employees from the ap-
plication of paragraph (3) and sub-
section (m)(2). 
‘‘(ii) TOP-HEAVY
RULES.—An em-
ployer may elect to exclude all employees 
who are eligible to participate in a plan 
maintained by the employer solely by rea-
son of paragraph (2)(D)(ii) from— 
‘‘(I) the determination of whether 
the plan is a top-heavy plan under 
section 416, and 
‘‘(II) if the plan is a top-heavy 
plan under such section, the applica-
tion of the vesting and benefit re-
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quirements under subsections (b) and 
(c) of such section. 
‘‘(iii) VESTING.—For purposes of de-
termining whether an employee described 
in clause (i) has a nonforfeitable right to 
employer contributions (other than con-
tributions 
described 
in 
paragraph 
(3)(D)(i)) under the arrangement, each 
12-month period for which the employee 
has at least 500 hours of service shall be 
treated as a year of service. 
‘‘(iv) 
EMPLOYEES
WHO
BECOME 
FULL-TIME
EMPLOYEES.—This subpara-
graph shall cease to apply to any employee 
after the date on which the employee meets 
the 
requirements 
of 
section 
410(a)(1)(A)(ii) without regard to para-
graph (2)(D)(ii). 
‘‘(C) EXCEPTION FOR EMPLOYEES UNDER 
COLLECTIVELY BARGAINED PLANS, ETC.—Para-
graph (2)(D)(ii) shall not apply to employees 
described in section 410(b)(3). 
‘‘(D) SPECIAL RULES.— 
‘‘(i) TIME
OF
PARTICIPATION.—The 
rules of section 410(a)(4) shall apply to an 
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employee eligible to participate in an ar-
rangement solely by reason of paragraph 
(2)(D)(ii). 
‘‘(ii) 12-MONTH PERIODS.—12-month 
periods shall be determined in the same 
manner as under the last sentence of sec-
tion 410(a)(3)(A).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2008, except that, for purposes of section 
401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as 
added by such amendments), 12-month periods beginning 
before January 1, 2009, shall not be taken into account. 
SEC. 113. TRANSFERS OF UNUSED BENEFITS OF HEALTH 
FLEXIBLE 
SPENDING 
ARRANGEMENT 
TO 
CERTAIN RETIREMENT PLANS. 
(a) IN GENERAL.—Section 125 (relating to cafeteria 
plans) is amended by redesignating subsections (h) and 
(i) as subsections (i) and (j), respectively, and by inserting 
after subsection (g) the following: 
‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH 
BENEFITS.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan solely because qualified 
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benefits of a participant under such plan include a 
health flexible spending arrangement under which 
not more than $500 of unused health benefits may 
be contributed on behalf of the participant to— 
‘‘(A) a qualified retirement plan (as de-
fined in section 4974(c)), or 
‘‘(B) an eligible deferred compensation 
plan (as defined in section 457(b)) maintained 
by an eligible employer described in section 
457(e)(1)(A). 
‘‘(2) TREATMENT
OF
CONTRIBUTION
OF
UN-
USED HEALTH BENEFITS.— 
‘‘(A) IN GENERAL.—For purposes of this 
title, contributions described in paragraph (1) 
shall be treated as elective contributions made 
pursuant to an election by the participant be-
tween such contributions and compensation 
which would otherwise be includible in the gross 
income of the employee. 
‘‘(B) EXCLUSION
OR
DEDUCTION.—Con-
tributions described in paragraph (1) shall be 
excluded from gross income, or included in 
gross income and allowed as a deduction, to the 
same extent that elective contributions would be 
so treated under this title. 
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‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term 
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) which is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) without regard to sub-
paragraphs (C) and (D) thereof). 
‘‘(4) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, the term ‘unused health 
benefits’ means, with respect to a participant, the 
excess of— 
‘‘(A) the maximum amount of reimburse-
ment allowable to the participant with respect 
to a plan year under a health flexible spending 
arrangement, taking into account any election 
by the participant, over 
‘‘(B) the actual amount of reimbursement 
with respect to such year under such arrange-
ment.’’. 
(b) SPECIAL RULES.—The Secretary of the Treasury 
shall prescribe such rules as are appropriate to carry out 
the purposes of the amendments made by this section. 
Such rules may permit elections by plan sponsors with re-
spect to the year to which the contributions relate and may 
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provide for special treatment for purposes of applying the 
requirements applicable to such contributions. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to years beginning after Decem-
ber 31, 2008. 
SEC. 114. COMPUTATION OF LIMITS ON IRA AND ROTH IRA 
CONTRIBUTIONS. 
(a) CERTAIN WAGE REPLACEMENT INCOME TREAT-
ED AS COMPENSATION.— 
(1) WAGE
REPLACEMENT
INCOME.—Section 
219(f) (relating to other definitions and special 
rules) is amended by redesignating paragraph (8) as 
paragraph (9) and by inserting after paragraph (7) 
the following new paragraph: 
‘‘(8) TREATMENT OF CERTAIN WAGE REPLACE-
MENT INCOME AS COMPENSATION.— 
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (1), applicable wage replacement income 
not otherwise treated as compensation shall be 
treated as compensation for purposes of this 
section. 
‘‘(B) APPLICABLE
WAGE
REPLACEMENT 
INCOME.—For purposes of this paragraph, the 
term ‘applicable wage replacement income’ 
means any amount received by an individual— 
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‘‘(i) as the result of the individual 
having become disabled, 
‘‘(ii) as unemployment compensation 
(as defined in section 85(b)), 
‘‘(iii) under workmen’s compensation 
acts, or 
‘‘(iv) which constitutes wage replace-
ment income under regulations prescribed 
by the Secretary.’’. 
(2) CERTAIN EXCLUDABLE AMOUNTS MAY BE 
TAKEN
INTO
ACCOUNT
FOR
PURPOSES
OF
ROTH 
IRAS.—Section 408A(c)(2) (relating to contribution 
limit) is amended by adding at the end the following 
new flush sentence: 
‘‘In determining the maximum amount under sub-
paragraph (A), subsections (b)(1)(B) and (c) of sec-
tion 219 shall be applied by taking into account 
compensation described in section 219(f)(8) without 
regard to whether it is includible in gross income.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2008. 
(b) COMPUTATION OF MAXIMUM IRA DEDUCTION 
FOR ROTH IRAS USING COMPENSATION FROM 2 PRE-
CEDING TAXABLE YEARS.— 
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(1) IN GENERAL.—Section 408A(c) (relating to 
treatment of contributions) is amended by adding at 
the end the following new paragraph: 
‘‘(8) 
COMPENSATION
FROM
PRECEDING
YEARS MAY BE TAKEN INTO ACCOUNT.— 
‘‘(A) IN GENERAL.—A taxpayer may elect 
for purposes of paragraph (2) to take into ac-
count any unused compensation from the 2 tax-
able years immediately preceding the taxable 
year. 
‘‘(B) UNUSED COMPENSATION.—For pur-
poses of this paragraph, the term ‘unused com-
pensation’ means with respect to an individual 
for any taxable year the compensation includ-
ible in the individual’s gross income for the tax-
able year reduced by the sum of— 
‘‘(i) the amount allowed as a deduc-
tion under 219(a) to such individual for 
such taxable year, 
‘‘(ii) the amount of any designated 
nondeductible contribution (as defined in 
section 408(o)) on behalf of such individual 
for such taxable year, 
‘‘(iii) the amount of any contribution 
on behalf of such individual to a Roth IRA 
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under this section for such taxable year, 
and 
‘‘(iv) the amount of compensation in-
cludible in such individual’s gross income 
for such taxable year taken into account 
under section 219(c) in determining the 
limitation under section 219 or paragraph 
(2) for the individual’s spouse. 
‘‘(C) APPLICATION TO SPECIAL RULE FOR 
MARRIED
INDIVIDUALS.—Under 
rules 
pre-
scribed by the Secretary, in applying section 
219(c) for any taxable year for purposes of ap-
plying paragraph (2)(A), unused compensation 
of an individual or an individual’s spouse for 
the 2 taxable years immediately preceding the 
taxable year may be taken into account.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2008, but unused com-
pensation for taxable years beginning before Janu-
ary 1, 2009, may be taken into account for taxable 
years beginning after December 31, 2008. 
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TITLE 
II—PROVISIONS 
PRO-
VIDING FOR PRESERVATION 
OF INCOME 
SEC. 201. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 
PAYMENTS. 
(a) EXCLUSION.— 
(1) QUALIFIED PLANS.—Section 402(e) (relat-
ing to exempt trusts) is amended by adding at the 
end the following new paragraph: 
‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.— 
‘‘(A) IN GENERAL.—In the case of a life-
time annuity payment to a qualified distributee 
from a qualified trust (within the meaning of 
subsection (c)(8)(A)) maintained in connection 
with a defined contribution plan, gross income 
shall not include 10 percent of the amount oth-
erwise includible in gross income (determined 
without regard to this paragraph). For pur-
poses of this paragraph, payments from an an-
nuity contract distributed by the qualified trust 
shall be treated as payments from the qualified 
trust. 
‘‘(B) LIMITATION.— 
‘‘(i) IN GENERAL.—If— 
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‘‘(I) the aggregate amount of 
lifetime annuity payments to the dis-
tributee during the taxable year which 
are includible in gross income (deter-
mined without regard to this para-
graph) and which are subject to this 
paragraph or to rules similar to the 
rules of this paragraph (other than 
section 72(b)(5) or 101(d)(4)), ex-
ceeds 
‘‘(II) 50 percent of the applicable 
amount for the taxable year under 
section 415(a), 
then the aggregate amount otherwise ex-
cludable under subparagraph (A) for the 
taxable year shall be reduced by 10 percent 
of the portion of such excess which is allo-
cable under clause (ii) to payments which 
are subject to this paragraph. 
‘‘(ii) ALLOCATION RULE.—Any excess 
described in clause (i) for any taxable year 
shall be allocated ratably among all life-
time annuity payments to the qualified dis-
tributee described in clause (i)(I). 
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‘‘(C) DEFINITIONS.—For purposes of this 
paragraph— 
‘‘(i) LIFETIME ANNUITY PAYMENT.— 
‘‘(I) IN
GENERAL.—Except as 
provided in this clause, the term ‘life-
time annuity payment’ means a dis-
tribution from an annuity contract 
which is a part of a series of substan-
tially equal periodic payments (not 
less frequently than annually) made 
over the life of the qualified dis-
tributee or the joint lives of the quali-
fied distributee and the qualified 
distributee’s designated beneficiary. 
For purposes of this paragraph, the 
term ‘annuity contract’ means a com-
mercial annuity (as defined in section 
3405(e)(6)), other than an endowment 
or life insurance contract. 
‘‘(II) 
CERTAIN
FLUCTUATING 
PAYMENTS.—Annuity payments shall 
not fail to be treated as part of a se-
ries of substantially equal periodic 
payments merely because the amount 
of the periodic payments may vary in 
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accordance with investment experi-
ence, reallocations among investment 
options, actuarial gains or losses, cost 
of living indices, a constant percent-
age (not less than zero) applied not 
less frequently than annually, or simi-
lar fluctuating criteria. 
‘‘(III) CERTAIN CHANGES IN THE 
MODE
OF
PAYMENT.—Annuity pay-
ments shall not fail to be treated as 
part of a series of substantially equal 
periodic payments merely because the 
period between each such payment is 
lengthened or shortened, but only if at 
all times such period is not longer 
than 1 year. 
‘‘(IV) 
PERMITTED
REDUC-
TIONS.—Annuity payments shall not 
fail to be treated as part of a series 
of substantially equal periodic pay-
ments merely because, in the case of 
an annuity payable over the lives of 
the qualified distributee and the quali-
fied distributee’s designated bene-
ficiary, the amounts paid after the 
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death of the qualified distributee or 
the qualified distributee’s designated 
beneficiary are less than the amounts 
payable during their joint lives. 
‘‘(V) CERTAIN CONTRACT BENE-
FITS.—The availability of a commuta-
tion benefit or other feature permit-
ting acceleration of annuity payments 
(or a modification of the period dur-
ing which such a benefit is available), 
a minimum period of payments or a 
minimum amount to be paid in any 
event shall not affect the treatment of 
a distribution as a lifetime annuity 
payment. 
‘‘(VI) TRUST PAYMENTS.—In the 
case of lifetime annuity payments 
being made to a qualified trust, pay-
ments by the qualified trust to a 
qualified distributee of the entire 
amount received by the qualified trust 
with respect to the qualified dis-
tributee shall constitute lifetime annu-
ity payments if such payments are 
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made within a reasonable period after 
receipt by the qualified trust. 
‘‘(VII) QUALIFIED DOMESTIC RE-
LATIONS ORDERS.—Annuity payments 
shall not fail to be treated as a series 
of substantially equal periodic pay-
ments merely because the payments 
are reduced on account of a qualified 
domestic relations order (within the 
meaning of section 414(p)) that be-
comes effective after the commence-
ment of the annuity payments. 
‘‘(ii) QUALIFIED DISTRIBUTEE.—The 
term ‘qualified distributee’ means the em-
ployee, the surviving spouse of the em-
ployee, and an alternate payee who is the 
spouse or former spouse of the employee. 
‘‘(D) RECAPTURE TAX.— 
‘‘(i) IN GENERAL.—If— 
‘‘(I) an amount is not includible 
in gross income by reason of subpara-
graph (A), and 
‘‘(II) the series of payments of 
which such payment is a part is sub-
sequently modified (other than by rea-
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son of death or disability) so that 
some or all future payments are not 
lifetime annuity payments, 
the qualified distributee’s gross income for 
the first taxable year in which such modi-
fication occurs shall be increased by an 
amount, determined under rules prescribed 
by the Secretary, equal to the amount 
which (but for subparagraph (A)) would 
have been includible in the qualified 
distributee’s gross income if the modifica-
tion had been in effect at all times, plus in-
terest for the deferral period at the under-
payment rate established under section 
6621. 
‘‘(ii) DEFERRAL
PERIOD.—For pur-
poses of this subparagraph, the term ‘de-
ferral period’ means, with respect to any 
amount, the period beginning with the tax-
able year in which (without regard to sub-
paragraph (A)) the amount would have 
been includible in gross income and ending 
with the taxable year in which the modi-
fication described in clause (i)(II) occurs. 
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‘‘(E) INVESTMENT IN THE CONTRACT.— 
For purposes of section 72, the investment in 
the contract shall be determined without regard 
to this paragraph.’’. 
(2) 
QUALIFIED
ANNUITY
PLANS.—Section 
403(a) (relating to qualified annuity plans) is 
amended by adding at the end the following new 
paragraph: 
‘‘(6) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.—Rules similar to the rules of 
section 402(e)(7) shall apply to distributions under 
any annuity contract to which this subsection ap-
plies.’’. 
(3) PURCHASED
ANNUITIES.—Section 403(b) 
(relating to purchased annuities) is amended by add-
ing at the end the following new paragraph: 
‘‘(14) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
under any annuity contract or custodial account to 
which this subsection applies.’’. 
(4) IRAS.—Section 408(d) (relating to tax 
treatment of distributions), as amended by section 
1201 of the Pension Protection Act of 2006, is 
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amended by adding at the end the following new 
paragraph: 
‘‘(10) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
out of an individual retirement plan.’’. 
(5) SECTION 457 PLANS.—Section 457(e) (relat-
ing to special rules for deferred compensation plans) 
is amended by adding at the end the following new 
paragraph: 
‘‘(19) EXCLUSION OF PERCENTAGE OF LIFE-
TIME
ANNUITY
PAYMENTS.—Rules similar to the 
rules of section 402(e)(7) shall apply to distributions 
from an eligible deferred compensation plan of an el-
igible employer described in subsection (e)(1)(A).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after Decem-
ber 31, 2008. 
SEC. 202. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS. 
(a) LIFETIME ANNUITY PAYMENTS UNDER ANNUITY 
CONTRACTS.—Section 72(b) (relating to exclusion ratio) 
is amended by adding at the end the following new para-
graph: 
‘‘(5) EXCLUSION FOR LIFETIME ANNUITY PAY-
MENTS.— 
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‘‘(A) IN GENERAL.—In the case of lifetime 
annuity payments received as an annuity under 
1 or more annuity contracts in any taxable 
year, gross income shall not include the lesser 
of— 
‘‘(i) 50 percent of the portion of the 
lifetime annuity payments which (without 
regard to this paragraph) is includible in 
gross income under this section for the 
taxable year, or 
‘‘(ii) $20,000. 
‘‘(B) COST-OF-LIVING
ADJUSTMENT.—In 
the case of taxable years beginning after De-
cember 31, 2009, the $20,000 amount in sub-
paragraph (A)(ii) shall be increased by an 
amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘calendar 
year ø2008¿’ for ‘calendar year 1992’ in 
subparagraph (B) thereof. 
If any amount as increased under the preceding 
sentence is not a multiple of $500, such amount 
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shall be rounded to the next lower multiple of 
$500. 
‘‘(C) APPLICATION OF PARAGRAPH.—Sub-
paragraph (A) shall not apply to— 
‘‘(i) any amount received under an eli-
gible deferred compensation plan (as de-
fined in section 457(b)) or under a quali-
fied retirement plan (as defined in section 
4974(c)), 
‘‘(ii) any amount paid under an annu-
ity contract which is received by the bene-
ficiary under the contract— 
‘‘(I) after the death of the annu-
itant in the case of payments de-
scribed in subsection (c)(5)(A)(ii)(III), 
unless the beneficiary is the surviving 
spouse of the annuitant, or 
‘‘(II) after the death of the annu-
itant and joint annuitant in the case 
of payments described in subsection 
(c)(5)(A)(ii)(IV), unless the bene-
ficiary is the surviving spouse of the 
last to die of the annuitant and the 
joint annuitant, or 
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‘‘(iii) any annuity contract that is a 
qualified funding asset (as defined in sec-
tion 130(d)), but without regard to wheth-
er there is a qualified assignment. 
‘‘(D) INVESTMENT IN THE CONTRACT.— 
For purposes of this section, the investment in 
the contract shall be determined without regard 
to this paragraph.’’. 
(b) DEFINITIONS.—Section 72(c) is amended by add-
ing at the end the following new paragraph: 
‘‘(5) LIFETIME ANNUITY PAYMENT.— 
‘‘(A) IN GENERAL.—For purposes of sub-
section (b)(5), the term ‘lifetime annuity pay-
ment’ means any amount received as an annu-
ity under any portion of an annuity contract, 
but only if— 
‘‘(i) the only person (or persons in the 
case of payments described in subclause 
(II) or (IV) of clause (ii)) legally entitled 
(by operation of the contract, a trust, or 
other legally enforceable means) to receive 
such amount during the life of the annu-
itant or joint annuitant is such annuitant 
or joint annuitant, and 
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‘‘(ii) such amount is part of a series 
of substantially equal periodic payments 
made not less frequently than annually 
over— 
‘‘(I) the life of the annuitant, 
‘‘(II) the lives of the annuitant 
and a joint annuitant, but only if the 
annuitant is the spouse of the joint 
annuitant as of the annuity starting 
date or the difference in age between 
the annuitant and joint annuitant is 
15 years or less, 
‘‘(III) the life of the annuitant 
with a minimum period of payments 
or with a minimum amount that must 
be paid in any event, or 
‘‘(IV) the lives of the annuitant 
and a joint annuitant with a minimum 
period of payments or with a min-
imum amount that must be paid in 
any event, but only if the annuitant is 
the spouse of the joint annuitant as of 
the annuity starting date or the dif-
ference in age between the annuitant 
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and joint annuitant is 15 years or 
less. 
‘‘(iii) EXCEPTIONS.—For purposes of 
clause (ii), annuity payments shall not fail 
to be treated as part of a series of substan-
tially equal periodic payments— 
‘‘(I) because the amount of the 
periodic payments may vary in accord-
ance with investment experience, re-
allocations among investment options, 
actuarial gains or losses, cost-of-living 
indices, a constant percentage (not 
less than zero) applied not less fre-
quently than annually, or similar fluc-
tuating criteria, 
‘‘(II) due to the existence of, or 
modification of the duration of, a pro-
vision in the contract permitting a 
lump-sum withdrawal after the annu-
ity starting date, or 
‘‘(III) because the period between 
each such payment is lengthened or 
shortened, but only if at all times 
such period is no longer than 1 cal-
endar year. 
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‘‘(B) ANNUITY CONTRACT.—For purposes 
of subparagraph (A) and subsections (b)(5) and 
(x), the term ‘annuity contract’ means a com-
mercial 
annuity 
(as 
defined 
by 
section 
3405(e)(6)), other than an endowment or life 
insurance contract. 
‘‘(C) MINIMUM PERIOD OF PAYMENTS.— 
For purposes of subparagraph (A), the min-
imum period of payments is a guaranteed term 
of payments which does not exceed the greater 
of— 
‘‘(i) 10 years, or 
‘‘(ii) the life expectancy of— 
‘‘(I) the annuitant as of the an-
nuity starting date, in the case of life-
time annuity payments described in 
subparagraph (A)(ii)(III), or 
‘‘(II) the annuitant and joint an-
nuitant as of the annuity starting 
date, in the case of lifetime annuity 
payments described in subparagraph 
(A)(ii)(IV). 
For purposes of this subparagraph, life expect-
ancy shall be computed with reference to the ta-
bles prescribed by the Secretary under para-
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graph 
(3). 
For 
purposes 
of 
subsection 
(x)(1)(C)(ii), the permissible minimum period of 
payments shall be determined as of the annuity 
starting date and reduced by one for each sub-
sequent year. 
‘‘(D) MINIMUM AMOUNT THAT MUST BE 
PAID IN ANY EVENT.—For purposes of subpara-
graph (A), the minimum amount that must be 
paid in any event is an amount payable to the 
designated beneficiary under an annuity con-
tract which is in the nature of a refund and 
does not exceed the greater of the amount ap-
plied to produce the lifetime annuity payments 
under the contract or the amount, if any, avail-
able for withdrawal under the contract on the 
date of death.’’. 
(c) RECAPTURE TAX FOR LIFETIME ANNUITY PAY-
MENTS.—Section 72 is amended by redesignating sub-
section (x) as subsection (y) and by inserting after sub-
section (x) the following new subsection: 
‘‘(x) RECAPTURE TAX FOR MODIFICATIONS TO OR 
REDUCTIONS IN LIFETIME ANNUITY PAYMENTS.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) any amount received under an annu-
ity contract is excluded from income by reason 
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of subsection (b)(5) (relating to lifetime annuity 
payments) for any taxable year, and 
‘‘(B) a recapture event described in para-
graph (2) occurs in any subsequent taxable 
year, 
then gross income for the first taxable year in which 
the recapture event occurs shall be increased by the 
recapture amount. 
‘‘(2) RECAPTURE
EVENT.—For purposes of 
paragraph (1), a recapture event occurs if— 
‘‘(A) the series of payments under an an-
nuity contract is subsequently modified so any 
future payments are not lifetime annuity pay-
ments, 
‘‘(B) after the date of receipt of the first 
lifetime annuity payment under the contract an 
annuitant receives a lump sum and thereafter is 
to receive annuity payments in a reduced 
amount under the contract, or 
‘‘(C) after the date of receipt of the first 
lifetime annuity payment under the contract the 
dollar amount of any subsequent annuity pay-
ment is reduced and a lump sum is not paid in 
connection with the reduction, unless such re-
duction is— 
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‘‘(i) due to an event described in sub-
section (c)(5)(A)(iii), or 
‘‘(ii) due to the addition of, or in-
crease in, a minimum period of payments 
(within 
the 
meaning 
of 
subsection 
(c)(5)(C)) or a minimum amount that 
must be paid in any event (within the 
meaning of subsection (c)(5)(D)). 
‘‘(3) RECAPTURE AMOUNT.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the recapture amount shall be the 
amount, determined under rules prescribed by 
the Secretary, equal to the amount which (but 
for subsection (b)(5)) would have been includ-
ible in the taxpayer’s gross income if the modi-
fication or reduction described in subparagraph 
(A), (B), or (C) of paragraph (2) had been in 
effect at all times, plus interest for the deferral 
period at the underpayment rate established by 
section 6621. 
‘‘(B) DEFERRAL
PERIOD.—For purposes 
of this subsection, the term ‘deferral period’ 
means, with respect to any amount, the period 
beginning with the taxable year in which (with-
out regard to subsection (b)(5)) the amount 
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would have been includible in gross income and 
ending with the taxable year in which the modi-
fication or reduction described in subparagraph 
(A), (B), or (C) of paragraph (2) occurs. 
‘‘(4) EXCEPTIONS TO RECAPTURE TAX.—Para-
graph (1) shall not apply in the case of any recap-
ture event which occurs because an annuitant— 
‘‘(A) dies or becomes disabled (within the 
meaning of subsection (m)(7)), 
‘‘(B) becomes a chronically ill individual 
within the meaning of section 7702B(c)(2), or 
‘‘(C) encounters hardship.’’. 
(d) LIFETIME DISTRIBUTIONS OF LIFE INSURANCE 
DEATH BENEFITS.— 
(1) IN GENERAL.—Section 101(d) (relating to 
payment of life insurance proceeds at a date later 
than death) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(4) EXCLUSION FOR LIFETIME ANNUITY PAY-
MENTS.— 
‘‘(A) 
IN
GENERAL.—In 
the 
case 
of 
amounts to which this subsection applies, gross 
income for any taxable year shall not include 
the lesser of— 
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‘‘(i) 50 percent of the portion of life-
time annuity payments which (without re-
gard to this paragraph) is includible in 
gross income under this section, or 
‘‘(ii) the amount in effect under sec-
tion 72(b)(5)(A)(ii) for the taxable year. 
‘‘(B) RULES
OF
SECTION
72(b)(5) TO 
APPLY.—For purposes of this paragraph, rules 
similar to the rules of section 72(b)(5) and sec-
tion 72(x) shall apply, except that the term 
‘beneficiary of the life insurance contract’ shall 
be substituted for the term ‘annuitant’ each 
place it appears, and the term ‘life insurance 
contract’ shall be substituted for the term ‘an-
nuity contract’ each place it appears.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
101(d)(1) is amended by inserting ‘‘or paragraph 
(4)’’ after ‘‘to the extent not excluded by the pre-
ceding sentence’’. 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to amounts received in cal-
endar years beginning after the date of the enact-
ment of this Act. 
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(2) 
SPECIAL
RULE
FOR
EXISTING
CON-
TRACTS.—In the case of a contract in force on the 
date of the enactment of this Act that does not sat-
isfy the requirements of section 72(c)(5)(A) of the 
Internal Revenue Code of 1986 (as added by this 
section), or requirements similar to such section 
72(c)(5)(A) in the case of a life insurance contract, 
any modification to such contract (including a 
change in ownership) or to the payments under such 
contract that is made to satisfy the requirements of 
such section (or similar requirements) shall not re-
sult in the recognition of any gain or loss, any 
amount being included in gross income, or any addi-
tion to tax that otherwise might result from such 
modification, but only if the modification is com-
pleted before the date which is 2 years after the date 
of the enactment of this Act. 
SEC. 203. JOINT STUDY OF APPLICATION OF SPOUSAL CON-
SENT RULES TO DEFINED CONTRIBUTION 
PLANS. 
(a) STUDY.—The Secretary of Labor and the Sec-
retary of the Treasury shall jointly conduct a study of the 
feasibility and desirability of extending the application of 
the requirements of section 205 of the Employee Retire-
ment Income Security Act of 1974 and sections 
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401(a)(11) and 417 of the Internal Revenue Code of 1986 
(relating to spousal consent requirements) to defined con-
tribution plans to which such requirements do not apply. 
Such study shall include consideration of any modifica-
tions of such requirements that are necessary to apply 
such requirements to such plans. 
(b) REPORT.—Not later than 2 years after the date 
of the enactment of this Act, the Secretaries shall report 
the results of the study, together with any recommenda-
tions for legislative changes, to the Committees on Fi-
nance and Health, Education, Labor, and Pensions of the 
Senate and the Committees on Ways and Means and Edu-
cation and Labor of the House of Representatives. 
SEC. 204. FACILITATING LONGEVITY INSURANCE. 
(a) IN GENERAL.—Paragraph (9) of section 401(a) 
is amended by inserting after subparagraph (G) the fol-
lowing new subparagraph: 
‘‘(H) LONGEVITY INSURANCE.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, any value attributable to 
longevity insurance shall be disregarded in 
determining the value of an employee’s in-
terest under a plan prior to the first date 
that payments are made under the lon-
gevity insurance. 
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‘‘(ii) 
LONGEVITY
INSURANCE
DE-
FINED.—For purposes of this subpara-
graph, the term ‘longevity insurance’ 
means an annuity payable on behalf of the 
employee under which— 
‘‘(I) payments commence not 
later than 12 months following the 
calendar month in which the employee 
attains age 85 (or would have at-
tained age 85), 
‘‘(II) payments are made in sub-
stantially equal periodic payments 
(not less frequently than annually) 
over the life of the employee or the 
joint lives of the employee and the 
employee’s 
designated 
beneficiary, 
taking into account the rules of clause 
(i) of section 402(e)(7)(D), except as 
otherwise provided in subclause (III) 
of such section, 
‘‘(III) prior to the death of the 
employee, the annuity does not make 
available any commutation benefit, 
cash surrender value, or other similar 
feature, and 
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‘‘(IV) except as provided in rules 
prescribed by the Secretary, in the 
case of an employee’s death prior to 
the date that payments commence, the 
value of any death benefits paid may 
not exceed the premiums paid for 
such annuity, plus interest com-
pounded annually at 3 percent. 
‘‘(iii) ADJUSTING AGE.—For purposes 
of clause (ii)(I), the Secretary shall annu-
ally increase age 85 to reflect increases in 
life expectancy (as determined by the Sec-
retary) that occur on or after January 1, 
2008, except that any such increased age 
which is not a whole number shall be 
rounded to the next lower whole number.’’. 
(b) RULES.—Not later than one year after the date 
of enactment of this Act, the Secretary of the Treasury 
shall prescribe rules under which all or a portion of a par-
ticipant’s benefits under any plan described in section 
402(c)(8)(B) of the Internal Revenue Code of 1986 may 
be treated as longevity insurance under the rules of section 
401(a)(9)(H) of such Code. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2008. 
TITLE III—PROVISIONS 
ENSURING EQUITY IN DIVORCE 
SEC. 301. SPECIAL RULES RELATING TO TREATMENT OF 
QUALIFIED DOMESTIC RELATIONS ORDERS. 
(a) PRESERVATION OF ASSETS.— 
(1) AMENDMENT
OF
1986
CODE.—Section 
414(p) is amended by redesignating paragraph (13) 
as paragraph (14) and by inserting after paragraph 
(12) the following new paragraph: 
‘‘(13) PRESERVATION OF ASSETS.— 
‘‘(A) IN GENERAL.—If a spouse or former 
spouse of a participant notifies a plan in writ-
ing that— 
‘‘(i) an action is pending pursuant to 
a State domestic relations law (including a 
community property law), and 
‘‘(ii) all or a portion of the benefits 
payable with respect to the participant 
under the plan are a subject of such ac-
tion, 
and includes with the notice evidence of the 
pendency of the action, the plan administrator 
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shall, during the segregation period, separately 
account for 50 percent of such benefits. Any 
amounts so separately accounted for may not 
be distributed by the plan during the segrega-
tion period. 
‘‘(B) SEGREGATION
PERIOD.—For pur-
poses of subparagraph (A), the term ‘segrega-
tion period’ means the period— 
‘‘(i) beginning on the date of the re-
ceipt of the notice, and 
‘‘(ii) ending as of the close of the 90- 
day period beginning on such date (or, if 
earlier, the date of receipt of a domestic 
relations order with respect to the partici-
pant and the spouse or former spouse or 
the date the action is no longer pending). 
The segregation period shall be extended for 1 
or more additional periods described in the pre-
ceding sentence upon notice by the spouse or 
former spouse that the action described in sub-
paragraph (A) is still pending as of the close of 
any prior segregation period.’’ 
(2) AMENDMENT OF ERISA.—Section 206(d)(3) 
of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1056(d)(3)) is amended by redesig-
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nating subparagraph (N) as subparagraph (O) and 
by inserting after subparagraph (M) the following 
new subparagraph: 
‘‘(N) PRESERVATION OF ASSETS.— 
‘‘(i) IN
GENERAL.—If a spouse or 
former spouse of a participant notifies a 
plan in writing that— 
‘‘(I) an action is pending pursu-
ant to a State domestic relations law 
(including a community property law), 
and 
‘‘(II) all or a portion of the bene-
fits payable with respect to the partic-
ipant under the plan are a subject of 
such action, 
and includes with the notice evidence of 
the pendency of the action, the plan ad-
ministrator shall, during the segregation 
period, separately account for 50 percent 
of such benefits. Any amounts so sepa-
rately accounted for may not be distributed 
by the plan during the segregation period. 
‘‘(ii) 
SEGREGATION
PERIOD.—For 
purposes of clause (i), the term ‘segrega-
tion period’ means the period— 
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‘‘(I) beginning on the date of the 
receipt of the notice, and 
‘‘(II) ending as of the close of the 
90-day period beginning on such date 
(or, if earlier, the date of receipt of a 
domestic relations order with respect 
to the participant and the spouse or 
former spouse or the date the action 
is no longer pending). 
The segregation period shall be extended 
for 1 or more additional periods described 
in the preceding sentence upon notice by 
the spouse or former spouse that the ac-
tion described in clause (i) is still pending 
as of the close of any prior segregation pe-
riod.’’ 
(b) PENALTY FOR FAILURE TO PROVIDE INFORMA-
TION REGARDING ALTERNATE PAYEES.—Section 502(c) 
of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1132(c)) is amended by redesignating para-
graph (8) as paragraph (9) and by inserting after para-
graph (7) the following new paragraph: 
‘‘(8) FAILURE TO PROVIDE INFORMATION RE-
GARDING ALTERNATE PAYEES.—The Secretary may 
assess a civil penalty against any plan administrator 
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of up to $100 a day from the date of the plan ad-
ministrator’s failure or refusal to provide the infor-
mation the plan administrator is required to provide 
under regulations under this Act to prospective al-
ternative payees under a domestic relations order 
under section 206(d)(3) or to the Secretary or any 
representative of a prospective alternative payee in 
connection with such an order.’’ 
(c) ALLOCATION OF PLAN EXPENSES IN COMPLYING 
WITH DOMESTIC RELATIONS ORDERS.— 
(1) AMENDMENT
OF
1986
CODE.—Section 
414(p), as amended by subsection (a), is amended 
by redesignating paragraph (14) as paragraph (15) 
and by inserting after paragraph (13) the following 
new paragraph: 
‘‘(14) ALLOCATION
OF
EXPENSES.—Any ex-
penses incurred by a plan with respect to compliance 
with the requirements of this subsection shall not be 
allocated to an individual participant but rather 
shall be allocated among all participants on the basis 
of the relative value of each participant’s share of 
the assets of the plan, on the basis of a flat amount 
per participant, or on any other reasonable basis 
provided for under the plan.’’. 
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(2) AMENDMENT OF ERISA.—Section 206(d)(3) 
of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1056(d)(3)), as amended by sub-
section (a), is amended by redesignating subpara-
graph (O) as subparagraph (P) and by inserting 
after subparagraph (N) the following new subpara-
graph: 
‘‘(O) ALLOCATION
OF
EXPENSES.—Any 
expenses incurred by a plan with respect to 
compliance with the requirements of this para-
graph shall not be allocated to an individual 
participant but rather shall be allocated among 
all participants on the basis of the relative value 
of each participant’s share of the assets of the 
plan, on the basis of a flat amount per partici-
pant, or on any other reasonable basis provided 
for under the plan.’’. 
SEC. 302. ELIMINATION OF CURRENT CONNECTION RE-
QUIREMENT UNDER RAILROAD RETIREMENT 
ACT FOR CERTAIN SURVIVORS. 
(a) IN GENERAL.—Section 2(d)(1) of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231a(d)(1)), in the 
matter preceding paragraph (i), is amended by inserting 
‘‘, except with respect to survivors described in paragraph 
(i), (ii), or (v),’’ after ‘‘December 31, 1995) and’’. 
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(b) EFFECTIVE DATES.— 
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall take effect on the date of enact-
ment of this Act. 
(2) RETROACTIVE
APPLICATION
TO
CERTAIN 
SURVIVORS.—If a survivor of a deceased employee 
would be entitled to an annuity by reason of the 
amendment made by subsection (a) but for the fact 
that the employee died before the date of the enact-
ment of this Act, the survivor shall be entitled to 
such an annuity but only with respect to annuity 
payments for months beginning on or after such 
date. Appropriate adjustments shall be made in an-
nuity payments of other individuals to reflect any 
annuity payable by reason of this paragraph. 
SEC. 303. PERMITTING DIVORCED SPOUSES AND WIDOWS 
AND WIDOWERS TO REMARRY AFTER TURN-
ING 60 WITHOUT A PENALTY UNDER RAIL-
ROAD RETIREMENT ACT. 
(a) IN GENERAL.— 
(1) DIVORCED SPOUSE.—Section 2(c)(4) of the 
Railroad Retirement Act of 1974 (45 U.S.C. 
231a(c)(4) is amended by adding at the end the fol-
lowing new sentence: ‘‘For purposes of paragraph 
(ii)(B), if a divorced wife marries after attaining age 
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60, such marriage shall be deemed not to have oc-
curred.’’ 
(2) 
WIDOWS
AND
WIDOWERS.—Section 
2(d)(1)(v) of the Railroad Retirement Act of 1974 
(45 U.S.C. 231a(d)(1)(v)) is amended by adding at 
the end the following new sentence: ‘‘For purposes 
of this paragraph, if a widow marries after attaining 
age 60, such marriage shall be deemed not to have 
occurred.’’ 
(b) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
this section shall take effect on the date of enact-
ment of this Act. 
(2) RETROACTIVE APPLICATION.—If a divorced 
wife, widow, or widower would be entitled to an an-
nuity by reason of the amendments made by this 
section but for the fact the individual was married 
before the date of the enactment of this Act, the in-
dividual shall be entitled to such an annuity but only 
with respect to annuity payments for months begin-
ning on or after such date. Appropriate adjustments 
shall be made in annuity payments of other individ-
uals to reflect any annuity payable by reason of this 
paragraph. 
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(1) Section 403(b)(3)(B) is amended by insert-
ing ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
(2) Section 414(s)(2) is amended by inserting 
‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
(3) Section 415(c)(3)(D)(ii) is amended by in-
serting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2008. 
SEC. 403. RETIREMENT HANDBOOK AND RETIREMENT 
READINESS CHECKLIST. 
(a) IN GENERAL.—Section 704 of the Social Security 
Act is amended by adding at the end the following new 
subsection: 
‘‘(f) RETIREMENT INFORMATION.— 
‘‘(1) IN GENERAL.—The Commissioner, in con-
sultation with the Social Security Advisory Board, 
shall prepare— 
‘‘(A) the financial reference handbook de-
scribed in paragraph (2), and 
‘‘(B) the retirement readiness checklist de-
scribed in paragraph (3). 
‘‘(2) FINANCIAL REFERENCE HANDBOOK.—The 
handbook described in this paragraph is a pamphlet 
which— 
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‘‘(A) includes definitions of basic financial 
terms, 
‘‘(B) contains a listing of financial issues 
and problems facing individuals who are retir-
ing and explanations of methods of dealing with 
the issues and problems, and 
‘‘(C) is in a form readily understandable 
by the average retiree. 
‘‘(3) READINESS
CHECKLIST.—The checklist 
described in this paragraph is a list of questions that 
individuals need to consider in preparation for re-
tirement, including the following: 
‘‘(A) What annual income will the indi-
vidual need in retirement? 
‘‘(B) How many years will the individual 
live in retirement? 
‘‘(C) What will be the cost of Medicare 
premiums? 
‘‘(D) What will be the cost of insurance 
necessary to supplement Medicare? 
‘‘(E) How will savings be invested in re-
tirement? 
‘‘(F) How will taxes affect your retirement 
income? 
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