H. R. 4—194
‘‘(19) CROSS TRADING.—Any transaction described in sec-
tions 406(a)(1)(A) and 406(b)(2) involving the purchase and 
sale of a security between a plan and any other account man-
aged by the same investment manager, if—
‘‘(A) the transaction is a purchase or sale, for no consid-
eration other than cash payment against prompt delivery 
of a security for which market quotations are readily avail-
able, 
‘‘(B) the transaction is effected at the independent cur-
rent market price of the security (within the meaning of 
section 270.17a–7(b) of title 17, Code of Federal Regula-
tions), 
‘‘(C) no brokerage commission, fee (except for cus-
tomary transfer fees, the fact of which is disclosed pursuant 
to subparagraph (D)), or other remuneration is paid in 
connection with the transaction, 
‘‘(D) a fiduciary (other than the investment manager 
engaging in the cross-trades or any affiliate) for each plan 
participating in the transaction authorizes in advance of 
any cross-trades (in a document that is separate from any 
other written agreement of the parties) the investment 
manager to engage in cross trades at the investment man-
ager’s discretion, after such fiduciary has received disclo-
sure regarding the conditions under which cross trades 
may take place (but only if such disclosure is separate 
from any other agreement or disclosure involving the asset 
management relationship), including the written policies 
and procedures of the investment manager described in 
subparagraph (H), 
‘‘(E) each plan participating in the transaction has 
assets of at least $100,000,000, except that if the assets 
of a plan are invested in a master trust containing the 
assets of plans maintained by employers in the same con-
trolled group (as defined in section 407(d)(7)), the master 
trust has assets of at least $100,000,000, 
‘‘(F) the investment manager provides to the plan fidu-
ciary who authorized cross trading under subparagraph 
(D) a quarterly report detailing all cross trades executed 
by the investment manager in which the plan participated 
during such quarter, including the following information, 
as applicable: (i) the identity of each security bought or 
sold; (ii) the number of shares or units traded; (iii) the 
parties involved in the cross-trade; and (iv) trade price 
and the method used to establish the trade price, 
‘‘(G) the investment manager does not base its fee 
schedule on the plan’s consent to cross trading, and no 
other service (other than the investment opportunities and 
cost savings available through a cross trade) is conditioned 
on the plan’s consent to cross trading, 
‘‘(H) the investment manager has adopted, and cross-
trades are effected in accordance with, written cross-trading 
policies and procedures that are fair and equitable to all 
accounts participating in the cross-trading program, and 
that include a description of the manager’s pricing policies 
and procedures, and the manager’s policies and procedures 
for allocating cross trades in an objective manner among 
accounts participating in the cross-trading program, and
H. R. 4—195
‘‘(I) the investment manager has designated an indi-
vidual responsible for periodically reviewing such purchases 
and sales to ensure compliance with the written policies 
and procedures described in subparagraph (H), and fol-
lowing such review, the individual shall issue an annual 
written report no later than 90 days following the period 
to which it relates signed under penalty of perjury to 
the plan fiduciary who authorized cross trading under 
subparagraph (D) describing the steps performed during 
the course of the review, the level of compliance, and any 
specific instances of non-compliance. 
The written report under subparagraph (I) shall also notify 
the plan fiduciary of the plan’s right to terminate participation 
in the investment manager’s cross-trading program at any 
time.’’. 
(2) AMENDMENTS OF INTERNAL REVENUE CODE OF 1986.—
Subsection (d) of section 4975 of the Internal Revenue Code 
of 1986 (relating to exemptions), as amended by subsection 
(e), is amended by striking ‘‘or’’ at the end of paragraph (20), 
by striking the period at the end of paragraph (21) and inserting 
‘‘, or’’, and by adding at the end the following new paragraph: 
‘‘(22) any transaction described in subsection (c)(1)(A) 
involving the purchase and sale of a security between a plan 
and any other account managed by the same investment man-
ager, if—
‘‘(A) the transaction is a purchase or sale, for no consid-
eration other than cash payment against prompt delivery 
of a security for which market quotations are readily avail-
able, 
‘‘(B) the transaction is effected at the independent cur-
rent market price of the security (within the meaning of 
section 270.17a–7(b) of title 17, Code of Federal Regula-
tions), 
‘‘(C) no brokerage commission, fee (except for cus-
tomary transfer fees, the fact of which is disclosed pursuant 
to subparagraph (D)), or other remuneration is paid in 
connection with the transaction, 
‘‘(D) a fiduciary (other than the investment manager 
engaging in the cross-trades or any affiliate) for each plan 
participating in the transaction authorizes in advance of 
any cross-trades (in a document that is separate from any 
other written agreement of the parties) the investment 
manager to engage in cross trades at the investment man-
ager’s discretion, after such fiduciary has received disclo-
sure regarding the conditions under which cross trades 
may take place (but only if such disclosure is separate 
from any other agreement or disclosure involving the asset 
management relationship), including the written policies 
and procedures of the investment manager described in 
subparagraph (H), 
‘‘(E) each plan participating in the transaction has 
assets of at least $100,000,000, except that if the assets 
of a plan are invested in a master trust containing the 
assets of plans maintained by employers in the same con-
trolled group (as defined in section 407(d)(7) of the 
Employee Retirement Income Security Act of 1974), the 
master trust has assets of at least $100,000,000,
H. R. 4—196
‘‘(F) the investment manager provides to the plan fidu-
ciary who authorized cross trading under subparagraph 
(D) a quarterly report detailing all cross trades executed 
by the investment manager in which the plan participated 
during such quarter, including the following information, 
as applicable: (i) the identity of each security bought or 
sold; (ii) the number of shares or units traded; (iii) the 
parties involved in the cross-trade; and (iv) trade price 
and the method used to establish the trade price, 
‘‘(G) the investment manager does not base its fee 
schedule on the plan’s consent to cross trading, and no 
other service (other than the investment opportunities and 
cost savings available through a cross trade) is conditioned 
on the plan’s consent to cross trading, 
‘‘(H) the investment manager has adopted, and cross-
trades are effected in accordance with, written cross-trading 
policies and procedures that are fair and equitable to all 
accounts participating in the cross-trading program, and 
that include a description of the manager’s pricing policies 
and procedures, and the manager’s policies and procedures 
for allocating cross trades in an objective manner among 
accounts participating in the cross-trading program, and 
‘‘(I) the investment manager has designated an indi-
vidual responsible for periodically reviewing such purchases 
and sales to ensure compliance with the written policies 
and procedures described in subparagraph (H), and fol-
lowing such review, the individual shall issue an annual 
written report no later than 90 days following the period 
to which it relates signed under penalty of perjury to 
the plan fiduciary who authorized cross trading under 
subparagraph (D) describing the steps performed during 
the course of the review, the level of compliance, and any 
specific instances of non-compliance. 
The written report shall also notify the plan fiduciary of the 
plan’s right to terminate participation in the investment man-
ager’s cross-trading program at any time.’’. 
(3) REGULATIONS.—No later than 180 days after the date 
of the enactment of this Act, the Secretary of Labor, after 
consultation with the Securities and Exchange Commission, 
shall issue regulations regarding the content of policies and 
procedures required to be adopted by an investment manager 
under section 408(b)(19) of the Employee Retirement Income 
Security Act of 1974. 
(h) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to transactions 
occurring after the date of the enactment of this Act. 
(2) BONDING RULE.—The amendments made by subsection 
(b) shall apply to plan years beginning after such date. 
SEC. 
612. 
CORRECTION 
PERIOD 
FOR 
CERTAIN 
TRANSACTIONS 
INVOLVING SECURITIES AND COMMODITIES. 
(a) AMENDMENT OF EMPLOYEE RETIREMENT INCOME SECURITY 
ACT OF 1974.—Section 408(b) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1108(b)), as amended by sections 
601 and 611, is further amended by adding at the end the following 
new paragraph:
H. R. 4—197
‘‘(20)(A) Except as provided in subparagraphs (B) and (C), 
a transaction described in section 406(a) in connection with 
the acquisition, holding, or disposition of any security or com-
modity, if the transaction is corrected before the end of the 
correction period. 
‘‘(B) Subparagraph (A) does not apply to any transaction 
between a plan and a plan sponsor or its affiliates that involves 
the acquisition or sale of an employer security (as defined 
in section 407(d)(1)) or the acquisition, sale, or lease of employer 
real property (as defined in section 407(d)(2)). 
‘‘(C) In the case of any fiduciary or other party in interest 
(or any other person knowingly participating in such trans-
action), subparagraph (A) does not apply to any transaction 
if, at the time the transaction occurs, such fiduciary or party 
in interest (or other person) knew (or reasonably should have 
known) that the transaction would (without regard to this 
paragraph) constitute a violation of section 406(a). 
‘‘(D) For purposes of this paragraph, the term ‘correction 
period’ means, in connection with a fiduciary or party in interest 
(or other person knowingly participating in the transaction), 
the 14-day period beginning on the date on which such fiduciary 
or party in interest (or other person) discovers, or reasonably 
should have discovered, that the transaction would (without 
regard to this paragraph) constitute a violation of section 406(a). 
‘‘(E) For purposes of this paragraph—
‘‘(i) The term ‘security’ has the meaning given such 
term by section 475(c)(2) of the Internal Revenue Code 
of 1986 (without regard to subparagraph (F)(iii) and the 
last sentence thereof). 
‘‘(ii) The term ‘commodity’ has the meaning given such 
term by section 475(e)(2) of such Code (without regard 
to subparagraph (D)(iii) thereof). 
‘‘(iii) The term ‘correct’ means, with respect to a trans-
action—
‘‘(I) to undo the transaction to the extent possible 
and in any case to make good to the plan or affected 
account any losses resulting from the transaction, and 
‘‘(II) to restore to the plan or affected account 
any profits made through the use of assets of the 
plan.’’. 
(b) AMENDMENT OF INTERNAL REVENUE CODE OF 1986.—
(1) IN
GENERAL.—Subsection (d) of section 4975 of the 
Internal Revenue Code of 1986 (relating to exemptions), as 
amended by sections 601 and 611, is amended by striking 
‘‘or’’ at the end of paragraph (21), by striking the period at 
the end of paragraph (22) and inserting ‘‘, or’’, and by adding 
at the end the following new paragraph: 
‘‘(23) except as provided in subsection (f)(11), a transaction 
described in subparagraph (A), (B), (C), or (D) of subsection 
(c)(1) in connection with the acquisition, holding, or disposition 
of any security or commodity, if the transaction is corrected 
before the end of the correction period.’’. 
(2) SPECIAL RULES RELATING TO CORRECTION PERIOD.—Sub-
section (f) of section 4975 of such Code (relating to other defini-
tions and special rules), as amended by sections 601 and 611, 
is amended by adding at the end the following new paragraph: 
‘‘(11) CORRECTION PERIOD.—
H. R. 4—198
‘‘(A) IN GENERAL.—For purposes of subsection (d)(23), 
the term ‘correction period’ means the 14-day period begin-
ning on the date on which the disqualified person discovers, 
or reasonably should have discovered, that the transaction 
would (without regard to this paragraph and subsection 
(d)(23)) constitute a prohibited transaction. 
‘‘(B) EXCEPTIONS.—
‘‘(i) EMPLOYER
SECURITIES.—Subsection (d)(23) 
does not apply to any transaction between a plan and 
a plan sponsor or its affiliates that involves the acquisi-
tion or sale of an employer security (as defined in 
section 407(d)(1)) or the acquisition, sale, or lease of 
employer real property (as defined in section 407(d)(2)). 
‘‘(ii) KNOWING PROHIBITED TRANSACTION.—In the 
case of any disqualified person, subsection (d)(23) does 
not apply to a transaction if, at the time the transaction 
is entered into, the disqualified person knew (or reason-
ably should have known) that the transaction would 
(without regard to this paragraph) constitute a prohib-
ited transaction. 
‘‘(C) ABATEMENT OF TAX WHERE THERE IS A CORREC-
TION.—If a transaction is not treated as a prohibited trans-
action by reason of subsection (d)(23), then no tax under 
subsections (a) and (b) shall be assessed with respect to 
such transaction, and if assessed the assessment shall be 
abated, and if collected shall be credited or refunded as 
an overpayment. 
‘‘(D) DEFINITIONS.—For purposes of this paragraph and 
subsection (d)(23)—
‘‘(i) 
SECURITY.—The 
term 
‘security’ 
has 
the 
meaning given such term by section 475(c)(2) (without 
regard to subparagraph (F)(iii) and the last sentence 
thereof). 
‘‘(ii) COMMODITY.—The term ‘commodity’ has the 
meaning given such term by section 475(e)(2) (without 
regard to subparagraph (D)(iii) thereof). 
‘‘(iii) CORRECT.—The term ‘correct’ means, with 
respect to a transaction—
‘‘(I) to undo the transaction to the extent pos-
sible and in any case to make good to the plan 
or affected account any losses resulting from the 
transaction, and 
‘‘(II) to restore to the plan or affected account 
any profits made through the use of assets of the 
plan.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any transaction which the fiduciary or disqualified 
person discovers, or reasonably should have discovered, after the 
date of the enactment of this Act constitutes a prohibited trans-
action.
H. R. 4—199
Subtitle C—Fiduciary and Other Rules 
SEC. 621. INAPPLICABILITY OF RELIEF FROM FIDUCIARY LIABILITY 
DURING SUSPENSION OF ABILITY OF PARTICIPANT OR 
BENEFICIARY TO DIRECT INVESTMENTS. 
(a) IN GENERAL.—Section 404(c) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended—
(1) in paragraph (1)—
(A) by redesignating subparagraphs (A) and (B) as 
clauses (i) and (ii), respectively, and by inserting ‘‘(A)’’ 
after ‘‘(c)(1)’’, 
(B) in subparagraph (A)(ii) (as redesignated by para-
graph (1)), by inserting before the period the following: 
‘‘, except that this clause shall not apply in connection 
with such participant or beneficiary for any blackout period 
during which the ability of such participant or beneficiary 
to direct the investment of the assets in his or her account 
is suspended by a plan sponsor or fiduciary’’, and 
(C) by adding at the end the following new subpara-
graphs: 
‘‘(B) If a person referred to in subparagraph (A)(ii) meets the 
requirements of this title in connection with authorizing and imple-
menting the blackout period, any person who is otherwise a fidu-
ciary shall not be liable under this title for any loss occurring 
during such period. 
‘‘(C) For purposes of this paragraph, the term ‘blackout period’ 
has the meaning given such term by section 101(i)(7).’’; and 
(2) by adding at the end the following: 
‘‘(4)(A) In any case in which a qualified change in invest-
ment options occurs in connection with an individual account 
plan, a participant or beneficiary shall not be treated for pur-
poses of paragraph (1) as not exercising control over the assets 
in his account in connection with such change if the require-
ments of subparagraph (C) are met in connection with such 
change. 
‘‘(B) For purposes of subparagraph (A), the term ‘qualified 
change in investment options’ means, in connection with an 
individual account plan, a change in the investment options 
offered to the participant or beneficiary under the terms of 
the plan, under which—
‘‘(i) the account of the participant or beneficiary is 
reallocated among one or more remaining or new invest-
ment options which are offered in lieu of one or more 
investment options offered immediately prior to the effec-
tive date of the change, and 
‘‘(ii) the stated characteristics of the remaining or new 
investment options provided under clause (i), including 
characteristics relating to risk and rate of return, are, 
as of immediately after the change, reasonably similar 
to those of the existing investment options as of imme-
diately before the change. 
‘‘(C) The requirements of this subparagraph are met in 
connection with a qualified change in investment options if—
‘‘(i) at least 30 days and no more than 60 days prior 
to the effective date of the change, the plan administrator 
furnishes written notice of the change to the participants
H. R. 4—200
and beneficiaries, including information comparing the 
existing and new investment options and an explanation 
that, in the absence of affirmative investment instructions 
from the participant or beneficiary to the contrary, the 
account of the participant or beneficiary will be invested 
in the manner described in subparagraph (B), 
‘‘(ii) the participant or beneficiary has not provided 
to the plan administrator, in advance of the effective date 
of the change, affirmative investment instructions contrary 
to the change, and 
‘‘(iii) the investments under the plan of the participant 
or beneficiary as in effect immediately prior to the effective 
date of the change were the product of the exercise by 
such participant or beneficiary of control over the assets 
of the account within the meaning of paragraph (1).’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section 
shall apply to plan years beginning after December 31, 2007. 
(2) SPECIAL
RULE
FOR
COLLECTIVELY
BARGAINED
AGREE-
MENTS.—In the case of a plan maintained pursuant to 1 or 
more collective bargaining agreements between employee rep-
resentatives and 1 or more employers ratified on or before 
the date of the enactment of this Act, paragraph (1) shall 
be applied to benefits pursuant to, and individuals covered 
by, any such agreement by substituting for ‘‘December 31, 
2007’’ the earlier of—
(A) the later of—
(i) December 31, 2008, or 
(ii) the date on which the last of such collective 
bargaining agreements terminates (determined without 
regard to any extension thereof after such date of 
enactment), or 
(B) December 31, 2009. 
SEC. 622. INCREASE IN MAXIMUM BOND AMOUNT. 
(a) IN GENERAL.—Section 412(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1112), as amended by 
section 611(b), is amended by adding at the end the following: 
‘‘In the case of a plan that holds employer securities (within the 
meaning of section 407(d)(1)), this subsection shall be applied by 
substituting ‘$1,000,000’ for ‘$500,000’ each place it appears.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to plan years beginning after December 31, 2007. 
SEC. 623. INCREASE IN PENALTIES FOR COERCIVE INTERFERENCE 
WITH EXERCISE OF ERISA RIGHTS. 
(a) IN GENERAL.—Section 511 of the Employment Retirement 
Income Security Act of 1974 (29 U.S.C. 1141) is amended—
(1) by striking ‘‘$10,000’’ and inserting ‘‘$100,000’’, and 
(2) by striking ‘‘one year’’ and inserting ‘‘10 years’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to violations occurring on and after the date of the 
enactment of this Act.
H. R. 4—201
SEC. 624. TREATMENT OF INVESTMENT OF ASSETS BY PLAN WHERE 
PARTICIPANT FAILS TO EXERCISE INVESTMENT ELEC-
TION. 
(a) IN GENERAL.—Section 404(c) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1104(c)), as amended by 
section 622, is amended by adding at the end the following new 
paragraph: 
‘‘(5) DEFAULT INVESTMENT ARRANGEMENTS.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), a 
participant in an individual account plan meeting the notice 
requirements of subparagraph (B) shall be treated as exer-
cising control over the assets in the account with respect 
to the amount of contributions and earnings which, in 
the absence of an investment election by the participant, 
are invested by the plan in accordance with regulations 
prescribed by the Secretary. The regulations under this 
subparagraph shall provide guidance on the appropriate-
ness of designating default investments that include a mix 
of asset classes consistent with capital preservation or long-
term capital appreciation, or a blend of both. 
‘‘(B) NOTICE REQUIREMENTS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if each participant—
‘‘(I) receives, within a reasonable period of time 
before each plan year, a notice explaining the 
employee’s right under the plan to designate how 
contributions and earnings will be invested and 
explaining how, in the absence of any investment 
election by the participant, such contributions and 
earnings will be invested, and 
‘‘(II) has a reasonable period of time after 
receipt of such notice and before the beginning 
of the plan year to make such designation. 
‘‘(ii) FORM
OF
NOTICE.—The requirements of 
clauses (i) and (ii) of section 401(k)(12)(D) of the 
Internal Revenue Code of 1986 shall apply with respect 
to the notices described in this subparagraph.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section 
shall apply to plan years beginning after December 31, 2006. 
(2) 
REGULATIONS.—Final 
regulations 
under 
section 
404(c)(5)(A) of the Employee Retirement Income Security Act 
of 1974 (as added by this section) shall be issued no later 
than 6 months after the date of the enactment of this Act. 
SEC. 625. CLARIFICATION OF FIDUCIARY RULES. 
(a) IN GENERAL.—Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Labor shall issue final 
regulations clarifying that the selection of an annuity contract 
as an optional form of distribution from an individual account 
plan to a participant or beneficiary—
(1) is not subject to the safest available annuity standard 
under Interpretive Bulletin 95–1 (29 CFR 2509.95–1), and 
(2) is subject to all otherwise applicable fiduciary standards. 
(b) EFFECTIVE DATE.—This section shall take effect on the 
date of enactment of this Act.
H. R. 4—202
TITLE VII—BENEFIT ACCRUAL 
STANDARDS 
SEC. 701. BENEFIT ACCRUAL STANDARDS. 
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECU-
RITY ACT OF 1974.—
(1) RULES RELATING TO REDUCTION IN RATE OF BENEFIT 
ACCRUAL.—Section 204(b) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1054(b)) is amended by adding 
at the end the following new paragraph: 
‘‘(5) SPECIAL RULES RELATING TO AGE.—
‘‘(A) COMPARISON
TO
SIMILARLY
SITUATED
YOUNGER 
INDIVIDUAL.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1)(H)(i) 
if a participant’s accrued benefit, as determined as 
of any date under the terms of the plan, would be 
equal to or greater than that of any similarly situated, 
younger individual who is or could be a participant. 
‘‘(ii) SIMILARLY
SITUATED.—For purposes of this 
subparagraph, a participant is similarly situated to 
any other individual if such participant is identical 
to such other individual in every respect (including 
period of service, compensation, position, date of hire, 
work history, and any other respect) except for age. 
‘‘(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT 
BENEFITS.—In determining the accrued benefit as of 
any date for purposes of this clause, the subsidized 
portion of any early retirement benefit or retirement-
type subsidy shall be disregarded. 
‘‘(iv) ACCRUED
BENEFIT.—For purposes of this 
subparagraph, the accrued benefit may, under the 
terms of the plan, be expressed as an annuity payable 
at normal retirement age, the balance of a hypothetical 
account, or the current value of the accumulated 
percentage of the employee’s final average compensa-
tion. 
‘‘(B) APPLICABLE DEFINED BENEFIT PLANS.—
‘‘(i) INTEREST CREDITS.—
‘‘(I) IN GENERAL.—An applicable defined ben-
efit plan shall be treated as failing to meet the 
requirements of paragraph (1)(H) unless the terms 
of the plan provide that any interest credit (or 
an equivalent amount) for any plan year shall 
be at a rate which is not greater than a market 
rate of return. A plan shall not be treated as 
failing to meet the requirements of this subclause 
merely because the plan provides for a reasonable 
minimum guaranteed rate of return or for a rate 
of return that is equal to the greater of a fixed 
or variable rate of return. 
‘‘(II) PRESERVATION OF CAPITAL.—An interest 
credit (or an equivalent amount) of less than zero 
shall in no event result in the account balance 
or similar amount being less than the aggregate 
amount of contributions credited to the account.
H. R. 4—203
‘‘(III) MARKET
RATE
OF
RETURN.—The Sec-
retary of the Treasury may provide by regulation 
for rules governing the calculation of a market 
rate of return for purposes of subclause (I) and 
for permissible methods of crediting interest to 
the account (including fixed or variable interest 
rates) resulting in effective rates of return meeting 
the requirements of subclause (I). 
‘‘(ii) SPECIAL
RULE
FOR
PLAN
CONVERSIONS.—If, 
after June 29, 2005, an applicable plan amendment 
is adopted, the plan shall be treated as failing to meet 
the requirements of paragraph (1)(H) unless the 
requirements of clause (iii) are met with respect to 
each individual who was a participant in the plan 
immediately before the adoption of the amendment. 
‘‘(iii) RATE OF BENEFIT ACCRUAL.—Subject to clause 
(iv), the requirements of this clause are met with 
respect to any participant if the accrued benefit of 
the participant under the terms of the plan as in 
effect after the amendment is not less than the sum 
of—
‘‘(I) the participant’s accrued benefit for years 
of service before the effective date of the amend-
ment, determined under the terms of the plan 
as in effect before the amendment, plus 
‘‘(II) the participant’s accrued benefit for years 
of service after the effective date of the amend-
ment, determined under the terms of the plan 
as in effect after the amendment. 
‘‘(iv) SPECIAL RULES FOR EARLY RETIREMENT SUB-
SIDIES.—For purposes of clause (iii)(I), the plan shall 
credit the accumulation account or similar amount with 
the amount of any early retirement benefit or retire-
ment-type subsidy for the plan year in which the 
participant retires if, as of such time, the participant 
has met the age, years of service, and other require-
ments under the plan for entitlement to such benefit 
or subsidy. 
‘‘(v) APPLICABLE PLAN AMENDMENT.—For purposes 
of this subparagraph—
‘‘(I) IN GENERAL.—The term ‘applicable plan 
amendment’ means an amendment to a defined 
benefit plan which has the effect of converting 
the plan to an applicable defined benefit plan. 
‘‘(II) SPECIAL RULE FOR COORDINATED BENE-
FITS.—If the benefits of 2 or more defined benefit 
plans established or maintained by an employer 
are coordinated in such a manner as to have the 
effect of the adoption of an amendment described 
in subclause (I), the sponsor of the defined benefit 
plan or plans providing for such coordination shall 
be treated as having adopted such a plan amend-
ment as of the date such coordination begins. 
‘‘(III) MULTIPLE AMENDMENTS.—The Secretary 
of the Treasury shall issue regulations to prevent 
the avoidance of the purposes of this subparagraph
H. R. 4—204
through the use of 2 or more plan amendments 
rather than a single amendment. 
‘‘(IV) APPLICABLE DEFINED BENEFIT PLAN.—For 
purposes of this subparagraph, the term ‘applicable 
defined benefit plan’ has the meaning given such 
term by section 203(f)(3). 
‘‘(vi) TERMINATION REQUIREMENTS.—An applicable 
defined benefit plan shall not be treated as meeting 
the requirements of clause (i) unless the plan provides 
that, upon the termination of the plan—
‘‘(I) if the interest credit rate (or an equivalent 
amount) under the plan is a variable rate, the 
rate of interest used to determine accrued benefits 
under the plan shall be equal to the average of 
the rates of interest used under the plan during 
the 5-year period ending on the termination date, 
and 
‘‘(II) the interest rate and mortality table used 
to determine the amount of any benefit under the 
plan payable in the form of an annuity payable 
at normal retirement age shall be the rate and 
table specified under the plan for such purpose 
as of the termination date, except that if such 
interest rate is a variable rate, the interest rate 
shall be determined under the rules of subclause 
(I). 
‘‘(C) CERTAIN OFFSETS PERMITTED.—A plan shall not 
be treated as failing to meet the requirements of paragraph 
(1)(H)(i) solely because the plan provides offsets against 
benefits under the plan to the extent such offsets are 
allowable in applying the requirements of section 401(a) 
of the Internal Revenue Code of 1986. 
‘‘(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS 
OR BENEFITS.—A plan shall not be treated as failing to 
meet the requirements of paragraph (1)(H) solely because 
the plan provides a disparity in contributions or benefits 
with respect to which the requirements of section 401(l) 
of the Internal Revenue Code of 1986 are met. 
‘‘(E) INDEXING PERMITTED.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1)(H) 
solely because the plan provides for indexing of accrued 
benefits under the plan. 
‘‘(ii) PROTECTION
AGAINST
LOSS.—Except in the 
case of any benefit provided in the form of a variable 
annuity, clause (i) shall not apply with respect to any 
indexing which results in an accrued benefit less than 
the accrued benefit determined without regard to such 
indexing. 
‘‘(iii) INDEXING.—For purposes of this subpara-
graph, the term ‘indexing’ means, in connection with 
an accrued benefit, the periodic adjustment of the 
accrued benefit by means of the application of a recog-
nized investment index or methodology. 
‘‘(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE 
SUBSIDY.—For purposes of this paragraph, the terms ‘early
H. R. 4—205
retirement benefit’ and ‘retirement-type subsidy’ have the 
meaning given such terms in subsection (g)(2)(A). 
‘‘(G) BENEFIT ACCRUED TO DATE.—For purposes of this 
paragraph, any reference to the accrued benefit shall be 
a reference to such benefit accrued to date.’’. 
(2) DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF 
BENEFIT ACCOUNT OR EQUIVALENT AMOUNTS.—Section 203 of 
such Act (29 U.S.C. 1053) is amended by adding at the end 
the following new subsection: 
‘‘(f) SPECIAL RULES FOR PLANS COMPUTING ACCRUED BENEFITS 
BY REFERENCE TO HYPOTHETICAL ACCOUNT BALANCE OR EQUIVA-
LENT AMOUNTS.—
‘‘(1) IN GENERAL.—An applicable defined benefit plan shall 
not be treated as failing to meet—
‘‘(A) subject to paragraph (2), the requirements of sub-
section (a)(2), or 
‘‘(B) the requirements of section 204(c) or section 205(g) 
with respect to contributions other than employee contribu-
tions, 
solely because the present value of the accrued benefit (or 
any portion thereof) of any participant is, under the terms 
of the plan, equal to the amount expressed as the balance 
in the hypothetical account described in paragraph (3) or as 
an accumulated percentage of the participant’s final average 
compensation. 
‘‘(2) 3-YEAR VESTING.—In the case of an applicable defined 
benefit plan, such plan shall be treated as meeting the require-
ments of subsection (a)(2) only if an employee who has com-
pleted at least 3 years of service has a nonforfeitable right 
to 100 percent of the employee’s accrued benefit derived from 
employer contributions. 
‘‘(3) APPLICABLE
DEFINED
BENEFIT
PLAN
AND
RELATED 
RULES.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘applicable defined benefit 
plan’ means a defined benefit plan under which the accrued 
benefit (or any portion thereof) is calculated as the balance 
of a hypothetical account maintained for the participant 
or as an accumulated percentage of the participant’s final 
average compensation. 
‘‘(B) REGULATIONS TO INCLUDE SIMILAR PLANS.—The 
Secretary of the Treasury shall issue regulations which 
include in the definition of an applicable defined benefit 
plan any defined benefit plan (or any portion of such a 
plan) which has an effect similar to an applicable defined 
benefit plan.’’. 
(b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.—
(1) RULES RELATING TO REDUCTION IN RATE OF BENEFIT 
ACCRUAL.—Subsection (b) of section 411 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following 
new paragraph: 
‘‘(5) SPECIAL RULES RELATING TO AGE.—
‘‘(A) COMPARISON
TO
SIMILARLY
SITUATED
YOUNGER 
INDIVIDUAL.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1)(H)(i) 
if a participant’s accrued benefit, as determined as 
of any date under the terms of the plan, would be
H. R. 4—206
equal to or greater than that of any similarly situated, 
younger individual who is or could be a participant. 
‘‘(ii) SIMILARLY
SITUATED.—For purposes of this 
subparagraph, a participant is similarly situated to 
any other individual if such participant is identical 
to such other individual in every respect (including 
period of service, compensation, position, date of hire, 
work history, and any other respect) except for age. 
‘‘(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT 
BENEFITS.—In determining the accrued benefit as of 
any date for purposes of this clause, the subsidized 
portion of any early retirement benefit or retirement-
type subsidy shall be disregarded. 
‘‘(iv) ACCRUED
BENEFIT.—For purposes of this 
subparagraph, the accrued benefit may, under the 
terms of the plan, be expressed as an annuity payable 
at normal retirement age, the balance of a hypothetical 
account, or the current value of the accumulated 
percentage of the employee’s final average compensa-
tion. 
‘‘(B) APPLICABLE DEFINED BENEFIT PLANS.—
‘‘(i) INTEREST CREDITS.—
‘‘(I) IN GENERAL.—An applicable defined ben-
efit plan shall be treated as failing to meet the 
requirements of paragraph (1)(H) unless the terms 
of the plan provide that any interest credit (or 
an equivalent amount) for any plan year shall 
be at a rate which is not greater than a market 
rate of return. A plan shall not be treated as 
failing to meet the requirements of this subclause 
merely because the plan provides for a reasonable 
minimum guaranteed rate of return or for a rate 
of return that is equal to the greater of a fixed 
or variable rate of return. 
‘‘(II) PRESERVATION OF CAPITAL.—An interest 
credit (or an equivalent amount) of less than zero 
shall in no event result in the account balance 
or similar amount being less than the aggregate 
amount of contributions credited to the account. 
‘‘(III) MARKET
RATE
OF
RETURN.—The Sec-
retary may provide by regulation for rules gov-
erning the calculation of a market rate of return 
for purposes of subclause (I) and for permissible 
methods of crediting interest to the account 
(including fixed or variable interest rates) resulting 
in effective rates of return meeting the require-
ments of subclause (I). 
‘‘(ii) SPECIAL
RULE
FOR
PLAN
CONVERSIONS.—If, 
after June 29, 2005, an applicable plan amendment 
is adopted, the plan shall be treated as failing to meet 
the requirements of paragraph (1)(H) unless the 
requirements of clause (iii) are met with respect to 
each individual who was a participant in the plan 
immediately before the adoption of the amendment. 
‘‘(iii) RATE OF BENEFIT ACCRUAL.—Subject to clause 
(iv), the requirements of this clause are met with 
respect to any participant if the accrued benefit of
H. R. 4—207
the participant under the terms of the plan as in 
effect after the amendment is not less than the sum 
of—
‘‘(I) the participant’s accrued benefit for years 
of service before the effective date of the amend-
ment, determined under the terms of the plan 
as in effect before the amendment, plus 
‘‘(II) the participant’s accrued benefit for years 
of service after the effective date of the amend-
ment, determined under the terms of the plan 
as in effect after the amendment. 
‘‘(iv) SPECIAL RULES FOR EARLY RETIREMENT SUB-
SIDIES.—For purposes of clause (iii)(I), the plan shall 
credit the accumulation account or similar amount with 
the amount of any early retirement benefit or retire-
ment-type subsidy for the plan year in which the 
participant retires if, as of such time, the participant 
has met the age, years of service, and other require-
ments under the plan for entitlement to such benefit 
or subsidy. 
‘‘(v) APPLICABLE PLAN AMENDMENT.—For purposes 
of this subparagraph—
‘‘(I) IN GENERAL.—The term ‘applicable plan 
amendment’ means an amendment to a defined 
benefit plan which has the effect of converting 
the plan to an applicable defined benefit plan. 
‘‘(II) SPECIAL RULE FOR COORDINATED BENE-
FITS.—If the benefits of 2 or more defined benefit 
plans established or maintained by an employer 
are coordinated in such a manner as to have the 
effect of the adoption of an amendment described 
in subclause (I), the sponsor of the defined benefit 
plan or plans providing for such coordination shall 
be treated as having adopted such a plan amend-
ment as of the date such coordination begins. 
‘‘(III) MULTIPLE AMENDMENTS.—The Secretary 
shall issue regulations to prevent the avoidance 
of the purposes of this subparagraph through the 
use of 2 or more plan amendments rather than 
a single amendment. 
‘‘(IV) APPLICABLE DEFINED BENEFIT PLAN.—For 
purposes of this subparagraph, the term ‘applicable 
defined benefit plan’ has the meaning given such 
term by section 411(a)(13). 
‘‘(vi) TERMINATION REQUIREMENTS.—An applicable 
defined benefit plan shall not be treated as meeting 
the requirements of clause (i) unless the plan provides 
that, upon the termination of the plan—
‘‘(I) if the interest credit rate (or an equivalent 
amount) under the plan is a variable rate, the 
rate of interest used to determine accrued benefits 
under the plan shall be equal to the average of 
the rates of interest used under the plan during 
the 5-year period ending on the termination date, 
and 
‘‘(II) the interest rate and mortality table used 
to determine the amount of any benefit under the
H. R. 4—208
plan payable in the form of an annuity payable 
at normal retirement age shall be the rate and 
table specified under the plan for such purpose 
as of the termination date, except that if such 
interest rate is a variable rate, the interest rate 
shall be determined under the rules of subclause 
(I). 
‘‘(C) CERTAIN OFFSETS PERMITTED.—A plan shall not 
be treated as failing to meet the requirements of paragraph 
(1)(H)(i) solely because the plan provides offsets against 
benefits under the plan to the extent such offsets are 
allowable in applying the requirements of section 401(a). 
‘‘(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS 
OR BENEFITS.—A plan shall not be treated as failing to 
meet the requirements of paragraph (1)(H) solely because 
the plan provides a disparity in contributions or benefits 
with respect to which the requirements of section 401(l) 
are met. 
‘‘(E) INDEXING PERMITTED.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1)(H) 
solely because the plan provides for indexing of accrued 
benefits under the plan. 
‘‘(ii) PROTECTION
AGAINST
LOSS.—Except in the 
case of any benefit provided in the form of a variable 
annuity, clause (i) shall not apply with respect to any 
indexing which results in an accrued benefit less than 
the accrued benefit determined without regard to such 
indexing. 
‘‘(iii) INDEXING.—For purposes of this subpara-
graph, the term ‘indexing’ means, in connection with 
an accrued benefit, the periodic adjustment of the 
accrued benefit by means of the application of a recog-
nized investment index or methodology. 
‘‘(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE 
SUBSIDY.—For purposes of this paragraph, the terms ‘early 
retirement benefit’ and ‘retirement-type subsidy’ have the 
meaning given such terms in subsection (d)(6)(B)(i). 
‘‘(G) BENEFIT ACCRUED TO DATE.—For purposes of this 
paragraph, any reference to the accrued benefit shall be 
a reference to such benefit accrued to date.’’. 
(2) DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF 
BENEFIT
ACCOUNT
OR
EQUIVALENT
AMOUNTS.—Subsection (a) 
of section 411 of such Code is amended by adding at the 
end the following new paragraph: 
‘‘(13) SPECIAL RULES FOR PLANS COMPUTING ACCRUED BENE-
FITS BY REFERENCE TO HYPOTHETICAL ACCOUNT BALANCE OR 
EQUIVALENT AMOUNTS.—
‘‘(A) IN GENERAL.—An applicable defined benefit plan 
shall not be treated as failing to meet—
‘‘(i) subject to paragraph (2), the requirements of 
subsection (a)(2), or 
‘‘(ii) the requirements of subsection (c) or section 
417(e) with respect to contributions other than 
employee contributions, 
solely because the present value of the accrued benefit 
(or any portion thereof) of any participant is, under the
H. R. 4—209
terms of the plan, equal to the amount expressed as the 
balance in the hypothetical account described in paragraph 
(3) or as an accumulated percentage of the participant’s 
final average compensation. 
‘‘(B) 3-YEAR
VESTING.—In the case of an applicable 
defined benefit plan, such plan shall be treated as meeting 
the requirements of subsection (a)(2) only if an employee 
who has completed at least 3 years of service has a non-
forfeitable right to 100 percent of the employee’s accrued 
benefit derived from employer contributions. 
‘‘(C) APPLICABLE DEFINED BENEFIT PLAN AND RELATED 
RULES.—For purposes of this subsection—
‘‘(i) IN
GENERAL.—The term ‘applicable defined 
benefit plan’ means a defined benefit plan under which 
the accrued benefit (or any portion thereof) is cal-
culated as the balance of a hypothetical account main-
tained for the participant or as an accumulated 
percentage of the participant’s final average compensa-
tion. 
‘‘(ii) REGULATIONS TO INCLUDE SIMILAR PLANS.—
The Secretary shall issue regulations which include 
in the definition of an applicable defined benefit plan 
any defined benefit plan (or any portion of such a 
plan) which has an effect similar to an applicable 
defined benefit plan.’’. 
(c) AMENDMENTS
TO AGE DISCRIMINATION
IN EMPLOYMENT 
ACT.—Section 4(i) of the Age Discrimination in Employment Act 
of 1967 (29 U.S.C. 623(i)) is amended by adding at the end the 
following new paragraph: 
‘‘(10) SPECIAL RULES RELATING TO AGE.—
‘‘(A) COMPARISON
TO
SIMILARLY
SITUATED
YOUNGER 
INDIVIDUAL.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1) if 
a participant’s accrued benefit, as determined as of 
any date under the terms of the plan, would be equal 
to or greater than that of any similarly situated, 
younger individual who is or could be a participant. 
‘‘(ii) SIMILARLY
SITUATED.—For purposes of this 
subparagraph, a participant is similarly situated to 
any other individual if such participant is identical 
to such other individual in every respect (including 
period of service, compensation, position, date of hire, 
work history, and any other respect) except for age. 
‘‘(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT 
BENEFITS.—In determining the accrued benefit as of 
any date for purposes of this clause, the subsidized 
portion of any early retirement benefit or retirement-
type subsidy shall be disregarded. 
‘‘(iv) ACCRUED
BENEFIT.—For purposes of this 
subparagraph, the accrued benefit may, under the 
terms of the plan, be expressed as an annuity payable 
at normal retirement age, the balance of a hypothetical 
account, or the current value of the accumulated 
percentage of the employee’s final average compensa-
tion. 
‘‘(B) APPLICABLE DEFINED BENEFIT PLANS.—
H. R. 4—210
‘‘(i) INTEREST CREDITS.—
‘‘(I) IN GENERAL.—An applicable defined ben-
efit plan shall be treated as failing to meet the 
requirements of paragraph (1) unless the terms 
of the plan provide that any interest credit (or 
an equivalent amount) for any plan year shall 
be at a rate which is not greater than a market 
rate of return. A plan shall not be treated as 
failing to meet the requirements of this subclause 
merely because the plan provides for a reasonable 
minimum guaranteed rate of return or for a rate 
of return that is equal to the greater of a fixed 
or variable rate of return. 
‘‘(II) PRESERVATION OF CAPITAL.—An interest 
credit (or an equivalent amount) of less than zero 
shall in no event result in the account balance 
or similar amount being less than the aggregate 
amount of contributions credited to the account. 
‘‘(III) MARKET
RATE
OF
RETURN.—The Sec-
retary of the Treasury may provide by regulation 
for rules governing the calculation of a market 
rate of return for purposes of subclause (I) and 
for permissible methods of crediting interest to 
the account (including fixed or variable interest 
rates) resulting in effective rates of return meeting 
the requirements of subclause (I). 
‘‘(ii) SPECIAL
RULE
FOR
PLAN
CONVERSIONS.—If, 
after June 29, 2005, an applicable plan amendment 
is adopted, the plan shall be treated as failing to meet 
the requirements of paragraph (1)(H) unless the 
requirements of clause (iii) are met with respect to 
each individual who was a participant in the plan 
immediately before the adoption of the amendment. 
‘‘(iii) RATE OF BENEFIT ACCRUAL.—Subject to clause 
(iv), the requirements of this clause are met with 
respect to any participant if the accrued benefit of 
the participant under the terms of the plan as in 
effect after the amendment is not less than the sum 
of—
‘‘(I) the participant’s accrued benefit for years 
of service before the effective date of the amend-
ment, determined under the terms of the plan 
as in effect before the amendment, plus 
‘‘(II) the participant’s accrued benefit for years 
of service after the effective date of the amend-
ment, determined under the terms of the plan 
as in effect after the amendment. 
‘‘(iv) SPECIAL RULES FOR EARLY RETIREMENT SUB-
SIDIES.—For purposes of clause (iii)(I), the plan shall 
credit the accumulation account or similar amount with 
the amount of any early retirement benefit or retire-
ment-type subsidy for the plan year in which the 
participant retires if, as of such time, the participant 
has met the age, years of service, and other require-
ments under the plan for entitlement to such benefit 
or subsidy.
H. R. 4—211
‘‘(v) APPLICABLE PLAN AMENDMENT.—For purposes 
of this subparagraph—
‘‘(I) IN GENERAL.—The term ‘applicable plan 
amendment’ means an amendment to a defined 
benefit plan which has the effect of converting 
the plan to an applicable defined benefit plan. 
‘‘(II) SPECIAL RULE FOR COORDINATED BENE-
FITS.—If the benefits of 2 or more defined benefit 
plans established or maintained by an employer 
are coordinated in such a manner as to have the 
effect of the adoption of an amendment described 
in subclause (I), the sponsor of the defined benefit 
plan or plans providing for such coordination shall 
be treated as having adopted such a plan amend-
ment as of the date such coordination begins. 
‘‘(III) MULTIPLE AMENDMENTS.—The Secretary 
of the Treasury shall issue regulations to prevent 
the avoidance of the purposes of this subparagraph 
through the use of 2 or more plan amendments 
rather than a single amendment. 
‘‘(IV) APPLICABLE DEFINED BENEFIT PLAN.—For 
purposes of this subparagraph, the term ‘applicable 
defined benefit plan’ has the meaning given such 
term by section 203(f)(3) of the Employee Retire-
ment Income Security Act of 1974. 
‘‘(vi) TERMINATION REQUIREMENTS.—An applicable 
defined benefit plan shall not be treated as meeting 
the requirements of clause (i) unless the plan provides 
that, upon the termination of the plan—
‘‘(I) if the interest credit rate (or an equivalent 
amount) under the plan is a variable rate, the 
rate of interest used to determine accrued benefits 
under the plan shall be equal to the average of 
the rates of interest used under the plan during 
the 5-year period ending on the termination date, 
and 
‘‘(II) the interest rate and mortality table used 
to determine the amount of any benefit under the 
plan payable in the form of an annuity payable 
at normal retirement age shall be the rate and 
table specified under the plan for such purpose 
as of the termination date, except that if such 
interest rate is a variable rate, the interest rate 
shall be determined under the rules of subclause 
(I). 
‘‘(C) CERTAIN OFFSETS PERMITTED.—A plan shall not 
be treated as failing to meet the requirements of paragraph 
(1) solely because the plan provides offsets against benefits 
under the plan to the extent such offsets are allowable 
in applying the requirements of section 401(a) of the 
Internal Revenue Code of 1986. 
‘‘(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS 
OR BENEFITS.—A plan shall not be treated as failing to 
meet the requirements of paragraph (1) solely because the 
plan provides a disparity in contributions or benefits with 
respect to which the requirements of section 401(l) of the 
Internal Revenue Code of 1986 are met.
H. R. 4—212
‘‘(E) INDEXING PERMITTED.—
‘‘(i) IN GENERAL.—A plan shall not be treated as 
failing to meet the requirements of paragraph (1) solely 
because the plan provides for indexing of accrued bene-
fits under the plan. 
‘‘(ii) PROTECTION
AGAINST
LOSS.—Except in the 
case of any benefit provided in the form of a variable 
annuity, clause (i) shall not apply with respect to any 
indexing which results in an accrued benefit less than 
the accrued benefit determined without regard to such 
indexing. 
‘‘(iii) INDEXING.—For purposes of this subpara-
graph, the term ‘indexing’ means, in connection with 
an accrued benefit, the periodic adjustment of the 
accrued benefit by means of the application of a recog-
nized investment index or methodology. 
‘‘(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE 
SUBSIDY.—For purposes of this paragraph, the terms ‘early 
retirement benefit’ and ‘retirement-type subsidy’ have the 
meaning given such terms in section 203(g)(2)(A) of the 
Employee Retirement Income Security Act of 1974. 
‘‘(G) BENEFIT ACCRUED TO DATE.—For purposes of this 
paragraph, any reference to the accrued benefit shall be 
a reference to such benefit accrued to date.’’. 
(d) NO INFERENCE.—Nothing in the amendments made by this 
section shall be construed to create an inference with respect to—
(1) the treatment of applicable defined benefit plans or 
conversions to applicable defined benefit plans under sections 
204(b)(1)(H) of the Employee Retirement Income Security Act 
of 1974, 4(i)(1) of the Age Discrimination in Employment Act 
of 1967, and 411(b)(1)(H) of the Internal Revenue Code of 
1986, as in effect before such amendments, or 
(2) the determination of whether an applicable defined 
benefit plan fails to meet the requirements of sections 203(a)(2), 
204(c), or 204(g) of the Employee Retirement Income Security 
Act of 1974 or sections 411(a)(2), 411(c), or 417(e) of such 
Code, as in effect before such amendments, solely because the 
present value of the accrued benefit (or any portion thereof) 
of any participant is, under the terms of the plan, equal to 
the amount expressed as the balance in a hypothetical account 
or as an accumulated percentage of the participant’s final aver-
age compensation. 
For purposes of this subsection, the term ‘‘applicable defined benefit 
plan’’ has the meaning given such term by section 203(f)(3) of 
the Employee Retirement Income Security Act of 1974 and section 
411(a)(13)(C) of such Code, as in effect after such amendments. 
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section 
shall apply to periods beginning on or after June 29, 2005. 
(2) PRESENT
VALUE
OF
ACCRUED
BENEFIT.—The amend-
ments made by subsections (a)(2) and (b)(2) shall apply to 
distributions made after the date of the enactment of this 
Act. 
(3) VESTING AND INTEREST CREDIT REQUIREMENTS.—In the 
case of a plan in existence on June 29, 2005, the requirements 
of clause (i) of section 411(b)(5)(B) of the Internal Revenue 
Code of 1986, clause (i) of section 204(b)(5)(B) of the Employee
H. R. 4—213
Retirement Income Security Act of 1974, and clause (i) of section 
4(i)(10)(B) of the Age Discrimination in Employment Act of 
1967 (as added by this Act) and the requirements of 203(f)(2) 
of the Employee Retirement Income Security Act of 1974 and 
section 411(a)(13)(B) of the Internal Revenue Code of 1986 
(as so added) shall, for purposes of applying the amendments 
made by subsections (a) and (b), apply to years beginning 
after December 31, 2007, unless the plan sponsor elects the 
application of such requirements for any period after June 
29, 2005, and before the first year beginning after December 
31, 2007. 
(4) SPECIAL RULE FOR COLLECTIVELY BARGAINED PLANS.—
In the case of a plan maintained pursuant to 1 or more collective 
bargaining agreements between employee representatives and 
1 or more employers ratified on or before the date of the 
enactment of this Act, the requirements described in paragraph 
(3) shall, for purposes of applying the amendments made by 
subsections (a) and (b), not apply to plan years beginning 
before—
(A) the earlier of—
(i) the date on which the last of such collective 
bargaining agreements terminates (determined without 
regard to any extension thereof on or after such date 
of enactment), or 
(ii) January 1, 2008, or 
(B) January 1, 2010. 
(5) CONVERSIONS.—The requirements of clause (ii) of sec-
tion 411(b)(5)(B) of the Internal Revenue Code of 1986, clause 
(ii) of section 204(b)(5)(B) of the Employee Retirement Income 
Security Act of 1974, and clause (ii) of section 4(i)(10)(B) of 
the Age Discrimination in Employment Act of 1967 (as added 
by this Act), shall apply to plan amendments adopted after, 
and taking effect after, June 29, 2005, except that the plan 
sponsor may elect to have such amendments apply to plan 
amendments adopted before, and taking effect after, such date. 
SEC. 702. REGULATIONS RELATING TO MERGERS AND ACQUISITIONS. 
The Secretary of the Treasury or his delegate shall, not later 
than 12 months after the date of the enactment of this Act, prescribe 
regulations for the application of the amendments made by, and 
the provisions of, this title in cases where the conversion of a 
plan to an applicable defined benefit plan is made with respect 
to a group of employees who become employees by reason of a 
merger, acquisition, or similar transaction. 
TITLE VIII—PENSION RELATED 
REVENUE PROVISIONS 
Subtitle A—Deduction Limitations 
SEC. 801. INCREASE IN DEDUCTION LIMIT FOR SINGLE-EMPLOYER 
PLANS. 
(a) IN GENERAL.—Section 404 of the Internal Revenue Code 
of 1986 (relating to deduction for contributions of an employer
H. R. 4—214
to an employees’ trust or annuity plan and compensation under 
a deferred payment plan) is amended—
(1) in subsection (a)(1)(A), by inserting ‘‘in the case of 
a defined benefit plan other than a multiemployer plan, in 
an amount determined under subsection (o), and in the case 
of any other plan’’ after ‘‘section 501(a),’’, and 
(2) by inserting at the end the following new subsection: 
‘‘(o) DEDUCTION LIMIT FOR SINGLE-EMPLOYER PLANS.—For pur-
poses of subsection (a)(1)(A)—
‘‘(1) IN GENERAL.—In the case of a defined benefit plan 
to which subsection (a)(1)(A) applies (other than a multiem-
ployer plan), the amount determined under this subsection 
for any taxable year shall be equal to the greater of—
‘‘(A) the sum of the amounts determined under para-
graph (2) with respect to each plan year ending with or 
within the taxable year, or 
‘‘(B) the sum of the minimum required contributions 
under section 430 for such plan years. 
‘‘(2) DETERMINATION OF AMOUNT.—
‘‘(A) IN GENERAL.—The amount determined under this 
paragraph for any plan year shall be equal to the excess 
(if any) of—
‘‘(i) the sum of—
‘‘(I) the funding target for the plan year, 
‘‘(II) the target normal cost for the plan year, 
and 
‘‘(III) the cushion amount for the plan year, 
over 
‘‘(ii) the value (determined under section 430(g)(2)) 
of the assets of the plan which are held by the plan 
as of the valuation date for the plan year. 
‘‘(B) SPECIAL RULE FOR CERTAIN EMPLOYERS.—If section 
430(i) does not apply to a plan for a plan year, the amount 
determined under subparagraph (A)(i) for the plan year 
shall in no event be less than the sum of—
‘‘(i) the funding target for the plan year (deter-
mined as if section 430(i) applied to the plan), plus 
‘‘(ii) the target normal cost for the plan year (as 
so determined). 
‘‘(3) 
CUSHION
AMOUNT.—For 
purposes 
of 
paragraph 
(2)(A)(i)(III)—
‘‘(A) IN GENERAL.—The cushion amount for any plan 
year is the sum of—
‘‘(i) 50 percent of the funding target for the plan 
year, and 
‘‘(ii) the amount by which the funding target for 
the plan year would increase if the plan were to take 
into account—
‘‘(I) increases in compensation which are 
expected to occur in succeeding plan years, or 
‘‘(II) if the plan does not base benefits for 
service to date on compensation, increases in bene-
fits which are expected to occur in succeeding plan 
years (determined on the basis of the average 
annual increase in benefits over the 6 immediately 
preceding plan years). 
‘‘(B) LIMITATIONS.—
H. R. 4—215
‘‘(i) IN
GENERAL.—In making the computation 
under subparagraph (A)(ii), the plan’s actuary shall 
assume that the limitations under subsection (l) and 
section 415(b) shall apply. 
‘‘(ii) EXPECTED INCREASES.—In the case of a plan 
year during which a plan is covered under section 
4021 of the Employee Retirement Income Security Act 
of 1974, the plan’s actuary may, notwithstanding sub-
section (l), take into account increases in the limita-
tions which are expected to occur in succeeding plan 
years. 
‘‘(4) SPECIAL RULES FOR PLANS WITH 100 OR FEWER PARTICI-
PANTS.—
‘‘(A) IN
GENERAL.—For purposes of determining the 
amount under paragraph (3) for any plan year, in the 
case of a plan which has 100 or fewer participants for 
the plan year, the liability of the plan attributable to benefit 
increases for highly compensated employees (as defined 
in section 414(q)) resulting from a plan amendment which 
is made or becomes effective, whichever is later, within 
the last 2 years shall not be taken into account in deter-
mining the target liability. 
‘‘(B) RULE
FOR
DETERMINING
NUMBER
OF
PARTICI-
PANTS.—For purposes of determining the number of plan 
participants, all defined benefit plans maintained by the 
same employer (or any member of such employer’s con-
trolled group (within the meaning of section 412(f)(4))) 
shall be treated as one plan, but only participants of such 
member or employer shall be taken into account. 
‘‘(5) SPECIAL RULE FOR TERMINATING PLANS.—In the case 
of a plan which, subject to section 4041 of the Employee Retire-
ment Income Security Act of 1974, terminates during the plan 
year, the amount determined under paragraph (2) shall in 
no event be less than the amount required to make the plan 
sufficient for benefit liabilities (within the meaning of section 
4041(d) of such Act). 
‘‘(6) ACTUARIAL ASSUMPTIONS.—Any computation under this 
subsection for any plan year shall use the same actuarial 
assumptions which are used for the plan year under section 
430. 
‘‘(7) DEFINITIONS.—Any term used in this subsection which 
is also used in section 430 shall have the same meaning given 
such term by section 430.’’. 
(b) EXCEPTION FROM LIMITATION ON DEDUCTION WHERE COM-
BINATION
OF
DEFINED
CONTRIBUTION
AND
DEFINED
BENEFIT 
PLANS.—Section 404(a)(7)(C) of such Code, as amended by this 
Act, is amended by adding at the end the following new clause: 
‘‘(iv) GUARANTEED PLANS.—In applying this para-
graph, any single-employer plan covered under section 
4021 of the Employee Retirement Income Security Act 
of 1974 shall not be taken into account.’’. 
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) The last sentence of section 404(a)(1)(A) of such Code 
is amended by striking ‘‘section 412’’ each place it appears 
and inserting ‘‘section 431’’. 
(2) Section 404(a)(1)(B) of such Code is amended—
H. R. 4—216
(A) by striking ‘‘In the case of a plan’’ and inserting 
‘‘In the case of a multiemployer plan’’, 
(B) by striking ‘‘section 412(c)(7)’’ each place it appears 
and inserting ‘‘section 431(c)(6)’’, 
(C) by striking ‘‘section 412(c)(7)(B)’’ and inserting ‘‘sec-
tion 431(c)(6)(A)(ii)’’, 
(D) by striking ‘‘section 412(c)(7)(A)’’ and inserting ‘‘sec-
tion 431(c)(6)(A)(i)’’, and 
(E) by striking ‘‘section 412’’ and inserting ‘‘section 
431’’. 
(3) Section 404(a)(7) of such Code, as amended by this 
Act, is amended—
(A) by adding at the end of subparagraph (A) the 
following new sentence: ‘‘In the case of a defined benefit 
plan which is a single employer plan, the amount necessary 
to satisfy the minimum funding standard provided by sec-
tion 412 shall not be less than the plan’s funding shortfall 
determined under section 430.’’, and 
(B) by striking subparagraph (D) and inserting: 
‘‘(D) INSURANCE CONTRACT PLANS.—For purposes of this 
paragraph, a plan described in section 412(e)(3) shall be 
treated as a defined benefit plan.’’. 
(4) Section 404A(g)(3)(A) of such Code is amended by 
striking ‘‘paragraphs (3) and (7) of section 412(c)’’ and inserting 
‘‘paragraphs (3) and (6) of section 431(c)’’. 
(d) SPECIAL RULE FOR 2006 AND 2007.—
(1) IN GENERAL.—Clause (i) of section 404(a)(1)(D) of the 
Internal Revenue Code of 1986 (relating to special rule in 
case of certain plans) is amended by striking ‘‘section 412(l)’’ 
and 
inserting 
‘‘section 
412(l)(8)(A), 
except 
that 
section 
412(l)(8)(A) shall be applied for purposes of this clause by 
substituting ‘150 percent (140 percent in the case of a multiem-
ployer plan) of current liability’ for ‘the current liability’ in 
clause (i).’’. 
(2) CONFORMING
AMENDMENT.—Section 404(a)(1) of the 
Internal Revenue Code of 1986 is amended by striking subpara-
graph (F). 
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to years begin-
ning after December 31, 2007. 
(2) SPECIAL RULES.—The amendments made by subsection 
(d) shall apply to years beginning after December 31, 2005. 
SEC. 802. DEDUCTION LIMITS FOR MULTIEMPLOYER PLANS. 
(a) INCREASE
IN
DEDUCTION.—Section 404(a)(1)(D) of the 
Internal Revenue Code of 1986, as amended by this Act, is amended 
to read as follows: 
‘‘(D) AMOUNT DETERMINED ON BASIS OF UNFUNDED CUR-
RENT LIABILITY.—In the case of a defined benefit plan which 
is a multiemployer plan, except as provided in regulations, 
the maximum amount deductible under the limitations of 
this paragraph shall not be less than the excess (if any) 
of—
‘‘(i) 140 percent of the current liability of the plan 
determined under section 431(c)(6)(C), over
H. R. 4—217
‘‘(ii) the value of the plan’s assets determined 
under section 431(c)(2).’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to years beginning after December 31, 2007. 
SEC. 803. UPDATING DEDUCTION RULES FOR COMBINATION OF PLANS. 
(a) IN GENERAL.—Subparagraph (C) of section 404(a)(7) of the 
Internal Revenue Code of 1986 (relating to limitation on deductions 
where combination of defined contribution plan and defined benefit 
plan) is amended by adding after clause (ii) the following new 
clause: 
‘‘(iii) LIMITATION.—In the case of employer con-
tributions to 1 or more defined contribution plans, 
this paragraph shall only apply to the extent that 
such contributions exceed 6 percent of the compensa-
tion otherwise paid or accrued during the taxable year 
to the beneficiaries under such plans. For purposes 
of this clause, amounts carried over from preceding 
taxable years under subparagraph (B) shall be treated 
as employer contributions to 1 or more defined con-
tributions to the extent attributable to employer con-
tributions to such plans in such preceding taxable 
years.’’. 
(b) EXCEPTION FROM LIMITATION ON DEDUCTION WHERE COM-
BINATION
OF
DEFINED
CONTRIBUTION
AND
DEFINED
BENEFIT 
PLANS.—Section 404(a)(7)(C) of such Code, as amended by this 
Act, is amended by adding at the end the following new clause: 
‘‘(v) MULTIEMPLOYER
PLANS.—In applying this 
paragraph, any multiemployer plan shall not be taken 
into account.’’. 
(c) CONFORMING AMENDMENT.—Subparagraph (A) of section 
4972(c)(6) of such Code (relating to nondeductible contributions) 
is amended to read as follows: 
‘‘(A) so much of the contributions to 1 or more defined 
contribution plans which are not deductible when contrib-
uted solely because of section 404(a)(7) as does not exceed 
the 
amount 
of 
contributions 
described 
in 
section 
401(m)(4)(A), or’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to contributions for taxable years beginning after 
December 31, 2005. 
Subtitle B—Certain Pension Provisions 
Made Permanent 
SEC. 811. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT 
PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF 
RECONCILIATION ACT OF 2001 MADE PERMANENT. 
Title IX of the Economic Growth and Tax Relief Reconciliation 
Act of 2001 shall not apply to the provisions of, and amendments 
made by, subtitles A through F of title VI of such Act (relating 
to pension and individual retirement arrangement provisions).
H. R. 4—218
SEC. 812. SAVER’S CREDIT. 
Section 25B of the Internal Revenue Code of 1986 (relating 
to elective deferrals and IRA contributions by certain individuals) 
is amended by striking subsection (h). 
Subtitle C—Improvements in Portability, 
Distribution, and Contribution Rules 
SEC. 821. CLARIFICATIONS REGARDING PURCHASE OF PERMISSIVE 
SERVICE CREDIT. 
(a) IN GENERAL.—Section 415(n) of the Internal Revenue Code 
of 1986 (relating to special rules for the purchase of permissive 
service credit) is amended—
(1) by striking ‘‘an employee’’ in paragraph (1) and inserting 
‘‘a participant’’, and 
(2) by adding at the end of paragraph (3)(A) the following 
new flush sentence: 
‘‘Such term may include service credit for periods for which 
there is no performance of service, and, notwithstanding 
clause (ii), may include service credited in order to provide 
an increased benefit for service credit which a participant 
is receiving under the plan.’’. 
(b) SPECIAL RULES FOR TRUSTEE-TO-TRUSTEE TRANSFERS.—Sec-
tion 415(n)(3) of such Code is amended by adding at the end 
the following new subparagraph: 
‘‘(D) SPECIAL RULES FOR TRUSTEE-TO-TRUSTEE TRANS-
FERS.—In the case of a trustee-to-trustee transfer to which 
section 403(b)(13)(A) or 457(e)(17)(A) applies (without 
regard to whether the transfer is made between plans 
maintained by the same employer)—
‘‘(i) the limitations of subparagraph (B) shall not 
apply in determining whether the transfer is for the 
purchase of permissive service credit, and 
‘‘(ii) the distribution rules applicable under this 
title to the defined benefit governmental plan to which 
any amounts are so transferred shall apply to such 
amounts and any benefits attributable to such 
amounts.’’. 
(c) NONQUALIFIED SERVICE.—Section 415(n)(3) of such Code 
is amended—
(1) by striking ‘‘permissive service credit attributable to 
nonqualified service’’ each place it appears in subparagraph 
(B) and inserting ‘‘nonqualified service credit’’, 
(2) by striking so much of subparagraph (C) as precedes 
clause (i) and inserting: 
‘‘(C) NONQUALIFIED SERVICE CREDIT.—For purposes of 
subparagraph (B), the term ‘nonqualified service credit’ 
means permissive service credit other than that allowed 
with respect to—’’, and 
(3) by striking ‘‘elementary or secondary education (through 
grade 12), as determined under State law’’ in subparagraph 
(C)(ii) and inserting ‘‘elementary or secondary education 
(through grade 12), or a comparable level of education, as 
determined under the applicable law of the jurisdiction in which 
the service was performed’’.
H. R. 4—219
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by subsections 
(a) and (c) shall take effect as if included in the amendments 
made by section 1526 of the Taxpayer Relief Act of 1997. 
(2) SUBSECTION (b).—The amendments made by subsection 
(b) shall take effect as if included in the amendments made 
by section 647 of the Economic Growth and Tax Relief Reconcili-
ation Act of 2001. 
SEC. 822. ALLOW ROLLOVER OF AFTER-TAX AMOUNTS IN ANNUITY 
CONTRACTS. 
(a) IN
GENERAL.—Subparagraph (A) of section 402(c)(2) 
(relating to the maximum amount which may be rolled over) is 
amended—
(1) by striking ‘‘which is part of a plan which is a defined 
contribution plan and which agrees to separately account’’ and 
inserting ‘‘or to an annuity contract described in section 403(b) 
and such trust or contract provides for separate accounting’’; 
and 
(2) by inserting ‘‘(and earnings thereon)’’ after ‘‘so trans-
ferred’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 823. CLARIFICATION OF MINIMUM DISTRIBUTION RULES FOR 
GOVERNMENTAL PLANS. 
The Secretary of the Treasury shall issue regulations under 
which a governmental plan (as defined in section 414(d) of the 
Internal Revenue Code of 1986) shall, for all years to which section 
401(a)(9) of such Code applies to such plan, be treated as having 
complied with such section 401(a)(9) if such plan complies with 
a reasonable good faith interpretation of such section 401(a)(9). 
SEC. 824. ALLOW DIRECT ROLLOVERS FROM RETIREMENT PLANS TO 
ROTH IRAS. 
(a) IN GENERAL.—Subsection (e) of section 408A of the Internal 
Revenue Code of 1986 (defining qualified rollover contribution) is 
amended to read as follows: 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For purposes of this 
section, the term ‘qualified rollover contribution’ means a rollover 
contribution—
‘‘(1) to a Roth IRA from another such account, 
‘‘(2) from an eligible retirement plan, but only if—
‘‘(A) in the case of an individual retirement plan, such 
rollover contribution meets the requirements of section 
408(d)(3), and 
‘‘(B) in the case of any eligible retirement plan (as 
defined in section 402(c)(8)(B) other than clauses (i) and 
(ii) thereof), such rollover contribution meets the require-
ments of section 402(c), 403(b)(8), or 457(e)(16), as 
applicable. 
For purposes of section 408(d)(3)(B), there shall be disregarded 
any qualified rollover contribution from an individual retirement 
plan (other than a Roth IRA) to a Roth IRA.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 408A(c)(3)(B) of such Code, as in effect before 
the Tax Increase Prevention and Reconciliation Act of 2005, 
is amended—
H. R. 4—220
(A) in the text by striking ‘‘individual retirement plan’’ 
and inserting ‘‘an eligible retirement plan (as defined by 
section 402(c)(8)(B))’’, and 
(B) in the heading by striking ‘‘IRA’’ the first place 
it appears and inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 
(2) Section 408A(d)(3) of such Code is amended—
(A) in subparagraph (A), by striking ‘‘section 408(d)(3)’’ 
inserting 
‘‘sections 
402(c), 
403(b)(8), 
408(d)(3), 
and 
457(e)(16)’’, 
(B) in subparagraph (B), by striking ‘‘individual retire-
ment plan’’ and inserting ‘‘eligible retirement plan (as 
defined by section 402(c)(8)(B))’’, 
(C) in subparagraph (D), by inserting ‘‘or 6047’’ after 
‘‘408(i)’’, 
(D) in subparagraph (D), by striking ‘‘or both’’ and 
inserting ‘‘persons subject to section 6047(d)(1), or all of 
the foregoing persons’’, and 
(E) in the heading, by striking ‘‘IRA’’ the first place 
it appears and inserting ‘‘ELIGIBLE RETIREMENT PLAN’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to distributions after December 31, 2007. 
SEC. 825. ELIGIBILITY FOR PARTICIPATION IN RETIREMENT PLANS. 
An individual shall not be precluded from participating in an 
eligible deferred compensation plan by reason of having received 
a distribution under section 457(e)(9) of the Internal Revenue Code 
of 1986, as in effect prior to the enactment of the Small Business 
Job Protection Act of 1996. 
SEC. 826. MODIFICATIONS OF RULES GOVERNING HARDSHIPS AND 
UNFORSEEN FINANCIAL EMERGENCIES. 
Within 180 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall modify the rules for determining 
whether a participant has had a hardship for purposes of section 
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide 
that if an event (including the occurrence of a medical expense) 
would constitute a hardship under the plan if it occurred with 
respect to the participant’s spouse or dependent (as defined in 
section 152 of such Code), such event shall, to the extent permitted 
under a plan, constitute a hardship if it occurs with respect to 
a person who is a beneficiary under the plan with respect to 
the participant. The Secretary of the Treasury shall issue similar 
rules for purposes of determining whether a participant has had—
(1) a hardship for purposes of section 403(b)(11)(B) of such 
Code; or 
(2) an unforeseen financial emergency for purposes of sec-
tions 409A(a)(2)(A)(vi), 409A(a)(2)(B)(ii), and 457(d)(1)(A)(iii) of 
such Code. 
SEC. 827. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS 
FOR INDIVIDUALS CALLED TO ACTIVE DUTY FOR AT 
LEAST 179 DAYS. 
(a) IN GENERAL.—Paragraph (2) of section 72(t) of the Internal 
Revenue Code of 1986 (relating to 10-percent additional tax on 
early distributions from qualified retirement plans) is amended 
by adding at the end the following new subparagraph: 
‘‘(G) DISTRIBUTIONS
FROM
RETIREMENT
PLANS
TO 
INDIVIDUALS CALLED TO ACTIVE DUTY.—
H. R. 4—221
‘‘(i) IN GENERAL.—Any qualified reservist distribu-
tion. 
‘‘(ii) AMOUNT DISTRIBUTED MAY BE REPAID.—Any 
individual who receives a qualified reservist distribu-
tion may, at any time during the 2-year period begin-
ning on the day after the end of the active duty period, 
make one or more contributions to an individual retire-
ment plan of such individual in an aggregate amount 
not to exceed the amount of such distribution. The 
dollar limitations otherwise applicable to contributions 
to individual retirement plans shall not apply to any 
contribution made pursuant to the preceding sentence. 
No deduction shall be allowed for any contribution 
pursuant to this clause. 
‘‘(iii) QUALIFIED
RESERVIST
DISTRIBUTION.—For 
purposes of this subparagraph, the term ‘qualified 
reservist distribution’ means any distribution to an 
individual if—
‘‘(I) such distribution is from an individual 
retirement plan, or from amounts attributable to 
employer contributions made pursuant to elective 
deferrals described in subparagraph (A) or (C) of 
section 402(g)(3) or section 501(c)(18)(D)(iii), 
‘‘(II) such individual was (by reason of being 
a member of a reserve component (as defined in 
section 101 of title 37, United States Code)) 
ordered or called to active duty for a period in 
excess of 179 days or for an indefinite period, 
and 
‘‘(III) such distribution is made during the 
period beginning on the date of such order or call 
and ending at the close of the active duty period. 
‘‘(iv) 
APPLICATION
OF
SUBPARAGRAPH.—This 
subparagraph applies to individuals ordered or called 
to active duty after September 11, 2001, and before 
December 31, 2007. In no event shall the 2-year period 
referred to in clause (ii) end before the date which 
is 2 years after the date of the enactment of this 
subparagraph.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k)(2)(B)(i) of such Code is amended by 
striking ‘‘or’’ at the end of subclause (III), by striking ‘‘and’’ 
at the end of subclause (IV) and inserting ‘‘or’’, and by inserting 
after subclause (IV) the following new subclause: 
‘‘(V) in the case of a qualified reservist dis-
tribution (as defined in section 72(t)(2)(G)(iii)), the 
date on which a period referred to in subclause 
(III) of such section begins, and’’. 
(2) Section 403(b)(7)(A)(ii) of such Code is amended by 
inserting ‘‘(unless such amount is a distribution to which section 
72(t)(2)(G) applies)’’ after ‘‘distributee’’. 
(3) Section 403(b)(11) of such Code is amended by striking 
‘‘or’’ at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ‘‘, or’’, and by 
inserting after subparagraph (B) the following new subpara-
graph:
H. R. 4—222
‘‘(C) for distributions to which section 72(t)(2)(G) 
applies.’’. 
(c) EFFECTIVE DATE; WAIVER OF LIMITATIONS.—
(1) EFFECTIVE DATE.—The amendment made by this section 
shall apply to distributions after September 11, 2001. 
(2) WAIVER OF LIMITATIONS.—If refund or credit of any 
overpayment of tax resulting from the amendments made by 
this section is prevented at any time before the close of the 
1-year period beginning on the date of the enactment of this 
Act by the operation of any law or rule of law (including 
res judicata), such refund or credit may nevertheless be made 
or allowed if claim therefor is filed before the close of such 
period. 
SEC. 828. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX 
ON CERTAIN DISTRIBUTIONS OF PENSION PLANS FOR 
PUBLIC SAFETY EMPLOYEES. 
(a) IN GENERAL.—Section 72(t) of the Internal Revenue Code 
of 1986 (relating to subsection not to apply to certain distributions) 
is amended by adding at the end the following new paragraph: 
‘‘(10) 
DISTRIBUTIONS
TO
QUALIFIED
PUBLIC
SAFETY 
EMPLOYEES IN GOVERNMENTAL PLANS.—
‘‘(A) IN GENERAL.—In the case of a distribution to a 
qualified public safety employee from a governmental plan 
(within the meaning of section 414(d)) which is a defined 
benefit plan, paragraph (2)(A)(v) shall be applied by sub-
stituting ‘age 50’ for ‘age 55’. 
‘‘(B) QUALIFIED PUBLIC SAFETY EMPLOYEE.—For pur-
poses of this paragraph, the term ‘qualified public safety 
employee’ means any employee of a State or political sub-
division of a State who provides police protection, fire-
fighting services, or emergency medical services for any 
area within the jurisdiction of such State or political sub-
division.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to distributions after the date of the enactment of 
this Act. 
SEC. 829. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CER-
TAIN RETIREMENT PLAN DISTRIBUTIONS. 
(a) IN GENERAL.—
(1) QUALIFIED PLANS.—Section 402(c) of the Internal Rev-
enue Code of 1986 (relating to rollovers from exempt trusts) 
is amended by adding at the end the following new paragraph: 
‘‘(11) DISTRIBUTIONS TO INHERITED INDIVIDUAL RETIREMENT 
PLAN OF NONSPOUSE BENEFICIARY.—
‘‘(A) IN GENERAL.—If, with respect to any portion of 
a distribution from an eligible retirement plan of a deceased 
employee, a direct trustee-to-trustee transfer is made to 
an individual retirement plan described in clause (i) or 
(ii) of paragraph (8)(B) established for the purposes of 
receiving the distribution on behalf of an individual who 
is a designated beneficiary (as defined by section 
401(a)(9)(E)) of the employee and who is not the surviving 
spouse of the employee—
‘‘(i) the transfer shall be treated as an eligible 
rollover distribution for purposes of this subsection,
H. R. 4—223
‘‘(ii) the individual retirement plan shall be treated 
as an inherited individual retirement account or indi-
vidual retirement annuity (within the meaning of sec-
tion 408(d)(3)(C)) for purposes of this title, and 
‘‘(iii) section 401(a)(9)(B) (other than clause (iv) 
thereof) shall apply to such plan. 
‘‘(B) CERTAIN TRUSTS TREATED AS BENEFICIARIES.—For 
purposes of this paragraph, to the extent provided in rules 
prescribed by the Secretary, a trust maintained for the 
benefit of one or more designated beneficiaries shall be 
treated in the same manner as a trust designated bene-
ficiary.’’. 
(2) SECTION 403(a) PLANS.—Subparagraph (B) of section 
403(a)(4) of such Code (relating to rollover amounts) is amended 
by inserting ‘‘and (11)’’ after ‘‘(7)’’. 
(3) SECTION 403(b) PLANS.—Subparagraph (B) of section 
403(b)(8) of such Code (relating to rollover amounts) is amended 
by striking ‘‘and (9)’’ and inserting ‘‘, (9), and (11)’’. 
(4) SECTION
457 PLANS.—Subparagraph (B) of section 
457(e)(16) of such Code (relating to rollover amounts) is 
amended by striking ‘‘and (9)’’ and inserting ‘‘, (9), and (11)’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to distributions after December 31, 2006. 
SEC. 830. DIRECT PAYMENT OF TAX REFUNDS TO INDIVIDUAL RETIRE-
MENT PLANS. 
(a) IN GENERAL.—The Secretary of the Treasury (or the Sec-
retary’s delegate) shall make available a form (or modify existing 
forms) for use by individuals to direct that a portion of any refund 
of overpayment of tax imposed by chapter 1 of the Internal Revenue 
Code of 1986 be paid directly to an individual retirement plan 
(as defined in section 7701(a)(37) of such Code) of such individual. 
(b) EFFECTIVE DATE.—The form required by subsection (a) shall 
be made available for taxable years beginning after December 31, 
2006. 
SEC. 831. ALLOWANCE OF ADDITIONAL IRA PAYMENTS IN CERTAIN 
BANKRUPTCY CASES. 
(a) ALLOWANCE OF CONTRIBUTIONS.—Section 219(b)(5) of the 
Internal Revenue Code of 1986 (relating to deductible amount) 
is amended by redesignating subparagraph (C) as subparagraph 
(D) and by inserting after subparagraph (B) the following new 
subparagraph: 
‘‘(C) CATCHUP
CONTRIBUTIONS
FOR
CERTAIN
INDIVID-
UALS.—
‘‘(i) IN GENERAL.—In the case of an applicable indi-
vidual who elects to make a qualified retirement con-
tribution in addition to the deductible amount deter-
mined under subparagraph (A)—
‘‘(I) the deductible amount for any taxable year 
shall be increased by an amount equal to 3 times 
the applicable amount determined under subpara-
graph (B) for such taxable year, and 
‘‘(II) subparagraph (B) shall not apply. 
‘‘(ii) APPLICABLE INDIVIDUAL.—For purposes of this 
subparagraph, the term ‘applicable individual’ means, 
with respect to any taxable year, any individual who 
was a qualified participant in a qualified cash or
H. R. 4—224
deferred arrangement (as defined in section 401(k)) 
of an employer described in clause (iii) under which 
the employer matched at least 50 percent of the 
employee’s contributions to such arrangement with 
stock of such employer. 
‘‘(iii) EMPLOYER
DESCRIBED.—An employer is 
described in this clause if, in any taxable year pre-
ceding the taxable year described in clause (ii)—
‘‘(I) such employer (or any controlling corpora-
tion of such employer) was a debtor in a case 
under title 11 of the United States Code, or similar 
Federal or State law, and 
‘‘(II) such employer (or any other person) was 
subject to an indictment or conviction resulting 
from business transactions related to such case. 
‘‘(iv) QUALIFIED
PARTICIPANT.—For purposes of 
clause (ii), the term ‘qualified participant’ means any 
applicable individual who was a participant in the 
cash or deferred arrangement described in such clause 
on the date that is 6 months before the filing of the 
case described in clause (iii). 
‘‘(v) TERMINATION.—This subparagraph shall not 
apply to taxable years beginning after December 31, 
2009.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 832. DETERMINATION OF AVERAGE COMPENSATION FOR SECTION 
415 LIMITS. 
(a) IN GENERAL.—Section 415(b)(3) of the Internal Revenue 
Code of 1986 is amended by striking ‘‘both was an active participant 
in the plan and’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to years beginning after December 31, 2005. 
SEC. 833. INFLATION INDEXING OF GROSS INCOME LIMITATIONS ON 
CERTAIN RETIREMENT SAVINGS INCENTIVES. 
(a) SAVER’S CREDIT.—Subsection (b) of section 25B of the 
Internal Revenue Code of 1986 is amended to read as follows: 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of this section—
‘‘(1) JOINT RETURNS.—In the case of a joint return, the 
applicable percentage is—
‘‘(A) if the adjusted gross income of the taxpayer is 
not over $30,000, 50 percent, 
‘‘(B) if the adjusted gross income of the taxpayer is 
over $30,000 but not over $32,500, 20 percent, 
‘‘(C) if the adjusted gross income of the taxpayer is 
over $32,500 but not over $50,000, 10 percent, and 
‘‘(D) if the adjusted gross income of the taxpayer is 
over $50,000, zero percent. 
‘‘(2) OTHER RETURNS.—In the case of—
‘‘(A) a head of household, the applicable percentage 
shall be determined under paragraph (1) except that such 
paragraph shall be applied by substituting for each dollar 
amount therein (as adjusted under paragraph (3)) a dollar 
amount equal to 75 percent of such dollar amount, and
H. R. 4—225
‘‘(B) any taxpayer not described in paragraph (1) or 
subparagraph (A), the applicable percentage shall be deter-
mined under paragraph (1) except that such paragraph 
shall be applied by substituting for each dollar amount 
therein (as adjusted under paragraph (3)) a dollar amount 
equal to 50 percent of such dollar amount. 
‘‘(3) INFLATION ADJUSTMENT.—In the case of any taxable 
year beginning in a calendar year after 2006, each of the 
dollar amounts in paragraph (1) shall be increased by an 
amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment determined under 
section 1(f)(3) for the calendar year in which the taxable 
year begins, determined by substituting ‘calendar year 
2005’ for ‘calendar year 1992’ in subparagraph (B) thereof. 
Any increase determined under the preceding sentence shall 
be rounded to the nearest multiple of $500.’’. 
(b) DEDUCTION
OF RETIREMENT CONTRIBUTIONS
FOR ACTIVE 
PARTICIPANTS.—Section 219(g) of such Code is amended by adding 
at the end the following new paragraph: 
‘‘(8) INFLATION ADJUSTMENT.—In the case of any taxable 
year beginning in a calendar year after 2006, the dollar amount 
in the last row of the table contained in paragraph (3)(B)(i), 
the dollar amount in the last row of the table contained in 
paragraph (3)(B)(ii), and the dollar amount contained in para-
graph (7)(A), shall each be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment determined under 
section 1(f)(3) for the calendar year in which the taxable 
year begins, determined by substituting ‘calendar year 
2005’ for ‘calendar year 1992’ in subparagraph (B) thereof. 
Any increase determined under the preceding sentence shall 
be rounded to the nearest multiple of $1,000.’’. 
(c) CONTRIBUTION
LIMITATION
FOR
ROTH
IRAS.—Section 
408A(c)(3) of such Code is amended by adding at the end the 
following new subparagraph: 
‘‘(C) INFLATION ADJUSTMENT.—In the case of any tax-
able year beginning in a calendar year after 2006, the 
dollar amounts in subclauses (I) and (II) of subparagraph 
(C)(ii) shall each be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment determined 
under section 1(f)(3) for the calendar year in which 
the taxable year begins, determined by substituting 
‘calendar year 2005’ for ‘calendar year 1992’ in 
subparagraph (B) thereof. 
Any increase determined under the preceding sentence 
shall be rounded to the nearest multiple of $1,000.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after 2006.
H. R. 4—226
Subtitle D—Health and Medical Benefits 
SEC. 841. USE OF EXCESS PENSION ASSETS FOR FUTURE RETIREE 
HEALTH BENEFITS AND COLLECTIVELY BARGAINED 
RETIREE HEALTH BENEFITS. 
(a) IN GENERAL.—Section 420 of the Internal Revenue Code 
of 1986 (relating to transfers of excess pension assets to retiree 
health accounts) is amended by adding at the end the following 
new subsection: 
‘‘(f) QUALIFIED TRANSFERS TO COVER FUTURE RETIREE HEALTH 
COSTS AND COLLECTIVELY BARGAINED RETIREE HEALTH BENEFITS.—
‘‘(1) IN GENERAL.—An employer maintaining a defined ben-
efit plan (other than a multiemployer plan) may, in lieu of 
a qualified transfer, elect for any taxable year to have the 
plan make—
‘‘(A) a qualified future transfer, or 
‘‘(B) a collectively bargained transfer. 
Except as provided in this subsection, a qualified future transfer 
and a collectively bargained transfer shall be treated for pur-
poses of this title and the Employee Retirement Income Security 
Act of 1974 as if it were a qualified transfer. 
‘‘(2) QUALIFIED
FUTURE
AND
COLLECTIVELY
BARGAINED 
TRANSFERS.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The terms ‘qualified future transfer’ 
and ‘collectively bargained transfer’ mean a transfer which 
meets all of the requirements for a qualified transfer, 
except that—
‘‘(i) the determination of excess pension assets 
shall be made under subparagraph (B), 
‘‘(ii) the limitation on the amount transferred shall 
be determined under subparagraph (C), 
‘‘(iii) the minimum cost requirements of subsection 
(c)(3) shall be modified as provided under subpara-
graph (D), and 
‘‘(iv) in the case of a collectively bargained transfer, 
the requirements of subparagraph (E) shall be met 
with respect to the transfer. 
‘‘(B) EXCESS PENSION ASSETS.—
‘‘(i) IN GENERAL.—In determining excess pension 
assets for purposes of this subsection, subsection (e)(2) 
shall be applied by substituting ‘120 percent’ for ‘125 
percent’. 
‘‘(ii) REQUIREMENT TO MAINTAIN FUNDED STATUS.—
If, as of any valuation date of any plan year in the 
transfer period, the amount determined under sub-
section (e)(2)(B) (after application of clause (i)) exceeds 
the amount determined under subsection (e)(2)(A), 
either—
‘‘(I) the employer maintaining the plan shall 
make contributions to the plan in an amount not 
less than the amount required to reduce such 
excess to zero as of such date, or 
‘‘(II) there is transferred from the health bene-
fits account to the plan an amount not less than 
the amount required to reduce such excess to zero 
as of such date.
H. R. 4—227
‘‘(C) LIMITATION ON AMOUNT TRANSFERRED.—Notwith-
standing subsection (b)(3), the amount of the excess pension 
assets which may be transferred—
‘‘(i) in the case of a qualified future transfer shall 
be equal to the sum of—
‘‘(I) if the transfer period includes the taxable 
year of the transfer, the amount determined under 
subsection (b)(3) for such taxable year, plus 
‘‘(II) in the case of all other taxable years 
in the transfer period, the sum of the qualified 
current retiree health liabilities which the plan 
reasonably estimates, in accordance with guidance 
issued by the Secretary, will be incurred for each 
of such years, and 
‘‘(ii) in the case of a collectively bargained transfer, 
shall not exceed the amount which is reasonably esti-
mated, in accordance with the provisions of the collec-
tive bargaining agreement and generally accepted 
accounting principles, to be the amount the employer 
maintaining the plan will pay (whether directly or 
through reimbursement) out of such account during 
the collectively bargained cost maintenance period for 
collectively bargained retiree health liabilities. 
‘‘(D) MINIMUM COST REQUIREMENTS.—
‘‘(i) IN GENERAL.—The requirements of subsection 
(c)(3) shall be treated as met if—
‘‘(I) in the case of a qualified future transfer, 
each group health plan or arrangement under 
which applicable health benefits are provided pro-
vides applicable health benefits during the period 
beginning with the first year of the transfer period 
and ending with the last day of the 4th year fol-
lowing the transfer period such that the annual 
average amount of such the applicable employer 
cost during such period is not less than the 
applicable employer cost determined under sub-
section (c)(3)(A) with respect to the transfer, and 
‘‘(II) in the case of a collectively bargained 
transfer, each collectively bargained group health 
plan under which collectively bargained health 
benefits are provided provides that the collectively 
bargained employer cost for each taxable year 
during the collectively bargained cost maintenance 
period shall not be less than the amount specified 
by the collective bargaining agreement. 
‘‘(ii) ELECTION TO MAINTAIN BENEFITS FOR FUTURE 
TRANSFERS.—An employer may elect, in lieu of the 
requirements of clause (i)(I), to meet the requirements 
of subsection (c)(3) by meeting the requirements of 
such subsection (as in effect before the amendments 
made by section 535 of the Tax Relief Extension Act 
of 1999) for each of the years described in the period 
under clause (i)(I). 
‘‘(iii) COLLECTIVELY BARGAINED EMPLOYER COST.—
For purposes of this subparagraph, the term ‘collec-
tively bargained employer cost’ means the average cost
H. R. 4—228
per covered individual of providing collectively bar-
gained retiree health benefits as determined in accord-
ance with the applicable collective bargaining agree-
ment. Such agreement may provide for an appropriate 
reduction in the collectively bargained employer cost 
to take into account any portion of the collectively 
bargained retiree health benefits that is provided or 
financed by a government program or other source. 
‘‘(E) SPECIAL
RULES
FOR
COLLECTIVELY
BARGAINED 
TRANSFERS.—
‘‘(i) IN GENERAL.—A collectively bargained transfer 
shall only include a transfer which—
‘‘(I) is made in accordance with a collective 
bargaining agreement, 
‘‘(II) before the transfer, the employer des-
ignates, in a written notice delivered to each 
employee organization that is a party to the collec-
tive bargaining agreement, as a collectively bar-
gained transfer in accordance with this section, 
and 
‘‘(III) involves a plan maintained by an 
employer which, in its taxable year ending in 2005, 
provided health benefits or coverage to retirees 
and their spouses and dependents under all of 
the benefit plans maintained by the employer, but 
only if the aggregate cost (including administrative 
expenses) of such benefits or coverage which would 
have been allowable as a deduction to the employer 
(if such benefits or coverage had been provided 
directly by the employer and the employer used 
the cash receipts and disbursements method of 
accounting) is at least 5 percent of the gross 
receipts 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 employees not 
taken into account under paragraph (6)(B)(iii)) for the 
taxable year of the transfer or for any subsequent 
taxable year during the collectively bargained cost 
maintenance period (whether directly or through 
reimbursement). 
‘‘(3) COORDINATION WITH OTHER TRANSFERS.—In applying 
subsection (b)(3) to any subsequent transfer during a taxable 
year in a transfer period or collectively bargained cost mainte-
nance period, qualified current retiree health liabilities shall 
be reduced by any such liabilities taken into account with 
respect to the qualified future transfer or collectively bargained 
transfer to which such period relates. 
‘‘(4) SPECIAL
DEDUCTION
RULES
FOR
COLLECTIVELY
BAR-
GAINED
TRANSFERS.—In the case of a collectively bargained 
transfer—
H. R. 4—229
‘‘(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 defined in section 419(e)(1)) 
with respect to collectively bargained retiree health liabil-
ities for which transferred assets are required to be used 
under subsection (c)(1)(B), and the deductibility of any 
such contribution shall be governed by the limits applicable 
to the deductibility of contributions to a welfare benefit 
fund under a collective bargaining agreement (as deter-
mined 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 section. 
The Secretary shall provide rules to ensure that the application 
of this paragraph does not result in a deduction being allowed 
more than once for the same contribution or for 2 or more 
contributions or expenditures relating to the same collectively 
bargained 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 taxable 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 taxable 
year of the transfer. 
‘‘(6) TERMS RELATING TO COLLECTIVELY BARGAINED TRANS-
FERS.—For purposes of this subsection—
‘‘(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 collec-
tively bargained health plan (determined as of the 
date of the collectively bargained transfer) with respect 
to such covered retiree and his covered spouse and 
dependents. 
‘‘(B) COLLECTIVELY BARGAINED RETIREE HEALTH LIABIL-
ITIES.—
‘‘(i) IN GENERAL.—The term ‘collectively bargained 
retiree health liabilities’ means the present value, as 
of the beginning of a taxable year and determined 
in accordance with the applicable collective bargaining 
agreement, of all collectively bargained health benefits 
(including administrative expenses) for such taxable 
year and all subsequent taxable years during the collec-
tively bargained cost maintenance period. 
‘‘(ii) REDUCTION
FOR
AMOUNTS
PREVIOUSLY
SET 
ASIDE.—The amount determined under clause (i) shall 
be reduced by the value (as of the close of the plan 
year preceding the year of the collectively bargained 
transfer) of the assets in all health benefits accounts 
or welfare benefit funds (as defined in section 419(e)(1))
H. R. 4—230
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 respect 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 coverage which are provided to—
‘‘(i) retired employees who, immediately before the 
collectively bargained transfer, are entitled to receive 
such benefits 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 governing the collectively bar-
gained transfer, active employees who, following their 
retirement, are entitled to receive such benefits and 
who are entitled to pension benefits 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 arrangement 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. 
SEC. 842. TRANSFER OF EXCESS PENSION ASSETS TO MULTIEMPLOYER 
HEALTH PLAN. 
(a) IN GENERAL.—Section 420 of the Internal Revenue Code 
of 1986 is amended—
(1) by striking ‘‘(other than a multiemployer plan)’’ in sub-
section (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 section to an 
employer as a reference to all employers maintaining the 
plan (or, if appropriate, the plan sponsor), and 
‘‘(B) in accordance with such modifications of this sec-
tion (and the provisions of this title relating to this section) 
as the Secretary determines 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.
H. R. 4—231
SEC. 843. ALLOWANCE OF RESERVE FOR MEDICAL BENEFITS 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 paragraph: 
‘‘(6) ADDITIONAL RESERVE FOR MEDICAL BENEFITS 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 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 INSURANCE 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 paragraph: 
‘‘(11) SPECIAL RULES FOR CERTAIN COMBINATION CONTRACTS 
PROVIDING
LONG-TERM
CARE
INSURANCE.—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 insurance contract 
which is part of or a rider on such annuity or life insurance 
contract—
‘‘(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 INSURANCE POLI-
CIES.—
(1) ANNUITY
CONTRACTS
CAN
INCLUDE
QUALIFIED
LONG-
TERM
CARE
INSURANCE
RIDERS.—Paragraph (2) of section 
1035(b) of such Code is amended by adding at the end the 
following new sentence: ‘‘For purposes of the preceding sen-
tence, 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 sen-
tence, a contract shall not fail to be treated as a life insurance
H. R. 4—232
contract solely because a qualified long-term care insurance 
contract is a part of or a rider on such contract.’’. 
(3) EXPANSION OF TAX-FREE EXCHANGES OF LIFE INSURANCE, 
ENDOWMENT, AND ANNUITY CONTRACTS FOR LONG-TERM CARE 
CONTRACTS.—Subsection (a) of section 1035 of such Code 
(relating to certain exchanges of insurance policies) is 
amended—
(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 contract’’ 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.—Subsection (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: 
‘‘(4) a qualified long-term care insurance contract for a 
qualified long-term care insurance contract.’’. 
(c) TREATMENT OF COVERAGE PROVIDED AS PART OF A LIFE 
INSURANCE OR ANNUITY CONTRACT.—Subsection (e) of section 7702B 
of such Code (relating to treatment of qualified long-term care 
insurance) is amended 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 Secretary, in the case of any 
long-term care insurance coverage (whether or not qualified) pro-
vided by a rider on or as part of a life insurance contract or 
an annuity contract—
‘‘(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 deduc-
tion 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 surrender value of a life insurance contract or the cash 
value of an annuity contract. 
‘‘(3) PORTION DEFINED.—For purposes of this subsection, 
the term ‘portion’ means only the terms and benefits under 
a life insurance contract or annuity contract that are in addition 
to the terms and benefits under the contract without regard 
to long-term care insurance coverage. 
‘‘(4) ANNUITY CONTRACTS TO WHICH PARAGRAPH (1) DOES 
NOT APPLY.—For purposes of this subsection, none of the fol-
lowing shall be treated as an annuity contract: 
‘‘(A) A trust described in section 401(a) which is exempt 
from tax under section 501(a). 
‘‘(B) A contract—
‘‘(i) purchased by a trust described in subpara-
graph (A),
H. R. 4—233
‘‘(ii) purchased as part of a plan described in sec-
tion 403(a), 
‘‘(iii) described in section 403(b), 
‘‘(iv) provided for employees of a life insurance 
company under a plan described in section 818(a)(3), 
or 
‘‘(v) from an individual retirement account or an 
individual retirement annuity. 
‘‘(C) A contract purchased by an employer for the ben-
efit of the employee (or the employee’s spouse). 
Any dividend described in section 404(k) which is received 
by a participant or beneficiary shall, for purposes of this para-
graph, be treated as paid under a separate contract to which 
subparagraph (B)(i) applies.’’. 
(d) INFORMATION REPORTING.—
(1) Subpart B of part III of subchapter A of chapter 61 
of such Code (relating to information concerning transactions 
with other persons) is amended by adding at the end the 
following new section: 
‘‘SEC. 6050U. CHARGES OR PAYMENTS FOR QUALIFIED LONG-TERM 
CARE 
INSURANCE 
CONTRACTS 
UNDER 
COMBINED 
ARRANGEMENTS. 
‘‘(a) REQUIREMENT OF REPORTING.—Any person who makes a 
charge against the cash value of an annuity contract, or the cash 
surrender value of a life insurance contract, which is excludible 
from gross income under section 72(e)(11) shall make a return, 
according to the forms or regulations prescribed by the Secretary, 
setting forth—
‘‘(1) the amount of the aggregate of such charges against 
each such contract for the calendar year, 
‘‘(2) the amount of the reduction in the investment in 
each such contract by reason of such charges, and 
‘‘(3) the name, address, and TIN of the individual who 
is the holder of each such contract. 
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT 
TO WHOM INFORMATION IS REQUIRED.—Every person required to 
make a return under subsection (a) shall furnish to each individual 
whose name is required to be set forth in such return a written 
statement showing—
‘‘(1) the name, address, and phone number of the informa-
tion contact of the person making the payments, and 
‘‘(2) the information required to be shown on the return 
with respect to such individual. 
The written statement required under the preceding sentence shall 
be furnished to the individual on or before January 31 of the 
year following the calendar year for which the return under sub-
section (a) was required to be made.’’. 
(2) PENALTY FOR FAILURE TO FILE.—
(A) RETURN.—Subparagraph (B) of section 6724(d)(1) 
of such Code is amended by striking ‘‘or’’ at the end of 
clause (xvii), by striking ‘‘and’’ at the end of clause (xviii) 
and inserting ‘‘or’’, and by adding at the end the following 
new clause: 
‘‘(xix) section 6050U (relating to charges or pay-
ments for qualified long-term care insurance contracts 
under combined arrangements), and’’.
H. R. 4—234
(B) STATEMENT.—Paragraph (2) of section 6724(d) of 
such Code is amended by striking ‘‘or’’ at the end of 
subparagraph (AA), by striking the period at the end of 
subparagraph (BB), and by inserting after subparagraph 
(BB) the following new subparagraph: 
‘‘(CC) section 6050U (relating to charges or payments 
for qualified long-term care insurance contracts under com-
bined arrangements).’’. 
(3) CLERICAL AMENDMENT.—The table of sections for sub-
part B of part III of subchapter A of such chapter 61 of such 
Code is amended by adding at the end the following new 
item:
‘‘Sec. 6050U. Charges or payments for qualified long-term care insurance contracts 
under combined arrangements.’’.
(e) TREATMENT OF POLICY ACQUISITION EXPENSES.—Subsection 
(e) of section 848 of such Code (relating to classification of contracts) 
is amended by adding at the end the following new paragraph: 
‘‘(6) TREATMENT OF CERTAIN QUALIFIED LONG-TERM CARE 
INSURANCE
CONTRACT
ARRANGEMENTS.—An annuity or life 
insurance contract which includes a qualified long-term care 
insurance contract as a part of or a rider on such annuity 
or life insurance contract shall be treated as a specified insur-
ance contract not described in subparagraph (A) or (B) of sub-
section (c)(1).’’. 
(f) TECHNICAL AMENDMENT.—Paragraph (1) of section 7702B(e) 
of such Code (as in effect before amendment by subsection (c)) 
is amended by striking ‘‘section’’ and inserting ‘‘title’’. 
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply to 
contracts issued after December 31, 1996, but only with respect 
to taxable years beginning after December 31, 2009. 
(2) TAX-FREE EXCHANGES.—The amendments made by sub-
section (b) shall apply with respect to exchanges occurring 
after December 31, 2009. 
(3) INFORMATION REPORTING.—The amendments made by 
subsection (d) shall apply to charges made after December 
31, 2009. 
(4) POLICY ACQUISITION EXPENSES.—The amendment made 
by subsection (e) shall apply to specified policy acquisition 
expenses determined for taxable years beginning after 
December 31, 2009. 
(5) TECHNICAL
AMENDMENT.—The amendment made by 
subsection (f) shall take effect as if included in section 321(a) 
of the Health Insurance Portability and Accountability Act of 
1996. 
SEC. 845. DISTRIBUTIONS FROM GOVERNMENTAL RETIREMENT PLANS 
FOR HEALTH AND LONG-TERM CARE INSURANCE FOR 
PUBLIC SAFETY OFFICERS. 
(a) IN GENERAL.—Section 402 of the Internal Revenue Code 
of 1986 (relating to taxability of beneficiary of employees’ trust) 
is amended by adding at the end the following new subsection: 
‘‘(l) DISTRIBUTIONS FROM GOVERNMENTAL PLANS FOR HEALTH 
AND LONG-TERM CARE INSURANCE.—
‘‘(1) IN GENERAL.—In the case of an employee who is an 
eligible retired public safety officer who makes the election
H. R. 4—235
described in paragraph (6) with respect to any taxable year 
of such employee, gross income of such employee for such 
taxable year does not include any distribution from an eligible 
retirement plan to the extent that the aggregate amount of 
such distributions does not exceed the amount paid by such 
employee for qualified health insurance premiums of the 
employee, his spouse, or dependents (as defined in section 152) 
for such taxable year. 
‘‘(2) LIMITATION.—The amount which may be excluded from 
gross income for the taxable year by reason of paragraph (1) 
shall not exceed $3,000. 
‘‘(3) DISTRIBUTIONS MUST OTHERWISE BE INCLUDIBLE.—
‘‘(A) IN GENERAL.—An amount shall be treated as a 
distribution for purposes of paragraph (1) only to the extent 
that such amount would be includible in gross income 
without regard to paragraph (1). 
‘‘(B) APPLICATION
OF
SECTION
72.—Notwithstanding 
section 72, in determining the extent to which an amount 
is treated as a distribution for purposes of subparagraph 
(A), the aggregate amounts distributed from an eligible 
retirement plan in a taxable year (up to the amount 
excluded under paragraph (1)) shall be treated as includible 
in gross income (without regard to subparagraph (A)) to 
the extent that such amount does not exceed the aggregate 
amount which would have been so includible if all amounts 
distributed from all eligible retirement plans were treated 
as 1 contract for purposes of determining the inclusion 
of such distribution under section 72. Proper adjustments 
shall be made in applying section 72 to other distributions 
in such taxable year and subsequent taxable years. 
‘‘(4) DEFINITIONS.—For purposes of this subsection—
‘‘(A) ELIGIBLE
RETIREMENT
PLAN.—For purposes of 
paragraph (1), the term ‘eligible retirement plan’ means 
a governmental plan (within the meaning of section 414(d)) 
which is described in clause (iii), (iv), (v), or (vi) of sub-
section (c)(8)(B). 
‘‘(B) ELIGIBLE RETIRED PUBLIC SAFETY OFFICER.—The 
term ‘eligible retired public safety officer’ means an indi-
vidual who, by reason of disability or attainment of normal 
retirement age, is separated from service as a public safety 
officer with the employer who maintains the eligible retire-
ment plan from which distributions subject to paragraph 
(1) are made. 
‘‘(C) PUBLIC SAFETY OFFICER.—The term ‘public safety 
officer’ shall have the same meaning given such term by 
section 1204(9)(A) of the Omnibus Crime Control and Safe 
Streets Act of 1968 (42 U.S.C. 3796b(9)(A)). 
‘‘(D) QUALIFIED
HEALTH
INSURANCE
PREMIUMS.—The 
term ‘qualified health insurance premiums’ means pre-
miums for coverage for the eligible retired public safety 
officer, his spouse, and dependents, by an accident or health 
insurance plan or qualified long-term care insurance con-
tract (as defined in section 7702B(b)). 
‘‘(5) SPECIAL RULES.—For purposes of this subsection—
‘‘(A) DIRECT PAYMENT TO INSURER REQUIRED.—Para-
graph (1) shall only apply to a distribution if payment 
of the premiums is made directly to the provider of the
H. R. 4—236
accident or health insurance plan or qualified long-term 
care insurance contract by deduction from a distribution 
from the eligible retirement plan. 
‘‘(B) RELATED PLANS TREATED AS 1.—All eligible retire-
ment plans of an employer shall be treated as a single 
plan. 
‘‘(6) ELECTION DESCRIBED.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), an 
election is described in this paragraph if the election is 
made by an employee after separation from service with 
respect to amounts not distributed from an eligible retire-
ment plan to have amounts from such plan distributed 
in order to pay for qualified health insurance premiums. 
‘‘(B) SPECIAL RULE.—A plan shall not be treated as 
violating the requirements of section 401, or as engaging 
in a prohibited transaction for purposes of section 503(b), 
merely because it provides for an election with respect 
to amounts that are otherwise distributable under the plan 
or merely because of a distribution made pursuant to an 
election described in subparagraph (A). 
‘‘(7) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—
The amounts excluded from gross income under paragraph 
(1) shall not be taken into account under section 213. 
‘‘(8) COORDINATION WITH DEDUCTION FOR HEALTH INSUR-
ANCE
COSTS
OF
SELF-EMPLOYED
INDIVIDUALS.—The amounts 
excluded from gross income under paragraph (1) shall not be 
taken into account under section 162(l).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 403(a) of such Code (relating to taxability of 
beneficiary under a qualified annuity plan) is amended by 
inserting after paragraph (1) the following new paragraph: 
‘‘(2) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSUR-
ANCE.—To the extent provided in section 402(l), paragraph 
(1) shall not apply to the amount distributed under the contract 
which is otherwise includible in gross income under this sub-
section.’’. 
(2) Section 403(b) of such Code (relating to taxability of 
beneficiary under annuity purchased by section 501(c)(3) 
organization or public school) is amended by inserting after 
paragraph (1) the following new paragraph: 
‘‘(2) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSUR-
ANCE.—To the extent provided in section 402(l), paragraph 
(1) shall not apply to the amount distributed under the contract 
which is otherwise includible in gross income under this sub-
section.’’. 
(3) Section 457(a) of such Code (relating to year of inclusion 
in gross income) is amended by adding at the end the following 
new paragraph: 
‘‘(3) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSUR-
ANCE.—In the case of a plan of an eligible employer described 
in subsection (e)(1)(A), to the extent provided in section 402(l), 
paragraph (1) shall not apply to amounts otherwise includible 
in gross income under this subsection.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to distributions in taxable years beginning after 
December 31, 2006.
H. R. 4—237
Subtitle E—United States Tax Court 
Modernization 
SEC. 851. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT JUDICIAL 
SURVIVOR ANNUITIES. 
(a) IN GENERAL.—Subsection (s) of section 7448 of the Internal 
Revenue Code of 1986 (relating to annuities to surviving spouses 
and dependent children of judges) is amended to read as follows: 
‘‘(s) INCREASES IN SURVIVOR ANNUITIES.—Each time that an 
increase is made under section 8340(b) of title 5, United States 
Code, in annuities payable under subchapter III of chapter 83 
of that title, each annuity payable from the survivors annuity 
fund under this section shall be increased at the same time by 
the same percentage by which annuities are increased under such 
section 8340(b).’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply with respect to increases made under section 8340(b) 
of title 5, United States Code, in annuities payable under subchapter 
III of chapter 83 of that title, taking effect after the date of the 
enactment of this Act. 
SEC. 852. COST OF LIFE INSURANCE COVERAGE FOR TAX COURT 
JUDGES AGE 65 OR OVER. 
Section 7472 of the Internal Revenue Code of 1986 (relating 
to expenditures) is amended by inserting after the first sentence 
the following new sentence: ‘‘Notwithstanding any other provision 
of law, the Tax Court is authorized to pay on behalf of its judges, 
age 65 or over, any increase in the cost of Federal Employees’ 
Group Life Insurance imposed after the date of the enactment 
of the Pension Protection Act of 2006, including any expenses gen-
erated by such payments, as authorized by the chief judge in 
a manner consistent with such payments authorized by the Judicial 
Conference of the United States pursuant to section 604(a)(5) of 
title 28, United States Code.’’. 
SEC. 853. PARTICIPATION OF TAX COURT JUDGES IN THE THRIFT 
SAVINGS PLAN. 
(a) IN GENERAL.—Section 7447 of the Internal Revenue Code 
of 1986 (relating to retirement of judges) is amended by adding 
at the end the following new subsection: 
‘‘(j) THRIFT SAVINGS PLAN.—
‘‘(1) ELECTION TO CONTRIBUTE.—
‘‘(A) IN GENERAL.—A judge of the Tax Court may elect 
to contribute to the Thrift Savings Fund established by 
section 8437 of title 5, United States Code. 
‘‘(B) PERIOD OF ELECTION.—An election may be made 
under this paragraph only during a period provided under 
section 8432(b) of title 5, United States Code, for individ-
uals subject to chapter 84 of such title. 
‘‘(2) APPLICABILITY
OF
TITLE
PROVISIONS.—Except as 
otherwise provided in this subsection, the provisions of sub-
chapters III and VII of chapter 84 of title 5, United States 
Code, shall apply with respect to a judge who makes an election 
under paragraph (1). 
‘‘(3) SPECIAL RULES.—
H. R. 4—238
‘‘(A) AMOUNT CONTRIBUTED.—The amount contributed 
by a judge to the Thrift Savings Fund in any pay period 
shall not exceed the maximum percentage of such judge’s 
basic pay for such period as allowable under section 8440f 
of title 5, United States Code. Basic pay does not include 
any retired pay paid pursuant to this section. 
‘‘(B) CONTRIBUTIONS FOR BENEFIT OF JUDGE.—No con-
tributions may be made for the benefit of a judge under 
section 8432(c) of title 5, United States Code. 
‘‘(C) APPLICABILITY
OF
SECTION
8433(b)
OF
TITLE
WHETHER OR NOT JUDGE RETIRES.—Section 8433(b) of title 
5, United States Code, applies with respect to a judge 
who makes an election under paragraph (1) and who 
either—
‘‘(i) retires under subsection (b), or 
‘‘(ii) ceases to serve as a judge of the Tax Court 
but does not retire under subsection (b). 
Retirement under subsection (b) is a separation from 
service for purposes of subchapters III and VII of chapter 
84 of that title. 
‘‘(D) APPLICABILITY OF SECTION 8351(b)(5) OF TITLE 5.—
The provisions of section 8351(b)(5) of title 5, United States 
Code, shall apply with respect to a judge who makes an 
election under paragraph (1). 
‘‘(E) EXCEPTION.—Notwithstanding subparagraph (C), 
if any judge retires under this section, or resigns without 
having met the age and service requirements set forth 
under subsection (b)(2), and such judge’s nonforfeitable 
account balance is less than an amount that the Executive 
Director of the Federal Retirement Thrift Investment Board 
prescribes by regulation, the Executive Director shall pay 
the nonforfeitable account balance to the participant in 
a single payment.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall take effect on the date of the enactment of this Act, except 
that United States Tax Court judges may only begin to participate 
in the Thrift Savings Plan at the next open season beginning 
after such date. 
SEC. 854. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT CHIL-
DREN OF SPECIAL TRIAL JUDGES OF THE TAX COURT. 
(a) DEFINITIONS.—Section 7448(a) of the Internal Revenue Code 
of 1986 (relating to definitions), as amended by this Act, is amended 
by redesignating paragraphs (5), (6), (7), and (8) as paragraphs 
(7), (8), (9), and (10), respectively, and by inserting after paragraph 
(4) the following new paragraphs: 
‘‘(5) The term ‘special trial judge’ means a judicial officer 
appointed pursuant to section 7443A, including any individual 
receiving an annuity under chapter 83 or 84 of title 5, United 
States Code, whether or not performing judicial duties under 
section 7443B. 
‘‘(6) The term ‘special trial judge’s salary’ means the salary 
of a special trial judge received under section 7443A(d), any 
amount received as an annuity under chapter 83 or 84 of 
title 5, United States Code, and compensation received under 
section 7443B.’’.
H. R. 4—239
(b) ELECTION.—Subsection (b) of section 7448 of such Code 
(relating to annuities to surviving spouses and dependent children 
of judges) is amended—
(1) by striking the subsection heading and inserting the 
following: 
‘‘(b) ELECTION.—
‘‘(1) JUDGES.—’’, 
(2) by moving the text 2 ems to the right, and 
(3) by adding at the end the following new paragraph: 
‘‘(2) SPECIAL TRIAL JUDGES.—Any special trial judge may 
by written election filed with the chief judge bring himself 
or herself within the purview of this section. Such election 
shall be filed not later than the later of 6 months after—
‘‘(A) 6 months after the date of the enactment of this 
paragraph, 
‘‘(B) the date the judge takes office, or 
‘‘(C) the date the judge marries.’’. 
(c) CONFORMING AMENDMENTS.—
(1) The heading of section 7448 of such Code is amended 
by inserting ‘‘AND
SPECIAL
TRIAL
JUDGES’’ after ‘‘JUDGES’’. 
(2) The item relating to section 7448 in the table of sections 
for part I of subchapter C of chapter 76 of such Code is amended 
by inserting ‘‘and special trial judges’’ after ‘‘judges’’. 
(3) Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n), and 
(u) of section 7448 of such Code, as amended by this Act, 
are each amended—
(A) by inserting ‘‘or special trial judge’’ after ‘‘judge’’ 
each place it appears other than in the phrase ‘‘chief judge’’, 
and 
(B) by inserting ‘‘or special trial judge’s’’ after ‘‘judge’s’’ 
each place it appears. 
(4) Section 7448(c) of such Code is amended—
(A) in paragraph (1), by striking ‘‘Tax Court judges’’ 
and inserting ‘‘Tax Court judicial officers’’, and 
(B) in paragraph (2)—
(i) in subparagraph (A), by inserting ‘‘and section 
7443A(d)’’ after ‘‘(a)(4)’’, and 
(ii) in subparagraph (B), by striking ‘‘subsection 
(a)(4)’’ and inserting ‘‘subsection (a)(4) and (a)(6)’’. 
(5) Section 7448(j)(1) of such Code is amended—
(A) in subparagraph (A), by striking ‘‘service or retired’’ 
and inserting ‘‘service, retired’’, and by inserting ‘‘, or 
receiving any annuity under chapter 83 or 84 of title 5, 
United States Code,’’ after ‘‘section 7447’’, and 
(B) in the last sentence, by striking ‘‘subsections (a) 
(6) and (7)’’ and inserting ‘‘paragraphs (8) and (9) of sub-
section (a)’’. 
(6) Section 7448(m)(1) of such Code, as amended by this 
Act, is amended by inserting ‘‘or any annuity under chapter 
83 or 84 of title 5, United States Code’’ after ‘‘7447(d)’’. 
(7) Section 7448(n) of such Code is amended by inserting 
‘‘his years of service pursuant to any appointment under section 
7443A,’’ after ‘‘of the Tax Court,’’. 
(8) Section 3121(b)(5)(E) of such Code is amended by 
inserting ‘‘or special trial judge’’ before ‘‘of the United States 
Tax Court’’.
H. R. 4—240
(9) Section 210(a)(5)(E) of the Social Security Act is 
amended by inserting ‘‘or special trial judge’’ before ‘‘of the 
United States Tax Court’’. 
SEC. 855. JURISDICTION OF TAX COURT OVER COLLECTION DUE 
PROCESS CASES. 
(a) IN GENERAL.—Paragraph (1) of section 6330(d) of the 
Internal Revenue Code of 1986 (relating to proceeding after hearing) 
is amended to read as follows: 
‘‘(1) JUDICIAL REVIEW OF DETERMINATION.—The person may, 
within 30 days of a determination under this section, appeal 
such determination to the Tax Court (and the Tax Court shall 
have jurisdiction with respect to such matter).’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to determinations made after the date which is 60 
days after the date of the enactment of this Act. 
SEC. 856. PROVISIONS FOR RECALL. 
(a) IN GENERAL.—Part I of subchapter C of chapter 76 of 
the Internal Revenue Code of 1986 is amended by inserting after 
section 7443A the following new section: 
‘‘SEC. 7443B. RECALL OF SPECIAL TRIAL JUDGES OF THE TAX COURT. 
‘‘(a) RECALLING OF RETIRED SPECIAL TRIAL JUDGES.—Any indi-
vidual who has retired pursuant to the applicable provisions of 
title 5, United States Code, upon reaching the age and service 
requirements established therein, may at or after retirement be 
called upon by the chief judge of the Tax Court to perform such 
judicial duties with the Tax Court as may be requested of such 
individual for any period or periods specified by the chief judge; 
except that in the case of any such individual—
‘‘(1) the aggregate of such periods in any 1 calendar year 
shall not (without such individual’s consent) exceed 90 calendar 
days, and 
‘‘(2) such individual shall be relieved of performing such 
duties during any period in which illness or disability precludes 
the performance of such duties. 
Any act, or failure to act, by an individual performing judicial 
duties pursuant to this subsection shall have the same force and 
effect as if it were the act (or failure to act) of a special trial 
judge of the Tax Court. 
‘‘(b) COMPENSATION.—For the year in which a period of recall 
occurs, the special trial judge shall receive, in addition to the 
annuity provided under the applicable provisions of title 5, United 
States Code, an amount equal to the difference between that 
annuity and the current salary of the office to which the special 
trial judge is recalled. 
‘‘(c) RULEMAKING AUTHORITY.—The provisions of this section 
may be implemented under such rules as may be promulgated 
by the Tax Court.’’. 
(b) CONFORMING AMENDMENT.—The table of sections for part 
I of subchapter C of chapter 76 of such Code is amended by 
inserting after the item relating to section 7443A the following 
new item:
‘‘Sec. 7443B. Recall of special trial judges of the Tax Court.’’.
H. R. 4—241
SEC. 857. AUTHORITY FOR SPECIAL TRIAL JUDGES TO HEAR AND 
DECIDE CERTAIN EMPLOYMENT STATUS CASES. 
(a) IN GENERAL.—Section 7443A(b) of the Internal Revenue 
Code of 1986 (relating to proceedings which may be assigned to 
special trial judges) is amended by striking ‘‘and’’ at the end of 
paragraph (4), by redesignating paragraph (5) as paragraph (6), 
and by inserting after paragraph (4) the following new paragraph: 
‘‘(5) any proceeding under section 7436(c), and’’. 
(b) CONFORMING AMENDMENT.—Section 7443A(c) of such Code 
is amended by striking ‘‘or (4)’’ and inserting ‘‘(4), or (5)’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any proceeding under section 7436(c) of the Internal 
Revenue Code of 1986 with respect to which a decision has not 
become final (as determined under section 7481 of such Code) 
before the date of the enactment of this Act. 
SEC. 858. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
DOCTRINE OF EQUITABLE RECOUPMENT. 
(a) CONFIRMATION
OF AUTHORITY
OF TAX COURT TO APPLY 
DOCTRINE
OF EQUITABLE RECOUPMENT.—Section 6214(b) of the 
Internal Revenue Code of 1986 (relating to jurisdiction over other 
years and quarters) is amended by adding at the end the following 
new sentence: ‘‘Notwithstanding the preceding sentence, the Tax 
Court may apply the doctrine of equitable recoupment to the same 
extent that it is available in civil tax cases before the district 
courts of the United States and the United States Court of Federal 
Claims.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to any action or proceeding in the United States Tax 
Court with respect to which a decision has not become final (as 
determined under section 7481 of the Internal Revenue Code of 
1986) as of the date of the enactment of this Act. 
SEC. 859. TAX COURT FILING FEE IN ALL CASES COMMENCED BY 
FILING PETITION. 
(a) IN GENERAL.—Section 7451 of the Internal Revenue Code 
of 1986 (relating to fee for filing a Tax Court petition) is amended 
by striking all that follows ‘‘petition’’ and inserting a period. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall take effect on the date of the enactment of this Act. 
SEC. 860. EXPANDED USE OF TAX COURT PRACTICE FEE FOR PRO 
SE TAXPAYERS. 
(a) IN GENERAL.—Section 7475(b) of the Internal Revenue Code 
of 1986 (relating to use of fees) is amended by inserting before 
the period at the end ‘‘and to provide services to pro se taxpayers’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall take effect on the date of the enactment of this Act. 
Subtitle F—Other Provisions 
SEC. 861. EXTENSION TO ALL GOVERNMENTAL PLANS OF CURRENT 
MORATORIUM ON APPLICATION OF CERTAIN NON-
DISCRIMINATION RULES APPLICABLE TO STATE AND 
LOCAL PLANS. 
(a) IN GENERAL.—
H. R. 4—242
(1) Subparagraph (G) of section 401(a)(5) and subparagraph 
(G) of section 401(a)(26) of the Internal Revenue Code of 1986 
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) of such Code 
and paragraph (2) of section 1505(d) of the Taxpayer Relief 
Act of 1997 (Public Law 105–34; 111 Stat. 1063) are each 
amended by striking ‘‘maintained by a State or local govern-
ment or political subdivision thereof (or agency or instrumen-
tality thereof)’’. 
(b) CONFORMING AMENDMENTS.—
(1) The heading of subparagraph (G) of section 401(a)(5) 
of the Internal Revenue Code of 1986 is amended by striking 
‘‘STATE AND LOCAL GOVERNMENTAL’’ and inserting ‘‘GOVERN-
MENTAL’’. 
(2) The heading of subparagraph (G) of section 401(a)(26) 
of such Code is amended by striking ‘‘EXCEPTION FOR STATE 
AND LOCAL’’ and inserting ‘‘EXCEPTION FOR’’. 
(3) Section 401(k)(3)(G) of such Code is amended by 
inserting ‘‘GOVERNMENTAL PLAN.—’’ after ‘‘(G)’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any year beginning after the date of the enactment 
of this Act. 
SEC. 862. ELIMINATION OF AGGREGATE LIMIT FOR USAGE OF EXCESS 
FUNDS FROM BLACK LUNG DISABILITY TRUSTS. 
(a) IN GENERAL.—So much of section 501(c)(21)(C) of the 
Internal Revenue Code of 1986 (relating to black lung disability 
trusts) as precedes the last sentence is amended to read as follows: 
‘‘(C) Payments described in subparagraph (A)(i)(IV) 
may be made from such trust during a taxable year only 
to the extent that the aggregate amount of such payments 
during such taxable year does not exceed the excess (if 
any), as of the close of the preceding taxable year, of—
‘‘(i) the fair market value of the assets of the 
trust, over 
‘‘(ii) 110 percent of the present value of the liability 
described in subparagraph (A)(i)(I) of such person.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2006. 
SEC. 863. TREATMENT OF DEATH BENEFITS FROM CORPORATE-OWNED 
LIFE INSURANCE. 
(a) IN GENERAL.—Section 101 of the Internal Revenue Code 
of 1986 (relating to certain death benefits) is amended by adding 
at the end the following new subsection: 
‘‘(j) TREATMENT OF CERTAIN EMPLOYER-OWNED LIFE INSURANCE 
CONTRACTS.—
‘‘(1) GENERAL RULE.—In the case of an employer-owned 
life insurance contract, the amount excluded from gross income 
of an applicable policyholder by reason of paragraph (1) of 
subsection (a) shall not exceed an amount equal to the sum 
of the premiums and other amounts paid by the policyholder 
for the contract. 
‘‘(2) EXCEPTIONS.—In the case of an employer-owned life 
insurance contract with respect to which the notice and consent 
requirements of paragraph (4) are met, paragraph (1) shall 
not apply to any of the following:
H. R. 4—243
‘‘(A) EXCEPTIONS
BASED
ON
INSURED’S
STATUS.—Any 
amount received by reason of the death of an insured 
who, with respect to an applicable policyholder—
‘‘(i) was an employee at any time during the 12-
month period before the insured’s death, or 
‘‘(ii) is, at the time the contract is issued—
‘‘(I) a director, 
‘‘(II) a highly compensated employee within 
the meaning of section 414(q) (without regard to 
paragraph (1)(B)(ii) thereof), or 
‘‘(III) a highly compensated individual within 
the meaning of section 105(h)(5), except that ‘35 
percent’ shall be substituted for ‘25 percent’ in 
subparagraph (C) thereof. 
‘‘(B) EXCEPTION
FOR
AMOUNTS
PAID
TO
INSURED’S 
HEIRS.—Any amount received by reason of the death of 
an insured to the extent—
‘‘(i) the amount is paid to a member of the family 
(within the meaning of section 267(c)(4)) of the insured, 
any individual who is the designated beneficiary of 
the insured under the contract (other than the 
applicable policyholder), a trust established for the ben-
efit of any such member of the family or designated 
beneficiary, or the estate of the insured, or 
‘‘(ii) the amount is used to purchase an equity 
(or capital or profits) interest in the applicable policy-
holder from any person described in clause (i). 
‘‘(3) EMPLOYER-OWNED LIFE INSURANCE CONTRACT.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the 
term ‘employer-owned life insurance contract’ means a life 
insurance contract which—
‘‘(i) is owned by a person engaged in a trade or 
business and under which such person (or a related 
person described in subparagraph (B)(ii)) is directly 
or indirectly a beneficiary under the contract, and 
‘‘(ii) covers the life of an insured who is an 
employee with respect to the trade or business of the 
applicable policyholder on the date the contract is 
issued. 
For purposes of the preceding sentence, if coverage for 
each insured under a master contract is treated as a sepa-
rate contract for purposes of sections 817(h), 7702, and 
7702A, coverage for each such insured shall be treated 
as a separate contract. 
‘‘(B) APPLICABLE POLICYHOLDER.—For purposes of this 
subsection—
‘‘(i) IN
GENERAL.—The term ‘applicable policy-
holder’ means, with respect to any employer-owned 
life insurance contract, the person described in 
subparagraph (A)(i) which owns the contract. 
‘‘(ii) RELATED
PERSONS.—The term ‘applicable 
policyholder’ includes any person which—
‘‘(I) bears a relationship to the person 
described in clause (i) which is specified in section 
267(b) or 707(b)(1), or 
‘‘(II) is engaged in trades or businesses with 
such person which are under common control
H. R. 4—244
(within the meaning of subsection (a) or (b) of 
section 52). 
‘‘(4) NOTICE AND CONSENT REQUIREMENTS.—The notice and 
consent requirements of this paragraph are met if, before the 
issuance of the contract, the employee—
‘‘(A) is notified in writing that the applicable policy-
holder intends to insure the employee’s life and the max-
imum face amount for which the employee could be insured 
at the time the contract was issued, 
‘‘(B) provides written consent to being insured under 
the contract and that such coverage may continue after 
the insured terminates employment, and 
‘‘(C) is informed in writing that an applicable policy-
holder will be a beneficiary of any proceeds payable upon 
the death of the employee. 
‘‘(5) DEFINITIONS.—For purposes of this subsection—
‘‘(A) EMPLOYEE.—The term ‘employee’ includes an 
officer, director, and highly compensated employee (within 
the meaning of section 414(q)). 
‘‘(B) INSURED.—The term ‘insured’ means, with respect 
to an employer-owned life insurance contract, an individual 
covered by the contract who is a United States citizen 
or resident. In the case of a contract covering the joint 
lives of 2 individuals, references to an insured include 
both of the individuals.’’. 
(b) REPORTING REQUIREMENTS.—Subpart A of part III of sub-
chapter A of chapter 61 of the Internal Revenue Code of 1986 
(relating to information concerning persons subject to special provi-
sions) is amended by inserting after section 6039H the following 
new section: 
‘‘SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO EMPLOYER-
OWNED LIFE INSURANCE CONTRACTS. 
‘‘(a) IN GENERAL.—Every applicable policyholder owning 1 or 
more employer-owned life insurance contracts issued after the date 
of the enactment of this section shall file a return (at such time 
and in such manner as the Secretary shall by regulations prescribe) 
showing for each year such contracts are owned—
‘‘(1) the number of employees of the applicable policyholder 
at the end of the year, 
‘‘(2) the number of such employees insured under such 
contracts at the end of the year, 
‘‘(3) the total amount of insurance in force at the end 
of the year under such contracts, 
‘‘(4) the name, address, and taxpayer identification number 
of the applicable policyholder and the type of business in which 
the policyholder is engaged, and 
‘‘(5) that the applicable policyholder has a valid consent 
for each insured employee (or, if all such consents are not 
obtained, the number of insured employees for whom such 
consent was not obtained). 
‘‘(b) RECORDKEEPING REQUIREMENT.—Each applicable policy-
holder owning 1 or more employer-owned life insurance contracts 
during any year shall keep such records as may be necessary 
for purposes of determining whether the requirements of this section 
and section 101(j) are met.
H. R. 4—245
‘‘(c) DEFINITIONS.—Any term used in this section which is used 
in section 101(j) shall have the same meaning given such term 
by section 101(j).’’. 
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 101(a) of the Internal Revenue 
Code of 1986 is amended by striking ‘‘and subsection (f)’’ and 
inserting ‘‘subsection (f), and subsection (j)’’. 
(2) The table of sections for subpart A of part III of sub-
chapter A of chapter 61 of such Code is amended by inserting 
after the item relating to section 6039H the following new 
item:
‘‘Sec. 6039I. Returns and records with respect to employer-owned life insurance 
contracts.’’.
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to life insurance contracts issued after the date of 
the enactment of this Act, except for a contract issued after such 
date pursuant to an exchange described in section 1035 of the 
Internal Revenue Code of 1986 for a contract issued on or prior 
to that date. For purposes of the preceding sentence, any material 
increase in the death benefit or other material change shall cause 
the contract to be treated as a new contract except that, in the 
case of a master contract (within the meaning of section 264(f)(4)(E) 
of such Code), the addition of covered lives shall be treated as 
a new contract only with respect to such additional covered lives. 
SEC. 864. TREATMENT OF TEST ROOM SUPERVISORS AND PROCTORS 
WHO ASSIST IN THE ADMINISTRATION OF COLLEGE 
ENTRANCE AND PLACEMENT EXAMS. 
(a) IN GENERAL.—Section 530 of the Revenue Reconciliation 
Act of 1978 is amended by adding at the end the following new 
subsection: 
‘‘(f) TREATMENT OF TEST ROOM SUPERVISORS AND PROCTORS 
WHO ASSIST IN THE ADMINISTRATION OF COLLEGE ENTRANCE AND 
PLACEMENT EXAMS.—
‘‘(1) IN GENERAL.—In the case of an individual described 
in paragraph (2) who is providing services as a test proctor 
or room supervisor by assisting in the administration of college 
entrance or placement examinations, this section shall be 
applied to such services performed after December 31, 2006 
(and remuneration paid for such services) without regard to 
subsection (a)(3) thereof. 
‘‘(2) APPLICABILITY.—An individual is described in this 
paragraph if the individual—
‘‘(A) is providing the services described in subsection 
(a) to an organization described in section 501(c), and 
exempt from tax under section 501(a), of the Internal Rev-
enue Code of 1986, and 
‘‘(B) is not otherwise treated as an employee of such 
organization for purposes of subtitle C of such Code 
(relating to employment taxes).’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to remuneration for services performed after December 
31, 2006.
H. R. 4—246
SEC. 865. GRANDFATHER RULE FOR CHURCH PLANS WHICH SELF-
ANNUITIZE. 
(a) IN GENERAL.—In the case of any plan year ending after 
the date of the enactment of this Act, annuity payments provided 
with respect to any account maintained for a participant or bene-
ficiary under a qualified church plan shall not fail to satisfy the 
requirements of section 401(a)(9) of the Internal Revenue Code 
of 1986 merely because the payments are not made under an 
annuity contract purchased from an insurance company if such 
payments would not fail such requirements if provided with respect 
to a retirement income account described in section 403(b)(9) of 
such Code. 
(b) QUALIFIED CHURCH PLAN.—For purposes of this section, 
the term ‘‘qualified church plan’’ means any money purchase pen-
sion plan described in section 401(a) of such Code which—
(1) is a church plan (as defined in section 414(e) of such 
Code) with respect to which the election provided by section 
410(d) of such Code has not been made, and 
(2) was in existence on April 17, 2002. 
SEC. 866. EXEMPTION FOR INCOME FROM LEVERAGED REAL ESTATE 
HELD BY CHURCH PLANS. 
(a) IN GENERAL.—Section 514(c)(9)(C) of the Internal Revenue 
Code of 1986 is amended by striking ‘‘or’’ after clause (ii), by 
striking the period at the end of clause (iii) and inserting ‘‘; or’’, 
and by inserting after clause (iii) the following: 
‘‘(iv) a retirement income account described in sec-
tion 403(b)(9).’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning on or after the date of 
enactment of this Act. 
SEC. 867. CHURCH PLAN RULE. 
(a) IN GENERAL.—Paragraph (11) of section 415(b) of the 
Internal Revenue Code of 1986 is amended by adding at the end 
the following: ‘‘Subparagraph (B) of paragraph (1) shall not apply 
to a plan maintained by an organization described in section 
3121(w)(3)(A) except with respect to highly compensated benefits. 
For purposes of this paragraph, the term ‘highly compensated bene-
fits’ means any benefits accrued for an employee in any year on 
or after the first year in which such employee is a highly com-
pensated employee (as defined in section 414(q)) of the organization 
described in section 3121(w)(3)(A). For purposes of applying para-
graph (1)(B) to highly compensated benefits, all benefits of the 
employee otherwise taken into account (without regard to this para-
graph) shall be taken into account.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to years beginning after December 31, 2006. 
SEC. 868. GRATUITOUS TRANSFER FOR BENEFITS OF EMPLOYEES. 
(a) IN GENERAL.—Subparagraph (E) of section 664(g)(3) of the 
Internal Revenue Code of 1986 is amended by inserting ‘‘(deter-
mined on the basis of fair market value of securities when allocated 
to participants)’’ after ‘‘paragraph (7)’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall take effect on the date of the enactment of this Act.
H. R. 4—247
TITLE IX—INCREASE IN PENSION PLAN 
DIVERSIFICATION 
AND 
PARTICIPA-
TION AND OTHER PENSION PROVI-
SIONS 
SEC. 901. DEFINED CONTRIBUTION PLANS REQUIRED TO PROVIDE 
EMPLOYEES WITH FREEDOM TO INVEST THEIR PLAN 
ASSETS. 
(a) AMENDMENTS OF INTERNAL REVENUE CODE.—
(1) QUALIFICATION
REQUIREMENT.—Section 401(a) of the 
Internal Revenue Code of 1986 (relating to qualified pension, 
profit-sharing, and stock bonus plans) is amended by inserting 
after paragraph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION REQUIREMENTS FOR CERTAIN DEFINED 
CONTRIBUTION PLANS.—
‘‘(A) IN
GENERAL.—A trust which is part of an 
applicable defined contribution plan shall not be treated 
as a qualified trust unless the plan meets the diversification 
requirements of subparagraphs (B), (C), and (D). 
‘‘(B) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFER-
RALS INVESTED IN EMPLOYER SECURITIES.—In the case of 
the portion of an applicable individual’s account attrib-
utable to employee contributions and elective deferrals 
which is invested in employer securities, a plan meets 
the requirements of this subparagraph if the applicable 
individual may elect to direct the plan to divest any such 
securities and to reinvest an equivalent amount in other 
investment options meeting the requirements of subpara-
graph (D). 
‘‘(C) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of the account 
attributable to employer contributions other than elective 
deferrals which is invested in employer securities, a plan 
meets the requirements of this subparagraph if each 
applicable individual who—
‘‘(i) is a participant who has completed at least 
3 years of service, or 
‘‘(ii) is a beneficiary of a participant described in 
clause (i) or of a deceased participant, 
may elect to direct the plan to divest any such securities 
and to reinvest an equivalent amount in other investment 
options meeting the requirements of subparagraph (D). 
‘‘(D) INVESTMENT OPTIONS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if the plan offers not less than 
3 investment options, other than employer securities, 
to which an applicable individual may direct the pro-
ceeds from the divestment of employer securities pursu-
ant to this paragraph, each of which is diversified 
and has materially different risk and return character-
istics. 
‘‘(ii) TREATMENT
OF
CERTAIN
RESTRICTIONS
AND 
CONDITIONS.—
H. R. 4—248
‘‘(I) TIME FOR MAKING INVESTMENT CHOICES.—
A plan shall not be treated as failing to meet 
the requirements of this subparagraph merely 
because the plan limits the time for divestment 
and 
reinvestment 
to 
periodic, 
reasonable 
opportunities occurring no less frequently than 
quarterly. 
‘‘(II) CERTAIN RESTRICTIONS AND CONDITIONS 
NOT ALLOWED.—Except as provided in regulations, 
a plan shall not meet the requirements of this 
subparagraph if the plan imposes restrictions or 
conditions with respect to the investment of 
employer securities which are not imposed on the 
investment of other assets of the plan. This sub-
clause shall not apply to any restrictions or condi-
tions imposed by reason of the application of secu-
rities laws. 
‘‘(E) APPLICABLE
DEFINED
CONTRIBUTION
PLAN.—For 
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applicable defined con-
tribution plan’ means any defined contribution plan 
which holds any publicly traded employer securities. 
‘‘(ii) EXCEPTION FOR CERTAIN ESOPS.—Such term 
does not include an employee stock ownership plan 
if—
‘‘(I) there are no contributions to such plan 
(or earnings thereunder) which are held within 
such plan and are subject to subsection (k) or 
(m), and 
‘‘(II) such plan is a separate plan for purposes 
of section 414(l) with respect to any other defined 
benefit plan or defined contribution plan main-
tained by the same employer or employers. 
‘‘(iii) EXCEPTION
FOR
ONE
PARTICIPANT
PLANS.—
Such term does not include a one-participant retire-
ment plan. 
‘‘(iv) ONE-PARTICIPANT
RETIREMENT
PLAN.—For 
purposes of clause (iii), the term ‘one-participant retire-
ment plan’ means a retirement plan that—
‘‘(I) on the first day of the plan year covered 
only one individual (or the individual and the 
individual’s spouse) and the individual owned 100 
percent of the plan sponsor (whether or not incor-
porated), or covered only one or more partners 
(or partners and their spouses) in the plan sponsor, 
‘‘(II) meets the minimum coverage require-
ments of section 410(b) without being combined 
with any other plan of the business that covers 
the employees of the business, 
‘‘(III) does not provide benefits to anyone 
except the individual (and the individual’s spouse) 
or the partners (and their spouses), 
‘‘(IV) does not cover a business that is a 
member of an affiliated service group, a controlled 
group of corporations, or a group of businesses 
under common control, and
H. R. 4—249
‘‘(V) does not cover a business that uses the 
services of leased employees (within the meaning 
of section 414(n)). 
For purposes of this clause, the term ‘partner’ includes 
a 2-percent shareholder (as defined in section 1372(b)) 
of an S corporation. 
‘‘(F) CERTAIN
PLANS
TREATED
AS
HOLDING
PUBLICLY 
TRADED EMPLOYER SECURITIES.—
‘‘(i) IN GENERAL.—Except as provided in regula-
tions or in clause (ii), a plan holding employer securi-
ties which are not publicly traded employer securities 
shall be treated as holding publicly traded employer 
securities if any employer corporation, or any member 
of a controlled group of corporations which includes 
such employer corporation, has issued a class of stock 
which is a publicly traded employer security. 
‘‘(ii) EXCEPTION FOR CERTAIN CONTROLLED GROUPS 
WITH PUBLICLY TRADED SECURITIES.—Clause (i) shall 
not apply to a plan if—
‘‘(I) no employer corporation, or parent cor-
poration of an employer corporation, has issued 
any publicly traded employer security, and 
‘‘(II) no employer corporation, or parent cor-
poration of an employer corporation, has issued 
any special class of stock which grants particular 
rights to, or bears particular risks for, the holder 
or issuer with respect to any corporation described 
in clause (i) which has issued any publicly traded 
employer security. 
‘‘(iii) DEFINITIONS.—For purposes of this subpara-
graph, the term—
‘‘(I) ‘controlled group of corporations’ has the 
meaning given such term by section 1563(a), except 
that ‘50 percent’ shall be substituted for ‘80 per-
cent’ each place it appears, 
‘‘(II) ‘employer corporation’ means a corpora-
tion which is an employer maintaining the plan, 
and 
‘‘(III) ‘parent corporation’ has the meaning 
given such term by section 424(e). 
‘‘(G) OTHER DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) APPLICABLE INDIVIDUAL.—The term ‘applicable 
individual’ means—
‘‘(I) any participant in the plan, and 
‘‘(II) any beneficiary who has an account under 
the plan with respect to which the beneficiary 
is entitled to exercise the rights of a participant. 
‘‘(ii) ELECTIVE
DEFERRAL.—The term ‘elective 
deferral’ means an employer contribution described in 
section 402(g)(3)(A). 
‘‘(iii) EMPLOYER
SECURITY.—The term ‘employer 
security’ has the meaning given such term by section 
407(d)(1) of the Employee Retirement Income Security 
Act of 1974.
H. R. 4—250
‘‘(iv) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The 
term ‘employee stock ownership plan’ has the meaning 
given such term by section 4975(e)(7). 
‘‘(v) PUBLICLY TRADED EMPLOYER SECURITIES.—The 
term ‘publicly traded employer securities’ means 
employer securities which are readily tradable on an 
established securities market. 
‘‘(vi) YEAR OF SERVICE.—The term ‘year of service’ 
has the meaning given such term by section 411(a)(5). 
‘‘(H) TRANSITION RULE FOR SECURITIES ATTRIBUTABLE 
TO EMPLOYER CONTRIBUTIONS.—
‘‘(i) RULES PHASED IN OVER 3 YEARS.—
‘‘(I) IN GENERAL.—In the case of the portion 
of an account to which subparagraph (C) applies 
and which consists of employer securities acquired 
in a plan year beginning before January 1, 2007, 
subparagraph (C) shall only apply to the applicable 
percentage of such securities. This subparagraph 
shall be applied separately with respect to each 
class of securities. 
‘‘(II) EXCEPTION
FOR
CERTAIN
PARTICIPANTS 
AGED 55 OR OVER.—Subclause (I) shall not apply 
to an applicable individual who is a participant 
who has attained age 55 and completed at least 
3 years of service before the first plan year begin-
ning after December 31, 2005. 
‘‘(ii) APPLICABLE
PERCENTAGE.—For purposes of 
clause (i), the applicable percentage shall be deter-
mined as follows:
‘‘Plan year to which 
The 
applicable 
subparagraph (C) applies: 
percentage is:
1st ...........................................................................................
2d ............................................................................................
3d and following ....................................................................
100.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 401(a)(28)(B) of such Code (relating to addi-
tional requirements relating to employee stock ownership 
plans) is amended by adding at the end the following 
new clause: 
‘‘(v) EXCEPTION.—This subparagraph shall not 
apply to an applicable defined contribution plan (as 
defined in paragraph (35)(E)).’’. 
(B) Section 409(h)(7) of such Code is amended by 
inserting ‘‘or subparagraph (B) or (C) of section 401(a)(35)’’ 
before the period at the end. 
(C) Section 4980(c)(3)(A) of such Code is amended by 
striking ‘‘if—’’ and all that follows and inserting ‘‘if the 
requirements of subparagraphs (B), (C), and (D) are met.’’. 
(b) AMENDMENTS OF ERISA.—
(1) IN GENERAL.—Section 204 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054) is amended by 
redesignating subsection (j) as subsection (k) and by inserting 
after subsection (i) the following new subsection: 
‘‘(j) DIVERSIFICATION REQUIREMENTS FOR CERTAIN INDIVIDUAL 
ACCOUNT PLANS.—
H. R. 4—251
‘‘(1) IN GENERAL.—An applicable individual account plan 
shall meet the diversification requirements of paragraphs (2), 
(3), and (4). 
‘‘(2) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS 
INVESTED IN EMPLOYER SECURITIES.—In the case of the portion 
of an applicable individual’s account attributable to employee 
contributions and elective deferrals which is invested in 
employer securities, a plan meets the requirements of this 
paragraph if the applicable individual may elect to direct the 
plan to divest any such securities and to reinvest an equivalent 
amount in other investment options meeting the requirements 
of paragraph (4). 
‘‘(3) EMPLOYER
CONTRIBUTIONS
INVESTED
IN
EMPLOYER 
SECURITIES.—In the case of the portion of the account attrib-
utable to employer contributions other than elective deferrals 
which is invested in employer securities, a plan meets the 
requirements of this paragraph if each applicable individual 
who—
‘‘(A) is a participant who has completed at least 3 
years of service, or 
‘‘(B) is a beneficiary of a participant described in 
subparagraph (A) or of a deceased participant, 
may elect to direct the plan to divest any such securities and 
to reinvest an equivalent amount in other investment options 
meeting the requirements of paragraph (4). 
‘‘(4) INVESTMENT OPTIONS.—
‘‘(A) IN GENERAL.—The requirements of this paragraph 
are met if the plan offers not less than 3 investment 
options, other than employer securities, to which an 
applicable individual may direct the proceeds from the 
divestment of employer securities pursuant to this sub-
section, each of which is diversified and has materially 
different risk and return characteristics. 
‘‘(B) TREATMENT OF CERTAIN RESTRICTIONS AND CONDI-
TIONS.—
‘‘(i) TIME
FOR
MAKING
INVESTMENT
CHOICES.—A 
plan shall not be treated as failing to meet the require-
ments of this paragraph merely because the plan limits 
the time for divestment and reinvestment to periodic, 
reasonable opportunities occurring no less frequently 
than quarterly. 
‘‘(ii) CERTAIN RESTRICTIONS AND CONDITIONS NOT 
ALLOWED.—Except as provided in regulations, a plan 
shall not meet the requirements of this paragraph 
if the plan imposes restrictions or conditions with 
respect to the investment of employer securities which 
are not imposed on the investment of other assets 
of the plan. This subparagraph shall not apply to any 
restrictions or conditions imposed by reason of the 
application of securities laws. 
‘‘(5) APPLICABLE INDIVIDUAL ACCOUNT PLAN.—For purposes 
of this subsection—
‘‘(A) IN
GENERAL.—The term ‘applicable individual 
account plan’ means any individual account plan (as 
defined in section 3(34)) which holds any publicly traded 
employer securities.
H. R. 4—252
‘‘(B) EXCEPTION FOR CERTAIN ESOPS.—Such term does 
not include an employee stock ownership plan if—
‘‘(i) there are no contributions to such plan (or 
earnings thereunder) which are held within such plan 
and are subject to subsection (k) or (m) of section 
401 of the Internal Revenue Code of 1986, and 
‘‘(ii) such plan is a separate plan (for purposes 
of section 414(l) of such Code) with respect to any 
other defined benefit plan or individual account plan 
maintained by the same employer or employers. 
‘‘(C) EXCEPTION
FOR
ONE
PARTICIPANT
PLANS.—Such 
term shall not include a one-participant retirement plan 
(as defined in section 101(i)(8)(B)). 
‘‘(D) CERTAIN PLANS TREATED AS HOLDING PUBLICLY 
TRADED EMPLOYER SECURITIES.—
‘‘(i) IN GENERAL.—Except as provided in regula-
tions or in clause (ii), a plan holding employer securi-
ties which are not publicly traded employer securities 
shall be treated as holding publicly traded employer 
securities if any employer corporation, or any member 
of a controlled group of corporations which includes 
such employer corporation, has issued a class of stock 
which is a publicly traded employer security. 
‘‘(ii) EXCEPTION FOR CERTAIN CONTROLLED GROUPS 
WITH PUBLICLY TRADED SECURITIES.—Clause (i) shall 
not apply to a plan if—
‘‘(I) no employer corporation, or parent cor-
poration of an employer corporation, has issued 
any publicly traded employer security, and 
‘‘(II) no employer corporation, or parent cor-
poration of an employer corporation, has issued 
any special class of stock which grants particular 
rights to, or bears particular risks for, the holder 
or issuer with respect to any corporation described 
in clause (i) which has issued any publicly traded 
employer security. 
‘‘(iii) DEFINITIONS.—For purposes of this subpara-
graph, the term—
‘‘(I) ‘controlled group of corporations’ has the 
meaning given such term by section 1563(a) of 
the Internal Revenue Code of 1986, except that 
‘50 percent’ shall be substituted for ‘80 percent’ 
each place it appears, 
‘‘(II) ‘employer corporation’ means a corpora-
tion which is an employer maintaining the plan, 
and 
‘‘(III) ‘parent corporation’ has the meaning 
given such term by section 424(e) of such Code. 
‘‘(6) OTHER DEFINITIONS.—For purposes of this paragraph—
‘‘(A) APPLICABLE
INDIVIDUAL.—The term ‘applicable 
individual’ means—
‘‘(i) any participant in the plan, and 
‘‘(ii) any beneficiary who has an account under 
the plan with respect to which the beneficiary is enti-
tled to exercise the rights of a participant.
H. R. 4—253
‘‘(B) ELECTIVE DEFERRAL.—The term ‘elective deferral’ 
means an employer contribution described in section 
402(g)(3)(A) of the Internal Revenue Code of 1986. 
‘‘(C) EMPLOYER SECURITY.—The term ‘employer secu-
rity’ has the meaning given such term by section 407(d)(1). 
‘‘(D) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term 
‘employee stock ownership plan’ has the meaning given 
such term by section 4975(e)(7) of such Code. 
‘‘(E) PUBLICLY
TRADED
EMPLOYER
SECURITIES.—The 
term ‘publicly traded employer securities’ means employer 
securities which are readily tradable on an established 
securities market. 
‘‘(F) YEAR OF SERVICE.—The term ‘year of service’ has 
the meaning given such term by section 203(b)(2). 
‘‘(7) TRANSITION
RULE
FOR
SECURITIES
ATTRIBUTABLE
TO 
EMPLOYER CONTRIBUTIONS.—
‘‘(A) RULES PHASED IN OVER 3 YEARS.—
‘‘(i) IN GENERAL.—In the case of the portion of 
an account to which paragraph (3) applies and which 
consists of employer securities acquired in a plan year 
beginning before January 1, 2007, paragraph (3) shall 
only apply to the applicable percentage of such securi-
ties. This subparagraph shall be applied separately 
with respect to each class of securities. 
‘‘(ii) EXCEPTION FOR CERTAIN PARTICIPANTS AGED 
55 OR OVER.—Clause (i) shall not apply to an applicable 
individual who is a participant who has attained age 
55 and completed at least 3 years of service before 
the first plan year beginning after December 31, 2005. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of 
subparagraph (A), the applicable percentage shall be deter-
mined as follows:
‘‘Plan year to which 
The 
applicable 
paragraph (3) applies: 
percentage is:
1st ..................................................................................................
2d ...................................................................................................
3d ...................................................................................................
100.’’.
(2) CONFORMING AMENDMENT.—Section 407(b)(3) of such 
Act (29 U.S.C. 1107(b)(3)) is amended by adding at the end 
the following: 
‘‘(D) 
For 
diversification 
requirements 
for 
qualifying 
employer securities held in certain individual account plans, 
see section 204(j).’’. 
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as provided in paragraphs (2) 
and (3), the amendments made by this section shall apply 
to plan years beginning after December 31, 2006. 
(2) SPECIAL
RULE
FOR
COLLECTIVELY
BARGAINED
AGREE-
MENTS.—In the case of a plan maintained pursuant to 1 or 
more collective bargaining agreements between employee rep-
resentatives and 1 or more employers ratified on or before 
the date of the enactment of this Act, paragraph (1) shall 
be applied to benefits pursuant to, and individuals covered 
by, any such agreement by substituting for ‘‘December 31, 
2006’’ the earlier of—
(A) the later of—
H. R. 4—254
(i) December 31, 2007, or 
(ii) the date on which the last of such collective 
bargaining agreements terminates (determined without 
regard to any extension thereof after such date of 
enactment), or 
(B) December 31, 2008. 
(3) SPECIAL RULE FOR CERTAIN EMPLOYER SECURITIES HELD 
IN AN ESOP.—
(A) IN GENERAL.—In the case of employer securities 
to which this paragraph applies, the amendments made 
by this section shall apply to plan years beginning after 
the earlier of—
(i) December 31, 2007, or 
(ii) the first date on which the fair market value 
of such securities exceeds the guaranteed minimum 
value described in subparagraph (B)(ii). 
(B) APPLICABLE
SECURITIES.—This paragraph shall 
apply to employer securities which are attributable to 
employer contributions other than elective deferrals, and 
which, on September 17, 2003—
(i) consist of preferred stock, and 
(ii) are within an employee stock ownership plan 
(as defined in section 4975(e)(7) of the Internal Rev-
enue Code of 1986), the terms of which provide that 
the value of the securities cannot be less than the 
guaranteed minimum value specified by the plan on 
such date. 
(C) 
COORDINATION
WITH
TRANSITION
RULE.—In 
applying section 401(a)(35)(H) of the Internal Revenue Code 
of 1986 and section 204(j)(7) of the Employee Retirement 
Income Security Act of 1974 (as added by this section) 
to employer securities to which this paragraph applies, 
the applicable percentage shall be determined without 
regard to this paragraph. 
SEC. 902. INCREASING PARTICIPATION THROUGH AUTOMATIC CON-
TRIBUTION ARRANGEMENTS. 
(a) IN GENERAL.—Section 401(k) of the Internal Revenue Code 
of 1986 (relating to cash or deferred arrangement) is amended 
by adding at the end the following new paragraph: 
‘‘(13) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION 
ARRANGEMENTS TO MEET NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A qualified automatic contribution 
arrangement shall be treated as meeting the requirements 
of paragraph (3)(A)(ii). 
‘‘(B) QUALIFIED
AUTOMATIC
CONTRIBUTION
ARRANGE-
MENT.—For purposes of this paragraph, the term ‘qualified 
automatic contribution arrangement’ means any cash or 
deferred arrangement which meets the requirements of 
subparagraphs (C) through (E). 
‘‘(C) AUTOMATIC DEFERRAL.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if, under the arrangement, each 
employee eligible to participate in the arrangement 
is treated as having elected to have the employer make 
elective contributions in an amount equal to a qualified 
percentage of compensation.
H. R. 4—255
‘‘(ii) ELECTION
OUT.—The election treated as 
having been made under clause (i) shall cease to apply 
with respect to any employee if such employee makes 
an affirmative election—
‘‘(I) to not have such contributions made, or 
‘‘(II) to make elective contributions at a level 
specified in such affirmative election. 
‘‘(iii) QUALIFIED PERCENTAGE.—For purposes of this 
subparagraph, the term ‘qualified percentage’ means, 
with respect to any employee, any percentage deter-
mined under the arrangement if such percentage is 
applied uniformly, does not exceed 10 percent, and 
is at least—
‘‘(I) 3 percent during the period ending on 
the last day of the first plan year which begins 
after the date on which the first elective contribu-
tion described in clause (i) is made with respect 
to such employee, 
‘‘(II) 4 percent during the first plan year fol-
lowing the plan year described in subclause (I), 
‘‘(III) 5 percent during the second plan year 
following the plan year described in subclause (I), 
and 
‘‘(IV) 6 percent during any subsequent plan 
year. 
‘‘(iv) 
AUTOMATIC
DEFERRAL
FOR
CURRENT 
EMPLOYEES NOT REQUIRED.—Clause (i) may be applied 
without taking into account any employee who—
‘‘(I) was eligible to participate in the arrange-
ment (or a predecessor arrangement) immediately 
before the date on which such arrangement 
becomes 
a 
qualified 
automatic 
contribution 
arrangement (determined after application of this 
clause), and 
‘‘(II) had an election in effect on such date 
either to participate in the arrangement or to not 
participate in the arrangement. 
‘‘(D) MATCHING OR NONELECTIVE CONTRIBUTIONS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if, under the arrangement, the 
employer—
‘‘(I) makes matching contributions on behalf 
of each employee who is not a highly compensated 
employee in an amount equal to the sum of 100 
percent of the elective contributions of the 
employee to the extent that such contributions 
do not exceed 1 percent of compensation plus 50 
percent of so much of such compensation as 
exceeds 1 percent but does not exceed 6 percent 
of compensation, or 
‘‘(II) is required, without regard to whether 
the employee makes an elective contribution or 
employee contribution, to make a contribution to 
a defined contribution plan on behalf of each 
employee who is not a highly compensated 
employee and who is eligible to participate in the
H. R. 4—256
arrangement in an amount equal to at least 3 
percent of the employee’s compensation. 
‘‘(ii) APPLICATION OF RULES FOR MATCHING CON-
TRIBUTIONS.—The rules of clauses (ii) and (iii) of para-
graph (12)(B) shall apply for purposes of clause (i)(I). 
‘‘(iii) WITHDRAWAL AND VESTING RESTRICTIONS.—
An arrangement shall not be treated as meeting the 
requirements of clause (i) unless, with respect to 
employer contributions (including matching contribu-
tions) taken into account in determining whether the 
requirements of clause (i) are met—
‘‘(I) any employee who has completed at least 
2 years of service (within the meaning of section 
411(a)) has a nonforfeitable right to 100 percent 
of the employee’s accrued benefit derived from such 
employer contributions, and 
‘‘(II) the requirements of subparagraph (B) of 
paragraph (2) are met with respect to all such 
employer contributions. 
‘‘(iv) APPLICATION OF CERTAIN OTHER RULES.—The 
rules of subparagraphs (E)(ii) and (F) of paragraph 
(12) shall apply for purposes of subclauses (I) and 
(II) of clause (i). 
‘‘(E) NOTICE REQUIREMENTS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if, within a reasonable period 
before each plan year, each employee eligible to partici-
pate in the arrangement for such year receives written 
notice of the employee’s rights and obligations under 
the arrangement which—
‘‘(I) is sufficiently accurate and comprehensive 
to apprise the employee of such rights and obliga-
tions, and 
‘‘(II) is written in a manner calculated to be 
understood by the average employee to whom the 
arrangement applies. 
‘‘(ii) TIMING
AND
CONTENT
REQUIREMENTS.—A 
notice shall not be treated as meeting the requirements 
of clause (i) with respect to an employee unless—
‘‘(I) the notice explains the employee’s right 
under the arrangement to elect not to have elective 
contributions made on the employee’s behalf (or 
to elect to have such contributions made at a dif-
ferent percentage), 
‘‘(II) in the case of an arrangement under 
which the employee may elect among 2 or more 
investment options, the notice explains how con-
tributions made under the arrangement will be 
invested in the absence of any investment election 
by the employee, and 
‘‘(III) the employee has a reasonable period 
of time after receipt of the notice described in 
subclauses (I) and (II) and before the first elective 
contribution is made to make either such election.’’. 
(b) MATCHING CONTRIBUTIONS.—Section 401(m) of such Code 
(relating to nondiscrimination test for matching contributions and 
employee contributions) is amended by redesignating paragraph
H. R. 4—257
(12) as paragraph (13) and by inserting after paragraph (11) the 
following new paragraph: 
‘‘(12) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION 
ARRANGEMENTS.—A defined contribution plan shall be treated 
as meeting the requirements of paragraph (2) with respect 
to matching contributions if the plan—
‘‘(A) is a qualified automatic contribution arrangement 
(as defined in subsection (k)(13)), and 
‘‘(B) meets the requirements of paragraph (11)(B).’’. 
(c) EXCLUSION FROM DEFINITION OF TOP-HEAVY PLANS.—
(1) ELECTIVE CONTRIBUTION RULE.—Clause (i) of section 
416(g)(4)(H) of such Code is amended by inserting ‘‘or 
401(k)(13)’’ after ‘‘section 401(k)(12)’’. 
(2) MATCHING CONTRIBUTION RULE.—Clause (ii) of section 
416(g)(4)(H) of such Code is amended by inserting ‘‘or 
401(m)(12)’’ after ‘‘section 401(m)(11)’’. 
(d) TREATMENT OF WITHDRAWALS OF CONTRIBUTIONS DURING 
FIRST 90 DAYS.—
(1) IN GENERAL.—Section 414 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new 
subsection: 
‘‘(w) SPECIAL RULES FOR CERTAIN WITHDRAWALS FROM ELIGIBLE 
AUTOMATIC CONTRIBUTION ARRANGEMENTS.—
‘‘(1) IN
GENERAL.—If an eligible automatic contribution 
arrangement allows an employee to elect to make permissible 
withdrawals—
‘‘(A) the amount of any such withdrawal shall be 
includible in the gross income of the employee for the 
taxable year of the employee in which the distribution 
is made, 
‘‘(B) no tax shall be imposed under section 72(t) with 
respect to the distribution, and 
‘‘(C) the arrangement shall not be treated as violating 
any restriction on distributions under this title solely by 
reason of allowing the withdrawal. 
In the case of any distribution to an employee by reason of 
an election under this paragraph, employer matching contribu-
tions shall be forfeited or subject to such other treatment as 
the Secretary may prescribe. 
‘‘(2) PERMISSIBLE WITHDRAWAL.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘permissible withdrawal’ 
means any withdrawal from an eligible automatic contribu-
tion arrangement meeting the requirements of this para-
graph which—
‘‘(i) is made pursuant to an election by an 
employee, and 
‘‘(ii) consists of elective contributions described in 
paragraph (3)(B) (and earnings attributable thereto). 
‘‘(B) TIME FOR MAKING ELECTION.—Subparagraph (A) 
shall not apply to an election by an employee unless the 
election is made no later than the date which is 90 days 
after the date of the first elective contribution with respect 
to the employee under the arrangement. 
‘‘(C) AMOUNT
OF
DISTRIBUTION.—Subparagraph (A) 
shall not apply to any election by an employee unless 
the amount of any distribution by reason of the election
H. R. 4—258
is equal to the amount of elective contributions made with 
respect to the first payroll period to which the eligible 
automatic 
contribution 
arrangement 
applies 
to 
the 
employee and any succeeding payroll period beginning 
before the effective date of the election (and earnings attrib-
utable thereto). 
‘‘(3) ELIGIBLE AUTOMATIC CONTRIBUTION ARRANGEMENT.—
For purposes of this subsection, the term ‘eligible automatic 
contribution arrangement’ means an arrangement under an 
applicable employer plan—
‘‘(A) under which a participant may elect to have the 
employer make payments as contributions under the plan 
on behalf of the participant, or to the participant directly 
in cash, 
‘‘(B) under which the participant is treated as having 
elected to have the employer make such contributions in 
an amount equal to a uniform percentage of compensation 
provided under the plan until the participant specifically 
elects not to have such contributions made (or specifically 
elects to have such contributions made at a different 
percentage), 
‘‘(C) under which, in the absence of an investment 
election by the participant, contributions described in 
subparagraph (B) are invested in accordance with regula-
tions prescribed by the Secretary of Labor under section 
404(c)(5) of the Employee Retirement Income Security Act 
of 1974, and 
‘‘(D) which meets the requirements of paragraph (4). 
‘‘(4) NOTICE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The administrator of a plan con-
taining an arrangement described in paragraph (3) shall, 
within a reasonable period before each plan year, give 
to each employee to whom an arrangement described in 
paragraph (3) applies for such plan year notice of the 
employee’s rights and obligations under the arrangement 
which—
‘‘(i) is sufficiently accurate and comprehensive to 
apprise the employee of such rights and obligations, 
and 
‘‘(ii) is written in a manner calculated to be under-
stood by the average employee to whom the arrange-
ment applies. 
‘‘(B) TIME AND FORM OF NOTICE.—A notice shall not 
be treated as meeting the requirements of subparagraph 
(A) with respect to an employee unless—
‘‘(i) the notice includes an explanation of the 
employee’s right under the arrangement to elect not 
to have elective contributions made on the employee’s 
behalf (or to elect to have such contributions made 
at a different percentage), 
‘‘(ii) the employee has a reasonable period of time 
after receipt of the notice described in clause (i) and 
before the first elective contribution is made to make 
such election, and 
‘‘(iii) the notice explains how contributions made 
under the arrangement will be invested in the absence 
of any investment election by the employee.
H. R. 4—259
‘‘(5) APPLICABLE EMPLOYER PLAN.—For purposes of this sub-
section, the term ‘applicable employer plan’ means—
‘‘(A) an employees’ trust described in section 401(a) 
which is exempt from tax under section 501(a), 
‘‘(B) a plan under which amounts are contributed by 
an individual’s employer for an annuity contract described 
in section 403(b), and 
‘‘(C) an eligible deferred compensation plan described 
in section 457(b) which is maintained by an eligible 
employer described in section 457(e)(1)(A). 
‘‘(6) SPECIAL RULE.—A withdrawal described in paragraph 
(1) (subject to the limitation of paragraph (2)(C)) shall not 
be taken into account for purposes of section 401(k)(3).’’. 
(2) VESTING CONFORMING AMENDMENTS.—
(A) Section 411(a)(3)(G) of such Code is amended by 
inserting ‘‘an erroneous automatic contribution under sec-
tion 414(w),’’ after ‘‘402(g)(2)(A),’’. 
(B) The heading of section 411(a)(3)(G) of such Code 
is amended by inserting ‘‘OR ERRONEOUS AUTOMATIC CON-
TRIBUTION’’ before the period. 
(C) Section 401(k)(8)(E) of such Code is amended by 
inserting ‘‘an erroneous automatic contribution under sec-
tion 414(w),’’ after ‘‘402(g)(2)(A),’’. 
(D) The heading of section 401(k)(8)(E) of such Code 
is amended by inserting ‘‘OR ERRONEOUS AUTOMATIC CON-
TRIBUTION’’ before the period. 
(E) Section 203(a)(3)(F) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)(3)(F)) is 
amended by inserting ‘‘an erroneous automatic contribution 
under section 414(w) of such Code,’’ after ‘‘402(g)(2)(A) of 
such Code,’’. 
(e) EXCESS CONTRIBUTIONS.—
(1) EXPANSION OF CORRECTIVE DISTRIBUTION PERIOD FOR 
AUTOMATIC
CONTRIBUTION
ARRANGEMENTS.—Subsection (f) of 
section 4979 of the Internal Revenue Code of 1986 is amended—
(A) by inserting ‘‘(6 months in the case of an excess 
contribution or excess aggregate contribution to an eligible 
automatic contribution arrangement (as defined in section 
414(w)(3)))’’ after ‘‘21⁄2 months’’ in paragraph (1), and 
(B) by striking ‘‘21⁄2 MONTHS OF’’ in the heading and 
inserting ‘‘SPECIFIED PERIOD AFTER’’. 
(2) YEAR OF INCLUSION.—Paragraph (2) of section 4979(f) 
of such Code is amended to read as follows: 
‘‘(2) YEAR OF INCLUSION.—Any amount distributed as pro-
vided in paragraph (1) shall be treated as earned and received 
by the recipient in the recipient’s taxable year in which such 
distributions were made.’’. 
(3) SIMPLIFICATION OF ALLOCABLE EARNINGS.—
(A) SECTION 4979.—Paragraph (1) of section 4979(f) of 
such Code is amended by adding ‘‘through the end of the 
plan year for which the contribution was made’’ after 
‘‘thereto’’. 
(B) SECTION 401(k) AND 401(m).—
(i) Clause (i) of section 401(k)(8)(A) of such Code 
is amended by adding ‘‘through the end of such year’’ 
after ‘‘such contributions’’.
H. R. 4—260
(ii) Subparagraph (A) of section 401(m)(6) of such 
Code is amended by adding ‘‘through the end of such 
year’’ after ‘‘to such contributions’’. 
(f) PREEMPTION OF CONFLICTING STATE REGULATION.—
(1) IN GENERAL.—Section 514 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1144) is amended by 
adding at the end the following new subsection: 
‘‘(e)(1) Notwithstanding any other provision of this section, this 
title shall supersede any law of a State which would directly or 
indirectly prohibit or restrict the inclusion in any plan of an auto-
matic contribution arrangement. The Secretary may prescribe regu-
lations which would establish minimum standards that such an 
arrangement would be required to satisfy in order for this subsection 
to apply in the case of such arrangement. 
‘‘(2) For purposes of this subsection, the term ‘automatic con-
tribution arrangement’ means an arrangement—
‘‘(A) under which a participant may elect to have the plan 
sponsor make payments as contributions under the plan on 
behalf of the participant, or to the participant directly in cash, 
‘‘(B) under which a participant is treated as having elected 
to have the plan sponsor make such contributions in an amount 
equal to a uniform percentage of compensation provided under 
the plan until the participant specifically elects not to have 
such contributions made (or specifically elects to have such 
contributions made at a different percentage), and 
‘‘(C) under which such contributions are invested in accord-
ance with regulations prescribed by the Secretary under section 
404(c)(5). 
‘‘(3)(A) The plan administrator of an automatic contribution 
arrangement shall, within a reasonable period before such plan 
year, provide to each participant to whom the arrangement applies 
for such plan year notice of the participant’s rights and obligations 
under the arrangement which—
‘‘(i) is sufficiently accurate and comprehensive to apprise 
the participant of such rights and obligations, and 
‘‘(ii) is written in a manner calculated to be understood 
by the average participant to whom the arrangement applies. 
‘‘(B) A notice shall not be treated as meeting the requirements 
of subparagraph (A) with respect to a participant unless—
‘‘(i) the notice includes an explanation of the participant’s 
right under the arrangement not to have elective contributions 
made on the participant’s behalf (or to elect to have such 
contributions made at a different percentage), 
‘‘(ii) the participant has a reasonable period of time, after 
receipt of the notice described in clause (i) and before the 
first elective contribution is made, to make such election, and 
‘‘(iii) the notice explains how contributions made under 
the arrangement will be invested in the absence of any invest-
ment election by the participant.’’. 
(2) ENFORCEMENT.—Section 502(c)(4) of such Act (29 U.S.C. 
1132(c)(4)) is amended by striking ‘‘or section 302(b)(7)(F)(vi)’’ 
inserting ‘‘, section 302(b)(7)(F)(vi), or section 514(e)(3)’’. 
(g) EFFECTIVE DATE.—The amendments made by this section 
shall apply to plan years beginning after December 31, 2007, except 
that the amendments made by subsection (f) shall take effect on 
the date of the enactment of this Act.
H. R. 4—261
SEC. 903. TREATMENT OF ELIGIBLE COMBINED DEFINED BENEFIT 
PLANS AND QUALIFIED CASH OR DEFERRED ARRANGE-
MENTS. 
(a) AMENDMENTS OF INTERNAL REVENUE CODE.—Section 414 
of the Internal Revenue Code of 1986, as amended by this Act, 
is amended by adding at the end the following new subsection: 
‘‘(x) SPECIAL RULES FOR ELIGIBLE COMBINED DEFINED BENEFIT 
PLANS AND QUALIFIED CASH OR DEFERRED ARRANGEMENTS.—
‘‘(1) GENERAL RULE.—Except as provided in this subsection, 
the requirements of this title shall be applied to any defined 
benefit plan or applicable defined contribution plan which are 
part of an eligible combined plan in the same manner as 
if each such plan were not a part of the eligible combined 
plan. 
‘‘(2) ELIGIBLE COMBINED PLAN.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘eligible combined plan’ 
means a plan—
‘‘(i) which is maintained by an employer which, 
at the time the plan is established, is a small employer, 
‘‘(ii) which consists of a defined benefit plan and 
an applicable defined contribution plan, 
‘‘(iii) the assets of which are held in a single trust 
forming part of the plan and are clearly identified 
and allocated to the defined benefit plan and the 
applicable defined contribution plan to the extent nec-
essary for the separate application of this title under 
paragraph (1), and 
‘‘(iv) with respect to which the benefit, contribu-
tion, vesting, and nondiscrimination requirements of 
subparagraphs (B), (C), (D), (E), and (F) are met. 
For purposes of this subparagraph, the term ‘small 
employer’ has the meaning given such term by section 
4980D(d)(2), except that such section shall be applied by 
substituting ‘500’ for ‘50’ each place it appears. 
‘‘(B) BENEFIT REQUIREMENTS.—
‘‘(i) IN GENERAL.—The benefit requirements of this 
subparagraph are met with respect to the defined ben-
efit plan forming part of the eligible combined plan 
if the accrued benefit of each participant derived from 
employer contributions, when expressed as an annual 
retirement benefit, is not less than the applicable 
percentage of the participant’s final average pay. For 
purposes of this clause, final average pay shall be 
determined using the period of consecutive years (not 
exceeding 5) during which the participant had the 
greatest aggregate compensation from the employer. 
‘‘(ii) APPLICABLE
PERCENTAGE.—For purposes of 
clause (i), the applicable percentage is the lesser of—
‘‘(I) 1 percent multiplied by the number of 
years of service with the employer, or 
‘‘(II) 20 percent. 
‘‘(iii) SPECIAL RULE FOR APPLICABLE DEFINED BEN-
EFIT PLANS.—If the defined benefit plan under clause 
(i) is an applicable defined benefit plan as defined 
in section 411(a)(13)(B) which meets the interest credit 
requirements of section 411(b)(5)(B)(i), the plan shall
H. R. 4—262
be treated as meeting the requirements of clause (i) 
with respect to any plan year if each participant 
receives a pay credit for the year which is not less 
than the percentage of compensation determined in 
accordance with the following table:
‘‘If the participant’s age as of the 
beginning of the year is—
The 
percentage 
is—
30 or less ................................................................................
Over 30 but less than 40 .......................................................
40 or over but less than 50 ...................................................
50 or over ...............................................................................
8.
‘‘(iv) YEARS
OF
SERVICE.—For purposes of this 
subparagraph, years of service shall be determined 
under the rules of paragraphs (4), (5), and (6) of section 
411(a), except that the plan may not disregard any 
year of service because of a participant making, or 
failing to make, any elective deferral with respect to 
the qualified cash or deferred arrangement to which 
subparagraph (C) applies. 
‘‘(C) CONTRIBUTION REQUIREMENTS.—
‘‘(i) IN GENERAL.—The contribution requirements 
of this subparagraph with respect to any applicable 
defined contribution plan forming part of an eligible 
combined plan are met if—
‘‘(I) the qualified cash or deferred arrangement 
included in such plan constitutes an automatic 
contribution arrangement, and 
‘‘(II) the employer is required to make 
matching contributions on behalf of each employee 
eligible to participate in the arrangement in an 
amount equal to 50 percent of the elective contribu-
tions of the employee to the extent such elective 
contributions do not exceed 4 percent of compensa-
tion. 
Rules similar to the rules of clauses (ii) and (iii) of 
section 401(k)(12)(B) shall apply for purposes of this 
clause. 
‘‘(ii) NONELECTIVE CONTRIBUTIONS.—An applicable 
defined contribution plan shall not be treated as failing 
to meet the requirements of clause (i) because the 
employer makes nonelective contributions under the 
plan but such contributions shall not be taken into 
account in determining whether the requirements of 
clause (i)(II) are met. 
‘‘(D) VESTING
REQUIREMENTS.—The vesting require-
ments of this subparagraph are met if—
‘‘(i) in the case of a defined benefit plan forming 
part of an eligible combined plan an employee who 
has completed at least 3 years of service has a non-
forfeitable right to 100 percent of the employee’s 
accrued benefit under the plan derived from employer 
contributions, and 
‘‘(ii) in the case of an applicable defined contribu-
tion plan forming part of eligible combined plan—
‘‘(I) an employee has a nonforfeitable right 
to any matching contribution made under the
H. R. 4—263
qualified cash or deferred arrangement included 
in such plan by an employer with respect to any 
elective contribution, including matching contribu-
tions in excess of the contributions required under 
subparagraph (C)(i)(II), and 
‘‘(II) an employee who has completed at least 
3 years of service has a nonforfeitable right to 
100 percent of the employee’s accrued benefit 
derived under the arrangement from nonelective 
contributions of the employer. 
For purposes of this subparagraph, the rules of section 
411 shall apply to the extent not inconsistent with 
this subparagraph. 
‘‘(E) UNIFORM PROVISION OF CONTRIBUTIONS AND BENE-
FITS.—In the case of a defined benefit plan or applicable 
defined contribution plan forming part of an eligible com-
bined plan, the requirements of this subparagraph are 
met if all contributions and benefits under each such plan, 
and all rights and features under each such plan, must 
be provided uniformly to all participants. 
‘‘(F) REQUIREMENTS MUST BE MET WITHOUT TAKING INTO 
ACCOUNT SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS AND 
BENEFITS OR OTHER PLANS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if the requirements of clauses 
(ii) and (iii) are met. 
‘‘(ii) SOCIAL
SECURITY
AND
SIMILAR
CONTRIBU-
TIONS.—The requirements of this clause are met if—
‘‘(I) the requirements of subparagraphs (B) and 
(C) are met without regard to section 401(l), and 
‘‘(II) the requirements of sections 401(a)(4) and 
410(b) are met with respect to both the applicable 
defined contribution plan and defined benefit plan 
forming part of an eligible combined plan without 
regard to section 401(l). 
‘‘(iii) OTHER
PLANS
AND
ARRANGEMENTS.—The 
requirements of this clause are met if the applicable 
defined contribution plan and defined benefit plan 
forming part of an eligible combined plan meet the 
requirements of sections 401(a)(4) and 410(b) without 
being combined with any other plan. 
‘‘(3) NONDISCRIMINATION
REQUIREMENTS
FOR
QUALIFIED 
CASH OR DEFERRED ARRANGEMENT.—
‘‘(A) IN
GENERAL.—A qualified cash or deferred 
arrangement which is included in an applicable defined 
contribution plan forming part of an eligible combined plan 
shall be treated as meeting the requirements of section 
401(k)(3)(A)(ii) if the requirements of paragraph (2)(C) are 
met with respect to such arrangement. 
‘‘(B) MATCHING CONTRIBUTIONS.—In applying section 
401(m)(11) to any matching contribution with respect to 
a contribution to which paragraph (2)(C) applies, the con-
tribution requirement of paragraph (2)(C) and the notice 
requirements of paragraph (5)(B) shall be substituted for 
the requirements otherwise applicable under clauses (i) 
and (ii) of section 401(m)(11)(A).
H. R. 4—264
‘‘(4) SATISFACTION OF TOP-HEAVY RULES.—A defined benefit 
plan and applicable defined contribution plan forming part 
of an eligible combined plan for any plan year shall be treated 
as meeting the requirements of section 416 for the plan year. 
‘‘(5) AUTOMATIC
CONTRIBUTION
ARRANGEMENT.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—A qualified cash or deferred 
arrangement shall be treated as an automatic contribution 
arrangement if the arrangement—
‘‘(i) provides that each employee eligible to partici-
pate in the arrangement is treated as having elected 
to have the employer make elective contributions in 
an amount equal to 4 percent of the employee’s com-
pensation unless the employee specifically elects not 
to have such contributions made or to have such con-
tributions made at a different rate, and 
‘‘(ii) meets the notice requirements under subpara-
graph (B). 
‘‘(B) NOTICE REQUIREMENTS.—
‘‘(i) IN
GENERAL.—The requirements of this 
subparagraph are met if the requirements of clauses 
(ii) and (iii) are met. 
‘‘(ii) REASONABLE PERIOD TO MAKE ELECTION.—The 
requirements of this clause are met if each employee 
to whom subparagraph (A)(i) applies—
‘‘(I) receives a notice explaining the employee’s 
right under the arrangement to elect not to have 
elective contributions made on the employee’s 
behalf or to have the contributions made at a 
different rate, and 
‘‘(II) has a reasonable period of time after 
receipt of such notice and before the first elective 
contribution is made to make such election. 
‘‘(iii) ANNUAL
NOTICE
OF
RIGHTS
AND
OBLIGA-
TIONS.—The requirements of this clause are met if 
each employee eligible to participate in the arrange-
ment is, within a reasonable period before any year, 
given notice of the employee’s rights and obligations 
under the arrangement. 
The requirements of clauses (i) and (ii) of section 
401(k)(12)(D) shall be met with respect to the notices 
described in clauses (ii) and (iii) of this subparagraph. 
‘‘(6) COORDINATION WITH OTHER REQUIREMENTS.—
‘‘(A) TREATMENT OF SEPARATE PLANS.—Section 414(k) 
shall not apply to an eligible combined plan. 
‘‘(B) REPORTING.—An eligible combined plan shall be 
treated as a single plan for purposes of sections 6058 
and 6059. 
‘‘(7) APPLICABLE DEFINED CONTRIBUTION PLAN.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘applicable defined con-
tribution plan’ means a defined contribution plan which 
includes a qualified cash or deferred arrangement. 
‘‘(B) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—
The term ‘qualified cash or deferred arrangement’ has the 
meaning given such term by section 401(k)(2).’’.
H. R. 4—265
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECU-
RITY ACT OF 1974.—
(1) IN GENERAL.—Section 210 of the Employee Retirement 
Income Security Act of 1974 is amended by adding at the 
end the following new subsection: 
‘‘(e) SPECIAL RULES FOR ELIGIBLE COMBINED DEFINED BENEFIT 
PLANS AND QUALIFIED CASH OR DEFERRED ARRANGEMENTS.—
‘‘(1) GENERAL RULE.—Except as provided in this subsection, 
this Act shall be applied to any defined benefit plan or 
applicable individual account plan which are part of an eligible 
combined plan in the same manner as if each such plan were 
not a part of the eligible combined plan. 
‘‘(2) ELIGIBLE COMBINED PLAN.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘eligible combined plan’ 
means a plan—
‘‘(i) which is maintained by an employer which, 
at the time the plan is established, is a small employer, 
‘‘(ii) which consists of a defined benefit plan and 
an applicable individual account plan each of which 
qualifies under section 401(a) of the Internal Revenue 
Code of 1986, 
‘‘(iii) the assets of which are held in a single trust 
forming part of the plan and are clearly identified 
and allocated to the defined benefit plan and the 
applicable individual account plan to the extent nec-
essary for the separate application of this Act under 
paragraph (1), and 
‘‘(iv) with respect to which the benefit, contribu-
tion, vesting, and nondiscrimination requirements of 
subparagraphs (B), (C), (D), (E), and (F) are met. 
For purposes of this subparagraph, the term ‘small 
employer’ has the meaning given such term by section 
4980D(d)(2) of the Internal Revenue Code of 1986, except 
that such section shall be applied by substituting ‘500’ 
for ‘50’ each place it appears. 
‘‘(B) BENEFIT REQUIREMENTS.—
‘‘(i) IN GENERAL.—The benefit requirements of this 
subparagraph are met with respect to the defined ben-
efit plan forming part of the eligible combined plan 
if the accrued benefit of each participant derived from 
employer contributions, when expressed as an annual 
retirement benefit, is not less than the applicable 
percentage of the participant’s final average pay. For 
purposes of this clause, final average pay shall be 
determined using the period of consecutive years (not 
exceeding 5) during which the participant had the 
greatest aggregate compensation from the employer. 
‘‘(ii) APPLICABLE
PERCENTAGE.—For purposes of 
clause (i), the applicable percentage is the lesser of—
‘‘(I) 1 percent multiplied by the number of 
years of service with the employer, or 
‘‘(II) 20 percent. 
‘‘(iii) SPECIAL RULE FOR APPLICABLE DEFINED BEN-
EFIT PLANS.—If the defined benefit plan under clause 
(i) is an applicable defined benefit plan as defined 
in section 203(f)(3)(B) which meets the interest credit