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ments, would be equal to or greater 
than that of any similarly situated, 
younger individual. 
‘‘(II) 
SIMILARLY
SITUATED.— 
For purposes of this clause, an indi-
vidual is similarly situated to a partic-
ipant if such individual is identical to 
such participant in every respect (in-
cluding period of service, compensa-
tion, position, date of hire, work his-
tory, and any other respect) except for 
age. 
‘‘(III) 
DISREGARD
OF
SUB-
SIDIZED
EARLY
RETIREMENT
BENE-
FITS.—In determining the entire ac-
crued benefit for purposes of this 
clause, the subsidized portion of any 
early retirement benefit (including any 
early retirement subsidy that is fully 
or partially included or reflected in an 
employee’s opening balance or other 
transition benefits) shall be dis-
regarded. 
‘‘(IV) ENTIRE
ACCRUED
BEN-
EFIT.—In determining the entire ac-
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crued benefit for purposes of this 
clause, such benefit may be calculated 
as the present value of accrued bene-
fits projected to normal retirement 
age, as an account balance, or as the 
current value of the accumulated per-
centage of the employee’s final aver-
age compensation. 
‘‘(vii) 
CERTAIN
OFFSETS
PER-
MITTED.—A plan shall not be treated as 
failing to meet the requirements of this 
subparagraph solely because the plan pro-
vides allowable offsets against those bene-
fits under the plan which are attributable 
to employer contributions, based on bene-
fits which are provided under title II of the 
Social Security Act, under the Railroad 
Retirement Act of 1974, under another 
plan described in section 401(a) main-
tained by the same employer, under any 
retirement program for officers or employ-
ees of the Federal Government or of the 
government of any State or political sub-
division thereof, or under such other ar-
rangements as the Secretary may provide.
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For purposes of this clause, allowable off-
sets based on such benefits consist of off-
sets equal to all or part of the actual ben-
efit payment amounts, reasonable projec-
tions or estimations of such benefit pay-
ment amounts, or actuarial equivalents of 
such actual benefit payment amounts, pro-
jections, or estimations (determined on the 
basis of reasonable actuarial assumptions). 
‘‘(viii) PERMITTED
DISPARITIES
IN 
PLAN
CONTRIBUTIONS
OR
BENEFITS.—A 
plan shall not be treated as failing to meet 
the requirements of this subparagraph 
solely because the plan provides a disparity 
in contributions or benefits with respect to 
which the requirements of section 401(l) 
are met. 
‘‘(ix) INDEXING PERMITTED.— 
‘‘(I) IN GENERAL.—A plan shall 
not be treated as failing to meet the 
requirements of this subparagraph 
solely because the plan provides for 
indexing of accrued benefits under the 
plan.
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‘‘(II) PROTECTION OF ECONOMIC 
VALUE.—Except in the case of any 
benefit provided in the form of a vari-
able annuity, subclause (I) shall not 
apply with respect to any indexing 
which results in an accrued benefit 
less than the accrued benefit deter-
mined without regard to such index-
ing. 
‘‘(III) INDEXING.—For purposes 
of this clause, the term ‘indexing’ 
means, in connection with an accrued 
benefit, the periodic adjustment of the 
accrued benefit by means of the appli-
cation of a recognized investment 
index or methodology.’’. 
(2) DETERMINATIONS OF ACCRUED BENEFIT AS 
BALANCE OF BENEFIT ACCOUNT.—Subsection (a) of 
section 411 of such Code is amended by adding at 
the end the following new paragraph: 
‘‘(13) DETERMINATIONS OF ACCRUED BENEFIT 
AS BALANCE OF BENEFIT ACCOUNT.— 
‘‘(A) IN GENERAL.—A defined benefit plan 
under which the accrued benefit payable under 
the plan upon distribution (or any portion
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thereof) is expressed as the balance of a hypo-
thetical account maintained for the participant 
shall not be treated as failing to meet the re-
quirements of subsection (a)(2), subsection (c) 
(but only in the case of a plan which does not 
provide for employee contributions), or section 
417(e) solely because of the amount actually 
made available for such distribution under the 
terms of the plan, in any case in which the ap-
plicable interest rate that would be used under 
the terms of the plan to project the amount of 
the participant’s account balance to normal re-
tirement age is not greater than a market rate 
of return. 
‘‘(B) REGULATIONS.—The Secretary may 
provide by regulation for rules governing the 
calculation of a market rate of return for pur-
poses of subparagraph (A) and for permissible 
methods of crediting interest to the account (in-
cluding fixed or variable interest rates) result-
ing in effective rates of return meeting the re-
quirements of subparagraph (A).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning on or after 
June 29, 2005.
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TITLE VIII—DEDUCTION 
LIMITATIONS 
SEC. 801. INCREASE IN DEDUCTION LIMITS. 
(a) INCREASE IN DEDUCTION LIMIT FOR SINGLE- 
EMPLOYER PLANS.—Section 404 of the Internal Revenue 
Code of 1986 (relating to deduction for contributions of 
an employer to an employees’ trust or annuity plan and 
compensation under a deferred payment plan) is amend-
ed— 
(1) in subsection (a)(1)(A), by inserting ‘‘in the 
case of a defined benefit plan other than a multiem-
ployer plan, in an amount determined under sub-
section (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 purposes 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 multiemployer plan), the amount de-
termined under this subsection for any taxable year 
shall be equal to the amount determined under para-
graph (2) with respect to each plan year ending with 
or within the taxable year.
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‘‘(2) 
DETERMINATION
OF
AMOUNT.—The 
amount determined under this paragraph for any 
plan year shall be equal to the excess (if any) of— 
‘‘(A) the greater of— 
‘‘(i) the sum of— 
‘‘(I) 150 percent of the funding 
target applicable to the plan for such 
plan year, determined under section 
430, plus 
‘‘(II) the target normal cost ap-
plicable to the plan for such plan 
year, 
determined 
under 
section 
430(b), or 
‘‘(ii) in the case of a plan that is not 
in an at-risk status (as determined under 
430(i)), the sum of— 
‘‘(I) the funding target which 
would be applicable to the plan for 
such plan year if such plan were in an 
at-risk status, determined under sec-
tion 430(d) (with regard to section 
430(i)), plus 
‘‘(II) the target normal cost 
which would be applicable to the plan 
for such plan year if such plan were
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in an at-risk status, determined under 
section 430(d) (with regard to section 
430(i)), over 
‘‘(B) the value of the plan assets (deter-
mined under section 430(g)). 
‘‘(3) 
SPECIAL
RULE
FOR
TERMINATING 
PLANS.—In the case of a plan which, subject to sec-
tion 4041 of the Employee Retirement Income Secu-
rity Act of 1974, terminates during the plan year, 
the amount determined under paragraph (2) shall 
not be less than the amount required to make the 
plan sufficient for benefit liabilities (within the 
meaning of section 4041(d) of such Act). 
‘‘(4) DEFINITIONS.—Any term used in this sub-
section which is also used in section 430 shall have 
the same meaning given such term by section 430.’’. 
(b) INCREASE IN DEDUCTION LIMIT FOR MULTIEM-
PLOYER PLANS.—Section 404(a)(1)(D) of such Code is 
amended to read as follows: 
‘‘(D) MINIMUM DEDUCTION FOR MULTIEM-
PLOYER PLANS.—In the case of a defined ben-
efit plan which is a multiemployer plan, except 
as provided in regulations, the maximum 
amount deductible under the limitations of this
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paragraph shall not be less than the excess (if 
any) of— 
‘‘(i) 140 percent of the current liabil-
ity of the plan determined under section 
431(c)(6)(D), over 
‘‘(ii) the value of the plan’s assets de-
termined under section 431(c)(2).’’. 
(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— 
(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 ‘‘section 431(c)(6)(D)’’, 
(D) by striking ‘‘section 412(c)(7)(A)’’ and 
inserting ‘‘section 431(c)(6)(A)’’, and 
(E) by striking ‘‘section 412’’ and insert-
ing ‘‘section 431’’.
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(3) Section 404(a)(1) of such Code is amended 
by striking subparagraph (F). 
(4) Section 404(a)(7) of such Code is amend-
ed— 
(A) in subparagraph (A)(ii), by striking 
‘‘for the plan year’’ and all that follows and in-
serting ‘‘which are multiemployer plans for the 
plan year which ends with or within such tax-
able year (or for any prior plan year) and the 
maximum amount of employer contributions al-
lowable under subsection (o) with respect to any 
such defined benefit plans which are not multi-
employer plans for the plan year.’’, 
(B) by striking ‘‘section 412(l)’’ in the last 
sentence of subparagraph (A) and inserting 
‘‘paragraph (1)(D)(ii)’’, and 
(C) by striking subparagraph (D) and in-
serting: 
‘‘(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.’’. 
(5) Section 404A(g)(3)(A) of such Code is 
amended by striking ‘‘paragraphs (3) and (7) of sec-
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tion 412(c)’’ and inserting ‘‘sections 430(h)(1) and 
431(c)(3) and (6)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions for taxable years 
beginning after December 31, 2006. 
SEC. 802. UPDATING DEDUCTION RULES FOR COMBINA-
TION 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 contributions to 1 or more de-
fined contribution plans, this paragraph 
shall only apply to the extent that such 
contributions exceed 6 percent of the com-
pensation otherwise paid or accrued during 
the taxable year to the beneficiaries under 
such plans. For purposes of this clause, 
amounts carried over from preceding tax-
able years under subparagraph (B) shall 
be treated as employer contributions to 1 
or more defined contributions to the extent 
attributable to employer contributions to
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such plans in such preceding taxable 
years.’’. 
(b) CONFORMING AMENDMENTS.—Subparagraph (A) 
of section 4972(c)(6) of such Code (relating to nondeduct-
ible 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 contributed solely because of 
section 404(a)(7) as does not exceed the 
amount of contributions described in section 
401(m)(4)(A), or’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions for taxable years 
beginning after December 31, 2006. 
TITLE IX—ENHANCED RETIRE-
MENTS 
SAVINGS 
AND 
DE-
FINED CONTRIBUTION PLANS 
SEC. 901. PENSIONS AND INDIVIDUAL RETIREMENT AR-
RANGEMENT 
PROVISIONS 
OF 
ECONOMIC 
GROWTH AND TAX RELIEF RECONCILIATION 
ACT OF 2001 MADE PERMANENT. 
Title IX of the Economic Growth and Tax Relief Rec-
onciliation Act of 2001 shall not apply to the provisions 
of, and amendments made by, subtitles (A) through (F)
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of title VI of such Act (relating to pension and individual 
retirement arrangement provisions). 
SEC. 902. SAVER’S CREDIT. 
(a) PERMANENCY.—Section 25B of the Internal Rev-
enue Code of 1986 (relating to elective deferrals and IRA 
contributions by certain individuals) is amended by strik-
ing subsection (h). 
(b) VOLUNTARY DEPOSIT INTO QUALIFIED AC-
COUNT.— 
(1) Section 25B of such Code, as amended by 
subsection (a), is further amended by adding at the 
end the following new subsection: 
‘‘(h) VOLUNTARY DEPOSIT INTO QUALIFIED AC-
COUNT.— 
‘‘(1) IN GENERAL.—So much of any overpay-
ment under section 6401(b) as does not exceed the 
amount allowed as a tax credit under subsection (a) 
shall, at the election of the taxpayer, be paid on be-
half of the individual taxpayer to an applicable re-
tirement plan designated by the individual, except 
that in the case of a joint return, each spouse shall 
be entitled to designate an applicable retirement 
plan with respect to payments attributable to such 
spouse.
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‘‘(2) APPLICABLE
RETIREMENT
PLAN.—For 
purposes of this subsection, the term ‘applicable re-
tirement plan’ means any eligible retirement plan 
(as defined in section 402(c)(8)(B)) that elects to 
accept deposits under this subsection.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 2006. 
SEC. 903. INCREASING PARTICIPATION THROUGH AUTO-
MATIC CONTRIBUTION ARRANGEMENTS. 
(a) IN GENERAL.—Section 401(k) of the Internal 
Revenue Code of 1986 (relating to cash or deferred ar-
rangement) is amended by adding at the end the following 
new paragraph: 
‘‘(13) ALTERNATIVE METHOD FOR AUTOMATIC 
CONTRIBUTION
ARRANGEMENTS
TO
MEET
NON-
DISCRIMINATION REQUIREMENTS.— 
‘‘(A) IN GENERAL.—A qualified automatic 
contribution arrangement shall be treated as 
meeting 
the 
requirements 
of 
paragraph 
(3)(A)(ii). 
‘‘(B) QUALIFIED
AUTOMATIC
CONTRIBU-
TION
ARRANGEMENT.—For purposes of this 
paragraph, the term ‘qualified automatic con-
tribution arrangement’ means any cash or de-
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ferred arrangement which meets the require-
ments of subparagraphs (C) through (F). 
‘‘(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 com-
pensation. 
‘‘(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 af-
firmative election— 
‘‘(I) to not have such contribu-
tions made, or 
‘‘(II) to make elective contribu-
tions at a level specified in such af-
firmative election. 
‘‘(iii) QUALIFIED PERCENTAGE.—For 
purposes of this subparagraph, the term 
‘qualified percentage’ means, with respect 
to any employee, any percentage deter-
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mined under the arrangement if such per-
centage is applied uniformly, does not ex-
ceed 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 contribution 
described in clause (i) is made with 
respect to such employee, 
‘‘(II) 4 percent during the first 
plan year following the plan year de-
scribed in subclause (I), 
‘‘(III) 5 percent during the sec-
ond plan year following the plan year 
described in subclause (I), and 
‘‘(IV) 6 percent during any sub-
sequent plan year. 
‘‘(iv) AUTOMATIC
DEFERRAL
FOR 
CURRENT
EMPLOYEES
NOT
REQUIRED.— 
Clause (i) shall be applied without taking 
into account any employee who was eligible 
to participate in the arrangement (or a 
predecessor arrangement) immediately be-
fore the date on which such arrangement 
becomes a qualified automatic contribution
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arrangement (determined after application 
of this clause). 
‘‘(D) PARTICIPATION.— 
‘‘(i) IN
GENERAL.—An arrangement 
meets the requirements of this subpara-
graph for any year if, during the plan year 
or the preceding plan year, elective con-
tributions are made on behalf of at least 
70 percent of the employees eligible to par-
ticipate in the arrangement other than— 
‘‘(I) highly compensated employ-
ees, and 
‘‘(II) at the election of the plan 
administrator, employees described in 
subparagraph (C)(iv). 
‘‘(ii) FIRST PLAN YEAR.—An arrange-
ment (other than a successor arrangement) 
shall be treated as meeting the require-
ments of this subparagraph with respect to 
the first plan year with respect to which 
such arrangement is a qualified automatic 
contribution 
arrangement 
(determined 
without regard to this subparagraph). 
‘‘(E) MATCHING
OR
NONELECTIVE
CON-
TRIBUTIONS.—
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‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if, under the 
arrangement, the employer— 
‘‘(I) makes matching contribu-
tions on behalf of each employee who 
is not a highly compensated employee 
in an amount equal to 50 percent of 
the elective contributions of the em-
ployee to the extent such elective con-
tributions do not exceed 6 percent of 
compensation, or 
‘‘(II) is required, without regard 
to whether the employee makes an 
elective contribution or employee con-
tribution, to make a contribution to a 
defined contribution plan on behalf of 
each employee who is not a highly 
compensated employee and who is eli-
gible to participate in the arrange-
ment in an amount equal to at least 
2 percent of the employee’s compensa-
tion. 
‘‘(ii) APPLICATION
OF
RULES
FOR 
MATCHING CONTRIBUTIONS.—The rules of
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clauses (ii) and (iii) of paragraph (12)(B) 
shall apply for purposes of clause (i)(I). 
‘‘(iii) WITHDRAWAL AND VESTING RE-
STRICTIONS.—An arrangement shall not be 
treated as meeting the requirements of 
clause (i) unless, with respect to employer 
contributions (including matching con-
tributions) taken into account in deter-
mining whether the requirements of clause 
(i) are met— 
‘‘(I) any employee who has com-
pleted 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 sub-
paragraph (B) of paragraph (2) are 
met with respect to all such employer 
contributions. 
‘‘(iv) 
APPLICATION
OF
CERTAIN 
OTHER
RULES.—The rules of subpara-
graphs (E)(ii) and (F) of paragraph (12)
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shall apply for purposes of subclauses (I) 
and (II) of clause (i). 
‘‘(F) 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 participate in the 
arrangement for such year receives written 
notice of the employee’s rights and obliga-
tions 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 cal-
culated to be understood by the aver-
age employee to whom the arrange-
ment applies. 
‘‘(ii) TIMING AND CONTENT REQUIRE-
MENTS.—A notice shall not be treated as 
meeting the requirements of clause (i) with 
respect to an employee unless— 
‘‘(I) the notice explains the em-
ployee’s right under the arrangement 
to elect not to have elective contribu-
tions made on the employee’s behalf
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(or to elect to have such contributions 
made at a different percentage), 
‘‘(II) in the case of an arrange-
ment under which the employee may 
elect among 2 or more investment op-
tions, the notice explains how con-
tributions made under the arrange-
ment will be invested in the absence of 
any investment election by the em-
ployee, and 
‘‘(III) the employee has a reason-
able period of time after receipt of the 
notice described in subclauses (I) and 
(II) and before the first elective con-
tribution 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 (12) as paragraph (13) and by 
inserting after paragraph (11) the following new para-
graph: 
‘‘(12) ALTERNATIVE METHOD FOR AUTOMATIC 
CONTRIBUTION
ARRANGEMENTS.—A defined con-
tribution plan shall be treated as meeting the re-
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quirements of paragraph (2) with respect to match-
ing 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) CORRECTIVE DISTRIBUTIONS.— 
(1) IN GENERAL.—Section 414 of the Internal 
Revenue Code of 1986 (relating to definitions and 
special rules) is amended by adding at the end the 
following new subsection: 
‘‘(w) AUTOMATIC CONTRIBUTION ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—No tax shall be imposed 
under section 72(t) on a distribution from an appli-
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cable employer plan to the employee with respect to 
whom such contribution relates if such distribution 
does not exceed the erroneous automatic contribu-
tion amount and is made not later than the 1st 
April 15 following the close of the taxable year in 
which such contribution was made. 
‘‘(2) ERRONEOUS
AUTOMATIC
CONTRIBUTION 
AMOUNT.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘erroneous 
automatic contribution amount’ means the less-
er of— 
‘‘(i) the amount of automatic con-
tributions made during the applicable pe-
riod which the employee elects in a notice 
to the plan administrator to treat as an er-
roneous automatic contribution amount for 
purposes of this subsection, or 
‘‘(ii) $500. 
‘‘(B) 
AUTOMATIC
CONTRIBUTION.—The 
term ‘automatic contribution’ means contribu-
tions which, under the terms of the plan— 
‘‘(i) the employee can elect to be made 
as contributions under the plan on behalf 
of the employee, or to the employee di-
rectly in cash, and
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‘‘(ii) which are made on behalf of the 
employee under the plan pursuant to a 
plan provision treating the employee as 
having elected to have the employer make 
such contributions on behalf of the em-
ployee until the employee affirmatively 
elects not to have such contribution made 
or affirmatively elects to make contribu-
tions as a specified level. 
‘‘(3) APPLICABLE EMPLOYER PLAN.—For pur-
poses of this subsection, the term ‘applicable em-
ployer plan’ means— 
‘‘(A) an employees’ trust described in sec-
tion 401(a) which is exempt from tax under 
section 501(a), 
‘‘(B) a plan under which amounts are con-
tributed by an individual’s employer for an an-
nuity contract described in section 403(b), and 
‘‘(C) an eligible deferred compensation 
plan described in section 457(b) which is main-
tained by an eligible employer described in sec-
tion 457(e)(1)(A). 
‘‘(4) APPLICABLE
PERIOD.—For purposes of 
this subsection, the term ‘applicable period’ means, 
with respect to any employee, the three month pe-
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riod that begins on the first date that an automatic 
contribution described in paragraph (2)(B) is made 
with respect to such employee. 
‘‘(5) SPECIAL RULES.—A distribution described 
in paragraph (1) (subject to the limitation of para-
graph (2))— 
‘‘(A) shall not be treated as a distribution 
for 
purposes 
of 
sections 
401(k)(2)(B)(i), 
403(b)(7), 403(b)(11), and 457(d)(1)(A), and 
‘‘(B) 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 section 414(w),’’ after 
‘‘402(g)(2)(A),’’. 
(B) The heading of section 411(a)(3)(G) of 
such Code is amended by inserting ‘‘OR ERRO-
NEOUS AUTOMATIC CONTRIBUTION’’ before the 
period. 
(C) Section 401(k)(8)(E) of such Code is 
amended by inserting ‘‘an erroneous automatic 
contribution under section 414(w),’’ after 
‘‘402(g)(2)(A),’’.
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(D) The heading of section 401(k)(8)(E) 
of such Code is amended by inserting ‘‘OR ER-
RONEOUS
AUTOMATIC
CONTRIBUTION’’ 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) CONTROL OVER PLAN ASSETS DEEMED TO HAVE 
BEEN EXERCISED WITH RESPECT TO DEFAULT INVEST-
MENT ARRANGEMENTS.—Section 404(c) of the Employee 
Retirement Income Security Act of 1974, as amended by 
section 308, is further amended by adding at the end the 
following new paragraph: 
‘‘(5)(A) For purposes of paragraph (1), a participant 
in an individual account plan shall be treated as exercising 
control over the assets in the account with respect to the 
amount of contributions made under a default investment 
arrangement. 
‘‘(B)(i) For purposes of this paragraph, the term ‘de-
fault investment arrangement’ means an arrangement— 
‘‘(I) which meets the requirements of subpara-
graph (C),
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‘‘(II) under which the participant is treated as 
having elected to have the plan sponsor exercise con-
trol over the assets in the participant’s account until 
the participant specifically elects to exercise such 
control, and 
‘‘(III) under which assets described in sub-
clause (II) are invested in accordance with regula-
tions prescribed by the Secretary. 
‘‘(ii) The regulations prescribed pursuant to clause 
(i)(III) shall provide guidance on the appropriateness of 
certain investments for designation as default investments 
under the arrangement, which shall include guidance re-
garding— 
‘‘(I) appropriate mixes of default investments 
and asset classes which the Secretary considers con-
sistent with long-term capital appreciation, and 
‘‘(II) the designation of other default invest-
ments. 
‘‘(C)(i) For purposes of subparagraph (B)(i)(I), an 
arrangement meets the requirements of this subparagraph 
for any plan year if, within a reasonable period before such 
plan year, the plan administrator gives to each participant 
to whom the arrangement applies for such plan year notice 
of the participant’s rights and obligations under the ar-
rangement which—
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‘‘(I) is sufficiently accurate and comprehensive 
to apprise the participant of such rights and obliga-
tions, and 
‘‘(II) is written in a manner calculated to be 
understood by the average participant to whom the 
arrangement applies. 
‘‘(ii) A notice shall not be treated as meeting the re-
quirements of clause (i) with respect to a participant un-
less— 
‘‘(I) the notice includes an explanation of the 
participant’s right under the arrangement to specifi-
cally elect to exercise control over the assets in the 
participant’s account, 
‘‘(II) the employee has a reasonable period of 
time, after receipt of the notice described in sub-
clause (I) and before the assets are first invested, to 
specifically make such an election, and 
‘‘(III) the notice explains how contributions 
made under the arrangement will be invested in the 
absence of any investment election specifically made 
by the employee.’’. 
(f) PREEMPTION OF CONFLICTING STATE REGULA-
TION.—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:
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‘‘(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 inclu-
sion in any plan of an automatic contribution arrange-
ment. The Secretary may prescribe regulations which 
would establish minimum standards that such an arrange-
ment would be required to satisfy in order for this sub-
section to apply in the case of such arrangement. 
‘‘(2)(A) For purposes of this subsection, the term 
‘automatic contribution arrangement’ means an arrange-
ment— 
‘‘(i) which meets the requirements of paragraph 
(3), 
‘‘(ii) under which a participant may elect to 
have the plan sponsor make payments as contribu-
tions under the plan on behalf of the participant, or 
to the participant directly in cash, 
‘‘(iii) under which a participant is treated as 
having elected to have the plan sponsor make such 
contributions in an amount equal to a uniform per-
centage 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 percent-
age), and
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‘‘(iv) under which such contributions are in-
vested in accordance with regulations prescribed by 
the Secretary. 
‘‘(B) The regulations prescribed pursuant to subpara-
graph (A)(iv) shall provide guidance on the appropriate-
ness of certain investments for designation as default in-
vestments under the arrangement, which shall include 
guidance regarding appropriate mixes of default invest-
ments and asset classes which the Secretary considers con-
sistent with long-term capital appreciation 
‘‘(3)(A) For purposes of paragraph (2)(A)(i), an ar-
rangement meets the requirements of this paragraph for 
any plan year if, within a reasonable period before such 
plan year, the plan administrator gives to each participant 
to whom the arrangement applies for such plan year notice 
of the participant’s rights and obligations under the ar-
rangement which— 
‘‘(i) is sufficiently accurate and comprehensive 
to apprise the participant of such rights and obliga-
tions, and 
‘‘(ii) is written in a manner calculated to be un-
derstood by the average participant to whom the ar-
rangement applies.
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‘‘(B) A notice shall not be treated as meeting the re-
quirements of subparagraph (A) with respect to a partici-
pant 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 investment election by the partici-
pant.’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2005. 
SEC. 904. PENALTY-FREE WITHDRAWALS FROM RETIRE-
MENT 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 retire-
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ment plans) is amended by adding at the end the following 
new subparagraph: 
‘‘(G) DISTRIBUTIONS FROM RETIREMENT 
PLANS
TO
INDIVIDUALS
CALLED
TO
ACTIVE 
DUTY.— 
‘‘(i) IN GENERAL.—Any qualified re-
servist distribution. 
‘‘(ii) AMOUNT DISTRIBUTED MAY BE 
REPAID.—Any individual who receives a 
qualified reservist distribution may, at any 
time during the 2-year period beginning on 
the day after the end of the active duty pe-
riod, make one or more contributions to an 
individual retirement plan of such indi-
vidual in an aggregate amount not to ex-
ceed 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 de-
duction shall be allowed for any contribu-
tion pursuant to this clause. 
‘‘(iii) QUALIFIED
RESERVIST
DIS-
TRIBUTION.—For purposes of this sub-
paragraph, the term ‘qualified reservist
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distribution’ means any distribution to an 
individual if— 
‘‘(I) such distribution is from an 
individual retirement plan, or from 
amounts attributable to employer con-
tributions made pursuant to elective 
deferrals described in subparagraph 
(A) or (C) of section 402(g)(3) or sec-
tion 501(c)(18)(D)(iii), 
‘‘(II) such individual was (by rea-
son of being a member of a reserve 
component (as defined in section 101 
of title 37, United States Code)), or-
dered or called to active duty for a pe-
riod 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
SUBPARA-
GRAPH.—This subparagraph applies to in-
dividuals ordered or called to active duty 
after September 11, 2001, and before Sep-
tember 12, 2007. In no event shall the 2-