H. R. 1836—87
decreased by amendment) is amended by adding at the end
the following:
‘‘(D) PLAN TRANSFERS.—
‘‘(i) IN GENERAL.—A defined contribution plan (in
this subparagraph referred to as the ‘transferee plan’)
shall not be treated as failing to meet the requirements
of this subsection merely because the transferee plan
does not provide some or all of the forms of distribution
previously available under another defined contribu-
tion plan (in this subparagraph referred to as the
‘transferor plan’) to the extent that—
‘‘(I) the forms of distribution previously avail-
able under the transferor plan applied to the
account of a participant or beneficiary under the
transferor plan that was transferred from the
transferor plan to the transferee plan pursuant
to a direct transfer rather than pursuant to a
distribution from the transferor plan,
‘‘(II) the terms of both the transferor plan
and the transferee plan authorize the transfer
described in subclause (I),
‘‘(III) the transfer described in subclause (I)
was made pursuant to a voluntary election by
the participant or beneficiary whose account was
transferred to the transferee plan,
‘‘(IV) the election described in subclause (III)
was made after the participant or beneficiary
received a notice describing the consequences of
making the election, and
‘‘(V) the transferee plan allows the participant
or beneficiary described in subclause (III) to receive
any distribution to which the participant or bene-
ficiary is entitled under the transferee plan in
the form of a single sum distribution.
‘‘(ii) SPECIAL RULE FOR MERGERS, ETC.—Clause (i)
shall apply to plan mergers and other transactions
having the effect of a direct transfer, including consoli-
dations of benefits attributable to different employers
within a multiple employer plan.
‘‘(E) ELIMINATION OF FORM OF DISTRIBUTION.—Except
to the extent provided in regulations, a defined contribution
plan shall not be treated as failing to meet the require-
ments of this section merely because of the elimination
of a form of distribution previously available thereunder.
This subparagraph shall not apply to the elimination of
a form of distribution with respect to any participant
unless—
‘‘(i) a single sum payment is available to such
participant at the same time or times as the form
of distribution being eliminated, and
‘‘(ii) such single sum payment is based on the
same or greater portion of the participant’s account
as the form of distribution being eliminated.’’.
(2) AMENDMENT OF ERISA.—Section 204(g) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1054(g))
is amended by adding at the end the following:
H. R. 1836—88
‘‘(4)(A) A defined contribution plan (in this subparagraph
referred to as the ‘transferee plan’) shall not be treated as failing
to meet the requirements of this subsection merely because the
transferee plan does not provide some or all of the forms of distribu-
tion previously available under another defined contribution plan
(in this subparagraph referred to as the ‘transferor plan’) to the
extent that—
‘‘(i) the forms of distribution previously available under
the transferor plan applied to the account of a participant
or beneficiary under the transferor plan that was transferred
from the transferor plan to the transferee plan pursuant to
a direct transfer rather than pursuant to a distribution from
the transferor plan;
‘‘(ii) the terms of both the transferor plan and the transferee
plan authorize the transfer described in clause (i);
‘‘(iii) the transfer described in clause (i) was made pursuant
to a voluntary election by the participant or beneficiary whose
account was transferred to the transferee plan;
‘‘(iv) the election described in clause (iii) was made after
the participant or beneficiary received a notice describing the
consequences of making the election; and
‘‘(v) the transferee plan allows the participant or beneficiary
described in clause (iii) to receive any distribution to which
the participant or beneficiary is entitled under the transferee
plan in the form of a single sum distribution.
‘‘(B) Subparagraph (A) shall apply to plan mergers and other
transactions having the effect of a direct transfer, including consoli-
dations of benefits attributable to different employers within a
multiple employer plan.
‘‘(5) Except to the extent provided in regulations promulgated
by the Secretary of the Treasury, a defined contribution plan shall
not be treated as failing to meet the requirements of this subsection
merely because of the elimination of a form of distribution pre-
viously available thereunder. This paragraph shall not apply to
the elimination of a form of distribution with respect to any partici-
pant unless—
‘‘(A) a single sum payment is available to such participant
at the same time or times as the form of distribution being
eliminated; and
‘‘(B) such single sum payment is based on the same or
greater portion of the participant’s account as the form of
distribution being eliminated.’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to years beginning after December 31, 2001.
(b) REGULATIONS.—
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph
(6)(B) of section 411(d) (relating to accrued benefit not to be
decreased by amendment) is amended by inserting after the
second sentence the following: ‘‘The Secretary shall by regula-
tions provide that this subparagraph shall not apply to any
plan amendment which reduces or eliminates benefits or sub-
sidies which create significant burdens or complexities for the
plan and plan participants, unless such amendment adversely
affects the rights of any participant in a more than de minimis
manner.’’.
(2) AMENDMENT
OF
ERISA.—Section 204(g)(2) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
H. R. 1836—89
1054(g)(2)) is amended by inserting after the second sentence
the following: ‘‘The Secretary of the Treasury shall by regula-
tions provide that this paragraph shall not apply to any plan
amendment which reduces or eliminates benefits or subsidies
which create significant burdens or complexities for the plan
and plan participants, unless such amendment adversely affects
the rights of any participant in a more than de minimis
manner.’’.
(3) SECRETARY DIRECTED.—Not later than December 31,
2003, the Secretary of the Treasury is directed to issue regula-
tions under section 411(d)(6) of the Internal Revenue Code
of 1986 and section 204(g) of the Employee Retirement Income
Security Act of 1974, including the regulations required by
the amendment made by this subsection. Such regulations shall
apply to plan years beginning after December 31, 2003, or
such earlier date as is specified by the Secretary of the
Treasury.
SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.
(a) MODIFICATION OF SAME DESK EXCEPTION.—
(1) SECTION 401(k).—
(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash
or deferred arrangements) is amended by striking ‘‘separa-
tion from service’’ and inserting ‘‘severance from employ-
ment’’.
(B) Subparagraph (A) of section 401(k)(10) (relating
to distributions upon termination of plan or disposition
of assets or subsidiary) is amended to read as follows:
‘‘(A) IN GENERAL.—An event described in this subpara-
graph is the termination of the plan without establishment
or maintenance of another defined contribution plan (other
than an employee stock ownership plan as defined in sec-
tion 4975(e)(7)).’’.
(C) Section 401(k)(10) is amended—
(i) in subparagraph (B)—
(I) by striking ‘‘An event’’ in clause (i) and
inserting ‘‘A termination’’; and
(II) by striking ‘‘the event’’ in clause (i) and
inserting ‘‘the termination’’;
(ii) by striking subparagraph (C); and
(iii) by striking ‘‘OR DISPOSITION OF ASSETS OR SUB-
SIDIARY’’ in the heading.
(2) SECTION 403(b).—
(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b)
are each amended by striking ‘‘separates from service’’
and inserting ‘‘has a severance from employment’’.
(B) The heading for paragraph (11) of section 403(b)
is amended by striking ‘‘SEPARATION FROM SERVICE’’ and
inserting ‘‘SEVERANCE FROM EMPLOYMENT’’.
(3) SECTION
457.—Clause (ii) of section 457(d)(1)(A) is
amended by striking ‘‘is separated from service’’ and inserting
‘‘has a severance from employment’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions after December 31, 2001.
H. R. 1836—90
SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL
DEFINED BENEFIT PLANS.
(a) SECTION 403(b) PLANS.—Subsection (b) of section 403 is
amended by adding at the end the following new paragraph:
‘‘(13) 
TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE SERVICE CREDIT.—No amount shall be includible
in gross income by reason of a direct trustee-to-trustee transfer
to a defined benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service credit (as
defined in section 415(n)(3)(A)) under such plan, or
‘‘(B) a repayment to which section 415 does not apply
by reason of subsection (k)(3) thereof.’’.
(b) SECTION 457 PLANS.—Subsection (e) of section 457, as
amended by section 641, is amended by adding after paragraph
(16) the following new paragraph:
‘‘(17) 
TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE SERVICE CREDIT.—No amount shall be includible
in gross income by reason of a direct trustee-to-trustee transfer
to a defined benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service credit (as
defined in section 415(n)(3)(A)) under such plan, or
‘‘(B) a repayment to which section 415 does not apply
by reason of subsection (k)(3) thereof.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to trustee-to-trustee transfers after December 31, 2001.
SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES
OF CASH-OUT AMOUNTS.
(a) QUALIFIED PLANS.—
(1) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Section
411(a)(11) (relating to restrictions on certain mandatory dis-
tributions) is amended by adding at the end the following:
‘‘(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.—
A plan shall not fail to meet the requirements of this
paragraph if, under the terms of the plan, the present
value of the nonforfeitable accrued benefit is determined
without regard to that portion of such benefit which is
attributable to rollover contributions (and earnings allo-
cable thereto). For purposes of this subparagraph, the term
‘rollover contributions’ means any rollover contribution
under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),
and 457(e)(16).’’.
(2) AMENDMENT OF ERISA.—Section 203(e) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1053(c))
is amended by adding at the end the following:
‘‘(4) A plan shall not fail to meet the requirements of this
subsection if, under the terms of the plan, the present value of
the nonforfeitable accrued benefit is determined without regard
to that portion of such benefit which is attributable to rollover
contributions (and earnings allocable thereto). For purposes of this
subparagraph, the term ‘rollover contributions’ means any rollover
contribution 
under 
sections 
402(c), 
403(a)(4), 
403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code of
1986.’’.
H. R. 1836—91
(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—Clause (i) of
section 457(e)(9)(A) is amended by striking ‘‘such amount’’ and
inserting ‘‘the portion of such amount which is not attributable
to rollover contributions (as defined in section 411(a)(11)(D))’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions after December 31, 2001.
SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS
FOR SECTION 457 PLANS.
(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Paragraph (2) of
section 457(d) (relating to distribution requirements) is amended
to read as follows:
‘‘(2) MINIMUM DISTRIBUTION REQUIREMENTS.—A plan meets
the minimum distribution requirements of this paragraph if
such plan meets the requirements of section 401(a)(9).’’.
(b) INCLUSION IN GROSS INCOME.—
(1) YEAR
OF
INCLUSION.—Subsection (a) of section 457
(relating to year of inclusion in gross income) is amended to
read as follows:
‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘(1) IN GENERAL.—Any amount of compensation deferred
under an eligible deferred compensation plan, and any income
attributable to the amounts so deferred, shall be includible
in gross income only for the taxable year in which such com-
pensation or other income—
‘‘(A) is paid to the participant or other beneficiary,
in the case of a plan of an eligible employer described
in subsection (e)(1)(A), and
‘‘(B) is paid or otherwise made available to the partici-
pant or other beneficiary, in the case of a plan of an
eligible employer described in subsection (e)(1)(B).
‘‘(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To the extent
provided in section 72(t)(9), section 72(t) shall apply to any
amount includible in gross income under this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) So much of paragraph (9) of section 457(e) as
precedes subparagraph (A) is amended to read as follows:
‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT
TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS,
ETC.—In the case of an eligible deferred compensation plan
of an employer described in subsection (e)(1)(B)—’’.
(B) Section 457(d) is amended by adding at the end
the following new paragraph:
‘‘(3) SPECIAL
RULE
FOR
GOVERNMENT
PLAN.—An eligible
deferred compensation plan of an employer described in sub-
section (e)(1)(A) shall not be treated as failing to meet the
requirements of this subsection solely by reason of making
a distribution described in subsection (e)(9)(A).’’.
(c) EFFECTIVE DATE.—The amendments made by subsections
(a) and (b) shall apply to distributions after December 31, 2001.
H. R. 1836—92
Subtitle E—Strengthening Pension
Security and Enforcement
PART I—GENERAL PROVISIONS
SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING
LIMIT.
(a) AMENDMENTS
TO
INTERNAL
REVENUE
CODE.—Section
412(c)(7) (relating to full-funding limitation) is amended—
(1) by striking ‘‘the applicable percentage’’ in subparagraph
(A)(i)(I) and inserting ‘‘in the case of plan years beginning
before January 1, 2004, the applicable percentage’’; and
(2) by amending subparagraph (F) to read as follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (A)(i)(I), the applicable percentage shall be
determined in accordance with the following table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2002 .............................................................................................
165
2003 .............................................................................................
170.’’.
(b) AMENDMENT OF ERISA.—Section 302(c)(7) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is
amended—
(1) by striking ‘‘the applicable percentage’’ in subparagraph
(A)(i)(I) and inserting ‘‘in the case of plan years beginning
before January 1, 2004, the applicable percentage’’, and
(2) by amending subparagraph (F) to read as follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (A)(i)(I), the applicable percentage shall be
determined in accordance with the following table:
‘‘In the case of any plan year
The applicable
beginning in calendar year—
percentage is—
2002 .............................................................................................
165
2003 .............................................................................................
170.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to plan years beginning after December 31, 2001.
SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED
AND APPLIED TO ALL DEFINED BENEFIT PLANS.
(a) IN
GENERAL.—Subparagraph (D) of section 404(a)(1)
(relating to special rule in case of certain plans) is amended to
read as follows:
‘‘(D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—
‘‘(i) IN GENERAL.—In the case of any defined benefit
plan, except as provided in regulations, the maximum
amount deductible under the limitations of this para-
graph shall not be less than the unfunded current
liability determined under section 412(l).
‘‘(ii) PLANS WITH 100 OR LESS PARTICIPANTS.—For
purposes of this subparagraph, in the case of a plan
which has 100 or less participants for the plan year,
unfunded current liability shall not include the liability
attributable to benefit increases for highly com-
pensated employees (as defined in section 414(q))
resulting from a plan amendment which is made or
H. R. 1836—93
becomes effective, whichever is later, within the last
2 years.
‘‘(iii) 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 controlled group (within the meaning of
section 412(l)(8)(C))) shall be treated as one plan, but
only employees of such member or employer shall be
taken into account.
‘‘(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE
EMPLOYERS.—In the case of a plan which, subject to
section 4041 of the Employee Retirement Income Secu-
rity Act of 1974, terminates during the plan year,
clause (i) shall be applied by substituting for unfunded
current liability the amount required to make the plan
sufficient for benefit liabilities (within the meaning
of section 4041(d) of such Act).’’.
(b) CONFORMING
AMENDMENT.—Paragraph (6) of section
4972(c), as amended by sections 616 and 637, is amended—
(1) by striking subparagraph (A) and redesignating sub-
paragraphs (B) and (C) as subparagraphs (A) and (B), respec-
tively,
(2) by striking the first sentence following subparagraph
(B) (as so redesignated),
(3) by striking ‘‘subparagraph (B)’’ in the next to last sen-
tence and inserting ‘‘subparagraph (A)’’, and
(4) by striking ‘‘Subparagraph (C)’’ in the last sentence
and inserting ‘‘Subparagraph (B)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to plan years beginning after December 31, 2001.
SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.
(a) IN GENERAL.—Subsection (c) of section 4972 (relating to
nondeductible contributions) is amended by adding at the end the
following new paragraph:
‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In determining
the amount of nondeductible contributions for any taxable year,
an employer may elect for such year not to take into account
any contributions to a defined benefit plan except to the extent
that such contributions exceed the full-funding limitation (as
defined in section 412(c)(7), determined without regard to
subparagraph (A)(i)(I) thereof ). For purposes of this paragraph,
the deductible limits under section 404(a)(7) shall first be
applied to amounts contributed to defined contribution plans
and then to amounts described in this paragraph. If an
employer makes an election under this paragraph for a taxable
year, paragraph (6) shall not apply to such employer for such
taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to years beginning after December 31, 2001.
SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION
415.
(a) COMPENSATION LIMIT.—
(1) IN GENERAL.—Paragraph (11) of section 415(b) (relating
to limitation for defined benefit plans) is amended to read
as follows:
H. R. 1836—94
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND
MULTIEMPLOYER PLANS.—In the case of a governmental plan
(as defined in section 414(d)) or a multiemployer plan (as
defined in section 414(f )), subparagraph (B) of paragraph (1)
shall not apply.’’.
(2) CONFORMING AMENDMENT.—Section 415(b)(7) (relating
to benefits under certain collectively bargained plans) is
amended by inserting ‘‘(other than a multiemployer plan)’’ after
‘‘defined benefit plan’’ in the matter preceding subparagraph
(A).
(b) COMBINING AND AGGREGATION OF PLANS.—
(1) COMBINING OF PLANS.—Subsection (f ) of section 415
(relating to combining of plans) is amended by adding at the
end the following:
‘‘(3) EXCEPTION
FOR
MULTIEMPLOYER
PLANS.—Notwith-
standing paragraph (1) and subsection (g), a multiemployer
plan (as defined in section 414(f )) shall not be combined or
aggregated—
‘‘(A) with any other plan which is not a multiemployer
plan for purposes of applying subsection (b)(1)(B) to such
other plan, or
‘‘(B) with any other multiemployer plan for purposes
of applying the limitations established in this section.’’.
(2) 
CONFORMING
AMENDMENT
FOR
AGGREGATION
OF
PLANS.—Subsection (g) of section 415 (relating to aggregation
of plans) is amended by striking ‘‘The Secretary’’ and inserting
‘‘Except as provided in subsection (f )(3), the Secretary’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to years beginning after December 31, 2001.
SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBU-
TIONS TO 401(k) PLANS.
(a) IN GENERAL.—Section 1524(b) of the Taxpayer Relief Act
of 1997 is amended to read as follows:
‘‘(b) EFFECTIVE DATE.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the amendments made by this section shall apply to elective
deferrals for plan years beginning after December 31, 1998.
‘‘(2) NONAPPLICATION
TO
PREVIOUSLY
ACQUIRED
PROP-
ERTY.—The amendments made by this section shall not apply
to any elective deferral which is invested in assets consisting
of qualifying employer securities, qualifying employer real prop-
erty, or both, if such assets were acquired before January
1, 1999.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply as if included in the provision of the Taxpayer Relief
Act of 1997 to which it relates.
SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION
ESOP.
(a) IN GENERAL.—Section 409 (relating to qualifications for
tax credit employee stock ownership plans) is amended by redesig-
nating subsection (p) as subsection (q) and by inserting after sub-
section (o) the following new subsection:
‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORA-
TION.—
H. R. 1836—95
‘‘(1) IN
GENERAL.—An employee stock ownership plan
holding employer securities consisting of stock in an S corpora-
tion shall provide that no portion of the assets of the plan
attributable to (or allocable in lieu of ) such employer securities
may, during a nonallocation year, accrue (or be allocated
directly or indirectly under any plan of the employer meeting
the requirements of section 401(a)) for the benefit of any dis-
qualified person.
‘‘(2) FAILURE TO MEET REQUIREMENTS.—
‘‘(A) IN GENERAL.—If a plan fails to meet the require-
ments of paragraph (1), the plan shall be treated as having
distributed to any disqualified person the amount allocated
to the account of such person in violation of paragraph
(1) at the time of such allocation.
‘‘(B) CROSS REFERENCE.—
‘‘For excise tax relating to violations of paragraph (1) and owner-
ship of synthetic equity, see section 4979A.
‘‘(3) 
NONALLOCATION
YEAR.—For 
purposes 
of 
this
subsection—
‘‘(A) IN GENERAL.—The term ‘nonallocation year’ means
any plan year of an employee stock ownership plan if,
at any time during such plan year—
‘‘(i) such plan holds employer securities consisting
of stock in an S corporation, and
‘‘(ii) disqualified persons own at least 50 percent
of the number of shares of stock in the S corporation.
‘‘(B) ATTRIBUTION
RULES.—For purposes of subpara-
graph (A)—
‘‘(i) IN GENERAL.—The rules of section 318(a) shall
apply for purposes of determining ownership, except
that—
‘‘(I) in applying paragraph (1) thereof, the
members of an individual’s family shall include
members of the family described in paragraph
(4)(D), and
‘‘(II) paragraph (4) thereof shall not apply.
‘‘(ii) DEEMED-OWNED
SHARES.—Notwithstanding
the employee trust exception in section 318(a)(2)(B)(i),
an individual shall be treated as owning deemed-owned
shares of the individual.
Solely for purposes of applying paragraph (5), this subpara-
graph shall be applied after the attribution rules of para-
graph (5) have been applied.
‘‘(4) 
DISQUALIFIED
PERSON.—For 
purposes 
of 
this
subsection—
‘‘(A) IN
GENERAL.—The term ‘disqualified person’
means any person if—
‘‘(i) the aggregate number of deemed-owned shares
of such person and the members of such person’s family
is at least 20 percent of the number of deemed-owned
shares of stock in the S corporation, or
‘‘(ii) in the case of a person not described in clause
(i), the number of deemed-owned shares of such person
is at least 10 percent of the number of deemed-owned
shares of stock in such corporation.
‘‘(B) TREATMENT OF FAMILY MEMBERS.—In the case of
a disqualified person described in subparagraph (A)(i), any
H. R. 1836—96
member of such person’s family with deemed-owned shares
shall be treated as a disqualified person if not otherwise
treated as a disqualified person under subparagraph (A).
‘‘(C) DEEMED-OWNED SHARES.—
‘‘(i) IN GENERAL.—The term ‘deemed-owned shares’
means, with respect to any person—
‘‘(I) the stock in the S corporation constituting
employer securities of an employee stock owner-
ship plan which is allocated to such person under
the plan, and
‘‘(II) such person’s share of the stock in such
corporation which is held by such plan but which
is not allocated under the plan to participants.
‘‘(ii) PERSON’S SHARE OF UNALLOCATED STOCK.—
For purposes of clause (i)(II), a person’s share of
unallocated S corporation stock held by such plan is
the amount of the unallocated stock which would be
allocated to such person if the unallocated stock were
allocated to all participants in the same proportions
as the most recent stock allocation under the plan.
‘‘(D) MEMBER OF FAMILY.—For purposes of this para-
graph, the term ‘member of the family’ means, with respect
to any individual—
‘‘(i) the spouse of the individual,
‘‘(ii) an ancestor or lineal descendant of the indi-
vidual or the individual’s spouse,
‘‘(iii) a brother or sister of the individual or the
individual’s spouse and any lineal descendant of the
brother or sister, and
‘‘(iv) the spouse of any individual described in
clause (ii) or (iii).
A spouse of an individual who is legally separated from
such individual under a decree of divorce or separate
maintenance shall not be treated as such individual’s
spouse for purposes of this subparagraph.
‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For purposes of
paragraphs (3) and (4), in the case of a person who owns
synthetic equity in the S corporation, except to the extent
provided in regulations, the shares of stock in such corporation
on which such synthetic equity is based shall be treated as
outstanding stock in such corporation and deemed-owned shares
of such person if such treatment of synthetic equity of 1 or
more such persons results in—
‘‘(A) the treatment of any person as a disqualified
person, or
‘‘(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be treated
as owned by a person in the same manner as stock is treated
as owned by a person under the rules of paragraphs (2) and
(3) of section 318(a). If, without regard to this paragraph,
a person is treated as a disqualified person or a year is treated
as a nonallocation year, this paragraph shall not be construed
to result in the person or year not being so treated.
‘‘(6) DEFINITIONS.—For purposes of this subsection—
‘‘(A) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term
‘employee stock ownership plan’ has the meaning given
such term by section 4975(e)(7).
H. R. 1836—97
‘‘(B) EMPLOYER SECURITIES.—The term ‘employer secu-
rity’ has the meaning given such term by section 409(l).
‘‘(C) SYNTHETIC EQUITY.—The term ‘synthetic equity’
means any stock option, warrant, restricted stock, deferred
issuance stock right, or similar interest or right that gives
the holder the right to acquire or receive stock of the
S corporation in the future. Except to the extent provided
in regulations, synthetic equity also includes a stock appre-
ciation right, phantom stock unit, or similar right to a
future cash payment based on the value of such stock
or appreciation in such value.
‘‘(7) REGULATIONS AND GUIDANCE.—
‘‘(A) IN GENERAL.—The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes
of this subsection.
‘‘(B) AVOIDANCE OR EVASION.—The Secretary may, by
regulation or other guidance of general applicability, pro-
vide that a nonallocation year occurs in any case in which
the principal purpose of the ownership structure of an
S corporation constitutes an avoidance or evasion of this
subsection.’’.
(b) COORDINATION WITH SECTION 4975(e)(7).—The last sentence
of section 4975(e)(7) (defining employee stock ownership plan) is
amended by inserting ‘‘, section 409(p),’’ after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION OF TAX.—Subsection (a) of section 4979A
(relating to tax on certain prohibited allocations of employer
securities) is amended—
(A) by striking ‘‘or’’ at the end of paragraph (1), and
(B) by striking all that follows paragraph (2) and
inserting the following:
‘‘(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (e)(2)(C) with respect to an
employee stock ownership plan, or
‘‘(4) any synthetic equity is owned by a disqualified person
in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership
equal to 50 percent of the amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (defining liability for tax)
is amended to read as follows:
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this section shall
be paid—
‘‘(1) in the case of an allocation referred to in paragraph
(1) or (2) of subsection (a), by—
‘‘(A) the employer sponsoring such plan, or
‘‘(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be),
and
‘‘(2) in the case of an allocation or ownership referred
to in paragraph (3) or (4) of subsection (a), by the S corporation
the stock in which was so allocated or owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (relating to definitions)
is amended to read as follows:
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
H. R. 1836—98
‘‘(1) DEFINITIONS.—Except as provided in paragraph (2),
terms used in this section have the same respective meanings
as when used in sections 409 and 4978.
‘‘(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON
OF PARAGRAPH (3) OR (4) OF SUBSECTION (a).—
‘‘(A) PROHIBITED ALLOCATIONS.—The amount involved
with respect to any tax imposed by reason of subsection
(a)(3) is the amount allocated to the account of any person
in violation of section 409(p)(1).
‘‘(B) SYNTHETIC EQUITY.—The amount involved with
respect to any tax imposed by reason of subsection (a)(4)
is the value of the shares on which the synthetic equity
is based.
‘‘(C) SPECIAL
RULE
DURING
FIRST
NONALLOCATION
YEAR.—For purposes of subparagraph (A), the amount
involved for the first nonallocation year of any employee
stock ownership plan shall be determined by taking into
account the total value of all the deemed-owned shares
of all disqualified persons with respect to such plan.
‘‘(D) STATUTE OF LIMITATIONS.—The statutory period
for the assessment of any tax imposed by this section
by reason of paragraph (3) or (4) of subsection (a) shall
not expire before the date which is 3 years from the later
of—
‘‘(i) the allocation or ownership referred to in such
paragraph giving rise to such tax, or
‘‘(ii) the date on which the Secretary is notified
of such allocation or ownership.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to plan years beginning after December 31, 2004.
(2) EXCEPTION FOR CERTAIN PLANS.—In the case of any—
(A) employee stock ownership plan established after
March 14, 2001, or
(B) employee stock ownership plan established on or
before such date if employer securities held by the plan
consist of stock in a corporation with respect to which
an election under section 1362(a) of the Internal Revenue
Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years
ending after March 14, 2001.
SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DIS-
TRIBUTIONS.
(a) DIRECT TRANSFERS OF MANDATORY DISTRIBUTIONS.—
(1) IN GENERAL.—Section 401(a)(31) (relating to optional
direct transfer of eligible rollover distributions), as amended
by section 643, is amended by redesignating subparagraphs
(B), (C), and (D) as subparagraphs (C), (D), and (E), respec-
tively, and by inserting after subparagraph (A) the following
new subparagraph:
‘‘(B) CERTAIN MANDATORY DISTRIBUTIONS.—
‘‘(i) IN GENERAL.—In case of a trust which is part
of an eligible plan, such trust shall not constitute a
qualified trust under this section unless the plan of
which such trust is a part provides that if—
H. R. 1836—99
‘‘(I) a distribution described in clause (ii) in
excess of $1,000 is made, and
‘‘(II) the distributee does not make an election
under subparagraph (A) and does not elect to
receive the distribution directly,
the plan administrator shall make such transfer to
an individual retirement plan of a designated trustee
or issuer and shall notify the distributee in writing
(either separately or as part of the notice under section
402(f )) that the distribution may be transferred to
another individual retirement plan.
‘‘(ii) ELIGIBLE PLAN.—For purposes of clause (i),
the term ‘eligible plan’ means a plan which provides
that any nonforfeitable accrued benefit for which the
present value (as determined under section 411(a)(11))
does not exceed $5,000 shall be immediately distributed
to the participant.’’.
(2) CONFORMING AMENDMENTS.—
(A) The heading of section 401(a)(31) is amended by
striking ‘‘OPTIONAL DIRECT’’ and inserting ‘‘DIRECT’’.
(B) Section 401(a)(31)(C), as redesignated by paragraph
(1), is amended by striking ‘‘Subparagraph (A)’’ and
inserting ‘‘Subparagraphs (A) and (B)’’.
(b) NOTICE
REQUIREMENT.—Subparagraph (A) of section
402(f )(1) is amended by inserting before the comma at the end
the following: ‘‘and that the automatic distribution by direct transfer
applies to certain distributions in accordance with section
401(a)(31)(B)’’.
(c) FIDUCIARY RULES.—
(1) IN GENERAL.—Section 404(c) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1104(c)) is
amended by adding at the end the following new paragraph:
‘‘(3) In the case of a pension plan which makes a transfer
to an individual retirement account or annuity of a designated
trustee or issuer under section 401(a)(31)(B) of the Internal
Revenue Code of 1986, the participant or beneficiary shall,
for purposes of paragraph (1), be treated as exercising control
over the assets in the account or annuity upon—
‘‘(A) the earlier of the earlier of—
‘‘(i) a rollover of all or a portion of the amount
to another individual retirement account or annuity;
or
‘‘(ii) one year after the transfer is made; or
‘‘(B) if the transfer is made in a manner consistent
with guidance provided by the Secretary.’’.
(2) REGULATIONS.—
(A) AUTOMATIC
ROLLOVER
SAFE
HARBOR.—Not later
than 3 years after the date of enactment of this Act, the
Secretary of Labor shall prescribe regulations providing
for safe harbors under which the designation of an institu-
tion and investment of funds in accordance with section
401(a)(31)(B) of the Internal Revenue Code of 1986 is
deemed to satisfy the fiduciary requirements of section
404(a) of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1104(a)).
(B) USE OF LOW-COST INDIVIDUAL RETIREMENT PLANS.—
The Secretary of the Treasury and the Secretary of Labor
H. R. 1836—100
may provide, and shall give consideration to providing,
special relief with respect to the use of low-cost individual
retirement plans for purposes of transfers under section
401(a)(31)(B) of the Internal Revenue Code of 1986 and
for other uses that promote the preservation of assets for
retirement income purposes.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions made after final regulations imple-
menting subsection (c)(2)(A) are prescribed.
SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO
MULTIEMPLOYER PLAN.
(a) NOT CONSIDERED METHOD OF ACCOUNTING.—For purposes
of section 446 of the Internal Revenue Code of 1986, a determination
under section 404(a)(6) of such Code regarding the taxable year
with respect to which a contribution to a multiemployer pension
plan is deemed made shall not be treated as a method of accounting
of the taxpayer. No deduction shall be allowed for any taxable
year for any contribution to a multiemployer pension plan with
respect to which a deduction was previously allowed.
(b) REGULATIONS.—The Secretary of the Treasury shall promul-
gate such regulations as necessary to clarify that a taxpayer shall
not be allowed an aggregate amount of deductions for contributions
to a multiemployer pension plan which exceeds the amount of
such contributions made or deemed made under section 404(a)(6)
of the Internal Revenue Code of 1986 to such plan.
(c) EFFECTIVE DATE.—Subsection (a), and any regulations
promulgated under subsection (b), shall be effective for years ending
after the date of the enactment of this Act.
PART II—TREATMENT OF PLAN AMENDMENTS
REDUCING FUTURE BENEFIT ACCRUALS
SEC. 659. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED
BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE
BENEFIT ACCRUALS.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—
(1) IN GENERAL.—Chapter 43 (relating to qualified pension,
etc., plans) is amended by adding at the end the following
new section:
‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT
ACCRUALS TO SATISFY NOTICE REQUIREMENTS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a tax on
the failure of any applicable pension plan to meet the requirements
of subsection (e) with respect to any applicable individual.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax imposed by sub-
section (a) on any failure with respect to any applicable indi-
vidual shall be $100 for each day in the noncompliance period
with respect to such failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of this section,
the term ‘noncompliance period’ means, with respect to any
failure, the period beginning on the date the failure first occurs
and ending on the date the notice to which the failure relates
is provided or the failure is otherwise corrected.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
H. R. 1836—101
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED
AND
REASONABLE
DILIGENCE
EXERCISED.—No tax shall be
imposed by subsection (a) on any failure during any period
for which it is established to the satisfaction of the Secretary
that any person subject to liability for the tax under subsection
(d) did not know that the failure existed and exercised reason-
able diligence to meet the requirements of subsection (e).
‘‘(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN
30 DAYS.—No tax shall be imposed by subsection (a) on any
failure if—
‘‘(A) any person subject to liability for the tax under
subsection (d) exercised reasonable diligence to meet the
requirements of subsection (e), and
‘‘(B) such person provides the notice described in sub-
section (e) during the 30-day period beginning on the first
date such person knew, or exercising reasonable diligence
would have known, that such failure existed.
‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—
‘‘(A) IN
GENERAL.—If the person subject to liability
for tax under subsection (d) exercised reasonable diligence
to meet the requirements of subsection (e), the tax imposed
by subsection (a) for failures during the taxable year of
the employer (or, in the case of a multiemployer plan,
the taxable year of the trust forming part of the plan)
shall not exceed $500,000. For purposes of the preceding
sentence, all multiemployer plans of which the same trust
forms a part shall be treated as 1 plan.
‘‘(B) TAXABLE YEARS IN THE CASE OF CERTAIN CON-
TROLLED GROUPS.—For purposes of this paragraph, if all
persons who are treated as a single employer for purposes
of this section do not have the same taxable year, the
taxable years taken into account shall be determined under
principles similar to the principles of section 1561.
‘‘(4) WAIVER BY SECRETARY.—In the case of a failure which
is due to reasonable cause and not to willful neglect, the Sec-
retary may waive part or all of the tax imposed by subsection
(a) to the extent that the payment of such tax would be exces-
sive or otherwise inequitable relative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be liable for the
tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multiemployer
plan, the employer.
‘‘(2) In the case of a multiemployer plan, the plan.
‘‘(e) 
NOTICE
REQUIREMENTS
FOR
PLANS
SIGNIFICANTLY
REDUCING BENEFIT ACCRUALS.—
‘‘(1) IN GENERAL.—If an applicable pension plan is amended
to provide for a significant reduction in the rate of future
benefit accrual, the plan administrator shall provide written
notice to each applicable individual (and to each employee
organization representing applicable individuals).
‘‘(2) NOTICE.—The notice required by paragraph (1) shall
be written in a manner calculated to be understood by the
average plan participant and shall provide sufficient informa-
tion (as determined in accordance with regulations prescribed
by the Secretary) to allow applicable individuals to understand
the effect of the plan amendment. The Secretary may provide
H. R. 1836—102
a simplified form of notice for, or exempt from any notice
requirement, a plan—
‘‘(A) which has fewer than 100 participants who have
accrued a benefit under the plan, or
‘‘(B) which offers participants the option to choose
between the new benefit formula and the old benefit for-
mula.
‘‘(3) TIMING OF NOTICE.—Except as provided in regulations,
the notice required by paragraph (1) shall be provided within
a reasonable time before the effective date of the plan amend-
ment.
‘‘(4) DESIGNEES.—Any notice under paragraph (1) may be
provided to a person designated, in writing, by the person
to which it would otherwise be provided.
‘‘(5) NOTICE
BEFORE
ADOPTION
OF
AMENDMENT.—A plan
shall not be treated as failing to meet the requirements of
paragraph (1) merely because notice is provided before the
adoption of the plan amendment if no material modification
of the amendment occurs before the amendment is adopted.
‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘applicable indi-
vidual’ means, with respect to any plan amendment—
‘‘(A) each participant in the plan, and
‘‘(B) any beneficiary who is an alternate payee (within
the meaning of section 414(p)(8)) under an applicable quali-
fied domestic relations order (within the meaning of section
414(p)(1)(A)),
whose rate of future benefit accrual under the plan may reason-
ably be expected to be significantly reduced by such plan
amendment.
‘‘(2) APPLICABLE PENSION PLAN.—The term ‘applicable pen-
sion plan’ means—
‘‘(A) any defined benefit plan, or
‘‘(B) an individual account plan which is subject to
the funding standards of section 412.
Such term shall not include a governmental plan (within the
meaning of section 414(d)) or a church plan (within the meaning
of section 414(e)) with respect to which the election provided
by section 410(d) has not been made.
‘‘(3) EARLY RETIREMENT.—A plan amendment which elimi-
nates or significantly reduces any early retirement benefit or
retirement-type subsidy (within the meaning of section
411(d)(6)(B)(i)) shall be treated as having the effect of signifi-
cantly reducing the rate of future benefit accrual.
‘‘(g) NEW TECHNOLOGIES.—The Secretary may by regulations
allow any notice under subsection (e) to be provided by using
new technologies.’’.
(2) CLERICAL
AMENDMENT.—The table of sections for
chapter 43 is amended by adding at the end the following
new item:
‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy
notice requirements.’’.
(b) AMENDMENT OF ERISA.—Subsection (h) of section 204 of
the Employee Retirement Income Security Act of 1974 (29 U.S.C.
1054) is amended to read as follows: