IB
Union Calendar No. 232
107TH CONGRESS
2D SESSION
H. R. 3669
[Report No. 107–382, Part I]
To amend the Internal Revenue Code of 1986 to empower employees to
control their retirement savings accounts through new diversification
rights, new disclosure requirements, and new tax incentives for retirement
education.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 4, 2002
Mr. PORTMAN (for himself and Mr. CARDIN) introduced the following bill;
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committee on Education and the Workforce, for a period to
be subsequently determined by the Speaker, in each case for consider-
ation of such provisions as fall within the jurisdiction of the committee
concerned
MARCH 20, 2002
Reported from the Committee on Ways and Means with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
MARCH 20, 2002
Referral to the Committee on Education and the Workforce extended for a
period ending not later than April 9, 2002
APRIL 9, 2002
Additional sponsors: Mr. BLUNT, Mr. POMEROY, Mr. BRADY of Texas, Mr.
FROST, Mr. BEREUTER, Mr. LUCAS of Kentucky, Mr. FORBES, Mr.
FRELINGHUYSEN, Mr. LATHAM, Mr. JONES of North Carolina, Mr.
ABERCROMBIE, Ms. HART, Mr. OXLEY, Mr. KENNEDY of Minnesota,
Mrs. ROUKEMA, Mr. NUSSLE, Mr. WELDON of Florida, Mr. WALSH, Mr.
MOORE, and Mr. HORN
APRIL 9, 2002
The Committee on Education and the Workforce discharged; committed to the
Committee of the Whole House on the State of the Union and ordered
to be printed
[For text of introduced bill, see copy of bill as introduced on February 4, 2002]
A BILL
To amend the Internal Revenue Code of 1986 to empower
employees to control their retirement savings accounts
through new diversification rights, new disclosure re-
quirements, and new tax incentives for retirement edu-
cation.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Em-
ployee Retirement Savings Bill of Rights’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
TITLE I—DEFINED CONTRIBUTION PLAN PROTECTIONS
Sec. 101. Excise tax on failure of pension plans to provide investment education
notices to participants.
Sec. 102. Excise tax on failure of pension plans to provide notice of transaction
restriction periods.
Sec. 103. Diversification requirements for defined contribution plans that hold
employer securities.
Sec. 104. Treatment of qualified retirement planning services.
Sec. 105. Special rules.
TITLE II—OTHER TAX PROVISIONS RELATING TO PENSIONS
Sec. 201. Amendments to Retirement Protection Act of 1994.
Sec. 202. Reporting simplification.
Sec. 203. Improvement of Employee Plans Compliance Resolution System.
Sec. 204. Flexibility in nondiscrimination, coverage, and line of business rules.
Sec. 205. Extension to all governmental plans of moratorium on application of
certain nondiscrimination rules applicable to State and local
plans.
Sec. 206. Notice and consent period regarding distributions.
Sec. 207. Reduced PBGC premium for new plans of small employers.
Sec. 208. Reduction of additional PBGC premium for new and small plans.
Sec. 209. Authorization for PBGC to pay interest on premium overpayment re-
funds.
Sec. 210. Substantial owner benefits in terminated plans.
Sec. 211. Studies.
Sec. 212. Interest rate range for additional funding requirements.
Sec. 213. Provisions relating to plan amendments.
TITLE III—STOCK OPTIONS
Sec. 301. Exclusion of incentive stock options and employee stock purchase plan
stock options from wages.
TITLE IV—SOCIAL SECURITY AND MEDICARE HELD HARMLESS
Sec. 401. Protection of Social Security and Medicare.
TITLE 
I—DEFINED 
CONTRIBU-
TION PLAN PROTECTIONS
SEC. 101. EXCISE TAX ON FAILURE OF PENSION PLANS TO
PROVIDE INVESTMENT EDUCATION NOTICES
TO PARTICIPANTS.
(a) IN GENERAL.—Chapter 43 of the Internal Revenue
Code of 1986 (relating to qualified pension, etc., plans) is
amended by adding at the end the following new section:
‘‘SEC. 4980G. FAILURE OF APPLICABLE PLANS TO PROVIDE
INVESTMENT EDUCATION NOTICES TO PAR-
TICIPANTS.
‘‘(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 appli-
cable individual.
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any failure with respect to any
applicable individual shall be $100.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX
NOT
TO
APPLY
TO
FAILURES
COR-
RECTED 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 de-
scribed in subsection (e) during the 30-day pe-
riod beginning on the first date such person
knew, or exercising reasonable diligence should
have known, that such failure existed.
‘‘(2) 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 em-
ployer (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 CER-
TAIN
CONTROLLED
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.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent that
the payment of such tax would be excessive or other-
wise inequitable relative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multiem-
ployer plan, the employer.
‘‘(2) In the case of a multiemployer plan, the
plan.
‘‘(e) NOTICE REGARDING INVESTMENT EDUCATION.—
‘‘(1) IN GENERAL.—The plan administrator of
an applicable pension plan shall provide to each ap-
plicable individual an investment education notice
described in paragraph (2) at the time of the enroll-
ment of the applicable individual in the plan and not
less often than quarterly thereafter.
‘‘(2) INVESTMENT EDUCATION NOTICE.—An in-
vestment education notice is described in this para-
graph if such notice contains—
‘‘(A) an explanation, for the long-term re-
tirement security of participants and bene-
ficiaries, of generally accepted investment prin-
ciples, including principles of risk management
and diversification, and
‘‘(B) a discussion of the risk of holding sub-
stantial portions of a portfolio in the security of
any one entity, such as employer securities.
‘‘(3) UNDERSTANDABILITY.—Each notice re-
quired by paragraph (1) shall be written in a manner
calculated to be understood by the average plan par-
ticipant and shall provide sufficient information (as
determined in accordance with guidance provided by
the Secretary) to allow recipients to understand such
notice.
‘‘(4) FORM AND MANNER OF NOTICES.—The no-
tices required by this subsection shall be in writing,
except that such notices may be in electronic or other
form to the extent that such form is reasonably acces-
sible to the applicable individual.
‘‘(f) DEFINITIONS.—For purposes of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘appli-
cable individual’ means—
‘‘(A) any participant in the applicable pen-
sion plan,
‘‘(B) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under a qualified domestic relations order (with-
in the meaning of section 414(p)(1)(A)), and
‘‘(C) any beneficiary of a deceased partici-
pant or alternate payee.
‘‘(2) APPLICABLE PENSION PLAN.—The term ‘ap-
plicable pension plan’ means—
‘‘(A) a plan described in clause (i), (ii), or
(iv) of section 219(g)(5)(A), and
‘‘(B) an eligible deferred compensation plan
(as defined in section 457(b)) of an eligible em-
ployer described in section 457(e)(1)(A),
which permits any participant to direct the invest-
ment of some or all of his account in the plan or
under which the accrued benefit of any participant
depends in whole or in part on hypothetical invest-
ments directed by the participant. Such term shall
not include a one-participant retirement plan.
‘‘(3) ONE-PARTICIPANT RETIREMENT PLAN DE-
FINED.—The term ‘one-participant retirement plan’
means a retirement plan that—
‘‘(A) on the first day of the plan year—
‘‘(i) covered only the employer (and the
employer’s spouse) and the employer owned
the entire business (whether or not incor-
porated), or
‘‘(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration),
‘‘(B) meets the minimum coverage require-
ments of section 410(b) without being combined
with any other plan of the business that covers
the employees of the business,
‘‘(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse) or
the partners (and their spouses),
‘‘(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of busi-
nesses under common control, and
‘‘(E) does not cover a business that leases
employees.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 43 of such Code is amended by adding at the end
the following new item:
‘‘Sec. 4980G. Failure of applicable plans to provide investment edu-
cation notices to participants.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply with respect to plan years be-
ginning after December 31, 2002.
(2) MODEL INVESTMENT PRINCIPLES.—Not later
than the earlier of January 1, 2003, or 120 days after
the date of the enactment of this Act, the Secretary of
the Treasury, in consultation with the Secretary of
Labor, shall issue guidance and model notices which
meet the requirements of section 4980G of the Internal
Revenue Code of 1986 (as added by this section).
SEC. 102. EXCISE TAX ON FAILURE OF PENSION PLANS TO
PROVIDE NOTICE OF TRANSACTION RESTRIC-
TION PERIODS.
(a) IN GENERAL.—Chapter 43 of the Internal Revenue
Code of 1986 (relating to qualified pension, etc., plans) is
amended by adding at the end the following new section:
‘‘SEC. 4980H. FAILURE OF APPLICABLE PLANS TO PROVIDE
NOTICE OF TRANSACTION RESTRICTION PE-
RIODS.
‘‘(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 appli-
cable individual.
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any failure with respect to any
applicable individual shall be $100.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX
NOT
TO
APPLY
TO
FAILURES
COR-
RECTED AS SOON AS REASONABLY PRACTICABLE.—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 de-
scribed in subsection (e) as soon as reasonably
practicable after the first date such person knew,
or exercising reasonable diligence should have
known, that such failure existed and at least 1
business day before the beginning of the trans-
action restriction period.
‘‘(2) 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 em-
ployer (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 CER-
TAIN
CONTROLLED
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.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent that
‘‘(A) IN GENERAL.—Except as provided in
subparagraphs (B) and (C), the notice required
by paragraph (1) shall be provided at least 30
days before the beginning of the transaction re-
striction period.
‘‘(B) DISPOSITION OF STOCK OR ASSETS.—
‘‘(i) IN
GENERAL.—If, in connection
with the major corporate disposition by a
corporation maintaining an applicable pen-
sion plan, there is the possibility of a trans-
action restriction period—
‘‘(I) the notice required by para-
graph (1) shall be provided at least 30
days before the date of such disposi-
tion, and
‘‘(II) no other notice shall be re-
quired by paragraph (1) with respect
to such period if notice is provided
pursuant to subclause (I) and such pe-
riod begins not more than 30 days
after the date of such disposition.
Subclause (I) shall not apply if the plan
administrator has a substantial basis to be-
lieve that there will be no transaction re-
striction period in connection with the dis-
position.
‘‘(ii) 
MAJOR
CORPORATE
DISPOSI-
TION.—For purposes of clause (i), the term
‘major corporate disposition’ means, with
respect to a corporation—
‘‘(I) the disposition of substan-
tially all of the stock of such corpora-
tion or a subsidiary thereof, or
‘‘(II) the disposition of substan-
tially all of the assets used in a trade
or business of such corporation or sub-
sidiary.
‘‘(iii) 
NONCORPORATE
ENTITIES.—
Rules similar to the rules of this subpara-
graph shall apply to entities that are not
corporations.
‘‘(C) 
EXCEPTION
FOR
UNFORESEEABLE
EVENTS.—In the case of a transaction restriction
period resulting from the occurrence of an un-
foreseeable event, such notice shall be provided as
soon as reasonably practicable after the occur-
rence of such event.
‘‘(4) FORM AND MANNER OF NOTICE.—The notice
required by this subsection shall be in writing, except
that such notice may be in electronic or other form
to the extent that such form is reasonably accessible
to the applicable individual.
‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘appli-
cable individual’ means—
‘‘(A) any participant in the applicable pen-
sion plan, and
‘‘(B) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under a qualified domestic relations order (with-
in the meaning of section 414(p)(1)(A)), and
‘‘(C) any beneficiary of a deceased partici-
pant or alternate payee.
‘‘(2) APPLICABLE PENSION PLAN.—
‘‘(A) IN
GENERAL.—The term ‘applicable
pension plan’ means—
‘‘(i) a plan described in clause (i), (ii),
or (iv) of section 219(g)(5)(A), and
‘‘(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an el-
igible 
employer 
described 
in 
section
457(e)(1)(A),
which maintains accounts for participants under
the plan or under which the accrued benefit of
any participant depends in whole or in part on
hypothetical investments directed by the partici-
pant.
‘‘(B) EXCEPTION.—Such term shall not in-
clude a one-participant retirement plan (as de-
fined in section 4980G(f)(3)).
‘‘(3) TRANSACTION RESTRICTION PERIOD.—
‘‘(A) IN GENERAL.—The term ‘transaction
restriction period’ means a temporary or indefi-
nite period of at least 3 consecutive days during
which rights otherwise provided under the plan
to 1 or more applicable individuals to direct in-
vestments in the applicable pension plan, obtain
loans from such plan, or obtain distributions
from such plan are substantially reduced (other
than by reason of the application of securities
laws or other circumstances specified by the Sec-
retary in regulations). In determining consecu-
tive days, days on which such rights are not nor-
mally available shall be disregarded.
‘‘(B) SPECIAL RULE FOR EMPLOYER SECU-
RITIES.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), rights shall be treated as
substantially reduced with respect to direct-
ing investments out of employer securities if
rights in effect are significantly restricted
for at least 3 consecutive business days.
‘‘(ii) BUSINESS DAY.—For purposes of
clause (i), under regulations prescribed by
the Secretary, the term ‘business day’
means—
‘‘(I) in the case of a security
which is traded on an established secu-
rity market, any day on which such se-
curity may be traded on the principal
securities market of such security, and
‘‘(II) in the case of a security
which is not traded on an established
security market, any calendar day.
‘‘(4) EMPLOYER
SECURITIES.—The term ‘em-
ployer securities’ shall have the meaning given such
term by section 407(d)(1) of the Employee Retirement
Income Security Act of 1974.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 43 of such Code is amended by adding at the end
the following new item:
‘‘Sec. 4980H. Failure of applicable plans to provide notice of trans-
action restriction periods.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 2002.
(2) GUIDANCE.—The Secretary of the Treasury,
in consultation with the Secretary of Labor, shall
issue guidance in carrying out section 4980H of the
Internal Revenue Code of 1986 (as added by this sec-
tion). Such guidance—
(A) in the case of a reduction of rights re-
lating to the direction of investments out of em-
ployer securities, shall be issued by November 1,
2002 (or, if later, the 60th day after the date of
the enactment of this Act), and
(B) in any other case shall be issued not
later than 120 days after the date of the enact-
ment of this Act.
SEC. 103. DIVERSIFICATION REQUIREMENTS FOR DEFINED
CONTRIBUTION 
PLANS 
THAT 
HOLD 
EM-
PLOYER SECURITIES.
(a) IN GENERAL.—Subsection (a) of section 401 of the
Internal Revenue Code of 1986 (relating to requirements for
qualification) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(35) DIVERSIFICATION REQUIREMENTS FOR DE-
FINED CONTRIBUTION PLANS THAT HOLD EMPLOYER
SECURITIES.—
‘‘(A) IN GENERAL.—In the case of a defined
contribution plan described in this subsection
that includes a trust which is exempt from tax
under section 501(a) and which holds employer
securities that are readily tradable on an estab-
lished securities market, such trust shall not con-
stitute a qualified trust under this section unless
such plan meets the requirements of subpara-
graphs (B), (C), and (D).
‘‘(B) ELECTIVE DEFERRALS AND EMPLOYEE
CONTRIBUTIONS INVESTED IN EMPLOYER SECU-
RITIES.—In the case of the portion of the ac-
count attributable to elective deferrals and em-
ployee contributions which is invested in em-
ployer securities, a plan meets the requirements
of this subparagraph if each applicable indi-
vidual in such plan may elect to direct the plan
to divest up to the applicable percentage of such
securities in the individual’s account and to re-
invest an equivalent amount in other investment
options which meet the requirements of subpara-
graph (E).
‘‘(C) MATCHING AND CERTAIN OTHER CON-
TRIBUTIONS.—
‘‘(i) IN GENERAL.—In the case of the
portion of the account attributable to con-
tributions to which this subparagraph ap-
plies and which is invested in employer se-
curities, a plan meets the requirements of
this subparagraph if each applicable 3-year
individual in the plan may elect to direct
the plan to divest up to the applicable per-
centage of such securities in the individual’s
account and to reinvest an equivalent
amount in other investment options which
meet the requirements of subparagraph (E).
‘‘(ii) CONTRIBUTIONS TO WHICH THIS
SUBPARAGRAPH
APPLIES.—This subpara-
graph shall apply to—
‘‘(I) matching contributions (as
defined in subsection (m)(4)(A)),
‘‘(II) qualified nonelective con-
tributions (as defined in subsection
(m)(4)(C)), and
‘‘(III) 
contributions 
made 
in
order to meet the requirements of sub-
section (k)(12)(C). -
‘‘(iii) 
APPLICABLE
3-YEAR
INDI-
VIDUAL.—For purposes of clause (i), the
term ‘applicable 3-year individual’ means
any individual who would be an applicable
individual if only participants in the plan
who have completed at least 3 years of serv-
ice (as determined under section 411(a))
were taken into account under subpara-
graph (G)(i)(I).
‘‘(D) OTHER EMPLOYER CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—In the case of the
portion of the account attributable to em-
ployer contributions (other than contribu-
tions to which subparagraph (B) or (C) ap-
plies) which is invested in employer securi-
ties, a plan meets the requirements of this
subparagraph if each applicable 5-year in-
dividual described in clause (ii) may elect
to direct the plan to divest up to the appli-
cable percentage of such securities in the in-
dividual’s account and to reinvest an equiv-
alent amount in other investment options
which meet the requirements of subpara-
graph (E).
‘‘(ii) 
APPLICABLE
5-YEAR
INDI-
VIDUAL.—For purposes of clause (i), the
term ‘5-year individual’ means any indi-
vidual who would be an applicable indi-
vidual if only participants in the plan who
have completed at least 5 years of service
(as determined under section 411(a)) were
taken into account under subparagraph
(G)(i)(I).
‘‘(E) INVESTMENT OPTIONS.—The require-
ments of this subparagraph are met if the plan
offers not less than 3 investment options (not in-
consistent with regulations prescribed by the Sec-
retary) other than employer securities.
‘‘(F) 
ELECTION.—Elections 
under 
this
paragraph maybe made not less frequently than
quarterly.
‘‘(G) OTHER
DEFINITIONS
AND
RULES.—
For purposes of this paragraph—
‘‘(i) 
APPLICABLE
INDIVIDUAL.—The
term ‘applicable individual’ means—
‘‘(I) any participant in the plan,
‘‘(II) any beneficiary who is an
alternate payee (within the meaning of
section 414(p)(8)) under an applicable
qualified 
domestic 
relations 
order
(within 
the 
meaning 
of 
section
414(p)(1)(A)), and
‘‘(III) any beneficiary of a de-
ceased participant or alternate payee.
‘‘(ii) 
ELECTIVE
DEFERRALS.—The
term ‘elective deferrals’ means an employer
contribution 
described 
in 
section
402(g)(3)(A).
‘‘(iii) EMPLOYER
SECURITIES.—The
term ‘employer securities’ shall have the
meaning given such term by section
407(d)(1) of the Employee Retirement In-
come Security Act of 1974.
‘‘(iv) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock ownership
plan’ shall have the same meaning given to
such term by section 4975(e)(7).
‘‘(v) APPLICABLE PERCENTAGE.—
‘‘(I) IN GENERAL.—The applicable
percentage shall be as follows:
‘‘Plan years
Applicable
beginning in:
percentage:
2003 ........................................................
2004 ........................................................
2005 ........................................................
2006 ........................................................
2007 or thereafter ..................................
100.
‘‘(II) 
ELECTIVE
DEFERRALS
TREATED AS SEPARATE PLAN NOT IN-
DIVIDUAL ACCOUNT PLAN.—In the case
of elective deferrals and employee con-
tributions (and any earnings allocable
thereto) held within a plan treated as
a separate plan as of the date of the
enactment of this paragraph under sec-
tion 407(b)(2) of the Employee Retire-
ment Income Security Act of 1974, for
purposes of subparagraph (B) the ap-
plicable percentage shall be 100 per-
cent.
‘‘(III) 
CONTRIBUTIONS
HELD
WITHIN AN ESOP.—In the case of con-
tributions (other than elective deferrals
and employee contributions) held with-
in an employee stock ownership plan,
in the case of years 2003 and 2004, the
applicable percentage shall be the
greater of the amount determined
under subclause (I) or the percentage
determined under paragraph (28) (de-
termined as if paragraph (28) applied
to a plan described in this paragraph).
‘‘(vi) COORDINATION WITH PARAGRAPH
(28).—Subparagraphs (B), (C), and (D)
shall apply to the extent that the amount
attributable to the applicable percentage
under 
such 
subparagraph 
exceeds 
the
amount to which a prior election under
such subparagraph or paragraph (28) ap-
plies.
‘‘(H) EXCEPTION
FOR
CERTAIN
ESOPS.—
This paragraph shall apply to an employee stock
ownership plan only if the plan holds amounts
attributable to deferrals or contributions to
which subparagraph (B) or (C) apply.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 401(a)(28) of such Code is amended
by adding at the end the following new subparagraph:
‘‘(D) APPLICATION.—This paragraph shall
not apply to a plan to which paragraph (35) ap-
plies.’’.
(2) Section 409(h)(7) of such Code is amended
by inserting before the period at the end ‘‘or subpara-
graph (B), (C), or (D) of section 401(a)(35)’’.
(3) Section 4980(c)(3)(A) of such Code is amend-
ed by striking ‘‘if—’’ and all that follows and insert-
ing ‘‘if the requirements of subparagraphs (B), (C),
and (D) are met.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to plan years beginning after December 31,
2002.
(2) EXCEPTION.—The amendments made by this
section shall not apply to employer securities held by
an employee stock ownership plan which are not sub-
ject to section 401(a)(28) of the Internal Revenue
Code of 1986 by reason of section 1175(a)(2) of the
Tax Reform Act of 1986 (100 Stat. 2519).
SEC. 104. TREATMENT OF QUALIFIED RETIREMENT PLAN-
NING SERVICES.
(a) IN GENERAL.—Subsection (m) of section 132 of the
Internal Revenue Code of 1986 (defining qualified retire-
ment services) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount
shall be included in the gross income of any employee
solely because the employee may choose between any
qualified retirement planning services provided by a
qualified investment advisor and compensation which
would otherwise be includible in the gross income of
such employee. The preceding sentence shall apply to
highly compensated employees only if the choice de-
scribed in such sentence is available on substantially
the same terms to each member of the group of em-
ployees normally provided education and information
regarding the employer’s qualified employer plan.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 403(b)(3)(B) of such Code is amend-
ed by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’.
(2) Section 414(s)(2) of such Code is amended by
inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’.
(3) Section 415(c)(3)(D)(ii) of such Code is
amended by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 105. SPECIAL RULES.
(a) 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 be-
fore the date of the enactment of this Act, the amendments
made by this title shall not apply to plan years beginning
before the earlier of—
(1) the later of—
(A) January 1, 2004, or
(B) the date on which the last of such collec-
tive bargaining agreements terminates (deter-
mined without regard to any extension thereof
after the date of the enactment of this Act), or
(2) January 1, 2005.
(b) PLAN AMENDMENTS.—If the amendments made by
this title require an amendment to any plan, such plan
amendment shall not be required to be made before the first
plan year beginning on or after January 1, 2005, if—
(1) during the period after such amendments
made by this title take effect and before such first
plan year, the plan is operated in accordance with
the requirements of such amendments made by this
title, and
(2) such plan amendment applies retroactively to
the period after such amendments made by this Act
take effect and before such first plan year.
TITLE 
II—OTHER 
TAX 
PROVI-
SIONS 
RELATING 
TO 
PEN-
SIONS
SEC. 201. AMENDMENTS TO RETIREMENT PROTECTION ACT
OF 1994.
(a) TRANSITION RULE MADE PERMANENT.—Para-
graph (1) of section 769(c) of the Retirement Protection Act
of 1994 is amended—
(1) by striking ‘‘transition’’ each place it ap-
pears in the heading and the text, and
(2) by striking ‘‘for any plan year beginning
after 1996 and before 2010’’.
(b) SPECIAL RULES.—Paragraph (2) of section 769(c)
of the Retirement Protection Act of 1994 is amended to read
as follows:
‘‘(2) SPECIAL
RULES.—The rules described in
this paragraph are as follows:
‘‘(A) For purposes of section 412(l)(9)(A) of
the Internal Revenue Code of 1986, the funded
current liability percentage for any plan year
shall be treated as not less than 90 percent.
‘‘(B) For purposes of section 412(m) of the
Internal Revenue Code of 1986, the funded cur-
rent liability percentage for any plan year shall
be treated as not less than 100 percent.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2001.
SEC. 202. REPORTING SIMPLIFICATION.
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treasury
and the Secretary of Labor shall modify the require-
ments for filing annual returns with respect to one-
participant retirement plans to ensure that such
plans with assets of $250,000 or less as of the close
of the plan year need not file a return for that year.
(2) ONE-PARTICIPANT
RETIREMENT
PLAN
DE-
FINED.—For purposes of this subsection, the term
‘‘one-participant retirement plan’’ means a retire-
ment plan that—
(A) on the first day of the plan year—
(i) covered only the employer (and the
employer’s spouse) and the employer owned
the entire business (whether or not incor-
porated); or
(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration);
(B) meets the minimum coverage require-
ments of section 410(b) of the Internal Revenue
Code of 1986 without being combined with any
other plan of the business that covers the employ-
ees of the business;
(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse) or
the partners (and their spouses);
(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of busi-
nesses under common control; and
(E) does not cover a business that leases em-
ployees.
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the
Internal Revenue Code of 1986 shall have the respec-
tive meanings given such terms by such section.
(4) EFFECTIVE
DATE.—The provisions of this
subsection shall apply to plan years beginning on or
after January 1, 2002.
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
of plan years beginning after December 31, 2003, the Sec-
retary of the Treasury and the Secretary of Labor shall pro-
vide for the filing of a simplified annual return for any
retirement plan which covers less than 25 employees on the
first day of a plan year and which meets the requirements
described in subparagraphs (B), (D), and (E) of subsection
(a)(2).
SEC. 203. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to update
and improve the Employee Plans Compliance Resolution
System (or any successor program) giving special attention
to—
(1) increasing the awareness and knowledge of
small employers concerning the availability and use
of the program;
(2) taking into account special concerns and cir-
cumstances that small employers face with respect to
compliance and correction of compliance failures;
(3) extending the duration of the self-correction
period under the Self-Correction Program for signifi-
cant compliance failures;
(4) expanding the availability to correct insig-
nificant compliance failures under the Self-Correction
Program during audit; and
(5) assuring that any tax, penalty, or sanction
that is imposed by reason of a compliance failure is
not excessive and bears a reasonable relationship to
the nature, extent, and severity of the failure.
The Secretary of the Treasury shall have full authority to
effectuate the foregoing with respect to the Employee Plans
Compliance Resolution System (or any successor program)
and any other employee plans correction policies, including
the authority to waive income, excise, or other taxes to en-
sure that any tax, penalty, or sanction is not excessive and
bears a reasonable relationship to the nature, extent, and
severity of the failure.
SEC. 
204. 
FLEXIBILITY 
IN 
NONDISCRIMINATION, 
COV-
ERAGE, AND LINE OF BUSINESS RULES.
(a) NONDISCRIMINATION.—
(1) IN GENERAL.—The Secretary of the Treasury
shall, by regulation, provide that a plan shall be
deemed to satisfy the requirements of section
401(a)(4) of the Internal Revenue Code of 1986 if
such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect be-
fore January 1, 1994, but only if—
(A) the plan satisfies conditions prescribed
by the Secretary to appropriately limit the
availability of such test; and
(B) the plan is submitted to the Secretary
for a determination of whether it satisfies such
test.
Subparagraph (B) shall only apply to the extent pro-
vided by the Secretary.
(2) EFFECTIVE DATES.—
(A) REGULATIONS.—The regulation re-
quired by paragraph (1) shall apply to years be-
ginning after December 31, 2003.
(B) CONDITIONS
OF
AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under paragraph (1)(A) shall not apply
before the first year beginning not less than 120
days after the date on which such condition is
prescribed.
(b) COVERAGE TEST.—
(1) IN GENERAL.—Section 410(b)(1) of the Inter-
nal Revenue Code of 1986 (relating to minimum cov-
erage requirements) is amended by adding at the end
the following:
‘‘(D) In the case that the plan fails to meet
the requirements of subparagraphs (A), (B) and
(C), the plan—
‘‘(i) satisfies subparagraph (B), as in
effect immediately before the enactment of
the Tax Reform Act of 1986,
‘‘(ii) is submitted to the Secretary for
a determination of whether it satisfies the
requirement described in clause (i), and
‘‘(iii) satisfies conditions prescribed by
the Secretary by regulation that appro-
priately limit the availability of this sub-
paragraph.
Clause (ii) shall apply only to the extent pro-
vided by the Secretary.’’.
(2) EFFECTIVE DATES.—
(A) IN
GENERAL.—The amendment made
by paragraph (1) shall apply to years beginning
after December 31, 2003.
(B) CONDITIONS
OF
AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under regulations prescribed by the Sec-
retary under section 410(b)(1)(D) of the Internal
Revenue Code of 1986 shall not apply before the
first year beginning not less than 120 days after
the date on which such condition is prescribed.
(c) LINE OF BUSINESS RULES.—The Secretary of the
Treasury shall, on or before December 31, 2003, modify the