IB
Union Calendar No. 33
107TH CONGRESS
1ST SESSION
H. R. 10
[Report No. 107–51, Parts I and II]
To provide for pension reform, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 14, 2001
Mr. PORTMAN (for himself, Mr. CARDIN, Mr. ARMEY, Mr. FROST, Mr.
BOEHNER, Mr. ANDREWS, Mr. BLUNT, Mr. BENTSEN, Mr. GALLEGLY,
Mr. MOORE, Mr. HOUGHTON, Mr. COYNE, Mr. SAM JOHNSON of Texas,
Mr. POMEROY, Mrs. JOHNSON of Connecticut, Mr. MANZULLO, Mrs.
MORELLA, Mr. WELLER, Mr. WYNN, Mr. AKIN, Mr. BACA, Mr. BACHUS,
Mr. BAIRD, Mr. BAKER, Mr. BALDACCI, Mr. BALLENGER, Mr. BARCIA,
Mr. BARRETT, Mr. BASS, Mr. BEREUTER, Ms. BERKLEY, Mrs. BIGGERT,
Mr. BLAGOJEVICH, Mr. BLUMENAUER, Mr. BORSKI, Mr. BOSWELL, Mrs.
BONO, Mr. BRADY of Texas, Mr. BRADY of Pennsylvania, Mr. BRYANT,
Mr. BURR of North Carolina, Mr. BUYER, Mr. CALVERT, Mr. CAMP, Mr.
CANTOR, Mrs. CAPITO, Mrs. CAPPS, Mr. CAPUANO, Mr. CHABOT, Mr.
CLAY, Mr. CLEMENT, Mr. COBLE, Mr. COLLINS, Mr. CONDIT, Mr.
COOKSEY, Mr. COX, Mr. CRANE, Mr. CRENSHAW, Mr. CROWLEY, Mr.
CULBERSON, Mr. CUNNINGHAM, Mrs. JO ANN DAVIS of Virginia, Mr.
DELAHUNT, Mr. DEMINT, Mr. DEUTSCH, Mr. DIAZ-BALART, Mr.
DOOLEY of California, Mr. DOYLE, Mr. DREIER, Ms. DUNN, Mr. EHR-
LICH, Mrs. EMERSON, Mr. ENGEL, Mr. ENGLISH, Ms. ESHOO, Mr.
ETHERIDGE, Mr. EVANS, Mr. FALEOMAVAEGA, Mr. FERGUSON, Mr. FIL-
NER, Mr. FLETCHER, Mr. FOLEY, Mr. FORD, Mr. FOSSELLA, Mr.
FRELINGHUYSEN, Mr. GANSKE, Mr. GIBBONS, Mr. GILCHREST, Mr.
GILLMOR, Mr. GOSS, Mr. GONZALEZ, Mr. GOODE, Mr. GOODLATTE, Mr.
GORDON, Ms. GRANGER, Mr. GRAVES, Mr. GREEN of Texas, Mr. GREEN
of Wisconsin, Mr. GREENWOOD, Mr. HALL of Texas, Mr. HALL of Ohio,
Ms. HART, Mr. HASTINGS of Washington, Mr. HAYES, Mr. HAYWORTH,
Mr. HEFLEY, Mr. HERGER, Mr. HILL, Mr. HILLEARY, Mr. HOBSON, Mr.
HOLDEN, Ms. HOOLEY
of Oregon, Mr. HORN, Mr. HOYER, Mr.
HULSHOF, Mr. HOLT, Mr. HUTCHINSON, Mr. HYDE, Mr. ISAKSON, Mr.
ISTOOK, Mr. JEFFERSON, Mrs. JONES of Ohio, Mr. JONES of North
Carolina, Mr. KANJORSKI, Mrs. KELLY, Mr. KENNEDY of Rhode Island,
Mr. KILDEE, Mr. KIND, Mr. KING, Mr. KINGSTON, Mr. KIRK, Mr.
KLECZKA, Mr. KNOLLENBERG, Mr. KOLBE, Mr. KUCINICH, Mr.
LAHOOD, Mr. LAMPSON, Mr. LANGEVIN, Mr. LANTOS, Mr. LARGENT,
Mr. LARSEN of Washington, Mr. LARSON of Connecticut, Mr. LATHAM,
Mr. LATOURETTE, Mr. LEACH, Mr. LEWIS of Kentucky, Mr. LOBIONDO,
Ms. LOFGREN, Mrs. LOWEY, Mr. LUCAS of Oklahoma, Mr. LUCAS of
Kentucky, Mrs. MALONEY of New York, Mr. MALONEY of Connecticut,
Mr. MASCARA, Mr. MATHESON, Mrs. MCCARTHY of New York, Ms.
MCCARTHY of Missouri, Mr. MCCRERY, Mr. MCGOVERN, Mr. MCHUGH,
Mr. MCINNIS, Mr. MCINTYRE, Mr. MCKEON, Mr. MCNULTY, Mr. MEE-
HAN, Mr. MENENDEZ, Ms. MILLENDER-MCDONALD, Mr. GARY MILLER
of California, Mrs. MINK of Hawaii, Mr. MORAN of Kansas, Mrs.
MYRICK, Mr. NADLER, Mr. NETHERCUTT, Mr. NEY, Mrs. NORTHUP, Mr.
NORWOOD, Mr. NUSSLE, Mr. OSBORNE, Mr. OTTER, Mr. OXLEY, Mr.
PALLONE, Mr. PASCRELL, Mr. PASTOR, Mr. PAUL, Mr. PAYNE, Mr.
PENCE, Mr. PETERSON of Pennsylvania, Mr. PETRI, Mr. PLATTS, Ms.
PRYCE of Ohio, Mr. PUTNAM, Mr. QUINN, Mr. RAHALL, Mr. RAMSTAD,
Mr. REGULA, Mr. REYNOLDS, Mr. RILEY, Mr. ROEMER, Mr. ROGERS of
Michigan, Mrs. ROUKEMA, Mr. ROTHMAN, Mr. ROYCE, Mr. RYAN of Wis-
consin, Mr. RYUN of Kansas, Mr. SANDLIN, Mr. SAWYER, Mr. SAXTON,
Ms. SCHAKOWSKY, Mr. SCARBOROUGH, Mr. SCHAFFER, Mr. SCHROCK,
Mr. SESSIONS, Mr. SHADEGG, Mr. SHAW, Mr. SHAYS, Mr. SHERMAN,
Mr. SHERWOOD, Mr. SHOWS, Mr. SIMMONS, Mr. SIMPSON, Mr. SKEL-
TON, Mr. SMITH of Washington, Mr. SMITH of New Jersey, Mr. SMITH
of Texas, Mr. SNYDER, Mr. SOUDER, Mr. SPRATT, Mr. STEARNS, Mr.
STRICKLAND, Mr. STUPAK, Mr. SUNUNU, Mr. SWEENEY, Mr. TANCREDO,
Mr. TANNER, Mrs. TAUSCHER, Mr. TAYLOR of North Carolina, Mr.
TERRY, Mr. THOMPSON of Mississippi, Mr. THOMPSON of California, Mr.
THUNE, Mrs. THURMAN, Mr. TIBERI, Mr. TRAFICANT, Mr. TOOMEY, Mr.
TURNER, Mr. UDALL of Colorado, Mr. UDALL of New Mexico, Mr.
UPTON, Mr. WALDEN of Oregon, Mr. WALSH, Mr. WAMP, Mr. WATKINS,
Mr. WATTS of Oklahoma, Mr. WEINER, Mr. WELDON of Florida, Mr.
WHITFIELD, Mr. WOLF, Ms. WOOLSEY, Mr. WU, and Mr. YOUNG of
Alaska) introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Edu-
cation and the Workforce, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned
MAY 1, 2001
Additional sponsors: Mr. WELDON of Pennsylvania, Mr. FATTAH, Mr. FLAKE,
Mr. BARR of Georgia, Mr. ROGERS of Kentucky, Mr. SKEEN, Mr. FARR
of California, Mr. INSLEE, Mr. TIAHRT, Mr. JENKINS, Mr. BARTLETT of
Maryland, Mr. DEAL of Georgia, Mr. COSTELLO, Ms. DELAURO, Ms.
HARMAN, Ms. MCKINNEY, Mr. RUSH, Mr. BOUCHER, Mr. BURTON of In-
diana, Mr. DAVIS of Illinois, Mr. SCHIFF, Mr. GEKAS, Ms. BALDWIN, Mr.
ISRAEL, Mr. GUTIERREZ, Mr. DOOLITTLE, Ms. CARSON of Indiana, Mr.
WICKER, Mr. HOSTETTLER, Mr. SHIMKUS, Mr. PETERSON of Minnesota,
Mr. HANSEN, Mrs. CLAYTON, Mr. TIERNEY, Mr. ABERCROMBIE, Mr.
GRUCCI, Mr. GILMAN, Ms. MCCOLLUM, Ms. ROS-LEHTINEN, Mr.
REHBERG, Mrs. NAPOLITANO, Mr. JOHNSON of Illinois, Mr. PITTS, Mr.
DELAY, Mrs. CUBIN, Ms. SANCHEZ, Mr. THOMAS, Mr. ADERHOLT, Mr.
KERNS, Mr. TOM DAVIS of Virginia, Mr. VITTER, Mr. REYES, Mr.
BROWN of South Carolina, Mr. MORAN of Virginia, and Mr. BROWN of
Ohio
MAY 1, 2001
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]
Reported from the Committee on Education and the Workforce with an
amendment, committed to the Committee of the Whole House on the
State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in boldface roman]
[For text of introduced bill, see copy of bill as introduced on March 14, 2001]
A BILL
To provide for pension reform, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CON-
TENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Comprehensive Retirement Security and Pension Reform
Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
Sec. 1. Short title; references; table of contents.
TITLE I—INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS
Sec. 101. Modification of IRA contribution limits.
TITLE II—EXPANDING COVERAGE
Sec. 201. Increase in benefit and contribution limits.
Sec. 202. Plan loans for subchapter S owners, partners, and sole proprietors.
Sec. 203. Modification of top-heavy rules.
Sec. 204. Elective deferrals not taken into account for purposes of deduction lim-
its.
Sec. 205. Repeal of coordination requirements for deferred compensation plans of
State and local governments and tax-exempt organizations.
Sec. 206. Elimination of user fee for requests to IRS regarding pension plans.
Sec. 207. Deduction limits.
Sec. 208. Option to treat elective deferrals as after-tax contributions.
Sec. 209. Availability of qualified plans to self-employed individuals who are ex-
empt from the self-employment tax by reason of their religious
beliefs.
Sec. 210. Certain nonresident aliens excluded in applying minimum coverage re-
quirements.
TITLE III—ENHANCING FAIRNESS FOR WOMEN
Sec. 301. Catch-up contributions for individuals age 50 or over.
Sec. 302. Equitable treatment for contributions of employees to defined contribu-
tion plans.
Sec. 303. Faster vesting of certain employer matching contributions.
Sec. 304. Modifications to minimum distribution rules.
Sec. 305. Clarification of tax treatment of division of section 457 plan benefits
upon divorce.
Sec. 306. Provisions relating to hardship distributions.
Sec. 307. Waiver of tax on nondeductible contributions for domestic or similar
workers.
TITLE IV—INCREASING PORTABILITY FOR PARTICIPANTS
Sec. 401. Rollovers allowed among various types of plans.
Sec. 402. Rollovers of IRAs into workplace retirement plans.
Sec. 403. Rollovers of after-tax contributions.
Sec. 404. Hardship exception to 60-day rule.
Sec. 405. Treatment of forms of distribution.
Sec. 406. Rationalization of restrictions on distributions.
Sec. 407. Purchase of service credit in governmental defined benefit plans.
Sec. 408. Employers may disregard rollovers for purposes of cash-out amounts.
Sec. 409. Minimum distribution and inclusion requirements for section 457
plans.
TITLE V—STRENGTHENING PENSION SECURITY AND
ENFORCEMENT
Sec. 501. Repeal of percent of current liability funding limit.
Sec. 502. Maximum contribution deduction rules modified and applied to all de-
fined benefit plans.
Sec. 503. Excise tax relief for sound pension funding.
Sec. 504. Excise tax on failure to provide notice by defined benefit plans signifi-
cantly reducing future benefit accruals.
Sec. 505. Treatment of multiemployer plans under section 415.
Sec. 506. Protection of investment of employee contributions to 401(k) plans.
Sec. 507. Periodic pension benefits statements.
Sec. 508. Prohibited allocations of stock in S corporation ESOP.
TITLE VI—REDUCING REGULATORY BURDENS
Sec. 601. Modification of timing of plan valuations.
Sec. 602. ESOP dividends may be reinvested without loss of dividend deduction.
Sec. 603. Repeal of transition rule relating to certain highly compensated employ-
ees.
Sec. 604. Employees of tax-exempt entities.
Sec. 605. Clarification of treatment of employer-provided retirement advice.
Sec. 606. Reporting simplification.
Sec. 607. Improvement of employee plans compliance resolution system.
Sec. 608. Repeal of the multiple use test.
Sec. 609. Flexibility in nondiscrimination, coverage, and line of business rules.
Sec. 610. Extension to all governmental plans of moratorium on application of
certain nondiscrimination rules applicable to State and local
plans.
Sec. 611. Notice and consent period regarding distributions.
Sec. 612. Annual report dissemination.
Sec. 613. Technical corrections to SAVER Act.
TITLE VII—OTHER ERISA PROVISIONS
Sec. 701. Missing participants.
Sec. 702. Reduced PBGC premium for new plans of small employers.
Sec. 703. Reduction of additional PBGC premium for new and small plans.
Sec. 704. Authorization for PBGC to pay interest on premium overpayment re-
funds.
Sec. 705. Substantial owner benefits in terminated plans.
Sec. 706. Civil penalties for breach of fiduciary responsibility.
Sec. 707. Benefit suspension notice.
TITLE VIII—PLAN AMENDMENTS
Sec. 801. Provisions relating to plan amendments.
TITLE I—INDIVIDUAL
RETIREMENT ACCOUNTS
SEC. 101. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) INCREASE IN CONTRIBUTION LIMIT.—
(1) IN GENERAL.—Paragraph (1)(A) of section
219(b) (relating to maximum amount of deduction) is
amended by striking ‘‘$2,000’’ and inserting ‘‘the de-
ductible amount’’.
(2) DEDUCTIBLE
AMOUNT.—Section 219(b) is
amended by adding at the end the following new
paragraph:
‘‘(5) DEDUCTIBLE
AMOUNT.—For purposes of
paragraph (1)(A)—
‘‘(A) IN GENERAL.—The deductible amount
shall be determined in accordance with the fol-
lowing table:
‘‘For taxable years
The deductible
beginning in:
amount is:
2002 ....................................................................................
$3,000
2003 ....................................................................................
$4,000
2004 and thereafter ...........................................................
$5,000.
‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDI-
VIDUALS 50 OR OLDER.—In the case of an indi-
vidual who has attained the age of 50 before the
close of the taxable year, the deductible amount
for taxable years beginning in 2002 or 2003
shall be $5,000.
‘‘(C) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 2004, the $5,000 amount under sub-
paragraph (A) shall be increased by an
amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjustment
determined under section 1(f )(3) for
the calendar year in which the taxable
year begins, determined by substituting
‘calendar year 2003’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(ii) 
ROUNDING
RULES.—If 
any
amount after adjustment under clause (i) is
not a multiple of $500, such amount shall
be rounded to the next lower multiple of
$500.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in
excess of $2,000 on behalf of any individual’’ and in-
serting ‘‘on behalf of any individual in excess of the
amount in effect for such taxable year under section
219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(3) Section 408(b) is amended by striking
‘‘$2,000’’ in the matter following paragraph (4) and
inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
(4) Section 408( j) is amended by striking
‘‘$2,000’’.
(5) Section 408(p)(8) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
TITLE II—EXPANDING
COVERAGE
SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION
LIMITS.
(a) DEFINED BENEFIT PLANS.—
(1) DOLLAR LIMIT.—
(A) Subparagraph (A) of section 415(b)(1)
(relating to limitation for defined benefit plans)
is amended by striking ‘‘$90,000’’ and inserting
‘‘$160,000’’.
(B) Subparagraphs (C) and (D) of section
415(b)(2) 
are 
each 
amended 
by 
striking
‘‘$90,000’’ each place it appears in the headings
and the text and inserting ‘‘$160,000’’.
(C) Paragraph (7) of section 415(b) (relat-
ing to benefits under certain collectively bar-
gained plans) is amended by striking ‘‘the great-
er of $68,212 or one-half the amount otherwise
applicable for such year under paragraph (1)(A)
for ‘$90,000’ ’’ and inserting ‘‘one-half the
amount otherwise applicable for such year under
paragraph (1)(A) for ‘$160,000’ ’’.
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BE-
FORE AGE 62.—Subparagraph (C) of section 415(b)(2)
is amended by striking ‘‘the social security retirement
age’’ each place it appears in the heading and text
and inserting ‘‘age 62’’ and by striking the second
sentence.
(3) LIMIT
INCREASED
WHEN
BENEFIT
BEGINS
AFTER
AGE
65.—Subparagraph 
(D) 
of 
section
415(b)(2) is amended by striking ‘‘the social security
retirement age’’ each place it appears in the heading
and text and inserting ‘‘age 65’’.
(4) COST-OF-LIVING ADJUSTMENTS.—Subsection
(d) of section 415 (related to cost-of-living adjust-
ments) is amended—
(A) by striking ‘‘$90,000’’ in paragraph
(1)(A) and inserting ‘‘$160,000’’; and
(B) in paragraph (3)(A)—
(i) by striking ‘‘$90,000’’ in the head-
ing and inserting ‘‘$160,000’’; and
(ii) by striking ‘‘October 1, 1986’’ and
inserting ‘‘July 1, 2001’’.
(5) CONFORMING AMENDMENTS.—
(A) Section 415(b)(2) is amended by strik-
ing subparagraph (F).
(B) Section 415(b)(9) is amended to read as
follows:
‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE
PILOTS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), in the case of any participant
who is a commercial airline pilot, if, as of the
time of the participant’s retirement, regulations
prescribed by the Federal Aviation Administra-
tion require an individual to separate from serv-
ice as a commercial airline pilot after attaining
any age occurring on or after age 60 and before
age 62, paragraph (2)(C) shall be applied by
substituting such age for age 62.
‘‘(B) INDIVIDUALS
WHO
SEPARATE
FROM
SERVICE BEFORE AGE 60.—If a participant de-
scribed in subparagraph (A) separates from serv-
ice before age 60, the rules of paragraph (2)(C)
shall apply.’’.
(C) Section 415(b)(10)(C)(i) is amended by
striking ‘‘applied without regard to paragraph
(2)(F)’’.
(b) DEFINED CONTRIBUTION PLANS.—
(1) DOLLAR LIMIT.—Subparagraph (A) of sec-
tion 415(c)(1) (relating to limitation for defined con-
tribution plans) is amended by striking ‘‘$30,000’’
and inserting ‘‘$40,000’’.
(2) COST-OF-LIVING ADJUSTMENTS.—Subsection
(d) of section 415 (related to cost-of-living adjust-
ments) is amended—
(A) by striking ‘‘$30,000’’ in paragraph
(1)(C) and inserting ‘‘$40,000’’; and
(B) in paragraph (3)(D)—
(i) by striking ‘‘$30,000’’ in the head-
ing and inserting ‘‘$40,000’’; and
(ii) by striking ‘‘October 1, 1993’’ and
inserting ‘‘July 1, 2001’’.
(c) QUALIFIED TRUSTS.—
(1) COMPENSATION LIMIT.—Sections 401(a)(17),
404(l), 408(k), and 505(b)(7) are each amended by
striking ‘‘$150,000’’ each place it appears and insert-
ing ‘‘$200,000’’.
(2) BASE PERIOD AND ROUNDING OF COST-OF-
LIVING ADJUSTMENT.—Subparagraph (B) of section
401(a)(17) is amended—
(A) by striking ‘‘October 1, 1993’’ and in-
serting ‘‘July 1, 2001’’; and
(B) by striking ‘‘$10,000’’ both places it ap-
pears and inserting ‘‘$5,000’’.
(d) ELECTIVE DEFERRALS.—
(1) IN
GENERAL.—Paragraph (1) of section
402(g) (relating to limitation on exclusion for elective
deferrals) is amended to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) LIMITATION.—Notwithstanding sub-
sections (e)(3) and (h)(1)(B), the elective defer-
rals of any individual for any taxable year shall
be included in such individual’s gross income to
the extent the amount of such deferrals for the
taxable year exceeds the applicable dollar
amount.
‘‘(B) APPLICABLE
DOLLAR
AMOUNT.—For
purposes of subparagraph (A), the applicable
dollar amount shall be the amount determined in
accordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 ....................................................................................
$11,000
2003 ....................................................................................
$12,000
2004 ....................................................................................
$13,000
2005 ....................................................................................
$14,000
2006 or thereafter ..............................................................
$15,000.’’.
(2) COST-OF-LIVING
ADJUSTMENT.—Paragraph
(5) of section 402(g) is amended to read as follows:
‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case
of taxable years beginning after December 31, 2006,
the Secretary shall adjust the $15,000 amount under
paragraph (1)(B) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter beginning July 1,
2005, and any increase under this paragraph which
is not a multiple of $500 shall be rounded to the next
lowest multiple of $500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation
on exclusion for elective deferrals), as amended
by paragraphs (1) and (2), is further amended
by striking paragraph (4) and redesignating
paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is
amended by striking ‘‘402(g)(8)(A)(iii)’’ and in-
serting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is
amended by striking ‘‘(other than paragraph (4)
thereof)’’.
(e) DEFERRED COMPENSATION PLANS OF STATE AND
LOCAL
GOVERNMENTS
AND
TAX-EXEMPT
ORGANIZA-
TIONS.—
(1) IN GENERAL.—Section 457 (relating to de-
ferred compensation plans of State and local govern-
ments and tax-exempt organizations) is amended—
(A) in subsections (b)(2)(A) and (c)(1) by
striking ‘‘$7,500’’ each place it appears and in-
serting ‘‘the applicable dollar amount’’; and
(B) in subsection (b)(3)(A) by striking
‘‘$15,000’’ and inserting ‘‘twice the dollar
amount in effect under subsection (b)(2)(A)’’.
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIV-
ING ADJUSTMENT.—Paragraph (15) of section 457(e)
is amended to read as follows:
‘‘(15) APPLICABLE DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—The applicable dollar
amount shall be the amount determined in ac-
cordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 ....................................................................................
$11,000
2003 ....................................................................................
$12,000
2004 ....................................................................................
$13,000
2005 ....................................................................................
$14,000
2006 or thereafter ..............................................................
$15,000.
‘‘(B) COST-OF-LIVING
ADJUSTMENTS.—In
the case of taxable years beginning after Decem-
ber 31, 2006, the Secretary shall adjust the
$15,000 amount under subparagraph (A) at the
same time and in the same manner as under sec-
tion 415(d), except that the base period shall be
the calendar quarter beginning July 1, 2005,
and any increase under this paragraph which is
not a multiple of $500 shall be rounded to the
next lowest multiple of $500.’’.
(f) SIMPLE RETIREMENT ACCOUNTS.—
(1) 
LIMITATION.—Clause 
(ii) 
of 
section
408(p)(2)(A) (relating to general rule for qualified
salary reduction arrangement) is amended by striking
‘‘$6,000’’ and inserting ‘‘the applicable dollar
amount’’.
(2) APPLICABLE
DOLLAR
AMOUNT.—Subpara-
graph (E) of 408(p)(2) is amended to read as follows:
‘‘(E) APPLICABLE DOLLAR AMOUNT; COST-
OF-LIVING ADJUSTMENT.—
ployee’ shall only include a person described
in subclause (II) or (III) of clause (i).’’.
(b) AMENDMENT OF ERISA.—Section 408(d)(2) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1108(d)(2)) is amended by adding at the end the
following new subparagraph:
‘‘(C) For purposes of paragraph (1)(A), the term
‘owner-employee’ shall only include a person described in
clause (ii) or (iii) of subparagraph (A).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2001.
SEC. 203. MODIFICATION OF TOP-HEAVY RULES.
(a) SIMPLIFICATION
OF DEFINITION
OF KEY EM-
PLOYEE.—
(1) IN GENERAL.—Section 416(i)(1)(A) (defining
key employee) is amended—
(A) by striking ‘‘or any of the 4 preceding
plan years’’ in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
‘‘(i) an officer of the employer having
an annual compensation greater than
$150,000,’’;
(C) by striking clause (ii) and redesig-
nating clauses (iii) and (iv) as clauses (ii) and
(iii), respectively; and
(D) by striking the second sentence in the
matter following clause (iii), as redesignated by
subparagraph (C).
(2) 
CONFORMING
AMENDMENT.—Section
416(i)(1)(B)(iii) is amended by striking ‘‘and sub-
paragraph (A)(ii)’’.
(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT
FOR MINIMUM CONTRIBUTION REQUIREMENTS.—Section
416(c)(2)(A) (relating to defined contribution plans) is
amended by adding at the end the following: ‘‘Employer
matching 
contributions 
(as 
defined 
in 
section
401(m)(4)(A)) shall be taken into account for purposes of
this subparagraph.’’.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DE-
TERMINATION DATE TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Paragraph (3) of section
416(g) is amended to read as follows:
‘‘(3) DISTRIBUTIONS DURING LAST YEAR BEFORE
DETERMINATION DATE TAKEN INTO ACCOUNT.—
‘‘(A) 
IN
GENERAL.—For 
purposes 
of
determining—
‘‘(i) the present value of the cumulative
accrued benefit for any employee, or
‘‘(ii) the amount of the account of any
employee,
such present value or amount shall be increased
by the aggregate distributions made with respect
to such employee under the plan during the 1-
year period ending on the determination date.
The preceding sentence shall also apply to dis-
tributions under a terminated plan which if it
had not been terminated would have been re-
quired to be included in an aggregation group.
‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERV-
ICE DISTRIBUTION.—In the case of any distribu-
tion made for a reason other than separation
from service, death, or disability, subparagraph
(A) shall be applied by substituting ‘5-year pe-
riod’ for ‘1-year period’.’’.
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Sub-
paragraph (E) of section 416(g)(4) is amended—
(A) by striking ‘‘LAST
YEARS’’ in the
heading and inserting ‘‘LAST YEAR BEFORE DE-
TERMINATION DATE’’; and
(B) by striking ‘‘5-year period’’ and insert-
ing ‘‘1-year period’’.
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph
(4) of section 416(g) (relating to other special rules for top-
heavy plans) is amended by adding at the end the following
new subparagraph:
‘‘(H) CASH OR DEFERRED ARRANGEMENTS
USING ALTERNATIVE METHODS OF MEETING NON-
DISCRIMINATION
REQUIREMENTS.—The 
term
‘top-heavy plan’ shall not include a plan which
consists solely of—
‘‘(i) a cash or deferred arrangement
which meets the requirements of section
401(k)(12), and
‘‘(ii) matching contributions with re-
spect to which the requirements of section
401(m)(11) are met.
If, but for this subparagraph, a plan would be
treated as a top-heavy plan because it is a mem-
ber of an aggregation group which is a top-heavy
group, contributions under the plan may be
taken into account in determining whether any
other plan in the group meets the requirements
of subsection (c)(2).’’.
(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT
REQUIREMENT.—Subparagraph (C) of section 416(c)(1)
(relating to defined benefit plans) is amended—
(A) by striking ‘‘clause (ii)’’ in clause (i)
and inserting ‘‘clause (ii) or (iii)’’; and
(B) by adding at the end the following:
‘‘(iii) 
EXCEPTION
FOR
FROZEN
PLAN.—For purposes of determining an em-
ployee’s years of service with the employer,
any service with the employer shall be dis-
regarded to the extent that such service oc-
curs during a plan year when the plan ben-
efits (within the meaning of section 410(b))
no key employee or former key employee.’’.
(f) ELIMINATION OF FAMILY ATTRIBUTION.—Section
416(i)(1)(B) (defining 5-percent owner) is amended by add-
ing at the end the following new clause:
‘‘(iv) 
FAMILY
ATTRIBUTION
DIS-
REGARDED.—Solely for purposes of apply-
ing this paragraph (and not for purposes of
any provision of this title which incor-
porates by reference the definition of a key
employee or 5-percent owner under this
paragraph), section 318 shall be applied
without regard to subsection (a)(1) thereof
in determining whether any person is a 5-
percent owner.’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2001.
SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIM-
ITS.
(a) IN GENERAL.—Section 404 (relating to deduction
for contributions of an employer to an employees’ trust or
annuity plan and compensation under a deferred payment
plan) is amended by adding at the end the following new
subsection:
‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective
deferrals (as defined in section 402(g)(3)) shall not be sub-
ject to any limitation contained in paragraph (3), (7), or
(9) of subsection (a), and such elective deferrals shall not
be taken into account in applying any such limitation to
any other contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
2001.
SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR
DEFERRED COMPENSATION PLANS OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
(a) IN GENERAL.—Subsection (c) of section 457 (relat-
ing to deferred compensation plans of State and local gov-
ernments and tax-exempt organizations), as amended by
section 201, is amended to read as follows:
‘‘(c) LIMITATION.—The maximum amount of the com-
pensation of any one individual which may be deferred
under subsection (a) during any taxable year shall not ex-
ceed the amount in effect under subsection (b)(2)(A) (as
modified by any adjustment provided under subsection
(b)(3)).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 2001.
SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO
IRS REGARDING PENSION PLANS.
(a) ELIMINATION OF CERTAIN USER FEES.—The Sec-
retary of the Treasury or the Secretary’s delegate shall not
require payment of user fees under the program established
under section 10511 of the Revenue Act of 1987 for requests
to the Internal Revenue Service for determination letters
with respect to the qualified status of a pension benefit plan
maintained solely by one or more eligible employers or any
trust which is part of the plan. The preceding sentence shall
not apply to any request—
(1) made after the later of—
(A) the fifth plan year the pension benefit
plan is in existence; or
(B) the end of any remedial amendment pe-
riod with respect to the plan beginning within
the first 5 plan years; or
(2) made by the sponsor of any prototype or
similar plan which the sponsor intends to market to
participating employers.
(b) PENSION BENEFIT PLAN.—For purposes of this
section, the term ‘‘pension benefit plan’’ means a pension,
profit-sharing, stock bonus, annuity, or employee stock own-
ership plan.
(c) ELIGIBLE EMPLOYER.—For purposes of this sec-
tion, the term ‘‘eligible employer’’ has the same meaning
given such term in section 408(p)(2)(C)(i)(I) of the Internal
Revenue Code of 1986. The determination of whether an em-
ployer is an eligible employer under this section shall be
made as of the date of the request described in subsection
(a).
(d) DETERMINATION OF AVERAGE FEES CHARGED.—
For purposes of any determination of average fees charged,
any request to which subsection (a) applies shall not be
taken into account.
(e) EFFECTIVE DATE.—The provisions of this section
shall apply with respect to requests made after December
31, 2001.
SEC. 207. DEDUCTION LIMITS.
(a) STOCK BONUS AND PROFIT SHARING TRUSTS.—
(1) IN
GENERAL.—Subclause (I) of section
404(a)(3)(A)(i) (relating to stock bonus and profit
sharing trusts) is amended by striking ‘‘15 percent’’
and inserting ‘‘20 percent’’.
(2) CONFORMING
AMENDMENT.—Subparagraph
(C) of section 404(h)(1) is amended by striking ‘‘15
percent’’ each place it appears and inserting ‘‘20 per-
cent’’.
(b) COMPENSATION.—
(1) IN GENERAL.—Section 404(a) (relating to
general rule) is amended by adding at the end the fol-
lowing:
‘‘(12) DEFINITION OF COMPENSATION.—For pur-
poses of paragraphs (3), (7), (8), and (9), the term
‘compensation otherwise paid or accrued during the
taxable year’ shall include amounts treated as ‘par-
ticipant’s compensation’ under subparagraph (C) or
(D) of section 415(c)(3).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 404(a)(3)
is amended by striking the last sentence.
(B) Clause (i) of section 4972(c)(6)(B) is
amended by striking ‘‘(within the meaning of
section 404(a))’’ and inserting ‘‘(within the
meaning of section 404(a) and as adjusted under
section 404(a)(12))’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2001.
SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS
AFTER-TAX CONTRIBUTIONS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to deferred compensation, etc.) is
amended by inserting after section 402 the following new
section:
‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER-
RALS AS PLUS CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—If an applicable retirement
plan includes a qualified plus contribution program—
‘‘(1) any designated plus contribution made by
an employee pursuant to the program shall be treated
as an elective deferral for purposes of this chapter, ex-
cept that such contribution shall not be excludable
from gross income, and
‘‘(2) such plan (and any arrangement which is
part of such plan) shall not be treated as failing to
meet any requirement of this chapter solely by reason
of including such program.
‘‘(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified plus con-
tribution program’ means a program under which an
employee may elect to make designated plus contribu-
tions in lieu of all or a portion of elective deferrals
the employee is otherwise eligible to make under the
applicable retirement plan.
‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A pro-
gram shall not be treated as a qualified plus contribu-
tion program unless the applicable retirement plan—
‘‘(A) establishes separate accounts (‘des-
ignated plus accounts’) for the designated plus
contributions of each employee and any earnings
properly allocable to the contributions, and
‘‘(B) maintains separate recordkeeping with
respect to each account.
‘‘(c) DEFINITIONS AND RULES RELATING TO DES-
IGNATED PLUS CONTRIBUTIONS.—For purposes of this
section—
‘‘(1) DESIGNATED
PLUS
CONTRIBUTION.—The
term ‘designated plus contribution’ means any elec-
tive deferral which—
‘‘(A) is excludable from gross income of an
employee without regard to this section, and
‘‘(B) the employee designates (at such time
and in such manner as the Secretary may pre-
scribe) as not being so excludable.
‘‘(2) DESIGNATION LIMITS.—The amount of elec-
tive deferrals which an employee may designate under
paragraph (1) shall not exceed the excess (if any) of—
‘‘(A) the maximum amount of elective defer-
rals excludable from gross income of the employee
for the taxable year (without regard to this sec-
tion), over
‘‘(B) the aggregate amount of elective defer-
rals of the employee for the taxable year which
the employee does not designate under paragraph
(1).
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN GENERAL.—A rollover contribution
of any payment or distribution from a des-
ignated plus account which is otherwise allow-
able under this chapter may be made only if the
contribution is to—
‘‘(i) another designated plus account of
the individual from whose account the pay-
ment or distribution was made, or
‘‘(ii) a Roth IRA of such individual.
‘‘(B) COORDINATION
WITH
LIMIT.—Any
rollover contribution to a designated plus ac-
count under subparagraph (A) shall not be taken
into account for purposes of paragraph (1).
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) EXCLUSION.—Any qualified distribution
from a designated plus account shall not be includible
in gross income.
‘‘(2) QUALIFIED
DISTRIBUTION.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified dis-
tribution’ has the meaning given such term by
section 408A(d)(2)(A) (without regard to clause
(iv) thereof).
‘‘(B) DISTRIBUTIONS
WITHIN
NONEXCLU-
SION PERIOD.—A payment or distribution from
a designated plus account shall not be treated as
a qualified distribution if such payment or dis-
tribution is made within the 5-taxable-year pe-
riod beginning with the earlier of—
‘‘(i) the first taxable year for which the
individual made a designated plus con-
tribution to any designated plus account es-
tablished for such individual under the
same applicable retirement plan, or
‘‘(ii) if a rollover contribution was
made to such designated plus account from
a designated plus account previously estab-
lished for such individual under another
applicable retirement plan, the first taxable
year for which the individual made a des-
ignated plus contribution to such previously
established account.
‘‘(C) DISTRIBUTIONS
OF
EXCESS
DEFER-
RALS
AND
CONTRIBUTIONS
AND
EARNINGS
THEREON.—The term ‘qualified distribution’
shall not include any distribution of an excess
deferral under section 402(g)(2) or any excess
contribution under section 401(k)(8), and any
income on the excess deferral or contribution.
‘‘(3) TREATMENT OF DISTRIBUTIONS OF CERTAIN
EXCESS DEFERRALS.—Notwithstanding section 72, if
any excess deferral under section 402(g)(2) attrib-
utable to a designated plus contribution is not dis-
tributed on or before the 1st April 15 following the
close of the taxable year in which such excess deferral
is made, the amount of such excess deferral shall—
‘‘(A) not be treated as investment in the
contract, and
‘‘(B) be included in gross income for the
taxable year in which such excess is distributed.
‘‘(4) AGGREGATION RULES.—Section 72 shall be
applied separately with respect to distributions and
payments from a designated plus account and other
distributions and payments from the plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) APPLICABLE RETIREMENT PLAN.—The term
‘applicable retirement plan’ means—
‘‘(A) an employees’ trust described in sec-
tion 401(a) which is exempt from tax under sec-
tion 501(a), and
‘‘(B) a plan under which amounts are con-
tributed by an individual’s employer for an an-
nuity contract described in section 403(b).
‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective
deferral’ means any elective deferral described in sub-
paragraph (A) or (C) of section 402(g)(3).’’.
(b) EXCESS DEFERRALS.—Section 402(g) (relating to
limitation on exclusion for elective deferrals) is amended—
(1) by adding at the end of paragraph (1)(A) (as
added by section 201(d)(1)) the following new sen-
tence: ‘‘The preceding sentence shall not apply to so
much of such excess as does not exceed the designated
plus contributions of the individual for the taxable
year.’’; and
(2) by inserting ‘‘(or would be included but for
the last sentence thereof)’’ after ‘‘paragraph (1)’’ in
paragraph (2)(A).
(c) 
ROLLOVERS.—Subparagraph 
(B) 
of 
section
402(c)(8) is amended by adding at the end the following:
‘‘If any portion of an eligible rollover distribu-
tion is attributable to payments or distributions
from a designated plus account (as defined in
section 402A), an eligible retirement plan with
respect to such portion shall include only another
designated plus account and a Roth IRA.’’.
(d) REPORTING REQUIREMENTS.—
(1) W–2 INFORMATION.—Section 6051(a)(8) is
amended by inserting ‘‘, including the amount of des-
ignated plus contributions (as defined in section
402A)’’ before the comma at the end.
(2) INFORMATION.—Section 6047 is amended by
redesignating subsection (f) as subsection (g) and by
inserting after subsection (e) the following new sub-
section:
‘‘(f) DESIGNATED PLUS CONTRIBUTIONS.—The Sec-
retary shall require the plan administrator of each applica-
ble retirement plan (as defined in section 402A) to make
such returns and reports regarding designated plus con-
tributions (as so defined) to the Secretary, participants and
beneficiaries of the plan, and such other persons as the Sec-
retary may prescribe.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 408A(e) is amended by adding after
the first sentence the following new sentence: ‘‘Such
term includes a rollover contribution described in sec-
tion 402A(c)(3)(A).’’.
(2) The table of sections for subpart A of part I
of subchapter D of chapter 1 is amended by inserting
after the item relating to section 402 the following
new item:
‘‘Sec. 402A. Optional treatment of elective deferrals as plus con-
tributions.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 209. AVAILABILITY OF QUALIFIED PLANS TO SELF-EM-
PLOYED INDIVIDUALS WHO ARE EXEMPT
FROM THE SELF-EMPLOYMENT TAX BY REA-
SON OF THEIR RELIGIOUS BELIEFS.
(a) IN
GENERAL.—Subparagraph (A) of section
401(c)(2) (defining earned income) is amended by adding
at the end thereof the following new sentence: ‘‘For purposes
of this part only (other than sections 419 and 419A), this
subparagraph shall be applied as if the term ‘trade or busi-
ness’ for purposes of section 1402 included service described
in section 1402(c)(6).’’.
(b) SIMPLE RETIREMENT ACCOUNTS.—Clause (ii) of
section 408(p)(6)(A) (defining self-employed) is amended by
adding at the end the following new sentence: ‘‘The pre-
ceding sentence shall be applied as if the term ‘trade or
business’ for purposes of section 1402 included service de-
scribed in section 1402(c)(6).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 210. CERTAIN NONRESIDENT ALIENS EXCLUDED IN
APPLYING MINIMUM COVERAGE REQUIRE-
MENTS.
(a) IN
GENERAL.—Subparagraph (C) of section
410(b)(3) (relating to exclusion of certain employees) is
amended by inserting ‘‘, determined without regard to the
reference to subchapter D in the last sentence thereof’’ after
‘‘section 861(a)(3)’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to plan years beginning after Decem-
ber 31, 2001.
TITLE III—ENHANCING
FAIRNESS FOR WOMEN
SEC. 301. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS
AGE 50 OR OVER.
(a) IN GENERAL.—Section 414 (relating to definitions
and special rules) is amended by adding at the end the fol-
lowing new subsection:
‘‘(v) CATCH-UP CONTRIBUTIONS
FOR INDIVIDUALS
AGE 50 OR OVER.—
‘‘(1) IN GENERAL.—An applicable employer plan
shall not be treated as failing to meet any require-
ment of this title solely because the plan permits an
eligible participant to make additional elective defer-
rals in any plan year.
‘‘(2) LIMITATION
ON
AMOUNT
OF
ADDITIONAL
DEFERRALS.—A plan shall not permit additional
elective deferrals under paragraph (1) for any year in
an amount greater than the lesser of—
‘‘(A) $5,000, or
‘‘(B) the excess (if any) of—
‘‘(i) the participant’s compensation for
the year, over
‘‘(ii) any other elective deferrals of the
participant for such year which are made
without regard to this subsection.
‘‘(3) TREATMENT
OF
CONTRIBUTIONS.—In the
case of any contribution to a plan under paragraph
(1), such contribution shall not, with respect to the
year in which the contribution is made—
‘‘(A) be subject to any otherwise applicable
limitation 
contained 
in 
section 
402(g),
402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii), 415,
or 457, or
‘‘(B) be taken into account in applying such
limitations to other contributions or benefits
under such plan or any other such plan.
‘‘(4) 
APPLICATION
OF
NONDISCRIMINATION
RULES.—
‘‘(A) IN GENERAL.—An applicable employer
plan shall not be treated as failing to meet the
nondiscrimination requirements under section
401(a)(4) with respect to benefits, rights, and
features if the plan allows all eligible partici-
pants to make the same election with respect to
the additional elective deferrals under this sub-
section.
‘‘(B) AGGREGATION.—For purposes of sub-
paragraph (A), all plans maintained by employ-
ers who are treated as a single employer under
subsection (b), (c), (m), or (o) of section 414
shall be treated as 1 plan.
‘‘(5) ELIGIBLE PARTICIPANT.—For purposes of
this subsection, the term ‘eligible participant’ means,
with respect to any plan year, a participant in a
plan—
‘‘(A) who has attained the age of 50 before
the close of the plan year, and
‘‘(B) with respect to whom no other elective
deferrals may (without regard to this subsection)
be made to the plan for the plan year by reason
of the application of any limitation or other re-
striction described in paragraph (3) or com-
parable limitation contained in the terms of the
plan.
‘‘(6) OTHER
DEFINITIONS
AND
RULES.—For
purposes of this subsection—
‘‘(A) APPLICABLE
EMPLOYER
PLAN.—The
term ‘applicable employer plan’ means—
‘‘(i) an employees’ trust described in
section 401(a) which is exempt from tax
under section 501(a),
‘‘(ii) a plan under which amounts are
contributed by an individual’s employer for
an annuity contract described in section
403(b),
‘‘(iii) an eligible deferred compensation
plan under section 457 of an eligible em-
ployer as defined in section 457(e)(1)(A),
and
‘‘(iv) an arrangement meeting the re-
quirements of section 408 (k) or (p).
‘‘(B) ELECTIVE DEFERRAL.—The term ‘elec-
tive deferral’ has the meaning given such term
by subsection (u)(2)(C).
‘‘(C) EXCEPTION FOR SECTION 457 PLANS.—
This subsection shall not apply to an applicable
employer 
plan 
described 
in 
subparagraph
(A)(iii) for any year to which section 457(b)(3)
applies.
‘‘(D) COST-OF-LIVING ADJUSTMENT.—In the
case of a year beginning after December 31,
2006, the Secretary shall adjust annually the
$5,000 amount in paragraph (2)(A) for increases
in the cost-of-living at the same time and in the
same manner as adjustments under section
415(d); except that the base period taken into ac-
count shall be the calendar quarter beginning
July 1, 2005, and any increase under this sub-
paragraph which is not a multiple of $500 shall
be rounded to the next lower multiple of $500.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions in taxable years begin-
ning after December 31, 2001.
SEC. 302. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF
EMPLOYEES 
TO 
DEFINED 
CONTRIBUTION
PLANS.
(a) EQUITABLE TREATMENT.—
(1) IN GENERAL.—Subparagraph (B) of section
415(c)(1) (relating to limitation for defined contribu-
tion plans) is amended by striking ‘‘25 percent’’ and
inserting ‘‘100 percent’’.
(2) APPLICATION TO SECTION 403(b).—Section
403(b) is amended—
(A) by striking ‘‘the exclusion allowance for
such taxable year’’ in paragraph (1) and insert-
ing ‘‘the applicable limit under section 415’’;
(B) by striking paragraph (2); and
(C) by inserting ‘‘or any amount received
by a former employee after the fifth taxable year
following the taxable year in which such em-
ployee was terminated’’ before the period at the
end of the second sentence of paragraph (3).
(3) CONFORMING AMENDMENTS.—
(A) Subsection (f) of section 72 is amended
by striking ‘‘section 403(b)(2)(D)(iii))’’ and in-
serting ‘‘section 403(b)(2)(D)(iii), as in effect be-
fore the enactment of the Comprehensive Retire-
ment Security and Pension Reform Act of
2001)’’.
(B) Section 404(a)(10)(B) is amended by
striking ‘‘, the exclusion allowance under section
403(b)(2),’’.
(C) Section 404(j) is amended by adding at
the end the following new paragraph:
‘‘(3) SPECIAL
RULE
FOR
MONEY
PURCHASE
PLANS.—For purposes of paragraph (1)(B), in the
case of a defined contribution plan which is subject
to the funding standards of section 412, section
415(c)(1)(B) shall be applied by substituting ‘25 per-
cent’ for ‘100 percent’.’’.
(D) Section 415(a)(2) is amended by strik-
ing ‘‘, and the amount of the contribution for
such portion shall reduce the exclusion allowance
as provided in section 403(b)(2)’’.
(E) Section 415(c)(3) is amended by adding
at the end the following new subparagraph:
‘‘(E) ANNUITY CONTRACTS.—In the case of
an annuity contract described in section 403(b),
the term ‘participant’s compensation’ means the
participant’s 
includible 
compensation 
deter-
mined under section 403(b)(3).’’.
(F) Section 415(c) is amended by striking
paragraph (4).
(G) Section 415(c)(7) is amended to read as
follows:
‘‘(7) CERTAIN
CONTRIBUTIONS
BY
CHURCH
PLANS NOT TREATED AS EXCEEDING LIMIT.—
‘‘(A) IN
GENERAL.—Notwithstanding any
other provision of this subsection, at the election
of a participant who is an employee of a church
or a convention or association of churches, in-
cluding an organization described in section
414(e)(3)(B)(ii), contributions and other addi-
tions for an annuity contract or retirement in-
come account described in section 403(b) with re-
spect to such participant, when expressed as an
annual addition to such participant’s account,
shall be treated as not exceeding the limitation
of paragraph (1) if such annual addition is not
in excess of $10,000.
‘‘(B) $40,000 AGGREGATE
LIMITATION.—
The total amount of additions with respect to
any participant which may be taken into ac-
count for purposes of this subparagraph for all
years may not exceed $40,000.
‘‘(C) ANNUAL ADDITION.—For purposes of
this paragraph, the term ‘annual addition’ has
the meaning given such term by paragraph (2).’’.
(H) Subparagraph (B) of section 402(g)(7)
(as redesignated by section 201) is amended by
inserting before the period at the end the fol-
lowing: ‘‘(as in effect before the enactment of the
Comprehensive Retirement Security and Pension
Reform Act of 2001)’’.
(I) Section 664(g) is amended—
(i) in paragraph (3)(E) by striking
‘‘limitations under section 415(c)’’ and in-
serting ‘‘applicable limitation under para-
graph (7)’’, and
(ii) by adding at the end the following
new paragraph:
‘‘(7) APPLICABLE LIMITATION.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(E), the applicable limitation under
this paragraph with respect to a participant is
an amount equal to the lesser of—
‘‘(i) $30,000, or
‘‘(ii) 25 percent of the participant’s
compensation 
(as 
defined 
in 
section
415(c)(3)).
‘‘(B) COST-OF-LIVING
ADJUSTMENT.—The
Secretary shall adjust annually the $30,000
amount under subparagraph (A)(i) at the same
time and in the same manner as under section
415(d), except that the base period shall be the
calendar quarter beginning October 1, 1993, and
any increase under this subparagraph which is
not a multiple of $5,000 shall be rounded to the
next lowest multiple of $5,000.’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning after
December 31, 2001.
(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—
(1) IN GENERAL.—Subsection (k) of section 415
is amended by adding at the end the following new
paragraph:
‘‘(4) SPECIAL RULES FOR SECTIONS 403(B) AND
408.—For purposes of this section, any annuity con-
tract described in section 403(b) for the benefit of a
participant shall be treated as a defined contribution
plan maintained by each employer with respect to
which the participant has the control required under
subsection (b) or (c) of section 414 (as modified by
subsection (h)). For purposes of this section, any con-
tribution by an employer to a simplified employee
pension plan for an individual for a taxable year
shall be treated as an employer contribution to a de-
fined contribution plan for such individual for such
year.’’.
(2) EFFECTIVE DATE.—
(A) IN
GENERAL.—The amendment made
by paragraph (1) shall apply to limitation years
beginning after December 31, 1999.
(B) EXCLUSION ALLOWANCE.—Effective for
limitation years beginning in 2000, in the case
of any annuity contract described in section
403(b) of the Internal Revenue Code of 1986, the
amount of the contribution disqualified by rea-
son of section 415(g) of such Code shall reduce
the exclusion allowance as provided in section
403(b)(2) of such Code.
(3) MODIFICATION OF 403(b) EXCLUSION ALLOW-
ANCE TO CONFORM TO 415 MODIFICATION.—The Sec-
retary of the Treasury shall modify the regulations re-
garding the exclusion allowance under section
403(b)(2) of the Internal Revenue Code of 1986 to
render void the requirement that contributions to a
defined benefit pension plan be treated as previously
excluded amounts for purposes of the exclusion allow-
ance. For taxable years beginning after December 31,
1999, such regulations shall be applied as if such re-
quirement were void.
(c) DEFERRED COMPENSATION PLANS OF STATE AND
LOCAL
GOVERNMENTS
AND
TAX-EXEMPT
ORGANIZA-
TIONS.—
(1) IN GENERAL.—Subparagraph (B) of section
457(b)(2) (relating to salary limitation on eligible de-
ferred compensation plans) is amended by striking
‘‘331⁄3 percent’’ and inserting ‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 2001.
SEC. 303. FASTER VESTING OF CERTAIN EMPLOYER MATCH-
ING CONTRIBUTIONS.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—Sec-
tion 411(a) (relating to minimum vesting standards) is
amended—
(1) in paragraph (2) in the matter preceding
subparagraph (A), by striking ‘‘A plan’’ and insert-
ing ‘‘Except as provided in paragraph (12), a plan’’;
and
(2) by adding at the end the following:
‘‘(12) FASTER
VESTING
FOR
MATCHING
CON-
TRIBUTIONS.—In the case of matching contributions
(as defined in section 401(m)(4)(A)), paragraph (2)
shall be applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’
in subparagraph (A), and
‘‘(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ..........................................................................................
3 ..........................................................................................
4 ..........................................................................................
5 ..........................................................................................
6 ..........................................................................................
100.’’.
(b) AMENDMENT OF ERISA.—Section 203(a) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1053(a)) is amended—
(1) in paragraph (2), by striking ‘‘A plan’’ and
inserting ‘‘Except as provided in paragraph (4), a
plan’’, and
(2) by adding at the end the following:
‘‘(4) In the case of matching contributions (as
defined in section 401(m)(4)(A) of the Internal Rev-
enue Code of 1986), paragraph (2) shall be applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’
in subparagraph (A), and
‘‘(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ..........................................................................................
3 ..........................................................................................
4 ..........................................................................................
5 ..........................................................................................
6 ..........................................................................................
100.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to contributions for plan years beginning after
December 31, 2001.
(2) COLLECTIVE BARGAINING AGREEMENTS.—In
the case of a plan maintained pursuant to one or
more collective bargaining agreements between em-
ployee representatives and one or more employers
ratified by the date of the enactment of this Act, the
amendments made by this section shall not apply to
contributions on behalf of employees covered by any
such agreement for plan years beginning before the
earlier of—
(A) the later of—
(i) the date on which the last of such
collective bargaining agreements terminates
(determined without regard to any exten-
sion thereof on or after such date of the en-
actment); or
(ii) January 1, 2002; or
(B) January 1, 2006.
(3) SERVICE REQUIRED.—With respect to any
plan, the amendments made by this section shall not
apply to any employee before the date that such em-
ployee has 1 hour of service under such plan in any
plan year to which the amendments made by this sec-
tion apply.
SEC. 304. MODIFICATIONS TO MINIMUM DISTRIBUTION
RULES.
(a) LIFE EXPECTANCY TABLES.—The Secretary of the
Treasury shall modify the life expectancy tables under the
regulations relating to minimum distribution requirements
under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10),
and 457(d)(2) of the Internal Revenue Code to reflect cur-
rent life expectancy.
(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD
BEGUN BEFORE DEATH OCCURS.—
(1) IN GENERAL.—Subparagraph (B) of section
401(a)(9) is amended by striking clause (i) and redes-
ignating clauses (ii), (iii), and (iv) as clauses (i),
(ii), and (iii), respectively.
(2) CONFORMING CHANGES.—
(A) Clause (i) of section 401(a)(9)(B) (as so
redesignated) is amended—
(i) by striking ‘‘FOR OTHER CASES’’ in
the heading; and
(ii) by striking ‘‘the distribution of the
employee’s interest has begun in accordance
with subparagraph (A)(ii)’’ and inserting
‘‘his entire interest has been distributed to
him’’.
(B) Clause (ii) of section 401(a)(9)(B) (as
so redesignated) is amended by striking ‘‘clause
(ii)’’ and inserting ‘‘clause (i)’’.
(C) Clause (iii) of section 401(a)(9)(B) (as
so redesignated) is amended—
(i) by striking ‘‘clause (iii)(I)’’ and in-
serting ‘‘clause (ii)(I)’’;
(ii) by striking ‘‘clause (iii)(III)’’ in
subclause 
(I) 
and 
inserting 
‘‘clause
(ii)(III)’’;
(iii) by striking ‘‘the date on which the
employee would have attained age 701⁄2,’’ in
subclause (I) and inserting ‘‘April 1 of the
calendar year following the calendar year
in which the spouse attains 701⁄2,’’; and
(iv) by striking ‘‘the distributions to
such spouse begin,’’ in subclause (II) and
inserting ‘‘his entire interest has been dis-
tributed to him,’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the amendments made by this
subsection shall apply to years beginning after
December 31, 2001.
(B) 
DISTRIBUTIONS
TO
SURVIVING
SPOUSE.—
(i) IN GENERAL.—In the case of an
employee described in clause (ii), distribu-
tions to the surviving spouse of the employee
shall not be required to commence prior to
the date on which such distributions would
have been required to begin under section
401(a)(9)(B) of the Internal Revenue Code
of 1986 (as in effect on the day before the
date of the enactment of this Act).
(ii) CERTAIN
EMPLOYEES.—An em-
ployee is described in this clause if such em-
ployee dies before—
(I) the date of the enactment of
this Act, and
(II) the required beginning date
(within 
the 
meaning 
of 
section
401(a)(9)(C) of the Internal Revenue
Code of 1986) of the employee.
(c) REDUCTION IN EXCISE TAX.—
(1) IN GENERAL.—Subsection (a) of section 4974
is amended by striking ‘‘50 percent’’ and inserting
‘‘10 percent’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 2001.
SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION
OF SECTION 457 PLAN BENEFITS UPON DI-
VORCE.
(a) IN GENERAL.—Section 414(p)(11) (relating to ap-
plication of rules to governmental and church plans) is
amended—
(1) by inserting ‘‘or an eligible deferred com-
pensation plan (within the meaning of section
457(b))’’ after ‘‘subsection (e))’’; and
(2) in the heading, by striking ‘‘GOVERNMENTAL
AND CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER
PLANS’’.
(b) WAIVER
OF CERTAIN DISTRIBUTION REQUIRE-
MENTS.—Paragraph (10) of section 414(p) is amended by
striking ‘‘and section 409(d)’’ and inserting ‘‘section
409(d), and section 457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A SECTION
457 PLAN.—Subsection (p) of section 414 is amended by
redesignating paragraph (12) as paragraph (13) and in-
serting after paragraph (11) the following new paragraph:
‘‘(12) TAX TREATMENT OF PAYMENTS FROM A
SECTION
457
PLAN.—If a distribution or payment
from an eligible deferred compensation plan described
in section 457(b) is made pursuant to a qualified do-
mestic relations order, rules similar to the rules of
section 402(e)(1)(A) shall apply to such distribution
or payment.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers, distributions, and pay-
ments made after December 31, 2001.
SEC. 306. PROVISIONS RELATING TO HARDSHIP DISTRIBU-
TIONS.
(a) SAFE HARBOR RELIEF.—
(1) IN GENERAL.—The Secretary of the Treasury
shall revise the regulations relating to hardship dis-
tributions under section 401(k)(2)(B)(i)(IV) of the In-
ternal Revenue Code of 1986 to provide that the pe-
riod an employee is prohibited from making elective
and employee contributions in order for a distribu-
tion to be deemed necessary to satisfy financial need
shall be equal to 6 months.
(2) EFFECTIVE DATE.—The revised regulations
under this subsection shall apply to years beginning
after December 31, 2001.
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELI-
GIBLE ROLLOVER DISTRIBUTIONS.—
(1) MODIFICATION OF DEFINITION OF ELIGIBLE
ROLLOVER.—Subparagraph (C) of section 402(c)(4)
(relating to eligible rollover distribution) is amended
to read as follows:
‘‘(C) any distribution which is made upon
hardship of the employee.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to distributions made after
December 31, 2001.
SEC. 307. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBU-
TIONS FOR DOMESTIC OR SIMILAR WORKERS.
(a) IN GENERAL.—Section 4972(c)(6) (relating to ex-
ceptions to nondeductible contributions), as amended by sec-
tion 502, is amended by striking ‘‘and’’ at the end of sub-
paragraph (A), by striking the period and inserting ‘‘, and’’
at the end of subparagraph (B), and by inserting after sub-
paragraph (B) the following new subparagraph:
‘‘(C) so much of the contributions to a sim-
ple retirement account (within the meaning of
section 408(p)) or a simple plan (within the
meaning of section 401(k)(11)) which are not de-
ductible when contributed solely because such
contributions are not made in connection with a
trade or business of the employer.’’
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Sec-
tion 4972(c)(6) is amended by adding at the end the fol-
lowing new sentence: ‘‘Subparagraph (C) shall not apply
to contributions made on behalf of the employer or a mem-
ber of the employer’s family (as defined in section
447(e)(1)).’’.
(c) NO INFERENCE.—Nothing in the amendments
made by this section shall be construed to infer the proper
treatment of nondeductible contributions under the laws in
effect before such amendments.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
TITLE 
IV—INCREASING 
PORT-
ABILITY FOR PARTICIPANTS
SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF
PLANS.
(a) ROLLOVERS FROM AND TO SECTION 457 PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
(A) IN GENERAL.—Section 457(e) (relating
to other definitions and special rules) is amend-
ed by adding at the end the following:
‘‘(16) ROLLOVER AMOUNTS.—
‘‘(A) GENERAL RULE.—In the case of an el-
igible deferred compensation plan established
and maintained by an employer described in
subsection (e)(1)(A), if—
‘‘(i) any portion of the balance to the
credit of an employee in such plan is paid
to such employee in an eligible rollover dis-
tribution (within the meaning of section
402(c)(4) without regard to subparagraph
(C) thereof),
‘‘(ii) the employee transfers any por-
tion of the property such employee receives
in such distribution to an eligible retire-
ment plan described in section 402(c)(8)(B),
and
‘‘(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property distrib-
uted,
then such distribution (to the extent so trans-
ferred) shall not be includible in gross income for
the taxable year in which paid.
‘‘(B) CERTAIN RULES MADE APPLICABLE.—
The rules of paragraphs (2) through (7) (other
than paragraph (4)(C)) and (9) of section 402(c)
and section 402(f) shall apply for purposes of
subparagraph (A).
‘‘(C) REPORTING.—Rollovers under this
paragraph shall be reported to the Secretary in
the same manner as rollovers from qualified re-
tirement plans (as defined in section 4974(c)).’’.
ment, is a plan described in section 457(b)
maintained by an employer described in section
457(e)(1)(A); or’’.
(ii) Paragraph (3) of section 3405(c) is
amended to read as follows:
‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For
purposes of this subsection, the term ‘eligible rollover
distribution’ has the meaning given such term by sec-
tion 402(f)(2)(A).’’.
(iii) LIABILITY FOR WITHHOLDING.—
Subparagraph (B) of section 3405(d)(2) is
amended by striking ‘‘or’’ at the end of
clause (ii), by striking the period at the end
of clause (iii) and inserting ‘‘, or’’, and by
adding at the end the following:
‘‘(iv) section 457(b) and which is
maintained by an eligible employer de-
scribed in section 457(e)(1)(A).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) IN
GENERAL.—Section 402(c)(8)(B)
(defining eligible retirement plan) is amended by
striking ‘‘and’’ at the end of clause (iii), by
striking the period at the end of clause (iv) and
inserting ‘‘, and’’, and by inserting after clause
(iv) the following new clause:
‘‘(v) an eligible deferred compensation
plan described in section 457(b) which is
maintained by an eligible employer de-
scribed in section 457(e)(1)(A).’’.
(B) 
SEPARATE
ACCOUNTING.—Section
402(c) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(10) SEPARATE ACCOUNTING.—Unless a plan
described in clause (v) of paragraph (8)(B) agrees to
separately account for amounts rolled into such plan
from eligible retirement plans not described in such
clause, the plan described in such clause may not ac-
cept transfers or rollovers from such retirement
plans.’’.
(C) 10 PERCENT
ADDITIONAL
TAX.—Sub-
section (t) of section 72 (relating to 10-percent
additional tax on early distributions from quali-
fied retirement plans) is amended by adding at
the end the following new paragraph:
‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SECTION
457 PLANS.—For purposes of this subsection, a dis-
tribution from an eligible deferred compensation plan
(as defined in section 457(b)) of an eligible employer
described in section 457(e)(1)(A) shall be treated as a
distribution from a qualified retirement plan de-
scribed in section 4974(c)(1) to the extent that such
distribution is attributable to an amount transferred
to an eligible deferred compensation plan from a
qualified retirement plan (as defined in section
4974(c)).’’.
(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b)
PLANS.—
(1) ROLLOVERS FROM SECTION 403(b) PLANS.—
Section 
403(b)(8)(A)(ii) 
(relating 
to 
rollover
amounts) is amended by striking ‘‘such distribution’’
and all that follows and inserting ‘‘such distribution
to an eligible retirement plan described in section
402(c)(8)(B), and’’.
(2) ROLLOVERS TO SECTION 403(b) PLANS.—Sec-
tion 402(c)(8)(B) (defining eligible retirement plan),
as amended by subsection (a), is amended by striking
‘‘and’’ at the end of clause (iv), by striking the period
at the end of clause (v) and inserting ‘‘, and’’, and
by inserting after clause (v) the following new clause:
‘‘(vi) an annuity contract described in
section 403(b).’’.
(c) EXPANDED EXPLANATION
TO RECIPIENTS
OF
ROLLOVER
DISTRIBUTIONS.—Paragraph (1) of section
402(f) (relating to written explanation to recipients of dis-
tributions eligible for rollover treatment) is amended by
striking ‘‘and’’ at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting
‘‘, and’’, and by adding at the end the following new sub-
paragraph:
‘‘(E) of the provisions under which distribu-
tions from the eligible retirement plan receiving
the distribution may be subject to restrictions
and tax consequences which are different from
those applicable to distributions from the plan
making such distribution.’’.
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat-
ing to rollover where spouse receives distribution after death
of employee) is amended by striking ‘‘; except that’’ and
all that follows up to the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and
457(e)(16)’’.
(2) Section 219(d)(2) is amended by striking ‘‘or
408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended by strik-
ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),
403(b)(8), and 457(e)(16)’’.
(4) Subparagraph (A) of section 402(f)(2) is
amended by striking ‘‘or paragraph (4) of section
403(a)’’ and inserting ‘‘, paragraph (4) of section
403(a), subparagraph (A) of section 403(b)(8), or sub-
paragraph (A) of section 457(e)(16)’’.
(5) Paragraph (1) of section 402(f) is amended
by striking ‘‘from an eligible retirement plan’’.
(6) Subparagraphs (A) and (B) of section
402(f)(1) are amended by striking ‘‘another eligible
retirement plan’’ and inserting ‘‘an eligible retire-
ment plan’’.
(7) Subparagraph (B) of section 403(b)(8) is
amended to read as follows:
‘‘(B) CERTAIN RULES MADE APPLICABLE.—
The rules of paragraphs (2) through (7) and (9)
of section 402(c) and section 402(f) shall apply
for purposes of subparagraph (A), except that
section 402(f) shall be applied to the payor in
lieu of the plan administrator.’’.
(8) Section 408(a)(1) is amended by striking ‘‘or
403(b)(8),’’ and inserting ‘‘403(b)(8), or 457(e)(16)’’.
(9) Subparagraphs (A) and (B) of section
415(b)(2) are each amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and
457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking
‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and
457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by strik-
ing ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or
457(e)(16)’’.
(f) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after De-
cember 31, 2001.
(2) REASONABLE NOTICE.—No penalty shall be
imposed on a plan for the failure to provide the infor-
mation required by the amendment made by sub-
section (c) with respect to any distribution made be-
fore the date that is 90 days after the date on which
the Secretary of the Treasury issues a safe harbor
rollover notice after the date of the enactment of this
Act, if the administrator of such plan makes a rea-
sonable attempt to comply with such requirement.
(3) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of sec-
tion 1122 of the Tax Reform Act of 1986 shall not
apply to any distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such
plan on behalf of such individual which is permitted
solely by reason of any amendment made by this sec-
tion.
SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE-
MENT PLANS.
(a) IN
GENERAL.—Subparagraph (A) of section
408(d)(3) (relating to rollover amounts) is amended by add-
ing ‘‘or’’ at the end of clause (i), by striking clauses (ii)
and (iii), and by adding at the end the following:
‘‘(ii) the entire amount received (in-
cluding money and any other property) is
paid into an eligible retirement plan for the
benefit of such individual not later than the
60th day after the date on which the pay-
ment or distribution is received, except that
the maximum amount which may be paid
into such plan may not exceed the portion
of the amount received which is includible
in gross income (determined without regard
to this paragraph).
For purposes of clause (ii), the term ‘eligible re-
tirement plan’ means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of sec-
tion 402(c)(8)(B).’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 403(b) is amended
by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting
‘‘section 408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is amended
by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i) or
(ii)’’.
(3) Subparagraph (G) of section 408(d)(3) is
amended to read as follows:
‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In
the case of any payment or distribution out of
a simple retirement account (as defined in sub-
section (p)) to which section 72(t)(6) applies,
this paragraph shall not apply unless such pay-
ment or distribution is paid into another simple
retirement account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after De-
cember 31, 2001.
(2) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of sec-
tion 1122 of the Tax Reform Act of 1986 shall not
apply to any distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986) on
behalf of an individual if there was a rollover to such
plan on behalf of such individual which is permitted
solely by reason of the amendments made by this sec-
tion.
SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph
(2) of section 402(c) (relating to maximum amount which
may be rolled over) is amended by adding at the end the
following: ‘‘The preceding sentence shall not apply to such
distribution to the extent—
‘‘(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust
which is part of a plan which is a defined con-
tribution plan and which agrees to separately
account for amounts so transferred, including
separately accounting for the portion of such dis-
tribution which is includible in gross income
and the portion of such distribution which is not
so includible, or
‘‘(B) such portion is transferred to an eligi-
ble retirement plan described in clause (i) or (ii)
of paragraph (8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLL-
OVER
DISTRIBUTIONS.—Subparagraph (B) of section
401(a)(31) (relating to limitation) is amended by adding
at the end the following:
‘‘The preceding sentence shall not apply to such
distribution if the plan to which such distribu-
tion is transferred—
‘‘(i) agrees to separately account for
amounts so transferred, including sepa-
rately accounting for the portion of such
distribution which is includible in gross in-
come and the portion of such distribution
which is not so includible, or
‘‘(ii) is an eligible retirement plan de-
scribed in clause (i) or (ii) of section
402(c)(8)(B).’’.
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—
Paragraph (3) of section 408(d) (relating to special rules
for applying section 72) is amended by inserting at the end
the following:
‘‘(H) APPLICATION OF SECTION 72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) a distribution is made from
an individual retirement plan, and
‘‘(II) a rollover contribution is
made to an eligible retirement plan de-
scribed in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all or
part of such distribution,
then, notwithstanding paragraph (2), the
rules of clause (ii) shall apply for purposes
of applying section 72.
‘‘(ii) APPLICABLE RULES.—In the case
of a distribution described in clause (i)—
‘‘(I) section 72 shall be applied
separately to such distribution,
‘‘(II) notwithstanding the pro
rata allocation of income on, and in-
vestment in, the contract to distribu-
tions under section 72, the portion of
such distribution rolled over to an eli-
gible retirement plan described in
clause (i) shall be treated as from in-
come on the contract (to the extent of
the aggregate income on the contract
from all individual retirement plans of
the distributee), and
‘‘(III) appropriate adjustments
shall be made in applying section 72 to
other distributions in such taxable year
and subsequent taxable years.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions after December 31, 2001.
SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT
TRUSTS.—Paragraph (3) of section
402(c) (relating to transfer must be made within 60 days
of receipt) is amended to read as follows:
‘‘(3) TRANSFER MUST BE MADE WITHIN 60 DAYS
OF RECEIPT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), paragraph (1) shall not
apply to any transfer of a distribution made
after the 60th day following the day on which the
distributee received the property distributed.
‘‘(B) HARDSHIP
EXCEPTION.—The Sec-
retary may waive the 60-day requirement under
subparagraph (A) where the failure to waive
such requirement would be against equity or
good conscience, including casualty, disaster, or
other events beyond the reasonable control of the
individual subject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating
to rollover contributions), as amended by section 403, is
amended by adding after subparagraph (H) the following
new subparagraph:
‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—
The Secretary may waive the 60-day require-
ment under subparagraphs (A) and (D) where
the failure to waive such requirement would be
against equity or good conscience, including cas-
ualty, disaster, or other events beyond the rea-
sonable control of the individual subject to such
requirement.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions after December 31, 2001.
SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.
(a) PLAN TRANSFERS.—
(1) 
AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Paragraph (6) of section 411(d) (relating to
accrued benefit not to be decreased by amendment) is
amended by adding at the end the following:
‘‘(D) PLAN TRANSFERS.—
‘‘(i) IN GENERAL.—A defined contribu-
tion 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 contribution plan (in
this subparagraph referred to as the ‘trans-
feror plan’) to the extent that—
‘‘(I) the forms of distribution pre-
viously available under the transferor
plan applied to the account of a par-
ticipant or beneficiary under the
transferor plan that was transferred
from the transferor plan to the trans-
feree plan pursuant to a direct transfer
rather than pursuant to a distribution
from the transferor plan,
‘‘(II) the terms of both the trans-
feror plan and the transferee plan au-
thorize the transfer described in sub-
clause (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 par-
ticipant or beneficiary received a no-
tice describing the consequences of
making the election, and
‘‘(V) the transferee plan allows the
participant or beneficiary described in
subclause (III) to receive any distribu-
tion to which the participant or bene-
ficiary is entitled under the transferee
plan in the form of a single sum dis-
tribution.
‘‘(ii) EXCEPTION.—Clause (i) shall
apply to plan mergers and other trans-
actions having the effect of a direct transfer,
including consolidations of benefits attrib-
utable to different employers within a mul-
tiple employer plan.
‘‘(E) ELIMINATION OF FORM OF DISTRIBU-
TION.—Except to the extent provided in regula-
tions, a defined contribution plan shall not be
treated as failing to meet the requirements of this
section merely because of the elimination of a
form of distribution previously available there-
under. This subparagraph shall not apply to the
elimination of a form of distribution with re-
spect 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 par-
ticipant’s account as the form of distribu-
tion 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:
‘‘(4)(A) A defined contribution plan (in this subpara-
graph referred to as the ‘transferee plan’) shall not be treat-
ed 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 contribution plan (in this subparagraph re-
ferred 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 rath-
er 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 partici-
pant 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 elec-
tion; and
‘‘(v) the transferee plan allows the participant or
beneficiary described in clause (iii) to receive any dis-
tribution 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 consolidations of benefits attributable to different
employers within a multiple employer plan.
‘‘(5) Except to the extent provided in regulations pro-
mulgated by the Secretary of the Treasury, a defined con-
tribution plan shall not be treated as failing to meet the
requirements of this subsection merely because of the elimi-
nation of a form of distribution previously available there-
under. This paragraph shall not apply to the elimination
of a form of distribution with respect to any participant
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 subsection 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 new sentence: ‘‘The Secretary shall by regu-
lations provide that this subparagraph shall not
apply to any plan amendment which reduces or
eliminates benefits or subsidies which create signifi-
cant burdens or complexities for the plan and plan
participants and does not adversely affect the rights
of any participant in a more than de minimis man-
ner.’’.
(2) AMENDMENT OF ERISA.—Section 204(g)(2) of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1054(g)(2)) is amended by inserting
before the last sentence the following new sentence:
‘‘The Secretary of the Treasury shall by regulations
provide that this paragraph shall not apply to any
plan amendment which reduces or eliminates benefits
or subsidies which create significant burdens or com-
plexities for the plan and plan participants and does
not adversely affect the rights of any participant in
a more than de minimis manner.’’.
(3) SECRETARY DIRECTED.—Not later than De-
cember 31, 2003, the Secretary of the Treasury is di-
rected to issue regulations 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. 406. RATIONALIZATION OF RESTRICTIONS ON DIS-
TRIBUTIONS.
(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 ‘‘separation from service’’
and inserting ‘‘severance from employment’’.
(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 subparagraph is the termination of the plan
without establishment or maintenance of another
defined contribution plan (other than an em-
ployee stock ownership plan as defined in section
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 termi-
nation’’; and
(II) by striking ‘‘the event’’ in
clause (i) and inserting ‘‘the termi-
nation’’;
(ii) by striking subparagraph (C); and
(iii) by striking ‘‘OR DISPOSITION OF
ASSETS OR SUBSIDIARY’’ 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 sec-
tion 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.
SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERN-
MENTAL DEFINED BENEFIT PLANS.
(a) 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 ben-
efit 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) there-
of.’’.
(b) 457 PLANS.—Subsection (e) of section 457 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 ben-
efit 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) there-
of.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to trustee-to-trustee transfers after De-
cember 31, 2001.
SEC. 408. 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 distributions) is amended by add-
ing at the end the following:
‘‘(D) SPECIAL RULE FOR ROLLOVER CON-
TRIBUTIONS.—A plan shall not fail to meet the
requirements of this paragraph if, under the
terms of the plan, the present value of the non-
forfeitable accrued benefit is determined without
regard to that portion of such benefit which is
attributable to rollover contributions (and earn-
ings allocable thereto). For purposes of this sub-
paragraph, 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 at-
tributable to rollover contributions (and earnings allocable
thereto). For purposes of this subparagraph, the term ‘roll-
over 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.’’.
(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 de-
fined in section 411(a)(11)(D))’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions after December 31, 2001.
SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION RE-
QUIREMENTS FOR SECTION 457 PLANS.
(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Para-
graph (2) of section 457(d) (relating to distribution require-
ments) 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 sec-
tion 457 (relating to year of inclusion in gross in-
come) is amended to read as follows:
‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘(1) IN GENERAL.—Any amount of compensa-
tion 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 compensation or other
income—
‘‘(A) is paid to the participant or other ben-
eficiary, in the case of a plan of an eligible em-
ployer described in subsection (e)(1)(A), and
‘‘(B) is paid or otherwise made available to
the participant 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 eligi-
ble deferred compensation plan of an employer de-
scribed 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 em-
ployer described in subsection (e)(1)(A) shall not be
treated as failing to meet the requirements of this sub-
section solely by reason of making a distribution de-
scribed in subsection (e)(9)(A).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to distributions after December 31, 2001.
TITLE V—STRENGTHENING PEN-
SION 
SECURITY 
AND 
EN-
FORCEMENT
SEC. 501. REPEAL OF PERCENT OF CURRENT LIABILITY
FUNDING LIMIT.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—Sec-
tion 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 ap-
plicable percentage’’; and
(2) by amending subparagraph (F) to read as
follows:
‘‘(F) APPLICABLE PERCENTAGE.—For pur-
poses 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 ap-
plicable percentage’’; and
(2) by amending subparagraph (F) to read as
follows:
‘‘(F) APPLICABLE PERCENTAGE.—For pur-
poses 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.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2001.
SEC. 502. 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 deduct-
ible under the limitations of this paragraph
shall not be less than the unfunded termi-
nation liability (determined as if the pro-
posed termination date referred to in section
4041(b)(2)(A)(i)(II) of the Employee Retire-
ment Income Security Act of 1974 were the
last day of the plan year).
‘‘(ii) PLANS WITH LESS THAN 100 PAR-
TICIPANTS.—For purposes of this subpara-
graph, in the case of a plan which has less
than 100 participants for the plan year,
termination liability shall not include the
liability attributable to benefit increases for
highly compensated employees (as defined
in section 414(q)) resulting from a plan
amendment which is made or becomes effec-
tive, whichever is later, within the last 2
years before the termination date.
‘‘(iii) RULE FOR DETERMINING NUM-
BER OF PARTICIPANTS.—For purposes of de-
termining whether a plan has more than
100 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 em-
ployer shall be taken into account.
‘‘(iv) PLANS MAINTAINED BY PROFES-
SIONAL
SERVICE
EMPLOYERS.—Clause (i)
shall not apply to a plan described in sec-
tion 4021(b)(13) of the Employee Retire-
ment Income Security Act of 1974.’’.
(b) CONFORMING AMENDMENT.—Paragraph (6) of sec-
tion 4972(c), as amended by section 207, is amended to read
as follows:
‘‘(6) EXCEPTIONS.—In determining the amount
of nondeductible contributions for any taxable year,
there shall not be taken into account so much of the
contributions to one or more defined contribution
plans which are not deductible when contributed sole-
ly because of section 404(a)(7) as does not exceed the
greater of—
‘‘(A) the amount of contributions not in ex-
cess of 6 percent of compensation (within the
meaning of section 404(a)) paid or accrued (dur-
ing the taxable year for which the contributions
were made) to beneficiaries under the plans, or
‘‘(B) the sum of—
‘‘(i) the amount of contributions de-
scribed in section 401(m)(4)(A), plus
‘‘(ii) the amount of contributions de-
scribed in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits
under section 404(a)(7) shall first be applied to
amounts contributed to a defined benefit plan and
then to amounts described in subparagraph (B).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2001.
SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUND-
ING.
(a) IN GENERAL.—Subsection (c) of section 4972 (re-
lating to nondeductible contributions) is amended by add-
ing at the end the following new paragraph:
‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In
determining the amount of nondeductible contribu-
tions 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 re-
gard 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 contrib-
uted 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. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY
DEFINED BENEFIT PLANS SIGNIFICANTLY RE-
DUCING FUTURE BENEFIT ACCRUALS.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—
(1) IN GENERAL.—Chapter 43 (relating to quali-
fied 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 RE-
QUIREMENTS.
‘‘(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.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on any failure with respect to
any applicable individual shall be $100 for each day
in the noncompliance period with respect to such fail-
ure.
‘‘(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.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
AND
REASONABLE
DILIGENCE
EXER-
CISED.—No tax shall be imposed by subsection (a) on
any failure during any period for which it is estab-
lished 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
reasonable diligence to meet the requirements of sub-
section (e).
‘‘(2) 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 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 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.
‘‘(4) 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 REQUIREMENTS
FOR PLANS SIGNIFI-
CANTLY REDUCING BENEFIT ACCRUALS.—
‘‘(1) IN
GENERAL.—If an applicable pension
plan is amended to provide for a significant reduc-
tion in the rate of future benefit accrual, the plan ad-
ministrator shall provide written notice to each ap-
plicable individual (and to each employee organiza-
tion representing applicable individuals).
‘‘(2) NOTICE.—The notice required by paragraph
(1) shall be written in a manner calculated to be un-
derstood by the average plan participant and shall
provide sufficient information (as determined in ac-
cordance with regulations prescribed by the Sec-
retary) to allow applicable individuals to understand
the effect of the plan amendment. The Secretary may
provide 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 formula.
‘‘(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 amendment.
‘‘(4) DESIGNEES.—Any notice under paragraph
(1) may be provided to a person designated, in writ-
ing, by the person to which it would otherwise be pro-
vided.
‘‘(5) NOTICE
BEFORE
ADOPTION
OF
AMEND-
MENT.—A plan shall not be treated as failing to meet
the requirements of paragraph (1) merely because no-
tice is provided before the adoption of the plan
amendment if no material modification of the amend-
ment occurs before the amendment is adopted.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘appli-
cable individual’ 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 qualified domestic relations
order 
(within 
the 
meaning 
of 
section
414(p)(1)(A)),
whose rate of future benefit accrual under the plan
may reasonably be expected to be significantly re-
duced by such plan amendment.
‘‘(2) APPLICABLE PENSION PLAN.—The term ‘ap-
plicable pension 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 re-
spect to which the election provided by section 410(d)
has not been made.
‘‘(3) EARLY RETIREMENT.—A plan amendment
which eliminates or significantly reduces any early
retirement benefit or retirement-type subsidy (within
the meaning of section 411(d)(6)(B)(i)) shall be treat-
ed as having the effect of significantly reducing the
rate of future benefit accrual.
‘‘(g) NEW TECHNOLOGIES.—The Secretary may by
regulations allow any notice under subsection (e) to be pro-
vided by using new technologies.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions 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.—Section 204(h) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1054(h)) is amended by adding at the end the fol-
lowing new paragraphs:
‘‘(3)(A) An applicable pension plan to which para-
graph (1) applies shall not be treated as meeting the re-
quirements of such paragraph unless, in addition to any
notice required to be provided to an individual or organiza-
tion under such paragraph, the plan administrator pro-
vides the notice described in subparagraph (B) to each ap-
plicable individual (and to each employee organization rep-
resenting applicable individuals).
‘‘(B) The notice required by subparagraph (A) shall
be written in a manner calculated to be understood by the
average plan participant and shall provide sufficient infor-
mation (as determined in accordance with regulations pre-
scribed by the Secretary of the Treasury) to allow applicable
individuals to understand the effect of the plan amendment.
The Secretary of the Treasury may provide a simplified
form of notice for, or exempt from any notice requirement,
a plan—
‘‘(i) which has fewer than 100 participants who
have accrued a benefit under the plan, or
‘‘(ii) which offers participants the option to
choose between the new benefit formula and the old
benefit formula.
‘‘(C) Except as provided in regulations prescribed by
the Secretary of the Treasury, the notice required by sub-
paragraph (A) shall be provided within a reasonable time
before the effective date of the plan amendment.
‘‘(D) Any notice under subparagraph (A) may be pro-
vided to a person designated, in writing, by the person to
which it would otherwise be provided.
‘‘(E) A plan shall not be treated as failing to meet
the requirements of subparagraph (A) 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) The Secretary of the Treasury may by regulations
allow any notice under this paragraph to be provided by
using new technologies.
‘‘(4) For purposes of paragraph (3)—
‘‘(A) The term ‘applicable individual’ means,
with respect to any plan amendment—
‘‘(i) each participant in the plan; and
‘‘(ii) any beneficiary who is an alternate
payee 
(within 
the 
meaning 
of 
section
206(d)(3)(K)) under an applicable qualified do-
mestic relations order (within the meaning of
section 206(d)(3)(B)(i)),
whose rate of future benefit accrual under the plan
may reasonably be expected to be significantly re-
duced by such plan amendment.
‘‘(B) 
The 
term 
‘applicable 
pension 
plan’
means—
‘‘(i) any defined benefit plan; or
‘‘(ii) an individual account plan which is
subject to the funding standards of section 412 of
the Internal Revenue Code of 1986.
‘‘(C) A plan amendment which eliminates or sig-
nificantly reduces any early retirement benefit or re-
tirement-type subsidy (within the meaning of sub-
section (g)(2)(A)) shall be treated as having the effect
of significantly reducing the rate of future benefit ac-
crual.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to plan amendments taking
effect on or after the date of the enactment of this Act.
(2) TRANSITION.—Until such time as the Sec-
retary of the Treasury issues regulations under sec-
tions 4980F(e)(2) and (3) of the Internal Revenue
Code of 1986, and section 204(h)(3) of the Employee
Retirement Income Security Act of 1974, as added by
the amendments made by this section, a plan shall be
treated as meeting the requirements of such sections
if it makes a good faith effort to comply with such re-
quirements.
(3) SPECIAL NOTICE RULE.—
(A) IN GENERAL.—The period for providing
any notice required by the amendments made by
this section shall not end before the date which
is 3 months after the date of the enactment of
this Act.
(B) REASONABLE
NOTICE.—The amend-
ments made by this section shall not apply to
any plan amendment taking effect on or after the
date of the enactment of this Act if, before April
25, 2001, notice was provided to participants
and beneficiaries adversely affected by the plan
amendment (or their representatives) which was
reasonably expected to notify them of the nature
and effective date of the plan amendment.
100
(d) STUDY.—The Secretary of the Treasury shall pre-
pare a report on the effects of conversions of traditional de-
fined benefit plans to cash balance or hybrid formula plans.
Such study shall examine the effect of such conversions on
longer service participants, including the incidence and ef-
fects of ‘‘wear away’’ provisions under which participants
earn no additional benefits for a period of time after the
conversion. As soon as practicable, but not later than 60
days after the date of the enactment of this Act, the Sec-
retary shall submit such report, together with recommenda-
tions thereon, to the Committee on Ways and Means and
the Committee on Education and the Workforce of the
House of Representatives and the Committee on Finance
and the Committee on Health, Education, Labor, and Pen-
sions of the Senate.
SEC. 505. 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:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL AND MULTIEMPLOYER PLANS.—In the case of
a governmental plan (as defined in section 414(d)) or
101
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 collec-
tively 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 sec-
tion 415 (relating to combining of plans) is amended
by adding at the end the following:
‘‘(3) EXCEPTION FOR MULTIEMPLOYER PLANS.—
Notwithstanding 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
102
Secretary’’ and inserting ‘‘Except as provided in sub-
section (f)(3), the Secretary’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2001.
SEC. 506. PROTECTION OF INVESTMENT OF EMPLOYEE
CONTRIBUTIONS 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 para-
graph (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
PROPERTY.—The amendments made by this section
shall not apply to any elective deferral which is in-
vested in assets consisting of qualifying employer se-
curities, qualifying employer real property, 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.
103
SEC. 507. PERIODIC PENSION BENEFITS STATEMENTS.
(a) IN GENERAL.—Section 105(a) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1025 (a))
is amended to read as follows:
‘‘(a)(1) Except as provided in paragraph (2)—
‘‘(A) the administrator of an individual account
plan shall furnish a pension benefit statement—
‘‘(i) to a plan participant at least once an-
nually, and
‘‘(ii) to a plan beneficiary upon written re-
quest, and
‘‘(B) the administrator of a defined benefit plan
shall furnish a pension benefit statement—
‘‘(i) at least once every 3 years to each par-
ticipant with a nonforfeitable accrued benefit
who is employed by the employer maintaining
the plan at the time the statement is furnished
to participants, and
‘‘(ii) to a plan participant or plan bene-
ficiary of the plan upon written request.
‘‘(2) Notwithstanding paragraph (1), the adminis-
trator of a plan to which more than 1 unaffiliated employer
is required to contribute shall only be required to furnish
a pension benefit statement under paragraph (1) upon the
written request of a participant or beneficiary of the plan.
104
‘‘(3) A pension benefit statement under paragraph
(1)—
‘‘(A) shall indicate, on the basis of the latest
available information—
‘‘(i) the total benefits accrued, and
‘‘(ii) the nonforfeitable pension benefits, if
any, which have accrued, or the earliest date on
which benefits will become nonforfeitable,
‘‘(B) shall be written in a manner calculated to
be understood by the average plan participant, and
‘‘(C) may be provided in written, electronic, tele-
phonic, or other appropriate form.
‘‘(4)(A) In the case of a defined benefit plan, the re-
quirements of paragraph (1)(B)(i) shall be treated as met
with respect to a participant if the administrator provides
the participant at least once each year with notice of the
availability of the pension benefit statement and the ways
in which the participant may obtain such statement. Such
notice shall be provided in written, electronic, telephonic,
or other appropriate form, and may be included with other
communications to the participant if done in a manner
reasonably designed to attract the attention of the partici-
pant.
‘‘(B) The Secretary may provide that years in which
no employee or former employee benefits (within the mean-
105
ing of section 410(b) of the Internal Revenue Code of 1986)
under the plan need not be taken into account in deter-
mining the 3-year period under paragraph (1)(B)(i).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 105 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1025) is
amended by striking subsection (d).
(2) Section 105(b) of such Act (29 U.S.C.
1025(b)) is amended to read as follows:
‘‘(b) In no case shall a participant or beneficiary of
a plan be entitled to more than one statement described in
subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is applica-
ble, in any 12-month period.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2002.
SEC. 508. PROHIBITED ALLOCATIONS OF STOCK IN S COR-
PORATION ESOP.
(a) IN GENERAL.—Section 409 (relating to qualifica-
tions for tax credit employee stock ownership plans) is
amended by redesignating subsection (p) as subsection (q)
and by inserting after subsection (o) the following new sub-
section:
‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN
S CORPORATION.—
106
‘‘(1) IN GENERAL.—An employee stock ownership
plan holding employer securities consisting of stock in
an S corporation shall provide that no portion of the
assets of the plan attributable to (or allocable in lieu
of) such employer securities may, during a nonalloca-
tion year, accrue (or be allocated directly or indi-
rectly under any plan of the employer meeting the re-
quirements of section 401(a)) for the benefit of any
disqualified person.
‘‘(2) FAILURE TO MEET REQUIREMENTS.—
‘‘(A) IN GENERAL.—If a plan fails to meet
the requirements of paragraph (1), the plan shall
be treated as having distributed to any disquali-
fied 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 ownership of synthetic equity, see section
4979A.
‘‘(3) NONALLOCATION
YEAR.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘nonalloca-
tion year’ means any plan year of an employee
stock ownership plan if, at any time during such
plan year—
107
‘‘(i) such plan holds employer securi-
ties 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 subparagraph (A)—
‘‘(i) IN GENERAL.—The rules of section
318(a) shall apply for purposes of deter-
mining 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.—Not-
withstanding the employee trust exception
in section 318(a)(2)(B)(i), individual shall
be treated as owning deemed-owned shares
of the individual.
Solely for purposes of applying paragraph (5),
this subparagraph shall be applied after the at-
108
tribution rules of paragraph (5) have been ap-
plied.
‘‘(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 mem-
bers 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 de-
scribed 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 member of such per-
son’s family with deemed-owned shares shall be
treated as a disqualified person if not otherwise
treated as a disqualified person under subpara-
graph (A).
‘‘(C) DEEMED-OWNED SHARES.—
109
‘‘(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 ownership 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 per-
son 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 paragraph, the term ‘member of the family’
means, with respect to any individual—
110
‘‘(i) the spouse of the individual,
‘‘(ii) an ancestor or lineal descendant
of the individual or the individual’s spouse,
‘‘(iii) a brother or sister of the indi-
vidual or the individual’s spouse and any
lineal descendant of the brother or sister,
and
‘‘(iv) the spouse of any individual de-
scribed in clause (ii) or (iii).
A spouse of an individual who is legally sepa-
rated from such individual under a decree of di-
vorce or separate maintenance shall not be treat-
ed 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 corpora-
tion, 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 out-
standing 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 dis-
qualified person, or
111
‘‘(B) the treatment of any year as a non-
allocation 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 non-
allocation 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 sec-
tion 4975(e)(7).
‘‘(B) EMPLOYER
SECURITIES.—The term
‘employer security’ has the meaning given such
term by section 409(l).
‘‘(C) SYNTHETIC EQUITY.—The term ‘syn-
thetic 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 corpora-
tion in the future. Except to the extent provided
112
in regulations, synthetic equity also includes a
stock appreciation 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.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes 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 sec-
tion 4979A (relating to tax on certain prohibited allo-
cations of employer securities) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1), and
(B) by striking all that follows paragraph
(2) and inserting the following:
‘‘(3) there is any allocation of employer securi-
ties 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
113
‘‘(4) any synthetic equity is owned by a dis-
qualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or owner-
ship equal to 50 percent of the amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (defining li-
ability 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 re-
ferred 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 pur-
poses of this section—
‘‘(1) DEFINITIONS.—Except as provided in para-
graph (2), terms used in this section have the same
114
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 allo-
cated to the account of any person in violation
of section 409(p)(1).
‘‘(B) SYNTHETIC EQUITY.—The amount in-
volved 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
NON-
ALLOCATION
YEAR.—For purposes of subpara-
graph (A), the amount involved for the first non-
allocation 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 stat-
utory period for the assessment of any tax im-
posed by this section by reason of paragraph (3)
115
or (4) of subsection (a) shall not expire before the
date which is 3 years from the later of—
‘‘(i) the allocation or ownership re-
ferred 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 estab-
lished after March 14, 2001, or
(B) employee stock ownership plan estab-
lished on or before such date if employer securi-
ties held by the plan consist of stock in a cor-
poration 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.
116
TITLE VI—REDUCING
REGULATORY BURDENS
SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) AMENDMENT
OF INTERNAL REVENUE CODE.—
Paragraph (9) of section 412(c) (relating to annual valu-
ation) is amended to read as follows:
‘‘(9) ANNUAL VALUATION.—
‘‘(A) IN
GENERAL.—For purposes of this
section, a determination of experience gains and
losses and a valuation of the plan’s liability
shall be made not less frequently than once every
year, except that such determination shall be
made more frequently to the extent required in
particular cases under regulations prescribed by
the Secretary.
‘‘(B) VALUATION DATE.—
‘‘(i) CURRENT YEAR.—Except as pro-
vided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of
a date within the plan year to which the
valuation refers or within one month prior
to the beginning of such year.
‘‘(ii) ELECTION TO USE PRIOR YEAR
VALUATION.—The valuation referred to in
subparagraph (A) may be made as of a date
117
within the plan year prior to the year to
which the valuation refers if—
‘‘(I) an election is in effect under
this clause with respect to the plan,
and
‘‘(II) as of such date, the value of
the assets of the plan are not less than
125 percent of the plan’s current liabil-
ity (as defined in paragraph (7)(B)).
‘‘(iii) 
ADJUSTMENTS.—Information
under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to re-
flect significant differences in participants.
‘‘(iv) ELECTION.—An election under
clause (ii), once made, shall be irrevocable
without the consent of the Secretary.’’.
(b) AMENDMENT OF ERISA.—Paragraph (9) of sec-
tion 302(c) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1053(c)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and
(2) by adding at the end the following:
‘‘(B)(i) Except as provided in clause (ii), the valuation
referred to in subparagraph (A) shall be made as of a date
within the plan year to which the valuation refers or within
one month prior to the beginning of such year.
118
‘‘(ii) The valuation referred to in subparagraph (A)
may be made as of a date within the plan year prior to
the year to which the valuation refers if—
‘‘(I) an election is in effect under this clause
with respect to the plan; and
‘‘(II) as of such date, the value of the assets of
the plan are not less than 125 percent of the plan’s
current liability (as defined in paragraph (7)(B)).
‘‘(iii) Information under clause (ii) shall, in accord-
ance with regulations, be actuarially adjusted to reflect sig-
nificant differences in participants.
‘‘(iv) An election under clause (ii), once made, shall
be irrevocable without the consent of the Secretary of the
Treasury.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2001.
SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT
LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL.—Section 404(k)(2)(A) (defining ap-
plicable dividends) is amended by striking ‘‘or’’ at the end
of clause (ii), by redesignating clause (iii) as clause (iv),
and by inserting after clause (ii) the following new clause:
‘‘(iii) is, at the election of such partici-
pants or their beneficiaries—
119
‘‘(I) payable as provided in clause
(i) or (ii), or
‘‘(II) paid to the plan and rein-
vested in qualifying employer securi-
ties, or’’.
(b) 
STANDARDS
FOR
DISALLOWANCE.—Section
404(k)(5)(A) (relating to disallowance of deduction) is
amended by inserting ‘‘avoidance or’’ before ‘‘evasion’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CER-
TAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL.—Paragraph (4) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by subsection
(a) shall apply to plan years beginning after December 31,
2001.
SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—The Secretary of the Treasury shall
modify Treasury Regulations section 1.410(b)–6(g) to pro-
vide that employees of an organization described in section
403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who
are eligible to make contributions under section 403(b) of
such Code pursuant to a salary reduction agreement may
120
be treated as excludable with respect to a plan under section
401(k) or (m) of such Code that is provided under the same
general arrangement as a plan under such section 401(k),
if—
(1) no employee of an organization described in
section 403(b)(1)(A)(i) of such Code is eligible to par-
ticipate in such section 401(k) plan or section 401(m)
plan; and
(2) 95 percent of the employees who are not em-
ployees of an organization described in section
403(b)(1)(A)(i) of such Code are eligible to partici-
pate in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification required by
subsection (a) shall apply as of the same date set forth in
section 1426(b) of the Small Business Job Protection Act
of 1996.
SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-
PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL.—Subsection (a) of section 132 (relat-
ing to exclusion from gross income) is amended by striking
‘‘or’’ at the end of paragraph (5), by striking the period
at the end of paragraph (6) and inserting ‘‘, or’’, and by
adding at the end the following new paragraph:
‘‘(7) qualified retirement planning services.’’.
121
(b) QUALIFIED RETIREMENT PLANNING SERVICES DE-
FINED.—Section 132 is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following:
‘‘(m) QUALIFIED
RETIREMENT
PLANNING
SERV-
ICES.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘qualified retirement planning services’
means any retirement planning advice or informa-
tion provided to an employee and his spouse by an
employer maintaining a qualified employer plan.
‘‘(2) 
NONDISCRIMINATION
RULE.—Subsection
(a)(7) shall apply in the case of highly compensated
employees only if such services are available on sub-
stantially the same terms to each member of the group
of employees normally provided education and infor-
mation regarding the employer’s qualified employer
plan.
‘‘(3) QUALIFIED EMPLOYER PLAN.—For purposes
of this subsection, the term ‘qualified employer plan’
means a plan, contract, pension, or account described
in section 219(g)(5).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
2001.