675
(b) QUALIFIED CHURCH PLAN.—For purposes of 
this section, the term ‘‘qualified church plan’’ means any 
money purchase pension plan described in section 401(a) 
of such Code which—
(1) is a church plan (as defined in section 
414(e) of such Code) with respect to which the elec-
tion provided by section 410(d) of such Code has not 
been made, and 
(2) was in existence on April 17, 2002. 
SEC. 866. EXEMPTION FOR INCOME FROM LEVERAGED 
REAL ESTATE HELD BY CHURCH PLANS. 
(a) IN GENERAL.—Section 514(c)(9)(C) of the Inter-
nal Revenue Code of 1986 is amended by striking ‘‘or’’ 
after clause (ii), by striking the period at the end of clause 
(iii) and inserting ‘‘; or’’, and by inserting after clause (iii) 
the following: 
‘‘(iv) a retirement income account de-
scribed in section 403(b)(9).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning on 
or after the date of enactment of this Act. 
SEC. 867. CHURCH PLAN RULE. 
(a) IN GENERAL.—Paragraph (11) of section 415(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following: ‘‘Subparagraph (B) of para-
676
graph (1) shall not apply to a plan maintained by an orga-
nization described in section 3121(w)(3)(A) except with 
respect to highly compensated benefits. For purposes of 
this paragraph, the term ‘highly compensated benefits’ 
means any benefits accrued for an employee in any year 
on or after the first year in which such employee is a high-
ly compensated employee (as defined in section 414(q)) 
of the organization described in section 3121(w)(3)(A). 
For purposes of applying paragraph (1)(B) to highly com-
pensated benefits, all benefits of the employee otherwise 
taken into account (without regard to this paragraph) 
shall be taken into account.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to years beginning after December 
31, 2006. 
SEC. 868. GRATUITOUS TRANSFER FOR BENEFITS OF EM-
PLOYEES. 
(a) IN GENERAL.—Subparagraph (E) of section 
664(g)(3) of the Internal Revenue Code of 1986 is amend-
ed by inserting ‘‘(determined on the basis of fair market 
value of securities when allocated to participants)’’ after 
‘‘paragraph (7)’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act.
677
TITLE 
IX—INCREASE 
IN 
PEN-
SION PLAN DIVERSIFICATION 
AND 
PARTICIPATION 
AND 
OTHER PENSION PROVISIONS 
SEC. 901. DEFINED CONTRIBUTION PLANS REQUIRED TO 
PROVIDE EMPLOYEES WITH FREEDOM TO IN-
VEST THEIR PLAN ASSETS. 
(a) AMENDMENTS OF INTERNAL REVENUE CODE.—
(1) QUALIFICATION
REQUIREMENT.—Section 
401(a) of the Internal Revenue Code of 1986 (relat-
ing to qualified pension, profit-sharing, and stock 
bonus plans) is amended by inserting after para-
graph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
CERTAIN DEFINED CONTRIBUTION PLANS.—
‘‘(A) IN GENERAL.—A trust which is part 
of an applicable defined contribution plan shall 
not be treated as a qualified trust unless the 
plan meets the diversification requirements of 
subparagraphs (B), (C), and (D). 
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND 
ELECTIVE DEFERRALS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of an 
applicable individual’s account attributable to 
employee contributions and elective deferrals
678
which is invested in employer securities, a plan 
meets the requirements of this subparagraph if 
the applicable individual may elect to direct the 
plan to divest any such securities and to rein-
vest an equivalent amount in other investment 
options meeting the requirements of subpara-
graph (D). 
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED
IN
EMPLOYER
SECURITIES.—In the 
case of the portion of the account attributable 
to employer contributions other than elective 
deferrals which is invested in employer securi-
ties, a plan meets the requirements of this sub-
paragraph if each applicable individual who—
‘‘(i) is a participant who has com-
pleted at least 3 years of service, or 
‘‘(ii) is a beneficiary of a participant 
described in clause (i) or of a deceased 
participant, 
may elect to direct the plan to divest any such 
securities and to reinvest an equivalent amount 
in other investment options meeting the re-
quirements of subparagraph (D). 
‘‘(D) INVESTMENT OPTIONS.—
679
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if the plan 
offers not less than 3 investment options, 
other than employer securities, to which an 
applicable individual may direct the pro-
ceeds from the divestment of employer se-
curities pursuant to this paragraph, each 
of which is diversified and has materially 
different risk and return characteristics. 
‘‘(ii) TREATMENT
OF
CERTAIN
RE-
STRICTIONS AND CONDITIONS.—
‘‘(I) TIME FOR MAKING INVEST-
MENT CHOICES.—A plan shall not be 
treated as failing to meet the require-
ments of this subparagraph merely be-
cause the plan limits the time for di-
vestment and reinvestment to peri-
odic, reasonable opportunities occur-
ring no less frequently than quarterly. 
‘‘(II) 
CERTAIN
RESTRICTIONS 
AND
CONDITIONS
NOT
ALLOWED.—
Except as provided in regulations, a 
plan shall not meet the requirements 
of this subparagraph if the plan im-
poses restrictions or conditions with
680
respect to the investment of employer 
securities which are not imposed on 
the investment of other assets of the 
plan. This subclause shall not apply to 
any restrictions or conditions imposed 
by reason of the application of securi-
ties laws. 
‘‘(E) APPLICABLE
DEFINED
CONTRIBU-
TION PLAN.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble defined contribution plan’ means any 
defined contribution plan which holds any 
publicly traded employer securities. 
‘‘(ii) 
EXCEPTION
FOR
CERTAIN 
ESOPS.—Such term does not include an 
employee stock ownership plan if—
‘‘(I) there are no contributions to 
such plan (or earnings thereunder) 
which are held within such plan and 
are subject to subsection (k) or (m), 
and 
‘‘(II) such plan is a separate plan 
for purposes of section 414(l) with re-
spect to any other defined benefit plan 
or defined contribution plan main-
681
tained by the same employer or em-
ployers. 
‘‘(iii) EXCEPTION FOR ONE PARTICI-
PANT PLANS.—Such term does not include 
a one-participant retirement plan. 
‘‘(iv) ONE-PARTICIPANT RETIREMENT 
PLAN.—For purposes of clause (iii), the 
term 
‘one-participant 
retirement 
plan’ 
means a retirement plan that—
‘‘(I) on the first day of the plan 
year covered only one individual (or 
the individual and the individual’s 
spouse) and the individual owned 100 
percent of the plan sponsor (whether 
or not incorporated), or covered only 
one or more partners (or partners and 
their spouses) in the plan sponsor, 
‘‘(II) meets the minimum cov-
erage requirements of section 410(b) 
without being combined with any 
other plan of the business that covers 
the employees of the business, 
‘‘(III) does not provide benefits 
to anyone except the individual (and
682
the individual’s spouse) or the part-
ners (and their spouses), 
‘‘(IV) does not cover a business 
that is a member of an affiliated serv-
ice group, a controlled group of cor-
porations, or a group of businesses 
under common control, and 
‘‘(V) does not cover a business 
that uses the services of leased em-
ployees (within the meaning of section 
414(n)). 
For purposes of this clause, the term ‘part-
ner’ includes a 2-percent shareholder (as 
defined in section 1372(b)) of an S cor-
poration. 
‘‘(F) CERTAIN PLANS TREATED AS HOLD-
ING
PUBLICLY
TRADED
EMPLOYER
SECURI-
TIES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in regulations or in clause (ii), a plan 
holding employer securities which are not 
publicly traded employer securities shall be 
treated as holding publicly traded employer 
securities if any employer corporation, or 
any member of a controlled group of cor-
683
porations which includes such employer 
corporation, has issued a class of stock 
which is a publicly traded employer secu-
rity. 
‘‘(ii) EXCEPTION FOR CERTAIN CON-
TROLLED GROUPS WITH PUBLICLY TRAD-
ED
SECURITIES.—Clause (i) shall not 
apply to a plan if—
‘‘(I) no employer corporation, or 
parent corporation of an employer 
corporation, has issued any publicly 
traded employer security, and 
‘‘(II) no employer corporation, or 
parent corporation of an employer 
corporation, has issued any special 
class of stock which grants particular 
rights to, or bears particular risks for, 
the holder or issuer with respect to 
any corporation described in clause (i) 
which has issued any publicly traded 
employer security. 
‘‘(iii) DEFINITIONS.—For purposes of 
this subparagraph, the term—
‘‘(I) ‘controlled group of corpora-
tions’ has the meaning given such
684
term by section 1563(a), except that 
‘50 percent’ shall be substituted for 
‘80 percent’ each place it appears, 
‘‘(II) 
‘employer 
corporation’ 
means a corporation which is an em-
ployer maintaining the plan, and 
‘‘(III) ‘parent corporation’ has 
the meaning given such term by sec-
tion 424(e). 
‘‘(G) OTHER DEFINITIONS.—For purposes 
of this paragraph—
‘‘(i) APPLICABLE
INDIVIDUAL.—The 
term ‘applicable individual’ means—
‘‘(I) any participant in the plan, 
and 
‘‘(II) any beneficiary who has an 
account under the plan with respect to 
which the beneficiary is entitled to ex-
ercise the rights of a participant. 
‘‘(ii) 
ELECTIVE
DEFERRAL.—The 
term ‘elective deferral’ means an employer 
contribution 
described 
in 
section 
402(g)(3)(A). 
‘‘(iii) 
EMPLOYER
SECURITY.—The 
term ‘employer security’ has the meaning
685
given such term by section 407(d)(1) of 
the Employee Retirement Income Security 
Act of 1974. 
‘‘(iv) EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock owner-
ship plan’ has the meaning given such 
term by section 4975(e)(7). 
‘‘(v) PUBLICLY
TRADED
EMPLOYER 
SECURITIES.—The term ‘publicly traded 
employer securities’ means employer secu-
rities which are readily tradable on an es-
tablished securities market. 
‘‘(vi) YEAR OF SERVICE.—The term 
‘year of service’ has the meaning given 
such term by section 411(a)(5). 
‘‘(H) TRANSITION RULE FOR SECURITIES 
ATTRIBUTABLE
TO
EMPLOYER
CONTRIBU-
TIONS.—
‘‘(i) RULES
PHASED
IN
OVER
YEARS.—
‘‘(I) IN GENERAL.—In the case 
of the portion of an account to which 
subparagraph (C) applies and which 
consists of employer securities ac-
quired in a plan year beginning before
686
January 1, 2007, subparagraph (C) 
shall only apply to the applicable per-
centage of such securities. This sub-
paragraph shall be applied separately 
with respect to each class of securi-
ties. 
‘‘(II) EXCEPTION
FOR
CERTAIN 
PARTICIPANTS
AGED
OR
OVER.—
Subclause (I) shall not apply to an 
applicable individual who is a partici-
pant who has attained age 55 and 
completed at least 3 years of service 
before the first plan year beginning 
after December 31, 2005. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the applicable per-
centage shall be determined as follows:
‘‘Plan year to which 
The applicable 
subparagraph (C) applies: 
percentage is: 
1st ......................................................................................................
2d .......................................................................................................
3d and following .................................................................................
100.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 401(a)(28)(B) of such Code 
(relating to additional requirements relating to 
employee stock ownership plans) is amended by 
adding at the end the following new clause:
687
‘‘(v) EXCEPTION.—This subparagraph 
shall not apply to an applicable defined 
contribution plan (as defined in paragraph 
(35)(E)).’’
(B) Section 409(h)(7) of such Code is 
amended by inserting ‘‘or subparagraph (B) or 
(C) of section 401(a)(35)’’ before the period at 
the end. 
(C) Section 4980(c)(3)(A) of such Code is 
amended by striking ‘‘if—’’ and all that follows 
and inserting ‘‘if the requirements of subpara-
graphs (B), (C), and (D) are met.’’
(b) AMENDMENTS OF ERISA.—
(1) IN GENERAL.—Section 204 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1054) is amended by redesignating subsection (j) as 
subsection (k) and by inserting after subsection (i) 
the following new subsection: 
‘‘(j) DIVERSIFICATION REQUIREMENTS FOR CERTAIN 
INDIVIDUAL ACCOUNT PLANS.—
‘‘(1) IN GENERAL.—An applicable individual ac-
count plan shall meet the diversification require-
ments of paragraphs (2), (3), and (4). 
‘‘(2) EMPLOYEE
CONTRIBUTIONS
AND
ELEC-
TIVE DEFERRALS INVESTED IN EMPLOYER SECURI-
688
TIES.—In the case of the portion of an applicable in-
dividual’s account attributable to employee contribu-
tions and elective deferrals which is invested in em-
ployer securities, a plan meets the requirements of 
this paragraph if the applicable individual may elect 
to direct the plan to divest any such securities and 
to reinvest an equivalent amount in other investment 
options meeting the requirements of paragraph (4). 
‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN 
EMPLOYER SECURITIES.—In the case of the portion 
of the account attributable to employer contributions 
other than elective deferrals which is invested in em-
ployer securities, a plan meets the requirements of 
this paragraph if each applicable individual who—
‘‘(A) is a participant who has completed at 
least 3 years of service, or 
‘‘(B) is a beneficiary of a participant de-
scribed in subparagraph (A) or of a deceased 
participant, 
may elect to direct the plan to divest any such secu-
rities and to reinvest an equivalent amount in other 
investment options meeting the requirements of 
paragraph (4). 
‘‘(4) INVESTMENT OPTIONS.—
689
‘‘(A) IN GENERAL.—The requirements of 
this paragraph are met if the plan offers not 
less than 3 investment options, other than em-
ployer securities, to which an applicable indi-
vidual may direct the proceeds from the divest-
ment of employer securities pursuant to this 
subsection, each of which is diversified and has 
materially different risk and return characteris-
tics. 
‘‘(B) TREATMENT OF CERTAIN RESTRIC-
TIONS AND CONDITIONS.—
‘‘(i) TIME FOR MAKING INVESTMENT 
CHOICES.—A plan shall not be treated as 
failing to meet the requirements of this 
paragraph merely because the plan limits 
the time for divestment and reinvestment 
to periodic, reasonable opportunities occur-
ring no less frequently than quarterly. 
‘‘(ii) CERTAIN
RESTRICTIONS
AND 
CONDITIONS
NOT
ALLOWED.—Except as 
provided in regulations, a plan shall not 
meet the requirements of this paragraph if 
the plan imposes restrictions or conditions 
with respect to the investment of employer 
securities which are not imposed on the in-
690
vestment of other assets of the plan. This 
subparagraph shall not apply to any re-
strictions or conditions imposed by reason 
of the application of securities laws. 
‘‘(5) 
APPLICABLE
INDIVIDUAL
ACCOUNT 
PLAN.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘applicable 
individual account plan’ means any individual 
account plan (as defined in section 3(34)) which 
holds any publicly traded employer securities. 
‘‘(B) EXCEPTION FOR CERTAIN ESOPS.—
Such term does not include an employee stock 
ownership plan if—
‘‘(i) there are no contributions to such 
plan (or earnings thereunder) which are 
held within such plan and are subject to 
subsection (k) or (m) of section 401 of the 
Internal Revenue Code of 1986, and 
‘‘(ii) such plan is a separate plan (for 
purposes of section 414(l) of such Code) 
with respect to any other defined benefit 
plan or individual account plan maintained 
by the same employer or employers. 
‘‘(C) EXCEPTION
FOR
ONE
PARTICIPANT 
PLANS.—Such term shall not include a one-par-
691
ticipant retirement plan (as defined in section 
101(i)(8)(B)). 
‘‘(D) CERTAIN PLANS TREATED AS HOLD-
ING
PUBLICLY
TRADED
EMPLOYER
SECURI-
TIES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in regulations or in clause (ii), a plan 
holding employer securities which are not 
publicly traded employer securities shall be 
treated as holding publicly traded employer 
securities if any employer corporation, or 
any member of a controlled group of cor-
porations which includes such employer 
corporation, has issued a class of stock 
which is a publicly traded employer secu-
rity. 
‘‘(ii) EXCEPTION FOR CERTAIN CON-
TROLLED GROUPS WITH PUBLICLY TRAD-
ED
SECURITIES.—Clause (i) shall not 
apply to a plan if—
‘‘(I) no employer corporation, or 
parent corporation of an employer 
corporation, has issued any publicly 
traded employer security, and