tional contribution to such plan (at the
time the annuity contract to which such
amount relates is purchased) equal to the
unfunded annuity amount, and
‘‘(iii) in the case of a plan which has
an unfunded prior year liability as of the
close of such plan year, the plan requires
that the employer make an additional con-
tribution to such plan for such year equal
to the amount of such unfunded prior year
liability.
‘‘(B) UNFUNDED ANNUITY AMOUNT.—For
purposes of this paragraph, the term ‘unfunded
annuity amount’ means, with respect to the ac-
count of any participant, the excess (if any)
of—
‘‘(i) the amount necessary to purchase
an annuity contract which meets the re-
quirements of subsection (b)(4), over
‘‘(ii) the balance in such account at
the time such contract is purchased.
‘‘(C) UNFUNDED
PRIOR
YEAR
LIABIL-
ITY.—For purposes of this paragraph, the term
‘unfunded prior year liability’ means, with re-
spect to any plan year, the excess (if any) of—
‘‘(i) the aggregate of the accrued li-
abilities under the plan as of the close of
the prior plan year, over
‘‘(ii) the value of the plan’s assets de-
termined under section 412(c)(2) as of the
close of the plan year (determined without
regard to any contributions for such plan
year).
Such accrued liabilities shall be determined
using the assumptions specified in subsection
(b)(6)(B).
‘‘(D) CHANGES IN MORTALITY TABLE.—If
the applicable mortality table under section
417(e)(3) for any plan year is not the same as
such table for the prior plan year, the Secretary
shall prescribe regulations which phase in the
effect of the changes over a reasonable period
of plan years determined by the Secretary.
‘‘(E) DISREGARD ASSUMPTIONS FOR EX-
PENSES.—For purposes of this paragraph, the
assumption specified in subsection (b)(6)(B)(iv)
shall be disregarded.
‘‘(7) 
SEPARATE
ACCOUNTS
FOR
PARTICI-
PANTS.—A plan meets the requirements of this
paragraph for any year only if the plan provides—
‘‘(A) for an individual account for each
participant, and
‘‘(B) for benefits based solely on—
‘‘(i) the amount contributed to the
participant’s account, and
‘‘(ii) any income, expenses, gains and
losses, and any forfeitures of accounts of
other participants which may be allocated
to such participant’s account.
‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH
ARE NOT READILY TRADABLE.—A plan meets the
requirements of this paragraph only if the plan pro-
hibits the trust from holding directly or indirectly se-
curities which are not readily tradable on an estab-
lished securities market or otherwise. Nothing in
this paragraph shall prohibit the trust from holding
insurance company products regulated by State law.
‘‘(9) DEFINITIONS
AND
SPECIAL
RULE.—The
definitions and special rule applicable under sub-
section (b)(8) shall apply for purposes of this sub-
section.
‘‘(d) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—
‘‘(1) CERTAIN
REQUIREMENTS
TREATED
AS
MET.—For purposes of section 401(a), a SMART
annuity and a SMART trust shall be treated as
meeting the requirements of the following provisions:
‘‘(A) Section 401(a)(4) (relating to non-
discrimination rules).
‘‘(B) Section 401(a)(26) (relating to mini-
mum participation).
‘‘(C) Section 410 (relating to minimum
participation and coverage requirements).
‘‘(D) Section 411(b) (relating to accrued
benefit requirements).
‘‘(E) Paragraphs (6) and (7) of section
412(c) (relating to full funding limitation).
‘‘(F) Section 415 (relating to limitations
on benefits and contributions under qualified
plans).
‘‘(G) Section 416 (relating to special rules
for top-heavy plans).
‘‘(2) CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT IN APPLYING LIMITS TO OTHER PLANS.—
Contributions to a SMART annuity or a SMART
trust shall not be taken into account in applying sec-
tions 404 and 415 to other plans maintained by the
employer.’’
(b) DEDUCTION LIMITS NOT TO APPLY TO EM-
PLOYER CONTRIBUTIONS.—
(1) IN GENERAL.—Section 404 (relating to de-
ductions for contributions of an employer to pension,
etc., plans) is amended by adding at the end the fol-
lowing new subsection:
‘‘(n) SPECIAL RULES FOR SMART ANNUITIES AND
TRUSTS.—
‘‘(1) IN GENERAL.—Employer contributions to
a SMART annuity or a SMART trust shall be treat-
ed as if they are made to a plan subject to the re-
quirements of this section.
‘‘(2) TIMING.—
‘‘(A) 
DEDUCTION.—Contributions 
de-
scribed in paragraph (1) shall be deductible in
the taxable year of the employer with or within
which the calendar year for which the contribu-
tions were made ends.
‘‘(B) CONTRIBUTIONS
AFTER
END
OF
YEAR.—For purposes of this subsection, con-
tributions shall be treated as made for a taxable
year if they are made on account of the taxable
year and are made not later than the time pre-
scribed by law for filing the return for the tax-
able year (including extensions thereof).’’
(2) COORDINATION
WITH
DEDUCTION
UNDER
SECTION 219.—
(A) Section 219(b) (relating to maximum
amount of deduction) is amended by adding at
the end the following new paragraph:
‘‘(5) SPECIAL RULE FOR SMART ANNUITIES.—
This section shall not apply with respect to any
amount contributed to a SMART annuity estab-
lished under section 408B(b).’’
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (v) and by adding at the end the
following new clause:
‘‘(vii) any SMART annuity (within
the meaning of section 408B), or’’.
(c) CONTRIBUTIONS AND DISTRIBUTIONS.—
(1) Section 402 (relating to taxability of bene-
ficiary of employees’ trust) is amended by adding at
the end the following new subsection:
‘‘(l) TREATMENT
OF SMART ANNUITIES.—Rules
similar to the rules of paragraphs (1) and (3) of sub-
section (h) shall apply to contributions and distributions
with respect to SMART annuities under section 408B.’’
(2) Section 408(d)(3) is amended by adding at
the end the following new subparagraph:
‘‘(H) SMART 
ANNUITIES.—This para-
graph shall not apply to any amount paid or
distributed out of a SMART annuity (as de-
fined in section 408B) unless it is paid in a
trustee-to-trustee transfer into another SMART
annuity.’’
(d) INCREASED PENALTY
ON EARLY WITHDRAW-
ALS.—Section 72(t) (relating to additional tax on early
distributions) is amended by adding at the end the follow-
ing new paragraph:
‘‘(9) SPECIAL
RULES
FOR
SMART
ANNUITIES
AND TRUSTS.—In the case of—
‘‘(A) any amount received from a SMART
annuity or a SMART trust (within the meaning
of section 408B), and
‘‘(B) any individual retirement plan if any
amount was received by such plan from a such
an annuity or trust,
paragraph (1) shall be applied by substituting ‘20
percent’ for ‘10 percent’ and paragraph (2) shall be
applied by substituting ‘age 65’ for ‘age 591⁄2’.’’
(e) SIMPLIFIED EMPLOYER REPORTS.—
(1) SMART ANNUITIES.—Section 408(l) (relat-
ing to simplified employer reports) is amended by
adding at the end the following new paragraph:
‘‘(3) SMART ANNUITIES.—
‘‘(A) SIMPLIFIED REPORT.—The employer
maintaining any SMART annuity (within the
meaning of section 408B) shall file a simplified
annual return with the Secretary containing
only the information described in subparagraph
(B).
‘‘(B) CONTENTS.—The return required by
subparagraph (A) shall set forth—
‘‘(i) the name and address of the em-
ployer,
‘‘(ii) the date the plan was adopted,
‘‘(iii) the number of employees of the
employer,
‘‘(iv) the number of such employees
who are eligible to participate in the plan,
‘‘(v) the total amount contributed by
the employer to each such annuity for such
year and the minimum amount required
under section 408B to be so contributed,
‘‘(vi) the percentage elected under sec-
tion 408B(b)(5)(B), and
‘‘(vii) the number of employees with
respect to whom contributions are required
to be made for such year under section
408B(b)(5)(D).
‘‘(C) REPORTING BY ISSUER OF SMART AN-
NUITY.—
‘‘(i) IN GENERAL.—The issuer of each
SMART annuity shall provide to the owner
of the annuity for each year a statement
setting forth as of the close of such year—
‘‘(I) the benefits guaranteed at
age 65 under the annuity, and
‘‘(II) the cash surrender value of
the annuity.
‘‘(ii) SUMMARY
DESCRIPTION.—The
issuer of any SMART annuity shall pro-
vide to the employer maintaining the annu-
ity for each year a description containing
the following information:
‘‘(I) The name and address of
the employer and the issuer.
‘‘(II) The requirements for eligi-
bility for participation.
‘‘(III) The benefits provided with
respect to the annuity.
‘‘(IV) The procedures for, and ef-
fects of, withdrawals (including roll-
overs) from the annuity.