‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, for purposes of applying this 
title to a retirement plan to which this sub-
section applies—
‘‘(i) an individual receiving a differen-
tial wage payment shall be treated as an 
employee of the employer making the pay-
ment, 
‘‘(ii) the differential wage payment 
shall be treated as compensation, and 
‘‘(iii) the plan shall not be treated as 
failing to meet the requirements of any 
provision described in paragraph (1)(C) by 
reason of any contribution which is based 
on the differential wage payment. 
‘‘(B) 
SPECIAL
RULE
FOR
DISTRIBU-
TIONS.—
‘‘(i) IN
GENERAL.—Notwithstanding 
subparagraph (A)(i), for purposes of sec-
tion 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 
403(b)(11)(A), or 457(d)(1)(A)(ii), an in-
dividual shall be treated as having been 
severed from employment during any pe-
riod the individual is performing service in
the uniformed services described in section 
3401(i)(2)(A). 
‘‘(ii) LIMITATION.—If an individual 
elects to receive a distribution by reason of 
clause (i), the plan shall provide that the 
individual may not make an elective defer-
ral or employee contribution during the 6-
month period beginning on the date of the 
distribution. 
‘‘(C) 
NONDISCRIMINATION
REQUIRE-
MENT.—Subparagraph (A)(iii) shall apply only 
if all employees of an employer performing serv-
ice in the uniformed services described in sec-
tion 3401(i)(2)(A) are entitled to receive dif-
ferential wage payments on reasonably equiva-
lent terms and, if eligible to participate in a re-
tirement plan maintained by the employer, to 
make contributions based on the payments . 
For purposes of applying this subparagraph, 
the provisions of paragraphs (3), (4), and (5), 
of section 410(b) shall apply. 
‘‘(D) DIFFERENTIAL
WAGE
PAYMENT.—
For purposes of this paragraph, the term ‘dif-
ferential wage payment’ has the meaning given 
such term by section 3401(i)(2).’’.
(B) 
CONFORMING
AMENDMENT.—The 
heading for section 414(u) of such Code is 
amended by inserting ‘‘AND TO DIFFERENTIAL 
WAGE PAYMENTS
TO MEMBERS
ON ACTIVE 
DUTY’’ after ‘‘USERRA’’. 
(2) DIFFERENTIAL WAGE PAYMENTS TREATED 
AS
COMPENSATION
FOR
INDIVIDUAL
RETIREMENT 
PLANS.—Section 219(f)(1) of such Code (defining 
compensation) is amended by adding at the end the 
following new sentence: ‘‘The term ‘compensation’ 
includes any differential wage payment (as defined 
in section 3401(i)(2))’’. 
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendments made 
by subsection (a) shall apply to remuneration paid 
after December 31, 2004. 
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to plan years beginning 
after December 31, 2004. 
(d) PROVISIONS
RELATING
TO
PLAN
AMEND-
MENTS.—
(1) IN GENERAL.—If this subsection applies to 
any plan or annuity contract amendment—
(A) such plan or contract shall be treated 
as being operated in accordance with the terms
of the plan or contract during the period de-
scribed in paragraph (2)(B)(i), and 
(B) except as provided by the Secretary of 
the Treasury, such plan shall not fail to meet 
the requirements of the Internal Revenue Code 
of 1986 or the Employee Retirement Income 
Security Act of 1974 by reason of such amend-
ment. 
(2) AMENDMENTS
TO
WHICH
SECTION
AP-
PLIES.—
(A) IN
GENERAL.—This subsection shall 
apply to any amendment to any plan or annuity 
contract which is made—
(i) pursuant to any amendment made 
by this section, and 
(ii) on or before the last day of the 
first plan year beginning on or after Janu-
ary 1, 2007. 
(B) CONDITIONS.—This subsection shall 
not apply to any plan or annuity contract 
amendment unless—
(i) during the period beginning on the 
date the amendment described in subpara-
graph (A)(i) takes effect and ending on the 
date described in subparagraph (A)(ii) (or,
if earlier, the date the plan or contract 
amendment is adopted), the plan or con-
tract is operated as if such plan or con-
tract amendment were in effect; and 
(ii) such plan or contract amendment 
applies retroactively for such period. 
SEC. 5. CREDIT FOR INCOME DIFFERENTIAL FOR EMPLOY-
MENT OF ACTIVATED MILITARY RESERVIST 
AND REPLACEMENT PERSONNEL. 
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to foreign tax credit, etc.) is amended by 
adding at the end the following new section: 
‘‘SEC. 30B. EMPLOYER WAGE CREDIT FOR ACTIVATED MILI-
TARY RESERVISTS. 
‘‘(a) GENERAL RULE.—There shall be allowed as a 
credit against the tax imposed by this chapter for the tax-
able year an amount equal to the sum of—
‘‘(1) in the case of a small business employer, 
the employment credit with respect to all qualified 
employees and qualified replacement employees of 
the taxpayer, plus 
‘‘(2) the self-employment credit of a qualified 
self-employed taxpayer.