‘‘(i) IN
GENERAL.—The term ‘cash 
balance plan’ means a defined benefit plan 
under which the accrued benefit is ex-
pressed to participants and beneficiaries as 
an amount other than an annual benefit 
commencing at normal retirement age. 
‘‘(ii) REGULATIONS TO INCLUDE SIMI-
LAR OR OTHER HYBRID PLANS.—The Sec-
retary shall issue regulations which provide 
that a defined benefit plan (or any portion 
of such a plan) which has an effect similar 
to a plan described in clause (i) shall be 
treated as a cash balance plan. Such regu-
lations may provide that if a plan sponsor 
represents in communications to partici-
pants and beneficiaries that a plan amend-
ment results in a plan being described in 
the preceding sentence, such plan shall be 
treated as a cash balance plan. 
‘‘(B) NOTICE
DATE.—The term ‘notice 
date’ means, with respect to an amendment de-
scribed in paragraph (1)—
‘‘(i) in the case of a distress termi-
nation under section 4041(d), the date of
the advance notice of intent to terminate 
provided pursuant to section 4041(a)(2), 
‘‘(ii) in the case of a termination initi-
ated by the Pension Benefit Guaranty Cor-
poration under section 4042, the date of 
the application to the court under section 
4042(c), and 
‘‘(iii) in the case of a conversion to a 
cash balance plan, the date of the adoption 
of the amendment. 
‘‘(C) COVERED DEFERRED COMPENSATION 
PLAN.—
‘‘(i) IN GENERAL.—The term ‘covered 
deferred compensation plan’ means any 
plan providing for the deferral of com-
pensation of a disqualified individual, 
whether or not—
‘‘(I) compensation of the dis-
qualified individual which is deferred 
under such plan is subject to substan-
tial risk of forfeiture, 
‘‘(II) the disqualified individual’s 
rights to the compensation deferred 
under the plan are no greater than
the rights of a general creditor of the 
plan sponsor, 
‘‘(III) all amounts set aside (di-
rectly or indirectly) for purposes of 
paying the deferred compensation (in-
cluding income), and all income at-
tributable to such amounts, remain 
(until made available to the disquali-
fied individual or other beneficiary) 
solely the property of the plan sponsor 
(without being restricted to the provi-
sion of benefits under the plan), 
‘‘(IV) the amounts referred to in 
subclause (III) are available to satisfy 
the claims of the plan sponsor’s gen-
eral creditors at all times (not merely 
after bankruptcy or insolvency), and 
‘‘(V) some or all of the com-
pensation of the disqualified individual 
which is deferred under such plan is 
guaranteed by an insurance company, 
insurance service, or other similar or-
ganization.
‘‘(ii) 
EXCEPTION
FOR
QUALIFIED 
PLANS.—Such term shall not include a 
plan that is—
‘‘(I) 
described 
in 
section 
219(g)(5)(A) of the Internal Revenue 
Code of 1986, or 
‘‘(II) an eligible deferred com-
pensation plan (as defined in section 
457(b) of such Code) of an eligible 
employer 
described 
in 
section 
457(e)(1)(A) of such Code. 
‘‘(iii) 
PLAN
INCLUDES
ARRANGE-
MENTS, ETC.—For purposes of this sub-
paragraph, the term ‘plan’ includes any 
agreement or arrangement. 
‘‘(D) 
DISQUALIFIED
INDIVIDUAL.—The 
term ‘disqualified individual’ means a director 
or executive officer of the plan sponsor. 
‘‘(E) TERMINATION
BASED
ON
BANK-
RUPTCY REORGANIZATION.—A termination of a 
plan which is a distress termination under sec-
tion 4041(c) or a termination instituted by the 
Pension Benefit Guaranty Corporation under 
section 4042 is ‘based on bankruptcy reorga-
nization’ if such termination is based in whole
or in part on the filing, by or against any per-
son who is a contributing sponsor of such plan 
or a member of such sponsor’s controlled group, 
of a petition seeking reorganization in a case 
under title 11, United States Code, or under 
any similar law of a State or political subdivi-
sion of a State (or such a case in which liquida-
tion is sought has been converted to a case in 
which reorganization is sought). 
‘‘(F) TITLE IV TERMINOLOGY.—Any term 
used in this subsection which is defined in sec-
tion 4001(a) shall have the meaning provided 
such term in section 4001(a). 
‘‘(4) SPECIAL RULES.—
‘‘(A) COORDINATED
BENEFITS.—If the 
benefits of 2 or more defined benefit plans es-
tablished or maintained by an employer are co-
ordinated in such a manner as to have the ef-
fect of the adoption of an amendment described 
in paragraph (1), the sponsor of the defined 
benefit plan or plans providing for such coordi-
nation shall be treated as having adopted such 
a plan amendment as of the date such coordina-
tion begins.
‘‘(B) MULTIPLE AMENDMENTS.—The Sec-
retary shall issue regulations to prevent the 
avoidance of the purposes of this subsection 
through the use of 2 or more plan amendments 
rather than a single amendment. 
‘‘(C) CONTROLLED
GROUPS, ETC.—For 
purposes of this subsection, all persons treated 
as a single employer under subsection (b), (c), 
(m), or (o) of section 414 of the Internal Rev-
enue Code of 1986 shall be treated as 1 em-
ployer. 
‘‘(D) TREATMENT
OF
EARNINGS.—Ref-
erences to deferred compensation shall be treat-
ed as including references to income attrib-
utable to such compensation or such income. 
‘‘(5) COORDINATION.—The Secretary and the 
Secretary of the Treasury shall ensure, through the 
execution of an interagency memorandum of under-
standing among such Secretaries, that regulations, 
rulings, and interpretations issued by such Secre-
taries relating to the same matter over which both 
such Secretaries have responsibility under this sub-
section and section 4980H of the Internal Revenue 
Code of 1986 are administered so as to have the 
same effect at all times.
‘‘(6) EFFECT
OF
WAIVER
GRANTED
BY
SEC-
RETARY OF THE TREASURY.—To the extent that any 
requirement of the termination fairness standard of 
section 4980H(b) of the Internal Revenue Code of 
1986 is waived by the Secretary of the Treasury 
with respect to any disqualified individual under sec-
tion 4980H(h) of such Code in the case of any plan 
amendment having the effect of a termination de-
scribed in paragraph (1)(A) of this subsection, such 
requirement under the termination fairness standard 
of paragraph (2) of this subsection shall not apply 
with respect to such individual in the case of such 
plan amendment.’’. 
SEC. 3. EXCISE TAX ON FUNDING NONQUALIFIED DE-
FERRED 
COMPENSATION 
PLANS 
IN 
THE 
EVENT OF A PENSION PLAN TERMINATION 
BASED ON BANKRUPTCY REORGANIZATION 
OR A CONVERSION OF A PENSION PLAN TO A 
CASH BALANCE PLAN. 
(a) IN GENERAL.—Chapter 43 of the Internal Rev-
enue Code of 1986 (relating to qualified pension, etc., 
plans) is amended by adding at the end the following new 
section:
‘‘SEC. 4980H. FUNDING NONQUALIFIED DEFERRED COM-
PENSATION PLANS IN THE EVENT OF A PEN-
SION PLAN TERMINATION BASED ON BANK-
RUPTCY REORGANIZATION OR A CONVER-
SION OF A PENSION PLAN TO A CASH BAL-
ANCE PLAN. 
‘‘(a) IMPOSITION OF TAX.—In any case in which a 
corporation is a plan sponsor of a defined benefit plan with 
respect to which an plan amendment is adopted that has 
the effect of—
‘‘(1) implementing a distress termination of the 
plan under section 4041(c) of the Employee Retire-
ment Income Security Act of 1974 based on bank-
ruptcy reorganization or a termination of the plan 
initiated by the Pension Benefit Guaranty Corpora-
tion under section 4042 of such Act based on bank-
ruptcy reorganization, in any case in which the plan 
is not sufficient for guaranteed benefits (within the 
meaning of section 4041(d)(2) of such Act) as of the 
proposed termination date, or 
‘‘(2) converting such plan to a cash balance 
plan, in any case in which the amendment—
‘‘(A) results in a significant reduction in 
the rate of future benefit accruals (within the 
meaning of section 4980F(e)(1)) of participants
with at least 10 years of service under the plan, 
or 
‘‘(B) does not provide for an election by af-
fected participants with at least 10 years of 
service under the plan (and their beneficiaries) 
to retain coverage under the terms of the plan 
as in effect immediately prior to the amend-
ment, 
there is hereby imposed a tax on any failure to meet the 
termination fairness standard of subsection (b) with re-
spect to such plan amendment. 
‘‘(b) TERMINATION FAIRNESS STANDARD.—A cov-
ered deferred compensation plan established or maintained 
by a plan sponsor described in subsection (a) meets the 
termination fairness standard of this subsection with re-
spect to a plan amendment described in subsection (a) if, 
during the 5-year period beginning on the date of the 
adoption of such plan amendment—
‘‘(1) no amount of deferred compensation ac-
crues to a disqualified individual under the terms of 
such covered deferred compensation plan (irrespec-
tive of whether the accrual in deferred compensation 
is expressed in the form of a promise, a guarantee, 
or any other representation), and
‘‘(2) in the case of a covered deferred com-
pensation plan established during or after the 1-year 
period preceding the notice date (or any amendment 
to a covered deferred compensation plan if such 
amendment is adopted during or after such 1-year 
period), no distribution of accrued deferred com-
pensation is made under such plan (or such amend-
ment) to a disqualified individual. 
‘‘(c) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) shall be equal to the amount of 
the accrual described in subsection (b)(1) comprising the 
failure or the distribution described in subsection (b)(2) 
comprising the failure. 
‘‘(d) LIABILITY FOR TAX.—The plan sponsor shall be 
liable for the tax imposed by this section. 
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) CASH BALANCE PLAN.—
‘‘(A) IN GENERAL.—The term ‘cash bal-
ance plan’ means a defined benefit plan under 
which the accrued benefit is expressed to par-
ticipants and beneficiaries as an amount other 
than an annual benefit commencing at normal 
retirement age. 
‘‘(B) REGULATIONS TO INCLUDE SIMILAR 
OR
OTHER
HYBRID
PLANS.—The Secretary
shall issue regulations which provide that a de-
fined benefit plan (or any portion of such a 
plan) which has an effect similar to a plan de-
scribed in subparagraph (A) shall be treated as 
a cash balance plan. Such regulations may pro-
vide that if a plan sponsor represents in com-
munications to participants and beneficiaries 
that a plan amendment results in a plan being 
described in the preceding sentence, such plan 
shall be treated as a cash balance plan. 
‘‘(2) NOTICE
DATE.—The term ‘notice date’ 
means with respect to an amendment described in 
subsection (a)—
‘‘(A) in the case of a distress termination 
under section 4041(d) of the Employee Retire-
ment Income Security Act of 1974, the date of 
the advance notice of intent to terminate pro-
vided pursuant to section 4041(a)(2) of such 
Act, 
‘‘(B) in the case of a termination initiated 
by the Pension Benefit Guaranty Corporation 
under section 4042 of such Act, the date of the 
application to the court under section 4042(c) 
of such Act, and
‘‘(C) in the case of a conversion to a cash 
balance plan, the date of the adoption of the 
amendment. 
‘‘(3) 
COVERED
DEFERRED
COMPENSATION 
PLAN.—
‘‘(A) IN GENERAL.—The term ‘covered de-
ferred compensation plan’ means any plan pro-
viding for the deferral of compensation of a dis-
qualified individual, whether or not—
‘‘(i) compensation of the disqualified 
individual which is deferred under such 
plan is subject to substantial risk of for-
feiture, 
‘‘(ii) 
the 
disqualified 
individual’s 
rights to the compensation deferred under 
the plan are no greater than the rights of 
a general creditor of the plan sponsor, 
‘‘(iii) all amounts set aside (directly or 
indirectly) for purposes of paying the de-
ferred compensation, and all income attrib-
utable to such amounts, remain (until 
made available to the participant or other 
beneficiary) solely the property of the 
(without being restricted to the provision 
of benefits under the plan),
‘‘(iv) the amounts referred to in 
clause (iii) are available to satisfy the 
claims of the plan sponsor’s general credi-
tors at all times (not merely after bank-
ruptcy or insolvency), and 
‘‘(v) some or all of the compensation 
of the disqualified individual which is de-
ferred under such plan is guaranteed by an 
insurance company, insurance service, or 
other similar organization. 
‘‘(B) 
EXCEPTION
FOR
QUALIFIED 
PLANS.—Such term shall not include a plan 
that is—
‘‘(i) described in section 219(g)(5)(A), 
or 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an 
eligible described in section 457(e)(1)(A). 
‘‘(C) PLAN
INCLUDES
ARRANGEMENTS, 
ETC.—For purposes of this paragraph, the term 
‘plan’ includes any agreement or arrangement. 
‘‘(4) DISQUALIFIED
INDIVIDUAL.—The term 
‘disqualified individual’ means a director or executive 
officer of the plan sponsor.
‘‘(5) TERMINATION
BASED
ON
BANKRUPTCY 
REORGANIZATION.—A termination of a plan which is 
a distress termination under section 4041(c) or a 
termination instituted by the Pension Benefit Guar-
anty Corporation under section 4042 is ‘based on 
bankruptcy reorganization’ if such termination is 
based in whole or in part on the filing, by or against 
any person who is a contributing sponsor of such 
plan or a member of such sponsor’s controlled 
group, of a petition seeking reorganization in a case 
under title 11, United States Code, or under any 
similar law of a State or political subdivision of a 
State (or such a case in which liquidation is sought 
has been converted to a case in which reorganization 
is sought). 
‘‘(6) TITLE IV TERMINOLOGY.—Any term used 
in this section which is defined in section 4001(a) of 
the Employee Retirement Income Security Act of 
1974 shall have the meaning provided such term in 
such section 4001(a). 
‘‘(f) SPECIAL RULES.—
‘‘(1) COORDINATED BENEFITS.—If the benefits 
of 2 or more defined benefit plans established or 
maintained by an are coordinated in such a manner 
as to have the effect of the adoption of an amend-
ment described in subsection (a), the sponsor of the 
defined benefit plan or plans providing for such co-
ordination shall be treated as having adopted such 
a plan amendment as of the date such coordination 
begins. 
‘‘(2) MULTIPLE AMENDMENTS.—The Secretary 
shall issue regulations to prevent the avoidance of 
the purposes of this section through the use of 2 or 
more plan amendments rather than a single amend-
ment. 
‘‘(3) CONTROLLED
GROUPS, ETC.—For pur-
poses of this section, all persons treated as a single 
employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 employer. 
‘‘(4) TREATMENT OF EARNINGS.—References to 
deferred compensation shall be treated as including 
references to income attributable to such compensa-
tion or such income. 
‘‘(g) COORDINATION.—The Secretary and the Sec-
retary of Labor shall ensure, through the execution of an 
interagency memorandum of understanding among such 
Secretaries, that regulations, rulings, and interpretations 
issued by such Secretaries relating to the same matter 
over which both such Secretaries have responsibility under 
this section and section 206(g) of the Employee Retire-
ment Income Security Act of 1974 are administered so 
as to have the same effect at all times. 
‘‘(h) WAIVER.—
‘‘(1) IN GENERAL.—In the case of any plan 
amendment having the effect of a termination de-
scribed in subsection (a)(1), the Secretary may 
waive the application of any requirement of the ter-
mination fairness standard of subsection (b) with re-
spect to any disqualified individual who first com-
mences service for the plan sponsor after the notice 
date with respect to such plan amendment. The Sec-
retary may grant any such waiver in the case of any 
such plan amendment with respect to any such dis-
qualified individual only after consultation with the 
Pension Benefit Guaranty Corporation. The Sec-
retary shall promptly notify the Secretary of Labor 
of any such waiver granted by the Secretary. 
‘‘(2) REQUIREMENTS FOR WAIVER.—A waiver 
may be granted under paragraph (1) only—
‘‘(A) upon the filing with the Secretary by 
the plan sponsor of an application for such 
waiver, in such form and manner as shall be 
prescribed in regulations of the Secretary, 
‘‘(B) upon a showing, to the satisfaction of 
the Secretary, that such waiver is a business
necessity for the plan sponsor, as determined 
under such regulations, and is in the best inter-
est of plan participants and beneficiaries, as de-
termined under such regulations, and 
‘‘(C) after the participants, in such form 
and manner as shall be provided in such regula-
tions, have been notified of the filing of the ap-
plication for the waiver and have been provided 
a reasonable opportunity to provide in advance 
comments to the Secretary regarding the pro-
posed waiver.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 43 of such Code is amended by adding at the 
end the following new item:
‘‘4980H. Funding nonqualified deferred compensation plans in the event of a 
pension plan termination based on bankruptcy reorganization 
or a conversion of a pension plan to a cash balance plan.’’.
SEC. 4. EFFECTIVE DATE. 
The amendments made by this Act shall apply to plan 
amendments adopted on or after October 8, 2004.
Æ