the meaning of clause (ii)(II), multi-
plied by the cash balance contribution 
percentage with respect to such em-
ployee. 
‘‘(II) CASH BALANCE CONTRIBU-
TION PERCENTAGE.—For purposes of 
subclause (I), the term ‘cash balance 
contribution percentage’ means, with 
respect to any employee, 2 percent if 
such employee has not attained age 
31, 4 percent if such employee has at-
tained age 31 but has not attained 
age 40, 6 percent if such employee 
has attained age 40 but has not at-
tained age 50, and 8 percent if such 
employee has attained age 50. 
‘‘(III) CASH BALANCE PLAN DE-
FINED.—For purposes of subclause 
(I), a cash balance plan is a defined 
benefit plan that defines an employ-
ee’s benefits by reference to the em-
ployee’s hypothetical account. Such 
hypothetical account is determined by 
reference, first, to hypothetical con-
tribution allocations, and, second, to
hypothetical interest credits (on an 
annual or more frequent basis). The 
right to future interest credits are de-
termined without regard to future 
service. 
‘‘(IV) NO
PREDECESSOR
DE-
FINED BENEFIT PLAN.—The require-
ments of this clause shall not be treat-
ed as met if, during the 3-year period 
immediately preceding the effective 
date of a cash balance plan meeting 
the requirements of subclause (I), the 
employer (or any related employer, 
within the meaning of subsection (b), 
(c), (m), or (o) of section 414), main-
tained a defined benefit plan that was 
not a cash balance plan and which 
benefited any participant who is a 
participant in the plan which meets 
the requirements of subclause (I).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 401(k)(12)(A)(ii) of such Code is 
amended by striking ‘‘subparagraph (D)’’ and in-
serting ‘‘subparagraph (E)’’.
(2) Section 401(k)(12)(F)(i) of such Code (as 
redesignated by subsection (a)) is amended by add-
ing at the end the following: ‘‘An arrangement shall 
not be treated as meeting the requirements of sub-
paragraph (D) of this paragraph unless the require-
ments of paragraph (2)(B) are met with respect to 
the benefit accruals provided pursuant to subpara-
graph (D) of this paragraph.’’. 
(3) Section 401(k)(12)(F)(ii) of such Code (as 
redesignated by subsection (a)) is amended—
(A) by striking ‘‘subparagraph (B) or (C)’’ 
the first place it appears and inserting ‘‘sub-
paragraph (B), (C), or (D)’’, and 
(B) by inserting ‘‘and benefit accruals 
under subparagraph (D)’’ after ‘‘subparagraph 
(B) or (C)’’ the second place it appears. 
(4) Section 416(g)(4)(H) of such Code is 
amended to read as follows: 
‘‘(H) CASH OR DEFERRED ARRANGEMENTS 
USING
ALTERNATIVE
METHODS
OF
MEETING 
NONDISCRIMINATION REQUIREMENTS.—
‘‘(i) IN
GENERAL.—The term ‘top-
heavy plan’ shall not include a plan de-
scribed in clause (ii) or (iii).
‘‘(ii) 
DEFINED
CONTRIBUTION 
PLAN.—The plan described in this clause 
is a defined contribution plan which con-
sists solely of—
‘‘(I) a cash or deferred arrange-
ment which meets the requirements of 
section 401(k)(12), and 
‘‘(II) matching contributions with 
respect to which the requirements of 
section 401(m)(11) are met. 
‘‘(iii) DEFINED BENEFIT PLAN.— The 
plan described in this clause is a defined 
benefit plan which consists exclusively of 
one or more—
‘‘(I) cash or deferred arrange-
ments which meet the requirements of 
section 401(k)(12), and 
‘‘(II) qualified matching accruals, 
as described in section 401(m)(12). 
If, but for this subparagraph, a plan would be 
treated as a top-heavy plan because it is a 
member of an aggregation group which is a top-
heavy group, contributions or benefits under the 
plan may be taken into account in determining 
whether any other plan in the group meets the
requirements of subsection (c) and, a plan 
meeting 
the 
requirements 
of 
section 
401(k)(12)(D) shall be deemed to satisfy the 
requirements of subsection (c).’’. 
(5) SPECIAL RULE FOR PLAN WITH MULTIPLE 
ACCRUAL
FORMULAS.—Paragraph (1) of section 
411(b) of such Code is amended by adding at the 
end the following new subparagraph: 
‘‘(I) MULTIPLE FORMULAS.—
‘‘(i) IN GENERAL.—If a defined ben-
efit plan contains multiple accrual for-
mulas, the requirements of this paragraph 
may be satisfied separately for each for-
mula. 
‘‘(ii) CERTAIN
BENEFIT
ACCRUALS 
TREATED AS MULTIPLE ACCRUALS TREAT-
ED AS MULTIPLE ACCRUAL FORMULAS.—
For purposes of this subparagraph, a plan 
has multiple accrual formulas if a partici-
pant’s accrued benefit is determined either 
as the greater of the benefit determined 
under two or more separate formulas or as 
the sum of the benefit determined under 
two or more separate formulas.
‘‘(iii) CERTAIN
FORMULAS
TREATED 
AS SEPARATE ACCRUAL FORMULAS.—For 
purposes of clause (i), the benefit formulas 
described in section 401(k)(12)(D) and 
section 401(m)(12) shall be treated as sep-
arate from the minimum benefit formula 
described in section 416(c)(1).’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to years beginning after December 31, 
2005. 
(2) 
CASH
BALANCE
FORMULA.—Section 
401(k)(12)(D)(iii) of the Internal Revenue Code of 
1986, as added by subsection (a)(2), shall not apply 
to plan years beginning before the effective date of 
an Act which provides for the application of section 
411(b)(1)(H) of such Code to cash balance plans. 
SEC. 503. ADDITIONAL ACCRUALS UNDER DEFINED BEN-
EFIT PLAN PROVIDED AS MATCHING CON-
TRIBUTIONS. 
(a) CERTAIN
ARRANGEMENTS
UNDER
DEFINED 
BENEFIT PLAN SATISFY DEFINITELY DETERMINABLE 
BENEFIT REQUIREMENT.—Paragraph (35) of section 
401(a) of the Internal Revenue Code of 1986 (as added
by section 2(b)) is amended by inserting ‘‘or qualified 
matching accruals (as defined in subsection (m)(12))’’ be-
fore the period at the end. 
(b) MATCHING ACCRUALS.—Subsection (m) of sec-
tion 401 of such Code is amended by redesignating para-
graph (12) as paragraph (13) and by inserting after para-
graph (11) the following new paragraph: 
‘‘(12) SPECIAL RULES RELATING TO QUALIFIED 
MATCHING ACCRUALS UNDER A DEFINED BENEFIT 
PLAN.—For purposes of this section—
‘‘(A) QUALIFIED
MATCHING
ACCRUAL.—
The term ‘qualified matching accrual’ means an 
amount funded by an employer in the form of 
a benefit accrual under a defined benefit plan 
to match elective deferrals under a qualified 
cash or deferred arrangement which is part of 
such plan and which meets the formula require-
ments of subparagraph (B). The benefit accrual 
shall be determined under a nondiscretionary 
formula set forth in the defined benefit plan. 
For purposes of determining such benefit ac-
crual, the amount of elective deferrals taken 
into account under such formula may be limited 
under the plan.
‘‘(B) FORMULA REQUIREMENTS.—A ben-
efit accrual meets the requirements of this sub-
paragraph if such accrual is a hypothetical con-
tribution that is added to a participant’s hypo-
thetical account balance, the amount of which is 
determined, in accordance with the matching 
accrual formula set forth in the plan, with ref-
erence to the amount of the elective deferrals 
made by the participant for the plan year to a 
qualified cash or deferred arrangement which is 
part of the defined benefit plan. Matching ac-
cruals under the formula may vary with age or 
other employment-related factors. 
‘‘(C) COORDINATE WITH EMPLOYER CON-
TRIBUTIONS.—For purposes of paragraph (4), 
the term ‘employer contributions’ shall not in-
clude any amount contributed by an employer 
to a defined benefit plan for the purpose of 
funding any qualified matching accruals. 
‘‘(D) SAFE HARBOR FORMULA.—A quali-
fied matching accrual formula shall be deemed 
to satisfy subsection (a)(4) if it satisfies the re-
quirements of clauses (i) and (ii). 
‘‘(i) ELECTIVE
DEFERRALS
AT
OR 
ABOVE MAXIMUM MATCHABLE RATE.—For
an employee who makes elective deferrals 
at or above the maximum matchable rate, 
the qualified matching benefit accrual for 
the plan year is a hypothetical allocation 
under a cash balance plan (as defined in 
section 401(k)(12)(D)(iii)(III)) that equals 
a percentage (not greater than 4 percent) 
of compensation (as defined in section 
414(s)). 
‘‘(ii) ELECTIVE
DEFERRALS
BELOW 
MAXIMUM
MATCHABLE
RATE.—For em-
ployees who make elective deferrals at a 
rate that is below the maximum matchable 
rate, the qualified matching benefit accrual 
for such plan year shall be prorated. The 
plan may prorate the qualified benefit ac-
crual on the basis of whole percentages, 
and the plan may require that an employ-
ee’s elective deferrals be stated as whole 
percentages. 
‘‘(iii) MAXIMUM MATCHABLE RATE.—
For purposes of this subparagraph, the 
maximum matchable rate must be a speci-
fied percentage of compensation which 
does not exceed 4 percent.’’.
(c) EXCEPTION TO BENEFIT CONTINGENCY RULE.—
Subparagraph (A) of section 401(k)(4) of such Code is 
amended by inserting ‘‘or qualified matching accruals (as 
defined in subsection (m)(12)’’ after ‘‘section 401(m))’’. 
(d) FORFEITURES BY REASON OF EXCESS DEFER-
RAL.—Subparagraph (G) of section 411(a)(3) of the Code 
is amended by adding at the end the following: ‘‘A rule 
similar to the rule of the preceding sentence shall apply 
with respect to qualified matching accruals (as defined in 
section 401(m)(12)).’’
(e) ACCRUED BENEFIT REQUIREMENT WITH RE-
SPECT TO MATCHING ACCRUALS.—Paragraph (1) of sec-
tion 411(b) of such Code is amended by adding at the 
end the following new subparagraph: 
‘‘(J) In the case of qualified matching ac-
cruals (as defined in section 401(m)(12)), the 
requirements for accrued benefits set forth in 
subparagraphs (A) through (H) of this sub-
section shall be applied on the basis of the rate 
of matching accruals available to participants, 
without regard to the actual elective deferrals 
made by participants.’’. 
(f) PARTICIPATION REQUIREMENTS WITH RESPECT 
TO QUALIFIED MATCHING ACCRUALS.—Paragraph (26) 
of section 401(a) of such Code is amended by redesig-
nating subparagraph (I) as subparagraph (J), and by in-
serting after subparagraph (H) the following new subpara-
graph: 
‘‘(I) SPECIAL TESTING RULES FOR QUALI-
FIED MATCHING ACCRUALS.—
‘‘(i) If a defined benefit plan includes 
qualified matching accruals (as defined in 
section 401(m)(12)), the rules in clauses 
(ii) and (iii) shall apply. 
‘‘(ii) QUALIFIED MATCHING ACCRUALS 
ONLY
BENEFIT
FORMULA.—If the only 
benefit formula in the defined benefit plan 
is a qualified matching accrual formula, 
the requirements of this paragraph shall be 
applied by treating a participant’s annual 
benefit accrual as the maximum accrual 
that was available to the participant for 
the plan year, regardless of whether the 
maximum matchable elective deferrals were 
actually made by the participant. If the 
qualified matching accrual formula applies 
to elective deferrals in excess of 6 percent 
of compensation, then the requirements of 
this paragraph must be applied by taking
into account the actual matching accruals 
earned by participants for the plan year. 
‘‘(iii) MULTIPLE
FORMULAS.—If the 
defined benefit plan includes one or more 
benefit formulas in addition to a qualified 
matching accrual formula, the employer 
may elect to apply clause (ii) to the quali-
fied matching accrual formulas only if the 
requirements of this paragraph are satis-
fied separately with respect to the benefit 
accruals that are determined without re-
gard to the qualified matching accrual for-
mula.’’. 
(g) REGULATIONS FOR MEETING NONDISCRIMINA-
TION REQUIREMENTS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall prescribe regulations on ways in which 
qualified matching accruals (as defined by section 
401(m)(12) of the the Internal Revenue Code of 
1986, as added by this section) that do not satisfy 
the formula requirements of section 401(m)(12)(D) 
of such Code (as enacted by subsection (b) of this 
section) can satisfy the nondiscrimination require-
ments of section 401(a)(4) of such Code. The regu-
lations may prescribe safe harbor formulas in addi-
tion to those prescribed by section 401(m)(12)(D). 
(2) TEMPORARY AND FINAL FORM.—The Sec-
retary shall prescribe the regulations required by 
paragraph (1) in temporary form not later than 6 
months after the effective date of this section and in 
final form not later than 18 months after the effec-
tive date of this section. 
(h) PLAN YEARS BEGINNING BEFORE ISSUANCE OF 
REGULATIONS.—For plan years beginning prior to the 
date the regulations described in subsection (g) are issued 
in final form, a plan’s qualified matching accrual formula 
must satisfy a reasonable, good faith, interpretation of 
section 401(a)(4) of such Code. 
(i) EFFECTIVE DATE.—The amendments made by 
this section shall be effective for plan years beginning after 
the effective date of the Act described in section 3(c)(2). 
SEC. 504. LIMITATION ON DEDUCTIONS WHERE COMBINA-
TION OF DEFINED CONTRIBUTION PLAN AND 
DEFINED BENEFIT PLAN. 
(a) ELECTIVE DEFERRALS.—Clause (ii) of section 
404(a)(7)(C) of the Internal Revenue Code of 1986 (relat-
ing to elective deferrals) is amended to read as follows: 
‘‘(ii) 
ELECTIVE
DEFERRALS.—For 
purposes of this paragraph, an employee
shall not be treated as a beneficiary of a 
defined contribution plan for a taxable 
year if the only employer contributions 
made on behalf of such employee for the 
taxable year are elective deferrals (as de-
fined in section 402(g)(3)).’’. 
(b) LIMITATION NOT APPLICABLE TO DEFINED BEN-
EFIT PLANS WITH CASH
OR DEFERRED ARRANGE-
MENT.—Subparagraph (C) of section 404(a)(7) is amend-
ed by adding at the end the following: 
‘‘(iii) DEFINED BENEFIT PLAN WITH 
CASH OR DEFERRED ARRANGEMENT.—For 
purposes of this paragraph, an employee 
shall not be treated as a beneficiary of a 
defined contribution plan for a taxable 
year merely because the employee is a ben-
eficiary of a cash or deferred arrangement 
which is part of a defined benefit plan for 
such year.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to years beginning after December 
31, 2005.
SEC. 505. CONFORMING AMENDMENTS TO THE EMPLOYEE 
RETIREMENT INCOME SECURITY ACT OF 
1974. 
(a) DEFINITION.—Section 3 of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1002) is 
amended by adding at the end the following new para-
graph: 
‘‘(42) The term ‘qualified cash or deferred arrange-
ment’ has the meaning provided such term in section 
401(k)(2) of the Internal Revenue Code of 1986. ’’. 
(b) GENERAL RULES REGARDING TREATMENT OF 
PENSION PLANS INCLUDING QUALIFIED CASH OR DE-
FERRED ARRANGEMENTS.—Section 3(35) of such Act (29 
U.S.C. 1002(35)) is amended—
(1) by redesignating subparagraphs (A) and 
(B) as clauses (i) and (ii), respectively; 
(2) by inserting ‘‘(A)’’ after ‘‘(35)’’; and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(B)(i) Except as provided in this title—
‘‘(I) a pension plan which provides benefits 
other than benefits described in paragraph (34) 
shall not be treated as an ‘individual account 
plan’ or a ‘defined contribution plan’ on the 
basis of the inclusion in the plan of a qualified 
cash or deferred arrangement, and
‘‘(II) any such pension plan which includes 
such an arrangement shall be treated as a sin-
gle plan. 
‘‘(ii) Any pension plan which provides benefits other 
than benefits described in paragraph (34) and which in-
cludes a qualified cash or deferred arrangement—
‘‘(I) for purposes of section 202, shall be treat-
ed as an individual account plan or a defined con-
tribution plan; 
‘‘(II) for purposes of section 203, shall be treat-
ed as an individual account plan or defined contribu-
tion plan to the extent benefits are attributable to 
such arrangement and as a defined benefit plan with 
respect to the remaining portion of benefits under 
the plan, and 
‘‘(III) for purposes of sections 406, 407, and 
408, shall, in any case in which the arrangement (if 
treated as a separate plan) would be an eligible indi-
vidual 
account 
plan 
(as 
defined 
in 
section 
407(d)(3)), be treated as an individual account plan 
or defined contribution plan with respect to assets 
attributable to such arrangement and as a defined 
benefit plan with respect to the remaining assets of 
the plan, and shall, in any other case, be treated as 
a single defined benefit plan.’’.
(c) VALUATION
OF BENEFITS ATTRIBUTABLE
TO 
SEPARATE ACCOUNTS.—
(1) RESTRICTIONS
ON
IMMEDIATE
DISTRIBU-
TION.—Section 203(e) of such Act (29 U.S.C. 
1053(e)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(5) In the case of a defined benefit plan which pro-
vides a benefit derived from employer contributions (in-
cluding elective deferrals (as defined in section 402(g)(3) 
of the Internal Revenue Code of 1986)) under a qualified 
cash or deferred arrangement which is maintained under 
such plan, for purposes of this subsection, the present 
value of the portion of the benefit attributable to such ar-
rangement shall be deemed to be an amount equal to the 
fair market value of such arrangement.’’. 
(2) SURVIVOR BENEFITS.—Section 205 of such 
Act (29 U.S.C. 1055) is amended—
(A) by redesignating subsection (l) as sub-
section (m); and 
(B) by inserting after subsection (k) the 
following new subsection: 
‘‘(l) In the case of a defined benefit plan which pro-
vides a benefit derived from employer contributions (in-
cluding elective deferrals (as defined in section 402(g)(3) 
of the Internal Revenue Code of 1986)) under a qualified
cash or deferred arrangement which is maintained under 
such plan, for purposes of this section, the present value 
of the portion of the benefit attributable to such arrange-
ment shall be deemed to be an amount equal to the fair 
market value of such arrangement.’’. 
(d) ALLOWABLE REDUCTIONS IN RATE OF BENEFIT 
ACCRUAL.—Section 204(h) of such Act (29 U.S.C. 
1054(h)) is amended by adding at the end the following 
new paragraph: 
‘‘(10) A plan shall not be treated as failing to meet 
the requirements of this subsection merely because of a 
reduction in, or elimination of, any contributions to a 
qualified cash or deferred arrangement which is part of 
such plan.’’. 
(e) APPLICATION
OF MINIMUM FUNDING STAND-
ARD.—
(1) EXCEPTION
FROM
STANDARD.—Section 
301(a) of such Act (29 U.S.C. 1081(a)) is amended 
by adding at the end the following new paragraph: 
‘‘(11) any qualified cash or deferred arrange-
ment which is part of a defined benefit plan.’’. 
(2) CONTINUED APPLICATION OF STANDARD TO 
OTHER PORTION OF DEFINED BENEFIT PLAN.—Sec-
tion 302(c) of such Act (29 U.S.C. 1082(c)) is
amended by adding at the end the following new 
paragraph: 
‘‘(13) CONTINUED APPLICATION OF STANDARD 
TO OTHER PORTION OF DEFINED BENEFIT PLAN.—
This section shall be applied to a defined benefit 
plan by disregarding the value of the trust attrib-
utable to any qualified cash or deferred arrange-
ment.’’. 
(f) VESTING REQUIREMENTS.—Section 203(a)(3) of 
such Act (29 U.S.C. 1053(a)(3)(F)) is amended by adding 
at the end the following new subparagraph: 
‘‘(G) FASTER VESTING FOR ACCRUALS UNDER 
DEFINED BENEFIT PLANS WITH CASH OR DEFERRED 
ARRANGEMENTS.—In the case of a defined benefit 
plan which includes a qualified cash or deferred ar-
rangement, the rules described in subparagraph (F) 
shall be applied to benefit accruals under such plan 
and to matching contributions and nonelective con-
tributions made under such arrangement.’’
(g) APPLICATION OF ACCRUAL RULES WITH RE-
GARD
TO QUALIFIED MATCHING ACCRUALS.—Section 
204(b)(1) of such Act (29 U.S.C. 1054(b)(1)) is amended 
by adding at the end the following new subparagraph: 
‘‘(I) In the case of qualified matching accruals (as 
defined in section 401(m)(12) of the Internal Revenue
Code of 1986), the requirements for accrued benefits set 
forth in subparagraphs (A) through (H) of this paragraph 
shall be applied on the basis of the rate of such qualified 
matching accruals available to participants, without re-
gard to the actual elective deferrals made by partici-
pants.’’. 
(h) 
MULTIPLE
ACCRUAL
FORMULAS.—Section 
204(b)(1) of such Act (as amended by subsection (g)) is 
further amended by adding at the end the following new 
subparagraph: 
‘‘(J)(i) If a defined benefit plan contains multiple ac-
crual formulas, the requirements of this paragraph may 
be satisfied separately for each formula. 
‘‘(ii) For purposes of this subparagraph, a plan has 
multiple accrual formulas if a participant’s accrued benefit 
is determined either as the greater of the benefit deter-
mined under two or more separate formulas or as the sum 
of the benefit determined under two or more separate for-
mulas. 
‘‘(iii) For purposes of clause (i), the benefit formulas 
described 
in 
section 
401(k)(12)(D) 
and 
section 
401(m)(12) of the Internal Revenue Code of 1986 shall 
be treated as separate from the minimum benefit formula 
described in section 416(c)(1) of such Code.’’.
(i) FORFEITURES BY REASON OF EXCESS DEFER-
RAL.—Subparagraph (F) of section 203(a)(3) of such Act 
(29 U.S.C. 1053(a)(3)(F)) is amended by adding at the 
end the following: ‘‘A rule similar to the rule of the pre-
ceding sentence shall apply with respect to qualified 
matching accruals (as defined in section 401(m)(12) of the 
Internal Revenue Code of 1986).’’
(j) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2005. 
TITLE VI—ADDITIONAL 
AMENDMENTS 
SEC. 601. EXEMPTION FROM PROHIBITED TRANSACTION 
RULES FOR CERTAIN ABORTED EMERGENT 
TRANSACTIONS. 
(a) IN GENERAL.—Section 4975(c) of the Internal 
Revenue Code of 1986 is amended by adding at the end 
the following new paragraph: 
‘‘(7) SPECIAL
RULE
FOR
CERTAIN
ABORTED 
EMERGENT TRANSACTIONS.—
‘‘(A) IN
GENERAL.—Pursuant to regula-
tions issued by the Secretary, if—
‘‘(i) in the case of a qualifying trans-
action between an employee benefit plan 
and an eligible person which would, but for
this paragraph, be in violation of a restric-
tion imposed by paragraph (1), the eligible 
person submits to the Secretary, not later 
than 60 days after the date of the trans-
action, an application for an exemption 
under paragraph (2) from such restriction 
in the case of such transaction, 
‘‘(ii) the Secretary determines not to 
grant the exemption, and 
‘‘(iii) the transaction is reversed with-
in 60 days after the date of the Secretary’s 
determination, 
then the transaction shall be exempted under 
paragraph (2) from treatment as a violation of 
such restriction. 
‘‘(B) 
QUALIFYING
TRANSACTION.—The 
term ‘qualifying transaction’ means, in connec-
tion with an eligible person, a transaction be-
tween an employee benefit plan and such eligi-
ble person constituting the purchase or sale of 
a financial product, if— 
‘‘(i) prior to engaging in the trans-
action, the plan acquires from the eligible 
person a sufficient guarantee, consisting of 
a letter of credit or other form of written
guarantee, issued by a bank or similar fi-
nancial institution (other than the eligible 
person requesting the exemption or an af-
filiate) regulated and supervised by, and 
subject to periodic examination by, an 
agency of a State or of the Federal Gov-
ernment, in a stated amount equal, as of 
the close of business on the day preceding 
the transaction, to not less than 100 per-
cent of the amount of plan assets involved 
in the transaction, plus interest on that 
amount at a rate determined by the parties 
to the transaction, or in the absence of 
such determination, an interest rate equal 
to the underpayment rate defined in sec-
tion 6621(a)(2), 
‘‘(ii) the eligible person receives in 
such transaction not more than reasonable 
compensation, 
‘‘(iii) such transaction is expressly ap-
proved by an independent fiduciary who 
has investment authority with respect to 
the plan assets involved in the transaction, 
and
‘‘(iv) immediately after the acquisition 
of the financial product—
‘‘(I) the fair market value of such 
financial product does not exceed 1 
percent of the fair market value of the 
assets of the plan, and 
‘‘(II) the aggregate fair market 
value of all outstanding financial 
products acquired by the plan from 
the eligible person pursuant to this 
subsection does not exceed 5 percent 
of the fair market value of the assets 
of the plan. 
‘‘(C) SUFFICIENT
GUARANTEE.—A guar-
antee referred to in subparagraph (B) is ‘suffi-
cient’ if such guarantee is irrevocable and, 
under the terms of the guarantee, if the Sec-
retary determines not to grant the exemption, 
the plan has the unconditional right to apply 
the amounts under the guarantee to any losses 
suffered and to the payment of interest deter-
mined under the terms of the transaction. A 
guarantee shall not be treated as failing to be 
‘sufficient’ solely because, under the terms of 
the guarantee, if the Secretary grants the ex-
emption, the guarantee may expire without any 
payments made to the plan. 
‘‘(D) ELIGIBLE PERSON.—The term ‘eligi-
ble person’ means a person that—
‘‘(i) consists of—
‘‘(I) a bank as defined in section 
202(a)(2) of the Investment Advisers 
Act of 1940, 
‘‘(II) an investment adviser reg-
istered under the Investment Advisers 
Act of 1940, 
‘‘(III) an insurance company 
which is qualified to do business in 
more than one State, or 
‘‘(IV) a broker-dealer registered 
under the Securities Exchange Act of 
1934, 
‘‘(ii) has shareholders’ or partners’ eq-
uity in excess of $1,000,000, and 
‘‘(iii) is not described in section 411 
of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1111).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to transactions occur-
ring after December 31, 2005.
SEC. 602. LOANS FROM RETIREMENT PLANS FOR HEALTH 
INSURANCE AND JOB TRAINING EXPENSES. 
(a) QUALIFICATION REQUIREMENT
FOR PENSION 
PLANS.—Paragraph (13) of section 401(a) of the Internal 
Revenue Code of 1986 (relating to assignment and alien-
ation) is amended by adding at the end the following new 
subparagraph: 
‘‘(E) LOANS
FROM
RETIREMENT
PLANS 
FOR HEALTH INSURANCE AND JOB TRAINING 
EXPENSES.—Notwithstanding 
subparagraph 
(A), a trust shall not constitute a qualified 
trust under this section unless the plan of 
which such trust is a part provides that a par-
ticipant or beneficiary who is involuntarily sepa-
rated from employment may, on the date of 
such separation, obtain a loan from the plan 
the proceeds of which are to be used within 6 
months after the date of such loan—
‘‘(i) for payments for insurance which 
constitutes medical care for the taxpayer 
and the taxpayer’s spouse and dependents, 
or 
‘‘(ii) for job training expenses.’’. 
(b) PROHIBITED TRANSACTION EXEMPTION.—Sec-
tion 4975(d) of such Code (relating to exemptions from 
tax on prohibited transactions) is amended by striking
‘‘or’’ at the end of paragraph (14), by striking the period 
at the end of paragraph (15) and inserting ‘‘; or’’, and 
by inserting after paragraph (15) the following new para-
graph: 
‘‘(16) any loan—
‘‘(A) from an individual retirement plan 
for the payment of health insurance premiums 
or job training expenses that is a qualified loan 
(as defined in section 408 of the Employee Re-
tirement Income Security Act of 1974), or 
‘‘(B) made by the plan to a disqualified 
person who is a participant or beneficiary of the 
plan if such loan—
‘‘(i) is for the payment of health in-
surance premiums or job training ex-
penses, and 
‘‘(ii) meets the requirements of sec-
tion 401(a)(13)(E).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to loans made after the effective 
date specified in section 501. 
SEC. 603. TREATMENT OF UNCLAIMED BENEFITS. 
(a) IN GENERAL.—Section 401(a)(34) of the Internal 
Revenue Code of 1986 (relating to benefits of missing par-
ticipants) is amended to read as follows:
‘‘(34) UNCLAIMED BENEFITS.—A trust forming 
part of a plan shall not be treated as failing to con-
stitute a qualified trust under this section merely be-
cause the plan of which such trust is a part treats 
unclaimed benefits in a manner that satisfies the re-
quirements of section 414(w).’’. 
(b) REQUIREMENTS.—Section 414 of such Code (re-
lating to definitions and special rules) is amended by add-
ing at the end the following new subsection: 
‘‘(w) UNCLAIMED BENEFITS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection only if—
‘‘(A) ONGOING PLANS.—In the case of an 
ongoing plan, the plan provides for one or more 
of the following with respect to unclaimed bene-
fits: 
‘‘(i) In the case of an unclaimed ben-
efit to which section 401(a)(31)(B) applies, 
a transfer under section 401(a)(31)(B). 
‘‘(ii) A transfer to the Pension Benefit 
Guaranty Corporation, in accordance with 
section 4050(e) of the Employee Retire-
ment Income Security Act of 1974. 
‘‘(iii) Any other treatment permitted 
under rules prescribed by the Secretary.
‘‘(B) TERMINATED PLANS.—In the case of 
a terminated plan, the plan provides for the fol-
lowing with respect to unclaimed benefits: 
‘‘(i) DEFINED
BENEFIT
PLANS.—In 
the case of a defined benefit plan, one or 
more of the following: 
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined benefit plan 
maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(a) or 
4050(e) (as applicable) of the Em-
ployee Retirement Income Security 
Act of 1974. 
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary.
‘‘(ii) 
DEFINED
CONTRIBUTION 
PLANS.—In the case of a defined contribu-
tion plan, one or more of the following: 
‘‘(I) In the case of an unclaimed 
benefit to which section 401(a)(31)(B) 
applies, a transfer under section 
401(a)(31)(B). 
‘‘(II) A transfer of the unclaimed 
benefit to another defined contribution 
plan maintained by the employer. 
‘‘(III) The purchase of an annu-
ity contract to provide for an individ-
ual’s unclaimed benefit. 
‘‘(IV) A transfer to the Pension 
Benefit Guaranty Corporation in ac-
cordance with section 4050(d) or 
4050(e) (as applicable) of the Em-
ployee Retirement Income Security 
Act of 1974. 
‘‘(V) Any other treatment per-
mitted under rules prescribed by the 
Secretary. 
‘‘(2) TREATMENT OF TRANSFERS TO PENSION 
BENEFIT GUARANTY CORPORATION.—
‘‘(A) TRANSFERS
TO
PBGC.—Amounts 
transferred from a plan to the Pension Benefit 
Guaranty Corporation pursuant to paragraph 
(1) shall be treated as a transfer under section 
401(a)(31)(A). 
‘‘(B) DISTRIBUTIONS
FROM
PBGC.—Ex-
cept as provided in rules prescribed by the Sec-
retary, amounts distributed by the Pension 
Benefit Guaranty Corporation shall be treated 
as distributed by an individual retirement plan 
under section 408(d) (without regard to para-
graphs (4), (5) and (7) thereof). Rules similar 
to the rules of section 402(c)(4) shall apply. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) UNCLAIMED
BENEFIT.—The term 
‘unclaimed benefit’ means—
‘‘(i) any benefit of a participant or 
beneficiary which is distributable under the 
terms of the plan to the participant or ben-
eficiary, if the distribution of the benefit 
has not commenced within 1 year after the 
later of the date on which the benefit first 
became so distributable or the participant’s 
severance from employment;
‘‘(ii) any benefit or other amount of a 
participant or beneficiary which is distrib-
utable under the terms of the plan with re-
spect to a missing participant, or 
‘‘(iii) any benefit to which section 
401(a)(31)(B) applies or would apply if 
subclause (I) of section 401(a)(31)(B)(i) 
did not require the distribution to exceed 
$1,000. 
A benefit otherwise described in clause (i) shall 
not be treated as an unclaimed benefit under 
clause (i) if the participant or beneficiary elects 
not to have such treatment apply. Any such 
participant or beneficiary shall be given reason-
able notice of the opportunity to make such an 
election. If the participant or beneficiary fails to 
make such an election within a reasonable pe-
riod specified in the notice, any subsequent elec-
tion shall not be given effect and the benefit 
shall be treated as an unclaimed benefit. A no-
tice mailed to the last known address of the 
participant or beneficiary shall be treated as a 
notice to the participant or beneficiary for pur-
poses of this paragraph.
‘‘(B) ONGOING PLAN.—The term ‘ongoing 
plan’ means any plan which has neither termi-
nated nor is in the process of terminating. 
‘‘(C) TERMINATED PLAN.—The term ‘ter-
minated plan’ means any plan which has termi-
nated or is in the process of terminating. 
‘‘(D) MISSING
PARTICIPANT.—The term 
‘missing participant’ shall have the meaning 
given to such term by section 4050(b)(1) of the 
Employee Retirement Income Security Act of 
1974.’’. 
(c) CONFORMING AMENDMENT.—Subparagraph (B) 
of section 401(a)(31) of such Code is amended by adding 
at the end the following: 
‘‘(iii) 
OTHER
PERMITTED
TRANS-
FERS.—A plan administrator shall be 
treated as having complied with the re-
quirements of this subparagraph if such 
plan administrator complies with the re-
quirements of section 414(w).’’. 
SEC. 604. INCOME AVERAGING OF CORRECTED CIVIL SERV-
ICE ANNUITY BENEFIT PAYMENTS. 
(a) IN GENERAL.—Part I of subchapter Q of chapter 
1 of the Internal Revenue Code of 1986 (relating to in-
come averaging) is amended by inserting after section 
1301 the following new section: 
‘‘SEC. 1302. AVERAGING OF CORRECTED CIVIL SERVICE AN-
NUITY BENEFIT PAYMENTS. 
‘‘(a) IN GENERAL.—Unless the taxpayer elects not 
to have this section apply for a taxable year, any corrected 
civil service annuity benefit payment includable in gross 
income for such taxable year (without regard to this sec-
tion) shall be so included ratably over the 5-taxable year 
period beginning with such taxable year. 
‘‘(b) CORRECTED CIVIL SERVICE ANNUITY BENEFIT 
PAYMENT.—For purposes of subsection (a), the term ‘cor-
rected civil service annuity benefit payment’ means with 
respect to an individual the sum of—
‘‘(1) the lump sum payment awarded by reason 
of a court order, or decision of the Merit Systems 
Protection Board, under which the individual is enti-
tled to receive an amount equal to all or any part 
of an annuity not paid to the individual as a result 
of an erroneous application or interpretation of sub-
chapter III of chapter 83 or chapter 84 of title 5, 
United States Code, or any other provision of law 
(or any rule or regulation relating thereto), plus
‘‘(2) interest on the amount described in para-
graph (1) awarded under section 7704 of title 5, 
United States Code. 
‘‘(c) ANNUITY.—For purposes of subsection (b), the 
term ‘annuity’ has the meaning given to such term by sec-
tion 7704(c) of title 5, United States Code. 
‘‘(d) FINALITY OF ELECTION.—An election under 
subsection (a) with respect to a corrected civil service an-
nuity benefit payment for a taxable year may not be 
changed after the due date of the return for such taxable 
year.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter Q of chapter 1 of such Code is 
amended by inserting after the item relating to section 
1301 the following new item:
‘‘Sec. 1302. Averaging of corrected civil service annuity benefit payments.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments received after Decem-
ber 31, 2004. 
SEC. 605. PROHIBITED TRANSACTION EXEMPTION FOR THE 
PROVISION OF INVESTMENT ADVICE. 
(a) PROHIBITED TRANSACTION EXEMPTION.—Sub-
section (d) of section 4975 of the Internal Revenue Code 
of 1986 (relating to exemptions from tax on prohibited 
transactions), as amended by this Act, is further amend-
ed—
(1) in paragraph (15), by striking ‘‘or’’ at the 
end, 
(2) in paragraph (16), by striking the period at 
the end and inserting ‘‘; or’’, and 
(3) by adding at the end the following new 
paragraph: 
‘‘(17) any transaction described in subsection 
(f)(7)(A) in connection with the provision of invest-
ment advice described in subsection (e)(3)(B), in 
any case in which—
‘‘(A) the plan provides for individual ac-
counts and permits a participant or beneficiary 
to exercise control over assets in his or her ac-
count, 
‘‘(B) the advice is qualified investment ad-
vice provided to a participant or beneficiary of 
the plan by a fiduciary adviser in connection 
with any sale, acquisition, or holding of a secu-
rity or other property for purposes of invest-
ment of plan assets, and 
‘‘(C) 
the 
requirements 
of 
subsection 
(f)(7)(B) are met in connection with each in-
stance of the provision of the advice.’’. 
(b) TRANSACTIONS ALLOWED
AND RELATED RE-
QUIREMENTS.—Subsection (f) of such section 4975 (relat-
ing to other definitions and special rules) is amended by 
adding at the end the following new paragraph: 
‘‘(7) INVESTMENT ADVICE PROVIDED BY FIDU-
CIARY ADVISERS.—
‘‘(A) ALLOWABLE
TRANSACTIONS.—The 
transactions referred to in subsection (d)(16), 
in connection with the provision of investment 
advice by a fiduciary adviser, are the following: 
‘‘(i) the provision of the advice to the 
participant or beneficiary, 
‘‘(ii) the sale, acquisition, or holding 
of a security or other property (including 
any lending of money or other extension of 
credit associated with the sale, acquisition, 
or holding of a security or other property) 
pursuant to the advice, and 
‘‘(iii) the direct or indirect receipt of 
fees or other compensation by the fiduciary 
adviser or an affiliate thereof (or any em-
ployee, agent, or registered representative 
of the fiduciary adviser or affiliate) in con-
nection with the provision of the advice. 
‘‘(B) REQUIREMENTS
FOR
EXEMPTION 
FROM
PROHIBITED
TRANSACTIONS
WITH
RE-
SPECT
TO
PROVISION
OF
INVESTMENT
AD-
VICE.—The requirements of this subparagraph 
(referred to in subsection (d)(16)(C)) are met 
in connection with the provision of qualified in-
vestment advice provided to a participant or 
beneficiary of an employee benefit plan by a fi-
duciary adviser with respect to the plan in con-
nection with any sale, acquisition, or holding of 
a security or other property for purposes of in-
vestment of amounts held by the plan, if the re-
quirements of the following clauses are met: 
‘‘(i) WRITTEN
DISCLOSURES.—At a 
time contemporaneous with the provision 
of the advice in connection with the sale, 
acquisition, or holding of the security or 
other property, the fiduciary adviser shall 
provide to the recipient of the advice a 
clear and conspicuous notification, written 
in a manner to be reasonably understood 
by the average plan participant pursuant 
to regulations which shall be prescribed by 
the Secretary (including mathematical ex-
amples), of the following: 
‘‘(I) INTERESTS
HELD
BY
THE 
FIDUCIARY ADVISER.—Any interest of 
the fiduciary adviser in, or any affili-
100
ation or contractual relationship of 
the fiduciary adviser (or affiliates 
thereof) with any third party having 
an interest in, the security or other 
property. 
‘‘(II) RELATED
FEES
OR
COM-
PENSATION
IN
CONNECTION
WITH 
THE PROVISION OF THE ADVICE.—All 
fees or other compensation relating to 
the advice (including fees or other 
compensation itemized with respect to 
each security or other property with 
respect to which the advice is pro-
vided) that the fiduciary adviser (or 
any affiliate thereof) is to receive (in-
cluding compensation provided by any 
third party) in connection with the 
provision of the advice or in connec-
tion with the sale, acquisition, or hold-
ing of the security or other property. 
‘‘(III) ONGOING FEES OR COM-
PENSATION
IN
CONNECTION
WITH 
THE
SECURITY
OR
PROPERTY
IN-
VOLVED.—All fees or other compensa-
tion that the fiduciary adviser (or any
101
affiliate thereof) is to receive, on an 
ongoing basis, in connection with any 
security or other property with respect 
to which the fiduciary adviser gives 
the advice. 
‘‘(IV) APPLICABLE LIMITATIONS 
ON
SCOPE
OF
ADVICE.—Any limita-
tion placed (in accordance with the re-
quirements of this subsection) on the 
scope of the advice to be provided by 
the fiduciary adviser with respect to 
the sale, acquisition, or holding of the 
security or other property. 
‘‘(V) TYPES OF SERVICES GEN-
ERALLY
OFFERED.—The types of 
services offered by the fiduciary ad-
viser in connection with the provision 
of qualified investment advice by the 
fiduciary adviser. 
‘‘(VI) FIDUCIARY
STATUS
OF 
THE FIDUCIARY ADVISER.—That the 
fiduciary advisor is a fiduciary of the 
plan. 
‘‘(ii) DISCLOSURE BY FIDUCIARY AD-
VISER IN ACCORDANCE WITH APPLICABLE
102
SECURITIES LAWS.—The fiduciary adviser 
shall provide appropriate disclosure, in 
connection with the sale, acquisition, or 
holding of the security or other property, 
in accordance with all applicable securities 
laws. 
‘‘(iii) TRANSACTION OCCURRING SOLE-
LY AT DIRECTION OF RECIPIENT OF AD-
VICE.—The sale, acquisition, or holding of 
the security or other property shall occur 
solely at the direction of the recipient of 
the advice. 
‘‘(iv) REASONABLE COMPENSATION.—
The compensation received by the fiduciary 
adviser and affiliates thereof in connection 
with the sale, acquisition, or holding of the 
security or other property shall be reason-
able. 
‘‘(v) ARM’S LENGTH TRANSACTION.—
The terms of the sale, acquisition, or hold-
ing of the security or other property shall 
be at least as favorable to the plan as an 
arm’s length transaction would be. 
‘‘(C) CONTINUED AVAILABILITY OF INFOR-
MATION FOR AT LEAST 1 YEAR.—The require-
103
ments of subparagraph (B)(i) shall be deemed 
not to have been met in connection with the ini-
tial or any subsequent provision of advice de-
scribed in subparagraph (B) if, at any time 
during the 1-year period following the provision 
of the advice, the fiduciary adviser fails to 
maintain the information described in sub-
clauses (I) through (IV) of subparagraph (B)(i) 
in currently accurate form or to make the infor-
mation available, upon request and without 
charge, to the recipient of the advice. 
‘‘(D) EVIDENCE
OF
COMPLIANCE
MAIN-
TAINED FOR AT LEAST 6 YEARS.—A fiduciary 
adviser referred to in subparagraph (B) who 
has provided advice referred to in such subpara-
graph shall, for a period of not less than 6 
years after the provision of the advice, maintain 
any records necessary for determining whether 
the requirements of the preceding provisions of 
this paragraph and of subsection (d)(16) have 
been met. A transaction prohibited under sub-
section (c)(1) shall not be considered to have 
occurred solely because the records are lost or 
destroyed prior to the end of the 6-year period
104
due to circumstances beyond the control of the 
fiduciary adviser. 
‘‘(E) MODEL
DISCLOSURE
FORMS.—The 
Secretary shall prescribe regulations setting 
forth model disclosure forms to assist fiduciary 
advisers in complying with the disclosure re-
quirements of under this paragraph. 
‘‘(F) ANNUAL
REVIEWS
BY
THE
SEC-
RETARY.—The Secretary shall conduct annual 
reviews of randomly selected fiduciary advisers 
providing qualified investment advice to partici-
pants and beneficiaries. In the case of each re-
view, the Secretary shall review the following: 
‘‘(i) COMPLIANCE
BY
ADVICE
COM-
PUTER MODELS WITH GENERALLY ACCEPT-
ED
INVESTMENT
MANAGEMENT
PRIN-
CIPLES.—The extent to which advice com-
puter models employed by the fiduciary ad-
viser comply with generally accepted in-
vestment management principles. 
‘‘(ii) COMPLIANCE WITH DISCLOSURE 
REQUIREMENTS.—The extent to which dis-
closures provided by the fiduciary adviser 
have complied with the requirements of 
this subsection.
105
‘‘(iii) EXTENT OF VIOLATIONS.—The 
extent to which any violations of fiduciary 
duties have occurred in connection with the 
provision of the advice. 
‘‘(iv) EXTENT
OF
REPORTED
COM-
PLAINTS.—The extent to which complaints 
to relevant agencies have been made in 
connection with the provision of the advice. 
Any proprietary information obtained by the 
Secretary shall be treated as confidential. 
‘‘(G) DUTY
OF
CONFLICTED
FIDUCIARY 
ADVISER TO PROVIDE FOR ALTERNATIVE INDE-
PENDENT ADVICE.—
‘‘(i) IN GENERAL.—In connection with 
any qualified investment advice provided 
by a fiduciary adviser to a participant or 
beneficiary regarding any security or other 
property, if the fiduciary adviser—
‘‘(I) has an interest in the secu-
rity or other property, or 
‘‘(II) has an affiliation or con-
tractual relationship with any third 
party that has an interest in the secu-
rity or other property,
106
the requirements of subparagraph (B) 
shall be treated as not met in connection 
with the advice unless the fiduciary adviser 
has arranged, as an alternative to the ad-
vice that would otherwise be provided by 
the fiduciary advisor, for qualified invest-
ment advice with respect to the security or 
other property provided by at least one al-
ternative investment adviser meeting the 
requirements of clause (ii). 
‘‘(ii) INDEPENDENCE AND QUALIFICA-
TIONS OF ALTERNATIVE INVESTMENT AD-
VISER.—Any alternative investment adviser 
whose qualified investment advice is ar-
ranged for by a fiduciary adviser pursuant 
to clause (i)—
‘‘(I) shall have no material inter-
est in, and no material affiliation or 
contractual relationship with any third 
party having a material interest in, 
the security or other property with re-
spect to which the investment adviser 
is providing the advice, and 
‘‘(II) shall meet the requirements 
of a fiduciary adviser under subpara-
107
graph (H)(i), except that an alter-
native investment adviser may not be 
a fiduciary of the plan other than in 
connection with the provision of the 
advice. 
‘‘(iii) SCOPE
AND
FEES
OF
ALTER-
NATIVE INVESTMENT ADVICE.—Any quali-
fied investment advice provided pursuant 
to this subparagraph by an alternative in-
vestment adviser shall be of the same type 
and scope, and provided under the same 
terms and conditions (including no addi-
tional charge to the participant or bene-
ficiary), as apply with respect to the quali-
fied investment advice to be provided by 
the fiduciary adviser. 
‘‘(H) FIDUCIARY ADVISER DEFINED.—For 
purposes of this paragraph and subsection 
(d)(16)—
‘‘(i) IN
GENERAL.—The term ‘fidu-
ciary adviser’ means, with respect to a 
plan, a person who—
‘‘(I) is a fiduciary of the plan by 
reason of the provision of qualified in-
108
vestment advice by such person to a 
participant or beneficiary, 
‘‘(II) meets the qualifications of 
clause (ii), and 
‘‘(III) meets the additional re-
quirements of clause (iii). 
‘‘(ii) 
QUALIFICATIONS.—A 
person 
meets the qualifications of this clause if 
such person—
‘‘(I) is registered as an invest-
ment adviser under the Investment 
Advisers Act of 1940 (15 U.S.C. 80b–
1 et seq.), 
‘‘(II) if not registered as an in-
vestment adviser under such Act by 
reason of section 203A(a)(1) of such 
Act (15 U.S.C. 80b–3a(a)(1)), is reg-
istered under the laws of the State in 
which the fiduciary maintains its prin-
cipal office and place of business, and, 
at the time the fiduciary last filed the 
registration form most recently filed 
by the fiduciary with such State in 
order to maintain the fiduciary’s reg-
istration under the laws of such State,
109
also filed a copy of such form with the 
Secretary, 
‘‘(III) is registered as a broker or 
dealer under the Securities Exchange 
Act of 1934 (15 U.S.C. 78a et seq.), 
‘‘(IV) is a bank or similar finan-
cial institution referred to in sub-
section (d)(4), 
‘‘(V) is an insurance company 
qualified to do business under the 
laws of a State, or 
‘‘(VI) is any other comparable 
entity which satisfies such criteria as 
the Secretary determines appropriate. 
‘‘(iii) 
ADDITIONAL
REQUIREMENTS 
WITH
RESPECT
TO
CERTAIN
EMPLOYEES 
OR
OTHER
AGENTS
OF
CERTAIN
ADVIS-
ERS.—A person meets the additional re-
quirements of this clause if every indi-
vidual who is employed (or otherwise com-
pensated) by such person and whose scope 
of duties includes the provision of qualified 
investment advice on behalf of such person 
to any participant or beneficiary is—
110
‘‘(I) a registered representative of 
such person, 
‘‘(II) an individual described in 
subclause (I), (II), or (III) of clause 
(ii), or 
‘‘(III) such other comparable 
qualified individual as may be des-
ignated in regulations of the Sec-
retary. 
‘‘(I) ADDITIONAL DEFINITIONS.—For pur-
poses 
of 
this 
paragraph 
and 
subsection 
(d)(16)—
‘‘(i) QUALIFIED
INVESTMENT
AD-
VICE.—The term ‘qualified investment ad-
vice’ means, in connection with a partici-
pant or beneficiary, investment advice re-
ferred to in subsection (e)(3)(B) which—
‘‘(I) consists of an individualized 
recommendation to the participant or 
beneficiary with respect to the pur-
chase, sale, or retention of securities 
or other property for the individual 
account of the participant or bene-
ficiary, in accordance with generally
111
accepted 
investment 
management 
principles, and 
‘‘(II) takes into account all in-
vestment options under the plan. 
‘‘(ii) AFFILIATE.—The term ‘affiliate’ 
of another entity means an affiliated per-
son of such entity (as defined in section 
2(a)(3) of the Investment Company Act of 
1940 (15 U.S.C. 80a–2(a)(3))). 
‘‘(iii) 
REGISTERED
REPRESENTA-
TIVE.—The term ‘registered representa-
tive’ of another entity means a person de-
scribed in section 3(a)(18) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 
78c(a)(18)) (substituting such entity for 
the broker or dealer referred to in such 
section) or a person described in section 
202(a)(17) of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b–2(a)(17)) (sub-
stituting such entity for the investment ad-
viser referred to in such section).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to advice referred to 
in section 4975(e)(3)(B) of the Internal Revenue Code of 
1986 provided on or after January 1, 2005.
112
SEC. 606. INCREASE IN DEDUCTIBLE CONTRIBUTIONS TO 
SINGLE-EMPLOYER DEFINED BENEFIT PLAN 
UPON PAYMENT OF INCREASED PREMIUM TO 
THE 
PENSION 
BENEFIT 
GUARANTY 
COR-
PORATION. 
(a) INCREASE IN DEDUCTIBLE CONTRIBUTIONS.—
Paragraph (1) of section 404(a) of the Internal Revenue 
Code of 1986 (relating to deduction for contributions to 
pension trusts) is amended—
(1) by redesignating subparagraph (E) as sub-
paragraph (F); and 
(2) by inserting after subparagraph (D) the fol-
lowing new subparagraph: 
‘‘(E) SPECIAL
RULE
IN
THE
EVENT
OF 
PAYMENT OF INCREASED PBGC PREMIUM WITH 
RESPECT TO SINGLE-EMPLOYER DEFINED BEN-
EFIT
PLAN.—In any case in which the Sec-
retary—
‘‘(i) receives certification by the plan 
administrator of a single-employer defined 
benefit plan that the increased premium 
authorized under section 4006(a)(3)(F) of 
the Employee Retirement Income Security 
Act of 1974 has been paid for any plan 
year, and
113
‘‘(ii) receives certification of such pay-
ment from the Pension Benefit Guaranty 
Corporation, 
the maximum amount deductible under the lim-
itations of this paragraph for such plan year 
shall not be less than 150 percent of current li-
ability determined under section 412(l).’’. 
(b) ELECTION OF PAYMENT OF INCREASED PRE-
MIUM.—Section 4006(a)(3) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(F) The corporation shall provide for payment of the 
premium for any plan year for basic benefits guaranteed 
under this title with respect to a single-employer plan for 
any plan year at an increased annual rate equal to $24.70 
in any case in which such payment is accompanied by cer-
tification by the contributing sponsor or plan adminis-
trator that such payment is made for purposes of in-
creased deductibility of contributions for such plan year 
under section 404(a)(1)(E) of the Internal Revenue Code 
of 1986. The Corporation shall promptly certify receipt 
of any premium at the increased annual rate provided for 
under this subparagraph to the Secretary of the Treas-
ury.’’.
114
SEC. 607. EXEMPTION FROM PROHIBITED TRANSACTION 
RULES FOR CERTAIN ABORTED EMERGENT 
TRANSACTIONS. 
(a) IN GENERAL.—Section 4975(c) of the Internal 
Revenue Code of 1986 is amended by adding at the end 
the following new paragraph: 
‘‘(7) SPECIAL
RULE
FOR
CERTAIN
ABORTED 
EMERGENT TRANSACTIONS.—
‘‘(A) IN
GENERAL.—Pursuant to regula-
tions issued by the Secretary, if—
‘‘(i) in the case of a qualifying trans-
action between an employee benefit plan 
and an eligible person which would, but for 
this paragraph, be in violation of a restric-
tion imposed by paragraph (1), the eligible 
person submits to the Secretary, not later 
than 60 days after the date of the trans-
action, an application for an exemption 
under paragraph (2) from such restriction 
in the case of such transaction, 
‘‘(ii) the Secretary determines not to 
grant the exemption, and 
‘‘(iii) the transaction is reversed with-
in 60 days after the date of the Secretary’s 
determination,
115
then the transaction shall be exempted under 
paragraph (2) from treatment as a violation of 
such restriction. 
‘‘(B) 
QUALIFYING
TRANSACTION.—The 
term ‘qualifying transaction’ means, in connec-
tion with an eligible person, a transaction be-
tween an employee benefit plan and such eligi-
ble person constituting the purchase or sale of 
a financial product, if— 
‘‘(i) prior to engaging in the trans-
action, the plan acquires from the eligible 
person a sufficient guarantee, consisting of 
a letter of credit or other form of written 
guarantee, issued by a bank or similar fi-
nancial institution (other than the eligible 
person requesting the exemption or an af-
filiate) regulated and supervised by, and 
subject to periodic examination by, an 
agency of a State or of the Federal Gov-
ernment, in a stated amount equal, as of 
the close of business on the day preceding 
the transaction, to not less than 100 per-
cent of the amount of plan assets involved 
in the transaction, plus interest on that 
amount at a rate determined by the parties