203
contributions 
(as 
defined 
in 
section
401(m)(4)(A)), 
paragraph 
(2) 
shall 
be
applied—
‘‘(A) by substituting ‘3 years’ for ‘5
years’ in subparagraph (A), and
‘‘(B) by substituting the following
table for the table contained in sub-
paragraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ..............................................................................
3 ..............................................................................
4 ..............................................................................
5 ..............................................................................
6 ..............................................................................
100.’’.
(b) AMENDMENT OF ERISA.—Section 203(a)
of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1053(a)) is amended—
(1) in paragraph (2), in the matter
preceding subparagraph (A), by striking
‘‘A plan’’ and inserting ‘‘Except as pro-
vided in paragraph (4), a plan’’, and
(2) by adding at the end the fol-
lowing:
‘‘(4) In the case of matching contribu-
tions (as defined in section 401(m)(4)(A)
of the Internal Revenue Code of 1986),
paragraph (2) shall be applied—
204
‘‘(A) by substituting ‘3 years’ for ‘5
years’ in subparagraph (A), and
‘‘(B) by substituting the following
table for the table contained in sub-
paragraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ..............................................................................
3 ..............................................................................
4 ..............................................................................
5 ..............................................................................
6 ..............................................................................
100.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided
in paragraph (2), the amendments made
by this section shall apply to contribu-
tions for plan years beginning after De-
cember 31, 2001.
(2) 
COLLECTIVE
BARGAINING
AGREE-
MENTS.—In the case of a plan maintained
pursuant to one or more collective bar-
gaining agreements between employee
representatives and one or more employ-
ers ratified by the date of the enactment
of this Act, the amendments made by this
section shall not apply to contributions
on behalf of employees covered by any
such agreement for plan years beginning
before the earlier of—
205
(A) the later of—
(i) the date on which the last
of 
such 
collective 
bargaining
agreements 
terminates 
(deter-
mined without regard to any ex-
tension thereof on or after such
date of the enactment); or
(ii) January 1, 2002; or
(B) January 1, 2006.
(3) SERVICE
REQUIRED.—With respect
to any plan, the amendments made by
this section shall not apply to any em-
ployee before the date that such em-
ployee has 1 hour of service under such
plan in any plan year to which the
amendments made by this section apply.
SEC. 304. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBU-
TION RULES.
(a) SIMPLIFICATION
AND FINALIZATION
OF
MINIMUM DISTRIBUTION REQUIREMENTS.—
(1) IN GENERAL.—The Secretary of the
Treasury shall—
(A) simplify and finalize the regu-
lations relating to minimum distribu-
tion 
requirements 
under 
sections
206
401(a)(9), 
408(a)(6) 
and 
(b)(3),
403(b)(10), and 457(d)(2) of the Inter-
nal Revenue Code of 1986; and
(B) modify such regulations to—
(i) reflect current life expect-
ancy; and
(ii) revise the required dis-
tribution methods so that, under
reasonable 
assumptions, 
the
amount of the required minimum
distribution does not decrease
over a participant’s life expect-
ancy.
(2) 
FRESH
START.—Notwithstanding
subparagraph (D) of section 401(a)(9) of
such Code, during the first year that reg-
ulations are in effect under this sub-
section, required distributions for future
years may be redetermined to reflect
changes under such regulations. Such re-
determination shall include the oppor-
tunity to choose a new designated bene-
ficiary and to elect a new method of cal-
culating life expectancy.
207
(3) DATE FOR REGULATIONS.—Not later
than December 31, 2002, the Secretary
shall issue final regulations described in
paragraph (1) and such regulations shall
apply without regard to whether an indi-
vidual had previously begun receiving
minimum distributions.
(b) REPEAL OF RULE WHERE DISTRIBUTIONS
HAD BEGUN BEFORE DEATH OCCURS.—
(1) IN GENERAL.—Subparagraph (B) of
section 401(a)(9) is amended by striking
clause (i) and redesignating clauses (ii),
(iii), and (iv) as clauses (i), (ii), and (iii),
respectively.
(2) CONFORMING CHANGES.—
(A) 
Clause 
(i) 
of 
section
401(a)(9)(B) (as so redesignated) is
amended—
(i) by striking ‘‘FOR
OTHER
CASES’’ in the heading; and
(ii) by striking ‘‘the distribu-
tion of the employee’s interest has
begun in accordance with sub-
paragraph (A)(ii)’’ and inserting
209
entire interest has been distrib-
uted to him,’’.
(3) EFFECTIVE DATE.—
(A) IN
GENERAL.—Except as pro-
vided 
in 
subparagraph 
(B), 
the
amendments made by this subsection
shall apply to years beginning after
December 31, 2001.
(B) DISTRIBUTIONS
TO
SURVIVING
SPOUSE.—
(i) IN GENERAL.—In the case of
an employee described in clause
(ii), distributions to the surviving
spouse of the employee shall not
be required to commence prior to
the date on which such distribu-
tions would have been required to
begin under section 401(a)(9)(B)
of the Internal Revenue Code of
1986 (as in effect on the day be-
fore the date of the enactment of
this Act).
(ii) CERTAIN
EMPLOYEES.—An
employee is described in this
210
clause 
if 
such 
employee 
dies
before—
(I) the date of the enact-
ment of this Act, and
(II) the required begin-
ning date (within the meaning
of section 401(a)(9)(C) of the
Internal 
Revenue 
Code 
of
1986) of the employee.
(c) REDUCTION IN EXCISE TAX.—
(1) IN GENERAL.—Subsection (a) of sec-
tion 4974 is amended by striking ‘‘50 per-
cent’’ and inserting ‘‘10 percent’’.
(2) EFFECTIVE DATE.—The amendment
made by this subsection shall apply to
years beginning after December 31, 2001.
SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION
OF SECTION 457 PLAN BENEFITS UPON DI-
VORCE.
(a) IN GENERAL.—Section 414(p)(11) (relat-
ing to application of rules to governmental
and church plans) is amended—
(1) by inserting ‘‘or an eligible de-
ferred compensation plan (within the
211
meaning of section 457(b))’’ after ‘‘sub-
section (e))’’; and
(2) in the heading, by striking ‘‘GOV-
ERNMENTAL
AND
CHURCH
PLANS’’ and in-
serting ‘‘CERTAIN OTHER PLANS’’.
(b) WAIVER OF CERTAIN DISTRIBUTION RE-
QUIREMENTS.—Paragraph (10) of section 414(p)
is amended by striking ‘‘and section 409(d)’’
and inserting ‘‘section 409(d), and section
457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A
SECTION 457 PLAN.—Subsection (p) of section
414 is amended by redesignating paragraph
(12) as paragraph (13) and inserting after
paragraph (11) the following new paragraph:
‘‘(12) TAX
TREATMENT
OF
PAYMENTS
FROM A SECTION 457 PLAN.—If a distribu-
tion or payment from an eligible deferred
compensation plan described in section
457(b) is made pursuant to a qualified do-
mestic relations order, rules similar to
the rules of section 402(e)(1)(A) shall
apply to such distribution or payment.’’.
(d) EFFECTIVE
DATE.—The amendments
made by this section shall apply to transfers,
212
distributions, and payments made after De-
cember 31, 2001.
SEC. 306. MODIFICATION OF SAFE HARBOR RELIEF FOR
HARDSHIP WITHDRAWALS FROM CASH OR
DEFERRED ARRANGEMENTS.
(a) IN GENERAL.—The Secretary of the
Treasury shall revise the regulations relating
to 
hardship 
distributions 
under 
section
401(k)(2)(B)(i)(IV) of the Internal Revenue
Code of 1986 to provide that the period an em-
ployee is prohibited from making elective and
employee contributions in order for a dis-
tribution to be deemed necessary to satisfy fi-
nancial need shall be equal to 6 months.
(b) EFFECTIVE DATE.—The revised regula-
tions under subsection (a) shall apply to years
beginning after December 31, 2001.
TITLE 
IV—INCREASING 
PORT-
ABILITY FOR PARTICIPANTS
SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES
OF PLANS.
(a) ROLLOVERS FROM AND TO SECTION 457
PLANS.—
(1) 
ROLLOVERS
FROM
SECTION
457
PLANS.—
213
(A) IN
GENERAL.—Section 457(e)
(relating to other definitions and spe-
cial rules) is amended by adding at
the end the following:
‘‘(16) ROLLOVER AMOUNTS.—
‘‘(A) GENERAL
RULE.—In the case
of an eligible deferred compensation
plan established and maintained by
an employer described in subsection
(e)(1)(A), if—
‘‘(i) any portion of the balance
to the credit of an employee in
such plan is paid to such em-
ployee in an eligible rollover dis-
tribution (within the meaning of
section 402(c)(4) without regard
to subparagraph (C) thereof),
‘‘(ii) the employee transfers
any portion of the property such
employee receives in such dis-
tribution to an eligible retirement
plan 
described 
in 
section
402(c)(8)(B), and
‘‘(iii) in the case of a distribu-
tion 
of 
property 
other 
than
215
(C) DIRECT ROLLOVER.—Paragraph
(1) of section 457(d) is amended by
striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at
the end of subparagraph (B) and in-
serting ‘‘, and’’, and by inserting after
subparagraph (B) the following:
‘‘(C) in the case of a plan main-
tained by an employer described in
subsection (e)(1)(A), the plan meets
requirements similar to the require-
ments of section 401(a)(31).
Any amount transferred in a direct trust-
ee-to-trustee transfer in accordance with
section 401(a)(31) shall not be includible
in gross income for the taxable year of
transfer.’’.
(D) WITHHOLDING.—
(i) Paragraph (12) of section
3401(a) is amended by adding at
the end the following:
‘‘(E) under or to an eligible de-
ferred compensation plan which, at
the time of such payment, is a plan
described in section 457(b) main-
216
tained by an employer described in
section 457(e)(1)(A); or’’.
(ii) Paragraph (3) of section
3405(c) is amended to read as fol-
lows:
‘‘(3) 
ELIGIBLE
ROLLOVER
DISTRIBU-
TION.—For purposes of this subsection,
the term ‘eligible rollover distribution’
has the meaning given such term by sec-
tion 402(f)(2)(A).’’.
(iii) 
LIABILITY
FOR
WITH-
HOLDING.—Subparagraph 
(B) 
of
section 3405(d)(2) is amended by
striking ‘‘or’’ at the end of clause
(ii), by striking the period at the
end of clause (iii) and inserting ‘‘,
or’’, and by adding at the end the
following:
‘‘(iv) section 457(b) and which
is maintained by an eligible em-
ployer 
described 
in 
section
457(e)(1)(A).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) 
IN
GENERAL.—Section
402(c)(8)(B) (defining eligible retire-
217
ment plan) is amended by striking
‘‘and’’ at the end of clause (iii), by
striking the period at the end of
clause (iv) and inserting ‘‘, and’’, and
by inserting after clause (iv) the fol-
lowing new clause:
‘‘(v) an eligible deferred com-
pensation plan described in sec-
tion 457(b) which is maintained
by an eligible employer described
in section 457(e)(1)(A).’’.
(B) SEPARATE
ACCOUNTING.—Sec-
tion 402(c) is amended by adding at
the end the following new paragraph:
‘‘(11) SEPARATE ACCOUNTING.—Unless a
plan described in clause (v) of paragraph
(8)(B) agrees to separately account for
amounts rolled into such plan from eligi-
ble retirement plans not described in
such clause, the plan described in such
clause may not accept transfers or roll-
overs from such retirement plans.’’.
(C) 10 PERCENT ADDITIONAL TAX.—
Subsection (t) of section 72 (relating
to 10-percent additional tax on early
218
distributions from qualified retire-
ment plans) is amended by adding at
the end the following new paragraph:
‘‘(9) SPECIAL RULE FOR ROLLOVERS TO
SECTION 457 PLANS.—For purposes of this
subsection, a distribution from an eligible
deferred compensation plan (as defined
in section 457(b)) of an eligible employer
described in section 457(e)(1)(A) shall be
treated as a distribution from a qualified
retirement plan described in 4974(c)(1) to
the extent that such distribution is at-
tributable to an amount transferred to an
eligible deferred compensation plan from
a qualified retirement plan (as defined in
section 4974(c)).’’.
(b) ALLOWANCE OF ROLLOVERS FROM AND TO
403(b) PLANS.—
(1) ROLLOVERS
FROM
SECTION
403(b)
PLANS.—Section 403(b)(8)(A)(ii) (relating
to rollover amounts) is amended by strik-
ing ‘‘such distribution’’ and all that fol-
lows and inserting ‘‘such distribution to
an eligible retirement plan described in
section 402(c)(8)(B), and’’.
219
(2) 
ROLLOVERS
TO
SECTION
403(b)
PLANS.—Section 402(c)(8)(B) (defining eli-
gible retirement plan), as amended by
subsection (a), is amended by striking
‘‘and’’ at the end of clause (iv), by striking
the period at the end of clause (v) and in-
serting ‘‘, and’’, and by inserting after
clause (v) the following new clause:
‘‘(vi) an annuity contract de-
scribed in section 403(b).’’.
(c) EXPANDED EXPLANATION TO RECIPIENTS
OF ROLLOVER DISTRIBUTIONS.—Paragraph (1)
of section 402(f) (relating to written expla-
nation to recipients of distributions eligible
for rollover treatment) is amended by striking
‘‘and’’ at the end of subparagraph (C), by
striking the period at the end of subpara-
graph (D) and inserting ‘‘, and’’, and by adding
at the end the following new subparagraph:
‘‘(E) 
of 
the 
provisions 
under
which distributions from the eligible
retirement plan receiving the dis-
tribution may be subject to restric-
tions and tax consequences which are
different from those applicable to dis-
220
tributions from the plan making such
distribution.’’.
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9)
(relating to rollover where spouse receives
distribution after death of employee) is
amended by striking ‘‘; except that’’ and all
that follows up to the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by
striking ‘‘and 408(d)(3)’’ and inserting
‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.
(2) Section 219(d)(2) is amended by
striking 
‘‘or 
408(d)(3)’’ 
and 
inserting
‘‘408(d)(3), or 457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended
by striking ‘‘and 403(a)(4)’’ and inserting
‘‘, 403(a)(4), 403(b)(8), and 457(e)(16)’’.
(4) 
Subparagraph 
(A) 
of 
section
402(f)(2) is amended by striking ‘‘or para-
graph (4) of section 403(a)’’ and inserting
‘‘, paragraph (4) of section 403(a), sub-
paragraph (A) of section 403(b)(8), or sub-
paragraph (A) of section 457(e)(16)’’.
221
(5) Paragraph (1) of section 402(f) is
amended by striking ‘‘from an eligible re-
tirement plan’’.
(6) Subparagraphs (A) and (B) of sec-
tion 402(f)(1) are amended by striking
‘‘another eligible retirement plan’’ and in-
serting ‘‘an eligible retirement plan’’.
(7) 
Subparagraph 
(B) 
of 
section
403(b)(8) is amended to read as follows:
‘‘(B) CERTAIN RULES MADE APPLICA-
BLE.—The rules of paragraphs (2)
through (7) and (9) of section 402(c)
and section 402(f) shall apply for pur-
poses of subparagraph (A), except
that section 402(f) shall be applied to
the payor in lieu of the plan adminis-
trator.’’.
(8) Section 408(a)(1) is amended by
striking ‘‘or 403(b)(8),’’ and inserting
‘‘403(b)(8), or 457(e)(16)’’.
(9) Subparagraphs (A) and (B) of sec-
tion 415(b)(2) are each amended by strik-
ing 
‘‘and 
408(d)(3)’’ 
and 
inserting
‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.
222
(10) Section 415(c)(2) is amended by
striking ‘‘and 408(d)(3)’’ and inserting
‘‘408(d)(3), and 457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended
by striking ‘‘or 408(d)(3)’’ and inserting
‘‘408(d)(3), or 457(e)(16)’’.
(f) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments
made by this section shall apply to dis-
tributions after the date of the enactment
of this Act.
(2) SPECIAL
RULE.—Notwithstanding
any other provision of law, subsections
(h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any
distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Rev-
enue Code of 1986) on behalf of an indi-
vidual if there was a rollover to such
plan on behalf of such individual which
is permitted solely by reason of any
amendment made by this section.
223
SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE-
MENT PLANS.
(a) IN GENERAL.—Subparagraph (A) of sec-
tion 408(d)(3) (relating to rollover amounts) is
amended by adding ‘‘or’’ at the end of clause
(i), by striking clauses (ii) and (iii), and by
adding at the end the following:
‘‘(ii) the entire amount re-
ceived (including money and any
other property) is paid into an eli-
gible retirement plan for the ben-
efit of such individual not later
than the 60th day after the date
on which the payment or distribu-
tion is received, except that the
maximum amount which may be
paid into such plan may not ex-
ceed the portion of the amount
received which is includible in
gross income (determined without
regard to this paragraph).
For purposes of clause (ii), the term
‘eligible retirement plan’ means an el-
igible retirement plan described in
clause (iii), (iv), (v), or (vi) of section
402(c)(8)(B).’’.
224
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 403(b) is
amended 
by 
striking 
‘‘section
408(d)(3)(A)(iii)’’ and inserting ‘‘section
408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is
amended by striking ‘‘(i), (ii), or (iii)’’ and
inserting ‘‘(i) or (ii)’’.
(3) 
Subparagraph 
(G) 
of 
section
408(d)(3) is amended to read as follows:
‘‘(G) 
SIMPLE
RETIREMENT
AC-
COUNTS.—In the case of any payment
or distribution out of a simple retire-
ment account (as defined in sub-
section (p)) to which section 72(t)(6)
applies, this paragraph shall not
apply unless such payment or dis-
tribution is paid into another simple
retirement account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments
made by this section shall apply to dis-
tributions after the date of the enactment
of this Act.
225
(2) SPECIAL
RULE.—Notwithstanding
any other provision of law, subsections
(h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any
distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of
section 402(c)(8)(B) of the Internal Rev-
enue Code of 1986) on behalf of an indi-
vidual if there was a rollover to such
plan on behalf of such individual which
is permitted solely by reason of the
amendments made by this section.
SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS
FROM
EXEMPT
TRUSTS.—
Paragraph (2) of section 402(c) (relating to
maximum amount which may be rolled over)
is amended by adding at the end the fol-
lowing: ‘‘The preceding sentence shall not
apply to such distribution to the extent—
‘‘(A) such portion is transferred in
a direct trustee-to-trustee transfer to
a qualified trust which is part of a
plan which is a defined contribution
plan and which agrees to separately
account for amounts so transferred,
226
including separately accounting for
the 
portion 
of 
such 
distribution
which is includible in gross income
and the portion of such distribution
which is not so includible, or
‘‘(B) such portion is transferred to
an eligible retirement plan described
in clause (i) or (ii) of paragraph
(8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER OF ELIGI-
BLE ROLLOVER DISTRIBUTIONS.—Subparagraph
(B) of section 401(a)(31) (relating to limita-
tion) is amended by adding at the end the fol-
lowing: ‘‘The preceding sentence shall not
apply to such distribution if the plan to which
such distribution is transferred—
‘‘(i) agrees to separately ac-
count for amounts so transferred,
including separately accounting
for the portion of such distribu-
tion which is includible in gross
income and the portion of such
distribution which is not so in-
cludible, or
227
‘‘(ii) is an eligible retirement
plan described in clause (i) or (ii)
of section 402(c)(8)(B).’’.
(c) RULES
FOR APPLYING SECTION 72 TO
IRAS.—Paragraph (3) of section 408(d) (relat-
ing to special rules for applying section 72) is
amended by inserting at the end the fol-
lowing:
‘‘(H) APPLICATION OF SECTION 72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) a distribution is made
from an individual retirement
plan, and
‘‘(II) a rollover contribu-
tion is made to an eligible re-
tirement plan described in
section 402(c)(8)(B)(iii), (iv),
(v), or (vi) with respect to all
or part of such distribution,
then, notwithstanding paragraph
(2), the rules of clause (ii) shall
apply for purposes of applying
section 72.
228
‘‘(ii) 
APPLICABLE
RULES.—In
the case of a distribution de-
scribed in clause (i)—
‘‘(I) section 72 shall be ap-
plied separately to such dis-
tribution,
‘‘(II) notwithstanding the
pro rata allocation of income
on, and investment in, the
contract 
to 
distributions
under section 72, the portion
of such distribution rolled
over to an eligible retirement
plan described in clause (i)
shall be treated as from in-
come on the contract (to the
extent of the aggregate in-
come on the contract from all
individual retirement plans of
the distributee), and
‘‘(III) appropriate adjust-
ments shall be made in apply-
ing section 72 to other dis-
tributions 
in 
such 
taxable
229
year and subsequent taxable
years.’’.
(d) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions made after the date of the enactment of
this Act.
SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS.—Paragraph (3) of sec-
tion 402(c) (relating to transfer must be made
within 60 days of receipt) is amended to read
as follows:
‘‘(3) TRANSFER MUST BE MADE WITHIN 60
DAYS OF RECEIPT.—
‘‘(A) IN GENERAL.—Except as pro-
vided in subparagraph (B), paragraph
(1) shall not apply to any transfer of
a distribution made after the 60th
day following the day on which the
distributee received the property dis-
tributed.
‘‘(B) 
HARDSHIP
EXCEPTION.—The
Secretary may waive the 60-day re-
quirement under subparagraph (A)
where the failure to waive such re-
quirement would be against equity or
230
good conscience, including casualty,
disaster, or other events beyond the
reasonable control of the individual
subject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d)
(relating to rollover contributions), as amend-
ed by section 403, is amended by adding after
subparagraph (H) the following new subpara-
graph:
‘‘(I) WAIVER
OF
60-DAY
REQUIRE-
MENT.—The Secretary may waive the
60-day requirement under subpara-
graphs (A) and (D) where the failure
to waive such requirement would be
against equity or good conscience, in-
cluding casualty, disaster, or other
events beyond the reasonable control
of the individual subject to such re-
quirement.’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions after the date of the enactment of this
Act.
SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.
(a) PLAN TRANSFERS.—
231
(1) AMENDMENT OF INTERNAL REVENUE
CODE.—Paragraph (6) of section 411(d)
(relating to accrued benefit not to be de-
creased by amendment) is amended by
adding at the end the following:
‘‘(D) PLAN TRANSFERS.—
‘‘(i) IN
GENERAL.—A defined
contribution plan (in this sub-
paragraph referred to as the
‘transferee plan’) shall not be
treated as failing to meet the re-
quirements 
of 
this 
subsection
merely because the transferee
plan does not provide some or all
of the forms of distribution pre-
viously available under another
defined contribution plan (in this
subparagraph referred to as the
‘transferor plan’) to the extent
that—
‘‘(I) the forms of distribu-
tion 
previously 
available
under the transferor plan ap-
plied to the account of a par-
ticipant or beneficiary under
232
the transferor plan that was
transferred from the trans-
feror plan to the transferee
plan pursuant to a direct
transfer rather than pursuant
to a distribution from the
transferor plan,
‘‘(II) the terms of both the
transferor plan and the trans-
feree 
plan 
authorize 
the
transfer 
described 
in 
sub-
clause (I),
‘‘(III) 
the 
transfer 
de-
scribed in subclause (I) was
made pursuant to a voluntary
election by the participant or
beneficiary 
whose 
account
was transferred to the trans-
feree plan,
‘‘(IV) 
the 
election 
de-
scribed in subclause (III) was
made after the participant or
beneficiary received a notice
describing the consequences
of making the election, and
233
‘‘(V) the transferee plan
allows the participant or ben-
eficiary 
described 
in 
sub-
clause (III) to receive any dis-
tribution to which the partici-
pant or beneficiary is entitled
under the transferee plan in
the form of a single sum dis-
tribution.
‘‘(ii) 
EXCEPTION.—Clause 
(i)
shall apply to plan mergers and
other transactions having the ef-
fect of a direct transfer, including
consolidations of benefits attrib-
utable 
to 
different 
employers
within a multiple employer plan.
‘‘(E) ELIMINATION OF FORM OF DIS-
TRIBUTION.—Except to the extent pro-
vided in regulations, a defined con-
tribution plan shall not be treated as
failing to meet the requirements of
this section merely because of the
elimination of a form of distribution
previously available thereunder. This
subparagraph shall not apply to the
234
elimination of a form of distribution
with 
respect 
to 
any 
participant
unless—
‘‘(i) a single sum payment is
available to such participant at
the same time or times as the
form of distribution being elimi-
nated, and
‘‘(ii) such single sum payment
is based on the same or greater
portion of the participant’s ac-
count as the form of distribution
being eliminated.’’.
(2) 
AMENDMENT
OF
ERISA.—Section
204(g) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C.
1054(g)) is amended by adding at the end
the following:
‘‘(4)(A) A defined contribution plan (in
this subparagraph referred to as the ‘trans-
feree plan’) shall not be treated as failing to
meet the requirements of this subsection
merely because the transferee plan does not
provide some or all of the forms of distribu-
tion previously available under another de-
235
fined contribution plan (in this subparagraph
referred to as the ‘transferor plan’) to the ex-
tent that—
‘‘(i) the forms of distribution pre-
viously available under the transferor
plan applied to the account of a partici-
pant or beneficiary under the transferor
plan that was transferred from the trans-
feror plan to the transferee plan pursu-
ant to a direct transfer rather than pur-
suant to a distribution from the trans-
feror plan;
‘‘(ii) the terms of both the transferor
plan and the transferee plan authorize
the transfer described in clause (i);
‘‘(iii) the transfer described in clause
(i) was made pursuant to a voluntary
election by the participant or beneficiary
whose account was transferred to the
transferee plan;
‘‘(iv) the election described in clause
(iii) was made after the participant or
beneficiary received a notice describing
the consequences of making the election;
and
236
‘‘(v) the transferee plan allows the
participant or beneficiary described in
clause (iii) to receive any distribution to
which the participant or beneficiary is
entitled under the transferee plan in the
form of a single sum distribution.
‘‘(B) Subparagraph (A) shall apply to plan
mergers and other transactions having the ef-
fect of a direct transfer, including consolida-
tions of benefits attributable to different em-
ployers within a multiple employer plan.
‘‘(5) Except to the extent provided in regu-
lations promulgated by the Secretary of the
Treasury, a defined contribution plan shall
not be treated as failing to meet the require-
ments of this subsection merely because of
the elimination of a form of distribution pre-
viously available thereunder. This paragraph
shall not apply to the elimination of a form of
distribution with respect to any participant
unless—
‘‘(A) a single sum payment is available
to such participant at the same time or
times as the form of distribution being
eliminated; and
237
‘‘(B) such single sum payment is
based on the same or greater portion of
the participant’s account as the form of
distribution being eliminated.’’.
(3) EFFECTIVE DATE.—The amendments
made by this subsection shall apply to
years beginning after December 31, 2001.
(b) REGULATIONS.—
(1) AMENDMENT OF INTERNAL REVENUE
CODE.—Paragraph (6)(B) of section 411(d)
(relating to accrued benefit not to be de-
creased by amendment) is amended by
inserting after the second sentence the
following new sentence: ‘‘The Secretary
shall by regulations provide that this sub-
paragraph shall not apply to any plan
amendment which reduces or eliminates
benefits or subsidies which create signifi-
cant burdens or complexities for the plan
and plan participants and does not ad-
versely affect the rights of any partici-
pant in a more than de minimis manner.’’.
(2) 
AMENDMENT
OF
ERISA.—Section
204(g)(2) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C.
238
1054(g)(2)) is amended by inserting before
the last sentence the following new sen-
tence: ‘‘The Secretary of the Treasury
shall by regulations provide that this
paragraph shall not apply to any plan
amendment which reduces or eliminates
benefits or subsidies which create signifi-
cant burdens or complexities for the plan
and plan participants and does not ad-
versely affect the rights of any partici-
pant in a more than de minimis manner.’’.
(3) SECRETARY
DIRECTED.—Not later
than December 31, 2003, the Secretary of
the Treasury is directed to issue regula-
tions under section 411(d)(6) of the Inter-
nal Revenue Code of 1986 and section
204(g) of the Employee Retirement In-
come Security Act of 1974, including the
regulations required by the amendment
made by this subsection. Such regula-
tions shall apply to plan years beginning
after December 31, 2003, or such earlier
date as is specified by the Secretary of
the Treasury.
239
SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DIS-
TRIBUTIONS.
(a) MODIFICATION
OF SAME DESK EXCEP-
TION.—
(1) SECTION 401(k).—
(A) Section 401(k)(2)(B)(i)(I) (re-
lating to qualified cash or deferred
arrangements) is amended by strik-
ing ‘‘separation from service’’ and in-
serting 
‘‘severance 
from 
employ-
ment’’.
(B) Subparagraph (A) of section
401(k)(10) (relating to distributions
upon termination of plan or disposi-
tion of assets or subsidiary) is amend-
ed to read as follows:
‘‘(A) IN
GENERAL.—An event de-
scribed in this subparagraph is the
termination of the plan without es-
tablishment or maintenance of an-
other 
defined 
contribution 
plan
(other than an employee stock owner-
ship 
plan 
as 
defined 
in 
section
4975(e)(7)).’’.
(C) 
Section 
401(k)(10) 
is
amended—
240
(i) in subparagraph (B)—
(I) by striking ‘‘An event’’
in clause (i) and inserting ‘‘A
termination’’; and
(II) by striking ‘‘the event’’
in clause (i) and inserting ‘‘the
termination’’;
(ii) by striking subparagraph
(C); and
(iii) by striking ‘‘OR
DISPOSI-
TION OF ASSETS OR SUBSIDIARY’’ in
the heading.
(2) SECTION 403(b).—
(A) 
Paragraphs 
(7)(A)(ii) 
and
(11)(A) of section 403(b) are each
amended by striking ‘‘separates from
service’’ and inserting ‘‘has a sever-
ance from employment’’.
(B) The heading for paragraph
(11) of section 403(b) is amended by
striking ‘‘SEPARATION
FROM
SERVICE’’
and inserting ‘‘SEVERANCE
FROM
EM-
PLOYMENT’’.
(3) SECTION 457.—Clause (ii) of section
457(d)(1)(A) is amended by striking ‘‘is
241
separated from service’’ and inserting
‘‘has a severance from employment’’.
(b) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions after the date of the enactment of this
Act.
SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERN-
MENTAL DEFINED BENEFIT PLANS.
(a) 403(b) PLANS.—Subsection (b) of sec-
tion 403 is amended by adding at the end the
following new paragraph:
‘‘(13) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO PURCHASE PERMISSIVE SERVICE CREDIT.—
No amount shall be includible in gross in-
come by reason of a direct trustee-to-
trustee transfer to a defined benefit gov-
ernmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permis-
sive service credit (as defined in sec-
tion 415(n)(3)(A)) under such plan, or
‘‘(B) a repayment to which section
415 does not apply by reason of sub-
section (k)(3) thereof.’’.
242
(b) 457 PLANS.—Subsection (e) of section
457 is amended by adding after paragraph
(16) the following new paragraph:
‘‘(17) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO PURCHASE PERMISSIVE SERVICE CREDIT.—
No amount shall be includible in gross in-
come by reason of a direct trustee-to-
trustee transfer to a defined benefit gov-
ernmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permis-
sive service credit (as defined in sec-
tion 415(n)(3)(A)) under such plan, or
‘‘(B) a repayment to which section
415 does not apply by reason of sub-
section (k)(3) thereof.’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to trustee-to-
trustee transfers after the date of the enact-
ment of this Act.
SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR
PURPOSES OF CASH-OUT AMOUNTS.
(a) QUALIFIED PLANS.—
(1) AMENDMENT OF INTERNAL REVENUE
CODE.—Section 411(a)(11) (relating to re-
243
strictions on certain mandatory distribu-
tions) is amended by adding at the end
the following:
‘‘(D) SPECIAL RULE FOR ROLLOVER
CONTRIBUTIONS.—A plan shall not fail
to meet the requirements of this para-
graph if, under the terms of the plan,
the present value of the nonforfeit-
able accrued benefit is determined
without regard to that portion of
such benefit which is attributable to
rollover contributions (and earnings
allocable thereto). For purposes of
this subparagraph, the term ‘rollover
contributions’ 
means 
any 
rollover
contribution under sections 402(c),
403(a)(4), 
403(b)(8), 
408(d)(3)(A)(ii),
and 457(e)(16).’’.
(2) 
AMENDMENT
OF
ERISA.—Section
203(e) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C.
1053(c)) is amended by adding at the end
the following:
‘‘(4) A plan shall not fail to meet the re-
quirements of this subsection if, under the
244
terms of the plan, the present value of the
nonforfeitable accrued benefit is determined
without regard to that portion of such benefit
which is attributable to rollover contributions
(and earnings allocable thereto). For purposes
of this subparagraph, the term ‘rollover con-
tributions’ means any rollover contribution
under sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16) of the Internal
Revenue Code of 1986.’’.
(b) 
ELIGIBLE
DEFERRED
COMPENSATION
PLANS.—Clause (i) of section 457(e)(9)(A) is
amended by striking ‘‘such amount’’ and in-
serting ‘‘the portion of such amount which is
not attributable to rollover contributions (as
defined in section 411(a)(11)(D))’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions after December 31, 2001.
SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION RE-
QUIREMENTS FOR SECTION 457 PLANS.
(a) 
MINIMUM
DISTRIBUTION
REQUIRE-
MENTS.—Paragraph (2) of section 457(d) (relat-
ing to distribution requirements) is amended
to read as follows:
245
‘‘(2) MINIMUM
DISTRIBUTION
REQUIRE-
MENTS.—A plan meets the minimum dis-
tribution requirements of this paragraph
if such plan meets the requirements of
section 401(a)(9).’’.
(b) INCLUSION IN GROSS INCOME.—
(1) YEAR OF INCLUSION.—Subsection (a)
of section 457 (relating to year of inclu-
sion in gross income) is amended to read
as follows:
‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘(1) IN GENERAL.—Any amount of com-
pensation deferred under an eligible de-
ferred compensation plan, and any in-
come attributable to the amounts so de-
ferred, shall be includible in gross in-
come only for the taxable year in which
such compensation or other income—
‘‘(A) is paid to the participant or
other beneficiary, in the case of a
plan of an eligible employer de-
scribed in subsection (e)(1)(A), and
‘‘(B) is paid or otherwise made
available to the participant or other
beneficiary, in the case of a plan of
246
an eligible employer described in sub-
section (e)(1)(B).
‘‘(2) 
SPECIAL
RULE
FOR
ROLLOVER
AMOUNTS.—To the extent provided in sec-
tion 72(t)(9), section 72(t) shall apply to
any amount includible in gross income
under this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) So much of paragraph (9) of
section 457(e) as precedes subpara-
graph (A) is amended to read as fol-
lows:
‘‘(9) BENEFITS OF TAX EXEMPT ORGANI-
ZATION PLANS NOT TREATED AS MADE AVAIL-
ABLE
BY
REASON
OF
CERTAIN
ELECTIONS,
ETC.—In the case of an eligible deferred
compensation plan of an employer de-
scribed in subsection (e)(1)(B)—’’.
(B) Section 457(d) is amended by
adding at the end the following new
paragraph:
‘‘(3) SPECIAL
RULE
FOR
GOVERNMENT
PLAN.—An eligible deferred compensation
plan of an employer described in sub-
section (e)(1)(A) shall not be treated as
247
failing to meet the requirements of this
subsection solely by reason of making a
distribution 
described 
in 
subsection
(e)(9)(A).’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions after the date of the enactment of this
Act.
TITLE V—STRENGTHENING PEN-
SION 
SECURITY 
AND 
EN-
FORCEMENT
SEC. 501. REPEAL OF PERCENT OF CURRENT LIABILITY
FUNDING LIMIT.
(a) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Section 412(c)(7) (relating to full-fund-
ing limitation) is amended—
(1) by striking ‘‘the applicable per-
centage’’ in subparagraph (A)(i)(I) and in-
serting ‘‘in the case of plan years begin-
ning before January 1, 2004, the applica-
ble percentage’’; and
(2) by amending subparagraph (F) to
read as follows:
‘‘(F) APPLICABLE PERCENTAGE.—For
purposes of subparagraph (A)(i)(I),
248
the applicable percentage shall be de-
termined in accordance with the fol-
lowing table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2002 .......................................................................
165
2003 .......................................................................
170.’’.
(b) 
AMENDMENT
OF
ERISA.—Section
302(c)(7) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1082(c)(7)) is
amended—
(1) by striking ‘‘the applicable per-
centage’’ in subparagraph (A)(i)(I) and in-
serting ‘‘in the case of plan years begin-
ning before January 1, 2004, the applica-
ble percentage’’; and
(2) by amending subparagraph (F) to
read as follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A)(i)(I), the
applicable percentage shall be deter-
mined in accordance with the following
table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2002 .......................................................................
165
2003 .......................................................................
170.’’.
249
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to plan years
beginning after December 31, 2001.
SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES
MODIFIED AND APPLIED TO ALL DEFINED
BENEFIT PLANS.
(a) IN GENERAL.—Subparagraph (D) of sec-
tion 404(a)(1) (relating to special rule in case
of certain plans) is amended to read as fol-
lows:
‘‘(D) SPECIAL RULE IN CASE OF CER-
TAIN PLANS.—
‘‘(i) IN
GENERAL.—In the case
of any defined benefit plan, ex-
cept as provided in regulations,
the maximum amount deductible
under the limitations of this para-
graph shall not be less than the
unfunded 
termination 
liability
(determined as if the proposed
termination date referred to in
section 4041(b)(2)(A)(i)(II) of the
Employee Retirement Income Se-
curity Act of 1974 were the last
day of the plan year).
250
‘‘(ii) PLANS WITH LESS THAN 100
PARTICIPANTS.—For 
purposes 
of
this subparagraph, in the case of
a plan which has less than 100
participants for the plan year,
termination liability shall not in-
clude the liability attributable to
benefit increases for highly com-
pensated employees (as defined in
section 414(q)) resulting from a
plan amendment which is made
or becomes effective, whichever is
later, within the last 2 years be-
fore the termination date.
‘‘(iii) RULE
FOR
DETERMINING
NUMBER
OF
PARTICIPANTS.—For
purposes of determining whether
a plan has more than 100 partici-
pants, all defined benefit plans
maintained by the same employer
(or any member of such employ-
er’s controlled group (within the
meaning of section 412(l)(8)(C)))
shall be treated as one plan, but
only employees of such member
251
or employer shall be taken into
account.
‘‘(iv) 
PLANS
MAINTAINED
BY
PROFESSIONAL
SERVICE
EMPLOY-
ERS.—Clause (i) shall not apply to
a 
plan 
described 
in 
section
4021(b)(13) of the Employee Re-
tirement Income Security Act of
1974.’’.
(b) CONFORMING AMENDMENT.—Paragraph
(6) of section 4972(c) is amended to read as fol-
lows:
‘‘(6) EXCEPTIONS.—In determining the
amount of nondeductible contributions
for any taxable year, there shall not be
taken into account so much of the con-
tributions to one or more defined con-
tribution plans which are not deductible
when contributed solely because of sec-
tion 404(a)(7) as does not exceed the
greater of—
‘‘(A) the amount of contributions
not in excess of 6 percent of com-
pensation (within the meaning of sec-
tion 404(a)) paid or accrued (during
252
the taxable year for which the con-
tributions 
were 
made) 
to 
bene-
ficiaries under the plans, or
‘‘(B) the sum of—
‘‘(i) the amount of contribu-
tions 
described 
in 
section
401(m)(4)(A), plus
‘‘(ii) the amount of contribu-
tions 
described 
in 
section
402(g)(3)(A).
For purposes of this paragraph, the de-
ductible limits under section 404(a)(7)
shall first be applied to amounts contrib-
uted to a defined benefit plan and then to
amounts described in subparagraph (B).’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to plan years
beginning after December 31, 2001.
SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUND-
ING.
(a) IN GENERAL.—Subsection (c) of section
4972 (relating to nondeductible contributions)
is amended by adding at the end the following
new paragraph:
253
‘‘(7) DEFINED
BENEFIT
PLAN
EXCEP-
TION.—In determining the amount of non-
deductible contributions for any taxable
year, an employer may elect for such year
not to take into account any contribu-
tions to a defined benefit plan except to
the extent that such contributions exceed
the full-funding limitation (as defined in
section 412(c)(7), determined without re-
gard to subparagraph (A)(i)(I) thereof).
For purposes of this paragraph, the de-
ductible limits under section 404(a)(7)
shall first be applied to amounts contrib-
uted to defined contribution plans and
then to amounts described in this para-
graph. If an employer makes an election
under this paragraph for a taxable year,
paragraph (6) shall not apply to such em-
ployer for such taxable year.’’.
(b) EFFECTIVE
DATE.—The amendment
made by this section shall apply to years be-
ginning after December 31, 2001.
254
SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY
DEFINED BENEFIT PLANS SIGNIFICANTLY
REDUCING FUTURE BENEFIT ACCRUALS.
(a) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—
(1) IN GENERAL.—Chapter 43 (relating
to 
qualified 
pension, 
etc., 
plans) 
is
amended by adding at the end the fol-
lowing new section:
‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING
BENEFIT ACCRUALS TO SATISFY NOTICE RE-
QUIREMENTS.
‘‘(a) IMPOSITION OF TAX.—There is hereby
imposed a tax on the failure of any applicable
pension plan to meet the requirements of sub-
section (e) with respect to any applicable indi-
vidual.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the
tax imposed by subsection (a) on any fail-
ure with respect to any applicable indi-
vidual shall be $100 for each day in the
noncompliance period with respect to
such failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For pur-
poses of this section, the term ‘non-
255
compliance period’ means, with respect
to any failure, the period beginning on
the date the failure first occurs and end-
ing on the date the failure is corrected.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) OVERALL LIMITATION FOR UNINTEN-
TIONAL FAILURES.—In the case of failures
that are due to reasonable cause and not
to willful neglect, the tax imposed by sub-
section (a) for failures during the taxable
year of the employer (or, in the case of a
multiemployer plan, the taxable year of
the trust forming part of the plan) shall
not exceed $500,000. For purposes of the
preceding sentence, all multiemployer
plans of which the same trust forms a
part shall be treated as one plan. For
purposes of this paragraph, if not all per-
sons who are treated as a single employer
for purposes of this section have the
same taxable year, the taxable years
taken into account shall be determined
under principles similar to the principles
of section 1561.
256
‘‘(2) WAIVER
BY
SECRETARY.—In the
case of a failure which is due to reason-
able cause and not to willful neglect, the
Secretary may waive part or all of the tax
imposed by subsection (a) to the extent
that the payment of such tax would be
excessive relative to the failure involved.
‘‘(d) LIABILITY
FOR
TAX.—The following
shall be liable for the tax imposed by sub-
section (a):
‘‘(1) In the case of a plan other than a
multiemployer plan, the employer.
‘‘(2) In the case of a multiemployer
plan, the plan.
‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIG-
NIFICANTLY REDUCING BENEFIT ACCRUALS.—
‘‘(1) IN
GENERAL.—If an applicable
pension plan is amended to provide for a
significant reduction in the rate of future
benefit accrual, the plan administrator
shall provide written notice to each ap-
plicable individual (and to each employee
organization representing applicable in-
dividuals).
257
‘‘(2) NOTICE.—The notice required by
paragraph (1) shall be written in a man-
ner calculated to be understood by the
average plan participant and shall pro-
vide sufficient information (as deter-
mined in accordance with regulations
prescribed by the Secretary) to allow ap-
plicable individuals to understand the ef-
fect of the plan amendment. The Sec-
retary may provide a simplified form of
notice for, or exempt from any notice re-
quirement, a plan—
‘‘(A) which has fewer than 100
participants who have accrued a ben-
efit under the plan, or
‘‘(B) which offers participants the
option to choose between the new
benefit formula and the old benefit
formula.
‘‘(3) TIMING OF NOTICE.—Except as pro-
vided in regulations, the notice required
by paragraph (1) shall be provided within
a reasonable time before the effective
date of the plan amendment.
258
‘‘(4) DESIGNEES.—Any notice under
paragraph (1) may be provided to a per-
son designated, in writing, by the person
to which it would otherwise be provided.
‘‘(5) 
NOTICE
BEFORE
ADOPTION
OF
AMENDMENT.—A plan shall not be treated
as failing to meet the requirements of
paragraph (1) merely because notice is
provided before the adoption of the plan
amendment if no material modification of
the amendment occurs before the amend-
ment is adopted.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘(1) 
APPLICABLE
INDIVIDUAL.—The
term ‘applicable individual’ means, with
respect to any plan amendment—
‘‘(A) each participant in the plan,
and
‘‘(B) any beneficiary who is an al-
ternate payee (within the meaning of
section 414(p)(8)) under an applicable
qualified domestic relations order
(within 
the 
meaning 
of 
section
414(p)(1)(A)),
259
whose rate of future benefit accrual
under the plan may reasonably be ex-
pected to be significantly reduced by
such plan amendment.
‘‘(2) APPLICABLE
PENSION
PLAN.—The
term ‘applicable pension plan’ means—
‘‘(A) any defined benefit plan, or
‘‘(B) an individual account plan
which is subject to the funding stand-
ards of section 412.
Such term shall not include a govern-
mental plan (within the meaning of sec-
tion 414(d)) or a church plan (within the
meaning of section 414(e)) with respect to
which the election provided by section
410(d) has not been made.
‘‘(3) 
EARLY
RETIREMENT.—A 
plan
amendment which eliminates or signifi-
cantly reduces any early retirement ben-
efit or retirement-type subsidy (within
the meaning of section 411(d)(6)(B)(i))
shall be treated as having the effect of
significantly reducing the rate of future
benefit accrual.
260
‘‘(g) NEW TECHNOLOGIES.—The Secretary
may by regulations allow any notice under
subsection (e) to be provided by using new
technologies.’’.
(2) CLERICAL
AMENDMENT.—The table
of sections for chapter 43 is amended by
adding at the end the following new item:
‘‘Sec. 4980F. Failure of applicable plans reducing
benefit accruals to satisfy notice require-
ments.’’.
(b) AMENDMENT OF ERISA.—Section 204(h)
of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1054(h)) is amended by
adding at the end the following new para-
graphs:
‘‘(3)(A) An applicable pension plan to
which paragraph (1) applies shall not be
treated as meeting the requirements of such
paragraph unless, in addition to any notice
required to be provided to an individual or
organization under such paragraph, the plan
administrator provides the notice described
in subparagraph (B) to each applicable indi-
vidual (and to each employee organization
representing applicable individuals).
‘‘(B) The notice required by subparagraph
(A) shall be written in a manner calculated to
261
be understood by the average plan partici-
pant and shall provide sufficient information
(as determined in accordance with regula-
tions prescribed by the Secretary of the
Treasury) to allow applicable individuals to
understand the effect of the plan amendment.
The Secretary of the Treasury may provide a
simplified form of notice for, or exempt from
any notice requirement, a plan—
‘‘(i) which has fewer than 100 partici-
pants who have accrued a benefit under
the plan, or
‘‘(ii) which offers participants the op-
tion to choose between the new benefit
formula and the old benefit formula.
‘‘(C) Except as provided in regulations
prescribed by the Secretary of the Treasury,
the notice required by subparagraph (A) shall
be provided within a reasonable time before
the effective date of the plan amendment.
‘‘(D) Any notice under subparagraph (A)
may be provided to a person designated, in
writing, by the person to which it would oth-
erwise be provided.
262
‘‘(E) A plan shall not be treated as failing
to meet the requirements of subparagraph (A)
merely because notice is provided before the
adoption of the plan amendment if no mate-
rial modification of the amendment occurs be-
fore the amendment is adopted.
‘‘(F) The Secretary of the Treasury may by
regulations allow any notice under this para-
graph to be provided by using new tech-
nologies.
‘‘(4) For purposes of paragraph (3)—
‘‘(A) The term ‘applicable individual’
means, 
with 
respect 
to 
any 
plan
amendment—
‘‘(i) each participant in the plan;
and
‘‘(ii) any beneficiary who is an al-
ternate payee (within the meaning of
section 206(d)(3)(K)) under an appli-
cable 
qualified 
domestic 
relations
order (within the meaning of section
206(d)(3)(B)(i)),
whose rate of future benefit accrual
under the plan may reasonably be ex-
263
pected to be significantly reduced by
such plan amendment.
‘‘(B) The term ‘applicable pension
plan’ means—
‘‘(i) any defined benefit plan; or
‘‘(ii) an individual account plan
which is subject to the funding stand-
ards of section 412 of the Internal
Revenue Code of 1986.
‘‘(C) A plan amendment which elimi-
nates or significantly reduces any early
retirement 
benefit 
or 
retirement-type
subsidy (within the meaning of sub-
section (g)(2)(A)) shall be treated as hav-
ing the effect of significantly reducing
the rate of future benefit accrual.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments
made by this section shall apply to plan
amendments taking effect on or after the
date of the enactment of this Act.
(2) TRANSITION.—Until such time as
the Secretary of the Treasury issues regu-
lations under sections 4980F(e)(2) and (3)
of the Internal Revenue Code of 1986, and
264
section 204(h)(3) of the Employee Retire-
ment Income Security Act of 1974, as
added by the amendments made by this
section, a plan shall be treated as meet-
ing the requirements of such sections if it
makes a good faith effort to comply with
such requirements.
(3) SPECIAL NOTICE RULE.—The period
for providing any notice required by the
amendments made by this section shall
not end before the date which is 3
months after the date of the enactment of
this Act.
(4) REASONABLE NOTICE.—The amend-
ments made by this section shall not
apply to any plan amendment taking ef-
fect on or after the date of the enactment
of this Act if, before April 25, 2001, notice
was provided to participants and bene-
ficiaries adversely affected by the plan
amendment (or their representatives)
which was reasonably expected to notify
them of the nature and effective date of
the plan amendment.
265
(d) STUDY.—The Secretary of the Treasury
shall prepare a report on the effects of con-
versions of traditional defined benefit plans
to cash balance or hybrid formula plans. Such
study shall examine the effect of such conver-
sions on longer service participants, includ-
ing the incidence and effects of ‘‘wear away’’
provisions under which participants earn no
additional benefits for a period of time after
the conversion. As soon as practicable, but
not later than 60 days after the date of the en-
actment of this Act, the Secretary shall submit
such report, together with recommendations
thereon, to the Committee on Ways and Means
and the Committee on Education and the
Workforce of the House of Representatives
and the Committee on Finance and the Com-
mittee on Health, Education, Labor, and Pen-
sions of the Senate.
SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—
(1) IN
GENERAL.—Paragraph (11) of
section 415(b) (relating to limitation for
266
defined benefit plans) is amended to read
as follows:
‘‘(11) SPECIAL
LIMITATION
RULE
FOR
GOVERNMENTAL
AND
MULTIEMPLOYER
PLANS.—In the case of a governmental
plan (as defined in section 414(d)) or a
multiemployer plan (as defined in section
414(f)), subparagraph (B) of paragraph (1)
shall not apply.’’.
(2) CONFORMING AMENDMENT.—Section
415(b)(7) (relating to benefits under cer-
tain 
collectively 
bargained 
plans) 
is
amended by inserting ‘‘(other than a mul-
tiemployer plan)’’ after ‘‘defined benefit
plan’’ in the matter preceding subpara-
graph (A).
(b) 
COMBINING
AND
AGGREGATION
OF
PLANS.—
(1) COMBINING OF PLANS.—Subsection
(f) of section 415 (relating to combining of
plans) is amended by adding at the end
the following:
‘‘(3) EXCEPTION
FOR
MULTIEMPLOYER
PLANS.—Notwithstanding paragraph (1)
and subsection (g), a multiemployer plan
267
(as defined in section 414(f)) shall not be
combined or aggregated with any other
plan maintained by an employer for pur-
poses of applying the limitations estab-
lished in this section, except that such
plan shall be combined or aggregated
with another plan which is not such a
multiemployer plan solely for purposes of
determining whether such other plan
meets the requirements of subsections
(b)(1)(A) and (c).’’.
(2) CONFORMING
AMENDMENT
FOR
AG-
GREGATION
OF
PLANS.—Subsection (g) of
section 415 (relating to aggregation of
plans) is amended by striking ‘‘The Sec-
retary’’ and inserting ‘‘Except as provided
in subsection (f)(3), the Secretary’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to years be-
ginning after December 31, 2001.
SEC. 506. PROTECTION OF INVESTMENT OF EMPLOYEE
CONTRIBUTIONS TO 401(K) PLANS.
(a) IN GENERAL.—Section 1524(b) of the
Taxpayer Relief Act of 1997 is amended to
read as follows:
268
‘‘(b) EFFECTIVE DATE.—
‘‘(1) IN GENERAL.—Except as provided
in paragraph (2), the amendments made
by this section shall apply to elective de-
ferrals for plan years beginning after De-
cember 31, 1998.
‘‘(2) NONAPPLICATION
TO
PREVIOUSLY
ACQUIRED
PROPERTY.—The 
amendments
made by this section shall not apply to
any elective deferral which is invested in
assets consisting of qualifying employer
securities, qualifying employer real prop-
erty, or both, if such assets were acquired
before January 1, 1999.’’.
(b) EFFECTIVE
DATE.—The amendment
made by this section shall apply as if included
in the provision of the Taxpayer Relief Act of
1997 to which it relates.
SEC. 507. PERIODIC PENSION BENEFITS STATEMENTS.
(a) IN GENERAL.—Section 105(a) of the Em-
ployee Retirement Income Security Act of
1974 (29 U.S.C. 1025 (a)) is amended to read as
follows:
269
‘‘SEC. 105. (a)(1)(A) The administrator of
an individual account plan shall furnish a
pension benefit statement—
‘‘(i) to a plan participant at least once
annually, and
‘‘(ii) to a plan beneficiary upon writ-
ten request.
‘‘(B) The administrator of a defined ben-
efit plan shall furnish a pension benefit
statement—
‘‘(i) at least once every 3 years to each
participant with a nonforfeitable accrued
benefit who is employed by the employer
maintaining the plan at the time the
statement is furnished to participants,
and
‘‘(ii) to a plan participant or plan ben-
eficiary of the plan upon written request.
‘‘(2) A pension benefit statement under
paragraph (1)—
‘‘(A) shall indicate, on the basis of the
latest available information—
‘‘(i) the total benefits accrued, and
‘‘(ii) the nonforfeitable pension
benefits, if any, which have accrued,
270
or the earliest date on which benefits
will become nonforfeitable,
‘‘(B) shall be written in a manner cal-
culated to be understood by the average
plan participant, and
‘‘(C) may be provided in written, elec-
tronic, or other appropriate form.
‘‘(3)(A) In the case of a defined benefit
plan, the requirements of paragraph (1)(B)(i)
shall be treated as met with respect to a par-
ticipant if the administrator provides the par-
ticipant at least once each year with notice of
the availability of the pension benefit state-
ment and the ways in which the participant
may obtain such statement. Such notice shall
be provided in written, electronic, or other
appropriate form, and may be included with
other communications to the participant if
done in a manner reasonably designed to at-
tract the attention of the participant.
‘‘(B) The Secretary may provide that years
in which no employee or former employee
benefits (within the meaning of section 410(b)
of the Internal Revenue Code of 1986) under
the plan need not be taken into account in de-
271
termining the 3-year period under paragraph
(1)(B)(i).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 105 of the Employee Re-
tirement Income Security Act of 1974 (29
U.S.C. 1025) is amended by striking sub-
section (d).
(2) Section 105(b) of such Act (29
U.S.C. 1025(b)) is amended to read as fol-
lows:
‘‘(b) In no case shall a participant or bene-
ficiary of a plan be entitled to more than one
statement described in subsection (a)(1)(A) or
(a)(1)(B)(ii), whichever is applicable, in any
12-month period.’’.
(c) MODEL STATEMENTS.—The Secretary of
Labor shall develop a model benefit state-
ment, written in a manner calculated to be
understood by the average plan participant,
that may be used by plan administrators in
complying with the requirements of section
105 of the Employee Retirement Income Secu-
rity Act of 1974.
272
(d) EFFECTIVE
DATE.—The amendments
made by this section shall apply to plan years
beginning after December 31, 2002.
SEC. 508. PROHIBITED ALLOCATIONS OF STOCK IN S COR-
PORATION ESOP.
(a) IN GENERAL.—Section 409 (relating to
qualifications for tax credit employee stock
ownership plans) is amended by redesig-
nating subsection (p) as subsection (q) and by
inserting after subsection (o) the following
new subsection:
‘‘(p) PROHIBITED ALLOCATIONS OF SECURI-
TIES IN AN S CORPORATION.—
‘‘(1) IN GENERAL.—An employee stock
ownership plan holding employer securi-
ties consisting of stock in an S corpora-
tion shall provide that no portion of the
assets of the plan attributable to (or allo-
cable in lieu of) such employer securities
may, during a nonallocation year, accrue
(or be allocated directly or indirectly
under any plan of the employer meeting
the requirements of section 401(a)) for
the benefit of any disqualified person.
‘‘(2) FAILURE TO MEET REQUIREMENTS.—
273
‘‘(A) IN GENERAL.—If a plan fails to
meet the requirements of paragraph
(1), the plan shall be treated as hav-
ing distributed to any disqualified
person the amount allocated to the
account of such person in violation of
paragraph (1) at the time of such allo-
cation.
‘‘(B) CROSS REFERENCE.—
‘‘For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section
4979A.
‘‘(3) NONALLOCATION
YEAR.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘non-
allocation year’ means any plan year
of an employee stock ownership plan
if, at any time during such plan
year—
‘‘(i) such plan holds employer
securities consisting of stock in
an S corporation, and
‘‘(ii) disqualified persons own
at least 50 percent of the number
of shares of stock in the S cor-
poration.
274
‘‘(B) ATTRIBUTION RULES.—For pur-
poses of subparagraph (A)—
‘‘(i) IN GENERAL.—The rules of
section 318(a) shall apply for pur-
poses of determining ownership,
except that—
‘‘(I) in applying paragraph
(1) thereof, the members of an
individual’s family shall in-
clude members of the family
described in paragraph (4)(D),
and
‘‘(II) paragraph (4) thereof
shall not apply.
‘‘(ii) DEEMED-OWNED
SHARES.—
Notwithstanding 
the 
employee
trust 
exception 
in 
section
318(a)(2)(B)(i), individual shall be
treated as owning deemed-owned
shares of the individual.
Solely for purposes of applying para-
graph (5), this subparagraph shall be
applied after the attribution rules of
paragraph (5) have been applied.
275
‘‘(4) DISQUALIFIED
PERSON.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘dis-
qualified person’ means any person
if—
‘‘(i) the aggregate number of
deemed-owned 
shares 
of 
such
person and the members of such
person’s family is at least 20 per-
cent of the number of deemed-
owned shares of stock in the S
corporation, or
‘‘(ii) in the case of a person
not described in clause (i), the
number of deemed-owned shares
of such person is at least 10 per-
cent of the number of deemed-
owned shares of stock in such
corporation.
‘‘(B) TREATMENT
OF
FAMILY
MEM-
BERS.—In the case of a disqualified
person described in subparagraph
(A)(i), any member of such person’s
family with deemed-owned shares
shall be treated as a disqualified per-
276
son if not otherwise treated as a dis-
qualified person under subparagraph
(A).
‘‘(C) DEEMED-OWNED SHARES.—
‘‘(i) IN
GENERAL.—The term
‘deemed-owned 
shares’ 
means,
with respect to any person—
‘‘(I) the stock in the S cor-
poration 
constituting 
em-
ployer securities of an em-
ployee stock ownership plan
which is allocated to such
person under the plan, and
‘‘(II) such person’s share
of the stock in such corpora-
tion which is held by such
plan but which is not allo-
cated under the plan to par-
ticipants.
‘‘(ii) 
PERSON’S
SHARE
OF
UNALLOCATED
STOCK.—For 
pur-
poses of clause (i)(II), a person’s
share of unallocated S corpora-
tion stock held by such plan is the
amount of the unallocated stock
277
which would be allocated to such
person if the unallocated stock
were allocated to all participants
in the same proportions as the
most 
recent 
stock 
allocation
under the plan.
‘‘(D) MEMBER OF FAMILY.—For pur-
poses of this paragraph, the term
‘member of the family’ means, with
respect to any individual—
‘‘(i) the spouse of the indi-
vidual,
‘‘(ii) an ancestor or lineal de-
scendant of the individual or the
individual’s spouse,
‘‘(iii) a brother or sister of the
individual 
or 
the 
individual’s
spouse and any lineal descendant
of the brother or sister, and
‘‘(iv) the spouse of any indi-
vidual described in clause (ii) or
(iii).
A spouse of an individual who is le-
gally separated from such individual
under a decree of divorce or separate
278
maintenance shall not be treated as
such individual’s spouse for purposes
of this subparagraph.
‘‘(5) TREATMENT
OF
SYNTHETIC
EQ-
UITY.—For purposes of paragraphs (3) and
(4), in the case of a person who owns syn-
thetic equity in the S corporation, except
to the extent provided in regulations, the
shares of stock in such corporation on
which such synthetic equity is based
shall be treated as outstanding stock in
such 
corporation 
and 
deemed-owned
shares of such person if such treatment
of synthetic equity of 1 or more such per-
sons results in—
‘‘(A) the treatment of any person
as a disqualified person, or
‘‘(B) the treatment of any year as
a nonallocation year.
For purposes of this paragraph, synthetic
equity shall be treated as owned by a per-
son in the same manner as stock is treat-
ed as owned by a person under the rules
of paragraphs (2) and (3) of section
318(a). If, without regard to this para-
279
graph, a person is treated as a disquali-
fied person or a year is treated as a non-
allocation year, this paragraph shall not
be construed to result in the person or
year not being so treated.
‘‘(6) DEFINITIONS.—For purposes of
this subsection—
‘‘(A) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock own-
ership plan’ has the meaning given
such term by section 4975(e)(7).
‘‘(B) EMPLOYER
SECURITIES.—The
term 
‘employer 
security’ 
has 
the
meaning given such term by section
409(l).
‘‘(C) SYNTHETIC EQUITY.—The term
‘synthetic equity’ means any stock op-
tion, warrant, restricted stock, de-
ferred issuance stock right, or similar
interest or right that gives the holder
the right to acquire or receive stock
of the S corporation in the future. Ex-
cept to the extent provided in regula-
tions, synthetic equity also includes a
stock appreciation right, phantom
280
stock unit, or similar right to a future
cash payment based on the value of
such stock or appreciation in such
value.
‘‘(7) 
REGULATIONS.—The 
Secretary
shall prescribe such regulations as may
be necessary to carry out the purposes of
this subsection.’’.
(b) 
COORDINATION
WITH
SECTION
4975(e)(7).—The 
last 
sentence 
of 
section
4975(e)(7) (defining employee stock owner-
ship plan) is amended by inserting ‘‘, section
409(p),’’ after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION
OF
TAX.—Subsection
(a) of section 4979A (relating to tax on
certain prohibited allocations of em-
ployer securities) is amended—
(A) by striking ‘‘or’’ at the end of
paragraph (1), and
(B) by striking all that follows
paragraph (2) and inserting the fol-
lowing:
‘‘(3) there is any allocation of em-
ployer securities which violates the pro-
281
visions of section 409(p), or a nonalloca-
tion year described in subsection (e)(2)(C)
with respect to an employee stock owner-
ship plan, or
‘‘(4) any synthetic equity is owned by
a disqualified person in any nonalloca-
tion year,
there is hereby imposed a tax on such alloca-
tion or ownership equal to 50 percent of the
amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (de-
fining liability for tax) is amended to
read as follows:
‘‘(c) LIABILITY FOR TAX.—The tax imposed
by this section shall be paid—
‘‘(1) in the case of an allocation re-
ferred to in paragraph (1) or (2) of sub-
section (a), by—
‘‘(A) 
the 
employer 
sponsoring
such plan, or
‘‘(B) the eligible worker-owned co-
operative,
which made the written statement de-
scribed in section 664(g)(1)(E) or in sec-
282
tion 1042(b)(3)(B) (as the case may be),
and
‘‘(2) in the case of an allocation or
ownership referred to in paragraph (3) or
(4) of subsection (a), by the S corporation
the stock in which was so allocated or
owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (re-
lating to definitions) is amended to read
as follows:
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘(1) DEFINITIONS.—Except as provided
in paragraph (2), terms used in this sec-
tion have the same respective meanings
as when used in sections 409 and 4978.
‘‘(2) SPECIAL
RULES
RELATING
TO
TAX
IMPOSED BY REASON OF PARAGRAPH (3) OR (4)
OF SUBSECTION (a).—
‘‘(A) 
PROHIBITED
ALLOCATIONS.—
The amount involved with respect to
any tax imposed by reason of sub-
section (a)(3) is the amount allocated
to the account of any person in viola-
tion of section 409(p)(1).
283
‘‘(B) 
SYNTHETIC
EQUITY.—The
amount involved with respect to any
tax imposed by reason of subsection
(a)(4) is the value of the shares on
which the synthetic equity is based.
‘‘(C) SPECIAL
RULE
DURING
FIRST
NONALLOCATION
YEAR.—For purposes
of subparagraph (A), the amount in-
volved for the first nonallocation year
of any employee stock ownership
plan shall be determined by taking
into account the total value of all the
deemed-owned shares of all disquali-
fied persons with respect to such
plan.
‘‘(D) STATUTE OF LIMITATIONS.—The
statutory period for the assessment of
any tax imposed by this section by
reason of paragraph (3) or (4) of sub-
section (a) shall not expire before the
date which is 3 years from the later
of—
‘‘(i) the allocation or owner-
ship referred to in such para-
graph giving rise to such tax, or
284
‘‘(ii) the date on which the
Secretary is notified of such allo-
cation or ownership.’’.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments
made by this section shall apply to plan
years beginning after December 31, 2004.
(2) EXCEPTION FOR CERTAIN PLANS.—In
the case of any—
(A) 
employee 
stock 
ownership
plan established after March 14, 2001,
or
(B) 
employee 
stock 
ownership
plan established on or before such
date if employer securities held by
the plan consist of stock in a corpora-
tion with respect to which an election
under section 1362(a) of the Internal
Revenue Code of 1986 is not in effect
on such date,
the amendments made by this section
shall apply to plan years ending after
March 14, 2001.
285
TITLE VI—REDUCING
REGULATORY BURDENS
SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Paragraph (9) of section 412(c)(9) (re-
lating to annual valuation) is amended to
read as follows:
‘‘(9) ANNUAL VALUATION.—
‘‘(A) IN GENERAL.—For purposes of
this section, a determination of expe-
rience gains and losses and a valu-
ation of the plan’s liability shall be
made not less frequently than once
every year, except that such deter-
mination shall be made more fre-
quently to the extent required in par-
ticular cases under regulations pre-
scribed by the Secretary.
‘‘(B) VALUATION DATE.—
‘‘(i) CURRENT YEAR.—Except as
provided in clause (ii), the valu-
ation referred to in subparagraph
(A) shall be made as of a date
within the plan year to which the
valuation refers or within one
286
month prior to the beginning of
such year.
‘‘(ii) ELECTION
TO
USE
PRIOR
YEAR
VALUATION.—The valuation
referred to in subparagraph (A)
may be made as of a date within
the plan year prior to the year to
which the valuation refers if—
‘‘(I) an election is in effect
under this clause with respect
to the plan, and
‘‘(II) as of such date, the
value of the assets of the plan
are not less than 125 percent
of the plan’s current liability
(as 
defined 
in 
paragraph
(7)(B)).
‘‘(iii) ADJUSTMENTS.—Informa-
tion under clause (ii) shall, in ac-
cordance with regulations, be ac-
tuarially adjusted to reflect sig-
nificant differences in partici-
pants.
‘‘(iv) ELECTION.—An election
under clause (ii), once made, shall
287
be irrevocable without the con-
sent of the Secretary.’’.
(b) AMENDMENT OF ERISA.—Paragraph (9)
of section 302(c) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1053(c))
is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and
(2) by adding at the end the fol-
lowing:
‘‘(B)(i) Except as provided in clause (ii),
the valuation referred to in subparagraph (A)
shall be made as of a date within the plan
year to which the valuation refers or within
one month prior to the beginning of such
year.
‘‘(ii) The valuation referred to in subpara-
graph (A) may be made as of a date within the
plan year prior to the year to which the valu-
ation refers if—
‘‘(I) an election is in effect under this
clause with respect to the plan; and
‘‘(II) as of such date, the value of the
assets of the plan are not less than 125
percent of the plan’s current liability (as
defined in paragraph (7)(B)).
288
‘‘(iii) Information under clause (ii) shall,
in accordance with regulations, be actuarially
adjusted to reflect significant differences in
participants.
‘‘(iv) An election under clause (ii), once
made, shall be irrevocable without the con-
sent of the Secretary of the Treasury.’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to plan years
beginning after December 31, 2001.
SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT
LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL.—Section 404(k)(2)(A) (de-
fining applicable dividends) is amended by
striking ‘‘or’’ at the end of clause (ii), by redes-
ignating clause (iii) as clause (iv), and by in-
serting after clause (ii) the following new
clause:
‘‘(iii) is, at the election of such
participants 
or 
their
beneficiaries—
‘‘(I) payable as provided in
clause (i) or (ii), or
289
‘‘(II) paid to the plan and
reinvested in qualifying em-
ployer securities, or’’.
(b) EFFECTIVE
DATE.—The amendments
made by this section shall apply to taxable
years beginning after December 31, 2000.
SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CER-
TAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL.—Paragraph (4) of section
1114(c) of the Tax Reform Act of 1986 is here-
by repealed.
(b) EFFECTIVE DATE.—The repeal made by
subsection (a) shall apply to plan years begin-
ning after December 31, 2001.
SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—The Secretary of the
Treasury shall modify Treasury Regulations
section 1.410(b)–6(g) to provide that employ-
ees of an organization described in section
403(b)(1)(A)(i) of the Internal Revenue Code of
1986 who are eligible to make contributions
under section 403(b) of such Code pursuant to
a salary reduction agreement may be treated
as excludable with respect to a plan under
section 401(k) or (m) of such Code that is pro-
290
vided under the same general arrangement as
a plan under such section 401(k), if—
(1) no employee of an organization
described in section 403(b)(1)(A)(i) of
such Code is eligible to participate in
such section 401(k) plan or section 401(m)
plan; and
(2) 95 percent of the employees who
are not employees of an organization de-
scribed in section 403(b)(1)(A)(i) of such
Code are eligible to participate in such
plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification re-
quired by subsection (a) shall apply as of the
same date set forth in section 1426(b) of the
Small Business Job Protection Act of 1996.
SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-
PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL.—Subsection (a) of section
132 (relating to exclusion from gross income)
is amended by striking ‘‘or’’ at the end of para-
graph (5), by striking the period at the end of
paragraph (6) and inserting ‘‘, or’’, and by add-
ing at the end the following new paragraph:
291
‘‘(7) qualified retirement planning
services.’’.
(b) QUALIFIED RETIREMENT PLANNING SERV-
ICES DEFINED.—Section 132 is amended by re-
designating subsection (m) as subsection (n)
and by inserting after subsection (l) the fol-
lowing:
‘‘(m) 
QUALIFIED
RETIREMENT
PLANNING
SERVICES.—
‘‘(1) IN GENERAL.—For purposes of this
section, the term ‘qualified retirement
planning services’ means any retirement
planning advice or information provided
to an employee and his spouse by an em-
ployer maintaining a qualified employer
plan.
‘‘(2) NONDISCRIMINATION
RULE.—Sub-
section (a)(7) shall apply in the case of
highly compensated employees only if
such services are available on substan-
tially the same terms to each member of
the group of employees normally pro-
vided education and information regard-
ing the employer’s qualified employer
plan.
292
‘‘(3) QUALIFIED
EMPLOYER
PLAN.—For
purposes of this subsection, the term
‘qualified employer plan’ means a plan,
contract, pension, or account described
in section 219(g)(5).’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to years be-
ginning after December 31, 2001.
SEC. 606. REPORTING SIMPLIFICATION.
(a) SIMPLIFIED ANNUAL FILING REQUIRE-
MENT FOR OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the
Treasury and the Secretary of Labor
shall modify the requirements for filing
annual returns with respect to one-par-
ticipant retirement plans to ensure that
such plans with assets of $250,000 or less
as of the close of the plan year need not
file a return for that year.
(2) ONE-PARTICIPANT RETIREMENT PLAN
DEFINED.—For 
purposes 
of 
this 
sub-
section, the term ‘‘one-participant retire-
ment plan’’ means a retirement plan
that—
293
(A) on the first day of the plan
year—
(i) covered only the employer
(and the employer’s spouse) and
the employer owned the entire
business (whether or not incor-
porated); or
(ii) covered only one or more
partners (and their spouses) in a
business partnership (including
partners in an S or C corpora-
tion);
(B) meets the minimum coverage
requirements of section 410(b) of the
Internal Revenue Code of 1986 with-
out being combined with any other
plan of the business that covers the
employees of the business;
(C) does not provide benefits to
anyone except the employer (and the
employer’s spouse) or the partners
(and their spouses);
(D) does not cover a business that
is a member of an affiliated service
group, a controlled group of corpora-
294
tions, or a group of businesses under
common control; and
(E) does not cover a business that
leases employees.
(3) OTHER
DEFINITIONS.—Terms used
in paragraph (2) which are also used in
section 414 of the Internal Revenue Code
of 1986 shall have the respective mean-
ings given such terms by such section.
(b) SIMPLIFIED ANNUAL FILING REQUIRE-
MENT FOR PLANS WITH FEWER THAN 25 EMPLOY-
EES.—In the case of plan years beginning after
December 31, 2002, the Secretary of the Treas-
ury and the Secretary of Labor shall provide
for the filing of a simplified annual return for
any retirement plan which covers less than 25
employees on the first day of a plan year and
which meets the requirements described in
subparagraphs (B), (D), and (E) of subsection
(a)(2).
(c) EFFECTIVE DATE.—The provisions of
this section shall take effect on January 1,
2002.
295
SEC. 607. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall con-
tinue to update and improve the Employee
Plans Compliance Resolution System (or any
successor program) giving special attention
to—
(1) increasing the awareness and
knowledge of small employers concerning
the availability and use of the program;
(2) taking into account special con-
cerns and circumstances that small em-
ployers face with respect to compliance
and correction of compliance failures;
(3) extending the duration of the self-
correction period under the Administra-
tive Policy Regarding Self-Correction for
significant compliance failures;
(4) expanding the availability to cor-
rect 
insignificant 
compliance 
failures
under the Administrative Policy Regard-
ing Self-Correction during audit; and
(5) assuring that any tax, penalty, or
sanction that is imposed by reason of a
compliance failure is not excessive and
296
bears a reasonable relationship to the na-
ture, extent, and severity of the failure.
SEC. 608. REPEAL OF THE MULTIPLE USE TEST.
(a) IN GENERAL.—Paragraph (9) of section
401(m) is amended to read as follows:
‘‘(9) 
REGULATIONS.—The 
Secretary
shall prescribe such regulations as may
be necessary to carry out the purposes of
this subsection and subsection (k), in-
cluding regulations permitting appro-
priate aggregation of plans and contribu-
tions.’’.
(b) EFFECTIVE
DATE.—The amendment
made by this section shall apply to years be-
ginning after December 31, 2001.
SEC. 609. FLEXIBILITY IN NONDISCRIMINATION, COV-
ERAGE, AND LINE OF BUSINESS RULES.
(a) NONDISCRIMINATION.—
(1) IN GENERAL.—The Secretary of the
Treasury shall, by regulation, provide
that a plan shall be deemed to satisfy the
requirements of section 401(a)(4) of the
Internal Revenue Code of 1986 if such
plan satisfies the facts and circumstances
test under section 401(a)(4) of such Code,
297
as in effect before January 1, 1994, but
only if—
(A) the plan satisfies conditions
prescribed by the Secretary to appro-
priately limit the availability of such
test; and
(B) the plan is submitted to the
Secretary for a determination of
whether it satisfies such test.
Subparagraph (B) shall only apply to the
extent provided by the Secretary.
(2) EFFECTIVE DATES.—
(A) REGULATIONS.—The regulation
required by paragraph (1) shall apply
to years beginning after December 31,
2003.
(B) CONDITIONS OF AVAILABILITY.—
Any condition of availability pre-
scribed by the Secretary under para-
graph (1)(A) shall not apply before
the first year beginning not less than
120 days after the date on which such
condition is prescribed.
(b) COVERAGE TEST.—
298
(1) IN GENERAL.—Section 410(b)(1) (re-
lating to minimum coverage require-
ments) is amended by adding at the end
the following:
‘‘(D) In the case that the plan fails
to meet the requirements of subpara-
graphs (A), (B) and (C), the plan—
‘‘(i) 
satisfies 
subparagraph
(B), as in effect immediately be-
fore the enactment of the Tax Re-
form Act of 1986,
‘‘(ii) is submitted to the Sec-
retary for a determination of
whether it satisfies the require-
ment described in clause (i), and
‘‘(iii) satisfies conditions pre-
scribed by the Secretary by regu-
lation that appropriately limit the
availability of this subparagraph.
Clause (ii) shall apply only to the ex-
tent provided by the Secretary.’’.
(2) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendment
made by paragraph (1) shall apply to
299
years beginning after December 31,
2003.
(B) CONDITIONS OF AVAILABILITY.—
Any condition of availability pre-
scribed by the Secretary under regu-
lations prescribed by the Secretary
under section 410(b)(1)(D) of the In-
ternal Revenue Code of 1986 shall not
apply before the first year beginning
not less than 120 days after the date
on which such condition is pre-
scribed.
(c) LINE
OF BUSINESS RULES.—The Sec-
retary of the Treasury shall, on or before De-
cember 31, 2003, modify the existing regula-
tions issued under section 414(r) of the Inter-
nal Revenue Code of 1986 in order to expand
(to the extent that the Secretary determines
appropriate) the ability of a pension plan to
demonstrate compliance with the line of busi-
ness requirements based upon the facts and
circumstances surrounding the design and
operation of the plan, even though the plan is
unable to satisfy the mechanical tests cur-
rently used to determine compliance.
300
SEC. 610. EXTENSION TO ALL GOVERNMENTAL PLANS OF
MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES APPLICABLE TO
STATE AND LOCAL PLANS.
(a) IN GENERAL.—
(1) 
Subparagraph 
(G) 
of 
section
401(a)(5) and subparagraph (H) of section
401(a)(26) are each amended by striking
‘‘section 414(d))’’ and all that follows and
inserting ‘‘section 414(d)).’’.
(2) 
Subparagraph 
(G) 
of 
section
401(k)(3) and paragraph (2) of section
1505(d) of the Taxpayer Relief Act of 1997
are each amended by striking ‘‘main-
tained by a State or local government or
political subdivision thereof (or agency
or instrumentality thereof)’’.
(b) CONFORMING AMENDMENTS.—
(1) The heading for subparagraph (G)
of section 401(a)(5) is amended to read as
follows: ‘‘GOVERNMENTAL PLANS’’.
(2) The heading for subparagraph (H)
of section 401(a)(26) is amended to read
as follows: ‘‘EXCEPTION FOR GOVERNMENTAL
PLANS’’.
301
(3) 
Subparagraph 
(G) 
of 
section
401(k)(3) is amended by inserting ‘‘GOV-
ERNMENTAL PLANS.—’’ after ‘‘(G)’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to years be-
ginning after December 31, 2001.
SEC. 611. NOTICE AND CONSENT PERIOD REGARDING DIS-
TRIBUTIONS.
(a) EXPANSION OF PERIOD.—
(1) AMENDMENT OF INTERNAL REVENUE
CODE.—
(A) 
IN
GENERAL.—Subparagraph
(A) of section 417(a)(6) is amended by
striking ‘‘90-day’’ and inserting ‘‘180-
day’’.
(B) 
MODIFICATION
OF
REGULA-
TIONS.—The Secretary of the Treasury
shall modify the regulations under
sections 402(f), 411(a)(11), and 417 of
the Internal Revenue Code of 1986 to
substitute ‘‘180 days’’ for ‘‘90 days’’
each place it appears in Treasury
Regulations 
sections 
1.402(f)–1,
1.411(a)–11(c), and 1.417(e)–1(b).
(2) AMENDMENT OF ERISA.—
302
(A) 
IN
GENERAL.—Section
205(c)(7)(A) of the Employee Retire-
ment Income Security Act of 1974 (29
U.S.C. 1055(c)(7)(A)) is amended by
striking ‘‘90-day’’ and inserting ‘‘180-
day’’.
(B) 
MODIFICATION
OF
REGULA-
TIONS.—The Secretary of the Treasury
shall modify the regulations under
part 2 of subtitle B of title I of the
Employee Retirement Income Secu-
rity Act of 1974 to the extent that
they relate to sections 203(e) and 205
of such Act to substitute ‘‘180 days’’
for ‘‘90 days’’ each place it appears.
(3) EFFECTIVE DATE.—The amendments
made by paragraph (1)(A) and (2) and the
modifications 
required 
by 
paragraph
(1)(B) shall apply to years beginning after
December 31, 2001.
(b) CONSENT REGULATION INAPPLICABLE TO
CERTAIN DISTRIBUTIONS.—
(1) IN GENERAL.—The Secretary of the
Treasury shall modify the regulations
under section 411(a)(11) of the Internal
303
Revenue Code of 1986 and under section
205 of the Employee Retirement Income
Security Act of 1974 to provide that the
description of a participant’s right, if
any, to defer receipt of a distribution
shall also describe the consequences of
failing to defer such receipt.
(2) EFFECTIVE
DATE.—The modifica-
tions required by paragraph (1) shall
apply to years beginning after December
31, 2001.
SEC. 612. ANNUAL REPORT DISSEMINATION.
(a) REPORT
AVAILABLE
THROUGH
ELEC-
TRONIC MEANS.—Section 104(b)(3) of the Em-
ployee Retirement Income Security Act of
1974 (29 U.S.C. 1024(b)(3)) is amended by add-
ing at the end the following new sentence:
‘‘The requirement to furnish information
under the previous sentence shall be satisfied
if the administrator makes such information
reasonably 
available 
through 
electronic
means or other new technology.’’.
(b) EFFECTIVE
DATE.—The amendment
made by this section shall apply to reports for
years beginning after December 31, 2000.
304
SEC. 613. TECHNICAL CORRECTIONS TO SAVER ACT.
Section 517 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1147)
is amended—
(1) in subsection (a), by striking ‘‘2001
and 2005 on or after September 1 of each
year involved’’ and inserting ‘‘2001, 2005,
and 2009 in the month of September of
each year involved’’;
(2) in subsection (b), by adding at the
end the following new sentence: ‘‘To ef-
fectuate the purposes of this paragraph,
the Secretary may enter into a coopera-
tive agreement, pursuant to the Federal
Grant and Cooperative Agreement Act of
1977 (31 U.S.C. 6301 et seq.), with the
American Savings Education Council or
any other appropriate, qualified entity.’’;
(3) in subsection (e)(2)—
(A) by striking ‘‘Committee on
Labor and Human Resources’’ in sub-
paragraph (D) and inserting ‘‘Com-
mittee on Health, Education, Labor,
and Pensions’’;
(B) by striking subparagraph (F)
and inserting the following:
305
‘‘(F) the Chairman and Ranking
Member of the Subcommittee on
Labor, Health and Human Services,
and Education of the Committee on
Appropriations of the House of Rep-
resentatives and the Chairman and
Ranking 
Member 
of 
the 
Sub-
committee 
on 
Labor, 
Health 
and
Human Services, and Education of
the Committee on Appropriations of
the Senate;’’;
(C) 
by 
redesignating 
subpara-
graph (G) as subparagraph (J); and
(D) by inserting after subpara-
graph (F) the following new subpara-
graphs:
‘‘(G) the Chairman and Ranking
Member of the Committee on Finance
of the Senate;
‘‘(H) the Chairman and Ranking
Member of the Committee on Ways
and Means of the House of Represent-
atives;
‘‘(I) the Chairman and Ranking
Member of the Subcommittee on Em-
306
ployer-Employee 
Relations 
of 
the
Committee on Education and the
Workforce of the House of Represent-
atives; and’’;
(4) in subsection (e)(3)—
(A) by striking ‘‘There shall be not
more than 200 additional partici-
pants.’’ in subparagraph (A) and in-
serting ‘‘The participants in the Na-
tional Summit shall also include addi-
tional participants appointed under
this subparagraph.’’;
(B) by striking ‘‘one-half shall be
appointed by the President,’’ in sub-
paragraph (A)(i) and inserting ‘‘not
more than 100 participants shall be
appointed under this clause by the
President,’’;
(C) by striking ‘‘one-half shall be
appointed by the elected leaders of
Congress’’ in subparagraph (A)(ii) and
inserting ‘‘not more than 100 partici-
pants shall be appointed under this
clause by the elected leaders of Con-
gress’’;
307
(D) 
by 
redesignating 
subpara-
graph (B) as subparagraph (C); and
(E) by inserting after subpara-
graph (A) the following new subpara-
graph:
‘‘(B) PRESIDENTIAL AUTHORITY FOR
ADDITIONAL APPOINTMENTS.—The Presi-
dent, in consultation with the elected
leaders of Congress referred to in
subsection (a), may appoint under
this subparagraph additional partici-
pants to the National Summit. The
number of such additional partici-
pants appointed under this subpara-
graph may not exceed the lesser of 3
percent of the total number of all ad-
ditional participants appointed under
this paragraph, or 10. Such additional
participants shall be appointed from
persons nominated by the organiza-
tion referred to in subsection (b)(2)
which is made up of private sector
businesses 
and 
associations
partnered with Government entities
to promote long term financial secu-
308
rity in retirement through savings
and with which the Secretary is re-
quired thereunder to consult and co-
operate and shall not be Federal,
State, or local government employ-
ees.’’;
(5) in subsection (e)(3)(C) (as redesig-
nated), by striking ‘‘January 31, 1998’’
and inserting ‘‘May 1, 2001, May 1, 2005,
and May 1, 2009, for each of the subse-
quent summits, respectively’’;
(6) in subsection (f)(1)(C), by inserting
‘‘, no later than 90 days prior to the date
of the commencement of the National
Summit,’’ after ‘‘comment’’;
(7) in subsection (g), by inserting ‘‘, in
consultation with the congressional lead-
ers specified in subsection (e)(2),’’ after
‘‘report’’ the first place it appears;
(8) in subsection (i)—
(A) by striking ‘‘beginning on or
after October 1, 1997’’ in paragraph
(1) and inserting ‘‘2001, 2005, and
2009’’; and
309
(B) by adding at the end the fol-
lowing new paragraph:
‘‘(3) RECEPTION
AND
REPRESENTATION
AUTHORITY.—The 
Secretary 
is 
hereby
granted reception and representation au-
thority limited specifically to the events
at the National Summit. The Secretary
shall use any private contributions ac-
cepted in connection with the National
Summit prior to using funds appro-
priated for purposes of the National Sum-
mit pursuant to this paragraph.’’; and
(9) in subsection (k)—
(A) by striking ‘‘shall enter into a
contract on a sole-source basis’’ and
inserting ‘‘may enter into a contract
on a sole-source basis’’; and
(B) by striking ‘‘fiscal year 1998’’
and inserting ‘‘fiscal years 2001, 2005,
and 2009’’.
TITLE VII—OTHER ERISA
PROVISIONS
SEC. 701. MISSING PARTICIPANTS.
(a) IN GENERAL.—Section 4050 of the Em-
ployee Retirement Income Security Act of
310
1974 (29 U.S.C. 1350) is amended by redesig-
nating subsection (c) as subsection (e) and by
inserting after subsection (b) the following
new subsections:
‘‘(c) MULTIEMPLOYER PLANS.—The corpora-
tion shall prescribe rules similar to the rules
in subsection (a) for multiemployer plans cov-
ered by this title that terminate under section
4041A.
‘‘(d) PLANS NOT OTHERWISE SUBJECT
TO
TITLE.—
‘‘(1) TRANSFER
TO
CORPORATION.—The
plan administrator of a plan described in
paragraph (4) may elect to transfer a
missing participant’s benefits to the cor-
poration upon termination of the plan.
‘‘(2) INFORMATION
TO
THE
CORPORA-
TION.—To the extent provided in regula-
tions, the plan administrator of a plan de-
scribed in paragraph (4) shall, upon ter-
mination of the plan, provide the cor-
poration information with respect to ben-
efits of a missing participant if the plan
transfers such benefits—
‘‘(A) to the corporation, or
311
‘‘(B) to an entity other than the
corporation or a plan described in
paragraph (4)(B)(ii).
‘‘(3) PAYMENT BY THE CORPORATION.—If
benefits of a missing participant were
transferred to the corporation under
paragraph (1), the corporation shall,
upon location of the participant or bene-
ficiary, pay to the participant or bene-
ficiary the amount transferred (or the ap-
propriate survivor benefit) either—
‘‘(A) in a single sum (plus inter-
est), or
‘‘(B) in such other form as is spec-
ified in regulations of the corpora-
tion.
‘‘(4) PLANS DESCRIBED.—A plan is de-
scribed in this paragraph if—
‘‘(A) the plan is a pension plan
(within the meaning of section 3(2))—
‘‘(i) to which the provisions of
this section do not apply (without
regard to this subsection), and
312
‘‘(ii) which is not a plan de-
scribed in paragraphs (2) through
(11) of section 4021(b), and
‘‘(B) at the time the assets are to
be distributed upon termination, the
plan—
‘‘(i) has missing participants,
and
‘‘(ii) has not provided for the
transfer of assets to pay the bene-
fits of all missing participants to
another pension plan (within the
meaning of section 3(2)).
‘‘(5) 
CERTAIN
PROVISIONS
NOT
TO
APPLY.—Subsections (a)(1) and (a)(3) shall
not apply to a plan described in para-
graph (4).’’.
(b) 
CONFORMING
AMENDMENTS.—Section
206(f) of such Act (29 U.S.C. 1056(f)) is
amended—
(1) by striking ‘‘title IV’’ and inserting
‘‘section 4050’’; and
(2) by striking ‘‘the plan shall provide
that,’’.
313
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to distribu-
tions made after final regulations imple-
menting subsections (c) and (d) of section
4050 of the Employee Retirement Income Se-
curity Act of 1974 (as added by subsection (a)),
respectively, are prescribed.
SEC. 702. REDUCED PBGC PREMIUM FOR NEW PLANS OF
SMALL EMPLOYERS.
(a) IN GENERAL.—Subparagraph (A) of sec-
tion 4006(a)(3) of the Employee Retirement In-
come 
Security 
Act 
of 
1974 
(29 
U.S.C.
1306(a)(3)(A)) is amended—
(1) in clause (i), by inserting ‘‘other
than a new single-employer plan (as de-
fined in subparagraph (F)) maintained by
a small employer (as so defined),’’ after
‘‘single-employer plan,’’,
(2) in clause (iii), by striking the pe-
riod at the end and inserting ‘‘, and’’, and
(3) by adding at the end the following
new clause:
‘‘(iv) in the case of a new single-em-
ployer plan (as defined in subparagraph
(F)) maintained by a small employer (as
314
so defined) for the plan year, $5 for each
individual who is a participant in such
plan during the plan year.’’.
(b) DEFINITION OF NEW SINGLE-EMPLOYER
PLAN.—Section 4006(a)(3) of the Employee Re-
tirement Income Security Act of 1974 (29
U.S.C. 1306(a)(3)) is amended by adding at the
end the following new subparagraph:
‘‘(F)(i) For purposes of this paragraph, a
single-employer plan maintained by a contrib-
uting sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years
if, during the 36-month period ending on the
date of the adoption of such plan, the sponsor
or any member of such sponsor’s controlled
group (or any predecessor of either) did not
establish or maintain a plan to which this title
applies with respect to which benefits were
accrued for substantially the same employees
as are in the new single-employer plan.
‘‘(ii)(I) For purposes of this paragraph, the
term ‘small employer’ means an employer
which on the first day of any plan year has,
in aggregation with all members of the con-
315
trolled group of such employer, 100 or fewer
employees.
‘‘(II) In the case of a plan maintained by
two or more contributing sponsors that are
not part of the same controlled group, the em-
ployees of all contributing sponsors and con-
trolled groups of such sponsors shall be ag-
gregated for purposes of determining whether
any contributing sponsor is a small em-
ployer.’’.
(c) EFFECTIVE
DATE.—The amendments
made by this section shall apply to plans es-
tablished after December 31, 2001.
SEC. 703. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR
NEW AND SMALL PLANS.
(a) NEW PLANS.—Subparagraph (E) of sec-
tion 4006(a)(3) of the Employee Retirement In-
come 
Security 
Act 
of 
1974 
(29 
U.S.C.
1306(a)(3)(E)) is amended by adding at the
end the following new clause:
‘‘(v) In the case of a new defined benefit
plan, the amount determined under clause (ii)
for any plan year shall be an amount equal to
the product of the amount determined under
clause (ii) and the applicable percentage. For
316
purposes of this clause, the term ‘applicable
percentage’ means—
‘‘(I) 0 percent, for the first plan year.
‘‘(II) 20 percent, for the second plan
year.
‘‘(III) 40 percent, for the third plan
year.
‘‘(IV) 60 percent, for the fourth plan
year.
‘‘(V) 80 percent, for the fifth plan
year.
For purposes of this clause, a defined benefit
plan (as defined in section 3(35)) maintained
by a contributing sponsor shall be treated as
a new defined benefit plan for each of its first
5 plan years if, during the 36-month period
ending on the date of the adoption of the plan,
the sponsor and each member of any con-
trolled group including the sponsor (or any
predecessor of either) did not establish or
maintain a plan to which this title applies
with respect to which benefits were accrued
for substantially the same employees as are in
the new plan.’’.
317
(b) SMALL PLANS.—Paragraph (3) of sec-
tion 4006(a) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1306(a)),
as amended by section 702(b), is amended—
(1) by striking ‘‘The’’ in subparagraph
(E)(i) and inserting ‘‘Except as provided
in subparagraph (G), the’’, and
(2) by inserting after subparagraph
(F) the following new subparagraph:
‘‘(G)(i) In the case of an employer who has
25 or fewer employees on the first day of the
plan year, the additional premium deter-
mined under subparagraph (E) for each par-
ticipant shall not exceed $5 multiplied by the
number of participants in the plan as of the
close of the preceding plan year.
‘‘(ii) For purposes of clause (i), whether an
employer has 25 or fewer employees on the
first day of the plan year is determined taking
into consideration all of the employees of all
members of the contributing sponsor’s con-
trolled group. In the case of a plan main-
tained by two or more contributing sponsors,
the employees of all contributing sponsors
and their controlled groups shall be aggre-
318
gated for purposes of determining whether
the 25-or-fewer-employees limitation has been
satisfied.’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendments
made by subsection (a) shall apply to
plans established after December 31,
2001.
(2) SUBSECTION (b).—The amendments
made by subsection (b) shall apply to
plan years beginning after December 31,
2001.
SEC. 704. AUTHORIZATION FOR PBGC TO PAY INTEREST ON
PREMIUM OVERPAYMENT REFUNDS.
(a) IN GENERAL.—Section 4007(b) of the
Employment Retirement Income Security Act
of 1974 (29 U.S.C. 1307(b)) is amended—
(1) by striking ‘‘(b)’’ and inserting
‘‘(b)(1)’’, and
(2) by inserting at the end the fol-
lowing new paragraph:
‘‘(2) The corporation is authorized to pay,
subject to regulations prescribed by the cor-
poration, interest on the amount of any over-
payment of premium refunded to a des-
319
ignated payor. Interest under this paragraph
shall be calculated at the same rate and in the
same manner as interest is calculated for un-
derpayments under paragraph (1).’’.
(b) EFFECTIVE
DATE.—The amendment
made by subsection (a) shall apply to interest
accruing for periods beginning not earlier
than the date of the enactment of this Act.
SEC. 705. SUBSTANTIAL OWNER BENEFITS IN TERMINATED
PLANS.
(a) MODIFICATION
OF PHASE-IN
OF GUAR-
ANTEE.—Section 4022(b)(5) of the Employee
Retirement Income Security Act of 1974 (29
U.S.C. 1322(b)(5)) is amended to read as fol-
lows:
‘‘(5)(A) For purposes of this paragraph,
the term ‘majority owner’ means an indi-
vidual who, at any time during the 60-month
period ending on the date the determination
is being made—
‘‘(i) owns the entire interest in an un-
incorporated trade or business,
‘‘(ii) in the case of a partnership, is a
partner who owns, directly or indirectly,
50 percent or more of either the capital
320
interest or the profits interest in such
partnership, or
‘‘(iii) in the case of a corporation,
owns, directly or indirectly, 50 percent or
more in value of either the voting stock
of that corporation or all the stock of
that corporation.
For purposes of clause (iii), the constructive
ownership rules of section 1563(e) of the In-
ternal Revenue Code of 1986 shall apply (de-
termined 
without 
regard 
to 
section
1563(e)(3)(C)).
‘‘(B) In the case of a participant who is a
majority owner, the amount of benefits guar-
anteed under this section shall equal the
product of—
‘‘(i) a fraction (not to exceed 1) the
numerator of which is the number of
years from the later of the effective date
or the adoption date of the plan to the
termination date, and the denominator of
which is 10, and
‘‘(ii) the amount of benefits that
would be guaranteed under this section if
321
the participant were not a majority
owner.’’.
(b) MODIFICATION
OF ALLOCATION
OF AS-
SETS.—
(1) Section 4044(a)(4)(B) of the Em-
ployee Retirement Income Security Act of
1974 (29 U.S.C. 1344(a)(4)(B)) is amended
by striking ‘‘section 4022(b)(5)’’ and in-
serting ‘‘section 4022(b)(5)(B)’’.
(2) Section 4044(b) of such Act (29
U.S.C. 1344(b)) is amended—
(A) by striking ‘‘(5)’’ in paragraph
(2) and inserting ‘‘(4), (5),’’, and
(B) by redesignating paragraphs
(3) through (6) as paragraphs (4)
through (7), respectively, and by in-
serting after paragraph (2) the fol-
lowing new paragraph:
‘‘(3) If assets available for allocation
under paragraph (4) of subsection (a) are
insufficient to satisfy in full the benefits
of all individuals who are described in
that paragraph, the assets shall be allo-
cated first to benefits described in sub-
paragraph (A) of that paragraph. Any re-
322
maining assets shall then be allocated to
benefits described in subparagraph (B) of
that paragraph. If assets allocated to
such subparagraph (B) are insufficient to
satisfy in full the benefits described in
that subparagraph, the assets shall be al-
located pro rata among individuals on
the basis of the present value (as of the
termination date) of their respective ben-
efits described in that subparagraph.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 4021 of the Employee Re-
tirement Income Security Act of 1974 (29
U.S.C. 1321) is amended—
(A) in subsection (b)(9), by strik-
ing ‘‘as defined in section 4022(b)(6)’’,
and
(B) by adding at the end the fol-
lowing new subsection:
‘‘(d) For purposes of subsection (b)(9), the
term ‘substantial owner’ means an individual
who, at any time during the 60-month period
ending on the date the determination is being
made—
323
‘‘(1) owns the entire interest in an un-
incorporated trade or business,
‘‘(2) in the case of a partnership, is a
partner who owns, directly or indirectly,
more than 10 percent of either the capital
interest or the profits interest in such
partnership, or
‘‘(3) in the case of a corporation,
owns, directly or indirectly, more than 10
percent in value of either the voting
stock of that corporation or all the stock
of that corporation.
For purposes of paragraph (3), the construc-
tive ownership rules of section 1563(e) of the
Internal Revenue Code of 1986 shall apply
(determined 
without 
regard 
to 
section
1563(e)(3)(C)).’’.
(2) Section 4043(c)(7) of such Act (29 U.S.C.
1343(c)(7)) is amended by striking ‘‘section
4022(b)(6)’’ and inserting ‘‘section 4021(d)’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided
in paragraph (2), the amendments made
by this section shall apply to plan
terminations—
324
(A) under section 4041(c) of the
Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1341(c))
with respect to which notices of in-
tent to terminate are provided under
section 4041(a)(2) of such Act (29
U.S.C. 1341(a)(2)) after December 31,
2001, and
(B) under section 4042 of such Act
(29 U.S.C. 1342) with respect to which
proceedings are instituted by the cor-
poration after such date.
(2) 
CONFORMING
AMENDMENTS.—The
amendments made by subsection (c) shall
take effect on January 1, 2002.
SEC. 706. CIVIL PENALTIES FOR BREACH OF FIDUCIARY
RESPONSIBILITY.
(a) IMPOSITION
AND AMOUNT
OF PENALTY
MADE DISCRETIONARY.—Section 502(l)(1) of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1132(l)(1)) is amended—
(1) by striking ‘‘shall’’ and inserting
‘‘may’’, and
(2) by striking ‘‘equal to’’ and insert-
ing ‘‘not greater than’’.
325
(b) APPLICABLE RECOVERY AMOUNT.—Sec-
tion 502(l)(2) of such Act (29 U.S.C. 1132(l)(2))
is amended by inserting after ‘‘fiduciary or
other person’’ the following: ‘‘(or from any
other person on behalf of any such fiduciary
or other person)’’.
(c) OTHER RULES.—Section 502(l) of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1132(l)) is amended by adding
at the end the following new paragraphs:
‘‘(5) A person shall be jointly and severally
liable for the penalty described in paragraph
(1) to the same extent that such person is
jointly and severally liable for the applicable
recovery amount on which the penalty is
based.
‘‘(6) No penalty shall be assessed under
this subsection unless the person against
whom the penalty is assessed is given notice
and opportunity for a hearing with respect to
the 
violation 
and 
applicable 
recovery
amount.’’.
(d) EFFECTIVE
DATE.—The amendments
made by this section shall apply to any breach
of fiduciary responsibility or other violation
326
of part 4 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974 oc-
curring on or after the date of the enactment
of this Act.
SEC. 707. BENEFIT SUSPENSION NOTICE.
(a) MODIFICATION
OF
REGULATION.—The
Secretary of Labor shall modify the regula-
tion under subparagraph (B) of section
203(a)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1053(a)(3)(B))
to provide that the notification required by
such regulation in connection with any sus-
pension 
of 
benefits 
described 
in 
such
subparagraph—
(1) in the case of an employee who re-
turns to service under the plan after com-
mencement of payment of benefits under
the plan—
(A) shall be made during the first
calendar month or payroll period in
which the plan withholds payments,
and
(B) if a reduced rate of future
benefit accrual will apply to the re-
turning employee (as of the first date
327
of participation in the plan by the
employee after returning to work),
shall include a statement that the
rate of future benefit accrual will be
reduced, and
(2) in the case of any employee who is
not described in paragraph (1)—
(A) may be included in the sum-
mary plan description for the plan
furnished in accordance with section
104(b) of such Act (29 U.S.C. 1024(b)),
rather than in a separate notice, and
(B) need not include a copy of the
relevant plan provisions.
(b) EFFECTIVE
DATE.—The modification
made under this section shall apply to plan
years beginning after December 31, 2001.
SEC. 708. STUDIES.
(a) MODEL SMALL EMPLOYER GROUP PLANS
STUDY.—As soon as practicable after the date
of the enactment of this Act, the Secretary of
Labor, in consultation with the Secretary of
the Treasury, shall conduct a study to
determine—
328
(1) the most appropriate form or
forms of—
(A) 
employee 
pension 
benefit
plans which would—
(i) be simple in form and eas-
ily maintained by multiple small
employers, and
(ii) provide for ready port-
ability of benefits for all partici-
pants and beneficiaries,
(B) alternative arrangements pro-
viding comparable benefits which
may be established by employee or
employer associations, and
(C) alternative arrangements pro-
viding comparable benefits to which
employees may contribute in a man-
ner independent of employer sponsor-
ship, and
(2) appropriate methods and strate-
gies for making pension plan coverage
described in paragraph (1) more widely
available to American workers.
(b) MATTERS TO BE CONSIDERED.—In con-
ducting the study under subsection (a), the
329
Secretary of Labor shall consider the ade-
quacy and availability of existing employee
pension benefit plans and the extent to which
existing models may be modified to be more
accessible to both employees and employers.
(c) REPORT.—Not later than 18 months
after the date of the enactment of this Act, the
Secretary of Labor shall report the results of
the study under subsection (a), together with
the Secretary’s recommendations, to the Com-
mittee on Education and the Workforce and
the Committee on Ways and Means of the
House of Representatives and the Committee
on Health, Education, Labor, and Pensions
and the Committee on Finance of the Senate.
Such recommendations shall include one or
more model plans described in subsection
(a)(1)(A) and model alternative arrangements
described 
in 
subsections 
(a)(1)(B) 
and
(a)(1)(C) which may serve as the basis for ap-
propriate administrative or legislative action.
(d) STUDY ON EFFECT OF LEGISLATION.—Not
later than 5 years after the date of the enact-
ment of this Act, the Secretary of Labor shall
submit to the Committee on Education and
330
the Workforce of the House of Representa-
tives and the Committee on Health, Edu-
cation, Labor, and Pensions of the Senate a
report on the effect of the provisions of this
Act on pension plan coverage, including any
change in—
(1) the extent of pension plan cov-
erage for low and middle-income work-
ers,
(2) the levels of pension plan benefits
generally,
(3) the quality of pension plan cov-
erage generally,
(4) workers’ access to and participa-
tion in pension plans, and
(5) retirement security.
TITLE VIII—PLAN AMENDMENTS
SEC. 801. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to
any plan or contract amendment—
(1) such plan or contract shall be
treated as being operated in accordance
with the terms of the plan during the pe-
riod described in subsection (b)(2)(A);
and
331
(2) except as provided by the Sec-
retary of the Treasury, such plan shall
not fail to meet the requirements of sec-
tion 411(d)(6) of the Internal Revenue
Code of 1986 or section 204(g) of the Em-
ployee Retirement Income Security Act of
1974 by reason of such amendment.
(b) AMENDMENTS
TO WHICH SECTION AP-
PLIES.—
(1) IN
GENERAL.—This section shall
apply to any amendment to any plan or
annuity contract which is made—
(A) pursuant to any amendment
made by this Act, or pursuant to any
regulation issued under this Act; and
(B) on or before the last day of
the first plan year beginning on or
after January 1, 2004.
In the case of a governmental plan (as de-
fined in section 414(d) of the Internal
Revenue Code of 1986), this paragraph
shall be applied by substituting ‘‘2006’’ for
‘‘2004’’.
(2) CONDITIONS.—This section shall
not apply to any amendment unless—
332
(A) during the period—
(i) beginning on the date the
legislative or regulatory amend-
ment 
described 
in 
paragraph
(1)(A) takes effect (or in the case
of a plan or contract amendment
not required by such legislative
or regulatory amendment, the ef-
fective 
date 
specified 
by 
the
plan); and
(ii) ending on the date de-
scribed in paragraph (1)(B) (or, if
earlier, the date the plan or con-
tract amendment is adopted),
the plan or contract is operated as if
such plan or contract amendment
were in effect; and
(B) such plan or contract amend-
ment applies retroactively for such
period.
Union Calendar No. 33
107TH CONGRESS
1ST SESSION
H. R. 10
[Report No. 107–51, Parts I and II]
A BILL
To provide for pension reform, and for other
purposes.
MAY 1, 2001
Reported from the Committee on Education and the
Workforce with an amendment; committed to the Com-
mittee of the Whole House on the State of the Union,
and ordered to be printed