factors would increase for each plan
year beginning after the effective date
of the plan amendment at a rate equal
to the median average of the CPI in-
crease percentage (as defined in sec-
tion 215(i) of the Social Security Act)
for the 5 calendar years immediately
preceding the calendar year before the
calendar year in which such effective
date occurs.
‘‘(III) BENEFIT
FACTORS.—For
purposes of subclause (II), the term
‘benefit factors’ means social security
benefits and all other relevant factors
under section 411(b)(1)(A) used to
compute benefits under the plan
which had increased from the 2d plan
year preceding the plan year in which
the effective date of the plan amend-
ment occurs to the 1st such preceding
plan year.
‘‘(iii) NORMAL
RETIREMENT
AGE.—
The term ‘normal retirement age’ means
the later of—
‘‘(I) the date determined under
section 411(a)(8), or
‘‘(II) the date a plan participant
attains age 62.’’.
(b) AMENDMENTS TO ERISA.—
(1) BENEFIT STATEMENT REQUIREMENT.—Sec-
tion 204(h) of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1054(h)) is amended
by adding at the end the following new paragraphs:
‘‘(3)(A) If paragraph (1) applies to the adop-
tion of a plan amendment by a large defined benefit
plan, the plan administrator shall, after adoption of
such amendment and not less than 45 days before
its effective date, provide with the notice under para-
graph (1) a written statement of benefit change de-
scribed in subparagraph (B) to each applicable indi-
vidual.
‘‘(B) A statement of benefit change described in
this subparagraph shall—
‘‘(i) be written in a manner calculated to
be understood by the average plan participant,
and
‘‘(ii) include the information described in
subparagraph (C).
‘‘(C) The information described in this subpara-
graph includes the following:
‘‘(i) A comparison of the following amounts
under the plan with respect to an applicable in-
dividual, determined both with and without re-
gard to the plan amendment:
‘‘(I) The accrued benefit and the
present value of the accrued benefit as of
the effective date.
‘‘(II) The projected accrued benefit
and the projected present value of the ac-
crued benefit as of the date which is 3
years, 5 years, and 10 years from the ef-
fective date and as of the normal retire-
ment age.
‘‘(ii) A table of all annuity factors used to
calculate benefits under the plan, presented in
the form provided in section 72 of the Internal
Revenue Code of 1986 and the regulations
thereunder.
Benefits described in clause (i) shall be stated sepa-
rately and shall be calculated by using the applicable
mortality table and the applicable interest rate
under section 417(e)(3)(A) of such Code.
‘‘(D) For purposes of this paragraph—
‘‘(i) The term ‘large defined benefit plan’
means any defined benefit plan which had 100
or more participants who had accrued a benefit
under the plan (whether or not vested) as of the
last day of the plan year preceding the plan
year in which the plan amendment becomes ef-
fective.
‘‘(ii) The term ‘applicable individual’
means an individual described in subparagraph
(A) or (B) of paragraph (1).
‘‘(E) For purposes of this paragraph—
‘‘(i) The present value of an accrued ben-
efit of any applicable individual shall be cal-
culated as if the accrued benefit were in the
form of a single life annuity commencing at the
participant’s normal retirement age (and by
taking into account any early retirement sub-
sidy).
‘‘(ii)(I) The projected accrued benefit of
any applicable individual shall be calculated as
if the benefit were payable in the form of a sin-
gle life annuity commencing at the participant’s
normal retirement age (and by taking into ac-
count any early retirement subsidy).
‘‘(II) Such benefit shall be calculated by
assuming that compensation and all other ben-
efit factors would increase for each plan year
beginning after the effective date of the plan
amendment at a rate equal to the median aver-
age of the CPI increase percentage (as defined
in section 215(i) of the Social Security Act) for
the 5 calendar years immediately preceding the
calendar year before the calendar year in which
such effective date occurs.
‘‘(III) For purposes of subclause (II), the
term ‘benefit factors’ means social security ben-
efits and all other relevant factors under section
204(b)(1)(A) used to compute benefits under
the plan which had increased from the 2d plan
year preceding the plan year in which the effec-
tive date of the plan amendment occurs to the
1st such preceding plan year.
‘‘(iii) The term ‘normal retirement age’
means the later of—
‘‘(I) the date determined under sec-
tion 3(24), or
‘‘(II) the date a plan participant at-
tains age 62.
‘‘(4) A plan administrator shall not be treated
as failing to meet the requirements of this sub-
section merely because the notice or statement is
provided before the adoption of the plan amendment
if no material modification of the amendment occurs
before the amendment is adopted.’’.
(2) 
CONFORMING
AMENDMENT.—Section
204(h)(1) of such Act (29 U.S.C. 1054(h)(1)) is
amended by inserting ‘‘(including any written state-
ment of benefit change if required by paragraph
(3))’’ after ‘‘written notice’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan amendments taking
effect in plan years beginning after December 31,
1998.
(2) SPECIAL 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.
SEC. 3. AGE-BASED REDUCTIONS IN THE RATE AT WHICH
BENEFITS ACCRUE UNDER A CASH BALANCE
PLAN VIOLATE AGE DISCRIMINATION RULE.
(a) DIRECTIVE.—The Secretary of the Treasury shall
apply section 411(b)(1)(H) of the Internal Revenue Code
of 1986 without regard to the portion of the preamble to
Treasury Decision 8360 (56 Fed. Reg. 47524–47603,
September 19, 1991) which relates to the allocation of in-
terest adjustments through normal retirement age under
a cash balance plan, as such preamble is and has been
since its adoption without the force of law.
(b) SAFE HARBOR IF NOTICE AND ELECTION TO
CONTINUE BENEFIT ACCRUALS UNDER FORMER DE-
FINED BENEFIT PLAN INSTEAD OF UNDER CASH BAL-
ANCE PLAN.—
(1) AMENDMENT
TO
INTERNAL
REVENUE
CODE.—Paragraph (1) of section 411(b) of the In-
ternal Revenue Code of 1986 (relating to defined
benefit plans) is amended by adding at the end the
following new subparagraph:
‘‘(I) ELECTION TO CONTINUE BENEFIT AC-
CRUALS
UNDER
FORMER
DEFINED
BENEFIT
PLAN
INSTEAD
OF
UNDER
CASH
BALANCE
PLAN.—
‘‘(i) IN
GENERAL.—A large defined
benefit plan that adopts an amendment
which results in such plan becoming a cash
balance plan shall be treated as not meet-
ing the requirements of this paragraph un-
less such plan provides each participant
with—
‘‘(I) notice and a written state-
ment of benefit change which meets
the 
requirements 
of 
section
401(a)(35), and
‘‘(II) an election to continue to
accrue benefits under such plan, de-
termined under the terms of such plan
as in effect immediately before the ef-
fective date of such plan amendment.
‘‘(ii) 
PROTECTED
ACCRUED
BEN-
EFIT.—For purposes of clause (i), an ac-
crued benefit shall include any early retire-
ment benefit or retirement-type subsidy
(within 
the 
meaning 
of 
subsection
(d)(6)(B)(i)), but only with respect to a
participant who satisfies (either before or
after the effective date of the amendment)
the conditions for the benefit or subsidy
under the terms of the plan as in effect
immediately before such date.
‘‘(iii) TIMING OF ELECTION.—Except
as provided in regulations, the election re-
quired by clause (i)(II) shall be provided
within a reasonable time before the effec-
tive date of the amendment resulting in
the plan becoming a cash balance plan.
‘‘(iv) CASH BALANCE PLAN.—For pur-
poses of this paragraph, the term ‘cash
balance plan’ means a defined benefit plan
under which the rate of benefit accrual of
any 1 participant for a year of service is
reduced as the years of service of such par-
ticipant increase.’’.
(2) AMENDMENT TO ERISA.—Section 204(g) of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1054(g)) is amended by adding at
the end the following new paragraph:
‘‘(4)(A) For purposes of paragraph (1), in the case
of a plan amendment adopted by a large defined benefit
plan (as defined in subsection (h)(3)) which results in such
plan becoming a cash balance plan, such defined benefit
plan shall be treated as not satisfying the requirements
of this section unless such plan provides each participant
with—
‘‘(i) notice and a written statement of benefit
change which meets the requirements of subsection
(h)(3), and
‘‘(ii) an election to continue to accrue benefits
under such plan, determined under the terms of
such plan as in effect immediately before the effec-
tive date of such plan amendment.
‘‘(B) For purposes of subparagraph (A), an accrued
benefit shall include any early retirement benefit or retire-
ment-type subsidy (within the meaning of paragraph
(2)(A)), but only with respect to a participant who satis-
fies (either before or after the effective date of the amend-
ment) the conditions for the benefit or subsidy under the
terms of the plan as in effect immediately before such
date.
‘‘(C) Except as provided in regulations, the election
required by subparagraph (A)(ii) shall be provided within
a reasonable time before the effective date of the amend-
ment resulting in the plan becoming a cash balance plan.
‘‘(D) For purposes of this paragraph, the term ‘cash
balance plan’ means a defined benefit plan under which
the rate of benefit accrual of any 1 participant for a year
of service is reduced as the years of service of such partici-
pant increase.’’.
(c) EXCISE TAX
ON FAILURE TO OFFER ELEC-
TION.—
(1) IN GENERAL.—Chapter 43 of subtitle D of
the Internal Revenue Code of 1986 (relating to
qualified pension, etc., plans) is amended by adding
at the end the following new section:
‘‘SEC. 4980F. FAILURE TO OFFER ELECTION TO CONTINUE
BENEFIT ACCRUALS UNDER FORMER DE-
FINED BENEFIT PLAN IN EVENT OF SIGNIFI-
CANT REDUCTIONS IN FUTURE BENEFIT AC-
CRUALS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the failure of any applicable pension plan to meet
the requirements of subsection (d).
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) shall be 50 percent of the
amount of the excess pension assets in such plan,
determined as of the effective date of the amend-
ment which has the effect of significantly reducing
the rate of future benefit accrual of 1 or more par-
ticipants.
‘‘(2) EXCESS PENSION ASSETS.—For purposes
of paragraph (1), the term ‘excess pension assets’
has the meaning given to such term by section
420(e)(2).
‘‘(c) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):