I 
109TH CONGRESS 
1ST SESSION H. R. 1508 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
Income Security Act of 1974 to facilitate automatic enrollment in 401(k) 
plans, and for related purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 6, 2005 
Mr. EMANUEL (for himself, Mr. COOPER, Ms. HARMAN, Mr. VAN HOLLEN, 
Ms. WASSERMAN SCHULTZ, and Mr. BECERRA) introduced the following 
bill; which was referred to the Committee on Education and the Work-
force, and in addition to the Committee on Ways and Means, for a period 
to be subsequently determined by the Speaker, in each case for consider-
ation of such provisions as fall within the jurisdiction of the committee 
concerned 
A BILL 
To amend the Internal Revenue Code of 1986 and the Em-
ployee Retirement Income Security Act of 1974 to facili-
tate automatic enrollment in 401(k) plans, and for re-
lated purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘401(k) Automatic En-
rollment Act of 2005’’.
SEC. 2. AUTOMATIC ENROLLMENT ARRANGEMENTS. 
(a) IN GENERAL.—Section 401(k) of such Code is 
amended by adding at the end the following new para-
graph: 
‘‘(13) AUTOMATIC
ENROLLMENT
ARRANGE-
MENTS.— 
‘‘(A) IN GENERAL.—If the requirements of 
subparagraphs (B) through (F) are met, a cash 
or deferred arrangement shall not fail to be 
treated as satisfying the requirements of para-
graph (2)(A) merely because elective deferrals 
(as defined in section 402(g)(3)) are contrib-
uted on behalf of eligible employees to a trust 
under the plan of which such arrangement is a 
part without an affirmative election by the em-
ployee to make such contributions. 
‘‘(B) ELECTION
OUT.—The requirements 
of this subparagraph are met if the employee 
may elect to receive any future amount of the 
contributions described in subparagraph (A) di-
rectly in cash in lieu of such contributions. 
‘‘(C) AMOUNT
OF
CONTRIBUTIONS.—The 
requirements of this subparagraph are met if 
the contributions described in subparagraph (A) 
are made in an amount equal to—
‘‘(i) in the case of an employee with 
respect to whom an election is in effect 
under subparagraph (B), zero, 
‘‘(ii) in the case of an employee who 
makes an affirmative election regarding 
the specific amount of such contributions 
(expressed either as a percentage or as a 
dollar amount of compensation), such 
amount, and 
‘‘(iii) in the case of any other em-
ployee, such percentage or dollar amount 
of compensation as is specified under the 
plan for purposes of this paragraph, 
provided that is subparagraphs (A) and (B) 
apply to fewer than all eligible employees, the 
automatic enrollment arrangement shall be 
treated as applying to such employees and to 
the employees who are described in clauses (i) 
and (ii). 
‘‘(D) INVESTMENT OF CONTRIBUTIONS.— 
The requirements of this subparagraph are met 
if the contributions described in subparagraph 
(A) are not invested in qualifying employer se-
curities (as defined in section 4975(e)(8)) or 
qualifying employer real property (as defined in
section 407(d)(4) of the Employee Retirement 
Income Security Act of 1974) unless such in-
vestment is affirmatively elected by the em-
ployee. 
‘‘(E) TIME OF CONTRIBUTIONS.—The re-
quirements of this subparagraph are met if the 
contributions described in subparagraph (A) 
with respect to any employee begin not later 
than the date described in section 410(a)(4) 
with respect to such employee. 
‘‘(F) NOTICE.—The requirements of this 
subparagraph are met if the employer provides 
notice, as follows: 
‘‘(i) IN GENERAL.—The administrator 
of a plan which includes an automatic en-
rollment arrangement (determined without 
regard to this subparagraph) shall, within 
a reasonable period before the first day of 
each plan year, give to each employee to 
whom an automatic enrollment arrange-
ment applies for such plan year notice of 
the employee’s rights and obligations under 
the arrangement which—
‘‘(I) is sufficiently accurate and 
comprehensive to apprise the employee 
of such rights and obligations, and 
‘‘(II) is written in a manner cal-
culated to be understood by the aver-
age employee to whom the arrange-
ment applies. 
‘‘(ii) REQUIREMENTS.— A notice shall 
not be treated as meeting the requirements 
of clause (i) with respect to an employee 
unless— 
‘‘(I) the notice includes an expla-
nation of the employee’s right under 
the arrangement to elect not to have 
elective contributions made on the em-
ployee’s behalf (or to elect to have 
such contributions made at a different 
percentage or rate than that specified 
as the automatic enrollment contribu-
tion percentage), including how and 
when such elections may be made, 
‘‘(II) the employee has a reason-
able period of time, after receipt of 
the notice and before the first elective 
contribution is made on the employ-
ee’s behalf pursuant to automatic en-
rollment, to make such election, 
‘‘(III) the notice describes any 
employer matching contributions or 
other employer contributions available 
under the arrangement, and 
‘‘(IV) the notice explains how 
contributions made under the ar-
rangement will be invested in the ab-
sence of any investment election by 
the employee. 
‘‘(G) UNWIND DISTRIBUTIONS.— 
‘‘(i) IN GENERAL.—An automatic en-
rollment arrangement shall not fail to be 
treated as a qualified cash or deferred ar-
rangement merely because the plan allows 
an employee to opt out retroactively to the 
beginning of the plan year and make an 
unwind distribution during such plan year 
if such employee is not eligible to make 
elective contributions to the plan during 
the remainder of the plan year after the 
date of such distribution. This clause shall 
not apply more than once with respect to 
any employee of an employer.
‘‘(ii) TAX TREATMENT OF DISTRIBU-
TION.—An unwind distribution shall be in-
cludible in the gross income of the em-
ployee. No tax shall be imposed under sec-
tion 72(t) on any such distribution. 
‘‘(iii) UNWIND
DISTRIBUTION
DE-
FINED.—For purposes of this subpara-
graph, the term ‘unwind distribution’ 
means a distribution to a participant who 
is not a highly compensated employee (as 
defined in section 414(q)) of contributions 
described in subparagraph (A) (and earn-
ings attributable thereto) from an auto-
matic enrollment arrangement in which the 
account balance of the participant imme-
diately before such distribution does not 
exceed the greater of— 
‘‘(I) $400, or 
‘‘(II) the amount of such con-
tributions made in connection with 
not more than the first 4 payroll peri-
ods following the application of sub-
paragraph (A) to the participant. 
‘‘(iv) 
EMPLOYER
MATCHING
CON-
TRIBUTIONS.—In the case of any unwind
distribution, employer matching contribu-
tions shall be forfeited or subject to such 
other treatment as the Secretary may pre-
scribe through regulations or other guid-
ance. 
‘‘(v) UNWOUND CONTRIBUTIONS NOT 
TAKEN INTO ACCOUNT.—Contributions at-
tributable to an unwind distribution shall 
not be taken into account for purposes of 
paragraph (3). 
‘‘(H) 
AUTOMATIC
OR
AFFIRMATIVELY 
ELECTED
INCREASE
IN
CONTRIBUTION 
AMOUNTS.—An automatic enrollment arrange-
ment shall not fail to be treated as a qualified 
cash or deferred arrangement merely because 
the plan— 
‘‘(i) permits eligible employees to elect 
to have the percentage or dollar amount 
described in subparagraph (C)(iii) auto-
matically increased from time to time in 
the future by a specified percentage or dol-
lar amount of compensation based on such 
factors as increases in compensation, pas-
sage of time, or increases in years of serv-
ice or participation, or
‘‘(ii) provides for one or more of the 
increases described in clause (i) to occur 
automatically unless the eligible employee 
elects otherwise, 
provided that, in the case of either clause (i) or 
(ii), the employee may elect to stop such in-
creases with respect to any future contributions. 
‘‘(I) REGULATIONS AND REPORTING.—The 
Secretary is authorized to prescribe regulations 
or other administrative guidance to carry out 
this paragraph, including— 
‘‘(i) simplified methods of reporting 
and otherwise implementing the unwind of 
tax consequences and plan qualification 
consequences in order to simplify those 
consequences for participants and plan 
sponsors, and 
‘‘(ii) simplified methods for plan ad-
ministrators to implement automatic en-
rollment arrangements and any provisions 
necessary to prevent abuse in connection 
with such arrangements.. 
‘‘(J) AUTOMATIC ENROLLMENT ARRANGE-
MENT.—For purposes of this paragraph, the 
term 
‘automatic 
enrollment 
arrangement’
means an arrangement to which subparagraph 
(A) applies.’’. 
(b) SAFE HARBOR AUTOMATIC ENROLLMENT AR-
RANGEMENTS
UNDER
SIMPLE
RETIREMENT
AC-
COUNTS.— 
(1) Clause (i) of section 408(p)(2)(A) of such 
Code is amended by adding at the end the following 
new flush language: 
‘‘but only if such arrangement is an auto-
matic enrollment arrangement (as defined 
in section 401(k)(13)) that meets the re-
quirements of subclauses (I), (IV), and (V) 
of section 401(k)(12)(G)(i) (applied in the 
case of such subclause (V) by substituting 
‘‘3 percent’’ for ‘‘minimum contribution 
percentage’’ therein), ’’. 
(2) Subsection (p) of section 408 of such Code 
(relating to simple retirement accounts) is amended 
by adding at the end the following new paragraph: 
‘‘(10) SAFE HARBOR AUTOMATIC ENROLLMENT 
ARRANGEMENTS.—Under regulations prescribed by 
the Secretary, rules similar to the rules of section 
401(k)(13) shall apply for purposes of this sub-
section, provided that the Secretary may adapt such 
rules as he determines to be necessary or advisable
to take into account the differences between the pro-
visions of section 401(k) and this subsection.’’. 
(c) 
AUTOMATIC
ENROLLMENT
ARRANGEMENTS 
UNDER 403(b) PLANS.—Subsection (b) of section 403 of 
such Code (relating to taxability of beneficiary under an-
nuity purchased by section 501(c)(3) organization or pub-
lic school) is amended by adding at the end the following 
new paragraph: 
‘‘(14) AUTOMATIC
ENROLLMENT
ARRANGE-
MENTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 
401(k)(13) shall apply for purposes of this sub-
section, provided that the Secretary may adapt such 
rules as he determines to be necessary or advisable 
to take into account the differences between the pro-
visions of section 401(k) and this subsection.’’. 
(d) 
AUTOMATIC
ENROLLMENT
ARRANGEMENTS 
UNDER SECTION 457 PLANS.—Subsection (e) of section 
457 of such Code is amended by adding at the end the 
following new paragraph: 
‘‘(19) AUTOMATIC
ENROLLMENT
ARRANGE-
MENTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 
401(k)(13) shall apply for purposes of this section, 
provided that the Secretary may adapt such rules as
he determines to be necessary or advisable to take 
into account the differences between the provisions 
of section 401(k) and this section.’’. 
(e) 401(k) PLAN MATCHING SAFE HARBOR WITH 
AUTOMATIC ENROLLMENT.— 
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section 
401(k)(12)(B) of such Code is amended to read as 
follows: 
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met if— 
‘‘(I) the arrangement is an auto-
matic enrollment arrangement (as de-
fined in paragraph (13)) which meets 
the requirements of subparagraph 
(G), and 
‘‘(II) under the arrangement, the 
employer makes matching contribu-
tions on behalf of each employee who 
is not a highly compensated employee 
in an amount equal to 50 percent of 
the elective contributions of the em-
ployee to the extent that such elective 
contributions do not exceed 6 percent 
of the employee’s compensation.’’.
(2) IN GENERAL.—Paragraph (12) of section 
401(k) of such Code (relating to alternative methods 
of 
meeting 
nondiscrimination 
requirements) 
is 
amended by adding at the end the following new 
subparagraph: 
‘‘(G) AUTOMATIC ENROLLMENT.— 
‘‘(i) IN GENERAL.—An automatic en-
rollment arrangement meets the require-
ments of this subparagraph if— 
‘‘(I) elective contributions are 
made under the arrangement with re-
spect to each eligible employee (other 
than employees with respect to whom 
an election is in effect under para-
graph (13)(B)) for such year, 
‘‘(II) any election under subpara-
graph (B) or (C)(ii) of paragraph (13) 
remains in effect with respect to any 
employee for a period of 3 years un-
less the plan provides for a shorter pe-
riod or unless the employee makes a 
new election thereunder or has elected 
an automatic increase in the employ-
ee’s contribution percentage,
‘‘(III) 85 percent or more of eli-
gible employees participated in the ar-
rangement at any time during the 
previous plan year (unless the em-
ployer has reason to know that such 
time is not representative of participa-
tion during such year), and 
‘‘(IV) the plan specifies a per-
centage for purposes of paragraph 
(13)(C)(iii) which is equal to the min-
imum contribution percentage, which 
shall not apply to any employee de-
scribed in clause (i) or (ii) of para-
graph (13)(C), and which may be fur-
ther increased in accordance with 
paragraph (13)(H)(i). 
‘‘(ii) MINIMUM
CONTRIBUTION
PER-
CENTAGE.—For purposes of this subpara-
graph, the term ‘minimum contribution 
percentage’ means, with respect to the first 
plan year for which an employee was eligi-
ble to participate, a percentage of not less 
than 3 percent, and with respect to any 
subsequent plan year, a percentage equal 
to such percentage for the first plan year
increased by either 1 percent or 2 percent 
for each subsequent plan year (as the plan 
may provide), except as provided in clauses 
(iii) and (iv). 
‘‘(iii) 9 PERCENT
LIMITATION.—The 
minimum contribution percentage shall not 
exceed 9 percent for any plan year. 
‘‘(iv) LIMITATION
BASED
ON
IN-
CREASE IN EMPLOYEE COMPENSATION.— 
With respect to any plan year beginning 
after the first plan year for which such em-
ployee was eligible to participate in the 
plan, the minimum contribution percentage 
with respect to such employee shall not ex-
ceed the sum of the minimum contribution 
percentage with respect to such employee 
for the prior plan year, plus the percentage 
increase in the employee’s compensation 
with respect to the current plan year (as 
determined under the plan and consistent 
with such requirements as the Secretary 
may provide). 
‘‘(v) REGULATIONS.—The Secretary 
may provide for alternative or simplified 
methods of compliance with any provision
of this subparagraph as the Secretary de-
termines to be necessary or advisable to 
simplify plan administration or prevent 
abuse, including simplified methods of ad-
ministering 
automatic 
enrollment 
and 
automatic 
contribution 
percentage 
in-
creases for employees who are not newly 
eligible employees.’’. 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amendments made by this 
section shall apply to plan years beginning after De-
cember 31, 2005. 
(2) QUALIFYING
EMPLOYER
SECURITIES
AND 
REAL PROPERTY.—In the case of a plan that, as of 
January 1, 2005, uses an automatic enrollment ar-
rangement that does not comply with subparagraph 
(D) of section 401(k)(13) of the Internal Revenue 
Code of 1986, as amended by this section, such sub-
paragraph shall apply to plan years beginning after 
December 31, 2006. 
(3) ALTERNATIVE METHODS OF MEETING NON-
DISCRIMINATION REQUIREMENTS.—In the case of a 
plan to which section 401(k)(12)(B) or section 
408(p)(2) (other than subparagraph (B) thereof) of
the Internal Revenue Code of 1986 applies on Janu-
ary 1, 2005, the amendments made by this section 
shall apply to plan years beginning after December 
31, 2007. 
SEC. 3. PREEMPTION OF STATE LAWS PRECLUDING AUTO-
MATIC ENROLLMENT OR AUTOMATIC ROLL-
OVERS. 
(a) IN GENERAL.—Section 514 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 
1144(b)) is amended— 
(1) by redesignating subsection (d) as sub-
section (e); and 
(2) by inserting after subsection (c) the fol-
lowing new subsection: 
‘‘(d) The provisions of this title shall supersede any 
and all State laws insofar as they may preclude, or have 
the effect of precluding— 
‘‘(1) the establishment or operation of, or mak-
ing of contributions to, a pension plan under an 
automatic enrollment arrangement (as defined in 
section 401(k)(13) of the Internal Revenue Code of 
1986), or 
‘‘(2) 
a 
distribution 
described 
in 
section 
401(a)(31)(B) of such Code or the establishment or 
operation of an individual retirement plan (as de-
fined in section 7701(a)(37) of the Internal Revenue 
Code of 1986) allowing receipt of such distribu-
tions.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to actions (described 
in paragraph (1) or (2) of section 514(d) of the Employee 
Retirement Income Security Act of 1974 (added by this 
section)) taken before, on, or after the date of the enact-
ment of this Act. 
SEC. 4. LIMITATION OF FIDUCIARY RESPONSIBILITIES 
WITH RESPECT TO AUTOMATIC ROLLOVER. 
(a) IN GENERAL.—Section 404(c)(3) of the Em-
ployee Retirement Income Security Act of 1974 (29 
U.S.C. 1104(c)(3)) is amended to read as follows: 
‘‘(3) In the case of a pension plan which makes a 
transfer to an individual retirement account or annuity 
(described in section 408 of the Internal Revenue Code 
of 1986) of a designated trustee or issuer under section 
401(a)(31)(B) of such Code— 
‘‘(A) the duties described in subsections (a) and 
(b) shall not apply to the assets in the account or 
annuity except for the initial investment of such as-
sets in the account or annuity, and 
‘‘(B) a fiduciary of the plan shall have no re-
sponsibility for any losses attributable to such initial
investment (or any other investment in the account 
or annuity) which occur after— 
‘‘(i) the earliest of— 
‘‘(I) an affirmative election by the 
owner of the account or annuity among in-
vestment options, 
‘‘(II) a rollover of all or a portion of 
the amount to another individual retire-
ment account or annuity or to an employer 
plan or simple retirement account; or 
‘‘(III) 1 year after the transfer is 
made, or 
‘‘(ii) a transfer which is made in a manner 
consistent with guidance provided by the Sec-
retary.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to transactions occur-
ring on or after January 1, 2006. 
SEC. 5. AUTOMATIC OR DEFAULT INVESTMENTS. 
(a) IN GENERAL.—Section 404 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1104) 
is amended by adding at the end the following new sub-
section: 
‘‘(e)(1) A fiduciary with respect to an individual ac-
count plan shall be deemed to have satisfied the require-
ments of subsection (a)(1)(B) with respect to the plan, 
in connection with any qualifying automatic investment 
under the plan, to the extent those requirements pertain 
to asset allocation as between equity instruments or in-
vestments and debt instruments or investments and to 
such further extent as may be specified by the Secretary 
in administrative guidance of general applicability. 
‘‘(2) For purposes of this subsection, the term ‘quali-
fying automatic investment’ means, in connection with a 
participant in a plan, an investment of assets constituting 
some or all of the participant’s accrued benefit under the 
plan in a form of investment specified by the plan, in any 
case in which— 
‘‘(A) such assets— 
‘‘(i) are attributable to employer contribu-
tions (and earnings thereon) made pursuant to 
an automatic enrollment arrangement (as de-
fined in section 401(k)(13) of the Internal Rev-
enue Code of 1986), 
‘‘(ii) are attributable to distributions de-
scribed in section 401(a)(31)(B) of such Code, 
or 
‘‘(iii) have been identified by the Secretary 
as appropriate for automatic investment,
‘‘(B) the plan provides for investment of such 
assets in such form of investment unless, in lieu 
thereof, alternative forms of investments, which are 
also made available to the participant under the 
terms of the plan, are selected by the participant, 
‘‘(C) the plan provides, under such form of in-
vestment, for investment of such assets under con-
straints designed to— 
‘‘(i) limit the risk associated with the in-
vestment portfolio to a reasonable level of risk 
while seeking to maximize return consistent 
with that level of risk, or 
‘‘(ii) minimize risk while seeking a reason-
able expected return, and 
‘‘(D) the expenses associated with the invest-
ment meet the standards of paragraph (3). 
‘‘(3)(A) The expenses associated with an investment 
meet the standards of this paragraph if they do not exceed 
reasonable expenses. Such expenses shall not be treated 
as exceeding reasonable expenses solely because the ex-
penses in any year (excluding expenses for acquisition of 
the investment) exceed the investment returns for that 
year and cause a reduction in principal. 
‘‘(B) For purposes of subparagraph (A), the term ‘ex-
pense’ means any fee, charge, commission, load, or other
cost or expense associated with the investment (including 
cost of acquisition, establishment, maintenance, surrender, 
or termination of the investment and any other cost of 
managing or administering the investment) to the extent 
borne by participants. 
‘‘(C) The expenses associated with an individual re-
tirement plan (as defined in section 7701(a)(37) of the 
Internal Revenue Code of 1986) shall not be treated as 
meeting the standards of this paragraph if such expenses 
exceed the expenses normally charged by the trustee or 
custodian of a comparable individual retirement plan es-
tablished to receive rollover contributions (as defined in 
section 408(d)(3) of such Code) which are not distribu-
tions described in section 401(a)(31)(B) of such Code. 
‘‘(4) The requirements of paragraph (2)(C) shall be 
treated as satisfied with respect to investments provided 
for by a plan to the extent such investments consist of— 
‘‘(A) a balanced portfolio comprised of both eq-
uity investments and either stable value or fixed in-
come investments provided by a financial institution 
(or similar financial entity) that is regulated by the 
United States or a State in any case in which— 
‘‘(i) the equity investments are broad-based 
index funds or, to the extent permitted by the 
Secretary under regulations, guidelines, or
other administrative guidance, actively managed 
funds that are broadly diversified so as to mini-
mize the risk of large losses, and 
‘‘(ii) the stable value or fixed income in-
vestments— 
‘‘(I) are designed to comprise at least 
20 percent of the total (measured in terms 
of fair market value), and 
‘‘(II) are either diversified to minimize 
the risk of large losses or are obligations 
(which may include inflation-protected obli-
gations) issued by the United States, or 
‘‘(B) stable value investments. 
For purposes of this paragraph, the term ‘stable value in-
vestments’ means investments provided by a financial in-
stitution regulated by the United States or a State that 
are designed to preserve principal and provide a reason-
able rate of return, whether or not guaranteed, which may 
include investments designed to maintain a stable dollar 
value equal to the original value of the investment. The 
Secretary may prescribe regulations or other administra-
tive guidance prescribing the manner in which the require-
ments of paragraph (A)(i) may be applied taking into ac-
count classes of investment determined on the basis of in-
vestment in large, intermediate, or small capitalization
funds, funds of varying styles (such as growth funds or 
value funds), or funds consisting of, or not consisting of, 
foreign or international securities. 
‘‘(5) An investment otherwise described in the pre-
ceding provisions of this subsection shall not be treated 
as failing to be a qualifying automatic investment solely 
by reason of: 
‘‘(A) the availability to the participant under 
the terms of the plan of alternative forms of invest-
ment which meet the requirements of subsection 
(c)(1) or are managed by an independent investment 
manager; 
‘‘(B) the extent to which provisions of the plan 
are or are not directed toward limiting the risk of 
loss of principal under such investment or promoting 
long-term capital appreciation; 
‘‘(C) any change or variation in the percentages 
of equity and stable value investments included in 
the investment portfolio or other aspects of the con-
stituent investments to the extent such change or 
variation is based on: 
‘‘(i) automatic rebalancing or variable in-
vestment returns prior to periodic rebalancing, 
‘‘(ii) the participant’s age, or
‘‘(iii) other factors relating to the partici-
pant’s situation, such as years until retirement, 
other retirement plan coverage, financial situa-
tion, or investment preferences expressed to the 
plan by the participant; or 
‘‘(D) the extent to which such investment con-
sists of interests in real estate or real-estate-based 
investments, if such interests are broadly diversified 
and do not comprise more than 10 percent of the eq-
uity portion of the total investment of plan assets. 
‘‘(6)(A) Notwithstanding paragraph (1), the require-
ments of subsection (a)(1)(C) shall not be treated as satis-
fied in connection with any qualifying automatic invest-
ment unless such investment (other than the stable value 
portion thereof) is designed so that no more than 0.5 per-
cent of the total fair market value of the assets invested 
are invested in securities issued by, or interests in the 
property of, any single person. 
‘‘(B) For purposes of subparagraph (A), any person 
and all affiliates thereof shall be treated as a single per-
son. A corporation is an affiliate of a person if such cor-
poration is a member of any controlled group of corpora-
tions (as defined in section 1563(a) of the Internal Rev-
enue Code of 1986, except that ‘applicable percentage’ 
shall be substituted for ‘80 percent’ wherever the latter
percentage appears in such section) of which person is a 
member. For purposes of the preceding sentence, the term 
‘applicable percentage’ means 50 percent, or such lower 
percentage as the Secretary may prescribe by regulation. 
A person other than a corporation shall be treated as an 
affiliate of any other person to the extent provided in regu-
lations of the Secretary. Regulations under this subpara-
graph shall be prescribed only after consultation and co-
ordination with the Secretary of the Treasury. 
‘‘(7) The Secretary shall issue regulations or other 
administrative guidance specifying the manner in which 
investments under independent professional investment 
management pursuant to sections 402(c)(3) and 403(a)(2) 
and other qualifying automatic investments may serve as 
the default investment arrangement with respect to some 
or all plan assets without adversely affecting plan compli-
ance with this part, as governed by subsection (c)(1) with 
respect to assets over which participants or beneficiaries 
exercise control. 
‘‘(8)(A) The Secretary may issue regulations or other 
administrative guidance for compliance with the require-
ments of this subsection which are consistent with the pro-
visions of this subsection. Compliance with such regula-
tions or guidance shall be deemed to be compliance with 
the requirements of this subsection. Such regulations or
guidance may express compliance in terms of percentages 
of assets under management, flat dollar amounts, or other 
factors. 
‘‘(B) The regulations issued pursuant to subpara-
graph (A) may include procedures for granting conditional 
or unconditional exemptions of investments, classes of in-
vestments, investment managers, or classes of investment 
managers from all or part of the requirements of this sub-
section. Such procedures shall be similar to the procedures 
applicable under section 408(a) and subject to the same 
standards and limitations as apply under section 408(a). 
Such exemptions may include, in the case of qualifying 
automatic investments, relief from, or simplified methods 
of compliance with, the requirements of subparagraphs 
(B) and (C) of subsection (a)(1) and the provisions of sub-
section (c).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to investments made 
on or after January 1, 2005 (irrespective of the extent 
to which the Secretary of Labor has issued regulations, 
guidelines, or other administrative guidance pursuant to 
section 404(e) of the Employee Retirement Income Secu-
rity Act of 1974 (added by this section)).
SEC. 6. MODIFICATION OF NOTICE REQUIREMENTS APPLI-
CABLE TO ALTERNATIVE METHODS OF MEET-
ING 
NONDISCRIMINATION 
REQUIREMENTS 
FOR MATCHING CONTRIBUTIONS. 
(a) SEMI-ANNUAL NOTICE REQUIREMENT.—Sub-
paragraph (D) of section 401(k)(12) of the Internal Rev-
enue Code of 1986 (relating to notice requirement) is 
amended by striking ‘‘year,’’ and inserting ‘‘year and dur-
ing the 6th or 7th month of such year,’’. 
(b) NOTICE NOT REQUIRED FOR NONELECTIVE CON-
TRIBUTIONS.—Clause (ii) of section 401(k)(12)(A) of such 
Code (relating to general rule for alternative methods of 
meeting nondiscrimination requirements) is amended by 
inserting ‘‘in the case of matching contributions described 
in subparagraph (B),’’ before ‘‘meets’’. 
(c) 
TECHNICAL
CORRECTION.—Section 
401(k)(12)(D) of such Code is amended by striking ‘‘ap-
praise’’ and inserting ‘‘apprise’’. 
(d) EFFECTIVE DATE.— 
(1) NOTICE.—The amendments made by sub-
section (a) shall apply to plan years beginning after 
December 31, 2006. 
(2) 
NONELECTIVE
CONTRIBUTIONS.—The 
amendments made by subsection (b) shall apply to 
plan years beginning after December 31, 2005.
SEC. 7. REPORT ON LOW-COST INDIVIDUAL RETIREMENT 
PLANS. 
After public comment and appropriate consultation 
with private sector representatives, the Secretary of the 
Treasury and the Secretary of Labor shall, not later than 
December 31, 2005, jointly submit to Congress a report 
containing their findings and recommendations regarding 
the availability of, and means of promoting and encour-
aging the provision of, low-cost individual retirement plans 
(as defined in section 7701(a)(37) of the Internal Revenue 
Code of 1986), or similar retirement savings and invest-
ment vehicles, which are suitable for the preservation and 
maintenance of smaller retirement benefits or accounts on 
a widespread and portable basis and for large numbers 
of moderate- and lower-income individuals. 
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