order 
(within 
the 
meaning 
of 
section
414(p)(1)(A)), and
‘‘(C) any beneficiary of a deceased partici-
pant or alternate payee,
who has an accrued benefit under the plan and who
is entitled to direct the investment (or hypothetical
investment) of some or all of such accrued benefit.
‘‘(2) APPLICABLE
PENSION
PLAN.—The term
‘applicable pension plan’ means—
‘‘(A) 
a 
plan 
described 
in 
section
219(g)(5)(A) (other than in clause (iii) thereof),
and
‘‘(B) an eligible deferred compensation
plan (as defined in section 457(b)) of an eligible
employer described in section 457(e)(1)(A),
which permits any participant to direct the invest-
ment of some or all of his account in the plan or
under which the accrued benefit of any participant
depends in whole or in part on hypothetical invest-
ments directed by the participant.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 43 of such Code is amended by adding at the
end the following new item:
‘‘Sec. 4980G. Failure of applicable plans to provide notice of gen-
erally accepted investment principles.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall take effect 60 days after the adop-
tion of rules or other guidance to carry out the
amendments made by this section, which shall in-
clude a model notice of generally accepted invest-
ment principles, including principles of risk manage-
ment and diversification.
(2) MODEL
INVESTMENT
PRINCIPLES.—For
purposes of paragraph (1), not later than 120 days
after the date of the enactment of this Act, the Sec-
retary of the Treasury, in consultation with the Sec-
retary of Labor, shall issue rules or other guidance
and a model notice which meets the requirements of
section 4980G of the Internal Revenue Code of 1986
(as added by this section).
SEC. 3. EXCISE TAX ON FAILURE OF PENSION PLANS TO
PROVIDE NOTICE OF TRANSACTION RESTRIC-
TION PERIODS.
(a) IN GENERAL.—Chapter 43 of the Internal Rev-
enue Code of 1986 (relating to qualified pension, etc.,
plans) is amended by adding at the end the following new
section:
‘‘SEC. 4980H. FAILURE OF APPLICABLE PLANS TO PROVIDE
NOTICE OF TRANSACTION RESTRICTION PE-
RIODS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the failure of any applicable pension plan to meet
the requirements of subsection (e) with respect to any ap-
plicable individual.
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any failure with respect to any
applicable individual shall be $100.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX NOT TO APPLY TO FAILURES COR-
RECTED AS SOON AS REASONABLY PRACTICABLE.—
No tax shall be imposed by subsection (a) on any
failure if—
‘‘(A) any person subject to liability for the
tax under subsection (d) exercised reasonable
diligence to meet the requirements of subsection
(e), and
‘‘(B) such person provides the notice de-
scribed in subsection (e) as soon as reasonably
practicable after the first date such person
knew, or exercising reasonable diligence should
have known, that such failure existed.
‘‘(2) OVERALL
LIMITATION
FOR
UNINTEN-
TIONAL FAILURES.—
‘‘(A) IN GENERAL.—If the person subject
to liability for tax under subsection (d) exer-
cised reasonable diligence to meet the require-
ments of subsection (e) and paragraph (1) is
not otherwise applicable, the tax imposed by
subsection (a) for failures during the taxable
year of the employer (or, in the case of a multi-
employer plan, the taxable year of the trust
forming part of the plan) shall not exceed
$500,000. For purposes of the preceding sen-
tence, all multiemployer plans of which the
same trust forms a part shall be treated as 1
plan.
‘‘(B) TAXABLE
YEARS
IN
THE
CASE
OF
CERTAIN CONTROLLED GROUPS.—For purposes
of this paragraph, if all persons who are treated
as a single employer for purposes of this section
do not have the same taxable year, the taxable
years taken into account shall be determined
under principles similar to the principles of sec-
tion 1561.
‘‘(3) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable 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 or
otherwise inequitable relative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multi-
employer plan, the employer.
‘‘(2) In the case of a multiemployer plan, the
plan.
‘‘(e) NOTICE OF TRANSACTION RESTRICTION PE-
RIOD.—
‘‘(1) IN GENERAL.—The plan administrator of
an applicable pension plan shall provide notice of
any transaction restriction period to each applicable
individual to whom the transaction restriction period
applies (and to each employee organization rep-
resenting such applicable individuals).
‘‘(2) NOTICE.—The notice required by para-
graph (1) shall be written in a manner calculated to
be understood by the average plan participant and
shall provide sufficient information (as determined
in accordance with rules or other guidance adopted
by the Secretary) to allow applicable individuals to
understand the timing and effect of such transaction
restriction period.
‘‘(3) TIMING OF NOTICE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraphs (B) and (C), the notice required
by paragraph (1) shall be provided not later
than 21 days before the beginning of the trans-
action restriction period.
‘‘(B) DISPOSITION
OF
STOCK
OR
AS-
SETS.—In the case of a transaction restriction
period in connection with the disposition of sub-
stantially all of the stock of a subsidiary of a
person or in connection with the disposition of
substantially all of the assets which are used by
such person in a trade or business of such
person—
‘‘(i) the person disposing of such stock
or assets shall be treated as failing to meet
the requirements of this section unless, not
later than 21 days before such disposition,
the person provides notice required by
paragraph (1) of the possibility of a trans-
action restriction period in connection with
such disposition, and
‘‘(ii) the person who acquires such
stock or assets need not provide a notice
under this section if the transaction re-
striction period in connection with such
disposition begins within 21 days after
such disposition.
Clause (i) shall not apply to the person dis-
posing of such stock or assets if such person
has a substantial basis to believe that there will
be no transaction restriction period in connec-
tion with the disposition of such stock or assets.
‘‘(C) EXCEPTION
FOR
UNFORESEEABLE
EVENTS.—In the case of a transaction restric-
tion period resulting from the occurrence of an
unforeseeable event, such notice shall be pro-
vided as soon as reasonably practicable after
the occurrence of such event.
‘‘(4) FORM AND MANNER OF NOTICE.—The no-
tice required by paragraph (1) shall be in writing,
except that such notice may be in electronic or other
form to the extent that such form is reasonably ac-
cessible to the applicable individual.
‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap-
plicable individual’ means—
‘‘(A) any participant in the applicable pen-
sion plan, and
‘‘(B) any beneficiary who is an alternate
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)), and
‘‘(C) any beneficiary of a deceased partici-
pant or alternate payee.
‘‘(2) APPLICABLE
PENSION
PLAN.—The term
‘applicable pension plan’ means—
‘‘(A) a plan described in clause (i), (ii), or
(iv) of section 219(g)(5)(A), and
‘‘(B) an eligible deferred compensation
plan (as defined in section 457(b)) of an eligible
employer described in section 457(e)(1)(A),
which maintains accounts for participants under the
plan or under which the accrued benefit of any par-
ticipant depends in whole or in part on hypothetical
investments directed by the participant.
‘‘(3) TRANSACTION RESTRICTION PERIOD.—
‘‘(A) IN GENERAL.—The term ‘transaction
restriction period’ means a temporary or indefi-
nite period of at least 3 consecutive business
days during which rights of 1 or more applica-
ble individuals to direct investments in the ap-
plicable pension plan, obtain loans from such
plan, or obtain distributions from such plan are
substantially reduced (other than by reason of
the application of securities laws).
‘‘(B) SPECIAL RULE FOR EMPLOYER SECU-
RITIES.—For purposes of subparagraph (A),
rights shall be treated as substantially reduced
with respect to directing investments out of em-
ployer securities if rights in effect are signifi-
cantly restricted for at least 3 consecutive busi-
ness days.
‘‘(C) BUSINESS
DAY.—For purposes of
this paragraph, under rules prescribed by the
Secretary, a day shall not be treated as a busi-
ness day to the extent that 1 or more estab-
lished securities markets for trading securities
are not open.
‘‘(D) REGULATIONS.—The Secretary shall
prescribe regulations which provide for such
other circumstances under which such rights
are substantially reduced.
‘‘(4) EMPLOYER SECURITIES.—The term ‘em-
ployer securities’ shall have the meaning given such
term by section 407(d)(1) of the Employee Retire-
ment Income Security Act of 1974.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 43 of such Code is amended by adding at the
end the following new item:
‘‘Sec. 4980H. Failure of applicable plans to provide notice of
transaction restriction periods.’’.
(c) EFFECTIVE DATE.—
(1) EMPLOYER SECURITIES.—
(A) GUIDANCE.—Not later than 60 days
after the date of the enactment of this Act, the
Secretary of the Treasury, in consultation with
the Secretary of Labor, shall issue guidance in
carrying out section 4980H of the Internal Rev-
enue Code of 1986 (as added by this section)
with respect to the reduction of rights relating
to the direction of investments out of employer
securities.
(B) EFFECTIVE DATE.—The amendments
made by this section shall apply with respect to
transaction restriction periods resulting from
the reduction of rights relating to the direction
of investments out of employer securities begin-
ning after 60 days after the date of the
issuance of guidance under subparagraph (A).
(2) OTHER CIRCUMSTANCES.—In the case of
transaction restriction periods not referred to in
paragraph (1), the amendments made by this section
shall apply to such periods beginning after 120 days
after the date of the issuance of regulations referred
to in section 4980H(f)(3)(C) of such Code.
SEC. 4. DIVERSIFICATION REQUIREMENTS FOR DEFINED
CONTRIBUTION 
PLANS 
THAT 
HOLD 
EM-
PLOYER SECURITIES.
(a) IN GENERAL.—Subsection (a) of section 401 of
the Internal Revenue Code of 1986 (relating to require-
ments for qualification) is amended by adding at the end
the following new paragraph:
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.—
‘‘(A) IN GENERAL.—In the case of a de-
fined contribution plan described in this sub-
section that includes a trust which is exempt
from tax under section 501(a) and which holds
employer securities that are readily tradable on
an established securities market, such trust
shall not constitute a qualified trust under this
section unless such plan meets the requirements
of subparagraphs (B), (C), and (D).
‘‘(B) ELECTIVE DEFERRALS INVESTED IN
EMPLOYER SECURITIES.—
‘‘(i) IN GENERAL.—In the case of the
portion of the account attributable to elec-
tive deferrals which is invested in employer
securities, a plan meets the requirements
of this subparagraph if each applicable in-
dividual in such plan may elect to direct
the plan to divest up to the applicable per-
centage of such securities in the individ-
ual’s account and to reinvest an equivalent
amount in other investment options which
meet the requirements of subparagraph
(E). The preceding sentence shall apply to
the extent that the amount attributable to
such applicable percentage exceeds the
amount to which a prior election under
this subparagraph or paragraph (28) ap-
plies.
‘‘(ii) APPLICABLE
INDIVIDUAL.—For
purposes of this subparagraph, the term
‘applicable individual’ means—
‘‘(I) any participant in the plan,
‘‘(II) any beneficiary who is an
alternate payee (within the meaning
of section 414(p)(8)) under an appli-
cable 
qualified 
domestic 
relations
order (within the meaning of section
414(p)(1)(A)), and
‘‘(III) any beneficiary of a de-
ceased participant or alternate payee.
‘‘(C) MATCHING CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—In the case of the
portion of the account attributable to
matching contributions which is invested in
employer securities, a plan meets the re-
quirements of this subparagraph if each
qualified participant in the plan may elect
to direct the plan to divest up to the appli-
cable percentage of such securities in the
participant’s account and to reinvest an
equivalent amount in other investment op-
tions which meet the requirements of sub-
paragraph (E). The preceding sentence
shall apply to the extent that the amount
attributable to such applicable percentage
exceeds the amount to which a prior elec-
tion under this subparagraph or paragraph
(28) applies.
‘‘(ii) MATCHING CONTRIBUTIONS DE-
FINED.—For purposes of this subpara-
graph, the term ‘matching contributions’
offers not less than 3 investment options (not
inconsistent with regulations prescribed by the
Secretary) other than employer securities.
‘‘(F) OTHER DEFINITIONS AND RULES.—
For purposes of this paragraph—
‘‘(i) 
EMPLOYER
SECURITIES.—The
term ‘employer securities’ shall have the
meaning given such term by section
407(d)(1) of the Employee Retirement In-
come Security Act of 1974.
‘‘(ii) 
ELECTIVE
DEFERRALS.—For
purposes of this subparagraph, the term
‘elective deferrals’ means an employer con-
tribution described in section 402(g)(3)(A)
and any employee contribution.
‘‘(iii) 
ELECTION.—Elections 
under
this paragraph shall be not less frequently
than quarterly.
‘‘(iv) EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock owner-
ship plan’ shall have the same meaning
given to such term by section 4975(e)(7).
‘‘(v) APPLICABLE PERCENTAGE.—
‘‘(I) 
ELECTIVE
DEFERRALS
TREATED AS SEPARATE PLAN NOT IN-
DIVIDUAL
ACCOUNT
PLAN.—In the
case of elective deferrals (and any
earnings allocable thereto) held within
a plan treated as a separate plan as
of the date of the enactment of this
paragraph under section 407(b)(2) of
the Employee Retirement Income Se-
curity Act of 1974, for purposes of
subparagraph (B) the applicable per-
centage shall be 100 percent.
‘‘(II) 
ELECTIVE
DEFERRALS
TREATED
AS
INDIVIDUAL
ACCOUNT
PLAN.—In the case of elective defer-
rals (and any earnings allocable there-
to) not held within a plan treated as
a separate plan as of the date of the
enactment of this paragraph under
section 407(b)(2) of the Employee Re-
tirement Income Security Act of
1974, for purposes of subparagraph
(B) the applicable percentage shall be
as follows:
‘‘Plan years beginning in:
Applicable percentage:
2003 ...............................................
The greater of the percentage deter-
mined under paragraph (28) or 20
percent.
2004 ...............................................
The greater of the percentage deter-
mined under paragraph (28) or 40
percent.
‘‘Plan years beginning in:
Applicable percentage:
2005 ...............................................
60 percent.
2006 ...............................................
80 percent.
2007 or thereafter .........................
100 percent.
‘‘(III) MATCHING
AND
OTHER
EMPLOYER
CONTRIBUTIONS
NOT
HELD WITHIN AN ESOP.—In the case
of matching and other employer con-
tributions (other than elective defer-
rals) not held within an employee
stock ownership plan, for purposes of
subparagraphs (C) and (D), the appli-
cable percentage shall be as follows:
‘‘Plan years beginning in:
Applicable percentage:
2003 ...............................................
20 percent.
2004 ...............................................
40 percent.
2005 ...............................................
60 percent.
2006 ...............................................
80 percent.
2007 or thereafter .........................
100 percent.
‘‘(IV) MATCHING
AND
OTHER
EMPLOYER
CONTRIBUTIONS
HELD
WITHIN
AN
ESOP.—In the case of
matching and other employer con-
tributions (other than elective defer-
rals) held within an employee stock
ownership plan, for purposes of sub-
paragraphs (C) and (D) the applicable
percentage shall be as follows:
‘‘Plan years beginning in:
Applicable percentage:
2003 ...............................................
The greater of the percentage deter-
mined under paragraph (28) or 20
percent.
‘‘Plan years beginning in:
Applicable percentage:
2004 ...............................................
The greater of the percentage deter-
mined under paragraph (28) or 40
percent.
2005 ...............................................
60 percent.
2006 ...............................................
80 percent.
2007 or thereafter .........................
100 percent.
‘‘(V) SPECIAL RULE FOR DETER-
MINING PERCENTAGES UNDER PARA-
GRAPH
(28).—For purposes of ref-
erences in this clause to a percentage
determined under paragraph (28),
such percentages shall be determined
as if paragraph (28) applied to a plan
described in this clause.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 401(a)(28) of such Code is amended
by adding at the end the following new subpara-
graph:
‘‘(D) APPLICATION.—This paragraph shall
not apply with respect to employer securities
which are readily tradable on an established se-
curities market.’’.
(2) Section 409(h)(7) of such Code is amended
by inserting at the end ‘‘or subparagraph (B), (C),
or (D) of section 401(a)(35)’’.
(3) Section 4975(e)(7) of such Code is amended
by adding at the end the following new sentence: ‘‘A
plan shall not fail to be treated as an employee stock
ownership plan merely because the plan meets the
requirements of section 401(a)(35) (or provides
greater diversification rights) or because participants
in such plan exercise diversification rights under
such section (or greater diversification rights avail-
able under the plan).’’.
(4) Section 4980(c)(3)(A) of such Code is
amended by striking ‘‘if—’’ and all that follows and
inserting ‘‘if the requirements of subparagraphs (B),
(C), and (D) are met.’’.
(5) Section 407 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1107) is
amended by adding at the end the following new
subsection:
‘‘(g) Notwithstanding section 408(e) or any other
provision of this title, an individual account plan may not
include provisions that do not meet the requirements of
section 401(a)(35)(B) of the Internal Revenue Code of
1986.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to plan years beginning after December
31, 2002.
(2) EXCEPTION.—The amendments made by
this section shall not apply to employer securities
held by an employee stock ownership plan which are
not subject to section 401(a)(28) of the Internal
Revenue Code of 1986 by reason of section
1175(a)(2) of the Tax Reform Act of 1986 (100
Stat. 2519).
SEC. 5. TREATMENT OF QUALIFIED RETIREMENT PLAN-
NING SERVICES.
(a) IN GENERAL.—Subsection (m) of section 132 of
the Internal Revenue Code of 1986 (defining qualified re-
tirement services) is amended by adding at the end the
following new paragraph:
‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount
shall be included in the gross income of any em-
ployee solely because the employee may choose be-
tween any qualified retirement planning services and
compensation which would otherwise be includible in
the gross income of such employee. The preceding
sentence shall apply to highly compensated employ-
ees only if the choice described in such sentence is
available on substantially the same terms to each
member of the group of employees normally provided
education and information regarding the employer’s
qualified employer plan.’’.