Title: Retirement Security Preservation Act of 2017
Policy area: Taxation

Summary:
Retirement Security Preservation Act of 2017
This bill amends the Internal Revenue Code to modify the nondiscrimination requirements for certain defined benefit retirement plans that limit participation or certain features to a closed class, such as individuals who were hired before a certain date.
(Under current law, the plans may not discriminate in favor of highly compensated employees and must meet minimum participation requirements.)
The bill applies only to a defined benefit plan that: (1) closed before April 5, 2017; or (2) was in effect for at least five years when it closed and did not substantially increase the coverage or value of the benefits, rights, or features for the closed class during the five-year period before it closed, except as the result of certain business acquisitions or mergers.
Such a plan meets the nondiscrimination requirements if it: (1) satisfies certain testing rules for the year that the class closes and the two succeeding plan years, and (2) is not amended in a discriminatory manner after the class is closed.
A defined contribution plan that offers additional contributions or benefits to a closed class whose benefits under a defined benefit plan have been reduced or eliminated meets the nondiscrimination requirements if: (1) the group receiving the contributions or benefits satisfies certain testing rules for the year in which the group is closed and for two subsequent plan years, and (2) the plan is not amended in a discriminatory manner.
A defined benefit plan that is either closed or has ceased benefit accruals for all participants (frozen plan) satisfies the minimum participation requirements if the plan met the requirements when it was closed or frozen.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 852 Introduced in Senate (IS)]

<DOC>






115th CONGRESS
  1st Session
                                 S. 852

  To amend the Internal Revenue Code of 1986 to protect older, longer 
    service and grandfathered participants in defined benefit plans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                April 5 (legislative day, April 4), 2017

Mr. Cardin (for himself and Mr. Portman) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to protect older, longer 
    service and grandfathered participants in defined benefit plans.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Retirement Security Preservation Act 
of 2017''.

SEC. 2. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT OLDER, 
              LONGER SERVICE PARTICIPANTS.

    (a) In General.--Section 401 of the Internal Revenue Code of 1986 
is amended--
            (1) by redesignating subsection (o) as subsection (p), and
            (2) by inserting after subsection (n) the following new 
        subsection:
    ``(o) Special Rules for Applying Nondiscrimination Rules To Protect 
Older, Longer Service and Grandfathered Participants.--
            ``(1) Testing of defined benefit plans with closed classes 
        of participants.--
                    ``(A) Benefits, rights, or features provided to 
                closed classes.--A defined benefit plan which provides 
                benefits, rights, or features to a closed class of 
                participants shall not fail to satisfy the requirements 
                of subsection (a)(4) by reason of the composition of 
                such closed class or the benefits, rights, or features 
                provided to such closed class, if--
                            ``(i) for the plan year as of which the 
                        class closes and the 2 succeeding plan years, 
                        such benefits, rights, and features satisfy the 
                        requirements of subsection (a)(4) (without 
                        regard to this subparagraph but taking into 
                        account the rules of subparagraph (I)),
                            ``(ii) after the date as of which the class 
                        was closed, any plan amendment which modifies 
                        the closed class or the benefits, rights, and 
                        features provided to such closed class does not 
                        discriminate significantly in favor of highly 
                        compensated employees (determined as of the 
                        effective date of the amendment), and
                            ``(iii) the class was closed before April 
                        5, 2017, or the plan is described in 
                        subparagraph (C).
                    ``(B) Aggregate testing with defined contribution 
                plans permitted on a benefits basis.--
                            ``(i) In general.--For purposes of 
                        determining compliance with subsection (a)(4) 
                        and section 410(b), a defined benefit plan 
                        described in clause (iii) may be aggregated and 
                        tested on a benefits basis with 1 or more 
                        defined contribution plans, including with the 
                        portion of 1 or more defined contribution plans 
                        which--
                                    ``(I) provides matching 
                                contributions (as defined in subsection 
                                (m)(4)(A)),
                                    ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                    ``(III) consists of an employee 
                                stock ownership plan (within the 
                                meaning of section 4975(e)(7)) or a tax 
                                credit employee stock ownership plan 
                                (within the meaning of section 409(a)).
                            ``(ii) Special rules for matching 
                        contributions.--For purposes of clause (i), if 
                        a defined benefit plan is aggregated with a 
                        portion of a defined contribution plan 
                        providing matching contributions--
                                    ``(I) such defined benefit plan 
                                must also be aggregated with any 
                                portion of such defined contribution 
                                plan which provides elective deferrals 
                                described in subparagraph (A) or (C) of 
                                section 402(g)(3), and
                                    ``(II) such matching contributions 
                                shall be treated in the same manner as 
                                nonelective contributions, including 
                                for purposes of applying the rules of 
                                subsection (l).
                            ``(iii) Plans described.--A defined benefit 
                        plan is described in this clause if--
                                    ``(I) the plan provides benefits to 
                                a closed class of participants,
                                    ``(II) for the plan year as of 
                                which the class closes and the 2 
                                succeeding plan years, the plan 
                                satisfies the requirements of section 
                                410(b) and subsection (a)(4) (without 
                                regard to this subparagraph but taking 
                                into account the rules of subparagraph 
                                (I)),
                                    ``(III) after the date as of which 
                                the class was closed, any plan 
                                amendment which modifies the closed 
                                class or the benefits provided to such 
                                closed class does not discriminate 
                                significantly in favor of highly 
                                compensated employees (determined as of 
                                the effective date of the amendment), 
                                and
                                    ``(IV) the class was closed before 
                                April 5, 2017, or the plan is described 
                                in subparagraph (C).
                    ``(C) Plans described.--A plan is described in this 
                subparagraph if, taking into account any predecessor 
                plan--
                            ``(i) such plan has been in effect for at 
                        least 5 years as of the date the class is 
                        closed, and
                            ``(ii) during the 5-year period preceding 
                        the date the class is closed, there has not 
                        been a substantial increase in the coverage or 
                        value of the benefits, rights, or features 
                        described in subparagraph (A) or in the 
                        coverage or benefits under the plan described 
                        in subparagraph (B)(iii) (whichever is 
                        applicable).
                    ``(D) Determination of substantial increase for 
                benefits, rights, and features.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (A)(iii), a plan shall be treated as having had a 
                substantial increase in coverage or value of the 
                benefits, rights, or features described in subparagraph 
                (A) during the applicable 5-year period only if, during 
                such period--
                            ``(i) the number of participants covered by 
                        such benefits, rights, or features on the date 
                        such period ends is more than 50 percent 
                        greater than the number of such participants on 
                        the first day of the plan year in which such 
                        period began, or
                            ``(ii) such benefits, rights, and features 
                        have been modified by 1 or more plan amendments 
                        in such a way that, as of the date the class is 
                        closed, the value of such benefits, rights, and 
                        features to the closed class as a whole is 
                        substantially greater than the value as of the 
                        first day of such 5-year period, solely as a 
                        result of such amendments.
                    ``(E) Determination of substantial increase for 
                aggregate testing on benefits basis.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (B)(iii)(IV), a plan shall be treated as having had a 
                substantial increase in coverage or benefits during the 
                applicable 5-year period only if, during such period--
                            ``(i) the number of participants 
                        benefitting under the plan on the date such 
                        period ends is more than 50 percent greater 
                        than the number of such participants on the 
                        first day of the plan year in which such period 
                        began, or
                            ``(ii) the average benefit provided to such 
                        participants on the date such period ends is 
                        more than 50 percent greater than the average 
                        benefit provided on the first day of the plan 
                        year in which such period began.
                    ``(F) Certain employees disregarded.--For purposes 
                of subparagraphs (D) and (E), any increase in coverage 
                or value or in coverage or benefits, whichever is 
                applicable, which is attributable to such coverage and 
                value or coverage and benefits provided to employees--
                            ``(i) who became participants as a result 
                        of a merger, acquisition, or similar event 
                        which occurred during the 7-year period 
                        preceding the date the class is closed, or
                            ``(ii) who became participants by reason of 
                        a merger of the plan with another plan which 
                        had been in effect for at least 5 years as of 
                        the date of the merger,
                shall be disregarded, except that clause (ii) shall 
                apply for purposes of subparagraph (D) only if, under 
                the merger, the benefits, rights, or features under 1 
                plan are conformed to the benefits, rights, or features 
                of the other plan prospectively.
                    ``(G) Rules relating to average benefit.--For 
                purposes of subparagraph (E)--
                            ``(i) the average benefit provided to 
                        participants under the plan will be treated as 
                        having remained the same between the 2 dates 
                        described in subparagraph (E)(ii) if the 
                        benefit formula applicable to such participants 
                        has not changed between such dates, and
                            ``(ii) if the benefit formula applicable to 
                        1 or more participants under the plan has 
                        changed between such 2 dates, then the average 
                        benefit under the plan shall be considered to 
                        have increased by more than 50 percent only 
                        if--
                                    ``(I) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                participants benefitting under the plan 
                                for the plan year in which the 5-year 
                                period described in subparagraph (E) 
                                ends, exceeds
                                    ``(II) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                such participants for such plan year, 
                                by using the benefit formula in effect 
                                for each such participant for the first 
                                plan year in such 5-year period,
                        by more than 50 percent. In the case of a CSEC 
                        plan (as defined in section 414(y)), the normal 
                        cost of the plan (as determined under section 
                        433(j)(1)(B)) shall be used in lieu of the 
                        amount determined under section 
                        430(b)(1)(A)(i).
                    ``(H) Treatment as single plan.--For purposes of 
                subparagraphs (E) and (G), a plan described in section 
                413(c) shall be treated as a single plan rather than as 
                separate plans maintained by each participating 
                employer.
                    ``(I) Special rules.--For purposes of subparagraphs 
                (A)(i) and (B)(iii)(II), the following rules shall 
                apply:
                            ``(i) In applying section 410(b)(6)(C), the 
                        closing of the class of participants shall not 
                        be treated as a significant change in coverage 
                        under section 410(b)(6)(C)(i)(II).
                            ``(ii) Two or more plans shall not fail to 
                        be eligible to be aggregated and treated as a 
                        single plan solely by reason of having 
                        different plan years.
                            ``(iii) Changes in the employee population 
                        shall be disregarded to the extent attributable 
                        to individuals who become employees or cease to 
                        be employees, after the date the class is 
                        closed, by reason of a merger, acquisition, 
                        divestiture, or similar event.
                            ``(iv) Aggregation and all other testing 
                        methodologies otherwise applicable under 
                        subsection (a)(4) and section 410(b) may be 
                        taken into account.
                The rule of clause (ii) shall also apply for purposes 
                of determining whether plans to which subparagraph 
                (B)(i) applies may be aggregated and treated as 1 plan 
                for purposes of determining whether such plans meet the 
                requirements of subsection (a)(4) and section 410(b).
                    ``(J) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined benefit plan 
                described in subparagraph (A) or (B)(iii) is spun off 
                to another employer and the spun-off plan continues to 
                satisfy the requirements of--
                            ``(i) subparagraph (A)(i) or (B)(iii)(II), 
                        whichever is applicable, if the original plan 
                        was still within the 3-year period described in 
                        such subparagraph at the time of the spin off, 
                        and
                            ``(ii) subparagraph (A)(ii) or 
                        (B)(iii)(III), whichever is applicable,
                the treatment under subparagraph (A) or (B) of the 
                spun-off plan shall continue with respect to such other 
                employer.
            ``(2) Testing of defined contribution plans.--
                    ``(A) Testing on a benefits basis.--A defined 
                contribution plan shall be permitted to be tested on a 
                benefits basis if--
                            ``(i) such defined contribution plan 
                        provides make-whole contributions to a closed 
                        class of participants whose accruals under a 
                        defined benefit plan have been reduced or 
                        eliminated,
                            ``(ii) for the plan year of the defined 
                        contribution plan as of which the class 
                        eligible to receive such make-whole 
                        contributions closes and the 2 succeeding plan 
                        years, such closed class of participants 
                        satisfies the requirements of section 
                        410(b)(2)(A)(i) (determined by applying the 
                        rules of paragraph (1)(I)),
                            ``(iii) after the date as of which the 
                        class was closed, any plan amendment to the 
                        defined contribution plan which modifies the 
                        closed class or the allocations, benefits, 
                        rights, and features provided to such closed 
                        class does not discriminate significantly in 
                        favor of highly compensated employees 
                        (determined as of the effective date of the 
                        amendment), and
                            ``(iv) the class was closed before April 5, 
                        2017, or the defined benefit plan under clause 
                        (i) is described in paragraph (1)(C) (as 
                        applied for purposes of paragraph 
                        (1)(B)(iii)(IV)).
                    ``(B) Aggregation with plans including matching 
                contributions.--
                            ``(i) In general.--With respect to 1 or 
                        more defined contribution plans described in 
                        subparagraph (A), for purposes of determining 
                        compliance with subsection (a)(4) and section 
                        410(b), the portion of such plans which 
                        provides make-whole contributions or other 
                        nonelective contributions may be aggregated and 
                        tested on a benefits basis with the portion of 
                        1 or more other defined contribution plans 
                        which--
                                    ``(I) provides matching 
                                contributions (as defined in subsection 
                                (m)(4)(A)),
                                    ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                    ``(III) consists of an employee 
                                stock ownership plan (within the 
                                meaning of section 4975(e)(7)) or a tax 
                                credit employee stock ownership plan 
                                (within the meaning of section 409(a)).
                            ``(ii) Special rules for matching 
                        contributions.--Rules similar to the rules of 
                        paragraph (1)(B)(ii) shall apply for purposes 
                        of clause (i).
                    ``(C) Special rules for testing defined 
                contribution plan features providing matching 
                contributions to certain older, longer service 
                participants.--In the case of a defined contribution 
                plan which provides benefits, rights, or features to a 
                closed class of participants whose accruals under a 
                defined benefit plan have been reduced or eliminated, 
                the plan shall not fail to satisfy the requirements of 
                subsection (a)(4) solely by reason of the composition 
                of the closed class or the benefits, rights, or 
                features provided to such closed class if the defined 
                contribution plan and defined benefit plan otherwise 
                meet the requirements of subparagraph (A) but for the 
                fact that the make-whole contributions under the 
                defined contribution plan are made in whole or in part 
                through matching contributions.
                    ``(D) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined contribution plan 
                described in subparagraph (A) or (C) is spun off to 
                another employer, the treatment under subparagraph (A) 
                or (C) of the spun-off plan shall continue with respect 
                to the other employer if such plan continues to comply 
                with the requirements of clauses (ii) (if the original 
                plan was still within the 3-year period described in 
                such clause at the time of the spin off) and (iii) of 
                subparagraph (A), as determined for purposes of 
                subparagraph (A) or (C), whichever is applicable.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Make-whole contributions.--Except as 
                otherwise provided in paragraph (2)(C), the term `make-
                whole contributions' means nonelective allocations for 
                each employee in the class which are reasonably 
                calculated, in a consistent manner, to replace some or 
                all of the retirement benefits which the employee would 
                have received under the defined benefit plan and any 
                other plan or qualified cash or deferred arrangement 
                under subsection (k)(2) if no change had been made to 
                such defined benefit plan and such other plan or 
                arrangement. For purposes of the preceding sentence, 
                consistency shall not be required with respect to 
                employees who were subject to different benefit 
                formulas under the defined benefit plan.
                    ``(B) References to closed class of participants.--
                References to a closed class of participants and 
                similar references to a closed class shall include 
                arrangements under which 1 or more classes of 
                participants are closed, except that 1 or more classes 
                of participants closed on different dates shall not be 
                aggregated for purposes of determining the date any 
                such class was closed.
                    ``(C) Highly compensated employee.--The term 
                `highly compensated employee' has the meaning given 
                such term in section 414(q).
                    ``(D) Discriminatory amendments.--A plan amendment 
                shall be treated as discriminating significantly in 
                favor of highly compensated employees only if such 
                amendment, if adopted before the enactment of this 
                subsection, would have been treated as violating 
                subsection (a)(4).''.
    (b) Participation Requirements.--Paragraph (26) of section 401(a) 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new subparagraph:
                    ``(I) Protected participants.--
                            ``(i) In general.--A plan shall be deemed 
                        to satisfy the requirements of subparagraph (A) 
                        if--
                                    ``(I) the plan is amended--
                                            ``(aa) to cease all benefit 
                                        accruals, or
                                            ``(bb) to provide future 
                                        benefit accruals only to a 
                                        closed class of participants,
                                    ``(II) the plan satisfies 
                                subparagraph (A) (without regard to 
                                this subparagraph) as of the effective 
                                date of the amendment, and
                                    ``(III) the amendment was adopted 
                                before April 5, 2017, or the plan is 
                                described in clause (ii).
                            ``(ii) Plans described.--A plan is 
                        described in this clause if the plan would be 
                        described in subsection (o)(1)(C), as applied 
                        for purposes of subsection (o)(1)(B)(iii)(IV) 
                        and by treating the effective date of the 
                        amendment as the date the class was closed for 
                        purposes of subsection (o)(1)(C).
                            ``(iii) Special rules.--For purposes of 
                        clause (i)(II), in applying section 
                        410(b)(6)(C), the amendments described in 
                        clause (i) shall not be treated as a 
                        significant change in coverage under section 
                        410(b)(6)(C)(i)(II).
                            ``(iv) Spun-off plans.--For purposes of 
                        this subparagraph, if a portion of a plan 
                        described in clause (i) is spun off to another 
                        employer, the treatment under clause (i) of the 
                        spun-off plan shall continue with respect to 
                        the other employer.''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act, without regard to whether any 
        plan modifications referred to in such amendments are adopted 
        or effective before, on, or after such date of enactment.
            (2) Special rules.--
                    (A) Election of earlier application.--At the 
                election of the plan sponsor, the amendments made by 
                this section shall apply to plan years beginning after 
                December 31, 2013.
                    (B) Closed classes of participants.--For purposes 
                of paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and 
                (2)(A)(iv) of section 401(o) of the Internal Revenue 
                Code of 1986 (as added by this section), a closed class 
                of participants shall be treated as being closed before 
                April 5, 2017, if the plan sponsor's intention to 
                create such closed class is reflected in formal written 
                documents and communicated to participants before such 
                date.
                    (C) Certain post-enactment plan amendments.--A plan 
                shall not be treated as failing to be eligible for the 
                application of section 401(o)(1)(A), 401(o)(1)(B)(iii), 
                or 401(a)(26) of such Code (as added by this section) 
                to such plan solely because in the case of--
                            (i) such section 401(o)(1)(A), the plan was 
                        amended before the date of the enactment of 
                        this Act to eliminate 1 or more benefits, 
                        rights, or features, and is further amended 
                        after such date of enactment to provide such 
                        previously eliminated benefits, rights, or 
                        features to a closed class of participants, or
                            (ii) such section 401(o)(1)(B)(iii) or 
                        section 401(a)(26), the plan was amended before 
                        the date of the enactment of this Act to cease 
                        all benefit accruals, and is further amended 
                        after such date of enactment to provide benefit 
                        accruals to a closed class of participants.
                Any such section shall only apply if the plan otherwise 
                meets the requirements of such section and in applying 
                such section, the date the class of participants is 
                closed shall be the effective date of the later 
                amendment.
                                 <all>