		II
		109th CONGRESS
		2d Session
		S. 3951
		IN THE SENATE OF THE UNITED STATES

			September 27, 2006
			Mr. Smith (for himself,
			 Mr. Conrad, Mr.
			 Kerry, and Mr. Bingaman)
			 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 and the
		  Employee Retirement Income Security Act of 1974 to increase the retirement
		  security of women and small business owners, and for other
		  purposes.

		1.Short
			 title; amendment of 1986 Code; table of contents
			(a)Short
			 titleThis Act may be cited
			 as the Women's Retirement Security Act
			 of 2006.
			(b)Amendment of
			 1986 codeExcept as otherwise expressly provided, whenever in
			 this Act an amendment or repeal is expressed in terms of an amendment to, or
			 repeal of, a section or other provision, the reference shall be considered to
			 be made to a section or other provision of the Internal Revenue Code of
			 1986.
			(c)Table of
			 contentsThe table of contents for this Act is as follows:

					Sec. 1. Short title; amendment
				of 1986 Code; table of contents.
					TITLE I—Provisions to increase retirement savings
					Subtitle A—Employee access to retirement savings at
				work
					Sec. 101. Employees not covered by qualified retirement plans
				or arrangements entitled to participate in payroll deposit IRA
				arrangements.
					Sec. 102. Credit for small employers maintaining payroll
				deposit IRA arrangements.
					Sec. 103. Establishment of automatic IRAs.
					Sec. 104. Establishment of TSP II Board.
					Subtitle B—Other provisions
					Sec. 111. Modifications to computation of saver's
				credit.
					Sec. 112. Qualified cash or deferred arrangements must allow
				long-term employees working more than 500 but less than 1,000 hours per year to
				participate.
					Sec. 113. Transfers of unused benefits of health flexible
				spending arrangement to certain retirement plans.
					Sec. 114. Computation of limits on IRA and Roth IRA
				contributions.
					Sec. 115. Contributions of military death gratuities to certain
				tax-favored accounts.
					TITLE II—Provisions providing for preservation of
				income
					Sec. 201. Exclusion of certain qualified annuity
				payments.
					Sec. 202. Exclusion for lifetime annuity payments.
					Sec. 203. Joint study of application of spousal consent rules
				to defined contribution plans.
					Sec. 204. Facilitating longevity insurance.
					TITLE III—Provisions ensuring equity in divorce
					Sec. 301. Elimination of current connection requirement under
				Railroad Retirement Act for certain survivors.
					Sec. 302. Permitting divorced spouses and widows and widowers
				to remarry after turning 60 without a penalty under Railroad Retirement
				Act.
					Sec. 303. Repeal of jurisdictional requirement for court to
				treat military retirement pay as property of the military member and
				spouse.
					TITLE IV—Provisions to improve financial literacy
					Sec. 401. Grants to community-based taxpayer clinics to provide
				retirement savings advice.
					Sec. 402. Treatment of qualified retirement planning
				services.
					Sec. 403. Retirement handbook and retirement readiness
				checklist.
					TITLE V—Incentives for small businesses to establish and maintain
				retirement plans for employees
					Sec. 501. Credit for qualified pension plan contributions of
				small employers.
					Sec. 502. Deduction for pension contributions allowed in
				computing net earnings from self-employment.
					Sec. 503. Exemption of deferral-only qualified cash or deferred
				arrangements from top-heavy plan rules.
					Sec. 504. Extension of time for small pension plans to adopt
				required plan qualification amendments.

			IProvisions to
			 increase retirement savings
			AEmployee access
			 to retirement savings at work
				101.Employees not
			 covered by qualified retirement plans or arrangements entitled to participate
			 in payroll deposit IRA arrangements
					(a)In
			 generalSubpart A of part I of subchapter A of chapter 1
			 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by
			 inserting after section 408A the following new section:

							408B.Right to
				payroll deposit IRA arrangements at work
								(a)Requirement To
				provide payroll deposit IRA arrangementEach employer (other than
				an employer described in subsection (e)) shall provide to each applicable
				employee of the employer for any calendar year the opportunity to participate
				in a payroll deposit IRA arrangement which meets the requirements of this
				section.
								(b)Payroll deposit
				IRA arrangementFor purposes of this section—
									(1)In
				generalThe term payroll deposit IRA arrangement
				means a written arrangement of an employer—
										(A)under which an
				applicable employee eligible to participate in the arrangement may elect to
				contribute to an individual retirement plan established by or on behalf of the
				employee by having the employer make periodic direct deposit or other payroll
				deposit payments (including electronic payments) to the plan by payroll
				deduction, and
										(B)which meets the
				requirements of paragraph (2).
										(2)Administrative
				requirementsThe requirements of this paragraph are met with
				respect to any payroll deposit IRA arrangement if—
										(A)the employer must
				make the payments elected under paragraph (1)(A) on or before the later
				of—
											(i)the due date for
				the deposit of tax required to be deducted and withheld under chapter 24
				(relating to collection of income tax at source on wages) for the payroll
				period to which such payments relate, or
											(ii)the 30th day
				following the last day of the month with respect to which the payments are to
				be made,
											(B)subject to a
				requirement for reasonable notice, an employee may elect to terminate
				participation in the arrangement at any time during a calendar year, except
				that if an employee so terminates, the arrangement may provide that the
				employee may not elect to resume participation until the beginning of the next
				calendar year,
										(C)each employee
				eligible to participate may elect, during the 60-day period or other period
				specified by the Secretary before the beginning of any calendar year (and
				during the 60-day period or other period specified by the Secretary before the
				first day the employee is eligible to participate), to participate in the
				arrangement, or to modify the employee's election under the arrangement
				(including the amounts subject to the arrangement and the manner in which such
				amounts are invested), for such year,
										(D)the employer
				provides—
											(i)immediately
				before the beginning of each period described in subparagraph (C), a notice to
				each employee of the employee’s opportunity to make the election and the
				maximum amount which may be contributed to an individual retirement plan on an
				annual basis, and
											(ii)if the
				arrangement includes an automatic contribution arrangement, the notices
				required under subsection (g) with respect to the automatic contribution
				arrangement,
											(E)subject to
				subsection (f), the arrangement provides that an employee may elect to have
				contributions made to any individual retirement plan specified by the employee,
				and
										(F)if the
				arrangement does not include an automatic contribution arrangement—
											(i)the arrangement
				requires the employer to take all reasonable actions to solicit from all
				employees eligible to participate in the arrangement an explicit election to
				either participate or not to participate in the arrangement, and
											(ii)the arrangement
				provides that if an employee fails to make an explicit election under clause
				(i) within the time prescribed under the arrangement, the employee will be
				treated as having made an election to participate in the arrangement (and
				amounts shall be invested on behalf of the participant) in the same manner as
				if the arrangement had included an automatic contribution arrangement under
				subsection (g).
											(c)Applicable
				employee defined; related definitions and rulesFor purposes of
				this section—
									(1)Applicable
				employee
										(A)In
				generalThe term applicable employee means, with
				respect to any calendar year, any employee—
											(i)who was not
				eligible under a qualified plan or arrangement maintained by the employer for
				service for the preceding calendar year, and
											(ii)with respect to
				whom it is reasonable to expect that the employee will not be eligible during
				the calendar year under such a qualified plan or arrangement.
											(B)Special
				rulesFor purposes of subparagraph (A)(i)—
											(i)EligibilityAn
				employee shall be treated as eligible under a plan for a preceding calendar
				year if, as of the last day of the last plan year ending in the preceding
				calendar year, the employee has satisfied the plan's eligibility
				requirements.
											(ii)Excluded
				plansA qualified plan or arrangement shall not be taken into
				account under this paragraph if—
												(I)the plan or
				arrangement is frozen as of the first day of the preceding calendar year,
				or
												(II)in the case of a
				plan or arrangement under which the only contributions are discretionary on the
				part of the sponsor, there has not been an employer contribution made to the
				plan or arrangement for the 2-plan-year period ending with the last plan year
				ending in the second preceding calendar year and it is not reasonable to assume
				that an employer contribution will be made for the plan year ending in the
				preceding calendar year.
												(2)Excludable
				employeesAn employer may elect to exclude from treatment as
				applicable employees under subparagraph (A)—
										(A)employees
				described in section 410(b)(3),
										(B)employees who
				have not attained the age of 18 before the beginning of the calendar
				year,
										(C)employees who
				have not completed at least 3 months of service with the employer,
										(D)employees who
				will be eligible to participate in a qualified plan or arrangement of the
				employer upon completion of eligibility requirements described in section
				410(a)(1)(A) (without regard to section 410(a)(1)(B)),
										(E)employees who are
				eligible to make salary reduction contributions under an arrangement which
				meets the requirements of section 403(b), and
										(F)all employees of
				the employer if the employer maintains an arrangement described in section
				408(p).
										(3)Qualified plan
				or arrangementThe term qualified plan or
				arrangement means a plan, contract, pension, or trust described in
				section 219(g)(5).
									(4)Exception for
				employees of governments and churchesThe term applicable
				employee shall not include an employee of—
										(A)a government or
				entity described in section 414(d), or
										(B)a church or a
				convention or association of churches which is exempt from tax under section
				501, including any employee described in section 414(e)(3)(B).
										(5)Designation of
				applicable employeesThe Secretary shall issue guidelines for
				determining the class or classes of employees to be covered by a payroll
				deposit IRA arrangement. Such guidelines shall provide that if an employer
				elects under paragraph (2) to exclude employees from the arrangement, the
				employer shall specify the classification or categories of employees who are
				not so covered.
									(d)Payroll deposit
				IRA contributions treated like other contributions to individual retirement
				plans
									(1)Tax treatment
				unaffectedThe fact that a contribution to an individual
				retirement plan is made on behalf of an employee under a payroll deposit IRA
				arrangement instead of being made directly by the employee shall not affect the
				deductibility or other tax treatment of the contribution or of other amounts
				under this title.
									(2)Payroll savings
				contributions taken into accountAny contribution made on behalf
				of an employee under a payroll deposit IRA arrangement shall be taken into
				account in applying the limitations on contributions to individual retirement
				plans and the other provisions of this title applicable to individual
				retirement plans as if the contribution had been made directly by the
				employee.
									(e)Exception for
				certain small and new employers
									(1)In
				generalThe requirements of this section shall not apply for any
				calendar year to an employer if—
										(A)the employer did
				not have more than 10 employees who received at least $5,000 of compensation
				from the employer for the preceding calendar year, or
										(B)was not in
				existence at all times during the 2 preceding calendar years and did not have
				more than 100 employees who received at least $5,000 of compensation from the
				employer on any day during either of the 2 preceding calendar years.
										(2)Operating
				rulesIn determining the number of employees for purposes of this
				subsection—
										(A)any rule
				applicable in determining the number of employees for purposes of section
				408(p)(2)(C) shall be applicable under this subsection,
										(B)all members of
				the same family (within the meaning of section 318(a)(1)) shall be treated as 1
				individual, and
										(C)any reference to
				an employer shall include a reference to any predecessor employer.
										(f)Deposits to
				individual retirement plans other than those selected by employee
									(1)In
				generalAn employer shall not be treated as failing to satisfy
				the requirements of this section or any other provision of this title merely
				because the employer makes all contributions (or all contributions on behalf of
				employees who do not specify an individual retirement plan, trustee, or issuer
				to receive the contributions) to—
										(A)individual
				retirement plans specified in paragraph (2), or
										(B)individual
				retirement plans under the payroll tax deposit system established under
				paragraph (3).
										(2)Plans of a
				designated trustee or issuerAn employer may elect to have
				contributions for all applicable employees participating in a payroll deposit
				IRA arrangement made to individual retirement plans of a designated trustee or
				issuer under the arrangement. The preceding sentence shall not apply unless
				each participant is notified in writing that the participant’s balance may be
				transferred without cost or penalty to another individual retirement plan
				established by or on behalf of the participant.
									(3)Payroll tax
				deposit systemThe Secretary, in consultation with the TSP II
				Board, shall establish a system under which an employer—
										(A)includes with
				each deposit of tax required to be deducted and withheld under chapter 24 the
				aggregate amounts, for the period covered by the deposit, which applicable
				employees designated under subsection (b)(1)(A) (or are deemed to have
				designated under subsection (b)(2)(F)(ii) or under an automatic contribution
				arrangement described in subsection (g)) for contribution to individual
				retirement plans, established on behalf of the employees under paragraph (4),
				and
										(B)specifies, in
				such manner as the Secretary may prescribe, for each applicable employee for
				whom a contribution is to be made the following information:
											(i)The employee's
				name and TIN.
											(ii)The amount of
				the contribution.
											(iii)The investment
				options selected by the employee (or deemed to have been selected by the
				employee under such automatic contribution arrangement) and the amount of the
				contribution allocated to each option.
											(4)Establishment
				and maintenance of accounts under payroll tax deposit system
										(A)In
				generalSubject to the
				provisions of this section and section 408C, the TSP II Board shall provide for
				the establishment and maintenance of individual retirement plans (including
				automatic IRAs) into which contributions may be deposited through the payroll
				tax deposit system. To the maximum extent practicable, the TSP II Board
				shall—
											(i)enter into contracts with persons eligible
				to be trustees of individual retirement plans under section 408 to establish
				such plans, to provide the investment funds and investment management, and to
				provide notice, record keeping, and other administrative services, and
											(ii)ensure that the
				costs of investment management and administration are kept to a minimum,
				including through consideration of the use of investments which involve passive
				management and which seek to replicate the performance of a portion of the
				market.
											(B)Payroll deposit
				featuresThe TSP II Board
				shall establish procedures so that contributions may be made to individual
				retirement plans (including automatic IRAs) through the payroll tax deposit
				system described in paragraph (3) without undue administrative or paperwork
				requirements on employers participating in the payroll tax deposit system. Such
				procedures shall ensure that only 1 such plan may be established for each
				TIN.
										(C)Limitation on
				rollovers to plans outside the systemIf—
											(i)any amount is
				paid or distributed out of an individual retirement plan established under this
				paragraph, and
											(ii)such amount is
				paid into an individual retirement plan established outside of the payroll tax
				deposit system,
											the
				payment described in clause (ii) shall be treated as a rollover contribution
				for purposes of section 408(d)(3) if and only if the balance to the credit of
				the individual in such individual retirement plan or arrangement immediately
				before the payment described in clause (i) was at least $15,000.(g)Coordination
				with automatic enrollment and other default election provisions
									(1)In
				generalA payroll deposit IRA arrangement may provide that
				contributions under the arrangement will be made pursuant to an automatic
				contribution arrangement but only if the arrangement meets requirements similar
				to the requirements applicable to an eligible automatic contribution
				arrangement under section 414(w). The Secretary shall modify such requirements
				to the extent necessary to carry out the purposes of this section.
									(2)Default
				investmentsIf an employee is deemed under an automatic
				contribution arrangement to have made an election to participate in a payroll
				deposit IRA arrangement—
										(A)the employee
				shall be deemed to have made an election to make contributions in the amount
				specified in paragraph (3),
										(B)such
				contributions shall be transferred to—
											(i)an automatic IRA,
				or,
											(ii)if the employer
				has made an election under subsection (f)(2), to an individual retirement plan
				of the designated trustee or issuer but only if the requirements of
				subparagraph (C) are met with respect to such individual retirement plan,
				and
											(C)such
				contributions shall be invested as provided in paragraph (4).
										(3)Amount of
				contributions
										(A)In
				generalThe amount specified in this paragraph is 3 percent of
				compensation.
										(B)Authority of
				board to provide for annual increasesThe TSP II Board may by
				regulation provide for annual increases in the percentage of compensation an
				employee is deemed to have elected under paragraph (2) but in no event shall
				the percentage of compensation an employee is deemed to have elected exceed 8
				percent.
										(C)Contribution
				limitThe contributions under paragraph (2) on behalf of an
				employee for any calendar year shall not exceed the dollar limits applicable to
				the employee for the calendar year under section 219 or 408A.
										(4)Investment in
				life cycle fund or other investments specified by the
				boardAmounts contributed under paragraph (2) shall be invested
				in—
										(A)a life cycle fund
				similar to the life cycle funds offered under the Thrift Savings Fund
				established under subchapter III of chapter 84 of title 5, United States Code,
				or
										(B)such other
				investment or investments as the TSP II Board specifies in regulations and
				which entails asset allocation and extensive diversification.
										A fund or
				investment shall meet the requirements of this paragraph only if it is
				consistent with regulations prescribed by the Secretary of Labor under section
				404(c)(5) of the Employee Retirement Income Security Act of 1974.(5)Coordination
				with withholdingThe Secretary shall modify the withholding
				exemption certificate under section 3402(f) so that any notice and election
				requirements with respect to an automatic contribution arrangement which is
				part of a payroll deposit IRA arrangement may be met through the use of such
				certificate.
									(h)Model
				noticeThe Secretary, in consultation with the TSP II Board,
				shall—
									(1)provide a model
				notice, written in a manner calculated to be understandable to the average
				worker, that is simple for employers to use—
										(A)to notify
				employees of the requirement under this section for the employer to provide
				certain employees with the opportunity to participate in a payroll deposit IRA
				arrangement, and
										(B)to satisfy the
				requirements of subsection (b)(2)(D).
										(2)provide uniform
				forms for enrollment, including automatic enrollment, in a payroll deposit IRA
				arrangement, and
									(3)establish a web
				site or other electronic means for small employers to access and use to obtain
				information on payroll deposit IRA arrangements and to obtain required notices
				and
				forms.
									.
					(b)Preemption of
			 conflicting State lawsSection 514(e)(1) of the Employee
			 Retirement Income Security Act of 1974 (29 U.S.C. 1144(e)(1)), as added by
			 section 902 of the Pension Protection Act of 2006, is amended to read as
			 follows:

							(1)In
				generalNotwithstanding any other provision of this section, this
				title shall supersede any law of a State which would directly or indirectly
				prohibit or restrict—
								(A)the inclusion in
				any plan of an automatic contribution arrangement, or
								(B)the establishment
				or operation of a deposit IRA arrangement meeting the requirements of section
				408B of the Internal Revenue Code of 1986 (and the inclusion in such
				arrangement of an automatic contribution arrangement).
								The
				Secretary may prescribe regulations which would establish minimum standards
				that an automatic contribution arrangement would be required to satisfy in
				order for this subsection to apply in the case of such arrangement. This
				subsection shall apply to a plan or arrangement without regard to whether this
				title applies to such plan or
				arrangement..
					(c)Notice of
			 availability of investment guidelinesSection 408(i) (relating to
			 reports) is amended by adding at the end the following new sentence: Any
			 report furnished under paragraph (2) to an individual shall include notice of
			 the availability of, and methods of acquiring, the basic investment guidelines
			 prepared by the Secretary of Labor..
					(d)Development of
			 basic investment guidelines
						(1)In
			 generalThe Secretary of Labor shall, in consultation with the
			 Secretary of Treasury, develop and publish basic guidelines for investing for
			 retirement. Except as otherwise provided by the Secretary of Labor, such
			 guidelines shall include—
							(A)information on
			 the benefits of diversification,
							(B)information on
			 the essential differences, in terms of risk and return, between various pension
			 plan investments, including stocks, bonds, mutual funds, and money market
			 investments,
							(C)information on
			 how an individual’s pension plan investment allocations may differ depending on
			 the individual’s age and years to retirement and on other factors determined by
			 the Secretary of Labor,
							(D)sources of
			 information where individuals may learn more about pension rights, individual
			 investing, and investment advice, and
							(E)such other
			 information related to individual investing as the Secretary of Labor
			 determines appropriate.
							(2)Calculation
			 informationThe guidelines under paragraph (1) shall include
			 addresses for Internet sites and worksheets which a participant or beneficiary
			 in a pension plan may use to calculate—
							(A)the retirement
			 age value of the participant’s or beneficiary’s nonforfeitable pension benefits
			 under the plan (expressed as an annuity amount and determined by reference to
			 varied historical annual rates of return and annuity interest rates),
			 and
							(B)other important
			 amounts relating to retirement savings, including the amount which a
			 participant or beneficiary would be required to save annually to provide a
			 retirement income equal to various percentages of their current salary
			 (adjusted for expected growth prior to retirement).
							(3)Public
			 commentThe Secretary of Labor shall provide at least 90 days for
			 public comment on proposed guidelines before publishing the final
			 guidelines.
						(4)Rules relating
			 to guidelinesThe guidelines under paragraph (1)—
							(A)shall be written
			 in a manner calculated to be understood by the average plan participant,
			 and
							(B)may be delivered
			 in written, electronic, or other appropriate manner to the extent such manner
			 would ensure that the guidelines are reasonably accessible to participants and
			 beneficiaries.
							(e)Penalty for
			 failure To provide access to payroll savings arrangementsChapter
			 43 (relating to qualified pension, etc., plans) is amended by adding at the end
			 the following new section:

							4980H.Requirements
				for employers to provide employees access to payroll deposit IRA
				arrangements
								(a)General
				ruleThere is hereby imposed a tax on any failure by an employer
				to meet the requirements of subsection (d) for a calendar year.
								(b)Amount
									(1)In
				generalThe amount of the tax imposed by subsection (a) on any
				failure for any calendar year shall be $100 with respect to each employee to
				whom such failure relates.
									(2)Tax not to
				apply where failure not discovered and reasonable diligence
				exercisedNo tax shall be imposed by subsection (a) on any
				failure during any period for which it is established to the satisfaction of
				the Secretary that the employer subject to liability for the tax did not know
				that the failure existed and exercised reasonable diligence to meet the
				requirements of subsection (d). In no event shall the tax be imposed with
				respect to any failure that ends before the expiration of 90 days after the
				employer has responded or has had a reasonable opportunity to respond to a
				request for confirmation of compliance under subsection (c).
									(3)Tax not to
				apply to failures corrected within 30 daysNo tax shall be
				imposed by subsection (a) on any failure if—
										(A)the employer
				subject to liability for the tax under subsection (a) exercised reasonable
				diligence to meet the requirements of subsection (d), and
										(B)the employer
				provides the payroll deposit IRA arrangement described in section 408B to each
				employee eligible to participate in the arrangement by the end of the 30-day
				period beginning on the first date the employer knew, or exercising reasonable
				diligence would have known, that such failure existed.
										(4)Waiver by
				SecretaryIn 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.
									(c)Procedures for
				noticeNot later than 6 months after the date of the enactment of
				this section, the Secretary shall prescribe and implement procedures for
				obtaining from employers confirmation that such employers are in compliance
				with the requirements of subsection (d). The Secretary, in the Secretary’s
				discretion, may prescribe that the confirmation shall be obtained on an annual
				or less frequent basis, and may use for this purpose the annual report or
				quarterly report for employment taxes, or such other means as the Secretary may
				deem advisable.
								(d)Requirement To
				provide employee access to payroll deposit IRA arrangementsThe
				requirements of this subsection are met if the employer meets the requirements
				of section
				408B.
								.
					(f)Coordination
			 with ERISA fiduciary dutiesSection 404(c)(2) of such Act (29
			 U.S.C. 1104(c)(2)) is amended—
						(1)by inserting
			 or an individual retirement plan designated by the employer under
			 section 408B of such Code after 1986,
						(2)by inserting
			 (7 days after notice has been given to an employee that an individual
			 retirement plan has been established on behalf of the employee under section
			 408B of such Code) after established in subparagraph
			 (C), and
						(3)by inserting
			 or with respect to an individual retirement plan designated by an
			 employer under section 408B of such Code after
			 arrangement in the last sentence.
						(g)Conforming
			 amendments
						(1)The table of
			 sections for subpart A of part I of subchapter A of chapter 1 is amended by
			 inserting after the item relating to section 408A the following new
			 item:

									Sec. 408B. Right to payroll deposit IRA arrangements at
				work.

								.
						(2)The table of
			 sections for chapter 43 is amended by adding at the end the following new
			 item:

									Sec. 4980H. Requirements for employers to
				provide employees access to payroll deposit IRA
				arrangements.

								.
						(h)Effective
			 dateThe amendments made by this section shall apply to calendar
			 years beginning after December 31, 2007.
					102.Credit for
			 small employers maintaining payroll deposit IRA arrangements
					(a)In
			 generalSubpart D of part IV of subchapter A of chapter 1
			 (relating to business related credits) is amended by adding at the end the
			 following new section:

							45N.Small employer
				payroll deposit IRA arrangement costs
								(a)General
				ruleFor purposes of section 38, in the case of an eligible
				employer maintaining a payroll deposit IRA arrangement meeting the requirements
				of section 408B (without regard to whether or not the employer is required to
				maintain the arrangement), the small employer payroll deposit IRA arrangement
				cost credit determined under this section for any taxable year is the amount
				determined under subsection (b).
								(b)Amount of
				credit
									(1)In
				generalThe amount of the credit determined under this section
				for any taxable year with respect to an eligible employer shall be equal to the
				lesser of—
										(A)$25 multiplied by
				the number of applicable employees (within the meaning of section 408B(c)) for
				whom contributions are made under the payroll deposit IRA arrangement referred
				to in subsection (a) for the calendar year in which the taxable year begins,
				or
										(B)$250.
										(2)Duration of
				creditNo credit shall be determined under this section for any
				taxable year other than a taxable year which begins in the first 2 calendar
				years in which the eligible employer maintains a payroll deposit IRA
				arrangement meeting the requirements of section 408B.
									(3)Coordination
				with small employer startup creditNo credit shall be allowed
				under this section for any taxable year if a credit is determined under section
				45E for the taxable year.
									(c)Eligible
				employerFor purposes of this section, the term eligible
				employer means, with respect to any calendar year in which the taxable
				year begins, an employer which maintains a payroll deposit IRA arrangement
				meeting the requirements of section 408B and which, on each day during the
				preceding calendar year, had no more than 100
				employees.
								.
					(b)Credit allowed
			 as part of general business creditSection 38(b) (defining
			 current year business credit) is amended by striking and at the
			 end of paragraph (29), by striking the period at the end of paragraph (30) and
			 inserting , and, and by adding at the end the following new
			 paragraph:

							(31)in the case of
				an eligible employer (as defined in section 45N(c)) maintaining a payroll
				deposit IRA arrangement meeting the requirements of section 408B, the small
				employer payroll deposit IRA arrangement cost credit determined under section
				45N(a).
							.
					(c)Clerical
			 amendmentThe table of sections for subpart D of part IV of
			 subchapter A of chapter 1 is amended by adding at the end the following new
			 item:

								Sec. 45N. Small employer payroll deposit
				IRA arrangement costs.

							.

					(d)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2007.
					103.Establishment
			 of automatic IRAs
					(a)In
			 generalSubpart A of part I of subchapter A of chapter 1
			 (relating to pension, profit-sharing, stock bonus plans, etc.), as amended by
			 section 101, is amended by inserting after section 408B the following new
			 section:

							408C.Automatic
				IRAs
								(a)General
				ruleAn automatic IRA shall be treated for purposes of this title
				in the same manner as an individual retirement plan. An automatic IRA may also
				be treated as a Roth IRA for purposes of this title if it meets the
				requirements of section 408A.
								(b)Automatic
				IRAFor purposes of this section, the term automatic
				IRA means an individual retirement plan (as defined in section
				7701(a)(37)) which meets the investment and fee requirements under the
				regulations under subsection (c).
								(c)Investment and
				fee requirements
									(1)In
				generalThe TSP II Board, in consultation with the Secretary and
				the Secretary of Labor, shall, not later than 1 year after the date of the
				enactment of this section, prescribe regulations which set forth the
				requirements of this subsection which an individual retirement plan must meet
				in order to be treated as an automatic IRA.
									(2)Investment
				optionsThe regulations under paragraph (1) shall provide that an
				automatic IRA shall allow the individual on whose behalf the individual
				retirement plan is established to invest contributions to, and earnings of, the
				plan in all of the following investment options:
										(A)Options which are
				similar to all investment options which are available (at the time the plan is
				established) to a participant in the Thrift Savings Fund established under
				subchapter III of chapter 84 of title 5, United States Code.
										(B)Any other
				investment option specified in the regulations.
										Such
				regulations shall specify which of the investment options shall be treated as
				default investment options for purposes of section 408B(g)(4).(3)Investment
				fees
										(A)In
				generalThe regulations under paragraph (1) shall provide that an
				automatic IRA shall not charge any investment fees which, in the aggregate, are
				not reasonable (as determined under such regulations).
										(B)Investment
				feesFor purposes of this paragraph, the term investment
				fees includes any fee, commission, asset management fee, compensation
				for services, or any other charge or fee specified in the regulations under
				paragraph (1) which is imposed with respect to the automatic
				IRA.
										.
					(b)Mandatory
			 transfersSection 401(a)(31)(B) is amended—
						(1)by inserting
			 (including an automatic IRA) after individual retirement
			 plan each place it appears, and
						(2)by adding at the
			 end the following new sentence: Any amount so transferred (and any
			 earnings thereon) shall be invested in a default investment described in
			 section 408B(g)(4)..
						(c)Clerical
			 amendmentThe table of sections for subpart A of part I of
			 subchapter A of chapter 1 is amended by inserting after the item relating to
			 section 408B the following new item:

								Sec. 408C. Automatic
				IRAs.

							.
					(d)Effective
			 dateThe amendments made by this section shall apply to calendar
			 years beginning on or after the date on which proposed and temporary or final
			 regulations described in section 408C(c) of the Internal Revenue Code of 1986
			 (as added by this Act) are issued.
					104.Establishment
			 of TSP II Board
					(a)EstablishmentThere
			 is established in the executive branch of the Government a TSP II Board. The
			 board shall be established and maintained in the same manner as the Federal
			 Retirement Thrift Investment Board under subchapter VII of chapter 84 of title
			 5, United States Code.
					(b)Executive
			 directorThe TSP II Board shall appoint an Executive Director in
			 a similar manner and with similar functions as the Executive Director of the
			 Federal Retirement Thrift Investment Board under section 8474 of title 5,
			 United States Code.
					(c)Duties of
			 boardThe TSP II Board shall establish policies and procedures
			 for—
						(1)establishment and
			 maintenance of individual retirement plans under the payroll tax deposit system
			 established under section 408B(f)(3) of the Internal Revenue Code of
			 1986,
						(2)the investment
			 and management of contributions to such individual retirement plans,
						(3)the amount of
			 contributions, and the investment of such contributions, under automatic
			 contribution arrangements under section 408B(g) of such Code, including the
			 designation of investment funds in which such contributions may be invested,
			 and
						(4)the establishment
			 of automatic IRAs under section 408C of such Code, including the issuance of
			 regulations under subsection (c) of such section.
						(d)Best
			 practicesThe TSP II Board shall, on a continual basis, prescribe
			 and encourage best practices (including cost efficiencies and innovations) in
			 enrollment, investment, distribution, and other procedures or arrangements
			 relating to retirement savings and investment. In carrying out its
			 responsibilities under this section, the TSP II Board may implement (by
			 contract or otherwise) pilot projects to help assess the efficacy and
			 workability of specific practices and arrangements.
					(e)Expansion of
			 use of IRAs by self-employed and other individualsThe TSP II
			 Board shall establish procedures to disseminate information (through use of the
			 Internet and other appropriate means) to—
						(1)facilitate and
			 encourage the use by self-employed and other individuals of automatic debit and
			 similar arrangements for investment in individual retirement plans, including
			 automatic IRAs,
						(2)facilitate and
			 encourage efforts by voluntary associations to promote savings in individual
			 retirement plans, including automatic IRAs, by their members and others,
			 and
						(3)facilitate and
			 encourage the direct deposit of Federal and State income tax refunds in
			 individual retirement plans, including automatic IRAs.
						(f)Exclusive
			 interestThe members of the TSP II Board shall discharge their
			 responsibilities solely in the interest of participants and beneficiaries under
			 the payroll tax deposit system established under section 408B of the Internal
			 Revenue Code of 1986.
					(g)Other
			 provisions made applicableThe provisions of subsections (f)(3),
			 (g), (i), and (j) of section 8472 of title 5, United States Code, shall apply
			 to the TSP II Board.
					BOther
			 provisions
				111.Modifications
			 to computation of saver's credit
					(a)In
			 generalSection 25B(b) (defining applicable percentage), as
			 amended by section 833 of the Pension Protection Act of 2006, is amended to
			 read as follows:

							(b)Applicable
				percentageFor purposes of this section—
								(1)In
				generalThe applicable percentage is—
									(A)if the taxpayer's
				adjusted gross income does not exceed the first threshold amount plus $5,000,
				50 percent, reduced by 1 percentage point for each $250 (or fraction thereof)
				by which such adjusted gross income exceeds the first threshold amount,
									(B)if the taxpayer's
				adjusted gross income exceeds the first threshold amount plus $5,000, but does
				not exceed the second threshold amount plus $5,000, 30 percent, reduced by 1
				percentage point for each $167 (or fraction thereof) by which such adjusted
				gross income exceeds the second threshold amount, and
									(C)if the taxpayer's
				adjusted gross income exceeds the second threshold amount plus $5,000, zero
				percent.
									(2)Threshold
				amounts
									(A)Joint
				returnsIn the case of a joint return—
										(i)the first
				threshold amount is $30,000, and
										(ii)the second
				threshold amount is $55,000.
										(B)Other
				returnsIn the case of—
										(i)a
				head of household, the first and second threshold amounts shall be 75 percent
				of such amounts for joint returns, and
										(ii)any taxpayer not
				described in subparagraph (A) or clause (i), the first and second threshold
				amounts shall be 50 percent of such amounts for joint returns.
										(C)Inflation
				adjustmentIn the case of any
				taxable year beginning in a calendar year after 2006, each of the dollar
				amounts in subparagraph (A) shall be increased by an amount equal to—
										(i)such dollar amount,
				multiplied by
										(ii)the
				cost-of-living adjustment determined under section 1(f)(3) for the calendar
				year in which the taxable year begins, determined by substituting
				calendar year 2005 for calendar year 1992 in
				subparagraph (B) thereof.
										Any
				increase determined under the preceding sentence shall be rounded to the
				nearest multiple of
				$500..
					(b)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2006.
					112.Qualified cash
			 or deferred arrangements must allow long-term employees working more than 500
			 but less than 1,000 hours per year to participate
					(a)Participation
			 requirement
						(1)In
			 generalSubparagraph (D) of section 401(k)(2) (defining qualified
			 cash or deferred arrangement) is amended to read as follows:

								(D)which does not
				require, as a condition of participation in the arrangement, that an employee
				complete a period of service with the employer (or employers) maintaining the
				plan extending beyond the close of the earlier of—
									(i)the period
				permitted under section 410(a)(1) (determined without regard to subparagraph
				(B)(i) thereof), or
									(ii)subject to the
				provisions of paragraph (14), the first period of 3 consecutive 12-month
				periods during each of which the employee has at least 500 hours of
				service.
									.
						(2)Special
			 rulesSection 401(k) (relating to cash or deferred arrangements),
			 as amended by section 902 of the Pension Protection Act of 2006, is amended by
			 adding at the end the following new paragraph:

								(14)Special rules
				for participation requirement for long-term, part-time
				workersFor purposes of paragraph (2)(D)(ii)—
									(A)Age requirement
				must be metParagraph (2)(D)(ii) shall not apply to an employee
				unless the employee has met the requirement of section 410(a)(1)(A)(i) by the
				close of the last of the 12-month periods described in such paragraph.
									(B)Nondiscrimination
				and top-heavy rules not to apply
										(i)Nondiscrimination
				rulesIn the case of employees who are eligible to participate in
				the arrangement solely by reason of paragraph (2)(D)(ii))—
											(I)notwithstanding
				subsection (a)(4), an employer shall not be required to make nonelective or
				matching contributions on behalf of such employees even if such contributions
				are made on behalf of other employees eligible to participate in the
				arrangement, and
											(II)an employer may
				elect to exclude such employees from the application of paragraph (3) and
				subsection (m)(2).
											(ii)Top-heavy
				rulesAn employer may elect to exclude all employees who are
				eligible to participate in a plan maintained by the employer solely by reason
				of paragraph (2)(D)(ii) from—
											(I)the determination
				of whether the plan is a top-heavy plan under section 416, and
											(II)if the plan is a
				top-heavy plan under such section, the application of the vesting and benefit
				requirements under subsections (b) and (c) of such section.
											(iii)VestingFor
				purposes of determining whether an employee described in clause (i) has a
				nonforfeitable right to employer contributions (other than contributions
				described in paragraph (3)(D)(i)) under the arrangement, each 12-month period
				for which the employee has at least 500 hours of service shall be treated as a
				year of service.
										(iv)Employees who
				become full-time employeesThis subparagraph shall cease to apply
				to any employee after the date on which the employee meets the requirements of
				section 410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii).
										(C)Exception for
				employees under collectively bargained plans, etcParagraph
				(2)(D)(ii) shall not apply to employees described in section 410(b)(3).
									(D)Special
				rules
										(i)Time of
				participationThe rules of section 410(a)(4) shall apply to an
				employee eligible to participate in an arrangement solely by reason of
				paragraph (2)(D)(ii).
										(ii)12-month
				periods12-month periods shall be determined in the same manner
				as under the last sentence of section
				410(a)(3)(A).
										.
						(b)Effective
			 dateThe amendments made by this section shall apply to plan
			 years beginning after December 31, 2007, except that, for purposes of section
			 401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as added by such
			 amendments), 12-month periods beginning before such date shall not be taken
			 into account.
					113.Transfers of
			 unused benefits of health flexible spending arrangement to certain retirement
			 plans
					(a)In
			 GeneralSection 125 (relating to cafeteria plans) is amended by
			 redesignating subsections (h) and (i) as subsections (i) and (j), respectively,
			 and by inserting after subsection (g) the following:

							(h)Contributions
				of Certain Unused Health Benefits
								(1)In
				generalFor purposes of this title, a plan or other arrangement
				shall not fail to be treated as a cafeteria plan solely because qualified
				benefits of a participant under such plan include a health flexible spending
				arrangement under which not more than $500 of unused health benefits may be
				contributed on behalf of the participant to—
									(A)a qualified
				retirement plan (as defined in section 4974(c)), or
									(B)an eligible
				deferred compensation plan (as defined in section 457(b)) maintained by an
				eligible employer described in section 457(e)(1)(A).
									(2)Treatment of
				contribution of unused health benefits
									(A)In
				generalFor purposes of this title, contributions described in
				paragraph (1) shall be treated as elective contributions made pursuant to an
				election by the participant between such contributions and compensation which
				would otherwise be includible in the gross income of the employee.
									(B)Exclusion or
				deductionContributions described in paragraph (1) shall be
				excluded from gross income, or included in gross income and allowed as a
				deduction, to the same extent that elective contributions would be so treated
				under this title.
									(3)Health flexible
				spending arrangementFor purposes of this subsection, the term
				health flexible spending arrangement means a flexible spending
				arrangement (as defined in section 106(c)) which is a qualified benefit and
				only permits reimbursement for expenses for medical care (as defined in section
				213(d)(1) without regard to subparagraphs (C) and (D) thereof).
								(4)Unused health
				benefitsFor purposes of this subsection, the term unused
				health benefits means, with respect to a participant, the excess
				of—
									(A)the maximum
				amount of reimbursement allowable to the participant with respect to a plan
				year under a health flexible spending arrangement, taking into account any
				election by the participant, over
									(B)the actual amount
				of reimbursement with respect to such year under such
				arrangement.
									.
					(b)Special
			 RulesThe Secretary of the Treasury shall prescribe such rules as
			 are appropriate to carry out the purposes of the amendments made by this
			 section. Such rules may permit elections by plan sponsors with respect to the
			 year to which the contributions relate and may provide for special treatment
			 for purposes of applying the requirements applicable to such
			 contributions.
					(c)Effective
			 DateThe amendment made by subsection (a) shall apply to years
			 beginning after December 31, 2006.
					114.Computation of
			 limits on IRA and Roth IRA contributions
					(a)Certain wage
			 replacement income treated as compensation
						(1)Wage
			 replacement incomeSection
			 219(f) (relating to other definitions and special rules) is amended by
			 redesignating paragraph (8) as paragraph (9) and by inserting after paragraph
			 (7) the following new paragraph:

								(8)Treatment of
				certain wage replacement income as compensation
									(A)In
				generalNotwithstanding paragraph (1), applicable wage
				replacement income not otherwise treated as compensation shall be treated as
				compensation for purposes of this section.
									(B)Applicable wage
				replacement incomeFor purposes of this paragraph, the term
				applicable wage replacement income means any amount received by an
				individual—
										(i)as the result of
				the individual having become disabled,
										(ii)as unemployment
				compensation (as defined in section 85(b)),
										(iii)under workmen's
				compensation acts, or
										(iv)which
				constitutes wage replacement income under regulations prescribed by the
				Secretary.
										.
						(2)Certain
			 excludable amounts may be taken into account for purposes of Roth
			 IRAsSection 408A(c)(2) (relating to contribution limit) is
			 amended by adding at the end the following new flush sentence:

								In
				determining the maximum amount under subparagraph (A), subsections (b)(1)(B)
				and (c) of section 219 shall be applied by taking into account compensation
				described in section 219(f)(8) without regard to whether it is includible in
				gross
				income..
						(3)Effective
			 dateThe amendments made by this subsection shall apply to
			 taxable years beginning after December 31, 2006.
						(b)Computation of
			 maximum IRA deduction for Roth IRAs using compensation from 2 preceding taxable
			 years
						(1)In
			 generalSection 408A(c) (relating to treatment of contributions)
			 is amended by adding at the end the following new paragraph:

								(8)Compensation
				from preceding 2 years may be taken into account
									(A)In
				generalA taxpayer may elect for purposes of paragraph (2) to
				take into account any unused compensation from the 2 taxable years immediately
				preceding the taxable year.
									(B)Unused
				compensationFor purposes of this paragraph, the term
				unused compensation means with respect to an individual for any
				taxable year the compensation includible in the individual's gross income for
				the taxable year reduced by the sum of—
										(i)the amount
				allowed as a deduction under 219(a) to such individual for such taxable
				year,
										(ii)the amount of
				any designated nondeductible contribution (as defined in section 408(o)) on
				behalf of such individual for such taxable year,
										(iii)the amount of
				any contribution on behalf of such individual to a Roth IRA under this section
				for such taxable year, and
										(iv)the amount of
				compensation includible in such individual's gross income for such taxable year
				taken into account under section 219(c) in determining the limitation under
				section 219 or paragraph (2) for the individual's spouse.
										(C)Application to
				special rule for married individualsUnder rules prescribed by
				the Secretary, in applying section 219(c) for any taxable year for purposes of
				applying paragraph (2)(A), unused compensation of an individual or an
				individual's spouse for the 2 taxable years immediately preceding the taxable
				year may be taken into
				account.
									.
						(2)Effective
			 dateThe amendment made by this subsection shall apply to taxable
			 years beginning after December 31, 2006, but unused compensation for taxable
			 years beginning before January 1, 2007, may be taken into account for taxable
			 years beginning after December 31, 2006.
						115.Contributions of
			 military death gratuities to certain tax-favored accounts
					(a)Roth
			 IRAs
						(1)Provision in
			 effect before pension protection actSubsection (e) of section 408A (relating to
			 qualified rollover contribution), as in effect before the amendments made by
			 section 824 of the Pension Protection Act of 2006, is amended to read as
			 follows:

								(e)Qualified
				rollover contributionFor
				purposes of this section—
									(1)In
				generalThe term
				qualified rollover contribution means a rollover contribution to a
				Roth IRA from another such account, or from an individual retirement plan, but
				only if such rollover contribution meets the requirements of section 408(d)(3).
				Such term includes a rollover contribution described in section 402A(c)(3)(A).
				For purposes of section 408(d)(3)(B), there shall be disregarded any qualified
				rollover contribution from an individual retirement plan (other than a Roth
				IRA) to a Roth IRA.
									(2)Military death
				gratuity
										(A)In
				generalThe term
				qualified rollover contribution includes a contribution to a Roth
				IRA maintained for the benefit of an individual to the extent that such
				contribution does not exceed the amount received by such individual under
				section 1477 of title 10, United States Code, or under section 1967 of title 38
				of such Code, if such contribution is made not later than 1 year after the day
				on which such individual receives such amount.
										(B)Annual limit on
				number of rollovers not to applySection 408(d)(3)(B) shall not apply with
				respect to amounts treated as a rollover by the subparagraph (A).
										(C)Application of
				section 72For purposes of
				applying section 72 in the case of a distribution which is not a qualified
				distribution, the amount treated as a rollover by reason of subparagraph (A)
				shall be treated as investment in the
				contract.
										.
						(2)Provision in
			 effect after pension protection actSubsection (e) of section
			 408A, as in effect after the amendments made by section 824 of the Pension
			 Protection Act of 2006, is amended to read as follows:

								(e)Qualified
				Rollover ContributionFor purposes of this section—
									(1)In
				generalThe term qualified rollover contribution
				means a rollover contribution—
										(A)to a Roth IRA
				from another such account,
										(B)from an eligible
				retirement plan, but only if—
											(i)in the case of an
				individual retirement plan, such rollover contribution meets the requirements
				of section 408(d)(3), and
											(ii)in the case of
				any eligible retirement plan (as defined in section 402(c)(8)(B) other than
				clauses (i) and (ii) thereof), such rollover contribution meets the
				requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable.
											For
				purposes of section 408(d)(3)(B), there shall be disregarded any qualified
				rollover contribution from an individual retirement plan (other than a Roth
				IRA) to a Roth IRA.(2)Military death
				gratuity
										(A)In
				generalThe term
				qualified rollover contribution includes a contribution to a Roth
				IRA maintained for the benefit of an individual to the extent that such
				contribution does not exceed the amount received by such individual under
				section 1477 of title 10, United States Code, or under section 1967 of title 38
				of such Code, if such contribution is made not later than 1 year after the day
				on which such individual receives such amount.
										(B)Annual limit on
				number of rollovers not to applySection 408(d)(3)(B) shall not apply with
				respect to amounts treated as a rollover by the subparagraph (A).
										(C)Application of
				section 72For purposes of
				applying section 72 in the case of a distribution which is not a qualified
				distribution, the amount treated as a rollover by reason of subparagraph (A)
				shall be treated as investment in the
				contract.
										.
						(b)Health savings
			 accounts and Archer MSAsSections 220(f)(5) and 223(f)(5) are each
			 amended by adding at the end the following flush sentence:

							For
				purposes of subparagraphs (A) and (B), rules similar to the rules of section
				408A(e)(2) (relating to rollover treatment for contributions of military death
				gratuity) shall
				apply..
					(c)Education
			 savings accountsSection
			 530(d)(5) is amended by adding at the end the following new sentence:
			 For purposes of this paragraph, rules similar to the rules of section
			 408A(e)(2) (relating to rollover treatment for contributions of military death
			 gratuity) shall apply..
					(d)Effective
			 dates
						(1)In
			 generalExcept as provided by
			 paragraphs (2) and (3), the amendments made by this section shall apply with
			 respect to deaths from injuries occurring on or after the date of the enactment
			 of this Act.
						(2)Application of
			 amendments to deaths from injuries occurring on or after October 7, 2001, and
			 before enactmentThe
			 amendments made by this section shall apply to any contribution made pursuant
			 to section 408A(e)(2), 220(f)(5), 223(f)(5), or 530(d)(5) of the Internal
			 Revenue Code of 1986, as amended by this Act, with respect to amounts received
			 under section 1477 of title 10, United States Code, or under section 1967 of
			 title 38 of such Code, for deaths from injuries occurring on or after October
			 7, 2001, and before the date of the enactment of this Act if such contribution
			 is made not later than 1 year after the date of the enactment of this
			 Act.
						(3)Pension
			 Protection Act changesSection 408A(e)(1) of the Internal Revenue
			 Code of 1986 (as in effect after the amendments made by subsection (a)(2))
			 shall apply to taxable years beginning after December 31, 2007.
						IIProvisions
			 providing for preservation of income
			201.Exclusion of
			 certain qualified annuity payments
				(a)Exclusion
					(1)Qualified
			 plansSection 402(e) (relating to exempt trusts) is amended by
			 adding at the end the following new paragraph:

							(7)Exclusion of
				percentage of lifetime annuity payments
								(A)In
				generalIn the case of a lifetime annuity payment to a qualified
				distributee from a qualified trust (within the meaning of subsection (c)(8)(A))
				maintained in connection with a defined contribution plan, gross income shall
				not include 10 percent of the amount otherwise includible in gross income
				(determined without regard to this paragraph). For purposes of this paragraph,
				payments from an annuity contract distributed by the qualified trust shall be
				treated as payments from the qualified trust.
								(B)Limitation
									(i)In
				generalIf—
										(I)the aggregate
				amount of lifetime annuity payments to the distributee during the taxable year
				which are includible in gross income (determined without regard to this
				paragraph) and which are subject to this paragraph or to rules similar to the
				rules of this paragraph (other than section 72(b)(5) or 101(d)(4)),
				exceeds
										(II)50 percent of
				the applicable amount for the taxable year under section 415(a),
										then the
				aggregate amount otherwise excludable under subparagraph (A) for the taxable
				year shall be reduced by 10 percent of the portion of such excess which is
				allocable under clause (ii) to payments which are subject to this
				paragraph.(ii)Allocation
				ruleAny excess described in clause (i) for any taxable year
				shall be allocated ratably among all lifetime annuity payments to the qualified
				distributee described in clause (i)(I).
									(C)DefinitionsFor
				purposes of this paragraph—
									(i)Lifetime
				annuity payment
										(I)In
				generalExcept as provided in this clause, the term
				lifetime annuity payment means a distribution from an annuity
				contract which is a part of a series of substantially equal periodic payments
				(not less frequently than annually) made over the life of the qualified
				distributee or the joint lives of the qualified distributee and the qualified
				distributee’s designated beneficiary. For purposes of this paragraph, the term
				annuity contract means a commercial annuity (as defined in section
				3405(e)(6)), other than an endowment or life insurance contract.
										(II)Certain
				fluctuating paymentsAnnuity payments shall not fail to be
				treated as part of a series of substantially equal periodic payments merely
				because the amount of the periodic payments may vary in accordance with
				investment experience, reallocations among investment options, actuarial gains
				or losses, cost of living indices, a constant percentage (not less than zero)
				applied not less frequently than annually, or similar fluctuating
				criteria.
										(III)Certain
				changes in the mode of paymentAnnuity payments shall not fail to
				be treated as part of a series of substantially equal periodic payments merely
				because the period between each such payment is lengthened or shortened, but
				only if at all times such period is not longer than 1 year.
										(IV)Permitted
				reductionsAnnuity payments shall not fail to be treated as part
				of a series of substantially equal periodic payments merely because, in the
				case of an annuity payable over the lives of the qualified distributee and the
				qualified distributee’s designated beneficiary, the amounts paid after the
				death of the qualified distributee or the qualified distributee’s designated
				beneficiary are less than the amounts payable during their joint lives.
										(V)Certain
				contract benefitsThe availability of a commutation benefit or
				other feature permitting acceleration of annuity payments (or a modification of
				the period during which such a benefit is available), a minimum period of
				payments or a minimum amount to be paid in any event shall not affect the
				treatment of a distribution as a lifetime annuity payment.
										(VI)Trust
				paymentsIn the case of lifetime annuity payments being made to a
				qualified trust, payments by the qualified trust to a qualified distributee of
				the entire amount received by the qualified trust with respect to the qualified
				distributee shall constitute lifetime annuity payments if such payments are
				made within a reasonable period after receipt by the qualified trust.
										(VII)Qualified
				domestic relations ordersAnnuity payments shall not fail to be
				treated as a series of substantially equal periodic payments merely because the
				payments are reduced on account of a qualified domestic relations order (within
				the meaning of section 414(p)) that becomes effective after the commencement of
				the annuity payments.
										(ii)Qualified
				distributeeThe term qualified distributee means the
				employee, the surviving spouse of the employee, and an alternate payee who is
				the spouse or former spouse of the employee.
									(D)Recapture
				tax
									(i)In
				generalIf—
										(I)an amount is not
				includible in gross income by reason of subparagraph (A), and
										(II)the series of
				payments of which such payment is a part is subsequently modified (other than
				by reason of death or disability) so that some or all future payments are not
				lifetime annuity payments,
										the qualified
				distributee’s gross income for the first taxable year in which such
				modification occurs shall be increased by an amount, determined under rules
				prescribed by the Secretary, equal to the amount which (but for subparagraph
				(A)) would have been includible in the qualified distributee’s gross income if
				the modification had been in effect at all times, plus interest for the
				deferral period at the underpayment rate established under section 6621.(ii)Deferral
				periodFor purposes of this subparagraph, the term deferral
				period means, with respect to any amount, the period beginning with the
				taxable year in which (without regard to subparagraph (A)) the amount would
				have been includible in gross income and ending with the taxable year in which
				the modification described in clause (i)(II) occurs.
									(E)Investment in
				the contractFor purposes of section 72, the investment in the
				contract shall be determined without regard to this
				paragraph.
								.
					(2)Qualified
			 annuity plansSection 403(a) (relating to qualified annuity
			 plans) is amended by adding at the end the following new paragraph:

							(6)Exclusion of
				percentage of lifetime annuity paymentsRules similar to the
				rules of section 402(e)(7) shall apply to distributions under any annuity
				contract to which this subsection
				applies.
							.
					(3)Purchased
			 annuitiesSection 403(b) (relating to purchased annuities) is
			 amended by adding at the end the following new paragraph:

							(14)Exclusion of
				percentage of lifetime annuity paymentsRules similar to the
				rules of section 402(e)(7) shall apply to distributions under any annuity
				contract or custodial account to which this subsection
				applies.
							.
					(4)IRAsSection
			 408(d) (relating to tax treatment of distributions), as amended by section 1201
			 of the Pension Protection Act of 2006, is amended by adding at the end the
			 following new paragraph:

							(9)Exclusion of
				percentage of lifetime annuity paymentsRules similar to the
				rules of section 402(e)(7) shall apply to distributions out of an individual
				retirement
				plan.
							.
					(5)Section 457
			 plansSection 457(e) (relating to special rules for deferred
			 compensation plans) is amended by adding at the end the following new
			 paragraph:

							(19)Exclusion of
				percentage of lifetime annuity paymentsRules similar to the
				rules of section 402(e)(7) shall apply to distributions from an eligible
				deferred compensation plan of an eligible employer described in subsection
				(e)(1)(A).
							.
					(b)Effective
			 DateThe amendments made by this section shall apply to
			 distributions made after December 31, 2006.
				202.Exclusion for
			 lifetime annuity payments
				(a)Lifetime
			 Annuity Payments Under Annuity ContractsSection 72(b) (relating
			 to exclusion ratio) is amended by adding at the end the following new
			 paragraph:

						(5)Exclusion for
				lifetime annuity payments
							(A)In
				generalIn the case of lifetime annuity payments received as an
				annuity under 1 or more annuity contracts in any taxable year, gross income
				shall not include the lesser of—
								(i)50 percent of the
				portion of the lifetime annuity payments which (without regard to this
				paragraph) is includible in gross income under this section for the taxable
				year, or
								(ii)$20,000.
								(B)Cost-of-living
				adjustmentIn the case of taxable years beginning after December
				31, 2007, the $20,000 amount in subparagraph (A)(ii) shall be increased by an
				amount equal to—
								(i)such dollar
				amount, multiplied by
								(ii)the
				cost-of-living adjustment determined under section 1(f)(3) for the calendar
				year in which the taxable year begins, determined by substituting
				calendar year 2006 for calendar year 1992 in
				subparagraph (B) thereof.
								If any
				amount as increased under the preceding sentence is not a multiple of $500,
				such amount shall be rounded to the next lower multiple of $500.(C)Application of
				paragraphSubparagraph (A) shall not apply to—
								(i)any amount
				received under an eligible deferred compensation plan (as defined in section
				457(b)) or under a qualified retirement plan (as defined in section
				4974(c)),
								(ii)any amount paid
				under an annuity contract which is received by the beneficiary under the
				contract—
									(I)after the death
				of the annuitant in the case of payments described in subsection
				(c)(5)(A)(ii)(III), unless the beneficiary is the surviving spouse of the
				annuitant, or
									(II)after the death
				of the annuitant and joint annuitant in the case of payments described in
				subsection (c)(5)(A)(ii)(IV), unless the beneficiary is the surviving spouse of
				the last to die of the annuitant and the joint annuitant, or
									(iii)any annuity
				contract that is a qualified funding asset (as defined in section 130(d)), but
				without regard to whether there is a qualified assignment.
								(D)Investment in
				the contractFor purposes of this section, the investment in the
				contract shall be determined without regard to this
				paragraph.
							.
				(b)DefinitionsSection
			 72(c) is amended by adding at the end the following new paragraph:

						(5)Lifetime
				annuity payment
							(A)In
				generalFor purposes of subsection (b)(5), the term
				lifetime annuity payment means any amount received as an annuity
				under any portion of an annuity contract, but only if—
								(i)the only person
				(or persons in the case of payments described in subclause (II) or (IV) of
				clause (ii)) legally entitled (by operation of the contract, a trust, or other
				legally enforceable means) to receive such amount during the life of the
				annuitant or joint annuitant is such annuitant or joint annuitant, and
								(ii)such amount is
				part of a series of substantially equal periodic payments made not less
				frequently than annually over—
									(I)the life of the
				annuitant,
									(II)the lives of the
				annuitant and a joint annuitant, but only if the annuitant is the spouse of the
				joint annuitant as of the annuity starting date or the difference in age
				between the annuitant and joint annuitant is 15 years or less,
									(III)the life of the
				annuitant with a minimum period of payments or with a minimum amount that must
				be paid in any event, or
									(IV)the lives of the
				annuitant and a joint annuitant with a minimum period of payments or with a
				minimum amount that must be paid in any event, but only if the annuitant is the
				spouse of the joint annuitant as of the annuity starting date or the difference
				in age between the annuitant and joint annuitant is 15 years or less.
									(iii)ExceptionsFor
				purposes of clause (ii), annuity payments shall not fail to be treated as part
				of a series of substantially equal periodic payments—
									(I)because the
				amount of the periodic payments may vary in accordance with investment
				experience, reallocations among investment options, actuarial gains or losses,
				cost-of-living indices, a constant percentage (not less than zero) applied not
				less frequently than annually, or similar fluctuating criteria,
									(II)due to the
				existence of, or modification of the duration of, a provision in the contract
				permitting a lump-sum withdrawal after the annuity starting date, or
									(III)because the
				period between each such payment is lengthened or shortened, but only if at all
				times such period is no longer than 1 calendar year.
									(B)Annuity
				contractFor purposes of subparagraph (A) and subsections (b)(5)
				and (x), the term annuity contract means a commercial annuity (as
				defined by section 3405(e)(6)), other than an endowment or life insurance
				contract.
							(C)Minimum period
				of paymentsFor purposes of subparagraph (A), the minimum period
				of payments is a guaranteed term of payments which does not exceed the greater
				of—
								(i)10 years,
				or
								(ii)the life
				expectancy of—
									(I)the annuitant as
				of the annuity starting date, in the case of lifetime annuity payments
				described in subparagraph (A)(ii)(III), or
									(II)the annuitant
				and joint annuitant as of the annuity starting date, in the case of lifetime
				annuity payments described in subparagraph (A)(ii)(IV).
									For
				purposes of this subparagraph, life expectancy shall be computed with reference
				to the tables prescribed by the Secretary under paragraph (3). For purposes of
				subsection (x)(1)(C)(ii), the permissible minimum period of payments shall be
				determined as of the annuity starting date and reduced by one for each
				subsequent year.(D)Minimum amount
				that must be paid in any eventFor purposes of subparagraph (A),
				the minimum amount that must be paid in any event is an amount payable to the
				designated beneficiary under an annuity contract which is in the nature of a
				refund and does not exceed the greater of the amount applied to produce the
				lifetime annuity payments under the contract or the amount, if any, available
				for withdrawal under the contract on the date of
				death.
							.
				(c)Recapture Tax
			 for Lifetime Annuity PaymentsSection 72 is amended by
			 redesignating subsection (x) as subsection (y) and by inserting after
			 subsection (x) the following new subsection:

						(x)Recapture Tax
				for Modifications to or Reductions in Lifetime Annuity Payments
							(1)In
				generalIf—
								(A)any amount
				received under an annuity contract is excluded from income by reason of
				subsection (b)(5) (relating to lifetime annuity payments) for any taxable year,
				and
								(B)a recapture event
				described in paragraph (2) occurs in any subsequent taxable year,
								then gross
				income for the first taxable year in which the recapture event occurs shall be
				increased by the recapture amount.(2)Recapture
				eventFor purposes of paragraph (1), a recapture event occurs
				if—
								(A)the series of
				payments under an annuity contract is subsequently modified so any future
				payments are not lifetime annuity payments,
								(B)after the date of
				receipt of the first lifetime annuity payment under the contract an annuitant
				receives a lump sum and thereafter is to receive annuity payments in a reduced
				amount under the contract, or
								(C)after the date of
				receipt of the first lifetime annuity payment under the contract the dollar
				amount of any subsequent annuity payment is reduced and a lump sum is not paid
				in connection with the reduction, unless such reduction is—
									(i)due to an event
				described in subsection (c)(5)(A)(iii), or
									(ii)due to the
				addition of, or increase in, a minimum period of payments (within the meaning
				of subsection (c)(5)(C)) or a minimum amount that must be paid in any event
				(within the meaning of subsection (c)(5)(D)).
									(3)Recapture
				amount
								(A)In
				generalFor purposes of this subsection, the recapture amount
				shall be the amount, determined under rules prescribed by the Secretary, equal
				to the amount which (but for subsection (b)(5)) would have been includible in
				the taxpayer’s gross income if the modification or reduction described in
				subparagraph (A), (B), or (C) of paragraph (2) had been in effect at all times,
				plus interest for the deferral period at the underpayment rate established by
				section 6621.
								(B)Deferral
				periodFor purposes of this subsection, the term deferral
				period means, with respect to any amount, the period beginning with the
				taxable year in which (without regard to subsection (b)(5)) the amount would
				have been includible in gross income and ending with the taxable year in which
				the modification or reduction described in subparagraph (A), (B), or (C) of
				paragraph (2) occurs.
								(4)Exceptions to
				recapture taxParagraph (1) shall not apply in the case of any
				recapture event which occurs because an annuitant—
								(A)dies or becomes
				disabled (within the meaning of subsection (m)(7)),
								(B)becomes a
				chronically ill individual within the meaning of section 7702B(c)(2), or
								(C)encounters
				hardship.
								.
				(d)Lifetime
			 Distributions of Life Insurance Death Benefits
					(1)In
			 generalSection 101(d) (relating to payment of life insurance
			 proceeds at a date later than death) is amended by adding at the end the
			 following new paragraph:

							(4)Exclusion for
				lifetime annuity payments
								(A)In
				generalIn the case of amounts to which this subsection applies,
				gross income for any taxable year shall not include the lesser of—
									(i)50 percent of the
				portion of lifetime annuity payments which (without regard to this paragraph)
				is includible in gross income under this section, or
									(ii)the amount in
				effect under section 72(b)(5)(A)(ii) for the taxable year.
									(B)Rules of
				section 72(b)(5) to applyFor
				purposes of this paragraph, rules similar to the rules of section 72(b)(5) and
				section 72(x) shall apply, except that the term beneficiary of the life
				insurance contract shall be substituted for the term
				annuitant each place it appears, and the term life insurance
				contract shall be substituted for the term annuity contract
				each place it
				appears.
								.
					(2)Conforming
			 amendmentSection 101(d)(1) is amended by inserting or
			 paragraph (4) after to the extent not excluded by the preceding
			 sentence.
					(e)Effective
			 Date
					(1)In
			 generalThe amendments made by this section shall apply to
			 amounts received in calendar years beginning after the date of the enactment of
			 this Act.
					(2)Special rule
			 for existing contractsIn the case of a contract in force on the
			 date of the enactment of this Act that does not satisfy the requirements of
			 section 72(c)(5)(A) of the Internal Revenue Code of 1986 (as added by this
			 section), or requirements similar to such section 72(c)(5)(A) in the case of a
			 life insurance contract, any modification to such contract (including a change
			 in ownership) or to the payments under such contract that is made to satisfy
			 the requirements of such section (or similar requirements) shall not result in
			 the recognition of any gain or loss, any amount being included in gross income,
			 or any addition to tax that otherwise might result from such modification, but
			 only if the modification is completed before the date which is 2 years after
			 the date of the enactment of this Act.
					203.Joint study of
			 application of spousal consent rules to defined contribution plans
				(a)StudyThe
			 Secretary of Labor and the Secretary of the Treasury shall jointly conduct a
			 study of the feasibility and desirability of extending the application of the
			 requirements of section 205 of the Employee
			 Retirement Income Security Act of 1974 and sections 401(a)(11) and
			 417 of the Internal Revenue Code of 1986 (relating to spousal consent
			 requirements) to defined contribution plans to which such requirements do not
			 apply. Such study shall include consideration of—
					(1)any modifications
			 of such requirements that are necessary to apply such requirements to such
			 plans, and
					(2)the feasibility
			 of providing notice and spousal consent in 1 or more electronic forms that are
			 capable of authentication.
					(b)ReportNot
			 later than 2 years after the date of the enactment of this Act, the Secretaries
			 shall report the results of the study, together with any recommendations for
			 legislative changes, to the Committees on Finance and Health, Education, Labor,
			 and Pensions of the Senate and the Committees on Ways and Means and Education,
			 and the Workforce of the House of Representatives.
				204.Facilitating
			 longevity insurance
				(a)In
			 GeneralParagraph (9) of section 401(a) is amended by inserting
			 after subparagraph (G) the following new subparagraph:

						(H)Longevity
				insurance
							(i)In
				generalFor purposes of this paragraph, any value attributable to
				longevity insurance shall be disregarded in determining the value of an
				employee’s interest under a plan prior to the first date that payments are made
				under the longevity insurance.
							(ii)Longevity
				insurance definedFor purposes of this subparagraph, the term
				longevity insurance means an annuity payable on behalf of the
				employee under which—
								(I)payments commence
				not later than 12 months following the calendar month in which the employee
				attains age 85 (or would have attained age 85),
								(II)payments are
				made in substantially equal periodic payments (not less frequently than
				annually) over the life of the employee or the joint lives of the employee and
				the employee’s designated beneficiary, taking into account the rules of clause
				(i) of section 402(e)(7)(D), except as otherwise provided in subclause (III) of
				such section,
								(III)prior to the
				death of the employee, the annuity does not make available any commutation
				benefit, cash surrender value, or other similar feature, and
								(IV)except as
				provided in rules prescribed by the Secretary, in the case of an employee’s
				death prior to the date that payments commence, the value of any death benefits
				paid may not exceed the premiums paid for such annuity, plus interest
				compounded annually at 3 percent.
								(iii)Adjusting
				ageFor purposes of clause (ii)(I), the Secretary shall annually
				increase age 85 to reflect increases in life expectancy (as determined by the
				Secretary) that occur on or after January 1, 2006, except that any such
				increased age which is not a whole number shall be rounded to the next lower
				whole
				number.
							.
				(b)RulesNot
			 later than one year after the date of enactment of this Act, the Secretary of
			 the Treasury shall prescribe rules under which all or a portion of a
			 participant’s benefits under any plan described in section 402(c)(8)(B) of the
			 Internal Revenue Code of 1986 may be treated as longevity insurance under the
			 rules of section 401(a)(9)(H) of such Code.
				(c)Effective
			 dateThe amendments made by this section shall apply to years
			 beginning after December 31, 2007.
				IIIProvisions
			 ensuring equity in divorce
			301.Elimination of
			 current connection requirement under Railroad Retirement Act for certain
			 survivors
				(a)In
			 generalSection 2(d)(1) of the Railroad Retirement Act of 1974
			 (45 U.S.C. 231a(d)(1)), in the matter preceding paragraph (i), is amended by
			 inserting , except with respect to survivors described in paragraph (i),
			 (ii), or (v), after December 31, 1995) and.
				(b)Effective
			 dateThe amendments made by subsection (a) shall take effect on
			 the date of enactment of this Act and shall apply to annuity amounts accruing
			 for months on or after such date.
				302.Permitting
			 divorced spouses and widows and widowers to remarry after turning 60 without a
			 penalty under Railroad Retirement Act
				(a)In
			 general
					(1)Divorced
			 spouseSection 2(c)(4) of the Railroad Retirement Act of 1974 (45
			 U.S.C. 231a(c)(4) is amended by adding at the end the following new sentence:
			 For purposes of paragraph (ii)(B), if a divorced wife marries after
			 attaining age 60, such marriage shall be deemed not to have
			 occurred.
					(2)Widows and
			 widowersSection 2(d)(1)(v) of the Railroad Retirement Act of
			 1974 (45 U.S.C. 231a(d)(1)(v)) is amended by adding at the end the following
			 new sentence: For purposes of this paragraph, if a widow marries after
			 attaining age 60, such marriage shall be deemed not to have
			 occurred.
					(b)Effective
			 dateThe amendments made by this section shall take effect on the
			 date of enactment of this Act and shall apply to annuity amounts accruing for
			 months on or after such date.
				303.Repeal of
			 jurisdictional requirement for court to treat military retirement pay as
			 property of the military member and spouse
				(a)In
			 generalSection 1408(c) of title 10, United States Code, is
			 amended by striking paragraph (4).
				(b)Effective
			 dateThe amendment made by this section shall apply to final
			 decrees issued on or after the date of the enactment of this Act.
				IVProvisions to
			 improve financial literacy
			401.Grants to
			 community-based taxpayer clinics to provide retirement savings advice
				(a)In
			 generalSection 7526 (relating to low-income taxpayer clinics) is
			 amended by adding at the end the following:

						(d)Additional
				grants for retirement savings advice
							(1)Making of
				grantsThe Secretary may, subject to the availability of
				appropriated funds, make grants to qualified low-income taxpayer clinics to
				provide retirement savings counseling to low-income taxpayers.
							(2)Use of grant
				fundsGrants under paragraph (1) shall be used to—
								(A)develop the
				infrastructure necessary to carry out retirement savings counseling for
				low-income taxpayers, including the development of software to assist
				low-income taxpayers in beginning a retirement savings program, monitoring
				their savings behavior, and taking advantage of tax benefits provided under
				this title to assist in retirement savings,
								(B)develop
				partnerships with certified financial planners and other financial experts to
				assist in carrying out the retirement savings program, and
								(C)train advisors to
				assist low-income taxpayers with retirement savings.
								(3)Criteria for
				awardsThe provisions of subsection (c)(4) shall apply in
				determining whether to make a grant under paragraph (1).
							(4)Limitations and
				special rules
								(A)Aggregate
				limitationUnless otherwise provided by specific appropriations,
				the Secretary shall not allocate more than $25,000,000 per year (exclusive of
				costs of administering the program) to grants under paragraph (1).
								(B)Limitation on
				annual grants to a clinicThe aggregate amount of grants which
				may be made under paragraph (1) to a clinic for a year shall not exceed
				$100,000.
								(C)Multi-year
				grantsThe provisions of subsection (c)(3) shall apply to grants
				under paragraph (1).
								(D)Additional
				amountsGrants under paragraph (1) shall be in addition to any
				grants under subsection (a).

				(b)Conforming
			 amendments
					(1)Section 7526(c)
			 (relating to special rules and limitations) is amended by striking this
			 section each place it appears and inserting subsection
			 (a).
					(2)Section
			 7526(c)(3) is amended by inserting under subsection (a) after
			 award.
					(c)Authorization
			 of appropriationsThere is authorized to be appropriated for each
			 fiscal year beginning after September 30, 2006, $25,000,000 to carry out the
			 provisions of this section.
				402.Treatment of
			 qualified retirement planning services
				(a)In
			 GeneralSubsection (m) of section 132 (defining qualified
			 retirement services) is amended by adding at the end the following new
			 paragraph:

						(4)No constructive
				receipt
							(A)In
				generalNo amount shall be included in the gross income of any
				employee solely because the employee may choose between any qualified
				retirement planning services provided by an eligible investment advisor and
				compensation which would otherwise be includible in the gross income of such
				employee. The preceding sentence shall apply to highly compensated employees
				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.
							(B)LimitationThe
				maximum amount which may be excluded under subparagraph (A) with respect to any
				employee for any taxable year shall not exceed $1,000.
							(C)Eligible
				investment adviserFor purposes of this paragraph, the term
				eligible investment adviser means, with respect to a plan, a
				person—
								(i)who—
									(I)is registered as
				an investment adviser under the Investment
				Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.),
									(II)is registered as
				an investment adviser under the laws of the State in which such adviser
				maintains the principal office and place of business of such adviser, but only
				if such State laws are consistent with section 203A of the
				Investment Advisers Act of 1940 (15
				U.S.C. 80b–3a),
									(III)is a bank or
				similar financial institution referred to in section 408(b)(4),
									(IV)is an insurance
				company qualified to do business under the laws of a State, or
									(V)is any other
				comparably qualified entity which satisfies such criteria as the Secretary
				determines appropriate, consistent with the purposes of this subsection,
				and
									(ii)who meets the
				requirements of subparagraph (D).
								(D)Adviser
				requirementsThe requirements of this subparagraph are met if
				every individual employed (or otherwise compensated) by a person described in
				subparagraph (C)(i) who provides investment advice on behalf of such person to
				any plan participant or beneficiary is—
								(i)an individual
				described in subclause (I) of subparagraph (C)(i),
								(ii)an individual
				described in subclause (II) of subparagraph (C)(i), but only if such State has
				an examination requirement to qualify for registration,
								(iii)registered as a
				broker or dealer under the Securities Exchange
				Act of 1934 (15 U.S.C. 78a et seq.),
								(iv)a registered
				representative as described in section 3(a)(18) of the
				Securities Exchange Act of 1934 (15
				U.S.C. 78c(a)(18)) or section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C.
				80b–2(a)(17)), or
								(v)any other
				comparably qualified individual who satisfies such criteria as the Secretary
				determines appropriate, consistent with the purposes of this paragraph.
								(E)TerminationThis
				paragraph shall not apply to taxable years beginning after December 31,
				2011.
							.
				(b)Conforming
			 Amendments
					(1)Section
			 403(b)(3)(B) is amended by inserting 132(m)(4), after
			 132(f)(4),.
					(2)Section 414(s)(2)
			 is amended by inserting 132(m)(4), after
			 132(f)(4),.
					(3)Section
			 415(c)(3)(D)(ii) is amended by inserting 132(m)(4), after
			 132(f)(4),.
					(c)Effective
			 DateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2006.
				403.Retirement
			 handbook and retirement readiness checklist
				(a)In
			 generalSection 704 of the Social Security Act is amended by
			 adding at the end the following new subsection:

						(f)Retirement
				information
							(1)In
				generalThe Commissioner, in consultation with the Social
				Security Advisory Board, shall prepare—
								(A)the financial
				reference handbook described in paragraph (2), and
								(B)the retirement
				readiness checklist described in paragraph (3).
								(2)Financial
				reference handbookThe handbook described in this paragraph is a
				pamphlet which—
								(A)includes
				definitions of basic financial terms,
								(B)contains a
				listing of financial issues and problems facing individuals who are retiring
				and explanations of methods of dealing with the issues and problems, and
								(C)is in a form
				readily understandable by the average retiree.
								(3)Readiness
				checklistThe checklist described in this paragraph is a list of
				questions that individuals need to consider in preparation for retirement,
				including the following:
								(A)What annual
				income will the individual need in retirement?
								(B)How many years
				will the individual live in retirement?
								(C)What will be the
				cost of Medicare premiums?
								(D)What will be the
				cost of insurance necessary to supplement Medicare?
								(E)How will savings
				be invested in retirement?
								(F)How will taxes
				affect your retirement income?
								The
				checklist will include answers to the questions or directions as to where
				information is available to answer the questions. All information shall be in a
				form readily understandable to the average recipient of the checklist.(4)RevisionsThe
				Commissioner shall periodically revise and update the handbook and checklist
				prepared under this subsection.
							(5)Distribution of
				materials
								(A)HandbookThe
				financial reference handbook described in paragraph (2) shall be included with
				materials provided to an individual when the individual first applies for
				benefits under title II and such other times as the Commissioner determines
				appropriate.
								(B)ChecklistThe
				retirement readiness checklist described in paragraph (3) shall be included
				with an individual's annual social security account statement provided under
				section
				1143.
								.
				(b)Effective
			 dateThe amendment made by this section shall take effect on the
			 date of the enactment of this Act, but the handbooks and checklists required to
			 be provided by such amendment shall be provided on or after January 1, 2008 (or
			 such earlier date as the Commissioner of Social Security may provide).
				VIncentives for
			 small businesses to establish and maintain retirement plans for
			 employees
			501.Credit for
			 qualified pension plan contributions of small employers
				(a)In
			 GeneralSubpart D of part IV of subchapter A of chapter 1
			 (relating to business related credits), as amended by section 102, is amended
			 by adding at the end the following new section:

						45O.Small employer
				pension plan contributions
							(a)General
				RuleFor purposes of section 38, in the case of an eligible
				employer, the small employer pension plan contribution credit determined under
				this section for any taxable year is an amount equal to 50 percent of the
				amount which would (but for subsection (f)(1)) be allowed as a deduction under
				section 404 for such taxable year for qualified employer contributions made to
				any qualified retirement plan on behalf of any employee who is not a highly
				compensated employee.
							(b)Credit Limited
				to 3 YearsThe credit allowable by this section shall be allowed
				only with respect to the period of 3 taxable years beginning with the first
				taxable year for which a credit is allowable with respect to a plan under this
				section.
							(c)Qualified
				Employer ContributionFor purposes of this section—
								(1)Defined
				contribution plansIn the case of a defined contribution plan,
				the term qualified employer contribution means the amount of
				nonelective and matching contributions to the plan made by the employer on
				behalf of any employee who is not a highly compensated employee to the extent
				such amount does not exceed 3 percent of such employee’s compensation from the
				employer for the year.
								(2)Defined benefit
				plansIn the case of a defined benefit plan, the term
				qualified employer contribution means the amount of employer
				contributions to the plan made on behalf of any employee who is not a highly
				compensated employee to the extent that the accrued benefit of such employee
				derived from employer contributions for the year does not exceed the equivalent
				(as determined under regulations prescribed by the Secretary and without regard
				to contributions and benefits under the Social
				Security Act) of 3 percent of such employee’s compensation from the
				employer for the year.
								(d)Qualified
				Retirement Plan
								(1)In
				generalThe term qualified retirement plan means any
				plan described in section 401(a) which includes a trust exempt from tax under
				section 501(a) if the plan meets—
									(A)the contribution
				requirements of paragraph (2),
									(B)the vesting
				requirements of paragraph (3), and
									(C)the distribution
				requirements of paragraph (4).
									(2)Contribution
				requirements
									(A)In
				generalThe requirements of this paragraph are met if, under the
				plan—
										(i)the employer is
				required to make nonelective contributions of at least 1 percent of
				compensation (or the equivalent thereof in the case of a defined benefit plan)
				for each employee who is not a highly compensated employee who is eligible to
				participate in the plan, and
										(ii)allocations of
				nonelective employer contributions, in the case of a defined contribution plan,
				are either in equal dollar amounts for all employees covered by the plan or
				bear a uniform relationship to the total compensation, or the basic or regular
				rate of compensation, of the employees covered by the plan (and an equivalent
				requirement is met with respect to a defined benefit plan).
										(B)Compensation
				limitationThe compensation taken into account under subparagraph
				(A) for any year shall not exceed the limitation in effect for such year under
				section 401(a)(17).
									(3)Vesting
				requirementsThe requirements of this paragraph are met if the
				plan satisfies the requirements of either of the following
				subparagraphs:
									(A)3-year
				vestingA plan satisfies the requirements of this subparagraph if
				an employee who has completed at least 3 years of service has a nonforfeitable
				right to 100 percent of the employee’s accrued benefit derived from employer
				contributions.
									(B)5-year graded
				vestingA plan satisfies the requirements of this subparagraph if
				an employee has a nonforfeitable right to a percentage of the employee’s
				accrued benefit derived from employer contributions determined under the
				following table:

													The nonforfeitable

													Years of
						service:percentage is:

													120

													240

													360

													480

													5100.

									(4)Distribution
				requirementsIn the case of a profit-sharing or stock bonus plan,
				the requirements of this paragraph are met if, under the plan, qualified
				employer contributions are distributable only as provided in section
				401(k)(2)(B).
								(e)Other
				DefinitionsFor purposes of this section—
								(1)Eligible
				employer
									(A)In
				generalThe term eligible employer means, with
				respect to any year, an employer which has no more than 25 employees who
				received at least $5,000 of compensation from the employer for the preceding
				year.
									(B)Requirement for
				new qualified employer plansSuch term shall not include an
				employer if, during the 3-taxable year period immediately preceding the first
				taxable year for which the credit under this section is otherwise allowable for
				a qualified employer plan of the employer, the employer or any member of any
				controlled group including the employer (or any predecessor of either)
				established or maintained a qualified employer plan with respect to which
				contributions were made, or benefits were accrued, for substantially the same
				employees as are in the qualified employer plan.
									(2)Highly
				compensated employeeThe term highly compensated
				employee has the meaning given such term by section 414(q) (determined
				without regard to section 414(q)(1)(B)(ii)).
								(f)Special
				Rules
								(1)Disallowance of
				deductionNo deduction shall be allowed for that portion of the
				qualified employer contributions paid or incurred for the taxable year which is
				equal to the credit determined under subsection (a).
								(2)Election not to
				claim creditThis section shall not apply to a taxpayer for any
				taxable year if such taxpayer elects to have this section not apply for such
				taxable year.
								(3)Aggregation
				rulesAll persons treated as a single employer under subsection
				(a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be
				treated as one person. All eligible employer plans shall be treated as 1
				eligible employer plan.
								(g)Recapture of
				Credit on Forfeited Contributions
								(1)In
				generalExcept as provided in paragraph (2), if any accrued
				benefit which is forfeitable by reason of subsection (d)(3) is forfeited, the
				employer’s tax imposed by this chapter for the taxable year in which the
				forfeiture occurs shall be increased by 35 percent of the employer
				contributions from which such benefit is derived to the extent such
				contributions were taken into account in determining the credit under this
				section.
								(2)Reallocated
				contributionsParagraph (1) shall not apply to any contribution
				which is reallocated by the employer under the plan to employees who are not
				highly compensated
				employees.
								.
				(b)Credit Allowed
			 as Part of General Business CreditSection 38(b) (defining
			 current year business credit) , as amended by section 102, is amended by
			 striking and at the end of paragraph (30), by striking the
			 period at the end of paragraph (31) and inserting , and, and by
			 adding at the end the following new paragraph:

						(32)in the case of
				an eligible employer (as defined in section 45O(e)), the small employer pension
				plan contribution credit determined under section
				45O(a).
						.
				(c)Conforming
			 Amendments
					(1)Subsection (c) of
			 section 196 is amended by striking and at the end of paragraph
			 (12), by striking the period at the end of paragraph (13) and inserting
			 , and, and by adding at the end the following new
			 paragraph:

							(14)the small
				employer pension plan contribution credit determined under section
				45O(a).
							.
					(2)The table of
			 sections for subpart D of part IV of subchapter A of chapter 1, as amended by
			 section 102, is amended by adding at the end the following new item:

								Sec. 45O. Small
				employer pension plan
				contributions.

							.
					(d)Effective
			 DateThe amendments made by this section shall apply to
			 contributions paid or incurred in taxable years beginning after December 31,
			 2006.
				502.Deduction for
			 pension contributions allowed in computing net earnings from
			 self-employment
				(a)In
			 generalSection 1402(a) (defining net earnings from
			 self-employment) is amended by striking and at the end of
			 paragraph (15), by striking the period at the end of paragraph (16) and
			 inserting , and, and by inserting after paragraph (16) the
			 following new paragraph:

						(17)any deduction
				allowed under section 404 by reason of section 404(a)(8)(C) shall be allowed,
				except that the amount of such deduction shall be determined without regard to
				this
				paragraph.
						.
				(b)Effective
			 dateThe amendments made by this section shall apply to taxable
			 years beginning after December 31, 2006.
				503.Exemption of
			 deferral-only qualified cash or deferred arrangements from top-heavy plan
			 rules
				(a)In
			 generalSection 416(g)
			 (defining top-heavy plan) is amended by adding at the end the following new
			 paragraph:

						(5)Exception for
				deferral-only cash or deferred arrangementsIn the case of a plan
				which consists solely of a qualified cash or deferred arrangement (as defined
				in section 401(k)(2)) under which no amounts may be contributed other than
				elective deferrals (as defined in section 402(g)(3)), such plan shall not be
				treated as a top-heavy
				plan.
						.
				(b)Effective
			 dateThe amendments made by this section shall apply to years
			 beginning after December 31, 2006.
				504.Extension of
			 time for small pension plans to adopt required plan qualification
			 amendments
				(a)In
			 generalIn the case of an eligible small plan for which a
			 remedial amendment period is established under Internal Revenue Procedure
			 2005-66 (or any regulation, revenue ruling, revenue procedure, or guidance
			 providing for a similar period), no amendment to the plan necessary for the
			 plan to meet the qualification requirements under the Internal Revenue Code of
			 1986 shall be required before the close of such period.
				(b)Additional
			 requirementsSubsection (a) shall not apply to an eligible small
			 plan unless—
					(1)any amendment
			 described in subsection (a) applies retroactively to the period during which
			 such amendment would otherwise have been required to be in effect,
					(2)the plan is
			 operated during the period described in paragraph (1) as if the amendment were
			 in effect, and
					(3)the plan meets
			 such requirements as the Secretary of the Treasury may prescribe to ensure that
			 the Secretary, the Secretary of Labor, employers maintaining the plan, and
			 participants and beneficiaries of the plan are adequately notified of the terms
			 of the plan actually in effect during a plan year.
					(c)Eligible small
			 planFor purposes of this section—
					(1)In
			 generalThe term eligible small plan means a plan
			 which, as of the beginning of a remedial amendment or similar period described
			 in subsection (a), had 100 or fewer participants. For purposes of this
			 paragraph, all defined benefit plans which are single-employer plans and are
			 maintained by the same employer (or any member of such employer’s controlled
			 group) shall be treated as 1 plan, but only participants with respect to such
			 employer or member shall be taken into account.
					(2)Application of
			 certain rules in determination of plan sizeFor purposes of this
			 subsection—
						(A)Plans not in
			 existence in preceding yearIn the case of the first plan year of
			 any plan, subparagraph (B) shall apply to such plan by taking into account the
			 number of participants that the plan is reasonably expected to have on days
			 during such first plan year.
						(B)PredecessorsAny
			 reference in paragraph (1) to an employer shall include a reference to any
			 predecessor of such employer.
						(d)Effective
			 dateThis section shall apply to amendments required to be
			 adopted for plan years beginning after December 31, 2006.