		II
		110th CONGRESS
		1st Session
		S. 1288
		IN THE SENATE OF THE UNITED
		  STATES

			May 3, 2007
			Mr. Smith (for himself,
			 Mr. Conrad, Mr.
			 Kerry, Mr. Bingaman, and
			 Ms. Snowe) 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
			 2007.
			(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;
				saver's credit made refundable.
					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.
					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. Special rules relating to treatment of qualified
				domestic relations orders.
					Sec. 302. Elimination of current connection requirement under
				Railroad Retirement Act for certain survivors.
					Sec. 303. Permitting divorced spouses and widows and widowers
				to remarry after turning 60 without a penalty under Railroad Retirement
				Act.
					Sec. 304. Repeal of jurisdictional requirement for court to
				treat military retirement pay as property of the military member and
				spouse.
					Sec. 305. Modification of reductions in disposable retired pay
				for payments in compliance with court orders.
					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
				enrollment arrangement, the notices required under subsection (h) with respect
				to the automatic enrollment 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 enrollment 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 enrollment 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 paragraph (1)—
										(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)in the case of an employer that maintains a
				qualified plan or arrangement which generally excludes employees who have not
				satisfied the eligibility requirements described in section 410(a)(1)(A)
				(without regard to section 410(a)(1)(B)), employees who have not yet satisfied
				such requirements,
										(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 individual retirement plans
				specified in paragraph (2) or (4).
									(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 procedureThe Secretary, in consultation with the TSP
				II Board, shall establish a procedure under which an employer—
										(A)may include 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 have
				designated under subsection (b)(1)(A) (or are deemed to have designated under
				subsection (b)(2)(F)(ii) or under an automatic enrollment 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, the following information for each applicable employee for whom
				a contribution is to be made:
											(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
				enrollment arrangement) and the amount of the contribution allocated to each
				option.
											(4)Establishment and maintenance of accounts
				under payroll tax deposit procedure
										(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 under paragraph (3). 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) under paragraph (3) without undue administrative or paperwork
				requirements on participating employers. Such procedures shall ensure that only
				1 such plan may be established for each TIN.
										(C)Limitation on rolloversIf—
											(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 which was not established under this paragraph,
											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 generalContributions under a payroll deposit IRA
				arrangement may be made pursuant to an automatic enrollment arrangement.
									(2)Automatic enrollment
				arrangementThe term
				automatic enrollment arrangement means an arrangement under a
				payroll deposit IRA arrangement and subject to rules prescribed by the
				Secretary—
										(A)under which an individual may elect to have
				the employer make payments as contributions to an individual account plan on
				behalf of the individual, or to the individual directly in cash,
										(B)under which the individual is treated as
				having elected to have the employer make such contributions in an amount equal
				to a specified percentage of compensation or dollar amount until the individual
				specifically elects not to have such contributions made (or specifically elects
				to have such contributions made at a different percentage or in a different
				amount), and
										(C)which meets notice requirements
				substantially similar to those described in section 414(w)(4).
										(3)Default investmentsIf an employee is deemed under an automatic
				enrollment 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
				(4),
										(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 (5).
										(4)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.
										(5)Investment in life cycle fund or other
				investments specified by the boardAmounts contributed under paragraph (3)
				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 (which shall be promulgated after taking
				into account, but not necessarily conforming to, regulations prescribed by the
				Secretary of Labor under section 404(c)(5) of the Employee Retirement Income
				Security Act of 1974) and which entails asset allocation and extensive
				diversification.
										(6)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 enrollment 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.
									(i)Cross referenceFor provision preempting conflicting State
				laws, see section 2(g) of the Women's
				Retirement Security Act of
				2007.
								.
					(b)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..
					(c)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.
							(d)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.
								.
					(e)Coordination with ERISA fiduciary
			 dutiesSection 404(c)(2) of
			 Employee Retirement Income Security Act of 1974 (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.
						(f)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.

								.
						(g)Preemption of conflicting State
			 lawsThe amendments made by
			 this section shall supersede any law of a State that would directly or
			 indirectly prohibit or restrict the establishment or operation of a payroll
			 deposit IRA arrangement meeting the requirements of section 408B of the
			 Internal Revenue Code of 1986 (including the inclusion in any such arrangement
			 of an automatic enrollment arrangement as defined in section 408B(g) of such
			 Code).
					(h)Effective
			 dateThe amendments made by
			 this section shall apply to calendar years beginning after December 31,
			 2008.
					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:

							45O.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
			 plus at the end of paragraph (30), by striking the period at the
			 end of paragraph (31) and inserting , plus, and by adding at the
			 end the following new paragraph:

							(32)in the case of an eligible employer (as
				defined in section 45O(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
				45O(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. 45O. Small employer
				payroll deposit IRA arrangement costs.

							.

					(d)Effective
			 dateThe amendments made by
			 this section shall apply to taxable years beginning after December 31,
			 2008.
					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)(5).(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)Studies of spousal consent requirements and
			 promotion of certain lifetime income arrangements
						(1)In generalThe Secretary of the Treasury and the
			 Secretary of Labor shall jointly conduct a separate study of the feasibility
			 and desirability of each of the following:
							(A)Extending to automatic IRAs spousal consent
			 requirements similar to, or based on, those that apply under the Federal
			 employees’ Thrift Savings Plan, including consideration of whether
			 modifications of such requirements are necessary to apply them to automatic
			 IRAs.
							(B)Promoting the use of low-cost annuities,
			 longevity insurance, or other guaranteed lifetime income arrangements in
			 automatic IRAs, including consideration of—
								(i)appropriate means of arranging for, or
			 encouraging, individuals to receive at least a portion of their distributions
			 in some form of low-cost guaranteed lifetime income, and
								(ii)issues presented by possible additional
			 differences in, or uniformity of, provisions governing different IRAs.
								(2)ReportNot later than 18 months after the date of
			 the enactment of this Act, the Secretaries shall report the results of each
			 study conducted under subsection (a), 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 Labor of the House of Representatives.
						(c)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)(5).
						(d)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.

							.
					(e)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 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 facilitate and encourage—
						(1)the use by self-employed and other
			 individuals of automatic debit and similar arrangements for investment in
			 individual retirement plans, including automatic IRAs,
						(2)efforts by voluntary associations to
			 promote savings in individual retirement plans, including automatic IRAs, by
			 their members and others, and
						(3)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 individual retirement plans described in 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; saver's credit made refundable
					(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 50 percent
				reduced (but not below zero) by 1 percentage point for each phaseout amount by
				which the taxpayer’s adjusted gross income for the taxable year exceeds the
				threshold amount.
								(2)Phaseout amount; threshold
				amountThe phaseout amount
				and the threshold amount shall be determined as follows:

												In the
						case of:The
						phaseout amount is:The threshold amount
						is:

												A joint
						return$200$50,000

												A head of household
						return$150$37,500

												Any other
						return$100$25,000.

								(3)Inflation adjustment
									(A)Joint returnsIn the case of any taxable year beginning
				in a calendar year after 2008, the $50,000 amount under paragraph (2) 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 2007 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)Other returnsIn the case of any taxable year for which
				there is an increase under subparagraph (A)—
										(i)the $37,500 under paragraph (2) shall be
				increased to an amount equal to 75 percent of the amount determined under
				subparagraph (A), and
										(ii)the $25,000 amount under paragraph (2)
				shall be increased to an amount equal to 50 percent of the amount determined
				under subparagraph
				(A).
										.
					(b)Credit made refundable
						(1)Transfer of credit to refundable
			 credits
							(A)In generalSection 25B, as amended by subsection (a),
			 is hereby moved to subpart C of part IV of subchapter A of chapter 1 (relating
			 to refundable credits) and inserted after section 35.
							(B)Conforming amendments
								(i)Section 24(b)(3)(B) is amended by striking
			 and 25B.
								(ii)Section 25(e)(1)(C)(ii) is amended by
			 striking , 25B.
								(iii)Section 25D(c)(2) is amended by striking
			 24, and 25B and inserting and 24.
								(iv)Section 26(a)(1) is amended by striking
			 24, and 25B and inserting and 24.
								(v)Section 25B, as moved by subparagraph (A),
			 is redesignated as section 36.
								(vi)Section 904(i) is amended by striking
			 24, and 25B and inserting  and 24.
								(vii)Section 1400C(d)(2) is amended by striking
			 , 25B.
								(viii)The table of sections for subpart C of part
			 IV of subchapter A of chapter 1 is amended by striking the item relating to
			 section 36 and inserting the following:

											Sec. 36. Elective deferrals and
				IRA contributions by certain individuals.
											Sec. 37. Overpayments of
				tax.

										.
								(ix)The table of sections for subpart A of part
			 IV of subchapter A of chapter 1 is amended by striking the item relating to
			 section 25B.
								(x)Section 1324 of title 31, United States
			 Code, is amended by inserting , or enacted by the
			 Women's Retirement Security Act of
			 2007 before the period at the end.
								(2)Mandatory deposit into qualified
			 account
							(A)No reduction of taxSubsection (a) of section 36, as moved and
			 redesignated by paragraph (1), is amended by striking credit against the
			 tax imposed by this subtitle and inserting tax
			 credit.
							(B)Deposit into qualified
			 accountSubsection (g) of
			 section 36, as moved and redesignated by paragraph (1), is amended to read as
			 follows:

									(g)Deposit Into Qualified Account
										(1)In generalAny amount allowed as a tax credit under
				subsection (a) shall not be allowed as a credit against any tax imposed by this
				subtitle but instead shall be treated as an overpayment under section 6401(b)
				and—
											(A)shall be paid on behalf of the individual
				taxpayer to an applicable retirement plan designated by the individual to be
				invested in a manner designated by the individual, except that in the case of a
				joint return, each spouse shall be entitled to designate an applicable
				retirement plan and investments with respect to payments attributable to such
				spouse, or
											(B)in the case of taxpayer who does not
				properly designate an applicable retirement plan in a timely manner or who
				designates an applicable retirement plan that does not accept such amount in a
				timely manner, shall be paid or credited on behalf of the individual taxpayer
				in a manner determined under rules prescribed by the Secretary that provides
				treatment comparable to the treatment under subparagraph (A).
											(2)Applicable retirement planFor purposes of this subsection, the term
				applicable retirement plan means a plan that elects to accept
				deposits under this subsection and that is described in clause (iii), (iv),
				(v), or (vi) of section 402(c)(8)(B) or in section 408A(b).
										(3)Treatment of direct paymentsAll amounts paid under this subsection
				shall be treated for purposes of this title as income attributable to—
											(A)a Roth IRA contribution in the case of a
				payments to an individual retirement plan, or
											(B)a designated Roth contribution in the case
				of a payment to an applicable retirement plan described in section
				402A(e).
											.
							(c)Effective
			 dateThe amendments made by
			 this section shall apply to taxable years beginning after December 31,
			 2007.
					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, 2008,
			 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
			 January 1, 2009, 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, 2007.
					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,
			 2007.
						(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, 2007,
			 but unused compensation for taxable years beginning before January 1, 2008, may
			 be taken into account for 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:

							(10)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, 2007.
				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, 2008, 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 2007 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 any modifications of such requirements that are necessary to apply such
			 requirements to such plans.
				(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 Labor 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, 2008.
				IIIProvisions ensuring equity in
			 divorce
			301.Special rules relating to treatment of
			 qualified domestic relations orders
				(a)Preservation of assets
					(1)Amendment of 1986 codeSection 414(p) is amended by redesignating
			 paragraph (13) as paragraph (14) and by inserting after paragraph (12) the
			 following new paragraph:

							(13)Preservation of assets
								(A)In generalIf a spouse or former spouse of a
				participant notifies a plan in writing that—
									(i)an action is pending pursuant to a State
				domestic relations law (including a community property law), and
									(ii)all or a portion of the benefits payable
				with respect to the participant under the plan are a subject of such
				action,
									and includes with the notice
				evidence of the pendency of the action, the plan administrator shall, during
				the segregation period, separately account for 50 percent of such benefits. Any
				amounts so separately accounted for may not be distributed by the plan during
				the segregation period.(B)Segregation periodFor purposes of subparagraph (A), the term
				segregation period means the period—
									(i)beginning on the date of the receipt of the
				notice, and
									(ii)ending as of the close of the 90-day period
				beginning on such date (or, if earlier, the date of receipt of a domestic
				relations order with respect to the participant and the spouse or former spouse
				or the date the action is no longer pending).
									The segregation period shall be
				extended for 1 or more additional periods described in the preceding sentence
				upon notice by the spouse or former spouse that the action described in
				subparagraph (A) is still pending as of the close of any prior segregation
				period.
					(2)Amendment of erisaSection 206(d)(3) of the Employee
			 Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)) is amended by
			 redesignating subparagraph (N) as subparagraph (O) and by inserting after
			 subparagraph (M) the following new subparagraph:

							(N)Preservation of assets
								(i)In generalIf a spouse or former spouse of a
				participant notifies a plan in writing that—
									(I)an action is pending pursuant to a State
				domestic relations law (including a community property law), and
									(II)all or a portion of the benefits payable
				with respect to the participant under the plan are a subject of such
				action,
									and includes with the notice evidence of
				the pendency of the action, the plan administrator shall, during the
				segregation period, separately account for 50 percent of such benefits. Any
				amounts so separately accounted for may not be distributed by the plan during
				the segregation period.(ii)Segregation periodFor purposes of clause (i), the term
				segregation period means the period—
									(I)beginning on the date of the receipt of the
				notice, and
									(II)ending as of the close of the 90-day period
				beginning on such date (or, if earlier, the date of receipt of a domestic
				relations order with respect to the participant and the spouse or former spouse
				or the date the action is no longer pending).
									The segregation period shall be extended
				for 1 or more additional periods described in the preceding sentence upon
				notice by the spouse or former spouse that the action described in clause (i)
				is still pending as of the close of any prior segregation
				period.
					(b)Penalty for failure To provide information
			 regarding alternate payeesSection 502(c) of the Employee Retirement
			 Income Security Act of 1974 (29 U.S.C. 1132(c)) is amended by redesignating
			 paragraph (8) as paragraph (9) and by inserting after paragraph (7) the
			 following new paragraph:

						(8)Failure to provide information regarding
				alternate payeesThe
				Secretary may assess a civil penalty against any plan administrator of up to
				$100 a day from the date of the plan administrator's failure or refusal to
				provide the information the plan administrator is required to provide under
				regulations under this Act to prospective alternative payees under a domestic
				relations order under section 206(d)(3) or to the Secretary or any
				representative of a prospective alternative payee in connection with such an
				order.

				(c)Allocation of plan expenses in complying
			 with domestic relations orders
					(1)Amendment of 1986 codeSection 414(p), as amended by subsection
			 (a), is amended by redesignating paragraph (14) as paragraph (15) and by
			 inserting after paragraph (13) the following new paragraph:

							(14)Allocation of expensesAny expenses incurred by a plan with
				respect to compliance with the requirements of this subsection shall not be
				allocated to an individual participant but rather shall be allocated among all
				participants on the basis of the relative value of each participant's share of
				the assets of the plan, on the basis of a flat amount per participant, or on
				any other reasonable basis provided for under the
				plan..

					(2)Amendment of erisaSection 206(d)(3) of the Employee
			 Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)), as amended by
			 subsection (a), is amended by redesignating subparagraph (O) as subparagraph
			 (P) and by inserting after subparagraph (N) the following new
			 subparagraph:

							(O)Allocation of expensesAny expenses incurred by a plan with
				respect to compliance with the requirements of this paragraph shall not be
				allocated to an individual participant but rather shall be allocated among all
				participants on the basis of the relative value of each participant's share of
				the assets of the plan, on the basis of a flat amount per participant, or on
				any other reasonable basis provided for under the
				plan.

					302.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 dates
					(1)In generalThe amendment made by subsection (a) shall
			 take effect on the date of enactment of this Act.
					(2)Retroactive application to certain
			 survivorsIf a survivor of a
			 deceased employee would be entitled to an annuity by reason of the amendment
			 made by subsection (a) but for the fact that the employee died before the date
			 of the enactment of this Act, the survivor shall be entitled to such an annuity
			 but only with respect to annuity payments for months beginning on or after such
			 date. Appropriate adjustments shall be made in annuity payments of other
			 individuals to reflect any annuity payable by reason of this paragraph.
					303.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 dates
					(1)In generalThe amendments made by this section shall
			 take effect on the date of enactment of this Act.
					(2)Retroactive applicationIf a divorced wife, widow, or widower would
			 be entitled to an annuity by reason of the amendments made by this section but
			 for the fact the individual was married before the date of the enactment of
			 this Act, the individual shall be entitled to such an annuity but only with
			 respect to annuity payments for months beginning on or after such date.
			 Appropriate adjustments shall be made in annuity payments of other individuals
			 to reflect any annuity payable by reason of this paragraph.
					304.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.
				305.Modification of reductions in disposable
			 retired pay for payments in compliance with court orders
				(a)In generalSection 1408(d) of title 10, United States
			 Code, is amended by adding at the end the following new paragraph:

						(8)Notwithstanding subsection (a)(4) or
				(e)(1), if the disposable retired pay of a member is reduced under subparagraph
				(B) of subsection (a)(4) as a result of a waiver required to receive
				compensation under title 38, or is reduced under subparagraph (C) of subsection
				(a)(4), the Secretary concerned shall pay (subject to any other limitation
				under this section) to the spouse or former spouse the lesser of —
							(A)the amount payable under the final court
				order from the disposable retired pay (determined without regard to such
				reductions), or
							(B)100 percent of the disposable retired pay
				(determined after such reductions).

				(b)Effective
			 DateThe amendment made by
			 this section shall apply to payments of disposable retired pay attributable to
			 periods beginning on or after the date of the enactment of this Act with
			 respect to final court orders issued on, before, or after such date.
				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, 2007, $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,
				2012.
							.
				(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,
			 2007.
				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, 2009 (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:

						45P.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), any simplified pension (as defined in
				section 408(k)), or any simple retirement account (as defined in section 408(p)
				if the following requirements are met with respect to such plan, pension, or
				account:
									(A)The contribution requirements of paragraph
				(2).
									(B)The vesting requirements of paragraph
				(3).
									(C)The distribution requirements of paragraph
				(4).
									The contribution and vesting
				requirements of paragraphs (2) and (3) shall be treated as met in the case of a
				simple retirement account under a qualified salary reduction arrangement (as
				defined in section 408(p)(2)) or a cash or deferred arrangement meeting the
				requirements of section 401(k)(11).(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 (31), by striking the
			 period at the end of paragraph (32) and inserting , and, and by
			 adding at the end the following new paragraph:

						(33)in the case of an eligible employer (as
				defined in section 45P(e)), the small employer pension plan contribution credit
				determined under section
				45P(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
				45P(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. 45P. 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, 2007.
				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,
			 2007.
				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, 2007.
				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, 2007.