Text: H.R.5398 — 108th Congress (2003-2004)All Information (Except Text)

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Introduced in House (11/19/2004)


108th CONGRESS
2d Session
H. R. 5398


To amend the Internal Revenue Code of 1986 to improve the retirement security of American families.


IN THE HOUSE OF REPRESENTATIVES

November 19, 2004

Mr. Andrews introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to improve the retirement security of American families.

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

SECTION 1. Short title and table of contents.

(a) Short title.—This Act may be cited as the “Retirement Enhancement Revenue Act of 2004”.

(b) Table of contents.—The table of contents is as follows:


Sec. 1. Short title and table of contents

Sec. 101. New qualification requirements for public employee pension plans

Sec. 201. Automatic enrollment of all employees in 401(k) plans

Sec. 202. Diversification requirements for defined contribution plans that hold employer securities

Sec. 203. Improvements in simplified employee pensions

Sec. 204. Pension integration rules

Sec. 205. Increase to age 75 for beginning mandatory distributions

Sec. 206. Restrictions on exclusion of unionized employees from participation in 401(k) plans

Sec. 207. Removal of $5,000 limit on plans subject to automatic rollover upon mandatory distribution

Sec. 301. Savers credit made refundable and permanent

Sec. 302. Credit for qualified pension plan contributions of small employers

Sec. 303. Notice

Sec. 401. Modifications of joint and survivor annuity requirements

Sec. 402. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee

Sec. 403. Extension of tier II railroad retirement benefits to surviving former spouses pursuant to divorce agreements

Sec. 501. Defined benefit plan with deferred compensation arrangement in a single plan

Sec. 502. Defined benefit accruals satisfy 401(k) safe harbor

Sec. 503. Additional accruals under defined benefit plan provided as matching contributions

Sec. 504. Limitation on deductions where combination of defined contribution plan and defined benefit plan

Sec. 505. Conforming amendments to the Employee Retirement Income Security Act of 1974

Sec. 601. Exemption from prohibited transaction rules for certain aborted emergent transactions

Sec. 602. Loans from retirement plans for health insurance and job training expenses

Sec. 603. Treatment of unclaimed benefits

Sec. 604. Income averaging of corrected civil service annuity benefit payments

Sec. 605. Prohibited transaction exemption for the provision of investment advice

Sec. 606. Increase in deductible contributions to single-employer defined benefit plan upon payment of increased premium to the Pension Benefit Guaranty Corporation

Sec. 607. Exemption from prohibited transaction rules for certain aborted emergent transactions

Sec. 608. Pension benefit information

Sec. 609. Permanency of transition rule in Retirement Protection Act of 1994

Sec. 701. General effective date

Sec. 702. Plan amendments

SEC. 101. New qualification requirements for public employee pension plans.

(a) In general.—Subsection (a) of section 401 of the Internal Revenue Code of 1986 (relating to requirements for qualification) is amended by inserting after paragraph (34) the following new paragraph:

“(35) PUBLIC EMPLOYEE PENSION PLANS.—A trust forming a part of a public employee pension plan (as defined in section 420C(a)(9)) shall not constitute a qualified trust under this section unless the requirements of subpart F of this part are met in connection with such plan.”

(b) Requirements.—Part I of subchapter D of chapter 1 of such Code (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by inserting after subpart E the following new subpart:

“subpart FPublic employee pension plans

“Sec. 420A. Reporting and disclosure requirements

“Sec. 420B. Review by qualified review boards of changes in employer contributions

“Sec. 420C. Definitions and coverage

“SEC. 420A. Reporting and disclosure requirements.

“(a) In general.—A public employee pension plan does not meet the requirements of section 401(a)(35) unless the terms of the plan include the requirements of this section.

“(b) Required disclosures.—The plan shall provide that, within 210 days after the close of each plan year, the administrator of the plan shall furnish to each participant, and to each beneficiary receiving benefits under the plan—

“(1) a statement of the assets and liabilities of the plan aggregated by categories and valued at their current value, and the same data displayed in comparative form for the end of the previous plan year,

“(2) a statement of receipts and disbursements during the preceding 12-month period aggregated by general sources and applications,

“(3) a report containing—

“(A) a description of all investments and assets of the plan, including their value,

“(B) the names and positions of all of the trustees of the plan, and the time remaining before the expiration of their term,

“(C) a description of the method of trustee selection,

“(D) a description of any changes in investment policy of the plan during the fiscal year,

“(E) an evaluation of the long-term solvency of the plan, including the number of participants and beneficiaries and a summary of their benefits, and a projection of the amount of benefits expected to be paid for the fifth, tenth, and fifteenth plan year following the date of the publication of the report, and

“(F) the percentage which the current value of the assets of the plan is of the current liability under the plan, and

“(4) any other material as is necessary to fairly summarize the latest annual report.

Such information shall be written and calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.

“(c) Availability of plan documents for examination.—The plan shall provide that the administrator shall make copies of the plan description and the latest annual report and the bargaining agreement, trust agreement, contract, or other instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the principal office of the administrator and in such other places as may be necessary to make available all pertinent information to all participants (including such places as the Secretary may prescribe by regulations).

“(d) Availability of information upon request.—The plan shall provide that the administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. The administrator may make a reasonable charge to cover the cost of furnishing such complete copies. The Secretary may by regulation prescribe the maximum amount which will constitute a reasonable charge under the preceding sentence.

“SEC. 420B. Review by qualified review boards of changes in employer contributions.

“(a) In general.—A public employee pension plan does not meet the requirements of section 401(a)(35) unless, under the plan, changes in employer contributions are subject to review by a qualified review board established for the plan as provided in this section. For purposes of this section, the term ‘qualified review board’ means a board—

“(1) whose membership is determined under the law of the principal State in accordance with subsection (b), and

“(2) whose powers are determined under the law of the principal State in accordance with subsection (c).

“(b) Membership.—

“(1) IN GENERAL.—The membership of a qualified review board established for a plan shall consist of 3 members selected from among individuals who, by means of their education and experience, have demonstrated expertise in the area of pension fund management, as follows:

“(A) one member is appointed by the Governor of the State,

“(B) one member is selected by the participants in the plan, by means of an election held in such form and manner as shall be prescribed in regulations of the Secretary, and

“(C) one member is selected jointly by the Governor and by a representative of participants in the plan (from a certified list of pension experts established in accordance with paragraph (2)).

Each member of the board shall have 1 vote. Members of the board shall serve for such equivalent terms as shall be prescribed under the law of the principal State.

“(2) CERTIFIED LIST OF EXPERTS.—The Governor of the State shall, for purposes of paragraph (1)(C), establish and maintain with respect to each public employee pension plan (for which such State is the principal State) a certified list of pension experts meeting the requirements for membership on the qualified review board. Individuals may be included on such list only by agreement between the Governor of the State and a representative elected by participants in the plan, entered into by means of collective bargaining in such form and manner as shall be prescribed in regulations of the Secretary.

“(c) Powers.—The board shall be treated as a qualified review board for purposes of this section with respect to any public employee pension plan (for which such State is the principal State) only if the powers of such board under the law of the principal State include review by the board, for approval or disapproval by the board, of any change in the terms of such plan, as a necessary prerequisite for such change to take effect, if—

“(1) such change would have the effect of changing levels of employer contributions to the plan, and

“(2) such review is requested, in such form and manner as shall be prescribed in regulations of the Secretary, by—

“(A) at least one-third of the total number of trustees of any trust fund forming a part of the plan, or

“(B) the head of any employee organization representing at least 20 percent of the total number of active participants in the plan.

The board may be treated as a qualified review board for purposes of this section only if, under the law of the principal State, any such change submitted to such review by the board may take effect only upon approval of the change by the board.

“SEC. 420C. Definitions and coverage.

“(a) Definitions.—For purposes of this subpart—

“(1) ADMINISTRATOR.—The term ‘administrator’ means—

“(A) the board of trustees, retirement board, or similar person with administrative responsibilities in connection with a plan, or any other person specifically so designated in connection with any requirement of this subpart by the terms of the instrument or instruments under which the plan is operated, including but not limited to the law of any State or of any political subdivision of any State, or

“(B) in any case in which there is no person described in subparagraph (A) in connection with the plan, the plan sponsor.

“(2) BENEFICIARY.—The term ‘beneficiary’ means a person designated by a participant, or by the terms of a public employee pension plan, who is or may become entitled to a benefit thereunder.

“(3) CURRENT LIABILITY.—The term ‘current liability’ has the meaning provided in section 302(d)(7) of the Employee Retirement Income Security Act of 1974.

“(4) EMPLOYEE.—The term ‘employee’ means any individual employed by an employer, employer representative, or other person required to make employer contributions under the plan.

“(5) EMPLOYEE ORGANIZATION.—The term ‘employee organization’ means any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers or employer representatives concerning a public employee pension plan or other matters incidental to employment relationships; or any employees’ beneficiary association organized for the purpose, in whole or in part, of establishing such a plan.

“(6) EMPLOYER.—The term ‘employer’ means—

“(A) the government of any State or of any political subdivision of a State,

“(B) any agency or instrumentality of a government referred to in subparagraph (A), or

“(C) any agency or instrumentality of two or more governments referred to in subparagraph (A).

“(7) EMPLOYER CONTRIBUTION.—The term ‘employer contribution’ means any contribution to a public employee pension plan other than a contribution made by a participant in the plan.

“(8) EMPLOYER REPRESENTATIVE.—The term ‘employer representative’ means—

“(A) any group or association consisting, in whole or in part, of employers acting, in connection with a public employee pension plan, for an employer, or

“(B) any person acting, in connection with a public employee pension plan, indirectly in the interest of an employer or of a group or association described in subparagraph (A).

“(9) PUBLIC EMPLOYEE PENSION PLAN.—The terms ‘public employee pension plan’ and ‘plan’ mean any plan, fund, or program which was heretofore or is hereafter established or maintained, in whole or in part, by an employer, an employer representative, or an employee organization, or by a combination thereof, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—

“(A) provides retirement income to employees, or

“(B) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,

regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan, or the method of distributing benefits from the plan.

“(10) PRINCIPAL STATE.—The term ‘principal State’ means, for any plan year with respect to a public employee pension plan, the State in which, as of the beginning of such plan year, the largest percentage of the participants of the plan employed in any single State is employed.

“(11) GOVERNOR.—The term ‘Governor’ means, in connection with a public employee pension plan, the Governor (or equivalent official) of the principal State.

“(12) PARTICIPANT.—The term ‘participant’ means any individual who is or may become eligible to receive a benefit of any type from a public employee pension plan or whose beneficiaries may be eligible to receive any such benefit.

“(13) PERSON.—The term ‘person’ means a State, a political subdivision of a State, any agency or instrumentality of a State or a political subdivision of a State, an individual, a partnership, a joint venture, a corporation, a mutual company, a joint-stock company, a trust, an estate, an unincorporated organization, an association, or an employee organization.

“(14) PLAN SPONSOR.—The term ‘plan sponsor’ means—

“(A) in the case of a plan established or maintained solely for employees of a single employer, such employer,

“(B) in the case of a plan established or maintained by an employee organization, the employee organization, or

“(C) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.

“(15) PLAN YEAR.—The term ‘plan year’ means, with respect to a plan, the calendar, policy, or fiscal year on which the records of the plan are kept.

“(16) STATE.—The term ‘State’ means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa, and Guam.

“(b) Coverage.—

“(1) IN GENERAL.—Except as provided in paragraph (2), this subpart shall apply to any public employee pension plan.

“(2) EXCEPTIONS FROM COVERAGE.—The provisions of this subpart shall not apply to—

“(A) any employee benefit plan described in section 4(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003(a)), which is not exempt under section 4(b)(1) of such Act (29 U.S.C. 1003(b)(1)),

“(B) any plan which is unfunded and is maintained by an employer or employer representative primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees,

“(C) any arrangement which would be a severance pay arrangement, as defined in regulations of the Secretary of Labor under section 3(2)(B)(i) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(2)(B)(i)), if the employer were an employer within the meaning of section 3(5) of such Act (29 U.S.C. 1002(5)),

“(D) any agreement to the extent it is a coverage agreement entered into pursuant to section 218 of the Social Security Act (42 U.S.C. 418),

“(E) any individual retirement account or any individual retirement annuity within the meaning of section 408, or a retirement bond within the meaning of section 409,

“(F) any plan described in section 401(d),

“(G) any individual account plan consisting of an annuity contract described in section 403(b),

“(H) any eligible State deferred compensation plan, as defined in section 457(b), or

“(I) any plan maintained solely for the purpose of complying with applicable workers’ compensation laws or disability insurance laws.”.

SEC. 201. Automatic enrollment of all employees in 401(k) plans.

(a) In general.—Subparagraph (A) of section 401(m)(11) of the Internal Revenue Code of 1986 (relating to additional alternative method of satisfying nondiscrimination tests) is amended by striking “and” at the end of clause (ii), by striking the period at the end of clause (iii) and inserting “, and”, and by inserting after clause (iii) the following new clause:

“(iv) meets the requirements of subparagraph (C).”.

(b) Minimum coverage requirements.—Paragraph (11) of section 401(m) of such Code is amended by adding at the end the following new subparagraph:

“(C) MINIMUM COVERAGE REQUIREMENTS.—The requirements of this subparagraph are met if—

“(i) the plan meets the requirements of section 410(b), or

“(ii) the plan is offered to all eligible employees.

For purposes of clause (ii) a plan shall be treated as offered to an eligible employee if, under the plan, employer contributions are made on the employee’s behalf under the plan, unless, pursuant to an election by the employee, payments are made to the employee directly in cash in lieu of such employer contributions.”.

(c) Preemption of State law.—The amendments made by this section supersede any provision of a statute, regulation, or rule of a State or political subdivision of a State that would otherwise require an employer to obtain an employee’s consent before making a deduction from the wages of such employee.

(d) Guidelines for meeting fiduciary requirements.—Section 404(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(a)) is amended by adding at the end the following new paragraph:

“(3)(A) The Secretary shall prescribe by regulation guidelines for compliance with the requirements of the diversification requirement of paragraph (1)(C) and the prudence requirement (to the extent that it requires diversification) of paragraph (1)(B) in the case of plans which are treated as in compliance with the requirements of section 401(m)(2) of the Internal Revenue Code of 1986 solely by reason of compliance with the requirements of section 401(m)(11) of such Code. Such guidelines shall consist of criteria for meeting a standard of well-balanced and highly diversified investment of plan assets. Compliance with such guidelines shall be deemed compliance with such requirements.

“(B) The criteria prescribed by the Secretary pursuant to subparagraph (A) shall include at least the following:

“(i) sufficiently limited investment of plan assets in securities issued by any single issuer (other than in obligations issued by, or guaranteed as to both principal and interest by, the Government of the United States);

“(ii) sufficient diversification of investment among and within asset classes, which shall include at least sufficient diversification measured as between stocks and bonds, sufficient diversification measured as among varieties of stock categorized by large capitalization, medium capitalization, and small capitalization, and sufficient diversification measured as between investment funds focused on growth and investment funds focused on income; and

“(iii) adequate prospects for a reasonable rate of return on the investment, together with adequate assurance against loss of principal and minimization of fees and other associated costs chargeable to participants.”.

SEC. 202. Diversification requirements for defined contribution plans that hold employer securities.

(a) In general.—Subsection (a) of section 401 of the Internal Revenue Code of 1986 (relating to requirements for qualification), as amended by this Act, is further amended by inserting after paragraph (35) the following new paragraph:

“(36) DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS THAT HOLD EMPLOYER SECURITIES.—

“(A) IN GENERAL.—In the case of a defined contribution plan described in this subsection that includes a trust which is exempt from tax under section 501(a) and which holds employer securities that are readily tradable on an established securities market, such trust shall not constitute a qualified trust under this section unless such plan meets the requirements of subparagraphs (B) and (C).

“(B) ELECTIVE DEFERRALS INVESTED IN EMPLOYER SECURITIES.—

“(i) IN GENERAL.—In the case of the portion of the account attributable to elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if each applicable individual in such plan may elect to direct the plan to divest any portion of such securities in the individual’s account and to reinvest an equivalent amount in other investment options which meet the requirements of subparagraph (D). The preceding sentence shall apply to the extent that the amount attributable to reinvested portion exceeds the amount to which a prior election under this subparagraph or paragraph (28) applies.

“(ii) APPLICABLE INDIVIDUAL.—For purposes of this subparagraph, the term ‘applicable individual’ means—

“(I) any participant in the plan,

“(II) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)), and

“(III) any beneficiary of a deceased participant or alternate payee.

“(C) OTHER EMPLOYER CONTRIBUTIONS.—

“(i) IN GENERAL.—In the case of the portion of the account attributable to employer contributions (other than elective deferrals) which is invested in employer securities, a plan meets the requirements of this subparagraph if each qualified participant in the plan may elect to direct the plan to divest any portion of such securities in the participant’s account and to reinvest an equivalent amount in other investment options which meet the requirements of subparagraph (E). The preceding sentence shall apply to the extent that the amount attributable to such reinvested portion exceeds the amount to which a prior election under this subparagraph or paragraph (28) applies.

“(ii) QUALIFIED PARTICIPANT.—For purposes of this subparagraph, the term ‘qualified participant’ means—

“(I) any participant in the plan who has completed at least 3 years of service (as determined under section 411(a)) under the plan,

“(II) any beneficiary who, with respect to a participant who met the service requirement in subclause (I), is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)), and

“(III) any beneficiary of a deceased participant who met the service requirement in subclause (I) or alternate payee described in subclause (II).

“(D) INVESTMENT OPTIONS.—The requirements of this subparagraph are met if the plan offers not less than 3 investment options (not inconsistent with regulations prescribed by the Secretary) other than employer securities.

“(E) PRESERVATION OF AUTHORITY OF PLAN TO LIMIT INVESTMENT.—Nothing in this paragraph shall be construed to limit the authority of a plan to impose limitations on the portion of plan assets in any account which may be invested in employer securities.

“(F) OTHER DEFINITIONS AND RULES.—For purposes of this paragraph—

“(i) EMPLOYER SECURITIES.—The term ‘employer securities’ shall have the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974.

“(ii) ELECTIVE DEFERRALS.—For purposes of this subparagraph, the term ‘elective deferrals’ means an employer contribution described in section 402(g)(3)(A) and any employee contribution.

“(iii) ELECTION.—Elections under this paragraph shall be not less frequently than quarterly.

“(iv) EMPLOYEE STOCK OWNERSHIP PLAN.—The term ‘employee stock ownership plan’ shall have the same meaning given to such term by section 4975(e)(7).”.

(b) Conforming amendments.—

(1) Section 401(a)(28) of such Code is amended by adding at the end the following new subparagraph:

“(D) APPLICATION.—This paragraph shall not apply with respect to employer securities which are readily tradable on an established securities market.”.

(2) Section 409(h)(7) of such Code is amended by inserting at the end “or subparagraph (B) or (C) of section 401(a)(36)”.

(3) Section 4975(e)(7) of such Code is amended by adding at the end the following new sentence: “A plan shall not fail to be treated as an employee stock ownership plan merely because the plan meets the requirements of section 401(a)(36) (or provides greater diversification rights) or because participants in such plan exercise diversification rights under such section (or greater diversification rights available under the plan).”.

(4) Section 4980(c)(3)(A) of such Code is amended by striking “if—” and all that follows and inserting “if the requirements of subparagraphs (B) and (C) are met.”.

(5) Section 407 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1107) is amended by adding at the end the following new subsection:

“(g) Notwithstanding section 408(e) or any other provision of this title, an individual account plan may not include provisions that do not meet the requirements of section 401(a)(36)(B) of the Internal Revenue Code of 1986.”.

SEC. 203. Improvements in simplified employee pensions.

(a) Participation requirements.—Paragraph (2) of section 408(k) of the Internal Revenue Code of 1986 (relating to participation requirements) is amended—

(1) in subparagraph (A), by adding “and” at the end, and

(2) by striking subparagraphs (B) and (C) and inserting the following:

“(B) has completed at least 3 years of service (as defined in section 411(a)(5)) for the employer.”.

(b) Nondiscrimination rules.—Subparagraph (C) of section 408(k)(3) of such Code (requiring contribution to bear uniform relationship to total compensation) is amended—

(1) in the heading, by striking “must bear uniform relationship to total compensation” and inserting “must be uniform”, and

(2) by inserting after “unless contributions thereto” the following: “are uniform for all employees maintaining a simplified employee pension or”.

(c) Consent to participation not required.—Paragraph (2) of section 408(k) of such Code (relating to participation requirements) is amended by adding at the end the following new flush sentence: “An employer may establish and maintain a simplified employee pension for an employee without the employee’s consent.”.

(d) Separate treatment of contributions to simplified employee pensions.—Subsection (h) of section 404 of such Code is amended by striking paragraphs (2) and (3) and inserting the following new paragraph:

“(2) LIMITATION BASED ON COMBINATION OF PLANS INAPPLICABLE.—Contributions to a simplified employee pension shall not be taken into account for purposes of subsection (a)(7).”.

(e) Joint and survivor annuity requirements.—Section 408(k) of such Code is amended—

(1) by redesignating paragraph (9) as paragraph (10), and

(2) by inserting after paragraph (8) the following new paragraph:

“(9) JOINT AND SURVIVOR ANNUITY REQUIREMENTS.—Requirements similar to the requirements of section 401(a)(11) shall apply with respect to annuities purchased with amounts distributed from simplified employee pensions.”.

(f) Annual reporting requirements for simplified employee pensions.—Paragraph (1) of section 408(l) of such Code (relating to simplified employer reports) is amended to read as follows:

“(1) IN GENERAL.—The Secretary shall require by regulations that an employer who makes a contribution on behalf of an employee to a simplified employee pension shall provide simplified annual reports. The reports required by this subsection shall be filed in such manner, and information with respect to such contributions shall be furnished to the employee in such manner, as may be required by regulations, except that such reports shall include information sufficient to allow the employee to determine that the simplified employee pension is in compliance with the requirements of this section.”.

(g) Deductibility of contributions to simplified employee pensions in connection with domestic service.—

(1) IN GENERAL.—Section 404 of such Code (relating to deductions for contributions of an employer to an employee’s trust or annuity plan and compensation under a deferred-payment plan) is amended by adding at the end the following new subsection:

“(o) Deductibility of contributions to simplified employee pensions in connection with domestic service.—

“(1) IN GENERAL.—Solely for purposes of subsection (a), contributions by an employer to a simplified employee pension of an employee in connection with service constituting domestic service employment shall be treated as if such contributions would otherwise be deductible under section 162 but for subsection (a).

“(2) DOMESTIC SERVICE EMPLOYMENT.—For purposes of paragraph (1), the term ‘domestic service employment’ means domestic service in a private home of the employer (within the meaning of the last sentence of section 3510(c)) in any case in which taxes are imposed by chapter 21 or 23 on remuneration paid for such service.”.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 2004.

SEC. 204. Pension integration rules.

(a) Applicability of new integration rules extended to all existing accrued benefits.—Notwithstanding subsection (c)(1) of section 1111 of the Tax Reform Act of 1986 (relating to effective date of application of nondiscrimination rules to integrated plans) (100 Stat. 2440), effective for plan years beginning after the date of the enactment of this Act, the amendments made by subsection (a) of such section 1111 shall also apply to benefits attributable to plan years beginning on or before December 31, 1988.

(b) Integration disallowed for simplified employee pensions.—

(1) IN GENERAL.—Subparagraph (D) of section 408(k)(3) of the Internal Revenue Code of 1986 (relating to permitted disparity under rules limiting discrimination under simplified employee pensions) is repealed.

(2) CONFORMING AMENDMENT.—Subparagraph (C) of such section 408(k)(3) is amended by striking “and except as provided in subparagraph (D),”.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply with respect to taxable years beginning on or after January 1, 2005.

(c) Eventual repeal of integration rules.—Effective for plan years beginning on or after January 1, 2006—

(1) subparagraphs (C) and (D) of section 401(a)(5) of the Internal Revenue Code of 1986 (relating to pension integration exceptions under nondiscrimination requirements for qualification) are repealed, and subparagraphs (E), (F), and (G) of such section 401(a)(5) are redesignated as subparagraphs (C), (D), and (E), respectively, and

(2) subsection (l) of section 401 of such Code (relating to permitted disparity in plan contributions or benefits) is repealed.

SEC. 205. Increase to age 75 for beginning mandatory distributions.

(a) Qualified pension plans.—Subparagraph (C) of section 401(a)(9) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by striking “age 7012 ” each place it appears and inserting “the applicable age”.

(b) Applicable age.—Subparagraph (C) of section 401(a)(9) of such Code is amended by adding at the end the following new clause:

“(v) APPLICABLE AGE.—

“(I) IN GENERAL.—For purposes of this clause, the term applicable age shall be determined in accordance with the following table:


Applicable
“Calendar year: age:
2005 71 
2006 72 
2007 73 
2008 74 
2009 and each calendar year thereafter 75.

“(II) ELECTION TO USE AGE OF SPOUSE.—For purposes of this subparagraph, an employee who files a joint return for a taxable year may elect to substitute the age of the employee’s spouse for his age.”.

(c) Individual retirement accounts.—Paragraph (1) of section 219(d) of such Code is amended—

(1) by striking “age 7012 ” in the text and inserting “the applicable age (as defined in section 401(a)(9)(C)(v))”, and

(2) by striking “age 701/2” in the heading and inserting “the applicable age”.

(d) Roth IRA’s.—Paragraph (4) of section 408A(c) of such Code is amended—

(1) by striking “age 7012 ” in the text and inserting “the applicable age (as defined in section 401(a)(9)(C)(v))”, and

(2) by striking “age 701/2” in the heading and inserting “the applicable age”.

SEC. 206. Restrictions on exclusion of unionized employees from participation in 401(k) plans.

Paragraph (4) of section 401(k) of the Internal Revenue Code of 1986 (relating to other requirements) is amended by adding at the end the following new subparagraph:

“(D) BENEFITS SUBJECT OF BARGAINING.—A cash or deferred arrangement of any employer shall not be treated as a qualified cash or deferred arrangement if any employee of such employer—

“(i) who is described in section 410(b)(3)(A), and

“(ii) who is not eligible to benefit under the arrangement,

is not otherwise covered under an employee pension benefit plan (as defined in section 3(2)(A) of the Employee Retirement Income Security Act of 1974) which is maintained for employees of such employer pursuant to an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers and which is qualified under section 401(a).”.

SEC. 207. Removal of $5,000 limit on plans subject to automatic rollover upon mandatory distribution.

Section 401(a)(31)(B) of the Internal Revenue Code of 1986 (relating to certain mandatory distributions) is amended—

(1) in clause (i), by striking “In case of a trust which is part of an eligible plan, such trust” and inserting “A trust”,

(2) in clause (i)(I), by striking “in excess of $1,000”, and

(3) by striking clause (ii) and inserting the following new clause:

    “(ii) DISTRIBUTION DESCRIBED.—A distribution from a plan is described in this clause if such distribution is an immediate distribution of the entire nonforfeitable accrued benefit of the participant and is in excess of $1,000.”.

SEC. 301. Savers credit made refundable and permanent.

(a) Savers credit made refundable.—

(1) IN GENERAL.—The Internal Revenue Code of 1986 is amended by redesignating section 25B as section 35A and by moving such section after section 35 in subpart C of part IV of subchapter A of chapter 1 of such Code (relating to refundable credits).

(2) CONFORMING AMENDMENTS.—

(A) Section 35A of such Code, as so redesignated, is amended by striking subsection (g) and redesignating subsection (h) as subsection (g).

(B) Subparagraph (B) of section 24(b)(3) of such Code is amended by striking “sections 23 and 25B” and inserting “section 23”.

(C) Subparagraph (C) of section 25(e)(1) of such Code is amended by striking “25B,”.

(D) Each of the following provisions of such Code are amended by striking “24, and 25B” and inserting “and 24”:

(i) Section 26(a)(1).

(ii) Section 904(h).

(iii) Section 1400C(d).

(E) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting “or 35A” after “section 35”.

(F) The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 25B.

(G) The table of sections for subpart C of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 35 the following new item:


“Sec. 35A. Elective deferrals and IRA contributions by certain individuals”.

(b) Savers credit made permanent.—

(1) IN GENERAL.—Section 35A of the Internal Revenue Code of 1986, as amended by this section, is amended by striking subsection (g).

(2) REPEAL OF EGTRRA SUNSET.—Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to section 618 of such Act.

SEC. 302. Credit for qualified pension plan contributions of small employers.

(a) In general.—Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business related credits) is amended by adding at the end the following new section:

“SEC. 45G. Small employer pension plan contributions.

“(a) General rule.—For 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 nonhighly compensated employee.

“(b) Credit limited to 3 years.—The credit allowable by this section shall be allowed only with respect to the period of 3 taxable years beginning with the taxable year in which the qualified retirement plan becomes effective.

“(c) Qualified employer contribution.—For purposes of this section—

“(1) DEFINED CONTRIBUTION PLANS.—In 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 nonhighly 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 PLANS.—In 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 nonhighly compensated employee to the extent that the accrued benefit of such employee derived from such contributions for the year do 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 GENERAL.—The term ‘qualified retirement plan’ means any plan described in section 401(a) which includes a trust exempt from tax under section 501(a) if the plan meets—

“(A) the contribution requirements of paragraph (2),

“(B) the vesting requirements of paragraph (3), and

“(C) the distributions requirements of paragraph (4).

“(2) CONTRIBUTION REQUIREMENTS.—

“(A) IN GENERAL.—The 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 nonhighly compensated employee who is eligible to participate in the plan, and

“(ii) except in the case of a defined benefit plan, allocations of nonelective employer contributions 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.

“(B) COMPENSATION LIMITATION.—The 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 REQUIREMENTS.—The requirements of this paragraph are met if the plan satisfies the requirements of subparagraph (A) or (B).

“(A) 3-YEAR VESTING.—A 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 VESTING.—A 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:
1 20
2 40
3 60
4 80
5 or more 100.

“(4) DISTRIBUTION REQUIREMENTS.—

“(A) IN GENERAL.—Except as provided in subparagraph (B), the requirements of this paragraph are met if, under the plan—

“(i) in the case of a profit-sharing or stock bonus plan, amounts are distributable only as provided in section 401(k)(2)(B), and

“(ii) in the case of a pension plan, amounts are distributable subject to the limitations applicable to other distributions from the plan.

“(B) DISTRIBUTIONS WITHIN 5 YEARS AFTER SEPARATION, ETC.—In no event shall a plan meet the requirements of this paragraph unless, under the plan, amounts distributed—

“(i) after separation from service or severance from employment, and

“(ii) within 5 years after the date of the earliest employer contribution to the plan,

may be distributed only in a direct trustee-to-trustee transfer to a plan having the same distribution restrictions as the distributing plan.

“(e) Other definitions.—For purposes of this section—

“(1) ELIGIBLE EMPLOYER.—The term ‘eligible employer’ has the meaning given such term by section 408(p)(2)(C)(i).

“(2) NONHIGHLY COMPENSATED EMPLOYEES.—The 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 DEDUCTION.—No 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 CREDIT.—This 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.

“(g) Recapture of credit on forfeited contributions.—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.

“(h) Regulations.—The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations to prevent the abuse of the purposes of this section through the use of multiple plans.

“(i) Termination.—This section shall not apply to any plan established after December 31, 2012.”.

(b) Credit allowed as part of general business credit.—Section 38(b) of such Code (defining current year business credit) is amended by striking “plus” at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting “, plus”, and by adding at the end the following new paragraph:

“(16) in the case of an eligible employer (as defined in section 45G(e)), the small employer pension plan contribution credit determined under section 45G(a).”.

(c) Conforming amendments.—

(1) Section 39(d) of such Code is amended by adding at the end the following new paragraph:

“(11) NO CARRYBACK OF SMALL EMPLOYER PENSION PLAN CONTRIBUTION CREDIT BEFORE JANUARY 1, 2002.—No portion of the unused business credit for any taxable year which is attributable to the small employer pension plan contribution credit determined under section 45G may be carried back to a taxable year beginning before January 1, 2005.”.

(2) Subsection (c) of section 196 of such Code is amended by striking “and” at the end of paragraph (9), by striking the period at the end of paragraph (10) and inserting “, and”, and by adding at the end the following new paragraph:

“(11) the small employer pension plan contribution credit determined under section 45G(a).”.

(3) The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:


“Sec 45G. Small employer pension plan contributions”.

(d) Effective date.—The amendments made by this section shall apply to contributions paid or incurred in taxable years beginning after December 31, 2004.

SEC. 303. Notice.

The Secretary of the Treasury shall establish an ongoing program, in coordination with employers, under which the Secretary shall ensure that employees and other affected individuals remain fully and effectively notified of the availability of tax credits under sections 35, 35A, and 45G of the Internal Revenue Code of 1986.

SEC. 401. Modifications of joint and survivor annuity requirements.

(a) Amount of annuity.—

(1) OPTION TO ELECT QUALIFIED ALTERNATIVE JOINT AND SURVIVOR ANNUITY FORM OF BENEFIT UPON WAIVER OF QUALIFIED JOINT AND SURVIVOR ANNUITY FORM OF BENEFIT.—Section 417(a)(1)(A) of the Internal Revenue Code of 1986 is amended to read as follows:

“(A) under the plan, each participant—

“(i) may elect at any time during the applicable election period to waive the qualified joint and survivor annuity form of benefit,

“(ii) may elect at any time during the applicable election period to waive the qualified preretirement survivor annuity form of benefit,

“(iii) may elect at any time during the applicable election period, in any case in which the qualified joint and survivor annuity form of benefit is not provided by reason of a waiver under clause (i), to be provided a qualified alternative joint and survivor annuity form of benefit, and

“(iv) may revoke any such election at any time during the applicable election period, and”.

(2) QUALIFIED ALTERNATIVE JOINT AND SURVIVOR ANNUITY DEFINED.—Section 417 of such Code is amended by adding at the end the following new subsection:

“(i) Definition of qualified optional survivor annuity.—

“(1) IN GENERAL.—For purposes of this section, the term ‘qualified alternative joint and survivor annuity’ means an annuity—

“(A) for the life of the participant with a survivor annuity for the life of the spouse which is equal to the applicable percentage (determined under paragraph (2)) of (and not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and the spouse, and

“(B) which is the actuarial equivalent of a single annuity for the life of the participant.

Such term also includes any annuity form having the effect of an annuity described in the preceding sentence.

“(2) APPLICABLE PERCENTAGE.—

“(A) IN GENERAL.—For purposes of paragraph (1)—

“(i) if the base survivor annuity percentage is less than 75 percent, the applicable percentage is 75 percent, and

“(ii) if the base survivor annuity percentage is equal to at least 75 percent, the applicable percentage is 50 percent.

“(B) SURVIVOR ANNUITY PERCENTAGE.—For purposes of subparagraph (A), the term ‘survivor annuity percentage’ means the percentage which the survivor annuity under the plan’s qualified joint and survivor annuity form of benefit bears to the annuity payable during the joint lives of the participant and the spouse under such form of benefit.”.

(b) Exemption in the case of plans offering fully subsidized qualified joint and survivor annuities.—Section 417(a)(5) of the Internal Revenue Code of 1986 is amended—

(1) by redesignating subparagraph (B) as subparagraph (C), and

(2) by inserting after subparagraph (A) the following new subparagraph:

“(B) Qualified alternative joint and survivor annuities.—The requirements of this subsection shall not apply with respect to the qualified alternative joint and survivor annuity form of benefit if the plan fully subsidizes the costs of the qualified joint and survivor annuity form of benefit.”.

(c) Illustration requirement.—Section 417(a)(3)(A)(i) of the Internal Revenue Code of 1986 is amended to read as follows:

“(i) the terms and conditions of the qualified joint and survivor annuity form of benefit offered by the plan, the terms and conditions of the qualified preretirement survivor annuity form of benefit offered by the plan, and the terms and conditions of the qualified alternative joint and survivor annuity form of benefit offered by the plan, accompanied by an illustration of the benefits under each such form of benefit for the particular participant and spouse and an acknowledgement form to be signed by the participant and the spouse that they have read and considered the illustration before any election is made pursuant to clause (i) or (ii) of subsection (c)(1)(A).”.

(d) Rule of construction.—For purposes of section 411(d)(6) of the Internal Revenue Code of 1986, a plan shall not be treated as having decreased the accrued benefit of a participant solely by reason of the adoption of a plan amendment under which a qualified alternative joint and survivor annuity form of benefit is added to the plan in accordance with section 417(a)(1)(A)(ii) of such Code (as amended by this section).

SEC. 402. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee.

(a) In general.—Section 2 of the Railroad Retirement Act of 1974 (45 U.S.C. 231a) is amended—

(1) in subsection (c)(4)(i), by striking “(A) is entitled to an annuity under subsection (a)(1) and (B)”; and

(2) in subsection (e)(5), by striking “or divorced wife” the second place it appears.

(b) Effective date.—The amendments made by this section shall take effect 1 year after the date of the enactment of this Act.

SEC. 403. Extension of tier II railroad retirement benefits to surviving former spouses pursuant to divorce agreements.

(a) In general.—Section 5 of the Railroad Retirement Act of 1974 (45 U.S.C. 231d) is amended by adding at the end the following:

“(d) Notwithstanding any other provision of law, the payment of any portion of an annuity computed under section 3(b) to a surviving former spouse in accordance with a court decree of divorce, annulment, or legal separation or the terms of any court-approved property settlement incident to any such court decree shall not be terminated upon the death of the individual who performed the service with respect to which such annuity is so computed unless such termination is otherwise required by the terms of such court decree.”

(b) Effective date.—The amendment made by this section shall take effect 1 year after the date of the enactment of this Act.

SEC. 501. Defined benefit plan with deferred compensation arrangement in a single plan.

(a) Defined benefit plan permitted to have 401(k) arrangement.—

(1) IN GENERAL.—Paragraphs (1) and (2) of section 401(k) of the Internal Revenue Code of 1986 are both amended by striking “or a rural cooperative plan” and inserting “, a rural cooperative plan, or a defined benefit plan”.

(2) ADJUSTMENT OF 401(K) RULES.—Section 401(k) of such Code is amended—

(A) in paragraph (2)(B)(i)(III), by striking “in the case of a profit-sharing or stock bonus plan,”,

(B) in paragraph (2)(B)(i)(IV), by striking “to a profit-sharing or stock bonus plan”, and

(C) in paragraph (10)(A), by inserting before the period at the end the following: “or a defined benefit plan that includes a qualified cash or deferred arrangement”.

(b) Qualified cash or deferred arrangement under defined benefit plan satisfies definitely determinable benefit requirement.—Subsection (a) of section 401 of such Code is amended by inserting after paragraph (34) the following new paragraph:

“(35) QUALIFIED CASH OR DEFERRED ARRANGEMENT UNDER DEFINED BENEFIT PLAN SATISFIES DEFINITELY DETERMINABLE BENEFIT REQUIREMENT.—A trust forming part of a defined benefit plan shall not be treated as failing to constitute a qualified trust merely because such plan includes a qualified cash or deferred arrangement.”.

(c) Clarification of extent to which defined contribution and defined benefit rules apply.—

(1) TREATMENT AS DEFINED BENEFIT PLAN.—Subsection (j) of section 414 of such Code is amended to read as follows:

“(j) Defined benefit plan.—For purposes of this part—

“(1) IN GENERAL.—The term ‘defined benefit plan’ means any plan which is not a defined contribution plan.

“(2) PLANS INCLUDING QUALIFIED CASH AND DEFERRED ARRANGEMENTS.—Except as otherwise provided in this title—

“(A) a pension plan which provides benefits other than benefits described in subsection (i) shall not be treated as a ‘defined contribution plan’ on the basis of the inclusion in the plan of a qualified cash or deferred arrangement, and

“(B) any such pension plan which includes such an arrangement shall be treated as a single plan.”.

(2) SPECIAL RULES.—Subsection (k) of section 414 of such Code is amended—

(A) by redesignating paragraphs (1), (2), and (3), as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs 2 ems to the right,

(B) by striking “A defined benefit plan” and inserting the following:

“(1) PLANS WITH SEPARATE ACCOUNTS.—A defined benefit plan”, and

(C) by adding at the end the following new paragraph:

“(2) PLANS WITH CASH OR DEFERRED ARRANGEMENTS.—In the case of a defined benefit plan which includes a qualified cash or deferred arrangement—

“(A) rules similar to the rules of subparagraphs (A), (B), and (C) of paragraph (1) shall apply,

“(B) for purposes of section 401(a)(4) (relating to nondiscrimination testing), section 401(a)(9) (relating to required distributions), section 401(a)(26) (relating to additional participation requirements), section 401(a)(31) (relating to direct transfer of eligible rollover distributions), section 404 (relating to deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan), section 412 (relating to minimum funding standards), section 414(l) (relating to merger and consolidations of plans or transfers of plan assets), and section 416 (relating to special rules for top-heavy plans), such plan shall be treated as consisting of a defined contribution plan to the extent benefits are attributable to such arrangement and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and

“(C) for purposes of sections 411(a)(11) and 417(e), the present value of the portion of the benefit attributable to such arrangement shall be treated as being the fair market value of such arrangement.”.

(d) Application of pre-termination restrictions.—The Secretary of the Treasury shall amend Treasury Regulation section 1.401(a)(4)-5(b) to provide that, in the case of a defined benefit plan which includes a qualified cash or deferred arrangement—

(1) the provisions of such section shall not apply to such arrangement, and

(2) the assets attributable to such arrangement shall be disregarded in applying the requirements of such section to such plan.

(e) Treatment as single plan for information reporting.—Subsection (a) of section 6058 of such Code is amended by adding at the end the following: “For purposes of the preceding sentence, a defined benefit plan which includes a qualified cash or deferred arrangement shall be treated as a single plan.”.

(f) Rules for income tax deduction.—

(1) TREATMENT OF CASH OR DEFERRED ARRANGEMENT AS SEPARATE PROFIT SHARING PLAN.—Subparagraph (A) of section 404(a)(3) of such Code is amended by adding at the end the following new clause:

“(vi) For purposes of this subparagraph, employer contributions made with respect to a qualified cash or deferred arrangement which is part of a defined benefit plan shall be treated in the same manner as contributions to a stock bonus or profit-sharing plan.”.

(2) SPECIAL DEDUCTION LIMIT FOR DEFINED BENEFIT PLAN.—Paragraph (1) of section 404(a) is amended by redesignating subparagraphs (E) and (F) as subparagraphs (F) and (G), respectively, and by inserting after subparagraph (D) the following new subparagraph:

“(E) SPECIAL RULE FOR DEFINED BENEFIT PLANS WITH QUALIFIED CASH OR DEFERRED ARRANGEMENTS.—In the case of a defined benefit plan which includes a qualified cash or deferred arrangement, the maximum amount deductible under this section (notwithstanding any other limitation under this paragraph) with respect to such plan shall not be less than the full funding limitation that would be determined under section 412(c)(7)(A) if 130 percent of the amount determined clause (i) of such section were substituted for the amount otherwise determined under clause (i).”.

(g) Allowable reductions in rate of benefit accrual.—Subsection (e) of section 4980F of such Code is amended by adding at the end the following new paragraph:

“(6) EXCEPTION FOR QUALIFIED CASH OR DEFERRED ARRANGEMENTS.—A plan shall not be treated as failing to meet the requirements of paragraph (1) merely because of a reduction in, or elimination of, any contributions to a qualified cash or deferred arrangement which is part of such plan.”.

(h) Defined benefit funding standards not to apply to qualified cash or deferred arrangements.—Subsection (h) of section 412 of such Code is amended by striking “or” at the end of paragraph (5), by striking the period at the end of paragraph (6) and inserting “, or”, and by inserting after paragraph (6) the following new paragraph:

“(7) any qualified cash or deferred arrangement which is part of a defined benefit plan.”.

(i) Inclusion in cafeteria plan.—Subparagraph (B) of section 125(d)(2) of such Code is amended by striking “or rural cooperative plan (within the meaning of section 401(k)(7))” and inserting “rural cooperative plan (within the meaning of section 401(k)(7)), or a defined benefit plan”.

(j) Vesting requirements.—Section 411(a) is amended by adding the following new paragraph:

“(13) FASTER VESTING FOR ACCRUALS UNDER DEFINED BENEFIT PLANS WITH CASH OR DEFERRED ARRANGEMENTS.—In the case of a defined benefit plan which includes a qualified cash or deferred arrangement, benefit accruals and employer contributions (other than elective deferrals, as defined in section 401(m)(4)) shall be treated as matching contributions for purposes of paragraph (12).”.

(k) Effective date.—The amendments made by this section shall apply to plan years beginning after December 31, 2005.

SEC. 502. Defined benefit accruals satisfy 401(k) safe harbor.

(a) In general.—Paragraph (12) of section 401(k) of the Internal Revenue Code of 1986 is amended—

(1) in subparagraph (A)(i) by inserting “or the benefit accrual requirements of subparagraph (D)” after “or (C)”, and

(2) by redesignating subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), respectively, and by inserting after subparagraph (C) the following new subparagraph:

“(D) BENEFIT ACCRUALS.—

“(i) IN GENERAL.—The requirements of this subparagraph are met if the requirements of clause (ii) or (iii) are met.

“(ii) TRADITIONAL FORMULA.—

“(I) IN GENERAL.—The requirements of this clause are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to provide an accrual under a defined benefit plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement. Such accrual shall be for each year in which the participant is eligible for the arrangement, and the plan is satisfying the requirements of this subparagraph, in an amount equal to at least 1 percent of average compensation multiplied by years of service, payable as a life annuity commencing at age 65. The plan may cap the cumulative benefit accrued under such formula to an amount that is not less than 20 percent of average compensation.

“(II) AVERAGE COMPENSATION.—For purposes of subclause (I), the term ‘average compensation’ means the average compensation (as defined by section 414(s)) received by the participant during the testing period. The plan may define the testing period as all years of service of the participant, as a period of consecutive years of service of the participant which produces the highest average compensation, or as a period of consecutive years of service which includes the last year of service of the participant. The testing period shall not include fewer than 3 years of service except in the case of participants with fewer than 3 years of service.

“(III) YEARS OF SERVICE.—For purposes of this clause, a year of service shall be determined under paragraphs (4), (5), and (6) of section 411(a), except the plan need not include as a year of service any year of service ending in a plan year that began before the employee became a participant in the plan, or any year of service that begins in a plan year in which the participant dies, has a severance from employment, or becomes disabled (within the meaning of section 72(m)(7)).

“(IV) ADJUSTMENTS FOR EARLY AND LATE RETIREMENT.—The amount determined under subclause (I) shall be adjusted actuarially if benefits under the plan commence later than age 65. Such amount may (but is not required to) be adjusted for early retirement if benefits commence (or normal retirement age is) earlier than age 65.

“(iii) CASH BALANCE FORMULA.—

“(I) IN GENERAL.—The requirements of this clause are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to provide a hypothetical allocation under a cash balance plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in any year in an amount which is not less than the product of the average compensation of the employee (within the meaning of clause (ii)(II), multiplied by the cash balance contribution percentage with respect to such employee.

“(II) CASH BALANCE CONTRIBUTION PERCENTAGE.—For purposes of subclause (I), the term ‘cash balance contribution percentage’ means, with respect to any employee, 2 percent if such employee has not attained age 31, 4 percent if such employee has attained age 31 but has not attained age 40, 6 percent if such employee has attained age 40 but has not attained age 50, and 8 percent if such employee has attained age 50.

“(III) CASH BALANCE PLAN DEFINED.—For purposes of subclause (I), a cash balance plan is a defined benefit plan that defines an employee’s benefits by reference to the employee’s hypothetical account. Such hypothetical account is determined by reference, first, to hypothetical contribution allocations, and, second, to hypothetical interest credits (on an annual or more frequent basis). The right to future interest credits are determined without regard to future service.

“(IV) NO PREDECESSOR DEFINED BENEFIT PLAN.—The requirements of this clause shall not be treated as met if, during the 3-year period immediately preceding the effective date of a cash balance plan meeting the requirements of subclause (I), the employer (or any related employer, within the meaning of subsection (b), (c), (m), or (o) of section 414), maintained a defined benefit plan that was not a cash balance plan and which benefited any participant who is a participant in the plan which meets the requirements of subclause (I).”.

(b) Conforming amendments.—

(1) Section 401(k)(12)(A)(ii) of such Code is amended by striking “subparagraph (D)” and inserting “subparagraph (E)”.

(2) Section 401(k)(12)(F)(i) of such Code (as redesignated by subsection (a)) is amended by adding at the end the following: “An arrangement shall not be treated as meeting the requirements of subparagraph (D) of this paragraph unless the requirements of paragraph (2)(B) are met with respect to the benefit accruals provided pursuant to subparagraph (D) of this paragraph.”.

(3) Section 401(k)(12)(F)(ii) of such Code (as redesignated by subsection (a)) is amended—

(A) by striking “subparagraph (B) or (C)” the first place it appears and inserting “subparagraph (B), (C), or (D)”, and

(B) by inserting “and benefit accruals under subparagraph (D)” after “subparagraph (B) or (C)” the second place it appears.

(4) Section 416(g)(4)(H) of such Code is amended to read as follows:

“(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS.—

“(i) IN GENERAL.—The term ‘top-heavy plan’ shall not include a plan described in clause (ii) or (iii).

“(ii) DEFINED CONTRIBUTION PLAN.—The plan described in this clause is a defined contribution plan which consists solely of—

“(I) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and

“(II) matching contributions with respect to which the requirements of section 401(m)(11) are met.

“(iii) DEFINED BENEFIT PLAN.— The plan described in this clause is a defined benefit plan which consists exclusively of one or more—

“(I) cash or deferred arrangements which meet the requirements of section 401(k)(12), and

“(II) qualified matching accruals, as described in section 401(m)(12).

If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions or benefits under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c) and, a plan meeting the requirements of section 401(k)(12)(D) shall be deemed to satisfy the requirements of subsection (c).”.

(5) SPECIAL RULE FOR PLAN WITH MULTIPLE ACCRUAL FORMULAS.—Paragraph (1) of section 411(b) of such Code is amended by adding at the end the following new subparagraph:

“(I) MULTIPLE FORMULAS.—

“(i) IN GENERAL.—If a defined benefit plan contains multiple accrual formulas, the requirements of this paragraph may be satisfied separately for each formula.

“(ii) CERTAIN BENEFIT ACCRUALS TREATED AS MULTIPLE ACCRUALS TREATED AS MULTIPLE ACCRUAL FORMULAS.—For purposes of this subparagraph, a plan has multiple accrual formulas if a participant’s accrued benefit is determined either as the greater of the benefit determined under two or more separate formulas or as the sum of the benefit determined under two or more separate formulas.

“(iii) CERTAIN FORMULAS TREATED AS SEPARATE ACCRUAL FORMULAS.—For purposes of clause (i), the benefit formulas described in section 401(k)(12)(D) and section 401(m)(12) shall be treated as separate from the minimum benefit formula described in section 416(c)(1).”.

(c) Effective date.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to years beginning after December 31, 2005.

(2) CASH BALANCE FORMULA.—Section 401(k)(12)(D)(iii) of the Internal Revenue Code of 1986, as added by subsection (a)(2), shall not apply to plan years beginning before the effective date of an Act which provides for the application of section 411(b)(1)(H) of such Code to cash balance plans.

SEC. 503. Additional accruals under defined benefit plan provided as matching contributions.

(a) Certain arrangements under defined benefit plan satisfy definitely determinable benefit requirement.—Paragraph (35) of section 401(a) of the Internal Revenue Code of 1986 (as added by section 2(b)) is amended by inserting “or qualified matching accruals (as defined in subsection (m)(12))” before the period at the end.

(b) Matching accruals.—Subsection (m) of section 401 of such Code is amended by redesignating paragraph (12) as paragraph (13) and by inserting after paragraph (11) the following new paragraph:

“(12) SPECIAL RULES RELATING TO QUALIFIED MATCHING ACCRUALS UNDER A DEFINED BENEFIT PLAN.—For purposes of this section—

“(A) QUALIFIED MATCHING ACCRUAL.—The term ‘qualified matching accrual’ means an amount funded by an employer in the form of a benefit accrual under a defined benefit plan to match elective deferrals under a qualified cash or deferred arrangement which is part of such plan and which meets the formula requirements of subparagraph (B). The benefit accrual shall be determined under a nondiscretionary formula set forth in the defined benefit plan. For purposes of determining such benefit accrual, the amount of elective deferrals taken into account under such formula may be limited under the plan.

“(B) FORMULA REQUIREMENTS.—A benefit accrual meets the requirements of this subparagraph if such accrual is a hypothetical contribution that is added to a participant’s hypothetical account balance, the amount of which is determined, in accordance with the matching accrual formula set forth in the plan, with reference to the amount of the elective deferrals made by the participant for the plan year to a qualified cash or deferred arrangement which is part of the defined benefit plan. Matching accruals under the formula may vary with age or other employment-related factors.

“(C) COORDINATE WITH EMPLOYER CONTRIBUTIONS.—For purposes of paragraph (4), the term ‘employer contributions’ shall not include any amount contributed by an employer to a defined benefit plan for the purpose of funding any qualified matching accruals.

“(D) SAFE HARBOR FORMULA.—A qualified matching accrual formula shall be deemed to satisfy subsection (a)(4) if it satisfies the requirements of clauses (i) and (ii).

“(i) ELECTIVE DEFERRALS AT OR ABOVE MAXIMUM MATCHABLE RATE.—For an employee who makes elective deferrals at or above the maximum matchable rate, the qualified matching benefit accrual for the plan year is a hypothetical allocation under a cash balance plan (as defined in section 401(k)(12)(D)(iii)(III)) that equals a percentage (not greater than 4 percent) of compensation (as defined in section 414(s)).

“(ii) ELECTIVE DEFERRALS BELOW MAXIMUM MATCHABLE RATE.—For employees who make elective deferrals at a rate that is below the maximum matchable rate, the qualified matching benefit accrual for such plan year shall be prorated. The plan may prorate the qualified benefit accrual on the basis of whole percentages, and the plan may require that an employee’s elective deferrals be stated as whole percentages.

“(iii) MAXIMUM MATCHABLE RATE.—For purposes of this subparagraph, the maximum matchable rate must be a specified percentage of compensation which does not exceed 4 percent.”.

(c) Exception to benefit contingency rule.—Subparagraph (A) of section 401(k)(4) of such Code is amended by inserting “or qualified matching accruals (as defined in subsection (m)(12)” after “section 401(m))”.

(d) Forfeitures by reason of excess deferral.—Subparagraph (G) of section 411(a)(3) of the Code is amended by adding at the end the following: “A rule similar to the rule of the preceding sentence shall apply with respect to qualified matching accruals (as defined in section 401(m)(12)).”

(e) Accrued benefit requirement with respect to Matching accruals.—Paragraph (1) of section 411(b) of such Code is amended by adding at the end the following new subparagraph:

“(J) In the case of qualified matching accruals (as defined in section 401(m)(12)), the requirements for accrued benefits set forth in subparagraphs (A) through (H) of this subsection shall be applied on the basis of the rate of matching accruals available to participants, without regard to the actual elective deferrals made by participants.”.

(f) Participation requirements with respect to qualified Matching accruals.—Paragraph (26) of section 401(a) of such Code is amended by redesignating subparagraph (I) as subparagraph (J), and by inserting after subparagraph (H) the following new subparagraph:

“(I) SPECIAL TESTING RULES FOR QUALIFIED MATCHING ACCRUALS.—

“(i) If a defined benefit plan includes qualified matching accruals (as defined in section 401(m)(12)), the rules in clauses (ii) and (iii) shall apply.

“(ii) QUALIFIED MATCHING ACCRUALS ONLY BENEFIT FORMULA.—If the only benefit formula in the defined benefit plan is a qualified matching accrual formula, the requirements of this paragraph shall be applied by treating a participant’s annual benefit accrual as the maximum accrual that was available to the participant for the plan year, regardless of whether the maximum matchable elective deferrals were actually made by the participant. If the qualified matching accrual formula applies to elective deferrals in excess of 6 percent of compensation, then the requirements of this paragraph must be applied by taking into account the actual matching accruals earned by participants for the plan year.

“(iii) MULTIPLE FORMULAS.—If the defined benefit plan includes one or more benefit formulas in addition to a qualified matching accrual formula, the employer may elect to apply clause (ii) to the qualified matching accrual formulas only if the requirements of this paragraph are satisfied separately with respect to the benefit accruals that are determined without regard to the qualified matching accrual formula.”.

(g) Regulations for meeting nondiscrimination requirements.—

(1) IN GENERAL.—The Secretary of the Treasury shall prescribe regulations on ways in which qualified matching accruals (as defined by section 401(m)(12) of the the Internal Revenue Code of 1986, as added by this section) that do not satisfy the formula requirements of section 401(m)(12)(D) of such Code (as enacted by subsection (b) of this section) can satisfy the nondiscrimination requirements of section 401(a)(4) of such Code. The regulations may prescribe safe harbor formulas in addition to those prescribed by section 401(m)(12)(D).

(2) TEMPORARY AND FINAL FORM.—The Secretary shall prescribe the regulations required by paragraph (1) in temporary form not later than 6 months after the effective date of this section and in final form not later than 18 months after the effective date of this section.

(h) Plan years beginning before issuance of regulations.—For plan years beginning prior to the date the regulations described in subsection (g) are issued in final form, a plan’s qualified matching accrual formula must satisfy a reasonable, good faith, interpretation of section 401(a)(4) of such Code.

(i) Effective date.—The amendments made by this section shall be effective for plan years beginning after the effective date of the Act described in section 3(c)(2).

SEC. 504. Limitation on deductions where combination of defined contribution plan and defined benefit plan.

(a) Elective deferrals.—Clause (ii) of section 404(a)(7)(C) of the Internal Revenue Code of 1986 (relating to elective deferrals) is amended to read as follows:

“(ii) ELECTIVE DEFERRALS.—For purposes of this paragraph, an employee shall not be treated as a beneficiary of a defined contribution plan for a taxable year if the only employer contributions made on behalf of such employee for the taxable year are elective deferrals (as defined in section 402(g)(3)).”.

(b) Limitation not applicable to defined benefit plans with cash or deferred arrangement.—Subparagraph (C) of section 404(a)(7) is amended by adding at the end the following:

“(iii) DEFINED BENEFIT PLAN WITH CASH OR DEFERRED ARRANGEMENT.—For purposes of this paragraph, an employee shall not be treated as a beneficiary of a defined contribution plan for a taxable year merely because the employee is a beneficiary of a cash or deferred arrangement which is part of a defined benefit plan for such year.”.

(c) Effective date.—The amendments made by this section shall apply to years beginning after December 31, 2005.

SEC. 505. Conforming amendments to the Employee Retirement Income Security Act of 1974.

(a) Definition.—Section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) is amended by adding at the end the following new paragraph:

“(42) The term ‘qualified cash or deferred arrangement’ has the meaning provided such term in section 401(k)(2) of the Internal Revenue Code of 1986.”.

(b) General rules regarding treatment of pension plans including qualified cash or deferred arrangements.—Section 3(35) of such Act (29 U.S.C. 1002(35)) is amended—

(1) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively;

(2) by inserting “(A)” after “(35)”; and

(3) by adding at the end the following new subparagraph:

“(B)(i) Except as provided in this title—

“(I) a pension plan which provides benefits other than benefits described in paragraph (34) shall not be treated as an ‘individual account plan’ or a ‘defined contribution plan’ on the basis of the inclusion in the plan of a qualified cash or deferred arrangement, and

“(II) any such pension plan which includes such an arrangement shall be treated as a single plan.

“(ii) Any pension plan which provides benefits other than benefits described in paragraph (34) and which includes a qualified cash or deferred arrangement—

“(I) for purposes of section 202, shall be treated as an individual account plan or a defined contribution plan;

“(II) for purposes of section 203, shall be treated as an individual account plan or defined contribution plan to the extent benefits are attributable to such arrangement and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and

“(III) for purposes of sections 406, 407, and 408, shall, in any case in which the arrangement (if treated as a separate plan) would be an eligible individual account plan (as defined in section 407(d)(3)), be treated as an individual account plan or defined contribution plan with respect to assets attributable to such arrangement and as a defined benefit plan with respect to the remaining assets of the plan, and shall, in any other case, be treated as a single defined benefit plan.”.

(c) Valuation of benefits attributable to separate accounts.—

(1) RESTRICTIONS ON IMMEDIATE DISTRIBUTION.—Section 203(e) of such Act (29 U.S.C. 1053(e)) is amended by adding at the end the following new paragraph:

“(5) In the case of a defined benefit plan which provides a benefit derived from employer contributions (including elective deferrals (as defined in section 402(g)(3) of the Internal Revenue Code of 1986)) under a qualified cash or deferred arrangement which is maintained under such plan, for purposes of this subsection, the present value of the portion of the benefit attributable to such arrangement shall be deemed to be an amount equal to the fair market value of such arrangement.”.

(2) SURVIVOR BENEFITS.—Section 205 of such Act (29 U.S.C. 1055) is amended—

(A) by redesignating subsection (l) as subsection (m); and

(B) by inserting after subsection (k) the following new subsection:

“(l) In the case of a defined benefit plan which provides a benefit derived from employer contributions (including elective deferrals (as defined in section 402(g)(3) of the Internal Revenue Code of 1986)) under a qualified cash or deferred arrangement which is maintained under such plan, for purposes of this section, the present value of the portion of the benefit attributable to such arrangement shall be deemed to be an amount equal to the fair market value of such arrangement.”.

(d) Allowable reductions in rate of benefit accrual.—Section 204(h) of such Act (29 U.S.C. 1054(h)) is amended by adding at the end the following new paragraph:

“(10) A plan shall not be treated as failing to meet the requirements of this subsection merely because of a reduction in, or elimination of, any contributions to a qualified cash or deferred arrangement which is part of such plan.”.

(e) Application of minimum funding standard.—

(1) EXCEPTION FROM STANDARD.—Section 301(a) of such Act (29 U.S.C. 1081(a)) is amended by adding at the end the following new paragraph:

“(11) any qualified cash or deferred arrangement which is part of a defined benefit plan.”.

(2) CONTINUED APPLICATION OF STANDARD TO OTHER PORTION OF DEFINED BENEFIT PLAN.—Section 302(c) of such Act (29 U.S.C. 1082(c)) is amended by adding at the end the following new paragraph:

“(13) CONTINUED APPLICATION OF STANDARD TO OTHER PORTION OF DEFINED BENEFIT PLAN.—This section shall be applied to a defined benefit plan by disregarding the value of the trust attributable to any qualified cash or deferred arrangement.”.

(f) Vesting requirements.—Section 203(a)(3) of such Act (29 U.S.C. 1053(a)(3)(F)) is amended by adding at the end the following new subparagraph:

“(G) FASTER VESTING FOR ACCRUALS UNDER DEFINED BENEFIT PLANS WITH CASH OR DEFERRED ARRANGEMENTS.—In the case of a defined benefit plan which includes a qualified cash or deferred arrangement, the rules described in subparagraph (F) shall be applied to benefit accruals under such plan and to matching contributions and nonelective contributions made under such arrangement.”

(g) Application of accrual rules with regard to qualified matching accruals.—Section 204(b)(1) of such Act (29 U.S.C. 1054(b)(1)) is amended by adding at the end the following new subparagraph:

“(I) In the case of qualified matching accruals (as defined in section 401(m)(12) of the Internal Revenue Code of 1986), the requirements for accrued benefits set forth in subparagraphs (A) through (H) of this paragraph shall be applied on the basis of the rate of such qualified matching accruals available to participants, without regard to the actual elective deferrals made by participants.”.

(h) Multiple accrual formulas.—Section 204(b)(1) of such Act (as amended by subsection (g)) is further amended by adding at the end the following new subparagraph:

“(J)(i) If a defined benefit plan contains multiple accrual formulas, the requirements of this paragraph may be satisfied separately for each formula.

“(ii) For purposes of this subparagraph, a plan has multiple accrual formulas if a participant’s accrued benefit is determined either as the greater of the benefit determined under two or more separate formulas or as the sum of the benefit determined under two or more separate formulas.

“(iii) For purposes of clause (i), the benefit formulas described in section 401(k)(12)(D) and section 401(m)(12) of the Internal Revenue Code of 1986 shall be treated as separate from the minimum benefit formula described in section 416(c)(1) of such Code.”.

(i) Forfeitures by reason of excess deferral.—Subparagraph (F) of section 203(a)(3) of such Act (29 U.S.C. 1053(a)(3)(F)) is amended by adding at the end the following: “A rule similar to the rule of the preceding sentence shall apply with respect to qualified matching accruals (as defined in section 401(m)(12) of the Internal Revenue Code of 1986).”

(j) Effective date.—The amendments made by this section shall apply to plan years beginning after December 31, 2005.

SEC. 601. Exemption from prohibited transaction rules for certain aborted emergent transactions.

(a) In general.—Section 4975(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(7) SPECIAL RULE FOR CERTAIN ABORTED EMERGENT TRANSACTIONS.—

“(A) IN GENERAL.—Pursuant to regulations issued by the Secretary, if—

“(i) in the case of a qualifying transaction between an employee benefit plan and an eligible person which would, but for this paragraph, be in violation of a restriction imposed by paragraph (1), the eligible person submits to the Secretary, not later than 60 days after the date of the transaction, an application for an exemption under paragraph (2) from such restriction in the case of such transaction,

“(ii) the Secretary determines not to grant the exemption, and

“(iii) the transaction is reversed within 60 days after the date of the Secretary’s determination,

then the transaction shall be exempted under paragraph (2) from treatment as a violation of such restriction.

“(B) QUALIFYING TRANSACTION.—The term ‘qualifying transaction’ means, in connection with an eligible person, a transaction between an employee benefit plan and such eligible person constituting the purchase or sale of a financial product, if—

“(i) prior to engaging in the transaction, the plan acquires from the eligible person a sufficient guarantee, consisting of a letter of credit or other form of written guarantee, issued by a bank or similar financial institution (other than the eligible person requesting the exemption or an affiliate) regulated and supervised by, and subject to periodic examination by, an agency of a State or of the Federal Government, in a stated amount equal, as of the close of business on the day preceding the transaction, to not less than 100 percent of the amount of plan assets involved in the transaction, plus interest on that amount at a rate determined by the parties to the transaction, or in the absence of such determination, an interest rate equal to the underpayment rate defined in section 6621(a)(2),

“(ii) the eligible person receives in such transaction not more than reasonable compensation,

“(iii) such transaction is expressly approved by an independent fiduciary who has investment authority with respect to the plan assets involved in the transaction, and

“(iv) immediately after the acquisition of the financial product—

“(I) the fair market value of such financial product does not exceed 1 percent of the fair market value of the assets of the plan, and

“(II) the aggregate fair market value of all outstanding financial products acquired by the plan from the eligible person pursuant to this subsection does not exceed 5 percent of the fair market value of the assets of the plan.

“(C) SUFFICIENT GUARANTEE.—A guarantee referred to in subparagraph (B) is ‘sufficient’ if such guarantee is irrevocable and, under the terms of the guarantee, if the Secretary determines not to grant the exemption, the plan has the unconditional right to apply the amounts under the guarantee to any losses suffered and to the payment of interest determined under the terms of the transaction. A guarantee shall not be treated as failing to be ‘sufficient’ solely because, under the terms of the guarantee, if the Secretary grants the exemption, the guarantee may expire without any payments made to the plan.

“(D) ELIGIBLE PERSON.—The term ‘eligible person’ means a person that—

“(i) consists of—

“(I) a bank as defined in section 202(a)(2) of the Investment Advisers Act of 1940,

“(II) an investment adviser registered under the Investment Advisers Act of 1940,

“(III) an insurance company which is qualified to do business in more than one State, or

“(IV) a broker-dealer registered under the Securities Exchange Act of 1934,

“(ii) has shareholders’ or partners’ equity in excess of $1,000,000, and

“(iii) is not described in section 411 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1111).”.

(b) Effective date.—The amendment made by this section shall apply with respect to transactions occurring after December 31, 2005.

SEC. 602. Loans from retirement plans for health insurance and job training expenses.

(a) Qualification requirement for pension plans.—Paragraph (13) of section 401(a) of the Internal Revenue Code of 1986 (relating to assignment and alienation) is amended by adding at the end the following new subparagraph:

“(E) LOANS FROM RETIREMENT PLANS FOR HEALTH INSURANCE AND JOB TRAINING EXPENSES.—Notwithstanding subparagraph (A), a trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that a participant or beneficiary who is involuntarily separated from employment may, on the date of such separation, obtain a loan from the plan the proceeds of which are to be used within 6 months after the date of such loan—

“(i) for payments for insurance which constitutes medical care for the taxpayer and the taxpayer’s spouse and dependents, or

“(ii) for job training expenses.”.

(b) Prohibited transaction exemption.—Section 4975(d) of such Code (relating to exemptions from tax on prohibited transactions) is amended by striking “or” at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting “; or”, and by inserting after paragraph (15) the following new paragraph:

“(16) any loan—

“(A) from an individual retirement plan for the payment of health insurance premiums or job training expenses that is a qualified loan (as defined in section 408 of the Employee Retirement Income Security Act of 1974), or

“(B) made by the plan to a disqualified person who is a participant or beneficiary of the plan if such loan—

“(i) is for the payment of health insurance premiums or job training expenses, and

“(ii) meets the requirements of section 401(a)(13)(E).”.

(c) Effective date.—The amendments made by this section shall apply to loans made after the effective date specified in section 501.

SEC. 603. Treatment of unclaimed benefits.

(a) In general.—Section 401(a)(34) of the Internal Revenue Code of 1986 (relating to benefits of missing participants) is amended to read as follows:

“(34) UNCLAIMED BENEFITS.—A trust forming part of a plan shall not be treated as failing to constitute a qualified trust under this section merely because the plan of which such trust is a part treats unclaimed benefits in a manner that satisfies the requirements of section 414(w).”.

(b) Requirements.—Section 414 of such Code (relating to definitions and special rules) is amended by adding at the end the following new subsection:

“(w) Unclaimed benefits.—

“(1) IN GENERAL.—A plan meets the requirements of this subsection only if—

“(A) ONGOING PLANS.—In the case of an ongoing plan, the plan provides for one or more of the following with respect to unclaimed benefits:

“(i) In the case of an unclaimed benefit to which section 401(a)(31)(B) applies, a transfer under section 401(a)(31)(B).

“(ii) A transfer to the Pension Benefit Guaranty Corporation, in accordance with section 4050(e) of the Employee Retirement Income Security Act of 1974.

“(iii) Any other treatment permitted under rules prescribed by the Secretary.

“(B) TERMINATED PLANS.—In the case of a terminated plan, the plan provides for the following with respect to unclaimed benefits:

“(i) DEFINED BENEFIT PLANS.—In the case of a defined benefit plan, one or more of the following:

“(I) In the case of an unclaimed benefit to which section 401(a)(31)(B) applies, a transfer under section 401(a)(31)(B).

“(II) A transfer of the unclaimed benefit to another defined benefit plan maintained by the employer.

“(III) The purchase of an annuity contract to provide for an individual’s unclaimed benefit.

“(IV) A transfer to the Pension Benefit Guaranty Corporation in accordance with section 4050(a) or 4050(e) (as applicable) of the Employee Retirement Income Security Act of 1974.

“(V) Any other treatment permitted under rules prescribed by the Secretary.

“(ii) DEFINED CONTRIBUTION PLANS.—In the case of a defined contribution plan, one or more of the following:

“(I) In the case of an unclaimed benefit to which section 401(a)(31)(B) applies, a transfer under section 401(a)(31)(B).

“(II) A transfer of the unclaimed benefit to another defined contribution plan maintained by the employer.

“(III) The purchase of an annuity contract to provide for an individual’s unclaimed benefit.

“(IV) A transfer to the Pension Benefit Guaranty Corporation in accordance with section 4050(d) or 4050(e) (as applicable) of the Employee Retirement Income Security Act of 1974.

“(V) Any other treatment permitted under rules prescribed by the Secretary.

“(2) TREATMENT OF TRANSFERS TO PENSION BENEFIT GUARANTY CORPORATION.—

“(A) TRANSFERS TO PBGC.—Amounts transferred from a plan to the Pension Benefit Guaranty Corporation pursuant to paragraph (1) shall be treated as a transfer under section 401(a)(31)(A).

“(B) DISTRIBUTIONS FROM PBGC.—Except as provided in rules prescribed by the Secretary, amounts distributed by the Pension Benefit Guaranty Corporation shall be treated as distributed by an individual retirement plan under section 408(d) (without regard to paragraphs (4), (5) and (7) thereof). Rules similar to the rules of section 402(c)(4) shall apply.

“(3) DEFINITIONS.—For purposes of this subsection—

“(A) UNCLAIMED BENEFIT.—The term ‘unclaimed benefit’ means—

“(i) any benefit of a participant or beneficiary which is distributable under the terms of the plan to the participant or beneficiary, if the distribution of the benefit has not commenced within 1 year after the later of the date on which the benefit first became so distributable or the participant’s severance from employment;

“(ii) any benefit or other amount of a participant or beneficiary which is distributable under the terms of the plan with respect to a missing participant, or

“(iii) any benefit to which section 401(a)(31)(B) applies or would apply if subclause (I) of section 401(a)(31)(B)(i) did not require the distribution to exceed $1,000.

A benefit otherwise described in clause (i) shall not be treated as an unclaimed benefit under clause (i) if the participant or beneficiary elects not to have such treatment apply. Any such participant or beneficiary shall be given reasonable notice of the opportunity to make such an election. If the participant or beneficiary fails to make such an election within a reasonable period specified in the notice, any subsequent election shall not be given effect and the benefit shall be treated as an unclaimed benefit. A notice mailed to the last known address of the participant or beneficiary shall be treated as a notice to the participant or beneficiary for purposes of this paragraph.

“(B) ONGOING PLAN.—The term ‘ongoing plan’ means any plan which has neither terminated nor is in the process of terminating.

“(C) TERMINATED PLAN.—The term ‘terminated plan’ means any plan which has terminated or is in the process of terminating.

“(D) MISSING PARTICIPANT.—The term ‘missing participant’ shall have the meaning given to such term by section 4050(b)(1) of the Employee Retirement Income Security Act of 1974.”.

(c) Conforming amendment.—Subparagraph (B) of section 401(a)(31) of such Code is amended by adding at the end the following:

“(iii) OTHER PERMITTED TRANSFERS.—A plan administrator shall be treated as having complied with the requirements of this subparagraph if such plan administrator complies with the requirements of section 414(w).”.

SEC. 604. Income averaging of corrected civil service annuity benefit payments.

(a) In general.—Part I of subchapter Q of chapter 1 of the Internal Revenue Code of 1986 (relating to income averaging) is amended by inserting after section 1301 the following new section:

“SEC. 1302. Averaging of corrected civil service annuity benefit payments.

“(a) In general.—Unless the taxpayer elects not to have this section apply for a taxable year, any corrected civil service annuity benefit payment includable in gross income for such taxable year (without regard to this section) shall be so included ratably over the 5-taxable year period beginning with such taxable year.

“(b) Corrected civil service annuity benefit payment.—For purposes of subsection (a), the term ‘corrected civil service annuity benefit payment’ means with respect to an individual the sum of—

“(1) the lump sum payment awarded by reason of a court order, or decision of the Merit Systems Protection Board, under which the individual is entitled to receive an amount equal to all or any part of an annuity not paid to the individual as a result of an erroneous application or interpretation of subchapter III of chapter 83 or chapter 84 of title 5, United States Code, or any other provision of law (or any rule or regulation relating thereto), plus

“(2) interest on the amount described in paragraph (1) awarded under section 7704 of title 5, United States Code.

“(c) Annuity.—For purposes of subsection (b), the term ‘annuity’ has the meaning given to such term by section 7704(c) of title 5, United States Code.

“(d) Finality of election.—An election under subsection (a) with respect to a corrected civil service annuity benefit payment for a taxable year may not be changed after the due date of the return for such taxable year.”.

(b) Clerical amendment.—The table of sections for part I of subchapter Q of chapter 1 of such Code is amended by inserting after the item relating to section 1301 the following new item:


“Sec. 1302. Averaging of corrected civil service annuity benefit payments”.

(c) Effective date.—The amendments made by this section shall apply to payments received after December 31, 2004.

SEC. 605. Prohibited transaction exemption for the provision of investment advice.

(a) Prohibited transaction exemption.—Subsection (d) of section 4975 of the Internal Revenue Code of 1986 (relating to exemptions from tax on prohibited transactions), as amended by this Act, is further amended—

(1) in paragraph (15), by striking “or” at the end,

(2) in paragraph (16), by striking the period at the end and inserting “; or”, and

(3) by adding at the end the following new paragraph:

“(17) any transaction described in subsection (f)(7)(A) in connection with the provision of investment advice described in subsection (e)(3)(B), in any case in which—

“(A) the plan provides for individual accounts and permits a participant or beneficiary to exercise control over assets in his or her account,

“(B) the advice is qualified investment advice provided to a participant or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of a security or other property for purposes of investment of plan assets, and

“(C) the requirements of subsection (f)(7)(B) are met in connection with each instance of the provision of the advice.”.

(b) Transactions allowed and related requirements.—Subsection (f) of such section 4975 (relating to other definitions and special rules) is amended by adding at the end the following new paragraph:

“(7) INVESTMENT ADVICE PROVIDED BY FIDUCIARY ADVISERS.—

“(A) ALLOWABLE TRANSACTIONS.—The transactions referred to in subsection (d)(16), in connection with the provision of investment advice by a fiduciary adviser, are the following:

“(i) the provision of the advice to the participant or beneficiary,

“(ii) the sale, acquisition, or holding of a security or other property (including any lending of money or other extension of credit associated with the sale, acquisition, or holding of a security or other property) pursuant to the advice, and

“(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice.

“(B) REQUIREMENTS FOR EXEMPTION FROM PROHIBITED TRANSACTIONS WITH RESPECT TO PROVISION OF INVESTMENT ADVICE.—The requirements of this subparagraph (referred to in subsection (d)(16)(C)) are met in connection with the provision of qualified investment advice provided to a participant or beneficiary of an employee benefit plan by a fiduciary adviser with respect to the plan in connection with any sale, acquisition, or holding of a security or other property for purposes of investment of amounts held by the plan, if the requirements of the following clauses are met:

“(i) WRITTEN DISCLOSURES.—At a time contemporaneous with the provision of the advice in connection with the sale, acquisition, or holding of the security or other property, the fiduciary adviser shall provide to the recipient of the advice a clear and conspicuous notification, written in a manner to be reasonably understood by the average plan participant pursuant to regulations which shall be prescribed by the Secretary (including mathematical examples), of the following:

“(I) INTERESTS HELD BY THE FIDUCIARY ADVISER.—Any interest of the fiduciary adviser in, or any affiliation or contractual relationship of the fiduciary adviser (or affiliates thereof) with any third party having an interest in, the security or other property.

“(II) RELATED FEES OR COMPENSATION IN CONNECTION WITH THE PROVISION OF THE ADVICE.—All fees or other compensation relating to the advice (including fees or other compensation itemized with respect to each security or other property with respect to which the advice is provided) that the fiduciary adviser (or any affiliate thereof) is to receive (including compensation provided by any third party) in connection with the provision of the advice or in connection with the sale, acquisition, or holding of the security or other property.

“(III) ONGOING FEES OR COMPENSATION IN CONNECTION WITH THE SECURITY OR PROPERTY INVOLVED.—All fees or other compensation that the fiduciary adviser (or any affiliate thereof) is to receive, on an ongoing basis, in connection with any security or other property with respect to which the fiduciary adviser gives the advice.

“(IV) APPLICABLE LIMITATIONS ON SCOPE OF ADVICE.—Any limitation placed (in accordance with the requirements of this subsection) on the scope of the advice to be provided by the fiduciary adviser with respect to the sale, acquisition, or holding of the security or other property.

“(V) TYPES OF SERVICES GENERALLY OFFERED.—The types of services offered by the fiduciary adviser in connection with the provision of qualified investment advice by the fiduciary adviser.

“(VI) FIDUCIARY STATUS OF THE FIDUCIARY ADVISER.—That the fiduciary advisor is a fiduciary of the plan.

“(ii) DISCLOSURE BY FIDUCIARY ADVISER IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS.—The fiduciary adviser shall provide appropriate disclosure, in connection with the sale, acquisition, or holding of the security or other property, in accordance with all applicable securities laws.

“(iii) TRANSACTION OCCURRING SOLELY AT DIRECTION OF RECIPIENT OF ADVICE.—The sale, acquisition, or holding of the security or other property shall occur solely at the direction of the recipient of the advice.

“(iv) REASONABLE COMPENSATION.—The compensation received by the fiduciary adviser and affiliates thereof in connection with the sale, acquisition, or holding of the security or other property shall be reasonable.

“(v) ARM’S LENGTH TRANSACTION.—The terms of the sale, acquisition, or holding of the security or other property shall be at least as favorable to the plan as an arm’s length transaction would be.

“(C) CONTINUED AVAILABILITY OF INFORMATION FOR AT LEAST 1 YEAR.—The requirements of subparagraph (B)(i) shall be deemed not to have been met in connection with the initial or any subsequent provision of advice described in subparagraph (B) if, at any time during the 1-year period following the provision of the advice, the fiduciary adviser fails to maintain the information described in subclauses (I) through (IV) of subparagraph (B)(i) in currently accurate form or to make the information available, upon request and without charge, to the recipient of the advice.

“(D) EVIDENCE OF COMPLIANCE MAINTAINED FOR AT LEAST 6 YEARS.—A fiduciary adviser referred to in subparagraph (B) who has provided advice referred to in such subparagraph shall, for a period of not less than 6 years after the provision of the advice, maintain any records necessary for determining whether the requirements of the preceding provisions of this paragraph and of subsection (d)(16) have been met. A transaction prohibited under subsection (c)(1) shall not be considered to have occurred solely because the records are lost or destroyed prior to the end of the 6-year period due to circumstances beyond the control of the fiduciary adviser.

“(E) MODEL DISCLOSURE FORMS.—The Secretary shall prescribe regulations setting forth model disclosure forms to assist fiduciary advisers in complying with the disclosure requirements of under this paragraph.

“(F) ANNUAL REVIEWS BY THE SECRETARY.—The Secretary shall conduct annual reviews of randomly selected fiduciary advisers providing qualified investment advice to participants and beneficiaries. In the case of each review, the Secretary shall review the following:

“(i) COMPLIANCE BY ADVICE COMPUTER MODELS WITH GENERALLY ACCEPTED INVESTMENT MANAGEMENT PRINCIPLES.—The extent to which advice computer models employed by the fiduciary adviser comply with generally accepted investment management principles.

“(ii) COMPLIANCE WITH DISCLOSURE REQUIREMENTS.—The extent to which disclosures provided by the fiduciary adviser have complied with the requirements of this subsection.

“(iii) EXTENT OF VIOLATIONS.—The extent to which any violations of fiduciary duties have occurred in connection with the provision of the advice.

“(iv) EXTENT OF REPORTED COMPLAINTS.—The extent to which complaints to relevant agencies have been made in connection with the provision of the advice.

Any proprietary information obtained by the Secretary shall be treated as confidential.

“(G) DUTY OF CONFLICTED FIDUCIARY ADVISER TO PROVIDE FOR ALTERNATIVE INDEPENDENT ADVICE.—

“(i) IN GENERAL.—In connection with any qualified investment advice provided by a fiduciary adviser to a participant or beneficiary regarding any security or other property, if the fiduciary adviser—

“(I) has an interest in the security or other property, or

“(II) has an affiliation or contractual relationship with any third party that has an interest in the security or other property,

the requirements of subparagraph (B) shall be treated as not met in connection with the advice unless the fiduciary adviser has arranged, as an alternative to the advice that would otherwise be provided by the fiduciary advisor, for qualified investment advice with respect to the security or other property provided by at least one alternative investment adviser meeting the requirements of clause (ii).

“(ii) INDEPENDENCE AND QUALIFICATIONS OF ALTERNATIVE INVESTMENT ADVISER.—Any alternative investment adviser whose qualified investment advice is arranged for by a fiduciary adviser pursuant to clause (i)—

“(I) shall have no material interest in, and no material affiliation or contractual relationship with any third party having a material interest in, the security or other property with respect to which the investment adviser is providing the advice, and

“(II) shall meet the requirements of a fiduciary adviser under subparagraph (H)(i), except that an alternative investment adviser may not be a fiduciary of the plan other than in connection with the provision of the advice.

“(iii) SCOPE AND FEES OF ALTERNATIVE INVESTMENT ADVICE.—Any qualified investment advice provided pursuant to this subparagraph by an alternative investment adviser shall be of the same type and scope, and provided under the same terms and conditions (including no additional charge to the participant or beneficiary), as apply with respect to the qualified investment advice to be provided by the fiduciary adviser.

“(H) FIDUCIARY ADVISER DEFINED.—For purposes of this paragraph and subsection (d)(16)—

“(i) IN GENERAL.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who—

“(I) is a fiduciary of the plan by reason of the provision of qualified investment advice by such person to a participant or beneficiary,

“(II) meets the qualifications of clause (ii), and

“(III) meets the additional requirements of clause (iii).

“(ii) QUALIFICATIONS.—A person meets the qualifications of this clause if such person—

“(I) is registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.),

“(II) if not registered as an investment adviser under such Act by reason of section 203A(a)(1) of such Act (15 U.S.C. 80b–3a(a)(1)), is registered under the laws of the State in which the fiduciary maintains its principal office and place of business, and, at the time the fiduciary last filed the registration form most recently filed by the fiduciary with such State in order to maintain the fiduciary’s registration under the laws of such State, also filed a copy of such form with the Secretary,

“(III) is registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),

“(IV) is a bank or similar financial institution referred to in subsection (d)(4),

“(V) is an insurance company qualified to do business under the laws of a State, or

“(VI) is any other comparable entity which satisfies such criteria as the Secretary determines appropriate.

“(iii) ADDITIONAL REQUIREMENTS WITH RESPECT TO CERTAIN EMPLOYEES OR OTHER AGENTS OF CERTAIN ADVISERS.—A person meets the additional requirements of this clause if every individual who is employed (or otherwise compensated) by such person and whose scope of duties includes the provision of qualified investment advice on behalf of such person to any participant or beneficiary is—

“(I) a registered representative of such person,

“(II) an individual described in subclause (I), (II), or (III) of clause (ii), or

“(III) such other comparable qualified individual as may be designated in regulations of the Secretary.

“(I) ADDITIONAL DEFINITIONS.—For purposes of this paragraph and subsection (d)(16)—

“(i) QUALIFIED INVESTMENT ADVICE.—The term ‘qualified investment advice’ means, in connection with a participant or beneficiary, investment advice referred to in subsection (e)(3)(B) which—

“(I) consists of an individualized recommendation to the participant or beneficiary with respect to the purchase, sale, or retention of securities or other property for the individual account of the participant or beneficiary, in accordance with generally accepted investment management principles, and

“(II) takes into account all investment options under the plan.

“(ii) AFFILIATE.—The term ‘affiliate’ of another entity means an affiliated person of such entity (as defined in section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(3))).

“(iii) REGISTERED REPRESENTATIVE.—The term ‘registered representative’ of another entity means a person described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting such entity for the broker or dealer referred to in such section) or a person described in section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(17)) (substituting such entity for the investment adviser referred to in such section).”.

(c) Effective date.—The amendments made by this section shall apply with respect to advice referred to in section 4975(e)(3)(B) of the Internal Revenue Code of 1986 provided on or after January 1, 2005.

SEC. 606. Increase in deductible contributions to single-employer defined benefit plan upon payment of increased premium to the Pension Benefit Guaranty Corporation.

(a) Increase in deductible contributions.—Paragraph (1) of section 404(a) of the Internal Revenue Code of 1986 (relating to deduction for contributions to pension trusts) is amended—

(1) by redesignating subparagraph (E) as subparagraph (F); and

(2) by inserting after subparagraph (D) the following new subparagraph:

“(E) SPECIAL RULE IN THE EVENT OF PAYMENT OF INCREASED PBGC PREMIUM WITH RESPECT TO SINGLE-EMPLOYER DEFINED BENEFIT PLAN.—In any case in which the Secretary—

“(i) receives certification by the plan administrator of a single-employer defined benefit plan that the increased premium authorized under section 4006(a)(3)(F) of the Employee Retirement Income Security Act of 1974 has been paid for any plan year, and

“(ii) receives certification of such payment from the Pension Benefit Guaranty Corporation,

the maximum amount deductible under the limitations of this paragraph for such plan year shall not be less than 150 percent of current liability determined under section 412(l).”.

(b) Election of payment of increased premium.—Section 4006(a)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is amended by adding at the end the following new subparagraph:

“(F) The corporation shall provide for payment of the premium for any plan year for basic benefits guaranteed under this title with respect to a single-employer plan for any plan year at an increased annual rate equal to $24.70 in any case in which such payment is accompanied by certification by the contributing sponsor or plan administrator that such payment is made for purposes of increased deductibility of contributions for such plan year under section 404(a)(1)(E) of the Internal Revenue Code of 1986. The Corporation shall promptly certify receipt of any premium at the increased annual rate provided for under this subparagraph to the Secretary of the Treasury.”.

SEC. 607. Exemption from prohibited transaction rules for certain aborted emergent transactions.

(a) In general.—Section 4975(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(7) SPECIAL RULE FOR CERTAIN ABORTED EMERGENT TRANSACTIONS.—

“(A) IN GENERAL.—Pursuant to regulations issued by the Secretary, if—

“(i) in the case of a qualifying transaction between an employee benefit plan and an eligible person which would, but for this paragraph, be in violation of a restriction imposed by paragraph (1), the eligible person submits to the Secretary, not later than 60 days after the date of the transaction, an application for an exemption under paragraph (2) from such restriction in the case of such transaction,

“(ii) the Secretary determines not to grant the exemption, and

“(iii) the transaction is reversed within 60 days after the date of the Secretary’s determination,

then the transaction shall be exempted under paragraph (2) from treatment as a violation of such restriction.

“(B) QUALIFYING TRANSACTION.—The term ‘qualifying transaction’ means, in connection with an eligible person, a transaction between an employee benefit plan and such eligible person constituting the purchase or sale of a financial product, if—

“(i) prior to engaging in the transaction, the plan acquires from the eligible person a sufficient guarantee, consisting of a letter of credit or other form of written guarantee, issued by a bank or similar financial institution (other than the eligible person requesting the exemption or an affiliate) regulated and supervised by, and subject to periodic examination by, an agency of a State or of the Federal Government, in a stated amount equal, as of the close of business on the day preceding the transaction, to not less than 100 percent of the amount of plan assets involved in the transaction, plus interest on that amount at a rate determined by the parties to the transaction, or in the absence of such determination, an interest rate equal to the underpayment rate defined in section 6621(a)(2),

“(ii) the eligible person receives in such transaction not more than reasonable compensation,

“(iii) such transaction is expressly approved by an independent fiduciary who has investment authority with respect to the plan assets involved in the transaction, and

“(iv) immediately after the acquisition of the financial product—

“(I) the fair market value of such financial product does not exceed 1 percent of the fair market value of the assets of the plan, and

“(II) the aggregate fair market value of all outstanding financial products acquired by the plan from the eligible person pursuant to this subsection does not exceed 5 percent of the fair market value of the assets of the plan.

“(C) SUFFICIENT GUARANTEE.—A guarantee referred to in subparagraph (B) is ‘sufficient’ if such guarantee is irrevocable and, under the terms of the guarantee, if the Secretary determines not to grant the exemption, the plan has the unconditional right to apply the amounts under the guarantee to any losses suffered and to the payment of interest determined under the terms of the transaction. A guarantee shall not be treated as failing to be ‘sufficient’ solely because, under the terms of the guarantee, if the Secretary grants the exemption, the guarantee may expire without any payments made to the plan.

“(D) ELIGIBLE PERSON.—The term ‘eligible person’ means a person that—

“(i) consists of—

“(I) a bank as defined in section 202(a)(2) of the Investment Advisers Act of 1940,

“(II) an investment adviser registered under the Investment Advisers Act of 1940,

“(III) an insurance company which is qualified to do business in more than one State, or

“(IV) a broker-dealer registered under the Securities Exchange Act of 1934,

“(ii) has shareholders’ or partners’ equity in excess of $1,000,000, and

“(iii) is not described in section 411 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1111).”.

(b) Effective date.—The amendment made by this section shall apply with respect to transactions occurring after December 31, 2005.

SEC. 608. Pension benefit information.

(a) In general.—Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:

“SEC. 4980G. Failure of applicable plans to provide notice of generally accepted investment principles.

“(a) Imposition of tax.—There is hereby imposed a tax on the failure of any applicable pension plan to meet the requirements of subsection (e) with respect to any applicable individual.

“(b) Amount of tax.—The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period with respect to such failure.

“(c) Limitations on amount of tax.—

“(1) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS.—No tax shall be imposed by subsection (a) on any failure if—

“(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and

“(B) such person provides the notice described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence should have known, that such failure existed.

“(2) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—

“(A) IN GENERAL.—If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e) and paragraph (1) is not otherwise applicable, the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.

“(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.

“(3) WAIVER BY SECRETARY.—In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.

“(d) Liability for tax.—The following shall be liable for the tax imposed by subsection (a):

“(1) In the case of a plan other than a multiemployer plan, the employer.

“(2) In the case of a multiemployer plan, the plan.

“(e) Notice of generally accepted investment principles.—

“(1) IN GENERAL.—The plan administrator of an applicable pension plan shall provide notice of generally accepted investment principles, including principles of risk management and diversification, to each applicable individual.

“(2) NOTICE.—The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with rules or other guidance adopted by the Secretary) to allow applicable individuals to understand generally accepted investment principles, including principles of risk management and diversification.

“(3) TIMING OF NOTICE.—The notice required by paragraph (1) shall be provided upon enrollment of the applicable individual in such plan and at least once per plan year thereafter.

“(4) FORM AND MANNER OF NOTICE.—The notice required by paragraph (1) shall be in writing, except that such notice may be in electronic or other form to the extent that such form is reasonably accessible to the applicable individual.

“(f) Definitions and special rules.—For purposes of this section—

“(1) APPLICABLE INDIVIDUAL.—The term ‘applicable individual’ means with respect to an applicable pension plan—

“(A) any participant in the applicable pension plan,

“(B) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)), and

“(C) any beneficiary of a deceased participant or alternate payee described in subparagraph (A) or (B), as the case may be,

who has an accrued benefit under the plan and who is entitled to direct the investment (or hypothetical investment) of some or all of such accrued benefit.

“(2) APPLICABLE PENSION PLAN.—The term ‘applicable pension plan’ means—

“(A) a plan described in section 219(g)(5)(A) (other than in clause (iii) thereof), and

“(B) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A),

which permits any participant to direct the investment of some or all of his account in the plan or under which the accrued benefit of any participant depends in whole or in part on hypothetical investments directed by the participant.”.

(b) Clerical amendment.—The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:


“Sec. 4980G. Failure of applicable plans to provide notice of generally accepted investment principles”.

(c) Effective date.—

(1) IN GENERAL.—The amendments made by this section shall take effect 60 days after the adoption of rules or other guidance to carry out the amendments made by this section, which shall include a model notice of generally accepted investment principles, including principles of risk management and diversification.

(2) MODEL INVESTMENT PRINCIPLES.—For purposes of paragraph (1), not later than 120 days after the date of the enactment of this Act, the Secretary of the Treasury, in consultation with the Secretary of Labor, shall issue rules or other guidance and a model notice which meets the requirements of section 4980G of the Internal Revenue Code of 1986 (as added by this section).

SEC. 609. Permanency of transition rule in Retirement Protection Act of 1994.

(a) Transition rule made permanent.—Section 769(c) of the Retirement Protection Act of 1994 (26 U.S.C. 412 note) is amended—

(1) in the heading, by striking “Transition”; and

(2) in paragraph (1), by striking “transition” and by striking “for any plan year beginning after 1996 and before 2010”.

(b) Special rules.—Paragraph (2) of section 769(c) of the Retirement Protection Act of 1994 is amended to read as follows:

“(2) SPECIAL RULES.—The rules described in this paragraph are as follows:

“(A) For purposes of section 412(l)(9)(A) of the Internal Revenue Code of 1986 and section 302(d)(9)(A) of the Employee Retirement Income Security Act of 1974, the funded current liability percentage for any plan year shall be treated as not less than 90 percent.

“(B) For purposes of section 412(m) of the Internal Revenue Code of 1986 and section 302(e) of the Employee Retirement Income Security Act of 1974, the funded current liability percentage for any plan year shall be treated as not less than 100 percent.

“(C) For purposes of determining unfunded vested benefits under section 4006(a)(3)(E)(iii) of the Employee Retirement Income Security Act of 1974, the mortality table shall be the mortality table used by the plan.”.

(c) Effective date.—The amendments made by this section shall apply to plan years beginning after December 31, 2004.

SEC. 701. General effective date.

(a) In general.—Except as otherwise provided in this Act, and subject to subsection (b), the amendments made by this Act shall apply with respect to plan years beginning on or after January 1, 2005.

(b) Special rule for collectively bargained plans.—In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified on or before the date of the enactment of this Act, subsection (a) shall be applied to benefits pursuant to, and individuals covered by, any such agreement by substituting for “January 1, 2005” the date of the commencement of the first plan year beginning on or after the earlier of—

(1) the later of—

(A) January 1, 2006, or

(B) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or

(2) January 1, 2007.

SEC. 702. Plan amendments.

If any amendment made by this Act requires an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after January 1, 2007, if—

(1) during the period after such amendment made by this Act takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment made by this Act, and

(2) such plan amendment applies retroactively to the period after such amendment made by this Act takes effect and such first plan year.