[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1640 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1640

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
Income Security Act of 1974 to protect pension benefits of employees in 
 defined benefit plans and to direct the Secretary of the Treasury to 
  enforce the age discrimination requirements of the Internal Revenue 
 Code of 1986 with respect to amendments resulting in defined benefit 
                   plans becoming cash balance plans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 24, 1999

 Mr. Wellstone introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
Income Security Act of 1974 to protect pension benefits of employees in 
 defined benefit plans and to direct the Secretary of the Treasury to 
  enforce the age discrimination requirements of the Internal Revenue 
 Code of 1986 with respect to amendments resulting in defined benefit 
                   plans becoming cash balance plans.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pension Benefits Protection and 
Preservation Act of 1999''.

SEC. 2. NOTICE REQUIREMENTS FOR PENSION PLANS OF 100 OR MORE 
              PARTICIPANTS SIGNIFICANTLY REDUCING FUTURE PENSION 
              BENEFIT ACCRUALS.

    (a) Plan Requirement.--Section 401(a) of the Internal Revenue Code 
of 1986 (relating to qualified pension, profit-sharing, and stock bonus 
plans) is amended by inserting after paragraph (34) the following new 
paragraph:
            ``(35) Notice requirements for defined benefit plans of 100 
        or more participants significantly reducing future benefit 
        accruals.--
                    ``(A) In general.--If a large defined benefit plan 
                adopts an amendment which has the effect of 
                significantly reducing the rate of future benefit 
                accrual of 1 or more participants, a trust which is 
                part of such plan shall not constitute a qualified 
                trust under this section unless, after adoption of such 
                amendment and not less than 45 days before its 
                effective date, the plan administrator provides--
                            ``(i) a written statement of benefit change 
                        described in subparagraph (B) to each 
                        applicable individual, and
                            ``(ii) a written notice setting forth the 
                        plan amendment and its effective date to each 
                        employee organization representing participants 
                        in the plan.
                Any such notice may be provided to a person designated, 
                in writing, by the person to which it would otherwise 
                be provided. The plan administrator shall not be 
                treated as failing to meet the requirements of this 
                subparagraph merely because the statement or notice is 
                provided before the adoption of the plan amendment if 
                no material modification of the amendment occurs before 
                the amendment is adopted.
                    ``(B) Statement of benefit change.--A statement of 
                benefit change described in this subparagraph shall--
                            ``(i) be written in a manner calculated to 
                        be understood by the average plan participant, 
                        and
                            ``(ii) include the information described in 
                        subparagraph (C).
                    ``(C) Information contained in statement of benefit 
                change.--The information described in this subparagraph 
                includes the following:
                            ``(i) Notice setting forth the plan 
                        amendment and its effective date.
                            ``(ii) A comparison of the following 
                        amounts under the plan with respect to an 
                        applicable individual, determined both with and 
                        without regard to the plan amendment:
                                    ``(I) The accrued benefit and the 
                                present value of the accrued benefit as 
                                of the effective date.
                                    ``(II) The projected accrued 
                                benefit and the projected present value 
                                of the accrued benefit as of the date 
                                which is 3 years, 5 years, and 10 years 
                                from the effective date and as of the 
                                normal retirement age.
                            ``(iii) A table of all annuity factors used 
                        to calculate benefits under the plan, presented 
                        in the form provided in section 72 and the 
                        regulations thereunder.
                Benefits described in clause (ii) shall be stated 
                separately and shall be calculated by using the 
                applicable mortality table and the applicable interest 
                rate under section 417(e)(3)(A).
                    ``(D) Large defined benefit plan; applicable 
                individual.--For purposes of this paragraph--
                            ``(i) Large defined benefit plan.--The term 
                        `large defined benefit plan' means any defined 
                        benefit plan which had 100 or more participants 
                        who had accrued a benefit under the plan 
                        (whether or not vested) as of the last day of 
                        the plan year preceding the plan year in which 
                        the plan amendment becomes effective.
                            ``(ii) Applicable individual.--The term 
                        `applicable individual' means--
                                    ``(I) each participant in the plan, 
                                and
                                    ``(II) each 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)).
                    ``(E) Accrued benefit; projected retirement 
                benefit.--For purposes of this paragraph--
                            ``(i) Present value of accrued benefit.--
                        The present value of an accrued benefit of any 
                        applicable individual shall be calculated as if 
                        the accrued benefit were in the form of a 
                        single life annuity commencing at the 
                        participant's normal retirement age (and by 
                        taking into account any early retirement 
                        subsidy).
                            ``(ii) Projected accrued benefit.--
                                    ``(I) In general.--The projected 
                                accrued benefit of any applicable 
                                individual shall be calculated as if 
                                the benefit were payable in the form of 
                                a single life annuity commencing at the 
                                participant's normal retirement age 
                                (and by taking into account any early 
                                retirement subsidy).
                                    ``(II) Compensation and other 
                                assumptions.--Such benefit shall be 
                                calculated by assuming that 
                                compensation and all other benefit 
                                factors would increase for each plan 
                                year beginning after the effective date 
                                of the plan amendment at a rate equal 
                                to the median average of the CPI 
                                increase percentage (as defined in 
                                section 215(i) of the Social Security 
                                Act) for the 5 calendar years 
                                immediately preceding the calendar year 
                                before the calendar year in which such 
                                effective date occurs.
                                    ``(III) Benefit factors.--For 
                                purposes of subclause (II), the term 
                                `benefit factors' means social security 
                                benefits and all other relevant factors 
                                under section 411(b)(1)(A) used to 
                                compute benefits under the plan which 
                                had increased from the 2d plan year 
                                preceding the plan year in which the 
                                effective date of the plan amendment 
                                occurs to the 1st such preceding plan 
                                year.
                            ``(iii) Normal retirement age.--The term 
                        `normal retirement age' means the later of--
                                    ``(I) the date determined under 
                                section 411(a)(8), or
                                    ``(II) the date a plan participant 
                                attains age 62.''.
    (b) Amendments to ERISA.--
            (1) Benefit statement requirement.--Section 204(h) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1054(h)) is amended by adding at the end the following new 
        paragraphs:
            ``(3)(A) If paragraph (1) applies to the adoption of a plan 
        amendment by a large defined benefit plan, the plan 
        administrator shall, after adoption of such amendment and not 
        less than 45 days before its effective date, provide with the 
        notice under paragraph (1) a written statement of benefit 
        change described in subparagraph (B) to each applicable 
        individual.
            ``(B) A statement of benefit change described in this 
        subparagraph shall--
                    ``(i) be written in a manner calculated to be 
                understood by the average plan participant, and
                    ``(ii) include the information described in 
                subparagraph (C).
            ``(C) The information described in this subparagraph 
        includes the following:
                    ``(i) A comparison of the following amounts under 
                the plan with respect to an applicable individual, 
                determined both with and without regard to the plan 
                amendment:
                            ``(I) The accrued benefit and the present 
                        value of the accrued benefit as of the 
                        effective date.
                            ``(II) The projected accrued benefit and 
                        the projected present value of the accrued 
                        benefit as of the date which is 3 years, 5 
                        years, and 10 years from the effective date and 
                        as of the normal retirement age.
                    ``(ii) A table of all annuity factors used to 
                calculate benefits under the plan, presented in the 
                form provided in section 72 of the Internal Revenue 
                Code of 1986 and the regulations thereunder.
        Benefits described in clause (i) shall be stated separately and 
        shall be calculated by using the applicable mortality table and 
        the applicable interest rate under section 417(e)(3)(A) of such 
        Code.
            ``(D) For purposes of this paragraph--
                    ``(i) The term `large defined benefit plan' means 
                any defined benefit plan which had 100 or more 
                participants who had accrued a benefit under the plan 
                (whether or not vested) as of the last day of the plan 
year preceding the plan year in which the plan amendment becomes 
effective.
                    ``(ii) The term `applicable individual' means an 
                individual described in subparagraph (A) or (B) of 
                paragraph (1).
            ``(E) For purposes of this paragraph--
                    ``(i) The present value of an accrued benefit of 
                any applicable individual shall be calculated as if the 
                accrued benefit were in the form of a single life 
                annuity commencing at the participant's normal 
                retirement age (and by taking into account any early 
                retirement subsidy).
                    ``(ii)(I) The projected accrued benefit of any 
                applicable individual shall be calculated as if the 
                benefit were payable in the form of a single life 
                annuity commencing at the participant's normal 
                retirement age (and by taking into account any early 
                retirement subsidy).
                    ``(II) Such benefit shall be calculated by assuming 
                that compensation and all other benefit factors would 
                increase for each plan year beginning after the 
                effective date of the plan amendment at a rate equal to 
                the median average of the CPI increase percentage (as 
                defined in section 215(i) of the Social Security Act) 
                for the 5 calendar years immediately preceding the 
                calendar year before the calendar year in which such 
                effective date occurs.
                    ``(III) For purposes of subclause (II), the term 
                `benefit factors' means social security benefits and 
                all other relevant factors under section 204(b)(1)(A) 
                used to compute benefits under the plan which had 
                increased from the 2d plan year preceding the plan year 
                in which the effective date of the plan amendment 
                occurs to the 1st such preceding plan year.
                    ``(iii) The term `normal retirement age' means the 
                later of--
                            ``(I) the date determined under section 
                        3(24), or
                            ``(II) the date a plan participant attains 
                        age 62.
            ``(4) A plan administrator shall not be treated as failing 
        to meet the requirements of this subsection merely because the 
        notice or statement is provided before the adoption of the plan 
        amendment if no material modification of the amendment occurs 
        before the amendment is adopted.''.
            (2) Conforming amendment.--Section 204(h)(1) of such Act 
        (29 U.S.C. 1054(h)(1)) is amended by inserting ``(including any 
        written statement of benefit change if required by paragraph 
        (3))'' after ``written notice''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect in plan years beginning 
        after December 31, 1998.
            (2) Special rule.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.

SEC. 3. AGE-BASED REDUCTIONS IN THE RATE AT WHICH BENEFITS ACCRUE UNDER 
              A CASH BALANCE PLAN VIOLATE AGE DISCRIMINATION RULE.

    (a) Directive.--The Secretary of the Treasury shall apply section 
411(b)(1)(H) of the Internal Revenue Code of 1986 without regard to the 
portion of the preamble to Treasury Decision 8360 (56 Fed. Reg. 47524-
47603, September 19, 1991) which relates to the allocation of interest 
adjustments through normal retirement age under a cash balance plan, as 
such preamble is and has been since its adoption without the force of 
law.
    (b) Safe Harbor if Notice And Election To Continue Benefit Accruals 
Under Former Defined Benefit Plan Instead of Under Cash Balance Plan.--
            (1) Amendment to internal revenue code.--Paragraph (1) of 
        section 411(b) of the Internal Revenue Code of 1986 (relating 
        to defined benefit plans) is amended by adding at the end the 
        following new subparagraph:
                    ``(I) Election to continue benefit accruals under 
                former defined benefit plan instead of under cash 
                balance plan.--
                            ``(i) In general.--A large defined benefit 
                        plan that adopts an amendment which results in 
                        such plan becoming a cash balance plan shall be 
                        treated as not meeting the requirements of this 
                        paragraph unless such plan provides each 
                        participant with--
                                    ``(I) notice and a written 
                                statement of benefit change which meets 
                                the requirements of section 401(a)(35), 
                                and
                                    ``(II) an election to continue to 
                                accrue benefits under such plan, 
                                determined under the terms of such plan 
                                as in effect immediately before the 
                                effective date of such plan amendment.
                            ``(ii) Protected accrued benefit.--For 
                        purposes of clause (i), an accrued benefit 
                        shall include any early retirement benefit or 
                        retirement-type subsidy (within the meaning of 
                        subsection (d)(6)(B)(i)), but only with respect 
                        to a participant who satisfies (either before 
                        or after the effective date of the amendment) 
                        the conditions for the benefit or subsidy under 
                        the terms of the plan as in effect immediately 
                        before such date.
                            ``(iii) Timing of election.--Except as 
                        provided in regulations, the election required 
                        by clause (i)(II) shall be provided within a 
                        reasonable time before the effective date of 
                        the amendment resulting in the plan becoming a 
                        cash balance plan.
                            ``(iv) Cash balance plan.--For purposes of 
                        this paragraph, the term `cash balance plan' 
                        means a defined benefit plan under which the 
rate of benefit accrual of any 1 participant for a year of service is 
reduced as the years of service of such participant increase.''.
            (2) Amendment to erisa.--Section 204(g) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
        amended by adding at the end the following new paragraph:
    ``(4)(A) For purposes of paragraph (1), in the case of a plan 
amendment adopted by a large defined benefit plan (as defined in 
subsection (h)(3)) which results in such plan becoming a cash balance 
plan, such defined benefit plan shall be treated as not satisfying the 
requirements of this section unless such plan provides each participant 
with--
            ``(i) notice and a written statement of benefit change 
        which meets the requirements of subsection (h)(3), and
            ``(ii) an election to continue to accrue benefits under 
        such plan, determined under the terms of such plan as in effect 
        immediately before the effective date of such plan amendment.
    ``(B) For purposes of subparagraph (A), an accrued benefit shall 
include any early retirement benefit or retirement-type subsidy (within 
the meaning of paragraph (2)(A)), but only with respect to a 
participant who satisfies (either before or after the effective date of 
the amendment) the conditions for the benefit or subsidy under the 
terms of the plan as in effect immediately before such date.
    ``(C) Except as provided in regulations, the election required by 
subparagraph (A)(ii) shall be provided within a reasonable time before 
the effective date of the amendment resulting in the plan becoming a 
cash balance plan.
    ``(D) For purposes of this paragraph, the term `cash balance plan' 
means a defined benefit plan under which the rate of benefit accrual of 
any 1 participant for a year of service is reduced as the years of 
service of such participant increase.''.
    (c) Excise Tax on Failure To Offer Election.--
            (1) In general.--Chapter 43 of subtitle D 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. 4980F. FAILURE TO OFFER ELECTION TO CONTINUE BENEFIT ACCRUALS 
              UNDER FORMER DEFINED BENEFIT PLAN IN EVENT OF SIGNIFICANT 
              REDUCTIONS IN FUTURE BENEFIT ACCRUALS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (d).
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be 50 percent of the amount of the excess 
        pension assets in such plan, determined as of the effective 
        date of the amendment which has the effect of significantly 
        reducing the rate of future benefit accrual of 1 or more 
        participants.
            ``(2) Excess pension assets.--For purposes of paragraph 
        (1), the term `excess pension assets' has the meaning given to 
        such term by section 420(e)(2).
    ``(c) 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.
For purposes of the preceding sentence, all multiemployer plans of 
which the same trust forms a part shall be treated as 1 plan. For 
purposes of this paragraph, if not all persons who are treated as a 
single employer for purposes of this section have the same taxable 
year, the taxable years taken into account shall be determined under 
principles similar to the principles of section 1561.
    ``(d) Election To Continue Benefit Accruals Under Former Defined 
Benefit Plan In Event of Significant Reductions in Future Benefit 
Accruals.--In the case that an applicable pension plan adopts an 
amendment which has the effect of significantly reducing the rate of 
future benefit accrual of 1 or more participants, the requirements of 
this subsection are met if the plan administrator provides each 
participant who has a nonforfeitable right to 100 percent of his 
accrued benefits with--
            ``(1) notice and a written statement of benefit change 
        which meets the requirements of section 401(a)(35), and
            ``(2) an election to continue to accrue benefits under such 
        plan, determined under the terms of such plan as in effect 
        immediately before the effective date of such plan amendment.
    ``(e) Timing of Election.--Except as provided in regulations, the 
election required by subsection (d) shall be provided within a 
reasonable time before the effective date of such amendment.
    ``(f) Protected Accrued Benefit.--For purposes of this section, an 
accrued benefit shall include any early retirement benefit or 
retirement-type subsidy (within the meaning of section 
411(d)(6)(B)(i)), but only with respect to a participant who satisfies 
(either before or after the effective date of the amendment) the 
conditions for the benefit or subsidy under the terms of the plan as in 
effect immediately before such date.
    ``(g) Applicable Pension Plan.--For purposes of this section, the 
term `applicable pension plan' means a defined benefit plan that is 
subject to the notice requirements of section 401(a)(35).''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 of subtitle D of such Code is amended by adding at the end 
        the following new item:

``Sec. 4980F. Failure to offer election to continue benefit accruals 
                            under former defined benefit plan in event 
                            of significant reductions in future benefit 
                            accruals.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plans and plan amendments taking effect after December 
        31, 1998.
            (2) Special rule.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.

SEC. 4. PREVENTION OF WEARING AWAY OF EMPLOYEE'S ACCRUED BENEFIT.

    (a) Amendment to Internal Revenue Code.--Section 411(d)(6) of the 
Internal Revenue Code of 1986 (relating to accrued benefit may not be 
decreased by amendment) is amended by adding at the end the following 
new subparagraph:
                    ``(D) Treatment of plan amendments wearing away 
                accrued benefit.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), a plan amendment adopted by a 
                        large defined benefit plan shall be treated as 
                        reducing accrued benefits of a participant if, 
                        under the terms of the plan after the adoption 
                        of the amendment, the accrued benefit of the 
                        participant may at any time be less than the 
                        sum of--
                                    ``(I) the participant's accrued 
                                benefit for years of service before the 
                                effective date of the amendment, 
                                determined under the terms of the plan 
                                as in effect immediately before the 
                                effective date, plus
                                    ``(II) the participant's accrued 
                                benefit determined under the formula 
                                applicable to benefit accruals under 
                                the current plan as applied to years of 
                                service after such effective date.
                            ``(ii) Large defined benefit plan.--For 
                        purposes of this subparagraph, the term `large 
                        defined benefit plan' means any defined benefit 
                        plan which had 100 or more participants who had 
                        accrued a benefit under the plan (whether or 
                        not vested) as of the last day of the plan year 
                        preceding the plan year in which the plan 
                        amendment becomes effective.
                            ``(iii) Protected accrued benefit.--For 
                        purposes of this subparagraph, an accrued 
                        benefit shall include any early retirement 
                        benefit or retirement-type subsidy (within the 
                        meaning of subparagraph (B)(i)), but only with 
                        respect to a participant who satisfies (either 
                        before or after the effective date of the 
                        amendment) the conditions for the benefit or 
                        subsidy under the terms of the plan as in 
                        effect immediately before such date.''.
    (b) Amendment of ERISA.--Section 204(g) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at 
the end the following new paragraph:
    ``(5)(A) For purposes of paragraph (1), a plan amendment adopted by 
a large defined benefit plan shall be treated as reducing accrued 
benefits of a participant if, under the terms of the plan after the 
adoption of the amendment, the accrued benefit of the participant may 
at any time be less than the sum of--
            ``(i) the participant's accrued benefit for years of 
        service before the effective date of the amendment, determined 
        under the terms of the plan as in effect immediately before the 
        effective date, plus
            ``(ii) the participant's accrued benefit determined under 
        the formula applicable to benefit accruals under the current 
        plan as applied to years of service after such effective date.
    ``(B) For purposes of this paragraph, the term `large defined 
benefit plan' means any defined benefit plan which had 100 or more 
participants who had accrued a benefit under the plan (whether or not 
vested) as of the last day of the plan year preceding the plan year in 
which the plan amendment becomes effective.
    ``(C) For purposes of this paragraph, an accrued benefit shall 
include any early retirement benefit or retirement-type subsidy (within 
the meaning of paragraph (2)(A)), but only with respect to a 
participant who satisfies (either before or after the effective date of 
the amendment) the conditions for the benefit or subsidy under the 
terms of the plan as in effect immediately before such date.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan amendments taking effect after December 31, 1998.
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