[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3488 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 3488

 To amend the Internal Revenue Code of 1986 to expand pension benefits 
to those without retirement plans and provide additional protections to 
              those who participate in the current system.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           December 13, 2001

  Mr. Coyne (for himself, Mr. Rangel, and Mr. Matsui) introduced the 
following bill; which was referred to the Committee on Ways and Means, 
and in addition to the Committee on Education and the Workforce, for a 
 period to be subsequently determined by the Speaker, in each case for 
consideration of such provisions as fall within the jurisdiction of the 
                          committee concerned

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to expand pension benefits 
to those without retirement plans and provide additional protections to 
              those who participate in the current system.

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

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Retirement 
Opportunity Expansion Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title, etc.
    TITLE I--REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE 
                    DEFERRALS AND IRA CONTRIBUTIONS

Sec. 101. Refundable credit to certain individuals for elective 
                            deferrals and IRA contributions.
          TITLE II--EXPANSION OF COVERAGE TO LOW-WAGE WORKERS

Sec. 201. Exclusion for payroll deduction contributions to individual 
                            retirement accounts.
          TITLE III--IMPROVEMENT OF PENSION COVERAGE FOR WOMEN

Sec. 301. Modifications of joint and survivor annuity requirements.
Sec. 302. Spousal consent required for distributions from section 
                            401(k) plans.
Sec. 303. Full vesting upon death or disability.
Sec. 304. Predetermination protection for potential qualified domestic 
                            relations order alternate payee.
Sec. 305. Promotion of pension plan participation by women and other 
                            underrepresented groups.
Sec. 306. Periods of family and medical leave treated as hours of 
                            service for pension participation and 
                            vesting.
  TITLE IV--INCENTIVES FOR SMALL BUSINESSES TO OFFER PENSION BENEFITS

Sec. 401. Credit for qualified pension plan contributions of small 
                            employers.
Sec. 402. Secure money annuity or retirement (SMART) trusts.
Sec. 403. Definition of highly compensated employees.

    TITLE I--REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE 
                    DEFERRALS AND IRA CONTRIBUTIONS

SEC. 101. REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE 
              DEFERRALS AND IRA CONTRIBUTIONS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
(relating to refundable credits) is amended by redesignating section 35 
as section 36 and by inserting after section 34 the following new 
section:

``SEC. 35. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
              INDIVIDUALS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the applicable 
percentage of so much of the qualified retirement savings contributions 
of the eligible individual for the taxable year as do not exceed the 
deductible amount (as defined in section 219(b)).
    ``(b) Applicable Percentage.--For purposes of this section, the 
applicable percentage is the percentage determined in accordance with 
the following table:


------------------------------------------------------------------------
                    Adjusted Gross Income
-------------------------------------------------------------
    Joint return           Head of a        All other cases   Applicable
---------------------      household     -------------------- percentage
                     --------------------
   Over     Not over    Over    Not over    Over    Not over
------------------------------------------------------------------------
           $30,000    ........  $22,500   ........  $15,000          50
 30,000     32,500     22,500    24,375    15,000    16,250          20
 32,500     50,000     24,375    37,500    16,250    25,000          10
 50,000    .........   37,500   ........   25,000   ........          0
------------------------------------------------------------------------


    ``(c) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual who has attained the age of 18 as of the close of 
        the taxable year.
            ``(2) Dependents and full-time students not eligible.--The 
        term `eligible individual' shall not include--
                    ``(A) any individual with respect to whom a 
                deduction under section 151 is allowable to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins, 
                and
                    ``(B) any individual who is a student (as defined 
                in section 151(c)(4)).
    ``(d) Qualified Retirement Savings Contributions.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified retirement savings contributions' means the sum of--
                    ``(A) the amount of the qualified retirement 
                contributions (as defined in section 219(e)) made by 
                the eligible individual,
                    ``(B) the amount of--
                            ``(i) any elective deferrals (as defined in 
                        section 402(g)(3)) of such individual, and
                            ``(ii) any elective deferral of 
                        compensation by such individual under an 
                        eligible deferred compensation plan (as defined 
                        in section 457(b)) of an eligible employer 
                        described in section 457(e)(1)(A), and
                    ``(C) the amount of voluntary employee 
                contributions by such individual to any qualified 
                retirement plan (as defined in section 4974(c)).
            ``(2) Adjustment for certain distributions.--
                    ``(A) In general.--The amount of qualified 
                retirement savings contributions of an individual 
                otherwise taken into account under subsection (a) for a 
                taxable year shall be reduced (but not below zero) by 
                the sum of--
                            ``(i) any distribution from a qualified 
                        retirement plan (as defined in section  
4974(c)), or from an eligible deferred compensation plan (as defined in 
section 457(b)), received by the individual during the testing period 
which is includible in gross income, and
                            ``(ii) any distribution in such taxable 
                        year from a Roth IRA received by the individual 
                        during the testing period which is not a 
                        qualified rollover contribution (as defined in 
                        section 408A(e)) to a Roth IRA.
                    ``(B) Testing period.--For purposes of subparagraph 
                (A), the testing period, with respect to a taxable 
                year, is the period which includes--
                            ``(i) such taxable year,
                            ``(ii) the 2 preceding taxable years, and
                            ``(iii) the period after such taxable year 
                        and before the due date (including extensions) 
                        for filing the return of tax for such taxable 
                        year.
                    ``(C) Excepted distributions.--There shall not be 
                taken into account under subparagraph (A)--
                            ``(i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 
                        404(k), or 408(d)(4),
                            ``(ii) any distribution to which section 
                        408A(d)(3) applies, and
                            ``(iii) any distribution before January 1, 
                        2002.
                    ``(D) Treatment of distributions received by spouse 
                of individual.--For purposes of determining whether an 
                individual is an eligible individual for any taxable 
                year, any distribution received by the spouse of such 
                individual shall be treated as received by such 
                individual if such individual and spouse file a joint 
                return for such taxable year and for the taxable year 
                during which the spouse receives the distribution.
    ``(e) Adjusted Gross Income.--For purposes of this section, 
adjusted gross income shall be determined without regard to sections 
911, 931, and 933.
    ``(f) Investment in the Contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution shall not 
fail to be included in determining the investment in the contract for 
purposes of section 72 by reason of the credit under this section.''.
    (b) Conforming Amendments.--
            (1) Subpart A of part IV of subchapter A of chapter 1 is 
        amended by striking section 25B and the table of sections for 
        such subpart is amended by striking the item relating to 
        section 25B.
            (2) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 35 of such Code''.
            (3) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 is amended by striking the last item 
        and inserting the following new items:

                              ``Sec. 35. Elective deferrals and IRA 
                                        contributions by certain 
                                        individuals.
                              ``Sec. 36. Overpayments of tax.''

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

          TITLE II--EXPANSION OF COVERAGE TO LOW-WAGE WORKERS

SEC. 201. EXCLUSION FOR PAYROLL DEDUCTION CONTRIBUTIONS TO INDIVIDUAL 
              RETIREMENT ACCOUNTS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (r) as subsection (s) 
and by inserting after subsection (q) the following new subsection:
    ``(r) Qualified Payroll Deduction Arrangement for IRA 
Contributions.--
            ``(1) In general.--For purposes of this title, the term 
        `qualified payroll deduction arrangement' means a written 
        arrangement of an employer under which--
                    ``(A) an employee eligible to participate in the 
                arrangement may elect to have the employer make 
                payments--
                            ``(i) to the employee directly in cash, or
                            ``(ii) as elective employer contributions 
                        to an individual retirement plan (as defined in 
                        section 7701(a)(37)), other than an individual 
                        retirement plan described in section 408(k), 
                        408(p), or 408A(b), on behalf of the employee 
                        for the taxable year in which the payments 
                        otherwise would have been made to the employee 
                        directly in cash,
                    ``(B) the amount which the employee may elect under 
                subparagraph (A) for any year may not exceed the 
                deductible amount for such year (as defined in section 
                219(b)),
                    ``(C) no other contributions may be made other than 
                contributions described in subparagraph (A),
                    ``(D) the employee's rights to any contributions 
                made to an individual retirement plan are 
                nonforfeitable (for this purpose, rules similar to the 
                rules of subsection (k)(4) shall apply), and
                    ``(E) the employer makes the elective employer 
                contributions under subparagraph (A) not later than the 
                close of the 30-day period following the last day of 
                the month with respect to which the contributions are 
                to be made.
            ``(2) Election not to have subsection apply.--An employer 
        that maintains an arrangement otherwise described in paragraph 
        (1) may elect to have contributions treated as though they were 
        not made under such an arrangement. If an employer does not 
        make an election described in the preceding sentence, an 
        employee may elect, before any contributions are made for the 
        calendar year, to have contributions on behalf of the employee 
        treated as though they were not made under an arrangement 
        described in paragraph (1). An employer shall  be deemed to 
have made an election under this paragraph for a year if the employer 
maintained a qualified plan with respect to which contributions were 
made or benefits were accrued for such year. For purposes of the 
preceding sentence, the term `qualified plan' means a plan, contract, 
pension, or trust described in subparagraph (A) or (B) of section 
219(g)(5).''.
    (b) Tax Treatment of Employer Contributions Made Under a Qualified 
Payroll Deduction Arrangement.--
            (1) Coordination with deduction under section 219.--
                    (A) Section 219(b) (relating to maximum amount of 
                deduction) is amended by adding at the end the 
                following new paragraph:
            ``(6) Special rule for contributions under a qualified 
        payroll deduction arrangement.--This section shall not apply 
        with respect to any amount contributed under a qualified 
        payroll deduction arrangement described in section 408(r)(1) 
        (for which an election has not been made under section 
        408(r)(2)).''.
                    (B) Section 219(g)(1) (relating to the limitation 
                on deduction for active participants) is amended to 
                read as follows:
            ``(1) In general.--If (for any part of any plan year ending 
        with or within a taxable year) an individual is an active 
        participant, each of the dollar limitations contained in 
        subsections (b)(1)(A) and (c)(1)(A) for such taxable year shall 
        be reduced (but not below zero) by the sum of--
                    ``(A) the amount determined under paragraph (2), 
                and
                    ``(B) the amount contributed for the taxable year 
                under a qualified payroll deduction arrangement 
                described in section 408(r)(1) (for which an election 
                has not been made under section 408(r)(2)).''.
            (2) Deductibility of employer contributions.--Section 404 
        (relating to deductions for contributions of an employer to 
        pension, etc., plans) is amended by adding at the end the 
        following new subsection:
    ``(o) Special Rules for Contributions Under a Qualified Payroll 
Deduction Arrangement.--Rules similar to the rules of subsection (m) 
shall apply to employer contributions made under a qualified payroll 
deduction arrangement described in section 408(r)(1) (for which an 
election has not been made under section 408(r)(2)).''.
            (3) Contributions and distributions.--Section 402 (relating 
        to taxability of beneficiary of employees' trust) is amended by 
        adding at the end the following new subsection:
    ``(l) Treatment of Contributions and Distributions Under a 
Qualified Payroll Deduction Arrangement.--Rules similar to the rules of 
paragraphs (1) and (3) of subsection (h) shall apply to contributions 
and distributions made with respect to an individual retirement plan 
under a qualified payroll deduction arrangement described in section 
408(r)(1) (for which an election has not been made under section 
408(r)(2)), except that contributions made by an employer on behalf of 
an employee for a taxable year shall be excluded from income only to 
the extent such contributions would have been deductible for such 
taxable year under section 219, if such section applied, without regard 
to section 219(g)(1)(B). Contributions that are not excluded from 
income under the preceding sentence shall be treated as designated 
nondeductible contributions under section 408(o).''.
    (c) Exemption From Withholding.--Subsection (a) of section 3401 
(defining wages) is amended by striking ``or'' at the end of paragraph 
(20), by striking the period at the end of paragraph (21) and inserting 
``; or'', and by inserting after paragraph (21) the following new 
paragraph:
            ``(22) for any payment made for the benefit of the employee 
        to an individual retirement plan if the amount of such payment 
        was deducted and withheld under section 408(r).''.
    (d) Exclusion Shown on W-2.--Subsection (a) of section 6051 
(relating to receipts for employees) is amended by striking ``and'' at 
the end of paragraph (10), by striking the period at the end of 
paragraph (11) and inserting ``, and'', and by inserting after 
paragraph (11) the following new paragraph:
            ``(12) the total amount deducted and withheld pursuant to 
        section 408(r).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to remuneration paid after December 31, 2001.

          TITLE III--IMPROVEMENT OF PENSION COVERAGE FOR WOMEN

SEC. 301. MODIFICATIONS OF JOINT AND SURVIVOR ANNUITY REQUIREMENTS.

    (a) Amendments to ERISA.--
            (1) Amount of annuity.--
                    (A) In general.--Paragraph (1) of section 205(a) of 
                the Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1055(a)) is amended by inserting ``or, at the 
                election of the participant, shall be provided in  the 
form of a qualified joint and \3/4\ survivor annuity'' after ``survivor 
annuity,''.
                    (B) Definition.--Subsection (d) of section 205 of 
                such Act (29 U.S.C. 1055) is amended--
                            (i) by redesignating paragraphs (1) and (2) 
                        as subparagraphs (A) and (B), respectively,
                            (ii) by inserting ``(1)'' after ``(d)'', 
                        and
                            (iii) by adding at the end the following 
                        new paragraph:
    ``(2) For purposes of this section, the term ``qualified joint and 
\3/4\ survivor annuity'' means an annuity--
            ``(A) for the participant while both the participant and 
        the spouse are alive with a survivor annuity for the life of 
        surviving individual (either the participant or the spouse) 
        equal to 75 percent of the amount of the annuity which is 
        payable to the participant while both the participant and the 
        spouse are alive,
            ``(B) which is the actuarial equivalent of a single annuity 
        for the life of the participant, and
            ``(C) which, for all other purposes of this Act, is treated 
        as a qualified joint and survivor annuity.''.
            (2) Illustration requirement.--Clause (i) of section 
        205(c)(3)(A) of such Act (29 U.S.C. 1055(c)(3)(A)) is amended 
        to read as follows:
            ``(i) the terms and conditions of each qualified joint and 
        survivor annuity and qualified joint and \3/4\ survivor annuity 
        offered, accompanied by an illustration of the benefits under 
        each such annuity 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 form of retirement benefit is chosen,''.
    (b) Amendments to Internal Revenue Code.--
            (1) Amount of annuity.--
                    (A) In general.--Clause (i) of section 
                401(a)(11)(A) (relating to requirement of joint and 
                survivor annuity and preretirement survivor annuity) is 
                amended by inserting ``or, at the election of the 
                participant, shall be provided in the form of a 
                qualified joint and \3/4\ survivor annuity'' after 
                ``survivor annuity,''.
                    (B) Definition.--Section 417 (relating to 
                definitions and special rules for purposes of minimum 
                survivor annuity requirements) is amended by 
                redesignating subsection (f) as subsection (g) and by 
                inserting after subsection (e) the following new 
                subsection:
    ``(f) Definition of Qualified Joint and \3/4\ Survivor Annuity.--
For purposes of this section and section 401(a)(11), the term 
``qualified joint and \3/4\ survivor annuity'' means an annuity--
            ``(1) for the participant while both the participant and 
        the spouse are alive with a survivor annuity for the life of 
        surviving individual (either the participant or the spouse) 
        equal to 75 percent of the amount of the annuity which is 
        payable to the participant while both the participant and the 
        spouse are alive,
            ``(2) which is the actuarial equivalent of a single annuity 
        for the life of the participant, and
            ``(3) which, for all other purposes of this title, is 
        treated as a qualified joint and survivor annuity.''.
            (2) Illustration requirement.--Clause (i) of section 
        417(a)(3)(A) (relating to explanation of joint and survivor 
        annuity) is amended to read as follows:
                            ``(i) the terms and conditions of each 
                        qualified joint and survivor annuity and 
                        qualified joint and \3/4\ survivor annuity 
                        offered, accompanied by an illustration of the 
                        benefits under each such annuity 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 form 
                        of retirement benefit is chosen,''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2001.
            (2) 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 enactment of 
        this Act, the amendments made by this section shall apply to 
        the first plan year beginning on or after the earlier of--
                    (A) the later of--
                            (i) January 1, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after the date of enactment of this 
                        Act).
            (3) Plan amendments.--If any amendment made by this section 
        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, 2004, if--
                    (A) during the period after such amendment made by 
                this section takes effect and before such first plan 
                year, the plan is operated in accordance with the 
                requirements of such amendment made by this section, 
                and
                    (B) such plan amendment applies retroactively to 
                the period after such amendment made by this section 
                takes effect and such first plan year.
        A plan shall not be treated as failing to provide definitely 
        determinable benefits or contributions, or to be operated in 
        accordance with the provisions of the plan, merely because it 
        operates in accordance with this paragraph.

SEC. 302. SPOUSAL CONSENT REQUIRED FOR DISTRIBUTIONS FROM SECTION 
              401(K) PLANS.

    (a) In General.--Paragraph (2) of section 401(k) (defining 
qualified cash or deferred arrangement) is amended by striking ``and'' 
at the end of subparagraph (C), by striking the period at the end of 
subparagraph (D) and inserting ``, and'', and by adding at the end the 
following new subparagraph:
                    ``(E) which provides that a distribution of not 
                more than 10 percent of the balance in an arrangement 
                may be made in any taxable year unless--
                            ``(i) the spouse of the employee (if any) 
                        consents in writing (during the 90-day period 
                        ending on the date of the distribution) to such 
                        distribution, and
                            ``(ii) requirements comparable to the 
                        requirements of section 417(a)(2) are met with 
                        respect to such consent.
                For purposes of the preceding sentence, an employer may 
                ask for spousal consent but is not required to verify 
                marital status.''
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions in plan years beginning after December 31, 2000.

SEC. 303. FULL VESTING UPON DEATH OR DISABILITY.

    (a) In General.--Paragraph (2) of section 411(a) (relating to 
employer contributions) is amended--
            (1) in the matter preceding subparagraph (A), by inserting 
        ``and (C)'' after ``or (B)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(C) Full vesting upon death or disability.--A 
                plan satisfies the requirements of this paragraph if an 
                employee has a nonforfeitable right to 100 percent of 
                the employee's accrued benefit derived from employer 
                contributions in the case that the participant dies or 
                becomes disabled (as defined by section 72(m)(7)) 
                before the earlier of the employee--
                            ``(i) attaining normal retirement age (as 
                        defined in paragraph (8)), or
                            ``(ii) having a nonforfeitable right to 100 
                        percent of the employee's accrued benefit 
                        derived from employer contributions.''.
    (b) Amendment of ERISA.--Paragraph (2) of section 203(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended--
            (1) in the matter preceding subparagraph (A), by inserting 
        ``and (C)'' after ``or (B)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(C) A plan satisfies the requirements of this 
                paragraph if an employee has a nonforfeitable right to 
                100 percent of the employee's accrued benefit derived 
                from employer contributions in the case that the 
                participant dies or becomes disabled (as defined by 
                section 72(m)(7)) before the earlier of the employee--
                            ``(i) attaining normal retirement age (as 
                        defined in section 3(24)), or
                            ``(ii) having a nonforfeitable right to 100 
                        percent of the employee's accrued benefit 
                        derived from employer contributions.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 304. PREDETERMINATION PROTECTION FOR POTENTIAL QUALIFIED DOMESTIC 
              RELATIONS ORDER ALTERNATE PAYEE.

    (a) In General.--Paragraph (6) of section 414(p) (relating to plan 
procedures with respect to orders) is amended by adding at the end the 
following new subparagraph:
                    ``(C) Hold on certain plan activity after notice of 
                preparation of order.--A plan administrator may not 
                make any distribution or loan, or accept any investment 
                direction, with respect to a participant's benefit 
                under the plan during the 90-day period beginning on 
                the date of the receipt by the plan administrator of 
                written notice from either the participant or an 
                alternate payee that a domestic relations order 
                affecting the participant's benefits under the plan is 
                being prepared. The Secretary may prescribe such 
                exceptions as the Secretary determines necessary or 
                appropriate to achieve the purposes of the preceding 
                sentence, including a shorter period.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to notices received after December 31, 2001.

SEC. 305. STUDY ON PENSION PLAN PARTICIPATION BY WOMEN AND OTHER 
              UNDERREPRESENTED GROUPS.

    The Secretary of Labor shall conduct a study on the participation 
in pension plans by women and by other groups determined by the 
Secretary by reference to the most recent census to be underrepresented 
in their participation in pension plans. The study shall assess 
participation by income level and type of pension plan. Not later than 
one year after the date of the enactment of this Act, the Secretary 
shall submit the results of such study, together with such 
recommendations as the Secretary determines appropriate to increase 
participation in pension plans by women and such groups, to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate.

SEC. 306. PERIODS OF FAMILY AND MEDICAL LEAVE TREATED AS HOURS OF 
              SERVICE FOR PENSION PARTICIPATION AND VESTING.

    (a) Amendments of Internal Revenue Code.--
            (1) Participation.--
                    (A) In general.--Paragraph (3) of section 410(a) 
                (relating to minimum participation standards) is 
                amended by adding at the end the following new 
                subparagraph:
                    ``(E) Family and medical leave treated as 
                service.--
                            ``(i) In general.--For purposes of this 
                        subsection, in the case of an individual who is 
                        absent from work on leave required  to be given 
to such individual under the Family and Medical Leave Act of 1993, the 
plan shall treat as hours of service--
                                    ``(I) the hours of service which 
                                otherwise would normally have been 
                                credited to such individual but for 
                                such absence, or
                                    ``(II) in any case in which the 
                                plan is unable to determine the hours 
                                described in subclause (I), 8 hours of 
                                service per day of absence.
                            ``(ii) Year to which hours are credited.--
                        The hours described in clause (i) shall be 
                        treated as hours of service as provided in this 
                        subparagraph--
                                    ``(I) only in the year in which the 
                                absence from work begins, if section 
                                411(a)(5)(E)(ii)(I) requires hours to 
                                be credited to the year in which the 
                                absence from work begins, or
                                    ``(II) in any other case, in the 
                                immediately following year.''
                    (B) Coordination with treatment of maternity and 
                paternity absences under break in service rules.--
                Subparagraph (E) of section 410(a)(5) is amended--
                            (i) by inserting ``not under family and 
                        medical leave act of 1993'' after ``absences'' 
                        in the heading, and
                            (ii) by adding at the end of clause (i) the 
                        following new sentence: ``The preceding 
                        sentence shall apply to an absence from work 
                        only if no part of such absence is required to 
                        be given under the Family and Medical Leave Act 
                        of 1993.''
            (2) Vesting.--
                    (A) In general.--Paragraph (5) of section 411(a) 
                (relating to minimum vesting standards) is amended by 
                adding at the end the following new subparagraph:
                    ``(E) Family and medical leave treated as 
                service.--
                            ``(i) In general.--For purposes of this 
                        subsection, in the case of an individual who is 
                        absent from work on leave required to be given 
                        to such individual under the Family and Medical 
                        Leave Act of 1993, the plan shall treat as 
                        hours of service--
                                    ``(I) the hours of service which 
                                otherwise would normally have been 
                                credited to such individual but for 
                                such absence, or
                                    ``(II) in any case in which the 
                                plan is unable to determine the hours 
                                described in subclause (I), 8 hours of 
                                service per day of absence.
                            ``(ii) Year to which hours are credited.--
                        The hours described in clause (i) shall be 
                        treated as hours of service as provided in this 
                        subparagraph--
                                    ``(I) only in the year in which the 
                                absence from work begins, if the 
                                participant's rights in his accrued 
                                benefit derived from employer 
                                contributions are to any extent not 
                                nonforfeitable and the participant 
                                would have a year of service solely 
                                because the period of absence is 
                                treated as hours of service as provided 
                                in clause (i); or
                                    ``(II) in any other case, in the 
                                immediately following year.''
                    (B) Coordination with treatment of maternity and 
                paternity absences under break in service rules.--
                Subparagraph (E) of section 411(a)(6) is amended--
                            (i) by inserting ``not under family and 
                        medical leave act of 1993'' after ``absences'' 
                        in the heading, and
                            (ii) by adding at the end of clause (i) the 
                        following new sentence: ``The preceding 
                        sentence shall apply to an absence from work 
                        only if no part of such absence is required to 
                        be given under the Family and Medical Leave Act 
                        of 1993.''
                    (C) Accrued benefits.--Subparagraph (A) of section 
                411(b)(4) is amended by inserting the following before 
                the end thereof: ``or which is included in a period of 
                service required to be taken into account under 
                subsection (a)(5)(E)''.
    (b) Amendments of ERISA.--
            (1) Participation.--
                    (A) In general.--Paragraph (3) of section 202(a) of 
                the Employee Retirement Income Security Act of 1974 
                (relating to minimum participation standards) is 
                amended by adding at the end the following new 
                subparagraph:
    ``(E)(i) For purposes of this subsection, in the case of an 
individual who is absent from work on leave required to be given to 
such individual under the Family and Medical Leave Act of 1993, the 
plan shall treat as hours of service--
            ``(I) the hours of service which otherwise would normally 
        have been credited to such individual but for such absence, or
            ``(II) in any case in which the plan is unable to determine 
        the hours described in subclause (I), 8 hours of service per 
        day of absence.
    ``(ii) The hours described in clause (i) shall be treated as hours 
of service as provided in this subparagraph--
            ``(I) only in the year in which the absence from work 
        begins, if section 203(b)(2)(E)(ii)(I) requires hours to be 
        credited to the year in which the absence from work begins, or
            ``(II) in any other case, in the immediately following 
        year.''
                    (B) Coordination with treatment of maternity and 
                paternity absences under break in service rules.--
                Subparagraph (A) of section 202(b)(5) of such Act is 
                amended by adding at the end of clause (i) the 
                following new sentence: ``The preceding sentence shall 
                apply to an absence from work only if no part of such 
                absence is required to be given under the Family and 
                Medical Leave Act of 1993.''
            (2) Vesting.--
                    (A) In general.--Paragraph (2) of section 203(b) of 
                such Act (relating to minimum vesting standards) is 
                amended by adding at the end the following new 
                subparagraph:
    ``(E)(i) For purposes of this subsection, in the case of an 
individual who is absent from work on leave required to be given to 
such individual under the Family and Medical Leave Act of 1993, the 
plan shall treat as hours of service--
            ``(I) the hours of service which otherwise would normally 
        have been credited to such individual but for such absence, or
            ``(II) in any case in which the plan is unable to determine 
        the hours described in subclause (I), 8 hours of service per 
        day of absence.
    ``(ii) The hours described in clause (i) shall be treated as hours 
of service as provided in this subparagraph--
            ``(I) only in the year in which the absence from work 
        begins, if the participant's rights in his accrued benefit 
        derived from employer contributions are to any extent not 
        nonforfeitable and the participant would have a year of service 
        solely because the period of absence is treated as hours of 
        service as provided in clause (i); or
            ``(II) in any other case, in the immediately following 
        year.''
                    (B) Coordination with treatment of maternity and 
                paternity absences under break in service rules.--
                Clause (i) of section 203(b)(3)(E) of such Act is 
                amended by adding at the end of clause (i) the 
                following new sentence: ``The preceding sentence shall 
                apply to an absence from work only if no part of such 
                absence is required to be given under the Family and 
                Medical Leave Act of 1993.''
                    (C) Accrued benefits.--Subparagraph (A) of section 
                204(b)(4) of such Act is amended by inserting the 
                following before the end thereof: ``or which is 
                included in a period of service required to be taken 
                into account under 203(b)(2)(E)''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan years 
        beginning after December 31, 2001.
            (2) Application to current employees.--The amendments made 
        by this section shall not apply to any employee who does not 
        have at least 1 hour of service in any plan year beginning 
        after December 31, 2001.

  TITLE IV--INCENTIVES FOR SMALL BUSINESSES TO OFFER PENSION BENEFITS

SEC. 401. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL 
              EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following new section:

``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 of 3 
        percent of such employee's compensation from the employer for 
        the year. For purposes of the preceding sentence, compensation 
        shall be as determined under regulations prescribed by the 
        Secretary and without regard to permitted disparity rules of 
        section 401(l) and to contributions and benefits under the 
        Social Security Act.
    ``(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 as provided in subparagraph 
                        (B)(i), allocations of nonelective employer 
                        contributions are either--
                                    ``(I) in equal dollar amounts for 
                                all employees covered by the plan, or
                                    ``(II) bear a uniform relationship 
                                to the total compensation (within the 
                                meaning of section 414(s) and 
                                determined without regard to section 
                                401(l)) of the employees covered by the 
                                plan.
                    ``(B) Special rules for defined benefit plans.--For 
                purposes of subparagraph (A)--
                            ``(i) Nonelective employer contributions.--
                        In the case of a defined benefit plan, the 
                        requirements of subparagraph (A)(ii) shall be 
                        treated as met if allocations of nonelective 
                        employer contributions are equivalent to that 
                        required by subclause (I) or (II) of 
                        subparagraph (A)(ii), as determined under 
                        regulations prescribed by the Secretary.
                            ``(ii) Compensation.--For purposes of 
                        subparagraph (A), in the case of defined 
                        benefit plan, compensation shall be as 
                        determined under regulations prescribed by the 
                        Secretary and without regard to permitted 
                        disparity rules of section 401(l) and to 
                        contributions and benefits under the Social 
                        Security Act.
                    ``(C) 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) 6-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:
    2.............................................                  20 
    3.............................................                  40 
    4.............................................                  60 
    5.............................................                  80 
    6.............................................                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). For 
        purposes of the preceding sentence, all employers treated as a 
        single employer under subsection (b), (c), (m) or (o)) shall be 
        treated as a single employer.
            ``(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, 2009.''
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``plus'' at the end of paragraph (14), by striking the period at the 
end of paragraph (15) 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) 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, 2002.''
            (2) Subsection (c) of section 196 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 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, 2001.

SEC. 402. SECURE MONEY ANNUITY OR RETIREMENT (SMART) TRUSTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
is amended by inserting after section 408A the following new section:

``SEC. 408B. SMART PLANS.

    ``(a) Employer Eligibility.--
            ``(1) In general.--An employer may establish and maintain a 
        SMART annuity or a SMART trust for any year only if--
                    ``(A) the employer is an eligible employer (as 
                defined in section 408(p)(2)(C)), and
                    ``(B) the employer does not maintain (and no 
                predecessor of the employer maintains) a qualified plan 
                (other than a permissible plan) with respect to which 
                contributions were made, or benefits were accrued, for 
                service in any year in the period beginning with the 
                year such annuity or trust became effective and ending 
                with the year for which the determination is being 
                made.
        The period described in subparagraph (B) shall include the 
        period of 5 years before the year such trust or annuity became 
        effective with respect to qualified plans which are defined 
        benefit plans or money purchase pension plans.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) Qualified plan.--The term `qualified plan' 
                has the meaning given such term by section 
                408(p)(2)(D)(ii).
                    ``(B) Permissible plan.--The term `permissible 
                plan' means--
                            ``(i) a SIMPLE plan described in section 
                        408(p),
                            ``(ii) a SIMPLE 401(k) plan described in 
                        section 401(k)(11),
                            ``(iii) an eligible deferred compensation 
                        plan described in section 457(b),
                            ``(iv) a collectively bargained plan but 
                        only if the employees eligible to participate 
                        in such plan are not also entitled to a benefit 
                        described in subsection (b)(5) or (c)(5), or
                            ``(v) a plan under which there may be made 
                        only--
                                    ``(I) elective deferrals described 
                                in section 402(g)(3), and
                                    ``(II) employer matching 
                                contributions not in excess of the 
                                amounts described in subclauses (I) and 
                                (II) of section 401(k)(12)(B)(i).
    ``(b) SMART Annuity.--
            ``(1) In general.--For purposes of this title, the term 
        `SMART annuity' means an individual retirement annuity (as 
        defined in section 408(b) without regard to paragraph (2) 
        thereof and without regard to the limitation on aggregate 
        annual premiums contained in the flush language of section 
        408(b)) if--
                    ``(A) such annuity meets the requirements of 
                paragraphs (2) through (7), and
                    ``(B) the only contributions to such annuity are 
                nonelective employer contributions.
        Nothing in this section shall be construed as preventing an 
        employer from using a group annuity contract which is divisible 
        into individual retirement annuities for purposes of providing 
        SMART annuities.
            ``(2) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met for any year only if all employees of 
                the employer who--
                            ``(i) received at least $5,000 in 
                        compensation from the employer during any 2 
                        consecutive preceding years, and
                            ``(ii) received at least $5,000 in 
                        compensation during the year,
                are entitled to the benefit described in paragraph (5) 
                for such year.
                    ``(B) Excludable employees.--An employer may elect 
                to exclude from the requirements under subparagraph (A) 
                employees described in subparagraph (A) or (C) of 
                section 410(b)(3).
            ``(3) Vesting.--The requirements of this paragraph are met 
        if the employee's rights to any benefits under the annuity are 
        nonforfeitable.
            ``(4) Benefit form.--The requirements of this paragraph are 
        met if the accrued benefit may be paid only in the form of--
                    ``(A) a benefit payable annually in the form of a 
                single life annuity with monthly payments (with no 
                ancillary benefits) beginning at age 65, or
                    ``(B) any other form of benefit which is the 
                actuarial equivalent (based on the assumptions 
                specified in the SMART annuity) of the benefit 
                described in subparagraph (A).
            ``(5) Amount of annual accrued benefit.--
                    ``(A) In general.--The requirements of this 
                paragraph are met for any plan year if the accrued 
                benefit of each participant derived from employer 
                contributions for such year, when expressed as a 
                benefit described in paragraph (4)(A), equals the 
                applicable percentage of the participant's compensation 
                for such year.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `applicable 
                        percentage' means 2 percent.
                            ``(ii) Election of different percentage.--
                        Except as provided by paragraph (8), an 
                        employer may elect to apply an applicable 
                        percentage of 1 percent for any year for all 
                        employees eligible to participate in the plan 
                        for such year, if the employer notifies the 
                        employees of such percentage within a 
                        reasonable period before the beginning of such 
                        year. An employer may also elect to apply an 
                        applicable percentage of 3 percent for any of 
                        the first 5 years that the plan is effective 
                        for all employees eligible to participate in 
                        the plan for such year, if the employer so 
                        notifies the employees.
                    ``(C) Compensation limit.--
                            ``(i) In general.--The compensation taken 
                        into account under this paragraph for any year 
                        shall not exceed $100,000.
                            ``(ii) Cost-of-living adjustment.--The 
                        Secretary shall adjust annually the $100,000 
                        amount in clause (i) for increases in the cost-
                        of-living at the same time and in the same 
                        manner as adjustments under section 415(d), and 
                        any increase which is not a multiple of $5,000 
                        shall be rounded to the next lowest multiple of 
                        $5,000.
                    ``(D) Credit for service before plan adopted.--
                            ``(i) In general.--An employer may elect to 
                        take into account a specified number of years 
                        of service (not greater than 10) performed 
                        before the adoption of the plan (each 
                        hereinafter referred to as a `prior service 
                        year') as service under the plan if the same 
                        specified number of years is available to all 
                        employees eligible to participate in the plan 
                        for the first plan year.
                            ``(ii) Accrual of prior service benefit.--
                        Such an election shall be effective for a prior 
                        service year only if the requirements of this 
                        paragraph are met for an eligible plan year 
                        (with respect to employees entitled to credit 
                        for such prior service year) by doubling the 
                        applicable percentage (if any) for such plan 
                        year. For purposes of the preceding sentence, 
                        an eligible plan year is a plan year in the 
                        period of consecutive plan years (but not more 
                        than the number specified under clause (i)) 
                        beginning with the first plan year that the 
                        plan is in effect.
                            ``(iii) Election may not apply to certain 
                        prior service years.--This subparagraph shall 
not apply with respect to any prior service year of an employee if--
                                    ``(I) for any part of such prior 
                                service year such employee was an 
                                active participant (within the meaning 
                                of section 219(g)(5)) under any defined 
                                benefit plan of the employer (or any 
                                predecessor thereof), or
                                    ``(II) such employee received 
                                during such prior service year less 
                                than $5,000 in compensation from the 
                                employer.
            ``(6) Funding.--
                    ``(A) In general.--The requirements of this 
                paragraph are met only if the employer is required to 
                contribute to the annuity for each plan year the amount 
                necessary to purchase a SMART annuity in the amount of 
                the benefit accrued for such year for each participant 
                entitled to such benefit. Such contribution must be 
                made no later than 8\1/2\ months after the end of the 
                plan year.
                    ``(B) Penalty for failure to make required 
                contribution.--The taxes imposed by section 4971 shall 
                apply to a failure to make the contribution required by 
                this paragraph in the same manner as if the amount of 
                the failure were an accumulated funding deficiency to 
                which such section applies.
            ``(7) Limitation on distributions.--
                    ``(A) In general.--The requirements of this 
                paragraph are met only if distributions may be paid 
                only when the employee attains age 65, has a severance 
                from employment, dies, or becomes disabled (within the 
                meaning of section 72(m)(7)).
                    ``(B) Limitation on distributions on separation 
                from service of employees who have not attained age 
                65.--Subparagraph (A) shall apply to a distribution on 
                separation of service of an employee who has not 
                attained age 65 only if--
                            ``(i) the aggregate cash value of an 
                        employee's SMART annuity does not exceed the 
                        dollar limit in effect under section 
                        411(a)(11)(A), or
                            ``(ii) the distribution is a direct 
                        trustee-to-trustee transfer of the entire 
                        balance to the credit of the employee to a 
                        SMART trust described in subsection (c), a 
                        SMART rollover plan, or a SMART annuity for the 
                        benefit of such employee.
            ``(8) Joint and survivor annuity rules applicable.--The 
        requirements of this paragraph are met only if the annuity 
        satisfies section 401(a)(11).
            ``(9) Definitions and special rule.--
                    ``(A) Definitions.--The definitions in section 
                408(p)(6) shall apply for purposes of this subsection.
                    ``(B) Use of designated financial institutions.--A 
                rule similar to the rule of section 408(p)(7) (without 
                regard to the last sentence thereof) shall apply for 
                purposes of this subsection.
                    ``(C) SMART rollover plan.--For purposes of this 
                section, the term `SMART rollover plan' means an 
                individual retirement plan for the benefit of the 
                employee to which a rollover was made from a SMART 
                Annuity, SMART trust, or another SMART Rollover plan.
    ``(c) SMART Trust.--
            ``(1) In general.--For purposes of this title, the term 
        `SMART trust' means a trust forming part of a defined benefit 
        plan if--
                    ``(A) such trust meets the requirements of section 
                401(a) as modified by subsection (d),
                    ``(B) such plan meets the requirements of 
                paragraphs (2) through (8), and
                    ``(C) the only contributions to such trust are 
                employer contributions.
            ``(2) Participation requirements.--A plan meets the 
        requirements of this paragraph for any year only if the 
        requirements of subsection (b)(2) are met for such year.
            ``(3) Vesting.--A plan meets the requirements of this 
        paragraph for any year only if the requirements of subsection 
        (b)(3) are met for such year.
            ``(4) Benefit form.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a plan meets the requirements of this 
                paragraph only if the trustee distributes a SMART 
                annuity that satisfies subsection (b)(4) where the 
                annual benefit described in subsection (b)(4)(A) is no 
                less than the accrued benefit determined under 
                paragraph (5).
                    ``(B) Direct transfers to individual retirement 
                plan or smart annuity.--A plan shall not fail to meet 
                the requirements of this paragraph by reason of 
                permitting, as an optional form of benefit, the 
                distribution of the entire balance to the credit of the 
                employee. If the employee is under age 65, such 
                distribution must be in the form of a direct trustee-
                to-trustee transfer to a SMART annuity, another SMART 
                trust, or a SMART rollover plan (or, in the case of a 
                distribution that does not exceed the dollar limit in 
                effect under section 411(a)(11)(A), any other 
                individual retirement plan).
            ``(5) Amount of annual accrued benefit.--A plan meets the 
        requirements of this paragraph for any year only if the 
        requirements of subsection (b)(5) are met for such year.
            ``(6) Funding.--
                    ``(A) In general.--A plan meets the requirements of 
                this paragraph for any year only if--
                            ``(i) the requirements of subparagraph (A) 
                        of subsection (b)(6) are met for such year,
                            ``(ii) in the case of a plan which has an 
                        unfunded annuity amount with respect to the 
                        account of any participant, the plan requires 
                        that the employer make an additional 
                        contribution to such plan (at the time the 
                        annuity contract to which such amount relates 
                        is purchased) equal to the unfunded annuity 
                        amount, and
                            ``(iii) in the case of a plan which has an 
                        unfunded prior year liability with respect to 
                        the account of any participant as of the close 
                        of such plan year, the plan requires that the 
                        employer make an additional contribution to 
                        such plan for such year equal to the amount of 
                        such unfunded prior year liability no later 
                        than 8\1/2\ months following the end of the 
                        plan year.
                    ``(B) Unfunded annuity amount.--For purposes of 
                this paragraph, the term `unfunded annuity amount' 
                means, with respect to the account of any participant 
                for whom an annuity is being purchased, the excess (if 
                any) of--
                            ``(i) the amount necessary to purchase an 
                        annuity contract which meets the requirements 
                        of subsection (b)(4) in the amount of the 
                        participant's accrued benefit determined under 
                        paragraph (5), over
                            ``(ii) the balance in such account at the 
                        time such contract is purchased.
                    ``(C) Unfunded prior year liability.--For purposes 
                of this paragraph, the term `unfunded prior year 
                liability' means, with respect to any plan year, the 
                excess (if any) of--
                            ``(i) the aggregate present value of the 
                        participants' accrued benefits under the plan 
                        as of the close of the prior plan year, over
                            ``(ii) the value of the plan's assets 
                        determined under section 412(c)(2) as of the 
                        close of the plan year (determined without 
                        regard to any contributions for such plan 
                        year).
                Such present value shall be determined using the 
                assumptions specified in subparagraph (D).
                    ``(D) Actuarial assumptions.--In determining the 
                amount required to be contributed under subparagraph 
                (A)--
                            ``(i) the assumed interest rate shall be 5 
                        percent per year,
                            ``(ii) the assumed mortality shall be 
                        determined under the applicable mortality table 
                        (as defined in section 417(e)(3), as modified 
                        by the Secretary so that it does not include 
                        any assumption for preretirement mortality), 
                        and
                            ``(iii) the assumed retirement age shall be 
                        65.
                    ``(E) Changes in mortality table.--If the 
                applicable mortality table under section 417(e)(3) for 
                any plan year is not the same as such table for the 
                prior plan year, the Secretary shall prescribe 
                regulations which phase in the effect of the changes 
                over a reasonable period of plan years determined by 
                the Secretary.
                    ``(F) Penalty for failure to make required 
                contribution.--The taxes imposed by section 4971 shall 
                apply to a failure to make the contribution required by 
                this paragraph in the same manner as if the amount of 
                the failure were an accumulated funding deficiency to 
                which such section applies.
            ``(7) Separate accounts for participants.--A plan meets the 
        requirements of this paragraph for any year only if the plan 
        provides--
                    ``(A) for an individual account for each 
                participant, and
                    ``(B) for benefits based solely on--
                            ``(i) the amount contributed to the 
                        participant's account,
                            ``(ii) any income, expenses, gains and 
                        losses, and any forfeitures of accounts of 
                        other participants which may be allocated to 
                        such participant's account, and
                            ``(iii) the amount of any unfunded annuity 
                        amount with respect to the participant.
            ``(8) Trust may not hold securities which are not readily 
        tradable.--A plan meets the requirements of this paragraph only 
        if the plan prohibits the trust from holding directly or 
        indirectly securities which are not readily tradable on an 
        established securities market. Nothing in this paragraph shall 
        prohibit the trust from holding insurance company products 
        regulated by State law.
            ``(9) Definitions.--The definitions applicable under 
        subsection (b)(8) shall apply for purposes of this subsection.
    ``(d) Special Rules for SMART Annuities and Trusts.--For purposes 
of section 401(a), a SMART annuity and a SMART trust shall be treated 
as meeting the requirements of the following provisions:
            ``(1) Section 401(a)(4) (relating to nondiscrimination 
        rules).
            ``(2) Section 401(a)(26) (relating to minimum 
        participation).
            ``(3) Section 410 (relating to minimum participation and 
        coverage requirements).
            ``(4) Section 411(b) (relating to accrued benefit 
        requirements).
            ``(5) Section 416 (relating to special rules for top-heavy 
        plans).''
    (b) Deduction Rules.--
            (1) In general.--Section 404 (as amended by section 201) is 
        further amended by adding at the end the following new 
        subsection:
    ``(p) Special Rules for SMART Annuities and Trusts.--
            ``(1) In general.--Employer contributions to a SMART 
        annuity shall be treated as if they are made to a plan 
        described in paragraph (1) of subsection (a).
            ``(2) Deductible limit.--For purposes of section 
        404(a)(1)(A)(i), the amount necessary to satisfy the minimum 
        funding requirement of section 408B(b)(6) or (c)(6) shall be 
        treated as the amount necessary to satisfy the minimum funding 
        requirement of section 412.''
            (2) Coordination with deduction under section 219.--
                    (A) Section 219(b) (as amended by section 201) is 
                further amended by adding at the end the following new 
                paragraph:
            ``(7) Special rule for smart annuities.--This section shall 
        not apply with respect to any amount contributed to a SMART 
        annuity established under section 408B(b).''
                    (B) Section 219(g)(5)(A) (defining active 
                participant) is amended by striking ``or'' at the end 
                of clause (v) and by adding at the end the following 
                new clause:
                            ``(vii) any SMART trust or SMART annuity 
                        (within the meaning of section 408B), or''.
    (c) Contributions and Distributions.--
            (1) Section 402 (as amended by section 201) is amended by 
        adding at the end the following new subsection:
    ``(m) Treatment of SMART Annuities.--Rules similar to the rules of 
paragraphs (1) and (3) of subsection (h) shall apply to contributions 
and distributions with respect to SMART annuities under section 408B.''
            (2) Section 408(d)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(H) SMART annuities.--This paragraph shall not 
                apply to any amount paid or distributed out of a SMART 
                annuity (as defined in section 408B) unless it is paid 
                in a trustee-to-trustee transfer into a SMART rollover 
                plan.''
            (3)(A) Section 412(h) 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 plan providing for the purchase of any SMART 
        annuity or any SMART trust.''
            (B) Section 301(a) of Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1081) is amended by striking ``or'' at 
        the end of paragraph (9), by striking the period at the end of 
        paragraph (10) and inserting ``; or'', and by adding at the end 
        the following new paragraph:
            ``(11) any plan providing for the purchase of any SMART 
        annuity or any SMART trust (as such terms are defined in 
        section 408B of such Code).''
            (4) Section 415(b) is amended by adding at the end the 
        following new paragraph:
            ``(12) Treatment of smart annuities and trusts.--A SMART 
        annuity and a SMART trust shall be treated as meeting the 
        requirements of this section, but distributions from such an 
        annuity or trust shall be taken into account in determining 
        whether any other plan satisfies the requirements of this 
        section.''
    (d) Increased Penalty on Early Withdrawals.--Section 72(t) 
(relating to additional tax on early distributions) is amended by 
adding at the end the following new paragraph:
            ``(9) Special rules for smart annuities and trusts.--In the 
        case of any amount received from a SMART annuity, a SMART 
        trust, or a SMART rollover plan (within the meaning of section 
        408B), paragraph (1) shall be applied by substituting `20 
        percent' for `10 percent' and paragraph (2) shall be applied by 
        substituting `age 65' for `age 59\1/2\'.''
    (e) Simplified Employer Reports.--
            (1) SMART annuities.--Section 408(l) (relating to 
        simplified employer reports) is amended by adding at the end 
        the following new paragraph:
            ``(3) SMART annuities.--
                    ``(A) Simplified report.--The employer maintaining 
                any SMART annuity (within the meaning of section 408B) 
                shall file a simplified annual return with the 
                Secretary containing only the information described in 
                subparagraph (B).
                    ``(B) Contents.--The return required by 
                subparagraph (A) shall set forth--
                            ``(i) the name and address of the employer,
                            ``(ii) the date the plan was adopted,
                            ``(iii) the number of employees of the 
                        employer,
                            ``(iv) the number of such employees who are 
                        eligible to participate in the plan,
                            ``(v) the total amount contributed by the 
                        employer to each such annuity for such year and 
                        the minimum amount required under section 408B 
                        to be so contributed,
                            ``(vi) the percentage elected under section 
                        408B(b)(5)(B),
                            ``(vii) the name of the issuer,
                            ``(viii) the employer identification 
                        number,
                            ``(ix) the name of the plan, and
                            ``(x) the date of the contribution.
                    ``(C) Reporting by issuer of smart annuity.--
                            ``(i) In general.--The issuer of each SMART 
                        annuity shall provide to the owner of the 
                        annuity for each year a statement setting forth 
                        as of the close of such year--
                                    ``(I) the benefits guaranteed at 
                                age 65 under the annuity, and
                                    ``(II) the cash surrender value of 
                                the annuity.
                            ``(ii) Summary description.--The issuer of 
                        any SMART annuity shall provide to the employer 
                        maintaining the annuity for each year a 
                        description containing the following 
                        information:
                                    ``(I) The name and address of the 
                                employer and the issuer.
                                    ``(II) The requirements for 
                                eligibility for participation.
                                    ``(III) The benefits provided with 
                                respect to the annuity.
                                    ``(IV) The procedures for, and 
                                effects of, withdrawals (including 
                                rollovers) from the annuity.
                    ``(D) Time and manner of reporting.--Any return, 
                report, or statement required under this paragraph 
                shall be made in such form and at such time as the 
                Secretary shall prescribe.''
            (2) SMART trusts.--Section 6059 (relating to actuarial 
        reports) is amended by redesignating subsections (c) and (d) as 
        subsections (d) and (e), respectively, and by inserting after 
        subsection (b) the following new subsection:
    ``(c) SMART Trusts.--In the case of a SMART trust (within the 
meaning of section 408B), the Secretary shall require a simplified 
actuarial report which contains--
            ``(1) information similar to the information required in 
        section 408(l)(3)(B),
            ``(2) the fair market value of the assets of the trust,
            ``(3) the amounts distributed directly to participants,
            ``(4) the amounts transferred to SMART rollover plans, and
            ``(5) the present value of the annual accrued benefits 
        under the plan to which the trust relates.''
    (f) Conforming Amendments.--
            (1) Section 280G(b)(6) is amended by striking ``or'' at the 
        end of subparagraph (C), by striking the period at the end of 
        subparagraph (D) and inserting ``, or'' and by adding after 
        subparagraph (D) the following new subparagraph:
                    ``(E) a SMART annuity described in section 408B.''
            (2) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of 
        section 414 are each amended by inserting ``408B,'' after 
        ``408(p),''.
            (3) Section 4972(d)(1)(A) is amended by striking ``and'' at 
        the end of clause (iii), by striking the period at the end of 
        clause (iv) and inserting ``, and'', and by adding after clause 
        (iv) the following new clause:
                            ``(v) any SMART annuity (within the meaning 
                        of section 408B).''
    (g) Reporting Requirements Under ERISA.--Section 101 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021) is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) SMART Annuities.--
            ``(1) No employer reports.--Except as provided in this 
        subsection, no report shall be required under this section by 
        an employer maintaining a SMART annuity under section 408B(b) 
        of the Internal Revenue Code of 1986.
            ``(2) Summary description.--The issuer of any SMART annuity 
        shall provide to the employer maintaining the annuity for each 
        year a description containing the following information:
                    ``(A) The name and address of the employer and the 
                issuer.
                    ``(B) The requirements for eligibility for 
                participation.
                    ``(C) The benefits provided with respect to the 
                annuity.
                    ``(D) The procedures for, and effects of, 
                withdrawals (including rollovers) from the annuity.''
            ``(3) Employee notification.--The employer shall provide 
        each employee eligible to participate in the SMART annuity with 
        the description described in paragraph (2) at the same time as 
        the notification required under section 408B(b)(5)(B) of the 
        Internal Revenue Code of 1986.''
    (h) $5 per Participant PBGC Premium.--Subparagraph (A) of section 
4006(a)(3) of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1306) is amended--
            (1) by inserting ``not described in clause (iv)'' after 
        ``in the case of a single-employer plan'' in clause (i),
            (2) by striking the period at the end of clause (iii) and 
        inserting ``; and'', and
            (3) by inserting after clause (iii) the following new 
        clause:
            ``(iv) in the case of a single-employer plan described in 
        section 408B(c) of the Internal Revenue Code of 1986, an amount 
        equal to $5 for each participant.''.
    (i) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 is amended by inserting after the 
item relating to section 408A the following new item:

                              ``Sec. 408B. SMART plans.''
    (j) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 403. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES.

    (a) In General.--Subparagraph (B) of section 414(q)(1) (defining 
highly compensated employee) is amended to read as follows:
                    ``(B) for the preceding year had compensation from 
                the employer in excess of $80,000.''.
    (b) Conforming Amendments.--
            (1)(A) Subsection (q) of section 414 is amended by striking 
        paragraphs (3), (5), and (7) and by redesignating paragraphs 
        (4), (6), (8), and (9) as paragraphs (3) through (6), 
        respectively.
            (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), 
        and 416(i)(1)(D) are each amended by striking ``section 
        414(q)(4)'' and inserting ``section 414(q)(3)''.
            (C) Section 416(i)(1)(A) is amended by striking ``section 
        414(q)(5)'' and inserting ``section 414(r)(9)''.
            (2)(A) Section 414(r) is amended by adding at the end the 
        following new paragraph:
            ``(9) Excluded employees.--For purposes of paragraph 
        (2)(A), the following employees shall be excluded:
                    ``(A) Employees who have not completed 6 months of 
                service.
                    ``(B) Employees who normally work less than 17\1/2\ 
                hours per week.
                    ``(C) Employees who normally work during not more 
                than 6 months during any year.
                    ``(D) Employees who have not attained the age of 
                18.
                    ``(E) Except to the extent provided in regulations, 
                employees who are included in a unit of employees 
                covered by an agreement which the Secretary of Labor 
                finds to be a collective bargaining agreement between 
                employee representatives and the employer.''.
            (B) Subparagraph (A) of section 414(r)(2) is amended by 
        striking ``subsection (q)(5)'' and inserting ``paragraph (9)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.
                                 <all>