[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1386 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                S. 1386

To amend the Internal Revenue Code of 1986 to provide for the equitable 
    operation of welfare benefit plans for employees, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             August 3, 2001

 Mr. Santorum 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 to provide for the equitable 
    operation of welfare benefit plans for employees, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS; AMENDMENT TO 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Employee Welfare 
Benefit Equity Act of 2001''.
    (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title; table of contents; amendment to 1986 Code.
                 TITLE I--CERTAIN WELFARE BENEFIT PLANS

Sec. 101. Modification of definition of ten-or-more employer plans.
Sec. 102. Clarification of deduction limits for certain collectively 
                            bargained plans.
Sec. 103. Clarification of standards for section 501(c)(9) approval.
Sec. 104. Tax shelter provisions not to apply.
Sec. 105. Effective dates.
                    TITLE II--ENFORCEMENT PROVISIONS

Sec. 201. Clarification of section 4976.
Sec. 202. Effective date.
    (c) 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 a 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.

                 TITLE I--CERTAIN WELFARE BENEFIT PLANS

SEC. 101. MODIFICATION OF DEFINITION OF TEN-OR-MORE EMPLOYER PLANS.

    (a) Additional Requirements.--Paragraph (6)(B) of section 419A(f) 
(relating to the exception for 10 or more employer plans) is amended by 
striking ``and'' at the end of clause (i), by striking the period at 
the end of clause (ii) and inserting a comma, and by adding at the end 
the following new clauses:
                            ``(iii) which meets the requirements of 
                        section 505(b)(1) with respect to all benefits 
                        provided by the plan,
                            ``(iv) which has obtained a favorable 
                        determination from the Secretary that such plan 
                        (or a predecessor plan) is an organization 
                        described in section 501(c)(9), and
                            ``(v) under which no severance pay benefit 
                        is provided.''
    (b) Clarification of Experience Rating.--
            (1) In general.--Paragraph (6)(A) of section 419A(f) 
        (relating to the exception for 10 or more employer plans) is 
        amended by striking the second sentence and inserting the 
        following: ``The preceding sentence shall not apply to any plan 
        which is an experience-rated plan.''
            (2) Experience-rated plan.--Section 419A(f)(6) is amended 
        by adding at the end the following new subparagraph:
                    ``(C) Experience-rated plan.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `experience-
                        rated plan' means a plan which determines 
                        contributions by individual employers on the 
                        basis of actual gain or loss experience.
                            ``(ii) Exception for guaranteed benefit 
                        plan.--
                                    ``(I) In general.--The term 
                                `experience-rated plan' shall not 
                                include a guaranteed benefit plan.
                                    ``(II) Guaranteed benefit plan.--
                                The term `guaranteed benefit plan' 
                                means a plan the benefits of which are 
                                funded with insurance contracts or are 
                                otherwise determinable and payable to a 
                                participant without reference to, or 
                                limitation by, the amount of 
                                contributions to the plan attributable 
                                to any contributing employer. A plan 
                                shall not fail to be treated as a 
                                guaranteed benefit plan solely because 
                                benefits may be limited or denied in 
                                the event a contributing employer fails 
                                to pay premiums or assessments required 
                                by the plan as a condition of continued 
                                participation.''
    (c) Single Plan Requirement.--Section 419A(f)(6), as amended by 
subsections (a) and (b), is amended--
            (1) by striking ``means a plan'' in subparagraph (B) and 
        inserting ``means a single plan'', and
            (2) by adding at the end the following:
                    ``(D) Single plan.--For purposes of this paragraph, 
                the term `single plan' means a written plan or series 
                of related written plans the terms of which provide 
                that--
                            ``(i) all assets of the plan or plans, 
                        whether maintained under 1 or more trusts, 
                        accounts, or other arrangements and without 
                        regard to the method of accounting of the plan 
                        or plans, are available to pay benefits of all 
                        participants without regard to the 
                        participant's contributing employer, and
                            ``(ii) the method of accounting of the plan 
                        or plans may not operate to limit or reduce the 
                        benefits payable to a participant at any time 
                        before the withdrawal of the participant's 
                        employer from the plan or the termination of 
                        any benefit arrangement under the plan.''

SEC. 102. CLARIFICATION OF DEDUCTION LIMITS FOR CERTAIN COLLECTIVELY 
              BARGAINED PLANS.

    Paragraph (5) of section 419A(f) (relating to the deductions limits 
for certain collectively bargained plans) is amended by adding at the 
end the following flush sentences:
        ``Subparagraph (B) shall not apply to any plan maintained 
        pursuant to an agreement between employee representatives and 1 
        or more employers unless the taxpayer applies for, and the 
        Secretary issues, a determination that such agreement is a bona 
        fide collective bargaining agreement and that the welfare 
        benefits provided under the agreement were the subject of good 
        faith bargaining between employee representatives and such 
        employer or employers. The Secretary may issue regulations to 
        carry out the purposes of the preceding sentence.''

 SEC. 103. CLARIFICATION OF STANDARDS FOR SECTION 501(C)(9) APPROVAL.

    Section 505 is amended by adding at the end the following new 
subsection:
    ``(d) Clarification of Standards for Exemption.--
            ``(1) Membership.--An organization shall not fail to be 
        treated as an organization described in paragraph (9) of 
        section 501(c) solely because its membership includes employees 
        or other allowable participants who--
                    ``(A) reside or work in different geographic 
                locales, or
                    ``(B) do not work in the same industrial or 
                employment classification.
            ``(2) Funding.--An organization described in paragraph (9) 
        or (20) of section 501(c) shall not be treated as 
        discriminatory solely because life insurance or other benefits 
        provided by the organization are funded with different types of 
        products, contracts, investments, or other funding methods of 
        varying costs, but only if the plan under which such benefits 
        are provided meets the requirements of subsection (b).''

SEC. 104. TAX SHELTER PROVISIONS NOT TO APPLY.

    Section 419 (relating to treatment of funded welfare benefit plans) 
is amended by adding at the end the following:
    ``(h) Tax Shelter Rules Not To Apply.--For purposes of this title, 
a welfare benefit fund meeting all applicable requirements of this 
title shall not be treated as a tax shelter or corporate tax shelter.''

SEC. 105. EFFECTIVE DATES.

    (a) In General.--The amendments made by this title shall apply to 
contributions to a welfare benefit fund made after the date of the 
enactment of this Act.
    (b) Tax Shelter Rules.--The amendment made by section 104 shall 
take effect as if included in the amendments made by section 1028 of 
the Taxpayer Relief Act of 1997.

                    TITLE II--ENFORCEMENT PROVISIONS

SEC. 201. CLARIFICATION OF SECTION 4976.

    Section 4976 (relating to excise taxes with respect to funded 
welfare benefit plans) is amended to read as follows:

``SEC. 4976. TAXES WITH RESPECT TO FUNDED WELFARE BENEFIT PLANS.

    ``(a) Imposition of Tax.--
            ``(1) General rule.--If--
                    ``(A) an employer maintains a welfare benefit fund, 
                and
                    ``(B) there is--
                            ``(i) a disqualified benefit provided or 
                        funded during any taxable year, or
                            ``(ii) a premature termination of such 
                        plan,
        there is hereby imposed on such employer a tax in the amount 
        determined under paragraph (2).
            ``(2) Amount of tax.--The amount of the tax imposed by 
        paragraph (1) shall be equal to--
                    ``(A) in the case of a taxable event under 
                paragraph (1)(B)(i), 100 percent of--
                            ``(i) the amount of the disqualified 
                        benefit provided, or
                            ``(ii) the amount of the funding of the 
                        disqualified benefit, and
                    ``(B) in the case of a taxable event under 
                paragraph (1)(B)(ii), 100 percent of all contributions 
                to the fund before the termination.
    ``(b) Disqualified Benefit.--For purposes of subsection (a)--
            ``(1) In general.--The term `disqualified benefit' means--
                    ``(A) any post-retirement medical benefit or life 
                insurance benefit provided with respect to a key 
                employee if a separate account is required to be 
                established for such employee under section 419A(d) and 
                such payment is not from such account,
                    ``(B) any post-retirement medical benefit or life 
                insurance benefit provided or funded with respect to an 
                individual in whose favor discrimination is prohibited 
                unless the plan meets the requirements of section 
                505(b) with respect to such benefit (whether or not 
                such requirements apply to such plan), and
                    ``(C) any portion of a welfare benefit fund 
                reverting to the benefit of the employer.
            ``(2) Exception for collective bargaining plans.--Paragraph 
        (1)(B) shall not apply to any plan maintained pursuant to an 
        agreement between employee representatives and 1 or more 
        employers if the Secretary finds that such agreement is a 
        collective bargaining agreement and that the benefits referred 
        to in paragraph (1)(B) were the subject of good faith 
        bargaining between such employee representatives and such 
        employer or employers.
            ``(3) Exception for nondeductible contributions.--Paragraph 
        (1)(C) shall not apply to any amount attributable to a 
        contribution to the fund which is not allowable as a deduction 
        under section 419 for the taxable year or any prior taxable 
        year (and such contribution shall not be included in any 
        carryover under section 419(d)).
            ``(4) Exception for certain amounts charged against 
        existing reserve.--Subparagraphs (A) and (B) of paragraph (1) 
        shall not apply to post-retirement benefits charged against an 
        existing reserve for post-retirement medical or life insurance 
        benefits (as defined in section 512(a)(3)(E)) or charged 
        against the income on such reserve.
    ``(c) Premature Termination.--For purposes of subsection (a)--
            ``(1) In general.--The term `premature termination' means a 
        termination event which occurs on or before the date which is 6 
        years after the first contribution to a welfare benefit fund 
        which benefits any highly compensated employee.
            ``(2) Exception for insolvency, etc.--Paragraph (1) shall 
        not apply to any termination event which occurs by reason of 
        the insolvency of the employer or for such other reasons as the 
        Secretary may by regulation determine are not likely to result 
        in abuse.
            ``(3) Termination event.--For purposes of this subsection--
                    ``(A) In general.--The term `termination event' 
                means--
                            ``(i) the termination of a welfare benefit 
                        fund,
                            ``(ii) the withdrawal of an employer from a 
                        welfare benefit fund to which more than 1 
                        employer contributes, or
                            ``(iii) any other action which is designed 
                        to cause, directly or indirectly, a 
                        distribution of any asset from a welfare 
                        benefit fund to a highly compensated employee.
                    ``(B) Exception for bona fide benefits.--
                Subparagraph (A) shall not apply to any bona fide 
                benefit (other than a severance benefit) paid from a 
                welfare benefit fund which is available to all 
                employees on a nondiscriminatory basis and payable 
                pursuant to the terms of a written plan.
    ``(d) Definitions.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided, the terms 
        used in this section shall have the same respective meanings as 
        when used in subpart D of part I of subchapter D of chapter 1.
            ``(2) Post-retirement benefit.--
                    ``(A) In general.--The term `post-retirement 
                benefit' means any benefit or distribution which is 
                reasonably determined to be paid, provided, or made 
                available to a participant on or after normal 
                retirement age.
                    ``(B) Normal retirement age.--The term `normal 
                retirement age' shall have the same meaning given the 
                term in section 3(24) of the Employee Retirement Income 
                Security Act of 1974, but in no event shall such date 
                be later than the latest normal retirement age defined 
                in any qualified retirement plan of the employer 
                maintaining the welfare benefit fund which benefits 
                such individual.
                    ``(C) Presumption in the case of permanent life 
                insurance.--In the case of a welfare benefit fund which 
                provides a life insurance benefit for an employee, any 
                contributions to the fund for life insurance benefits 
                in excess of the cumulative projected cost of providing 
                the employee permanent whole life insurance, calculated 
                on the basis level premiums for each for each year 
                before a normal retirement age, shall be treated as 
                funding a post-retirement benefit.''

 SEC. 202. EFFECTIVE DATE.

    The amendments made by this title shall apply to benefits provided, 
and terminations occurring, after the date of the enactment of this 
Act.
                                 <all>