[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 518 Introduced in House (IH)]







108th CONGRESS
  1st Session
                                H. R. 518

  To amend the Internal Revenue Code of 1986 to increase portability 
                        among retirement plans.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 31, 2003

 Mr. Pomeroy 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 increase portability 
                        among retirement plans.

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

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

    (a) Short Title.--This Act may be cited as the ``Retirement Account 
Portability Improvement Act of 2003''.
    (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.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Allow rollovers to spouse's retirement plans.
Sec. 3. Rollovers by nonspouse beneficiaries.
Sec. 4. Facilitation under fiduciary rules of certain rollovers and 
                            annuity distributions.
Sec. 5. Faster vesting of employer nonelective contributions.
Sec. 6. Allow direct rollovers from retirement plans to Roth IRAs.
Sec. 7. Rollover of after-tax amounts in annuity contracts.
Sec. 8. Elimination of higher penalty on certain SIMPLE distributions.
Sec. 9. SIMPLE plan portability.
Sec. 10. Clarifications regarding purchase of permissive service 
                            credit.
Sec. 11. Certain rollovers of benefits permitted.
Sec. 12. Disposition of unused health benefits in cafeteria plans and 
                            flexible spending arrangements.

SEC. 2. ALLOW ROLLOVERS TO SPOUSE'S RETIREMENT PLANS.

    (a) Exempt Trusts.--Paragraph (9) of section 402(c) (relating to 
rollover where spouse receives distribution after death of employee) is 
amended--
            (1) by inserting ``or transferred by the employee to the 
        spouse'' after ``after the employee's death'' in the text, and
            (2) by amending the heading to read as follows: ``Rollover 
        where spouse of employee receives distribution.--''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions) is amended by adding at the end the following:
                    ``(J) Rollovers to spouse's account.--For purposes 
                of this paragraph, rules similar to the rules of 
                section 402(c)(9) shall apply, except that the term 
                `individual' shall be applied in lieu of `employee'.''.
    (c) Employee Annuities.--Subparagraph (B) of section 403(a)(4) 
(relating to rollover amounts) is amended by inserting ``and (9)'' 
after ``through (7)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to years beginning after the date of the enactment of this Act.

SEC. 3. ROLLOVERS BY NONSPOUSE BENEFICIARIES.

    (a) In General.--
            (1) Qualified plans.--Section 402(c) (relating to rollovers 
        from exempt trusts) is amended by adding at the end the 
        following new paragraph:
            ``(11) Rollover where nonspouse beneficiary receives 
        distribution after death of employee.--
                    ``(A) In general.--If any distribution attributable 
                to an employee is paid to a designated beneficiary (as 
                defined by section 401(a)(9)(E)) other than the 
                surviving spouse of the employee after the employee's 
                death, the preceding provisions of this subsection 
                shall apply to such distribution in the same manner as 
                if the designated beneficiary were the employee, except 
                that only a plan described in clause (i) or (ii) of 
                paragraph (8)(B) that is established in the name of the 
                employee for the benefit of the designated beneficiary 
                shall be treated as an eligible retirement plan with 
                respect to such distribution.
                    ``(B) Special rules.--
                            ``(i) Death of employee before entire 
                        interest distributed.--An eligible retirement 
                        plan that receives a transfer described in this 
                        paragraph shall, with respect to amounts 
                        attributable to such transferred amount, be 
                        subject to rules similar to clauses (ii) and 
                        (iii) of section 401(a)(9)(B).
                            ``(ii) Distributions attributed to 
                        employee.--For purposes of this subsection, any 
                        distribution from the eligible retirement plan 
                        of amounts attributable to such transferred 
                        amount shall be treated as a distribution 
                        attributable to the employee, not as a 
                        distribution attributable to the designated 
                        beneficiary.''.
            (2) Section 403(a) plans.--Subparagraph (B) of section 
        403(a)(4) is amended by striking ``and (9)'' and inserting ``, 
        (9), and (11)''.
            (3) Section 403(b) plans.--Subparagraph (B) of section 
        403(b)(8) is amended by striking ``and (9)'' and inserting ``, 
        (9), and (10)''.
            (4) Section 457 plans.--Subparagraph (B) of section 
        457(e)(16) is amended by striking ``and (9)'' and inserting ``, 
        (9), and (10)''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2002.

SEC. 4. FACILITATION UNDER FIDUCIARY RULES OF CERTAIN ROLLOVERS AND 
              ANNUITY DISTRIBUTIONS.

    (a) In General.--Section 404(c) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the 
end the following new paragraph:
    ``(4)(A) In the case of a pension plan which makes a transfer under 
section 401(a)(31)(A) of the Internal Revenue Code of 1986 to an 
individual retirement plan (as defined in section 7701(a)(37) of such 
Code) in connection with a participant or beneficiary or makes a 
distribution to a participant or beneficiary of an annuity contract 
described in subparagraph (B), the participant or beneficiary shall, 
for purposes of paragraph (1), be treated as exercising control over 
the transfer or distribution if--
            ``(i) the participant or beneficiary elected such transfer 
        or distribution, and
            ``(ii) in connection with such election, the participant or 
        beneficiary was given an opportunity to elect any other 
        individual retirement plan (in the case of a transfer) or any 
        other annuity contract described in subparagraph (B) (in the 
        case of a distribution).
    ``(B) An annuity contract is described in this subparagraph if it 
provides, either on an immediate or deferred basis, a series of 
substantially equal periodic payments (not less frequently than 
annually) for the life of the employee or the joint lives of the 
employee and the employee's designated beneficiary. Annuity payments 
shall not fail to be treated as part of a series of substantially equal 
periodic payments because the amount of the periodic payments may vary 
in accordance with investment experience, reallocations among 
investment options, actuarial gains or losses, cost of living indices, 
or similar fluctuating criteria. The availability of a commutation 
benefit, a minimum period of payments certain, or a minimum amount to 
be paid in any event shall not affect the treatment of an annuity 
contract as an annuity contract described in this subparagraph.
    ``(C) Under regulations prescribed by the Secretary, this paragraph 
shall apply without regard to whether the particular individual 
retirement plan receiving the transfer or the particular annuity 
contract being distributed is specifically identified by the pension 
plan as available to the participant or beneficiary.
    ``(D) Notwithstanding the preceding provisions of this paragraph, 
paragraph (1)(B) shall not apply with respect to liability under 
section 406 in connection with the specific identification of any 
individual retirement plan or annuity contract as being available to 
the participant or beneficiary.''.
    (b) Effective Date and Related Rules.--
            (1) Effective date.--The amendment made by this section 
        shall take effect on the date of the enactment of this Act.
            (2) Issuance of final regulations.--Final regulations under 
        section 404(c)(4) of the Employee Retirement Income Security 
        Act of 1974 (added by this section) shall be issued no later 
        than 1 year after the date of the enactment of this Act.

SEC. 5. FASTER VESTING OF EMPLOYER NONELECTIVE CONTRIBUTIONS.

    (a) Amendments to the Internal Revenue Code of 1986.--
            (1) In general.--Paragraph (2) of section 411(a) (relating 
        to employer contributions) is amended to read as follows:
            ``(2) Employer contributions.--
                    ``(A) Defined benefit plans.--
                            ``(i) In general.--In the case of a defined 
                        benefit plan, a plan satisfies the requirements 
                        of this paragraph if it satisfies the 
                        requirements of clause (ii) or (iii).
                            ``(ii) 5-year vesting.--A plan satisfies 
                        the requirements of this clause if an employee 
                        who has completed at least 5 years of service 
                        has a nonforfeitable right to 100 percent of 
                        the employee's accrued benefit derived from 
                        employer contributions.
                            ``(iii) 3 to 7 year vesting.--A plan 
                        satisfies the requirements of this clause 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:  
                    3......................................         20 
                    4......................................         40 
                    5......................................         60 
                    6......................................         80 
                    7 or more..............................        100.
                    ``(B) Defined contribution plans.--
                            ``(i) In general.--In the case of a defined 
                        contribution plan, a plan satisfies the 
                        requirements of this paragraph if it satisfies 
                        the requirements of clause (ii) or (iii).
                            ``(ii) 3-year vesting.--A plan satisfies 
                        the requirements of this clause 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.
                            ``(iii) 2 to 6 year vesting.--A plan 
                        satisfies the requirements of this clause 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.''.

            (2) Conforming amendment.--Section 411(a) (relating to 
        general rule for minimum vesting standards) is amended by 
        striking paragraph (12).
    (b) Amendments to the Employee Retirement Income Security Act of 
1974.--
            (1) In general.--Paragraph (2) of section 203(a) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1053(a)(2)) is amended to read as follows:
            ``(2)(A)(i) In the case of a defined benefit plan, a plan 
        satisfies the requirements of this paragraph if it satisfies 
        the requirements of clause (ii) or (iii).
            ``(ii) A plan satisfies the requirements of this clause if 
        an employee who has completed at least 5 years of service has a 
        nonforfeitable right to 100 percent of the employee's accrued 
        benefit derived from employer contributions.
            ``(iii) A plan satisfies the requirements of this clause 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:  
                    3......................................         20 
                    4......................................         40 
                    5......................................         60 
                    6......................................         80 
                    7 or more..............................        100.

            ``(B)(i) In the case of an individual account plan, a plan 
        satisfies the requirements of this paragraph if it satisfies 
        the requirements of clause (ii) or (iii).
            ``(ii) A plan satisfies the requirements of this clause 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.
            ``(iii) A plan satisfies the requirements of this clause 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.''.
            (2) Conforming amendment.--Section 203(a) of such Act is 
        amended by striking paragraph (4).
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to contributions 
        for plan years beginning after December 31, 2003.
            (2) Collective bargaining agreements.--In the case of a 
        plan maintained pursuant to one or more collective bargaining 
        agreements between employee representatives and one or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        contributions on behalf of employees covered by any such 
        agreement for plan years beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of the 
                        enactment); or
                            (ii) January 1, 2004; or
                    (B) January 1, 2008.
            (3) Service required.--With respect to any plan, the 
        amendments made by this section shall not apply to any employee 
        before the date that such employee has 1 hour of service under 
        such plan in any plan year to which the amendments made by this 
        section apply.

SEC. 6. ALLOW DIRECT ROLLOVERS FROM RETIREMENT PLANS TO ROTH IRAS.

    (a) In General.--Subsection (e) of section 408A (defining qualified 
rollover contribution) is amended to read as follows:
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a rollover 
contribution--
            ``(1) to a Roth IRA from another such account,
            ``(2) from an eligible retirement plan, but only if--
                    ``(A) in the case of an individual retirement plan, 
                such rollover contribution meets the requirements of 
                section 408(d)(3), and
                    ``(B) in the case of any eligible retirement plan 
                (as defined in section 402(c)(8)(B) other than clauses 
                (i) and (ii) thereof), such rollover contribution meets 
                the requirements of section 402(c), 403(b)(8), or 
                457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any 
qualified rollover contribution from an individual retirement plan 
(other than a Roth IRA) to a Roth IRA.''.
    (b) Conforming Amendments.--
            (1) Section 408A(c)(3)(B) is amended--
                    (A) in the text by striking ``individual retirement 
                plan'' and inserting ``an eligible retirement plan (as 
                defined by section 402(c)(8)(B))'', and
                    (B) in the heading by striking ``IRA'' and 
                inserting ``eligible retirement plan''.
            (2) Section 408A(d)(3) is amended--
                    (A) in subparagraph (A) by striking ``section 
                408(d)(3)'' inserting ``sections 402(c), 403(b)(8), 
                408(d)(3), and 457(e)(16)'',
                    (B) in subparagraph (B) by striking ``individual 
                retirement plan'' and inserting ``eligible retirement 
                plan (as defined by section 402(c)(8)(B))'',
                    (C) in subparagraph (D) by striking ``or 6047'' 
                after ``408(i)'',
                    (D) in subparagraph (D) by striking ``or both'' and 
                inserting ``persons subject to section 6047(d)(1), or 
all of the foregoing persons'', and
                    (E) in the heading by striking ``IRA'' and 
                inserting ``eligible retirement plan''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2003.

SEC. 7. ROLLOVER OF AFTER-TAX AMOUNTS IN ANNUITY CONTRACTS.

    (a) In General.--Subparagraph (A) of section 402(c)(2) (maximum 
amount which may be rolled over) is amended by striking ``and which'' 
and inserting ``or to an annuity contract described in section 403(b) 
and such plan or contract''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.

SEC. 8. ELIMINATION OF HIGHER PENALTY ON CERTAIN SIMPLE DISTRIBUTIONS.

    (a) In General.--Subsection (t) of section 72 (relating to 10-
percent additional tax on early distributions from qualified retirement 
plans) is amended by striking paragraph (6) and redesignating 
paragraphs (7), (8), and (9) as paragraphs (6), (7), and (8), 
respectively.
    (b) Conforming Amendments.--
            (1) Section 72(t)(2)(E) is amended by striking ``paragraph 
        (7)'' and inserting ``paragraph (6)''.
            (2) Section 72(t)(2)(F) is amended by striking ``paragraph 
        (8)'' and inserting ``paragraph (7)''.
            (3) Section 408(d)(3)(G) is amended by inserting by 
        striking ``applies'' and inserting ``applied on the day before 
        the date of the enactment of Retirement Account Portability 
        Improvement Act of 2003)''.
            (4) Section 457(a)(2) is amended by striking ``section 
        72(t)(9)'' and inserting ``section 72(t)(8)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2003.

SEC. 9. SIMPLE PLAN PORTABILITY.

    (a) Repeal of Limitation.--Paragraph (3) of section 408(d) 
(relating to rollover contributions) is amended by striking 
subparagraph (G) and redesignating subparagraphs (H), (I), and (J) as 
subparagraphs (G), (H), and (I), respectively.
    (b) Section 402(c)(8)(B) is amended by adding at the end the 
following new sentence: ``Individual retirement accounts and individual 
retirement annuities described in clauses (i) and (ii) shall be treated 
as eligible retirement plans without regard to whether they are part of 
a simplified employee pension (within the meaning of section 408(k)) or 
a simplified retirement account (within the meaning of section 
408(p)).''.
    (c) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2003.

SEC. 10. CLARIFICATIONS REGARDING PURCHASE OF PERMISSIVE SERVICE 
              CREDIT.

    (a) In General.--Subparagraph (A) of section 457(e)(17) (relating 
to trustee-to-trustee transfers to purchase permissive service credit), 
and subparagraph (A) of section 403(b)(13) (relating to trustee-to-
trustee transfers to purchase permissive service credit), are both 
amended by striking ``section 415(n)(3)(A)'' and inserting ``section 
415(n)(3) (without regard to subparagraphs (B) and (C) thereof)''.
    (b) Transfers May Be From Any Governmental Plan.--Section 
457(e)(17), and section 403(b)(13), are both amended by inserting 
``from any governmental plan (as so defined)'' after ``414(d))''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 647 of the 
Economic Growth and Tax Relief Reconciliation Act of 2001.

SEC. 11. CERTAIN ROLLOVERS OF BENEFITS PERMITTED.

    (a) In General.--Paragraph (10) of section 457(e) is amended--
            (1) by striking ``A participant'' and inserting ``(A) 
        Exclusion from income.--A participant'', and
            (2) by adding at the end the following:
                    ``(B) Transfers permitted.--A transfer from one 
                such plan to another such plan of the entire benefit of 
                one or more participants shall not fail to be permitted 
                solely because all assets of the transferor plan are 
                not transferred to the transferee plan.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2003.
            (2) Special rule.--An individual shall not be precluded 
        from participating in an eligible deferred compensation plan by 
        reason of having received a distribution under section 
        457(e)(9) of the Internal Revenue Code of 1986 as in effect 
        prior to the enactment of the Small Business Job Protection Act 
        of 1996.

SEC. 12. DISPOSITION OF UNUSED HEALTH BENEFITS IN CAFETERIA PLANS AND 
              FLEXIBLE SPENDING ARRANGEMENTS.

    (a) In General.--Section 125 (relating to cafeteria plans) is 
amended by redesignating subsections (h) and (i) as subsections (i) and 
(j), respectively, and by inserting after subsection (g) the following:
    ``(h) Carryforwards or Payments of Certain Unused Health 
Benefits.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a cafeteria 
        plan solely because qualified benefits under such plan include 
        a health flexible spending arrangement under which not more 
        than $500 of unused health benefits may be contributed on 
        behalf of an employee to a qualified retirement plan (as 
        defined in section 4974(c)) or an eligible deferred 
        compensation plan (as defined in section 457(b)).
            ``(2) Contribution of unused health benefits on behalf of 
        employee.--For purposes of this title, contributions on behalf 
        of an employee described in paragraph (1) shall be treated as 
        elective contributions made pursuant to a choice by the 
        employee between such contributions and compensation which 
        would otherwise be includible in the gross income of the 
        employee. Contributions described in paragraph (1) shall be 
        excluded from the gross income of the employee, or included in 
        the gross income of the employee and allowed as a deduction by 
        the employee, to the extent that elective contributions would 
        be treated in that manner under this title.
            ``(3) Health flexible spending arrangement.--For purposes 
        of this subsection, the term `health flexible spending 
        arrangement' means a flexible spending arrangement (as defined 
        in section 106(c)) that is a qualified benefit and only permits 
        reimbursement for expenses for medical care (as defined in 
        section 213(d)(1) (without regard to subparagraphs (C) and (D) 
        thereof).
            ``(4) Unused health benefits.--For purposes of this 
        subsection, with respect to an employee, the term `unused 
        health benefits' means the excess of--
                    ``(A) the maximum amount of reimbursement allowable 
                to the employee during a plan year under a health 
                flexible spending arrangement, taking into account any 
                election by the employee, over
                    ``(B) the actual amount of reimbursement during 
                such year under such arrangement.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.
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