[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2424 Placed on Calendar Senate (PCS)]






                                                       Calendar No. 516
108th CONGRESS
  2d Session
                                S. 2424

                          [Report No. 108-266]

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to protect the retirement security of 
    American workers by ensuring that pension assets are adequately 
   diversified and by providing workers with adequate access to, and 
    information about, their pension plans, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 14, 2004

  Mr. Grassley, from the Committee on Finance, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to protect the retirement security of 
    American workers by ensuring that pension assets are adequately 
   diversified and by providing workers with adequate access to, and 
    information about, their pension plans, 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.

    (a) Short Title.--This Act may be cited as the ``National Employee 
Savings and Trust Equity Guarantee Act of 2004''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
            TITLE I--DIVERSIFICATION OF PENSION PLAN ASSETS

Sec. 101. Defined contribution plans required to provide employees with 
                            freedom to invest their plan assets.
Sec. 102. Notice of freedom to divest employer securities or real 
                            property.
       TITLE II--INFORMATION TO ASSIST PENSION PLAN PARTICIPANTS

Sec. 201. Periodic pension benefit statements.
Sec. 202. Defined contribution plans required to provide adequate 
                            investment education to participants.
Sec. 203. Material information relating to investment in employer 
                            securities.
Sec. 204. Fiduciary rules for plan sponsors designating independent 
                            investment advisers.
Sec. 205. Treatment of qualified retirement planning services.
           TITLE III--PROTECTION OF PENSION PLAN PARTICIPANTS

Sec. 301. Notice to participants or beneficiaries of blackout periods.
            TITLE IV--OTHER PROVISIONS RELATING TO PENSIONS

        Subtitle A--Provisions Relating to Pension Plan Funding

  Part I--Replacement of Interest Rate on 30-Year Treasury Securities

Sec. 401. Replacement of 30-year Treasury rate for purposes of funding 
                            and PBGC premium rates.
Sec. 402. Replacement of 30-year Treasury rate for calculating lump-sum 
                            distributions.
Sec. 403. Section 415 limitation on defined benefit plans.
                       Part II--Other Provisions

Sec. 406. Deficit reduction contribution.
Sec. 407. Deduction limits for plan contributions.
Sec. 408. Benefit limitations for certain financially distressed plans.
Sec. 409. Updating deduction rules for combination of plans.
     Subtitle B--Improvements in Portability and Distribution Rules

Sec. 411. Clarifications regarding purchase of permissive service 
                            credit.
Sec. 412. Allow rollover of after-tax amounts in annuity contracts.
Sec. 413. Clarification of minimum distribution rules.
Sec. 414. Waiver of 10 percent early withdrawal penalty tax on certain 
                            distributions of pension plans for public 
                            safety employees.
Sec. 415. Allow rollovers by nonspouse beneficiaries of certain 
                            retirement plan distributions.
Sec. 416. Faster vesting of employer nonelective contributions.
Sec. 417. Allow direct rollovers from retirement plans to Roth IRAs.
Sec. 418. Elimination of higher penalty on certain simple plan 
                            distributions.
Sec. 419. Simple plan portability.
Sec. 420. Eligibility for participation in retirement plans.
Sec. 421. Transfers to the PBGC.
                 Subtitle C--Administrative Provisions

Sec. 431. Employee Plans Compliance Resolution System.
Sec. 432. Extension to all governmental plans of moratorium on 
                            application of certain nondiscrimination 
                            rules applicable to State and local plans.
Sec. 433. Notice and consent period regarding distributions.
Sec. 434. Reporting simplification.
Sec. 435. Missing participants.
Sec. 436. Reduced PBGC premium for new plans of small employers.
Sec. 437. Reduction of additional PBGC premium for new and small plans.
Sec. 438. Authorization for PBGC to pay interest on premium overpayment 
                            refunds.
Sec. 439. Substantial owner benefits in terminated plans.
Sec. 440. Voluntary early retirement incentive and employment retention 
                            plans maintained by local educational 
                            agencies and other entities.
Sec. 441. Acceleration of computation of benefits attributable to 
                            recoveries of employer liability.
Sec. 442. Multiemployer plan funding and solvency notices.
Sec. 443. No reduction in unemployment compensation as a result of 
                            pension rollovers.
Sec. 444. Withholding on distributions from governmental section 457 
                            plans.
Sec. 445. Minimum cost requirements.
                          Subtitle D--Studies

Sec. 451. Joint study on revitalizing defined benefit plans.
Sec. 452. Study on floor-offset ESOPs.
                      Subtitle E--Other Provisions

Sec. 461. Allowance of catchup payments.
Sec. 462. Treatment of distributions by ESOPs with respect to S 
                            corporation stock.
Sec. 463. Transfer of excess pension assets to multiemployer health 
                            plan.
                      Subtitle F--Plan Amendments

Sec. 471. Provisions relating to plan amendments.
      TITLE V--PROVISIONS RELATING TO EXECUTIVES AND STOCK OPTIONS

             Subtitle A--Provisions Relating to Executives

Sec. 501. Repeal of 1978 Revenue Act limitation on Secretary of the 
                            Treasury's authority to determine year of 
                            inclusion of amounts under private deferred 
                            compensation plans.
Sec. 502. Treatment of nonqualified deferred compensation plans.
Sec. 503. Prohibition on deferral of gain from the exercise of stock 
                            options and restricted stock gains through 
                            deferred compensation arrangements.
Sec. 504. Increase in withholding from supplemental wage payments in 
                            excess of $1,000,000.
                       Subtitle B--Stock Options

Sec. 511. Exclusion of incentive stock options and employee stock 
                            purchase plan stock options from wages.
Sec. 512. Treatment of sale of stock acquired pursuant to exercise of 
                            stock options to comply with conflict-of-
                            interest requirements.
                  TITLE VI--WOMEN'S PENSION PROTECTION

Sec. 600. Short title.
  Subtitle A--Study of Spousal Consent for Distributions From Defined 
                           Contribution Plans

Sec. 601. Joint study of application of spousal consent rules to 
                            defined contribution plans.
         Subtitle B--Division of Pension Benefits Upon Divorce

Sec. 611. Regulations on time and order of issuance of domestic 
                            relations orders.
                    Subtitle C--Railroad Retirement

Sec. 621. Entitlement of divorced spouses to railroad retirement 
                            annuities independent of actual entitlement 
                            of employee.
Sec. 622. Extension of tier II railroad retirement benefits to 
                            surviving former spouses pursuant to 
                            divorce agreements.
  Subtitle D--Modifications of Joint and Survivor Annuity Requirements

Sec. 631. Requirement for additional survivor annuity option.
             TITLE VII--TAX COURT PENSION AND COMPENSATION

Sec. 700. Amendment of 1986 Code.
Sec. 701. Annuities for survivors of Tax Court judges who are 
                            assassinated.
Sec. 702. Cost-of-living adjustments for Tax Court judicial survivor 
                            annuities.
Sec. 703. Life insurance coverage for Tax Court judges.
Sec. 704. Cost of life insurance coverage for Tax Court judges age 65 
                            or over.
Sec. 705. Modification of timing of lump-sum payment of judges' accrued 
                            annual leave.
Sec. 706. Participation of Tax Court judges in the Thrift Savings Plan.
Sec. 707. Exemption of teaching compensation of retired judges from 
                            limitation on outside earned income.
Sec. 708. General provisions relating to magistrate judges of the Tax 
                            Court.
Sec. 709. Annuities to surviving spouses and dependent children of 
                            magistrate judges of the Tax Court.
Sec. 710. Retirement and annuity program.
Sec. 711. Incumbent magistrate judges of the Tax Court.
Sec. 712. Provisions for recall.
Sec. 713. Effective date.
                      TITLE VIII--OTHER PROVISIONS

                     Subtitle A--General Provisions

Sec. 801. Certain postsecondary educational benefits provided by an 
                            employer to children of employees 
                            excludable from gross income under 
                            educational assistance programs.
Sec. 802. Exclusion for payments to individuals under National Health 
                            Service Corps loan repayment program and 
                            certain State loan repayment programs.
Sec. 803. Exclusion for group legal services.
Sec. 804. Transfer of excess funds from black lung disability trusts to 
                            United Mine Workers of America Combined 
                            Benefit Fund.
                     Subtitle B--Revenue Provisions

Sec. 811. Application of basis rules to nonresident aliens.
Sec. 812. Treatment of death benefits from corporate-owned life 
                            insurance.
Sec. 813. Reporting of taxable mergers and acquisitions.

            TITLE I--DIVERSIFICATION OF PENSION PLAN ASSETS

SEC. 101. DEFINED CONTRIBUTION PLANS REQUIRED TO PROVIDE EMPLOYEES WITH 
              FREEDOM TO INVEST THEIR PLAN ASSETS.

    (a) Amendments of Internal Revenue Code.--
            (1) Qualification requirement.--Section 401(a) of the 
        Internal Revenue Code of 1986 (relating to qualified pension, 
        profit-sharing, and stock bonus plans) is amended by inserting 
        after paragraph (34) the following new paragraph:
            ``(35) Diversification requirements for certain defined 
        contribution plans.--
                    ``(A) In general.--A trust which is part of an 
                applicable defined contribution plan shall not be 
treated as a qualified trust unless the plan meets the diversification 
requirements of subparagraphs (B), (C), and (D).
                    ``(B) Employee contributions and elective deferrals 
                invested in employer securities or real property.--In 
                the case of the portion of an applicable individual's 
                account attributable to employee contributions and 
                elective deferrals which is invested in employer 
                securities or employer real property, a plan meets the 
                requirements of this subparagraph if the applicable 
                individual may elect to direct the plan to divest any 
                such securities or real property and to reinvest an 
                equivalent amount in other investment options meeting 
                the requirements of subparagraph (D).
                    ``(C) Employer contributions invested in employer 
                securities or real property.--In the case of the 
                portion of the account attributable to employer 
                contributions other than elective deferrals which is 
                invested in employer securities or employer real 
                property, a plan meets the requirements of this 
                subparagraph if each applicable individual who--
                            ``(i) is a participant who has completed at 
                        least 3 years of service, or
                            ``(ii) is a beneficiary of a participant 
                        described in clause (i) or of a deceased 
                        participant,
                may elect to direct the plan to divest any such 
                securities or real property and to reinvest an 
                equivalent amount in other investment options meeting 
                the requirements of subparagraph (D).
                    ``(D) Investment options.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if the plan offers not 
                        less than 3 investment options, other than 
                        employer securities or employer real property, 
                        to which an applicable individual may direct 
                        the proceeds from the divestment of employer 
                        securities or employer real property pursuant 
                        to this paragraph, each of which is diversified 
                        and has materially different risk and return 
                        characteristics.
                            ``(ii) Treatment of certain restrictions 
                        and conditions.--
                                    ``(I) Time for making investment 
                                choices.--A plan shall not be treated 
                                as failing to meet the requirements of 
                                this subparagraph merely because the 
                                plan limits the time for divestment and 
                                reinvestment to periodic, reasonable 
                                opportunities occurring no less 
                                frequently than quarterly.
                                    ``(II) Certain restrictions and 
                                conditions not allowed.--Except as 
                                provided in regulations, a plan shall 
                                not meet the requirements of this 
                                subparagraph if the plan imposes 
                                restrictions or conditions with respect 
                                to the investment of employer 
                                securities or employer real property 
                                which are not imposed on the investment 
                                of other assets of the plan. This 
                                subclause shall not apply to any 
                                restrictions or conditions imposed by 
                                reason of the application of securities 
                                laws.
                    ``(E) Applicable defined contribution plan.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `applicable 
                        defined contribution plan' means any defined 
                        contribution plan which holds any publicly 
                        traded employer securities.
                            ``(ii) Exception for certain esops.--Such 
                        term does not include an employee stock 
                        ownership plan if--
                                    ``(I) there are no contributions to 
                                such plan (or earnings thereunder) 
                                which are held within such plan and are 
                                subject to subsection (k) or (m), and
                                    ``(II) such plan is a separate plan 
                                for purposes of section 414(l) with 
                                respect to any other defined benefit 
                                plan or defined contribution plan 
                                maintained by the same employer or 
                                employers.
                            ``(iii) Exception for one participant 
                        plans.--Such term does not include a one-
                        participant retirement plan.
                            ``(iv) One-participant retirement plan.--
                        For purposes of clause (iii), the term `one-
                        participant retirement plan' means a retirement 
                        plan that--
                                    ``(I) on the first day of the plan 
                                year covered only one individual (or 
                                the individual and the individual's 
                                spouse) and the individual owned 100 
                                percent of the plan sponsor (whether or 
                                not incorporated), or covered only one 
                                or more partners (or partners and their 
                                spouses) in the plan sponsor,
                                    ``(II) meets the minimum coverage 
                                requirements of section 410(b) without 
                                being combined with any other plan of 
                                the business that covers the employees 
                                of the business,
                                    ``(III) does not provide benefits 
                                to anyone except the individual (and 
                                the individual's spouse) or the 
                                partners (and their spouses),
                                    ``(IV) does not cover a business 
                                that is a member of an affiliated 
                                service group, a controlled group of 
                                corporations, or a group of businesses 
                                under common control, and
                                    ``(V) does not cover a business 
                                that uses the services of leased 
                                employees (within the meaning of 
                                section 414(n)).
                        For purposes of this clause, the term `partner' 
                        includes a 2-percent shareholder (as defined in 
                        section 1372(b)) of an S corporation.
                    ``(F) Certain plans treated as holding publicly 
                traded employer securities.--
                            ``(i) In general.--Except as provided in 
                        regulations or in clause (ii), a plan holding 
                        employer securities which are not publicly 
                        traded employer securities shall be treated as 
                        holding publicly traded employer securities if 
                        any employer corporation, or any member of a 
                        controlled group of corporations which includes 
                        such employer corporation, has issued a class 
                        of stock which is a publicly traded employer 
                        security.
                            ``(ii) Exception for certain controlled 
                        groups with publicly traded securities.--Clause 
                        (i) shall not apply to a plan if--
                                    ``(I) no employer corporation, or 
                                parent corporation of an 
employer corporation, has issued any publicly traded employer security, 
and
                                    ``(II) no employer corporation, or 
                                parent corporation of an employer 
                                corporation, has issued any special 
                                class of stock which grants particular 
                                rights to, or bears particular risks 
                                for, the holder or issuer with respect 
                                to any corporation described in clause 
                                (i) which has issued any publicly 
                                traded employer security.
                            ``(iii) Definitions.--For purposes of this 
                        subparagraph, the term--
                                    ``(I) `controlled group of 
                                corporations' has the meaning given 
                                such term by section 1563(a), except 
                                that `50 percent' shall be substituted 
                                for `80 percent' each place it appears,
                                    ``(II) `employer corporation' means 
                                a corporation which is an employer 
                                maintaining the plan, and
                                    ``(III) `parent corporation' has 
                                the meaning given such term by section 
                                424(e).
                    ``(G) Other definitions.--For purposes of this 
                paragraph--
                            ``(i) Applicable individual.--The term 
                        `applicable individual' means--
                                    ``(I) any participant in the plan, 
                                and
                                    ``(II) any beneficiary who has an 
                                account under the plan with respect to 
                                which the beneficiary is entitled to 
                                exercise the rights of a participant.
                            ``(ii) Elective deferral.--The term 
                        `elective deferral' means an employer 
                        contribution described in section 402(g)(3)(A).
                            ``(iii) Employer security.--The term 
                        `employer security' has the meaning given such 
                        term by section 407(d)(1) of the Employee 
                        Retirement Income Security Act of 1974.
                            ``(iv) Employer real property.--The term 
                        `employer real property' has the meaning given 
                        such term by section 407(d)(2) of the Employee 
                        Retirement Income Security Act of 1974.
                            ``(v) Employee stock ownership plan.--The 
                        term `employee stock ownership plan' has the 
                        meaning given such term by section 4975(e)(7).
                            ``(vi) Publicly traded employer 
                        securities.--The term `publicly traded employer 
                        securities' means employer securities which are 
                        readily tradable on an established securities 
                        market.
                            ``(vii) Year of service.--The term `year of 
                        service' has the meaning given such term by 
                        section 411(a)(5).
                    ``(H) Transition rule for securities or real 
                property attributable to employer contributions.--
                            ``(i) Rules phased in over 3 years.--
                                    ``(I) In general.--In the case of 
                                the portion of an account to which 
                                subparagraph (C) applies and which 
                                consists of employer securities or 
                                employer real property acquired in a 
                                plan year beginning before January 1, 
                                2004, subparagraph (C) shall only apply 
                                to the applicable percentage of such 
                                securities or real property. This 
                                subparagraph shall be applied 
                                separately with respect to each class 
                                of securities and employer real 
                                property.
                                    ``(II) Exception for certain 
                                participants aged 55 or over.--
                                Subclause (I) shall not apply to an 
                                applicable individual who is a 
                                participant who has attained age 55 and 
                                completed at least 3 years of service 
                                before the first plan year beginning 
                                after December 31, 2003.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage shall 
                        be determined as follows:

``Plan year to which subparagraph   The applicable percentage is:
        (C) applies:
    1st...........................................          33 percent 
    2d............................................          66 percent 
    3d and following..............................       100 percent.''
            (2) Conforming amendments.--
                    (A) Section 401(a)(28)(B) of such Code (relating to 
                additional requirements relating to employee stock 
                ownership plans) is amended by adding at the end the 
                following new clause:
                            ``(v) Exception.--This subparagraph shall 
                        not apply to an applicable defined contribution 
                        plan (as defined in paragraph (35)(E)).''
                    (B) Section 409(h)(7) of such Code is amended by 
                inserting ``or subparagraph (B) or (C) of section 
                401(a)(35)'' before the period at the end.
                    (C) Section 4980(c)(3)(A) of such Code is amended 
                by striking ``if--'' and all that follows and inserting 
                ``if the requirements of subparagraphs (B), (C), and 
                (D) are met.''
    (b) Amendments of ERISA.--Section 204 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054) is amended by 
redesignating subsection (j) as subsection (k) and by inserting after 
subsection (i) the following new subsection:
    ``(j) Diversification Requirements for Certain Individual Account 
Plans.--
            ``(1) In general.--An applicable individual account plan 
        shall meet the diversification requirements of paragraphs (2), 
        (3), and (4).
            ``(2) Employee contributions and elective deferrals 
        invested in employer securities or real property.--In the case 
        of the portion of an applicable individual's account 
        attributable to employee contributions and elective deferrals 
        which is invested in employer securities or employer real 
        property, a plan meets the requirements of this paragraph if 
        the applicable individual may elect to direct the plan to 
        divest any such securities or real property and to reinvest an 
        equivalent amount in other investment options meeting the 
        requirements of paragraph (4).
            ``(3) Employer contributions invested in employer 
        securities or real property.--In the case of the portion of the 
        account attributable to employer contributions other than 
        elective deferrals which is invested in employer securities or 
        employer real property, a plan meets the requirements of this 
        paragraph if each applicable individual who--
                    ``(A) is a participant who has completed at least 3 
                years of service, or
                    ``(B) is a beneficiary of a participant described 
                in subparagraph (A) or of a deceased participant,
        may elect to direct the plan to divest any such securities or 
        real property and to reinvest an equivalent amount in other 
        investment options meeting the requirements of paragraph (4).
            ``(4) Investment options.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the plan offers not less than 3 
                investment options, other than employer securities or 
                employer real property, to which an applicable 
                individual may direct the proceeds from the divestment 
                of employer securities or employer real property 
                pursuant to this subsection, each of which is 
                diversified and has materially different risk and 
                return characteristics.
                    ``(B) Treatment of certain restrictions and 
                conditions.--
                            ``(i) Time for making investment choices.--
                        A plan shall not be treated as failing to meet 
                        the requirements of this paragraph merely 
                        because the plan limits the time for divestment 
                        and reinvestment to periodic, reasonable 
                        opportunities occurring no less frequently than 
                        quarterly.
                            ``(ii) Certain restrictions and conditions 
                        not allowed.--Except as provided in 
                        regulations, a plan shall not meet the 
                        requirements of this paragraph if the plan 
                        imposes restrictions or conditions with respect 
                        to the investment of employer securities or 
                        employer real property which are not imposed on 
                        the investment of other assets of the plan. 
                        This subparagraph shall not apply to any 
                        restrictions or conditions imposed by reason of 
                        the application of securities laws.
            ``(5) Applicable individual account plan.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `applicable individual 
                account plan' means any individual account plan (as 
                defined in section 3(34)) which holds any publicly 
                traded employer securities.
                    ``(B) Exception for certain esops.--Such term does 
                not include an employee stock ownership plan if--
                            ``(i) there are no contributions to such 
                        plan (or earnings thereunder) which are held 
                        within such plan and are subject to subsection 
                        (k) or (m) of section 401 of the Internal 
                        Revenue Code of 1986, and
                            ``(ii) such plan is a separate plan (for 
                        purposes of section 414(l) of such Code) with 
                        respect to any other defined benefit plan or 
                        individual account plan maintained by the same 
                        employer or employers.
                    ``(C) Exception for one participant plans.--Such 
                term shall not include a one-participant retirement 
                plan (as defined in section 101(i)(8)(B)).
                    ``(D) Certain plans treated as holding publicly 
                traded employer securities.--
                            ``(i) In general.--Except as provided in 
                        regulations or in clause (ii), a plan holding 
                        employer securities which are not publicly 
                        traded employer securities shall be treated as 
                        holding publicly traded employer securities if 
                        any employer corporation, or any member of a 
                        controlled group of corporations which includes 
                        such employer corporation, has issued a class 
                        of stock which is a publicly traded employer 
                        security.
                            ``(ii) Exception for certain controlled 
                        groups with publicly traded securities.--Clause 
                        (i) shall not apply to a plan if--
                                    ``(I) no employer corporation, or 
                                parent corporation of an employer 
                                corporation, has issued any publicly 
                                traded employer security, and
                                    ``(II) no employer corporation, or 
                                parent corporation of an employer 
                                corporation, has issued any special 
                                class of stock which grants particular 
                                rights to, or bears particular risks 
                                for, the holder or issuer with respect 
                                to any corporation described in clause 
                                (i) which has issued any publicly 
                                traded employer security.
                            ``(iii) Definitions.--For purposes of this 
                        subparagraph, the term--
                                    ``(I) `controlled group of 
                                corporations' has the meaning given 
                                such term by section 1563(a) of the 
                                Internal Revenue Code of 1986, except 
                                that `50 percent' shall be substituted 
                                for `80 percent' each place it appears,
                                    ``(II) `employer corporation' means 
                                a corporation which is an employer 
                                maintaining the plan, and
                                    ``(III) `parent corporation' has 
                                the meaning given such term by section 
                                424(e) of such Code.
            ``(6) Other definitions.--For purposes of this paragraph--
                    ``(A) Applicable individual.--The term `applicable 
                individual' means--
                            ``(i) any participant in the plan, and
                            ``(ii) any beneficiary who has an account 
                        under the plan with respect to which the 
                        beneficiary is entitled to exercise the rights 
                        of a participant.
                    ``(B) Elective deferral.--The term `elective 
                deferral' means an employer contribution described in 
                section 402(g)(3)(A) of the Internal Revenue Code of 
                1986.
                    ``(C) Employer security.--The term `employer 
                security' has the meaning given such term by section 
                407(d)(1).
                    ``(D) Employer real property.--The term `employer 
                real property' has the meaning given such term by 
                section 407(d)(2).
                    ``(E) Employee stock ownership plan.--The term 
                `employee stock ownership plan' has the meaning given 
                such term by section 4975(e)(7) of such Code.
                    ``(F) Publicly traded employer securities.--The 
                term `publicly traded employer securities' means 
                employer securities which are readily tradable on an 
                established securities market.
                    ``(G) Year of service.--The term `year of service' 
                has the meaning given such term by section 203(b)(2).
            ``(7) Transition rule for securities or real property 
        attributable to employer contributions.--
                    ``(A) Rules phased in over 3 years.--
                            ``(i) In general.--In the case of the 
                        portion of an account to which paragraph (3) 
                        applies and which consists of employer 
                        securities or employer real property acquired 
                        in a plan year beginning before January 1, 
                        2004, paragraph (3) shall only apply to the 
                        applicable percentage of such securities or 
                        real property. This subparagraph shall be 
                        applied separately with respect to each class 
                        of securities and employer real property.
                            ``(ii) Exception for certain participants 
                        aged 55 or over.--Clause (i) shall not apply to 
                        an applicable individual who is a participant 
                        who has attained age 55 and completed at least 
3 years of service before the first plan year beginning after December 
31, 2003.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined as follows:

``Plan year to which paragraph (3)  The applicable percentage is:
        applies:
    1st...........................................          33 percent 
    2d............................................          66 percent 
    3d and following..............................       100 percent.''
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to plan 
        years beginning after December 31, 2003.
            (2) Special rule for collectively bargained agreements.--In 
        the case of a plan maintained pursuant to 1 or more collective 
        bargaining agreements between employee representatives and 1 or 
        more employers ratified on or before the date of the enactment 
        of this Act, paragraph (1) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2003'' the earlier of--
                    (A) the later of--
                            (i) December 31, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after such date of enactment), or
                    (B) December 31, 2005.
            (3) Special rule for certain employer securities held in an 
        esop.--
                    (A) In general.--In the case of employer securities 
                to which this paragraph applies, the amendments made by 
                this section shall apply to plan years beginning after 
                the earlier of--
                            (i) December 31, 2006, or
                            (ii) the first date on which the fair 
                        market value of such securities exceeds the 
                        guaranteed minimum value described in 
                        subparagraph (B)(ii).
                    (B) Applicable securities.--This paragraph shall 
                apply to employer securities which are attributable to 
                employer contributions other than elective deferrals, 
                and which, on September 17, 2003--
                            (i) consist of preferred stock, and
                            (ii) are within an employee stock ownership 
                        plan (as defined in section 4975(e)(7) of the 
                        Internal Revenue Code of 1986), the terms of 
                        which provide that the value of the securities 
                        cannot be less than the guaranteed minimum 
                        value specified by the plan on such date.
                    (C) Coordination with transition rule.--In applying 
                section 401(a)(35)(H) of the Internal Revenue Code of 
                1986 and section 204(j)(7) of the Employee Retirement 
                Income Security Act of 1974 (as added by this section) 
                to employer securities to which this paragraph applies, 
                the applicable percentage shall be determined without 
                regard to this paragraph.

SEC. 102. NOTICE OF FREEDOM TO DIVEST EMPLOYER SECURITIES OR REAL 
              PROPERTY.

    (a) Amendments of Internal Revenue Code.--
            (1) Excise tax.--Chapter 43 of the Internal Revenue Code of 
        1986 (relating to qualified pension, etc., plans) is amended by 
        adding at the end the following new section:

``SEC. 4980H. FAILURE OF CERTAIN DEFINED CONTRIBUTION PLANS TO PROVIDE 
              NOTICE OF FREEDOM TO DIVEST EMPLOYER SECURITIES.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of a defined contribution plan to meet the requirements of 
subsection (e) with respect to any participant or beneficiary.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any participant 
        or beneficiary shall be $100 for each day in the noncompliance 
        period with respect to the failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the notice to which the failure 
        relates is provided or the failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        person subject to liability for tax under subsection (d) did 
        not know that the failure existed and exercised reasonable 
        diligence to meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the notice described in 
                subsection (e) during the 30-day period beginning on 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(3) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan not described in paragraph (2), 
        the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice of Right To Divest.--Not later than 30 days before the 
first date on which an applicable individual of an applicable defined 
contribution plan is eligible to exercise the right under section 
401(a)(35) to direct the proceeds from the divestment of employer 
securities or employer real property with respect to any type of 
contribution, the plan administrator shall provide to such individual a 
notice--
            ``(1) setting forth such right under such section, and
            ``(2) describing the importance of diversifying the 
        investment of retirement account assets.
The notice required by this subsection shall be written in a manner 
calculated to be understood by the average plan participant and may be 
delivered in written, electronic, or other appropriate form to the 
extent that such form is reasonably accessible to the applicable 
individual.
    ``(f) Definitions.--Any term used in this section which is also 
used in section 401(a)(35) shall have the meaning given such term by 
section 401(a)(35).''
            (2) Aggregation.--Section 414(t) of such Code is amended by 
        striking ``or 4980B'' and inserting ``4980B, or 4980H''.
            (3) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding at the end the following 
        new item:

                              ``Sec. 4980H. Failure of certain defined 
                                        contribution plans to provide 
                                        notice of freedom to divest 
                                        employer securities.''
    (b) Amendments of ERISA.--
            (1) In general.--Section 104 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1024) is amended by 
        redesignating subsection (d) as subsection (e) and by inserting 
        after subsection (c) the following new subsection:
    ``(d) Notice of Right To Divest.--Not later than 30 days before the 
first date on which an applicable individual of an applicable 
individual account plan is eligible to exercise the right under section 
204(j) to direct the proceeds from the divestment of employer 
securities or employer real property with respect to any type of 
contribution, the administrator shall provide to such individual a 
notice--
            ``(1) setting forth such right under such section, and
            ``(2) describing the importance of diversifying the 
        investment of retirement account assets.
The notice required by this subsection shall be written in a manner 
calculated to be understood by the average plan participant and may be 
delivered in written, electronic, or other appropriate form to the 
extent that such form is reasonably accessible to the applicable 
individual.''
            (2) Penalties.--Section 502(c)(7) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1132(c)(7)) 
        is amended by inserting ``or section 104(d)'' after ``section 
        101(i)''.
    (c) Model Notice.--The Secretary of Labor shall, within 180 days 
after the date of the enactment of this subsection, prescribe a model 
notice for purposes of satisfying the requirements of the amendments 
made by this section.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2003.
            (2) Transition rule.--If notice under section 4980H(e) of 
        the Internal Revenue Code of 1986 or section 104(d) of the 
        Employee Retirement Income Security Act of 1974 (as added by 
        this section) would otherwise be required to be provided before 
        the 90th day after the date of the enactment of this Act, such 
        notice shall not be required to be provided until such 90th 
        day.

       TITLE II--INFORMATION TO ASSIST PENSION PLAN PARTICIPANTS

SEC. 201. PERIODIC PENSION BENEFIT STATEMENTS.

    (a) Amendments of Internal Revenue Code.--
            (1) Excise tax.--Chapter 43 of the Internal Revenue Code of 
        1986 (relating to qualified pension, etc., plans), as amended 
        by this Act, is amended by adding at the end the following new 
        section:

``SEC. 4980I. FAILURE OF CERTAIN PENSION PLANS TO PROVIDE REQUIRED 
              INFORMATION.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of an applicable pension plan to meet the requirements of 
subsection (e) with respect to any participant or beneficiary.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any participant 
        or beneficiary shall be $100 for each day in the noncompliance 
        period with respect to the failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the statement to which the 
        failure relates is provided or the failure is otherwise 
        corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        person subject to liability for tax under subsection (d) did 
        not know that the failure existed and exercised reasonable 
        diligence to meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the statement described 
                in subsection (e) during the 30-day period beginning on 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(3) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
failures during the taxable year of the employer (or, in the case of a 
multiemployer plan, the taxable year of the trust forming part of the 
plan) shall not exceed $500,000. For purposes of the preceding 
sentence, all multiemployer plans of which the same trust forms a part 
shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan not described in paragraph (2) 
        or (3), the employer.
            ``(2) In the case of a multiemployer plan, the plan.
            ``(3) In the case of an arrangement described in subsection 
        (e)(4), the person required to provide the statement under 
        subsection (e).
    ``(e) Requirements To Provide Pension Benefit Statements.--
            ``(1) Requirements.--
                    ``(A) Defined contribution plan.--The administrator 
                of an applicable pension plan which is a defined 
                contribution plan shall furnish a pension benefit 
                statement described in paragraph (2)--
                            ``(i) at least once each calendar quarter 
                        to a participant or beneficiary who has the 
                        right to direct the investment of assets in his 
                        or her account under the plan,
                            ``(ii) at least once each calendar year to 
                        a participant or beneficiary who has his or her 
                        own account under the plan but who does not 
                        have the right to direct the investment of 
                        assets in that account, and
                            ``(iii) upon written request to a plan 
                        beneficiary who is not a participant or 
                        beneficiary described in clause (i) or (ii), 
                        except that this subparagraph shall apply to 
                        only 1 request during any 12-month period.
                    ``(B) Defined benefit plan.--The administrator of 
                an applicable pension plan which is a defined benefit 
                plan shall furnish a pension benefit statement 
                described in paragraph (2)--
                            ``(i) at least once every 3 years to each 
                        participant who has a nonforfeitable accrued 
                        benefit and who is employed by the employer 
                        maintaining the plan at the time the statement 
                        is to be furnished, and
                            ``(ii) to a participant or beneficiary of 
                        the plan upon written request, except that this 
                        clause shall apply to only 1 request during any 
                        12-month period.
                Information furnished under clause (i) to a participant 
                may be based on reasonable estimates determined under 
                regulations prescribed by the Secretary of Labor, in 
                consultation with the Pension Benefit Guaranty 
                Corporation.
            ``(2) Statements.--
                    ``(A) In general.--A pension benefit statement 
                furnished under paragraph (1)--
                            ``(i) shall indicate, on the basis of the 
                        latest available information--
                                    ``(I) the total benefits accrued, 
                                and
                                    ``(II) the nonforfeitable pension 
                                benefits, if any, which have accrued, 
                                or the earliest date on which benefits 
                                will become nonforfeitable,
                            ``(ii) shall include an explanation of any 
                        permitted disparity under section 401(l) or any 
                        floor-offset arrangement that may be applied in 
                        determining any accrued benefits described in 
                        clause (i),
                            ``(iii) shall be written in a manner 
                        calculated to be understood by the average plan 
                        participant, and
                            ``(iv) may be delivered in written, 
                        electronic, or other appropriate form to the 
                        extent such form is reasonably accessible to 
                        the participant or beneficiary.
                    ``(B) Additional information.--In the case of a 
                defined contribution plan, any pension benefit 
                statement under clause (i) or (ii) of paragraph (1)(A) 
                shall include--
                            ``(i) the value of each investment to which 
                        assets in the individual account have been 
                        allocated, determined as of the most recent 
                        valuation date under the plan, including the 
                        value of any assets held in the form of 
                        employer securities or employer real property, 
                        without regard to whether such securities or 
                        real property were contributed by the plan 
                        sponsor or acquired at the direction of the 
                        plan or of the participant or beneficiary, and
                            ``(ii) in the case of a pension benefit 
                        statement under paragraph (1)(A)(i)--
                                    ``(I) an explanation of any 
                                limitations or restrictions on any 
                                right of the participant or beneficiary 
                                under the plan to direct an investment, 
                                and
                                    ``(II) a notice that investments in 
                                any individual account may not be 
                                adequately diversified if the value of 
                                any investment in the account exceeds 
                                20 percent of the fair market value of 
                                all investments in the account.
                    ``(C) Alternative notice.--The requirements of 
                subparagraph (A)(i)(II) are met if, at least annually 
                and in accordance with requirements of the Secretary of 
                Labor, the plan--
                            ``(i) updates the information described in 
                        such paragraph which is provided in the pension 
                        benefit statement, or
                            ``(ii) provides in a separate statement 
                        such information as is necessary to enable a 
                        participant or beneficiary to determine their 
                        nonforfeitable vested benefits.
            ``(3) Defined benefit plans.--
                    ``(A) Alternative notice.--In the case of a defined 
                benefit plan, the requirements of paragraph (1)(B)(i) 
                shall be treated as met with respect to a participant 
                if at least once each year the administrator provides 
                to the participant notice of the availability of the 
                pension benefit statement and the ways in which the 
                participant may obtain such statement. Such notice may 
                be delivered in written, electronic, or other 
                appropriate form to the extent such form is reasonably 
                accessible to the participant.
                    ``(B) Years in which no benefits accrue.--The 
                Secretary may provide that years in which no employee 
                or former employee benefits (within the meaning of 
                section 410(b)) under the plan need not be taken into 
                account in determining the 3-year period under 
                paragraph (1)(B)(i).
            ``(4) Special rule for certain annuities.--In the case of 
        an annuity contract or custodial account described in section 
        403(b) which is not a plan established or maintained by the 
        employer, the pension benefit statement under this subsection 
        shall be furnished by the issuer of the contract, the custodian 
        of the account, or such other person as is specified by the 
        Secretary.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable pension plan.--The term `applicable 
        pension plan' means a plan described in clause (i), (ii), or 
        (iv) of section 219(g)(5)(A) other than a one-participant 
        retirement plan (as defined in section 401(a)(35)(E)(iv)).
            ``(2) Exception for government and church plans.--This 
        section shall not apply to any governmental or church plan. For 
        purposes of this paragraph, the terms `governmental plan' and 
        `church plan' have the meanings given such terms by section 
        414.''
            (2) Aggregation.--Section 414(t) of such Code, as amended 
        by this Act, is amended by striking ``or 4980H'' and inserting 
        ``4980H, or 4980I''.
            (3) Clerical amendment.--The table of sections for chapter 
        43 of such Code, as amended by this Act, is amended by adding 
        at the end the following new item:

``Sec. 4980I. Failure of certain pension plans to provide required 
                            information.''
    (b) Amendments of ERISA.--
            (1) In general.--Section 105(a) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended to 
        read as follows:
    ``(a) Requirements To Provide Pension Benefit Statements.--
            ``(1) Requirements.--
                    ``(A) Individual account plan.--The administrator 
                of an individual account plan (other than a one-
                participant retirement plan described in section 
                101(i)(8)(B)) shall furnish a pension benefit 
                statement--
                            ``(i) at least once each calendar quarter 
                        to a participant or beneficiary who has the 
                        right to direct the investment of assets in his 
                        or her account under the plan,
                            ``(ii) at least once each calendar year to 
                        a participant or beneficiary who has his or her 
                        own account under the plan but does not have 
                        the right to direct the investment of assets in 
                        that account, and
                            ``(iii) upon written request to a plan 
                        beneficiary not described in clause (i) or 
                        (ii).
                    ``(B) Defined benefit plan.--The administrator of a 
                defined benefit plan (other than a one-participant 
                retirement plan described in section 101(i)(8)(B)) 
                shall furnish a pension benefit statement--
                            ``(i) at least once every 3 years to each 
                        participant with a nonforfeitable accrued 
                        benefit and who is employed by the employer 
                        maintaining the plan at the time the statement 
                        is to be furnished, and
                            ``(ii) to a participant or beneficiary of 
                        the plan upon written request.
                Information furnished under clause (i) to a participant 
                may be based on reasonable estimates determined under 
                regulations prescribed by the Secretary, in 
                consultation with the Pension Benefit Guaranty 
                Corporation.
            ``(2) Statements.--
                    ``(A) In general.--A pension benefit statement 
                under paragraph (1)--
                            ``(i) shall indicate, on the basis of the 
                        latest available information--
                                    ``(I) the total benefits accrued, 
                                and
                                    ``(II) the nonforfeitable pension 
                                benefits, if any, which have accrued, 
                                or the earliest date on which benefits 
                                will become nonforfeitable,
                            ``(ii) shall include an explanation of any 
                        permitted disparity under section 401(l) of the 
                        Internal Revenue Code of 1986 or any floor-
                        offset arrangement that may be applied in 
                        determining any accrued benefits described in 
                        clause (i),
                            ``(iii) shall be written in a manner 
                        calculated to be understood by the average plan 
                        participant, and
                            ``(iv) may be delivered in written, 
                        electronic, or other appropriate form to the 
                        extent such form is reasonably accessible to 
                        the participant or beneficiary.
                    ``(B) Additional information.--In the case of an 
                individual account plan, any pension benefit statement 
                under clause (i) or (ii) of paragraph (1)(A) shall 
                include--
                            ``(i) the value of each investment to which 
                        assets in the individual account have been 
                        allocated, determined as of the most recent 
                        valuation date under the plan, including the 
                        value of any assets held in the form of 
                        employer securities or employer real property, 
                        without regard to whether such securities or 
                        real property were contributed by the plan 
                        sponsor or acquired at the direction of the 
                        plan or of the participant or beneficiary, and
                            ``(ii) in the case of a pension benefit 
                        statement under paragraph (1)(A)(i)--
                                    ``(I) an explanation of any 
                                limitations or restrictions on any 
                                right of the participant or beneficiary 
                                under the plan to direct an investment, 
                                and
                                    ``(II) a notice that investments in 
                                any individual account may not be 
                                adequately diversified if the value of 
                                any investment in the account 
exceeds 20 percent of the fair market value of all investments in the 
account.
                    ``(C) Alternative notice.--The requirements of 
                subparagraph (A)(i)(II) are met if, at least annually 
                and in accordance with requirements of the Secretary, 
                the plan--
                            ``(i) updates the information described in 
                        such paragraph which is provided in the pension 
                        benefit statement, or
                            ``(ii) provides in a separate statement 
                        such information as is necessary to enable a 
                        participant or beneficiary to determine their 
                        nonforfeitable vested benefits.
            ``(3) Defined benefit plans.--
                    ``(A) Alternative notice.--In the case of a defined 
                benefit plan, the requirements of paragraph (1)(B)(i) 
                shall be treated as met with respect to a participant 
                if at least once each year the administrator provides 
                to the participant notice of the availability of the 
                pension benefit statement and the ways in which the 
                participant may obtain such statement. Such notice may 
                be delivered in written, electronic, or other 
                appropriate form to the extent such form is reasonably 
                accessible to the participant.
                    ``(B) Years in which no benefits accrue.--The 
                Secretary may provide that years in which no employee 
                or former employee benefits (within the meaning of 
                section 410(b) of the Internal Revenue Code of 1986) 
                under the plan need not be taken into account in 
                determining the 3-year period under paragraph 
                (1)(B)(i).''
            (2) Conforming amendments.--
                    (A) Section 105 of the Employee Retirement Income 
                Security Act of 1974 (29 U.S.C. 1025) is amended by 
                striking subsection (d).
                    (B) Section 105(b) of such Act (29 U.S.C. 1025(b)) 
                is amended to read as follows:
    ``(b) Limitation on Number of Statements.--In no case shall a 
participant or beneficiary of a plan be entitled to more than 1 
statement described in subparagraph (A)(iii) or (B)(ii) of subsection 
(a)(1), whichever is applicable, in any 12-month period.''
                    (C) Section 502(c)(1) of such Act (29 U.S.C. 
                1132(c)(1)) is amended by striking ``or section 
                101(f)'' and inserting ``section 101(f), or section 
                105(a)''.
    (c) Model Statements.--The Secretary of Labor shall, within 180 
days after the date of the enactment of this section, develop 1 or more 
model benefit statements that are written in a manner calculated to be 
understood by the average plan participant and that may be used by plan 
administrators in complying with the requirements of section 4980H of 
the Internal Revenue Code of 1986 and section 105 of the Employee 
Retirement Income Security Act of 1974.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2004.
            (2) Special rule for collectively bargained agreements.--In 
        the case of a plan maintained pursuant to 1 or more collective 
        bargaining agreements between employee representatives and 1 or 
        more employers ratified on or before the date of the enactment 
        of this Act, paragraph (1) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2004'' the earlier of--
                    (A) the later of--
                            (i) December 31, 2005, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after such date of enactment), or
                    (B) December 31, 2006.

SEC. 202. DEFINED CONTRIBUTION PLANS REQUIRED TO PROVIDE ADEQUATE 
              INVESTMENT EDUCATION TO PARTICIPANTS.

    (a) Excise Tax on Failure of Certain Defined Contribution Plans To 
Provide Adequate Investment Information.--
            (1) In general.--Section 4980I(e)(1)(A) of the Internal 
        Revenue Code of 1986, as added by section 201, is amended by 
        adding at the end the following new flush sentence:
                ``In addition to the pension benefit statement, the 
                administrator shall furnish at least once each year to 
                each participant or beneficiary who has the right to 
                direct the investment of assets in his or her account 
                the model form relating to basic investment guidelines 
                as provided in paragraph (5).''
            (2) Basic investment guidelines.--Section 4980I(e) of such 
        Code, as so added, is amended by adding at the end the 
        following new paragraph:
            ``(5) Basic investment guidelines.--
                    ``(A) In general.--The Secretary shall, in 
                consultation with the Secretary of Labor, develop and 
                make available to defined contribution plans for 
                distribution under paragraph (1)(A) a model form 
                containing basic guidelines for investing for 
                retirement. Except as otherwise provided by the 
                Secretary, such guidelines shall include--
                            ``(i) information on the benefits of 
                        diversification,
                            ``(ii) information on the essential 
                        differences, in terms of risk and return, of 
                        pension plan investments, including stocks, 
                        bonds, mutual funds, and money market 
                        investments,
                            ``(iii) information on how an individual's 
                        pension plan investment allocations may differ 
                        depending on the individual's age and years to 
                        retirement and on other factors determined by 
                        the Secretary,
                            ``(iv) sources of information where 
                        individuals may learn more about pension 
                        rights, individual investing, and investment 
                        advice, and
                            ``(v) such other information related to 
                        individual investing as the Secretary 
                        determines appropriate.
                    ``(B) Calculation information.--The model form 
                under subparagraph (A) shall include addresses for 
                Internet sites, and a worksheet, which a participant or 
                beneficiary may use to calculate--
                            ``(i) the retirement age value of the 
                        participant's or beneficiary's nonforfeitable 
                        pension benefits under the plan (expressed as 
                        an annuity amount and determined by reference 
                        to varied historical annual rates of return and 
                        annuity interest rates), and
                            ``(ii) other important amounts relating to 
                        retirement savings, including the amount which 
                        a participant or beneficiary would be required 
                        to save annually to provide a retirement income 
                        equal to various percentages of their current 
                        salary (adjusted for expected growth prior to 
                        retirement).
                The Secretary of Labor shall develop an Internet site 
                which an individual may use in making such calculations 
and the address for such site shall be included with the form.
                    ``(C) Public comment.--The Secretary shall provide 
                at least 90 days for public comment before publishing 
                final notice of the model form.
                    ``(D) Rules relating to form and statement.--The 
                model form under subparagraph (A)--
                            ``(i) shall be written in a manner 
                        calculated to be understood by the average plan 
                        participant, and
                            ``(ii) may be delivered in written, 
                        electronic, or other appropriate form to the 
                        extent such form is reasonably accessible to 
                        participants and beneficiaries.''
            (3) Conforming amendments.--Section 4980I of such Code is 
        amended--
                    (A) by adding at the end of subsection (c)(3) the 
                following new subparagraph:
                    ``(C) Separate application.--This paragraph shall 
                be applied separately to failures to meet the 
                requirements of subsection (e)(1)(A) to provide pension 
                benefit statements and failures to meet the 
                requirements of subsection (e)(1)(A) to provide model 
                forms containing basic investment guidelines.'';
                    (B) by inserting ``or model form'' after 
                ``statement'' in subsection (d)(3); and
                    (C) by inserting ``or model form containing basic 
                investment guidelines'' after ``statement'' in 
                subsection (e)(4).
    (b) Adequate Investment Education.--
            (1) In general.--Section 104 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1024), as amended by 
        section 102, is amended by redesignating subsection (e) as 
        subsection (f) and by inserting after subsection (d) the 
        following new subsection:
    ``(e) Basic Investment Guidelines.--
            ``(1) In general.--The administrator of an individual 
        account plan (other than a one-participant retirement plan 
        described in section 101(i)(8)(B)) shall furnish at least once 
        each year to each participant or beneficiary who has the right 
        to direct the investment of assets in his or her account the 
        model form relating to basic investment guidelines which is 
        described in paragraph (2).
            ``(2) Model form.--
                    ``(A) In general.--The Secretary of the Treasury, 
                in consultation with the Secretary, shall develop and 
                make available to individual account plans for 
                distribution under paragraph (1) a model form 
                containing basic guidelines for investing for 
                retirement. Except as otherwise provided by the 
                Secretary of the Treasury, such guidelines shall 
                include--
                            ``(i) information on the benefits of 
                        diversification,
                            ``(ii) information on the essential 
                        differences, in terms of risk and return, of 
                        pension plan investments, including stocks, 
                        bonds, mutual funds, and money market 
                        investments,
                            ``(iii) information on how an individual's 
                        pension plan investment allocations may differ 
                        depending on the individual's age and years to 
                        retirement and on other factors determined by 
                        the Secretary of the Treasury,
                            ``(iv) sources of information where 
                        individuals may learn more about pension 
                        rights, individual investing, and investment 
                        advice, and
                            ``(v) such other information related to 
                        individual investing as the Secretary of the 
                        Treasury determines appropriate.
                    ``(B) Calculation information.--The model form 
                under subparagraph (A) shall include addresses for 
                Internet sites, and a worksheet, which a participant or 
                beneficiary may use to calculate--
                            ``(i) the retirement age value of the 
                        participant's or beneficiary's nonforfeitable 
                        pension benefits under the plan (expressed as 
                        an annuity amount and determined by reference 
                        to varied historical annual rates of return and 
                        annuity interest rates), and
                            ``(ii) other important amounts relating to 
                        retirement savings, including the amount which 
                        a participant or beneficiary would be required 
                        to save annually to provide a retirement income 
                        equal to various percentages of their current 
                        salary (adjusted for expected growth prior to 
                        retirement).
The Secretary shall develop an Internet site which an individual may 
use in making such calculations and the address for such site shall be 
included with the form.
            ``(3) Rules relating to form and statement.--The model form 
        under paragraph (2)--
                    ``(A) shall be written in a manner calculated to be 
                understood by the average plan participant, and
                    ``(B) may be delivered in written, electronic, or 
                other appropriate form to the extent such form is 
                reasonably accessible to participants and 
                beneficiaries.''
            (2) Enforcement.--Section 502(c)(7) of such Act (29 U.S.C. 
        1132(c)(7)), as amended by section 102, is amended by striking 
        ``section 104(d)'' and inserting ``subsection (d) or (e) of 
        section 104''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2004.
            (2) Special rule for collectively bargained agreements.--In 
        the case of a plan maintained pursuant to 1 or more collective 
        bargaining agreements between employee representatives and 1 or 
        more employers ratified on or before the date of the enactment 
        of this Act, paragraph (1) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2004'' the earlier of--
                    (A) the later of--
                            (i) December 31, 2005, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after such date of enactment), or
                    (B) December 31, 2006.

SEC. 203. MATERIAL INFORMATION RELATING TO INVESTMENT IN EMPLOYER 
              SECURITIES.

    (a) Amendments of Internal Revenue Code.--
            (1) In general.--Section 4980H(e) of the Internal Revenue 
        Code of 1986, as added by section 102, is amended--
                    (A) by striking ``(e) Notice of Right To Divest.--
                Not'' and inserting:
    ``(e) Notice Requirements.--
            ``(1) Notice of right to divest.--Not'',
                    (B) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B) and adjusting all margins 
                accordingly, and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Material information.--
                    ``(A) In general.--The administrator of a defined 
                contribution plan (other than a one-participant 
                retirement plan) shall provide to each participant and 
                beneficiary who has the right to direct the investment 
                of assets in his or her account in employer securities 
                with all reports, proxy statements, and other 
                communications regarding investment of such assets in 
                employer securities to the extent that such reports, 
                statements, and communications are required to be 
                provided by the plan sponsor to investors in connection 
                with such an investment under applicable securities 
                laws. Such reports, statements, and communications may 
                be delivered in written, electronic, or other 
                appropriate form to the extent such form is reasonably 
                accessible to participants and beneficiaries.
                    ``(B) Plan sponsor.--If any information required to 
                be provided under paragraph (1) is maintained by the 
                plan sponsor, the plan sponsor shall transmit such 
                information to the plan administrator.''
            (2) Conforming amendments.--
                    (A) Section 4980H(c)(3) of such Code, as so added, 
                is amended by adding at the end the following new 
                subparagraph:
                    ``(C) Separate application.--This paragraph shall 
                be applied separately for failures to meet the 
                requirements of subsection (e)(1) and failures to meet 
                the requirements of subsection (e)(2).''
                    (B)(i) The heading for section 4980H of such Code, 
                as so added, is amended by striking ``notice of freedom 
                to divest employer securities'' and inserting 
                ``information regarding investment in employer 
                securities''.
                    (ii) The item relating to section 4980H in the 
                table of sections for chapter 43 of such Code, as so 
                added, is amended by striking ``notice of freedom to 
                divest employer securities'' and inserting 
                ``information regarding investment in employer 
                securities''.
    (b) Amendments of ERISA.--
            (1) In general.--Section 104 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1024) as amended by 
        sections 102 and 202, is amended by redesignating subsection 
        (f) as subsection (g) and by inserting after subsection (e) the 
        following new subsection:
    ``(f) Providing of Material Information.--
            ``(1) In general.--The administrator of an individual 
        account plan (other than a one-participant retirement plan 
        described in section 101(i)(8)(B)) shall provide to each 
        participant and beneficiary who has the right to direct the 
        investment of assets in his or her account in employer 
        securities with all reports, proxy statements, and other 
        communications regarding investment of such assets in employer 
        securities to the extent that such reports, statements, and 
        communications are required to be provided by the plan sponsor 
        to investors in connection with such an investment under 
        applicable securities laws. Such reports, statements, and 
        communications may be delivered in written, electronic, or 
        other appropriate form to the extent such form is reasonably 
        accessible to participants and beneficiaries.
            ``(2) Plan sponsor.--If any information required to be 
        provided under paragraph (1) is maintained by the plan sponsor, 
        the plan sponsor shall transmit such information to the plan 
        administrator.''
            (2) Enforcement.--Section 502 of such Act (29 U.S.C. 1132) 
        is amended--
                    (A) in subsection (a)(6), by striking ``(6), or 
                (7)'' and inserting ``(6), (7), or (8)'';
                    (B) by redesignating paragraph (8) of subsection 
                (c) as paragraph (9); and
                    (C) by inserting after paragraph (7) of subsection 
                (c) the following new paragraph:
    ``(8) The Secretary may assess a civil penalty against any person 
of up to $1,000 a day from the date of the person's failure or refusal 
to comply with the requirements of section 104(f) until such failure or 
refusal is corrected.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2003.
            (2) Special rule for collectively bargained agreements.--In 
        the case of a plan maintained pursuant to 1 or more collective 
        bargaining agreements between employee representatives and 1 or 
        more employers ratified on or before the date of the enactment 
        of this Act, paragraph (1) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2003'' the earlier of--
                    (A) the later of--
                            (i) December 31, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after such date of enactment), or
                    (B) December 31, 2005.

SEC. 204. FIDUCIARY RULES FOR PLAN SPONSORS DESIGNATING INDEPENDENT 
              INVESTMENT ADVISERS.

    (a) In General.--Section 404 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end 
the following new subsection:
    ``(e) Independent Investment Adviser.--
            ``(1) In general.--In the case of an individual account 
        plan which permits a plan participant or beneficiary to direct 
        the investment of the assets in his or her account, if a plan 
        sponsor or other person who is a fiduciary designates and 
        monitors a qualified investment adviser pursuant to the 
        requirements of paragraph (3), such fiduciary--
                    ``(A) shall be deemed to have satisfied the 
                requirements under this section for the 
prudent designation and periodic review of an investment adviser with 
whom the plan sponsor or other person who is a fiduciary enters into an 
arrangement for the provision of advice referred to in section 
3(21)(A)(ii),
                    ``(B) shall not be liable under this section for 
                any loss, or by reason of any breach, with respect to 
                the provision of investment advice given by such 
                adviser to any plan participant or beneficiary, and
                    ``(C) shall not be liable for any co-fiduciary 
                liability under subsections (a)(2) and (b) of section 
                405 with respect to the provision of investment advice 
                given by such adviser to any plan participant or 
                beneficiary.
            ``(2) Qualified investment adviser.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified investment adviser' means, with 
                respect to a plan, a person--
                            ``(i) who is a fiduciary of the plan by 
                        reason of the provision of investment advice by 
                        such person to a plan participant or 
                        beneficiary;
                            ``(ii) who--
                                    ``(I) is registered as an 
                                investment adviser under the Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-1 
                                et seq.),
                                    ``(II) is registered as an 
                                investment adviser under the laws of 
                                the State in which such adviser 
                                maintains the principal office and 
                                place of business of such adviser, but 
                                only if such State laws are consistent 
                                with section 203A of the Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-
                                3a),
                                    ``(III) is a bank or similar 
                                financial institution referred to in 
                                section 408(b)(4),
                                    ``(IV) is an insurance company 
                                qualified to do business under the laws 
                                of a State, or
                                    ``(V) is any other comparably 
                                qualified entity which satisfies such 
                                criteria as the Secretary determines 
                                appropriate, consistent with the 
                                purposes of this subsection, and
                            ``(iii) who meets the requirements of 
                        subparagraph (B).
                    ``(B) Adviser requirements.--The requirements of 
                this subparagraph are met if every individual employed 
                (or otherwise compensated) by a person described in 
                subparagraph (A)(ii) who provides investment advice on 
                behalf of such person to any plan participant or 
                beneficiary is--
                            ``(i) an individual described in subclause 
                        (I) of subparagraph (A)(ii),
                            ``(ii) an individual described in subclause 
                        (II) of subparagraph (A)(ii), but only if such 
                        State has an examination requirement to qualify 
                        for registration,
                            ``(iii) registered as a broker or dealer 
                        under the Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.),
                            ``(iv) a registered representative as 
                        described in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or 
                        section 202(a)(17) of the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-2(a)(17)), or
                            ``(v) any other comparably qualified 
                        individual who satisfies such criteria as the 
                        Secretary determines appropriate, consistent 
                        with the purposes of this subsection.
            ``(3) Verification requirements.--The requirements of this 
        paragraph are met if--
                    ``(A) the plan sponsor or other person who is a 
                fiduciary in designating a qualified investment adviser 
                receives at the time of the designation, and annually 
                thereafter, a written verification from the qualified 
                investment adviser that the investment adviser--
                            ``(i) is and remains a qualified investment 
                        adviser,
                            ``(ii) acknowledges that the investment 
                        adviser is a fiduciary with respect to the plan 
                        and is solely responsible for its investment 
                        advice,
                            ``(iii) has reviewed the plan documents 
                        (including investment options) and has 
                        determined that its relationship with the plan 
                        and the investment advice provided to any plan 
                        participant or beneficiary, including any fees 
                        or other compensation it will receive, will not 
                        constitute a violation of section 406,
                            ``(iv) will, in providing investment advice 
                        to any participant or beneficiary, consider any 
                        employer securities or employer real property 
                        allocated to his or her account, and
                            ``(v) has the necessary insurance coverage 
                        (as determined by the Secretary) for any claim 
                        by any plan participant or beneficiary,
                    ``(B) the plan sponsor or other person who is a 
                fiduciary in designating a qualified investment adviser 
                reviews the documents described in paragraph (4) 
                provided by such adviser and determines that there is 
                no material reason not to enter into an arrangement for 
                the provision of advice by such qualified investment 
                adviser, and
                    ``(C) the plan sponsor or other person who is a 
                fiduciary in designating a qualified investment 
                adviser, within 30 days of having information brought 
                to its attention that the investment adviser is no 
                longer qualified or that a substantial number of plan 
                participants or beneficiaries have raised concerns 
                about the services being provided by the investment 
adviser--
                            ``(i) investigates such information and 
                        concerns, and
                            ``(ii) determines that there is no material 
                        reason not to continue the designation of the 
                        adviser as a qualified investment adviser.
            ``(4) Documentation.--A qualified investment adviser shall 
        provide the following documents to the plan sponsor or other 
        person who is a fiduciary in designating the adviser:
                    ``(A) The contract with the plan sponsor or other 
                person who is a fiduciary for the services to be 
                provided by the investment adviser to the plan 
                participants and beneficiaries.
                    ``(B) A disclosure as to any fees or other 
                compensation that will be received by the investment 
                adviser for the provision of such investment advice and 
                as to any fees and other compensation that will be 
                received as a result of a participant's investment 
                election.
                    ``(C) The Uniform Application for Investment 
                Adviser Registration as filed with the Securities and 
                Exchange Commission or a substantially similar 
                disclosure application as determined by and filed with 
                the Secretary.
            ``(5) Treatment as fiduciary.--Any qualified investment 
        adviser that acknowledges it is a fiduciary pursuant to 
        paragraph (3)(A)(ii) shall be deemed a fiduciary under this 
        part with respect to the provision of investment advice to a 
        plan participant or beneficiary.''
    (b) Fiduciary Liability.--Section 404(c)(1)(B) of such Act is 
amended by inserting ``(other than a qualified investment adviser)'' 
after ``fiduciary''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to investment advisers designated after the date of 
the enactment of this Act.

SEC. 205. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.

    (a) In General.--Subsection (m) of section 132 of the Internal 
Revenue Code of 1986 (defining qualified retirement services) is 
amended by adding at the end the following new paragraph:
            ``(4) No constructive receipt.--
                    ``(A) In general.--No amount shall be included in 
                the gross income of any employee solely because the 
                employee may choose between any qualified retirement 
                planning services provided by an eligible investment 
                advisor and compensation which would otherwise be 
                includible in the gross income of such employee. The 
                preceding sentence shall apply to highly compensated 
                employees only if the choice described in such sentence 
                is available on substantially the same terms to each 
                member of the group of employees normally provided 
                education and information regarding the employer's 
                qualified employer plan.
                    ``(B) Limitation.--The maximum amount which may be 
                excluded under subparagraph (A) with respect to any 
                employee for any taxable year shall not exceed $1,000.
                    ``(C) Eligible investment adviser.--For purposes of 
                this paragraph, the term `eligible investment adviser' 
                means, with respect to a plan, a person--
                            ``(i) who--
                                    ``(I) is registered as an 
                                investment adviser under the Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-1 
                                et seq.),
                                    ``(II) is registered as an 
                                investment adviser under the laws of 
                                the State in which such adviser 
                                maintains the principal office and 
                                place of business of such adviser, but 
                                only if such State laws are consistent 
                                with section 203A of the Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-
                                3a),
                                    ``(III) is a bank or similar 
                                financial institution referred to in 
                                section 408(b)(4),
                                    ``(IV) is an insurance company 
                                qualified to do business under the laws 
                                of a State, or
                                    ``(V) is any other comparably 
                                qualified entity which satisfies such 
                                criteria as the Secretary determines 
                                appropriate, consistent with the 
                                purposes of this subsection, and
                            ``(ii) who meets the requirements of 
                        subparagraph (D).
                    ``(D) Adviser requirements.--The requirements of 
                this subparagraph are met if every individual employed 
                (or otherwise compensated) by a person described in 
                subparagraph (C)(i) who provides investment advice on 
                behalf of such person to any plan participant or 
                beneficiary is--
                            ``(i) an individual described in subclause 
                        (I) of subparagraph (C)(i),
                            ``(ii) an individual described in subclause 
                        (II) of subparagraph (C)(i), but only if such 
                        State has an examination requirement to qualify 
                        for registration,
                            ``(iii) registered as a broker or dealer 
                        under the Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.),
                            ``(iv) a registered representative as 
                        described in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or 
                        section 202(a)(17) of the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-2(a)(17)), or
                            ``(v) any other comparably qualified 
                        individual who satisfies such criteria as the 
                        Secretary determines appropriate, consistent 
                        with the purposes of this paragraph.
                    ``(E) Termination.--This paragraph shall not apply 
                to taxable years beginning after December 31, 2009.''
    (b) Conforming Amendments.--
            (1) Section 403(b)(3)(B) of such Code is amended by 
        inserting ``132(m)(4),'' after ``132(f)(4),''.
            (2) Section 414(s)(2) of such Code is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (3) Section 415(c)(3)(D)(ii) of such Code is amended by 
        inserting ``132(m)(4),'' after ``132(f)(4),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

           TITLE III--PROTECTION OF PENSION PLAN PARTICIPANTS

SEC. 301. NOTICE TO PARTICIPANTS OR BENEFICIARIES OF BLACKOUT PERIODS.

    (a) Amendments of Internal Revenue Code.--
            (1) Excise tax.--
                    (A) In general.--Chapter 43 of the Internal Revenue 
                Code of 1986 (relating to qualified pension, etc., 
                plans), as amended by this Act, is amended by adding at 
                the end the following new section:

``SEC. 4980J. FAILURE OF CERTAIN DEFINED CONTRIBUTION PLANS TO PROVIDE 
              NOTICE OF BLACKOUT PERIODS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any defined contribution plan to which this section applies 
to meet the requirements of subsection (e) with respect to any 
participant or beneficiary.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any participant 
        or beneficiary shall be $100 for each day in the noncompliance 
        period with respect to the failure.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the notice to which the failure 
        relates is provided or the failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        person subject to liability for tax under subsection (d) did 
        not know that the failure existed and exercised reasonable 
        diligence to meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected as soon as 
        reasonably practicable.--No tax shall be imposed by subsection 
        (a) on any failure if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the notice described in 
                subsection (e) as soon as reasonably practicable after 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(3) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan not described in paragraph (2) 
        or (3), the employer.
            ``(2) In the case of a multiemployer plan, the plan.
            ``(3) In the case of an arrangement described in subsection 
        (e)(1)(B), the person required to provide the notice under 
        subsection (e).
    ``(e) Notice of Blackout Periods to Participant or Beneficiary 
Under Defined Contribution Plan.--
            ``(1) In general.--
                    ``(A) Duties of plan administrator.--In advance of 
                the commencement of any blackout period with respect to 
                a defined contribution plan, the plan administrator 
                shall notify the plan participants and beneficiaries 
                who are affected by such action in accordance with this 
                subsection.
                    ``(B) Special rule for certain annuities.--In the 
                case of an annuity contract or custodial account 
                described in section 403(b) which is not a plan 
                established or maintained by the employer, the notice 
                shall be furnished by the issuer of the contract, the 
                custodian of the account, or such other person as is 
                specified by the Secretary.
            ``(2) Notice requirements.--
                    ``(A) In general.--The notices described in 
                paragraph (1) shall be written in a manner calculated 
                to be understood by the average plan participant and 
                shall include--
                            ``(i) the reasons for the blackout period,
                            ``(ii) an identification of the investments 
                        and other rights affected,
                            ``(iii) the expected beginning date and 
                        length of the blackout period,
                            ``(iv) in the case of investments affected, 
                        a statement that the participant or beneficiary 
                        should evaluate the appropriateness of their 
                        current investment decisions in light of their 
                        inability to direct or diversify assets 
                        credited to their accounts during the blackout 
                        period, and
                            ``(v) such other matters as the Secretary 
                        of Labor may require by regulation.
                    ``(B) Notice to participants and beneficiaries.--
                Except as otherwise provided in this subsection, 
                notices described in paragraph (1) shall be furnished 
                to all participants and beneficiaries under the plan to 
                whom the blackout period applies at least 30 days in 
                advance of the blackout period.
                    ``(C) Exception to 30-day notice requirement.--In 
                any case in which--
                            ``(i) a deferral of the blackout period 
                        would violate the requirements of subparagraph 
                        (A) or (B) of section 404(a)(1) of the Employee 
                        Retirement Income Security Act of 1974, and a 
                        fiduciary of the plan reasonably so determines 
                        in writing, or
                            ``(ii) the inability to provide the 30-day 
                        advance notice is due to events that were 
                        unforeseeable or circumstances beyond the 
                        reasonable control of the plan administrator, 
                        and a fiduciary of the plan reasonably so 
                        determines in writing,
                subparagraph (B) shall not apply, and the notice shall 
                be furnished to all participants and beneficiaries 
                under the plan to whom the blackout period applies as 
                soon as reasonably possible under the circumstances 
                unless such a notice in advance of the termination of 
                the blackout period is impracticable.
                    ``(D) Written notice.--The notice required to be 
                provided under this subsection shall be in writing, 
                except that such notice may be in electronic or other 
                form to the extent that such form is reasonably 
accessible to the recipient.
                    ``(E) Notice to issuers of employer securities 
                subject to blackout period.--In the case of any 
                blackout period in connection with a defined 
                contribution plan, the plan administrator shall provide 
                timely notice of such blackout period to the issuer of 
                any employer securities subject to such blackout 
                period.
            ``(3) Exception for blackout periods with limited 
        applicability.--In any case in which the blackout period 
        applies only to 1 or more participants or beneficiaries in 
        connection with a merger, acquisition, divestiture, or similar 
        transaction involving the plan or plan sponsor and occurs 
        solely in connection with becoming or ceasing to be a 
        participant or beneficiary under the plan by reason of such 
        merger, acquisition, divestiture, or transaction, the 
        requirement of this subsection that the notice be provided to 
        all participants and beneficiaries shall be treated as met if 
        the notice required under paragraph (1) is provided to such 
        participants or beneficiaries to whom the blackout period 
        applies as soon as reasonably practicable.
            ``(4) Changes in length of blackout period.--If, following 
        the furnishing of the notice pursuant to this subsection, there 
        is a change in the beginning date or length of the blackout 
        period (specified in such notice pursuant to paragraph 
        (2)(A)(iii)), the administrator shall provide affected 
        participants and beneficiaries notice of the change as soon as 
        reasonably practicable. In relation to the extended blackout 
        period, such notice shall meet the requirements of paragraph 
        (2)(D) and shall specify any material change in the matters 
        referred to in clauses (i) through (v) of paragraph (2)(A).
            ``(5) Regulatory exceptions.--The Secretary of Labor may 
        provide by regulation for additional exceptions to the 
        requirements of this subsection which the Secretary of Labor 
        determines are in the interests of participants and 
        beneficiaries.
            ``(6) Guidance and model notices.--The Secretary of Labor 
        shall issue guidance and model notices which meet the 
        requirements of this subsection.
            ``(7) Blackout period.--For purposes of this subsection--
                    ``(A) In general.--The term `blackout period' 
                means, in connection with a defined contribution plan, 
                any period for which any ability of participants or 
                beneficiaries under the plan, which is otherwise 
                available under such plan, to direct or diversify 
                assets credited to their accounts, to obtain loans from 
                the plan, or to obtain distributions from the plan is 
                temporarily suspended, limited, or restricted, if such 
                suspension, limitation, or restriction is for any 
                period of more than 3 consecutive business days.
                    ``(B) Exclusions.--The term `blackout period' does 
                not include a suspension, limitation, or restriction--
                            ``(i) which occurs by reason of the 
                        application of the securities laws (as defined 
                        in section 3(a)(47) of the Securities Exchange 
                        Act of 1934),
                            ``(ii) which is a change to the plan which 
                        provides for a regularly scheduled suspension, 
                        limitation, or restriction which is disclosed 
                        to participants or beneficiaries through any 
                        summary of material modifications, any 
                        materials describing specific investment 
                        alternatives under the plan, or any changes 
                        thereto, or
                            ``(iii) which applies only to 1 or more 
                        individuals, each of whom is the participant, 
                        an alternate payee (as defined in section 
                        414(p)(8)), or any other beneficiary pursuant 
                        to a qualified domestic relations order (as 
                        defined in section 414(p)(1)(A)).
            ``(8) Defined contribution plan to which section applies.--
                    ``(A) In general.--Except as provided in this 
                paragraph, this section applies to any defined 
                contribution plan described in clause (i), (ii), or 
                (iv) of section 219(g)(5)(A).
                    ``(B) Exception for one-participant retirement 
                plan.--This section shall not apply to a one-
                participant retirement plan (as defined in section 
                401(a)(35)(E)(iv)).
                    ``(C) Exception for governmental and church 
                plans.--This section shall not apply to governmental 
                and church plans. For purposes of this subparagraph, 
                the terms `governmental plan' and `church plan' have 
                the meanings given such terms by section 414.''
                    (B) Aggregation.--Section 414(t) of such Code, as 
                amended by this Act, is amended by striking ``or 
                4980I'' and inserting ``4980I, or 4980J''.
                    (C) Clerical amendment.--The table of sections for 
                chapter 43 of such Code is amended by adding at the end 
                the following new item:

``Sec. 4980J. Failure of applicable defined contribution plan to 
                            provide notice of blackout periods.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to failures after the date of the enactment of this 
        Act.
    (b) Amendments of ERISA.--
            (1) In general.--Section 101(i) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1021(i)) is amended--
                    (A) by striking ``the terms of'' in paragraph 
                (7)(A),
                    (B) by striking clause (i) of paragraph (8)(B) and 
                inserting:
                            ``(i) on the first day of the plan year--
                                    ``(I) covered only one individual 
                                (or the individual and the individual's 
                                spouse) and the individual owned 100 
                                percent of the plan sponsor (whether or 
                                not incorporated), or
                                    ``(II) covered only one or more 
                                partners (or partners and their 
                                spouses) in the plan sponsor,'',
                    (C) by striking ``employer'' and ``employer's'' in 
                paragraph (8)(B)(iii) and inserting ``individual'' and 
                ``individual's'', respectively,
                    (D) by striking ``leases employees'' in paragraph 
                (8)(B)(v) and inserting ``uses the services of leased 
                employees (within the meaning of section 414(n) of the 
                Internal Revenue Code of 1986)'', and
                    (E) by adding at the end of paragraph (8)(B) the 
                following flush sentence:
                ``For purposes of this paragraph, an individual shall 
                be treated as a partner if the individual is so treated 
                under section 401(a)(35)(E)(iv) of the Internal Revenue 
                Code of 1986.''
            (2) Effective date.--The amendments made by this subsection 
        shall take effect as if included in the provisions of section 
        306 of Public Law 107-204 (116 Stat. 745 et seq.).

            TITLE IV--OTHER PROVISIONS RELATING TO PENSIONS

        Subtitle A--Provisions Relating to Pension Plan Funding

  PART I--REPLACEMENT OF INTEREST RATE ON 30-YEAR TREASURY SECURITIES

SEC. 401. REPLACEMENT OF 30-YEAR TREASURY RATE FOR PURPOSES OF FUNDING 
              AND PBGC PREMIUM RATES.

    (a) Amendments of Internal Revenue Code.--
            (1) In general.--Section 412(b)(5)(B) of the Internal 
        Revenue Code of 1986 is amended to read as follows:
                    ``(B) Determination of current liability.--
                Notwithstanding subsection (c)(3), a plan's current 
                liability (including for purposes of determining a 
                plan's required contribution under subsection (l)) for 
                any plan year shall be determined--
                            ``(i) in the case of plan years beginning 
                        in 2004, 2005, or 2006, by using an interest 
                        rate determined in accordance with the rules 
                        prescribed under subsection (o)(1),
                            ``(ii) in the case of plan years beginning 
                        in 2007, 2008, 2009, or 2010, by using the 
                        phase-in yield curve method (as defined in 
                        subsection (o)(3)), and
                            ``(iii) in the case of plan years beginning 
                        after 2010, by using the yield curve method (as 
                        defined in subsection (o)(2)).''
            (2) Rules relating to current liability determinations.--
        Section 412 of such Code is amended by adding at the end the 
        following new subsection:
    ``(o) Rules Relating to Current Liability Determinations.--For 
purposes of subsection (b)(5)(B)--
            ``(1) Rules relating to interest rates for 2004-2006.--
                    ``(A) Determination of rate.--
                            ``(i) In general.--If any rate of interest 
                        used under the plan to determine cost is not 
                        within the permissible range, the plan shall 
                        establish a new rate of interest within the 
                        permissible range.
                            ``(ii) Permissible range.--For purposes of 
                        clause (i), the term `permissible range' means 
                        a rate of interest which is not more than, and 
                        not more than 10 percent below, the weighted 
                        average of conservative long-term corporate 
                        bond rates during the 4-year period ending on 
                        the last day before the beginning of the plan 
                        year.
                    ``(B) Conservative long-term corporate bond 
                rates.--The Secretary shall, by regulation, prescribe a 
                method for periodically determining conservative long-
                term corporate bond rates for purposes of this 
                paragraph. Such rates shall reflect rates of interest 
                on amounts invested in high-quality, long-term 
                corporate bonds and shall be based on the use of 1 or 
                more indices, as determined from time to time by the 
                Secretary.
            ``(2) Yield curve method.--For purposes of this subsection, 
        the yield curve method is a method under which current 
        liability is determined--
                    ``(A) by using interest rates drawn from a yield 
                curve which is prescribed by the Secretary and which 
                reflects high-quality corporate bonds, and
                    ``(B) by matching the timing of the expected 
                benefit payments under the plan to the interest rates 
                on such yield curve.
        The Secretary shall publish any yield curve prescribed under 
        this paragraph and the method by which the yield curve was 
        established.
            ``(3) Phase-in yield curve method.--
                    ``(A) In general.--The current liability under the 
                phase-in yield curve method shall be equal to the sum 
                of--
                            ``(i) the applicable percentage of current 
                        liability determined under the yield curve 
                        method described in paragraph (2), and
                            ``(ii) the product of the current liability 
                        determined by using the interest rate rules 
                        described in paragraph (1) and a percentage 
                        equal to 100 percent minus the applicable 
                        percentage.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

``In the case of years                                   The applicable
beginning in--                                          percentage is--
    2007..........................................                  20 
    2008..........................................                  40 
    2009..........................................                  60 
    2010..........................................                  80.
            ``(4) Simplified methods.--
                    ``(A) Establishment by secretary.--The Secretary 
                shall prescribe 1 or more simplified methods under 
                which current liability can be determined by 
                substituting any such method for the yield curve method 
                for purposes of paragraphs (2) and (3).
                    ``(B) Use of simplified method.--A plan (other than 
                a multiemployer plan) may use a simplified method 
                established under subparagraph (A) if, on each day 
                during the preceding plan year, the plan had no more 
                than 100 participants. The aggregation rule under 
                subsection (l)(6)(C) shall apply for purposes of this 
                subparagraph.''
            (3) Additional funding requirements.--Section 
        412(l)(7)(C)(i) of such Code is amended to read as follows:
                            ``(i) Current liability.--Current liability 
                        under this subsection for any plan year shall 
                        be determined under the rules or method 
                        provided under subsection (b)(5) for the plan 
                        year.''
    (b) Amendments of ERISA.--
            (1) In general.--Section 302(b)(5)(B) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1082(b)(5)(B)) is amended to read as follows:
                    ``(B) Determination of current liability.--
                Notwithstanding subsection (c)(3), a plan's current 
                liability (including for purposes of determining a 
                plan's required contribution under subsection (d)) for 
                any plan year shall be determined--
                            ``(i) in the case of plan years beginning 
                        in 2004, 2005, or 2006, by using an interest 
                        rate determined in accordance with the rules 
                        prescribed under subsection (h)(1),
                            ``(ii) in the case of plan years beginning 
                        in 2007, 2008, 2009, or 2010, by using the 
                        phase-in yield curve method (as defined in 
                        subsection (h)(3)), and
                            ``(iii) in the case of plan years beginning 
                        after 2010, by using the yield curve method (as 
                        defined in subsection (h)(2)).''
            (2) Rules relating to current liability determinations.--
        Section 302 of such Act (29 U.S.C. 1082) is amended by 
        redesignating subsection (h) as subsection (i) and by inserting 
        after subsection (g) the following new subsection:
    ``(h) Rules Relating to Current Liability Determinations.--For 
purposes of subsection (b)(5)(B)--
            ``(1) Rules relating to interest rates for 2004-2006.--
                    ``(A) Determination of rate.--
                            ``(i) In general.--If any rate of interest 
                        used under the plan to determine cost is not 
                        within the permissible range, the plan shall 
                        establish a new rate of interest within the 
                        permissible range.
                            ``(ii) Permissible range.--For purposes of 
                        clause (i), the term `permissible range' means 
                        a rate of interest which is not more than, and 
                        not more than 10 percent below, the weighted 
                        average of conservative long-term corporate 
                        bond rates during the 4-year period ending on 
                        the last day before the beginning of the plan 
                        year.
                    ``(B) Conservative long-term corporate bond 
                rates.--The Secretary of the Treasury shall, by 
                regulation, prescribe a method for periodically 
                determining conservative long-term corporate bond rates 
                for purposes of this paragraph. Such rates shall 
                reflect rates of interest on amounts invested in high-
                quality, long-term corporate bonds and shall be based 
                on the use of 1 or more indices, as determined from 
                time to time by the Secretary of the Treasury.
            ``(2) Yield curve method.--For purposes of this subsection, 
        the yield curve method is a method under which current 
        liability is determined--
                    ``(A) by using interest rates drawn from a yield 
                curve which is prescribed by the Secretary of the 
                Treasury and which reflects high-quality corporate 
                bonds, and
                    ``(B) by matching the timing of the expected 
                benefit payments under the plan to the interest rates 
                on such yield curve.
        The Secretary of the Treasury shall publish any yield curve 
        prescribed under this paragraph and the method by which the 
        yield curve was established.
            ``(3) Phase-in yield curve method.--
                    ``(A) In general.--The current liability under the 
                phase-in yield curve method shall be equal to the sum 
                of--
                            ``(i) the applicable percentage of current 
                        liability determined under the yield curve 
                        method described in paragraph (2), and
                            ``(ii) the product of the current liability 
                        determined by using the interest rate rules 
                        described in paragraph (1) and a percentage 
                        equal to 100 percent minus the applicable 
                        percentage.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be 
                determined in accordance with the following table:

``In the case of years                                   The applicable
beginning in--                                          percentage is--
    2007..........................................                  20 
    2008..........................................                  40 
    2009..........................................                  60 
    2010..........................................                  80.
            ``(4) Simplified methods.--
                    ``(A) Establishment by secretary.--The Secretary of 
                the Treasury shall prescribe 1 or more simplified 
                methods under which current liability can be determined 
                by substituting any such method for the yield curve 
                method for purposes of paragraphs (2) and (3).
                    ``(B) Use of simplified method.--A plan (other than 
                a multiemployer plan) may use a simplified method 
                established under subparagraph (A) if, on each day 
                during the preceding plan year, the plan had no more 
                than 100 participants. The aggregation rule under 
                subsection (d)(6)(C) shall apply for purposes of this 
                subparagraph.''
            (3) Additional funding requirements.--Section 
        302(d)(7)(C)(i) of such Act (29 U.S.C. 1082(d)(7)(C)(i)) is 
        amended to read as follows:
                            ``(i) Current liability.--Current liability 
                        under this subsection for any plan year shall 
                        be determined under the rules or method 
                        provided under subsection (b)(5) for the plan 
                        year.''
            (4) PBGC premium rates.--
                    (A) In general.--Section 4006(a)(3)(E)(iii)(II) of 
                such Act (29 U.S.C. 1306(a)(3)(E)(iii)(II)) is amended 
                to read as follows:
                                    ``(II) For purposes of determining 
                                unfunded current liability under 
                                subclause (I), current liability for 
                                any plan year shall be determined under 
                                the rules or method provided under 
                                section 302(b)(5) for the plan year, 
                                except that for purposes of plan years 
                                beginning in 2004, 2005, or 2006, the 
                                interest rate used shall be the 
                                conservative long-term corporate bond 
                                rate for the month preceding the month 
                                in which the plan year begins. For 
                                purposes of the preceding sentence, a 
                                plan may, in lieu of the yield curve 
                                method, use a simplified method under 
                                section 302(h)(4) in applying paragraph 
                                (2) or (3) of section 302(h).''
                    (B) Conforming amendments.--Section 
                4006(a)(3)(E)(iii) of such Act (29 U.S.C. 
                1306(a)(3)(E)(iii)) is amended by striking subclauses 
                (III), (IV), and (V).
    (c) Conforming Changes Regarding Quarterly Contributions.--
            (1) Amendment of internal revenue code.--Section 
        412(m)(1)(B) of the Internal Revenue Code of 1986 (relating to 
        quarterly contributions) is amended by striking ``(including 
        adjustments under subsection (b)(5)(B))''.
            (2) Amendment of erisa.--Section 302(e)(1)(B) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1082(e)(1)(B)) is amended by striking ``(including adjustments 
        under subsection (b)(5)(B))''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to plan 
        years beginning after December 31, 2003.
            (2) Lookback rules.--For purposes of applying subsections 
        (d)(9)(B) and (e)(1) of section 302 of the Employee Retirement 
        Income Security Act of 1974 and subsections (l)(9)(B) and 
        (m)(1) of section 412 of the Internal Revenue Code of 1986 to 
        plan years beginning after December 31, 2003, the amendments 
        made by this section may be applied as if such amendments had 
        been in effect for all prior plan years. The Secretary of the 
        Treasury may prescribe simplified assumptions which may be used 
        in applying the amendments made by this section to such prior 
        plan years.

SEC. 402. REPLACEMENT OF 30-YEAR TREASURY RATE FOR CALCULATING LUMP-SUM 
              DISTRIBUTIONS.

    (a) Amendments of Internal Revenue Code.--Section 417(e)(3)(A) of 
the Internal Revenue Code of 1986 (relating to determination of present 
value) is amended--
            (1) by striking ``and the applicable interest rate.'' in 
        clause (i) and inserting ``and by using--
                                    ``(I) the phase-in yield curve 
                                method in the case of plan years 
                                beginning in 2007, 2008, 2009, or 2010, 
                                and
                                    ``(II) the yield curve method for 
                                years beginning after 2010.'', and
            (2) by striking subclause (II) of clause (ii) and 
        inserting:
                                    ``(II) Yield curve methods.--The 
                                terms `yield curve method' and `phase-
                                in yield curve method' have the 
                                meanings given such terms by paragraphs 
                                (2) and (3) of section 412(o), 
                                respectively, except that each such 
                                paragraph shall be applied by 
                                substituting `present value' for 
                                `current liability' and in applying 
                                paragraph (3)(A)(ii) of section 412(o), 
                                the annual rate of interest on 30-year 
                                Treasury securities shall be 
                                substituted for the interest rate under 
                                section 412(o)(1). A plan may, in lieu 
                                of the yield curve method, use a 
                                simplified method under section 
                                412(o)(4) for purposes of applying such 
                                paragraphs.''
    (b) Amendments of ERISA.--Section 205(g)(3)(A) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1055(g)(3)) is 
amended--
            (1) by striking ``and the applicable interest rate.'' in 
        clause (i) and inserting ``and by using--
                                    ``(I) the phase-in yield curve 
                                method in the case of plan years 
                                beginning in 2007, 2008, 2009, or 2010, 
                                and
                                    ``(II) the yield curve method for 
                                years beginning after 2010.'', and
            (2) by striking subclause (II) of clause (ii) and 
        inserting:
                                    ``(II) Yield curve methods.--The 
                                terms `yield curve method' and `phase-
                                in yield curve method' have the 
                                meanings given such terms by paragraphs 
                                (2) and (3) of section 302(h), 
                                respectively, except that each such 
                                paragraph shall be applied by 
                                substituting `present value' for 
                                `current liability' and in applying 
                                paragraph (3)(A)(ii) of section 302(h), 
                                the annual rate of interest on 30-year 
                                Treasury securities shall be 
                                substituted for the interest rate under 
                                section 302(h)(1). A plan may, in lieu 
                                of the yield curve method, use a 
                                simplified method under section 
                                302(h)(4) for purposes of applying such 
                                paragraphs.''
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2006.
            (2) Special rule for certain optional benefits.--If--
                    (A) for the last plan year of a plan beginning in 
                2003, the plan provides that the applicable interest 
                rate under section 417(e)(3) of the Internal Revenue 
                Code of 1986 and section 205(g)(3) of Employee 
                Retirement Income Security Act of 1974 shall be used 
                for purposes of determining the amount of a benefit 
                (other than the accrued benefit) to which such sections 
                417(e)(3) and 205(g)(3) do not apply, and
                    (B) such plan is amended to provide that a rate 
                other than the applicable interest rate shall be used 
                for such purposes and the first plan year for which 
                such amendment is effective begins no later than 
                January 1, 2007,
        such plan shall not fail to meet the requirements of section 
        411(d)(6) of the Internal Revenue Code of 1986 and section 
        204(g) of Employee Retirement Income Security Act of 1974 by 
        reason of such amendment.

SEC. 403. SECTION 415 LIMITATION ON DEFINED BENEFIT PLANS.

    (a) In General.--Section 415(b)(2)(E)(ii) of the Internal Revenue 
Code of 1986 (relating to limitation on certain assumptions) is amended 
to read as follows:
                            ``(ii) For purposes of adjusting any 
                        benefit under subparagraph (B) for any form of 
                        benefit subject to section 417(e)(3), `5.5 
                        percent' shall be substituted for `5 percent' 
                        in clause (i).''
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to years beginning after December 31, 2003.
            (2) Transition rule for 2004 and 2005.--In the case of any 
        year beginning in 2004 or 2005, the amendment made by this 
        section shall not apply if a greater benefit would be permitted 
if section 415(b)(2)(E)(ii) of such Code were applied without regard to 
the amendment.

                       PART II--OTHER PROVISIONS

SEC. 406. DEFICIT REDUCTION CONTRIBUTION.

    (a) Amendment of 1986 Code.--Section 412(l)(12) of the Internal 
Revenue Code of 1986 (relating to applicability of subsection) is 
amended to read as follows:
            ``(12) Exception for plans meeting requirements in 2000.--
        If this subsection did not apply to any plan year of a plan 
        beginning in 2000 (determined without regard to paragraph (6)), 
        this subsection shall not apply to such plan for any plan year 
        beginning in 2004, 2005, or 2006.''
    (b) Amendment of ERISA.--Section 302(d)(12) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(d)(9)) is 
amended to read as follows:
            ``(12) Exception for plans meeting requirements in 2000.--
        If this subsection did not apply to any plan year of a plan 
        beginning in 2000 (determined without regard to paragraph (6)), 
        this subsection shall not apply to such plan for any plan year 
        beginning in 2004, 2005, or 2006.''

SEC. 407. DEDUCTION LIMITS FOR PLAN CONTRIBUTIONS.

    (a) In General.--Clause (i) of section 404(a)(1)(D) of the Internal 
Revenue Code of 1986 (relating to special rule in case of certain 
plans) is amended by striking ``section 412(l)'' and inserting 
``section 412(l)(8)(A), except that section 412(l)(8)(A) shall be 
applied for purposes of this clause by substituting `130 percent of 
current liability' for `the current liability' in clause (i).''
    (b) Conforming Amendment.--Section 404(a)(1) of the Internal 
Revenue Code of 1986 is amended by striking subparagraph (F).
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2003.

SEC. 408. BENEFIT LIMITATIONS FOR CERTAIN FINANCIALLY DISTRESSED PLANS.

    (a) Internal Revenue Code of 1986.--Section 401(a) of the Internal 
Revenue Code of 1986 (relating to qualified pension, profit-sharing, 
and stock bonus plans), as amended by this Act, is amended by adding 
after paragraph (35) the following new paragraph:
            ``(36) Benefit limitations for certain financially 
        distressed plans.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this part, if a defined benefit plan to 
                which the requirements of section 412(l) apply is a 
                financially distressed plan for any plan year, a trust 
                forming part of the plan shall not be treated as a 
                qualified trust under this section unless--
                            ``(i) no amendment to the plan takes effect 
                        during the plan year if such amendment 
                        increases liabilities of the plan by reason of 
                        increases in benefits, any change in the 
                        accrual of benefits, or any change in the rate 
                        at which benefits become nonforfeitable,
                            ``(ii) notwithstanding any other provision 
                        of the plan--
                                    ``(I) the accrued benefit, any 
                                death or disability benefit, and any 
                                social security supplement described in 
                                the last sentence of section 411(a)(9) 
                                of each participant are frozen at the 
                                amount of such benefit or supplement as 
                                of the end of the preceding plan year, 
                                determined without regard to any plan 
                                amendment adopted during the preceding 
                                plan year which increased any such 
                                benefit or supplement and determined 
                                after the application of this 
                                subclause, and
                                    ``(II) all other benefits provided 
                                under the plan are eliminated,
                        but only to the extent the freezing or 
                        elimination of such benefits would have been 
                        permitted under section 411(d)(6) if they had 
                        been implemented by a plan amendment adopted at 
                        the end of the preceding plan year, and
                            ``(iii) no payments described in paragraph 
                        (32)(B) are made to any participant or 
                        beneficiary whose annuity starting date occurs 
                        during the plan year.
                Clause (iii) shall apply to any plan year beginning 
                after such plan year and before the 1st plan year 
                following such plan year for which the plan is not a 
                financially distressed plan.
                    ``(B) Special rules if funding increases to at 
                least 50 percent.--If a plan is a financially 
                distressed plan for any plan year but the funded 
                current liability percentage as of the beginning of the 
                preceding plan year is at least 50 percent--
                            ``(i) an amendment described in 
                        subparagraph (A)(i) may take effect but only if 
                        the funded current liability percentage as of 
                        the end of the plan year is projected (taking 
                        into the account the effect of the amendment) 
                        to be at least 50 percent, and
                            ``(ii) the requirements of subparagraph 
                        (A)(ii) shall not apply with respect to the 
                        plan year or any preceding plan year.
                    ``(C) Special rules.--For purposes of this 
                paragraph--
                            ``(i) Impermissible amendments.--If a plan 
                        adopts an amendment in violation of 
                        subparagraph (A)(i) or (B)(i), the provisions 
                        of the plan shall be applied without regard to 
                        the amendment.
                            ``(ii) Collectively bargained plans.--In 
                        the case of a plan maintained pursuant to a 
                        collective bargaining agreement between 
                        employee representatives and the employer and 
                        in effect before the beginning of the first 
                        plan year of any continuous period of 1 or more 
                        plan years for which a plan is a financially 
                        distressed plan, this paragraph shall not be 
                        applied to benefits pursuant to, and 
                        individuals covered by, such agreement for plan 
                        years beginning before the date on which such 
                        collective bargaining agreement terminates 
                        (determined without regard to any extension 
                        thereof).
                    ``(D) Financially distressed plan.--For purposes of 
                this paragraph--
                            ``(i) In general.--A plan shall be treated 
                        as a financially distressed plan for any plan 
                        year if--
                                    ``(I) the plan sponsor during any 2 
                                of the 5 plan years immediately 
                                preceding such plan year has an 
                                outstanding debt instrument which is 
                                rated speculative grade or lower by 1 
                                or more nationally recognized 
                                statistical rating organizations for 
                                corporate bonds, and
                                    ``(II) the funded current liability 
                                percentage of the plan as of the 
                                beginning of the plan year preceding 
                                such plan year is less than 50 percent.
                        The Secretary shall prescribe rules for the 
                        application of subclause (I) in cases where 
                        outstanding debt instruments of the plan 
                        sponsor are not rated.
                            ``(ii) Financial status must improve for at 
                        least 5 years.--
                                    ``(I) In general.--Notwithstanding 
                                clause (i), if a plan is treated under 
                                clause (i) as a financially distressed 
                                plan for 1 or more plan years, the plan 
                                shall continue to be treated as a 
                                financially distressed plan for 
                                subsequent plan years beginning before 
                                the first plan year after the close of 
                                the first period described in subclause 
                                (II).
                                    ``(II) 5-year period.--A period 
                                described in this subparagraph is a 5-
                                consecutive-plan year period if during 
                                each of the 5 plan years in the period 
                                the plan sponsor did not have an 
                                outstanding debt obligation described 
                                in clause (i)(I) or during each of such 
                                5 plan years the plan was not described 
                                in clause (i)(II).
                    ``(E) Funded current liability percentage.--For 
                purposes of this paragraph, the term `funded current 
                liability percentage' has the meaning given such term 
                by section 412(l)(8)(B), except that the current 
                liability used in computing such percentage shall be 
                determined by only taking into account vested benefits 
                and by using the interest rate described in section 
                4006(a)(3)(E)(iii)(II) of the Employee Retirement 
                Income Security Act of 1974 and the fair market value 
                of the plan assets.''
    (b) Employee Retirement Income Security Act of 1974.--
            (1) In general.--Section 206 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1056) is amended by 
        adding at the end the following new subsection:
    ``(g) Benefit Limitations for Certain Financially Distressed 
Plans.--
            ``(1) In general.--Notwithstanding any other provision of 
        this part, if a defined benefit plan to which the requirements 
        of section 302(d) apply is a financially distressed plan for 
        any plan year--
                    ``(A) no amendment to the plan shall take effect 
                during the plan year if such amendment increases 
                liabilities of the plan by reason of increases in 
                benefits, any change in the accrual of benefits, or any 
                change in the rate at which benefits become 
                nonforfeitable,
                    ``(B) notwithstanding any other provision of the 
                plan--
                            ``(i) the accrued benefit, any death or 
                        disability benefit, and any social security 
                        supplement described in the last sentence of 
                        section 3(22) of each participant shall be 
                        frozen at the amount of such benefit or 
                        supplement as of the end of the preceding plan 
                        year, determined without regard to any plan 
                        amendment adopted during the preceding plan 
                        year which increased any such benefit or 
                        supplement and determined after the application 
                        of this clause, and
                            ``(ii) all other benefits provided under 
                        the plan shall be eliminated,
                but only to the extent the freezing or elimination of 
                such benefits would have been permitted under section 
                204(g) if they had been implemented by a plan amendment 
                adopted at the end of the preceding plan year, and
                    ``(C) the plan may not make any payments described 
                in section 206(e)(2) to any participant or beneficiary 
                whose annuity starting date occurs during the plan 
                year.
        Subparagraph (C) shall apply to any plan year beginning after 
        such plan year and before the 1st plan year following such plan 
        year for which the plan is not a financially distressed plan.
            ``(2) Special rules if funding increases to at least 50 
        percent.--If a plan is a financially distressed plan for any 
        plan year but the funded current liability percentage as of the 
        beginning of the preceding plan year is at least 50 percent--
                    ``(A) an amendment described in paragraph (1)(A) 
                may take effect but only if the funded current 
                liability percentage as of the end of the plan year is 
                projected (taking into the account the effect of the 
                amendment) to be at least 50 percent, and
                    ``(B) the requirements of paragraph (1)(B) shall 
                not apply with respect to the plan year or any 
                preceding plan year.
            ``(3) Special rules.--For purposes of this subsection--
                    ``(A) Impermissible amendments.--If a plan adopts 
                an amendment in violation of paragraph (1)(A) or 
                (2)(A), the provisions of the plan shall be applied 
                without regard to the amendment.
                    ``(B) Collectively bargained plans.--In the case of 
                a plan maintained pursuant to a collective bargaining 
                agreement between employee representatives and the 
                employer and in effect before the beginning of the 
                first plan year of any continuous period of 1 or more 
                plan years for which a plan is a financially distressed 
                plan, this paragraph shall not be applied to benefits 
                pursuant to, and individuals covered by, such agreement 
                for plan years beginning before the date on which such 
                collective bargaining agreement terminates (determined 
                without regard to any extension thereof).
            ``(4) Notice requirements.--
                    ``(A) In general.--The plan administrator of a plan 
                which is a financially distressed plan for any year 
                shall, at least 45 days before the beginning of the 
                plan year, notify each plan participant or beneficiary, 
                each labor organization representing such participants 
                or beneficiaries, and the Pension Benefit Guaranty 
                Corporation that--
                            ``(i) the plan is treated as a financially 
                        distressed plan for purposes of this subsection 
                        and the reasons why it is so treated, and
                            ``(ii) the restrictions applicable to the 
                        plan under this subsection for the plan year.
                The Secretary of the Treasury may provide for the 
                coordination of the notice under this subsection with 
                the notice under section 204(h).
                    ``(B) Form and manner.--Any notice under 
                subparagraph (A)--
                            ``(i) shall be provided in a form and 
                        manner prescribed by the Secretary of the 
                        Treasury,
                            ``(ii) shall be written in a manner so as 
                        to be understood by the average plan 
                        participant, and
                            ``(iii) may be provided in written, 
                        electronic, or other appropriate form to the 
                        extent such form is reasonably accessible to 
                        persons to whom the notice is required to be 
                        provided.
            ``(5) Financially distressed plan.--For purposes of this 
        subsection--
                    ``(A) In general.--A plan shall be treated as a 
                financially distressed plan for any plan year if--
                            ``(i) the plan sponsor during any 2 of the 
                        5 plan years immediately preceding such plan 
                        year has an outstanding debt instrument which 
                        is rated speculative grade or lower by 1 or 
                        more nationally recognized statistical rating 
                        organizations for corporate bonds, and
                            ``(ii) the funded current liability 
                        percentage of the plan as of the beginning of 
                        the plan year preceding such plan year is less 
                        than 50 percent.
                The Secretary of the Treasury shall prescribe rules for 
                the application of clause (i) in cases where 
                outstanding debt instruments of the plan sponsor are 
                not rated.
                    ``(B) Financial status must improve for at least 5 
                years.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A), if a plan is treated under 
                        subparagraph (A) as a financially distressed 
                        plan for 1 or more plan years, the plan shall 
                        continue to be treated as a financially 
                        distressed plan for subsequent plan years 
                        beginning before the first plan year after the 
                        close of the first period described in clause 
                        (ii).
                            ``(ii) 5-year period.--A period described 
                        in this clause is any 5-consecutive-plan year 
                        period if during each of the 5 plan years in 
                        the period the plan sponsor did not have an 
                        outstanding debt instrument described in 
                        subparagraph (A)(i) or during each of such 5 
                        plan years the plan was not described in 
                        subparagraph (A)(ii).
            ``(6) Funded current liability percentage.--For purposes of 
        this subsection the term `funded current liability percentage' 
        has the meaning given such term by section 302(d)(8)(B), except 
        that the current liability used in computing such percentage 
        shall be determined by only taking into account vested benefits 
        and by using the interest rate described in section 
        4006(a)(3)(E)(iii)(II) and the fair market value of the plan 
        assets.''
            (2) Enforcement.--Section 502(c)(3) of such Act (29 U.S.C. 
        1132(c)(3)) is amended by inserting ``206(g)(4) or'' before 
        ``302(d)(12)(E)''.
    (c) Funding Recommendations.--The Secretary of the Treasury shall, 
not later than December 31, 2004, submit to the Committees on Ways and 
Means and Education and the Workforce of the House of Representatives 
and the Committees on Finance and Health, Education, Labor, and 
Pensions of the Senate the Secretary's recommendations for future 
changes to the pension plan funding requirements to strengthen the 
funded status of pension plans, including recommendations relating to 
the disclosure by pension plans of their funded status.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2006.
            (2) Rules.--The Secretary of the Treasury shall, not later 
        than December 31, 2005, publish such rules as are necessary to 
        carry out the amendments made by this section.
            (3) Collective bargaining agreements.--In the case of a 
        plan maintained pursuant to 1 or more collective bargaining 
        agreements between employee representatives and 1 or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        employees covered by any such agreement for plan years 
        beginning before the later of--
                    (A) 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 enactment); or
                    (B) January 1, 2007.

SEC. 409. UPDATING DEDUCTION RULES FOR COMBINATION OF PLANS.

    (a) In General.--Subparagraph (C) of section 404(a)(7) of the 
Internal Revenue Code of 1986 (relating to limitation on deductions 
where combination of defined contribution plan and defined benefit 
plan) is amended by adding after clause (ii) the following new clause:
                            ``(iii) Limitation.--In the case of 
                        employer contributions to 1 or more defined 
                        contribution plans, this paragraph shall only 
                        apply to the extent that such contributions 
                        exceed 6 percent of the compensation otherwise 
                        paid or accrued during the taxable year to the 
                        beneficiaries under such plans. For purposes of 
                        this clause, amounts carried over from 
                        preceding taxable years under subparagraph (B) 
                        shall be treated as employer contributions to 1 
                        or more defined contributions to the extent 
                        attributable to employer contributions to such 
                        plans in such preceding taxable years.''
    (b) Conforming Amendment.--Subparagraph (A) of section 4972(c)(6) 
of such Code (relating to nondeductible contributions) is amended to 
read as follows:
                    ``(A) so much of the contributions to 1 or more 
                defined contribution plans which are not deductible 
                when contributed solely because of section 404(a)(7) as 
                does not exceed the amount of contributions described 
                in section 401(m)(4)(A).''
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions for taxable years beginning after December 31, 
2004.

     Subtitle B--Improvements in Portability and Distribution Rules

SEC. 411. CLARIFICATIONS REGARDING PURCHASE OF PERMISSIVE SERVICE 
              CREDIT.

    (a) In General.--Section 415(n) of the Internal Revenue Code of 
1986 (relating to special rules for the purchase of permissive service 
credit) is amended--
            (1) by striking ``employee'' in paragraph (1) and inserting 
        ``participant'', and
            (2) by adding at the end of paragraph (3)(A) the following 
        new flush sentence:
                ``Such term may include service credit for periods for 
                which there is no performance of service, and 
                notwithstanding clause (ii), may include service 
                credited in order to provide an increased benefit for 
                service credit which a participant is receiving under 
                the plan.''
    (b) Special Rules for Trustee-to-Trustee Transfers.--Section 
415(n)(3) of such Code is amended by adding at the end the following 
new subparagraph:
                    ``(D) Special rules for trustee-to-trustee 
                transfers.--In the case of a trustee-to-trustee 
                transfer to which section 403(b)(13)(A) or 
                457(e)(17)(A) applies (without regard to whether the 
                transfer is made between plans maintained by the same 
                employer)--
                            ``(i) the limitations of subparagraph (B) 
                        shall not apply in determining whether the 
                        transfer is for the purchase of permissive 
                        service credit, and
                            ``(ii) the distribution rules applicable 
                        under this title to the defined benefit 
                        governmental plan to which any amounts are so 
                        transferred shall apply to such amounts and any 
                        benefits attributable to such amounts.''
    (c) Nonqualified Service.--Section 415(n)(3) of such Code is 
amended--
            (1) by striking ``permissive service credit attributable to 
        nonqualified service'' each place it appears in subparagraph 
        (B) and inserting ``nonqualified service credit'',
            (2) by striking so much of subparagraph (C) as precedes 
        clause (i) and inserting:
                    ``(C) Nonqualified service credit.--For purposes of 
                subparagraph (B), the term `nonqualified service 
                credit' means permissive service credit other than that 
                allowed with respect to--'', and
            (3) by striking ``elementary or secondary education 
        (through grade 12), as determined under State law'' and 
        inserting ``elementary or secondary education (through grade 
        12), or a comparable level of education, as determined under 
        the applicable law of the jurisdiction in which the service was 
        performed''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by subsections (a) and 
        (c) shall take effect as if included in the amendments made by 
        section 1526 of the Taxpayer Relief Act of 1997.
            (2) Subsection (b).--The amendments made by subsection (b) 
        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. 412. ALLOW 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--
            (1) by striking ``which is part of a plan which is a 
        defined contribution plan and which agrees to separately 
        account'' and inserting ``or to an annuity contract described 
        in section 403(b) and such trust or contract provides for 
        separate accounting''; and
            (2) by inserting ``(and earnings thereon)'' after ``so 
        transferred''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2004.

SEC. 413. CLARIFICATION OF MINIMUM DISTRIBUTION RULES.

    The Secretary of the Treasury shall issue regulations under which a 
governmental plan (as defined in section 414(d) of the Internal Revenue 
Code of 1986) shall, for all years to which section 401(a)(9) of such 
Code applies to such plan, be treated as having complied with such 
section 401(a)(9) if such plan complies with a reasonable good faith 
interpretation of such section 401(a)(9).

SEC. 414. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON CERTAIN 
              DISTRIBUTIONS OF PENSION PLANS FOR PUBLIC SAFETY 
              EMPLOYEES.

    (a) In General.--Section 72(t) of the Internal Revenue Code of 1986 
(relating to subsection not to apply to certain distributions) is 
amended by adding at the end the following new paragraph:
            ``(10) Distributions to qualified public safety employees 
        in governmental plans.--
                    ``(A) In general.--In the case of a distribution to 
                a qualified public safety employee from a governmental 
                plan (within the meaning of section 414(d)) which is a 
                defined benefit plan, paragraph (2)(A)(v) shall be 
                applied by substituting `age 50' for `age 55'.
                    ``(B) Qualified public safety employee.--For 
                purposes of this paragraph, the term `qualified public 
                safety employee' means any employee of a State or 
                political subdivision of a State who provides police 
                protection, firefighting services, or emergency medical 
                services for any area within the jurisdiction of such 
                State or political subdivision.''
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after the date of the enactment of this Act.

SEC. 415. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CERTAIN 
              RETIREMENT PLAN DISTRIBUTIONS.

    (a) In General.--
            (1) Qualified plans.--Section 402(c) of the Internal 
        Revenue Code of 1986 (relating to rollovers from exempt trusts) 
        is amended by adding at the end the following new paragraph:
            ``(11) Distributions to inherited individual retirement 
        plan of nonspouse beneficiary.--
                    ``(A) In general.--If, with respect to any portion 
                of a distribution from an eligible retirement plan of a 
                deceased employee, a direct trustee-to-trustee transfer 
                is made to an individual retirement plan described in 
                clause (i) or (ii) of paragraph (8)(B) established for 
                the purposes of receiving the distribution on behalf of 
                an individual who is a designated beneficiary (as 
                defined by section 401(a)(9)(E)) of the employee and 
                who is not the surviving spouse of the employee--
                            ``(i) the transfer shall be treated as an 
                        eligible rollover distribution for purposes of 
                        this subsection,
                            ``(ii) the individual retirement plan shall 
                        be treated as an inherited individual 
                        retirement account or individual retirement 
                        annuity (within the meaning of section 
                        408(d)(3)(C)) for purposes of this title, and
                            ``(iii) section 401(a)(9)(B) (other than 
                        clause (iv) thereof) shall apply to such plan.
                    ``(B) Certain trusts treated as beneficiaries.--For 
                purposes of this paragraph, to the extent provided in 
                rules prescribed by the Secretary, a trust maintained 
                for the benefit of one or more designated beneficiaries 
                shall be treated in the same manner as a designated 
                beneficiary.''
            (2) Section 403(a) plans.--Subparagraph (B) of section 
        403(a)(4) of such Code (relating to rollover amounts) is 
        amended by inserting ``and (11)'' after ``(7)''.
            (3) Section 403(b) plans.--Subparagraph (B) of section 
        403(b)(8) of such Code (relating to rollover amounts) is 
        amended by striking ``and (9)'' and inserting ``, (9), and 
        (11)''.
            (4) Section 457 plans.--Subparagraph (B) of section 
        457(e)(16) of such Code (relating to rollover amounts) is 
        amended by striking ``and (9)'' and inserting ``, (9), and 
        (11)''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2004.

SEC. 416. FASTER VESTING OF EMPLOYER NONELECTIVE CONTRIBUTIONS.

    (a) Amendments to the Internal Revenue Code of 1986.--
            (1) In general.--Paragraph (2) of section 411(a) of the 
        Internal Revenue Code of 1986 (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 or more..............................      100.''
            (2) Conforming amendment.--Section 411(a) of such Code 
        (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 or more..............................      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, 2004.
            (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 before 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, 2005; or
                    (B) January 1, 2007.
            (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. 417. ALLOW DIRECT ROLLOVERS FROM RETIREMENT PLANS TO ROTH IRAS.

    (a) In General.--Subsection (e) of section 408A of the Internal 
Revenue Code of 1986 (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) of such Code 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) of such Code 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 inserting ``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, 2004.

SEC. 418. ELIMINATION OF HIGHER PENALTY ON CERTAIN SIMPLE PLAN 
              DISTRIBUTIONS.

    (a) In General.--Subsection (t) of section 72 of the Internal 
Revenue Code of 1986 (relating to 10-percent additional tax on early 
distributions from qualified retirement plans), as amended by section 
414, is amended by striking paragraph (6) and redesignating paragraphs 
(7), (8), (9), and (10) as paragraphs (6), (7), (8), and (9), 
respectively.
    (b) Conforming Amendments.--
            (1) Section 72(t)(2)(E) of such Code is amended by striking 
        ``paragraph (7)'' and inserting ``paragraph (6)''.
            (2) Section 72(t)(2)(F) of such Code is amended by striking 
        ``paragraph (8)'' and inserting ``paragraph (7)''.
            (3) Section 408(d)(3)(G) of such Code is amended by 
        striking ``applies'' and inserting ``applied on the day before 
        the date of the enactment of the National Employee Savings and 
        Trust Equity Guarantee Act of 2004)''.
            (4) Section 457(a)(2) of such Code 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, 2004.

SEC. 419. SIMPLE PLAN PORTABILITY.

    (a) Repeal of Limitation.--Paragraph (3) of section 408(d) of the 
Internal Revenue Code of 1986 (relating to rollover contributions), as 
amended by this Act, is amended by striking subparagraph (G) and 
redesignating subparagraphs (H) and (I) as subparagraphs (G) and (H), 
respectively.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2004.

SEC. 420. ELIGIBILITY FOR PARTICIPATION IN RETIREMENT PLANS.

    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. 421. TRANSFERS TO THE PBGC.

    (a) Mandatory Distributions to PBGC.--Clause (i) of section 
401(a)(31)(B) of the Internal Revenue Code of 1986 (relating to general 
rule for certain mandatory distributions) is amended by inserting ``to 
the Pension Benefit Guaranty Corporation in accordance with section 
4050(e) of the Employee Retirement Income Security Act of 1974 or'' 
after ``such transfer''.
    (b) Tax Treatment of Distributions.--Subparagraph (B) of section 
401(a)(31) of such Code is amended by adding at the end the following 
new clause:
                            ``(iii) Income tax treatment of transfers 
                        to pbgc.--For purposes of determining the 
                        income tax treatment relating to transfers to 
                        the Pension Benefit Guaranty Corporation under 
                        clause (i)--
                                    ``(I) the transfer of amounts to 
                                the Pension Benefit Guaranty 
                                Corporation pursuant to clause (i) 
                                shall be treated as a transfer to an 
                                individual retirement plan under such 
                                clause, and
                                    ``(II) the distribution of such 
                                amounts from the Pension Benefit 
                                Guaranty Corporation shall be treated 
                                as a distribution from an individual 
                                retirement plan.''
    (c) Missing Participants and Beneficiaries.--Section 4050 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1350), as 
amended by section 435, is amended by redesignating subsection (e) as 
subsection (f) and by inserting after subsection (d) the following new 
subsection:
    ``(e) Involuntary Cashouts.--
            ``(1) Payment by the corporation.--If benefits under a plan 
        described in paragraph (3) were transferred to the corporation 
        under section 401(a)(31)(B) of the Internal Revenue Code of 
        1986, the corporation shall, upon application filed by the 
        participant or beneficiary with the corporation in such form 
        and manner as may be prescribed in regulations of the 
        corporation, pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) either--
                    ``(A) in a single sum (plus interest), or
                    ``(B) in such other form as is specified in 
                regulations of the corporation.
            ``(2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a plan 
        described in paragraph (3) shall, upon a transfer of benefits 
        to the corporation under section 401(a)(31)(B) of such Code, 
        provide the corporation information with respect to benefits of 
        the participant or beneficiary so transferred.
            ``(3) Plans described.--A plan is described in this 
        paragraph if the plan is a pension plan (within the meaning of 
        section 3(2))--
                    ``(A) which provides for mandatory distributions 
                under section 401(a)(31)(B) of the Internal Revenue 
                Code of 1986, and
                    ``(B) which is not a plan described in paragraphs 
                (2) through (11) of section 4021(b).
            ``(4) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (3).''
    (d) Effective Dates.--
            (1) Internal revenue code provisions.--The amendments made 
        by subsections (a) and (b) shall take effect as if included in 
        the amendments made by section 657 of the Economic Growth and 
        Tax Relief Reconciliation Act of 2001.
            (2) Employee retirement income security act of 1974 
        provisions.--The amendments made by subsection (c) shall apply 
        to distributions made after final regulations implementing 
        subsection (e) of section 4050 of the Employee Retirement 
        Income Security Act of 1974 (as added by subsection (c)) are 
        prescribed.
            (3) Regulations.--The Pension Benefit Guaranty Corporation 
        shall issue regulations necessary to carry out the amendments 
        made by subsection (c) not later than December 31, 2004.

                 Subtitle C--Administrative Provisions

SEC. 431. EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

    (a) In General.--The Secretary of the Treasury shall have full 
authority to establish and implement the Employee Plans Compliance 
Resolution System (or any successor program) and any other employee 
plans correction policies, including the authority to waive income, 
excise, or other taxes to ensure that any tax, penalty, or sanction is 
not excessive and bears a reasonable relationship to the nature, 
extent, and severity of the failure.
    (b) Improvements.--The Secretary of the Treasury shall continue to 
update and improve the Employee Plans Compliance Resolution System (or 
any successor program), giving special attention to--
            (1) increasing the awareness and knowledge of small 
        employers concerning the availability and use of the program;
            (2) taking into account special concerns and circumstances 
        that small employers face with respect to compliance and 
        correction of compliance failures;
            (3) extending the duration of the self-correction period 
        under the Self-Correction Program for significant compliance 
        failures;
            (4) expanding the availability to correct insignificant 
        compliance failures under the Self-Correction Program during 
        audit; and
            (5) assuring that any tax, penalty, or sanction that is 
        imposed by reason of a compliance failure is not excessive and 
        bears a reasonable relationship to the nature, extent, and 
        severity of the failure.

SEC. 432. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
              APPLICATION OF CERTAIN NONDISCRIMINATION RULES APPLICABLE 
              TO STATE AND LOCAL PLANS.

    (a) In General.--The following provisions are each amended by 
striking ``maintained by a State or local government or political 
subdivision thereof (or agency or instrumentality thereof)'':
            (1) Section 401(a)(5)(G) of the Internal Revenue Code of 
        1986.
            (2) Section 401(a)(26)(H) of such Code.
            (3) Section 401(k)(3)(G) of such Code.
            (4) Section 1505(d)(2) of the Taxpayer Relief Act of 1997.
    (b) Conforming Amendments.--
            (1) The heading for section 401(a)(5)(G) of such Code is 
        amended to read as follows: ``Governmental plans.--''.
            (2) The heading for section 401(a)(26)(H) of such Code is 
        amended to read as follows: ``Exception for governmental 
        plans.--''.
            (3) Section 401(k)(3)(G) of such Code is amended by 
        inserting ``Governmental plans.--'' after ``(G)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2004.

SEC. 433. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

    (a) Expansion of Period.--
            (1) Amendment of internal revenue code.--
                    (A) In general.--Section 417(a)(6)(A) of the 
                Internal Revenue Code of 1986 is amended by striking 
                ``90-day'' and inserting ``180-day''.
                    (B) Modification of regulations.--The Secretary of 
                the Treasury shall modify the regulations under 
                sections 402(f), 411(a)(11), and 417 of the Internal 
                Revenue Code of 1986 by substituting ``180 days'' for 
                ``90 days'' each place it appears in Treasury 
                Regulations sections 1.402(f)-1, 1.411(a)-11(c), and 
                1.417(e)-1(b).
            (2) Amendment of erisa.--
                    (A) In general.--Section 205(c)(7)(A) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1055(c)(7)(A)) is amended by striking ``90-day'' 
                and inserting ``180-day''.
                    (B) Modification of regulations.--The Secretary of 
                the Treasury shall modify the regulations under part 2 
                of subtitle B of title I of the Employee Retirement 
                Income Security Act of 1974 relating to sections 203(e) 
                and 205 of such Act by substituting ``180 days'' for 
                ``90 days'' each place it appears.
            (3) Effective date.--The amendments and modifications made 
        or required by this subsection shall apply to years beginning 
        after December 31, 2004.
    (b) Notification of Right To Defer.--
            (1) In general.--The Secretary of the Treasury shall modify 
        the regulations under section 411(a)(11) of the Internal 
        Revenue Code of 1986 and under section 205 of the Employee 
        Retirement Income Security Act of 1974 to provide that the 
        description of a participant's right, if any, to defer receipt 
        of a distribution shall also describe the consequences of 
        failing to defer such receipt.
            (2) Effective date.--
                    (A) In general.--The modifications required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2004.
                    (B) Reasonable notice.--A plan shall not be treated 
                as failing to meet the requirements of section 
                411(a)(11) of such Code or section 205 of such Act with 
                respect to any description of consequences described in 
                paragraph (1) made within 90 days after the Secretary 
                of the Treasury issues the modifications required by 
                paragraph (1) if the plan administrator makes a 
                reasonable attempt to comply with such requirements.

SEC. 434. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
            (1) In general.--The Secretary of the Treasury and the 
        Secretary of Labor shall modify the requirements for filing 
        annual returns with respect to one-participant retirement plans 
        to ensure that such plans with assets of $250,000 or less as of 
        the close of the plan year need not file a return for that 
        year.
            (2) One-participant retirement plan defined.--For purposes 
        of this subsection, the term ``one-participant retirement 
        plan'' means a retirement plan with respect to which the 
        following requirements are met:
                    (A) on the first day of the plan year--
                            (i) the plan covered only one individual 
                        (or the individual and the individual's spouse) 
                        and the individual owned 100 percent of the 
                        plan sponsor (whether or not incorporated), or
                            (ii) the plan covered only one or more 
                        partners (or partners and their spouses) in the 
                        plan sponsor;
                    (B) the plan meets the minimum coverage 
                requirements of section 410(b) of the Internal Revenue 
                Code of 1986 without being combined with any other plan 
of the business that covers the employees of the business;
                    (C) the plan does not provide benefits to anyone 
                except the individual (and the individual's spouse) or 
                the partners (and their spouses);
                    (D) the plan does not cover a business that is a 
                member of an affiliated service group, a controlled 
                group of corporations, or a group of businesses under 
                common control; and
                    (E) the plan does not cover a business that uses 
                the services of leased employees (within the meaning of 
                section 414(n) of such Code).
        For purposes of this paragraph, the term ``partner'' includes a 
        2-percent shareholder (as defined in section 1372(b) of such 
        Code) of an S corporation.
            (3) Other definitions.--Terms used in paragraph (2) which 
        are also used in section 414 of the Internal Revenue Code of 
        1986 shall have the respective meanings given such terms by 
        such section.
            (4) Effective date.--The provisions of this subsection 
        shall apply to plan years beginning on or after January 1, 
        2004.
    (b) Simplified Annual Filing Requirement for Plans With Fewer Than 
25 Employees.--In the case of plan years beginning after December 31, 
2004, the Secretary of the Treasury and the Secretary of Labor shall 
provide for the filing of a simplified annual return for any retirement 
plan which covers less than 25 employees on the first day of a plan 
year and which meets the requirements described in subparagraphs (B), 
(D), and (E) of subsection (a)(2).

SEC. 435. MISSING PARTICIPANTS.

    (a) In General.--Section 4050 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections:
    ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
    ``(d) Plans Not Otherwise Subject to Title.--
            ``(1) Transfer to corporation.--The plan administrator of a 
        plan described in paragraph (4) may elect to transfer a missing 
        participant's benefits to the corporation upon termination of 
        the plan.
            ``(2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a plan 
        described in paragraph (4) shall, upon termination of the plan, 
        provide the corporation information with respect to benefits of 
        a missing participant if the plan transfers such benefits--
                    ``(A) to the corporation, or
                    ``(B) to an entity other than the corporation or a 
                plan described in paragraph (4)(B)(ii).
            ``(3) Payment by the corporation.--If benefits of a missing 
        participant were transferred to the corporation under paragraph 
        (1), the corporation shall, upon location of the participant or 
        beneficiary, pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) either--
                    ``(A) in a single sum (plus interest), or
                    ``(B) in such other form as is specified in 
                regulations of the corporation.
            ``(4) Plans described.--A plan is described in this 
        paragraph if--
                    ``(A) the plan is a pension plan (within the 
                meaning of section 3(2))--
                            ``(i) to which the provisions of this 
                        section do not apply (without regard to this 
                        subsection), and
                            ``(ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 4021(b), 
                        and
                    ``(B) at the time the assets are to be distributed 
                upon termination, the plan--
                            ``(i) has missing participants, and
                            ``(ii) has not provided for the transfer of 
                        assets to pay the benefits of all missing 
                        participants to another pension plan (within 
                        the meaning of section 3(2)).
            ``(5) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (4).''
    (b) Conforming Amendments.--Section 206(f) of such Act (29 U.S.C. 
1056(f)) is amended--
            (1) by striking ``title IV'' and inserting ``section 
        4050''; and
            (2) by striking ``the plan shall provide that,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions made after final regulations implementing 
subsections (c) and (d) of section 4050 of the Employee Retirement 
Income Security Act of 1974 (as added by subsection (a)), respectively, 
are prescribed.

SEC. 436. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

    (a) In General.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
            (1) in clause (i), by inserting ``other than a new single-
        employer plan (as defined in subparagraph (F)) maintained by a 
        small employer (as so defined),'' after ``single-employer 
        plan,'',
            (2) in clause (iii), by striking the period at the end and 
        inserting ``, and'', and
            (3) by adding at the end the following new clause:
            ``(iv) in the case of a new single-employer plan (as 
        defined in subparagraph (F)) maintained by a small employer (as 
        so defined) for the plan year, $5 for each individual who is a 
        participant in such plan during the plan year.''
    (b) Definition of New Single-Employer Plan.--Section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)) is amended by adding at the end the following new 
subparagraph:
    ``(F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years if, during the 36-
month period ending on the date of the adoption of such plan, the 
sponsor or any member of such sponsor's controlled group (or any 
predecessor of either) did not establish or maintain a plan to which 
this title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new single-employer 
plan.
    ``(ii)(I) For purposes of this paragraph, the term `small employer' 
means an employer which on the first day of any plan year has, in 
aggregation with all members of the controlled group of such employer, 
100 or fewer employees.
    ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''
    (c) Effective Date.--The amendments made by this section shall 
apply to plans first effective after December 31, 2004.

SEC. 437. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

    (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following new 
clause:
    ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an amount equal 
to the product of the amount determined under clause (ii) and the 
applicable percentage. For purposes of this clause, the term 
`applicable percentage' means--
            ``(I) 0 percent, for the first plan year.
            ``(II) 20 percent, for the second plan year.
            ``(III) 40 percent, for the third plan year.
            ``(IV) 60 percent, for the fourth plan year.
            ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in 
section 3(35)) maintained by a contributing sponsor shall be treated as 
a new defined benefit plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption of the 
plan, the sponsor and each member of any controlled group including the 
sponsor (or any predecessor of either) did not establish or maintain a 
plan to which this title applies with respect to which benefits were 
accrued for substantially the same employees as are in the new plan.''
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), as amended 
by section 436(b), is amended--
            (1) by striking ``The'' in subparagraph (E)(i) and 
        inserting ``Except as provided in subparagraph (G), the'', and
            (2) by inserting after subparagraph (F) the following new 
        subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer employees 
on the first day of the plan year, the additional premium determined 
under subparagraph (E) for each participant shall not exceed $5 
multiplied by the number of participants in the plan as of the close of 
the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 25 or 
fewer employees on the first day of the plan year is determined by 
taking into consideration all of the employees of all members of the 
contributing sponsor's controlled group. In the case of a plan 
maintained by two or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether the 25-or-fewer-employees 
limitation has been satisfied.''
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to plans first effective after December 31, 2004.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2004.

SEC. 438. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
              REFUNDS.

    (a) In General.--Section 4007(b) of the Employment Retirement 
Income Security Act of 1974 (29 U.S.C. 1307(b)) is amended--
            (1) by striking ``(b)'' and inserting ``(b)(1)'', and
            (2) by inserting at the end the following new paragraph:
    ``(2) The corporation is authorized to pay, subject to regulations 
prescribed by the corporation, interest on the amount of any 
overpayment of premium refunded to a designated payor. Interest under 
this paragraph shall be calculated at the same rate and in the same 
manner as interest is calculated for underpayments under paragraph 
(1).''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to interest accruing for periods beginning not earlier than the 
date of the enactment of this Act.

SEC. 439. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

    (a) Modification of Phase-In of Guarantee.--Section 4022(b)(5) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1322(b)(5)) is amended to read as follows:
    ``(5)(A) For purposes of this paragraph, the term `majority owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
            ``(i) owns the entire interest in an unincorporated trade 
        or business,
            ``(ii) in the case of a partnership, is a partner who owns, 
        directly or indirectly, 50 percent or more of either the 
        capital interest or the profits interest in such partnership, 
        or
            ``(iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of clause (iii), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).
    ``(B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal the 
product of--
            ``(i) a fraction (not to exceed 1) the numerator of which 
        is the number of years from the later of the effective date or 
        the adoption date of the plan to the termination date, and the 
        denominator of which is 10, and
            ``(ii) the amount of benefits that would be guaranteed 
        under this section if the participant were not a majority 
        owner.''
    (b) Modification of Allocation of Assets.--
            (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
        striking ``section 4022(b)(5)'' and inserting ``section 
        4022(b)(5)(B)''.
            (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
        amended--
                    (A) by striking ``(5)'' in paragraph (2) and 
                inserting ``(4), (5),'', and
                    (B) by redesignating paragraphs (3) through (6) as 
                paragraphs (4) through (7), respectively, and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) If assets available for allocation under paragraph 
        (4) of subsection (a) are insufficient to satisfy in full the 
        benefits of all individuals who are described in that 
        paragraph, the assets shall be allocated first to benefits 
        described in subparagraph (A) of that paragraph. Any remaining 
        assets shall then be allocated to benefits described in 
        subparagraph (B) of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full the 
        benefits described in that subparagraph, the assets shall be 
        allocated pro rata among individuals on the basis of the 
        present value (as of the termination date) of their respective 
        benefits described in that subparagraph.''
    (c) Conforming Amendments.--
            (1) Section 4021 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1321) is amended--
                    (A) in subsection (b)(9), by striking ``as defined 
                in section 4022(b)(6)'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(d) For purposes of subsection (b)(9), the term `substantial 
owner' means an individual who, at any time during the 60-month period 
ending on the date the determination is being made--
            ``(1) owns the entire interest in an unincorporated trade 
        or business,
            ``(2) in the case of a partnership, is a partner who owns, 
        directly or indirectly, more than 10 percent of either the 
        capital interest or the profits interest in such partnership, 
        or
            ``(3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of paragraph (3), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).''
            (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
        is amended by striking ``section 4022(b)(6)'' and inserting 
        ``section 4021(d)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan 
        terminations--
                    (A) under section 4041(c) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1341(c)) with respect to which notices of intent to 
                terminate are provided under section 4041(a)(2) of such 
                Act (29 U.S.C. 1341(a)(2)) after December 31, 2004, and
                    (B) under section 4042 of such Act (29 U.S.C. 1342) 
                with respect to which proceedings are instituted by the 
                corporation after such date.
            (2) Conforming amendments.--The amendments made by 
        subsection (c) shall take effect on January 1, 2005.

SEC. 440. VOLUNTARY EARLY RETIREMENT INCENTIVE AND EMPLOYMENT RETENTION 
              PLANS MAINTAINED BY LOCAL EDUCATIONAL AGENCIES AND OTHER 
              ENTITIES.

    (a) Voluntary Early Retirement Incentive Plans.--
            (1) Treatment as plan providing severance pay.--Section 
        457(e)(11) of the Internal Revenue Code of 1986 (relating to 
        certain plans excluded) is amended by adding at the end the 
        following new subparagraph:
                    ``(D) Certain voluntary early retirement incentive 
                plans.--
                            ``(i) In general.--If an applicable 
                        voluntary early retirement incentive plan--
                                    ``(I) makes payments or supplements 
                                as an early retirement benefit, a 
                                retirement-type subsidy, or a benefit 
                                described in the last sentence of 
                                section 411(a)(9), and
                                    ``(II) such payments or supplements 
                                are made in coordination with a defined 
                                benefit plan which is described in 
                                section 401(a) and includes a trust 
                                exempt from tax under section 501(a) 
                                and which is maintained by an eligible 
                                employer described in paragraph (1)(A) 
                                or by an education association 
                                described in clause (ii)(II),
                        such applicable plan shall be treated for 
                        purposes of subparagraph (A)(i) as a bona fide 
                        severance pay plan with respect to such 
                        payments or supplements to the extent such 
                        payments or supplements could otherwise have 
                        been provided under such defined benefit plan 
                        (determined as if section 411 applied to such 
                        defined benefit plan).
                            ``(ii) Applicable voluntary early 
                        retirement incentive plan.--For purposes of 
                        this subparagraph, the term `applicable 
                        voluntary early retirement incentive plan' 
                        means a voluntary early retirement incentive 
                        plan maintained by--
                                    ``(I) a local educational agency 
                                (as defined in section 9101 of the 
                                Elementary and Secondary Education Act 
                                of 1965 (20 U.S.C. 7801)), or
                                    ``(II) an education association 
                                which principally represents employees 
                                of 1 or more agencies described in 
                                subclause (I) and which is described in 
                                section 501(c) (5) or (6) and exempt 
                                from tax under section 501(a).''
            (2) Age discrimination in employment act.--Section 4(l)(1) 
        of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 
        623(l)(1)) is amended--
                    (A) by inserting ``(A)'' after ``(1)'',
                    (B) by redesignating subparagraphs (A) and (B) as 
                clauses (i) and (ii), respectively,
                    (C) by redesignating clauses (i) and (ii) of 
                subparagraph (B) (as in effect before the amendments 
                made by subparagraph (B)) as subclauses (I) and (II), 
                respectively, and
                    (D) by adding at the end the following:
                    ``(B) A voluntary early retirement incentive plan 
                that--
                            ``(i) is maintained by--
                                    ``(I) a local educational agency 
                                (as defined in section 9101 of the 
                                Elementary and Secondary Education Act 
                                of 1965 (20 U.S.C. 7801), or
                                    ``(II) an education association 
                                which principally represents employees 
                                of 1 or more agencies described in 
                                subclause (I) and which is described in 
                                section 501(c) (5) or (6) of the 
                                Internal Revenue Code of 1986 and 
                                exempt from taxation under section 
                                501(a) of such Code, and
                            ``(ii) makes payments or supplements 
                        described in subclauses (I) and (II) of 
                        subparagraph (A)(ii) in coordination with a 
                        defined benefit plan (as so defined) maintained 
                        by an eligible employer described in section 
                        457(e)(1)(A) of such Code or by an education 
                        association described in clause (i)(II),
                shall be treated solely for purposes of subparagraph 
                (A)(ii) as if it were a part of the defined benefit 
                plan with respect to such payments or supplements. 
                Payments or supplements under such a voluntary early 
                retirement incentive plan shall not constitute 
                severance pay for purposes of section 4(l)(2) of the 
                Age Discrimination in Employment Act (29 U.S.C. 
                623(l)(2)).''
    (b) Employment Retention Plans.--
            (1) In general.--Section 457(f)(2) of the Internal Revenue 
        Code of 1986 (relating to exceptions) is amended by striking 
        ``and'' at the end of subparagraph (D), by striking the period 
        at the end of subparagraph (E) and inserting ``, and'', and by 
        adding at the end the following:
                    ``(F) that portion of any applicable employment 
                retention plan described in paragraph (4) with respect 
                to any participant.''
            (2) Definitions and rules relating to employment retention 
        plans.--Section 457(f) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(4) Employment retention plans.--For purposes of 
        paragraph (2)(F)--
                    ``(A) In general.--The portion of an applicable 
                employment retention plan described in this paragraph 
                with respect to any participant is that portion of the 
                plan which provides benefits payable to the participant 
                not in excess of twice the applicable dollar limit 
                determined under subsection (e)(15).
                    ``(B) Other rules.--
                            ``(i) Limitation.--Paragraph (2)(F) shall 
                        only apply to the portion of the plan described 
                        in subparagraph (A) for years preceding the 
                        year in which such portion is paid or otherwise 
                        made available to the participant.
                            ``(ii) Treatment.--A plan shall not be 
                        treated for purposes of this title as providing 
                        for the deferral of compensation for any year 
                        with respect to the portion of the plan 
                        described in subparagraph (A).
                    ``(C) Applicable employment retention plan.--The 
                term `applicable employment retention plan' means an 
                employment retention plan maintained by--
                            ``(i) a local educational agency (as 
                        defined in section 9101 of the Elementary and 
                        Secondary Education Act of 1965 (20 U.S.C. 
                        7801), or
                            ``(ii) an education association which 
                        principally represents employees of 1 or more 
                        agencies described in clause (i) and which is 
                        described in section 501(c) (5) or (6) and 
                        exempt from taxation under section 501(a).
                    ``(D) Employment retention plan.--The term 
                `employment retention plan' means a plan to pay, upon 
                termination of employment, compensation to an employee 
                of a local educational agency or education association 
                described in subparagraph (C) for purposes of--
                            ``(i) retaining the services of the 
                        employee, or
                            ``(ii) rewarding such employee for the 
                        employee's service with 1 or more such agencies 
                        or associations.''
    (c) Coordination With ERISA.--Section 3(2)(B) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002(2)(B)) is 
amended by adding at the end the following: ``An applicable voluntary 
early retirement incentive plan (as defined in section 
457(e)(11)(D)(ii) of the Internal Revenue Code of 1986) making payments 
or supplements described in section 457(e)(11)(D)(i) of such Code, and 
an applicable employment retention plan (as defined in section 
457(f)(4)(C) of such Code) making payments of benefits described in 
section 457(f)(4)(A) of such Code, shall, for purposes of this title, 
be treated as a welfare plan (and not a pension plan) with respect to 
such payments and supplements.''
    (d) Effective Dates.--
            (1) In general.--The amendments made by this Act shall take 
        effect on the date of the enactment of this Act.
            (2) Tax amendments.--The amendments made by subsections 
        (a)(1) and (b) shall apply to taxable years ending after the 
        date of the enactment of this Act.
            (3) ERISA amendments.--The amendment made by subsection (c) 
        shall apply to plan years ending after the date of the 
        enactment of this Act.
            (4) Construction.--Nothing in the amendments made by this 
        section shall alter or affect the construction of the Internal 
        Revenue Code of 1986, the Employee Retirement Income Security 
        Act of 1974, or the Age Discrimination in Employment Act of 
        1967 as applied to any plan, arrangement, or conduct to which 
        such amendments do not apply.

SEC. 441. ACCELERATION OF COMPUTATION OF BENEFITS ATTRIBUTABLE TO 
              RECOVERIES OF EMPLOYER LIABILITY.

    (a) Modification of Average Recovery Percentage of Outstanding 
Amount of Benefit Liabilities Payable by Corporation to Participants 
and Beneficiaries.--Section 4022(c)(3)(B)(ii) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1322(c)(3)(B)(ii)) is 
amended to read as follows:
                            ``(ii) notices of intent to terminate were 
                        provided (or in the case of a termination by 
                        the corporation, a notice of determination 
                        under section 4042 was issued) during the 5-
                        Federal fiscal year period ending with the 
                        third fiscal year preceding the fiscal year in 
                        which occurs the date of the notice of intent 
                        to terminate (or the notice of determination 
                        under section 4042) with respect to the plan 
                        termination for which the recovery ratio is 
                        being determined.''
    (b) Valuation of Section 4062(c) Liability for Determining Amounts 
Payable by Corporation to Participants and Beneficiaries.--Section 4044 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1362) 
is amended by adding at the end the following new subsection:
    ``(e) Valuation of Section 4062(c) Liability for Determining 
Amounts Payable by Corporation to Participants and Beneficiaries.--
            ``(1) In general.--In the case of a terminated plan, the 
        value of the recovery of liability under section 4062(c) 
        allocable as a plan asset under this section for purposes of 
        determining the amount of benefits payable by the corporation 
        shall be determined by multiplying--
                    ``(A) the amount of liability under section 4062(c) 
                as of the termination date of the plan, by
                    ``(B) the applicable section 4062(c) recovery 
                ratio.
            ``(2) Section 4062(c) recovery ratio.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (C), the term `section 4062(c) recovery 
                ratio' means the average, determined with respect to 
                prior plan terminations described in subparagraph (B), 
                of the ratio which--
                            ``(i) the value of the recovery under 
                        section 4062(c) determined by the corporation 
                        in connection with any such prior termination, 
                        bears to
                            ``(ii) the amount of liability under 
                        section 4062(c) with respect to such plans as 
                        of the termination date in connection with any 
                        such prior termination.
                    ``(B) Prior terminations.--A plan termination 
                described in this subparagraph is a termination with 
                respect to which--
                            ``(i) the value of recoveries under section 
                        4062(c) have been determined by the 
                        corporation, and
                            ``(ii) notices of intent to terminate were 
                        provided (or in the case of a termination by 
                        the corporation, a notice of determination 
                        under section 4042 was issued) during the 5-
                        Federal fiscal year period ending with the 
                        third fiscal year preceding the fiscal year in 
                        which occurs the date of the notice of intent 
                        to terminate (or the notice of determination 
                        under section 4042) with respect to the plan 
                        termination for which the recovery ratio is 
                        being determined.
                    ``(C) Exception.--In the case of a terminated plan 
                with respect to which the outstanding amount of benefit 
                liabilities exceeds $20,000,000, the term `section 
                4062(c) recovery ratio' means, with respect to the 
                termination of such plan, the ratio of--
                            ``(i) the value of the recoveries on behalf 
                        of the plan under section 4062(c), to
                            ``(ii) the amount of the liability owed 
                        under section 4062(c) as of the date of plan 
                        termination to the trustee appointed under 
                        section 4042 (b) or (c).
            ``(3) Subsection not to apply.--This subsection shall not 
        apply with respect to the determination of--
                    ``(A) whether the amount of outstanding benefit 
                liabilities exceeds $20,000,000, or
                    ``(B) the amount of any liability under section 
                4062 to the corporation or the trustee appointed under 
                section 4042 (b) or (c).
            ``(4) Determinations.--Determinations under this subsection 
        shall be made by the corporation.  Such determinations shall be 
binding unless shown by clear and convincing evidence to be 
unreasonable.''
    (c) Effective Date.--The amendments made by this section shall 
apply for any termination for which notices of intent to terminate are 
provided (or in the case of a termination by the corporation, a notice 
of determination under section 4042 is issued) on or after the date 
which is 30 days after the date of enactment of this section.

SEC. 442. MULTIEMPLOYER PLAN FUNDING AND SOLVENCY NOTICES.

    (a) In General.--Section 101(f) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1021(f)) is amended to read as follows:
    ``(f) Multiemployer Defined Benefit Plan Funding and Solvency 
Notices.--
            ``(1) In general.--The administrator of a defined benefit 
        plan which is a multiemployer plan shall provide to each plan 
        participant and beneficiary, to each labor organization 
        representing such participants or beneficiaries, and to each 
        employer that has an obligation to contribute under the plan--
                    ``(A) a plan funding notice for each plan year, and
                    ``(B) if, for any plan year, the value of the 
                plan's assets is less than an amount equal to 5 times 
                the amount of benefit payments, a multiemployer plan 
                solvency notice.
            ``(2) Information contained in notices.--
                    ``(A) Identifying information.--Each notice 
                required under paragraph (1) shall contain identifying 
                information, including the name of the plan, the 
                address and phone number of the plan administrator and 
                the plan's principal administrative officer, each plan 
                sponsor's employer identification number, and the plan 
                number of the plan.
                    ``(B) Specific information relating to funding 
                notice.--A plan funding notice under paragraph (1)(A) 
                shall include--
                            ``(i) a statement as to whether the plan's 
                        funded current liability percentage (as defined 
                        in section 302(d)(9)(C)) for the plan year to 
                        which the notice relates is at least 100 
                        percent (and, if not, the actual percentage), 
                        and
                            ``(ii) a general description of the 
                        benefits under the plan which are eligible to 
                        be guaranteed by the Pension Benefit Guaranty 
                        Corporation, along with an explanation of the 
                        limitations on the guarantee and the 
                        circumstances under which such limitations 
                        apply.
                    ``(C) Specific information relating to solvency 
                notice.--A plan solvency notice under paragraph (1)(B) 
                shall include--
                            ``(i) a statement of the value of the 
                        plan's assets, the amount of benefit payments, 
                        and the ratio of the assets to the payments for 
                        the plan year to which the notice relates,
                            ``(ii) a summary of the rules governing 
                        insolvent multiemployer plans, including the 
                        limitations on benefit payments and any 
                        potential benefit reductions and suspensions 
                        (and the potential effects of such limitations, 
                        reductions, and suspensions on the plan), and
                            ``(iii) a general description of the 
                        benefits under the plan which are eligible to 
                        be guaranteed by the Pension Benefit Guaranty 
                        Corporation, along with an explanation of the 
                        limitations on the guarantee and the 
                        circumstances under which such limitations 
                        apply.
                    ``(D) Other information.--Each notice under 
                paragraph (1) shall include any additional information 
                which the plan administrator elects to include.
            ``(3) Time for providing notice.--Any notice under 
        paragraph (1) shall be provided no later than two months after 
        the deadline (including extensions) for filing the annual 
        report for the plan year to which the notice relates and may be 
        issued together with another document, including the summary 
        annual report required under section 104(b)(3). The notices 
        under paragraph (1) (A) and (B) for any plan year may be 
        provided together.
            ``(4) Form and manner.--Any notice under paragraph (1)--
                    ``(A) shall be provided in a form and manner 
                prescribed in regulations of the Pension Benefit 
                Guaranty Corporation,
                    ``(B) shall be written in a manner so as to be 
                understood by the average plan participant, and
                    ``(C) may be provided in written, electronic, or 
                other appropriate form to the extent such form is 
                reasonably accessible to plan participants and 
                beneficiaries.''
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 2005.

SEC. 443. NO REDUCTION IN UNEMPLOYMENT COMPENSATION AS A RESULT OF 
              PENSION ROLLOVERS.

    (a) In General.--Section 3304(a) of the Internal Revenue Code of 
1986 (relating to requirements for State unemployment laws) is amended 
by adding at the end the following new flush sentence:
``Compensation shall not be reduced under paragraph (15) for any 
pension, retirement or retired pay, annuity, or similar payment which 
is not includible in gross income of the individual for the taxable 
year in which paid because it was part of a rollover distribution.''
    (b) Effective Date.--The amendment made by this section shall apply 
to weeks beginning on or after the date of the enactment of this Act.

SEC. 444. WITHHOLDING ON DISTRIBUTIONS FROM GOVERNMENTAL SECTION 457 
              PLANS.

    (a) In General.--Section 641(f) of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 is amended by adding at the end the 
following new paragraph:
            ``(4) Transition rule for certain governmental plans.--In 
        the case of distributions from an eligible deferred 
        compensation plan of an employer described in section 
        457(e)(1)(A) of the Internal Revenue Code of 1986 which are 
        made after December 31, 2001, and which are part of a series of 
        distributions which--
                    ``(A) began before January 1, 2002, and
                    ``(B) are payable for 10 years or less,
        the Internal Revenue Code of 1986 may be applied to such 
        distributions without regard to the amendments made by 
        subsection (a)(1)(D).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the provisions of section 641 of the 
Economic Growth and Tax Relief Reconciliation Act of 2001.

SEC. 445. MINIMUM COST REQUIREMENTS.

    (a) In General.--Section 420(c)(3)(E) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new clause:
                            ``(ii) Insignificant cost reductions 
                        permitted.--An employer shall not be treated as 
                        failing to meet the requirements of this 
                        paragraph for any taxable year if, in lieu of 
                        any reduction of retiree health coverage 
                        permitted under the regulations prescribed 
                        under clause (i), the employer reduces 
                        applicable employer cost by an amount not in 
                        excess of the reduction in costs which would 
                        have occurred if the employer had made the 
                        maximum permissible reduction in retiree health 
                        coverage under such regulations. In applying 
                        such regulations to any subsequent taxable 
                        year, any reduction in applicable employer cost 
                        under this clause shall be treated as if it 
                        were an equivalent reduction in retiree health 
                        coverage.''
    (b) Conforming Amendment.--Section 420(c)(3)(E) of such Code is 
amended by striking ``The Secretary'' and inserting:
                            ``(i) In general.--The Secretary''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

                          Subtitle D--Studies

SEC. 451. JOINT STUDY ON REVITALIZING DEFINED BENEFIT PLANS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, the Secretary of the Treasury, the Secretary of Labor, and 
the Executive Director of the Pension Benefit Guaranty Corporation 
shall jointly undertake a study on ways to revitalize interest in 
defined benefit plans among employers. In conducting such study, the 
Secretaries and the Executive Director shall consider--
            (1) ways to encourage the establishment of defined benefit 
        plans by small- and mid-sized employers,
            (2) ways to encourage the continued maintenance of defined 
        benefit plans by larger employers, and
            (3) legislative proposals to accomplish the objectives 
        described in paragraphs (1) and (2).
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Secretaries and the Executive Director shall report 
the results of the study, together with any recommendations for 
legislative changes, to the Committees on Ways and Means and Education 
and the Workforce of the House of Representatives and the Committees on 
Finance and Health, Education, Labor, and Pensions of the Senate.

SEC. 452. STUDY ON FLOOR-OFFSET ESOPS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, the Secretary of the Treasury and the Pension Benefit 
Guaranty Corporation shall undertake a study to determine the number of 
floor-offset employee stock ownership plans still in existence and the 
extent to which such plans pose a risk to plan participants or 
beneficiaries and to the Corporation. Such study shall consider 
legislative proposals to address such risks.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary and the Corporation shall report the results 
of the study, together with any recommendations for legislative 
changes, to the Committees on Ways and Means and Education and the 
Workforce of the House of Representatives and the Committees on Finance 
and Health, Education, Labor, and Pensions of the Senate.

                      Subtitle E--Other Provisions

SEC. 461. ALLOWANCE OF CATCHUP PAYMENTS.

    (a) In General.--Section 219(b)(5) of the Internal Revenue Code of 
1986 (relating to deductible amount) is amended by redesignating 
subparagraph (C) as subparagraph (D) and by inserting after 
subparagraph (B) the following new subparagraph:
                    ``(C) Catchup contributions for certain 
                individuals.--
                            ``(i) In general.--In the case of an 
                        eligible individual who elects to make a 
                        qualified retirement contribution in addition 
                        to the deductible amount determined under 
                        subparagraph (A)--
                                    ``(I) the deductible amount for any 
                                taxable year shall be increased by an 
                                amount equal to 3 times the applicable 
                                amount determined under subparagraph 
                                (B) for such taxable year, and
                                    ``(II) subparagraph (B) shall not 
                                apply.
                            ``(ii) Eligible individual.--For purposes 
                        of this subparagraph, the term `eligible 
                        individual' means, with respect to any taxable 
                        year, any individual who was a qualified 
                        participant in a qualified cash or deferred 
                        arrangement (as defined in section 401(k)) of 
                        an employer described in clause (ii) under 
                        which the employer matched at least 50 percent 
                        of the employee's contributions to such 
                        arrangement with stock of such employer.
                            ``(iii) Employer described.--An employer is 
                        described in this clause if, in any taxable 
                        year preceding the taxable year described in 
                        clause (ii)--
                                    ``(I) such employer (or any 
                                controlling corporation of such 
                                employer) was a debtor in a case under 
                                title 11 of the United States Code, or 
                                similar Federal or State law, and
                                    ``(II) such employer (or any other 
                                person) was subject to an indictment or 
                                conviction resulting from business 
                                transactions related to such case.
                            ``(iv) Qualified participant.--For purposes 
                        of clause (ii), the term `qualified 
                        participant' means any eligible individual who 
                        was a participant in the cash or deferred 
                        arrangement described in clause (i) on the date 
                        that is 6 months before the filing of the case 
                        described in clause (iii).
                            ``(v) Termination.--This subparagraph shall 
                        not apply to taxable years beginning after 
                        December 31, 2008.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 462. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH RESPECT TO S 
              CORPORATION STOCK.

    (a) In General.--Section 4975(d) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new flush sentences:
``A plan shall not be treated as violating the requirements of section 
401, 409, or subsection (e)(7), or as engaging in a prohibited 
transaction for purposes of paragraph (3), merely by reason of any 
distribution described in section 1368(a) with respect to S corporation 
stock which constitutes qualifying employer securities if the 
distribution is, in accordance with the plan provisions, used to make 
payments on a loan described in paragraph (3) the proceeds of which 
were used to acquire the qualifying employer securities (whether or not 
allocated to participants). The preceding sentence shall not apply in 
the case of a distribution which is paid with respect to any employer 
security which is allocated to a participant unless the plan provides 
that employer securities with a fair market value of not less than the 
amount of such distribution are allocated to such participant for the 
year which (but for the preceding sentence) such distribution would 
have been allocated to such participant.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 1998.

SEC. 463. TRANSFER OF EXCESS PENSION ASSETS TO MULTIEMPLOYER HEALTH 
              PLAN.

    (a) In General.--Section 420(e) of the Internal Revenue Code of 
1986 (relating to definitions and special rules) is amended by adding 
at the end the following new paragraph:
            ``(5) Application to multiemployer plan.--In the case of 
        any plan to which section 404(c) applies (or any successor plan 
        primarily covering employees in the building and construction 
        industry)--
                    ``(A) the prohibition under subsection (a) on the 
                application of this section to a multiemployer plan 
                shall not apply, and
                    ``(B) this section shall be applied to any such 
                plan--
                            ``(i) by treating any reference in this 
                        section to an employer as a reference to all 
                        employers maintaining the plan (or, if 
                        appropriate, the plan sponsor), and
                            ``(ii) in accordance with such 
                        modifications of this section (and the 
                        provisions of this title and the Employee 
                        Retirement Income Security Act of 1974 relating 
                        to this section) as the Secretary determines 
                        appropriate to reflect the fact the plan is not 
                        maintained by a single employer.''
    (b) Amendments of ERISA.--
            (1) Section 101(e)(3) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
        striking ``Pension Funding Equity Act of 2004'' and inserting 
        ``National Employee Savings and Trust Equity Guarantee Act of 
        2004''.
            (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
        amended by striking ``Pension Funding Equity Act of 2004'' and 
        inserting ``National Employee Savings and Trust Equity 
        Guarantee Act of 2004''.
            (3) Section 408(b)(13) of such Act (29 U.S.C. 1108(b)(13)) 
        is amended by striking ``Pension Funding Equity Act of 2004'' 
        and inserting ``National Employee Savings and Trust Equity 
        Guarantee Act of 2004''.
    (c) Effective Date.--The amendment made by this section shall apply 
to transfers made in taxable years beginning after December 31, 2004.

                      Subtitle F--Plan Amendments

SEC. 471. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment--
            (1) such plan or contract shall be treated as being 
        operated in accordance with the terms of the plan during the 
        period described in subsection (b)(2)(A), and
            (2) except as provided by the Secretary of the Treasury, 
        such plan shall not fail to meet the requirements of section 
        411(d)(6) of the Internal Revenue Code of 1986 and section 
        204(g) of the Employee Retirement Income Security Act of 1974 
        by reason of such amendment.
    (b) Amendments to Which Section Applies.--
            (1) In general.--This section shall apply to any amendment 
        to any plan or annuity contract which is made--
                    (A) pursuant to any amendment made by this Act or 
                the Economic Growth and Tax Relief Reconciliation Act 
                of 2001, or pursuant to any regulation issued by the 
                Secretary of the Treasury or the Secretary of Labor 
                under such Acts, and
                    (B) on or before the last day of the first plan 
                year beginning on or after January 1, 2006, or such 
                later date as the Secretary of the Treasury may 
                prescribe.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), subparagraph (B) 
        shall be applied by substituting the date which is 2 years 
        after the date otherwise applied under subparagraph (B).
            (2) Conditions.--This section shall not apply to any 
        amendment unless--
                    (A) during the period--
                            (i) beginning on the date the legislative 
                        or regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan), and
                            (ii) ending on the date described in 
                        paragraph (1)(B) (or, if earlier, the date the 
plan or contract amendment is adopted),
                the plan or contract is operated as if such plan or 
                contract amendment were in effect; and
                    (B) such plan or contract amendment applies 
                retroactively for such period.

      TITLE V--PROVISIONS RELATING TO EXECUTIVES AND STOCK OPTIONS

             Subtitle A--Provisions Relating to Executives

SEC. 501. REPEAL OF 1978 REVENUE ACT LIMITATION ON SECRETARY OF THE 
              TREASURY'S AUTHORITY TO DETERMINE YEAR OF INCLUSION OF 
              AMOUNTS UNDER PRIVATE DEFERRED COMPENSATION PLANS.

    (a) Repeal.--Section 132 of the Revenue Act of 1978 (Public Law 95-
600) is repealed.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 502. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS.

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

``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
              NONQUALIFIED DEFERRED COMPENSATION PLANS.

    ``(a) Rules Relating to Constructive Receipt.--
            ``(1) In general.--
                    ``(A) Gross income inclusion.--If at any time 
                during a taxable year a nonqualified deferred 
                compensation plan--
                            ``(i) fails to meet the requirements of 
                        paragraphs (2), (3), (4), and (5), or
                            ``(ii) is not operated in accordance with 
                        such requirements,
                all compensation deferred under the plan for the 
                taxable year and all preceding taxable years shall be 
                includible in gross income for the taxable year to the 
                extent not subject to a substantial risk of forfeiture 
                and not previously included in gross income.
                    ``(B) Interest and additional tax payable with 
                respect to previously deferred compensation.--
                            ``(i) In general.--If compensation is 
                        required to be included in gross income under 
                        subparagraph (A) for a taxable year, the tax 
                        imposed by this chapter for the taxable year of 
                        inclusion shall be increased by the sum of--
                                    ``(I) the amount of interest 
                                determined under clause (ii), and
                                    ``(II) an amount equal to 10 
                                percent of the compensation which is 
                                required to be included in gross 
                                income.
                            ``(ii) Interest.--For purposes of clause 
                        (i), the interest determined under this clause 
                        for any taxable year is the amount of interest 
at the underpayment rate on the underpayments that would have occurred 
had the deferred compensation been includible in gross income for the 
taxable year in which first deferred or, if later, the first taxable 
year in which such deferred compensation is not subject to a 
substantial risk of forfeiture.
            ``(2) Distributions.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the plan provides that 
                compensation deferred under the plan may not be 
                distributed earlier than--
                            ``(i) except as provided in subparagraph 
                        (B)(i), separation from service (as determined 
                        by the Secretary),
                            ``(ii) the date the participant becomes 
                        disabled (within the meaning of subparagraph 
                        (C)),
                            ``(iii) death,
                            ``(iv) a specified time (or pursuant to a 
                        fixed schedule) specified under the plan as of 
                        the date of the deferral of such compensation,
                            ``(v) to the extent provided by the 
                        Secretary, a change in the ownership or 
                        effective control of the corporation, or in the 
                        ownership of a substantial portion of the 
                        assets of the corporation, or
                            ``(vi) the occurrence of an unforeseeable 
                        emergency.
                    ``(B) Special rules.--
                            ``(i) Separation from service of specified 
                        employees.--In the case of specified employees, 
                        the requirement of subparagraph (A)(i) is met 
                        only if distributions may not be made earlier 
                        than 6 months after the date of separation from 
                        service. For purposes of the preceding 
                        sentence, a specified employee is a key 
                        employee (as defined in section 416(i)) of a 
                        corporation the stock in which is publicly 
                        traded on an established securities market or 
                        otherwise.
                            ``(ii) Changes in ownership or control.--In 
                        the case of a participant who is subject to the 
                        requirements of section 16(a) of the Securities 
                        Exchange Act of 1934, the requirement of 
                        subparagraph (A)(v) is met only if 
                        distributions may not be made earlier than 1 
                        year after the date of the change in ownership 
                        or effective control.
                            ``(iii) Unforeseeable emergency.--For 
                        purposes of subparagraph (A)(vi)--
                                    ``(I) In general.--The term 
                                `unforeseeable emergency' means a 
                                severe financial hardship to the 
                                participant or beneficiary resulting 
                                from a sudden and unexpected illness or 
                                accident of the participant or 
                                beneficiary, the participant's or 
                                beneficiary's spouse, or the 
                                participant's or beneficiary's 
                                dependent (as defined in section 
                                152(a)), loss of the participant's or 
                                beneficiary's property due to casualty, 
                                or other similar extraordinary and 
                                unforeseeable circumstances arising as 
                                a result of events beyond the control 
                                of the participant or beneficiary.
                                    ``(II) Limitation on 
                                distributions.--The requirement of 
                                subparagraph (A)(vi) is met only if, as 
                                determined under regulations of the 
                                Secretary, the amounts distributed with 
                                respect to an emergency do not exceed 
                                the amounts necessary to satisfy such 
                                emergency plus amounts necessary to pay 
                                taxes reasonably anticipated as 
a result of the distribution, after taking into account the extent to 
which such hardship is or may be relieved through reimbursement or 
compensation by insurance or otherwise or by liquidation of the 
participant's or beneficiary's assets (to the extent the liquidation of 
such assets would not itself cause severe financial hardship).
                    ``(C) Disabled.--For purposes of subparagraph 
                (A)(ii), a participant shall be considered disabled if 
                the participant--
                            ``(i) is unable to engage in any 
                        substantial gainful activity by reason of any 
                        medically determinable physical or mental 
                        impairment which can be expected to result in 
                        death or can be expected to last for a 
                        continuous period of not less than 12 months, 
                        or
                            ``(ii) is, by reason of any medically 
                        determinable physical or mental impairment 
                        which can be expected to result in death or can 
                        be expected to last for a continuous period of 
                        not less than 12 months, receiving income 
                        replacement benefits for a period of not less 
                        than 3 months under an accident and health plan 
                        covering employees of the participant's 
                        employer.
            ``(3) Investment options.--The requirements of this 
        paragraph are met if the plan provides that the investment 
        options a participant may elect under the plan--
                    ``(A) are comparable to the investment options 
                which a participant may elect under the defined 
                contribution plan of the employer which--
                            ``(i) meets the requirement of section 
                        401(a) and includes a trust exempt from 
                        taxation under section 501(a), and
                            ``(ii) has the fewest investment options, 
                        or
                    ``(B) if there is no such defined contribution 
                plan, meet such requirements as the Secretary may 
                prescribe (including requirements limiting such options 
                to permissible investment options specified by the 
                Secretary).
            ``(4) Acceleration of benefits.--The requirements of this 
        paragraph are met if the plan does not permit the acceleration 
        of the time or schedule of any payment under the plan, except 
        as provided by the Secretary in regulations.
            ``(5) Elections.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the requirements of subparagraphs 
                (B) and (C) are met.
                    ``(B) Initial deferral decision.--The requirements 
                of this subparagraph are met if the plan provides that 
                compensation for services performed during a taxable 
                year may be deferred at the participant's election only 
                if the election to defer such compensation is made 
                during the preceding taxable year or at such other time 
                as provided in regulations. In the case of the first 
                year in which a participant becomes eligible to 
                participate in the plan, such election may be made with 
                respect to services to be performed subsequent to the 
                election within 30 days after the date the participant 
                becomes eligible to participate in such plan.
                    ``(C) Changes in time and form of distribution.--
                The requirements of this subparagraph are met if, in 
                the case of a plan which permits under a subsequent 
                election a delay in a payment or a change in the form 
                of payment--
                            ``(i) the plan requires that such election 
                        may not take effect until at least 12 months 
                        after the date on which the election is made,
                            ``(ii) in the case an election related to a 
                        payment not described in clause (ii), (iii), or 
                        (vi) of paragraph (2)(A), the plan requires 
                        that the first payment with respect to which 
                        such election is made be deferred for a period 
                        of not less than 5 years from the date such 
                        payment would otherwise have been made, and
                            ``(iii) the plan requires that any election 
                        related to a payment described in paragraph 
                        (2)(A)(iv) may not be made less than 12 months 
                        prior to the date of the first scheduled 
                        payment under such paragraph.
                A plan shall be treated as failing to meet the 
                requirements of this subparagraph if the plan permits 
                more than 1 subsequent election to delay any payment.
    ``(b) Rules Relating to Funding.--
            ``(1) Offshore property in a trust.--In the case of assets 
        set aside (directly or indirectly) in a trust (or other 
        arrangement determined by the Secretary) for purposes of paying 
        deferred compensation under a nonqualified deferred 
        compensation plan, such assets shall be treated for purposes of 
        section 83 as property transferred in connection with the 
        performance of services whether or not such assets are 
available to satisfy claims of general creditors--
                    ``(A) at the time set aside if such assets are 
                located outside of the United States, or
                    ``(B) at the time transferred if such assets are 
                subsequently transferred outside of the United States.
        This paragraph shall not apply to assets located in a foreign 
        jurisdiction if substantially all of the services to which the 
        nonqualified deferred compensation relates are performed in 
        such jurisdiction.
            ``(2) Employer's financial health.--In the case of a 
        nonqualified deferred compensation plan, there is a transfer of 
        property within the meaning of section 83 as of the earlier 
        of--
                    ``(A) the date on which the plan first provides 
                that assets will become restricted to the provision of 
                benefits under the plan in connection with a change in 
                the employer's financial health, or
                    ``(B) the date on which assets are so restricted.
            ``(3) Income inclusion for offshore trusts and employer's 
        financial health.--For each taxable year that assets treated as 
        transferred under this subsection remain set aside in a trust 
        or other arrangement subject to paragraph (1) or (2), any 
        increase in value in, or earnings with respect to, such assets 
        shall be treated as an additional transfer of property under 
        this subsection (to the extent not previously included in 
        income).
            ``(4) Interest on tax liability payable with respect to 
        transferred property.--
                    ``(A) In general.--If amounts are required to be 
                included in gross income by reason of paragraph (1) or 
                (2) for a taxable year, the tax imposed by this chapter 
                for such taxable year shall be increased by the sum 
                of--
                            ``(i) the amount of interest determined 
                        under subparagraph (B), and
                            ``(ii) an amount equal to 10 percent of the 
                        amounts required to be included in gross 
                        income.
                    ``(B) Interest.--For purposes of subparagraph (A), 
                the interest determined under this subparagraph for any 
                taxable year is the amount of interest at the 
                underpayment rate on the underpayments that would have 
                occurred had the amounts so required to be included in 
                gross income by paragraph (1) or (2) been includible in 
                gross income for the taxable year in which first 
                deferred or, if later, the first taxable year in which 
                such amounts are not subject to a substantial risk of 
                forfeiture.
    ``(c) No Inference on Earlier Income Inclusion.--Nothing in this 
section shall be construed to prevent the inclusion of amounts in gross 
income under any other provision of this chapter or any other rule of 
law earlier than the time provided in this section. Any amount included 
in gross income under this section shall not be required to be included 
in gross income under any other provision of this chapter or any other 
rule of law later than the time provided in this section.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Nonqualified deferred compensation plan.--The term 
        `nonqualified deferred compensation plan' means any plan that 
        provides for the deferral of compensation, other than--
                    ``(A) a qualified employer plan, and
                    ``(B) any bona fide vacation leave, sick leave, 
                compensatory time, disability pay, or death benefit 
                plan.
            ``(2) Qualified employer plan.--The term `qualified 
        employer plan' means--
                    ``(A) any plan, contract, pension, account, or 
                trust described in subparagraph (A) or (B) of section 
                219(g)(5), and
                    ``(B) any eligible deferred compensation plan 
                (within the meaning of section 457(b)) of an employer 
                described in section 457(e)(1)(A).
            ``(3) Plan includes arrangements, etc.--The term `plan' 
        includes any agreement or arrangement, including an agreement 
        or arrangement that includes one person.
            ``(4) Substantial risk of forfeiture.--The rights of a 
        person to compensation are subject to a substantial risk of 
        forfeiture if such person's rights to such compensation are 
        conditioned upon the future performance of substantial services 
        by any individual.
            ``(5) Treatment of earnings.--References to deferred 
        compensation shall be treated as including references to income 
        (whether actual or notional) attributable to such compensation 
        or such income.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations--
            ``(1) providing for the determination of amounts of 
        deferral in the case of a nonqualified deferred compensation 
        plan which is a defined benefit plan,
            ``(2) relating to changes in the ownership and control of a 
        corporation or assets of a corporation for purposes of 
        subsection (a)(2)(A)(v),
            ``(3) exempting arrangements from the application of 
        subsection (b) if such arrangements will not result in an 
        improper deferral of United States tax and will not result in 
        assets being effectively beyond the reach of creditors,
            ``(4) defining financial health for purposes of subsection 
        (b)(2), and
            ``(5) disregarding a substantial risk of forfeiture in 
        cases where necessary to carry out the purposes of this 
        section.''
    (b) Application of Golden Parachute Payment Provisions.--Section 
280G of such Code (relating to golden parachute payments) is amended by 
redesignating subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Special Rules for Certain Payments From Nonqualified Deferred 
Compensation Plans.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, an applicable payment shall be treated as an 
        excess parachute payment for purposes of this section and 
        section 4999.
            ``(2) Coordination with other payments.--
                    ``(A) Applicable payments which are parachute 
                payments.--If any applicable payment is a parachute 
                payment (determined without regard to subsection 
                (b)(2)(A)(ii)), then, except as provided in paragraph 
                (4), this section shall be applied to such payment in 
                the same manner as if this subsection had not been 
                enacted.
                    ``(B) Applicable payments which are not parachute 
                payments.--An applicable payment not described in 
                subparagraph (A) shall be taken into account in 
                determining whether any payment described in 
                subparagraph (A) or any payment which is not an 
                applicable payment is a parachute payment under 
                subsection (b)(2).
                    ``(C) Coordination.--If the application of this 
                paragraph results in an excess parachute payment, any 
                tax under section 4999 on the excess parachute payment 
                shall be in addition to the tax imposed by reason of 
                paragraph (1).
            ``(3) Applicable payment.--For purposes of this subsection, 
        the term `applicable payment' means any distribution (including 
        any distribution treated as a parachute payment without regard 
        to this subsection) from a nonqualified deferred compensation 
        plan (as defined in section 409A(d)) which is made--
                    ``(A) to a participant who is subject to the 
                requirements of section 16(a) of the Securities 
                Exchange Act of 1934, and
                    ``(B) during the 1-year period following a change 
                in the ownership or effective control of the 
corporation or in the ownership of a substantial portion of the assets 
of the corporation.
        Such terms shall not include any distribution by reason of the 
        death of the participant or the participant becoming disabled 
        (within the meaning of section 409A(a)(2)(C)).
            ``(4) No double counting.--Under regulations, proper 
        adjustments shall be made in the application of this subsection 
        to prevent a deduction from being disallowed more than once.''
    (c) W-2 Forms.--
            (1) In general.--Subsection (a) of section 6051 (relating 
        to receipts for employees) is amended by striking ``and'' at 
        the end of paragraph (11), by striking the period at the end of 
        paragraph (12) and inserting ``, and'', and by inserting after 
        paragraph (12) the following new paragraph:
            ``(13) the total amount of deferrals under a nonqualified 
        deferred compensation plan (within the meaning of section 
        409A(d)).''
            (2) Threshold.--Subsection (a) of section 6051 is amended 
        by adding at the end the following: ``In the case of the 
        amounts required to be shown by paragraph (13), the Secretary 
        may (by regulation) establish a minimum amount of deferrals 
        below which paragraph (13) does not apply.''
    (d) Conforming and Clerical Amendments.--
            (1) Section 414(b) is amended by inserting ``409A,'' after 
        ``408(p),''.
            (2) Section 414(c) is amended by inserting ``409A,'' after 
        ``408(p),''.
            (3) The table of sections for such subpart A is amended by 
        adding at the end the following new item:

                              ``Sec. 409A. Inclusion in gross income of 
                                        deferred compensation under 
                                        nonqualified deferred 
                                        compensation plans.''
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts deferred in taxable years beginning after 
        December 31, 2004.
            (2) Earnings attributable to amount previously deferred.--
        The amendments made by this section shall apply to earnings on 
        deferred compensation only to the extent that such amendments 
        apply to such compensation.
    (f) Guidance Relating to Change of Ownership or Control.--Not later 
than 90 days after the date of the enactment of this Act, the Secretary 
of the Treasury shall issue guidance on what constitutes a change in 
ownership or effective control for purposes of section 409A of the 
Internal Revenue Code of 1986, as added by this section.
    (g) Guidance Relating to Termination of Certain Existing 
Arrangements.--Not later than 90 days after the date of the enactment 
of this Act, the Secretary of the Treasury shall issue guidance 
providing a limited period during which an individual participating in 
a nonqualified deferred compensation plan adopted on or before December 
31, 2004, may, without violating the requirements of paragraphs (2), 
(3), (4), and (5) of section 409A(a) of the Internal Revenue Code of 
1986 (as added by this section), terminate participation or cancel an 
outstanding deferral election with regard to amounts earned after 
December 31, 2004, if such amounts are includible in income as earned.

SEC. 503. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK 
              OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED 
              COMPENSATION ARRANGEMENTS.

    (a) In General.--Section 83 (relating to property transferred in 
connection with performance of services) is amending by adding at the 
end the following new subsection:
    ``(i) Prohibition on Additional Deferral Through Deferred 
Compensation Arrangements.--Except as provided by the Secretary, if a 
taxpayer exchanges--
            ``(1) an option to purchase employer securities--
                    ``(A) to which subsection (a) applies, or
                    ``(B) which is described in subsection (e)(3), or
            ``(2) employer securities or any other property based on 
        employer securities transferred to the taxpayer,
for a right to receive future payments, then, notwithstanding any other 
provision of this title, there shall be included in gross income for 
the taxable year of the exchange an amount equal to the present value 
of such right (or such other amount as the Secretary may specify). For 
purposes of this subsection, the term `employer securities' includes 
any security issued by the employer.''
    (b) Controlled Group Rules.--Section 414(t)(2) is amended by 
inserting ``83(i),'' after ``79,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any exchange after December 31, 2004.

SEC. 504. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN 
              EXCESS OF $1,000,000.

    (a) In General.--If an employer elects under Treasury Regulation 
31.3402(g)-1 to determine the amount to be deducted and withheld from 
any supplemental wage payment by using a flat percentage rate, the rate 
to be used in determining the amount to be so deducted and withheld 
shall not be less than 28 percent (or the corresponding rate in effect 
under section 1(i)(2) of the Internal Revenue Code of 1986 for taxable 
years beginning in the calendar year in which the payment is made).
    (b) Special Rule for Large Payments.--
            (1) In general.--Notwithstanding subsection (a), if the 
        supplemental wage payment, when added to all such payments 
        previously made by the employer to the employee during the 
        calendar year, exceeds $1,000,000, the rate used with respect 
        to such excess shall be equal to the maximum rate of tax in 
        effect under section 1 of such Code for taxable years beginning 
        in such calendar year.
            (2) Aggregation.--All persons treated as a single employer 
        under subsection (a) or (b) of section 52 of the Internal 
        Revenue Code of 1986 shall be treated as a single employer for 
purposes of this subsection.
    (c) Conforming Amendment.--Section 13273 of the Revenue 
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
    (d) Effective Date.--The provisions of, and the amendment made by, 
this section shall apply to payments made after December 31, 2003.

                       Subtitle B--Stock Options

SEC. 511. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK 
              PURCHASE PLAN STOCK OPTIONS FROM WAGES.

    (a) Exclusion From Employment Taxes.--
            (1) Social security taxes.--
                    (A) Section 3121(a) of the Internal Revenue Code of 
                1986 (relating to definition of 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) remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an incentive 
                stock option (as defined in section 422(b)) or under an 
                employee stock purchase plan (as defined in section 
                423(b)), or
                    ``(B) any disposition by the individual of such 
                stock.''
                    (B) Section 209(a) of the Social Security Act is 
                amended by striking ``or'' at the end of paragraph 
                (17), by striking the period at the end of paragraph 
                (18) and inserting ``; or'', and by inserting after 
                paragraph (18) the following new paragraph:
            ``(19) Remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an incentive 
                stock option (as defined in section 422(b) of the 
                Internal Revenue Code of 1986) or under an employee 
                stock purchase plan (as defined in section 423(b) of 
                such Code), or
                    ``(B) any disposition by the individual of such 
                stock.''
            (2) Railroad retirement taxes.--Subsection (e) of section 
        3231 of such Code is amended by adding at the end the following 
        new paragraph:
            ``(12) Qualified stock options.--The term `compensation' 
        shall not include any remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an incentive 
                stock option (as defined in section 422(b)) or under an 
                employee stock purchase plan (as defined in section 
                423(b)), or
                    ``(B) any disposition by the individual of such 
                stock.''
            (3) Unemployment taxes.--Section 3306(b) of such Code 
        (relating to definition of wages) is amended by striking ``or'' 
        at the end of paragraph (17), by striking the period at the end 
        of paragraph (18) and inserting ``; or'', and by inserting 
        after paragraph (18) the following new paragraph:
            ``(19) remuneration on account of--
                    ``(A) a transfer of a share of stock to any 
                individual pursuant to an exercise of an incentive 
                stock option (as defined in section 422(b)) or under an 
                employee stock purchase plan (as defined in section 
                423(b)), or
                    ``(B) any disposition by the individual of such 
                stock.''
    (b) Wage Withholding Not Required on Disqualifying Dispositions.--
Section 421(b) of the Internal Revenue Code of 1986 (relating to effect 
of disqualifying dispositions) is amended by adding at the end the 
following new sentence: ``No amount shall be required to be deducted 
and withheld under chapter 24 with respect to any increase in income 
attributable to a disposition described in the preceding sentence.''
    (c) Wage Withholding Not Required on Compensation Where Option 
Price Is Between 85 Percent and 100 Percent of Value of Stock.--Section 
423(c) of the Internal Revenue Code of 1986 (relating to special rule 
where option price is between 85 percent and 100 percent of value of 
stock) is amended by adding at the end the following new sentence: ``No 
amount shall be required to be deducted and withheld under chapter 24 
with respect to any amount treated as compensation under this 
subsection.''

SEC. 512. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF 
              STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST 
              REQUIREMENTS.

    (a) In General.--Section 421 of the Internal Revenue Code of 1986 
(relating to general rules for certain stock options) is amended by 
adding at the end the following new subsection:
    ``(d) Certain Sales To Comply With Conflict-of-Interest 
Requirements.--If--
            ``(1) a share of stock is transferred to an eligible person 
        (as defined in section 1043(b)(1)) pursuant to such person's 
        exercise of an option to which this part applies, and
            ``(2) such share is disposed of by such person pursuant to 
        a certificate of divestiture (as defined in section 
        1043(b)(2)),
such disposition shall be treated as meeting the requirements of 
section 422(a)(1) or 423(a)(1), whichever is applicable.''
    (b) Effective Date.--The amendment made by this section shall apply 
to sales after the date of the enactment of this Act.

                  TITLE VI--WOMEN'S PENSION PROTECTION

SEC. 600. SHORT TITLE.

    This title may be cited as the ``Women's Pension Protection Act of 
2004''.

  Subtitle A--Study of Spousal Consent for Distributions From Defined 
                           Contribution Plans

SEC. 601. JOINT STUDY OF APPLICATION OF SPOUSAL CONSENT RULES TO 
              DEFINED CONTRIBUTION PLANS.

    (a) Study.--The Secretary of Labor and the Secretary of the 
Treasury shall jointly conduct a study of the feasibility and 
desirability of extending the application of the requirements of 
section 205 of the Employee Retirement Income Security Act of 1974 and 
sections 401(a)(11) and 417 of the Internal Revenue Code of 1986 
(relating to spousal consent requirements) to defined contribution 
plans to which such requirements do not apply. Such study shall include 
consideration of--
            (1) any modifications of such requirements that are 
        necessary to apply such requirements to such plans, and
            (2) the feasibility of providing notice and spousal consent 
        in 1 or more electronic forms that are capable of 
        authentication.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Secretaries shall report the results of the study, 
together with any recommendations for legislative changes, to the 
Committees on Ways and Means and Education and the Workforce of the 
House of Representatives and the Committees on Finance and Health, 
Education, Labor, and Pensions of the Senate.

         Subtitle B--Division of Pension Benefits Upon Divorce

SEC. 611. REGULATIONS ON TIME AND ORDER OF ISSUANCE OF DOMESTIC 
              RELATIONS ORDERS.

    Not later than 1 year after the date of the enactment of this Act, 
the Secretary of Labor shall issue regulations under section 206(d)(3) 
of the Employee Retirement Security Act of 1974 and section 414(p) of 
the Internal Revenue Code of 1986 which clarify that--
            (1) a domestic relations order otherwise meeting the 
        requirements to be a qualified domestic relations order, 
        including the requirements of section 206(d)(3)(D) of such Act 
        and section 414(p)(3) of such Code, shall not fail to be 
        treated as a qualified domestic relations order solely 
        because--
                    (A) the order is issued after, or revises, another 
                domestic relations order or qualified domestic 
                relations order; or
                    (B) of the time at which it is issued; and
            (2) any order described in paragraph (1) shall be subject 
        to the same requirements and protections which apply to 
        qualified domestic relations orders, including the provisions 
        of section 206(d)(3)(H) of such Act and section 414(p)(7) of 
        such Code.

                    Subtitle C--Railroad Retirement

SEC. 621. ENTITLEMENT OF DIVORCED SPOUSES TO RAILROAD RETIREMENT 
              ANNUITIES INDEPENDENT OF ACTUAL ENTITLEMENT OF EMPLOYEE.

    (a) In General.--Section 2 of the Railroad Retirement Act of 1974 
(45 U.S.C. 231a) is amended--
            (1) in subsection (c)(4)(i), by striking ``(A) is entitled 
        to an annuity under subsection (a)(1) and (B)''; and
            (2) in subsection (e)(5), by striking ``or divorced wife'' 
        the second place it appears.
    (b) Effective Date.--The amendments made by this section shall take 
effect 1 year after the date of the enactment of this Act.

SEC. 622. EXTENSION OF TIER II RAILROAD RETIREMENT BENEFITS TO 
              SURVIVING FORMER SPOUSES PURSUANT TO DIVORCE AGREEMENTS.

    (a) In General.--Section 5 of the Railroad Retirement Act of 1974 
(45 U.S.C. 231d) is amended by adding at the end the following:
    ``(d) Notwithstanding any other provision of law, the payment of 
any portion of an annuity computed under section 3(b) to a surviving 
former spouse in accordance with a court decree of divorce, annulment, 
or legal separation or the terms of any court-approved property 
settlement incident to any such court decree shall not be terminated 
upon the death of the individual who performed the service with respect 
to which such annuity is so computed unless such termination is 
otherwise required by the terms of such court decree.''
    (b) Effective Date.--The amendment made by this section shall take 
effect 1 year after the date of the enactment of this Act.

  Subtitle D--Modifications of Joint and Survivor Annuity Requirements

SEC. 631. REQUIREMENT FOR ADDITIONAL SURVIVOR ANNUITY OPTION.

    (a) Amendments to ERISA.--
            (1) Election of survivor annuity.--Section 205(c)(1)(A) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1055(c)(1)(A)) is amended--
                    (A) in clause (i), by striking ``, and'' and 
                inserting a comma;
                    (B) by redesignating clause (ii) as clause (iii); 
                and
                    (C) by inserting after clause (i) the following:
                    ``(ii) if the participant elects a waiver under 
                clause (i), may elect the qualified optional survivor 
                annuity at any time during the applicable election 
                period, and''.
            (2) Definition.--Section 205(d) of such Act (29 U.S.C. 
        1055(d)) is amended--
                    (A) by inserting ``(1)'' after ``(d)'';
                    (B) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively; and
                    (C) by adding at the end the following:
    ``(2)(A) For purposes of this section, the term `qualified optional 
survivor annuity' means an annuity--
            ``(i) for the life of the participant with a survivor 
        annuity for the life of the spouse which is equal to the 
applicable percentage of the amount of the annuity which is payable 
during the joint lives of the participant and the spouse, and
            ``(ii) which is the actuarial equivalent of a single 
        annuity for the life of the participant.
Such term also includes any annuity in a form having the effect of an 
annuity described in the preceding sentence.
    ``(B)(i) For purposes of subparagraph (A), if the survivor annuity 
percentage--
            ``(I) is less than 75 percent, the applicable percentage is 
        75 percent, and
            ``(II) is greater than or equal to 75 percent, the 
        applicable percentage is 50 percent.
    ``(ii) For purposes of clause (i), the term `survivor annuity 
percentage' means the percentage which the survivor annuity under the 
plan's qualified joint and survivor annuity bears to the annuity 
payable during the joint lives of the participant and the spouse.''
            (3) Notice.--Section 205(c)(3)(A)(i) of such Act (29 U.S.C. 
        1055(c)(3)(A)(i)) is amended by inserting ``and of the 
        qualified optional survivor annuity'' after ``annuity''.
    (b) Amendments to Internal Revenue Code.--
            (1) Election of survivor annuity.--Section 417(a)(1)(A) of 
        the Internal Revenue Code of 1986 is amended--
                    (A) in clause (i), by striking ``, and'' and 
                inserting a comma;
                    (B) by redesignating clause (ii) as clause (iii); 
                and
                    (C) by inserting after clause (i) the following:
                    ``(ii) if the participant elects a waiver under 
                clause (i), may elect the qualified optional survivor 
                annuity at any time during the applicable election 
                period, and''.
            (2) Definition.--Section 417 of such Code is amended by 
        adding at the end the following:
    ``(i) Definition of Qualified Optional Survivor Annuity.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified optional survivor annuity' means an annuity--
                    ``(A) for the life of the participant with a 
                survivor annuity for the life of the spouse which is 
                equal to the applicable percentage of the amount of the 
                annuity which is payable during the joint lives of the 
                participant and the spouse, and
                    ``(B) which is the actuarial equivalent of a single 
                annuity for the life of the participant.
        Such term also includes any annuity in a form having the effect 
        of an annuity described in the preceding sentence.
            ``(2) Applicable percentage.--
                    ``(A) In general.--For purposes of paragraph (1), 
                if the survivor annuity percentage--
                            ``(i) is less than 75 percent, the 
                        applicable percentage is 75 percent, and
                            ``(ii) is greater than or equal to 75 
                        percent, the applicable percentage is 50 
                        percent.
                    ``(B) Survivor annuity percentage.--For purposes of 
                subparagraph (A), the term `survivor annuity 
                percentage' means the percentage which the survivor 
                annuity under the plan's qualified joint and survivor 
                annuity bears to the annuity payable during the joint 
                lives of the participant and the spouse.''
            (3) Notice.--Section 417(a)(3)(A)(i) of such Code is 
        amended by inserting ``and of the qualified optional survivor 
        annuity'' after ``annuity''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2004.
            (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 the 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, 2005, 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), or
                    (B) January 1, 2006.

             TITLE VII--TAX COURT PENSION AND COMPENSATION

SEC. 700. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title 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.

SEC. 701. ANNUITIES FOR SURVIVORS OF TAX COURT JUDGES WHO ARE 
              ASSASSINATED.

    (a) Eligibility in Case of Death by Assassination.--Subsection (h) 
of section 7448 (relating to annuities to surviving spouses and 
dependent children of judges) is amended to read as follows:
    ``(h) Entitlement to Annuity.--
            ``(1) In general.--
                    ``(A) Annuity to surviving spouse.--If a judge 
                described in paragraph (2) is survived by a surviving 
                spouse but not by a dependent child, there shall be 
                paid to such surviving spouse an annuity beginning with 
                the day of the death of the judge or following the 
                surviving spouse's attainment of the age of 50 years, 
                whichever is the later, in an amount computed as 
                provided in subsection (m).
                    ``(B) Annuity to child.--If such a judge is 
                survived by a surviving spouse and a dependent child or 
                children, there shall be paid to such surviving spouse 
                an immediate annuity in an amount computed as provided 
in subsection (m), and there shall also be paid to or on behalf of each 
such child an immediate annuity equal to the lesser of--
                            ``(i) 10 percent of the average annual 
                        salary of such judge (determined in accordance 
                        with subsection (m)), or
                            ``(ii) 20 percent of such average annual 
                        salary, divided by the number of such children.
                    ``(C) Annuity to surviving dependent children.--If 
                such a judge leaves no surviving spouse but leaves a 
                surviving dependent child or children, there shall be 
                paid to or on behalf of each such child an immediate 
                annuity equal to the lesser of--
                            ``(i) 20 percent of the average annual 
                        salary of such judge (determined in accordance 
                        with subsection (m)), or
                            ``(ii) 40 percent of such average annual 
                        salary, divided by the number of such children.
            ``(2) Covered judges.--Paragraph (1) applies to any judge 
        electing under subsection (b)--
                    ``(A) who dies while a judge after having rendered 
                at least 5 years of civilian service computed as 
                prescribed in subsection (n), for the last 5 years of 
                which the salary deductions provided for by subsection 
                (c)(1) or the deposits required by subsection (d) have 
                actually been made or the salary deductions required by 
                the civil service retirement laws have actually been 
                made, or
                    ``(B) who dies by assassination after having 
                rendered less than 5 years of civilian service computed 
                as prescribed in subsection (n) if, for the period of 
                such service, the salary deductions provided for by 
                subsection (c)(1) or the deposits required by 
                subsection (d) have actually been made.
            ``(3) Termination of annuity.--
                    ``(A) In the case of a surviving spouse.--The 
                annuity payable to a surviving spouse under this 
                subsection shall be terminable upon such surviving 
                spouse's death or such surviving spouse's remarriage 
                before attaining age 55.
                    ``(B) In the case of a child.--The annuity payable 
                to a child under this subsection shall be terminable 
                upon (i) the child attaining the age of 18 years, (ii) 
                the child's marriage, or (iii) the child's death, 
                whichever first occurs, except that if such child is 
                incapable of self-support by reason of mental or 
                physical disability the child's annuity shall be 
                terminable only upon death, marriage, or recovery from 
                such disability.
                    ``(C) In the case of a dependent child after death 
                of surviving spouse.--In case of the death of a 
                surviving spouse of a judge leaving a dependent child 
                or children of the judge surviving such spouse, the 
                annuity of such child or children shall be recomputed 
                and paid as provided in paragraph (1)(C).
                    ``(D) Recomputation.--In any case in which the 
                annuity of a dependent child is terminated under this 
                subsection, the annuities of any remaining dependent 
                child or children, based upon the service of the same 
                judge, shall be recomputed and paid as though the child 
                whose annuity was so terminated had not survived such 
                judge.
            ``(4) Special rule for assassinated judges.--In the case of 
        a survivor or survivors of a judge described in paragraph 
        (2)(B), there shall be deducted from the annuities otherwise 
        payable under this section an amount equal to--
                    ``(A) the amount of salary deductions provided for 
                by subsection (c)(1) that would have been made if such 
                deductions had been made for 5 years of civilian 
                service computed as prescribed in subsection (n) before 
                the judge's death, reduced by
                    ``(B) the amount of such salary deductions that 
                were actually made before the date of the judge's 
                death.''
    (b) Definition of Assassination.--Section 7448(a) (relating to 
definitions) is amended by adding at the end the following new 
paragraph:
            ``(8) The terms `assassinated' and `assassination' mean the 
        killing of a judge that is motivated by the performance by that 
        judge of his or her official duties.''
    (c) Determination of Assassination.--Subsection (i) of section 7448 
is amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(i) Determinations by Chief Judge.--
            ``(1) Dependency and disability.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Assassination.--The chief judge shall determine 
        whether the killing of a judge was an assassination, subject to 
        review only by the Tax Court. The head of any Federal agency 
        that investigates the killing of a judge shall provide 
        information to the chief judge that would assist the chief 
        judge in making such a determination.''
    (d) Computation of Annuities.--Subsection (m) of section 7448 is 
amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(m) Computation of Annuities.--
            ``(1) In general.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Assassinated judges.--In the case of a judge who is 
        assassinated and who has served less than 3 years, the annuity 
        of the surviving spouse of such judge shall be based upon the 
        average annual salary received by such judge for judicial 
        service.''
    (e) Other Benefits.--Section 7448 is amended by adding at the end 
the following:
    ``(u) Other Benefits.--In the case of a judge who is assassinated, 
an annuity shall be paid under this section notwithstanding a 
survivor's eligibility for or receipt of benefits under chapter 81 of 
title 5, United States Code, except that the annuity for which a 
surviving spouse is eligible under this section shall be reduced to the 
extent that the total benefits paid under this section and chapter 81 
of that title for any year would exceed the current salary for that 
year of the office of the judge.''

SEC. 702. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT JUDICIAL SURVIVOR 
              ANNUITIES.

    (a) In General.--Subsection (s) of section 7448 (relating to 
annuities to surviving spouses and dependent children of judges) is 
amended to read as follows:
    ``(s) Increases in Survivor Annuities.--Each time that an increase 
is made under section 8340(b) of title 5, United States Code, in 
annuities payable under subchapter III of chapter 83 of that title, 
each annuity payable from the survivors annuity fund under this section 
shall be increased at the same time by the same percentage by which 
annuities are increased under such section 8340(b).''
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to increases made under section 8340(b) of title 5, United 
States Code, in annuities payable under subchapter III of chapter 83 of 
that title, taking effect after the date of the enactment of this Act.

SEC. 703. LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES.

    (a) In General.--Section 7447 (relating to retirement of judges) is 
amended by adding at the end the following new subsection:
    ``(j) Life Insurance Coverage.--For purposes of chapter 87 of title 
5, United States Code (relating to life insurance), any individual who 
is serving as a judge of the Tax Court or who is retired under this 
section is deemed to be an employee who is continuing in active 
employment.''
    (b) Effective Date.--The amendment made by this section shall apply 
to any individual serving as a judge of the United States Tax Court or 
to any retired judge of the United States Tax Court on the date of the 
enactment of this Act.

SEC. 704. COST OF LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES AGE 65 
              OR OVER.

    Section 7472 (relating to expenditures) is amended by inserting 
after the first sentence the following new sentence: ``Notwithstanding 
any other provision of law, the Tax Court is authorized to pay on 
behalf of its judges, age 65 or over, any increase in the cost of 
Federal Employees' Group Life Insurance imposed after April 24, 1999, 
including any expenses generated by such payments, as authorized by the 
chief judge in a manner consistent with such payments authorized by the 
Judicial Conference of the United States pursuant to section 604(a)(5) 
of title 28, United States Code.''

SEC. 705. MODIFICATION OF TIMING OF LUMP-SUM PAYMENT OF JUDGES' ACCRUED 
              ANNUAL LEAVE.

    (a) In General.--Section 7443 (relating to membership of the Tax 
Court) is amended by adding at the end the following new subsection:
    ``(h) Lump-Sum Payment of Judges' Accrued Annual Leave.--
Notwithstanding the provisions of sections 5551 and 6301 of title 5, 
United States Code, when an individual subject to the leave system 
provided in chapter 63 of that title is appointed by the President to 
be a judge of the Tax Court, the individual shall be entitled to 
receive, upon appointment to the Tax Court, a lump-sum payment from the 
Tax Court of the accumulated and accrued current annual leave standing 
to the individual's credit as certified by the agency from which the 
individual resigned.''
    (b) Effective Date.--The amendment made by this section shall apply 
to any judge of the United States Tax Court who has an outstanding 
leave balance on the date of the enactment of this Act and to any 
individual appointed by the President to serve as a judge of the United 
States Tax Court after such date.

SEC. 706. PARTICIPATION OF TAX COURT JUDGES IN THE THRIFT SAVINGS PLAN.

    (a) In General.--Section 7447 (relating to retirement of judges), 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(k) Thrift Savings Plan.--
            ``(1) Election to contribute.--
                    ``(A) In general.--A judge of the Tax Court may 
                elect to contribute to the Thrift Savings Fund 
                established by section 8437 of title 5, United States 
                Code.
                    ``(B) Period of election.--An election may be made 
                under this paragraph only during a period provided 
                under section 8432(b) of title 5, United States Code, 
                for individuals subject to chapter 84 of such title.
            ``(2) Applicability of title 5 provisions.--Except as 
        otherwise provided in this subsection, the provisions of 
        subchapters III and VII of chapter 84 of title 5, United States 
        Code, shall apply with respect to a judge who makes an election 
        under paragraph (1).
            ``(3) Special rules.--
                    ``(A) Amount contributed.--The amount contributed 
                by a judge to the Thrift Savings Fund in any pay period 
                shall not exceed the maximum percentage of such judge's 
                basic pay for such period as allowable under section 
                8440f of title 5, United States Code. Basic pay does 
                not include any retired pay paid pursuant to this 
                section.
                    ``(B) Contributions for benefit of judge.--No 
                contributions may be made for the benefit of a judge 
                under section 8432(c) of title 5, United States Code.
                    ``(C) Applicability of section 8433(b) of title 5 
                whether or not judge retires.--Section 8433(b) of title 
                5, United States Code, applies with respect to a judge 
                who makes an election under paragraph (1) and who 
                either--
                            ``(i) retires under subsection (b), or
                            ``(ii) ceases to serve as a judge of the 
                        Tax Court but does not retire under subsection 
                        (b).
                Retirement under subsection (b) is a separation from 
                service for purposes of subchapters III and VII of 
                chapter 84 of that title.
                    ``(D) Applicability of section 8351(b)(5) of title 
                5.--The provisions of section 8351(b)(5) of title 5, 
                United States Code, shall apply with respect to a judge 
                who makes an election under paragraph (1).
                    ``(E) Exception.--Notwithstanding subparagraph (C), 
                if any judge retires under this section, or resigns 
                without having met the age and service requirements set 
                forth under subsection (b)(2), and such judge's 
                nonforfeitable account balance is less than an amount 
                that the Executive Director of the Office of Personnel 
                Management prescribes by regulation, the Executive 
                Director shall pay the nonforfeitable account balance 
                to the participant in a single payment.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act, except that United 
States Tax Court judges may only begin to participate in the Thrift 
Savings Plan at the next open season beginning after such date.

SEC. 707. EXEMPTION OF TEACHING COMPENSATION OF RETIRED JUDGES FROM 
              LIMITATION ON OUTSIDE EARNED INCOME.

    (a) In General.--Section 7447 (relating to retirement of judges), 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(l) Teaching Compensation of Retired Judges.--For purposes of the 
limitation under section 501(a) of the Ethics in Government Act of 1978 
(5 U.S.C. App.), any compensation for teaching approved under section 
502(a)(5) of such Act shall not be treated as outside earned income 
when received by a judge of the Tax Court who has retired under 
subsection (b) for teaching performed during any calendar year for 
which such a judge has met the requirements of subsection (c), as 
certified by the chief judge of the Tax Court.''
    (b) Effective Date.--The amendment made by this section shall apply 
to any individual serving as a retired judge of the United States Tax 
Court on or after the date of the enactment of this Act.

SEC. 708. GENERAL PROVISIONS RELATING TO MAGISTRATE JUDGES OF THE TAX 
              COURT.

    (a) Title of Special Trial Judge Changed to Magistrate Judge of the 
Tax Court.--The heading of section 7443A is amended to read as follows:

``SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.''

    (b) Appointment, Tenure, and Removal.--Subsection (a) of section 
7443A is amended to read as follows:
    ``(a) Appointment, Tenure, and Removal.--
            ``(1) Appointment.--The chief judge may, from time to time, 
        appoint and reappoint magistrate judges of the Tax Court for a 
        term of 8 years. The magistrate judges of the Tax Court shall 
        proceed under such rules as may be promulgated by the Tax 
        Court.
            ``(2) Removal.--Removal of a magistrate judge of the Tax 
        Court during the term for which he or she is appointed shall be 
        only for incompetency, misconduct, neglect of duty, or physical 
        or mental disability, but the office of a magistrate judge of 
        the Tax Court shall be terminated if the judges of the Tax 
        Court determine that the services performed by the magistrate 
        judge of the Tax Court are no longer needed. Removal shall not 
        occur unless a majority of all the judges of the Tax Court 
        concur in the order of removal. Before any order of removal 
        shall be entered, a full specification of the charges shall be 
        furnished to the magistrate judge of the Tax Court, and he or 
        she shall be accorded by the judges of the Tax Court an 
        opportunity to be heard on the charges.''
    (c) Salary.--Section 7443A(d) (relating to salary) is amended by 
striking ``90'' and inserting ``92''.
    (d) Exemption From Federal Leave Provisions.--Section 7443A is 
amended by adding at the end the following new subsection:
    ``(f) Exemption From Federal Leave Provisions.--
            ``(1) In general.--A magistrate judge of the Tax Court 
        appointed under this section shall be exempt from the 
        provisions of subchapter I of chapter 63 of title 5, United 
        States Code.
            ``(2) Treatment of unused leave.--
                    ``(A) After service as magistrate judge.--If an 
                individual who is exempted under paragraph (1) from the 
                subchapter referred to in such paragraph was previously 
                subject to such subchapter and, without a break in 
                service, again becomes subject to such subchapter on 
                completion of the individual's service as a magistrate 
                judge, the unused annual leave and sick leave standing 
                to the individual's credit when such individual was 
                exempted from this subchapter is deemed to have 
                remained to the individual's credit.
                    ``(B) Computation of annuity.--In computing an 
                annuity under section 8339 of title 5, United States 
                Code, the total service of an individual specified in 
                subparagraph (A) who retires on an immediate annuity or 
                dies leaving a survivor or survivors entitled to an 
                annuity includes, without regard to the limitations 
                imposed by subsection (f) of such section 8339, the 
                days of unused sick leave standing to the individual's 
                credit when such individual was exempted from 
                subchapter I of chapter 63 of title 5, United States 
                Code, except that these days will not be counted in 
                determining average pay or annuity eligibility.
                    ``(C) Lump sum payment.--Any accumulated and 
                current accrued annual leave or vacation balances 
                credited to a magistrate judge as of the date of the 
                enactment of this subsection shall be paid in a lump 
                sum at the time of separation from service pursuant to 
                the provisions and restrictions set forth in section 
                5551 of title 5, United States Code, and related 
provisions referred to in such section.''
    (e) Conforming Amendments.--
            (1) The heading of subsection (b) of section 7443A is 
        amended by striking ``Special Trial Judges'' and inserting 
        ``Magistrate Judges of the Tax Court''.
            (2) Section 7443A(b) is amended by striking ``special trial 
        judges of the court'' and inserting ``magistrate judges of the 
        Tax Court''.
            (3) Subsections (c) and (d) of section 7443A are amended by 
        striking ``special trial judge'' and inserting ``magistrate 
        judge of the Tax Court'' each place it appears.
            (4) Section 7443A(e) is amended by striking ``special trial 
        judges'' and inserting ``magistrate judges of the Tax Court''.
            (5) Section 7456(a) is amended by striking ``special trial 
        judge'' each place it appears and inserting ``magistrate 
        judge''.
            (6) Subsection (c) of section 7471 is amended--
                    (A) by striking the subsection heading and 
                inserting ``Magistrate Judges of the Tax Court.--'', 
                and
                    (B) by striking ``special trial judges'' and 
                inserting ``magistrate judges''.

SEC. 709. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT CHILDREN OF 
              MAGISTRATE JUDGES OF THE TAX COURT.

    (a) Definitions.--Section 7448(a) (relating to definitions), as 
amended by this Act, is amended by redesignating paragraphs (5), (6), 
(7), and (8) as paragraphs (7), (8), (9), and (10), respectively, and 
by inserting after paragraph (4) the following new paragraphs:
            ``(5) The term `magistrate judge' means a judicial officer 
        appointed pursuant to section 7443A, including any individual 
        receiving an annuity under section 7443B, or chapters 83 or 84, 
        as the case may be, of title 5, United States Code, whether or 
        not performing judicial duties under section 7443C.
            ``(6) The term `magistrate judge's salary' means the salary 
        of a magistrate judge received under section 7443A(d), any 
        amount received as an annuity under section 7443B, or chapters 
        83 or 84, as the case may be, of title 5, United States Code, 
        and compensation received under section 7443C.''
    (b) Election.--Subsection (b) of section 7448 (relating to 
annuities to surviving spouses and dependent children of judges) is 
amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(b) Election.--
            ``(1) Judges.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Magistrate judges.--Any magistrate judge may by 
        written election filed with the chief judge bring himself or 
        herself within the purview of this section. Such election shall 
        be filed not later than the later of 6 months after--
                    ``(A) 6 months after the date of the enactment of 
                this paragraph,
                    ``(B) the date the judge takes office, or
                    ``(C) the date the judge marries.''
    (c) Conforming Amendments.--
            (1) The heading of section 7448 is amended by inserting 
        ``and magistrate judges'' after ``judges''.
            (2) The item relating to section 7448 in the table of 
        sections for part I of subchapter C of chapter 76 is amended by 
        inserting ``and magistrate judges'' after ``judges''.
            (3) Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n), 
        and (u) of section 7448, as amended by this Act, are each 
        amended--
                    (A) by inserting ``or magistrate judge'' after 
                ``judge'' each place it appears other than in the 
                phrase ``chief judge'', and
                    (B) by inserting ``or magistrate judge's'' after 
                ``judge's'' each place it appears.
            (4) Section 7448(c) is amended--
                    (A) in paragraph (1), by striking ``Tax Court 
                judges'' and inserting ``Tax Court judicial officers'',
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by inserting ``and 
                        section 7443A(d)'' after ``(a)(4)'', and
                            (ii) in subparagraph (B), by striking 
                        ``subsection (a)(4)'' and inserting 
                        ``subsections (a)(4) and (a)(6)''.
            (5) Section 7448(g) is amended by inserting ``or section 
        7443B'' after ``section 7447'' each place it appears, and by 
        inserting ``or an annuity'' after ``retired pay''.
            (6) Section 7448(j)(1) is amended--
                    (A) in subparagraph (A), by striking ``service or 
                retired'' and inserting ``service, retired'', and by 
                inserting ``, or receiving any annuity under section 
                7443B or chapters 83 or 84 of title 5, United States 
                Code,'' after ``section 7447'', and
                    (B) in the last sentence, by striking ``subsections 
                (a) (6) and (7)'' and inserting ``paragraphs (8) and 
                (9) of subsection (a)''.
            (7) Section 7448(m)(1), as amended by this Act, is 
        amended--
                    (A) by inserting ``or any annuity under section 
                7443B or chapters 83 or 84 of title 5, United States 
                Code'' after ``7447(d)'', and
                    (B) by inserting ``or 7443B(m)(1)(B) after 
                ``7447(f)(4)''.
            (8) Section 7448(n) is amended by inserting ``his years of 
        service pursuant to any appointment under section 7443A,'' 
        after ``of the Tax Court,''.
            (9) Section 3121(b)(5)(E) is amended by inserting ``or 
        magistrate judge'' before ``of the United States Tax Court''.
            (10) Section 210(a)(5)(E) of the Social Security Act is 
        amended by inserting ``or magistrate judge'' before ``of the 
        United States Tax Court''.

SEC. 710. RETIREMENT AND ANNUITY PROGRAM.

    (a) Retirement and Annuity Program.--Part I of subchapter C of 
chapter 76 is amended by inserting after section 7443A the following 
new section:

``SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF THE TAX COURT.

    ``(a) Retirement Based on Years of Service.--A magistrate judge of 
the Tax Court to whom this section applies and who retires from office 
after attaining the age of 65 years and serving at least 14 years, 
whether continuously or otherwise, as such magistrate judge shall, 
subject to subsection (f), be entitled to receive, during the remainder 
of the magistrate judge's lifetime, an annuity equal to the salary 
being received at the time the magistrate judge leaves office.
    ``(b) Retirement Upon Failure of Reappointment.--A magistrate judge 
of the Tax Court to whom this section applies who is not reappointed 
following the expiration of the term of office of such magistrate judge 
and who retires upon the completion of the term shall, subject to 
subsection (f), be entitled to receive, upon attaining the age of 65 
years and during the remainder of such magistrate judge's lifetime, an 
annuity equal to that portion of the salary being received at the time 
the magistrate judge leaves office which the aggregate number of years 
of service, not to exceed 14, bears to 14, if--
            ``(1) such magistrate judge has served at least 1 full term 
        as a magistrate judge, and
            ``(2) not earlier than 9 months before the date on which 
        the term of office of such magistrate judge expires, and not 
        later than 6 months before such date, such magistrate judge 
        notified the chief judge of the Tax Court in writing that such 
        magistrate judge was willing to accept reappointment to the 
        position in which such magistrate judge was serving.
    ``(c) Service of at Least 8 Years.--A magistrate judge of the Tax 
Court to whom this section applies and who retires after serving at 
least 8 years, whether continuously or otherwise, as such a magistrate 
judge shall, subject to subsection (f), be entitled to receive, upon 
attaining the age of 65 years and during the remainder of the 
magistrate judge's lifetime, an annuity equal to that portion of the 
salary being received at the time the magistrate judge leaves office 
which the aggregate number of years of service, not to exceed 14, bears 
to 14. Such annuity shall be reduced by \1/6\ of 1 percent for each 
full month such magistrate judge was under the age of 65 at the time 
the magistrate judge left office, except that such reduction shall not 
exceed 20 percent.
    ``(d) Retirement for Disability.--A magistrate judge of the Tax 
Court to whom this section applies, who has served at least 5 years, 
whether continuously or otherwise, as such a magistrate judge and who 
retires or is removed from office upon the sole ground of mental or 
physical disability shall, subject to subsection (f), be entitled to 
receive, during the remainder of the magistrate judge's lifetime, an 
annuity equal to 40 percent of the salary being received at the time of 
retirement or removal or, in the case of a magistrate judge who has 
served for at least 10 years, an amount equal to that proportion of the 
salary being received at the time of retirement or removal which the 
aggregate number of years of service, not to exceed 14, bears to 14.
    ``(e) Cost-of-Living Adjustments.--A magistrate judge of the Tax 
Court who is entitled to an annuity under this section is also entitled 
to a cost-of-living adjustment in such annuity, calculated and payable 
in the same manner as adjustments under section 8340(b) of title 5, 
United States Code, except that any such annuity, as increased under 
this subsection, may not exceed the salary then payable for the 
position from which the magistrate judge retired or was removed.
    ``(f) Election; Annuity in Lieu of Other Annuities.--
            ``(1) In general.--A magistrate judge of the Tax Court 
        shall be entitled to an annuity under this section if the 
        magistrate judge elects an annuity under this section by 
        notifying the chief judge of the Tax Court not later than the 
        later of--
                    ``(A) 5 years after the magistrate judge of the Tax 
                Court begins judicial service, or
                    ``(B) 5 years after the date of the enactment of 
                this subsection.
        Such notice shall be given in accordance with procedures 
        prescribed by the Tax Court.
            ``(2) Annuity in lieu of other annuity.--A magistrate judge 
        who elects to receive an annuity under this section shall not 
        be entitled to receive--
                    ``(A) any annuity to which such magistrate judge 
                would otherwise have been entitled under subchapter III 
                of chapter 83, or under chapter 84 (except for 
                subchapters III and VII), of title 5, United States 
                Code, for service performed as a magistrate or 
                otherwise,
                    ``(B) an annuity or salary in senior status or 
                retirement under section 371 or 372 of title 28, United 
                States Code,
                    ``(C) retired pay under section 7447, or
                    ``(D) retired pay under section 7296 of title 38, 
                United States Code.
            ``(3) Coordination with title 5.--A magistrate judge of the 
        Tax Court who elects to receive an annuity under this section--
                    ``(A) shall not be subject to deductions and 
                contributions otherwise required by section 8334(a) of 
                title 5, United States Code,
                    ``(B) shall be excluded from the operation of 
                chapter 84 (other than subchapters III and VII) of such 
                title 5, and
                    ``(C) is entitled to a lump-sum credit under 
                section 8342(a) or 8424 of such title 5, as the case 
                may be.
    ``(g) Calculation of Service.--For purposes of calculating an 
annuity under this section--
            ``(1) service as a magistrate judge of the Tax Court to 
        whom this section applies may be credited, and
            ``(2) each month of service shall be credited as \1/12\ of 
        a year, and the fractional part of any month shall not be 
        credited.
    ``(h) Covered Positions and Service.--This section applies to any 
magistrate judge of the Tax Court or special trial judge of the Tax 
Court appointed under this subchapter, but only with respect to service 
as such a magistrate judge or special trial judge after a date not 
earlier than 9\1/2\ years before the date of the enactment of this 
subsection.
    ``(i) Payments Pursuant to Court Order.--
            ``(1) In general.--Payments under this section which would 
        otherwise be made to a magistrate judge of the Tax Court based 
        upon his or her service shall be paid (in whole or in part) by 
        the chief judge of the Tax Court to another person if and to 
        the extent expressly provided for in the terms of any court 
        decree of divorce, annulment, or legal separation, or the terms 
        of any court order or court-approved property settlement 
        agreement incident to any court decree of divorce, annulment, 
        or legal separation. Any payment under this paragraph to a 
        person bars recovery by any other person.
            ``(2) Requirements for payment.--Paragraph (1) shall apply 
        only to payments made by the chief judge of the Tax Court after 
        the date of receipt by the chief judge of written notice of 
        such decree, order, or agreement, and such additional 
        information as the chief judge may prescribe.
            ``(3) Court defined.--For purposes of this subsection, the 
        term `court' means any court of any State, the District of 
        Columbia, the Commonwealth of Puerto Rico, Guam, the Northern 
        Mariana Islands, or the Virgin Islands, and any Indian tribal 
        court or courts of Indian offense.
    ``(j) Deductions, Contributions, and Deposits.--
            ``(1) Deductions.--Beginning with the next pay period after 
        the chief judge of the Tax Court receives a notice under 
        subsection (f) that a magistrate judge of the Tax Court has 
        elected an annuity under this section, the chief judge shall 
        deduct and withhold 1 percent of the salary of such magistrate 
        judge. Amounts shall be so deducted and withheld in a manner 
        determined by the chief judge. Amounts deducted and withheld 
        under this subsection shall be deposited in the Treasury of the 
        United States to the credit of the Tax Court Judicial Officers' 
        Retirement Fund. Deductions under this subsection from the 
        salary of a magistrate judge shall terminate upon the 
        retirement of the magistrate judge or upon completion of 14 
        years of service for which contributions under this section 
        have been made, whether continuously or otherwise, as 
        calculated under subsection (g), whichever occurs first.
            ``(2) Consent to deductions; discharge of claims.--Each 
        magistrate judge of the Tax Court who makes an election under 
        subsection (f) shall be deemed to consent and agree to the 
        deductions from salary which are made under paragraph (1). 
        Payment of such salary less such deductions (and any deductions 
        made under section 7448) is a full and complete discharge and 
        acquittance of all claims and demands for all services rendered 
        by such magistrate judge during the period covered by such 
        payment, except the right to those benefits to which the 
        magistrate judge is entitled under this section (and section 
        7448).
    ``(k) Deposits for Prior Service.--Each magistrate judge of the Tax 
Court who makes an election under subsection (f) may deposit, for 
service performed before such election for which contributions may be 
made under this section, an amount equal to 1 percent of the salary 
received for that service. Credit for any period covered by that 
service may not be allowed for purposes of an annuity under this 
section until a deposit under this subsection has been made for that 
period.
    ``(l) Individual Retirement Records.--The amounts deducted and 
withheld under subsection (j), and the amounts deposited under 
subsection (k), shall be credited to individual accounts in the name of 
each magistrate judge of the Tax Court from whom such amounts are 
received, for credit to the Tax Court Judicial Officers' Retirement 
Fund.
    ``(m) Annuities Affected in Certain Cases.--
            ``(1) 1-year forfeiture for failure to perform judicial 
        duties.--Subject to paragraph (3), any magistrate judge of the 
        Tax Court who retires under this section and who fails to 
        perform judicial duties required of such individual by section 
        7443C shall forfeit all rights to an annuity under this section 
        for a 1-year period which begins on the 1st day on which such 
        individual fails to perform such duties.
            ``(2) Permanent forfeiture of retired pay where certain 
        non-government services performed.--Subject to paragraph (3), 
        any magistrate judge of the Tax Court who retires under this 
        section and who thereafter performs (or supervises or directs 
        the performance of) legal or accounting services in the field 
        of Federal taxation for the individual's client, the 
        individual's employer, or any of such employer's clients, shall 
        forfeit all rights to an annuity under this section for all 
        periods beginning on or after the first day on which the 
        individual performs (or supervises or directs the performance 
        of) such services. The preceding sentence shall not apply to 
        any civil office or employment under the Government of the 
        United States.
            ``(3) Forfeitures not to apply where individual elects to 
        freeze amount of annuity.--
                    ``(A) In general.--If a magistrate judge of the Tax 
                Court makes an election under this paragraph--
                            ``(i) paragraphs (1) and (2) (and section 
                        7443C) shall not apply to such magistrate judge 
                        beginning on the date such election takes 
                        effect, and
                            ``(ii) the annuity payable under this 
                        section to such magistrate judge, for periods 
                        beginning on or after the date such election 
                        takes effect, shall be equal to the annuity to 
                        which such magistrate judge is entitled on the 
                        day before such effective date.
                    ``(B) Election requirements.--An election under 
                subparagraph (A)--
                            ``(i) may be made by a magistrate judge of 
                        the Tax Court eligible for retirement under 
                        this section, and
                            ``(ii) shall be filed with the chief judge 
                        of the Tax Court.
                Such an election, once it takes effect, shall be 
                irrevocable.
                    ``(C) Effective date of election.--Any election 
                under subparagraph (A) shall take effect on the first 
                day of the first month following the month in which the 
                election is made.
            ``(4) Accepting other employment.--Any magistrate judge of 
        the Tax Court who retires under this section and thereafter 
        accepts compensation for civil office or employment under the 
        United States Government (other than for the performance of 
        functions as a magistrate judge of the Tax Court under section 
        7443C) shall forfeit all rights to an annuity under this 
        section for the period for which such compensation is received. 
        For purposes of this paragraph, the term `compensation' 
        includes retired pay or salary received in retired status.
    ``(n) Lump-Sum Payments.--
            ``(1) Eligibility.--
                    ``(A) In general.--Subject to paragraph (2), an 
                individual who serves as a magistrate judge of the Tax 
                Court and--
                            ``(i) who leaves office and is not 
                        reappointed as a magistrate judge of the Tax 
                        Court for at least 31 consecutive days,
                            ``(ii) who files an application with the 
                        chief judge of the Tax Court for payment of a 
                        lump-sum credit,
                            ``(iii) is not serving as a magistrate 
                        judge of the Tax Court at the time of filing of 
                        the application, and
                            ``(iv) will not become eligible to receive 
                        an annuity under this section within 31 days 
                        after filing the application,
                is entitled to be paid the lump-sum credit. Payment of 
                the lump-sum credit voids all rights to an annuity 
                under this section based on the service on which the 
                lump-sum credit is based, until that individual resumes 
                office as a magistrate judge of the Tax Court.
                    ``(B) Payment to survivors.--Lump-sum benefits 
                authorized by subparagraphs (C), (D), and (E) of this 
                paragraph shall be paid to the person or persons 
                surviving the magistrate judge of the Tax Court and 
                alive on the date title to the payment arises, in the 
                order of precedence set forth in subsection (o) of 
                section 376 of title 28, United States Code, and in 
                accordance with the last 2 sentences of paragraph (1) 
                of that subsection. For purposes of the preceding 
                sentence, the term `judicial official' as used in 
                subsection (o) of such section 376 shall be deemed to 
                mean `magistrate judge of the Tax Court' and the terms 
                `Administrative Office of the United States Courts' and 
                `Director of the Administrative Office of the United 
                States Courts' shall be deemed to mean `chief judge of 
                the Tax Court'.
                    ``(C) Payment upon death of judge before receipt of 
                annuity.--If a magistrate judge of the Tax Court dies 
                before receiving an annuity under this section, the 
                lump-sum credit shall be paid.
                    ``(D) Payment of annuity remainder.--If all annuity 
                rights under this section based on the service of a 
                deceased magistrate judge of the Tax Court terminate 
                before the total annuity paid equals the lump-sum 
                credit, the difference shall be paid.
                    ``(E) Payment upon death of judge during receipt of 
                annuity.--If a magistrate judge of the Tax Court who is 
                receiving an annuity under this section dies, any 
                accrued annuity benefits remaining unpaid shall be 
                paid.
                    ``(F) Payment upon termination.--Any accrued 
                annuity benefits remaining unpaid on the termination, 
                except by death, of the annuity of a magistrate judge 
                of the Tax Court shall be paid to that individual.
                    ``(G) Payment upon accepting other employment.--
                Subject to paragraph (2), a magistrate judge of the Tax 
                Court who forfeits rights to an annuity under 
                subsection (m)(4) before the total annuity paid equals 
                the lump-sum credit shall be entitled to be paid the 
                difference if the magistrate judge of the Tax Court 
                files an application with the chief judge of the Tax 
                Court for payment of that difference. A payment under 
                this subparagraph voids all rights to an annuity on 
                which the payment is based.
            ``(2) Spouses and former spouses.--
                    ``(A) In general.--Payment of the lump-sum credit 
                under paragraph (1)(A) or a payment under paragraph 
                (1)(G)--
                            ``(i) may be made only if any current 
                        spouse and any former spouse of the magistrate 
                        judge of the Tax Court are notified of the 
                        magistrate judge's application, and
                            ``(ii) shall be subject to the terms of a 
                        court decree of divorce, annulment, or legal 
                        separation, or any court or court approved 
                        property settlement agreement incident to such 
                        decree, if--
                                    ``(I) the decree, order, or 
                                agreement expressly relates to any 
                                portion of the lump-sum credit or other 
                                payment involved, and
                                    ``(II) payment of the lump-sum 
                                credit or other payment would 
                                extinguish entitlement of the 
                                magistrate judge's spouse or former 
                                spouse to any portion of an annuity 
                                under subsection (i).
                    ``(B) Notification.--Notification of a spouse or 
                former spouse under this paragraph shall be made in 
                accordance with such procedures as the chief judge of 
                the Tax Court shall prescribe. The chief judge may 
                provide under such procedures that subparagraph (A)(i) 
                may be waived with respect to a spouse or former spouse 
                if the magistrate judge establishes to the satisfaction 
                of the chief judge that the whereabouts of such spouse 
                or former spouse cannot be determined.
                    ``(C) Resolution of 2 or more orders.--The chief 
                judge shall prescribe procedures under which this 
                paragraph shall be applied in any case in which the 
                chief judge receives 2 or more orders or decrees 
                described in subparagraph (A).
            ``(3) Definition.--For purposes of this subsection, the 
        term `lump-sum credit' means the unrefunded amount consisting 
        of--
                    ``(A) retirement deductions made under this section 
                from the salary of a magistrate judge of the Tax Court,
                    ``(B) amounts deposited under subsection (k) by a 
                magistrate judge of the Tax Court covering earlier 
                service, and
                    ``(C) interest on the deductions and deposits 
                which, for any calendar year, shall be equal to the 
                overall average yield to the Tax Court Judicial 
                Officers' Retirement Fund during the preceding fiscal 
                year from all obligations purchased by the Secretary 
                during such fiscal year under subsection (o); but does 
not include interest--
                            ``(i) if the service covered thereby 
                        aggregates 1 year or less, or
                            ``(ii) for the fractional part of a month 
                        in the total service.
    ``(o) Tax Court Judicial Officers' Retirement Fund.--
            ``(1) Establishment.--There is established in the Treasury 
        a fund which shall be known as the `Tax Court Judicial 
        Officers' Retirement Fund'. Amounts in the Fund are authorized 
        to be appropriated for the payment of annuities, refunds, and 
        other payments under this section.
            ``(2) Investment of fund.--The Secretary shall invest, in 
        interest bearing securities of the United States, such 
        currently available portions of the Tax Court Judicial 
        Officers' Retirement Fund as are not immediately required for 
        payments from the Fund. The income derived from these 
        investments constitutes a part of the Fund.
            ``(3) Unfunded liability.--
                    ``(A) In general.--There are authorized to be 
                appropriated to the Tax Court Judicial Officers' 
                Retirement Fund amounts required to reduce to zero the 
                unfunded liability of the Fund.
                    ``(B) Unfunded liability.--For purposes of 
                subparagraph (A), the term `unfunded liability' means 
                the estimated excess, determined on an annual basis in 
                accordance with the provisions of section 9503 of title 
                31, United States Code, of the present value of all 
                benefits payable from the Tax Court Judicial Officers' 
                Retirement Fund over the sum of--
                            ``(i) the present value of deductions to be 
                        withheld under this section from the future 
                        basic pay of magistrate judges of the Tax 
                        Court, plus
                            ``(ii) the balance in the Fund as of the 
                        date the unfunded liability is determined.
    ``(p) Participation in Thrift Savings Plan.--
            ``(1) Election to contribute.--
                    ``(A) In general.--A magistrate judge of the Tax 
                Court who elects to receive an annuity under this 
                section or under section 711 of the National Employee 
                Savings and Trust Equity Guarantee Act of 2004 may 
                elect to contribute an amount of such individual's 
                basic pay to the Thrift Savings Fund established by 
                section 8437 of title 5, United States Code.
                    ``(B) Period of election.--An election may be made 
                under this paragraph only during a period provided 
                under section 8432(b) of title 5, United States Code, 
                for individuals subject to chapter 84 of such title.
            ``(2) Applicability of title 5 provisions.--Except as 
        otherwise provided in this subsection, the provisions of 
        subchapters III and VII of chapter 84 of title 5, United States 
        Code, shall apply with respect to a magistrate judge who makes 
        an election under paragraph (1).
            ``(3) Special rules.--
                    ``(A) Amount contributed.--The amount contributed 
                by a magistrate judge to the Thrift Savings Fund in any 
                pay period shall not exceed the maximum percentage of 
                such judge's basic pay for such pay period as allowable 
                under section 8440f of title 5, United States Code.
                    ``(B) Contributions for benefit of judge.--No 
                contributions may be made for the benefit of a 
                magistrate judge under section 8432(c) of title 5, 
                United States Code.
                    ``(C) Applicability of section 8433(b) of title 
                5.--Section 8433(b) of title 5, United States Code, 
                applies with respect to a magistrate judge who makes an 
                election under paragraph (1) and--
                            ``(i) who retires entitled to an immediate 
                        annuity under this section (including a 
                        disability annuity under subsection (d) of this 
                        section) or section 711 of the National 
                        Employee Savings and Trust Equity Guarantee Act 
                        of 2004,
                            ``(ii) who retires before attaining age 65 
                        but is entitled, upon attaining age 65, to an 
                        annuity under this section or section 711 of 
                        the National Employee Savings and Trust Equity 
                        Guarantee Act of 2004, or
                            ``(iii) who retires before becoming 
                        entitled to an immediate annuity, or an annuity 
                        upon attaining age 65, under this section or 
                        section 711 of the National Employee Savings 
                        and Trust Equity Guarantee Act of 2004.
                    ``(D) Separation from service.--With respect to a 
                magistrate judge to whom this subsection applies, 
                retirement under this section or section 711 of the 
                National Employee Savings and Trust Equity Guarantee 
                Act of 2004 is a separation from service for purposes 
                of subchapters III and VII of chapter 84 of title 5, 
                United States Code.
            ``(4) Definitions.--For purposes of this subsection, the 
        terms `retirement' and `retire' include removal from office 
        under section 7443A(a)(2) on the sole ground of mental or 
        physical disability.
            ``(5) Offset.--In the case of a magistrate judge who 
        receives a distribution from the Thrift Savings Fund and who 
        later receives an annuity under this section, that annuity 
        shall be offset by an amount equal to the amount which 
        represents the Government's contribution to that person's 
        Thrift Savings Account, without regard to earnings attributable 
        to that amount. Where such an offset would exceed 50 percent of 
        the annuity to be received in the first year, the offset may be 
        divided equally over the first 2 years in which that person 
        receives the annuity.
            ``(6) Exception.--Notwithstanding clauses (i) and (ii) of 
        paragraph (3)(C), if any magistrate judge retires under 
        circumstances making such magistrate judge eligible to make an 
        election under subsection (b) of section 8433 of title 5, 
United States Code, and such magistrate judge's nonforfeitable account 
balance is less than an amount that the Executive Director of the 
Office of Personnel Management prescribes by regulation, the Executive 
Director shall pay the nonforfeitable account balance to the 
participant in a single payment.''
    (b) Conforming Amendment.--The table of section for part I of 
subchapter C of chapter 76 is amended by inserting after the item 
relating to section 7443A the following new item:

                              ``Sec. 7443B. Retirement for magistrate 
                                        judges of the Tax Court.''

SEC. 711. INCUMBENT MAGISTRATE JUDGES OF THE TAX COURT.

    (a) Retirement Annuity Under Title 5 and Section 7443B of the 
Internal Revenue Code of 1986.--A magistrate judge of the United States 
Tax Court in active service on the date of the enactment of this Act 
shall, subject to subsection (b), be entitled, in lieu of the annuity 
otherwise provided under the amendments made by this title, to--
            (1) an annuity under subchapter III of chapter 83, or under 
        chapter 84 (except for subchapters III and VII), of title 5, 
        United States Code, as the case may be, for creditable service 
        before the date on which service would begin to be credited for 
        purposes of paragraph (2), and
            (2) an annuity calculated under subsection (b) or (c) and 
        subsection (g) of section 7443B of the Internal Revenue Code of 
        1986, as added by this Act, for any service as a magistrate 
        judge of the United States Tax Court or special trial judge of 
        the United States Tax Court but only with respect to service as 
        such a magistrate judge or special trial judge after a date not 
        earlier than 9\1/2\ years prior to the date of the enactment of 
        this Act (as specified in the election pursuant to subsection 
        (b)) for which deductions and deposits are made under 
        subsections (j) and (k) of such section 7443B, as applicable, 
        without regard to the minimum number of years of service as 
        such a magistrate judge of the United States Tax Court, except 
        that--
                    (A) in the case of a magistrate judge who retired 
                with less than 8 years of service, the annuity under 
                subsection (c) of such section 7443B shall be equal to 
                that proportion of the salary being received at the 
                time the magistrate judge leaves office which the years 
                of service bears to 14, subject to a reduction in 
                accordance with subsection (c) of such section 7443B if 
                the magistrate judge is under age 65 at the time he or 
                she leaves office, and
                    (B) the aggregate amount of the annuity initially 
                payable on retirement under this subsection may not 
                exceed the rate of pay for the magistrate judge which 
                is in effect on the day before the retirement becomes 
                effective.
    (b) Filing of Notice of Election.--A magistrate judge of the United 
States Tax Court shall be entitled to an annuity under this section 
only if the magistrate judge files a notice of that election with the 
chief judge of the United States Tax Court specifying the date on which 
service would begin to be credited under section 7443B of the Internal 
Revenue Code of 1986, as added by this Act, in lieu of chapter 83 or 
chapter 84 of title 5, United States Code. Such notice shall be filed 
in accordance with such procedures as the chief judge of the United 
States Tax Court shall prescribe.
    (c) Lump-Sum Credit Under Title 5.--A magistrate judge of the 
United States Tax Court who makes an election under subsection (b) 
shall be entitled to a lump-sum credit under section 8342 or 8424 of 
title 5, United States Code, as the case may be, for any service which 
is covered under section 7443B of the Internal Revenue Code of 1986, as 
added by this Act, pursuant to that election, and with respect to which 
any contributions were made by the magistrate judge under the 
applicable provisions of title 5, United States Code.
    (d) Recall.--With respect to any magistrate judge of the United 
States Tax Court receiving an annuity under this section who is 
recalled to serve under section 7443C of the Internal Revenue Code of 
1986, as added by this Act--
            (1) the amount of compensation which such recalled 
        magistrate judge receives under such section 7443C shall be 
        calculated on the basis of the annuity received under this 
        section, and
            (2) such recalled magistrate judge of the United States Tax 
        Court may serve as a reemployed annuitant to the extent 
        otherwise permitted under title 5, United States Code.
Section 7443B(m)(4) of the Internal Revenue Code of 1986, as added by 
this Act, shall not apply with respect to service as a reemployed 
annuitant described in paragraph (2).

SEC. 712. PROVISIONS FOR RECALL.

    (a) In General.--Part I of subchapter C of chapter 76, as amended 
by this Act, is amended by inserting after section 7443B the following 
new section:

``SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX COURT.

    ``(a) Recalling of Retired Magistrate Judges.--Any individual who 
has retired pursuant to section 7443B or the applicable provisions of 
title 5, United States Code, upon reaching the age and service 
requirements established therein, may at or after retirement be called 
upon by the chief judge of the Tax Court to perform such judicial 
duties with the Tax Court as may be requested of such individual for 
any period or periods specified by the chief judge; except that in the 
case of any such individual--
            ``(1) the aggregate of such periods in any 1 calendar year 
        shall not (without such individual's consent) exceed 90 
        calendar days, and
            ``(2) such individual shall be relieved of performing such 
        duties during any period in which illness or disability 
        precludes the performance of such duties.
Any act, or failure to act, by an individual performing judicial duties 
pursuant to this subsection shall have the same force and effect as if 
it were the act (or failure to act) of a magistrate judge of the Tax 
Court.
    ``(b) Compensation.--For the year in which a period of recall 
occurs, the magistrate judge shall receive, in addition to the annuity 
provided under the provisions of section 7443B or under the applicable 
provisions of title 5, United States Code, an amount equal to the 
difference between that annuity and the current salary of the office to 
which the magistrate judge is recalled. The annuity of the magistrate 
judge who completes that period of service, who is not recalled in a 
subsequent year, and who retired under section 7443B, shall be equal to 
the salary in effect at the end of the year in which the period of 
recall occurred for the office from which such individual retired.
    ``(c) Rulemaking Authority.--The provisions of this section may be 
implemented under such rules as may be promulgated by the Tax Court.''
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter C of chapter 76, as amended by this Act, is amended by 
inserting after the item relating to section 7443B the following new 
item:

                              ``Sec. 7443C. Recall of magistrate judges 
                                        of the Tax Court.''

SEC. 713. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this title 
shall take effect on the date of the enactment of this Act.

                      TITLE VIII--OTHER PROVISIONS

                     Subtitle A--General Provisions

SEC. 801. CERTAIN POSTSECONDARY EDUCATIONAL BENEFITS PROVIDED BY AN 
              EMPLOYER TO CHILDREN OF EMPLOYEES EXCLUDABLE FROM GROSS 
              INCOME UNDER EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) In General.--Section 127 of the Internal Revenue Code of 1986 
(relating to educational assistance programs) is amended by 
redesignating subsection (d) as subsection (e), and inserting after 
subsection (c) the following:
    ``(d) Post Secondary Educational Benefits Provided to Children of 
Employees.--
            ``(1) In general.--For purposes of this section, 
        educational assistance provided by the employer to a child (as 
        defined in section 151(c)(3)) of an employee of such employer 
        pursuant to an educational assistance program shall be treated 
        as educational assistance provided for the exclusive benefit of 
        the employee.
            ``(2) Dollar limitations.--The amount excluded from the 
        gross income of the employee by reason of paragraph (1) for a 
        taxable year with respect to amounts provided to each child of 
        such employee shall not exceed $1,000.
            ``(3) Limitation on educational assistance.--Paragraph (1) 
        shall only apply to expenses paid or incurred in connection 
        with the enrollment or attendance of a child of an employee at 
        an educational institution described in section 529(e)(5).
            ``(4) Termination.--This subsection shall not apply to 
        taxable years beginning after December 31, 2005.''
    (b) No Exemption for Employment Taxes.--
            (1) In general.--Each of the following provisions of the 
        Internal Revenue Code of 1986 are amended by inserting 
        ``(without regard to subsection (d))'' after ``127'':
                    (A) Section 3121(a)(18).
                    (B) Section 3231(e)(6).
                    (C) Section 3306(b)(13).
            (2) Social security act.--Section 209(a)(15) of the Social 
        Security Act is amended by inserting ``(without regard to 
        subsection (d))'' after ``127''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 802. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH 
              SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN STATE 
              LOAN REPAYMENT PROGRAMS.

    (a) In General.--Section 108(f) of the Internal Revenue Code of 
1986 (relating to student loans) is amended by adding at the end the 
following new paragraph:
            ``(4) Payments under national health service corps loan 
        repayment program and certain state loan repayment programs.--
        In the case of an individual, gross income shall not include 
        any amount received under section 338B(g) of the Public Health 
        Service Act or under a State program described in section 338I 
        of such Act.''
    (b) Treatment for Purposes of Employment Taxes.--Each of the 
following provisions of the Internal Revenue Code of 1986 is amended by 
inserting ``108(f)(4),'' after ``74(c),'':
            (1) Section 3121(a)(20).
            (2) Section 3231(e)(5).
            (3) Section 3306(b)(16).
            (4) Section 3401(a)(19).
            (5) Section 209(a)(17) of the Social Security Act.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received by an individual in taxable years beginning 
after December 31, 2004.

SEC. 803. EXCLUSION FOR GROUP LEGAL SERVICES.

    (a) Allowance of Exclusion.--Section 120(e) of the Internal Revenue 
Code of 1986 (relating to termination) is amended to read as follows:
    ``(e) Application.--This section and section 501(c)(20) shall apply 
to taxable years beginning after December 31, 2004, and before January 
1, 2006.''
    (b) Repeal of Limitation.--Section 120(a) of such Code is amended 
by striking the last sentence.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 804. TRANSFER OF EXCESS FUNDS FROM BLACK LUNG DISABILITY TRUSTS TO 
              UNITED MINE WORKERS OF AMERICA COMBINED BENEFIT FUND.

    (a) In General.--So much of section 501(c)(21)(C) of the Internal 
Revenue Code of 1986 (relating to black lung disability trusts) as 
precedes the last sentence is amended to read as follows:
                    ``(C) Payments described in subparagraph (A)(i)(IV) 
                may be made from such trust during a taxable year only 
to the extent that the aggregate amount of such payments during such 
taxable year does not exceed the excess (if any), as of the close of 
the preceding taxable year, of--
                            ``(i) the fair market value of the assets 
                        of the trust, over
                            ``(ii) 110 percent of the present value of 
                        the liability described in subparagraph 
                        (A)(i)(I) of such person.''
    (b) Transfer.--Section 9705 of such Code (relating to transfer) is 
amended by adding at the end the following new subsection:
    ``(c) Transfer From Black Lung Disability Trusts.--
            ``(1) In general.--The Secretary shall transfer each fiscal 
        year to the Fund from the general fund of the Treasury an 
        amount which the Secretary estimates to be the additional 
        amounts received in the Treasury for that fiscal year by reason 
        of the amendment made by section 804(a) of the National 
        Employee Savings and Trust Equity Guarantee Act of 2004. The 
        Secretary shall adjust the amount transferred for any year to 
        the extent necessary to correct errors in any estimate for any 
        prior year.
            ``(2) Use of funds.--Any amount transferred to the Combined 
        Fund under paragraph (1) shall be used to proportionately 
        reduce the unassigned beneficiary premium under section 
        9704(a)(3) of each assigned operator for the plan year in which 
        transferred.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

                     Subtitle B--Revenue Provisions

SEC. 811. APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.

    (a) In General.--Section 72 of the Internal Revenue Code of 1986 
(relating to annuities and certain proceeds of endowment and life 
insurance contracts) is amended by redesignating subsection (w) as 
subsection (x) and by inserting after subsection (v) the following new 
subsection:
    ``(w) Application of Basis Rules to Nonresident Aliens.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, for purposes of determining the portion of any 
        distribution which is includible in gross income of a 
        distributee who is a citizen or resident of the United States, 
        the investment in the contract shall not include any applicable 
        nontaxable contributions or applicable nontaxable earnings.
            ``(2) Applicable nontaxable contribution.--For purposes of 
        this subsection, the term `applicable nontaxable contribution' 
        means any employer or employee contribution--
                    ``(A) which was made with respect to compensation--
                            ``(i) for labor or personal services 
                        performed by an employee who, at the time the 
                        labor or services were performed, was a 
                        nonresident alien for purposes of the laws of 
                        the United States in effect at such time, and
                            ``(ii) which is treated as from sources 
                        without the United States, and
                    ``(B) which was not subject to income tax under the 
                laws of the United States or any foreign country.
            ``(3) Applicable nontaxable earnings.--For purposes of this 
        subsection, the term `applicable nontaxable earnings' means 
        earnings--
                    ``(A) which are paid or accrued with respect to any 
                employer or employee contribution which was made with 
                respect to compensation for labor or personal services 
                performed by an employee,
                    ``(B) with respect to which the employee was at the 
                time the earnings were paid or accrued a nonresident 
                alien for purposes of the laws of the United States, 
                and
                    ``(C) which were not subject to income tax under 
                the laws of the United States or any foreign country.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the provisions of 
        this subsection, including regulations treating contributions 
        and earnings as not subject to tax under the laws of any 
        foreign country where appropriate to carry out the purposes of 
        this subsection.''
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions on or after the date of the enactment of this 
Act.

SEC. 812. TREATMENT OF DEATH BENEFITS FROM CORPORATE-OWNED LIFE 
              INSURANCE.

    (a) In General.--Section 101 of the Internal Revenue Code of 1986 
(relating to certain death benefits) is amended by adding at the end 
the following new subsection:
    ``(j) Treatment of Certain Employer-Owned Life Insurance 
Contracts.--
            ``(1) General rule.--In the case of an employer-owned life 
        insurance contract, the amount excluded from gross income of an 
        applicable policyholder by reason of paragraph (1) of 
        subsection (a) shall not exceed an amount equal to the sum of 
        the premiums and other amounts paid by the policyholder for the 
        contract.
            ``(2) Exceptions.--In the case of an employer-owned life 
        insurance contract with respect to which the notice and consent 
        requirements of paragraph (4) are met, paragraph (1) shall not 
        apply to any of the following:
                    ``(A) Exceptions based on insured's status.--Any 
                amount received by reason of the death of an insured 
                who, with respect to an applicable policyholder--
                            ``(i) was an employee at any time during 
                        the 12-month period before the insured's death, 
                        or
                            ``(ii) is, at the time the contract is 
                        issued--
                                    ``(I) a director,
                                    ``(II) a highly compensated 
                                employee within the meaning of section 
                                414(q) (without regard to paragraph 
                                (1)(B)(ii) thereof), or
                                    ``(III) a highly compensated 
                                individual within the meaning of 
                                section 105(h)(5), except that `35 
                                percent' shall be substituted for `25 
                                percent' in subparagraph (C) thereof.
                    ``(B) Exception for amounts paid to insured's 
                heirs.--Any amount received by reason of the death of 
                an insured to the extent--
                            ``(i) the amount is paid to a member of the 
                        family (within the meaning of section 
                        267(c)(4)) of the insured, any individual who 
                        is the designated beneficiary of the insured 
                        under the contract (other than the applicable 
                        policyholder), a trust established for the 
                        benefit of any such member of the family or 
                        designated beneficiary, or the estate of the 
                        insured, or
                            ``(ii) the amount is used to purchase an 
                        equity (or capital or profits) interest in the 
                        applicable policyholder from any person 
                        described in clause (i).
            ``(3) Employer-owned life insurance contract.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `employer-owned life insurance contract' means 
                a life insurance contract which--
                            ``(i) is owned by a person engaged in a 
                        trade or business and under which such person 
                        (or a related person described in subparagraph 
                        (B)(ii)) is directly or indirectly a 
                        beneficiary under the contract, and
                            ``(ii) covers the life of an insured who is 
                        an employee with respect to the trade or 
                        business of the applicable policyholder on the 
                        date the contract is issued.
                For purposes of the preceding sentence, if coverage for 
                each insured under a master contract is treated as a 
                separate contract for purposes of sections 817(h), 
                7702, and 7702A, coverage for each such insured shall 
                be treated as a separate contract.
                    ``(B) Applicable policyholder.--For purposes of 
                this subsection--
                            ``(i) In general.--The term `applicable 
                        policyholder' means, with respect to any 
                        employer-owned life insurance contract, the 
                        person described in subparagraph (A)(i) which 
                        owns the contract.
                            ``(ii) Related persons.--The term 
                        `applicable policyholder' includes any person 
                        which--
                                    ``(I) bears a relationship to the 
                                person described in clause (i) which is 
                                specified in section 267(b) or 
                                707(b)(1), or
                                    ``(II) is engaged in trades or 
                                businesses with such person which are 
                                under common control (within the 
                                meaning of subsection (a) or (b) of 
                                section 52).
            ``(4) Notice and consent requirements.--The notice and 
        consent requirements of this paragraph are met if, before the 
        issuance of the contract, the employee--
                    ``(A) is notified in writing that the applicable 
                policyholder intends to insure the employee's life and 
                the maximum face amount for which the employee could be 
                insured at the time the contract was issued,
                    ``(B) provides written consent to being insured 
                under the contract and that such coverage may continue 
                after the insured terminates employment, and
                    ``(C) is informed in writing that an applicable 
                policyholder will be a beneficiary of any proceeds 
                payable upon the death of the employee.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) Employee.--The term `employee' includes an 
                officer, director, and highly compensated employee 
                (within the meaning of section 414(q)).
                    ``(B) Insured.--The term `insured' means, with 
                respect to an employer-owned life insurance contract, 
                an individual covered by the contract who is a United 
                States citizen or resident. In the case of a contract 
                covering the joint lives of 2 individuals, references 
                to an insured include both of the individuals.''.
    (b) Reporting Requirements.--Subpart A of part III of subchapter A 
of chapter 61 of the Internal Revenue Code of 1986 (relating to 
information concerning persons subject to special provisions) is 
amended by inserting after section 6039H the following new section:

``SEC. 6039I. RETURNS AND RECORDS WITH RESPECT TO EMPLOYER-OWNED LIFE 
              INSURANCE CONTRACTS.

    ``(a) In General.--Every applicable policyholder owning 1 or more 
employer-owned life insurance contracts issued after the date of the 
enactment of this section shall file a return (at such time and in such 
manner as the Secretary shall by regulations prescribe) showing for 
each year such contracts are owned--
            ``(1) the number of employees of the applicable 
        policyholder at the end of the year,
            ``(2) the number of such employees insured under such 
        contracts at the end of the year,
            ``(3) the total amount of insurance in force at the end of 
        the year under such contracts,
            ``(4) the name, address, and taxpayer identification number 
        of the applicable policyholder and the type of business in 
        which the policyholder is engaged, and
            ``(5) that the applicable policyholder has a valid consent 
        for each insured employee (or, if all such consents are not 
obtained, the number of insured employees for whom such consent was not 
obtained).
    ``(b) Recordkeeping Requirement.--Each applicable policyholder 
owning 1 or more employer-owned life insurance contracts during any 
year shall keep such records as may be necessary for purposes of 
determining whether the requirements of this section and section 101(j) 
are met.
    ``(c) Definitions.--Any term used in this section which is used in 
section 101(j) shall have the same meaning given such term by section 
101(j).''.
    (c) Conforming Amendments.--
            (1) Paragraph (1) of section 101(a) of the Internal Revenue 
        Code of 1986 is amended by striking ``and subsection (f)'' and 
        inserting ``subsection (f), and subsection (j)''.
            (2) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 of such Code is amended by inserting 
        after the item relating to section 6039H the following new 
        item:

                              ``Sec. 6039I. Returns and records with 
                                        respect to employer-owned life 
                                        insurance contracts.''
    (d) Effective Date.--The amendments made by this section shall 
apply to life insurance contracts issued after the date of the 
enactment of this Act, except for a contract issued after such date 
pursuant to an exchange described in section 1035 of the Internal 
Revenue Code of 1986 for a contract issued on or prior to that date. 
For purposes of the preceding sentence, any material increase in the 
death benefit or other material change shall cause the contract to be 
treated as a new contract except that, in the case of a master contract 
(within the meaning of section 264(f)(4)(E) of such Code), the addition 
of covered lives shall be treated as a new contract only with respect 
to such additional covered lives.

SEC. 813. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by inserting after section 6043 the following new 
section:

``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

    ``(a) In General.--The acquiring corporation in any taxable 
acquisition shall make a return (according to the forms or regulations 
prescribed by the Secretary) setting forth--
            ``(1) a description of the acquisition,
            ``(2) the name and address of each shareholder of the 
        acquired corporation who is required to recognize gain (if any) 
        as a result of the acquisition,
            ``(3) the amount of money and the fair market value of 
        other property transferred to each such shareholder as part of 
        such acquisition, and
            ``(4) such other information as the Secretary may 
        prescribe.
To the extent provided by the Secretary, the requirements of this 
section applicable to the acquiring corporation shall be applicable to 
the acquired corporation and not to the acquiring corporation.
    ``(b) Nominee Reporting.--Any person who holds stock as a nominee 
for another person shall furnish in the manner prescribed by the 
Secretary to such other person the information provided by the 
corporation under subsection (d).
    ``(c) Taxable Acquisition.--For purposes of this section, the term 
`taxable acquisition' means any acquisition by a corporation of stock 
in or property of another corporation if any shareholder of the 
acquired corporation is required to recognize gain (if any) as a result 
of such acquisition.
    ``(d) Statements To Be Furnished to Shareholders.--Every person 
required to make a return under subsection (a) shall furnish to each 
shareholder whose name is required to be set forth in such return a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return,
            ``(2) the information required to be shown on such return 
        with respect to such shareholder, and
            ``(3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence shall be 
furnished to the shareholder on or before January 31 of the year 
following the calendar year during which the taxable acquisition 
occurred.''.
    (b) Assessable Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) (defining 
        information return) is amended by redesignating clauses (ii) 
        through (xviii) as clauses (iii) through (xix), respectively, 
        and by inserting after clause (i) the following new clause:
                            ``(ii) section 6043A(a) (relating to 
                        returns relating to taxable mergers and 
                        acquisitions),''.
            (2) Paragraph (2) of section 6724(d) (relating to 
        definitions) is amended by redesignating subparagraphs (F) 
        through (BB) as subparagraphs (G) through (CC), respectively, 
        and by inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) subsections (b) and (d) of section 6043A 
                (relating to returns relating to taxable mergers and 
                acquisitions).''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6043 the following new item:

                              ``Sec. 6043A. Returns relating to taxable 
                                        mergers and acquisitions.''
    (d) Effective Date.--The amendments made by this section shall 
apply to acquisitions after the date of the enactment of this Act.




                                                       Calendar No. 516

108th CONGRESS

  2d Session

                                S. 2424

                          [Report No. 108-266]

_______________________________________________________________________

                                 A BILL

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to protect the retirement security of 
    American workers by ensuring that pension assets are adequately 
   diversified and by providing workers with adequate access to, and 
    information about, their pension plans, and for other purposes.

_______________________________________________________________________

                              May 14, 2004

                 Read twice and placed on the calendar