[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 9 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                  S. 9

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

                            January 7, 2003

Mr. Daschle (for himself, Mr. Kennedy, Mr. Bingaman, Ms. Mikulski, Mr. 
 Durbin, Mrs. Clinton, Mr. Rockefeller, Mrs. Murray, Mr. Schumer, Mr. 
  Dayton, and Mr. Reid) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to protect 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 ``Pension Protection 
and Expansion Act of 2003''.
    (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.
Sec. 103. Notice that contributions of employer securities are not 
                            endorsements of investment options.
Sec. 104. Rules relating to plan investments in employer stock.
           TITLE II--PROTECTION OF PENSION PLAN PARTICIPANTS

Sec. 201. Notice to participants or beneficiaries of blackout periods.
Sec. 202. Inapplicability of relief from fiduciary liability during 
                            suspension of ability of participant or 
                            beneficiary to direct investments.
Sec. 203. Liability for breach of fiduciary duty.
Sec. 204. Increase in maximum bond amount and insurance adequate to 
                            protect interest of participants and 
                            beneficiaries.
Sec. 205. Participation of participants in trusteeship of individual 
                            account plans.
       TITLE III--INFORMATION TO ASSIST PENSION PLAN PARTICIPANTS

Sec. 301. Periodic pension benefit statements.
Sec. 302. Defined contribution plans required to provide adequate 
                            investment education to participants.
Sec. 303. Fiduciary duty to provide material information relating to 
                            investment in employer securities.
Sec. 304. Fiduciary responsibility to certify investments in employer 
                            securities as prudent investments.
Sec. 305. Fiduciary rules for plan sponsors designating independent 
                            investment advisers.
Sec. 306. Provisions relating to whistleblower actions involving 
                            pension plans.
Sec. 307. Increase in penalties for coercive interference.
                     TITLE IV--RETIREMENT SECURITY

Sec. 401. Short title; etc.
Sec. 402. Expansion of retirement savings credit.
Sec. 403. Universal access to direct deposit retirement savings.
Sec. 404. Credit for qualified pension plan contributions of small 
                            employers.
Sec. 405. Alternative method of meeting nondiscrimination requirements 
                            for opt-out plans.
Sec. 406. Protection of participants during conversions to cash balance 
                            or other hybrid defined benefit plans.
                  TITLE V--WOMEN'S PENSION PROTECTION

Sec. 501. Short title.
  Subtitle A--Spousal Consent Required for Distributions From Defined 
                           Contribution Plans

Sec. 511. Application of joint and survivor annuity rules to all 
                            defined contribution plans.
         Subtitle B--Division of Pension Benefits Upon Divorce

Sec. 521. Treatment of subsequent qualified domestic relations orders.
Sec. 522. Former spouses treated as surviving spouses in certain cases.
Subtitle C--Protection of Rights of Former Spouses to Pension Benefits 
 Under Certain Government and Government-Sponsored Retirement Programs

                  Chapter 1--Civil Service Retirement

Sec. 531. Survivor annuities for widows, widowers, and former spouses 
                            of Federal employees who die before 
                            attaining age for deferred annuity under 
                            Civil Service Retirement System.
Sec. 532. Court orders relating to Federal retirement benefits for 
                            former spouses of Federal employees.
Sec. 533. Interest on amounts paid for certain civil service annuity 
                            benefits wrongfully denied.
Sec. 534. Income averaging of corrected civil service annuity benefit 
                            payments.
Sec. 535. Order of precedence for disposition of amounts remaining in 
                            the Thrift Savings Account of a Federal 
                            employee (or former employee) who dies 
                            before making an effective election 
                            controlling such disposition.
                     Chapter 2--Railroad Retirement

Sec. 541. Entitlement of divorced spouses to railroad retirement 
                            annuities independent of actual entitlement 
                            of employee.
Sec. 542. 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. 551. Modifications of joint and survivor annuity requirements.
                      Subtitle E--Plan Amendments

Sec. 561. Provisions relating to plan amendments.
            TITLE VI--OTHER PROVISIONS RELATING TO PENSIONS

                     Subtitle A--General Provisions

Sec. 601. Employee plans compliance resolution system.
Sec. 602. Extension to all governmental plans of moratorium on 
                            application of certain nondiscrimination 
                            rules applicable to State and local plans.
Sec. 603. Notice and consent period regarding distributions.
Sec. 604. Technical corrections to Saver Act.
Sec. 605. Missing participants.
Sec. 606. Reduced PBGC premium for new plans of small employers.
Sec. 607. Reduction of additional PBGC premium for new and small plans.
Sec. 608. Authorization for PBGC to pay interest on premium overpayment 
                            refunds.
Sec. 609. Substantial owner benefits in terminated plans.
Sec. 610. Benefit suspension notice.
Sec. 611. Interest rate range for additional funding requirements.
Sec. 612. Voluntary early retirement incentive and employment retention 
                            plans maintained by local educational 
                            agencies and other entities.
Sec. 613. Automatic rollovers of certain mandatory distributions.
Sec. 614. 2-year extension of transition rule to pension funding 
                            requirements.
Sec. 615. Acceleration of computation of benefits attributable to 
                            recoveries of employer liability under 
                            section 4062.
Sec. 616. Multiemployer plan funding notice.
Sec. 617. No reduction in unemployment compensation as a result of 
                            pension rollovers.
Sec. 618. Withholding on distributions from governmental section 457 
                            plans.
Sec. 619. Transfer of pension plan liabilities upon dissolution of 
                            joint venture.
                          Subtitle B--Studies

Sec. 621. Study regarding insurance system for individual account 
                            plans.
Sec. 622. Study regarding fees charged by individual account plans.
Sec. 623. Joint study on revitalizing defined benefit plans.
Sec. 624. Study on floor-offset ESOPS.
                      Subtitle C--Plan Amendments

Sec. 631. Provisions relating to plan amendments.
                       TITLE VII--REVENUE OFFSETS

Sec. 700. Amendment of 1986 Code.
       Subtitle A--Reversing the Expatriation of Profits Offshore

Sec. 701. Tax treatment of inverted corporate entities.
Sec. 702. Excise tax on stock compensation of insiders in inverted 
                            corporations.
Sec. 703. Reinsurance of United States risks in foreign jurisdictions.
Sec. 704. Study of deductibility of interest on related-party debt.
            Subtitle B--Provisions Relating to Tax Shelters

    Part I--Economic Substance Doctrine and Tax Shelter Transparency

Sec. 711. Penalty for failing to disclose reportable transaction.
Sec. 712. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 713. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 714. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
       subpart a--provisions relating to reportable transactions
Sec. 721. Disclosure of reportable transactions.
Sec. 722. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 723. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 724. Modification of actions to enjoin certain conduct related to 
           subpart b--other promoter and preparer provisionssactions.
Sec. 731. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 732. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 733. Frivolous tax submissions.
Sec. 734. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 735. Penalty on promoters of tax shelters.
                   Subtitle C--Executive Compensation

Sec. 741. 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. 742. Treatment of nonqualified deferred compensation funded with 
                            assets located outside the United States.
Sec. 743. Inclusion in gross income of funded deferred compensation of 
                            corporate insiders.
Sec. 744. Increase in withholding from supplemental wage payments in 
                            excess of $1,000,000.
                      Subtitle D--Other Provisions

Sec. 751. Affirmation of consolidated return regulation authority.
Sec. 752. Denial of deduction for certain fines, penalties, and other 
                            amounts.

            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--
                            ``(i) the diversification requirements of 
                        subparagraphs (B), (C), and (D), and
                            ``(ii) the voting rights requirement of 
                        subparagraph (E).
                    ``(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) Time for taking action.--If an 
                        applicable individual makes an election under 
                        this paragraph to reinvest the proceeds from 
                        the divestment of any securities or real 
                        property, the plan administrator shall take 
                        such actions as are necessary to effectuate 
                        such reinvestment before the earlier of--
                                    ``(I) the date such actions are 
                                required to be taken without regard to 
                                this clause, or
                                    ``(II) 30 days after the date of 
                                such election (or if such election is 
                                made with respect to an investment 
                                period described in clause (iii), 30 
                                days after the close of such period).
                        The Secretary may extend the period under 
                        subclause (II) in cases with respect to which 
                        the Secretary determines such extension is 
                        necessary to carry out the purposes of this 
                        paragraph.
                            ``(iii) 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.--To the extent 
                                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) Voting rights.--
                            ``(i) In general.--An applicable defined 
                        contribution plan shall not be treated as 
                        meeting the requirements of this paragraph 
                        unless the plan meets the requirements of 
                        section 409(e)(2) with respect to publicly 
                        traded employer securities.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply to publicly traded employer securities 
                        acquired by reason of an investment of an 
                        applicable individual in a pooled investment 
                        vehicle. For purposes of this subclause, a 
                        pooled investment vehicle is an investment 
                        option of the plan which is not designed to 
                        invest primarily in employer securities.
                            ``(iii) Assignment of voting rights.--
                        Nothing in this subparagraph shall be construed 
                        as limiting an applicable individual's ability 
                        to assign the individual's rights under this 
                        subparagraph to another person.
                    ``(F) 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 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 leases 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.
                    ``(G) 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).
                    ``(H) 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).
                    ``(I) 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 limit applies: The applicable percentage is:
    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)(F)).''
                    (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.--
            (1) In general.--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--
                    ``(A) the diversification requirements of 
                paragraphs (2), (3), and (4), and
                    ``(B) the voting rights requirement of paragraph 
                (5).
            ``(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) Time for taking action.--If an applicable 
                individual makes an election under this subsection to 
                reinvest the proceeds from the divestment of any 
                securities or real property, the plan administrator 
                shall take such actions as are necessary to effectuate 
                such reinvestment before the earlier of--
                            ``(i) the date such actions are required to 
                        be taken without regard to this subparagraph, 
                        or
                            ``(ii) 30 days after the date of such 
                        election (or if such election is made with 
                        respect to an investment period described in 
                        subparagraph (C), 30 days after the close of 
                        such period).
                The Secretary may extend the period under clause (ii) 
                in cases with respect to which the Secretary determines 
                such extension is necessary to carry out the purposes 
                of this subsection.
                    ``(C) 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.--To the extent 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) Voting rights.--
                    ``(A) In general.--An applicable individual account 
                plan shall not be treated as meeting the requirements 
                of this subsection unless the plan meets the 
                requirements of section 409(e)(2) of the Internal 
                Revenue Code of 1986 with respect to publicly traded 
                employer securities.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to publicly traded employer securities acquired by 
                reason of an investment of an applicable individual in 
                a pooled investment vehicle. For purposes of this 
                subparagraph, a pooled investment vehicle is an 
                investment option of the plan which is not designed to 
                invest primarily in employer securities.
                    ``(C) Assignment of voting rights.--Nothing in this 
                paragraph shall be construed as limiting an applicable 
                individual's ability to assign the individual's rights 
                under this subparagraph to another person.
            ``(6) 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.
            ``(7) 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).
            ``(8) 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 limit applies: The applicable percentage is:
    1st...........................................          33 percent 
    2d............................................          66 percent 
    3d and following..............................       100 percent.''
            (2) Fiduciary responsibility.--Section 404 of such Act (29 
        U.S.C. 1104) is amended by adding at the end the following new 
        subsection:
    ``(e) Fiduciary Responsibility With Respect to Diversification 
Requirements for Individual Account Plans.--The fiduciary of an 
applicable individual account plan (as defined in section 204(j)) 
shall, in addition to any other fiduciary responsibility or duty, have 
a fiduciary responsibility to ensure the plan's compliance with the 
requirements of section 204(j).''

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

    (a) In General.--Section 104 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 104) 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, 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 Secretary shall prescribe a model notice for purposes of satisfying 
the requirements of this subsection which shall be in a form calculated 
to be understood by the average plan participant. The notice required 
by this subsection may be delivered in written, electronic, or other 
appropriate form to the extent that such form is reasonably accessible 
to the applicable individual.''
    (b) 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) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2003.

SEC. 103. NOTICE THAT CONTRIBUTIONS OF EMPLOYER SECURITIES ARE NOT 
              ENDORSEMENTS OF INVESTMENT OPTIONS.

    (a) 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) Notice That Certain Employer Contributions Are Not 
Endorsements.--If employer matching contributions or employer 
nonelective contributions are made to an applicable individual account 
plan (within the meaning of section 204(j)) in the form of employer 
securities, the plan administrator of the plan shall include with the 
notice required under section 105(a)(1)(A) a statement informing 
participants and beneficiaries that the matching or nonelective 
contributions should not be treated as an endorsement of such 
securities as a better investment option than the other options 
provided by the plan. The Secretary shall issue guidance and provide 
model notices which meet the requirements of this subsection.''
    (b) Penalties.--Section 502(c)(7) of such Act, as amended by 
section 102, is amended by striking ``section 104(d)'' and inserting 
``subsection (d) or (e) of section 104''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2003.

SEC. 104. RULES RELATING TO PLAN INVESTMENTS IN EMPLOYER STOCK.

    (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:
    ``(f)(1)(A) Except as provided in this subsection, an individual 
account plan under which a participant or beneficiary is permitted to 
exercise control over assets in his or her account shall provide that 
if the plan (or any other plan maintained by the employer which covers 
the participant or beneficiary) requires employer contributions other 
than elective deferrals to be invested in employer securities or 
employer real property, the plan may not permit elective deferrals to 
be invested in employer securities or employer real property.
    ``(B) This subsection shall not apply to an individual account plan 
maintained by an employer for any plan year if the employer maintains a 
qualified defined benefit plan (as defined in paragraph (3)) for the 
plan year.
    ``(2)(A) A plan which offers as an investment option the purchase 
of stock through an open brokerage account or similar investment 
vehicle shall not be treated as meeting the requirements of paragraph 
(1) unless the plan provides that such option may not be used to 
purchase employer securities or employer real property which are to be 
held by the plan.
    ``(B) A plan shall not be treated as failing to meet the 
requirements of paragraph (1) merely because elective deferrals are 
invested in employer securities or employer real property by reason of 
an investment in a pooled investment vehicle. For purposes of this 
clause, a pooled investment vehicle is an investment option of the plan 
which is not designed to invest primarily in employer securities or 
employer real property.
    ``(3)(A) For purposes of paragraph (1)(B), the term `qualified 
defined benefit plan' means, with respect to any individual account 
plan, a defined benefit plan--
            ``(i) which covers at least 90 percent of the employees as 
        are covered by the individual account plan, and
            ``(ii) with respect to which the accrued benefit of each 
        participant, payable at normal retirement age under the plan, 
        is not less than a benefit which is actuarially equivalent to a 
        percentage of the participant's final average pay equal to 1 
        percent multiplied by the number of years of service (not 
        greater than 20) of the participant.
If a plan provides for benefits payable prior to normal retirement age, 
the requirements of clause (ii) shall not be treated as met unless such 
benefits are at least equal to the actuarial equivalent of the normal 
retirement benefit under the plan.
    ``(B) In applying clause (ii) of subparagraph (A) to a defined 
benefit plan with respect to which a participant's accrued benefit is 
equal to a fixed dollar amount multiplied by the number of years of 
service--
            ``(i) the participant's pay during the plan year preceding 
        the plan year of the determination shall be used in lieu of 
        final average pay, and
            ``(ii) the plan shall be treated as satisfying the 
        requirement of such clause if the average accrued benefit under 
        the plan of all the participants who are also covered by the 
        individual account plan meets such requirement.''
    (b) Effective Dates.--
            (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, subsection (a) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2002'' 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, 2004.

           TITLE II--PROTECTION OF PENSION PLAN PARTICIPANTS

SEC. 201. NOTICE TO PARTICIPANTS OR BENEFICIARIES OF BLACKOUT PERIODS.

    (a) In General.--Section 101(i) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1021(i)) is amended--
            (1) by striking ``the terms of'' in paragraph (7)(A),
            (2) 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 the 
                                plan sponsor (whether or not 
                                incorporated), or
                                    ``(II) covered only one or more 
                                partners (or partners and their 
                                spouses) in the plan sponsor,'',
            (3) by striking ``employer'' and ``employer's'' in 
        paragraph (8)(B)(iii) and inserting ``individual'' and 
        ``individual's'', respectively,
            (4) by inserting ``(within the meaning of section 414(n) of 
        the Internal Revenue Code of 1986)'' after ``employees'' in 
        paragraph (8)(B)(v), and
            (5) 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)(F)(iv) of the Internal Revenue 
                Code of 1986.''
    (b) Effective Date.--The amendments made by this section shall take 
effect as if included in the provisions of section 306 of Public Law 
107-204 (116 Stat. 745 et seq.).

SEC. 202. INAPPLICABILITY OF RELIEF FROM FIDUCIARY LIABILITY DURING 
              SUSPENSION OF ABILITY OF PARTICIPANT OR BENEFICIARY TO 
              DIRECT INVESTMENTS.

    (a) In General.--Section 404(c)(1) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1104(c)(1)) is amended--
            (1) by redesignating subparagraphs (A) and (B) as clauses 
        (i) and (ii), respectively, and by inserting ``(A)'' after 
        ``(c)(1)'',
            (2) in subparagraph (A)(ii) (as redesignated by paragraph 
        (1)), by inserting before the period the following: ``, except 
        that this clause shall not apply in connection with such 
        participant or beneficiary for any blackout period during which 
        the ability of such participant or beneficiary to direct the 
        investment of the assets in his or her account is suspended by 
        a plan sponsor or fiduciary'', and
            (3) by adding at the end the following new subparagraphs:
    ``(B)(i) If the person referred to in subparagraph (A)(ii) meets 
the requirements of this title in connection with authorizing and 
implementing the blackout period, such person shall not be liable under 
this title for any loss occurring during such period as a result of any 
exercise by the participant or beneficiary of control over assets in 
his or her account before the period. Matters to be considered in 
determining whether such person has satisfied the requirements of this 
title include, but are not limited to, whether such person--
            ``(I) has considered the reasonableness of the expected 
        blackout period,
            ``(II) has provided the notice required under section 
        101(i)(1), and
            ``(III) has acted in accordance with the requirements of 
        subsection (a) in determining whether to enter into the 
        blackout period.
    ``(ii) For purposes of this subsection, if a blackout period arises 
in connection with a change in the investment options offered under the 
plan, a participant or beneficiary shall be deemed to have exercised 
control over the assets in his or her account prior to the blackout 
period if, after notice of the change in investment options is given to 
such participant or beneficiary, assets in the account of the 
participant or beneficiary are transferred--
            ``(I) to plan investment options in accordance with the 
        affirmative election of the participant or beneficiary which 
        otherwise meets the conditions of this subsection; or
            ``(II) in the absence of such an election and in the case 
        in which fiduciary relief was provided under this subsection 
        for the prior investment options, to plan investment options 
        with reasonably comparable risk and return characteristics in 
        accordance with procedures set forth in such notice.
    ``(C) For purposes of this paragraph, the term `blackout period' 
has the meaning given such term by section 101(i)(7).''
    (b) Guidance.--The Secretary of Labor, in consultation with the 
Secretary of the Treasury, shall, before December 31, 2003, issue 
interim final regulations providing guidance, including safe harbors, 
on how plan sponsors or any other affected fiduciaries can satisfy 
their fiduciary responsibilities during any blackout period during 
which the ability of a participant or beneficiary to direct the 
investment of assets in his or her individual account is suspended.
    (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, subsection (a) shall be applied to benefits 
        pursuant to, and individuals covered by, any such agreement by 
        substituting for ``December 31, 2002'' 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. 203. LIABILITY FOR BREACH OF FIDUCIARY DUTY.

    (a) Liability for Participating in or Concealing Fiduciary 
Breach.--
            (1) In general.--Section 409 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1109) is amended by 
        redesignating subsection (b) as subsection (d) and by inserting 
        after subsection (a) the following new subsections:
    ``(b)(1) If an insider with respect to the plan sponsor of an 
individual account plan that holds employer securities that are readily 
tradable on an established securities market knowingly participates in, 
or knowingly undertakes to conceal, an act or omission of fiduciary 
responsibility knowing such act or omission is a breach of fiduciary 
responsibility, such insider shall be personally liable under this 
subsection to the plan or to any participant or beneficiary of the plan 
for such breach in the same manner as the fiduciary who commits such 
breach.
    ``(2) For purposes of paragraph (1), the term `insider' means, with 
respect to any plan sponsor of a plan to which paragraph (1) applies--
            ``(A) any officer (as defined in section 240.3b-2 of title 
        17 of the Code of Federal Regulations, as in effect on the date 
        of the enactment of this clause) or director with respect to 
        the plan sponsor, or
            ``(B) any independent qualified public accountant of the 
        plan or of the plan sponsor.
    ``(c) In the case of an individual account plan, any relief 
provided under this section shall, to the extent the court may deem 
appropriate, inure to the individual account of any individual affected 
by the breach (or directly to such individual in the absence of an 
individual account). Nothing in this subsection shall be construed to 
give rise to any inference of the existence or nonexistence of a right 
under this section, section 502, or any other provision of this 
title.''
            (2) Conforming amendment.--Section 409(d) of such Act (29 
        U.S.C. 1109(c)), as redesignated by paragraph (1), is amended 
        by inserting before the period the following: ``, unless such 
        liability arises under subsection (b)''.
    (b) Maintenance of Fiduciary Liability.--Section 404(c)(1)(A)(ii) 
of such Act (29 U.S.C. 1104(c)(1)(A)(ii)), as amended by section 
202(a), is amended by inserting before the period the following: ``and 
shall not be construed to exempt any fiduciary from liability for any 
violation of subsection (e) or (g)''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply with respect to breaches of fiduciary responsibility 
        occurring on or after the date of the enactment of this Act.
            (2) Relief to individuals.--Section 409(c) of the Employee 
        Retirement Income Security Act of 1974, as added by this 
        section, shall apply to actions which are pending on, or 
        commenced on or after, the date of the enactment of this Act.

SEC. 204. INCREASE IN MAXIMUM BOND AMOUNT AND INSURANCE ADEQUATE TO 
              PROTECT INTEREST OF PARTICIPANTS AND BENEFICIARIES.

    (a) In General.--Section 412(a) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1112) is amended by adding at the end 
the following: ``In the case of a plan that holds employer securities 
(within the meaning of section 407(d)(1)), this subsection shall be 
applied by substituting `$1,000,000' for `$500,000' each place it 
appears.''
    (b) Additional Requirements for Applicable Individual Account 
Plans.--Section 412 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1112) is amended by adding at the end the following new 
subsection:
    ``(f) Notwithstanding the preceding provisions of this section, 
each fiduciary of an individual account plan which covers more than 100 
participants shall be insured, in accordance with regulations 
prescribed by the Secretary, to provide reasonable coverage for 
failures to meet the requirements of this part.''
    (c) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        take effect on the date on which the regulations required to be 
        promulgated under section 412(f) of the Employee Retirement 
        Income Security Act of 1974 become final.
            (2) Regulations.--The Secretary of Labor shall prescribe 
        the regulations necessary to carry out section 412(f) of the 
        Employee Retirement Income Security Act of 1974, as added by 
        this section, not later than one year after the date of the 
        enactment of this Act.

SEC. 205. PARTICIPATION OF PARTICIPANTS IN TRUSTEESHIP OF INDIVIDUAL 
              ACCOUNT PLANS.

    (a) In General.--Section 403(a) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1103(a)) is amended--
            (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively;
            (2) by inserting ``(1)'' after ``(a)''; and
            (3) by adding at the end the following new paragraph:
    ``(2)(A) The assets of a single-employer plan which is an 
individual account plan which covers more than 100 participants shall 
be held in trust by a joint board of trustees, which shall consist of 
two or more trustees representing on an equal basis the interests of 
the employer or employers maintaining the plan and the interests of the 
participants and their beneficiaries.
    ``(B)(i) Except as provided in clause (ii), in any case in which 
the plan is maintained pursuant to one or more collective bargaining 
agreements between one or more employee organizations and one or more 
employers, the trustees representing the interests of the participants 
and their beneficiaries shall be designated by such employee 
organizations.
    ``(ii) Clause (i) shall not apply with respect to a plan described 
in such clause if the employee organization (or all employee 
organizations, if more than one) referred to in such clause file with 
the Secretary, in such form and manner as shall be prescribed in 
regulations of the Secretary, a written waiver of their rights under 
clause (i).
    ``(iii) In any case in which clause (i) does not apply with respect 
to a single-employer plan because the plan is not described in clause 
(i) or because of a waiver filed pursuant to clause (ii), the trustee 
or trustees representing the interests of the participants and their 
beneficiaries shall be elected by the participants in accordance with 
regulations of the Secretary. An individual shall not be treated as 
ineligible for selection as trustee solely because such individual is 
an employee of the plan sponsor, except that the employee so selected 
may not be a highly compensated employee (as defined in section 414(q) 
of the Internal Revenue Code of 1986).
    ``(iv) The Secretary shall provide by regulation for the 
appointment of a neutral, in accordance with the procedures under 
section 203(f) of the Labor Management Relations Act, 1947 (29 U.S.C. 
173(f)), to cast votes as necessary to resolve tie votes by the 
trustees.''
    (b) Regulations.--The Secretary of Labor shall prescribe the 
initial regulations necessary to carry out the provisions of the 
amendments made by this section not later than 90 days after the date 
of the enactment of this Act.

       TITLE III--INFORMATION TO ASSIST PENSION PLAN PARTICIPANTS

SEC. 301. PERIODIC PENSION BENEFIT STATEMENTS.

    (a) Periodic Pension Benefit Statements.--
            (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)(1)(A) 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) The administrator of a defined benefit plan shall furnish a 
pension benefit statement--
            ``(i) at least once every 3 years to each participant with 
        a nonforfeitable accrued benefit, 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)(A) 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 offsets 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) In the case of an individual account plan, the 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, without 
        regard to whether such securities were contributed by the plan 
        sponsor or acquired at the direction of the plan or of the 
        participant or beneficiary,
            ``(ii) an explanation of any limitations or restrictions on 
        any right of the participant or beneficiary under the plan to 
        direct an investment, and
            ``(iii) if the percentage of assets in the individual 
        account that consists of employer securities and employer real 
        property (as defined in paragraphs (1) and (2), respectively, 
        of section 407(d)), determined as of the most recent valuation 
        date under the plan, exceeds 20 percent of the total account, a 
        notice that the account may be overinvested in employer 
        securities and employer real property.
Employer securities and employer real property held by a plan by reason 
of a pooled investment vehicle described in section 204(j)(5)(B) shall 
be excluded for purposes of clause (iii) from the calculation of the 
assets in an account that consist of employer securities and employer 
real property. Clause (iii) shall not apply to any plan to which 
section 204(j) does not apply.
    ``(3)(A) 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 at the participant's last known address 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) 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).
    ``(C) The Secretary may provide that the requirements of paragraph 
(2)(A)(i)(II) are met if, at least annually, the plan--
            ``(i) updates the information described in such paragraph 
        which is provided in the pension benefit statement, or
            ``(ii) provides such information in a separate statement.''
    (b) Inclusion of Funded Liability Percentage in Annual Report.--
Section 103(d) of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1023(d)) is amended by redesignating paragraphs (12) and 
(13) as paragraphs (13) and (14), respectively, and by adding after 
paragraph (11) the following new paragraph:
            ``(12) In the case of a plan with more than 100 
        participants, the funded current liability percentage (as 
        defined in section 302(d)(8)(B)) for the current plan year and 
        the immediately preceding plan year, including all calculations 
        necessary to determine such percentage.''
    (c) Conforming Amendments.--
            (1) Section 105 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1025) is amended by striking subsection 
        (d).
            (2) Section 105(b) of such Act (29 U.S.C. 1025(b)) is 
        amended to read as follows:
    ``(b) In no case shall a participant or beneficiary of a plan be 
entitled to more than 1 statement described in subsection (a)(1) 
(A)(iii) or (B)(ii), whichever is applicable, in any 12-month period.''
    (d) Model Statements.--The Secretary of Labor shall develop 1 or 
more model benefit statements, written in a manner calculated to be 
understood by the average plan participant, that may be used by plan 
administrators in complying with the requirements of section 105 of the 
Employee Retirement Income Security Act of 1974.
    (e) 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, subsection (a) 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. 302. DEFINED CONTRIBUTION PLANS REQUIRED TO PROVIDE ADEQUATE 
              INVESTMENT EDUCATION TO PARTICIPANTS.

    (a) 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 
        sections 102 and 103, is amended by redesignating subsection 
        (f) as subsection (g) and by inserting after subsection (e) the 
        following new subsection:
    ``(f)(1) The plan 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)(A) 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. 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 applicable 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 applicable 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) The model form under subparagraph (A) shall include addresses 
for Internet sites, and a worksheet, which an applicable individual may 
use to calculate--
            ``(i) the retirement age annuity value of the applicable 
        individual's nonforfeitable pension benefits under the plan 
        (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 an applicable individual 
        would be required to save annually to provide a retirement 
        income equal to various replacement of their current salary 
        (adjusted for expected growth prior to retirement).
The Secretary shall develop an Internet site which an applicable 
individual may use in making such calculations and the address for such 
site shall be included with the form.
    ``(C) The Secretary shall provide at least 90 days for public 
comment before publishing final notice of the model form.
    ``(3) 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 applicable individuals.''
            (2) Enforcement.--Section 502(c)(7) of such Act (29 U.S.C. 
        1132(c)(7)), as amended by sections 102 and 103, is amended by 
        striking ``subsection (d) or (e)'' and inserting ``subsection 
        (d), (e), or (f)''.
    (b) 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, subsection (a) 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, 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. 303. FIDUCIARY DUTY TO PROVIDE MATERIAL INFORMATION RELATING TO 
              INVESTMENT IN EMPLOYER SECURITIES.

    (a) In General.--Section 404(c) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the 
end the following new paragraph:
    ``(4) The plan sponsor and plan administrator of a pension plan 
described in paragraph (1) shall, in addition to any other fiduciary 
duty or responsibility under this part, have a fiduciary duty to ensure 
that each participant and beneficiary under the plan, in connection 
with the investment of assets in his or her account in employer 
securities, is provided 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 generally 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) Enforcement.--Section 502 of such Act (29 U.S.C. 1132) is 
amended--
            (1) in subsection (a)(6), by striking ``(6), or (7)'' and 
        inserting ``(6), (7), or (8)'';
            (2) by redesignating paragraph (8) of subsection (c) as 
        paragraph (9); and
            (3) 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 404(c)(4) until such failure 
or refusal is corrected.''
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2003.

SEC. 304. FIDUCIARY RESPONSIBILITY TO CERTIFY INVESTMENTS IN EMPLOYER 
              SECURITIES AS PRUDENT INVESTMENTS.

    (a) In General.--Section 404 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104), as amended by this Act, is 
amended by adding at the end the following new subsection:
    ``(g) Certification of Investment Option as Prudent.--In the case 
of an applicable individual account plan (as defined in section 
204(j))--
            ``(1) which permits a plan participant or beneficiary to 
        direct the investment of the assets in his or her account, and
            ``(2) in connection with an investment option offered under 
        the plan (other than a pooled investment vehicle described in 
        section 204(j)(5)(B)), allows the participant or beneficiary to 
        invest directly in publicly traded employer securities (within 
        the meaning of section 204(j)),
the named fiduciary of the plan or the fiduciary responsible for 
determining plan investment options shall, in addition to any other 
fiduciary responsibility or duty, certify to the Secretary in the 
annual report required under section 103 that the fiduciary has 
evaluated any investment option described in paragraph (2) and found it 
to meet the requirements of subsection (a). This subsection shall not 
apply in the case of an investment in employer securities made at the 
direction of a participant or beneficiary through a brokerage account 
available in connection with the plan.''
    (b) Inclusion in Report.--Section 103(c) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1023(c)) is amended by adding at 
the end the following new paragraph:
            ``(6) The certification required under section 404(g).''
    (c) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply to plan years beginning after the date on which the 
        Secretary of Labor issues the regulations described in 
        paragraph (2).
            (2) Regulations.--The Secretary of Labor shall prescribe 
        regulations to implement section 404(g) of the Employee 
        Retirement Income Security Act of 1974 (as added by subsection 
        (a)) no later than 1 year after the date of the enactment of 
        this Act.

SEC. 305. 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), as amended by this Act, is 
amended by adding at the end the following new subsection:
    ``(h) 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 or 
                as to any fees or 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) is amended by 
inserting ``(other than a qualified investment adviser)'' after 
``fiduciary''.
    (c) Effective Date.--The amendment made by this section shall apply 
with respect to investment advisers designated after the date of the 
enactment of this Act.

SEC. 306. PROVISIONS RELATING TO WHISTLEBLOWER ACTIONS INVOLVING 
              PENSION PLANS.

    (a) Authority To Bring Actions.--Section 502(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1132(a)) is amended 
by striking ``or'' at the end of paragraph (8), by striking the period 
at the end of paragraph (9) and inserting ``; or'', and by adding at 
the end the following new paragraph:
            ``(10) by the Secretary, or other person referred to in 
        section 510--
                    ``(A) to enjoin any act or practice which violates 
                section 510 in connection with a pension plan, or
                    ``(B) to obtain--
                            ``(i) either--
                                    ``(I) reinstatement with the same 
                                seniority status that the employee 
                                would, but for such violation, have 
                                had, or
                                    ``(II) if reinstatement is not 
                                practicable or cannot be ordered 
                                without delay, payment (for such period 
                                as the court determines appropriate) of 
                                the pay, including benefits, that would 
                                have been received if the employee had 
                                been reinstated,
                            ``(ii) payment of back pay, including 
                        benefits and interest, and
                            ``(iii) reasonable attorney fees and costs 
                        based upon the same standards as are used in 
                        awarding attorney fees and costs under 
                        subsection (g)(1).''
    (b) Additional Actions Which May Be Brought.--Section 510 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1140) is 
amended by striking all after ``person because'' in the second sentence 
and inserting ``the person--
            ``(1) has provided information, caused information to be 
        provided, or otherwise assisted in an investigation, inquiry, 
        or proceeding regarding any conduct which the employee 
        reasonably believes constitutes a violation of this Act or of 
        the Welfare and Pension Plans Disclosure Act in connection with 
        a pension plan if the information or assistance is provided to, 
        or the investigation is conducted by--
                    ``(A) a Federal regulatory or law enforcement 
                agency,
                    ``(B) any Member of Congress or any committee of 
                Congress, or
                    ``(C) a person with supervisory authority over the 
                employee (or any other person working for the employer 
                who has the authority to investigate, discover, or 
                terminate misconduct), or
            ``(2) has (with any knowledge of the employer) filed, 
        caused to be filed, testified, participated in, or assisted in 
        a proceeding filed or about to be filed in connection with an 
        alleged violation of this Act involving a pension plan.
The provisions of section 502 shall be applicable in the enforcement of 
this section.''

SEC. 307. INCREASE IN PENALTIES FOR COERCIVE INTERFERENCE.

    (a) In General.--Section 511 of the Employment Retirement Income 
Security Act of 1974 (29 U.S.C. 1141) is amended--
            (1) by striking ``$10,000'' and inserting ``$100,000'', and
            (2) by striking ``one year'' and inserting ``5 years''.
    (b) Effective Date.--The amendments made by this section shall 
apply to violations occurring on and after the date of the enactment of 
this Act.

                     TITLE IV--RETIREMENT SECURITY

SEC. 401. SHORT TITLE; ETC.

    (a) Short Title.--This title may be cited as the ``Retirement 
Security for All Americans Act''.
    (b) 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. 402. EXPANSION OF RETIREMENT SAVINGS CREDIT.

    (a) Credit To Be Refundable; Expansion of Eligibility; Credit Made 
Permanent.--Subpart C of part IV of subchapter A of chapter 1 (relating 
to refundable credits) is amended by redesignating section 35 as 
section 36 and by inserting after section 34 the following new section:

``SEC. 35. ELECTIVE DEFERRALS AND INDIVIDUAL RETIREMENT PLAN ACCOUNT 
              CONTRIBUTIONS BY CERTAIN INDIVIDUALS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the applicable 
percentage of so much of the qualified retirement savings contributions 
of the eligible individual for the taxable year as do not exceed 
$2,000.
    ``(b) Applicable Percentage.--For purposes of this section--
            ``(1) In general.--The applicable percentage is 50 percent, 
        reduced (but not below zero) by the percentage determined under 
        paragraph (2).
            ``(2) Amount of reduction.--The percentage determined under 
        this paragraph shall be equal to the ratio that--
                    ``(A) the excess of--
                            ``(i) the taxpayer's adjusted gross income 
                        for such taxable year, over
                            ``(ii) the applicable dollar amount, bears 
                        to
                    ``(B) the phaseout range.
            ``(3) Applicable dollar amount.--The applicable dollar 
        amount equals $30,000 in the case of a taxpayer filing a joint 
        return, $22,500 in the case of a taxpayer filing as a head of a 
household (as defined in section 2(b)), and $15,000 in the case of all 
other taxpayers.
            ``(4) Phaseout range.--The phaseout range equals $25,000 in 
        the case of a taxpayer filing a joint return, $18,750 in the 
        case of a taxpayer filing as a head of a household (as so 
        defined), and $12,500 in the case of all other taxpayers.
    ``(c) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means any 
        individual if such individual has attained the age of 18 as of 
        the close of the taxable year.
            ``(2) Dependents and full-time students not eligible.--The 
        term `eligible individual' shall not include--
                    ``(A) any individual with respect to whom a 
                deduction under section 151 is allowed to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins, 
                and
                    ``(B) any individual who is a student (as defined 
                in section 151(c)(4)).
    ``(d) Qualified Retirement Savings Contributions.--For purposes of 
this section--
            ``(1) In general.--The term `qualified retirement savings 
        contributions' means, with respect to any taxable year, the sum 
        of--
                    ``(A) the amount of the qualified retirement 
                contributions (as defined in section 219(e)) made by 
                the eligible individual,
                    ``(B) the amount of--
                            ``(i) any elective deferrals (as defined in 
                        section 402(g)(3)) of such individual, and
                            ``(ii) any elective deferral of 
                        compensation by such individual under an 
                        eligible deferred compensation plan (as defined 
                        in section 457(b)) of an eligible employer 
                        described in section 457(e)(1)(A), and
                    ``(C) the amount of voluntary employee 
                contributions by such individual to any qualified 
                retirement plan (as defined in section 4974(c)).
            ``(2) Reduction for certain distributions.--
                    ``(A) In general.--The qualified retirement savings 
                contributions determined under paragraph (1) shall be 
                reduced (but not below zero) by the aggregate 
                distributions received by the individual during the 
                testing period from any entity of a type to which 
                contributions under paragraph (1) may be made. The 
                preceding sentence shall not apply to the portion of 
                any distribution which is not includible in gross 
                income by reason of a trustee-to-trustee transfer or a 
                rollover distribution.
                    ``(B) Testing period.--For purposes of subparagraph 
                (A), the testing period, with respect to a taxable 
                year, is the period which includes--
                            ``(i) such taxable year,
                            ``(ii) the 2 preceding taxable years, and
                            ``(iii) the period after such taxable year 
                        and before the due date (including extensions) 
                        for filing the return of tax for such taxable 
                        year.
                    ``(C) Excepted distributions.--There shall not be 
                taken into account under subparagraph (A)--
                            ``(i) any distribution referred to in 
                        section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 
                        404(k), or 408(d)(4), and
                            ``(ii) any distribution to which section 
                        408A(d)(3) applies.
                    ``(D) Treatment of distributions received by spouse 
                of individual.--For purposes of determining 
                distributions received by an individual under 
                subparagraph (A) for any taxable year, any distribution 
                received by the spouse of such individual shall be 
                treated as received by such individual if such 
                individual and spouse file a joint return for such 
                taxable year and for the taxable year during which the 
                spouse receives the distribution.
    ``(e) Adjusted Gross Income.--For purposes of this section, 
adjusted gross income shall be determined without regard to sections 
911, 931, and 933.
    ``(f) Investment in the Contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution shall not 
fail to be included in determining the investment in the contract for 
purposes of section 72 by reason of the credit under this section.''.
    (b) Credit Treated as Overpayment of Tax.--Section 6401(b) 
(relating to excessive credits) is amended--
            (1) by striking ``If'' in paragraph (1) and inserting 
        ``Except as provided in paragraph (3)'', and
            (2) by adding at the end the following new paragraph:
            ``(3) Special rule for credit under section 35.--If the 
        amount allowable as a credit under section 35 (relating to 
        retirement savings credit) for any taxable year exceeds the tax 
        imposed for such taxable year by subtitle A (reduced by the 
        credits allowable under subparts A, B, D, and G of part IV of 
        subchapter A of chapter 1), the amount of such excess shall be 
        considered an overpayment and shall be subject to the 
        provisions of section 6401(1).''.
    (c) Transfer of Overpayment To Secure Retirement Savings Bond.--
Section 6402 (relating to authority to make credits or refunds) is 
amended by adding at the end the following new subsection:
    ``(l) Transfer of Overpayment To Secure Retirement Savings Bond.--
            ``(1) In general.--In the case of any overpayment described 
        in section 6401(b)(3), the Secretary shall, in the name of the 
        taxpayer, issue a Secure Retirement savings bond under section 
3105(f)(1) of title 31, United States Code, in an amount equal to such 
overpayment.
            ``(2) Joint returns.--In the case of a taxpayer filing a 
        joint return, any overpayment described in section 6401(b)(3) 
        shall be divided equally among both spouses, and the Secretary 
        shall, separately in the name of each spouse, issue a Secure 
        Retirement savings bond under section 3105(f)(1) of title 31, 
        United States Code, in an amount equal to such overpayments.''
    (d) Secure Retirement Savings Bonds.--Section 3105 of title 31, 
United States Code, is amended by adding at the end the following new 
subsection:
    ``(f)(1) The Secretary shall issue Secure Retirement savings bonds 
as required under section 6402(l) of the Internal Revenue Code of 1986.
    ``(2) For purposes of paragraph (1), a Secure Retirement savings 
bond is an inflation-indexed savings bond otherwise authorized to be 
issued under this section, except that, notwithstanding any other 
provision of this section, such bond shall not mature before the 
earlier of the date on which the bondholder--
            ``(A) dies;
            ``(B) becomes disabled (within the meaning of section 
        72(m)(7) of the Internal Revenue Code of 1986); or
            ``(C) attains social security retirement age under section 
        216(l)(2) of the Social Security Act (without regard to any 
        early retirement age permitted under such section).
    ``(3) The Secretary may, in lieu of actually issuing Secure 
Retirement savings bonds, provide an annual account statement to the 
bondholder reflecting the current value of the bonds, including accrued 
interest, nominally issued on behalf of such bondholder.''
    (e) Repeal of Nonrefundable Credit.--
            (1) Section 25B is hereby repealed.
            (2) Subparagraph (B) of section 25(b)(3) is amended by 
        striking ``and 25B''.
            (3) Subparagraph (C) of section 25(e)(1) is amended by 
        striking ``25B,''.
            (4) Sections 26(a)(1), 901(h), and 1400C are each amended 
        by striking ``24, and 25B'' and inserting ``and 24''.
            (5) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by striking the item 
        relating to section 25B.
    (f) Technical Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 35 of such Code''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 is amended by striking the last item 
        and inserting the following new items:

                              ``Sec. 35. Elective deferrals and 
                                        individual retirement plan 
                                        account contributions by 
                                        certain individuals.
                              ``Sec. 36. Overpayments of tax.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 403. UNIVERSAL ACCESS TO DIRECT DEPOSIT RETIREMENT SAVINGS.

    (a) In General.--Chapter 43 (relating to qualified pension, etc., 
plans) is amended by adding at the end the following new section:

``SEC. 4980G. REQUIREMENTS FOR EMPLOYERS TO PROVIDE EMPLOYEES ACCESS TO 
              SALARY REDUCTION CONTRIBUTIONS TO INDIVIDUAL RETIREMENT 
              PLANS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure 
by an employer to meet the requirements of subsection (d) for a 
calendar year.
    ``(b) Amount.--The amount of the tax imposed by subsection (a) on 
any failure for any calendar year shall be $100 with respect to each 
employee to whom such failure relates.
    ``(c) Procedures for Notice and Grace Period.--Not later than 6 
months after the date of the enactment of this section, the Secretary 
shall prescribe and initiate implementation of procedures for obtaining 
from employers confirmation that such employers are in compliance with 
the requirements of subsection (d). The Secretary, in the Secretary's 
discretion, may prescribe that the confirmation shall be obtained on an 
annual or less frequent basis, and may use for this purpose the annual 
report or quarterly report for employment taxes, or such other means as 
the Secretary may deem advisable. The tax imposed by subsection (a) 
shall not be imposed with respect to any failure that ends before the 
expiration of 90 days after the employer has responded or has had a 
reasonable opportunity to respond to a request for confirmation of 
compliance.
    ``(d) Employee Access to Salary Reduction Contributions to 
Individual Retirement Plans.--
            ``(1) In general.--Every employer which does not maintain a 
        qualified plan or arrangement for a calendar year shall provide 
        a salary reduction arrangement for the calendar year which 
        meets the requirements of paragraphs (3), (4) and (5).
            ``(2) Qualified plan or arrangement.--For purposes of this 
        section, an employer is treated as maintaining a qualified plan 
        or arrangement for a calendar year if the employer maintains 
        for such year a plan, contract, pension, or trust described in 
        subparagraph (A) or (B) of section 219(g)(5) or an eligible 
        deferred compensation plan (within the meaning of section 
        457(b)) with respect to which contributions are made, or 
        benefits are accrued, for service in such year.
            ``(3) Salary reduction arrangement.--For purposes of this 
        section, the term `salary reduction arrangement' means a 
        written arrangement of an employer under which--
                    ``(A) an employee eligible to participate in the 
                arrangement may elect to--
                            ``(i) contribute to an individual 
                        retirement plan established by or on behalf of 
                        the employee by having the employer make direct 
                        deposit payments to the plan by payroll 
                        deduction, or
                            ``(ii) receive the amounts directly as cash 
                        compensation, and
                    ``(B) no other contributions may be made under the 
                arrangement.
            ``(4) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a salary reduction 
                arrangement for a year only if, under the arrangement, 
                all employees of the employer are eligible to make the 
                election under paragraph (3)(A).
                    ``(B) Excludable employees.--An employer may 
                exclude from the requirement under paragraph (3) 
                employees described in section 410(b)(3) and any 
                employee who has not completed hours of service for the 
                employer on a regular basis during a period of at least 
                30 consecutive days during the calendar year.
            ``(5) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any salary reduction 
        arrangement if, under the arrangement--
                    ``(A) the employer must make the payments elected 
                under paragraph (3)(A) not later than the close of the 
                30-day period following the last day of the month with 
                respect to which the contributions are to be made, or, 
                if later, the deadline under applicable rules and 
                regulations for the employer to deposit tax under 
                section 3102 for wages paid in that month,
                    ``(B) an employee may elect to terminate 
                participation in the arrangement at any time during the 
                year, except that if an employee so terminates, the 
                arrangement may provide that the employee may not elect 
                to resume participation until the beginning of the next 
                year,
                    ``(C) each employee eligible to participate may 
                elect, during the 60-day period before the beginning of 
                any year (and the 60-day period before the first day 
                the employee is eligible to participate), to 
                participate in the arrangement, or to modify the 
                amounts subject to the arrangement, for such year, and
                    ``(D) immediately before the period for which an 
                election described in paragraph (3)(A) may be made, the 
                employer provides a notice to each employee of the 
                employee's opportunity to make the election and the 
                maximum amount which may be contributed to an 
                individual retirement plan on an annual basis.
            ``(6) Exception for certain small employers.--The 
        requirements of this subsection shall not apply for any 
        calendar year to an employer which had not more than 10 
        employees who received at least $5,000 of compensation from the 
        employer for the preceding calendar year.
            ``(7) Use of designated financial institution.--An employer 
        shall not be treated as failing to satisfy the requirements of 
        this subsection or any other provision of this title merely 
        because the employer makes all contributions (or all 
        contributions on behalf of employees who do not specify an 
        individual retirement plan, trustee, or issuer to receive the 
        contributions) to individual retirement plans of a designated 
        trustee or issuer. The preceding sentence shall not apply 
        unless each participant is notified in writing that the 
        participant's balance may be transferred without cost or 
        penalty to another individual retirement plan in accordance 
        with subsection (d)(3).
            ``(8) Model notice.--The Secretary shall provide a model 
        notice, written in a manner calculated to be understandable to 
        the average worker, that employers may use to satisfy the 
        requirement of paragraphs (5)(D) and (7). Model notices shall 
        be provided in English, in Spanish, and in any other language 
        deemed appropriate by the Secretary.
    ``(e) Salary Reduction Contributions Treated Like Other 
Contributions to Individual Retirement Plans.--
            ``(1) Tax treatment unaffected.--The fact that a 
        contribution to an individual retirement plan is made on behalf 
        of an employee under a salary reduction arrangement instead of 
        being made directly by the employee shall not affect the 
        deductibility or other income tax treatment of the contribution 
        or of other amounts under this title.
            ``(2) Salary reduction contributions taken into account.--
        Any contribution made on behalf of an employee under a salary 
        reduction arrangement shall be taken into account in applying 
        the limitations on contributions to individual retirement plans 
        and the other provisions of this title applicable to individual 
        retirement plans as if the contribution had been made to the 
        plan directly by the employee.''.
    (b) Credit for Small Employers Maintaining Salary Reduction 
Arrangements Facilitating Employee Contributions to Individual 
Retirement Plans.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business related credits) is amended by 
        adding at the end the following new section:

``SEC. 45G. SMALL EMPLOYER SALARY REDUCTION COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer salary reduction cost credit 
determined under this section for any taxable year is the amount 
determined under subsection (b).
    ``(b) Amount of Credit.--The amount of the credit determined under 
this section for any taxable year with respect to an eligible employer 
shall be--
            ``(1) $200 for the taxable year which includes the date 
        that the arrangement referred to in subsection (a) becomes 
        effective, and
            ``(2) $50 for each subsequent taxable year during which the 
        arrangement is in effect.
    ``(c) Eligible Employer.--For purposes of this section, the term 
`eligible employer' means, with respect to any calendar year in which 
the taxable year begins, an employer which maintains a salary reduction 
arrangement meeting the requirements of section 4980G(d) and which did 
not maintain a qualified plan or arrangement (within the meaning of 
section 4980G(d)(2)) for the preceding 2 calendar years.''
            (2) Credit allowed as part of general business credit.--
        Section 38(b) (defining current year business credit) is 
        amended by striking ``plus'' at the end of paragraph (14), by 
        striking the period at the end of paragraph (15) and inserting 
        ``, plus'', and by adding at the end the following new 
        paragraph:
            ``(16) in the case of an eligible employer (as defined in 
        section 45G(c)), the small employer salary reduction cost 
        credit determined under section 45G(a).''
    (c) Clerical Amendments.--
            (1) The table of sections for chapter 43 is amended by 
        adding at the end the following new item:

                              ``Sec. 4980G. Requirements for employers 
                                        to provide employees access to 
                                        salary reduction contributions 
                                        to individual retirement 
                                        plans.''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

                              ``Sec. 45G. Small employer salary 
                                        reduction costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 404. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL 
              EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 403, is 
amended by adding at the end the following new section:

``SEC. 45H. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan contribution credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the amount which would (but for subsection (f)(1)) be 
allowed as a deduction under section 404 for such taxable year for 
qualified employer contributions made to any qualified retirement plan 
on behalf of any employee who is not a highly compensated employee.
    ``(b) Credit Limited to 3 Years.--The credit allowable by this 
section shall be allowed only with respect to the period of 3 taxable 
years beginning with the first taxable year for which a credit is 
allowable with respect to a plan under this section.
    ``(c) Qualified Employer Contribution.--For purposes of this 
section--
            ``(1) Defined contribution plans.--In the case of a defined 
        contribution plan, the term `qualified employer contribution' 
        means the amount of nonelective and matching contributions to 
        the plan made by the employer on behalf of any employee who is 
        not a highly compensated employee to the extent such amount 
        does not exceed 3 percent of such employee's compensation from 
        the employer for the year.
            ``(2) Defined benefit plans.--In the case of a defined 
        benefit plan, the term `qualified employer contribution' means 
        the amount of employer contributions to the plan made on behalf 
        of any employee who is not a highly compensated employee to the 
        extent that the accrued benefit of such employee derived from 
        employer contributions for the year does not exceed the 
        equivalent (as determined under regulations prescribed by the 
        Secretary and without regard to contributions and benefits 
        under the Social Security Act) of 3 percent of such employee's 
        compensation from the employer for the year.
    ``(d) Qualified Retirement Plan.--
            ``(1) In general.--The term `qualified retirement plan' 
        means any plan described in section 401(a) which includes a 
        trust exempt from tax under section 501(a) if the plan meets--
                    ``(A) the contribution requirements of paragraph 
                (2),
                    ``(B) the vesting requirements of paragraph (3), 
                and
                    ``(C) the distribution requirements of paragraph 
                (4).
            ``(2) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) the employer is required to make 
                        nonelective contributions of at least 1 percent 
                        of compensation (or the equivalent thereof in 
                        the case of a defined benefit plan) for each 
                        employee who is not a highly compensated 
                        employee who is eligible to participate in the 
                        plan, and
                            ``(ii) allocations of nonelective employer 
                        contributions, in the case of a defined 
                        contribution plan, are either in equal dollar 
                        amounts for all employees covered by the plan 
                        or bear a uniform relationship to the total 
                        compensation, or the basic or regular rate of 
                        compensation, of the employees covered by the 
                        plan (and an equivalent requirement is met with 
                        respect to a defined benefit plan).
                    ``(B) Compensation limitation.--The compensation 
                taken into account under subparagraph (A) for any year 
                shall not exceed the limitation in effect for such year 
                under section 401(a)(17).
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met if the plan satisfies the requirements of 
        either of the following subparagraphs:
                    ``(A) 3-year vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee who 
                has completed at least 3 years of service has a 
                nonforfeitable right to 100 percent of the employee's 
                accrued benefit derived from employer contributions.
                    ``(B) 5-year graded vesting.--A plan satisfies the 
                requirements of this subparagraph if an employee has a 
                nonforfeitable right to a percentage of the employee's 
                accrued benefit derived from employer contributions 
                determined under the following table:

                                                     The nonforfeitable
``Years of service:                                      percentage is:
    1.............................................                  20 
    2.............................................                  40 
    3.............................................                  60 
    4.............................................                  80 
    5.............................................                 100.
            ``(4) Distribution requirements.--In the case of a profit-
        sharing or stock bonus plan, the requirements of this paragraph 
        are met if, under the plan, qualified employer contributions 
        are distributable only as provided in section 401(k)(2)(B).
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Eligible employer.--
                    ``(A) In general.--The term `eligible employer' 
                means, with respect to any year, an employer which has 
                no more than 20 employees who received at least $5,000 
                of compensation from the employer for the preceding 
                year.
                    ``(B) Requirement for new qualified employer 
                plans.--Such term shall not include an employer if, 
                during the 3-taxable year period immediately preceding 
                the 1st taxable year for which the credit under this 
                section is otherwise allowable for a qualified employer 
                plan of the employer, the employer or any member of any 
                controlled group including the employer (or any 
                predecessor of either) established or maintained a 
                qualified employer plan with respect to which 
contributions were made, or benefits were accrued, for substantially 
the same employees as are in the qualified employer plan.
            ``(2) Highly compensated employee.--The term `highly 
        compensated employee' has the meaning given such term by 
        section 414(q) (determined without regard to section 
        414(q)(1)(B)(ii)).
    ``(f) Special Rules.--
            ``(1) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified employer 
        contributions paid or incurred for the taxable year which is 
        equal to the credit determined under subsection (a).
            ``(2) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.
            ``(3) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52, or 
        subsection (n) or (o) of section 414, shall be treated as one 
        person. All eligible employer plans shall be treated as 1 
        eligible employer plan.
    ``(g) Recapture of Credit on Forfeited Contributions.--If any 
accrued benefit which is forfeitable by reason of subsection (d)(3) is 
forfeited, the employer's tax imposed by this chapter for the taxable 
year in which the forfeiture occurs shall be increased by 35 percent of 
the employer contributions from which such benefit is derived to the 
extent such contributions were taken into account in determining the 
credit under this section.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit), as amended by section 
403, is amended by striking ``plus'' at the end of paragraph (15), by 
striking the period at the end of paragraph (16) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(17) in the case of an eligible employer (as defined in 
        section 45H(e)), the small employer pension plan contribution 
        credit determined under section 45H(a).''.
    (c) Conforming Amendments.--
            (1) Section 39(d) is amended by adding at the end the 
        following new paragraph:
            ``(11) No carryback of small employer pension plan 
        contribution credit before january 1, 2004.--No portion of the 
        unused business credit for any taxable year which is 
        attributable to the small employer pension plan contribution 
        credit determined under section 45H may be carried back to a 
        taxable year beginning before January 1, 2004.''.
            (2) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (9), by striking the period at 
        the end of paragraph (10) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(11) the small employer pension plan contribution credit 
        determined under section 45H(a).''.
            (3) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1, as amended by section 403, is 
        amended by adding at the end the following new item:

                              ``Sec. 45H. Small employer pension plan 
                                        contributions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions paid or incurred in taxable years beginning 
after December 31, 2003.

SEC. 405. ALTERNATIVE METHOD OF MEETING NONDISCRIMINATION REQUIREMENTS 
              FOR OPT-OUT PLANS.

    (a) In General.--Section 401(k) (relating to cash or deferred 
arrangement) is amended by adding at the end the following new 
paragraph:
            ``(13) Nondiscrimination requirements for opt-out 
        arrangements.--
                    ``(A) In general.--A cash or deferred arrangement 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement constitutes a 
                negative election trust (a `NET').
                    ``(B) Negative election trust.--For purposes of 
                this paragraph, the term `negative election trust' 
                means an arrangement--
                            ``(i) under which each employee eligible to 
                        participate in the arrangement is treated as 
                        having elected to have the employer make 
                        elective contributions in an amount equal to 
                        the uniform percentage (not less than 3 
                        percent) provided under the arrangement unless 
                        the employee specifically elects not to have 
                        such contributions made, and
                            ``(ii) which meets the other requirements 
                        of this paragraph.
                    ``(C) Participation.--An arrangement meets the 
                requirements of this subparagraph for any year if, 
                during the plan year or the preceding plan year, 
                elective contributions described in subparagraph (B)(i) 
                are made on behalf of at least 70 percent of employees 
                other than highly compensated employees eligible to 
                participate in the arrangement.
                    ``(D) Matching contributions.--The requirements of 
                this subparagraph are met if, under the arrangement, 
                the employer makes matching contributions on behalf of 
                each employee who is not a highly compensated employee 
                in an amount equal to 50 percent of the elective 
                contributions of the employee to the extent such 
                elective contributions do not exceed 5 percent of 
                compensation. The rules of clauses (ii) and (iii) of 
                paragraph (12)(B) shall apply for purposes of this 
                subparagraph.
                    ``(E) Withdrawal and vesting.--The requirements of 
                this subparagraph are met if the requirements of 
                subparagraphs (B) and (C) of paragraph (2) are met with 
                respect to all employer contributions (including 
                matching contributions) taken into account in 
                determining whether the requirements of subparagraph 
                (B) or (D) are met.
                    ``(F) Notice requirements.--The requirements of 
                this subparagraph are met if each employee eligible to 
                participate in the arrangement--
                            ``(i) receives a notice explaining the 
                        employee's right under the arrangement to elect 
                        not to have elective contributions made on the 
                        employee's behalf, and
                            ``(ii) has a reasonable period of time 
                        after receipt of such notice and before the 
                        first elective contribution is made to make 
                        such election.
                The requirements of clauses (i) and (ii) of paragraph 
                (12)(D) shall be met with respect to such notice.''.
    (b) Matching Contributions.--Section 401(m) (relating to 
nondiscrimination test for matching contributions and employee 
contributions) is amended by redesignating paragraph (12) as paragraph 
(13) and by inserting after paragraph (11) the following new paragraph:
            ``(12) Alternative method for opt-out plans.--
                    ``(A) In general.--A defined contribution plan 
                shall be treated as meeting the requirements of 
                paragraph (2) with respect to matching contributions if 
                the plan--
                            ``(i) meets the contribution requirements 
                        of subparagraphs (B)(i) and (D) of subsection 
                        (k)(13),
                            ``(ii) meets the participation requirements 
                        of subsection (k)(13)(C),
                            ``(iii) meets the vesting and notice 
                        requirements of subparagraphs (E) and (F) of 
                        subsection (k)(13), and
                            ``(iv) meets the requirements of clauses 
                        (i) and (ii) of paragraph (11)(B).
                    ``(B) Matching contributions under section 403(b) 
                plans.--An annuity contract under section 403(b) shall 
                be treated as meeting the requirements of paragraph (2) 
                with respect to matching contributions on account of an 
                elective deferral described in section 402(g)(3)(C) if 
                such contract meets requirements similar to the 
                requirements under subparagraph (A).''.
    (c) Exclusion From Definition of Top-Heavy Plans.--Paragraph (4) of 
section 416(d) (relating to other special rules for top-heavy plans), 
as amended by section 104(g), is amended by adding at the end the 
following new subparagraph:
                    ``(J) Negative election trust.--The term `top-heavy 
                plan' shall not include a negative election trust under 
                section 401(k)(13).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2003.

SEC. 406. PROTECTION OF PARTICIPANTS DURING CONVERSIONS TO CASH BALANCE 
              OR OTHER HYBRID DEFINED BENEFIT PLANS.

    (a) Amendment to Internal Revenue Code.--Section 411(d)(6) of the 
Internal Revenue Code of 1986 (relating to accrued benefit may not be 
decreased by amendment) is amended by adding at the end the following 
new subparagraph:
                    ``(F) Treatment of conversions to cash balance or 
                other hybrid plans.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), an applicable plan amendment 
                        shall be treated as reducing the accrued 
                        benefit of a participant unless, under the 
                        terms of the plan as in effect after the 
                        amendment, any participant in the plan 
                        immediately before the amendment takes effect 
                        may elect to continue to accrue benefits in the 
                        same manner as under the terms of the plan in 
                        effect before the amendment.
                            ``(ii) Applicable plan amendment.--For 
                        purposes of this subparagraph--
                                    ``(I) In general.--The term 
                                `applicable plan amendment' means an 
                                amendment to a defined benefit plan 
                                which has the effect of converting the 
                                plan to a cash balance plan.
                                    ``(II) Special rule for coordinated 
                                benefits.--If the benefits of 2 or more 
                                defined benefit plans established or 
                                maintained by an employer are 
                                coordinated in such a manner as to have 
                                the effect of the adoption of an 
                                amendment described in subclause (I), 
                                the sponsor of the defined benefit plan 
                                or plans providing for such 
                                coordination shall be treated as having 
                                adopted such a plan amendment as of the 
                                date such coordination begins.
                                    ``(III) Multiple amendments.--The 
                                Secretary shall issue regulations to 
                                prevent the avoidance of the purposes 
of this subparagraph through the use of 2 or more plan amendments 
rather than a single amendment.
                            ``(iii) Cash balance plan.--For purposes of 
                        this subparagraph--
                                    ``(I) In general.--The term `cash 
                                balance plan' means a defined benefit 
                                plan under which the accrued benefit is 
                                determined as an amount other than an 
                                annual benefit commencing at normal 
                                retirement age.
                                    ``(II) Regulations to include 
                                similar or other hybrid plans.--The 
                                Secretary shall issue regulations which 
                                provide that a defined benefit plan (or 
                                any portion of such a plan) which has 
                                an effect similar to a plan described 
                                in subclause (I) shall be treated as a 
                                cash balance plan. Such regulations may 
                                provide that if a plan sponsor 
                                represents in communications to 
                                participants and beneficiaries that a 
                                plan amendment results in a plan being 
                                described in the preceding sentence, 
                                such plan shall be treated as a cash 
                                balance plan.
                            ``(iv) Coordination with accrual and 
                        nondiscrimination rules.--If, by reason of an 
                        election under clause (i), a participant is 
                        eligible to continue to accrue benefits in the 
                        same manner as under the terms of the plan in 
                        effect before the amendment, the Secretary 
                        shall prescribe regulations under which--
                                    ``(I) the plan shall be treated as 
                                meeting the requirements of 
                                subparagraph (A), (B), or (C) of 
                                section 411(b)(1) if such requirements 
                                are met separately with respect to each 
                                benefit accrual formula under the terms 
                                of the plan, and
                                    ``(II) the plan shall, subject to 
                                such terms and conditions as may be 
                                provided in such regulations, not be 
                                treated as failing to meet the 
                                requirements of section 401(a)(4) 
                                merely because only participants as of 
                                the effective date of the amendment are 
                                so eligible, except that this subclause 
                                shall only apply if the plan met the 
                                requirements of section 401(a)(4) under 
                                the terms of the plan as in effect 
                                before the amendment.''.
    (b) Amendment to ERISA.--Section 204(g) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at 
the end the following new paragraph:
    ``(6)(A) For purposes of paragraph (1), an applicable plan 
amendment shall be treated as reducing the accrued benefit of a 
participant unless, under the terms of the plan as in effect after the 
amendment, any participant in the plan immediately before the amendment 
takes effect may elect to continue to accrue benefits in the same 
manner as under the terms of the plan in effect before the amendment.
    ``(B) For purposes of this paragraph--
            ``(i) The term `applicable plan amendment' means an 
        amendment to a defined benefit plan which has the effect of 
        converting the plan to a cash balance plan.
            ``(ii) If the benefits of 2 or more defined benefit plans 
        established or maintained by an employer are coordinated in 
        such a manner as to have the effect of the adoption of an 
        amendment described in clause (i), the sponsor of the defined 
        benefit plan or plans providing for such coordination shall be 
        treated as having adopted such a plan amendment as of the date 
        such coordination begins.
            ``(iii) The Secretary of the Treasury shall issue 
        regulations to prevent the avoidance of the purposes of this 
        paragraph through the use of 2 or more plan amendments rather 
        than a single amendment.
    ``(C) For purposes of this paragraph--
            ``(i) The term `cash balance plan' means a defined benefit 
        plan under which the accrued benefit is determined as an amount 
        other than an annual benefit commencing at normal retirement 
        age.
            ``(ii) The Secretary of the Treasury shall issue 
        regulations which provide that a defined benefit plan (or any 
        portion of such a plan) which has an effect similar to a plan 
        described in clause (i) shall be treated as a cash balance 
        plan. Such regulations may provide that if a plan sponsor 
        represents in communications to participants and beneficiaries 
        that a plan amendment results in a plan being described in the 
        preceding sentence, such plan shall be treated as a cash 
        balance plan.
    ``(D) If, by reason of an election under subparagraph (A), a 
participant is eligible to continue to accrue benefits in the same 
manner as under the terms of the plan in effect before the amendment, 
the Secretary shall prescribe regulations under which the plan shall be 
treated as meeting the requirements of subparagraph (A), (B), or (C) of 
section 204(b)(1) if such requirements are met separately with respect 
to each benefit formula under the terms.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
            (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 by the date of the enactment of this 
        Act, the amendments made by this section shall not apply to 
        plan amendments taking effect 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 enactment), or
                            (ii) January 1, 2004, or
                    (B) January 1, 2005.

                  TITLE V--WOMEN'S PENSION PROTECTION

SEC. 501. SHORT TITLE.

    This title may be cited as the ``Women's Pension Protection Act of 
2003''.

  Subtitle A--Spousal Consent Required for Distributions From Defined 
                           Contribution Plans

SEC. 511. APPLICATION OF JOINT AND SURVIVOR ANNUITY RULES TO ALL 
              DEFINED CONTRIBUTION PLANS.

    (a) Application to All Defined Contribution Plans.--
            (1) Amendments to erisa.--
                    (A) In general.--Section 205(a) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1055(a)) is amended by striking ``to which this section 
                applies''.
                    (B) Conforming amendments.--
                            (i) Section 205(b) of such Act (29 U.S.C. 
                        1055(b)) is amended to read as follows:
    ``(b)(1)(A) In the case of--
            ``(i) a tax credit employee stock ownership plan (as 
        defined in section 409(a) of the Internal Revenue Code of 
        1986), or
            ``(ii) an employee stock ownership plan (as defined in 
        section 4975(e)(7) of such Code),
subsection (a) shall not apply to that portion of the employee's 
accrued benefit to which the requirements of section 409(h) of such 
Code apply.
    ``(B) Subparagraph (A) shall apply with respect to any participant 
only if--
            ``(i) such plan provides that the participant's 
        nonforfeitable accrued benefit (reduced by any security 
        interest held by the plan by reason of a loan outstanding to 
        such participant) is payable in full, on the death of the 
        participant, to the participant's surviving spouse (or, if 
        there is no surviving spouse or the surviving spouse consents 
        in the manner required under subsection (c)(2), to a designated 
        beneficiary),
            ``(ii) such participant does not elect the payment of 
        benefits in the form of a life annuity, and
            ``(iii) with respect to such participant, such plan is not 
        a direct or indirect transferee (in a transfer after December 
        31, 1984) of a plan to which, at the time of the transfer, 
        subsection (a) applied (or to which this clause applied with 
        respect to the participant).
Clause (iii) shall apply only with respect to the transferred assets 
(and income therefrom) if the plan separately accounts for such assets 
and any income therefrom. A plan shall not be treated as failing to 
meet the requirements of this subparagraph merely because the plan 
provides that benefits will not be payable to the surviving spouse of 
the participant unless the participant and such spouse had been married 
throughout the 1-year period ending on the earlier of the participant's 
annuity starting date or the date of the participant's death.
    ``(2) This section shall not apply to a plan which the Secretary of 
the Treasury or his delegate has determined is a plan described in 
section 404(c) of the Internal Revenue Code of 1986 (or a continuation 
thereof) in which participation is substantially limited to individuals 
who, before January 1, 1976, ceased employment covered by the plan.''.
                            (ii) Section 205(e)(2) of such Act (20 
                        U.S.C. 1055(e)(2)) is amended--
                                    (I) by striking ``individual 
                                account plan or participant described 
                                in subparagraph (B) or (C) of 
                                subsection (b)(1)'' and inserting 
                                ``individual account plan to which this 
                                section applies, or any participant 
                                described in subsection (b)(1)(B)'', 
                                and
                                    (II) by striking ``50 percent of''.
            (2) Amendments to internal revenue code.--
                    (A) In general.--Section 401(a)(11)(A) of the 
                Internal Revenue Code of 1986 (relating to requirement 
                of joint and survivor annuity and preretirement 
                survivor annuity) is amended by striking the matter 
                preceding clause (i) and inserting:
                    ``(A) In general.--Except as provided in section 
                417 and subparagraph (B), a trust forming part of a 
                plan shall not constitute a qualified trust under this 
                section unless such plan provides--''.
                    (B) Conforming amendments.--
                            (i) Section 401(a)(11) of such Code is 
                        amended by striking subparagraphs (B), (C), and 
                        (D) and inserting the following new 
                        subparagraphs:
                    ``(B) Exception for certain esop benefits.--
                            ``(i) In general.--In the case of--
                                    ``(I) a tax credit employee stock 
                                ownership plan (as defined in section 
                                409(a)), or
                                    ``(II) an employee stock ownership 
                                plan (as defined in section 
                                4975(e)(7)),
                        subparagraph (A) shall not apply to that 
                        portion of the employee's accrued benefit to 
                        which the requirements of section 409(h) apply.
                            ``(ii) Nonforfeitable benefit must be paid 
                        in full, etc.--In the case of any participant, 
                        clause (i) shall apply only if--
                                    ``(I) such plan provides that the 
                                participant's nonforfeitable accrued 
                                benefit (reduced by any security 
                                interest held by the plan by reason of 
                                a loan outstanding to such participant) 
                                is payable in full, on the death of the 
                                participant, to the participant's 
                                surviving spouse (or, if there is no 
                                surviving spouse or the surviving 
                                spouse consents in the manner 
required under section 417(a)(2), to a designated beneficiary),
                                    ``(II) such participant does not 
                                elect the payment of benefits in the 
                                form of a life annuity, and
                                    ``(III) with respect to such 
                                participant, such plan is not a direct 
                                or indirect transferee (in a transfer 
                                after December 31, 1984) of a plan to 
                                which, at the time of the transfer, 
                                subparagraph (A) applied (or to which 
                                this subclause applied with respect to 
                                the participant).
                        Subclause (III) shall apply only with respect 
                        to the transferred assets (and income 
                        therefrom) if the plan separately accounts for 
                        such assets and any income therefrom.
                    ``(C) Special rule where participant and spouse 
                married less than 1 year.--A plan shall not be treated 
                as failing to meet the requirements of subparagraph 
                (B)(ii) merely because the plan provides that benefits 
                will not be payable to the surviving spouse of the 
                participant unless the participant and such spouse had 
                been married throughout the 1-year period ending on the 
                earlier of the participant's annuity starting date or 
                the date of the participant's death.''.
                            (ii) Section 401(a)(11) of such Code is 
                        amended by redesignating subparagraphs (E) and 
                        (F) as subparagraphs (D) and (E), respectively.
                            (iii) Section 417(c)(2) of such Code is 
                        amended--
                                    (I) by striking ``defined 
                                contribution plan or participant 
                                described in clause (ii) or (iii) of 
                                section 401(a)(11)(B)'' and inserting 
                                ``defined contribution plan to which 
                                section 401(a)(11) applies, or any 
                                participant described in section 
                                401(a)(11)(B)(ii),''; and
                                    (II) by striking ``50 percent of''.
    (b) Special Rules Relating to Defined Contribution Plans.--
            (1) Amendments to erisa.--
                    (A) Loans.--Section 205(c)(4) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1055(c)(4)) is amended by adding at the end the 
                following flush sentence:
``This paragraph shall not apply to an individual account plan other 
than a plan which is subject to the funding standards of section 
302.''.
                    (B) Hardship withdrawals.--Section 205(c) of such 
                Act (29 U.S.C. 1055(c)) is amended by adding at the end 
                the following new paragraph:
    ``(9) Nothing in this section shall be construed as requiring an 
individual account plan to obtain the consent of the spouse of a 
participant before making a hardship distribution to the 
participant.''.
                    (C) Payments in lieu of annuity.--Section 205 of 
                such Act (29 U.S.C. 1055) is amended by redesignating 
                subsection (l) as subsection (m) and by inserting after 
                subsection (k) the following new subsection:
    ``(l)(1) For purposes of this section, an individual account plan 
required to provide a qualified joint and survivor annuity or a 
qualified preretirement survivor annuity shall be treated as 
providing--
            ``(A) a qualified joint and survivor annuity if the plan 
        provides that the account balance of the participant to which 
        the participant had a nonforfeitable right (within the meaning 
        of section 203) will be distributed in a series of periodic 
        payments (determined in accordance with tables prescribed by 
        the Secretary of the Treasury) over the joint life expectancy 
        of the participant and the participant's spouse, and
            ``(B) a qualified preretirement survivor annuity if the 
        plan provides that the account balance of the participant (as 
        of the date of death) to which the participant had a 
        nonforfeitable right (as so defined) will be distributed to the 
        surviving spouse, at the option of the spouse, in either such a 
        series of periodic payments over the life expectancy of the 
        surviving spouse or any other form of benefit payment that the 
        plan provides.
A plan shall not be treated as failing to meet the requirements of 
subparagraph (A) because the plan provides that a participant may, with 
the consent of the spouse, elect at any time to have the plan pay all 
of the remaining portion of the account balance in any other form of 
benefit payment that the plan provides.
    ``(2) In the case of a termination of an individual account plan 
that provides for payments described in paragraph (1), such plan shall 
be treated as meeting the requirements of paragraph (1) only if, for 
each participant or surviving spouse eligible to receive such payments 
who is not paid the remaining account balance in a lump sum, the plan 
administrator purchases from an insurer an irrevocable commitment to 
provide--
            ``(A) the payments described in paragraph (1), or
            ``(B) either--
                    ``(i) a qualified joint and survivor annuity (and, 
                if applicable, a qualified preretirement survivor 
                annuity) in the case of a participant, or
                    ``(ii) a single life annuity or qualified 
                preretirement survivor annuity, whichever is 
                applicable, in the case of a surviving spouse of a 
                participant.
    ``(3) The requirements of paragraph (2) are met with respect to a 
purchase only if, within a reasonable time after the effective date of 
the purchase, the individual entitled to payments from the insurer is 
provided a copy of the insurance contract or a certificate showing the 
insurer's name and address and clearly stating the insurer's obligation 
to provide the required payments.''.
                    (D) Conforming amendment.--Section 206 of such Act 
                (29 U.S.C. 1056) is amended by adding at the end the 
                following:
    ``(g) Final Distributions From Terminated Individual Account 
Plans.--In the case of an individual account plan which provides for 
payments described in section 205(l)(1), the plan shall provide that, 
upon termination of such plan, benefits of married participants and 
surviving spouses shall be paid in accordance with section 
205(l)(2).''.
            (2) Amendments to internal revenue code.--
                    (A) Loans.--Section 417(a)(4) of the Internal 
                Revenue Code of 1986 is amended by adding at the end 
                the following flush sentence:
        ``This paragraph shall not apply to a defined contribution plan 
        other than a plan which is subject to the funding standards of 
        section 412.''
                    (B) Hardship withdrawals.--Section 417(a) of such 
                Code is amended by adding at the end the following new 
                paragraph:
            ``(8) Hardship distributions.--Nothing in this section or 
        section 401(a)(11) shall be construed as requiring a defined 
        contribution plan to obtain the consent of the spouse of a 
        participant before making a hardship distribution to the 
        participant.''.
                    (C) Payments in lieu of annuity.--Section 417 of 
                such Code (relating to definitions and special rules 
                for purposes of minimum survivor annuity requirements) 
                is amended by adding at the end the following new 
                subsection:
    ``(g) Special Rules for Defined Contribution Plans.--For purposes 
of this section and section 401(a)(11)--
            ``(1) Payments in lieu of annuities.--A defined 
        contribution plan required to provide a qualified joint and 
        survivor annuity or a qualified preretirement survivor annuity 
        shall be treated as providing--
                    ``(A) a qualified joint and survivor annuity if the 
                plan provides that the account balance of the 
                participant to which the participant had a 
                nonforfeitable right (within the meaning of section 
                411(a)) will be distributed in a series of periodic 
                payments (determined in accordance with tables 
                prescribed by the Secretary) over the joint life 
                expectancy of the participant and the participant's 
                spouse, and
                    ``(B) a qualified preretirement survivor annuity if 
                the plan provides that the account balance of the 
                participant (as of the date of death) to which the 
                participant had a nonforfeitable right (as so defined) 
                will be distributed to the surviving spouse, at the 
                option of the spouse, in either such a series of 
                periodic payments over the life expectancy of the 
                surviving spouse or any other form of benefit payment 
                that the plan provides.
        A plan shall not be treated as failing to meet the requirements 
        of subparagraph (A) because the plan provides that a 
        participant may, with the consent of the spouse, elect at any 
        time to have the plan pay all of the remaining portion of the 
        account balance in any other form of benefit payment that the 
        plan provides.
            ``(2) Terminating plans.--In the case of a termination of a 
        defined contribution plan that provides for payments described 
        in paragraph (1), such plan shall be treated as meeting the 
        requirements of paragraph (1) only if, for each participant or 
        surviving spouse eligible to receive such payments who is not 
        paid the remaining account balance in a lump sum, the plan 
        administrator purchases from an insurer an irrevocable 
        commitment to provide--
                    ``(A) the payments described in paragraph (1), or
                    ``(B) either--
                            ``(i) a qualified joint and survivor 
                        annuity (and, if applicable, a qualified 
                        preretirement survivor annuity) in the case of 
                        a participant, or
                            ``(ii) a single life annuity or qualified 
                        preretirement survivor annuity, whichever is 
                        applicable, in the case of a surviving spouse 
                        of a participant.
            ``(3) Notice.--The requirements of paragraph (2) are met 
        with respect to a purchase only if, within a reasonable time 
        after the effective date of the purchase, the individual 
        entitled to payments from the insurer is provided a copy of the 
        insurance contract or a certificate showing the insurer's name 
        and address and clearly stating the insurer's obligation to 
        provide the required payments.''.
                    (D) Conforming amendment.--Section 401(a) of such 
                Code (relating to requirements for a qualified trust) 
                is amended by inserting after paragraph (34) the 
                following new paragraph:
            ``(35) Final distributions from terminated defined 
        contribution plans.--In the case of a defined contribution plan 
        which provides for payments described in section 417(g)(1), a 
        trust forming part of such plan shall not be treated as failing 
        to constitute a qualified trust under this section merely 
        because the pension plan of which such trust is a part pays, 
        upon its termination, benefits in accordance with section 
        417(g)(2).''.
    (c) Transfers Between Plans.--
            (1) Amendment to erisa.--Section 205(c) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1055(c)), as 
        amended by this title, is amended by adding at the end the 
        following new paragraph:
    ``(10) Nothing in this section shall be treated as requiring a plan 
to obtain the consent of the spouse of the participant before making a 
direct trustee-to-trustee transfer of any portion of the balance to the 
credit of the participant to another pension plan if the other plan is 
a plan to which this section applies.''.
            (2) Amendment to internal revenue code.--Section 417(a) of 
        the Internal Revenue Code of 1986, as amended by this title, is 
        amended by adding at the end the following new paragraph:
            ``(9) Transfers.--Nothing in this section or section 
        401(a)(11) shall be treated as requiring a plan to obtain the 
        consent of the spouse of the participant before making a direct 
        trustee-to-trustee transfer of any portion of the balance to 
        the credit of the participant to another plan if the other 
plan is a plan to which this section and section 401(a)(11) apply.''
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan years 
        beginning after December 31, 2003.
            (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 not, in 
        the case of employees covered by any such agreement, apply to 
        plan years beginning before the earlier of--
                    (A) the later of--
                            (i) January 1, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after the date of enactment of this 
                        Act), or
                    (B) January 1, 2005.
            (3) 1 hour of service requirement.--The amendments made by 
        this section shall apply only in the case of participants who 
        have at least 1 hour of service under the plan on or after the 
        date of the enactment of this Act or who have at least 1 hour 
        of paid leave on or after such date.

         Subtitle B--Division of Pension Benefits Upon Divorce

SEC. 521. TREATMENT OF SUBSEQUENT QUALIFIED DOMESTIC RELATIONS ORDERS.

    (a) Amendment to ERISA.--Section 206(d)(3)(B) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)(B)) is 
amended by adding at the end the following flush sentence:
        ``A domestic relations order shall be treated as a qualified 
        domestic relations order even if it is issued after, or 
        revises, another domestic relations order, but, subject to 
        subparagraph (H), only with respect to amounts payable after 
        the date the order is issued.''
    (b) Amendment to Internal Revenue Code.--Section 414(p)(1)(A) of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following flush sentence:
                ``A domestic relations order shall be treated as a 
                qualified domestic relations order even if it is issued 
                after, or revises, another domestic relations order, 
                but, subject to paragraph (7), only with respect to 
                amounts payable after the date the order is issued.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers made after December 31, 2003.

SEC. 522. FORMER SPOUSES TREATED AS SURVIVING SPOUSES IN CERTAIN CASES.

    (a) Amendment to ERISA.--Section 205 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1055), as amended by this Act, 
is amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following new subsection:
    ``(m)(1) For purposes of this section, a former spouse to whom this 
subsection applies shall, upon the death of the participant to whom the 
former spouse was married, be entitled to receive a qualified joint and 
survivor annuity or qualified preretirement survivor annuity in the 
same manner, and to the same extent, as if the former spouse were the 
surviving spouse of the participant.
    ``(2) This subsection applies to a former spouse of a participant 
if--
            ``(A) the former spouse was married to the participant for 
        at least 1 year,
            ``(B) an election by the former spouse to waive the 
        benefits of this section was not in effect at the time of the 
        dissolution of the marriage,
            ``(C) there is no domestic relations order which 
        specifically provides that the survivor benefits under the plan 
        were considered by the participant and the former spouse and 
        that the survivor benefits were disposed of, and
            ``(D) the requirements of paragraph (3) are met with 
        respect to the participant.
    ``(3)(A) The requirements of this paragraph are met with respect to 
a participant if the participant did not at any time after dissolution 
of the marriage to the former spouse--
            ``(i) remarry, or
            ``(ii) make a subsequent beneficiary designation.
    ``(B) A participant shall not be treated as having made a 
subsequent beneficiary designation under subparagraph (A)(ii) if, at 
the time of the death of the participant--
            ``(i) the participant had accepted a reduction in an 
        annuity in order to provide a qualified joint and survivor 
        annuity under this section, or
            ``(ii) the participant was eligible for a fully subsidized 
        annuity described in subsection (c)(5) which provides a 
        qualified joint and survivor annuity or qualified preretirement 
        survivor annuity.
    ``(4) This subsection shall not apply to a former spouse unless the 
spouse notifies the plan of the spouse's eligibility under this 
subsection and provides such information as is necessary to establish 
such eligibility.''
    (b) Amendment to Internal Revenue Code.--Section 417 of the 
Internal Revenue Code of 1986 (relating to definitions and special 
rules for purposes of minimum survivor annuity requirements), as 
amended by this title, is amended by adding at the end the following 
new subsection:
    ``(h) Treatment of Certain Former Spouses.--
            ``(1) In general.--For purposes of this section and section 
        401(a)(11), a former spouse to whom this subsection applies 
        shall, upon the death of the participant to whom the former 
        spouse was married, be entitled to receive a qualified joint 
        and survivor annuity or qualified preretirement survivor 
        annuity in the same manner, and to the same extent, as if the 
        former spouse were the surviving spouse of the participant.
            ``(2) Application.--This subsection applies to a former 
        spouse of a participant if--
                    ``(A) the former spouse was married to the 
                participant for at least 1 year,
                    ``(B) an election by the former spouse to waive the 
                benefits of this section and section 401(a)(11) was not 
                in effect at the time of the dissolution of the 
                marriage,
                    ``(C) there is no domestic relations order which 
                specifically provides that the survivor benefits under 
                the plan were considered by the participant and the 
                former spouse and that the survivor benefits were 
                disposed of, and
                    ``(D) the requirements of paragraph (3) are met 
                with respect to the participant.
            ``(3) Participant requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a participant if the 
                participant did not at any time after dissolution of 
                the marriage to the former spouse--
                            ``(i) remarry, or
                            ``(ii) make a subsequent beneficiary 
                        designation.
                    ``(B) Special rules.--A participant shall not be 
                treated as having made a subsequent beneficiary 
                designation under subparagraph (A)(ii) if, at the time 
                of the death of the participant--
                            ``(i) the participant had accepted a 
                        reduction in an annuity in order to provide a 
                        qualified joint and survivor annuity under this 
                        section, or
                            ``(ii) the participant was eligible for a 
                        fully subsidized annuity described in 
                        subsection (c)(5) which provides a qualified 
                        joint and survivor annuity or qualified 
                        preretirement survivor annuity.
            ``(4) Notice.--This subsection shall not apply to a former 
        spouse unless the spouse notifies the plan of the spouse's 
        eligibility under this subsection and provides such information 
        as is necessary to establish such eligibility.''
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to benefits which 
        first become payable (without regard to when the participant 
        died) in plan years beginning after December 31, 2003.
            (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 not, in 
        the case of employees covered by any such agreement, apply to 
        benefits which first become payable (without regard to when the 
        participant died) in plan years beginning before the earlier 
        of--
                    (A) the later of--
                            (i) January 1, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after the date of enactment of this 
                        Act), or
                    (B) January 1, 2005.

Subtitle C--Protection of Rights of Former Spouses to Pension Benefits 
 Under Certain Government and Government-Sponsored Retirement Programs

                  CHAPTER 1--CIVIL SERVICE RETIREMENT

SEC. 531. SURVIVOR ANNUITIES FOR WIDOWS, WIDOWERS, AND FORMER SPOUSES 
              OF FEDERAL EMPLOYEES WHO DIE BEFORE ATTAINING AGE FOR 
              DEFERRED ANNUITY UNDER CIVIL SERVICE RETIREMENT SYSTEM.

    (a) Benefits for Widow or Widower.--Section 8341(f) of title 5, 
United States Code, is amended--
            (1) in the matter preceding paragraph (1)--
                    (A) by inserting ``a former employee separated from 
                the service with title to deferred annuity from the 
                Fund dies before having established a valid claim for 
                annuity and is survived by a spouse, or if'' before ``a 
                Member''; and
                    (B) by inserting ``of such former employee or 
                Member'' after ``the surviving spouse'';
            (2) in paragraph (1)--
                    (A) by inserting ``former employee or'' before 
                ``Member commencing''; and
                    (B) by inserting ``former employee or'' before 
                ``Member dies''; and
            (3) in the undesignated sentence following paragraph (2)--
                    (A) in the matter preceding subparagraph (A), by 
                inserting ``former employee or'' before ``Member''; and
                    (B) in subparagraph (B), by inserting ``former 
                employee or'' before ``Member''.
    (b) Benefits for Former Spouse.--Section 8341(h) of title 5, United 
States Code, is amended--
            (1) in paragraph (1), by adding after the first sentence 
        ``Subject to paragraphs (2) through (5) of this subsection, a 
        former spouse of a former employee who dies after having 
        separated from the service with title to a deferred annuity 
        under section 8338(a) but before having established a valid 
        claim for annuity is entitled to a survivor annuity under this 
        subsection, if and to the extent expressly provided for in an 
        election under section 8339(j)(3) of this title, or in the 
        terms of any decree of divorce or annulment or any court order 
        or court-approved property settlement agreement incident to 
        such decree.''; and
            (2) in paragraph (2)--
                    (A) in subparagraph (A)(ii), by striking ``or 
                annuitant,'' and inserting ``annuitant, or former 
                employee''; and
                    (B) in subparagraph (B)(iii), by inserting ``former 
                employee or'' before ``Member''.
    (c) Protection of Survivor Benefit Rights.--Section 8339(j)(3) of 
title 5, United States Code, is amended by inserting at the end the 
following:
    ``The Office shall provide by regulation for the application of 
this subsection to the widow, widower, or surviving former spouse of a 
former employee who dies after having separated from the service with 
title to a deferred annuity under section 8338(a) but before having 
established a valid claim for annuity.''
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and shall apply only in 
the case of a former employee who dies on or after such date.

SEC. 532. COURT ORDERS RELATING TO FEDERAL RETIREMENT BENEFITS FOR 
              FORMER SPOUSES OF FEDERAL EMPLOYEES.

    (a) Civil Service Retirement System.--
            (1) In general.--Section 8345(j) of title 5, United States 
        Code, is amended--
                    (A) by redesignating paragraph (3) as paragraph 
                (4); and
                    (B) by inserting after paragraph (2) the following:
    ``(3) Payment to a person under a court decree, court order, 
property settlement, or similar process referred to under paragraph (1) 
shall include payment to a former spouse of the employee, Member, or 
annuitant.''
            (2) Lump-sum benefits.--Section 8342 of title 5, United 
        States Code, is amended--
                    (A) in subsection (c), by striking ``Lump-sum 
                benefits'' and inserting ``Subject to subsection (j), 
                lump-sum benefits''; and
                    (B) in subsection (j)(1)(A), by striking ``the 
                lump-sum credit under subsection (a)'' and inserting 
                ``any lump-sum credit or lump-sum benefit under this 
                section''.
    (b) Federal Employees Retirement System.--Section 8467 of title 5, 
United States Code, is amended--
            (1) by redesignating subsection (c) as subsection (d); and
            (2) by inserting after subsection (b) the following:
    ``(c) Payment to a person under a court decree, court order, 
property settlement, or similar process referred to under subsection 
(a) shall include payment to a former spouse of the employee, Member, 
or annuitant.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 533. INTEREST ON AMOUNTS PAID FOR CERTAIN CIVIL SERVICE ANNUITY 
              BENEFITS WRONGFULLY DENIED.

    (a) In General.--Chapter 77 of title 5, United States Code, is 
amended by adding at the end the following:
``Sec. 7704. Interest on amounts paid for certain annuity benefits 
              wrongfully denied
    ``(a) In the case of an individual who, on the basis of a timely 
appeal to the Merit Systems Protection Board under section 8347(d) or 
8461(e), or petition for judicial review under section 7703 from a 
final order or decision of the Board in any such appeal, is found by 
the relevant authority--
            ``(1) to have been affected by an erroneous application or 
        interpretation of subchapter III of chapter 83, chapter 84, or 
        any other provision of law (or any rule or regulation relating 
        thereto), and
            ``(2) to be entitled to receive an amount equal to all or 
        any part of an annuity not paid to such individual as a result 
        of such erroneous application or interpretation,
the amount under paragraph (2) may, in the discretion of such 
authority, be made payable with interest.
    ``(b) Any such interest--
            ``(1) shall be computed in such manner as the Merit Systems 
        Protection Board or the court (as the case may be) considers 
        appropriate; and
            ``(2) shall be payable out of the Civil Service Retirement 
        and Disability Fund.
    ``(c) In this section, the term `annuity' means any annuity 
(including a survivor annuity) payable out of the Civil Service 
Retirement and Disability Fund.''
    (b) Conforming Amendments.--
            (1) Section 8348(a)(1)(A) of title 5, United States Code, 
        is amended by striking ``Fund;'' and inserting ``Fund 
        (including any interest payable under section 7704);''
            (2) The table of sections for chapter 77 of title 5, United 
        States Code, is amended by adding at the end the following:

``7704. Interest on amounts paid for certain annuity benefits 
                            wrongfully denied.''.

SEC. 534. INCOME AVERAGING OF CORRECTED CIVIL SERVICE ANNUITY BENEFIT 
              PAYMENTS.

    (a) In General.--Part I of subchapter Q of chapter 1 of the 
Internal Revenue Code of 1986 (relating to income averaging) is amended 
by inserting after section 1301 the following:

``SEC. 1302. AVERAGING OF CORRECTED CIVIL SERVICE ANNUITY BENEFIT 
              PAYMENTS.

    ``(a) In General.--Unless the taxpayer elects not to have this 
section apply for a taxable year, any corrected civil service annuity 
benefit payment includible in gross income for such taxable year 
(without regard to this section) shall be so included ratably over the 
5-taxable year period beginning with such taxable year.
    ``(b) Corrected Civil Service Annuity Benefit Payment.--For 
purposes of subsection (a), the term `corrected civil service annuity 
benefit payment' means with respect to an individual the sum of--
            ``(1) the lump sum payment awarded by reason of a court 
        order, or decision of the Merit Systems Protection Board, under 
        which the individual is entitled to receive an amount equal to 
        all or any part of an annuity not paid to the individual as a 
        result of an erroneous application or interpretation of 
        subchapter III of chapter 83 or chapter 84 of title 5, United 
        States Code, or any other provision of law (or any rule or 
        regulation relating thereto), plus
            ``(2) interest on the amount described in paragraph (1) 
        awarded under section 7704 of title 5, United States Code.
    ``(c) Annuity.--For purposes of subsection (b), the term `annuity' 
has the meaning given to such term by section 7704(c) of title 5, 
United States Code.
    ``(d) Finality of Election.--An election under subsection (a) with 
respect to a corrected civil service annuity benefit payment for a 
taxable year may not be changed after the due date of the return for 
such taxable year.''
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter Q of chapter 1 of such Code is amended by inserting after 
the item relating to section 1301 the following:

                              ``Sec. 1302. Averaging of corrected civil 
                                        service annuity benefit 
                                        payments.''
    (c) Effective Date.--The amendments made by this section shall 
apply to payments received after December 31, 2003.

SEC. 535. ORDER OF PRECEDENCE FOR DISPOSITION OF AMOUNTS REMAINING IN 
              THE THRIFT SAVINGS ACCOUNT OF A FEDERAL EMPLOYEE (OR 
              FORMER EMPLOYEE) WHO DIES BEFORE MAKING AN EFFECTIVE 
              ELECTION CONTROLLING SUCH DISPOSITION.

    (a) In General.--Section 8433(e) of title 5, United States Code, is 
amended--
            (1) by striking ``(e)'' and inserting ``(e)(1)'';
            (2) by striking all that follows ``paid'' and inserting 
        ``in accordance with paragraph (2).''; and
            (3) by adding at the end the following:
    ``(2)(A) An amount under paragraph (1) shall be paid in a manner 
consistent with the provisions of section 8424(d), except that, in 
applying the order of precedence under such provisions--
            ``(i) the widow or widower of the decedent shall be the 
        first party entitled to receive (instead of any designated 
        beneficiary); and
            ``(ii) if there is no widow or widower, the party next 
        entitled to receive shall be the beneficiary or beneficiaries 
        designated by the employee or Member (or former employee or 
        Member) in accordance with the procedures that would otherwise 
        normally apply, subject to such additional conditions as the 
        Executive Director shall by regulation prescribe based on 
        section 205(c)(2) of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1055(c)(2)).
    ``(B) The order of precedence under subparagraph (A) shall not 
apply if the widow or widower consents in writing to the application of 
the order of precedence under section 8424(d).''
    (b) Effective Date.--The amendments made by this section shall take 
effect on the 90th day after the date of the enactment of this Act, and 
shall apply in the case of any individual who dies on or after such 
90th day.

                     CHAPTER 2--RAILROAD RETIREMENT

SEC. 541. ENTITLEMENT OF DIVORCED SPOUSES TO RAILROAD RETIREMENT 
              ANNUITIES INDEPENDENT OF ACTUAL ENTITLEMENT OF EMPLOYEE.

    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.

SEC. 542. 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 on the date of the enactment of this Act.

  Subtitle D--Modifications of Joint and Survivor Annuity Requirements

SEC. 551. MODIFICATIONS OF JOINT AND SURVIVOR ANNUITY REQUIREMENTS.

    (a) Amendments to ERISA.--
            (1) Amount of annuity.--
                    (A) In general.--Paragraph (1) of section 205(a) of 
                the Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1055(a)) is amended by inserting ``or, at the 
                election of the participant, shall be provided in the 
                form of a qualified joint and \3/4\ survivor annuity,'' 
                after ``survivor annuity,''.
                    (B) Definition.--Subsection (d) of section 205 of 
                such Act (29 U.S.C. 1055) is amended--
                            (i) by redesignating paragraphs (1) and (2) 
                        as subparagraphs (A) and (B), respectively,
                            (ii) by inserting ``(1)'' after ``(d)'', 
                        and
                            (iii) by adding at the end the following 
                        new paragraph:
    ``(2)(A) For purposes of this section, the term `qualified joint 
and \3/4\ survivor annuity' means an annuity--
            ``(i) for the participant while both the participant and 
        the spouse are alive with a survivor annuity for the life of 
        surviving individual (either the participant or the spouse) 
        equal to 75 percent of the amount of the annuity which is 
        payable to the participant while both the participant and the 
        spouse are alive, and
            ``(ii) which is the actuarial equivalent of a single 
        annuity for the life of the participant.
    ``(B) For purposes of this Act, a qualified joint and \3/4\ 
survivor annuity shall be treated as a qualified joint and survivor 
annuity.''
            (2) Illustration requirement.--Clause (i) of section 
        205(c)(3)(A) of such Act (29 U.S.C. 1055(c)(3)(A)) is amended 
        to read as follows:
            ``(i) the terms and conditions of each qualified joint and 
        survivor annuity and qualified joint and \3/4\ survivor annuity 
        offered, accompanied by an illustration of the benefits under 
        each such annuity for the particular participant and spouse and 
        an acknowledgement form to be signed by the participant and the 
        spouse that they have read and considered the illustration 
        before any form of retirement benefit is chosen,''.
    (b) Amendments to Internal Revenue Code.--
            (1) Amount of annuity.--
                    (A) In general.--Clause (i) of section 
                401(a)(11)(A) at the Internal Revenue Code of 1986 
                (relating to requirement of joint and survivor annuity 
                and preretirement survivor annuity) is amended by 
                inserting ``or, at the election of the participant, 
                shall be provided in the form of a qualified joint and 
                \3/4\ survivor annuity,'' after ``survivor annuity,''.
                    (B) Definition.--Section 417 (relating to 
                definitions and special rules for purposes of minimum 
                survivor annuity requirements) is amended by adding at 
                the end the following new subsection:
    ``(i) Definition of Qualified Joint and \3/4\ Survivor Annuity.--
            ``(1) In general.--For purposes of this section and section 
        401(a)(11), the term ``qualified joint and \3/4\ survivor 
        annuity'' means an annuity--
                    ``(A) for the participant while both the 
                participant and the spouse are alive with a survivor 
                annuity for the life of surviving individual (either 
                the participant or the spouse) equal to 75 percent of 
                the amount of the annuity which is payable to the 
                participant while both the participant and the spouse 
                are alive, and
                    ``(B) which is the actuarial equivalent of a single 
                annuity for the life of the participant.
            ``(2) Treatment.--For purposes of this title, a qualified 
        joint and \3/4\ survivor annuity shall be treated as a 
        qualified joint and survivor annuity.''
            (2) Illustration requirement.--Clause (i) of section 
        417(a)(3)(A) (relating to explanation of joint and survivor 
        annuity) is amended to read as follows:
                            ``(i) the terms and conditions of each 
                        qualified joint and survivor annuity and 
                        qualified joint and \3/4\ survivor annuity 
                        offered, accompanied by an illustration of the 
                        benefits under each such annuity for the 
                        particular participant and spouse and an 
                        acknowledgement form to be signed by the 
                        participant and the spouse that they have read 
                        and considered the illustration before any form 
                        of retirement benefit is chosen,''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning on or after January 1, 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 enactment of 
        this Act, the amendments made by this section shall apply to 
        the first plan year beginning on or after the earlier of--
                    (A) the later of--
                            (i) January 1, 2004, or
                            (ii) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof after the date of enactment of this 
                        Act), or
                    (B) January 1, 2005.
            (3) Form of accrued benefit not treated as decreased by 
        reason of amendment.--For purposes of sections 204(g) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1054(g)) and 411(d)(6) of the Internal Revenue Code of 1986, a 
        plan shall not be treated as having decreased the accrued 
        benefit of a participant solely by reason of the adoption of a 
        plan amendment required to carry out the amendments made by 
        this section.

                      Subtitle E--Plan Amendments

SEC. 561. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or contract 
amendment, 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).
    (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 
                pursuant to any regulation issued under this Act, and
                    (B) on or before the last day of the first plan 
                year beginning on or after January 1, 2005.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2007'' for ``2005''.
            (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 VI--OTHER PROVISIONS RELATING TO PENSIONS

                     Subtitle A--General Provisions

SEC. 601. 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. 602. 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, 2002.

SEC. 603. 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, 2002.
    (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, 2002.
                    (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. 604. TECHNICAL CORRECTIONS TO SAVER ACT.

    Section 517 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1147) is amended--
            (1) in subsection (a), by striking ``2001 and 2005 on or 
        after September 1 of each year involved'' and inserting ``2002, 
        2006, and 2010'';
            (2) in subsection (b), by adding at the end the following 
        new sentence: ``To effectuate the purposes of this paragraph, 
        the Secretary may enter into a cooperative agreement, pursuant 
        to the Federal Grant and Cooperative Agreement Act of 1977 (31 
        U.S.C. 6301 et seq.), with any appropriate, qualified 
        entity.'';
            (3) in subsection (e)(2)--
                    (A) by striking ``Committee on Labor and Human 
                Resources'' in subparagraph (D) and inserting 
                ``Committee on Health, Education, Labor, and 
                Pensions'';
                    (B) by striking subparagraph (F) and inserting the 
                following:
                    ``(F) the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human Services, and 
                Education of the Committee on Appropriations of the 
                House of Representatives and the Chairman and Ranking 
                Member of the Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;'';
                    (C) by redesignating subparagraph (G) as 
                subparagraph (J); and
                    (D) by inserting after subparagraph (F) the 
                following new subparagraphs:
                    ``(G) the Chairman and Ranking Member of the 
                Committee on Finance of the Senate;
                    ``(H) the Chairman and Ranking Member of the 
                Committee on Ways and Means of the House of 
                Representatives;
                    ``(I) the Chairman and Ranking Member of the 
                Subcommittee on Employer-Employee Relations of the 
                Committee on Education and the Workforce of the House 
                of Representatives; and'';
            (4) in subsection (e)(3)(B), by striking ``January 31, 
        1998'' and inserting ``3 months before the convening of each 
        summit;'';
            (5) in subsection (f)(1)(C), by inserting ``, no later than 
        90 days prior to the date of the commencement of the National 
        Summit,'' after ``comment'';
            (6) in subsection (g), by inserting ``, in consultation 
        with the congressional leaders specified in subsection 
        (e)(2),'' after ``report'' the first place it appears in the 
        text;
            (7) in subsection (i)--
                    (A) by striking ``for fiscal years beginning on or 
                after October 1, 1997,''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Reception and representation authority.--The 
        Secretary is hereby granted reception and representation 
        authority limited specifically to the events at the National 
        Summit. The Secretary shall use any private contributions 
        accepted in connection with the National Summit prior to 
using funds appropriated for purposes of the National Summit pursuant 
to this paragraph.''; and
            (8) in subsection (k)--
                    (A) by striking ``shall enter into a contract on a 
                sole-source basis'' and inserting ``may enter into a 
                contract on a sole-source basis''; and
                    (B) by striking ``in fiscal year 1998''.

SEC. 605. 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. 606. 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, 2002.

SEC. 607. 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 406(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, 2002.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2002.

SEC. 608. 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. 609. 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, 2002, 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, 2003.

SEC. 610. BENEFIT SUSPENSION NOTICE.

    (a) Modification of Regulation.--The Secretary of Labor shall 
modify the regulation under subparagraph (B) of section 203(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(a)(3)(B)) to provide that the notification required by such 
regulation in connection with any suspension of benefits described in 
such subparagraph--
            (1) in the case of an employee who returns to service 
        described in section 203(a)(3)(B)(i) or (ii) of such Act after 
        commencement of payment of benefits under the plan, shall be 
        made during the first calendar month or the first 4- or 5-week 
        payroll period ending in a calendar month in which the plan 
        withholds payments, and
            (2) in the case of any employee who is not described in 
        paragraph (1)--
                    (A) may be included in the summary plan description 
                for the plan furnished in accordance with section 
                104(b) of such Act (29 U.S.C. 1024(b)), rather than in 
                a separate notice, and
                    (B) need not include a copy of the relevant plan 
                provisions.
    (b) Effective Date.--The modification made under this section shall 
apply to plan years beginning after December 31, 2002.

SEC. 611. INTEREST RATE RANGE FOR ADDITIONAL FUNDING REQUIREMENTS.

    (a) In General.--Subclause (III) of section 412(l)(7)(C)(i) of the 
Internal Revenue Code of 1986 is amended--
            (1) by striking ``2002 or 2003'' in the text and inserting 
        ``2001, 2002, or 2003'',
            (2) by inserting ``(108 percent for plan years beginning in 
        2001)'' after ``120 percent'', and
            (3) by striking ``2002 and 2003'' in the heading and 
        inserting ``2001, 2002, and 2003''.
    (b) Special Rule.--Subclause (III) of section 302(d)(7)(C)(i) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1082(d)(7)(C)(i)) is amended--
            (1) by striking ``2002 or 2003'' in the text and inserting 
        ``2001, 2002, or 2003'',
            (2) by inserting ``(108 percent for plan years beginning in 
        2001)'' after ``120 percent'', and
            (3) by striking ``2002 and 2003'' in the heading and 
        inserting ``2001, 2002, and 2003''.
    (c) PBGC.--The last sentence of subclause (IV) of section 
4006(a)(3)(E)(iii) of such Act (29 U.S.C. 1306(a)(3)(E)(iii)) is 
amended to read as follows: ``Any reference to this clause or this 
subparagraph by any other sections or subsections (other than sections 
4005, 4010, 4011 and 4043) shall be treated as a reference to this 
clause or this subparagraph without regard to this subclause.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        take effect as if included in the amendments made by section 
        405 of the Job Creation and Worker Assistance Act of 2002.
            (2) Election.--The plan sponsor or plan administrator of a 
        plan may elect whether to have the amendments made by 
        subsections (a) and (b) apply. Such election shall be made in 
        such manner and at such time as the Secretary of the Treasury 
        or his delegate may prescribe and, once made, may not be 
        revoked. An election to apply such amendments shall not be 
        treated as a change in actuarial assumptions for purposes of 
        reports required to be filed with the Secretary of Labor, the 
        Secretary of the Treasury, or the Pension Benefit Guaranty 
        Corporation.

SEC. 612. 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), and
                    ``(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. 613. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DISTRIBUTIONS.

    (a) In General.--Subsections (c) and (d) of section 657 of the 
Economic Growth and Tax Relief Reconciliation Act of 2001, as amended 
by section 411(t) of the Job Creation and Worker Assistance Act of 
2002, are amended to read as follows:
    ``(c) Regulations.--
            ``(1) Automatic rollover safe harbor.--Not later than 
        December 31, 2002, the Secretary of Labor shall prescribe 
        interim final regulations or other administrative guidance 
        providing for safe harbors under which the designation of an 
        institution and investment of funds in accordance with section 
        401(a)(31)(B) of the Internal Revenue Code of 1986 is deemed to 
        satisfy the fiduciary requirements of section 404(a) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1104(a)).
            ``(2) Use of low-cost individual retirement plans.--The 
        Secretary of the Treasury and the Secretary of Labor may 
        provide, and shall give consideration to providing, special 
        relief with respect to the use of low-cost individual 
        retirement plans for purposes of transfers under section 
        401(a)(31)(B) of the Internal Revenue Code of 1986 and for 
        other uses that promote the preservation of assets for 
retirement income purposes.
    ``(d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2003.''
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendments made by, and provisions of, 
section 657 of the Economic Growth and Tax Relief Reconciliation Act of 
2001.

SEC. 614. 2-YEAR EXTENSION OF TRANSITION RULE TO PENSION FUNDING 
              REQUIREMENTS.

    (a) In General.--Section 769(c) of the Retirement Protection Act of 
1994, as added by section 1508 of the Taxpayer Relief Act of 1997, is 
amended--
            (1) by inserting ``except as provided in paragraph (3),'' 
        before ``the transition rules'', and
            (2) by adding at the end the following:
            ``(3) Special rules.--In the case of plan years beginning 
        in 2004 and 2005, the following transition rules shall apply in 
        lieu of the transition rules described in paragraph (2):
                    ``(A) For purposes of section 412(l)(9)(A) of the 
                Internal Revenue Code of 1986 and section 302(d)(9)(A) 
                of the Employee Retirement Income Security Act of 1974, 
                the funded current liability percentage for any plan 
                year shall be treated as not less than 90 percent.
                    ``(B) For purposes of section 412(m) of the 
                Internal Revenue Code of 1986 and section 302(e) of the 
                Employee Retirement Income Security Act of 1974, the 
                funded current liability percentage for any plan year 
                shall be treated as not less than 100 percent.
                    ``(C) For purposes of determining unfunded vested 
                benefits under section 4006(a)(3)(E)(iii) of the 
                Employee Retirement Income Security Act of 1974, the 
                mortality table shall be the mortality table used by 
                the plan.''
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2002.

SEC. 615. ACCELERATION OF COMPUTATION OF BENEFITS ATTRIBUTABLE TO 
              RECOVERIES OF EMPLOYER LIABILITY UNDER SECTION 4062.

    (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. 616. MULTIEMPLOYER PLAN FUNDING NOTICE.

    (a) In General.--The Employee Retirement Income Security Act of 
1974 is amended by inserting after section 4011 the following new 
section:

``SEC. 4012. MULTIEMPLOYER PLAN FUNDING NOTICE.

    ``(a) Notice.--The plan administrator of a multiemployer plan 
shall, every three years, provide a notice to plan participants and 
beneficiaries of the plan's funding status and the limits on the 
corporation's guaranty.
    ``(b) Time for Providing Notice.--The notice under this section 
shall be provided no later than two months after the deadline 
(including extensions) for filing the annual report for the previous 
plan year and may be issued together with another document, including 
the summary annual report required under section 104(b)(3).
    ``(c) Form and Manner.--The notice under this section--
            ``(1) shall be provided in a form and manner prescribed in 
        regulations of the corporation,
            ``(2) shall be written in a manner so as to be understood 
        by the average plan participant, and
            ``(3) may be provided in written, electronic, or other 
        appropriate form to the extent such form is reasonably 
        accessible to plan participants and beneficiaries.''
    (b) Conforming Amendment.--The table of sections for title IV of 
such Act is amended by adding after the item related to section 4011 
the following new item:

``4012. Multiemployer plan funding notice.''
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2002.

SEC. 617. NO REDUCTION IN UNEMPLOYMENT COMPENSATION AS A RESULT OF 
              PENSION ROLLOVERS.

    (a) In General.--Paragraph (15)(A) of section 3304(a) of the 
Internal Revenue Code of 1986 (relating to requirements for State 
unemployment laws) is amended by striking ``and'' at the end of clause 
(i) and by adding after clause (ii) the following new clause:
                            ``(iii) such pension, retirement or retired 
                        pay, annuity, or similar payment is not 
                        includible in gross income of the individual 
                        for the taxable year in which paid because it 
                        was part of a rollover distribution, and''.
    (b) Effective Date.--The amendments made by this section shall 
apply to weeks beginning on or after the date of the enactment of this 
Act.

SEC. 618. 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 not less than 10 years,
        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. 619. TRANSFER OF PENSION PLAN LIABILITIES UPON DISSOLUTION OF 
              JOINT VENTURE.

    (a) In General.--Except as provided in subsection (b), the transfer 
of liabilities from a defined benefit plan maintained by an 
organization exempt from tax under the Internal Revenue Code of 1986 
(the ``transferor plan'') to a defined benefit plan which is a 
governmental plan (under section 414(d) of the Internal Revenue Code of 
1986 (the ``transferee plan'')) shall be treated as meeting the 
requirements of section 414(l) of such Code without regard to whether 
any assets are transferred to the transferee plan in connection with 
the transfer of liabilities.
    (b) Requirements.--Subsection (a) shall only apply to a transfer 
if--
            (1) before the date of the enactment of this Act--
                    (A) the sponsor of the transferor plan is a tax 
                exempt organization which was formed as part of a joint 
                venture between an organization exempt from tax under 
                this subtitle and the sponsor of the transferee plan;
                    (B) such joint venture ceased operations within 3 
                years of its formation;
                    (C) after the formation of such joint venture but 
                prior to its cessation of operations, no contributions 
                to the transferor plan were required under section 412 
                of the Internal Revenue Code of 1986 and no 
                contributions to the transferor plan were made; and
                    (D) the agreements for dissolution of the joint 
                venture specifically provide for the transfer of 
                liabilities described in subsection (a);
            (2) the liabilities transferred under subsection (a) are 
        primarily attributable to individuals who had been participants 
        in the transferee plan prior to the formation of such joint 
        venture, who had been participants in the transferor plan after 
        the formation of such joint venture and before its dissolution, 
        and who became participants in the transferee plan after the 
        dissolution of such joint venture;
            (3) both upon the cessation of the joint venture's 
        operations and immediately after the transfer of liabilities 
        described in subsection (a), both the transferor plan and the 
        transferee plan have sufficient assets to meet benefit 
        liabilities (determined under section 412 of the Internal 
        Revenue Code without regard to whether such section otherwise 
        applies to the plan);
            (4) the liabilities transferred under this paragraph do not 
        exceed 3 percent of the assets of the transferee plan 
        (determined in accordance with standards established by the 
        Government Accounting Standards Board); and
            (5) the transfer of liabilities described in subsection (a) 
        occurs within 180 days of the date of the enactment of this 
        Act.

                          Subtitle B--Studies

SEC. 621. STUDY REGARDING INSURANCE SYSTEM FOR INDIVIDUAL ACCOUNT 
              PLANS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, the Pension Benefit Guaranty Corporation shall undertake a 
study relating to the establishment of an insurance system for 
individual account plans. In conducting such study, the Corporation 
shall consider--
            (1) the feasibility of such a system,
            (2) the problem with insuring investments in employer 
        securities, and
            (3) options for developing such a system.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Corporation shall report the results of its 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. 622. STUDY REGARDING FEES CHARGED BY INDIVIDUAL ACCOUNT PLANS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, the Secretary of Labor shall undertake a study of the 
administrative and transaction fees incurred by participants, 
beneficiaries, or plans in connection with the investment of assets in 
their accounts under individual account plans. In conducting such 
study, the Secretary shall consider--
            (1) how the fees compare to fees charged for similar 
        services provided to investors not in individual account plans, 
        and
            (2) whether participants or beneficiaries are adequately 
        notified of the fees.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Secretary shall report the results of its 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. 623. JOINT STUDY ON REVITALIZING DEFINED BENEFIT PLANS.

    (a) Study.--As soon as practicable after the date of 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. 624. STUDY ON FLOOR-OFFSET ESOPS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, 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 Corporation shall report the results of its 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 C--Plan Amendments

SEC. 631. 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, 2005.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2007'' for ``2005''.
            (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 VII--REVENUE OFFSETS

SEC. 700. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

       Subtitle A--Reversing the Expatriation of Profits Offshore

SEC. 701. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

    (a) In General.--Subchapter C of chapter 80 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.

    ``(a) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall be 
        treated for purposes of this title as a domestic corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        section, a foreign incorporated entity shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after March 20, 2002, 
                the direct or indirect acquisition of substantially all 
                of the properties held directly or indirectly by a 
                domestic corporation or substantially all of the 
                properties constituting a trade or business of a 
                domestic partnership,
                    ``(B) after the acquisition at least 80 percent of 
                the stock (by vote or value) of the entity is held--
                            ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                            ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership, and
                    ``(C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                substantial business activities in the foreign country 
                in which or under the law of which the entity is 
                created or organized when compared to the total 
                business activities of such expanded affiliated group.
    ``(b) Preservation of Domestic Tax Base In Certain Inversion 
Transactions To Which Subsection (a) Does Not Apply.--
            ``(1) In general.--If a foreign incorporated entity would 
        be treated as an inverted domestic corporation with respect to 
        an acquired entity if either--
                    ``(A) subsection (a)(2)(A) were applied by 
                substituting `after December 31, 1996, and on or before 
                March 20, 2002' for `after March 20, 2002' and 
                subsection (a)(2)(B) were applied by substituting `more 
                than 50 percent' for `at least 80 percent', or
                    ``(B) subsection (a)(2)(B) were applied by 
                substituting `more than 50 percent' for `at least 80 
                percent',
        then the rules of subsection (c) shall apply to any inversion 
        gain of the acquired entity during the applicable period and 
        the rules of subsection (d) shall apply to any related party 
        transaction of the acquired entity during the applicable 
        period. This subsection shall not apply for any taxable year if 
        subsection (a) applies to such foreign incorporated entity for 
        such taxable year.
            ``(2) Acquired entity.--For purposes of this section--
                    ``(A) In general.--The term `acquired entity' means 
                the domestic corporation or partnership substantially 
                all of the properties of which are directly or 
                indirectly acquired in an acquisition described in 
                subsection (a)(2)(A) to which this subsection applies.
                    ``(B) Aggregation rules.--Any domestic person 
                bearing a relationship described in section 267(b) or 
                707(b) to an acquired entity shall be treated as an 
                acquired entity with respect to the acquisition 
                described in subparagraph (A).
            ``(3) Applicable period.--For purposes of this section--
                    ``(A) In general.--The term `applicable period' 
                means the period--
                            ``(i) beginning on the first date 
                        properties are acquired as part of the 
                        acquisition described in subsection (a)(2)(A) 
                        to which this subsection applies, and
                            ``(ii) ending on the date which is 10 years 
                        after the last date properties are acquired as 
                        part of such acquisition.
                    ``(B) Special rule for inversions occurring before 
                march 21, 2002.--In the case of any acquired entity to 
                which paragraph (1)(A) applies, the applicable period 
                shall be the 10-year period beginning on January 1, 
                2002.
    ``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b) 
applies--
            ``(1) In general.--The taxable income of an acquired entity 
        (or any expanded affiliated group which includes such entity) 
        for any taxable year which includes any portion of the 
        applicable period shall in no event be less than the inversion 
        gain of the entity for the taxable year.
            ``(2) Credits not allowed against tax on inversion gain.--
        Credits shall be allowed against the tax imposed by this 
        chapter on an acquired entity for any taxable year described in 
        paragraph (1) only to the extent such tax exceeds the product 
        of--
                    ``(A) the amount of the inversion gain for the 
                taxable year, and
                    ``(B) the highest rate of tax specified in section 
                11(b)(1).
        The credit allowed by section 901 may be taken into account 
        under the preceding sentence only to the extent of the product 
        of such highest rate and the amount of taxable income from 
        sources without the United States that is not inversion gain.
            ``(3) Special rules for partnerships.--In the case of an 
        acquired entity which is a partnership--
                    ``(A) the limitations of this subsection shall 
                apply at the partner rather than the partnership level,
                    ``(B) the inversion gain of any partner for any 
                taxable year shall be equal to the sum of--
                            ``(i) the partner's distributive share of 
                        inversion gain of the partnership for such 
                        taxable year, plus
                            ``(ii) income or gain required to be 
                        recognized for the taxable year by the partner 
                        under section 367(a), 741, or 1001, or under 
                        any other provision of chapter 1, by reason of 
                        the transfer during the applicable period of 
                        any partnership interest of the partner in such 
                        partnership to the foreign incorporated entity, 
                        and
                    ``(C) the highest rate of tax specified in the rate 
                schedule applicable to the partner under chapter 1 
                shall be substituted for the rate of tax under 
                paragraph (2)(B).
            ``(4) Inversion gain.--For purposes of this section, the 
        term `inversion gain' means any income or gain required to be 
        recognized under section 304, 311(b), 367, 1001, or 1248, or 
        under any other provision of chapter 1, by reason of the 
        transfer during the applicable period of stock or other 
        properties by an acquired entity--
                    ``(A) as part of the acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, 
                or
                    ``(B) after such acquisition to a foreign related 
                person.
        The Secretary may provide that income or gain from the sale of 
        inventories or other transactions in the ordinary course of a 
        trade or business shall not be treated as inversion gain under 
        subparagraph (B) to the extent the Secretary determines such 
        treatment would not be inconsistent with the purposes of this 
        section.
            ``(5) Coordination with section 172 and minimum tax.--Rules 
        similar to the rules of paragraphs (3) and (4) of section 
        860E(a) shall apply for purposes of this section.
            ``(6) Statute of limitations.--
                    ``(A) In general.--The statutory period for the 
                assessment of any deficiency attributable to the 
                inversion gain of any taxpayer for any pre-inversion 
                year shall not expire before the expiration of 3 years 
                from the date the Secretary is notified by the taxpayer 
                (in such manner as the Secretary may prescribe) of the 
                acquisition described in subsection (a)(2)(A) to which 
                such gain relates and such deficiency may be assessed 
                before the expiration of such 3-year period 
                notwithstanding the provisions of any other law or rule 
                of law which would otherwise prevent such assessment.
                    ``(B) Pre-inversion year.--For purposes of 
                subparagraph (A), the term `pre-inversion year' means 
                any taxable year if--
                            ``(i) any portion of the applicable period 
                        is included in such taxable year, and
                            ``(ii) such year ends before the taxable 
                        year in which the acquisition described in 
                        subsection (a)(2)(A) is completed.
    ``(d) Special Rules Applicable to Related Party Transactions.--
            ``(1) Annual application for agreements on return 
        positions.--
                    ``(A) In general.--Each acquired entity to which 
                subsection (b) applies shall file with the Secretary an 
                application for an approval agreement under 
                subparagraph (D) for each taxable year which includes a 
                portion of the applicable period. Such application 
                shall be filed at such time and manner, and shall 
                contain such information, as the Secretary may 
                prescribe.
                    ``(B) Secretarial action.--Within 90 days of 
                receipt of an application under subparagraph (A) (or 
                such longer period as the Secretary and entity may 
                agree upon), the Secretary shall--
                            ``(i) enter into an agreement described in 
                        subparagraph (D) for the taxable year covered 
                        by the application,
                            ``(ii) notify the entity that the Secretary 
                        has determined that the application was filed 
                        in good faith and substantially complies with 
                        the requirements for the application under 
                        subparagraph (A), or
                            ``(iii) notify the entity that the 
                        Secretary has determined that the application 
                        was not filed in good faith or does not 
                        substantially comply with such requirements.
                If the Secretary fails to act within the time 
                prescribed under the preceding sentence, the entity 
                shall be treated for purposes of this paragraph as 
                having received notice under clause (ii).
                    ``(C) Failures to comply.--If an acquired entity 
                fails to file an application under subparagraph (A), or 
                the acquired entity receives a notice under 
                subparagraph (B)(iii), for any taxable year, then for 
                such taxable year--
                            ``(i) there shall not be allowed any 
                        deduction, or addition to basis or cost of 
                        goods sold, for amounts paid or incurred, or 
                        losses incurred, by reason of a transaction 
                        between the acquired entity and a foreign 
                        related person,
                            ``(ii) any transfer or license of 
                        intangible property (as defined in section 
                        936(h)(3)(B)) between the acquired entity and a 
                        foreign related person shall be disregarded, 
                        and
                            ``(iii) any cost-sharing arrangement 
                        between the acquired entity and a foreign 
                        related person shall be disregarded.
                    ``(D) Approval agreement.--For purposes of 
                subparagraph (A), the term `approval agreement' means a 
                prefiling, advance pricing, or other agreement 
                specified by the Secretary which contains such 
                provisions as the Secretary determines necessary to 
                ensure that the requirements of sections 163(j), 
                267(a)(3), 482, and 845, and any other provision of 
                this title applicable to transactions between related 
                persons and specified by the Secretary, are met.
            ``(2) Modifications of limitation on interest deduction.--
        In the case of an acquired entity to which subsection (b) 
        applies, section 163(j) shall be applied--
                    ``(A) without regard to paragraph (2)(A)(ii) 
                thereof, and
                    ``(B) by substituting `25 percent' for `50 percent' 
                each place it appears in paragraph (2)(B) thereof.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Rules for application of subsection (a)(2).--In 
        applying subsection (a)(2) for purposes of subsections (a) and 
        (b), the following rules shall apply:
                    ``(A) Certain stock disregarded.--There shall not 
                be taken into account in determining ownership for 
                purposes of subsection (a)(2)(B)--
                            ``(i) stock held by members of the expanded 
                        affiliated group which includes the foreign 
                        incorporated entity, or
                            ``(ii) stock of such entity which is sold 
                        in a public offering related to the acquisition 
                        described in subsection (a)(2)(A).
                    ``(B) Plan deemed in certain cases.--If a foreign 
                incorporated entity acquires directly or indirectly 
                substantially all of the properties of a domestic 
                corporation or partnership during the 4-year period 
                beginning on the date which is 2 years before the 
                ownership requirements of subsection (a)(2)(B) are met 
                with respect to such domestic corporation or 
                partnership, such actions shall be treated as pursuant 
                to a plan.
                    ``(C) Certain transfers disregarded.--The transfer 
                of properties or liabilities (including by contribution 
                or distribution) shall be disregarded if such transfers 
                are part of a plan a principal purpose of which is to 
                avoid the purposes of this section.
                    ``(D) Special rule for related partnerships.--For 
                purposes of applying subsection (a)(2) to the 
                acquisition of a domestic partnership, except as 
                provided in regulations, all partnerships which are 
                under common control (within the meaning of section 
                482) shall be treated as 1 partnership.
                    ``(E) Treatment of certain rights.--The Secretary 
                shall prescribe such regulations as may be necessary--
                            ``(i) to treat warrants, options, contracts 
                        to acquire stock, convertible debt instruments, 
                        and other similar interests as stock, and
                            ``(ii) to treat stock as not stock.
            ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to section 1504(b)(3), 
        except that section 1504(a) shall be applied by substituting 
        `more than 50 percent' for `at least 80 percent' each place it 
        appears.
            ``(3) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but for 
        subsection (a)(1) would be, treated as a foreign corporation 
        for purposes of this title.
            ``(4) Foreign related person.--The term `foreign related 
        person' means, with respect to any acquired entity, a foreign 
        person which--
                    ``(A) bears a relationship to such entity described 
                in section 267(b) or 707(b), or
                    ``(B) is under the same common control (within the 
                meaning of section 482) as such entity.
            ``(5) Subsequent acquisitions by unrelated domestic 
        corporations.--
                    ``(A) In general.--Subject to such conditions, 
                limitations, and exceptions as the Secretary may 
                prescribe, if, after an acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, a 
                domestic corporation stock of which is traded on an 
                established securities market acquires directly or 
                indirectly any properties of one or more acquired 
                entities in a transaction with respect to which the 
                requirements of subparagraph (B) are met, this section 
                shall cease to apply to any such acquired entity with 
                respect to which such requirements are met.
                    ``(B) Requirements.--The requirements of the 
                subparagraph are met with respect to a transaction 
                involving any acquisition described in subparagraph (A) 
                if--
                            ``(i) before such transaction the domestic 
                        corporation did not have a relationship 
                        described in section 267(b) or 707(b), and was 
                        not under common control (within the meaning of 
                        section 482), with the acquired entity, or any 
                        member of an expanded affiliated group 
                        including such entity, and
                            ``(ii) after such transaction, such 
                        acquired entity--
                                    ``(I) is a member of the same 
                                expanded affiliated group which 
                                includes the domestic corporation or 
                                has such a relationship or is under 
                                such common control with any member of 
                                such group, and
                                    ``(II) is not a member of, and does 
                                not have such a relationship and is not 
                                under such common control with any 
                                member of, the expanded affiliated 
                                group which before such acquisition 
                                included such entity.
    ``(f) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
            ``(1) the use of related persons, pass-through or other 
        noncorporate entities, or other intermediaries, or
            ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''
    (b) Treatment of Agreements.--
            (1) Confidentiality.--
                    (A) Treatment as return information.--Section 
                6103(b)(2) (relating to return information) is amended 
                by striking ``and'' at the end of subparagraph (C), by 
                inserting ``and'' at the end of subparagraph (D), and 
                by inserting after subparagraph (D) the following new 
                subparagraph:
                    ``(E) any approval agreement under section 
                7874(d)(1) to which any preceding subparagraph does not 
                apply and any background information related to the 
                agreement or any application for the agreement,''.
                    (B) Exception from public inspection as written 
                determination.--Section 6110(b)(1)(B) is amended by 
                striking ``or (D)'' and inserting ``, (D), or (E)''.
            (2) Reporting.--The Secretary of the Treasury shall include 
        with any report on advance pricing agreements required to be 
        submitted after the date of the enactment of this Act under 
        section 521(b) of the Ticket to Work and Work Incentives 
        Improvement Act of 1999 (Public Law 106-170) a report regarding 
        approval agreements under section 7874(d)(1) of the Internal 
        Revenue Code of 1986. Such report shall include information 
        similar to the information required with respect to advance 
        pricing agreements and shall be treated for confidentiality 
        purposes in the same manner as the reports on advance pricing 
        agreements are treated under section 521(b)(3) of such Act.
    (c) Information Reporting.--The Secretary of the Treasury shall 
exercise the Secretary's authority under the Internal Revenue Code of 
1986 to require entities involved in transactions to which section 7874 
of such Code (as added by subsection (a)) applies to report to the 
Secretary, shareholders, partners, and such other persons as the 
Secretary may prescribe such information as is necessary to ensure the 
proper tax treatment of such transactions.
    (d) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 is amended by adding at the end the following new item:

                              ``Sec. 7874. Rules relating to inverted 
                                        corporate entities.''
    (e) Transition Rule for Certain Regulated Investment Companies and 
Unit Investment Trusts.--
            (1) In general.--Notwithstanding section 7874 of the 
        Internal Revenue Code of 1986 (as added by subsection (a)), a 
        regulated investment company, or other pooled fund or trust 
        specified by the Secretary of the Treasury, may elect to 
        recognize gain by reason of section 367(a) of such Code with 
        respect to a transaction under which a foreign incorporated 
        entity is treated as an inverted domestic corporation under 
        section 7874(a) of such Code by reason of an acquisition 
        completed after March 20, 2002, and before January 1, 2003.
            (2) Application of excise tax.--For purposes of section 
        4982 of such Code, gain described in paragraph (1) which would 
        otherwise be taken into account for calendar year 2002 shall be 
        taken into account for calendar year 2003.

SEC. 702. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED 
              CORPORATIONS.

    (a) In General.--Subtitle D is amended by adding at the end the 
following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

                              ``Sec. 5000A. Stock compensation of 
                                        insiders in inverted 
                                        corporations entities.

``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.

    ``(a) Imposition of Tax.--In the case of an individual who is a 
disqualified individual with respect to any inverted corporation, there 
is hereby imposed on such person a tax equal to 20 percent of the value 
(determined under subsection (b)) of the specified stock compensation 
held (directly or indirectly) by or for the benefit of such individual 
or a member of such individual's family (as defined in section 267) at 
any time during the 12-month period beginning on the date which is 6 
months before the inversion date.
    ``(b) Value.--For purposes of subsection (a)--
            ``(1) In general.--The value of specified stock 
        compensation shall be--
                    ``(A) in the case of a stock option (or other 
                similar right) or any stock appreciation right, the 
                fair value of such option or right, and
                    ``(B) in any other case, the fair market value of 
                such compensation.
            ``(2) Date for determining value.--The determination of 
        value shall be made--
                    ``(A) in the case of specified stock compensation 
                held on the inversion date, on such date,
                    ``(B) in the case of such compensation which is 
                canceled during the 6 months before the inversion date, 
                on the day before such cancellation, and
                    ``(C) in the case of such compensation which is 
                granted after the inversion date, on the date such 
                compensation is granted.
    ``(c) Tax To Apply Only If Shareholder Gain Recognized.--Subsection 
(a) shall apply to any disqualified individual with respect to an 
inverted corporation only if gain (if any) on any stock in such 
corporation is recognized in whole or part by any shareholder by reason 
of the acquisition referred to in section 7874(a)(2)(A) (determined by 
substituting `July 10, 2002' for `March 20, 2002') with respect to such 
corporation.
    ``(d) Exception Where Gain Recognized on Compensation.--Subsection 
(a) shall not apply to--
            ``(1) any stock option which is exercised on the inversion 
        date or during the 6-month period before such date and to the 
        stock acquired in such exercise, and
            ``(2) any specified stock compensation which is sold, 
        exchanged, or distributed during such period in a transaction 
        in which gain or loss is recognized in full.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Disqualified individual.--The term `disqualified 
        individual' means, with respect to a corporation, any 
        individual who, at any time during the 12-month period 
        beginning on the date which is 6 months before the inversion 
        date--
                    ``(A) is subject to the requirements of section 
                16(a) of the Securities Exchange Act of 1934 with 
                respect to such corporation or any member of the 
                expanded affiliated group which includes such 
                corporation, or
                    ``(B) would be subject to such requirements if such 
                corporation or member were an issuer of equity 
                securities referred to in such section.
            ``(2) Inverted corporation; inversion date.--
                    ``(A) Inverted corporation.--The term `inverted 
                corporation' means any corporation to which subsection 
                (a) or (b) of section 7874 applies determined--
                            ``(i) by substituting `July 10, 2002' for 
                        `March 20, 2002' in section 7874(a)(2)(A), and
                            ``(ii) without regard to subsection 
                        (b)(1)(A).
                Such term includes any predecessor or successor of such 
                a corporation.
                    ``(B) Inversion date.--The term `inversion date' 
                means, with respect to a corporation, the date on which 
                the corporation first becomes an inverted corporation.
            ``(3) Specified stock compensation.--
                    ``(A) In general.--The term `specified stock 
                compensation' means payment (or right to payment) 
                granted by the inverted corporation (or by any member 
                of the expanded affiliated group which includes such 
                corporation) to any person in connection with the 
                performance of services by a disqualified individual 
                for such corporation or member if the value of such 
payment or right is based on (or determined by reference to) the value 
(or change in value) of stock in such corporation (or any such member).
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) any option to which part II of 
                        subchapter D of chapter 1 applies, or
                            ``(ii) any payment or right to payment from 
                        a plan referred to in section 280G(b)(6).
            ``(4) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group (as defined in 
        section 1504(a) without regard to section 1504(b)(3)); except 
        that section 1504(a) shall be applied by substituting `more 
        than 50 percent' for `at least 80 percent' each place it 
        appears.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Cancellation of restriction.--The cancellation of a 
        restriction which by its terms will never lapse shall be 
        treated as a grant.
            ``(2) Payment or reimbursement of tax by corporation 
        treated as specified stock compensation.--Any payment of the 
        tax imposed by this section directly or indirectly by the 
        inverted corporation or by any member of the expanded 
        affiliated group which includes such corporation--
                    ``(A) shall be treated as specified stock 
                compensation, and
                    ``(B) shall not be allowed as a deduction under any 
                provision of chapter 1.
            ``(3) Certain restrictions ignored.--Whether there is 
        specified stock compensation, and the value thereof, shall be 
        determined without regard to any restriction other than a 
        restriction which by its terms will never lapse.
            ``(4) Property transfers.--Any transfer of property shall 
        be treated as a payment and any right to a transfer of property 
        shall be treated as a right to a payment.
            ``(5) Other administrative provisions.--For purposes of 
        subtitle F, any tax imposed by this section shall be treated as 
        a tax imposed by subtitle A.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Denial of Deduction.--
            (1) In general.--Paragraph (6) of section 275(a) is amended 
        by inserting ``48,'' after ``46,''.
            (2) $1,000,000 limit on deductible compensation reduced by 
        payment of excise tax on specified stock compensation.--
        Paragraph (4) of section 162(m) is amended by adding at the end 
        the following new subparagraph:
                    ``(G) Coordination with excise tax on specified 
                stock compensation.--The dollar limitation contained in 
                paragraph (1) with respect to any covered employee 
                shall be reduced (but not below zero) by the amount of 
                any payment (with respect to such employee) of the tax 
                imposed by section 5000A directly or indirectly by the 
                inverted corporation (as defined in such section) or by 
                any member of the expanded affiliated group (as defined 
                in such section) which includes such corporation.''
    (c) Conforming Amendments.--
            (1) The last sentence of section 3121(v)(2)(A) is amended 
        by inserting before the period ``or to any specified stock 
        compensation (as defined in section 5000A) on which tax is 
        imposed by section 5000A''.
            (2) The table of chapters for subtitle D is amended by 
        adding at the end the following new item:

                              ``Chapter 48. Stock compensation of 
                                        insiders in inverted 
                                        corporations.''
    (d) Effective Date.--The amendments made by this section shall take 
effect on July 11, 2002; except that periods before such date shall not 
be taken into account in applying the periods in subsections (a) and 
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added 
by this section.

SEC. 703. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.

    (a) In General.--Section 845(a) (relating to allocation in case of 
reinsurance agreement involving tax avoidance or evasion) is amended by 
striking ``source and character'' and inserting ``amount, source, or 
character''.
    (b) Effective Date.--The amendments made by this section shall 
apply to any risk reinsured after April 11, 2002.

SEC. 704. STUDY OF DEDUCTIBILITY OF INTEREST ON RELATED-PARTY DEBT.

    (a) In General.--The Secretary of the Treasury shall conduct a 
study of the effectiveness of the current rules limiting the 
deductibility for Federal income tax purposes of interest paid or 
incurred on related-party indebtedness, including a study of--
            (1) whether or not there is a need to modify the rules to 
        prevent United States subsidiaries of foreign corporations from 
        shifting income outside of the United States for Federal income 
        tax purposes, and
            (2) whether or not current United States income tax 
        treaties allow the inappropriate shifting of income outside of 
        the United States for Federal income tax purposes.
    (b) Report.--The Secretary of the Treasury shall, not later than 
March 1, 2003, submit to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate the 
results of the study under subsection (a), including such 
recommendations for legislation or changes in treaty policy as the 
Secretary determines appropriate.

            Subtitle B--Provisions Relating to Tax Shelters

    PART I--ECONOMIC SUBSTANCE DOCTRINE AND TAX SHELTER TRANSPARENCY

SEC. 711. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6707 the 
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
              INFORMATION WITH RETURN OR STATEMENT.

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), the term `large entity' means, with respect to any 
                taxable year, a person (other than a natural person) 
                with gross receipts in excess of $10,000,000 for the 
                taxable year in which the reportable transaction occurs 
                or the preceding taxable year. Rules similar to the 
                rules of paragraph (2) and subparagraphs (B), (C), and 
                (D) of paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) High net worth individual.--The term `high 
                net worth individual' means, with respect to a 
                reportable transaction, a natural person whose net 
                worth exceeds $2,000,000 immediately before the 
                transaction.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--The term `listed transaction' 
        means a reportable transaction which is the same as, or similar 
        to, a transaction specifically identified by the Secretary as a 
        tax avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in his sole 
        discretion, may establish a procedure to determine if a penalty 
        should be referred to the Commissioner or the head of such 
        Office for a determination under paragraph (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) a statement of the facts and circumstances 
                relating to the violation,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction, or
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under this title.''
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which is after the 
date of the enactment of this Act.

SEC. 712. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
              WITH RESPECT TO REPORTABLE TRANSACTIONS.

    ``(a) Imposition of Penalty.--If a taxpayer has a reportable 
transaction understatement for any taxable year, there shall be added 
to the tax an amount equal to 20 percent of the amount of such 
understatement.
    ``(b) Reportable Transaction Understatement.--For purposes of this 
section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase (if any) 
                        in taxable income which results from a 
                        difference between the proper tax treatment of 
                        an item to which this section applies and the 
                        taxpayer's treatment of such item (as shown on 
                        the taxpayer's return of tax), and
                            ``(ii) the highest rate of tax imposed by 
                        section 1 (section 11 in the case of a taxpayer 
                        which is a corporation), and
                    ``(B) the amount of the decrease (if any) in the 
                aggregate amount of credits determined under subtitle A 
                which results from a difference between the taxpayer's 
                treatment of an item to which this section applies (as 
                shown on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the excess 
        of deductions allowed for the taxable year over gross income 
        for such year, and any reduction in the amount of capital 
        losses which would (without regard to section 1211) be allowed 
        for such year, shall be treated as an increase in taxable 
        income.
            ``(2) Items to which section applies.--This section shall 
        apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other than a 
                listed transaction) if a significant purpose of such 
                transaction is the avoidance or evasion of Federal 
                income tax.
    ``(c) Higher Penalties for Nondisclosed Listed and Other Avoidance 
Transactions.--If the requirement of section 6664(d)(2)(A) is not met 
with respect to any portion of any reportable transaction 
understatement, then subsection (a) shall be applied by substituting--
            ``(1) `30 percent' for `20 percent' if such understatement 
        is attributable to a listed transaction, and
            ``(2) `25 percent' for `20 percent' in the case of any 
        other understatement.
    ``(d) Definitions of Reportable and Listed Transactions.--For 
purposes of this section, the terms `reportable transaction' and 
`listed transaction' have the respective meanings given to such terms 
by section 6707A(c).
    ``(e) Special Rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as defined 
        in section 6662(d)(2))--
                    ``(A) the amount of such understatement (determined 
                without regard to this paragraph) shall be increased by 
                the aggregate amount of reportable transaction 
                understatements for purposes of determining whether 
                such understatement is a substantial understatement 
                under section 6662(d)(1), but
                    ``(B) the addition to tax under section 6662(a) 
                shall apply only to the excess of the amount of the 
                substantial understatement (if any) after the 
                application of subparagraph (A) over the aggregate 
                amount of reportable transaction understatements.
            ``(2) Coordination with fraud penalty.--
                    ``(A) In general.--References to an underpayment in 
                section 6663 shall be treated as including references 
                to a reportable transaction understatement.
                    ``(B) No double penalty.--This section shall not 
                apply to any portion of an understatement on which a 
                penalty is imposed under section 6663.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any tax treatment included 
        with an amendment or supplement to a return of tax be taken 
        into account in determining the amount of any reportable 
        transaction understatement if the amendment or supplement is 
        filed after the earlier of the date the taxpayer is first 
        contacted by the Secretary regarding the examination of the 
return or such other date as is specified by the Secretary.''
    (b) Determination of Other Understatements.--Subparagraph (A) of 
section 6662(d)(2) is amended by adding at the end the following flush 
sentence:
                ``The excess under the preceding sentence shall be 
                determined without regard to items to which section 
                6662A applies.''
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding at the 
        end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed under 
        section 6662A with respect to any portion of a reportable 
        transaction understatement if it is shown that there was a 
        reasonable cause for such portion and that the taxpayer acted 
        in good faith with respect to such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply to any 
        reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,
                    ``(B) there is or was substantial authority for 
                such treatment, and
                    ``(C) the taxpayer reasonably believed that such 
                treatment was more likely than not the proper 
                treatment.
        A taxpayer failing to adequately disclose in accordance with 
        section 6011 shall be treated as meeting the requirements of 
        subparagraph (A) if the penalty for such failure was rescinded 
        under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For purposes of 
        paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be treated as 
                having a reasonable belief with respect to the tax 
                treatment of an item only if such belief--
                            ``(i) is based on the facts and law that 
                        exist at the time the return of tax which 
                        includes such tax treatment is filed, and
                            ``(ii) relates solely to the taxpayer's 
                        chances of success on the merits of such 
                        treatment and does not take into account the 
                        possibility that a return will not be audited, 
                        such treatment will not be raised on audit, or 
                        such treatment will be resolved through 
                        settlement if it is raised.
                    ``(B) Certain opinions may not be relied upon.--
                            ``(i) In general.--An opinion of a tax 
                        advisor may not be relied upon to establish the 
                        reasonable belief of a taxpayer if--
                                    ``(I) the tax advisor is described 
                                in clause (ii), or
                                    ``(II) the opinion is described in 
                                clause (iii).
                            ``(ii) Disqualified tax advisors.--A tax 
                        advisor is described in this clause if the tax 
                        advisor--
                                    ``(I) is a material advisor (within 
                                the meaning of section 6111(b)(1)) who 
                                participates in the organization, 
                                management, promotion, or sale of the 
                                transaction or is related (within the 
                                meaning of section 267 or 707) to any 
                                person who so participates,
                                    ``(II) is compensated directly or 
                                indirectly by a material advisor with 
                                respect to the transaction,
                                    ``(III) has a fee arrangement with 
                                respect to the transaction which is 
                                contingent on all or part of the 
                                intended tax benefits from the 
                                transaction being sustained, or
                                    ``(IV) as determined under 
                                regulations prescribed by the 
                                Secretary, has a continuing financial 
                                interest with respect to the 
                                transaction.
                            ``(iii) Disqualified opinions.--For 
                        purposes of clause (i), an opinion is 
                        disqualified if the opinion--
                                    ``(I) is based on unreasonable 
                                factual or legal assumptions (including 
                                assumptions as to future events),
                                    ``(II) unreasonably relies on 
                                representations, statements, findings, 
                                or agreements of the taxpayer or any 
                                other person,
                                    ``(III) does not identify and 
                                consider all relevant facts, or
                                    ``(IV) fails to meet any other 
                                requirement as the Secretary may 
                                prescribe.''
            (2) Conforming amendment.--The heading for subsection (c) 
        of section 6664 is amended by inserting ``for Underpayments'' 
        after ``Exception''.
    (d) Conforming Amendments.--
            (1) Subparagraph (C) of section 461(i)(3) is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (2) Paragraph (3) of section 1274(b) is amended--
                    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Tax shelter.--For purposes of subparagraph 
                (B), the term `tax shelter' means--
                            ``(i) a partnership or other entity,
                            ``(ii) any investment plan or arrangement, 
                        or
                            ``(iii) any other plan or arrangement,
                if a significant purpose of such partnership, entity, 
                plan, or arrangement is the avoidance or evasion of 
                Federal income tax.''
            (3) Section 6662(d)(2) is amended by striking subparagraphs 
        (C) and (D).
            (4) Section 6664(c)(1) is amended by striking ``part'' and 
        inserting ``section 6662 or 6663''.
            (5) Subsection (b) of section 7525 is amended by striking 
        ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (6)(A) The heading for section 6662 is amended to read as 
        follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''

            (B) The table of sections for part II of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662 and inserting the following new items:

                              ``Sec. 6662. Imposition of accuracy-
                                        related penalty on 
                                        underpayments.
                              ``Sec. 6662A. Imposition of accuracy-
                                        related penalty on 
                                        understatements with respect to 
                                        reportable transactions.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 713. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:
                    ``(B) Special rule for corporations.--In the case 
                of a corporation other than an S corporation or a 
                personal holding company (as defined in section 542), 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax required to be 
                        shown on the return for the taxable year (or, 
                        if greater, $10,000), or
                            ``(ii) $10,000,000.''
    (b) Reduction for Understatement of Taxpayer Due to Position of 
Taxpayer or Disclosed Item.--
            (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
        substantial authority) is amended to read as follows:
                            ``(i) the tax treatment of any item by the 
                        taxpayer if the taxpayer had reasonable belief 
                        that the tax treatment was more likely than not 
                        the proper treatment, or''.
            (2) Conforming amendment.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--For purposes of this subsection, 
        section 6664(d)(2), and section 6694(a)(1), the Secretary may 
        prescribe a list of positions for which the Secretary believes 
        there is not substantial authority or there is no reasonable 
        belief that the tax treatment is more likely than not the 
        proper tax treatment. Such list (and any revisions thereof) 
        shall be published in the Federal Register or the Internal 
        Revenue Bulletin.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 714. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not to apply 
to communications regarding corporate tax shelters) is amended to read 
as follows:
    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--
            ``(1) between a federally authorized tax practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, agent, or 
                representative of the person, or
                    ``(C) any other person holding a capital or profits 
                interest in the person, and
            ``(2) in connection with the promotion of the direct or 
        indirect participation of the person in any tax shelter (as 
        defined in section 1274(b)(3)(C)).''
    (b) Effective Date.--The amendment made by this section shall apply 
to communications made on or after the date of the enactment of this 
Act.

           PART II--PROMOTER AND PREPARER RELATED PROVISIONS

       Subpart A--Provisions Relating to Reportable Transactions

SEC. 721. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    ``(a) In General.--Each material advisor with respect to any 
reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--
            ``(1) information identifying and describing the 
        transaction,
            ``(2) information describing any potential tax benefits 
        expected to result from the transaction, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date specified by the 
Secretary.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Material advisor.--
                    ``(A) In general.--The term `material advisor' 
                means any person--
                            ``(i) who provides any material aid, 
                        assistance, or advice with respect to 
                        organizing, promoting, selling, implementing, 
                        or carrying out any reportable transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such advice or assistance.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6111. Disclosure of reportable 
                                        transactions.''
            (2)(A) So much of section 6112 as precedes subsection (c) 
        thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP 
              LISTS OF ADVISEES.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any reportable transaction (as defined in section 
6707A(c)) shall maintain, in such manner as the Secretary may by 
regulations prescribe, a list--
            ``(1) identifying each person with respect to whom such 
        advisor acted as such a material advisor with respect to such 
        transaction, and
            ``(2) containing such other information as the Secretary 
        may by regulations require.
This section shall apply without regard to whether a material advisor 
is required to file a return under section 6111 with regard to such 
transaction.''
            (B) Section 6112 is amended by redesignating subsection (c) 
        as subsection (b).
            (C) Section 6112(b), as redesignated by subparagraph (B), 
        is amended--
                    (i) by inserting ``written'' before ``request'' in 
                paragraph (1)(A), and
                    (ii) by striking ``shall prescribe'' in paragraph 
                (2) and inserting ``may prescribe''.
            (D) The item relating to section 6112 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6112. Material advisors of 
                                        reportable transactions must 
                                        keep lists of advisees.''
            (3)(A) The heading for section 6708 is amended to read as 
        follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO 
              REPORTABLE TRANSACTIONS.''

            (B) The item relating to section 6708 in the table of 
        sections for part I of subchapter B of chapter 68 is amended to 
        read as follows:

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions with respect to which material aid, assistance, 
or advice referred to in section 6111(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 (as added by this section) is provided after the 
date of the enactment of this Act.

SEC. 722. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

    (a) In General.--Section 6707 (relating to failure to furnish 
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
              TRANSACTIONS.

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the listed 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Reportable and Listed Transactions.--The terms `reportable 
transaction' and `listed transaction' have the respective meanings 
given to such terms by section 6707A(c).
    ``(d) Rescission Authority.--The provisions of section 6707A(d) 
(relating to authority of Commissioner to rescind penalty) shall apply 
to any penalty imposed under this section.''
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 is amended 
by striking ``tax shelters'' and inserting ``reportable transactions''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns the due date for which is after the date of the 
enactment of this Act.

SEC. 723. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

    (a) In General.--Subsection (a) of section 6708 is amended to read 
as follows:
    ``(a) Imposition of Penalty.--
            ``(1) In general.--If any person who is required to 
        maintain a list under section 6112(a) fails to make such list 
available to the Secretary in accordance with section 6112(b)(1)(A) 
within 20 business days after the date of the Secretary's request, such 
person shall pay a penalty of $10,000 for each day of such failure 
after such 20th day.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed by paragraph (1) with respect to the failure on any day 
        if such failure is due to reasonable cause.''
    (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 724. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by redesignating 
subsection (c) as subsection (d) and by striking subsections (a) and 
(b) and inserting the following new subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the name of 
the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.
    ``(b) Adjudication and Decree.--In any action under subsection (a), 
if the court finds--
            ``(1) that the person has engaged in any specified conduct, 
        and
            ``(2) that injunctive relief is appropriate to prevent 
        recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in 
any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the term 
`specified conduct' means any action, or failure to take action, 
subject to penalty under section 6700, 6701, 6707, or 6708.''
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read as 
        follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX 
              SHELTERS AND REPORTABLE TRANSACTIONS.''

            (2) The table of sections for subchapter A of chapter 67 is 
        amended by striking the item relating to section 7408 and 
        inserting the following new item:

        ``Sec. 7408. Actions to enjoin specified conduct related to tax 
                            shelters and reportable transactions.''
    (c) Effective Date.--The amendment made by this section shall take 
effect on the day after the date of the enactment of this Act.

           Subpart B--Other Promoter and Preparer Provisions

SEC. 731. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

    (a) Standards Conformed to Taxpayer Standards.--Section 6694(a) 
(relating to understatements due to unrealistic positions) is amended--
            (1) by striking ``realistic possibility of being sustained 
        on its merits'' in paragraph (1) and inserting ``reasonable 
        belief that the tax treatment in such position was more likely 
        than not the proper treatment'',
            (2) by striking ``or was frivolous'' in paragraph (3) and 
        inserting ``or there was no reasonable basis for the tax 
        treatment of such position'', and
            (3) by striking ``Unrealistic'' in the heading and 
        inserting ``Improper''.
    (b) Amount of Penalty.--Section 6694 is amended--
            (1) by striking ``$250'' in subsection (a) and inserting 
        ``$1,000'', and
            (2) by striking ``$1,000'' in subsection (b) and inserting 
        ``$5,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to documents prepared after the date of the enactment of this 
Act.

SEC. 732. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $5,000.
                            ``(ii) Reasonable cause exception.--No 
                        penalty shall be imposed under subparagraph (A) 
                        with respect to any violation if--
                                    ``(I) such violation was due to 
                                reasonable cause, and
                                    ``(II) the amount of the 
                                transaction or the balance in the 
                                account at the time of the transaction 
                                was properly reported.
                    ``(C) Willful violations.--In the case of any 
                person willfully violating, or willfully causing any 
                violation of, any provision of section 5314--
                            ``(i) the maximum penalty under 
                        subparagraph (B)(i) shall be increased to the 
                        greater of--
                                    ``(I) $25,000, or
                                    ``(II) the amount (not exceeding 
                                $100,000) determined under subparagraph 
                                (D), and
                            ``(ii) subparagraph (B)(ii) shall not 
                        apply.
                    ``(D) Amount.--The amount determined under this 
                subparagraph is--
                            ``(i) in the case of a violation involving 
                        a transaction, the amount of the transaction, 
                        or
                            ``(ii) in the case of a violation involving 
                        a failure to report the existence of an account 
                        or any identifying information required to be 
                        provided with respect to an account, the 
                        balance in the account at the time of the 
                        violation.''
    (b) Effective Date.--The amendment made by this section shall apply 
to violations occurring after the date of the enactment of this Act.

SEC. 733. FRIVOLOUS TAX SUBMISSIONS.

    (a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

    ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return of a 
        tax imposed by this title but which--
                    ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                    ``(B) contains information that on its face 
                indicates that the self-assessment is substantially 
                incorrect; and
            ``(2) the conduct referred to in paragraph (1)--
                    ``(A) is based on a position which the Secretary 
                has identified as frivolous under subsection (c), or
                    ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
    ``(b) Civil Penalty for Specified Frivolous Submissions.--
            ``(1) Imposition of penalty.--Except as provided in 
        paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.
            ``(2) Specified frivolous submission.--For purposes of this 
        section--
                    ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                            ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                            ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                    ``(B) Specified submission.--The term `specified 
                submission' means--
                            ``(i) a request for a hearing under--
                                    ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                            ``(ii) an application under--
                                    ``(I) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments),
                                    ``(II) section 7122 (relating to 
                                compromises), or
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous for purposes of this 
subsection. The Secretary shall not include in such list any position 
that the Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
    ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''
    (b) Treatment of Frivolous Requests for Hearings Before Levy.--
            (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
    ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any 
other provision of this section, if the Secretary determines that any 
portion of a request for a hearing under this section or section 6320 
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further administrative or 
judicial review.''
            (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                    (A) by striking ``(A)'' and inserting ``(A)(i)'';
                    (B) by striking ``(B)'' and inserting ``(ii)'';
                    (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                    (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following:
                    ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''
            (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
    (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
            (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.
    (d) Treatment of Frivolous Applications for Offers-in-Compromise 
and Installment Agreements.--Section 7122 is amended by adding at the 
end the following new subsection:
    ``(e) Frivolous Submissions, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''
    (e) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

                              ``Sec. 6702. Frivolous tax submissions.''
    (f) Effective Date.--The amendments made by this section shall 
apply to submissions made and issues raised after the date on which the 
Secretary first prescribes a list under section 6702(c) of the Internal 
Revenue Code of 1986, as amended by subsection (a).

SEC. 734. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

    (a) Censure; Imposition of Penalty.--
            (1) In general.--Section 330(b) of title 31, United States 
        Code, is amended--
                    (A) by inserting ``, or censure,'' after 
                ``Department'', and
                    (B) by adding at the end the following new flush 
                sentence:
``The Secretary may impose a monetary penalty on any representative 
described in the preceding sentence. If the representative was acting 
on behalf of an employer or any firm or other entity in connection with 
the conduct giving rise to such penalty, the Secretary may impose a 
monetary penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such penalty shall not 
exceed the gross income derived (or to be derived) from the conduct 
giving rise to the penalty and may be in addition to, or in lieu of, 
any suspension, disbarment, or censure.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to actions taken after the date of the enactment of 
        this Act.
    (b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is 
amended by adding at the end the following new subsection:
    ``(d) Nothing in this section or in any other provision of law 
shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.''

SEC. 735. PENALTY ON PROMOTERS OF TAX SHELTERS.

    (a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is 
amended by adding at the end the following new sentence: 
``Notwithstanding the first sentence, if an activity with respect to 
which a penalty imposed under this subsection involves a statement 
described in paragraph (2)(A), the amount of the penalty shall be equal 
to 50 percent of the gross income derived (or to be derived) from such 
activity by the person on which the penalty is imposed.''
    (b) Effective Date.--The amendment made by this section shall apply 
to activities after the date of the enactment of this Act.

                   Subtitle C--Executive Compensation

SEC. 741. 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. 742. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION FUNDED WITH 
              ASSETS LOCATED OUTSIDE THE UNITED STATES.

    (a) In General.--Section 83(c) (relating to special rules for 
property transferred in connection with performance of services) is 
amended by adding at the end the following new paragraph:
            ``(4) Foreign assets funding nonqualified deferred 
        compensation arrangements.--
                    ``(A) In general.--In determining whether there is 
                a transfer of property for purposes of subsection (a), 
                if assets are--
                            ``(i) designated or otherwise available for 
                        the payment of nonqualified deferred 
                        compensation, and
                            ``(ii) located outside the United States,
                such assets shall not be treated as subject to the 
                claims of creditors.
                    ``(B) Compensation for services performed in 
                foreign jurisdiction.--Subparagraph (A) 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.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as are necessary to carry out the 
                provisions of this paragraph, including regulations to 
                exempt arrangements from the application of this 
                paragraph if--
                            ``(i) the arrangement will not result in an 
                        improper deferral of United States tax, and
                            ``(ii) the assets involved in the 
                        arrangement will be readily accessible in any 
                        insolvency or bankruptcy proceeding.''
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts deferred after December 31, 2002.

SEC. 743. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF 
              CORPORATE INSIDERS.

    (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 FUNDED DEFERRED COMPENSATION 
              OF CORPORATE INSIDERS.

    ``(a) In General.--If an employer maintains a funded deferred 
compensation plan--
            ``(1) compensation of any disqualified individual which is 
        deferred under such funded deferred compensation plan shall be 
        included in the gross income of the disqualified individual or 
        beneficiary for the 1st taxable year in which there is no 
        substantial risk of forfeiture of the rights to such 
        compensation, and
            ``(2) the tax treatment of any amount made available under 
        the plan to a disqualified individual or beneficiary shall be 
        determined under section 72 (relating to annuities, etc.).
    ``(b) Funded Deferred Compensation Plan.--For purposes of this 
section--
            ``(1) In general.--The term `funded deferred compensation 
        plan' means any plan providing for the deferral of compensation 
        unless--
                    ``(A) the employee's rights to the compensation 
                deferred under the plan are no greater than the rights 
                of a general creditor of the employer, and
                    ``(B) all amounts set aside (directly or 
                indirectly) for purposes of paying the deferred 
                compensation, and all income attributable to such 
                amounts, remain (until made available to the 
                participant or other beneficiary) solely the property 
                of the employer (without being restricted to the 
                provision of benefits under the plan), and
                    ``(C) the amounts referred to in subparagraph (B) 
                are available to satisfy the claims of the employer's 
                general creditors at all times (not merely after 
                bankruptcy or insolvency).
        Such term shall not include a qualified employer plan.
            ``(2) Special rules.--
                    ``(A) Employee's rights.--A plan shall be treated 
                as failing to meet the requirements of paragraph (1)(A) 
                unless--
                            ``(i) the compensation deferred under the 
                        plan is payable only upon separation from 
                        service, death, disability (within the meaning 
                        of section 1614(a)(3) of the Social Security 
                        Act (42 U.S.C. 1382c(a)(3))), or at a specified 
                        time (or pursuant to a fixed schedule), and
                            ``(ii) the plan does not permit the 
                        acceleration of the time such deferred 
                        compensation is payable by reason of any event.
                If the employer and employee agree to a modification of 
                the plan that accelerates the time for payment of any 
                deferred compensation, then all compensation previously 
                deferred under the plan shall be includible in gross 
                income for the taxable year during which such 
                modification takes effect and the taxpayer shall pay 
                interest at the underpayment rate on the underpayments 
                that would have occurred had the deferred compensation 
                been includible in gross income on the earliest date 
                that there is no substantial risk of forfeiture of the 
                rights to such compensation.
                    ``(B) Creditor's rights.--A plan shall be treated 
                as failing to meet the requirements of paragraph (1)(B) 
                with respect to amounts set aside in a trust unless--
                            ``(i) the employee has no beneficial 
                        interest in the trust,
                            ``(ii) assets in the trust are available to 
                        satisfy claims of general creditors at all 
                        times (not merely after bankruptcy or 
                        insolvency), and
                            ``(iii) there is no factor that would make 
                        it more difficult for general creditors to 
                        reach the assets in the trust than it would be 
                        if the trust assets were held directly by the 
                        employer in the United States.
                Except as provided in regulations prescribed by the 
                Secretary, such a factor shall include the location of 
                the trust outside the United States unless 
                substantially all of the services to which the 
                nonqualified deferred compensation relates are 
                performed outside the United States. Such regulations 
                may exempt any such trust if the trust will not result 
                in an improper deferral of United States tax, and the 
                assets involved in the trust will be readily accessible 
                in any insolvency or bankruptcy proceeding.
    ``(c) Disqualified Individual.--For purposes of this section, the 
term `disqualified individual' means, with respect to a corporation, 
any individual--
            ``(1) who is subject to the requirements of section 16(a) 
        of the Securities Exchange Act of 1934 with respect to such 
        corporation, or
            ``(2) who would be subject to such requirements if such 
        corporation were an issuer of equity securities referred to in 
        such section.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) 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 other plan of an organization exempt from 
                tax under subtitle A.
            ``(2) Plan includes arrangements, etc.--The term `plan' 
        includes any agreement or arrangement.
            ``(3) 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.
            ``(4) Treatment of earnings.--Except for purposes of 
        subsection (a)(1) and the last sentence of (b)(2)(A), 
        references to deferred compensation shall be treated as 
        including references to income attributable to such 
        compensation or such income.''
    (b) Clerical Amendment.--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 
                                        funded deferred compensation of 
                                        corporate insiders.''
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts deferred after December 31, 2002.

SEC. 744. 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, 2002.

                      Subtitle D--Other Provisions

SEC. 751. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 (relating to consolidated return 
regulations) is amended by adding at the end the following new 
sentence: ``In prescribing such regulations, the Secretary may 
prescribe rules applicable to corporations filing consolidated returns 
under section 1501 that are different from other provisions of this 
title that would apply if such corporations filed separate returns.''
    (b) Result Not Overturned.--Notwithstanding subsection (a), the 
Internal Revenue Code of 1986 shall be construed by treating Treasury 
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) 
as being inapplicable to the type of factual situation in 255 F.3d 1357 
(Fed. Cir. 2001).
    (c) Effective Date.--The provisions of this section shall apply to 
taxable years beginning before, on, or after the date of the enactment 
of this Act.

SEC. 752. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government in relation to the violation of any law or the 
        investigation or inquiry into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which the taxpayer 
        establishes constitutes restitution for damage or harm caused 
        by the violation of any law or the potential violation of any 
        law. This paragraph shall not apply to any amount paid or 
        incurred as reimbursement to the government for the costs of 
        any investigation or litigation.
            ``(3) Treatment of certain nongovernmental regulatory 
        entities.--For purposes of paragraph (1), amounts paid or 
        incurred to, or at the direction of, the following 
        nongovernmental entities shall be treated as amounts paid or 
        incurred to, or at the direction of, a government:
                    ``(A) Any nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)).
                    ``(B) To the extent provided in regulations, any 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.''
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after the date of the enactment of this 
Act, except that such amendment shall not apply to amounts paid or 
incurred under any binding order or agreement entered into on or before 
such date.
                                 <all>