[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1508 Introduced in House (IH)]






109th CONGRESS
  1st Session
                                H. R. 1508

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to facilitate automatic enrollment in 
                401(k) plans, and for related purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 6, 2005

 Mr. Emanuel (for himself, Mr. Cooper, Ms. Harman, Mr. Van Hollen, Ms. 
  Wasserman Schultz, and Mr. Becerra) introduced the following bill; 
which was referred to the Committee on Education and the Workforce, and 
  in addition to the Committee on Ways and Means, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
   Income Security Act of 1974 to facilitate automatic enrollment in 
                401(k) plans, and for related purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``401(k) Automatic Enrollment Act of 
2005''.

SEC. 2. AUTOMATIC ENROLLMENT ARRANGEMENTS.

    (a) In General.--Section 401(k) of such Code is amended by adding 
at the end the following new paragraph:
            ``(13) Automatic enrollment arrangements.--
                    ``(A) In general.--If the requirements of 
                subparagraphs (B) through (F) are met, a cash or 
                deferred arrangement shall not fail to be treated as 
                satisfying the requirements of paragraph (2)(A) merely 
                because elective deferrals (as defined in section 
                402(g)(3)) are contributed on behalf of eligible 
                employees to a trust under the plan of which such 
                arrangement is a part without an affirmative election 
                by the employee to make such contributions.
                    ``(B) Election out.--The requirements of this 
                subparagraph are met if the employee may elect to 
                receive any future amount of the contributions 
                described in subparagraph (A) directly in cash in lieu 
                of such contributions.
                    ``(C) Amount of contributions.--The requirements of 
                this subparagraph are met if the contributions 
                described in subparagraph (A) are made in an amount 
                equal to--
                            ``(i) in the case of an employee with 
                        respect to whom an election is in effect under 
                        subparagraph (B), zero,
                            ``(ii) in the case of an employee who makes 
                        an affirmative election regarding the specific 
                        amount of such contributions (expressed either 
                        as a percentage or as a dollar amount of 
                        compensation), such amount, and
                            ``(iii) in the case of any other employee, 
                        such percentage or dollar amount of 
                        compensation as is specified under the plan for 
                        purposes of this paragraph,
                provided that is subparagraphs (A) and (B) apply to 
                fewer than all eligible employees, the automatic 
                enrollment arrangement shall be treated as applying to 
                such employees and to the employees who are described 
                in clauses (i) and (ii).
                    ``(D) Investment of contributions.--The 
                requirements of this subparagraph are met if the 
                contributions described in subparagraph (A) are not 
                invested in qualifying employer securities (as defined 
                in section 4975(e)(8)) or qualifying employer real 
                property (as defined in section 407(d)(4) of the 
                Employee Retirement Income Security Act of 1974) unless 
                such investment is affirmatively elected by the 
                employee.
                    ``(E) Time of contributions.--The requirements of 
                this subparagraph are met if the contributions 
                described in subparagraph (A) with respect to any 
                employee begin not later than the date described in 
                section 410(a)(4) with respect to such employee.
                    ``(F) Notice.--The requirements of this 
                subparagraph are met if the employer provides notice, 
                as follows:
                            ``(i) In general.--The administrator of a 
                        plan which includes an automatic enrollment 
                        arrangement (determined without regard to this 
                        subparagraph) shall, within a reasonable period 
                        before the first day of each plan year, give to 
                        each employee to whom an automatic enrollment 
                        arrangement applies for such plan year notice 
                        of the employee's rights and obligations under 
                        the arrangement which--
                                    ``(I) is sufficiently accurate and 
                                comprehensive to apprise the employee 
                                of such rights and obligations, and
                                    ``(II) is written in a manner 
                                calculated to be understood by the 
                                average employee to whom the 
                                arrangement applies.
                            ``(ii) Requirements.-- A notice shall not 
                        be treated as meeting the requirements of 
                        clause (i) with respect to an employee unless--
                                    ``(I) the notice includes an 
                                explanation of the employee's right 
                                under the arrangement to elect not to 
                                have elective contributions made on the 
                                employee's behalf (or to elect to have 
                                such contributions made at a different 
                                percentage or rate than that specified 
                                as the automatic enrollment 
                                contribution percentage), including how 
                                and when such elections may be made,
                                    ``(II) the employee has a 
                                reasonable period of time, after 
                                receipt of the notice and before the 
                                first elective contribution is made on 
                                the employee's behalf pursuant to 
                                automatic enrollment, to make such 
                                election,
                                    ``(III) the notice describes any 
                                employer matching contributions or 
                                other employer contributions available 
                                under the arrangement, and
                                    ``(IV) the notice explains how 
                                contributions made under the 
                                arrangement will be invested in the 
                                absence of any investment election by 
                                the employee.
                    ``(G) Unwind distributions.--
                            ``(i) In general.--An automatic enrollment 
                        arrangement shall not fail to be treated as a 
                        qualified cash or deferred arrangement merely 
                        because the plan allows an employee to opt out 
                        retroactively to the beginning of the plan year 
                        and make an unwind distribution during such 
                        plan year if such employee is not eligible to 
                        make elective contributions to the plan during 
                        the remainder of the plan year after the date 
                        of such distribution. This clause shall not 
                        apply more than once with respect to any 
                        employee of an employer.
                            ``(ii) Tax treatment of distribution.--An 
                        unwind distribution shall be includible in the 
                        gross income of the employee. No tax shall be 
                        imposed under section 72(t) on any such 
                        distribution.
                            ``(iii) Unwind distribution defined.--For 
                        purposes of this subparagraph, the term `unwind 
                        distribution' means a distribution to a 
                        participant who is not a highly compensated 
                        employee (as defined in section 414(q)) of 
                        contributions described in subparagraph (A) 
                        (and earnings attributable thereto) from an 
                        automatic enrollment arrangement in which the 
                        account balance of the participant immediately 
                        before such distribution does not exceed the 
                        greater of--
                                    ``(I) $400, or
                                    ``(II) the amount of such 
                                contributions made in connection with 
                                not more than the first 4 payroll 
                                periods following the application of 
                                subparagraph (A) to the participant.
                            ``(iv) Employer matching contributions.--In 
                        the case of any unwind distribution, employer 
                        matching contributions shall be forfeited or 
                        subject to such other treatment as the 
                        Secretary may prescribe through regulations or 
                        other guidance.
                            ``(v) Unwound contributions not taken into 
                        account.--Contributions attributable to an 
                        unwind distribution shall not be taken into 
                        account for purposes of paragraph (3).
                    ``(H) Automatic or affirmatively elected increase 
                in contribution amounts.--An automatic enrollment 
                arrangement shall not fail to be treated as a qualified 
                cash or deferred arrangement merely because the plan--
                            ``(i) permits eligible employees to elect 
                        to have the percentage or dollar amount 
                        described in subparagraph (C)(iii) 
                        automatically increased from time to time in 
                        the future by a specified percentage or dollar 
                        amount of compensation based on such factors as 
                        increases in compensation, passage of time, or 
                        increases in years of service or participation, 
                        or
                            ``(ii) provides for one or more of the 
                        increases described in clause (i) to occur 
                        automatically unless the eligible employee 
                        elects otherwise,
                provided that, in the case of either clause (i) or 
                (ii), the employee may elect to stop such increases 
                with respect to any future contributions.
                    ``(I) Regulations and reporting.--The Secretary is 
                authorized to prescribe regulations or other 
                administrative guidance to carry out this paragraph, 
                including--
                            ``(i) simplified methods of reporting and 
                        otherwise implementing the unwind of tax 
                        consequences and plan qualification 
                        consequences in order to simplify those 
                        consequences for participants and plan 
                        sponsors, and
                            ``(ii) simplified methods for plan 
                        administrators to implement automatic 
                        enrollment arrangements and any provisions 
                        necessary to prevent abuse in connection with 
                        such arrangements..
                    ``(J) Automatic enrollment arrangement.--For 
                purposes of this paragraph, the term `automatic 
                enrollment arrangement' means an arrangement to which 
                subparagraph (A) applies.''.
    (b) Safe Harbor Automatic Enrollment Arrangements Under Simple 
Retirement Accounts.--
            (1) Clause (i) of section 408(p)(2)(A) of such Code is 
        amended by adding at the end the following new flush language:
                        ``but only if such arrangement is an automatic 
                        enrollment arrangement (as defined in section 
                        401(k)(13)) that meets the requirements of 
                        subclauses (I), (IV), and (V) of section 
                        401(k)(12)(G)(i) (applied in the case of such 
                        subclause (V) by substituting ``3 percent'' for 
                        ``minimum contribution percentage'' therein), 
                        ''.
            (2) Subsection (p) of section 408 of such Code (relating to 
        simple retirement accounts) is amended by adding at the end the 
        following new paragraph:
            ``(10) Safe harbor automatic enrollment arrangements.--
        Under regulations prescribed by the Secretary, rules similar to 
        the rules of section 401(k)(13) shall apply for purposes of 
        this subsection, provided that the Secretary may adapt such 
        rules as he determines to be necessary or advisable to take 
        into account the differences between the provisions of section 
        401(k) and this subsection.''.
    (c) Automatic Enrollment Arrangements Under 403(b) Plans.--
Subsection (b) of section 403 of such Code (relating to taxability of 
beneficiary under annuity purchased by section 501(c)(3) organization 
or public school) is amended by adding at the end the following new 
paragraph:
            ``(14) Automatic enrollment arrangements.--Under 
        regulations prescribed by the Secretary, rules similar to the 
        rules of section 401(k)(13) shall apply for purposes of this 
        subsection, provided that the Secretary may adapt such rules as 
        he determines to be necessary or advisable to take into account 
        the differences between the provisions of section 401(k) and 
        this subsection.''.
    (d) Automatic Enrollment Arrangements Under Section 457 Plans.--
Subsection (e) of section 457 of such Code is amended by adding at the 
end the following new paragraph:
            ``(19) Automatic enrollment arrangements.--Under 
        regulations prescribed by the Secretary, rules similar to the 
        rules of section 401(k)(13) shall apply for purposes of this 
        section, provided that the Secretary may adapt such rules as he 
        determines to be necessary or advisable to take into account 
        the differences between the provisions of section 401(k) and 
        this section.''.
    (e) 401(k) Plan Matching Safe Harbor With Automatic Enrollment.--
            (1) In general.--Clause (i) of section 401(k)(12)(B) of 
        such Code is amended to read as follows:
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if--
                                    ``(I) the arrangement is an 
                                automatic enrollment arrangement (as 
                                defined in paragraph (13)) which meets 
                                the requirements of subparagraph (G), 
                                and
                                    ``(II) 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 that such elective 
                                contributions do not exceed 6 percent 
                                of the employee's compensation.''.
            (2) In general.--Paragraph (12) of section 401(k) of such 
        Code (relating to alternative methods of meeting 
        nondiscrimination requirements) is amended by adding at the end 
        the following new subparagraph:
                    ``(G) Automatic enrollment.--
                            ``(i) In general.--An automatic enrollment 
                        arrangement meets the requirements of this 
                        subparagraph if--
                                    ``(I) elective contributions are 
                                made under the arrangement with respect 
                                to each eligible employee (other than 
                                employees with respect to whom an 
                                election is in effect under paragraph 
                                (13)(B)) for such year,
                                    ``(II) any election under 
                                subparagraph (B) or (C)(ii) of 
                                paragraph (13) remains in effect with 
                                respect to any employee for a period of 
                                3 years unless the plan provides for a 
                                shorter period or unless the employee 
                                makes a new election thereunder or has 
                                elected an automatic increase in the 
                                employee's contribution percentage,
                                    ``(III) 85 percent or more of 
                                eligible employees participated in the 
                                arrangement at any time during the 
                                previous plan year (unless the employer 
                                has reason to know that such time is 
                                not representative of participation 
                                during such year), and
                                    ``(IV) the plan specifies a 
                                percentage for purposes of paragraph 
                                (13)(C)(iii) which is equal to the 
                                minimum contribution percentage, which 
                                shall not apply to any employee 
                                described in clause (i) or (ii) of 
                                paragraph (13)(C), and which may be 
                                further increased in accordance with 
                                paragraph (13)(H)(i).
                            ``(ii) Minimum contribution percentage.--
                        For purposes of this subparagraph, the term 
                        `minimum contribution percentage' means, with 
                        respect to the first plan year for which an 
                        employee was eligible to participate, a 
                        percentage of not less than 3 percent, and with 
                        respect to any subsequent plan year, a 
                        percentage equal to such percentage for the 
                        first plan year increased by either 1 percent 
                        or 2 percent for each subsequent plan year (as 
                        the plan may provide), except as provided in 
                        clauses (iii) and (iv).
                            ``(iii) 9 percent limitation.--The minimum 
                        contribution percentage shall not exceed 9 
                        percent for any plan year.
                            ``(iv) Limitation based on increase in 
                        employee compensation.--With respect to any 
                        plan year beginning after the first plan year 
                        for which such employee was eligible to 
                        participate in the plan, the minimum 
                        contribution percentage with respect to such 
                        employee shall not exceed the sum of the 
                        minimum contribution percentage with respect to 
                        such employee for the prior plan year, plus the 
                        percentage increase in the employee's 
                        compensation with respect to the current plan 
                        year (as determined under the plan and 
                        consistent with such requirements as the 
                        Secretary may provide).
                            ``(v) Regulations.--The Secretary may 
                        provide for alternative or simplified methods 
                        of compliance with any provision of this 
                        subparagraph as the Secretary determines to be 
                        necessary or advisable to simplify plan 
                        administration or prevent abuse, including 
                        simplified methods of administering automatic 
                        enrollment and automatic contribution 
                        percentage increases for employees who are not 
                        newly eligible employees.''.
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to plan 
        years beginning after December 31, 2005.
            (2) Qualifying employer securities and real property.--In 
        the case of a plan that, as of January 1, 2005, uses an 
        automatic enrollment arrangement that does not comply with 
        subparagraph (D) of section 401(k)(13) of the Internal Revenue 
        Code of 1986, as amended by this section, such subparagraph 
        shall apply to plan years beginning after December 31, 2006.
            (3) Alternative methods of meeting nondiscrimination 
        requirements.--In the case of a plan to which section 
        401(k)(12)(B) or section 408(p)(2) (other than subparagraph (B) 
        thereof) of the Internal Revenue Code of 1986 applies on 
        January 1, 2005, the amendments made by this section shall 
        apply to plan years beginning after December 31, 2007.

SEC. 3. PREEMPTION OF STATE LAWS PRECLUDING AUTOMATIC ENROLLMENT OR 
              AUTOMATIC ROLLOVERS.

    (a) In General.--Section 514 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1144(b)) is amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following new 
        subsection:
    ``(d) The provisions of this title shall supersede any and all 
State laws insofar as they may preclude, or have the effect of 
precluding--
            ``(1) the establishment or operation of, or making of 
        contributions to, a pension plan under an automatic enrollment 
        arrangement (as defined in section 401(k)(13) of the Internal 
        Revenue Code of 1986), or
            ``(2) a distribution described in section 401(a)(31)(B) of 
        such Code or the establishment or operation of an individual 
        retirement plan (as defined in section 7701(a)(37) of the 
        Internal Revenue Code of 1986) allowing receipt of such 
        distributions.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to actions (described in paragraph (1) or (2) of 
section 514(d) of the Employee Retirement Income Security Act of 1974 
(added by this section)) taken before, on, or after the date of the 
enactment of this Act.

SEC. 4. LIMITATION OF FIDUCIARY RESPONSIBILITIES WITH RESPECT TO 
              AUTOMATIC ROLLOVER.

    (a) In General.--Section 404(c)(3) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1104(c)(3)) is amended to read 
as follows:
    ``(3) In the case of a pension plan which makes a transfer to an 
individual retirement account or annuity (described in section 408 of 
the Internal Revenue Code of 1986) of a designated trustee or issuer 
under section 401(a)(31)(B) of such Code--
            ``(A) the duties described in subsections (a) and (b) shall 
        not apply to the assets in the account or annuity except for 
        the initial investment of such assets in the account or 
        annuity, and
            ``(B) a fiduciary of the plan shall have no responsibility 
        for any losses attributable to such initial investment (or any 
        other investment in the account or annuity) which occur after--
                    ``(i) the earliest of--
                            ``(I) an affirmative election by the owner 
                        of the account or annuity among investment 
                        options,
                            ``(II) a rollover of all or a portion of 
                        the amount to another individual retirement 
                        account or annuity or to an employer plan or 
                        simple retirement account; or
                            ``(III) 1 year after the transfer is made, 
                        or
                    ``(ii) a transfer which is made in a manner 
                consistent with guidance provided by the Secretary.''
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to transactions occurring on or after January 1, 2006.

SEC. 5. AUTOMATIC OR DEFAULT INVESTMENTS.

    (a) In General.--Section 404 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end 
the following new subsection:
    ``(e)(1) A fiduciary with respect to an individual account plan 
shall be deemed to have satisfied the requirements of subsection 
(a)(1)(B) with respect to the plan, in connection with any qualifying 
automatic investment under the plan, to the extent those requirements 
pertain to asset allocation as between equity instruments or 
investments and debt instruments or investments and to such further 
extent as may be specified by the Secretary in administrative guidance 
of general applicability.
    ``(2) For purposes of this subsection, the term `qualifying 
automatic investment' means, in connection with a participant in a 
plan, an investment of assets constituting some or all of the 
participant's accrued benefit under the plan in a form of investment 
specified by the plan, in any case in which--
            ``(A) such assets--
                    ``(i) are attributable to employer contributions 
                (and earnings thereon) made pursuant to an automatic 
                enrollment arrangement (as defined in section 
                401(k)(13) of the Internal Revenue Code of 1986),
                    ``(ii) are attributable to distributions described 
                in section 401(a)(31)(B) of such Code, or
                    ``(iii) have been identified by the Secretary as 
                appropriate for automatic investment,
            ``(B) the plan provides for investment of such assets in 
        such form of investment unless, in lieu thereof, alternative 
        forms of investments, which are also made available to the 
        participant under the terms of the plan, are selected by the 
        participant,
            ``(C) the plan provides, under such form of investment, for 
        investment of such assets under constraints designed to--
                    ``(i) limit the risk associated with the investment 
                portfolio to a reasonable level of risk while seeking 
                to maximize return consistent with that level of risk, 
                or
                    ``(ii) minimize risk while seeking a reasonable 
                expected return, and
            ``(D) the expenses associated with the investment meet the 
        standards of paragraph (3).
    ``(3)(A) The expenses associated with an investment meet the 
standards of this paragraph if they do not exceed reasonable expenses. 
Such expenses shall not be treated as exceeding reasonable expenses 
solely because the expenses in any year (excluding expenses for 
acquisition of the investment) exceed the investment returns for that 
year and cause a reduction in principal.
    ``(B) For purposes of subparagraph (A), the term `expense' means 
any fee, charge, commission, load, or other cost or expense associated 
with the investment (including cost of acquisition, establishment, 
maintenance, surrender, or termination of the investment and any other 
cost of managing or administering the investment) to the extent borne 
by participants.
    ``(C) The expenses associated with an individual retirement plan 
(as defined in section 7701(a)(37) of the Internal Revenue Code of 
1986) shall not be treated as meeting the standards of this paragraph 
if such expenses exceed the expenses normally charged by the trustee or 
custodian of a comparable individual retirement plan established to 
receive rollover contributions (as defined in section 408(d)(3) of such 
Code) which are not distributions described in section 401(a)(31)(B) of 
such Code.
    ``(4) The requirements of paragraph (2)(C) shall be treated as 
satisfied with respect to investments provided for by a plan to the 
extent such investments consist of--
            ``(A) a balanced portfolio comprised of both equity 
        investments and either stable value or fixed income investments 
        provided by a financial institution (or similar financial 
        entity) that is regulated by the United States or a State in 
        any case in which--
                    ``(i) the equity investments are broad-based index 
                funds or, to the extent permitted by the Secretary 
                under regulations, guidelines, or other administrative 
                guidance, actively managed funds that are broadly 
                diversified so as to minimize the risk of large losses, 
                and
                    ``(ii) the stable value or fixed income 
                investments--
                            ``(I) are designed to comprise at least 20 
                        percent of the total (measured in terms of fair 
                        market value), and
                            ``(II) are either diversified to minimize 
                        the risk of large losses or are obligations 
                        (which may include inflation-protected 
                        obligations) issued by the United States, or
            ``(B) stable value investments.
For purposes of this paragraph, the term `stable value investments' 
means investments provided by a financial institution regulated by the 
United States or a State that are designed to preserve principal and 
provide a reasonable rate of return, whether or not guaranteed, which 
may include investments designed to maintain a stable dollar value 
equal to the original value of the investment. The Secretary may 
prescribe regulations or other administrative guidance prescribing the 
manner in which the requirements of paragraph (A)(i) may be applied 
taking into account classes of investment determined on the basis of 
investment in large, intermediate, or small capitalization funds, funds 
of varying styles (such as growth funds or value funds), or funds 
consisting of, or not consisting of, foreign or international 
securities.
    ``(5) An investment otherwise described in the preceding provisions 
of this subsection shall not be treated as failing to be a qualifying 
automatic investment solely by reason of:
            ``(A) the availability to the participant under the terms 
        of the plan of alternative forms of investment which meet the 
        requirements of subsection (c)(1) or are managed by an 
        independent investment manager;
            ``(B) the extent to which provisions of the plan are or are 
        not directed toward limiting the risk of loss of principal 
        under such investment or promoting long-term capital 
        appreciation;
            ``(C) any change or variation in the percentages of equity 
        and stable value investments included in the investment 
        portfolio or other aspects of the constituent investments to 
        the extent such change or variation is based on:
                    ``(i) automatic rebalancing or variable investment 
                returns prior to periodic rebalancing,
                    ``(ii) the participant's age, or
                    ``(iii) other factors relating to the participant's 
                situation, such as years until retirement, other 
                retirement plan coverage, financial situation, or 
                investment preferences expressed to the plan by the 
                participant; or
            ``(D) the extent to which such investment consists of 
        interests in real estate or real-estate-based investments, if 
        such interests are broadly diversified and do not comprise more 
        than 10 percent of the equity portion of the total investment 
        of plan assets.
    ``(6)(A) Notwithstanding paragraph (1), the requirements of 
subsection (a)(1)(C) shall not be treated as satisfied in connection 
with any qualifying automatic investment unless such investment (other 
than the stable value portion thereof) is designed so that no more than 
0.5 percent of the total fair market value of the assets invested are 
invested in securities issued by, or interests in the property of, any 
single person.
    ``(B) For purposes of subparagraph (A), any person and all 
affiliates thereof shall be treated as a single person. A corporation 
is an affiliate of a person if such corporation is a member of any 
controlled group of corporations (as defined in section 1563(a) of the 
Internal Revenue Code of 1986, except that `applicable percentage' 
shall be substituted for `80 percent' wherever the latter percentage 
appears in such section) of which person is a member. For purposes of 
the preceding sentence, the term `applicable percentage' means 50 
percent, or such lower percentage as the Secretary may prescribe by 
regulation. A person other than a corporation shall be treated as an 
affiliate of any other person to the extent provided in regulations of 
the Secretary. Regulations under this subparagraph shall be prescribed 
only after consultation and coordination with the Secretary of the 
Treasury.
    ``(7) The Secretary shall issue regulations or other administrative 
guidance specifying the manner in which investments under independent 
professional investment management pursuant to sections 402(c)(3) and 
403(a)(2) and other qualifying automatic investments may serve as the 
default investment arrangement with respect to some or all plan assets 
without adversely affecting plan compliance with this part, as governed 
by subsection (c)(1) with respect to assets over which participants or 
beneficiaries exercise control.
    ``(8)(A) The Secretary may issue regulations or other 
administrative guidance for compliance with the requirements of this 
subsection which are consistent with the provisions of this subsection. 
Compliance with such regulations or guidance shall be deemed to be 
compliance with the requirements of this subsection. Such regulations 
or guidance may express compliance in terms of percentages of assets 
under management, flat dollar amounts, or other factors.
    ``(B) The regulations issued pursuant to subparagraph (A) may 
include procedures for granting conditional or unconditional exemptions 
of investments, classes of investments, investment managers, or classes 
of investment managers from all or part of the requirements of this 
subsection. Such procedures shall be similar to the procedures 
applicable under section 408(a) and subject to the same standards and 
limitations as apply under section 408(a). Such exemptions may include, 
in the case of qualifying automatic investments, relief from, or 
simplified methods of compliance with, the requirements of 
subparagraphs (B) and (C) of subsection (a)(1) and the provisions of 
subsection (c).''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to investments made on or after January 1, 2005 
(irrespective of the extent to which the Secretary of Labor has issued 
regulations, guidelines, or other administrative guidance pursuant to 
section 404(e) of the Employee Retirement Income Security Act of 1974 
(added by this section)).

SEC. 6. MODIFICATION OF NOTICE REQUIREMENTS APPLICABLE TO ALTERNATIVE 
              METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS FOR 
              MATCHING CONTRIBUTIONS.

    (a) Semi-Annual Notice Requirement.--Subparagraph (D) of section 
401(k)(12) of the Internal Revenue Code of 1986 (relating to notice 
requirement) is amended by striking ``year,'' and inserting ``year and 
during the 6th or 7th month of such year,''.
    (b) Notice not Required for Nonelective Contributions.--Clause (ii) 
of section 401(k)(12)(A) of such Code (relating to general rule for 
alternative methods of meeting nondiscrimination requirements) is 
amended by inserting ``in the case of matching contributions described 
in subparagraph (B),'' before ``meets''.
    (c) Technical Correction.--Section 401(k)(12)(D) of such Code is 
amended by striking ``appraise'' and inserting ``apprise''.
    (d) Effective Date.--
            (1) Notice.--The amendments made by subsection (a) shall 
        apply to plan years beginning after December 31, 2006.
            (2) Nonelective contributions.--The amendments made by 
        subsection (b) shall apply to plan years beginning after 
        December 31, 2005.

SEC. 7. REPORT ON LOW-COST INDIVIDUAL RETIREMENT PLANS.

    After public comment and appropriate consultation with private 
sector representatives, the Secretary of the Treasury and the Secretary 
of Labor shall, not later than December 31, 2005, jointly submit to 
Congress a report containing their findings and recommendations 
regarding the availability of, and means of promoting and encouraging 
the provision of, low-cost individual retirement plans (as defined in 
section 7701(a)(37) of the Internal Revenue Code of 1986), or similar 
retirement savings and investment vehicles, which are suitable for the 
preservation and maintenance of smaller retirement benefits or accounts 
on a widespread and portable basis and for large numbers of moderate- 
and lower-income individuals.
                                 <all>