[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1960 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 1960
To amend the Internal Revenue Code of 1986 to expand pension coverage
and savings opportunities and to provide other pension reforms.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 28, 2005
Mr. Portman introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on
Education and the Workforce, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as
fall within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to expand pension coverage
and savings opportunities and to provide other pension reforms.
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
Preservation and Savings Expansion Act of 2005''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--MAKING TODAY'S RETIREMENT SAVINGS OPPORTUNITIES PERMANENT
Sec. 101. Pensions and individual retirement arrangement provisions of
Economic Growth and Tax Relief
Reconciliation Act of 2001 made permanent.
Sec. 102. Saver's credit made permanent.
TITLE II--BUILDING AND PRESERVING RETIREMENT ASSETS AND ENHANCING
PORTABILITY
Sec. 201. Retirement savings account.
Sec. 202. Expansion of Saver's credit.
Sec. 203. Faster vesting of employer nonelective contributions.
Sec. 204. Allow rollovers by nonspouse beneficiaries of certain
retirement plan distributions.
Sec. 205. Enhancing portability of after-tax amounts.
Sec. 206. IRA eligibility for the disabled.
Sec. 207. Exclusion of certain qualified annuity payments and
facilitation of such payments and
rollovers.
Sec. 208. Exclusion of certain nonqualified annuity payments.
Sec. 209. Increasing participation through automatic contribution
arrangements.
Sec. 210. Facilitating longevity insurance.
Sec. 211. Direct payment of tax refunds to individual retirement plans.
Sec. 212. Treatment of qualified retirement planning services.
Sec. 213. Repeal of combined plan deduction limit.
TITLE III--EXPANDING SMALL BUSINESS RETIREMENT PLAN COVERAGE AND MAKING
THE ELECTIVE DEFERRAL RULES SIMPLER AND MORE UNIFORM
Sec. 301. Allow additional nonelective contributions to SIMPLE Plans.
Sec. 302. Conform matching contribution rules for SIMPLE IRAs and
SIMPLE 401(k)s.
Sec. 303. Uniform catch-up contribution rule.
Sec. 304. Uniform definition of compensation.
Sec. 305. Uniform withdrawal rules.
Sec. 306. Allow level dollar contributions to SEPs.
Sec. 307. Tax treatment of certain nontrade or business SEP
contributions.
Sec. 308. Uniform availability of designated RSA contributions.
Sec. 309. Allow certain plan transfers and mergers.
TITLE IV--EXPANDING RETIREMENT SAVINGS FOR TAX-EXEMPT ORGANIZATION AND
GOVERNMENT EMPLOYEES
Sec. 401. Waiver of 10 percent early withdrawal penalty tax on certain
distributions of pension plans for public
safety employees.
Sec. 402. Clarifications regarding purchase of permissive service
credit.
Sec. 403. Eligibility for participation in retirement plans.
Sec. 404. Clarification of minimum distribution rules.
Sec. 405. Church plan rule.
Sec. 406. Clarification of treatment of Indian tribal governments.
Sec. 407. Deferral agreements.
Sec. 408. Plans maintained by State or local governments.
Sec. 409. Clarification of treatment of section 403(b) programs.
TITLE V--SIMPLIFICATION AND EQUITY
Sec. 501. Updating and simplifying the minimum distribution rules.
Sec. 502. Clarification of catch-up contributions.
Sec. 503. Treatment of unclaimed benefits.
Sec. 504. Allow direct rollovers from retirement plans to RSA.
Sec. 505. Reform excise tax on excess contributions.
Sec. 506. Intermediate sanctions for inadvertent failures.
Sec. 507. Clarification of substantially equal periodic payment rule.
Sec. 508. Clarification of treatment of distributions of annuity
contracts.
Sec. 509. Golden parachute excise tax to apply to excessive employee
remuneration paid by corporation after
declaration of bankruptcy.
Sec. 510. Differential pay.
Sec. 511. Excess benefit plans.
Sec. 512. Tax treatment of employee contributions to contributory
defined benefit plans.
Sec. 513. Protecting older, longer service participants.
Sec. 514. Clarification regarding elective deferrals.
Sec. 515. Reform of the minimum participation rule.
TITLE VI--IMPROVEMENTS IN PENSION SECURITY
Sec. 601. Periodic pension benefits statements.
Sec. 602. Inapplicability of relief from fiduciary liability during
blackout periods.
Sec. 603. Diversification requirements for defined contribution plans
that hold employer securities.
Sec. 604. Effective dates and related rules.
TITLE VII--OTHER TAX PROVISIONS RELATING TO PENSIONS
Sec. 701. Reporting simplification.
Sec. 702. Improvement of Employee Plans Compliance Resolution System.
Sec. 703. Extension of moratorium on application of certain
nondiscrimination rules to all governmental
plans.
Sec. 704. Notice and consent period regarding distributions.
Sec. 705. Qualified group legal services plans.
Sec. 706. Tax-free distributions from individual retirement plans for
charitable purposes.
TITLE VIII--MISCELLANEOUS PROVISIONS
Sec. 801. Provisions relating to plan amendments.
TITLE I--MAKING TODAY'S RETIREMENT SAVINGS OPPORTUNITIES PERMANENT
SEC. 101. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001
MADE PERMANENT.
(a) In General.--Section 901 of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is amended by adding at the end the
following new subsection:
``(c) Exception.--Subsections (a) and (b) shall not apply to the
provisions of, and amendments made by, subtitles (A) through (F) of
title VI (relating to pension and individual retirement arrangement
provisions).''.
(b) Conforming Amendments.--Section 901(b) of such Act is amended--
(1) by striking ``and the Employee Retirement Income
Security Act of 1974'' in the text, and
(2) by striking ``of Certain Laws'' in the heading.
SEC. 102. SAVER'S CREDIT MADE PERMANENT.
(a) In General.--Section 25B of the Internal Revenue Code of 1986
(relating to elective deferrals and IRA contributions by certain
individuals) is amended by striking subsection (h).
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
TITLE II--BUILDING AND PRESERVING RETIREMENT ASSETS AND ENHANCING
PORTABILITY
SEC. 201. RETIREMENT SAVINGS ACCOUNT.
(a) Retirement Savings Account.--
(1) Name changed from roth ira, etc.--
(A) In general.--The Internal Revenue Code of 1986
is amended--
(i) by striking ``a'' each place it
immediately precedes ``Roth'' and inserting
``an'',
(ii) by striking ``Roth IRA'' and ``Roth
IRAs'' each place such terms appear and
inserting ``RSA'' and ``RSAs'', respectively,
and
(iii) by striking ``Roth contribution'',
``Roth contributions'', ``Roth account'' and
``Roth accounts'' each place such terms appear
and inserting ``RSA contribution'', ``RSA
contributions'', ``RSA account'', and ``RSA
accounts'', respectively.
(B) RSA defined.--Subsection (a) of section 7701 of
such Code is amended by adding at the end the following
paragraph:
``(48) RSA.--The term `RSA' means a retirement savings
account described in section 408A.''.
(2) Universal availability.--Subsection (c) of section 408A
is amended--
(A) by striking paragraph (3), and
(B) by redesignating paragraphs (4), (5), (6), and
(7) as paragraphs (3), (4), (5), and (6), respectively.
(3) Repeal of 5-year rule.--Paragraph (2) of section
408A(d) of such Code is amended by striking subparagraph (B)
and redesignating subparagraph (C) as subparagraph (B).
(4) Income over 4 years.--Clause (iii) of section
408A(d)(3)(A) of such Code is amended by striking ``January 1,
1999'' and inserting ``after December 31, 2005, and before
January 1, 2007''.
(5) Ordering rule.--Subparagraph (B) of section 408A(d)(4)
of such Code is amended to read as follows:
``(B) Ordering rules.--For purposes of applying
this section and section 72 to any distribution from an
RSA, such distribution shall be treated as made--
``(i) from income attributable to
contributions to the RSA to the extent that the
amount of such distribution, when added to all
previous distributions from the RSA, does not
exceed the aggregate income attributable to
contributions to the RSA, and
``(ii) to the extent that such distribution
exceeds such income, from contributions in the
following order:
``(I) Contributions other than
qualified rollover contributions to
which paragraph (3) applies.
``(II) Qualified rollover
contributions to which paragraph (3)
applies on a first-in, first-out basis.
For purposes of this subparagraph, income attributable
to contributions to the RSA shall include income that
is attributable to contributions to another RSA or to a
designated RSA account and that is rolled over into the
RSA.''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 402A(d) of such Code is
amended by striking subparagraph (B) and by redesignating
subparagraph (C) as subparagraph (B).
(2) Subsection (d) of section 402A of such Code is amended
by adding at the end the following:
``(5) Ordering rules.--For purposes of applying section 72
to any distribution from a participant's designated RSA
account, such distribution shall be treated as made from income
attributable to contributions to the designated RSA account to
the extent that the amount of such distribution, when added to
all previous distributions from the designated RSA account,
does not exceed the aggregate income attributable to
contributions to the designated RSA account. For purposes of
this paragraph, income attributable to contributions to a
designated RSA account shall include income that is
attributable to contributions to another such account or to an
RSA and that is rolled over into the designated RSA account.''.
(3) Subparagraph (B) of section 4973(f)(1) and subparagraph
(B) of section 4973(f)(2) of such Code are each amended by
striking ``sections 408A(c)(2) and (c)(3)'' and inserting
``section 408A(c)(2)''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
(2) Special rule.--The amendment made by subsection (a)(5)
shall only apply to the extent that distributions from RSAs
exceed the amount of contributions to such RSAs that have been
made but not distributed as of December 31, 2005.
SEC. 202. EXPANSION OF SAVER'S CREDIT.
(a) Expansion.--The table contained in subsection (b) of section
25B of the Internal Revenue Code of 1986 (relating to applicable
percentage) is amended to read as follows:
``Adjusted Gross Income
----------------------------------------------------------------------------------------------------------------
Joint return Head of Household All other cases
----------------------------------------------------------------------------------------------------- Applicable
Over Not over Over Not over Over Not over precentage
----------------------------------------------------------------------------------------------------------------
$30,000 $22,500 $15,000 50
30,000 40,000 22,500 30,000 15,000 20,000 20
40,000 50,000 30,000 37,500 20,000 25,000 10
50,000 37,500 25,000 0''.
----------------------------------------------------------------------------------------------------------------
(b) Adjustment for Inflation.--Section 25B of such Code (as amended
by subsection (a)) is further amended by redesignating subsection (h)
as subsection (i) and by inserting after subsection (g) the following
new subsection:
``(h) Adjustment for Inflation.--
``(1) In general.--In the case of any taxable year
beginning after December 31, 2008, each dollar amount in the
table contained in subsection (b) in the columns under the
heading `All other cases' shall be increased by an amount equal
to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year by
substituting `calendar year 2007' for `calendar year
1992' in subparagraph (B) thereof.
If any increase under the preceding sentence is not a multiple
of $1,000, such increase shall be rounded to the nearest
multiple of $1,000.
``(2) Adjustment of amounts relating to joint return and
head of household.--In the case of any taxable year beginning
after December 31, 2008--
``(A) there shall be substituted for each dollar
amount in the table contained in subsection (b) in the
columns under the heading `Joint return' a dollar
amount equal to twice the corresponding dollar amount
in such table in the columns under the heading `All
other cases' (as increased under paragraph (1)), and
``(B) there shall be substituted for each dollar
amount in the table contained in subsection (b) in the
columns under the heading `Head of household' a dollar
amount equal to 1\1/2\ times the corresponding dollar
amount in such table in the columns under the heading
`All other cases' (as increased under paragraph
(1)).''.
(c) Testing Period.--Subparagraph (B) of section 25B(d)(2) of such
Code is amended to read as follows:
``(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, and
``(ii) the 3 preceding taxable years.''.
(d) Treatment as Refundable.--
(1) Credit moved to subpart relating to refundable
credit.--
(A) In general.--Section 25B of such Code, as
amended by this Act, is hereby moved to subpart C of
part IV of subchapter A of chapter 1 (relating to
refundable credits) and inserted after section 35.
(B) Technical amendments.--
(i) Section 36 of such Code is redesignated
as section 37.
(ii) Section 25B of such Code (as moved by
subparagraph (A)) is redesignated as section
36.
(iii) The table of sections for subpart A
of such part is amended by striking the item
relating to section 25B.
(iv) The table of sections for subpart C of
such part is amended by redesignating the item
relating to section 36 as an item relating to
section 37 and by inserting after section 35
the following new item:
``Sec. 36. Elective deferrals and IRA contributions by certain
individuals.''.
(2) Mandatory deposit into qualified account.--
(A) No reduction of tax.--Subsection (a) of section
36 of such Code, as moved and redesignated by paragraph
(1), is amended by striking ``credit against the tax
imposed by this subtitle'' and inserting ``tax
credit''.
(B) Deposit into qualified account.--Subsection (g)
of section 36 of such Code, as moved and redesignated
by paragraph (1), is amended to read as follows:
``(g) Deposit Into Qualified Account.--
``(1) In general.--Any amount allowed as a tax credit under
subsection (a) shall not be allowed as a credit against any tax
imposed by this subtitle but instead shall be treated as an
overpayment under section 6401(b) and--
``(A) shall be paid on behalf of the individual
taxpayer to an applicable retirement plan designated by
the individual to be invested in a manner designated by
the individual, except that in the case of a joint
return, each spouse shall be entitled to designate an
applicable retirement plan and investments with respect
to payments attributable to such spouse, or
``(B) in the case of taxpayer who does not properly
designate an applicable retirement plan in a timely
manner or who designates an applicable retirement plan
that does not accept such amount in a timely manner,
shall be paid or credited on behalf of the individual
taxpayer in a manner determined under rules prescribed
by the Secretary that provides treatment comparable to
the treatment under subparagraph (A).
``(2) Applicable retirement plan.--For purposes of this
subsection, the term `applicable retirement plan' means a plan
that elects to accept deposits under this subsection and that
is described in clause (iii), (iv), (v), or (vi) of section
402(c)(8)(B) or in section 408A(b).
``(3) Treatment of direct payments.--All amounts paid under
this subsection shall be treated for purposes of this title as
income attributable to--
``(A) an RSA contribution in the case of a payments
to an individual retirement plan, or
``(B) a designated RSA contribution in the case of
a payment to an applicable retirement plan described in
section 402A(e).''.
(e) Regulation and Promotion.--Section 36 of such Code, as amended
and redesignated by this section, is amended by adding at the end the
following new subsection:
``(i) Regulation and Promotion.--The Secretary may prescribe such
regulations and other guidance as may be necessary or appropriate to
carry out this section. The Secretary shall also take such steps as he
determines necessary and appropriate to increase public awareness of
the credit provided under this section.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 203. FASTER VESTING OF EMPLOYER NONELECTIVE CONTRIBUTIONS.
(a) Amendments to the Internal Revenue Code of 1986.--
(1) In general.--Paragraph (2) of section 411(a) of the
Internal Revenue Code of 1986 (relating to employer
contributions) is amended to read as follows:
``(2) Employer contributions.--
``(A) Defined benefit plans.--
``(i) In general.--In the case of a defined
benefit plan, a plan satisfies the requirements
of this paragraph if it satisfies the
requirements of clause (ii) or (iii).
``(ii) 5-year vesting.--A plan satisfies
the requirements of this clause if an employee
who has completed at least 5 years of service
has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from
employer contributions.
``(iii) 3 to 7 year vesting.--A plan
satisfies the requirements of this clause if an
employee has a nonforfeitable right to a
percentage of the employee's accrued benefit
derived from employer contributions determined
under the following table:
The nonforfeitable
``Years of service percentage is:
3...................................................... 20
4...................................................... 40
5...................................................... 60
6...................................................... 80
7 or more.............................................. 100.
``(B) Defined contribution plans.--
``(i) In general.--In the case of a defined
contribution plan, a plan satisfies the
requirements of this paragraph if it satisfies
the requirements of clause (ii) or (iii).
``(ii) 3-year vesting.--A plan satisfies
the requirements of this clause if an employee
who has completed at least 3 years of service
has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from
employer contributions.
``(iii) 2 to 6 year vesting.--A plan
satisfies the requirements of this clause if an
employee has a nonforfeitable right to a
percentage of the employee's accrued benefit
derived from employer contributions determined
under the following table:
The nonforfeitable
``Years of service percentage is:
2...................................................... 20
3...................................................... 40
4...................................................... 60
5...................................................... 80
6...................................................... 100.''.
(2) Conforming amendment.--Section 411(a) of such Code
(relating to general rule for minimum vesting standards) is
amended by striking paragraph (12).
(b) Amendments to the Employee Retirement Income Security Act of
1974.--
(1) In general.--Paragraph (2) of section 203(a) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1053(a)(2)) is amended to read as follows:
``(2)(A)(i) In the case of a defined benefit plan, a plan
satisfies the requirements of this paragraph if it satisfies
the requirements of clause (ii) or (iii).
``(ii) A plan satisfies the requirements of this clause if
an employee who has completed at least 5 years of service has a
nonforfeitable right to 100 percent of the employee's accrued
benefit derived from employer contributions.
``(iii) A plan satisfies the requirements of this clause if
an employee has a nonforfeitable right to a percentage of the
employee's accrued benefit derived from employer contributions
determined under the following table:
The nonforfeitable
``Years of service percentage is:
3...................................................... 20
4...................................................... 40
5...................................................... 60
6...................................................... 80
7 or more.............................................. 100.
``(B)(i) In the case of an individual account plan, a plan
satisfies the requirements of this paragraph if it satisfies
the requirements of clause (ii) or (iii).
``(ii) A plan satisfies the requirements of this clause if
an employee who has completed at least 3 years of service has a
nonforfeitable right to 100 percent of the employee's accrued
benefit derived from employer contributions.
``(iii) A plan satisfies the requirements of this clause if
an employee has a nonforfeitable right to a percentage of the
employee's accrued benefit derived from employer contributions
determined under the following table:
The nonforfeitable
``Years of service percentage is:
2...................................................... 20
3...................................................... 40
4...................................................... 60
5...................................................... 80
6...................................................... 100.''.
(2) Conforming amendment.--Section 203(a) of such Act is
amended by striking paragraph (4).
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions
for plan years beginning after December 31, 2005.
(2) Collective bargaining agreements.--In the case of a
plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more
employers ratified before the date of the enactment of this
Act, the amendments made by this section shall not apply to
contributions on behalf of employees covered by any such
agreement for plan years beginning before the earlier of--
(A) the later of--
(i) the date on which the last of such
collective bargaining agreements terminates
(determined without regard to any extension
thereof on or after such date of the
enactment); or
(ii) January 1, 2006; or
(B) January 1, 2008.
(3) Service required.--With respect to any plan, the
amendments made by this section shall not apply to any employee
before the date that such employee has 1 hour of service under
such plan in any plan year to which the amendments made by this
section apply.
SEC. 204. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CERTAIN
RETIREMENT PLAN DISTRIBUTIONS.
(a) In General.--
(1) Qualified plans.--Section 402(c) of the Internal
Revenue Code of 1986 (relating to rollovers from exempt trusts)
is amended by adding at the end the following new paragraph:
``(11) Distributions to inherited individual retirement
plan of nonspouse beneficiary.--
``(A) In general.--If, with respect to any portion
of a distribution from an eligible retirement plan of a
deceased employee, a direct trustee-to-trustee transfer
is made to an individual retirement plan described in
clause (i) or (ii) of paragraph (8)(B) established for
the purposes of receiving the distribution on behalf of
an individual who is a designated beneficiary (as
defined by section 401(a)(9)(E)) of the employee and
who is not the surviving spouse of the employee--
``(i) the transfer shall be treated as an
eligible rollover distribution for purposes of
this subsection,
``(ii) the individual retirement plan shall
be treated as an inherited individual
retirement account or individual retirement
annuity (within the meaning of section
408(d)(3)(C)) for purposes of this title, and
``(iii) section 401(a)(9)(B) (other than
clause (iv) thereof) shall apply to such plan.
``(B) Certain trusts treated as beneficiaries.--For
purposes of this paragraph, to the extent provided in
rules prescribed by the Secretary, a trust maintained
for the benefit of one or more designated beneficiaries
shall be treated in the same manner as a trust
designated beneficiary.''.
(2) Section 403(a) plans.--Subparagraph (B) of section
403(a)(4) of such Code (relating to rollover amounts) is
amended by inserting ``and (11)'' after ``(7)''.
(3) Section 403(b) plans.--Subparagraph (B) of section
403(b)(8) of such Code (relating to rollover amounts) is
amended by striking ``and (9)'' and inserting ``, (9), and
(11)''.
(4) Section 457 plans.--Subparagraph (B) of section
457(e)(16) of such Code (relating to rollover amounts) is
amended by striking ``and (9)'' and inserting ``, (9), and
(11)''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2005.
SEC. 205. ENHANCING PORTABILITY OF AFTER-TAX AMOUNTS.
(a) Rollovers Between Qualified Plans and Section 403(b) Plans.--
Subparagraph (A) of section 402(c)(2) of such Code (relating to maximum
amount which may be rolled over) is amended by striking ``and which''
and inserting ``or to an annuity contract described in section 403(b)
and such plan or contract''.
(b) Rollovers to Defined Benefit Plans.--Subparagraph (A) of
section 402(c)(2) of such Code (relating to maximum amount which may be
rolled over) is amended by striking ``which is a part of a plan which
is a defined contribution plan and''.
(c) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2005.
SEC. 206. IRA ELIGIBILITY FOR THE DISABLED.
(a) In General.--Subsection (f) of section 219 of the Internal
Revenue Code of 1986 (relating to other definitions and special rules)
is amended by adding at the end the following:
``(8) Special rule for certain disabled individuals.--In
the case of an individual--
``(A) who is disabled (within the meaning of
section 72(m)(7)), and
``(B) who has not attained the applicable age (as
defined in section 401(a)(9)(H)) before the close of
the taxable year,
subparagraph (B) of subsection (b)(1) shall not apply.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 207. EXCLUSION OF CERTAIN QUALIFIED ANNUITY PAYMENTS AND
FACILITATION OF SUCH PAYMENTS AND ROLLOVERS.
(a) In General.--
(1) Qualified plans.--Subsection (e) of section 402 of the
Internal Revenue Code of 1986 (relating to exempt trusts) is
amended by adding at the end the following new paragraph:
``(7) Exclusion of percentage of lifetime annuity
payments.--
``(A) In general.--In the case of a lifetime
annuity payment to a qualified distributee from a
qualified trust (within the meaning of subsection
(c)(8)(A)) maintained in connection with a defined
contribution plan, gross income shall not include 10
percent of the amount otherwise includible in gross
income (determined without regard to this paragraph).
``(B) 5-year limitation.--Subparagraph (A) shall
apply to a qualified distributee only in the first 5
taxable years in which the qualified distributee
receives lifetime annuity payments for the entire
taxable year. For purposes of this subparagraph, all
lifetime annuity payments received by a qualified
distributee shall be taken into account to the extent
that such payments are subject to this paragraph or to
rules similar to the rules of this paragraph (other
than sections 72(b)(5) and 101(d)(4)).
``(C) Limitation.--
``(i) In general.--With respect to any
qualified distributee, subparagraph (A) shall
not apply to any lifetime annuity payment to
the extent that the portion of such payment
includible in gross income, when added to the
portion of all previous and simultaneous
lifetime annuity payments that was included in
gross income and that was paid to such
qualified distributee during the taxable year,
exceeds 50 percent of the applicable amount for
such year under section 415(c)(1)(A). For
purposes of the preceding sentence, the portion
of lifetime annuity payments includible in
gross income shall be determined without regard
to subparagraph (A).
``(ii) Aggregation rule.--For purposes of
this subparagraph, all lifetime annuity
payments received by a qualified distributee
shall be taken into account to the extent that
such payments are subject to this paragraph or
to rules similar to the rules of this paragraph
(other than sections 72(b)(5) and 101(d)(4)).
``(D) Definitions.--For purposes of this
paragraph--
``(i) Lifetime annuity payment.--
``(I) In general.--The term
`lifetime annuity payment' means a
distribution which is a part of a
series of substantially equal periodic
payments (made not less frequently than
annually) made over the life of the
qualified distributee or the joint
lives of the qualified distributee and
the qualified distributee's designated
beneficiary.
``(II) Certain fluctuating
payments.--Annuity payments shall not
fail to be treated as part of a series
of substantially equal periodic
payments merely because the amount of
the periodic payments may vary in
accordance with investment experience,
reallocations among investment options,
actuarial gains or losses, cost of
living indices, a constant percentage
(not less than zero) applied not less
frequently than annually, or similar
fluctuating criteria.
``(III) Certain changes in the mode
of payment.--Annuity payments shall not
fail to be treated as part of a series
of substantially equal periodic
payments merely because the period
between each such payment is lengthened
or shortened, but only if at all times
such period is not longer than one
year.
``(IV) Permitted reductions.--
Annuity payments shall not fail to be
treated as part of a series of
substantially equal periodic payments
merely because, in the case of an
annuity payable over the lives of the
qualified distributee and the qualified
distributee's designated beneficiary,
the amounts paid after the death of the
qualified distributee or the qualified
distributee's designated beneficiary
are less than the amounts payable
during their joint lives.
``(V) Certain contract benefits.--
The availability of a commutation
benefit or other feature permitting
acceleration of annuity payments (or a
modification of the period during which
such a benefit is available), a minimum
period of payments certain, or a
minimum amount to be paid in any event
shall not affect the treatment of a
distribution as a lifetime annuity
payment.
``(VI) Trust payments.--In the case
of lifetime annuity payments being made
to a qualified trust, payments by the
qualified trust to a qualified
distributee of the entire amount
received by the qualified trust with
respect to the qualified distributee
shall constitute lifetime annuity
payments.
``(VII) Qualified domestic
relations orders.--Annuity payments
shall not fail to be treated as a
series of substantially equal periodic
payments merely because the payments
are reduced on account of a qualified
domestic relations order (within the
meaning of section 414(p)) that becomes
effective after the commencement of the
annuity payments.
``(ii) Qualified distributee.--The term
`qualified distributee' means the employee, the
surviving spouse of the employee, and an
alternate payee who is the spouse or former
spouse of the employee.
``(E) Recapture tax.--
``(i) In general.--If--
``(I) an amount is not includible
in gross income by reason of
subparagraph (A), and
``(II) the series of payments of
which such payment is a part is
subsequently modified (other than by
reason of death or disability) so that
some or all future payments are not
lifetime annuity payments,
the qualified distributee's gross income for
the first taxable year in which such
modification occurs shall be increased by an
amount, determined under rules prescribed by
the Secretary, equal to the amount which (but
for subparagraph (A)) would have been
includible in the qualified distributee's gross
income if the modification had been in effect
at all times, plus interest for the deferral
period at the underpayment rate established
under section 6621.
``(ii) Deferral period.--For purposes of
this subparagraph, the term `deferral period'
means the period beginning with the taxable
year in which (without regard to subparagraph
(A)) the payment would have been includible in
gross income and ending with the taxable year
in which the modification described in clause
(i)(II) occurs.
``(F) Phaseout of exclusion.--
``(i) In general.--In any taxable year, the
exclusion from gross income for any qualified
distributee under this paragraph and under
rules similar to the rules of this paragraph
(other than sections 72(b)(5) and 101(d)(4))
shall not exceed the income-adjusted limit.
``(ii) Income-adjusted limit.--For purposes
of this subparagraph, the income-adjusted limit
shall be--
``(I) 10 percent of the limitation
described in subparagraph (C), reduced
(but not below zero) by
``(II) the amount determined under
clause (iii).
``(iii) Amount determined.--The amount
determined under this clause shall be the
amount which bears the same ratio to the amount
described in clause (ii)(I) as--
``(I) the excess of the taxpayer's
adjusted gross income for such taxable
year over the applicable dollar amount,
bears to
``(II) $15,000 ($30,000 for a joint
return).
``(iv) Limitation on reduction.--The
income-adjusted limit shall not be reduced
below $200 by clause (ii)(II) unless (without
regard to this clause) such limit is reduced to
zero.
``(v) Rounding rule.--Any income-adjusted
limit determined under this subparagraph which
is not a multiple of $10 shall be rounded to
the next lowest multiple of $10.
``(vi) Adjusted gross income.--For purposes
of this subparagraph, adjusted gross income of
any taxpayer shall be determined in the same
manner as under section 219(g)(3) except that
any amount included in income under section
408A(d)(3) shall not be taken into account.
``(vii) Applicable dollar limit.--For
purposes of this subparagraph, the applicable
dollar amount is--
``(I) in the case of a taxpayer
filing a joint return, an amount equal
to twice the amount in effect under
subclause (II),
``(II) in the case of any other
taxpayer (other than a married
individual filing a separate return),
$60,000, and
``(III) in the case of a married
individual filing a separate return,
zero.
``(viii) Special rule for married
individuals filing separately and living
apart.--Section 219(g)(4) shall apply for
purposes of this subparagraph.
``(ix) Cost-of-living adjustment.--In the
case of taxable years beginning after December
31, 2006, the Secretary shall adjust the
$60,000 amount in clause (vii)(II) at the same
time and in the same manner as under section
415(d), except that the base period shall be
the calendar quarter beginning July 1, 2005,
and any increase under this clause which is not
a multiple of $5,000 shall be rounded to the
next lowest multiple of $5,000.
``(G) Investment in the contract.--For purposes of
section 72, the investment in the contract shall be
determined without regard to this paragraph.''.
(2) Section 403(a) plans.--Paragraph (4) of section 403(a)
of such Code (relating to qualified annuity plans) is amended
by adding at the end the following new subparagraph:
``(C) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section
402(e)(7) shall apply to distributions under any
annuity contract to which this subsection applies.''.
(3) Section 403(b) plans.--Section 403(b) of such Code
(relating to purchased annuities) is amended by adding at the
end the following new paragraph:
``(14) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions under any annuity contract or
custodial account to which this subsection applies.''.
(4) IRAs.--Section 408(d) of such Code (relating to tax
treatment of distributions) is amended by adding at the end the
following new paragraph:
``(8) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions out of an individual retirement
plan.''.
(5) Section 457 plans.--Section 457(e) of such Code
(relating to special rules for deferred compensation plans) is
amended by adding at the end the following new paragraph:
``(18) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions from an eligible deferred
compensation plan of an eligible employer described in
subsection (e)(1)(A).''.
(b) Facilitation of Certain Rollovers and Annuity Distributions.--
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:
``(7)(A) In the case of a pension plan which makes a transfer under
section 401(a)(31)(A) of the Internal Revenue Code of 1986 to an
individual retirement plan (as defined in section 7701(a)(37) of such
Code) in connection with a participant or beneficiary or makes a
distribution to a participant or beneficiary of an annuity contract
described in subparagraph (B), the participant or beneficiary shall,
for purposes of paragraph (1), be treated as exercising control over
the transfer or distribution if--
``(i) the participant or beneficiary elected such transfer
or distribution, and
``(ii) in connection with such election, the participant or
beneficiary was given an opportunity to elect any other
individual retirement plan (in the case of a transfer) or any
other annuity contract described in subparagraph (B) (in the
case of a distribution).
``(B) An annuity contract is described in this subparagraph if it
provides, either on an immediate or deferred basis, a series of
substantially equal periodic payments (not less frequently than
annually) for the life of the participant or beneficiary or the joint
lives of the participant or beneficiary and such individual's
designated beneficiary. Annuity payments shall not fail to be treated
as part of a series of substantially equal periodic payments merely
because the amount of the periodic payments may vary in accordance with
investment experience, reallocations among investment options,
actuarial gains or losses, cost of living indices, a constant
percentage (not less than zero) applied not less frequently than
annually, or similar fluctuating criteria. Annuity payments shall not
fail to be treated as part of a series of substantially equal periodic
payments merely because the period between each such payment is
lengthened or shortened, but only if at all times such period is not
longer than one year. The availability of a commutation benefit or
other feature permitting acceleration of annuity payments (or a
modification of the period during which such a benefit is available), a
minimum period of payments certain, or a minimum amount to be paid in
any event shall not affect the treatment of an annuity contract as an
annuity contract described in this subparagraph.
``(C) Under regulations prescribed by the Secretary, this paragraph
shall apply without regard to whether the particular individual
retirement plan receiving the transfer or the particular annuity
contract being distributed is specifically identified by the pension
plan as available to the participant or beneficiary.
``(D) Notwithstanding the preceding provisions of this paragraph,
paragraph (1)(B) shall not apply with respect to liability under
section 406 in connection with the specific identification of any
individual retirement plan or annuity contract as being available to
the participant or beneficiary.''.
(c) Effective Date.--
(1) Exclusion.--The amendments made by subsection (a) shall
apply to distributions after December 31, 2005.
(2) Facilitation.--The amendments made by subsection (b)
shall take effect on the date of enactment of this Act.
(3) Issuance of final regulations.--Final regulations under
section 404(c)(7) of the Employee Retirement Income Security
Act of 1974 (added by this section) shall be issued no later
than 1 year after the date of the enactment of this Act.
SEC. 208. EXCLUSION OF CERTAIN NONQUALIFIED ANNUITY PAYMENTS.
(a) In General.--
(1) Nonqualified annuities.--
(A) In general.--Section 72(b) of the Internal
Revenue Code of 1986 (relating to annuities) is amended
by adding at the end the following new paragraph:
``(5) Exclusion of percentage of lifetime annuity
payments.--
``(A) In general.--In the case of a lifetime
annuity payment to a qualified distributee, gross
income shall not include 10 percent of the amount
otherwise includible in gross income (determined
without regard to this paragraph).
``(B) 5-year limitation.--Subparagraph (A) shall
apply to a qualified distributee only in the first 5
taxable years in which the qualified distributee
receives lifetime annuity payments for the entire
taxable year. For purposes of this subparagraph, all
lifetime annuity payments received by a qualified
distributee shall be taken into account to the extent
that such payments are subject to this paragraph or to
the rules of section 101(d)(4).
``(C) Investment in the contract.--For purposes of
this section, the investment in the contract shall be
determined without regard to this paragraph (5).
``(D) Limitation.--
``(i) In general.--With respect to any
qualified distributee, subparagraph (A) shall
not apply to any lifetime annuity payment to
the extent that the portion of such payment
that is includible in income, when added to the
portion of all previous and simultaneous
lifetime annuity payments that was included in
gross income and that was paid to such
qualified distributee during the taxable year,
exceeds 50 percent of the applicable amount for
such year under section 415(c)(1)(A). For
purposes of the preceding sentence, the portion
of lifetime annuity payments includible in
gross income shall be determined without regard
to subparagraph (A).
``(ii) Aggregation rule.--For purposes of
this subparagraph, all lifetime annuity
payments received by a qualified distributee
shall be taken into account to the extent that
such payments are subject to this paragraph or
to the rules of section 101(d)(4).
``(E) Phaseout of exclusion.--
``(i) In general.--In any taxable year, the
exclusion from gross income for any qualified
distributee under this paragraph and under the
rules of section 101(d)(4) shall not exceed the
income-adjusted limit.
``(ii) Income-adjusted limit.--For purposes
of this subparagraph, the income-adjusted limit
shall be--
``(I) 10 percent of the limitation
described in subparagraph (D), reduced
(but not below zero) by
``(II) the amount determined under
clause (iii).
``(iii) Amount determined.--The amount
determined under this clause shall be the
amount which bears the same ratio to the amount
described in clause (ii)(I) as--
``(I) the excess of the taxpayer's
adjusted gross income for such taxable
year over the applicable dollar amount,
bears to
``(II) $15,000 ($30,000 for a joint
return).
``(iv) Limitation on reduction.--The
income-adjusted limit shall not be reduced
below $200 by clause (ii)(II) unless (without
regard to this clause) such limit is reduced to
zero.
``(v) Rounding rule.--Any income adjusted
limit determined under this subparagraph which
is not a multiple of $10 shall be rounded to
the next lowest multiple of $10.
``(vi) Adjusted gross income.--For purposes
of this subparagraph, adjusted gross income of
any taxpayer shall be determined in the same
manner as under section 219(g)(3) except that
any amount included in income under section
408A(d)(3) shall not be taken into account.
``(vii) Applicable dollar limit.--For
purposes of this subparagraph, the applicable
dollar amount is--
``(I) in the case of a taxpayer
filing a joint return, an amount equal
to twice the amount in effect under
subclause (II),
``(II) in the case of any other
taxpayer (other than a married
individual filing a separate return),
$60,000, and
``(III) in the case of a married
individual filing a separate return,
zero.
``(viii) Special rule for married
individuals filing separately and living
apart.--Section 219(g)(4) shall apply for
purposes of this subparagraph.
``(ix) Cost-of-living adjustment.--In the
case of taxable years beginning after December
31, 2006, the Secretary shall adjust the
$60,000 amount in clause (vii)(II) at the same
time and in the same manner as under section
415(d), except that the base period shall be
the calendar quarter beginning July 1, 2005,
and any increase under this clause which is not
a multiple of $5,000 shall be rounded to the
next lowest multiple of $5,000.''.
(B) Definitions.--Section 72(c) of such Code is
amended by adding at the end the following new
paragraphs:
``(5) Lifetime annuity payment.--
``(A) In general.--For purposes of subsection
(b)(5), the term `lifetime annuity payment' means a
distribution from an annuity contract (as defined in
paragraph (7)) that is a part of a series of
substantially equal periodic payments--
``(i) made not less frequently than
annually over the life of the qualified
distributee or the joint lives of the qualified
distributee and the qualified distributee's
designated beneficiary, and
``(ii) that would satisfy the requirements
of section 408(b)(3) if the annuity contract
were treated as an individual retirement
annuity.
``(B) Exceptions.--
``(i) Certain fluctuating payments.--
Annuity payments shall not fail to be treated
as part of a series of substantially equal
periodic payments merely because the amount of
the periodic payments may vary in accordance
with investment experience, reallocations among
investment options, actuarial gains or losses,
cost of living indices, a constant percentage
(not less than zero) applied not less
frequently than annually, or similar
fluctuating criteria.
``(ii) Certain changes in the mode of
payments.--Annuity payments shall not fail to
be treated as part of a series of substantially
equal periodic payments merely because the
period between each such payment is lengthened
or shortened, but only if at all times such
period is no longer than one year.
``(iii) Permitted reductions.--Annuity
payments shall not fail to be treated as part
of a series of substantially equal periodic
payments merely because, in the case of an
annuity payable over the lives of the qualified
distributee and the qualified distributee's
designated beneficiary, the amounts paid after
the death of the qualified distributee or the
qualified distributee's designated beneficiary
are less than the amounts payable during their
joint lives.
``(iv) Certain contract benefits.--The
availability of a commutation benefit or other
feature permitting acceleration of annuity
payments (or modification of the period during
which such a benefit is available), a minimum
period of payments certain, or a minimum amount
to be paid in any event shall not affect the
treatment of a distribution as a lifetime
annuity payment.
``(v) Eligible retirement plans.--Payments
from an eligible retirement plan (within the
meaning of section 402(c)(8)) shall not be
treated as lifetime annuity payments.
``(6) Qualified distributee.--
``(A) In general.--For purposes of subsection
(b)(5), the term `qualified distributee' means an
annuitant, the surviving spouse of an annuitant, or an
alternate payee of an annuitant under the contract.
``(B) Alternate payee defined.--For purposes of
this paragraph, the term `alternate payee' means any
spouse or former spouse of an annuitant under the
contract who is recognized by a domestic relations
order as having a right to receive all, or a portion
of, the benefits payable under the contract with
respect to such annuitant. For purposes of the
preceding sentence, the term `domestic relations order'
means any judgment, decree, or order (including
approval of a property settlement agreement) that
relates to the provision of child support, alimony
payments, or marital property rights to a spouse or
former spouse of an annuitant under the contract and is
made pursuant to a State domestic relations law
(including community property law).
``(7) Annuity contract.--For purposes of subsections
(b)(5), (c)(5), and (x), the term `annuity contract'--
``(A) means a commercial annuity within the meaning
of section 3405(e)(6), other than an endowment or life
insurance contract, and
``(B) does not include any annuity contract that is
a qualified funding asset (as defined in section
130(d)), but without regard to whether there is a
qualified assignment.''.
(C) Recapture tax.--Section 72 of such Code is
amended by redesignating subsection (x) as subsection
(y) and inserting after subsection (w) the following
new subsection:
``(x) Recapture Tax.--
``(1) In general.--If--
``(A) an amount is not includible in gross income
by reason of subsection (b)(5) (relating to lifetime
annuity payments), and
``(B) the series of payments of which such payment
is a part is subsequently modified (other than by
reason of death or disability) so that some or all
future payments are not lifetime annuity payments,
the qualified distributee's gross income for the first taxable
year in which such modification occurs shall be increased by an
amount, determined under rules prescribed by the Secretary,
equal to the amount which (but for subsection (b)(5)) would
have been includible in the qualified distributee's gross
income if the modification had been in effect at all times,
plus interest for the deferral period at the underpayment rate
established under section 6621.
``(2) Deferral period.--For purposes of this subparagraph,
the term `deferral period' means the period beginning with the
taxable year in which (without regard to subsection (b)(5)) the
payment would have been includible in gross income and ending
with the taxable year in which the modification described in
paragraph (1) occurs.''.
(2) Life insurance death benefits.--
(A) In general.--Section 101(d) of such Code
(relating to life insurance proceeds) is amended by
adding at the end the following new paragraph:
``(4) Exclusion for lifetime annuity payments.--
``(A) In general.--In the case of amounts to which
this subsection applies, gross income shall not include
10 percent of the amount otherwise includible in gross
income (determined without regard to this paragraph).
``(B) Rules of section 72(b)(5) to apply.--For
purposes of this paragraph, rules similar to the rules
of section 72(b)(5) and section 72(x) shall apply,
substituting the term `beneficiary of the life
insurance contract' for the term `annuitant' wherever
it appears, and substituting the term `life insurance
contract' for the term `annuity contract' wherever it
appears.''.
(B) Conforming amendment.--Section 101(d)(1) of
such Code is amended by adding ``or paragraph (4) of
this subsection'' following ``to the extent not
excluded by the preceding sentence''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2005.
SEC. 209. INCREASING PARTICIPATION THROUGH AUTOMATIC CONTRIBUTION
ARRANGEMENTS.
(a) In General.--Section 401(k) of the Internal Revenue Code of
1986 (relating to cash or deferred arrangement) is amended by adding at
the end the following new paragraph:
``(13) Nondiscrimination requirements for automatic
contribution trusts.--
``(A) In general.--A cash or deferred arrangement
shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if such arrangement constitutes an
automatic contribution trust.
``(B) Automatic contribution trust.--
``(i) For purposes of this paragraph, the
term `automatic contribution 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 applicable percentage of
compensation until the employee
affirmatively elects not to have such
contributions made or affirmatively
elects to make elective contributions
at a specified level, and
``(II) which meets the other
requirements of this paragraph.
Subclause (I) of this clause shall not apply to
any employee who was eligible to participate in
the arrangement (or a predecessor arrangement)
immediately before the first date on which the
arrangement is an automatic contribution trust.
The election treated as having been made under
subclause (I) shall cease to apply to
compensation paid after the effective date of
the affirmative election by the employee.
``(ii) For purposes of this subparagraph,
with respect to an employee, the term
`applicable percentage' means the percentage
determined under the arrangement that is--
``(I) at least 3 percent as of the
first date that the election described
in clause (i)(I) is in effect with
respect to the employee,
``(II) at least 4 percent by a date
that is not later than the first day of
the second plan year beginning after
the date described in subclause (I),
``(III) at least 5 percent by a
date that is not later than the first
day of the third plan year beginning
after the date described in subclause
(I),
``(IV) at least 6 percent by a date
that is no later than the first day of
the fourth plan year beginning after
the date described in subclause (I),
``(V) at least 7 percent by a date
that is not later than the first day of
the fifth plan year beginning after the
date described in subclause (I),
``(VI) at least 8 percent by a date
that is no later than the first day of
the sixth plan year beginning after the
date described in subclause (I), and
``(VII) applied uniformly with
respect to similarly situated
employees.
``(C) Participation.--
``(i) Except as provided in clause (ii), an
arrangement meets the requirements of this
subparagraph for any year if, during the plan
year or the preceding plan year, elective
contributions are made on behalf of at least 70
percent of the employees eligible to
participate in the arrangement other than--
``(I) highly compensated employees,
and
``(II) employees who were eligible
to participate in the arrangement (or a
predecessor arrangement) immediately
before the first date on which the
arrangement is an automatic
contribution trust.
``(ii) An arrangement (other than a
successor arrangement) shall be treated as
meeting the requirements of this subparagraph
with respect to the first plan year in which
the arrangement is effective.
``(D) Matching or nonelective contributions.--
``(i) In general.--The requirements of this
subparagraph are met if, under the arrangement,
the employer--
``(I) 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 6 percent
of compensation, or
``(II) is required, without regard
to whether the employee makes an
elective contribution or employee
contribution, to make a contribution to
a defined contribution plan on behalf
of each employee who is not a highly
compensated employee and who is
eligible to participate in the
arrangement in an amount equal to at
least 2 percent of the employee's
compensation.
The rules of clauses (ii) and (iii) of paragraph
(12)(B) shall apply for purposes of subclause (I). The
rules of clause (ii) of paragraph (12)(E) shall apply
for purposes of subclauses (I) and (II).
``(ii) Other plans.--An arrangement shall
be treated as meeting the requirements under
clause (i) if any other plan maintained by the
employer meets such requirements with respect
to employees eligible under the arrangement.
``(E) Vesting.--The requirements of this
subparagraph are met if an employee who has completed
at least 2 years of service (within the meaning of
section 411(a)) has a nonforfeitable right to 100
percent of the employee's accrued benefit derived from
employer contributions taken into account in
determining whether the requirements of subparagraph
(D) are met.
``(F) Notice requirements.--
``(i) In general.--The requirements of this
subparagraph are met if the requirements of
clauses (ii) and (iii) are met.
``(ii) Reasonable period to make
election.--The requirements of this clause are
met if each employee to whom subparagraph
(B)(i) applies--
``(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 how contributions
made under the arrangement will be
invested in the absence of any
investment election by the employee,
and
``(II) has a reasonable period of
time after receipt of such notice and
before the first elective contribution
is made to make either such election.
``(iii) Annual notice of rights and
obligations.--The requirements of this clause
are met if each employee eligible to
participate in the arrangement is, within a
reasonable period before any year, given notice
of the employee's rights and obligations under
the arrangement.
The requirements of clauses (i) and (ii) of paragraph
(12)(D) shall be met with respect to the notices
described in clauses (ii) and (iii) of this
subparagraph.''.
(b) Matching Contributions.--Section 401(m) of such Code (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 automatic contribution
trusts.--
``(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 paragraph
(11)(B).
``(B) Matching contributions.--An annuity contract
under section 403(b) shall be treated as meeting the
requirements of paragraph (2) with respect to matching
contributions if such contract meets requirements
similar to the requirements under subparagraph (A).''.
(c) Exclusion From Definition of Top-Heavy Plans.--
(1) Elective contribution rule.--Clause (i) of section
416(g)(4)(H) of such Code is amended by inserting ``or
401(k)(13)'' after ``section 401(k)(12)''.
(2) Matching contribution rule.--Clause (ii) of section
416(g)(4)(H) of such Code is amended by inserting ``or
401(m)(12)'' after ``section 401(m)(11)''.
(d) Definition of Compensation.--
(1) Base pay or rate of pay.--The Secretary of the Treasury
shall, by no later than December 31, 2006, modify Treasury
Regulation section 1.414(s)-1(d)(3) to facilitate the use of
the safe harbors in sections 401(k)(12), 401(k)(13),
401(m)(11), and 401(m)(12) of the Internal Revenue Code of
1986, and in Treasury Regulation section 1.401(a)(4)-3(b) by
plans that use base pay or rate of pay in determining
contributions or benefits. Such facilitation shall include
increased flexibility in satisfying section 414(s) of such Code
in situations where the amount of overtime compensation payable
in a year can vary significantly.
(2) Application of requirements to separate payroll
periods.--Not later than December 31, 2005, the Secretary of
the Treasury shall issue rules under subparagraphs (B)(i) and
(D)(i) of section 401(k)(13) of such Code and under clause (i)
of section 401(m)(12)(A) of such Code that, effective for plan
years beginning after December 31, 2005, permit such
requirements to be applied separately to separate payroll
periods based on rules similar to the rules described in
Treasury Regulation sections 1.401(k)-3(c)(5)(ii) and 1.401(m)-
3(d)(4).
(e) Section 403(b) Contracts.--Paragraph (11) of section 401(m) of
such Code is amended by adding at the end the following:
``(C) Section 403(b) contracts.--An annuity
contract under section 403(b) shall be treated as
meeting the requirements of paragraph (2) with respect
to matching contributions if such contract meets
requirements similar to the requirements under
subparagraph (A).''.
(f) Investments and Preemption.--
(1) Control deemed to have been exercised with respect to
amount of automatic contributions.--Section 404(c) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1104(c)) (as amended by this Act) is amended by adding at the
end the following new paragraphs:
``(5)(A) A participant in an individual account plan shall, for
purposes of paragraph (1), be treated as exercising control over the
assets in the account with respect to the amount of contributions made
under an automatic contribution arrangement.
``(B) For purposes this paragraph, the term `automatic contribution
arrangement' means an arrangement--
``(i) which meets the requirements of subparagraph (C),
``(ii) under which a participant may elect to have the
employer make payments as contributions under the plan on
behalf of the participant, or to the participant directly in
cash,
``(iii) under which the participant is treated as having
elected to have the employer make such contributions in an
amount equal to a specified percentage of compensation provided
under the plan until the participant affirmatively elects not
to have such contributions made (or affirmatively elects to
have such contributions made at a different percentage), and
``(iv) under which contributions described in clause (iii)
are invested in accordance with regulations prescribed by the
Secretary, which regulations shall provide for the investment
of the contributions in one or more diversified funds that
include investments that provide long-term capital appreciation
and investments that provide preservation of capital.
``(C)(i) The administrator of an individual account plan shall,
within a reasonable period before each plan year, give to each employee
to whom an automatic contribution 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) A notice shall not be treated as meeting the requirements of
clause (i) with respect to an employee unless--
``(I) the notice includes a notice explaining 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),
``(II) the notice explains how contributions made under the
arrangement will be invested in the absence of any investment
election by the employee, and
``(III) the employee has a reasonable period of time after
receipt of the notice described in subclauses (I) and (II) and
before the first elective contribution is made to make either
such election.
``(6)(A) A participant in an individual account plan shall, for
purposes of paragraph (1), be treated as exercising control over the
assets in the account with respect to contributions described in
subparagraph (B).
``(B) Contributions are described in this subparagraph (B) if--
``(i) such contributions are not described in paragraph
(5),
``(ii) the administrator of the plan satisfies rules
similar to the rules of paragraph (5)(C) (except that the
notice shall relate to the employee's right to make a different
investment election), and
``(iii) such contributions are invested pursuant to the
regulations under paragraph (5)(B)(iv).''.
(2) Preemption of conflicting state regulation.--Section
514(b) of such Act (29 U.S.C. 1144(b)) is amended--
(A) by redesignating paragraph (9) as paragraph
(10); and
(B) by inserting after paragraph (8) the following
new paragraph:
``(9) Notwithstanding any other provision of this section, any law
of a State which would directly or indirectly prohibit or restrict the
inclusion in any plan of an automatic contribution arrangement (as
defined in section 404(c)(5)(B)) shall be superseded. The Secretary may
prescribe regulations which would establish minimum standards that such
arrangements would be required to satisfy in order for this paragraph
to apply.''.
(g) Corrective Distributions.--
(1) In general.--Section 414 of the Internal Revenue Code
of 1986 (relating to definitions and special rules) is amended
by adding at the end the following new subsection:
``(bb) Automatic Contribution Arrangements.--
``(1) In general.--For purposes of this title, the amount
of any corrective distribution from a plan shall be treated as
if such amount had never been held in such plan and shall be
treated as a payment of compensation from the employer
maintaining the plan to the employee receiving such
distribution.
``(2) Corrective distribution.--For purposes of this
subsection, the term `corrective distribution' means a
distribution from an applicable employer plan of all amounts
attributable to an erroneous automatic contribution.
``(3) Erroneous automatic contribution.--For purposes of
this subsection, the term `erroneous automatic contribution'
means an elective contribution made on behalf of an employee
under any applicable employer plan pursuant to a plan provision
treating the employee as having elected to have the employer
make such elective contribution until the employee
affirmatively elects not to have such contribution made or
affirmatively elects to make contributions at a specified
level, if the following requirements are satisfied--
``(A) within the applicable period, the employee
notifies the plan administrator that the employee
elects to have the elective contribution treated as an
erroneous automatic contribution, and
``(B) the sum of the elective contributions that
are treated as erroneous automatic contributions with
respect to an employee does not exceed $500.
``(4) Applicable employer plan.--For purposes of this
subsection, the term `applicable employer plan' has the meaning
described in subsection (v)(6)(A) except that the term shall
not include an eligible deferred compensation plan maintained
by an eligible employer described in section 457(e)(1)(B).
``(5) Applicable period.--For purposes of this subsection,
with respect to an employee, the term `applicable period' means
the three month period that begins on the first date that an
amount is withheld from compensation payable to the employee in
order to make a plan contribution pursuant to a plan provision
described in paragraph (3).''.
(2) Vesting conforming amendments.--
(A) Internal revenue code of 1986.--
(i) Section 411(a)(3)(G) of such Code is
amended by inserting ``an erroneous automatic
contribution under section 414(bb),'' after
``402(g)(2)(A),''.
(ii) The heading of section 411(a)(3)(G) of
such Code is amended by inserting ``or
erroneous automatic contribution'' before the
period.
(iii) Section 401(k)(8)(E) of such Code is
amended by inserting ``an erroneous automatic
contribution under section 414(bb),'' after
``402(g)(2)(A),''.
(iv) The heading of section 401(k)(8)(E) of
such Code is amended by inserting ``or
erroneous automatic contribution'' before the
period.
(B) Employee retirement income security act of
1974.--Section 203(a)(3)(F) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1053(a)(3)(F))
is amended by inserting ``an erroneous automatic
contribution under section 414(bb) of such Code,''
after ``402(g)(2)(A) of such Code,''.
(h) Effective Date.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to plan years
beginning after December 31, 2005.
(2) Section 403(b) contracts.--The amendments made by
subsection (e) shall apply to years beginning after December
31, 1998.
(3) Regulations.--Final regulations under section
404(c)(5)(B)(iv) of the Employee Retirement Income Security Act
of 1974 (added by this section) shall be issued no later than 6
months after the date of enactment of this Act.
SEC. 210. FACILITATING LONGEVITY INSURANCE.
(a) In General.--Paragraph (9) of section 401(a) of the Internal
Revenue Code of 1986, as amended by this Act, is amended by inserting
after subparagraph (H) the following new subparagraph:
``(I) Longevity insurance.--
``(i) In general.--For purposes of this
paragraph, any value attributable to longevity
insurance shall be disregarded in determining
the value of an employee's interest under a
plan prior to the first date that payments are
made under the longevity insurance.
``(ii) Longevity insurance defined.--For
purposes of this subparagraph, the term
`longevity insurance' means an annuity payable
on behalf of the employee under which--
``(I) payments commence not later
than 12 months following the calendar
month in which the employee attains age
85 (or would have attained age 85),
``(II) payments are made in
substantially equal periodic payments
(not less frequently than annually)
over the life of the employee or the
joint lives of the employee and the
employee's designated beneficiary,
taking into account the rules of clause
(i)(II) of section 402(e)(7)(D), except
as otherwise provided in subclause
(III),
``(III) prior to the death of the
employee, the annuity does not make
available any commutation benefit, cash
surrender value, or other similar
feature, and
``(IV) except as provided in rules
prescribed by the Secretary, in the
case of an employee's death prior to
the date that payments commence, the
value of any death benefits paid may
not exceed the premiums paid for such
annuity, plus interest compounded
annually at 3 percent.
``(iii) Adjusting age.--For purposes of
clause (ii)(I), the Secretary shall annually
increase age 85 to reflect increases in life
expectancy (as determined by the Secretary)
that occur on or after January 1, 2006, except
that any such increased age which is not a
whole number shall be rounded to the next lower
whole number.''.
(b) Rules.--Not later than one year after the date of enactment of
this Act, the Secretary of the Treasury shall prescribe rules under
which all or a portion of a participant's benefits under any plan
described in section 402(c)(8)(B) of the Internal Revenue Code of 1986
may be treated as longevity insurance under the rules of section
401(a)(9)(I) of such Code.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2006.
SEC. 211. DIRECT PAYMENT OF TAX REFUNDS TO INDIVIDUAL RETIREMENT PLANS.
(a) In General.--Paragraph (3) of section 219(f) of the Internal
Revenue Code of 1986 is amended to read as follows:
``(3) Time when contributions made.--
``(A) In general.--Except as provided in
subparagraph (B), for purposes of this subsection, a
taxpayer shall be deemed to have made a contribution to
an individual retirement plan on the last day of the
preceding taxable year if the contribution is made on
account of such taxable year and is made not later than
the time prescribed by law for filing the return for
such taxable year (not including extensions thereof).
``(B) Direct payment of tax refunds to individual
retirement plans.--
``(i) In general.--To the extent provided
in rules prescribed by the Secretary, a tax
refund owed to a taxpayer and paid directly to
an individual retirement plan shall be deemed a
contribution made by the taxpayer--
``(I) on the last day of the
taxable year to which such refund
relates, and
``(II) on account of the taxable
year to which such refund relates.
``(ii) Limitation.--This subparagraph (B)
shall not apply to a tax refund unless such
refund is shown on a return filed not later
than the time prescribed by law for filing the
return for the taxable year to which such
refund relates (not including extensions
thereof).
``(iii) Direct payment.--For purposes of
this subparagraph, a tax refund is paid
directly to an individual retirement plan if it
is paid in the form of a direct transfer from
the Secretary to the trustee or issuer of the
individual retirement plan.
``(iv) Tax refund.--For purposes of this
subparagraph, the term `tax refund' means a
refund of an internal revenue tax or credit.''.
(b) Regulations.--
(1) In general.--Not later than 1 year after the date of
enactment of this Act, the Secretary of the Treasury shall
issue rules which permit a taxpayer--
(A) to elect to have all or any portion of a tax
refund owed to the taxpayer paid directly to an RSA,
or, if the Secretary determines that such direct
payments are reasonably administrable, to individual
retirement plans which are not RSAs,
(B) to specify the individual retirement plan to
which such tax refund is to be paid (and the investment
option in which such tax refund is to be invested), and
(C) to the extent provided in rules prescribed by
the Secretary, to specify the taxable year on account
of which such payment is made,
except that the Secretary may require that the amount subject
to such an election exceed a dollar threshold determined by the
Secretary as necessary or appropriate to ensure the
administrability of such elections.
(2) Information.--The Secretary may require that the
taxpayer provide, and agree to the disclosure of, any
information necessary to pay the tax refund to the individual
retirement plan specified by the taxpayer.
(3) Special rule.--The Secretary may provide that if, for
any reason, the trustee or issuer does not accept payment of a
tax refund, the tax refund shall instead be paid as if the
taxpayer had not elected a direct payment to an individual
retirement plan.
(c) Conforming Amendments.--
(1) Paragraph (3) of section 408(o) of the Internal Revenue
Code of 1986 is amended by striking ``rule'' and inserting
``rules''.
(2) Paragraph (7) of section 408A(c) of such Code is
amended by striking ``rule'' and inserting ``rules''.
(d) Effective Date.--The amendments made by this section shall be
effective for tax returns filed after final rules implementing the
amendments made by this section are prescribed.
SEC. 212. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.
(a) In General.--Subsection (m) of section 132 of the Internal
Revenue Code of 1986 (defining qualified retirement services) is
amended by adding at the end the following new paragraph:
``(4) No constructive receipt.--No amount shall be included
in the gross income of any employee solely because the employee
may choose between any qualified retirement planning services
provided by a qualified investment advisor and compensation
which would otherwise be includible in the gross income of such
employee. The preceding sentence shall apply to highly
compensated employees only if the choice described in such
sentence is available on substantially the same terms to each
member of the group of employees normally provided education
and information regarding the employer's qualified employer
plan.''.
(b) Conforming Amendments.--
(1) Section 403(b)(3)(B) of such Code is amended by
inserting ``132(m)(4),'' after ``132(f)(4),''.
(2) Section 414(s)(2) of such Code is amended by inserting
``132(m)(4),'' after ``132(f)(4),''.
(3) Section 415(c)(3)(D)(ii) of such Code is amended by
inserting ``132(m)(4),'' after ``132(f)(4),''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 213. REPEAL OF COMBINED PLAN DEDUCTION LIMIT.
(a) In General.--Paragraph (7) of section 404(a) of the Internal
Revenue Code of 1986 (relating to limitations on deductions where
combination of defined contribution plan and defined benefit plan) is
amended by adding at the end the following:
``(D) Exemption.--This paragraph shall not apply to
contributions by any employer if such employer or any
member of such employer's controlled group (within the
meaning of section 412(l)(8)(C)) maintains a defined
benefit plan that is covered by title IV of the
Employee Retirement Income Security Act of 1974.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions for taxable years beginning after December 31, 2005.
TITLE III--EXPANDING SMALL BUSINESS RETIREMENT PLAN COVERAGE AND MAKING
THE ELECTIVE DEFERRAL RULES SIMPLER AND MORE UNIFORM
SEC. 301. ALLOW ADDITIONAL NONELECTIVE CONTRIBUTIONS TO SIMPLE PLANS.
(a) In General.--
(1) Modification to definition.--Subparagraph (A) of
section 408(p)(2) of the Internal Revenue Code of 1986
(defining qualified salary reduction arrangement) is amended by
striking ``and'' at the end of clause (iii), by redesignating
clause (iv) as clause (v), and by inserting after clause (iii)
the following new clause:
``(iv) the employer may make nonelective
contributions of a uniform percentage (up to 10
percent) of compensation for each employee who
is eligible to participate in the arrangement
and who has at least $5,000 of compensation
from the employer for the year, and''.
(2) Limitation.--Subparagraph (A) of section 408(p)(2) of
such Code (defining qualified salary reduction arrangement) is
amended by adding at the end the following: ``The compensation
taken into account under clause (iv) for any year shall not
exceed the limitation in effect for such year under section
401(a)(17).''.
(b) Conforming Amendments.--
(1) Section 408(p)(2)(A)(v) of such Code, as redesignated
by subsection (a), is amended by striking ``or (iii)'' and
inserting ``, (iii), or (iv)''.
(2) Paragraph (8) of section 408(p) of such Code is amended
by inserting ``, the employer contribution actually made under
paragraph (2)(A)(iv) of this subsection,'' after ``paragraph
(2)(A)(ii) of this subsection''.
(3) Section 401(k)(11)(B)(i) of such Code is amended by
striking ``and'' at the end of subclause (II), by redesignating
subclause (III) as subclause (IV), and by inserting after
subclause (II) the following new subclause:
``(III) the employer may make
nonelective contributions of a uniform
percentage (up to 10 percent) of
compensation for each employee who is
eligible to participate in the
arrangement and who has at least $5,000
of compensation from the employer for
the year, and''
(4) Section 401(k)(11)(B)(i)(IV) of such Code, as
redesignated by paragraph (2), is amended by striking ``or
(II)'' and inserting ``, (II), or (III)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 302. CONFORM MATCHING CONTRIBUTION RULES FOR SIMPLE IRAS AND
SIMPLE 401(K)S.
(a) In General.--Subclause (II) of section 401(k)(11)(B)(i) of the
Internal Revenue Code of 1986 (relating to general rule for
contribution requirements) is amended by striking ``3 percent'' and
inserting ``the applicable percentage (as defined in section
408(p)(2)(C)(ii))''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2005.
SEC. 303. UNIFORM CATCH-UP CONTRIBUTION RULE.
(a) In General.--Clause (iii) of section 414(v)(6)(A) of the
Internal Revenue Code of 1986 is amended to read as follows:
``(iii) an eligible deferred compensation
plan (as defined in section 457(b)), and''.
(b) Conforming Amendment.--Paragraph (18) of section 457(e) of such
Code is amended by striking ``and who is a participant in an eligible
deferred compensation plan of an employer described in paragraph
(1)(A)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 304. UNIFORM DEFINITION OF COMPENSATION.
(a) Compensation.--
(1) In general.--Subparagraph (A) of section 415(c)(3) of
the Internal Revenue Code of 1986 is amended to read as
follows:
``(A) In general.--The term `participant's
compensation' means wages (as defined by section
3401(a)) and all other payments of compensation to an
employee by his employer (in the course of the
employer's trade or business) for the year for which
the employer is required to furnish the employee a
written statement under section 6041(d), 6051(a)(3), or
6052. In accordance with rules prescribed by the
Secretary, compensation shall be determined without
regard to any rules under section 3401(a) that limit
the remuneration included in wages based on the nature
or location of the employment or the services
performed.''.
(2) Certain picked up contributions.--Subparagraph (D) of
section 415(c)(3) of such Code is amended by striking ``and''
at the end of clause (i), redesignating clause (ii) as clause
(iii), and inserting after clause (i) the following:
``(ii) any employee contributions that are
picked up under section 414(h)(2), and''.
(3) Five-year rule.--Subparagraph (E) of section 415(c)(3)
of such Code is amended to read as follows:
``(E) Five-year rule.--In the case of an annuity
contract described in section 403(b), at the election
of the employer maintaining the arrangement, the term
`participant's compensation' shall not be determined
for the year but shall be determined for the most
recent period (ending not later than the close of the
year) which constitutes a year of service and which
precedes the year by no more than five years. For
purposes of the preceding sentence, under rules
prescribed by the Secretary, a year of service shall be
a full year of full-time service as an employee (or a
combination of more than one year of part-year or part-
time service).''.
(4) Applicability.--Paragraph (3) of section 415(c) of such
Code is amended by striking ``For purposes of paragraph (1)--''
and inserting ``For purposes of this section--''.
(b) 403(b) Plans.--
(1) In general.--Subsection (b) of section 403 of such Code
is amended by striking paragraphs (3) and (4).
(2) Conforming amendments.--
(A) Clauses (i) and (ii) of section 414(e)(5)(B) of
such Code are amended to read as follows:
``(i) the minister's compensation under
section 415(c)(3) shall be determined by
reference to the minister's earned income
(within the meaning of section 401(c)(2)) from
such ministry rather than the amount of
compensation which is received from an
employer, and
``(ii) the years (and portions of years) in
which such minister was a self-employed
individual (within the meaning of section
401(c)(1)(B)) with respect to such ministry
shall be included for purposes of section
415(c)(3)(E).''.
(B) Paragraph (7) of section 414(u) of such Code is
amended by striking ``403(b)(3), 415(c)(3),'' and
inserting ``415(c)(3)''.
(C) Subparagraph (C) of section 415(c)(7) of such
Code is amended by striking ``includible compensation
determined under section 403(b)(3)'' and inserting
``compensation determined under section 415(c)(3)''.
(c) Simplified Employee Pensions.--Subparagraph (A) of section
402(h)(2) of such Code is amended to read as follows:
``(A) 25 percent of the compensation (within the
meaning of section 415(c)(3), except that for purposes
of this subsection, amounts described in section
6051(a)(3) shall be determined without regard to
section 3401(a)(3)) from such employer for the year,
or''.
(d) SIMPLE Plans.--Subparagraph (A) of section 408(p)(6) of such
Code is amended to read as follows:
``(A) Compensation.--The term `compensation' has
the same meaning as the term `participant's
compensation' (as defined in section 415(c)(3)), except
that for purposes of this subsection, amounts described
in section 6051(a)(3) shall be determined without
regard to section 3401(a)(3).''.
(e) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 305. UNIFORM WITHDRAWAL RULES.
(a) In General.--Section 414 of the Internal Revenue Code of 1986
is amended by adding at the end the following:
``(w) Distributable Event.--For purposes of this part--
``(1) In general.--The term `distributable event' means
with respect to a participant--
``(A) attainment of age 59\1/2\,
``(B) death,
``(C) disability (within the meaning of section
72(m)(7)),
``(D) severance from employment,
``(E) hardship, or
``(F) termination of the plan without the
establishment or maintenance of a successor plan (other
than an employee stock ownership plan as defined in
section 4975(e)(7)).
``(2) Special rules.--
``(A) Subparagraphs (A) and (E) of paragraph (1)
shall not apply to a defined contribution plan to which
section 412 applies.
``(B) Paragraph (1)(E) shall only apply to amounts
described in clauses (i) or (ii) of section
415(c)(3)(D) (without regard to earnings attributable
to such amounts).
``(C) Paragraph (1)(F) shall not apply to a plan
described in subsection (v)(6)(A)(ii) unless the
employer maintaining such plan elects to maintain the
plan pursuant to a plan document. Under rules
prescribed by the Secretary, a plan described in
subsection (v)(6)(A)(ii) may be treated as terminated
without regard to whether all assets of the plan are
distributed.
``(D)(i) Paragraph (1)(F) shall not apply to an
employee unless the employee receives a lump sum
distribution by reason of the termination.
``(ii) For purposes of this subparagraph, the
determination of whether a distribution is a lump sum
distribution shall be made under section 402(e)(4)(D)
(without regard to subclauses (I), (II), (III), and
(IV) of clause (i) thereof) or, in the case of plans
not described in such section, under similar rules.
Such term includes a distribution that consists in
whole or in part of an annuity contract.''.
(b) 401(k) Plans.--
(1) Clause (i) of section 401(k)(2)(B) of such Code is
amended to read as follows:
``(i) may not be distributable to
participants or other beneficiaries earlier
than the occurrence of a distributable event,
and''.
(2) Section 401(k) of such Code is amended by striking
paragraph (10).
(3) The last sentence of subparagraph (C) of section
401(k)(7) of such Code is amended to read as follows: ``For
purposes of this section, the term `hardship distribution'
means a distribution described in section 414(w)(1)(E) (taking
section 414(w)(2)(B) into account but without regard to section
414(w)(2)(A)).
(c) 403(b) Plans.--
(1) Clause (ii) of section 403(b)(7)(A) of such Code is
amended to read as follows:
``(ii) under the custodial account, no such
amounts may be paid or made available to any
distributee before the occurrence of a
distributable event.''.
(2) Paragraph (11) of section 403(b) of such Code is
amended by striking ``may be paid only'' and all that follows
and inserting ``may be paid only upon the occurrence of a
distributable event.''.
(d) Eligible Deferred Compensation Plans.--
(1) Subparagraph (A) of section 457(d)(1) of such Code is
amended to read as follows:
``(A) under the plan amounts will not be made
available to participants or beneficiaries earlier than
the occurrence of a distributable event,''.
(2) Paragraph (1) of section 457(a) of such Code is amended
to read as follows:
``(1) In general.--Any amount of compensation deferred
under an eligible deferred compensation plan, and any income
attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such
compensation or other income is paid to the participant or
other beneficiary.''.
(3) Subsection (d) of section 457 of such Code is amended
by striking paragraph (3).
(4) Paragraph (9) of section 457(e) of such Code is amended
to read as follows:
``(9) Small benefits not treated as made available by
reason of certain elections.--For purposes of subsection
(d)(1)(A), the total amount payable to a participant under an
eligible deferred compensation plan shall not be treated as
made available merely because the participant may elect to
receive such amount (or the plan may distribute such amount
without the participant's consent) if--
``(A) the portion of such amount which is not
attributable to rollover contributions (as defined in
section 411(a)(11)(D)) does not exceed the dollar limit
under section 411(a)(11)(A), and
``(B) such amount may be distributed only if--
``(i) no amount has been deferred under the
plan with respect to such participant during
the 2-year period ending on the date of the
distribution, and
``(ii) there has been no prior distribution
under the plan to such participant to which
this subparagraph applied.''.
(e) Hardship Definition.--
(1) In general.--Within 180 days after the date of
enactment of this Act, the Secretary of the Treasury shall
issue rules under which, except as provided in paragraph (2),
the determination of whether a participant has had a hardship
for purposes of section 414(w)(1)(E) of the Internal Revenue
Code of 1986 shall be made pursuant to Treasury Regulation
section 1.401(k)-1(d)(3), as such section is amended from time
to time by the Secretary.
(2) Beneficiaries.--Within 180 days after the date of
enactment of this Act, the Secretary of the Treasury shall
modify the rules for determining whether a participant has had
a hardship for purposes of section 414(w)(1)(E) of such Code.
Pursuant to such modification, any event, such as a medical
expense, that would constitute a hardship if it occurred with
respect to a participant's spouse or dependent (as defined in
section 152 of such Code) shall, to the extent permitted under
a plan, constitute a hardship if it occurs with respect to a
person who is a beneficiary with respect to the participant
under the plan.
(f) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to years beginning
after December 31, 2005.
(2) Special rule.--In the case of amounts attributable to
contributions to an eligible deferred compensation plan (as
defined in section 457(b) of the Internal Revenue Code of 1986)
made before the first day of the first year beginning after
December 31, 2005, withdrawals of such amounts from such a plan
may be permitted upon unforeseeable emergency (as defined under
section 457(d)(1)(A)(iii) of such Code, as in effect on the day
before the enactment of this Act).
SEC. 306. ALLOW LEVEL DOLLAR CONTRIBUTIONS TO SEPS.
(a) In General.--Subparagraph (C) of section 408(k)(3) of the
Internal Revenue Code of 1986 (relating to contributions must bear
uniform relationship to total compensation) is amended by inserting
before the period at the end the following: ``or unless such
contributions are a uniform dollar amount on behalf of each such
employee.''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2005.
SEC. 307. TAX TREATMENT OF CERTAIN NONTRADE OR BUSINESS SEP
CONTRIBUTIONS.
(a) In General.--Subparagraph (B) of section 4972(c)(6) of the
Internal Revenue Code of 1986 (relating to exceptions) is amended--
(1) by striking ``408(p) or'' and inserting ``408(p),'',
and
(2) by inserting after ``401(k)(11))'' the following: ``,
or a simplified employee pension (within the meaning of section
408(k))''.
(b) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 308. UNIFORM AVAILABILITY OF DESIGNATED RSA CONTRIBUTIONS.
(a) In General.--Paragraph (1) of section 402A(e) of the Internal
Revenue Code of 1986 is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of subparagraph (B)
and inserting ``, and'', and by adding at the end the following
subparagraphs:
``(C) an eligible deferred compensation plan under
section 457 of an eligible employer described in
section 457(e)(1)(A), and
``(D) an annuity plan described in section
403(a).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 309. ALLOW CERTAIN PLAN TRANSFERS AND MERGERS.
(a) Amendment to the Internal Revenue Code of 1986.--
(1) In general.--Section 414 of the Internal Revenue Code
of 1986 (relating to definitions and special rules) is amended
by adding at the end the following new subsection:
``(x) Certain Plan Transfers and Mergers.--
``(1) In general.--Under rules prescribed by the Secretary,
no amount shall be includible in gross income by reason of--
``(A) a transfer of all or a portion of the account
balance of a participant or beneficiary, whether or not
vested, from a defined contribution plan described in
section 401(a) or section 403(a) of an employer to an
annuity contract described in section 403(b) of the
same employer,
``(B) a transfer of all or a portion of the account
balance of a participant or beneficiary, whether or not
vested, from an annuity contract described in section
403(b) of an employer to a defined contribution plan
described in section 401(a) or section 403(a) of the
same employer, or
``(C) a merger of a defined contribution plan
described in section 401(a) or section 403(a) of an
employer with an annuity contract described in section
403(b) of the same employer,
so long as the transfer or merger does not cause a reduction in
the vested benefit or total benefit (including non-vested
benefit) of any participant or beneficiary. A plan or contract
shall not fail to be considered to be described in sections
401(a), 403(a), or 403(b) (as applicable) merely because such
plan or contract engages in a transfer or merger described in
this paragraph.
``(2) Distributions.--Amounts transferred or merged
pursuant to paragraph (1) shall be subject to the requirements
of paragraphs (3) and (4) and to the distribution requirements
under sections 401(a), 403(a), or 403(b) applicable to the
transferee or merged plan.
``(3) Spousal consent and anti-cutback protection.--In the
case of a transfer or merger described in paragraph (1),
amounts in the transferee or merged plan that are attributable
to the transferor or predecessor plan shall--
``(A)(i) be subject to section 401(a)(11) or
section 205 of the Employee Retirement Income Security
Act of 1974 to the extent that such sections applied to
such amounts in the transferor or predecessor plan, or
``(ii) be required to satisfy the requirements of
section 401(a)(11)(B)(iii)(I) or section
205(b)(1)(C)(i) of the Employee Retirement Income
Security Act of 1974 to the extent that such sections
applied to such amounts in the transferor or
predecessor plan, and
``(B) be treated as subject to section 411(d)(6)
and section 204(g) of the Employee Retirement Income
Security Act of 1974 to the extent that such amounts
were subject to such sections in the transferor or
predecessor plan.
``(4) Special rules.--Under rules prescribed by the
Secretary, to the extent amounts transferred or merged pursuant
to paragraph (1) were otherwise entitled to grandfather
treatment under the transferor or predecessor plan, such
amounts (and income or loss attributable thereto) shall remain
entitled to such treatment under the transferee or merged plan.
The rules prescribed by the Secretary shall require that such
amounts be separately accounted for by the transferee or merged
plan. For purposes of this paragraph, `grandfather treatment'
shall mean special treatment under the Internal Revenue Code of
1986 that is provided for prior benefits, prior periods of
time, or certain individuals in connection with a change in the
applicable law.
``(5) Consent.--In the case of a qualified trust described
in section 401(a) or 403(a) and an annuity contract described
in section 403(b) with respect to which transfers may be made
only with the consent of a participant or beneficiary pursuant
to the terms of such trust or contract or pursuant to
applicable law, such consent requirement shall apply without
regard to this subsection. Nothing in this subsection shall
affect the application of contract or plan terms otherwise
applicable in the case of a withdrawal from the contract or
plan.''.
(2) Aggregation.--Paragraph (2) of section 414(t) of such
Code is amended by inserting ``414(x),'' after ``274(j),''.
(b) Amendment to the Employee Retirement Income Security Act of
1974.--Section 4 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1003) is amended by adding at the end the following new
subsection:
``(d) This title shall apply to any plan or contract described in
section 414(x) of the Internal Revenue Code of 1986 to the extent
necessary to comply with the requirements of such section.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transfers or mergers in years beginning after the
Secretary of the Treasury prescribes rules under section 414(x)
of the Internal Revenue Code of 1986.
(2) Rules.--The Secretary of the Treasury shall issue rules
under section 414(x) of the Internal Code of 1986 within 1 year
after the date of enactment of this Act.
TITLE IV--EXPANDING RETIREMENT SAVINGS FOR TAX-EXEMPT ORGANIZATION AND
GOVERNMENT EMPLOYEES
SEC. 401. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON CERTAIN
DISTRIBUTIONS OF PENSION PLANS FOR PUBLIC SAFETY
EMPLOYEES.
(a) In General.--Subsection (t) of section 72 of the Internal
Revenue Code of 1986 (relating to subsection not to apply to certain
distributions) is amended by adding at the end the following new
paragraph:
``(10) Distributions to qualified public safety employees
in governmental plans.--
``(A) In general.--In the case of a distribution to
a qualified public safety employee from a governmental
plan (within the meaning of section 414(d)) which is a
defined benefit plan, paragraph (2)(A)(v) shall be
applied by substituting `age 50' for `age 55'.
``(B) Qualified public safety employee.--For
purposes of this paragraph, the term `qualified public
safety employee' means any employee of a State or
political subdivision of a State who provides police
protection, firefighting services, or emergency medical
services for any area within the jurisdiction of such
State or political subdivision.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions after the date of the enactment of this Act.
SEC. 402. CLARIFICATIONS REGARDING PURCHASE OF PERMISSIVE SERVICE
CREDIT.
(a) In General.--Subparagraph (A) of section 457(e)(17) of the
Internal Revenue Code of 1986 (relating to trustee-to-trustee transfers
to purchase permissive service credit), and subparagraph (A) of section
403(b)(13) of such Code (relating to trustee-to-trustee transfers to
purchase permissive service credit), are both amended by striking
``section 415(n)(3)(A)'' and inserting ``section 415(n)(3) (without
regard to subparagraphs (B) and (C) thereof)''.
(b) Distribution Requirements.--Section 457(e)(17) and section
403(b)(13) of such Code are both amended by adding at the end the
following sentence: ``Amounts transferred under this paragraph shall be
distributed solely in accordance with section 401(a) as applicable to
such defined benefit plan.''.
(c) Service Credit.--Clause (ii) of section 415(n)(3)(A) of such
Code is amended to read as follows:
``(ii) which relates to benefits with
respect to which such participant is not
otherwise entitled, and''.
(d) Effective Date.--The amendments made by this section shall take
effect as if included in the amendments made by section 647 of the
Economic Growth and Tax Relief Reconciliation Act of 2001.
SEC. 403. ELIGIBILITY FOR PARTICIPATION IN RETIREMENT PLANS.
An individual shall not be precluded from participating in an
eligible deferred compensation plan by reason of having received a
distribution under section 457(e)(9) of the Internal Revenue Code of
1986, as in effect prior to the enactment of the Small Business Job
Protection Act of 1996.
SEC. 404. CLARIFICATION OF MINIMUM DISTRIBUTION RULES.
The Secretary of the Treasury shall issue regulations under which a
governmental plan (as defined in section 414(d) of the Internal Revenue
Code of 1986) shall, for all years to which section 401(a)(9) of such
Code applies to such plan, be treated as having complied with such
section 401(a)(9) if such plan complies with a reasonable good faith
interpretation of such section 401(a)(9).
SEC. 405. CHURCH PLAN RULE.
(a) In General.--Paragraph (11) of section 415(b) of the Internal
Revenue Code of 1986 is amended by adding at the end the following:
``Subparagraph (B) of paragraph (1) shall not apply to a plan
maintained by an organization described in section 3121(w)(3) except
with respect to highly compensated benefits. For purposes of this
paragraph, the term `highly compensated benefits' means any benefits
accrued for an employee in any year on or after the first year in which
such employee is a highly compensated employee (as defined in section
414(q)) of the organization described in section 3121(w)(3). For
purposes of applying paragraph (1)(B) to highly compensated benefits,
all benefits of the employee otherwise taken into account (without
regard to this paragraph) shall be taken into account.''.
(b) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2005.
SEC. 406. CLARIFICATION OF TREATMENT OF INDIAN TRIBAL GOVERNMENTS.
(a) Definition of Governmental Plan.--
(1) Amendment to internal revenue code of 1986.--Section
414(d) of the Internal Revenue Code of 1986 (definition of
governmental plan) is amended by adding at the end thereof the
following new sentence: ``The term `governmental plan' also
includes a plan established or maintained for its employees by
an Indian tribal government (as defined in section
7701(a)(40)), a subdivision of an Indian tribal government
(determined in accordance with section 7871(d)), an agency or
instrumentality of an Indian tribal government or a subdivision
thereof, or an entity established under tribal, Federal, or
State law which is wholly owned or controlled by any of the
foregoing.''.
(2) Amendment to employee retirement income security act of
1974.--Section 3(32) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1002(32)) is amended by adding at the
end the following new sentence: ``The term `governmental plan'
also includes a plan established or maintained for its
employees by an Indian tribal government (as defined in section
7701(a)(40) of the Internal Revenue Code of 1986), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d) of such Code), an agency or
instrumentality of an Indian tribal government or subdivision
thereof, or an entity established under tribal, Federal, or
State law which is wholly owned or controlled by any of the
foregoing.''.
(b) Clarification of Treatment of Indian Tribal Governments.--
(1) Amendments to internal revenue code of 1986.--
(A) Police and firefighters.--Subparagraph (H) of
section 415(b)(2) of the Internal Revenue Code of 1986
(defining participant) is amended--
(i) in clause (i) by striking ``State or
political subdivision'' and inserting ``State,
Indian tribal government (as defined in section
7701(a)(40)), or any political subdivision'',
and
(ii) in clause (ii)(I) by striking ``State
or political subdivision'' both places it
appears and inserting ``State, Indian tribal
government (as so defined), or any political
subdivision''.
(B) State and local government plans.--
(i) In general.--Subparagraph (A) of
section 415(b)(10) of such Code (relating to
limitation to equal accrued benefit) is
amended--
(I) by inserting ``, Indian tribal
government (as defined in section
7701(a)(40)),'' after ``State'',
(II) by inserting ``any'' before
``political subdivision'', and
(III) by inserting ``any of''
before ``the foregoing''.
(ii) Conforming amendment.--The heading for
paragraph (10) of section 415(b) of such Code
is amended to read as follows:
``(10) Special rule for state, indian tribal, and local
government plans.--''.
(C) Government pick up contributions.--Paragraph
(2) of section 414(h) of such Code (relating to
designation by units of government) is amended by
striking ``State or political subdivision'' and
inserting ``State, Indian tribal government (as defined
in section 7701(a)(40)), or any political
subdivision''.
(D) Distributions to public safety employees.--
Subparagraph (B) of section 72(t)(10) of such Code, as
added by this Act, is amended--
(i) by striking ``State or political
subdivision of a State'' and inserting ``State,
Indian tribal government (as defined in section
7701(a)(4)), or political subdivision
thereof'', and
(ii) by striking ``such State or political
subdivision'' and inserting ``such State,
Indian tribal government (as defined in section
7701(a)(4)), or political subdivision
thereof''.
(2) Amendments to employee retirement income security act
of 1974.--Section 4021(b) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1321(b)) is amended--
(A) in paragraph (12), by striking ``or'' at the
end;
(B) in paragraph (13), by striking ``plan.'' and
inserting ``plan; or''; and
(C) by adding at the end the following new
paragraph:
``(14) established and maintained for its employees by an
Indian tribal government (as defined in section 7701(a)(40) of
the Internal Revenue Code of 1986), a subdivision of an Indian
tribal government (determined in accordance with section
7871(d) of such Code), an agency or instrumentality of an
Indian tribal government or subdivision thereof, or an entity
established under tribal, Federal, or State law which is wholly
owned or controlled by any of the foregoing.''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning before, on, or after the date of the enactment
of this Act.
SEC. 407. DEFERRAL AGREEMENTS.
(a) In General.--Paragraph (4) of section 457(b) of the Internal
Revenue Code of 1986 is amended by adding the following after
``month'': ``or, in the case of a plan of an eligible employer
described in subsection (e)(1)(A), before the date on which the
compensation is currently available''.
(b) Effective Date.--The amendment made by this section shall apply
to years beginning after December 31, 2005.
SEC. 408. PLANS MAINTAINED BY STATE OR LOCAL GOVERNMENTS.
(a) In General.--Subparagraph (F) of section 415(b)(2) of the
Internal Revenue Code of 1986 is amended to read as follows:
``(F) Plans maintained by state or local
governments.--
``(i) In general.--In the case of a
governmental plan (within the meaning of
section 414(d)) maintained by a State of local
government or political subdivision thereof (or
agency or instrumentality thereof),
subparagraph (C) shall be applied as if the
following sentence were added at the end: `The
reduction under this subparagraph shall not
reduce the limitation of paragraph (l)(A) below
(i) $130,000 if the benefit begins at or after
age 55, or (ii) if the benefit begins before
age 55, the equivalent of the $130,000
limitation at age 55.'''.
(b) Cost-of-Living Adjustments.--
(1) Plans maintained by state or local governments.--
Paragraph (1) of section 415(d) of such Code is amended by
striking ``and'' at the end of subparagraph (B), by
redesignating subparagraph (C) as subparagraph (D), and by
inserting after subparagraph (B) the following new
subparagraph:
``(C) the $130,000 amount in subsection (b)(2)(F),
and''.
(2) Base period.--Paragraph (3) of section 415(d) of such
Code is amended by redesignating subparagraph (D) as
subparagraph (E) and by inserting after subparagraph (C) the
following new subparagraph:
``(D) $130,000 amount.--The base period taken into
account for purposes of paragraph (l)(C) is the
calendar quarter beginning July 1, 2005.''.
(3) Rounding rule relating to defined benefit plans.--
Subparagraph (B) of section 415(d)(4) of such Code is amended
to read as follows:
``(B) $130,000 and $40,000 amounts.--Any increase
under subparagraph (C) or (D) of paragraph (1) which is
not a multiple of $1,000 shall be rounded to the next
lowest multiple of $1,000.''.
(4) Conforming amendment.--Subparagraph (E) of section
415(d)(3) of such Code (as amended by paragraph (2)) is amended
by striking ``paragraph (l)(C)'' and inserting ``paragraph
(l)(D)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 409. CLARIFICATION OF TREATMENT OF SECTION 403(B) PROGRAMS.
(a) Administration.--The Secretary of the Treasury shall not issue
any rules which would impose materially greater burdens and
responsibilities on employers with respect to the administration of a
program described in section 403(b) of the Internal Revenue Code of
1986 than are imposed as of the date of enactment of this Act.
(b) Transfers.--Under rules prescribed by the Secretary of the
Treasury, participants shall be permitted to directly transfer all or
part of their interest in a section 403(b) annuity contract or
custodial account to another section 403(b) annuity contract or
custodial account without violating the prohibitions against in-service
withdrawals in sections 403(b)(7) and 403(b)(11) of such Code. These
rules shall be consistent with the principles of Revenue Ruling 90-24.
(c) Proposed Regulations.--The Secretary of the Treasury shall not
finalize proposed regulations published on November 15, 2004, unless
such regulations reflect the requirements of this section.
(d) Effective Date.--The provisions of this section shall take
effect on the date of enactment of this Act.
TITLE V--SIMPLIFICATION AND EQUITY
SEC. 501. UPDATING AND SIMPLIFYING THE MINIMUM DISTRIBUTION RULES.
(a) Required Distributions.--
(1) Increase in age for required beginning date.--Clauses
(i) and (ii) of section 401(a)(9)(C) of the Internal Revenue
Code of 1986 (relating to required beginning date) are amended
by striking ``age 70\1/2\'' each place it appears and inserting
``the applicable age''.
(2) Mandatory distribution age.--Paragraph (9) of section
401(a) of such Code (relating to required distributions) is
amended by inserting at the end the following new subparagraph:
``(H) Applicable age.--
``(i) In general.--For purposes of this
paragraph, the applicable age shall be 70\1/2\,
adjusted pursuant to clause (ii).
``(ii) Adjustment.--The Secretary shall
increase the applicable age annually in a
manner proportional to increases in life
expectancy (as determined by the Secretary)
that occur on or after January 1, 2005, except
that no adjustment shall be made until the
applicable age as adjusted would equal or
exceed age 72. Any applicable age which is not
a whole number shall be rounded to the next
lower whole number.''.
(3) Spouse beneficiaries.--Subclause (I) of section
401(a)(9)(B)(iv) of such Code (relating to special rule for
surviving spouse of employee) is amended by striking ``age
70\1/2\'' and inserting ``the applicable age''.
(4) Actuarial adjustment of benefit under defined benefit
plan.--Clause (iii) of section 401(a)(9)(C) of such Code
(relating to actuarial adjustment) is amended to read as
follows:
``(iii) Actuarial adjustment.--
``(I) In general.--In the case of a
defined benefit plan, an employee's
accrued benefit shall be actuarially
increased to take into account the
period after the applicable date during
which the employee was not receiving
any benefits under the plan.
``(II) Applicable date.--For
purposes of clause (I), the term
`applicable date' means April 1 of the
calendar year following the calendar
year in which the employee attains age
70\1/2\.''.
(b) Reduction in Excise Tax.--Subsection (a) of section 4974 of
such Code (relating to excise tax on certain accumulations in qualified
retirement plans) is amended by striking ``50 percent'' and inserting
``25 percent''.
(c) Simplification for Individuals.--
(1) In general.--Section 408(a) of such Code is amended by
redesignating subsection (r) as subsection (s) and by inserting
after subsection (q) the following subsection--
``(r) Minimum Distribution Exemption for Small Accounts.--
``(1) In general.--Subsections (a)(6) and (b)(3) shall not
apply to the individual retirement accounts and individual
retirement annuities of an individual described in paragraph
(2).
``(2) Individuals affected.--
``(A) In general.--An individual is described in
this paragraph for a taxable year if, as of the last
day of the preceding taxable year, the individual's
vested interest in all affected retirement plans has a
combined value that does not exceed $100,000.
``(B) Life annuity rule.--For purposes of
subparagraph (A), an individual's vested interest in an
affected retirement plan shall not be taken into
account to the extent that such interest has been used
to purchase an annuity contract under which payments
described in section 402(e)(7)(D)(i) are made.
``(3) Affected retirement plans.--
``(A) In general.--With respect to an individual,
the term `affected retirement plan' means any plan
described in paragraph (3), (4), or (5) of section
4974(c), other than an RSA.
``(B) Special rule.--A plan described in section
4974(c)(3) shall not be treated as an affected
retirement plan with respect to an individual for any
year prior to the first year for which a distribution
would be required under section 403(b)(10) (without
regard to this subsection).
``(4) Limitation on total required distributions.--Under
rules prescribed by the Secretary, in the case of an individual
not described in paragraph (2), the total amount required to be
distributed under subsections (a)(6) and (b)(3), in combination
with the total amount required to be distributed under section
403(b)(10), shall not exceed the excess of the combined value
of the individual's vested interest in all affected retirement
plans over $100,000.
``(5) Cost-of-living adjustment.--The Secretary shall
adjust the $100,000 amount in paragraphs (2) and (4) at the
same time and in the same manner as under section 415(d),
except that the base period shall be the calendar quarter
ending September 30, 2005.''.
(2) Parallel rule for section 403(b) plans.--Paragraph (10)
of section 403(b) of such Code is amended by adding at the end
the following: ``For purposes of applying the requirements of
this paragraph, rules similar to the rules of section 408(r)
shall apply.''.
(3) Conforming amendments.--
(A) Paragraph (6) of section 408(a) of such Code is
amended by striking ``Under regulations'' and inserting
``Except as provided in subsection (r), under
regulations''.
(B) Paragraph (3) of section 408(b) of such Code is
amended by striking ``Under regulations'' and inserting
``Except as provided in subsection (r), under
regulations''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to years beginning
after December 31, 2005.
(2) Transition.--A plan shall not be treated as failing to
meet the requirements of section 401(a)(9) of the Internal
Revenue Code of 1986 merely because, in years beginning after
December 31, 2005, no distribution is made to an employee
before the employee's required beginning date, as determined in
accordance with the amendments made by this section.
SEC. 502. CLARIFICATION OF CATCH-UP CONTRIBUTIONS.
(a) Exception to Nondiscrimination Rules.--
(1) In general.--Paragraph (4) of section 414(v) of the
Internal Revenue Code of 1986 (relating to application of
nondiscrimination rules) is amended by redesignating
subparagraph (B) as subparagraph (C) and by inserting after
subparagraph (A) the following new subparagraph:
``(B) Exception.--An applicable employer plan shall
not fail to satisfy the requirements of this
subparagraph solely because another applicable employer
plan maintained by the employer that is qualified under
Puerto Rico law does not provide for additional
elective deferrals under this subsection.''.
(2) Exception to aggregation rules.--Subparagraph (C) of
section 414(v)(4) of such Code, as redesignated by paragraph
(1), is amended by adding at the end the following new
sentence: ``In addition, employees described in section
410(b)(3) shall be excluded from consideration. For any year in
which an employer complies with section 410(b) on the basis of
separate lines of business pursuant to section 410(b)(5), the
employer may apply subparagraph (A) for such year separately
with respect to employees in each separate line of business.''.
(b) Effective Date.--The amendments made by this section shall take
effect as if included in section 631(a) of the Economic Growth and Tax
Relief Reconciliation Act of 2001.
SEC. 503. TREATMENT OF UNCLAIMED BENEFITS.
(a) Amendments to Internal Revenue Code of 1986.--
(1) Amendment to section 401(a)(34).--Section 401(a)(34) of
the Internal Revenue Code of 1986 (relating to benefits of
missing participants) is amended to read as follows:
``(34) Unclaimed benefits.--A trust forming part of a plan
shall not be treated as failing to constitute a qualified trust
under this section merely because the plan of which such trust
is a part treats unclaimed benefits in a manner that satisfies
the requirements of section 414(y).''.
(2) Amendment to section 414.--Section 414 of such Code
(relating to definitions and special rules) (as amended by this
Act) is amended by adding at the end the following new
subsection:
``(y) Unclaimed Benefits.--
``(1) In general.--A plan meets the requirements of this
subsection only if--
``(A) Ongoing plans.--In the case of an ongoing
plan, the plan provides for one or more of the
following with respect to unclaimed benefits:
``(i) In the case of an unclaimed benefit
to which section 401(a)(31)(B) applies, a
transfer under section 401(a)(31)(B).
``(ii) A transfer to the Pension Benefit
Guaranty Corporation, in accordance with
section 4050(e) of the Employee Retirement
Income Security Act of 1974.
``(iii) Any other treatment permitted under
rules prescribed by the Secretary.
``(B) Terminated plans.--In the case of a
terminated plan, the plan provides for the following
with respect to unclaimed benefits:
``(i) Defined benefit plans.--In the case
of a defined benefit plan, one or more of the
following:
``(I) In the case of an unclaimed
benefit to which section 401(a)(31)(B)
applies, a transfer under section
401(a)(31)(B).
``(II) A transfer of the unclaimed
benefit to another defined benefit plan
maintained by the employer.
``(III) The purchase of an annuity
contract to provide for an individual's
unclaimed benefit.
``(IV) A transfer to the Pension
Benefit Guaranty Corporation in
accordance with section 4050(a) or
4050(e) (as applicable) of the Employee
Retirement Income Security Act of 1974.
``(V) Any other treatment permitted
under rules prescribed by the
Secretary.
``(ii) Defined contribution plans.--In the
case of a defined contribution plan, one or
more of the following:
``(I) In the case of an unclaimed
benefit to which section 401(a)(31)(B)
applies, a transfer under section
401(a)(31)(B).
``(II) A transfer of the unclaimed
benefit to another defined contribution
plan maintained by the employer.
``(III) The purchase of an annuity
contract to provide for an individual's
unclaimed benefit.
``(IV) A transfer to the Pension
Benefit Guaranty Corporation in
accordance with section 4050(d) or
4050(e) (as applicable) of the Employee
Retirement Income Security Act of 1974.
``(V) Any other treatment permitted
under rules prescribed by the
Secretary.
``(2) Treatment of transfers to pension benefit guaranty
corporation.--
``(A) Transfers to pbgc.--Amounts transferred from
a plan to the Pension Benefit Guaranty Corporation
pursuant to paragraph (1) shall be treated as a
transfer under section 401(a)(31)(A).
``(B) Distributions from pbgc.--Except as provided
in rules prescribed by the Secretary, amounts
distributed by the Pension Benefit Guaranty Corporation
shall be treated as distributed by an individual
retirement plan under section 408(d) (without regard to
paragraphs (4), (5) and (7) thereof). Rules similar to
the rules of section 402(c)(4) shall apply.
``(3) Definitions.--For purposes of this subsection--
``(A) Unclaimed benefit.--The term `unclaimed
benefit' means--
``(i) any benefit of a participant or
beneficiary which is distributable under the
terms of the plan to the participant or
beneficiary, if the distribution of the benefit
has not commenced within 1 year after the later
of the date on which the benefit first became
so distributable or the participant's severance
from employment;
``(ii) any benefit or other amount of a
participant or beneficiary which is
distributable under the terms of the plan with
respect to a missing participant; or
``(iii) any benefit to which section
401(a)(31)(B) applies or would apply if
subclause (I) of section 401(a)(31)(B)(i) did
not require the distribution to exceed $1,000.
A benefit otherwise described in clause (i) shall not
be treated as an unclaimed benefit under clause (i) if
the participant or beneficiary elects not to have such
treatment apply. Any such participant or beneficiary
shall be given reasonable notice of the opportunity to
make such an election. If the participant or
beneficiary fails to make such an election within a
reasonable period specified in the notice, any
subsequent election shall not be given effect and the
benefit shall be treated as an unclaimed benefit. A
notice mailed to the last known address of the
participant or beneficiary shall be treated as a notice
to the participant or beneficiary for purposes of this
paragraph.
``(B) Ongoing plan.--The term `ongoing plan' means
any plan which has neither terminated nor is in the
process of terminating.
``(C) Terminated plan.--The term `terminated plan'
means any plan which has terminated or is in the
process of terminating.
``(D) Missing participant.--The term `missing
participant' shall have the meaning given to such term
by section 4050(b)(1) of the Employee Retirement Income
Security Act of 1974.''.
(3) Conforming amendment.--Subparagraph (B) of section
401(a)(31) of such Code is amended by adding at the end the
following:
``(iii) Other permitted transfers.--A plan
administrator shall be treated as having
complied with the requirements of this
subparagraph if such plan administrator
complies with the requirements of section
414(y).''.
(b) Amendments to Employee Retirement Income Security Act of
1974.--
(1) In general.--Subsection (b) of section 4050 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1350) is amended by adding at the end the following paragraph:
``(3) Unclaimed benefit.--The term `unclaimed benefit'
means--
``(A) any benefit of a participant or beneficiary
which is distributable under the terms of the plan to
the participant or beneficiary, if the distribution of
the benefit has not commenced within 1 year after the
later of the date on which the benefit first became so
distributable or the participant's severance from
employment;
``(B) any benefit or other amount of a participant
or beneficiary which is distributable under the terms
of the plan with respect to a missing participant; or
``(C) any benefit to which section 401(a)(31)(B) of
the Internal Revenue Code of 1986 applies or would
apply if subclause (I) of section 401(a)(31)(B)(i) of
such Code did not require the distribution to exceed
$1,000.
A benefit otherwise described in subparagraph (A) shall not be
treated as an unclaimed benefit under subparagraph (A) if the
participant or beneficiary elects not to have such treatment
apply. Any such participant or beneficiary shall be given
reasonable notice of the opportunity to make such an election.
If the participant or beneficiary fails to make such an
election within a reasonable period specified in the notice,
any subsequent election shall not be given effect and the
benefit shall be treated as an unclaimed benefit. A notice
mailed to the last known address of the participant or
beneficiary shall be treated as a notice to the participant or
beneficiary for purposes of this paragraph.''.
(2) Other amendments.--Section 4050 of such Act is amended
by redesignating subsection (c) as subsection (f) 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 the
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).
``(e) Unclaimed Benefits.--
``(1) Transfer to corporation.--The plan administrator of a
plan described in paragraph (6) may elect to transfer unclaimed
benefits to the corporation.
``(2) Information to the corporation.--The corporation may
impose such conditions on transfers of unclaimed benefits to
the corporation as the corporation determines are necessary to
facilitate administration of this subsection and are not
inconsistent with the purposes of this subsection. Such
conditions may include requirements that the transferring plan
provide to the corporation specified information and
documentation.
``(3) Payment to the corporation.--With respect to any
participant, any transfer of an unclaimed benefit to the
corporation shall--
``(A) in the case of a defined benefit plan, be a
transfer of the participant's designated benefit, or
``(B) in the case of an individual account plan, be
a transfer of the participant's vested account balance
under the plan.
``(4) Payment by the corporation.--Subject to such
reasonable restrictions as may be prescribed in regulations of
the corporation (relating to investment limitations and
otherwise)--
``(A) unclaimed benefits of a participant or
beneficiary which are transferred to the corporation
pursuant to this subsection shall be distributed by the
corporation to the participant or beneficiary not later
than upon application filed by the participant or
beneficiary with the corporation in such form and
manner as may be prescribed in regulations of the
corporation, and
``(B) such benefits shall--
``(i) in the case of an individual account
plan, be paid in a single sum (plus interest)
or in such other form as is specified in
regulations of the corporation, or
``(ii) in the case of a defined benefit
plan, be paid--
``(I) in an amount based on the
designated benefit and the assumptions
prescribed by the corporation at the
time that the corporation received the
benefit, and
``(II) in a form determined under
regulations of the corporation.
``(5) Notice.--Any transfer of unclaimed benefits of a
participant or beneficiary to the corporation pursuant to this
subsection may occur only after reasonable advance notice of
such transfer is provided by the plan administrator to the
participant or beneficiary. The plan administrator shall also
provide to the participant or beneficiary notice of any such
transfer not later than 30 days after the date of the transfer.
Notice mailed to the last known address of the participant or
beneficiary shall be treated as a notice to the participant or
beneficiary for purposes of this paragraph. Any such notice
shall include information regarding procedures for obtaining
the distribution of benefits from the corporation in accordance
with paragraph (4).
``(6) Plans described.--A plan is described in this
paragraph if the plan is a pension plan (within the meaning of
section 3(2)--
``(A)(i) which has neither terminated nor is in the
process of terminating, or
``(ii) in the case of an unclaimed benefit to which
section 401(a)(31)(B) of the Internal Revenue Code of
1986 applies (other than an unclaimed benefit of a
missing participant), which has terminated or is in the
process of terminating, and
``(B) which is not a plan described in paragraphs
(2) through (11) of section 4021(b).
``(7) Certain provisions not to apply.--Subsections (a)(1)
and (a)(3) shall not apply to a plan described in paragraph
(6).''.
(3) Conforming amendment.--Section 4021(b) of such Act (29
U.S.C. 1321(b)(1)) is amended by striking ``This'' and
inserting ``Except to the extent provided in subsections (d)
and (e) of section 4050, this''.
(c) Escheat Laws Superseded.--Section 514(b) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1144 (b) (as amended
by this Act) is further amended--
(1) by redesignating paragraph (10) as paragraph (11), and
(2) by inserting after paragraph (9) the following new
paragraph:
``(10) Any escheat or similar law of any State shall be
superseded to the extent inconsistent with any transfer or
other treatment of unclaimed benefits (as defined in section
4050(b)(3)) permitted under the Internal Revenue Code of
1986.''.
(d) Effective Dates and Related Rules.--
(1) In general.--The amendments made by subsections (a) and
(b) shall apply to years beginning after December 31, 2006.
(2) Regulations.--The Pension Benefit Guaranty Corporation
shall issue regulations necessary to carry out the amendments
made by subsection (b) not later than December 31, 2006.
(3) Escheat laws superseded.--The amendment made by
subsection (c) shall apply as of the date of enactment of this
Act.
SEC. 504. ALLOW DIRECT ROLLOVERS FROM RETIREMENT PLANS TO RSA.
(a) In General.--Subsection (e) of section 408A of the Internal
Revenue Code of 1986 (defining qualified rollover contribution) is
amended to read as follows:
``(e) Qualified Rollover Contribution.--For purposes of this
section, the term `qualified rollover contribution' means a rollover
contribution--
``(1) to an RSA from another such account,
``(2) from an eligible retirement plan, but only if--
``(A) in the case of an individual retirement plan,
such rollover contribution meets the requirements of
section 408(d)(3), and
``(B) in the case of any eligible retirement plan
(as defined in section 402(c)(8)(B) other than clauses
(i) and (ii) thereof), such rollover contribution meets
the requirements of section 402(c), 403(b)(8), or
457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any
qualified rollover contribution from an individual retirement plan
(other than an RSA) to an RSA.''.
(b) Conforming Amendments.--Section 408A(d)(3) of such Code is
amended--
(1) in subparagraph (A) by striking ``section 408(d)(3)''
inserting ``sections 402(c), 403(b)(8), 408(d)(3), and
457(e)(16)'',
(2) in subparagraph (B) by striking ``individual retirement
plan'' and inserting ``eligible retirement plan (as defined by
section 402(c)(8)(B))'',
(3) in subparagraph (D) by striking ``or 6047'' after
``408(i)'',
(4) in subparagraph (D) by striking ``or both'' and
inserting ``persons subject to section 6047(d)(1), or all of
the foregoing persons'', and
(5) in the heading by striking ``Ira'' and inserting
``eligible retirement plan''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2005.
SEC. 505. REFORM EXCISE TAX ON EXCESS CONTRIBUTIONS.
(a) Expansion of Corrective Distribution Period.--Subsection (f) of
section 4979 of the Internal Revenue Code of 1986 is amended--
(1) in paragraph (1) by striking ``2\1/2\ months'' and
inserting ``6 months'', and
(2) in the heading by striking ``2\1/2\ Months'' and
inserting ``6 Months''.
(b) Year of Inclusion.--Paragraph (2) of section 4979(f) of such
Code is amended to read as follows:
``(2) Year of inclusion.--Any amount distributed as
provided in paragraph (1) shall be treated as earned and
received by the recipient in his taxable year in which such
distributions were made.''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 506. INTERMEDIATE SANCTIONS FOR INADVERTENT FAILURES.
(a) In General.--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 (35) the following:
``(36) Protection from disqualification upon timely
correction or payment of fine.--A trust shall not fail to
constitute a qualified trust under this section if the plan of
which such trust is a part has made good faith efforts to meet
the requirements of this section, has inadvertently failed to
satisfy 1 or more of such requirements, and either--
``(A) substantially corrects (to the extent
possible) such failure before the date the plan becomes
subject to a plan examination for the applicable year
(as determined under rules prescribed by the
Secretary), or
``(B) substantially corrects (to the extent
possible) such failure on or after such date.
If the plan satisfies the requirement under subparagraph (B),
the Secretary may require the sponsoring employer to make a
payment to the Secretary in an amount that does not exceed an
amount that bears a reasonable relationship to the severity of
the plan's failure to satisfy the requirements of this
section.''.
(b) Application to Cash or Deferred Arrangements.--Section 401(k)
of such Code is amended by inserting after paragraph (13) the following
new paragraph:
``(14) Protection from disqualification.--Rules similar to
the rules set forth in section 401(a)(36) shall apply for
purposes of determining whether a cash or deferred arrangement
is a qualified cash or deferred arrangement.''.
(c) Application to Section 403(b) Annuity Contracts.--Section
403(b) of such Code is amended by inserting after paragraph (12) the
following:
``(13) Correction of errors.--For purposes of determining
whether the exclusion from gross income under paragraph (1) is
applicable to an employee for any taxable year, rules similar
to the rules set forth in section 401(a)(36) shall apply to any
annuity contract purchased under this subsection or any plan
established to meet the requirements of this subsection.''.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of enactment of this Act.
SEC. 507. CLARIFICATION OF SUBSTANTIALLY EQUAL PERIODIC PAYMENT RULE.
(a) In General.--Paragraph (4) of section 72(t) of the Internal
Revenue Code of 1986 (relating to change in substantially equal
payments) is amended by inserting at the end the following new
subparagraphs:
``(C) Rollovers to subsequent plan.--If--
``(i) payments satisfying paragraph
(2)(A)(iv) are being made from a qualified
retirement plan,
``(ii) a transfer or a rollover from the
qualified retirement plan is made to another
qualified retirement plan of all or a portion
of the taxpayer's benefit under the transferor
plan, and
``(iii) distributions from the transferor
and transferee plans would in combination
continue to satisfy paragraph (2)(A)(iv) if
made only from the transferor plan,
such transfer or rollover shall not be treated as a
modification under subparagraph (A)(ii) and compliance
with paragraph (2)(A)(iv) shall be determined on the
basis of the combined distributions described in clause
(iii).
``(D) Interest rate.--Any reasonable interest rate
may be used in determining whether payments are
substantially equal under paragraph (2)(A)(iv).''.
(b) Effective Dates.--
(1) Rollovers.--Section 72(t)(4)(C) of the Internal Revenue
Code of 1986, as added by subsection (a), shall apply to
transfers and rollovers after the date of enactment of this
Act.
(2) Interest rate.--Section 72(t)(4)(D) of such Code, as so
added, shall apply to series of payments commencing on or after
the date of enactment of this Act.
SEC. 508. CLARIFICATION OF TREATMENT OF DISTRIBUTIONS OF ANNUITY
CONTRACTS.
(a) In General.--Clause (i) of section 402(e)(4)(D) of the Internal
Revenue Code of 1986 is amended by adding after ``section 401(c)(1).''
the following: ``A distribution of an annuity contract from a trust or
annuity plan referred to in the first sentence of this clause may be
treated as a part of a lump sum distribution.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in section 1401(b)(1) of the Small Business Job
Protection Act of 1996.
SEC. 509. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO EXCESSIVE EMPLOYEE
REMUNERATION PAID BY CORPORATION AFTER DECLARATION OF
BANKRUPTCY.
(a) In General.--Section 4999 of the Internal Revenue Code of 1986
(relating to golden parachute payments) is amended by redesignating
subsection (c) as subsection (d) and by inserting after subsection (b)
the following new subsection:
``(c) Tax on Excessive Employee Remuneration in the Case of
Bankruptcy.--
``(1) In general.--There is hereby imposed a tax on any
person who is a covered employee equal to 50 percent of any
payment of excessive employee remuneration from a corporation
which becomes a debtor in a title 11 or similar case (as
defined in section 368(a)(3)(A) of this title, but not
including a case under chapter 12 of title 11, United States
Code). The tax imposed under subsection (a) shall not apply to
the extent that a tax is imposed under this subsection.
``(2) Special rules relating to excessive employee
remuneration.--For purposes of this subsection--
``(A) Excess employee remuneration defined.--The
term `excess employee remuneration' means remuneration
paid directly or indirectly to a covered employee
during the bankruptcy period--
``(i) for which a deduction is not allowed
under chapter 1 by reason of the application of
section 162(m) or would not be allowed if
section 162(m) applied to the covered employee
at the time of payment, or
``(ii) in the case of remuneration to a
covered employee of a corporation that is not a
publicly held corporation described in section
162(m)(2), that exceeds $1,000,000, other than
remuneration that meets requirements similar to
the standards for performance-based
compensation under section 162(m)(4)(C).
``(B) Such term shall not include--
``(i) remuneration that, on the date
immediately prior to the beginning of the
bankruptcy period, was payable to the covered
employee under a binding obligation and not
subject to a substantial risk of forfeiture,
``(ii) remuneration attributable to
contributions to or benefits from an excess
retirement plan to the extent that such plan is
maintained solely for the purpose of providing
benefits to employees in excess of the
limitations imposed by 1 or more of sections
401(a)(17), 401(k), 401(m), and 415,
``(iii) contributions to or benefits from a
qualified employer plan (as defined in section
132(m)), or
``(iv) any payment that is avoided or
approved by a bankruptcy trustee.
``(C) Bankruptcy period.--The term `bankruptcy
period' means any time during the period beginning 2
years before the date on which the corporation becomes
a debtor described in paragraph (1) and ending on the
date such corporation ceases to be such a debtor.
``(D) Covered employee.--The term `covered
employee'--
``(i) has the meaning given such term by
section 162(m)(3), except that such term shall
include an individual who is not a covered
employee under section 162(m)(3) for the
taxable year in which such remuneration is paid
but who previously was a covered employee
within the meaning of section 162(m)(3) during
the bankruptcy period, and
``(ii) with respect to an employee of a
corporation that is not subject to section
162(m), includes any employee of such
corporation who would be subject to the
requirement described in section 162(m)(3)(B)
(as modified by this paragraph) if such
corporation were a publicly held corporation
(as defined in section 162(m)(2)).
``(E) 100 percent tax for gross up payments.--
Subsection (b) shall be applied by substituting `100
percent' for `50 percent' to the extent that any
payment is made during the bankruptcy period that is
contingent upon a tax being imposed under this section.
``(F) Change in ownership contingency not to
apply.--Subsection (b) shall be applied without regard
to clause (i) of section 280G(b)(2)(A).''.
(b) Effective Date.--The amendment made this section shall apply to
payments received after the date of the enactment of this Act with
respect to any title 11 or similar case (as defined in section 4999(c)
of the Internal Revenue Code of 1986) commenced after such date.
SEC. 510. DIFFERENTIAL PAY.
(a) Income Tax Withholding.--Section 3401 of the Internal Revenue
Code of 1986 (relating to definitions) is amended by adding at the end
the following new subsection:
``(i) Differential Wage Payments to Active Duty Members of the
Uniformed Services.--
``(1) In general.--For purposes of subsection (a), any
differential wage payment shall be treated as a payment of
wages by an employer to an employee.
``(2) Differential wage payments.--For purposes of
paragraph (1), the term `differential wage payment' means any
payment which--
``(A) is made by an employer to an individual with
respect to any period during which the individual is
performing service in the uniformed services while on
active duty for a period of more than 30 days, and
``(B) represents all or a portion of the wages the
individual would have received from the employer if the
individual were performing service for the employer.''.
(b) Retirement Plans.--
(1) In general.--Section 414(u) of the Internal Revenue
Code of 1986 (relating to special rules relating to veterans'
reemployment rights under USERRA) is amended by adding at the
end the following new paragraph:
``(11) Treatment of differential wage payments.--
``(A) In general.--Except as provided in this
paragraph, for purposes of applying this title to a
plan to which this subsection applies--
``(i) an individual receiving a
differential wage payment shall be treated as
an employee of the employer making the payment,
``(ii) the differential wage payment shall
be treated as compensation, and
``(iii) the plan shall not be treated as
failing to meet the requirements of any
provision described in paragraph (1)(C) by
reason of the treatment described in clauses
(i) and (ii).
``(B) Special rule for distributions.--
``(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of subsection
(w)(1)(D), an individual shall be treated as
having been severed from employment during any
period the individual is performing service in
the uniformed services described in section
3401(i)(2)(A).
``(ii) Limitation.--If an individual elects
to receive a distribution by reason of clause
(i), the plan shall provide that the individual
may not make an elective deferral or employee
contribution during the 6-month period
beginning on the date of the distribution.
``(C) Nondiscrimination requirement.--Subparagraph
(A)(iii) shall apply only if all employees of an
employer (as determined under subsections (b), (c),
(m), and (o)) performing service in the uniformed
services described in section 3401(i)(2)(A) are
entitled to receive differential wage payments on
reasonably equivalent terms and, if eligible to
participate in a plan maintained by the employer, to
have contributions made to such plan based on the
payments on reasonably equivalent terms. For purposes
of applying this subparagraph, the provisions of
paragraphs (3), (4), and (5) of section 410(b) shall
apply.
``(D) Differential wage payment.--For purposes of
this paragraph, the term `differential wage payment'
has the meaning given such term by section
3401(i)(2).''.
(2) Conforming amendment.--The heading for section 414(u)
of such Code is amended by inserting ``and to Differential Wage
Payments to Members on Active Duty'' after ``USERRA''.
(c) Differential Wage Payments Treated as Compensation for
Individual Retirement Plans.--Section 219(f)(1) of the Internal Revenue
Code of 1986 (defining compensation) is amended by adding at the end
the following new sentence: ``The term `compensation' includes any
differential wage payments (as defined in section 3401(i)(2)).''.
(d) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 511. EXCESS BENEFIT PLANS.
(a) In General.--Section 3(36) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(36)) is amended to read as
follows:
``(36) The term `excess benefit plan' means a plan, without
regard to whether such plan is funded, maintained by an
employer solely for the purpose of providing benefits to
employees in excess of any limitation imposed by section
401(a)(17), 401(k)(3)(A)(ii), 401(m)(2), or 415 of the Internal
Revenue Code of 1986. To the extent that a separable part of a
plan (as determined by the Secretary of Labor) maintained by an
employer is maintained for such purpose, that part shall be
treated as a separate plan which is an excess benefit plan.''.
(b) Effective Date.--The amendment made by this section shall apply
to plan years beginning after December 31, 2005.
SEC. 512. TAX TREATMENT OF EMPLOYEE CONTRIBUTIONS TO CONTRIBUTORY
DEFINED BENEFIT PLANS.
(a) Amendment to the Internal Revenue Code of 1986.--Subsection (e)
of section 402 of the Internal Revenue Code of 1986 (relating to other
rules applicable to exempt trusts) is amended by adding at the end the
following new paragraph:
``(8) Mandatory employee contributions to defined benefit
plans.--
``(A) In general.--Qualified mandatory employee
contributions shall not be includible in gross income
for the taxable year of such contribution.
``(B) Qualified mandatory employee contributions.--
For purposes of subparagraph (A), the term `qualified
mandatory employee contributions' means employee
contributions made pursuant to the terms of a defined
benefit plan described in subparagraph (C) in effect on
January 1, 2003 (determined without regard to any plan
amendment made after such date), which--
``(i) are mandatory contributions (as
defined in section 411(c)(2)(C)), and
``(ii) do not exceed 2 percent of
compensation (within the meaning of section
415(c)(3)).
``(C) Defined benefit plan described.--For purposes
of subparagraph (B), a defined benefit plan is
described in this subparagraph if such plan--
``(i) requires employee contributions as a
condition of participation in such plan,
``(ii) allows an employee to make a one-
time irrevocable election to participate in the
plan,
``(iii) does not provide for employee
contributions with respect to which a separate
account is maintained and treated as a defined
contribution plan under section 414(k), and
``(iv) is not a governmental plan (within
the meaning of section 414(d)).''.
(b) Withholding.--Subsection (a) of section 3401 of such Code
(defining wages) is amended by striking ``or'' at the end of paragraph
(20), by striking the period at the end of paragraph (21) and inserting
``; or'', and by inserting after paragraph (21) the following new
paragraph:
``(22) for any payment made to or for the benefit of an
employee if at the time of such payment it is reasonable to
believe that the employee will be able to exclude such payment
from income as a qualified mandatory employee contribution
under section 402(e)(8).''.
(c) Effective Date.--The amendment made by this section shall apply
to contributions made in years beginning after December 31, 2005.
SEC. 513. PROTECTING OLDER, LONGER SERVICE PARTICIPANTS.
(a) Protection of Older, Longer Service Participants in Defined
Benefit Plans.--
(1) Not later than one year after the date of the enactment
of this Act, the Secretary of the Treasury shall amend section
1.401(a)(4)-4 of the Treasury Regulations (as in effect on the
date of the enactment of this Act) to permit a plan to provide
benefits, rights, and features to a closed class of
grandfathered participants, provided that such class of
participants satisfies the requirements of such section as of
the date that the class of participants was closed. Such
section as amended shall ensure that participants who have been
grandfathered under a former defined benefit plan formula may
continue to receive all benefits, rights, and features under
that formula, including early retirement benefits.
(2) Not later than one year after the date of the enactment
of this Act, the Secretary of the Treasury shall amend section
1.401(a)(4)-8(b)(1)(iii)(D) of the Treasury Regulations (as in
effect on the date of the enactment of this Act) to permit a
defined contribution plan to provide make whole contributions
to a closed class of participants whose defined benefit plan
accruals have been reduced or eliminated, provided that such
class of participants satisfies section 410(b)(2)(A)(i) of the
Internal Revenue Code of 1986 as of the date that the class of
participants was closed.
(b) Effective Date.--This provisions of this section shall take
effect on the date of the enactment of this Act.
SEC. 514. CLARIFICATION REGARDING ELECTIVE DEFERRALS.
(a) In General.--Not later than 6 months after the date of
enactment of this Act, the Secretary of the Treasury shall issue rules
clarifying that employees who have had a severance from employment may
make--
(1) elective deferrals described in section 402(g)(3)(A),
(B), or (C) of the Internal Revenue Code of 1986 (other than
elective deferrals under section 401(k)(11) of such Code),
(2) elective contributions under an eligible deferred
compensation plan described in section 457(b) of such Code, and
(3) to the extent provided by the Secretary, elective
deferrals described in section 402(g)(3)(D) or 401(k)(11) of
such Code.
Such rules shall only permit such contributions or deferrals with
respect to payments of bona fide accumulated sick leave, accumulated
vacation pay, severance, or back pay. The Secretary may apply such
other conditions on such contributions or deferrals as are necessary or
appropriate to carry out the purposes of this section.
(b) Treatment of Deferrals.--Except as otherwise determined by the
Secretary to be necessary to carry out the purposes of this section,
the rules described in subsection (a) shall provide that the
contributions or deferrals shall, for purposes of section 457 of such
Code and subchapter D of chapter 1 of subtitle A of such Code, be
treated as contributions or deferrals made on behalf of active
employees, not on behalf of former employees.
(c) Effective Date.--The provisions of this section shall take
effect on the date of enactment of this Act.
SEC. 515. REFORM OF THE MINIMUM PARTICIPATION RULE.
(a) In General.--Subparagraph (I) of section 401(a)(26) of the
Internal Revenue Code of 1986 (relating to additional participation
requirements) is amended by adding at the end the following: ``Not
later than December 31, 2006, the Secretary shall issue final
regulations under which this paragraph may be applied separately to
bona fide separate subsidiaries or divisions.''.
(b) Effective Date.--The amendment made by subsection (a) shall
take effect on the date of enactment of this Act.
TITLE VI--IMPROVEMENTS IN PENSION SECURITY
SEC. 601. PERIODIC PENSION BENEFITS STATEMENTS.
(a) Amendments to the Employee Retirement Income Security Act of
1974.--
(1) Requirements.--
(A) 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 shall
furnish a pension benefit statement--
``(i) to each plan participant at least annually,
``(ii) to each plan beneficiary upon written request, and
``(iii) in the case of an applicable individual account
plan, to each individual who is a plan participant or
beneficiary and who has a right to direct investments, at least
quarterly.
``(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 who is employed by the
employer maintaining the plan at the time the statement is
furnished to participants, and
``(ii) to a plan participant or plan 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 pension benefit statement under paragraph (1)--
``(A) 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,
``(B) shall be written in a manner calculated to be
understood by the average plan participant, and
``(C) may be provided in written form or in electronic or
other appropriate form to the extent that such form is
reasonably accessible to the recipient.
``(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 the administrator, at least once each year, provides the
participant with notice, at the participant's last known address, of
the availability of the pension benefit statement and the ways in which
the participant may obtain such statement. Such notice shall be
provided in written, electronic, or other appropriate form, and may be
included with other communications to the participant if done in a
manner reasonably designed to attract the attention of 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).''.
(B) Conforming amendments.--
(i) Section 105 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1025) is
amended by striking subsection (d).
(ii) 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 one statement described in clause (i) or (ii) of
subsection (a)(1)(A) or clause (i) or (ii) of subsection (a)(1)(B),
whichever is applicable, in any 12-month period. If such report is
required under subsection (a) to be furnished at least quarterly, the
requirements of the preceding sentence shall be applied with respect to
each quarter in lieu of the 12-month period.''.
(2) Information required from applicable individual account
plans.--Section 105 of such Act (as amended by paragraph (1))
is amended further by adding at the end the following new
subsection:
``(d)(1) The statements required to be provided at least quarterly
under subsection (a)(1)(A)(iii) in the case of applicable individual
account plans shall include (together with the information required in
subsection (a)) the following:
``(A) 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,
``(B) an explanation, written in a manner calculated to be
understood by the average plan participant, of any limitations
or restrictions on the right of the participant or beneficiary
to direct an investment, and
``(C) an explanation, written in a manner calculated to be
understood by the average plan participant, of the importance,
for the long-term retirement security of participants and
beneficiaries, of a well-balanced and diversified investment
portfolio, including a discussion of the risk of holding more
than 25 percent of a portfolio in the security of any one
entity, such as employer securities.
``(2) The Secretary shall issue guidance and model notices which
meet the requirements of this subsection.''.
(3) Definition of applicable individual account plan.--
Section 3 of such Act (29 U.S.C. 1002) is amended by adding at
the end the following new paragraph:
``(42)(A) The term `applicable individual account plan' means any
individual account plan, except that such term does not include an
employee stock ownership plan (within the meaning of section 4975(e)(7)
of the Internal Revenue Code of 1986) unless there are any
contributions to such plan (or earnings thereunder) held within such
plan that are subject to subsection (k)(3) or (m)(2) of section 401 of
the Internal Revenue Code of 1986. Such term shall not include a one-
participant retirement plan.
``(B) The term `one-participant retirement plan' means a pension
plan with respect to which the following requirements are met:
``(i) on the first day of the plan year--
``(I) the plan covered only one individual (or the
individual and the individual's spouse) and the
individual owned 100 percent of the plan sponsor
(whether or not incorporated), or
``(II) the plan covered only one or more partners
(or partners and their spouses) in the plan sponsor;
``(ii) the plan meets the minimum coverage requirements of
section 410(b) of the Internal Revenue Code of 1986 (as in
effect on the date of the enactment of this paragraph) without
being combined with any other plan of the business that covers
the employees of the business;
``(iii) the plan does not provide benefits to anyone except
the individual (and the individual's spouse) or the partners
(and their spouses);
``(iv) the plan does not cover a business that is a member
of an affiliated service group, a controlled group of
corporations, or a group of businesses under common control;
and
``(v) the plan does not cover a business that leases
employees.''.
(4) Civil penalties for failure to provide quarterly
benefit statements.--Section 502 of such Act (29 U.S.C. 1132)
is amended--
(A) in subsection (a)(6), by striking ``(6), or
(7)'' and inserting ``(6), (7), or (8)'';
(B) by redesignating paragraph (8) of subsection
(c) as paragraph (9); and
(C) by inserting after paragraph (7) of subsection
(c) the following new paragraph:
``(8) The Secretary may assess a civil penalty against any plan
administrator of up to $1,000 a day for each day on which the plan
administrator has failed to comply with the requirements of clause
(iii) of section 105(a)(1)(A) and has not corrected such failure by
providing the required pension benefit statements to the affected
participants and beneficiaries.''.
(5) Model statements.--The Secretary of Labor shall, not
later than 180 days after the date of the enactment of this
Act, issue initial guidance and a model benefit statement,
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. Not later than 75 days
after the date of the enactment of this Act, the Secretary
shall promulgate interim final rules necessary to carry out the
amendments made by this subsection.
(b) Amendments to the Internal Revenue Code of 1986.--
(1) Provision of investment education notices to
participants in certain plans.--Section 414 of the Internal
Revenue Code of 1986 (relating to definitions and special
rules) is amended by adding at the end the following:
``(aa) Provision of Investment Education Notices to Participants in
Certain Plans.--
``(1) In general.--The plan administrator of an applicable
pension plan shall provide to each applicable individual an
investment education notice described in paragraph (2) at the
time of the enrollment of the applicable individual in the plan
and not less often than annually thereafter.
``(2) Investment education notice.--An investment education
notice is described in this paragraph if such notice contains--
``(A) an explanation, for the long-term retirement
security of participants and beneficiaries, of
generally accepted investment principles, including
principles of risk management and diversification, and
``(B) a discussion of the risk of holding
substantial portions of a portfolio in the security of
any one entity, such as employer securities.
``(3) Understandability.--Each notice required by paragraph
(1) shall be written in a manner calculated to be understood by
the average plan participant and shall provide sufficient
information (as determined in accordance with guidance provided
by the Secretary) to allow recipients to understand such
notice.
``(4) Form and manner of notices.--The notices required by
this subsection shall be in writing, except that such notices
may be in electronic or other form (or electronically posted on
the plan's website) to the extent that such form is reasonably
accessible to the applicable individual.
``(5) Definitions.--For purposes of this subsection--
``(A) Applicable individual.--The term `applicable
individual' means--
``(i) any participant in the applicable
pension plan,
``(ii) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under a qualified domestic relations order
(within the meaning of section 414(p)(1)(A)),
and
``(iii) any beneficiary of a deceased
participant or alternate payee.
``(B) Applicable pension plan.--The term
`applicable pension plan' means--
``(i) a plan described in clause (i), (ii),
or (iv) of section 219(g)(5)(A), and
``(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an
eligible employer described in section
457(e)(1)(A),
which permits any participant to direct the investment
of some or all of his account in the plan or under
which the accrued benefit of any participant depends in
whole or in part on hypothetical investments directed
by the participant. Such term shall not include a one-
participant retirement plan or a plan to which section
105 of the Employee Retirement Income Security Act of
1974 applies.
``(C) One-participant retirement plan defined.--The
term `one-participant retirement plan' means a
retirement plan with respect to which the following
requirements are met:
``(i) on the first day of the plan year--
``(I) the plan covered only one
individual (or the individual and the
individual's spouse) and the individual
owned 100 percent of the plan sponsor
(whether or not incorporated), or
``(II) the plan covered only one or
more partners (or partners and their
spouses) in the plan sponsor;
``(ii) the plan meets the minimum coverage
requirements of 410(b) without being combined
with any other plan of the business that covers
the employees of the business;
``(iii) the plan does not provide benefits
to anyone except the individual (and the
individual's spouse) or the partners (and their
spouses);
``(iv) the plan does not cover a business
that is a member of an affiliated service
group, a controlled group of corporations, or a
group of businesses under common control; and
``(v) the plan does not cover a business
that leases employees.
``(6) Cross reference.--For provisions relating to penalty
for failure to provide the notice required by this section, see
section 6652(m).''.
(2) Penalty for failure to provide notice.--Section 6652 of
such Code (relating to failure to file certain information
returns, registration statements, etc.) is amended by
redesignating subsection (m) as subsection (n) and by inserting
after subsection (l) the following new subsection:
``(m) Failure to Provide Investment Education Notices to
Participants in Certain Plans.--In the case of each failure to provide
a written explanation as required by section 414(aa) with respect to an
applicable individual (as defined in such section), at the time
prescribed therefor, unless it is shown that such failure is due to
reasonable cause and not to willful neglect, there shall be paid, on
notice and demand of the Secretary and in the same manner as tax, by
the person failing to provide such notice, an amount equal to $100 for
each such failure, but the total amount imposed on such person for all
such failures during any calendar year shall not exceed $50,000.''.
SEC. 602. INAPPLICABILITY OF RELIEF FROM FIDUCIARY LIABILITY DURING
BLACKOUT PERIODS.
(a) In General.--Section 404(c) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the
end the following new paragraph:
``(4)(A) Paragraph (1)(B) shall not apply in connection with the
direction or diversification of assets credited to the account of any
participant or beneficiary during a blackout period if, by reason of
the imposition of such blackout period, the ability of such participant
or beneficiary to direct or diversify such assets is suspended,
limited, or restricted.
``(B) If the fiduciary authorizing a blackout period meets the
requirements of this title in connection with authorizing such blackout
period, no person who is a fiduciary shall be liable under this title
for any loss occurring during the blackout period as a result of any
exercise by the participant or beneficiary of control over assets in
his or her account prior to the blackout period. Matters to be
considered in determining whether a fiduciary has met the requirements
of this title include whether such fiduciary--
``(i) has considered the reasonableness of the expected
length of the blackout period,
``(ii) has provided the notice required under section
101(i)(2), and
``(iii) has acted in accordance with the requirements of
subsection (a) in determining whether to enter into the
blackout period.
``(C) 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
reasonable notice of the change in investment options is given to such
participant or beneficiary before such blackout period, 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, or
``(ii) in any case in which there is no such election, in
the manner set forth in such notice.
``(D) Any imposition of any limitation or restriction that may
govern the frequency of transfers between investment vehicles shall not
be treated as the imposition of a blackout period to the extent such
limitation or restriction is disclosed to participants or beneficiaries
through the summary plan description or materials describing specific
investment alternatives under the plan.
``(E) 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 shall, on or before December
31, 2006, issue interim final regulations providing guidance 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.
SEC. 603. DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS
THAT HOLD EMPLOYER SECURITIES.
(a) Amendment to the Employee Retirement Income Security Act of
1974.--Section 204 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1054) is amended--
(1) by redesignating subsection (j) as subsection (k); and
(2) by inserting after subsection (i) the following new
subsection:
``(j) Diversification Requirements for Individual Account Plans
That Hold Employer Securities.--
``(1) In general.--An applicable individual account plan
shall meet the requirements of paragraphs (2) and (3).
``(2) Employee contributions and elective deferrals
invested in employer securities.--In the case of the portion of
the account attributable to employee contributions and elective
deferrals which is invested in employer securities, a plan
meets the requirements of this paragraph if each applicable
individual may elect to direct the plan to divest any such
securities in the individual's account and to reinvest an
equivalent amount in other investment options which meet the
requirements of paragraph (4).
``(3) Employer contributions invested in employer
securities.--
``(A) In general.--In the case of the portion of
the account attributable to employer contributions
(other than elective deferrals to which paragraph (2)
applies) which is invested in employer securities, a
plan meets the requirements of this paragraph if, under
the plan--
``(i) each applicable individual with a
benefit based on 3 years of service may elect
to direct the plan to divest any such
securities in the individual's account and to
reinvest an equivalent amount in other
investment options which meet the requirements
of paragraph (4), or
``(ii) with respect to any employer
security allocated to an applicable
individual's account during any plan year, such
applicable individual may elect to direct the
plan to divest such employer security after a
date which is not later than 3 years after the
end of such plan year and to reinvest an
equivalent amount in other investment options
which meet the requirements of paragraph (4).
``(B) Applicable individual with benefit based on 3
years of service.--For purposes of subparagraph (A), an
applicable individual has a benefit based on 3 years of
service if such individual would be an applicable
individual if only participants in the plan who have
completed at least 3 years of service (as determined
under section 203(b)) were referred to in paragraph
(5)(B)(i).
``(4) Investment options.--The requirements of this
paragraph are met if--
``(A) the plan offers not less than 3 investment
options, other than employer securities, to which an
applicable individual may direct the proceeds from the
divestment of employer securities pursuant to this
subsection, each of which is diversified and has
materially different risk and return characteristics,
and
``(B) the plan permits the applicable individual to
choose from any of the investment options made
available under the plan to which such proceeds may be
so directed, subject to such restrictions as may be
provided by the plan limiting such choice to periodic,
reasonable opportunities occurring no less frequently
than on a quarterly basis.
``(5) Definitions and rules.--For purposes of this
subsection--
``(A) Applicable individual account plan.--The term
`applicable individual account plan' means any
individual account plan, except that such term does not
include an employee stock ownership plan (within the
meaning of section 4975(e)(7) of the Internal Revenue
Code of 1986) unless there are any contributions to
such plan (or earnings thereon) held within such plan
that are subject to subsection (k)(3) or (m)(2) of
section 401 of the Internal Revenue Code of 1986.
``(B) Applicable individual.--The term `applicable
individual' means--
``(i) any participant in the plan, and
``(ii) any beneficiary of a participant
referred to in clause (i) who has an account
under the plan with respect to which the
beneficiary is entitled to exercise the rights
of the participant.
``(C) Elective deferral.--The term `elective
deferral' means an employer contribution described in
section 402(g)(3)(A) of the Internal Revenue Code of
1986 (as in effect on the date of the enactment of this
subsection).
``(D) Employer security.--The term `employer
security' shall have the meaning given such term by
section 407(d)(1) of this Act (as in effect on the date
of the enactment of this subsection).
``(E) Employee stock ownership plan.--The term
`employee stock ownership plan' shall have the same
meaning given to such term by section 4975(e)(7) of the
Internal Revenue Code of 1986 (as in effect on the date
of the enactment of this subsection).
``(F) Elections.--Elections under this subsection
may be made not less frequently than quarterly.
``(6) Exception where there is no readily tradable stock.--
This subsection shall not apply if there is no class of stock
issued by the employer (or by a corporation which is an
affiliate of the employer (as defined in section 407(d)(7)))
that is readily tradable on an established securities market
(or in such other circumstances as may be determined jointly by
the Secretary of Labor and the Secretary of the Treasury in
regulations).
``(7) Transition rule.--
``(A) In general.--In the case of any individual
account plan which, on the first day of the first plan
year to which this subsection applies, holds employer
securities of any class that were acquired before such
date and on which there is a restriction on
diversification otherwise precluded by this subsection,
this subsection shall apply to such securities of such
class held in any plan year only with respect to the
number of such securities equal to the applicable
percentage of the total number of such securities of
such class held on such date.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be as
follows:
``Plan years for which provisions Applicable percentage:
are effective:
1st plan year.......................................... 20
2nd plan year.......................................... 40
3rd plan year.......................................... 60
4th plan year.......................................... 80
5th plan year or thereafter............................ 100.
``(C) Elective deferrals treated as separate plan
not individual account plan.--For purposes of
subparagraph (A), the applicable percentage shall be
100 percent with respect to--
``(i) employee contributions to a plan
under which any portion attributable to
elective deferrals is treated as a separate
plan under section 407(b)(2) as of the date of
the enactment of this paragraph, and
``(ii) such elective deferrals.
``(D) Coordination with prior elections.--In any
case in which a divestiture of investment in employer
securities of any class held by an employee stock
ownership plan prior to the effective date of this
subsection was undertaken pursuant to other applicable
Federal law prior to such date, the applicable
percentage (as determined without regard to this
subparagraph) in connection with such securities shall
be reduced to the extent necessary to account for the
amount to which such election applied.
``(8) Regulations.--The Secretary of the Treasury shall
prescribe regulations under this subsection in consultation
with the Secretary of Labor.''.
(b) Amendments to the Internal Revenue Code of 1986.--
(1) In general.--Section 401(a) of the Internal Revenue
Code of 1986 (relating to requirements for qualification) is
amended by inserting after paragraph (34) the following new
paragraph:
``(35) Diversification requirements for defined
contribution plans that hold employer securities.--
``(A) In general.--An applicable defined
contribution plan shall meet the requirements of
subparagraphs (B) and (C).
``(B) Employee contributions and elective deferrals
invested in employer securities.--In the case of the
portion of the account attributable to employee
contributions and elective deferrals which is invested
in employer securities, a plan meets the requirements
of this subparagraph if each applicable individual in
such plan may elect to direct the plan to divest any
such securities in the individual's account and to
reinvest an equivalent amount in other investment
options which meet the requirements of subparagraph
(D).
``(C) Employer contributions invested in employer
securities.--
``(i) In general.--In the case of the
portion of the account attributable to employer
contributions (other than elective deferrals to
which subparagraph (B) applies) which is
invested in employer securities, a plan meets
the requirements of this subparagraph if, under
the plan--
``(I) each applicable individual
with a benefit based on 3 years of
service may elect to direct the plan to
divest any such securities in the
individual's account and to reinvest an
equivalent amount in other investment
options which meet the requirements of
subparagraph (D), or
``(II) with respect to any employer
security allocated to an applicable
individual's account during any plan
year, such applicable individual may
elect to direct the plan to divest such
employer security after a date which is
not later than 3 years after the end of
such plan year and to reinvest an
equivalent amount in other investment
options which meet the requirements of
subparagraph (D).
``(ii) Applicable individual with benefit
based on 3 years of service.--For purposes of
clause (i), an applicable individual has a
benefit based on 3 years of service if such
individual would be an applicable individual if
only participants in the plan who have
completed at least 3 years of service (as
determined under section 411(a)) were referred
to in subparagraph (E)(ii)(I).
``(D) Investment options.--The requirements of this
subparagraph are met if--
``(i) the plan offers not less than 3
investment options, other than employer
securities, to which an applicable individual
may direct the proceeds from the divestment of
employer securities pursuant to this paragraph,
each of which is diversified and has materially
different risk and return characteristics, and
``(ii) the plan permits the applicable
individual to choose from any of the investment
options made available under the plan to which
such proceeds may be so directed, subject to
such restrictions as may be provided by the
plan limiting such choice to periodic,
reasonable opportunities occurring no less
frequently than on a quarterly basis.
``(E) Definitions and rules.--For purposes of this
paragraph--
``(i) Applicable defined contribution
plan.--The term `applicable defined
contribution plan' means any defined
contribution plan, except that such term does
not include an employee stock ownership plan
(within the meaning of section 4975(e)(7))
unless there are any contributions to such plan
(or earnings thereon) held within such plan
that are subject to subsection (k)(3) or
(m)(2).
``(ii) Applicable individual.--The term
`applicable individual' means--
``(I) any participant in the plan,
and
``(II) any beneficiary of a
participant referred to in clause (i)
who has an account under the plan with
respect to which the beneficiary is
entitled to exercise the rights of the
participant.
``(iii) Elective deferral.--The term
`elective deferral' means an employer
contribution described in section 402(g)(3)(A)
(as in effect on the date of the enactment of
this paragraph).
``(iv) Employer security.--The term
`employer security' shall have the meaning
given such term by section 407(d)(1) of the
Employee Retirement Income Security Act of 1974
(as in effect on the date of the enactment of
this paragraph).
``(v) Employee stock ownership plan.--The
term `employee stock ownership plan' shall have
the same meaning given to such term by section
4975(e)(7) of the Internal Revenue Code of 1986
(as in effect on the date of the enactment of
this paragraph).
``(vi) Elections.--Elections under this
paragraph may be made not less frequently than
quarterly.
``(F) Exception where there is no readily tradable
stock.--This paragraph shall not apply if there is no
class of stock issued by the employer that is readily
tradable on an established securities market (or in
such other circumstances as may be determined jointly
by the Secretary of the Treasury and the Secretary of
Labor in regulations).
``(G) Transition rule.--
``(i) In general.--In the case of any
defined contribution plan which, on the
effective date of this subsection, holds
employer securities of any class that were
acquired before such date and on which there is
a restriction on diversification otherwise
precluded by this paragraph, this paragraph
shall apply to such securities of such class
held in any plan year only with respect to the
number of such securities equal to the
applicable percentage of the total number of
such securities of such class held on such
date.
``(ii) Applicable percentage.--For purposes
of clause (i), the applicable percentage shall
be as follows:
``Plan years for which provisions Applicable percentage:
are effective:
1st plan year.......................................... 20
2nd plan year.......................................... 40
3rd plan year.......................................... 60
4th plan year.......................................... 80
5th plan year or thereafter............................ 100.
``(iii) Elective deferrals treated as
separate plan not individual account plan.--For
purposes of clause (i), the applicable
percentage shall be 100 percent with respect
to--
``(I) employee contributions to a
plan under which any portion
attributable to elective deferrals is
treated as a separate plan under
section 407(b)(2) of the Employee
Retirement Income Security Act of 1974
as of the date of the enactment of this
paragraph, and
``(II) such elective deferrals.
``(iv) Contributions held within an esop.--
In the case of contributions (other than
elective deferrals and employee contributions)
held within an employee stock ownership plan,
in the case of the 1st and 2nd plan years
referred to in the table in clause (ii), the
applicable percentage shall be the greater of
the amount determined under clause (ii) or the
percentage determined under paragraph (28)
(determined as if paragraph (28) applied to a
plan described in this paragraph).
``(v) Coordination with prior elections
under paragraph (28).--In any case in which a
divestiture of investment in employer
securities of any class held by an employee
stock ownership plan prior to the effective
date of this paragraph was undertaken pursuant
to an election under paragraph (28) prior to
such date, the applicable percentage (as
determined without regard to this clause) in
connection with such securities shall be
reduced to the extent necessary to account for
the amount to which such election applied.
``(H) Regulations.--The Secretary shall prescribe
regulations under this paragraph in consultation with
the Secretary of Labor.''.
(2) Conforming amendments.--
(A) Section 401(a)(28) of such Code is amended by
adding at the end the following new subparagraph:
``(D) Application.--This paragraph shall not apply
to a plan to which paragraph (35) applies.''.
(B) Section 409(h)(7) of such Code is amended by
inserting before the period at the end ``or
subparagraph (B) or (C) of section 401(a)(35)''.
(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.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2) and
section 604, the amendments made by this section shall apply to
plan years beginning after December 31, 2005, and with respect
to employer securities allocated to accounts before, on, or
after the date of the enactment of this Act.
(2) Exception.--The amendments made by this section shall
not apply to employer securities held by an employee stock
ownership plan which are acquired before January 1, 1987.
SEC. 604. EFFECTIVE DATES AND RELATED RULES.
(a) In General.--Except as otherwise provided in the preceding
provisions of this title or in subsection (c), the amendments made by
this title shall apply with respect to plan years beginning on or after
the general effective date.
(b) General Effective Date.--For purposes of this section, the term
``general effective date'' means the date which is 1 year after the
date of the enactment of this Act.
(c) 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, subsection
(a) shall be applied to benefits pursuant to, and individuals covered
by, any such agreement by substituting for ``the general effective
date'' the date of the commencement of the first plan year beginning on
or after the earlier of--
(1) the later of--
(A) the date which is 1 year after the general
effective date, or
(B) the date on which the last of such collective
bargaining agreements terminates (determined without
regard to any extension thereof after the date of the
enactment of this Act), or
(2) the date which is 2 years after the general effective
date.
TITLE VII--OTHER TAX PROVISIONS RELATING TO PENSIONS
SEC. 701. REPORTING SIMPLIFICATION.
(a) Simplified Annual Filing Requirement for Owners and Their
Spouses.--
(1) In general.--The Secretary of the Treasury and the
Secretary of Labor shall modify the requirements for filing
annual returns with respect to one-participant retirement plans
to ensure that such plans with assets of $250,000 or less as of
the close of the plan year need not file a return for that
year.
(2) One-participant retirement plan defined.--For purposes
of this subsection, the term ``one-participant retirement
plan'' means a retirement plan with respect to which the
following requirements are met:
(A) on the first day of the plan year--
(i) the plan covered only one individual
(or the individual and the individual's spouse)
and the individual owned 100 percent of the
plan sponsor (whether or not incorporated), or
(ii) the plan covered only one or more
partners (or partners and their spouses) in the
plan sponsor;
(B) the plan meets the minimum coverage
requirements of section 410(b) of the Internal Revenue
Code of 1986 without being combined with any other plan
of the business that covers the employees of the
business;
(C) the plan does not provide benefits to anyone
except the individual (and the individual's spouse) or
the partners (and their spouses);
(D) the plan does not cover a business that is a
member of an affiliated service group, a controlled
group of corporations, or a group of businesses under
common control; and
(E) the plan does not cover a business that leases
employees.
(3) Other definitions.--Terms used in paragraph (2) which
are also used in section 414 of the Internal Revenue Code of
1986 shall have the respective meanings given such terms by
such section.
(4) Effective date.--The provisions of this subsection
shall apply to plan years beginning on or after January 1,
2005.
(b) Simplified Annual Filing Requirement for Plans With Fewer Than
25 Employees.--In the case of plan years beginning after December 31,
2006, the Secretary of the Treasury and the Secretary of Labor shall
provide for the filing of a simplified annual return for any retirement
plan which covers less than 25 employees on the first day of a plan
year and which meets the requirements described in subparagraphs (B),
(D), and (E) of subsection (a)(2).
SEC. 702. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.
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.
The Secretary of the Treasury shall have full authority to effectuate
the foregoing and to 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.
SEC. 703. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES TO ALL GOVERNMENTAL PLANS.
(a) In General.--
(1) Subparagraph (G) of section 401(a)(5) and subparagraph
(G) of section 401(a)(26) of the Internal Revenue Code of 1986
are each amended by striking ``section 414(d))'' and all that
follows and inserting ``section 414(d)).''.
(2) Subparagraph (G) of section 401(k)(3) of such Code and
paragraph (2) of section 1505(d) of the Taxpayer Relief Act of
1997 (26 U.S.C. 401 note) are each amended by striking
``maintained by a State or local government or political
subdivision thereof (or agency or instrumentality thereof)''.
(b) Conforming Amendments.--
(1) The heading for subparagraph (G) of section 401(a)(5)
of such Code is amended to read as follows: ``governmental
plans.--''.
(2) The heading for subparagraph (G) of section 401(a)(26)
of such Code is amended to read as follows: ``Exception for
governmental plans.--''.
(3) Subparagraph (G) of section 401(k)(3) of such Code is
amended by inserting ``Governmental plans.--'' after ``(G)''.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2005.
SEC. 704. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.
(a) Expansion of Period.--
(1) Amendment of internal revenue code.--
(A) In general.--Subparagraph (A) of section
417(a)(6) 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 to substitute ``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 to the extent that they
relate to sections 203(e) and 205 of such Act to
substitute ``180 days'' for ``90 days'' each place it
appears.
(3) Effective date.--The amendments made by paragraphs
(1)(A) and (2)(A) and the modifications required by paragraphs
(1)(B) and (2)(B) shall apply to years beginning after December
31, 2005.
(b) Consent Regulation Inapplicable to Certain Distributions.--
(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, 2005.
(B) Reasonable notice.--In the case of any
description of such consequences made before the date
that is 90 days after the date on which the Secretary
of the Treasury issues a safe harbor description under
paragraph (1), a plan shall not be treated as failing
to satisfy the requirements of section 411(a)(11) of
such Code or section 205 of such Act by reason of the
failure to provide the information required by the
modifications made under paragraph (1) if the
Administrator of such plan makes a reasonable attempt
to comply with such requirements.
SEC. 705. QUALIFIED GROUP LEGAL SERVICES PLANS.
(a) In General.--Subsection (e) of section 120 of the Internal
Revenue Code of 1986 is amended to read as follows:
``(e) Application of Section.--This section and section 501(c)(20)
shall apply to taxable years beginning--
``(1) after December 31, 1976, and before July 1, 1992, and
``(2) after December 31, 2005, and before January 1,
2009.''.
(b) Increase in Maximum Exclusion.--The last sentence of section
120(a) of such Code is amended by striking ``$70'' and inserting
``$150''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
SEC. 706. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR
CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 of the Internal
Revenue Code of 1986 (relating to individual retirement accounts) is
amended by adding at the end the following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in
gross income by reason of a qualified charitable
distribution.
``(B) Qualified charitable distribution.--For
purposes of this paragraph, the term `qualified
charitable distribution' means any distribution from an
individual retirement plan other than a plan described
in subsection (k) or (p) of section 408--
``(i) which is made on or after the date
that the individual for whose benefit the plan
is maintained has attained age 70\1/2\, and
``(ii) which is made directly by the
trustee--
``(I) to an organization described
in section 170(c), or
``(II) to a split-interest entity.
A distribution shall be treated as a qualified
charitable distribution only to the extent that the
distribution would be includible in gross income
without regard to subparagraph (A) and, in the case of
a distribution to a split-interest entity, only if no
person holds an income interest in the amounts in the
split-interest entity attributable to such distribution
other than one or more of the following: the individual
for whose benefit such plan is maintained, the spouse
of such individual, or any organization described in
section 170(c).
``(C) Contributions must be otherwise deductible.--
For purposes of this paragraph--
``(i) Direct contributions.--A distribution
to an organization described in section 170(c)
shall be treated as a qualified charitable
distribution only if a deduction for the entire
distribution would be allowable under section
170 (determined without regard to subsection
(b) thereof and this paragraph).
``(ii) Split-interest gifts.--A
distribution to a split-interest entity shall
be treated as a qualified charitable
distribution only if a deduction for the entire
value of the interest in the distribution for
the use of an organization described in section
170(c) would be allowable under section 170
(determined without regard to subsection (b)
thereof and this paragraph).
``(D) Application of section 72.--Notwithstanding
section 72, in determining the extent to which a
distribution is a qualified charitable distribution,
the entire amount of the distribution shall be treated
as includible in gross income without regard to
subparagraph (A) to the extent that such amount does
not exceed the aggregate amount which would have been
so includible if all amounts distributed from all
individual retirement plans were treated as 1 contract
under paragraph (2)(A) for purposes of determining the
inclusion of such distribution under section 72. Proper
adjustments shall be made in applying section 72 to
other distributions in such taxable year and subsequent
taxable years.
``(E) Special rules for split-interest entities.--
``(i) Charitable remainder trusts.--
Notwithstanding section 664(b), distributions
made from a trust described in subparagraph
(G)(i) shall be treated as ordinary income in
the hands of the beneficiary to whom is paid
the annuity described in section 664(d)(1)(A)
or the payment described in section
664(d)(2)(A).
``(ii) Pooled income funds.--No amount
shall be includible in the gross income of a
pooled income fund (as defined in subparagraph
(G)(ii)) by reason of a qualified charitable
distribution to such fund, and all
distributions from the fund which are
attributable to qualified charitable
distributions shall be treated as ordinary
income to the beneficiary.
``(iii) Charitable gift annuities.--
Qualified charitable distributions made for a
charitable gift annuity shall not be treated as
an investment in the contract.
``(F) Denial of deduction.--Qualified charitable
distributions shall not be taken into account in
determining the deduction under section 170.
``(G) Split-interest entity defined.--For purposes
of this paragraph, the term `split-interest entity'
means--
``(i) a charitable remainder annuity trust
or a charitable remainder unitrust (as such
terms are defined in section 664(d)) which must
be funded exclusively by qualified charitable
distributions,
``(ii) a pooled income fund (as defined in
section 642(c)(5)), but only if the fund
accounts separately for amounts attributable to
qualified charitable distributions, and
``(iii) a charitable gift annuity (as
defined in section 501(m)(5)).''.
(b) Modifications Relating to Information Returns by Certain
Trusts.--
(1) Returns.--Section 6034 of such Code (relating to
returns by trusts described in section 4947(a)(2) or claiming
charitable deductions under section 642(c)) is amended to read
as follows:
``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 642(C).
``(a) Trusts Described in Section 4947(a)(2).--Every trust
described in section 4947(a)(2) shall furnish such information with
respect to the taxable year as the Secretary may by forms or
regulations require.
``(b) Trusts Claiming a Charitable Deduction Under Section
642(c).--
``(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a deduction under
section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the Secretary
may by forms or regulations prescribe, including--
``(A) the amount of the deduction taken under
section 642(c) within such year,
``(B) the amount paid out within such year which
represents amounts for which deductions under section
642(c) have been taken in prior years,
``(C) the amount for which such deductions have
been taken in prior years but which has not been paid
out at the beginning of such year,
``(D) the amount paid out of principal in the
current and prior years for the purposes described in
section 642(c),
``(E) the total income of the trust within such
year and the expenses attributable thereto, and
``(F) a balance sheet showing the assets,
liabilities, and net worth of the trust as of the
beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply to a trust
for any taxable year if--
``(A) all the net income for such year, determined
under the applicable principles of the law of trusts,
is required to be distributed currently to the
beneficiaries, or
``(B) the trust is described in section
4947(a)(1).''.
(2) Increase in penalty relating to filing of information
return by split-interest trusts.--Paragraph (2) of section
6652(c) of such Code (relating to returns by exempt
organizations and by certain trusts) is amended by adding at
the end the following new subparagraph:
``(C) Split-interest trusts.--In the case of a
trust which is required to file a return under section
6034(a), subparagraphs (A) and (B) of this paragraph
shall not apply and paragraph (1) shall apply in the
same manner as if such return were required under
section 6033, except that--
``(i) the 5 percent limitation in the
second sentence of paragraph (1)(A) shall not
apply,
``(ii) in the case of any trust with gross
income in excess of $250,000, the first
sentence of paragraph (1)(A) shall be applied
by substituting `$100' for `$20', and the
second sentence thereof shall be applied by
substituting `$50,000' for `$10,000', and
``(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person required
to file such return knowingly fails to file the return,
such penalty shall also be imposed on such person who
shall be personally liable for such penalty.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 of such Code (relating to
inspection of annual information returns) is amended by adding
at the end the following new sentence: ``In the case of a trust
which is required to file a return under section 6034(a), this
subsection shall not apply to information regarding
beneficiaries which are not organizations described in section
170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to distributions made after December 31, 2005.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to returns for taxable years beginning after
December 31, 2005.
TITLE VIII--MISCELLANEOUS PROVISIONS
SEC. 801. 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
title VI of 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 this Act or such title VI,
and
(B) on or before the last day of the first plan
year beginning on or after January 1, 2008.
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 ``2010'' for ``2008''.
(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.
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