[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1961 Introduced in House (IH)]






109th CONGRESS
  1st Session
                                H. R. 1961

 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. Cardin 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) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; 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. Expansion of Saver's credit.
Sec. 202. Faster vesting of employer nonelective contributions.
Sec. 203. Allow rollovers by nonspouse beneficiaries of certain 
                            retirement plan distributions.
Sec. 204. Enhancing portability of after-tax amounts.
Sec. 205. IRA eligibility for the disabled.
Sec. 206. Exclusion of certain qualified annuity payments.
Sec. 207. Exclusion of certain nonqualified annuity payments.
Sec. 208. Facilitation under fiduciary rules of certain rollovers and 
                            annuity distributions.
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. 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 Roth IRA.
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.
Sec. 516. Repeal of optional treatment of elective deferrals as Roth 
                            contributions.
               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. 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 (as amended by 
subsection (a)) of such Code 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 provide 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 Roth IRA contribution in the case of a 
        payment to an individual retirement plan.''.
            (3) 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:
    ``(h) 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.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 202. 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. 203. 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. 204. 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. 205. 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. 206. EXCLUSION OF CERTAIN QUALIFIED ANNUITY PAYMENTS.

    (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 series of 
                                substantially equal periodic payments 
                                merely because, in the case of an 
                                annuity payable over the joint 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.
                            ``(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) a 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 408A(c)(3)(C)(i) except 
                        that section 408A(c)(3)(C)(i)(II) shall not 
                        apply for this purpose.
                            ``(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) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2005.

SEC. 207. 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 408A(c)(3)(C)(i) except 
                        that section 408A(c)(3)(C)(i)(II) shall not 
                        apply for this purpose.
                            ``(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 joint 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 (w), 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 (w) as subsection 
                (x) and inserting after subsection (v) the following 
                new subsection (w):
    ``(w) 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(w) 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. 208. FACILITATION UNDER FIDUCIARY RULES OF CERTAIN ROLLOVERS AND 
              ANNUITY DISTRIBUTIONS.

    (a) In General.--Section 404(c) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the 
end the following new paragraph:
    ``(4)(A) In the case of a pension plan which makes a transfer under 
section 401(a)(31)(A) of the Internal Revenue Code of 1986 to an 
individual retirement plan (as defined in section 7701(a)(37) of such 
Code) in connection with a participant or beneficiary or makes a 
distribution to a participant or beneficiary of an annuity contract 
described in subparagraph (B), the participant or beneficiary shall, 
for purposes of paragraph (1), be treated as exercising control over 
the transfer or distribution if--
            ``(i) the participant or beneficiary elected such transfer 
        or distribution, and
            ``(ii) in connection with such election, the participant or 
        beneficiary was given an opportunity to elect any other 
        individual retirement plan (in the case of a transfer) or any 
        other annuity contract described in subparagraph (B) (in the 
        case of a distribution).
    ``(B) An annuity contract is described in this subparagraph if it 
provides, either on an immediate or deferred basis, a series of 
substantially equal periodic payments (not less frequently than 
annually) for the life of the 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.''.
    (b) Effective Date and Related Rules.--
            (1) Effective date.--The amendment made by this section 
        shall take effect on the date of the enactment of this Act.
            (2) Issuance of final regulations.--Final regulations under 
        section 404(c)(4) of the Employee Retirement Income Security 
        Act of 1974 (added by this section) shall be issued no later 
        than 1 year after the date of the enactment of this Act.

SEC. 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 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 fifth 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 employees other than highly 
                        compensated employees eligible to participate 
                        in the arrangement.
                            ``(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.--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 clause (i). The 
                rules of clause (ii) of paragraph (12)(E) shall apply 
                for purposes of clauses (i) and (ii).
                    ``(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
                                    ``(II) has a reasonable period of 
                                time after receipt of such notice and 
                                before the first elective contribution 
                                is made to make 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 section 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 
        Proposed 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 uniform 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 a portion of the contributions in a diversified investment 
        vehicle that is intended to provide long-term capital 
        appreciation.
    ``(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 
        appraise 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 employee has a reasonable period of time after 
        receipt of the notice described in subclause (I) and before the 
        first elective contribution is made to make such election, and
            ``(III) the notice explains how contributions made under 
        the arrangement will be invested in the absence of any 
        investment election by the employee.
    ``(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)(4)(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.--Section 414 (relating to definitions 
and special rules) is amended by adding at the end the following new 
subsection:
    ``(y) 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 had 
                not known that the elective contribution would be made 
                and that the employee would not have elected to have 
                such contribution made, 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).''.
    (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 a Roth 
                IRA, or, if the Secretary determines that such direct 
                payments are reasonably administrable, to individual 
                retirement plans which are not Roth IRAs,
                    (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 such Code 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 (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) is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (2) Section 414(s)(2) is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (3) Section 415(c)(3)(D)(ii) 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 such Code 
(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 and 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. 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) (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)(A) 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)(A). 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 a Roth IRA.
                    ``(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, 2006.
            (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, 2004, 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 ROTH IRA.

    (a) In General.--Subsection (e) of section 408A of the Internal 
Revenue Code of 1986 (defining qualified rollover contribution) is 
amended to read as follows:
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a rollover 
contribution--
            ``(1) to a Roth IRA from another such account,
            ``(2) from an eligible retirement plan, but only if--
                    ``(A) in the case of an individual retirement plan, 
                such rollover contribution meets the requirements of 
                section 408(d)(3), and
                    ``(B) in the case of any eligible retirement plan 
                (as defined in section 402(c)(8)(B) other than clauses 
                (i) and (ii) thereof), such rollover contribution meets 
                the requirements of section 402(c), 403(b)(8), or 
                457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any 
qualified rollover contribution from an individual retirement plan 
(other than a Roth IRA) to a Roth IRA.''.
    (b) Conforming Amendments.--
            (1) Section 408A(c)(3)(B) of such Code is amended--
                    (A) in the text by striking ``individual retirement 
                plan'' and inserting ``an eligible retirement plan (as 
                defined by section 402(c)(8)(B))'', and
                    (B) in the heading by striking ``Ira'' and 
                inserting ``eligible retirement plan''.
            (2) Section 408A(d)(3) of such Code is amended--
                    (A) in subparagraph (A) by striking ``section 
                408(d)(3)'' inserting ``sections 402(c), 403(b)(8), 
                408(d)(3), and 457(e)(16)'',
                    (B) in subparagraph (B) by striking ``individual 
                retirement plan'' and inserting ``eligible retirement 
                plan (as defined by section 402(c)(8)(B))'',
                    (C) in subparagraph (D) by striking ``or 6047'' 
                after ``408(i)'',
                    (D) in subparagraph (D) by striking ``or both'' and 
                inserting ``persons subject to section 6047(d)(1), or 
                all of the foregoing persons'', and
                    (E) in the heading by striking ``Ira'' and 
                inserting ``eligible retirement plan''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 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 4972(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 (34) the following:
            ``(35) 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)(35) 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)(35) 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 way 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 way 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.

SEC. 516. REPEAL OF OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH 
              CONTRIBUTIONS.

    (a) In General.--Section 402A of the Internal Revenue Code of 1986 
(relating to optional treatment of elective deferrals as Roth 
contributions) is hereby repealed and the table of sections for part I 
of subchapter D of chapter 1 of such Code is amended by striking the 
item relating to section 402A.
    (b) Conforming Amendments.--
            (1) Section 402(g)(1)(A) of such Code is amended by 
        striking the last sentence.
            (2) Section 402(c)(8)(B) of such Code is amended by 
        striking the last sentence.
            (3) Section 6051(a)(8) of such Code is amended by striking 
        ``, including the amount of designated Roth contributions (as 
        defined in section 402A)''.
            (4) Section 6047 of such Code is amended by striking 
        subsection (f) and redesignating subsection (g) as subsection 
        (f).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the 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 
        (H) 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) 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 (H) 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) 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.
                                 <all>