[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3899 Introduced in House (IH)]







109th CONGRESS
  1st Session
                                H. R. 3899

 To amend the Employee Retirement Income Security Act of 1974 and the 
Internal Revenue Code of 1986 to provide for the combination of defined 
benefit plans and deferred compensation arrangements in a single plan, 
                        and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 27, 2005

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

_______________________________________________________________________

                                 A BILL


 
 To amend the Employee Retirement Income Security Act of 1974 and the 
Internal Revenue Code of 1986 to provide for the combination of defined 
benefit plans and deferred compensation arrangements in a single plan, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Employer Defined Benefit 
Expansion Act''.

SEC. 2. TREATMENT OF ELIGIBLE COMBINED DEFINED BENEFIT PLANS AND 
              QUALIFIED CASH OR DEFERRED ARRANGEMENTS.

    (a) Amendments of ERISA.--
            (1) In general.--Section 210 of the Employee Retirement 
        Income Security Act of 1974 is amended by adding at the end the 
        following new subsection:
    ``(e) Special Rules for Eligible Combined Defined Benefit Plans and 
Qualified Cash or Deferred Arrangements.--
            ``(1) General rule.--Except as provided in this subsection, 
        in the case of any defined benefit plan or applicable 
        individual account plan forming a part of an eligible combined 
        plan, the requirements of this Act shall be applied to such 
        defined benefit plan or applicable individual account plan in 
        the same manner as if such plan were not a part of the eligible 
        combined plan.
            ``(2) Eligible combined plan.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `eligible combined 
                plan' means an arrangement--
                            ``(i) which consists of a defined benefit 
                        plan and an applicable individual account plan,
                            ``(ii) the assets of which are held in a 
                        single trust forming part of the arrangement 
                        and are clearly identified and allocated to the 
                        defined benefit plan and the applicable 
                        individual account plan to the extent necessary 
                        for the separate application of this Act under 
                        paragraph (1), and
                            ``(iii) with respect to which the benefit, 
                        contribution, vesting, and distribution 
                        requirements of subparagraphs (B), (C), (D), 
                        and (E) are met.
                    ``(B) Benefit requirements.--
                            ``(i) In general.--The benefit requirements 
                        of this subparagraph are met with respect to 
                        the defined benefit plan forming part of the 
                        eligible combined plan if the accrued benefit 
                        of each participant derived from employer 
                        contributions, when expressed as an annual 
                        retirement benefit, is not less than the 
                        applicable percentage of the participant's 
                        final average pay. For purposes of this clause, 
                        final average pay shall be determined using the 
                        period of consecutive years (not exceeding 5) 
                        during which the participant had the greatest 
                        aggregate compensation from the employer.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage is the 
                        lesser of--
                                    ``(I) 1 percent multiplied by the 
                                number of years of service with the 
                                employer, or
                                    ``(II) 20 percent.
                            ``(iii) Special rule for cash balance 
                        plans.--
                                    ``(I) In general.--If the defined 
                                benefit plan under clause (i) is a cash 
                                balance plan, the plan shall be treated 
                                as meeting the requirements of clause 
                                (i) with respect to any plan year if 
                                the employer contribution to the 
                                hypothetical account balance expressed 
                                as a percentage of the participant's 
                                compensation for the year is equal to 
                                the percentage determined in accordance 
                                with the following table:

``If the participant's age as of 
        the
  beginning of the year is--                        The percentage is--
    30 or less....................................                   2 
    Over 30 but less than 40......................                   4 
    40 or over but less than 50...................                   6 
    50 or over....................................                   8.
                                    ``(II) Cash balance plan defined.--
                                For purposes of subclause (I), a cash 
                                balance plan is a defined benefit plan 
                                that defines an employee's benefits by 
                                reference to the employee's 
                                hypothetical account. Such hypothetical 
                                account is determined by reference, 
                                first, to hypothetical contribution 
                                allocations, and, second, to 
                                hypothetical interest credits (on an 
                                annual or more frequent basis). The 
                                right to future interest credits are 
                                determined without regard to future 
                                service.
                                    ``(III) No predecessor defined 
                                benefit plan.--Notwithstanding 
                                subclause (I), the requirements of 
                                clause (i) shall not be treated as met 
                                if, during the 3-year period 
                                immediately preceding the effective 
                                date of a cash balance plan meeting the 
                                requirements of subclause (I), the 
                                employer (or any related employer, 
                                within the meaning of subsection (b), 
                                (c), (m), or (o) of section 414 of the 
                                Internal Revenue Code of 1986), 
                                maintained a defined benefit plan that 
                                was not a cash balance plan and which 
                                benefited any participant who is a 
                                participant in the plan which meets the 
                                requirements of subclause (I).
                            ``(iv) Years of service.--For purposes of 
                        this subparagraph, years of service shall be 
                        determined under the rules of paragraphs (1), 
                        (2), and (3) of section 203(b), except that the 
                        plan may not disregard any year of service 
                        because of a participant making, or failing to 
                        make, any elective deferral with respect to the 
                        qualified cash or deferred arrangement to which 
                        subparagraph (C) applies.
                    ``(C) Contribution requirements.--
                            ``(i) In general.--The contribution 
                        requirements of this subparagraph with respect 
                        to any applicable individual account plan 
                        forming part of an eligible combined plan are 
                        met if--
                                    ``(I) the qualified cash or 
                                deferred arrangement included in such 
                                applicable individual account plan 
                                constitutes an automatic contribution 
                                arrangement, and
                                    ``(II) the employer makes matching 
                                contributions on behalf of each 
                                employee eligible to participate in the 
                                arrangement in an amount equal to 50 
                                percent of the elective contributions 
                                of the employee to the extent such 
                                elective contributions do not exceed 4 
                                percent of compensation.
                        Rules similar to the rules of clauses (ii) and 
                        (iii) of section 401(k)(12)(B) of the Internal 
                        Revenue Code of 1986 shall apply of purposes of 
                        this clause.
                            ``(ii) Nonelective contributions.--An 
                        applicable individual account plan shall not be 
                        treated as failing to meet the requirements of 
                        clause (i) because the employer makes 
                        nonelective contributions under the plan but 
                        such contributions shall not be taken into 
                        account in determining whether the requirements 
                        of clause (i)(II) are met.
                    ``(D) Vesting requirements.--The vesting 
                requirements of this subparagraph are met if--
                            ``(i) in the case of a defined benefit plan 
                        forming part of an eligible combined plan, an 
                        employee who has completed at least 3 years of 
                        service has a nonforfeitable right to 100 
                        percent of the employee's accrued benefit under 
                        the plan derived from employer contributions, 
                        and
                            ``(ii) in the case of an applicable 
                        individual account plan forming part of 
                        eligible combined plan--
                                    ``(I) an employee has a 
                                nonforfeitable right to any matching 
                                contribution made under the qualified 
                                cash or deferred arrangement included 
                                in such plan by an employer with 
                                respect to any elective contribution, 
                                including matching contributions in 
                                excess of the contributions required 
                                under subparagraph (C)(i)(II), and
                                    ``(II) 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 under the arrangement 
                                from nonelective contributions of the 
                                employer.
                        For purposes of this subparagraph, the rules of 
                        section 203 shall apply to the extent not 
                        inconsistent with this subparagraph.
                    ``(E) Spousal consent for distributions.--The 
                distribution requirements of this subparagraph are met 
                if, in the case of a married participant, no 
                distribution may be made from the plan without the 
                written consent of the spouse of such participant.
            ``(3) Uniform provision of benefits.--In the case of a 
        defined benefit plan or applicable individual account plan 
        forming part of an eligible combined plan, all benefits, 
        rights, and features must be provided uniformly to all 
        participants.
            ``(4) Automatic contribution arrangement.--For purposes of 
        this subsection--
                    ``(A) In general.--A qualified cash or deferred 
                arrangement shall be treated as an automatic 
                contribution arrangement if the arrangement--
                            ``(i) provides that 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 specified percentage of the employee's 
                        compensation unless the employee specifically 
                        elects not to have such contributions made or 
                        to have such contributions made at a different 
                        rate or amount, and
                            ``(ii) meets the notice requirements under 
                        subparagraph (B).
                    ``(B) 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 
                        (A)(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 or to have the 
                                contributions made at a different rate 
                                or amount, 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 automatic contribution arrangement.
                The requirements of clauses (i) and (ii) of section 
                401(k)(12)(D) of the Internal Revenue Code of 1986 
                shall be met with respect to the notices described in 
                clauses (ii) and (iii) of this subparagraph.
                    ``(C) Specified percentage.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `specified 
                        percentage' means, with respect to any 
                        employee--
                                    ``(I) 4 percent during the period 
                                ending on the last day of the first 
                                plan year which begins after the date 
                                on which the first elective 
                                contribution described in subparagraph 
                                (A)(i) is made with respect to such 
                                employee, and
                                    ``(II) in the case of any 
                                subsequent plan year, the percentage 
                                which applied for the previous plan 
                                year increased by one percentage point.
                            ``(ii) Maximum percentage.--Notwithstanding 
                        clause (i)(II), the specified percentage shall 
                        not exceed 10 percent.
            ``(5) Treatment as single plan for reporting purposes.--An 
        eligible combined plan shall be treated as a single plan for 
        purposes of section 103(b).
            ``(6) Applicable individual account plan.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `applicable individual 
                account plan' means an individual account plan which 
                includes a qualified cash or deferred arrangement.
                    ``(B) Qualified cash or deferred arrangement.--The 
                term `qualified cash or deferred arrangement' has the 
                meaning given such term by section 401(k)(2) of the 
                Internal Revenue Code of 1986.''.
            (2) Preemption of state law.--The amendments made by this 
        subsection supersede any provision of a statute, regulation, or 
        rule of a State or political subdivision of a State that would 
        otherwise require an employer to obtain an employee's consent 
        before making a deduction from the wages of such employee.
            (3) Guidelines for meeting fiduciary requirements.--Section 
        404(a) of the Employee Retirement Income Security Act of 1974 
        (29 U.S.C. 1104(a)) is amended by adding at the end the 
        following new paragraph:
    ``(3)(A) The Secretary shall prescribe by regulation guidelines for 
compliance with the requirements of the diversification requirement of 
paragraph (1)(C) and the prudence requirement (to the extent that it 
requires diversification) of paragraph (1)(B) in the case of automatic 
enrollment plans. Such guidelines shall consist of criteria for meeting 
a standard of well-balanced and highly diversified investment of plan 
assets. Compliance with such guidelines shall be deemed compliance with 
such requirements.
    ``(B) The criteria prescribed by the Secretary pursuant to 
subparagraph (A) shall include at least the following:
            ``(i) sufficiently limited investment of plan assets in 
        securities issued by any single issuer (other than in 
        obligations issued by, or guaranteed as to both principal and 
        interest by, the Government of the United States);
            ``(ii) sufficient diversification of investment among and 
        within asset classes, which shall include at least sufficient 
        diversification measured as between stocks and bonds, 
        sufficient diversification measured as among varieties of stock 
        categorized by large capitalization, medium capitalization, and 
        small capitalization, and sufficient diversification measured 
        as between investment funds focused on growth and investment 
        funds focused on income; and
            ``(iii) adequate prospects for a reasonable rate of return 
        on the investment, together with adequate assurance against 
        loss of principal and minimization of fees and other associated 
        costs chargeable to participants.
    ``(C) For purposes of this paragraph, the term `automatic 
enrollment plan' means any plan which includes an automatic 
contribution arrangement (within the meaning of section 210(e)(3)).''.
            (4) Reduced pbgc premiums for certain defined benefit plans 
        offered with cash or deferred arrangements.--
                    (A) Reduction in basic premium for new plans of 
                small employers.--Subparagraph (A) of section 
                4006(a)(3) of the Employee Retirement Income Security 
                Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended--
                            (i) in clause (i), by inserting ``(except 
                        as provided in clause (iv))'' after ``$19'' ;
                            (ii) in clause (iii), by striking the 
                        period at the end and inserting ``, and''; and
                            (iii) by adding at the end the following 
                        new clause:
            ``(iv) for plan years beginning after December 31, 2005, in 
        the case of a plan which is, for the plan year, a new cash-or-
        deferred single-employer plan maintained by a small employer, 
        $5 for each individual who is a participant in such plan during 
        the plan year.''.
                    (B) Definitions.--Section 4006(a)(3) of such Act 
                (29 U.S.C. 1306(a)(3)) is amended by adding at the end 
                the following new subparagraph:
    ``(G)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new cash-or-
deferred single-employer plan for each of its first 5 plan years if--
            ``(I) during the 36-month period ending on the date of the 
        adoption of such plan, the sponsor or any member of such 
        sponsor's controlled group (or any predecessor of either) did 
        not establish or maintain a plan to which this title applies 
        with respect to which benefits were accrued for substantially 
        the same employees as are in the new single-employer plan, and
            ``(II) throughout the period beginning with the date of the 
        adoption of the plan and ending with the first date of such 
        plan year, the plan has formed a part of an eligible combined 
        plan (as defined in section 210(e)(2)(A)).
    ``(ii)(I) For purposes of this paragraph, the term `small employer' 
for a plan year means an employer which on the first day of the plan 
year has, in aggregation with all members of the controlled group of 
such employer, 500 or fewer employees.
    ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''.
    (b) Amendments of Internal Revenue Code.--
            (1) In general.--Section 414 of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        subsection:
    ``(w) Special Rules for Eligible Combined Defined Benefit Plans and 
Qualified Cash or Deferred Arrangements.--
            ``(1) General rule.--Except as provided in this subsection, 
        in the case of any defined benefit plan or applicable defined 
        contribution plan forming a part of an eligible combined plan, 
        the requirements of this title shall be applied to such defined 
        benefit plan or applicable defined contribution plan in the 
        same manner as if such plan were not a part of the eligible 
        combined plan.
            ``(2) Eligible combined plan.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `eligible combined 
                plan' means a plan--
                            ``(i) which consists of a defined benefit 
                        plan and an applicable defined contribution 
                        plan,
                            ``(ii) the assets of which are held in a 
                        single trust forming part of the plan and are 
                        clearly identified and allocated to the defined 
                        benefit plan and the applicable defined 
                        contribution plan to the extent necessary for 
                        the separate application of this title under 
                        paragraph (1), and
                            ``(iii) with respect to which the benefit, 
                        contribution, vesting, and distribution 
                        requirements of subparagraphs (B), (C), (D), 
                        and (E) are met.
                    ``(B) Benefit requirements.--
                            ``(i) In general.--The benefit requirements 
                        of this subparagraph are met with respect to 
                        the defined benefit plan forming part of the 
                        eligible combined plan if the accrued benefit 
                        of each participant derived from employer 
                        contributions, when expressed as an annual 
                        retirement benefit, is not less than the 
                        applicable percentage of the participant's 
                        final average pay. For purposes of this clause, 
                        final average pay shall be determined using the 
                        period of consecutive years (not exceeding 5) 
                        during which the participant had the greatest 
                        aggregate compensation from the employer.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage is the 
                        lesser of--
                                    ``(I) 1 percent multiplied by the 
                                number of years of service with the 
                                employer, or
                                    ``(II) 20 percent.
                            ``(iii) Special rule for cash balance 
                        plans.--
                                    ``(I) In general.--If the defined 
                                benefit plan under clause (i) is a cash 
                                balance plan, the plan shall be treated 
                                as meeting the requirements of clause 
                                (i) with respect to any plan year if 
                                the employer contribution to the 
                                hypothetical account balance expressed 
                                as a percentage of the participant's 
                                compensation for the year is equal to 
                                the percentage of compensation 
                                determined in accordance with the 
                                following table:

``If the participant's age as of 
        the
  beginning of the year is--                        The percentage is--
    30 or less....................................                   2 
    Over 30 but less than 40......................                   4 
    40 or over but less than 50...................                   6 
    50 or over....................................                   8.
                                    ``(II) Cash balance plan defined.--
                                For purposes of subclause (I), a cash 
                                balance plan is a defined benefit plan 
                                that defines an employee's benefits by 
                                reference to the employee's 
                                hypothetical account. Such hypothetical 
                                account is determined by reference, 
                                first, to hypothetical contribution 
                                allocations, and, second, to 
                                hypothetical interest credits (on an 
                                annual or more frequent basis). The 
                                right to future interest credits are 
                                determined without regard to future 
                                service.
                                    ``(III) No predecessor defined 
                                benefit plan.--Notwithstanding 
                                subclause (I), the requirements of 
                                clause (i) shall not be treated as met 
                                if, during the 3-year period 
                                immediately preceding the effective 
                                date of a cash balance plan meeting the 
                                requirements of subclause (I), the 
                                employer (or any related employer, 
                                within the meaning of subsection (b), 
                                (c), (m), or (o)), maintained a defined 
                                benefit plan that was not a cash 
                                balance plan and which benefited any 
                                participant who is a participant in the 
                                plan which meets the requirements of 
                                subclause (I).
                            ``(iv) Years of service.--For purposes of 
                        this subparagraph, years of service shall be 
                        determined under the rules of paragraphs (4), 
                        (5), and (6) of section 411(a), except that the 
                        plan may not disregard any year of service 
                        because of a participant making, or failing to 
                        make, any elective deferral with respect to the 
                        qualified cash or deferred arrangement to which 
                        subparagraph (C) applies.
                    ``(C) Contribution requirements.--
                            ``(i) In general.--The contribution 
                        requirements of this subparagraph with respect 
                        to any applicable defined contribution plan 
                        forming part of an eligible combined plan are 
                        met if--
                                    ``(I) the qualified cash or 
                                deferred arrangement included in such 
                                plan constitutes an automatic 
                                contribution arrangement, and
                                    ``(II) the employer makes matching 
                                contributions on behalf of each 
                                employee eligible to participate in the 
                                arrangement in an amount equal to 50 
                                percent of the elective contributions 
                                of the employee to the extent such 
                                elective contributions do not exceed 4 
                                percent of compensation.
                        Rules similar to the rules of clauses (ii) and 
                        (iii) of section 401(k)(12)(B) shall apply of 
                        purposes of this clause.
                            ``(ii) Nonelective contributions.--An 
                        applicable defined contribution plan shall not 
                        be treated as failing to meet the requirements 
                        of clause (i) because the employer makes 
                        nonelective contributions under the plan but 
                        such contributions shall not be taken into 
                        account in determining whether the requirements 
                        of clause (i)(II) are met.
                            ``(iii) Other plans and arrangements.--An 
                        applicable defined contribution plan may not be 
                        combined with any other plan for purposes of 
                        determining whether the requirements of section 
                        401(a)(4) or 410(b) are met.
                    ``(D) Vesting requirements.--The vesting 
                requirements of this subparagraph are met if--
                            ``(i) in the case of a defined benefit plan 
                        forming part of an eligible combined plan, an 
                        employee who has completed at least 3 years of 
                        service has a nonforfeitable right to 100 
                        percent of the employee's accrued benefit under 
                        the plan derived from employer contributions, 
                        and
                            ``(ii) in the case of an applicable defined 
                        contribution plan forming part of eligible 
                        combined plan--
                                    ``(I) an employee has a 
                                nonforfeitable right to any matching 
                                contribution made under the qualified 
                                cash or deferred arrangement included 
                                in such plan by an employer with 
                                respect to any elective contribution, 
                                including matching contributions in 
                                excess of the contributions required 
                                under subparagraph (C)(i)(II), and
                                    ``(II) 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 under the arrangement 
                                from nonelective contributions of the 
                                employer.
                        For purposes of this subparagraph, the rules of 
                        section 411 shall apply to the extent not 
                        inconsistent with this subparagraph.
                    ``(E) Spousal consent for distributions.--The 
                distribution requirements of this subparagraph are met 
                if, in the case of a married participant, no 
                distribution may be made from the plan without the 
                written consent of the spouse of such participant.
            ``(3) Application of nondiscrimination rules.--
                    ``(A) Uniform provision of benefits.--In the case 
                of a defined benefit plan or applicable defined 
                contribution plan forming part of an eligible combined 
                plan, all benefits, rights, and features must be 
                provided uniformly to all participants.
                    ``(B) Nondiscrimination requirements for qualified 
                cash or deferred arrangement.--
                            ``(i) In general.--A qualified cash or 
                        deferred arrangement which is included in an 
                        applicable defined contribution plan forming 
                        part of an eligible combined plan shall be 
                        treated as meeting the requirements of section 
                        401(k)(3)(A)(ii) if the requirements of 
                        paragraph (2)(C) are met with respect to such 
                        arrangement.
                            ``(ii) Matching contributions.--In applying 
                        section 401(m)(11) to any matching contribution 
                        with respect to a contribution to which 
                        paragraph (2)(C) applies, the contribution 
                        requirement of paragraph (2)(C) and the notice 
                        requirements of paragraph (5)(B) shall be 
                        substituted for the requirements otherwise 
                        applicable under clauses (i) and (ii) of 
                        section 401(m)(11)(A).
                    ``(C) Requirements must be met without taking into 
                account social security and similar contributions and 
                benefits.--The requirements of subparagraphs (B) and 
                (C) of paragraph (2) and subparagraph (B) of this 
                paragraph shall not be treated as being met unless such 
                requirements are met without regard to section 401(l), 
                and, for purposes of section 402(l), employer 
                contributions under subparagraphs (B) and (C) of 
                paragraph (2) shall not be taken into account .
            ``(4) Satisfaction of top-heavy rules.--A defined benefit 
        plan and applicable defined contribution plan forming part of 
        an eligible combined plan for any plan year shall be treated as 
        meeting the requirements of section 416 for the plan year.
            ``(5) Automatic contribution arrangement.--For purposes of 
        this subsection--
                    ``(A) In general.--A qualified cash or deferred 
                arrangement shall be treated as an automatic 
                contribution arrangement if the arrangement--
                            ``(i) provides that 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 specified percentage of the employee's 
                        compensation unless the employee specifically 
                        elects not to have such contributions made or 
                        to have such contributions made at a different 
                        rate or amount, and
                            ``(ii) meets the notice requirements under 
                        subparagraph (B).
                    ``(B) 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 
                        (A)(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 or to have the 
                                contributions made at a different rate 
                                or amount, 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 automatic contribution arrangement.
                The requirements of clauses (i) and (ii) of section 
                401(k)(12)(D) shall be met with respect to the notices 
                described in clauses (ii) and (iii) of this 
                subparagraph.
                    ``(C) Specified percentage.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `specified 
                        percentage' means, with respect to any 
                        employee--
                                    ``(I) 4 percent during the period 
                                ending on the last day of the first 
                                plan year which begins after the date 
                                on which the first elective 
                                contribution described in subparagraph 
                                (A)(i) is made with respect to such 
                                employee, and
                                    ``(II) in the case of any 
                                subsequent plan year, the percentage 
                                which applied for the previous plan 
                                year increased by one percentage point.
                            ``(ii) Maximum percentage.--Notwithstanding 
                        clause (i)(II), the specified percentage shall 
                        not exceed 10 percent.
            ``(6) Coordination with other requirements.--
                    ``(A) Treatment of separate plans.--Section 414(k) 
                shall not apply to an eligible combined plan.
                    ``(B) Reporting.--An eligible combined plan shall 
                be treated as a single plan for purposes of sections 
                6058 and 6059.
            ``(7) Applicable defined contribution plan.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `applicable defined 
                contribution plan' means a defined contribution plan 
                which includes a qualified cash or deferred 
                arrangement.
                    ``(B) Qualified cash or deferred arrangement.--The 
                term `qualified cash or deferred arrangement' has the 
                meaning given such term by section 401(k)(2).''.
            (2) Additional accruals under defined benefit plan forming 
        part of eligible combined plan provided as matching 
        contributions.--
                    (A) Certain arrangements under defined benefit plan 
                satisfy definitely determinable benefit requirement.--
                Subsection (a) of section 401 of the Internal Revenue 
                Code of 1986 is amended by adding at the end the 
                following new paragraph:
            ``(35) Qualified matching accrual under eligible combined 
        plan satisfies definitely determinable benefit requirement.--A 
        trust forming part of a defined benefit plan which forms part 
        of an eligible combined plan (as defined in section 414(x)) 
        shall not be treated as failing to constitute a qualified trust 
        merely because such plan includes qualified matching accruals 
        (as defined in subsection (m)(12)).''.
                    (B) Matching accruals.--Subsection (m) of section 
                401 of such Code is amended by redesignating paragraph 
                (12) as paragraph (13) and by inserting after paragraph 
                (11) the following new paragraph:
            ``(12) Special rules relating to qualified matching 
        accruals under a eligible combined plan.--For purposes of this 
        section--
                    ``(A) Qualified matching accrual.--The term 
                `qualified matching accrual' means an amount funded by 
                an employer in the form of a benefit accrual under a 
                defined benefit plan forming part of an eligible 
                combined plan (as defined in section 414(x)) to match 
                elective deferrals under a qualified cash or deferred 
                arrangement which is part of such eligible combined 
                plan (as so defined) and which meets the formula 
                requirements of subparagraph (B). The benefit accrual 
                shall be determined under a nondiscretionary formula 
                set forth in the defined benefit plan. For purposes of 
                determining such benefit accrual, the amount of 
                elective deferrals taken into account under such 
                formula may be limited under the plan.
                    ``(B) Formula requirements.--A benefit accrual 
                meets the requirements of this subparagraph if such 
                accrual is a hypothetical contribution that is added to 
                a participant's hypothetical account balance, the 
                amount of which is determined, in accordance with the 
                matching accrual formula set forth in the plan, with 
                reference to the amount of the elective deferrals made 
                by the participant for the plan year to a qualified 
                cash or deferred arrangement which is part of the 
                eligible combined plan (as defined in section 414(x)). 
                Matching accruals under the formula may vary with age 
                or other employment-related factors.
                    ``(C) Coordinate with employer contributions.--For 
                purposes of paragraph (4), the term `employer 
                contributions' shall not include any amount contributed 
                by an employer to a defined benefit plan for the 
                purpose of funding any qualified matching accruals.
                    ``(D) Safe harbor formula.--A qualified matching 
                accrual formula shall be deemed to satisfy subsection 
                (a)(4) if it satisfies the requirements of clauses (i) 
                and (ii).
                            ``(i) Elective deferrals at or above 
                        maximum matchable rate.--For an employee who 
                        makes elective deferrals at or above the 
                        maximum matchable rate, the qualified matching 
                        benefit accrual for the plan year is a 
                        hypothetical allocation under a cash balance 
                        plan that equals a percentage (not greater than 
                        4 percent) of compensation (as defined in 
                        section 414(s)).
                            ``(ii) Elective deferrals below maximum 
                        matchable rate.--For employees who make 
                        elective deferrals at a rate that is below the 
                        maximum matchable rate, the qualified matching 
                        benefit accrual for such plan year shall be 
                        prorated. The plan may prorate the qualified 
                        benefit accrual on the basis of whole 
                        percentages, and the plan may require that an 
                        employee's elective deferrals be stated as 
                        whole percentages.
                            ``(iii) Maximum matchable rate.--For 
                        purposes of this subparagraph, the maximum 
                        matchable rate must be a specified percentage 
                        of compensation which does not exceed 4 
                        percent.
                            ``(iv) Cash balance plan defined.--For 
                        purposes of clause (i), a cash balance plan is 
                        a defined benefit plan that defines an 
                        employee's benefits by reference to the 
                        employee's hypothetical account. Such 
                        hypothetical account is determined by 
                        reference, first, to hypothetical contribution 
                        allocations, and, second, to hypothetical 
                        interest credits (on an annual or more frequent 
                        basis). The right to future interest credits 
                        are determined without regard to future 
                        service.''.
                    (C) Exception to benefit contingency rule.--
                Subparagraph (A) of section 401(k)(4) of such Code is 
                amended by inserting ``or qualified matching accruals 
                (as defined in subsection (m)(12)'' after ``section 
                401(m))''.
                    (D) Forfeitures by reason of excess deferral.--
                Subparagraph (G) of section 411(a)(3) of the Code is 
                amended by adding at the end the following: ``A rule 
                similar to the rule of the preceding sentence shall 
                apply with respect to qualified matching accruals (as 
                defined in section 401(m)(12)).''
                    (E) Accrued benefit requirement with respect to 
                matching accruals.--Paragraph (1) of section 411(b) of 
                such Code is amended by adding at the end the following 
                new subparagraph:
                    ``(J) In the case of qualified matching accruals 
                (as defined in section 401(m)(12)), the requirements 
                for accrued benefits set forth in subparagraphs (A) 
                through (H) of this subsection shall be applied on the 
                basis of the rate of matching accruals available to 
                participants, without regard to the actual elective 
                deferrals made by participants.''.
                    (F) Participation requirements with respect to 
                qualified matching accruals.--Paragraph (26) of section 
                401(a) of such Code is amended by redesignating 
                subparagraph (I) as subparagraph (J), and by inserting 
                after subparagraph (H) the following new subparagraph:
                    ``(I) Special testing rules for qualified matching 
                accruals.--
                            ``(i) If an eligible combined plan (as 
                        defined in section 414(x)) includes qualified 
                        matching accruals (as defined in section 
                        401(m)(12)), the rules in clauses (ii) and 
                        (iii) shall apply.
                            ``(ii) Qualified matching accruals only 
                        benefit formula.--If the only benefit formula 
                        in the defined benefit plan forming a part of 
                        the eligible combined plan is a qualified 
                        matching accrual formula, the requirements of 
                        this paragraph shall be applied by treating a 
                        participant's annual benefit accrual as the 
                        maximum accrual that was available to the 
                        participant for the plan year, regardless of 
                        whether the maximum matchable elective 
                        deferrals were actually made by the 
                        participant. If the qualified matching accrual 
                        formula applies to elective deferrals in excess 
                        of 6 percent of compensation, then the 
                        requirements of this paragraph must be applied 
                        by taking into account the actual matching 
                        accruals earned by participants for the plan 
                        year.
                            ``(iii) Multiple formulas.--If the defined 
                        benefit plan includes one or more benefit 
                        formulas in addition to a qualified matching 
                        accrual formula, the employer may elect to 
                        apply clause (ii) to the qualified matching 
                        accrual formulas only if the requirements of 
                        this paragraph are satisfied separately with 
                        respect to the benefit accruals that are 
                        determined without regard to the qualified 
                        matching accrual formula.''.
                    (G) Regulations for meeting nondiscrimination 
                requirements.--
                            (i) In general.--The Secretary of the 
                        Treasury shall prescribe regulations on ways in 
                        which qualified matching accruals (as defined 
                        by section 401(m)(12) of the the Internal 
                        Revenue Code of 1986, as added by this section) 
                        that do not satisfy the formula requirements of 
                        section 401(m)(12)(D) of such Code (as enacted 
                        by subsection (b) of this section) can satisfy 
                        the nondiscrimination requirements of section 
                        401(a)(4) of such Code. The regulations may 
                        prescribe safe harbor formulas in addition to 
                        those prescribed by section 401(m)(12)(D).
                            (ii) Temporary and final form.--The 
                        Secretary shall prescribe the regulations 
                        required by clause (i) in temporary form not 
                        later than 6 months after the effective date of 
                        this section and in final form not later than 
                        18 months after the effective date of this 
                        section.
                    (H) Plan years beginning before issuance of 
                regulations.--For plan years beginning prior to the 
                date the regulations described in subsection (g) are 
                issued in final form (and after the effective date of 
                this section), a plan's qualified matching accrual 
                formula must satisfy a reasonable, good faith, 
                interpretation of section 401(a)(4) of such Code.
            (3) Updating deduction rules for combination of plans.--
                    (A) In general.--Subparagraph (C) of section 
                404(a)(7) of such Code (relating to limitation on 
                deductions where combination of defined contribution 
                plan and defined benefit plan) is amended by adding 
                after clause (ii) the following new clause:
                            ``(iii) Certain excess contributions.--In 
                        the case of employer contributions to 1 or more 
                        defined contribution plans, this paragraph 
                        shall only apply to the extent that such 
                        contributions (other than elective deferrals 
                        (as defined in section 402(g)(3)) exceed 6 
                        percent of the compensation otherwise paid or 
                        accrued during the taxable year to the 
                        beneficiaries under such plans. For purposes of 
                        this clause, amounts carried over from 
                        preceding taxable years under subparagraph (B) 
                        shall be treated as employer contributions to 1 
                        or more defined contributions to the extent 
                        attributable to employer contributions to such 
                        plans in such preceding taxable years.''.
                    (B) Conforming amendment.--Subparagraph (A) of 
                section 4972(c)(6) of such Code (relating to 
                nondeductible contributions) is amended to read as 
                follows:
                    ``(A) so much of the contributions to 1 or more 
                defined contribution plans which are not deductible 
                when contributed solely because of section 404(a)(7) as 
                does not exceed the sum of--
                            ``(i) the amount of contributions described 
                        in section 401(m)(4)(A), plus
                            ``(ii) the amount of contributions 
                        described in section 402(g)(3)(A), or''.
    (c) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        plan years beginning after December 31, 2006.
            (2) PBGC premiums.--The amendments made by subsection 
        (a)(4) shall apply to plans first effective after December 31, 
        2005.
            (3) Deduction rules for combination of plans.--The 
        amendments made by subsection (b)(3) shall apply to 
        contributions for taxable years beginning after December 31, 
        2005.
            (4) Cash balance rules.-- Section 210(e)(2)(B)(iii) of the 
        Employee Retirement Income Security Act of 1974 (as added by 
        this section), section 414(w)(2)(B)(iii) of the Internal 
        Revenue Code of 1986 (as so added), and each of the amendments 
        made by subsection (b)(2) shall not apply to plan years 
        beginning before the effective date of an Act which provides 
        for clarification of the application of section 204(b)(1)(H) of 
        such Act, section 411(b)(1)(H) of such Code, and section 4 of 
        the Age Discrimination in Employment Act of 1967 (29 U.S.C. 
        623) to cash balance plans.
                                 <all>