II 109th CONGRESS 1st Session S. 1304 IN THE SENATE OF THE UNITED STATES June 23, 2005 Mr. Harkin (for himself, Mr. Kennedy, Mr. Durbin, Mr. Feingold, Mrs. Boxer, and Mr. Dayton) introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions A BILL To amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to protect pension benefits of employees in defined benefit plans and to direct the Secretary of the Treasury to enforce the age discrimination requirements of the Internal Revenue Code of 1986.

1.

Short title

This Act may be cited as the Pension Benefits Protection Act of 2005.

2.

Proper administration of internal revenue laws and nondiscrimination requirements

The Secretary of the Treasury shall apply section 411(b)(1)(H) of the Internal Revenue Code of 1986 without regard to the portion of the preamble to Treasury Decision 8360 (56 Fed. Reg. 47524–47603, September 19, 1991) which relates to the allocation of interest adjustments through normal retirement age under a cash balance plan, as such preamble is and has been since its adoption without the force of law.

3.

Protection of participants from conversions to hybrid defined benefit plans

(a)

Election to maintain rate of accrual in effect before plan amendment

(1)

Amendment to ERISA

Section 204(b)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(b)(1)) is amended by adding at the end the following new subparagraph: (I)(i)Notwithstanding the preceding subparagraphs, in the case of a plan amendment to a defined benefit plan— (I)which has the effect of converting the plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations issued under clause (iv)), and (II)which has the effect of reducing the rate of future benefit accrual of 1 or more participants, such plan shall be treated as not satisfying the requirements of this paragraph unless such plan meets the requirements of clause (ii).(ii)A plan meets the requirements of this clause if the plan provides each participant who has attained 40 years of age or 10 years of service (as determined under section 203) under the plan at the time such amendment takes effect with— (I)notice of the plan amendment indicating that it has such effect, including a comparison of the present and projected values of the accrued benefit determined both with and without regard to the plan amendment, and (II)an election upon retirement to either receive benefits under the terms of the plan as in effect at the time of retirement or to receive benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date). (iii)For purposes of clause (i), an accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of subsection (g)(2)(A)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date. (iv)The Secretary of the Treasury shall issue regulations under which any plan amendment which has an effect similar to the effect described in clause (i)(I) shall be treated as a plan amendment described in clause (i)(I). Such regulations may provide that if a plan sponsor represents in communications to participants and beneficiaries that a plan amendment has an effect described in the preceding sentence, such plan amendment shall be treated as a plan amendment described in clause (i)(I). . (2)

Amendment to Internal Revenue Code

Section 411(b)(1) of the Internal Revenue Code of 1986 (relating to accrued benefit requirements for defined benefit plans) is amended by adding at the end the following new subparagraph: (I)

Election to maintain rate of accrual in effect before certain plan amendments

(i)

In general

Notwithstanding the preceding subparagraphs, in the case of a plan amendment to a defined benefit plan— (I)which has the effect of converting the plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations issued under clause (iv)), and (II)which has the effect of reducing the rate of future benefit accrual of 1 or more participants, such plan shall be treated as not satisfying the requirements of this paragraph unless such plan meets the requirements of clause (ii).(ii)

Requirements

A plan meets the requirements of this clause if the plan provides each participant who has attained 40 years of age or 10 years of service (as determined under subsection (a)) under the plan at the time such amendment takes effect with— (I)notice of the plan amendment indicating that it has such effect, including a comparison of the present and projected values of the accrued benefit determined both with and without regard to the plan amendment, and (II)an election upon retirement to either receive benefits under the terms of the plan as in effect at the time of retirement or to receive benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date). (iii)

Treatment of early retirement benefits and retirement-type subsidies

For purposes of clause (i), an accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of subsection (d)(6)(B)(i)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date. (iv)

Regulations

The Secretary shall issue regulations under which any plan amendment which has an effect similar to the effect described in clause (i)(I) shall be treated as a plan amendment described in clause (i)(I). Such regulations may provide that if a plan sponsor represents in communications to participants and beneficiaries that a plan amendment has an effect described in the preceding sentence, such plan amendment shall be treated as a plan amendment described in clause (i)(I). . (b)

Effective date and related rules

(1)

In general

The amendments made by this section apply to plan amendments taking effect before, on, or after the date of the enactment of this Act, except that such amendments shall not apply to a plan amendment if the Internal Revenue Service has issued on or before June 23, 2005, a determination letter which has the effect of approving the plan amendment. (2)

Special rule

In the case of a plan amendment taking effect before 90 days after the date of the enactment of this Act, the requirements of section 204(b)(1)(I) of the Employee Retirement Income Security Act of 1974 (as added by this section) and section 411(b)(1)(I) of the Internal Revenue Code of 1986 (as added by this section) shall be treated as satisfied in connection with such plan amendment, in the case of any participant described in such sections 204(b)(1)(I) and 411(b)(1)(I) in connection with such plan amendment, if, as of the end of such 90-day period— (A)the notice described in clause (i)(I) of such section 204(b)(1)(I) and clause (i)(I) of such section 411(b)(1)(I) in connection with such plan amendment has been provided to such participant, and (B)the plan provides for the election described in clause (i)(II) of such section 204(b)(1)(I) and clause (i)(II) of such section 411(b)(1)(I) in connection with such participant’s retirement under the plan.

4.

Prevention of wearing away of employee’s accrued benefit

(a)

Amendment to ERISA

Section 204(g) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at the end the following new paragraph: (6)(A)For purposes of paragraph (1), an applicable plan amendment adopted by a large defined benefit plan shall be treated as reducing accrued benefits of a participant if, under the terms of the plan after the adoption of the amendment, the accrued benefit of the participant may at any time be less than the sum of— (i)the participant’s accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date, plus (ii)the participant’s accrued benefit determined under the formula applicable to benefit accruals under the current plan as applied to years of service after such effective date. (B)For purposes of this paragraph— (i)The term applicable plan amendment means a plan amendment which has the effect of converting the plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations of the Secretary of the Treasury under subsection (b)(1)(I)(iv)). (ii)The term large defined benefit plan means any defined benefit plan which had 100 or more participants who had accrued a benefit under the plan (whether or not vested) as of the last day of the plan year preceding the plan year in which the plan amendment becomes effective. (iii)An accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of paragraph (2)(A)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date. . (b)

Amendment to Internal Revenue Code

Section 411(d)(6) of the Internal Revenue Code of 1986 (relating to accrued benefit may not be decreased by amendment) is amended by adding at the end the following new subparagraph: (F)

Treatment of plan amendments wearing away accrued benefit

(i)

In general

For purposes of subparagraph (A), an applicable plan amendment adopted by a large defined benefit plan shall be treated as reducing accrued benefits of a participant if, under the terms of the plan after the adoption of the amendment, the accrued benefit of the participant may at any time be less than the sum of— (I)the participant’s accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date, plus (II)the participant’s accrued benefit determined under the formula applicable to benefit accruals under the current plan as applied to years of service after such effective date. (ii)

Definitions

For purposes of this subparagraph— (I)

Applicable plan amendment

The term applicable plan amendment means a plan amendment which has the effect of converting the plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations of the Secretary under subsection (b)(1)(I)(iv)). (II)

Large defined benefit plan

The term large defined benefit plan means any defined benefit plan which had 100 or more participants who had accrued a benefit under the plan (whether or not vested) as of the last day of the plan year preceding the plan year in which the plan amendment becomes effective. (III)

Protected accrued benefit

An accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of subparagraph (B)(i)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date. . (c)

Effective date and related rules

(1)

In general

Except as provided in paragraph (2), the amendments made by this section apply to plan amendments taking effect before, on, or after the date of the enactment of this Act, except that such amendments shall not apply to a plan amendment if the Internal Revenue Service has issued on or before June 23, 2005, a determination letter which has the effect of approving the plan amendment. (2)

Special rule

Notwithstanding paragraph (1), the amendments made by this section shall not apply in connection with any participant with respect to any plan amendment which has taken effect before 90 days after the date of the enactment of this Act if, as of the end of such 90-day period, the plan provides that the participant’s accrued benefit shall at no time be less than the sum described in section 204(g)(6)(A) of the Employee Retirement Income Security Act of 1974 (as added by this section) or section 411(d)(6)(F)(i) of the Internal Revenue Code of 1986 (as added by this section) in connection with such plan amendment.