[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3715 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 3715

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
 Income Security Act of 1974 to provide for the treatment of eligible 
     combined defined benefit plans and qualified cash or deferred 
                             arrangements.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 24, 2006

   Ms. Snowe introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
 Income Security Act of 1974 to provide for the treatment of eligible 
     combined defined benefit plans and qualified cash or deferred 
                             arrangements.

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

SECTION 1. TREATMENT OF ELIGIBLE COMBINED DEFINED BENEFIT PLANS AND 
              QUALIFIED CASH OR DEFERRED ARRANGEMENTS.

    (a) Amendments of Internal Revenue Code.--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, 
        the requirements of this title shall be applied to any defined 
        benefit plan or applicable defined contribution plan which are 
        part of an eligible combined plan in the same manner as if each 
        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 is maintained by an employer 
                        which, at the time the plan is established, is 
                        a small employer,
                            ``(ii) which consists of a defined benefit 
                        plan and an applicable defined contribution 
                        plan,
                            ``(iii) 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
                            ``(iv) with respect to which the benefit, 
                        contribution, vesting, and nondiscrimination 
                        requirements of subparagraphs (B), (C), (D), 
                        (E), and (F) are met.
                For purposes of this subparagraph, the term `small 
                employer' has the meaning given such term by section 
                4980D(d)(2), except that such section shall be applied 
                by substituting `500' for `50' each place it appears.
                    ``(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.--If the defined benefit plan under 
                        clause (i) is a qualified cash balance plan 
                        (within the meaning of section 411(b)(5)), the 
                        plan shall be treated as meeting the 
                        requirements of clause (i) with respect to any 
                        plan year if each participant receives pay 
                        credit for the year which is not less than 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.
                            ``(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 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 is required to 
                                make 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 for 
                        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.
                    ``(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) Uniform provision of benefits.--In the case 
                of a defined benefit plan or applicable defined 
                contribution plan forming part of an eligible combined 
                plan, the requirements of this subparagraph are met if 
                all benefits under each such plan, and all rights and 
                features under each such plan, must be provided 
                uniformly to all participants.
                    ``(F) Requirements must be met without taking into 
                account social security and similar contributions and 
                benefits or other plans.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if the requirements of 
                        clauses (ii) and (iii) are met.
                            ``(ii) Social security and similar 
                        contributions.--The requirements of this clause 
                        are met if--
                                    ``(I) the requirements of 
                                subparagraphs (B) and (C) are met 
                                without regard to section 401(l), and
                                    ``(II) the requirements of sections 
                                401(a)(4) and 410(b) are met with 
                                respect to both the applicable defined 
                                contribution plan and defined benefit 
                                plan forming part of an eligible 
                                combined plan without regard to section 
                                401(l).
                            ``(iii) Other plans and arrangements.--The 
                        requirements of this clause are met if the 
                        applicable defined contribution plan and 
                        defined benefit plan forming part of an 
                        eligible combined plan meet the requirements of 
                        sections 401(a)(4) and 410(b) without being 
                        combined with any other plan.
            ``(3) Nondiscrimination requirements for qualified cash or 
        deferred arrangement.--
                    ``(A) 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.
                    ``(B) 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).
            ``(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 4 
                        percent 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, 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, 
                                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 section 
                401(k)(12)(D) shall be met with respect to the notices 
                described in clauses (ii) and (iii) of this 
                subparagraph.
            ``(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).''.
    (b) 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, 
        this Act shall be applied to any defined benefit plan or 
        applicable individual account plan which are part of an 
        eligible combined plan in the same manner as if each 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, at the time the plan is 
                        established, is maintained by a small employer,
                            ``(ii) which consists of a defined benefit 
                        plan and an applicable individual account plan 
                        each of which qualifies under section 401(a) of 
                        the Internal Revenue Code of 1986,
                            ``(iii) 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 individual 
                        account plan to the extent necessary for the 
                        separate application of this Act under 
                        paragraph (1), and
                            ``(iv) with respect to which the benefit, 
                        contribution, vesting, and nondiscrimination 
                        requirements of subparagraphs (B), (C), (D), 
                        (E), and (F) are met.
                For purposes of this subparagraph, the term `small 
                employer' has the meaning given such term by section 
                4980D(d)(2), except that such section shall be applied 
                by substituting `500' for `50' each place it appears.
                    ``(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.--If the defined benefit plan under 
                        clause (i) is a qualified cash balance plan 
                        (within the meaning of section 204(b)(5)), the 
                        plan shall be treated as meeting the 
                        requirements of clause (i) with respect to any 
                        plan year if each participant receives pay 
                        credit for the year which is not less than 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.
                            ``(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 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 is required to 
                                make 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 for 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) Uniform provision of benefits.--In the case 
                of a defined benefit plan or applicable individual 
                account plan forming part of an eligible combined plan, 
                the requirements of this subparagraph are met if all 
                benefits under each such plan, and all rights and 
                features under each such plan, must be provided 
                uniformly to all participants.
                    ``(F) Requirements must be met without taking into 
                account social security and similar contributions and 
                benefits or other plans.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if the requirements of 
                        clauses (ii) and (iii) are met.
                            ``(ii) Social security and similar 
                        contributions.--The requirements of this clause 
                        are met if--
                                    ``(I) the requirements of 
                                subparagraphs (B) and (C) are met 
                                without regard to section 401(l) of the 
                                Internal Revenue Code of 1986, and
                                    ``(II) the requirements of sections 
                                401(a)(4) and 410(b) of the Internal 
                                Revenue Code of 1986 are met with 
                                respect to both the applicable defined 
                                contribution plan and defined benefit 
                                plan forming part of an eligible 
                                combined plan without regard to section 
                                401(l) of the Internal Revenue Code of 
                                1986.
                            ``(iii) Other plans and arrangements.--The 
                        requirements of this clause are met if the 
                        applicable defined contribution plan and 
                        defined benefit plan forming part of an 
                        eligible combined plan meet the requirements of 
                        sections 401(a)(4) and 410(b) of the Internal 
                        Revenue Code of 1986 without being combined 
                        with any other plan.
            ``(3) Nondiscrimination requirements for qualified cash or 
        deferred arrangement.--
                    ``(A) In general.--A qualified cash or deferred 
                arrangement which is included in an applicable 
                individual account plan forming part of an eligible 
                combined plan shall be treated as meeting the 
                requirements of section 401(k)(3)(A)(ii) of the 
                Internal Revenue Code of 1986 if the requirements of 
                subparagraph (C) are met with respect to such 
                arrangement.
                    ``(B) Matching contributions.--In applying section 
                401(m)(11) of such Code 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) of such Code.
            ``(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 4 
                        percent 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, 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, 
                                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 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.
            ``(5) Coordination with other requirements.--
                    ``(A) Treatment of separate plans.--Section 414(k) 
                of the Internal Revenue Code of 1986 shall not apply to 
                an eligible combined plan.
                    ``(B) Reporting.--An eligible combined plan shall 
                be treated as a single plan for purposes of section 
                103.
            ``(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) Conforming changes.--
                    (A) The heading for section 210 of such Act is 
                amended to read as follows:

``SEC. 210. MULTIPLE EMPLOYER PLANS AND OTHER SPECIAL RULES.''.

                    (B) The table of contents in section 1 of such Act 
                is amended by striking the item relating to section 210 
                and inserting the following new item:

``Sec. 210. Multiple employer plans and other special rules.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2008.
                                 <all>