1.Short
title; amendment of 1986 Code; table of contents
(a)This Act may be cited
as the Women's Retirement Security Act
of 2006
.
(b)Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms of an amendment to, or
repeal of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
(c)The table of contents for this Act is as follows:
Sec. 1. Short title; amendment
of 1986 Code; table of contents.
TITLE I—Provisions to increase retirement savings
Subtitle A—Employee access to retirement savings at
work
Sec. 101. Employees not covered by qualified retirement plans
or arrangements entitled to participate in payroll deposit IRA
arrangements.
Sec. 102. Credit for small employers maintaining payroll
deposit IRA arrangements.
Sec. 103. Establishment of automatic IRAs.
Sec. 104. Establishment of TSP II Board.
Subtitle B—Other provisions
Sec. 111. Modifications to computation of saver's
credit.
Sec. 112. Qualified cash or deferred arrangements must allow
long-term employees working more than 500 but less than 1,000 hours per year to
participate.
Sec. 113. Transfers of unused benefits of health flexible
spending arrangement to certain retirement plans.
Sec. 114. Computation of limits on IRA and Roth IRA
contributions.
Sec. 115. Contributions of military death gratuities to certain
tax-favored accounts.
TITLE II—Provisions providing for preservation of
income
Sec. 201. Exclusion of certain qualified annuity
payments.
Sec. 202. Exclusion for lifetime annuity payments.
Sec. 203. Joint study of application of spousal consent rules
to defined contribution plans.
Sec. 204. Facilitating longevity insurance.
TITLE III—Provisions ensuring equity in divorce
Sec. 301. Elimination of current connection requirement under
Railroad Retirement Act for certain survivors.
Sec. 302. Permitting divorced spouses and widows and widowers
to remarry after turning 60 without a penalty under Railroad Retirement
Act.
Sec. 303. Repeal of jurisdictional requirement for court to
treat military retirement pay as property of the military member and
spouse.
TITLE IV—Provisions to improve financial literacy
Sec. 401. Grants to community-based taxpayer clinics to provide
retirement savings advice.
Sec. 402. Treatment of qualified retirement planning
services.
Sec. 403. Retirement handbook and retirement readiness
checklist.
TITLE V—Incentives for small businesses to establish and maintain
retirement plans for employees
Sec. 501. Credit for qualified pension plan contributions of
small employers.
Sec. 502. Deduction for pension contributions allowed in
computing net earnings from self-employment.
Sec. 503. Exemption of deferral-only qualified cash or deferred
arrangements from top-heavy plan rules.
Sec. 504. Extension of time for small pension plans to adopt
required plan qualification amendments.
<enum>I</enum><header>Provisions to
increase retirement savings</header>
<subtitle id="id6E73884FA1B7491EA8F64CD621B110F2"><enum>A</enum><header>Employee access
to retirement savings at work</header>
<section id="id2453B75C7DB54EE6A597170132329AE8"><enum>101.</enum><header>Employees not
covered by qualified retirement plans or arrangements entitled to participate
in payroll deposit IRA arrangements</header>
<subsection id="id38DB933B1C7B432EB7B06B37611DC07E"><enum>(a)</enum><header>In
general</header><text>Subpart A of part I of subchapter A of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.) is amended by
inserting after section 408A the following new section:</text>
<quoted-block display-inline="no-display-inline" id="idB554EA2138354DC1B3620AD5A904E6AD" style="OLC">
<section id="id395B958FEC204945A4C16F5E0AD6F58D"><enum>408B.</enum><header>Right to
payroll deposit IRA arrangements at work</header>
<subsection id="idF3421EE635A24E79ABD4E5D5D261DA04"><enum>(a)</enum><header>Requirement To
provide payroll deposit IRA arrangement</header><text>Each employer (other than
an employer described in subsection (e)) shall provide to each applicable
employee of the employer for any calendar year the opportunity to participate
in a payroll deposit IRA arrangement which meets the requirements of this
section.</text>
</subsection><subsection id="id3D16DE79232846099EC8A1AA34345B30"><enum>(b)</enum><header>Payroll deposit
IRA arrangement</header><text>For purposes of this section—</text>
<paragraph id="idD99F8ECAE73D4E08A4EF7589203EB062"><enum>(1)</enum><header>In
general</header><text>The term <term>payroll deposit IRA arrangement</term>
means a written arrangement of an employer—</text>
<subparagraph id="id5A18475F54CE4499A66F9879837D6BAD"><enum>(A)</enum><text>under which an
applicable employee eligible to participate in the arrangement may elect to
contribute to an individual retirement plan established by or on behalf of the
employee by having the employer make periodic direct deposit or other payroll
deposit payments (including electronic payments) to the plan by payroll
deduction, and</text>
</subparagraph><subparagraph id="idF33E4AC22F5449748F33D9EC7F1D8DCA"><enum>(B)</enum><text>which meets the
requirements of paragraph (2).</text>
</subparagraph></paragraph><paragraph id="id58C107EC446C42F38732081690F5DB44"><enum>(2)</enum><header>Administrative
requirements</header><text>The requirements of this paragraph are met with
respect to any payroll deposit IRA arrangement if—</text>
<subparagraph id="id805243AA74EE48B8886250A72A92AB7D"><enum>(A)</enum><text>the employer must
make the payments elected under paragraph (1)(A) on or before the later
of—</text>
<clause id="id4BE38B3E84744629809FEA6293A47974"><enum>(i)</enum><text>the due date for
the deposit of tax required to be deducted and withheld under chapter 24
(relating to collection of income tax at source on wages) for the payroll
period to which such payments relate, or</text>
</clause><clause id="id0CFAA361FA7341B6BA85E18506F7D947"><enum>(ii)</enum><text>the 30th day
following the last day of the month with respect to which the payments are to
be made,</text>
</clause></subparagraph><subparagraph id="idE398CE33580F4901A0A027D6BE4C2E13"><enum>(B)</enum><text>subject to a
requirement for reasonable notice, an employee may elect to terminate
participation in the arrangement at any time during a calendar year, except
that if an employee so terminates, the arrangement may provide that the
employee may not elect to resume participation until the beginning of the next
calendar year,</text>
</subparagraph><subparagraph id="idFD608127B79D410BBB02681D5CAFC3B3"><enum>(C)</enum><text>each employee
eligible to participate may elect, during the 60-day period or other period
specified by the Secretary before the beginning of any calendar year (and
during the 60-day period or other period specified by the Secretary before the
first day the employee is eligible to participate), to participate in the
arrangement, or to modify the employee's election under the arrangement
(including the amounts subject to the arrangement and the manner in which such
amounts are invested), for such year,</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="id1F23D40348A246D9B4703C94500B2722"><enum>(D)</enum><text>the employer
provides—</text>
<clause commented="no" display-inline="no-display-inline" id="id569C70A3B1DE42D48FB4ED47AEBAFC15"><enum>(i)</enum><text>immediately
before the beginning of each period described in subparagraph (C), a notice to
each employee of the employee’s opportunity to make the election and the
maximum amount which may be contributed to an individual retirement plan on an
annual basis, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="id567E1D1922A04476A52102527B2A7D2F"><enum>(ii)</enum><text>if the
arrangement includes an automatic contribution arrangement, the notices
required under subsection (g) with respect to the automatic contribution
arrangement,</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="id613D04B821674AE2A340B1DD99DEC5F3"><enum>(E)</enum><text>subject to
subsection (f), the arrangement provides that an employee may elect to have
contributions made to any individual retirement plan specified by the employee,
and</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="id1B0F44B032EC49739350B5D4163B5F77"><enum>(F)</enum><text>if the
arrangement does not include an automatic contribution arrangement—</text>
<clause commented="no" display-inline="no-display-inline" id="id0C8129BCDA5A4CAD812FCBEBA7F96AAC"><enum>(i)</enum><text>the arrangement
requires the employer to take all reasonable actions to solicit from all
employees eligible to participate in the arrangement an explicit election to
either participate or not to participate in the arrangement, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="id56A3BC43C66140AC898C11B80125643E"><enum>(ii)</enum><text>the arrangement
provides that if an employee fails to make an explicit election under clause
(i) within the time prescribed under the arrangement, the employee will be
treated as having made an election to participate in the arrangement (and
amounts shall be invested on behalf of the participant) in the same manner as
if the arrangement had included an automatic contribution arrangement under
subsection (g).</text>
</clause></subparagraph></paragraph></subsection><subsection id="id06973190D4FE4E41A18BBE9CD1AEC132"><enum>(c)</enum><header>Applicable
employee defined; related definitions and rules</header><text>For purposes of
this section—</text>
<paragraph id="idC0B69CA7D8644D4A9D644C930C4A61A3"><enum>(1)</enum><header>Applicable
employee</header>
<subparagraph id="idF14A4FE6A9B442178E921CDF169D9F67"><enum>(A)</enum><header>In
general</header><text>The term <term>applicable employee</term> means, with
respect to any calendar year, any employee—</text>
<clause id="id0276D9EF5CC44525BA53BF80245E6B7B"><enum>(i)</enum><text>who was not
eligible under a qualified plan or arrangement maintained by the employer for
service for the preceding calendar year, and</text>
</clause><clause id="id09B632916EAB4860BE43B263C434448C"><enum>(ii)</enum><text>with respect to
whom it is reasonable to expect that the employee will not be eligible during
the calendar year under such a qualified plan or arrangement.</text>
</clause></subparagraph><subparagraph id="id5F1AEF7E83D943049EDF31C371642691"><enum>(B)</enum><header>Special
rules</header><text>For purposes of subparagraph (A)(i)—</text>
<clause id="id5CB3F8DAAC844411B9E2BBBD7834FF1F"><enum>(i)</enum><header>Eligibility</header><text>An
employee shall be treated as eligible under a plan for a preceding calendar
year if, as of the last day of the last plan year ending in the preceding
calendar year, the employee has satisfied the plan's eligibility
requirements.</text>
</clause><clause id="id8C22B66F35384EF686E04FD391C21764"><enum>(ii)</enum><header>Excluded
plans</header><text>A qualified plan or arrangement shall not be taken into
account under this paragraph if—</text>
<subclause id="idAB56CECC10B34C9282DA07378B6CEFDE"><enum>(I)</enum><text>the plan or
arrangement is frozen as of the first day of the preceding calendar year,
or</text>
</subclause><subclause id="id10B99663A3C846628DF79377D1D46947"><enum>(II)</enum><text>in the case of a
plan or arrangement under which the only contributions are discretionary on the
part of the sponsor, there has not been an employer contribution made to the
plan or arrangement for the 2-plan-year period ending with the last plan year
ending in the second preceding calendar year and it is not reasonable to assume
that an employer contribution will be made for the plan year ending in the
preceding calendar year.</text>
</subclause></clause></subparagraph></paragraph><paragraph id="id61C70427D46D43BAB56ACE3E6E042BD5"><enum>(2)</enum><header>Excludable
employees</header><text>An employer may elect to exclude from treatment as
applicable employees under subparagraph (A)—</text>
<subparagraph id="idAA26F410388945909DBB95B7A8CA3520"><enum>(A)</enum><text>employees
described in section 410(b)(3),</text>
</subparagraph><subparagraph id="id424F7C46FF074E51B296A73A65DBCBCC"><enum>(B)</enum><text>employees who
have not attained the age of 18 before the beginning of the calendar
year,</text>
</subparagraph><subparagraph id="id60790D79521148C1A0337F17A4CFAF6C"><enum>(C)</enum><text>employees who
have not completed at least 3 months of service with the employer,</text>
</subparagraph><subparagraph id="id8C8C71F823D045DEB0456ED0C0764519"><enum>(D)</enum><text>employees who
will be eligible to participate in a qualified plan or arrangement of the
employer upon completion of eligibility requirements described in section
410(a)(1)(A) (without regard to section 410(a)(1)(B)),</text>
</subparagraph><subparagraph id="id13F29275050C4AD0BE559E2057C0B995"><enum>(E)</enum><text>employees who are
eligible to make salary reduction contributions under an arrangement which
meets the requirements of section 403(b), and</text>
</subparagraph><subparagraph id="idDF19E97834B84137BC372F2D0EE7C03D"><enum>(F)</enum><text>all employees of
the employer if the employer maintains an arrangement described in section
408(p).</text>
</subparagraph></paragraph><paragraph id="id1EFECFC953BD4D7DB0D51615FE623671"><enum>(3)</enum><header>Qualified plan
or arrangement</header><text>The term <term>qualified plan or
arrangement</term> means a plan, contract, pension, or trust described in
section 219(g)(5).</text>
</paragraph><paragraph id="idB961F9F5B2F74A3A988F0102547C4D7D"><enum>(4)</enum><header>Exception for
employees of governments and churches</header><text>The term <term>applicable
employee</term> shall not include an employee of—</text>
<subparagraph id="id1AB54B635AF64545B180B88D09CF27FF"><enum>(A)</enum><text>a government or
entity described in section 414(d), or</text>
</subparagraph><subparagraph id="idA13B3D0835CA4F999E02641777E55F35"><enum>(B)</enum><text>a church or a
convention or association of churches which is exempt from tax under section
501, including any employee described in section 414(e)(3)(B).</text>
</subparagraph></paragraph><paragraph id="id57311A5EBA464E8DA04BAADBC0761439"><enum>(5)</enum><header>Designation of
applicable employees</header><text>The Secretary shall issue guidelines for
determining the class or classes of employees to be covered by a payroll
deposit IRA arrangement. Such guidelines shall provide that if an employer
elects under paragraph (2) to exclude employees from the arrangement, the
employer shall specify the classification or categories of employees who are
not so covered.</text>
</paragraph></subsection><subsection id="idA641E0D59BAF44D1A469135D8F75C317"><enum>(d)</enum><header>Payroll deposit
IRA contributions treated like other contributions to individual retirement
plans</header>
<paragraph id="id91DE8510C642494E91BA97FEFD8471B3"><enum>(1)</enum><header>Tax treatment
unaffected</header><text>The fact that a contribution to an individual
retirement plan is made on behalf of an employee under a payroll deposit IRA
arrangement instead of being made directly by the employee shall not affect the
deductibility or other tax treatment of the contribution or of other amounts
under this title.</text>
</paragraph><paragraph id="id6DE0A9F7D4B64312A29CCD29D08E3F42"><enum>(2)</enum><header>Payroll savings
contributions taken into account</header><text>Any contribution made on behalf
of an employee under a payroll deposit IRA arrangement shall be taken into
account in applying the limitations on contributions to individual retirement
plans and the other provisions of this title applicable to individual
retirement plans as if the contribution had been made directly by the
employee.</text>
</paragraph></subsection><subsection id="id7331555BDF014AB1832874A2C4E09979"><enum>(e)</enum><header>Exception for
certain small and new employers</header>
<paragraph id="idE5EDD812E16844A8824D59D6E5842C1A"><enum>(1)</enum><header>In
general</header><text>The requirements of this section shall not apply for any
calendar year to an employer if—</text>
<subparagraph id="id17EA183311C24C019E5DBBD1D7F5FAE6"><enum>(A)</enum><text>the employer did
not have more than 10 employees who received at least $5,000 of compensation
from the employer for the preceding calendar year, or</text>
</subparagraph><subparagraph id="idFE38819D4D914DC1B986DF257E2A5512"><enum>(B)</enum><text>was not in
existence at all times during the 2 preceding calendar years and did not have
more than 100 employees who received at least $5,000 of compensation from the
employer on any day during either of the 2 preceding calendar years.</text>
</subparagraph></paragraph><paragraph id="id535E8C40644841CCB6D7D87466DB1182"><enum>(2)</enum><header>Operating
rules</header><text>In determining the number of employees for purposes of this
subsection—</text>
<subparagraph id="idB4096519DD1F493FB4FBEFA709DC2DF8"><enum>(A)</enum><text>any rule
applicable in determining the number of employees for purposes of section
408(p)(2)(C) shall be applicable under this subsection,</text>
</subparagraph><subparagraph id="id47F4F449A6DF46FE92CB4A73A3846D1D"><enum>(B)</enum><text>all members of
the same family (within the meaning of section 318(a)(1)) shall be treated as 1
individual, and</text>
</subparagraph><subparagraph id="idF68D67F010004B939B47C6F28CED66BF"><enum>(C)</enum><text>any reference to
an employer shall include a reference to any predecessor employer.</text>
</subparagraph></paragraph></subsection><subsection id="id00F242AF99FC4324A6D82B25F1288EF5"><enum>(f)</enum><header>Deposits to
individual retirement plans other than those selected by employee</header>
<paragraph id="id9AB2DAF8B64D482DA9330DC1E0B7F3D9"><enum>(1)</enum><header>In
general</header><text>An employer shall not be treated as failing to satisfy
the requirements of this section or any other provision of this title merely
because the employer makes all contributions (or all contributions on behalf of
employees who do not specify an individual retirement plan, trustee, or issuer
to receive the contributions) to—</text>
<subparagraph id="id3A59526E81D5464F981830781E084179"><enum>(A)</enum><text>individual
retirement plans specified in paragraph (2), or</text>
</subparagraph><subparagraph id="id121724F30AA4479680023A2F35BF5431"><enum>(B)</enum><text>individual
retirement plans under the payroll tax deposit system established under
paragraph (3).</text>
</subparagraph></paragraph><paragraph id="id180F8EF5F7F1429E84AD7B00CC7080C6"><enum>(2)</enum><header>Plans of a
designated trustee or issuer</header><text>An employer may elect to have
contributions for all applicable employees participating in a payroll deposit
IRA arrangement made to individual retirement plans of a designated trustee or
issuer under the arrangement. The preceding sentence shall not apply unless
each participant is notified in writing that the participant’s balance may be
transferred without cost or penalty to another individual retirement plan
established by or on behalf of the participant.</text>
</paragraph><paragraph id="idF76D7F2596D5497BA8A1853AEEE7B3B6"><enum>(3)</enum><header>Payroll tax
deposit system</header><text>The Secretary, in consultation with the TSP II
Board, shall establish a system under which an employer—</text>
<subparagraph id="id4E19B08E4B8C42D3AFB18A6570986A10"><enum>(A)</enum><text>includes with
each deposit of tax required to be deducted and withheld under chapter 24 the
aggregate amounts, for the period covered by the deposit, which applicable
employees designated under subsection (b)(1)(A) (or are deemed to have
designated under subsection (b)(2)(F)(ii) or under an automatic contribution
arrangement described in subsection (g)) for contribution to individual
retirement plans, established on behalf of the employees under paragraph (4),
and</text>
</subparagraph><subparagraph id="id24A2F36CA9994D02B4DE437741B61429"><enum>(B)</enum><text>specifies, in
such manner as the Secretary may prescribe, for each applicable employee for
whom a contribution is to be made the following information:</text>
<clause id="id72C3AC45D3F547189C93C47623E36A72"><enum>(i)</enum><text>The employee's
name and TIN.</text>
</clause><clause id="idA5290A567DF04AD587516A325BBA9E8C"><enum>(ii)</enum><text>The amount of
the contribution.</text>
</clause><clause id="id46857DEA54A34D8FA8EAA9226C751326"><enum>(iii)</enum><text>The investment
options selected by the employee (or deemed to have been selected by the
employee under such automatic contribution arrangement) and the amount of the
contribution allocated to each option.</text>
</clause></subparagraph></paragraph><paragraph commented="no" display-inline="no-display-inline" id="idC47696DABE5D43FEA301FE6CC8C27110"><enum>(4)</enum><header>Establishment
and maintenance of accounts under payroll tax deposit system</header>
<subparagraph commented="no" display-inline="no-display-inline" id="idF104735C2BAD4FE09E0AFEB83A397AD4"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">Subject to the
provisions of this section and section 408C, the TSP II Board shall provide for
the establishment and maintenance of individual retirement plans (including
automatic IRAs) into which contributions may be deposited through the payroll
tax deposit system. To the maximum extent practicable, the TSP II Board
shall—</text>
<clause commented="no" display-inline="no-display-inline" id="idE02E7B1E9F1641DCB04210EE8F9084E7"><enum>(i)</enum><text display-inline="yes-display-inline">enter into contracts with persons eligible
to be trustees of individual retirement plans under section 408 to establish
such plans, to provide the investment funds and investment management, and to
provide notice, record keeping, and other administrative services, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="idBB9FBA6A34AE47E1A1A3085D66427E5C"><enum>(ii)</enum><text>ensure that the
costs of investment management and administration are kept to a minimum,
including through consideration of the use of investments which involve passive
management and which seek to replicate the performance of a portion of the
market.</text>
</clause></subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="idE3A48A6673F6401F9D10498F9C8AF4F0"><enum>(B)</enum><header>Payroll deposit
features</header><text display-inline="yes-display-inline">The TSP II Board
shall establish procedures so that contributions may be made to individual
retirement plans (including automatic IRAs) through the payroll tax deposit
system described in paragraph (3) without undue administrative or paperwork
requirements on employers participating in the payroll tax deposit system. Such
procedures shall ensure that only 1 such plan may be established for each
TIN.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="id564DB60A7BFE45B2BCFC7D4FF99376C2"><enum>(C)</enum><header>Limitation on
rollovers to plans outside the system</header><text>If—</text>
<clause commented="no" display-inline="no-display-inline" id="id698CCC4F291D470ABB68C38BCAC5957C"><enum>(i)</enum><text>any amount is
paid or distributed out of an individual retirement plan established under this
paragraph, and</text>
</clause><clause commented="no" display-inline="no-display-inline" id="idF2B83006B5204C89918FBEAC88E4C8A9"><enum>(ii)</enum><text>such amount is
paid into an individual retirement plan established outside of the payroll tax
deposit system,</text>
</clause><continuation-text continuation-text-level="subparagraph">the
payment described in clause (ii) shall be treated as a rollover contribution
for purposes of section 408(d)(3) if and only if the balance to the credit of
the individual in such individual retirement plan or arrangement immediately
before the payment described in clause (i) was at least $15,000.</continuation-text></subparagraph></paragraph></subsection><subsection id="id88D15F3E48D349C29BAFC43550F8776E"><enum>(g)</enum><header>Coordination
with automatic enrollment and other default election provisions</header>
<paragraph id="id8E38AD3B8ECB4ED1B908E25B2226AD45"><enum>(1)</enum><header>In
general</header><text>A payroll deposit IRA arrangement may provide that
contributions under the arrangement will be made pursuant to an automatic
contribution arrangement but only if the arrangement meets requirements similar
to the requirements applicable to an eligible automatic contribution
arrangement under section 414(w). The Secretary shall modify such requirements
to the extent necessary to carry out the purposes of this section.</text>
</paragraph><paragraph id="id9792D4A2CBE542A5B1ECF300EED4B3EA"><enum>(2)</enum><header>Default
investments</header><text>If an employee is deemed under an automatic
contribution arrangement to have made an election to participate in a payroll
deposit IRA arrangement—</text>
<subparagraph id="idAF8E780B252247D8849F59A8AF5773AA"><enum>(A)</enum><text>the employee
shall be deemed to have made an election to make contributions in the amount
specified in paragraph (3),</text>
</subparagraph><subparagraph id="idFFFE47905C6244E7B01B1993F2775DFB"><enum>(B)</enum><text>such
contributions shall be transferred to—</text>
<clause id="id98845A7CC38C4A779E2189830B71818A"><enum>(i)</enum><text>an automatic IRA,
or,</text>
</clause><clause id="idBC592C36027645A3B0EAFF33CD829004"><enum>(ii)</enum><text>if the employer
has made an election under subsection (f)(2), to an individual retirement plan
of the designated trustee or issuer but only if the requirements of
subparagraph (C) are met with respect to such individual retirement plan,
and</text>
</clause></subparagraph><subparagraph id="id63F55E64FA6D453082C108AA6D38A8F7"><enum>(C)</enum><text>such
contributions shall be invested as provided in paragraph (4).</text>
</subparagraph></paragraph><paragraph id="id5AE388A1BA39479B8C0DB32773D475B8"><enum>(3)</enum><header>Amount of
contributions</header>
<subparagraph id="id0461F99FD177410E8D7178CB2B1B75F4"><enum>(A)</enum><header>In
general</header><text>The amount specified in this paragraph is 3 percent of
compensation.</text>
</subparagraph><subparagraph id="idE29187CA5FFB4DFF89632FD6BFC3B807"><enum>(B)</enum><header>Authority of
board to provide for annual increases</header><text>The TSP II Board may by
regulation provide for annual increases in the percentage of compensation an
employee is deemed to have elected under paragraph (2) but in no event shall
the percentage of compensation an employee is deemed to have elected exceed 8
percent.</text>
</subparagraph><subparagraph id="id46D9CA90E2CF43339DFA0E377AA81863"><enum>(C)</enum><header>Contribution
limit</header><text>The contributions under paragraph (2) on behalf of an
employee for any calendar year shall not exceed the dollar limits applicable to
the employee for the calendar year under section 219 or 408A.</text>
</subparagraph></paragraph><paragraph id="id417A2E92061845DF8A14E11B7D6715FC"><enum>(4)</enum><header>Investment in
life cycle fund or other investments specified by the
board</header><text>Amounts contributed under paragraph (2) shall be invested
in—</text>
<subparagraph id="id3C1CB581C0664B1184ED1F951266CE2C"><enum>(A)</enum><text>a life cycle fund
similar to the life cycle funds offered under the Thrift Savings Fund
established under subchapter III of chapter 84 of title 5, United States Code,
or</text>
</subparagraph><subparagraph id="idC7561B403D764C26AC505D1A3317D899"><enum>(B)</enum><text>such other
investment or investments as the TSP II Board specifies in regulations and
which entails asset allocation and extensive diversification.</text>
</subparagraph><continuation-text continuation-text-level="paragraph">A fund or
investment shall meet the requirements of this paragraph only if it is
consistent with regulations prescribed by the Secretary of Labor under section
404(c)(5) of the Employee Retirement Income Security Act of 1974.</continuation-text></paragraph><paragraph id="id67FAF11CB1354560B9B45085D5A534E5"><enum>(5)</enum><header>Coordination
with withholding</header><text>The Secretary shall modify the withholding
exemption certificate under section 3402(f) so that any notice and election
requirements with respect to an automatic contribution arrangement which is
part of a payroll deposit IRA arrangement may be met through the use of such
certificate.</text>
</paragraph></subsection><subsection id="id2ECA885F8FCE4FBB9831F94552C38A35"><enum>(h)</enum><header>Model
notice</header><text>The Secretary, in consultation with the TSP II Board,
shall—</text>
<paragraph id="idCCEEC775D078470B97596541D528230E"><enum>(1)</enum><text>provide a model
notice, written in a manner calculated to be understandable to the average
worker, that is simple for employers to use—</text>
<subparagraph id="id9135FD7822254DD1933710BD9528E3F0"><enum>(A)</enum><text>to notify
employees of the requirement under this section for the employer to provide
certain employees with the opportunity to participate in a payroll deposit IRA
arrangement, and</text>
</subparagraph><subparagraph id="id9CC73F25309A4429803DD60392330ADF"><enum>(B)</enum><text>to satisfy the
requirements of subsection (b)(2)(D).</text>
</subparagraph></paragraph><paragraph id="id60C31C0D95B14E14BBA2E97E3322C8BF"><enum>(2)</enum><text>provide uniform
forms for enrollment, including automatic enrollment, in a payroll deposit IRA
arrangement, and</text>
</paragraph><paragraph id="id0D3A817619824ED4BC9610A6EC8F608D"><enum>(3)</enum><text>establish a web
site or other electronic means for small employers to access and use to obtain
information on payroll deposit IRA arrangements and to obtain required notices
and
forms.</text>
</paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="idE054922B86F64E56A180463D53583B93"><enum>(b)</enum><header>Preemption of
conflicting State laws</header><text>Section 514(e)(1) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1144(e)(1)), as added by
section 902 of the Pension Protection Act of 2006, is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="idF47F824218004E06946737F72556194F" style="OLC">
<paragraph id="idD9C79FA90636481B8241A595C565F99B"><enum>(1)</enum><header>In
general</header><text>Notwithstanding any other provision of this section, this
title shall supersede any law of a State which would directly or indirectly
prohibit or restrict—</text>
<subparagraph id="id714044820836471EBA20840A8330B8AC"><enum>(A)</enum><text>the inclusion in
any plan of an automatic contribution arrangement, or</text>
</subparagraph><subparagraph id="id5D20BE7F2A484EF199D1C7FF09DB9CC3"><enum>(B)</enum><text>the establishment
or operation of a deposit IRA arrangement meeting the requirements of section
408B of the Internal Revenue Code of 1986 (and the inclusion in such
arrangement of an automatic contribution arrangement).</text>
</subparagraph><continuation-text continuation-text-level="paragraph">The
Secretary may prescribe regulations which would establish minimum standards
that an automatic contribution arrangement would be required to satisfy in
order for this subsection to apply in the case of such arrangement. This
subsection shall apply to a plan or arrangement without regard to whether this
title applies to such plan or
arrangement.</continuation-text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="idA1E846CFEA6943C2A0F3BA04C4E96CED"><enum>(c)</enum><header>Notice of
availability of investment guidelines</header><text>Section 408(i) (relating to
reports) is amended by adding at the end the following new sentence: <quote>Any
report furnished under paragraph (2) to an individual shall include notice of
the availability of, and methods of acquiring, the basic investment guidelines
prepared by the Secretary of Labor.</quote>.</text>
</subsection><subsection id="id5F376E2957974D4EB5EB6AF689B32577"><enum>(d)</enum><header>Development of
basic investment guidelines</header>
<paragraph id="idA428421751144F20B057A256DC244D59"><enum>(1)</enum><header>In
general</header><text>The Secretary of Labor shall, in consultation with the
Secretary of Treasury, develop and publish basic guidelines for investing for
retirement. Except as otherwise provided by the Secretary of Labor, such
guidelines shall include—</text>
<subparagraph id="id95598A5261A14CC3B9D71A5864FB593B"><enum>(A)</enum><text>information on
the benefits of diversification,</text>
</subparagraph><subparagraph id="id66680B14C0574A3888F5ED880FB6A6E8"><enum>(B)</enum><text>information on
the essential differences, in terms of risk and return, between various pension
plan investments, including stocks, bonds, mutual funds, and money market
investments,</text>
</subparagraph><subparagraph id="idE641F55300AD4ED4890400C6F09F4BCC"><enum>(C)</enum><text>information on
how an individual’s pension plan investment allocations may differ depending on
the individual’s age and years to retirement and on other factors determined by
the Secretary of Labor,</text>
</subparagraph><subparagraph id="idCF5804A3BD7D42AB81C224C50360F5A3"><enum>(D)</enum><text>sources of
information where individuals may learn more about pension rights, individual
investing, and investment advice, and</text>
</subparagraph><subparagraph id="id242DEEDC9A994D9EB335636E86C54542"><enum>(E)</enum><text>such other
information related to individual investing as the Secretary of Labor
determines appropriate.</text>
</subparagraph></paragraph><paragraph id="idBEC913134EC042A6BD0E3B8C9BF618E6"><enum>(2)</enum><header>Calculation
information</header><text>The guidelines under paragraph (1) shall include
addresses for Internet sites and worksheets which a participant or beneficiary
in a pension plan may use to calculate—</text>
<subparagraph id="id5DE4E015E9F54CA1A5263C22A5762011"><enum>(A)</enum><text>the retirement
age value of the participant’s or beneficiary’s nonforfeitable pension benefits
under the plan (expressed as an annuity amount and determined by reference to
varied historical annual rates of return and annuity interest rates),
and</text>
</subparagraph><subparagraph id="id867DA47FF0024449870F8A60C7B4554A"><enum>(B)</enum><text>other important
amounts relating to retirement savings, including the amount which a
participant or beneficiary would be required to save annually to provide a
retirement income equal to various percentages of their current salary
(adjusted for expected growth prior to retirement).</text>
</subparagraph></paragraph><paragraph id="id94266F1BED414575838063BFEF037ED3"><enum>(3)</enum><header>Public
comment</header><text>The Secretary of Labor shall provide at least 90 days for
public comment on proposed guidelines before publishing the final
guidelines.</text>
</paragraph><paragraph id="idF554A286312B4DB4BACC2167CDDF48EE"><enum>(4)</enum><header>Rules relating
to guidelines</header><text>The guidelines under paragraph (1)—</text>
<subparagraph id="id9AD7D61FDCAA4352B4B82527BBC8E110"><enum>(A)</enum><text>shall be written
in a manner calculated to be understood by the average plan participant,
and</text>
</subparagraph><subparagraph id="id8C52D31DB0DA4EEE892BB58C300CD744"><enum>(B)</enum><text>may be delivered
in written, electronic, or other appropriate manner to the extent such manner
would ensure that the guidelines are reasonably accessible to participants and
beneficiaries.</text>
</subparagraph></paragraph></subsection><subsection id="id894AED8E6302419CB3E3C98BC8AFA044"><enum>(e)</enum><header>Penalty for
failure To provide access to payroll savings arrangements</header><text>Chapter
43 (relating to qualified pension, etc., plans) is amended by adding at the end
the following new section:</text>
<quoted-block display-inline="no-display-inline" id="id9D8AD3C3624C4CF897D9DCCF0C264AE0" style="OLC">
<section id="id1CDDFB0259104DCFA736FDEF9405106B"><enum>4980H.</enum><header>Requirements
for employers to provide employees access to payroll deposit IRA
arrangements</header>
<subsection id="id939E1FD603684026853315FA6FE3338C"><enum>(a)</enum><header>General
rule</header><text>There is hereby imposed a tax on any failure by an employer
to meet the requirements of subsection (d) for a calendar year.</text>
</subsection><subsection id="idE821CD47578D4CB88737CFCB74E6FEFE"><enum>(b)</enum><header>Amount</header>
<paragraph id="id511E7FAF5F804EA88FCCEE98FA2AD76E"><enum>(1)</enum><header>In
general</header><text>The amount of the tax imposed by subsection (a) on any
failure for any calendar year shall be $100 with respect to each employee to
whom such failure relates.</text>
</paragraph><paragraph id="id286AA34037C9444A9CA26CB10CDDB64A"><enum>(2)</enum><header>Tax not to
apply where failure not discovered and reasonable diligence
exercised</header><text>No tax shall be imposed by subsection (a) on any
failure during any period for which it is established to the satisfaction of
the Secretary that the employer subject to liability for the tax did not know
that the failure existed and exercised reasonable diligence to meet the
requirements of subsection (d). In no event shall the tax be imposed with
respect to any failure that ends before the expiration of 90 days after the
employer has responded or has had a reasonable opportunity to respond to a
request for confirmation of compliance under subsection (c).</text>
</paragraph><paragraph id="id1340C45D65724FE0864EDAE54D282638"><enum>(3)</enum><header>Tax not to
apply to failures corrected within 30 days</header><text>No tax shall be
imposed by subsection (a) on any failure if—</text>
<subparagraph id="id2C246677E808406D889C982D167C1064"><enum>(A)</enum><text>the employer
subject to liability for the tax under subsection (a) exercised reasonable
diligence to meet the requirements of subsection (d), and</text>
</subparagraph><subparagraph id="id9ADEDD1A564C4C48A5ABC8C3899643FF"><enum>(B)</enum><text>the employer
provides the payroll deposit IRA arrangement described in section 408B to each
employee eligible to participate in the arrangement by the end of the 30-day
period beginning on the first date the employer knew, or exercising reasonable
diligence would have known, that such failure existed.</text>
</subparagraph></paragraph><paragraph id="id7FF1E28E2BFA4B3B9F30AAA182DFAED8"><enum>(4)</enum><header>Waiver by
Secretary</header><text>In the case of a failure which is due to reasonable
cause and not to willful neglect, the Secretary may waive part or all of the
tax imposed by subsection (a) to the extent that the payment of such tax would
be excessive or otherwise inequitable relative to the failure involved.</text>
</paragraph></subsection><subsection id="id1F0A0002012A4AD7AF6B164D3714B8DA"><enum>(c)</enum><header>Procedures for
notice</header><text>Not later than 6 months after the date of the enactment of
this section, the Secretary shall prescribe and implement procedures for
obtaining from employers confirmation that such employers are in compliance
with the requirements of subsection (d). The Secretary, in the Secretary’s
discretion, may prescribe that the confirmation shall be obtained on an annual
or less frequent basis, and may use for this purpose the annual report or
quarterly report for employment taxes, or such other means as the Secretary may
deem advisable.</text>
</subsection><subsection id="idB14E86CC61FF47CAB33E8459CAE5ABDB"><enum>(d)</enum><header>Requirement To
provide employee access to payroll deposit IRA arrangements</header><text>The
requirements of this subsection are met if the employer meets the requirements
of section
408B.</text>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id68D81CAF31CB4A2BAC05EF60B4FFD933"><enum>(f)</enum><header>Coordination
with ERISA fiduciary duties</header><text>Section 404(c)(2) of such Act (29
U.S.C. 1104(c)(2)) is amended—</text>
<paragraph id="id8F4CB0BD847340739FC7E12802D57DDE"><enum>(1)</enum><text>by inserting
<quote>or an individual retirement plan designated by the employer under
section 408B of such Code</quote> after <quote>1986</quote>,</text>
</paragraph><paragraph id="idA38C881CB22B447B8B665FA9692D83F4"><enum>(2)</enum><text>by inserting
<quote>(7 days after notice has been given to an employee that an individual
retirement plan has been established on behalf of the employee under section
408B of such Code)</quote> after <quote>established</quote> in subparagraph
(C), and</text>
</paragraph><paragraph id="idC34824C6EEA84E91B087259BB29D530D"><enum>(3)</enum><text>by inserting
<quote>or with respect to an individual retirement plan designated by an
employer under section 408B of such Code</quote> after
<quote>arrangement</quote> in the last sentence.</text>
</paragraph></subsection><subsection id="id405A3EDA1CCC42E88E887A0F94A3C7FC"><enum>(g)</enum><header>Conforming
amendments</header>
<paragraph id="id228CC88E9A824D4E93AD982D1C515FC5"><enum>(1)</enum><text>The table of
sections for subpart A of part I of subchapter A of chapter 1 is amended by
inserting after the item relating to section 408A the following new
item:</text>
<quoted-block display-inline="no-display-inline" id="id187E2688BB6A414EA60A34A46FB0C9AB" style="OLC">
<toc>
<toc-entry idref="id8FF1994FAB1A4CC48AB96F5CD5208B50" level="section">Sec. 408B. Right to payroll deposit IRA arrangements at
work.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="ID90D183B61BC44317B1FD46631E376539"><enum>(2)</enum><text>The table of
sections for chapter 43 is amended by adding at the end the following new
item:</text>
<quoted-block display-inline="no-display-inline" id="IDA868C8F0DA6B432ABC59403585F653C8" style="USC">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 4980H. Requirements for employers to
provide employees access to payroll deposit IRA
arrangements.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="id1D90EB2304054CD6A617CC5AB00E9AB7"><enum>(h)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to calendar
years beginning after December 31, 2007.</text>
</subsection></section><section id="id65A864CA330844D7886C8E5CAD82FC14"><enum>102.</enum><header>Credit for
small employers maintaining payroll deposit IRA arrangements</header>
<subsection id="id977BC04B07F949FBB4D22AA39473FB76"><enum>(a)</enum><header>In
general</header><text>Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end the
following new section:</text>
<quoted-block display-inline="no-display-inline" id="idFAE1FFDBFA1547969C798B400EA17418" style="OLC">
<section id="id4538345DFF084E0CA99842EB7B0CFFDA"><enum>45N.</enum><header>Small employer
payroll deposit IRA arrangement costs</header>
<subsection id="id4F71443A1FB64B9FA08F6BA7F3462562"><enum>(a)</enum><header>General
rule</header><text>For purposes of section 38, in the case of an eligible
employer maintaining a payroll deposit IRA arrangement meeting the requirements
of section 408B (without regard to whether or not the employer is required to
maintain the arrangement), the small employer payroll deposit IRA arrangement
cost credit determined under this section for any taxable year is the amount
determined under subsection (b).</text>
</subsection><subsection id="id49F026158BBB439795556901BBB3B36C"><enum>(b)</enum><header>Amount of
credit</header>
<paragraph id="idC4E8A9FA59364F408E9900569BA3B9B3"><enum>(1)</enum><header>In
general</header><text>The amount of the credit determined under this section
for any taxable year with respect to an eligible employer shall be equal to the
lesser of—</text>
<subparagraph id="id0025F5037E24438688DD7C507EBDB7B9"><enum>(A)</enum><text>$25 multiplied by
the number of applicable employees (within the meaning of section 408B(c)) for
whom contributions are made under the payroll deposit IRA arrangement referred
to in subsection (a) for the calendar year in which the taxable year begins,
or</text>
</subparagraph><subparagraph id="idEF0C8196CA544D37A6D7EF9FCFC84896"><enum>(B)</enum><text>$250.</text>
</subparagraph></paragraph><paragraph id="id1E5F9B9948054331BC7EA6302AD7B094"><enum>(2)</enum><header>Duration of
credit</header><text>No credit shall be determined under this section for any
taxable year other than a taxable year which begins in the first 2 calendar
years in which the eligible employer maintains a payroll deposit IRA
arrangement meeting the requirements of section 408B.</text>
</paragraph><paragraph commented="no" id="id4D81BA01D5984980AE7DA403EBFD5738"><enum>(3)</enum><header>Coordination
with small employer startup credit</header><text>No credit shall be allowed
under this section for any taxable year if a credit is determined under section
45E for the taxable year.</text>
</paragraph></subsection><subsection id="id814178B52C7A4BCF883DF58AC5D877DB"><enum>(c)</enum><header>Eligible
employer</header><text>For purposes of this section, the term <term>eligible
employer</term> means, with respect to any calendar year in which the taxable
year begins, an employer which maintains a payroll deposit IRA arrangement
meeting the requirements of section 408B and which, on each day during the
preceding calendar year, had no more than 100
employees.</text>
</subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="idF053E9A5B6354A05B6E0D161CFCFA4AC"><enum>(b)</enum><header>Credit allowed
as part of general business credit</header><text>Section 38(b) (defining
current year business credit) is amended by striking <quote>and</quote> at the
end of paragraph (29), by striking the period at the end of paragraph (30) and
inserting <quote>, and</quote>, and by adding at the end the following new
paragraph:</text>
<quoted-block id="idC36EE58BAE3F43EFA80FA9F98CA5ADBF">
<paragraph id="id774E31567A8A4194B33CEDC81C9CCD61"><enum>(31)</enum><text>in the case of
an eligible employer (as defined in section 45N(c)) maintaining a payroll
deposit IRA arrangement meeting the requirements of section 408B, the small
employer payroll deposit IRA arrangement cost credit determined under section
45N(a).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id45E11F3314F24858A7808E7D89DEB2AF"><enum>(c)</enum><header>Clerical
amendment</header><text>The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding at the end the following new
item:</text>
<quoted-block display-inline="no-display-inline" id="id299708B83D724CB89B585D2D119A1F93" style="OLC">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 45N. Small employer payroll deposit
IRA arrangement costs.</toc-entry>
</toc>
<after-quoted-block>.
</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id7EB8D8194B4E46838B7B7E285CEDA88F"><enum>(d)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after December 31, 2007.</text>
</subsection></section><section id="id8D99E8160D074269934F57AFBF55389E"><enum>103.</enum><header>Establishment
of automatic IRAs</header>
<subsection id="idFF6F7C9921A741CF9B66AE7842C1F554"><enum>(a)</enum><header>In
general</header><text>Subpart A of part I of subchapter A of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.), as amended by
section 101, is amended by inserting after section 408B the following new
section:</text>
<quoted-block display-inline="no-display-inline" id="id5C92D96E69CE4899B78B453BEB67922B" style="OLC">
<section id="id8FF1994FAB1A4CC48AB96F5CD5208B50"><enum>408C.</enum><header>Automatic
IRAs</header>
<subsection id="idBF75AEA8AC1D417F90C54FAEEFD33837"><enum>(a)</enum><header>General
rule</header><text>An automatic IRA shall be treated for purposes of this title
in the same manner as an individual retirement plan. An automatic IRA may also
be treated as a Roth IRA for purposes of this title if it meets the
requirements of section 408A.</text>
</subsection><subsection id="id41C77156429E4938B702704852BF9136"><enum>(b)</enum><header>Automatic
IRA</header><text>For purposes of this section, the term <term>automatic
IRA</term> means an individual retirement plan (as defined in section
7701(a)(37)) which meets the investment and fee requirements under the
regulations under subsection (c).</text>
</subsection><subsection id="idFF5EAB697716426AAF9BDE12BFF0CE11"><enum>(c)</enum><header>Investment and
fee requirements</header>
<paragraph id="id434C8FEA92804746861F1238D27BB130"><enum>(1)</enum><header>In
general</header><text>The TSP II Board, in consultation with the Secretary and
the Secretary of Labor, shall, not later than 1 year after the date of the
enactment of this section, prescribe regulations which set forth the
requirements of this subsection which an individual retirement plan must meet
in order to be treated as an automatic IRA.</text>
</paragraph><paragraph id="id8721022EE0314D288231960887A1EEF9"><enum>(2)</enum><header>Investment
options</header><text>The regulations under paragraph (1) shall provide that an
automatic IRA shall allow the individual on whose behalf the individual
retirement plan is established to invest contributions to, and earnings of, the
plan in all of the following investment options:</text>
<subparagraph id="idADB47B59F644414DA58BF04AA015BC86"><enum>(A)</enum><text>Options which are
similar to all investment options which are available (at the time the plan is
established) to a participant in the Thrift Savings Fund established under
subchapter III of chapter 84 of title 5, United States Code.</text>
</subparagraph><subparagraph id="id0D910ECC8DEC4716968D0565267CF97A"><enum>(B)</enum><text>Any other
investment option specified in the regulations.</text>
</subparagraph><continuation-text continuation-text-level="paragraph">Such
regulations shall specify which of the investment options shall be treated as
default investment options for purposes of section 408B(g)(4).</continuation-text></paragraph><paragraph id="idD6D40545A5134073BB776271DD625107"><enum>(3)</enum><header>Investment
fees</header>
<subparagraph id="idB6D4E5C68C644CEB94405486BBE545CB"><enum>(A)</enum><header>In
general</header><text>The regulations under paragraph (1) shall provide that an
automatic IRA shall not charge any investment fees which, in the aggregate, are
not reasonable (as determined under such regulations).</text>
</subparagraph><subparagraph id="id99A448EF5B9B4B4797AFD46A992BB598"><enum>(B)</enum><header>Investment
fees</header><text>For purposes of this paragraph, the term <term>investment
fees</term> includes any fee, commission, asset management fee, compensation
for services, or any other charge or fee specified in the regulations under
paragraph (1) which is imposed with respect to the automatic
IRA.</text>
</subparagraph></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="id5E658A1B681741FD9372137743A5EA96"><enum>(b)</enum><header>Mandatory
transfers</header><text>Section 401(a)(31)(B) is amended—</text>
<paragraph id="id8B6361231B044576BA7AEF0A419FEF3F"><enum>(1)</enum><text>by inserting
<quote>(including an automatic IRA)</quote> after <quote>individual retirement
plan</quote> each place it appears, and</text>
</paragraph><paragraph id="id55EBC084C6774327B178FAE80995D4B4"><enum>(2)</enum><text>by adding at the
end the following new sentence: <quote>Any amount so transferred (and any
earnings thereon) shall be invested in a default investment described in
section 408B(g)(4).</quote>.</text>
</paragraph></subsection><subsection id="ID9EAA8ACDDAEA4BCBA1F4EE48ACB47BB8"><enum>(c)</enum><header>Clerical
amendment</header><text>The table of sections for subpart A of part I of
subchapter A of chapter 1 is amended by inserting after the item relating to
section 408B the following new item:</text>
<quoted-block display-inline="no-display-inline" id="idF872B7A61FFF4FE58880B60D9F9736C6" style="OLC">
<toc>
<toc-entry idref="id8FF1994FAB1A4CC48AB96F5CD5208B50" level="section">Sec. 408C. Automatic
IRAs.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID9736BD155EC547AFB41F9CC43C299500"><enum>(d)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to calendar
years beginning on or after the date on which proposed and temporary or final
regulations described in section 408C(c) of the Internal Revenue Code of 1986
(as added by this Act) are issued.</text>
</subsection></section><section id="id3CC9AAFE78F64F23A7803CDFDBA6D6AF"><enum>104.</enum><header>Establishment
of TSP II Board</header>
<subsection id="idF68D40D57E2D4B78848794392985DFE2"><enum>(a)</enum><header>Establishment</header><text>There
is established in the executive branch of the Government a TSP II Board. The
board shall be established and maintained in the same manner as the Federal
Retirement Thrift Investment Board under subchapter VII of chapter 84 of title
5, United States Code.</text>
</subsection><subsection id="id9F9BF65803E04EA9AF1892D820599942"><enum>(b)</enum><header>Executive
director</header><text>The TSP II Board shall appoint an Executive Director in
a similar manner and with similar functions as the Executive Director of the
Federal Retirement Thrift Investment Board under section 8474 of title 5,
United States Code.</text>
</subsection><subsection id="idEE89DE7FA3614B12AF139EEC756CE7A6"><enum>(c)</enum><header>Duties of
board</header><text>The TSP II Board shall establish policies and procedures
for—</text>
<paragraph id="idDDEBBE5157654F6D990C717183B47AAC"><enum>(1)</enum><text>establishment and
maintenance of individual retirement plans under the payroll tax deposit system
established under section 408B(f)(3) of the Internal Revenue Code of
1986,</text>
</paragraph><paragraph id="idBB92B3E6666D4A82AE60C44A7E90CF33"><enum>(2)</enum><text>the investment
and management of contributions to such individual retirement plans,</text>
</paragraph><paragraph id="idB9023B0E254340F69EF620A46BCC198E"><enum>(3)</enum><text>the amount of
contributions, and the investment of such contributions, under automatic
contribution arrangements under section 408B(g) of such Code, including the
designation of investment funds in which such contributions may be invested,
and</text>
</paragraph><paragraph id="id662B65E8133F48598B32C58FA22D715A"><enum>(4)</enum><text>the establishment
of automatic IRAs under section 408C of such Code, including the issuance of
regulations under subsection (c) of such section.</text>
</paragraph></subsection><subsection id="idFCB2BBFD00774F06A1446D9E8875F601"><enum>(d)</enum><header>Best
practices</header><text>The TSP II Board shall, on a continual basis, prescribe
and encourage best practices (including cost efficiencies and innovations) in
enrollment, investment, distribution, and other procedures or arrangements
relating to retirement savings and investment. In carrying out its
responsibilities under this section, the TSP II Board may implement (by
contract or otherwise) pilot projects to help assess the efficacy and
workability of specific practices and arrangements.</text>
</subsection><subsection id="idA59BC2634DD54C9EADCD2D796760DD8C"><enum>(e)</enum><header>Expansion of
use of IRAs by self-employed and other individuals</header><text>The TSP II
Board shall establish procedures to disseminate information (through use of the
Internet and other appropriate means) to—</text>
<paragraph id="idAFF68ED5378C4D0A878A20C839734E10"><enum>(1)</enum><text>facilitate and
encourage the use by self-employed and other individuals of automatic debit and
similar arrangements for investment in individual retirement plans, including
automatic IRAs,</text>
</paragraph><paragraph id="idE6A6D3EAFF3F4E7C906C3135205D633D"><enum>(2)</enum><text>facilitate and
encourage efforts by voluntary associations to promote savings in individual
retirement plans, including automatic IRAs, by their members and others,
and</text>
</paragraph><paragraph id="idDBA779AA05E34FADB548DAC84930F734"><enum>(3)</enum><text>facilitate and
encourage the direct deposit of Federal and State income tax refunds in
individual retirement plans, including automatic IRAs.</text>
</paragraph></subsection><subsection id="idFA402CC38C34417BA967F7074402AE16"><enum>(f)</enum><header>Exclusive
interest</header><text>The members of the TSP II Board shall discharge their
responsibilities solely in the interest of participants and beneficiaries under
the payroll tax deposit system established under section 408B of the Internal
Revenue Code of 1986.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id4BBC0E3EB3EE4DF8A91ED72CF3F88B56"><enum>(g)</enum><header>Other
provisions made applicable</header><text>The provisions of subsections (f)(3),
(g), (i), and (j) of section 8472 of title 5, United States Code, shall apply
to the TSP II Board.</text>
</subsection></section></subtitle><subtitle id="idE4C997F2DAD742BEAE9739ABA51F0E06"><enum>B</enum><header>Other
provisions</header>
<section id="id7503769689FA407F9F6EB6086DEC7D31"><enum>111.</enum><header>Modifications
to computation of saver's credit</header>
<subsection id="id9C25C0FD0C7547A68B3A7ACC2328B0D9"><enum>(a)</enum><header>In
general</header><text>Section 25B(b) (defining applicable percentage), as
amended by section 833 of the Pension Protection Act of 2006, is amended to
read as follows:</text>
<quoted-block display-inline="no-display-inline" id="idF0EA78BBE7534424950FDA74C0FE32DD" style="OLC">
<subsection id="id2F474DE0D39C44F9A0D710B1797BC3D5"><enum>(b)</enum><header>Applicable
percentage</header><text>For purposes of this section—</text>
<paragraph id="idA2DE92EE18304449904A048C5EE9063A"><enum>(1)</enum><header>In
general</header><text>The applicable percentage is—</text>
<subparagraph id="idA72F93DBFD0B4E15A350239B856A64B4"><enum>(A)</enum><text>if the taxpayer's
adjusted gross income does not exceed the first threshold amount plus $5,000,
50 percent, reduced by 1 percentage point for each $250 (or fraction thereof)
by which such adjusted gross income exceeds the first threshold amount,</text>
</subparagraph><subparagraph id="id87F10CFABE254226BC7711A826DC67FC"><enum>(B)</enum><text>if the taxpayer's
adjusted gross income exceeds the first threshold amount plus $5,000, but does
not exceed the second threshold amount plus $5,000, 30 percent, reduced by 1
percentage point for each $167 (or fraction thereof) by which such adjusted
gross income exceeds the second threshold amount, and</text>
</subparagraph><subparagraph id="id06D47E3C60F1459D8D180440E19D370D"><enum>(C)</enum><text>if the taxpayer's
adjusted gross income exceeds the second threshold amount plus $5,000, zero
percent.</text>
</subparagraph></paragraph><paragraph id="idA0168FF215884E5B9A8CB500DC5D117E"><enum>(2)</enum><header>Threshold
amounts</header>
<subparagraph id="id4FEA30E245E749CBA556CF8996790202"><enum>(A)</enum><header>Joint
returns</header><text>In the case of a joint return—</text>
<clause id="id85B0ACC537094BB08B9C6CBF5CC8AE60"><enum>(i)</enum><text>the first
threshold amount is $30,000, and</text>
</clause><clause id="idE0B69965355E431A98E53BD21B3519A5"><enum>(ii)</enum><text>the second
threshold amount is $55,000.</text>
</clause></subparagraph><subparagraph id="id18E8AA92AF244745987FA46B5F73D750"><enum>(B)</enum><header>Other
returns</header><text>In the case of—</text>
<clause id="id7F9F2DF71CDF443C8FD8C8204ECAB342"><enum>(i)</enum><text>a
head of household, the first and second threshold amounts shall be 75 percent
of such amounts for joint returns, and</text>
</clause><clause id="id4578DE1F7D574DCFB125F15D4015D277"><enum>(ii)</enum><text>any taxpayer not
described in subparagraph (A) or clause (i), the first and second threshold
amounts shall be 50 percent of such amounts for joint returns.</text>
</clause></subparagraph><subparagraph display-inline="no-display-inline" id="H789EA7C14D1C4E6E99F700AF38B72371"><enum>(C)</enum><header>Inflation
adjustment</header><text display-inline="yes-display-inline">In the case of any
taxable year beginning in a calendar year after 2006, each of the dollar
amounts in subparagraph (A) shall be increased by an amount equal to—</text>
<clause id="H7C8A2EFC5879446382A6CFAA9EA6FE7"><enum>(i)</enum><text>such dollar amount,
multiplied by</text>
</clause><clause id="HE0E2A28CF29148FCAD73C6557200827D"><enum>(ii)</enum><text>the
cost-of-living adjustment determined under section 1(f)(3) for the calendar
year in which the taxable year begins, determined by substituting
<quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in
subparagraph (B) thereof.</text>
</clause><continuation-text continuation-text-level="subparagraph">Any
increase determined under the preceding sentence shall be rounded to the
nearest multiple of
$500.</continuation-text></subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="idDD507D36B8A149CEB4839D3339815290"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after December 31, 2006.</text>
</subsection></section><section id="id16AFA72FA79D4916A2A62EC208A34300"><enum>112.</enum><header>Qualified cash
or deferred arrangements must allow long-term employees working more than 500
but less than 1,000 hours per year to participate</header>
<subsection id="id33D15840B279464595E6B4EB4E0F560B"><enum>(a)</enum><header>Participation
requirement</header>
<paragraph id="id1BFAE746D72F45DC8294D927A279FCA0"><enum>(1)</enum><header>In
general</header><text>Subparagraph (D) of section 401(k)(2) (defining qualified
cash or deferred arrangement) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="idC55E7E7722E24C3280D4483D3C8B7729" style="OLC">
<subparagraph id="id0E1EFCB1DC6E4275A8BFE77EB52ECB2C"><enum>(D)</enum><text>which does not
require, as a condition of participation in the arrangement, that an employee
complete a period of service with the employer (or employers) maintaining the
plan extending beyond the close of the earlier of—</text>
<clause id="id87CF8E71EA70435BAED73E72F636C6A7"><enum>(i)</enum><text>the period
permitted under section 410(a)(1) (determined without regard to subparagraph
(B)(i) thereof), or</text>
</clause><clause id="idD5503F4180624340AF43D947A91AF980"><enum>(ii)</enum><text>subject to the
provisions of paragraph (14), the first period of 3 consecutive 12-month
periods during each of which the employee has at least 500 hours of
service.</text>
</clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="id696B503F1CAA4FE4927C44EA1833FF1E"><enum>(2)</enum><header>Special
rules</header><text>Section 401(k) (relating to cash or deferred arrangements),
as amended by section 902 of the Pension Protection Act of 2006, is amended by
adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="id6230ACA798634566856339606DDB8C7F" style="OLC">
<paragraph id="id59A1142B8D5D4010A4EC2D255E429199"><enum>(14)</enum><header>Special rules
for participation requirement for long-term, part-time
workers</header><text>For purposes of paragraph (2)(D)(ii)—</text>
<subparagraph id="id37C41D1DB9E94C9DB5D749876EACFE46"><enum>(A)</enum><header>Age requirement
must be met</header><text>Paragraph (2)(D)(ii) shall not apply to an employee
unless the employee has met the requirement of section 410(a)(1)(A)(i) by the
close of the last of the 12-month periods described in such paragraph.</text>
</subparagraph><subparagraph id="idA749CF9F1D4D4B599D39191139D7D523"><enum>(B)</enum><header>Nondiscrimination
and top-heavy rules not to apply</header>
<clause id="id428F96E2A6884B4E83BB0122A37E4746"><enum>(i)</enum><header>Nondiscrimination
rules</header><text>In the case of employees who are eligible to participate in
the arrangement solely by reason of paragraph (2)(D)(ii))—</text>
<subclause id="idACF8D5B8FF8E422C9C8E130932AD4BA2"><enum>(I)</enum><text>notwithstanding
subsection (a)(4), an employer shall not be required to make nonelective or
matching contributions on behalf of such employees even if such contributions
are made on behalf of other employees eligible to participate in the
arrangement, and</text>
</subclause><subclause id="id9AC6A48B095148D6808D39E1B2AD86DB"><enum>(II)</enum><text>an employer may
elect to exclude such employees from the application of paragraph (3) and
subsection (m)(2).</text>
</subclause></clause><clause id="id90E73610687647FA97031550DDC41DA6"><enum>(ii)</enum><header>Top-heavy
rules</header><text>An employer may elect to exclude all employees who are
eligible to participate in a plan maintained by the employer solely by reason
of paragraph (2)(D)(ii) from—</text>
<subclause id="id2A53D7B9C69B44E2AF2FF8BB16B40FC1"><enum>(I)</enum><text>the determination
of whether the plan is a top-heavy plan under section 416, and</text>
</subclause><subclause id="id4E87615706ED42C99C6BDED3609652B4"><enum>(II)</enum><text>if the plan is a
top-heavy plan under such section, the application of the vesting and benefit
requirements under subsections (b) and (c) of such section.</text>
</subclause></clause><clause id="idE7D50D31AB784EFCA2AD1C5E183B0A96"><enum>(iii)</enum><header>Vesting</header><text>For
purposes of determining whether an employee described in clause (i) has a
nonforfeitable right to employer contributions (other than contributions
described in paragraph (3)(D)(i)) under the arrangement, each 12-month period
for which the employee has at least 500 hours of service shall be treated as a
year of service.</text>
</clause><clause id="id8416D1F23E074449B25AB1FCDDC13D10"><enum>(iv)</enum><header>Employees who
become full-time employees</header><text>This subparagraph shall cease to apply
to any employee after the date on which the employee meets the requirements of
section 410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii).</text>
</clause></subparagraph><subparagraph id="idD937A2E8EFCC467F81EA4B9F810CA351"><enum>(C)</enum><header>Exception for
employees under collectively bargained plans, etc</header><text>Paragraph
(2)(D)(ii) shall not apply to employees described in section 410(b)(3).</text>
</subparagraph><subparagraph id="id29A137AE43F34954B48C20B70850396B"><enum>(D)</enum><header>Special
rules</header>
<clause id="idA430B25EEAF447CDAE82DC8ED4D2C7B5"><enum>(i)</enum><header>Time of
participation</header><text>The rules of section 410(a)(4) shall apply to an
employee eligible to participate in an arrangement solely by reason of
paragraph (2)(D)(ii).</text>
</clause><clause id="id58BEE8DAEECF4D40A26FDDE061E4F852"><enum>(ii)</enum><header>12-month
periods</header><text>12-month periods shall be determined in the same manner
as under the last sentence of section
410(a)(3)(A).</text>
</clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="id1FA91486C81D43288794FFCCAD39BFB7"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to plan
years beginning after December 31, 2007, except that, for purposes of section
401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 (as added by such
amendments), 12-month periods beginning before such date shall not be taken
into account.</text>
</subsection></section><section id="idFA02FCC84ED94F01A12887DBAA922FB3"><enum>113.</enum><header>Transfers of
unused benefits of health flexible spending arrangement to certain retirement
plans</header>
<subsection id="IDEC04BAA88DF54922BA5A31830DAAC375"><enum>(a)</enum><header>In
General</header><text>Section 125 (relating to cafeteria plans) is amended by
redesignating subsections (h) and (i) as subsections (i) and (j), respectively,
and by inserting after subsection (g) the following:</text>
<quoted-block id="IDD32019D848F640B5A82F4CCFF1B9F9E6" style="OLC">
<subsection id="ID71E07D2D62FE438280E01F73F44BD27B"><enum>(h)</enum><header>Contributions
of Certain Unused Health Benefits</header>
<paragraph id="IDA0E86DB8A15E46A18288AF21BDC4A969"><enum>(1)</enum><header>In
general</header><text>For purposes of this title, a plan or other arrangement
shall not fail to be treated as a cafeteria plan solely because qualified
benefits of a participant under such plan include a health flexible spending
arrangement under which not more than $500 of unused health benefits may be
contributed on behalf of the participant to—</text>
<subparagraph id="ID0CF427CFC5F94254A100F265C8D63CCA"><enum>(A)</enum><text>a qualified
retirement plan (as defined in section 4974(c)), or</text>
</subparagraph><subparagraph id="ID5A4064D4A5294A7EAE2BD1986CB56ED4"><enum>(B)</enum><text>an eligible
deferred compensation plan (as defined in section 457(b)) maintained by an
eligible employer described in section 457(e)(1)(A).</text>
</subparagraph></paragraph><paragraph id="ID1BF2C20F81A0447E909403BDCBFAD621"><enum>(2)</enum><header>Treatment of
contribution of unused health benefits</header>
<subparagraph id="IDB696F39A09104A659920D7802264246D"><enum>(A)</enum><header>In
general</header><text>For purposes of this title, contributions described in
paragraph (1) shall be treated as elective contributions made pursuant to an
election by the participant between such contributions and compensation which
would otherwise be includible in the gross income of the employee.</text>
</subparagraph><subparagraph id="ID2A1C2AF40C3C43CC8E72CEB94554D240"><enum>(B)</enum><header>Exclusion or
deduction</header><text>Contributions described in paragraph (1) shall be
excluded from gross income, or included in gross income and allowed as a
deduction, to the same extent that elective contributions would be so treated
under this title.</text>
</subparagraph></paragraph><paragraph id="ID88DB416763184C00A5916E52B1DD9F25"><enum>(3)</enum><header>Health flexible
spending arrangement</header><text>For purposes of this subsection, the term
<term>health flexible spending arrangement</term> means a flexible spending
arrangement (as defined in section 106(c)) which is a qualified benefit and
only permits reimbursement for expenses for medical care (as defined in section
213(d)(1) without regard to subparagraphs (C) and (D) thereof).</text>
</paragraph><paragraph id="IDE0FF33A254814451AD6CEC4D155419C5"><enum>(4)</enum><header>Unused health
benefits</header><text>For purposes of this subsection, the term <term>unused
health benefits</term> means, with respect to a participant, the excess
of—</text>
<subparagraph id="ID883A9E85D62A492E85F050A66C43CFDD"><enum>(A)</enum><text>the maximum
amount of reimbursement allowable to the participant with respect to a plan
year under a health flexible spending arrangement, taking into account any
election by the participant, over</text>
</subparagraph><subparagraph id="IDD0310683906945D5BE9E11CEE0F6EE89"><enum>(B)</enum><text>the actual amount
of reimbursement with respect to such year under such
arrangement.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="IDD7A3E39B884E45659329F7DA7D5C367F"><enum>(b)</enum><header>Special
Rules</header><text>The Secretary of the Treasury shall prescribe such rules as
are appropriate to carry out the purposes of the amendments made by this
section. Such rules may permit elections by plan sponsors with respect to the
year to which the contributions relate and may provide for special treatment
for purposes of applying the requirements applicable to such
contributions.</text>
</subsection><subsection id="IDEAA67D346DE0459DABF143E2FD8E113A"><enum>(c)</enum><header>Effective
Date</header><text>The amendment made by subsection (a) shall apply to years
beginning after December 31, 2006.</text>
</subsection></section><section id="idC434E37429CF4ACCA96496D5EEC2DFE4" section-type="subsequent-section"><enum>114.</enum><header>Computation of
limits on IRA and Roth IRA contributions</header>
<subsection id="id204335E026EB46CEA35AF742E89EB95E"><enum>(a)</enum><header>Certain wage
replacement income treated as compensation</header>
<paragraph id="idC2E5646F8EAA493F9A241A32EF48C2C6"><enum>(1)</enum><header>Wage
replacement income</header><text display-inline="yes-display-inline">Section
219(f) (relating to other definitions and special rules) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting after paragraph
(7) the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="id1B110DDB483D414A9636C253A4D94385" style="OLC">
<paragraph id="id781FA9F09DD54E33B36A3B2D144776CE"><enum>(8)</enum><header>Treatment of
certain wage replacement income as compensation</header>
<subparagraph id="id909496747FF54ACD9A8F4F7C1E2C1336"><enum>(A)</enum><header>In
general</header><text>Notwithstanding paragraph (1), applicable wage
replacement income not otherwise treated as compensation shall be treated as
compensation for purposes of this section.</text>
</subparagraph><subparagraph id="id19A4AA3008F24883B3FA388FBDC2A9F0"><enum>(B)</enum><header>Applicable wage
replacement income</header><text>For purposes of this paragraph, the term
<term>applicable wage replacement income</term> means any amount received by an
individual—</text>
<clause id="idC177F59145E54217AF8C1030F5FCB8CE"><enum>(i)</enum><text>as the result of
the individual having become disabled,</text>
</clause><clause id="id0526CC0FB28040338F8207DAB6D44895"><enum>(ii)</enum><text>as unemployment
compensation (as defined in section 85(b)),</text>
</clause><clause id="id7674A400774440038EC35A5923E186AB"><enum>(iii)</enum><text>under workmen's
compensation acts, or</text>
</clause><clause id="idB082470A8A364228A2EB7C1C65E541BC"><enum>(iv)</enum><text>which
constitutes wage replacement income under regulations prescribed by the
Secretary.</text>
</clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="id6F35C17425DF4A30B5F27E58E7D7C59D"><enum>(2)</enum><header>Certain
excludable amounts may be taken into account for purposes of Roth
IRAs</header><text>Section 408A(c)(2) (relating to contribution limit) is
amended by adding at the end the following new flush sentence:</text>
<quoted-block display-inline="no-display-inline" id="idB041D50CB1774BF8AE1CBFA7D7E9CE0C" style="OLC">
<quoted-block-continuation-text quoted-block-continuation-text-level="paragraph">In
determining the maximum amount under subparagraph (A), subsections (b)(1)(B)
and (c) of section 219 shall be applied by taking into account compensation
described in section 219(f)(8) without regard to whether it is includible in
gross
income.</quoted-block-continuation-text><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="idCCDCA225C5464244920B6FEA959F2E4D"><enum>(3)</enum><header>Effective
date</header><text>The amendments made by this subsection shall apply to
taxable years beginning after December 31, 2006.</text>
</paragraph></subsection><subsection id="idEFE7761D530C44B19CB1C90E2819D40E"><enum>(b)</enum><header>Computation of
maximum IRA deduction for Roth IRAs using compensation from 2 preceding taxable
years</header>
<paragraph id="id3D69450C45A14A8995C1703C8275C91D"><enum>(1)</enum><header>In
general</header><text>Section 408A(c) (relating to treatment of contributions)
is amended by adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="id54DC3D2EEAAE40F1B099446C50E2E2C0" style="OLC">
<paragraph id="idAC5C9A8E9298450CA884DB57A5B67BA0"><enum>(8)</enum><header>Compensation
from preceding 2 years may be taken into account</header>
<subparagraph id="id0E90D92F7FC54500A22A1FE9371E5952"><enum>(A)</enum><header>In
general</header><text>A taxpayer may elect for purposes of paragraph (2) to
take into account any unused compensation from the 2 taxable years immediately
preceding the taxable year.</text>
</subparagraph><subparagraph id="id5DE712654D284CA8BBB53954DB2BE8F9"><enum>(B)</enum><header>Unused
compensation</header><text>For purposes of this paragraph, the term
<term>unused compensation</term> means with respect to an individual for any
taxable year the compensation includible in the individual's gross income for
the taxable year reduced by the sum of—</text>
<clause id="id0DD952B534D647B1B93B7F4727A09DEB"><enum>(i)</enum><text>the amount
allowed as a deduction under 219(a) to such individual for such taxable
year,</text>
</clause><clause id="idBFFF9B61EA6E476F928B15AB1AE2F96D"><enum>(ii)</enum><text>the amount of
any designated nondeductible contribution (as defined in section 408(o)) on
behalf of such individual for such taxable year,</text>
</clause><clause id="id87F4963F3624443A82BE11C7631C5A0D"><enum>(iii)</enum><text>the amount of
any contribution on behalf of such individual to a Roth IRA under this section
for such taxable year, and</text>
</clause><clause id="idEE04AFC7D0A2421399A60FAF8F0DEE06"><enum>(iv)</enum><text>the amount of
compensation includible in such individual's gross income for such taxable year
taken into account under section 219(c) in determining the limitation under
section 219 or paragraph (2) for the individual's spouse.</text>
</clause></subparagraph><subparagraph id="idA03C7A14385B43F6B09AD3C65B7556F9"><enum>(C)</enum><header>Application to
special rule for married individuals</header><text>Under rules prescribed by
the Secretary, in applying section 219(c) for any taxable year for purposes of
applying paragraph (2)(A), unused compensation of an individual or an
individual's spouse for the 2 taxable years immediately preceding the taxable
year may be taken into
account.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id7E224E5EB6C84B108BDE9DCA320379F3"><enum>(2)</enum><header>Effective
date</header><text>The amendment made by this subsection shall apply to taxable
years beginning after December 31, 2006, but unused compensation for taxable
years beginning before January 1, 2007, may be taken into account for taxable
years beginning after December 31, 2006.</text>
</paragraph></subsection></section><section commented="no" display-inline="no-display-inline" id="H1B9E5A7CEF4B4849A91F52DC2C7FCD7" section-type="subsequent-section"><enum>115.</enum><header>Contributions of
military death gratuities to certain tax-favored accounts</header>
<subsection commented="no" display-inline="no-display-inline" id="H8EEBAA7507AB40429265903733A03E22"><enum>(a)</enum><header>Roth
IRAs</header>
<paragraph commented="no" display-inline="no-display-inline" id="id14F0C2C98C58499D9F4B72366EE0E3DE"><enum>(1)</enum><header>Provision in
effect before pension protection act</header><text display-inline="yes-display-inline">Subsection (e) of section 408A (relating to
qualified rollover contribution), as in effect before the amendments made by
section 824 of the Pension Protection Act of 2006, is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="idF4149F83CA514BDD8B491D5FB9473B4C" style="OLC">
<subsection commented="no" display-inline="no-display-inline" id="HCF31F139AECF40E58DB8DE6F6D22A822"><enum>(e)</enum><header>Qualified
rollover contribution</header><text display-inline="yes-display-inline">For
purposes of this section—</text>
<paragraph commented="no" display-inline="no-display-inline" id="H00BF21B1F7A4451AB8CD7F048700C397"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>qualified rollover contribution</term> means a rollover contribution to a
Roth IRA from another such account, or from an individual retirement plan, but
only if such rollover contribution meets the requirements of section 408(d)(3).
Such term includes a rollover contribution described in section 402A(c)(3)(A).
For purposes of section 408(d)(3)(B), there shall be disregarded any qualified
rollover contribution from an individual retirement plan (other than a Roth
IRA) to a Roth IRA.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H3F39DB7A1A2345159581A0278D47F5EC"><enum>(2)</enum><header>Military death
gratuity</header>
<subparagraph commented="no" display-inline="no-display-inline" id="HD4DAD5587B2D491DA5F7449847935166"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>qualified rollover contribution</term> includes a contribution to a Roth
IRA maintained for the benefit of an individual to the extent that such
contribution does not exceed the amount received by such individual under
section 1477 of title 10, United States Code, or under section 1967 of title 38
of such Code, if such contribution is made not later than 1 year after the day
on which such individual receives such amount.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="H43EC96BAFAA2402A9589957BB2906C47"><enum>(B)</enum><header>Annual limit on
number of rollovers not to apply</header><text display-inline="yes-display-inline">Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by the subparagraph (A).</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="HBDA9ACDDAA6348538B24576DB2F600D6"><enum>(C)</enum><header>Application of
section 72</header><text display-inline="yes-display-inline">For purposes of
applying section 72 in the case of a distribution which is not a qualified
distribution, the amount treated as a rollover by reason of subparagraph (A)
shall be treated as investment in the
contract.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="id572E1A0699FC4B2183236901995AC783"><enum>(2)</enum><header>Provision in
effect after pension protection act</header><text>Subsection (e) of section
408A, as in effect after the amendments made by section 824 of the Pension
Protection Act of 2006, is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="id5C15518D80DA4DC38FC7C7D68EF096F4" style="OLC">
<subsection id="IDF06F2CD74B744689954FCA82980CC2FF"><enum>(e)</enum><header>Qualified
Rollover Contribution</header><text>For purposes of this section—</text>
<paragraph id="id9989A094EBA0482B83187E0B673B18BF"><enum>(1)</enum><header>In
general</header><text>The term <term>qualified rollover contribution</term>
means a rollover contribution—</text>
<subparagraph id="ID20911A2B84B349478E08A0E3B72DE2C6"><enum>(A)</enum><text>to a Roth IRA
from another such account,</text>
</subparagraph><subparagraph id="IDD4B2BA62F11F4FDC8A5023C3B0E11248"><enum>(B)</enum><text>from an eligible
retirement plan, but only if—</text>
<clause id="ID742A70FB167D4AB1B2471040E82D4E64"><enum>(i)</enum><text>in the case of an
individual retirement plan, such rollover contribution meets the requirements
of section 408(d)(3), and</text>
</clause><clause id="ID4C054712847C49E085B5FF1E5F5D9E80"><enum>(ii)</enum><text>in the case of
any eligible retirement plan (as defined in section 402(c)(8)(B) other than
clauses (i) and (ii) thereof), such rollover contribution meets the
requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable.</text>
</clause></subparagraph><continuation-text continuation-text-level="paragraph">For
purposes of section 408(d)(3)(B), there shall be disregarded any qualified
rollover contribution from an individual retirement plan (other than a Roth
IRA) to a Roth IRA.</continuation-text></paragraph><paragraph commented="no" display-inline="no-display-inline" id="id159FD7C1153E476A9E1806D721486FBC"><enum>(2)</enum><header>Military death
gratuity</header>
<subparagraph commented="no" display-inline="no-display-inline" id="id83A3694FB88D4CFB88DF14227E8A8BBF"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">The term
<term>qualified rollover contribution</term> includes a contribution to a Roth
IRA maintained for the benefit of an individual to the extent that such
contribution does not exceed the amount received by such individual under
section 1477 of title 10, United States Code, or under section 1967 of title 38
of such Code, if such contribution is made not later than 1 year after the day
on which such individual receives such amount.</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="id18C1258699CA4C5FA827AB1ACC8FE7EF"><enum>(B)</enum><header>Annual limit on
number of rollovers not to apply</header><text display-inline="yes-display-inline">Section 408(d)(3)(B) shall not apply with
respect to amounts treated as a rollover by the subparagraph (A).</text>
</subparagraph><subparagraph commented="no" display-inline="no-display-inline" id="idAB75D552DC194C5398500878FA0F657B"><enum>(C)</enum><header>Application of
section 72</header><text display-inline="yes-display-inline">For purposes of
applying section 72 in the case of a distribution which is not a qualified
distribution, the amount treated as a rollover by reason of subparagraph (A)
shall be treated as investment in the
contract.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="HE164C40938FC49E6B8B0464C999DE2EC"><enum>(b)</enum><header>Health savings
accounts and Archer MSAs</header><text display-inline="yes-display-inline">Sections 220(f)(5) and 223(f)(5) are each
amended by adding at the end the following flush sentence:</text>
<quoted-block display-inline="no-display-inline" id="idA9098EF5B45D4A59A52D893802486E10" style="OLC">
<quoted-block-continuation-text quoted-block-continuation-text-level="paragraph">For
purposes of subparagraphs (A) and (B), rules similar to the rules of section
408A(e)(2) (relating to rollover treatment for contributions of military death
gratuity) shall
apply.</quoted-block-continuation-text><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="HA98BFD57589A4F1E835C0229CE699E1F"><enum>(c)</enum><header>Education
savings accounts</header><text display-inline="yes-display-inline">Section
530(d)(5) is amended by adding at the end the following new sentence:
<quote>For purposes of this paragraph, rules similar to the rules of section
408A(e)(2) (relating to rollover treatment for contributions of military death
gratuity) shall apply.</quote>.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="H0903216E4B064095ABFDFFBB899BF63B"><enum>(d)</enum><header>Effective
dates</header>
<paragraph commented="no" display-inline="no-display-inline" id="H0CCF026F01EE429D934450F8D71CF009"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Except as provided by
paragraphs (2) and (3), the amendments made by this section shall apply with
respect to deaths from injuries occurring on or after the date of the enactment
of this Act.</text>
</paragraph><paragraph commented="no" display-inline="no-display-inline" id="H7A3C8847C2C54611AFCC8FC6DB07B081"><enum>(2)</enum><header>Application of
amendments to deaths from injuries occurring on or after October 7, 2001, and
before enactment</header><text display-inline="yes-display-inline">The
amendments made by this section shall apply to any contribution made pursuant
to section 408A(e)(2), 220(f)(5), 223(f)(5), or 530(d)(5) of the Internal
Revenue Code of 1986, as amended by this Act, with respect to amounts received
under section 1477 of title 10, United States Code, or under section 1967 of
title 38 of such Code, for deaths from injuries occurring on or after October
7, 2001, and before the date of the enactment of this Act if such contribution
is made not later than 1 year after the date of the enactment of this
Act.</text>
</paragraph><paragraph id="id14B053A4FA034BC7B77A55D1734CA55B"><enum>(3)</enum><header>Pension
Protection Act changes</header><text>Section 408A(e)(1) of the Internal Revenue
Code of 1986 (as in effect after the amendments made by subsection (a)(2))
shall apply to taxable years beginning after December 31, 2007.</text>
</paragraph></subsection></section></subtitle><enum>II</enum><header>Provisions
providing for preservation of income</header>
<section id="IDF90188684AE440249A53BD49470F60A7"><enum>201.</enum><header>Exclusion of
certain qualified annuity payments</header>
<subsection id="ID62711EBB57A44A0AAFF93E23173C23DF"><enum>(a)</enum><header>Exclusion</header>
<paragraph id="IDB9D614EAF839466489BEA319D7A45CC9"><enum>(1)</enum><header>Qualified
plans</header><text>Section 402(e) (relating to exempt trusts) is amended by
adding at the end the following new paragraph:</text>
<quoted-block id="ID05CB1914463B4DEC8603AB8EFD345F7A" style="OLC">
<paragraph id="ID0B3695DB41244850AED8161513E6F689"><enum>(7)</enum><header>Exclusion of
percentage of lifetime annuity payments</header>
<subparagraph id="IDBF118D195BE746B18371424BBB9B785F"><enum>(A)</enum><header>In
general</header><text>In the case of a lifetime annuity payment to a qualified
distributee from a qualified trust (within the meaning of subsection (c)(8)(A))
maintained in connection with a defined contribution plan, gross income shall
not include 10 percent of the amount otherwise includible in gross income
(determined without regard to this paragraph). For purposes of this paragraph,
payments from an annuity contract distributed by the qualified trust shall be
treated as payments from the qualified trust.</text>
</subparagraph><subparagraph id="ID244208D09E404D94AA4BD90237DC091C"><enum>(B)</enum><header>Limitation</header>
<clause id="ID05D89A54395C43C5AB099DD33DAC0697"><enum>(i)</enum><header>In
general</header><text>If—</text>
<subclause id="ID3947CE323F6A499AA7574377178A33E5"><enum>(I)</enum><text>the aggregate
amount of lifetime annuity payments to the distributee during the taxable year
which are includible in gross income (determined without regard to this
paragraph) and which are subject to this paragraph or to rules similar to the
rules of this paragraph (other than section 72(b)(5) or 101(d)(4)),
exceeds</text>
</subclause><subclause id="ID0AB8C9FAF4C048DF841075F5600EE9D7"><enum>(II)</enum><text>50 percent of
the applicable amount for the taxable year under section 415(a),</text>
</subclause><continuation-text continuation-text-level="clause">then the
aggregate amount otherwise excludable under subparagraph (A) for the taxable
year shall be reduced by 10 percent of the portion of such excess which is
allocable under clause (ii) to payments which are subject to this
paragraph.</continuation-text></clause><clause id="IDB46E384A627C439DACD219781656AAA4"><enum>(ii)</enum><header>Allocation
rule</header><text>Any excess described in clause (i) for any taxable year
shall be allocated ratably among all lifetime annuity payments to the qualified
distributee described in clause (i)(I).</text>
</clause></subparagraph><subparagraph id="ID09E322717CCF42F9B793CB7D49026C66"><enum>(C)</enum><header>Definitions</header><text>For
purposes of this paragraph—</text>
<clause id="ID8E67D131BBE34391A6D2340ADD283126"><enum>(i)</enum><header>Lifetime
annuity payment</header>
<subclause id="ID466A7339DB9840B5AE6BAEC2B58D9B7A"><enum>(I)</enum><header>In
general</header><text>Except as provided in this clause, the term
<term>lifetime annuity payment</term> means a distribution from an annuity
contract which is a part of a series of substantially equal periodic payments
(not less frequently than annually) made over the life of the qualified
distributee or the joint lives of the qualified distributee and the qualified
distributee’s designated beneficiary. For purposes of this paragraph, the term
<term>annuity contract</term> means a commercial annuity (as defined in section
3405(e)(6)), other than an endowment or life insurance contract.</text>
</subclause><subclause id="ID6EAEE002EDE0407FAC607AF4C492EA56"><enum>(II)</enum><header>Certain
fluctuating payments</header><text>Annuity payments shall not fail to be
treated as part of a series of substantially equal periodic payments merely
because the amount of the periodic payments may vary in accordance with
investment experience, reallocations among investment options, actuarial gains
or losses, cost of living indices, a constant percentage (not less than zero)
applied not less frequently than annually, or similar fluctuating
criteria.</text>
</subclause><subclause id="IDD56A9C1DB6DA49CCB4328DE637E3CC3E"><enum>(III)</enum><header>Certain
changes in the mode of payment</header><text>Annuity payments shall not fail to
be treated as part of a series of substantially equal periodic payments merely
because the period between each such payment is lengthened or shortened, but
only if at all times such period is not longer than 1 year.</text>
</subclause><subclause id="ID9DA97F4D0110483391839B46F53BE9A3"><enum>(IV)</enum><header>Permitted
reductions</header><text>Annuity payments shall not fail to be treated as part
of a series of substantially equal periodic payments merely because, in the
case of an annuity payable over the lives of the qualified distributee and the
qualified distributee’s designated beneficiary, the amounts paid after the
death of the qualified distributee or the qualified distributee’s designated
beneficiary are less than the amounts payable during their joint lives.</text>
</subclause><subclause id="IDC4E6F846E8A14AD8BD611C5E84EECA88"><enum>(V)</enum><header>Certain
contract benefits</header><text>The availability of a commutation benefit or
other feature permitting acceleration of annuity payments (or a modification of
the period during which such a benefit is available), a minimum period of
payments or a minimum amount to be paid in any event shall not affect the
treatment of a distribution as a lifetime annuity payment.</text>
</subclause><subclause id="ID0BAE97C12FCA4A55A7CCB54EF2CC5651"><enum>(VI)</enum><header>Trust
payments</header><text>In the case of lifetime annuity payments being made to a
qualified trust, payments by the qualified trust to a qualified distributee of
the entire amount received by the qualified trust with respect to the qualified
distributee shall constitute lifetime annuity payments if such payments are
made within a reasonable period after receipt by the qualified trust.</text>
</subclause><subclause id="IDA207BBF54A29487884B455A18DE997B4"><enum>(VII)</enum><header>Qualified
domestic relations orders</header><text>Annuity payments shall not fail to be
treated as a series of substantially equal periodic payments merely because the
payments are reduced on account of a qualified domestic relations order (within
the meaning of section 414(p)) that becomes effective after the commencement of
the annuity payments.</text>
</subclause></clause><clause id="ID3664F7F5D34B453EA91C7E065CC3C071"><enum>(ii)</enum><header>Qualified
distributee</header><text>The term <term>qualified distributee</term> means the
employee, the surviving spouse of the employee, and an alternate payee who is
the spouse or former spouse of the employee.</text>
</clause></subparagraph><subparagraph id="ID2B4EAAE29AF54133BDA14E4481BACE21"><enum>(D)</enum><header>Recapture
tax</header>
<clause id="ID213B4178374645CBB8AEE009B299E1C2"><enum>(i)</enum><header>In
general</header><text>If—</text>
<subclause id="ID55FEA20945644423B13F02F35A6059CE"><enum>(I)</enum><text>an amount is not
includible in gross income by reason of subparagraph (A), and</text>
</subclause><subclause id="ID5D0A30D19332446E907227261CA2BCE4"><enum>(II)</enum><text>the series of
payments of which such payment is a part is subsequently modified (other than
by reason of death or disability) so that some or all future payments are not
lifetime annuity payments,</text>
</subclause><continuation-text continuation-text-level="clause">the qualified
distributee’s gross income for the first taxable year in which such
modification occurs shall be increased by an amount, determined under rules
prescribed by the Secretary, equal to the amount which (but for subparagraph
(A)) would have been includible in the qualified distributee’s gross income if
the modification had been in effect at all times, plus interest for the
deferral period at the underpayment rate established under section 6621.</continuation-text></clause><clause id="IDC4E58A530DDB411999FEACCE929433ED"><enum>(ii)</enum><header>Deferral
period</header><text>For purposes of this subparagraph, the term <term>deferral
period</term> means, with respect to any amount, the period beginning with the
taxable year in which (without regard to subparagraph (A)) the amount would
have been includible in gross income and ending with the taxable year in which
the modification described in clause (i)(II) occurs.</text>
</clause></subparagraph><subparagraph id="ID1F5111AF5DA94D5D93EA358FB78D1A76"><enum>(E)</enum><header>Investment in
the contract</header><text>For purposes of section 72, the investment in the
contract shall be determined without regard to this
paragraph.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="IDFCC33BCD141D48CE864DFBA651DFC511"><enum>(2)</enum><header>Qualified
annuity plans</header><text>Section 403(a) (relating to qualified annuity
plans) is amended by adding at the end the following new paragraph:</text>
<quoted-block id="IDEAA9AD550FA14F849E5343124F927728" style="OLC">
<paragraph id="IDD6CC725B3DEF4DC1A91F47E13A88731B"><enum>(6)</enum><header>Exclusion of
percentage of lifetime annuity payments</header><text>Rules similar to the
rules of section 402(e)(7) shall apply to distributions under any annuity
contract to which this subsection
applies.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="IDC303578574504ACD8E87B0B7B2D52576"><enum>(3)</enum><header>Purchased
annuities</header><text>Section 403(b) (relating to purchased annuities) is
amended by adding at the end the following new paragraph:</text>
<quoted-block id="ID62E97515D43E47D692A1423FD7113AB3" style="OLC">
<paragraph id="IDDAE35B43B3B24F85B77A990B87F2C4FD"><enum>(14)</enum><header>Exclusion of
percentage of lifetime annuity payments</header><text>Rules similar to the
rules of section 402(e)(7) shall apply to distributions under any annuity
contract or custodial account to which this subsection
applies.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="ID53A0C247B56C4CD0950D5B443B9EBFCB"><enum>(4)</enum><header>IRAs</header><text>Section
408(d) (relating to tax treatment of distributions), as amended by section 1201
of the Pension Protection Act of 2006, is amended by adding at the end the
following new paragraph:</text>
<quoted-block id="IDE8B8A2DB25114C82B79F5A8AB2210BE5" style="OLC">
<paragraph id="IDC866453E3C4C4EB0B7F2C8EF90B8D2D6"><enum>(9)</enum><header>Exclusion of
percentage of lifetime annuity payments</header><text>Rules similar to the
rules of section 402(e)(7) shall apply to distributions out of an individual
retirement
plan.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="IDD178D5FF1154411EAD9B7D1CEFAFBBA2"><enum>(5)</enum><header>Section 457
plans</header><text>Section 457(e) (relating to special rules for deferred
compensation plans) is amended by adding at the end the following new
paragraph:</text>
<quoted-block id="ID12D786ACBCF644648AEDFB361CBDCAC8" style="OLC">
<paragraph id="IDB9F4B43800D94474840F59F3534F1E92"><enum>(19)</enum><header>Exclusion of
percentage of lifetime annuity payments</header><text>Rules similar to the
rules of section 402(e)(7) shall apply to distributions from an eligible
deferred compensation plan of an eligible employer described in subsection
(e)(1)(A).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="ID84C2120A90B344929913B01E821F92CC"><enum>(b)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to
distributions made after December 31, 2006.</text>
</subsection></section><section id="ID9AEDA2EA6D9B4DAEB735A329E3283671"><enum>202.</enum><header>Exclusion for
lifetime annuity payments</header>
<subsection id="ID06F94C68AD944CA0964428DA9965D875"><enum>(a)</enum><header>Lifetime
Annuity Payments Under Annuity Contracts</header><text>Section 72(b) (relating
to exclusion ratio) is amended by adding at the end the following new
paragraph:</text>
<quoted-block id="IDBD58104D710743499FAD1577504FF8C0" style="OLC">
<paragraph id="ID8729A4E55738420AB3C95003B7934738"><enum>(5)</enum><header>Exclusion for
lifetime annuity payments</header>
<subparagraph id="IDDC2655C5F7484A2BA8D31FC419AEBB9B"><enum>(A)</enum><header>In
general</header><text>In the case of lifetime annuity payments received as an
annuity under 1 or more annuity contracts in any taxable year, gross income
shall not include the lesser of—</text>
<clause id="IDA156E31187DF4E5DAF5F97D802BD2678"><enum>(i)</enum><text>50 percent of the
portion of the lifetime annuity payments which (without regard to this
paragraph) is includible in gross income under this section for the taxable
year, or</text>
</clause><clause id="IDA9AE5186B1FA4955A3C395D535D32DB6"><enum>(ii)</enum><text>$20,000.</text>
</clause></subparagraph><subparagraph id="ID4B03FCD24EC342A99E6B6F25299710BA"><enum>(B)</enum><header>Cost-of-living
adjustment</header><text>In the case of taxable years beginning after December
31, 2007, the $20,000 amount in subparagraph (A)(ii) shall be increased by an
amount equal to—</text>
<clause id="IDD41EAD506FD141668315AEB9DEF26154"><enum>(i)</enum><text>such dollar
amount, multiplied by</text>
</clause><clause id="IDC2720E760A4243DC8EED0A3F15D7FBCA"><enum>(ii)</enum><text>the
cost-of-living adjustment determined under section 1(f)(3) for the calendar
year in which the taxable year begins, determined by substituting
<quote>calendar year 2006</quote> for <quote>calendar year 1992</quote> in
subparagraph (B) thereof.</text>
</clause><continuation-text continuation-text-level="subparagraph">If any
amount as increased under the preceding sentence is not a multiple of $500,
such amount shall be rounded to the next lower multiple of $500.</continuation-text></subparagraph><subparagraph id="IDB011039E2F7D449B980FC53FBAB84765"><enum>(C)</enum><header>Application of
paragraph</header><text>Subparagraph (A) shall not apply to—</text>
<clause id="ID41A608CC12D94CC68BB10709FAE14673"><enum>(i)</enum><text>any amount
received under an eligible deferred compensation plan (as defined in section
457(b)) or under a qualified retirement plan (as defined in section
4974(c)),</text>
</clause><clause id="IDB8A049AC6A6A46D3A953CC7616047FEE"><enum>(ii)</enum><text>any amount paid
under an annuity contract which is received by the beneficiary under the
contract—</text>
<subclause id="ID4ECCBBE7475543159958C6F418C9FDC4"><enum>(I)</enum><text>after the death
of the annuitant in the case of payments described in subsection
(c)(5)(A)(ii)(III), unless the beneficiary is the surviving spouse of the
annuitant, or</text>
</subclause><subclause id="IDB7D026A04B6949BCBB65F961CEFC135B"><enum>(II)</enum><text>after the death
of the annuitant and joint annuitant in the case of payments described in
subsection (c)(5)(A)(ii)(IV), unless the beneficiary is the surviving spouse of
the last to die of the annuitant and the joint annuitant, or</text>
</subclause></clause><clause id="ID90D34C0D625C4D2594A5C681C73ED5C7"><enum>(iii)</enum><text>any annuity
contract that is a qualified funding asset (as defined in section 130(d)), but
without regard to whether there is a qualified assignment.</text>
</clause></subparagraph><subparagraph id="IDDEBBDEC7787846D8A0B3EB84750EB309"><enum>(D)</enum><header>Investment in
the contract</header><text>For purposes of this section, the investment in the
contract shall be determined without regard to this
paragraph.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="IDD539113651B84C129B975D4FD58BAA6E"><enum>(b)</enum><header>Definitions</header><text>Section
72(c) is amended by adding at the end the following new paragraph:</text>
<quoted-block id="IDFB8234EAEED545348FD7B7398F43E960" style="OLC">
<paragraph id="ID9589A45607A140399F869617C25950B2"><enum>(5)</enum><header>Lifetime
annuity payment</header>
<subparagraph id="ID2D756EF69BB448978EDE534B810B8A8D"><enum>(A)</enum><header>In
general</header><text>For purposes of subsection (b)(5), the term
<term>lifetime annuity payment</term> means any amount received as an annuity
under any portion of an annuity contract, but only if—</text>
<clause id="ID665DA41B1EE043A3ABBED9D9BBB55CD5"><enum>(i)</enum><text>the only person
(or persons in the case of payments described in subclause (II) or (IV) of
clause (ii)) legally entitled (by operation of the contract, a trust, or other
legally enforceable means) to receive such amount during the life of the
annuitant or joint annuitant is such annuitant or joint annuitant, and</text>
</clause><clause id="IDD3A6E7A7C0AF4AFF9731F6ED6949DE66"><enum>(ii)</enum><text>such amount is
part of a series of substantially equal periodic payments made not less
frequently than annually over—</text>
<subclause id="IDF069CEBE5D6241B9BF50E2226B77088F"><enum>(I)</enum><text>the life of the
annuitant,</text>
</subclause><subclause id="ID1455AC607BF549DAAC5D8F1E9BB0E299"><enum>(II)</enum><text>the lives of the
annuitant and a joint annuitant, but only if the annuitant is the spouse of the
joint annuitant as of the annuity starting date or the difference in age
between the annuitant and joint annuitant is 15 years or less,</text>
</subclause><subclause id="ID1001D3829D5C470680F273BCB007B124"><enum>(III)</enum><text>the life of the
annuitant with a minimum period of payments or with a minimum amount that must
be paid in any event, or</text>
</subclause><subclause id="ID787B9D97E1C541A8BFBA66ABC9AC78CB"><enum>(IV)</enum><text>the lives of the
annuitant and a joint annuitant with a minimum period of payments or with a
minimum amount that must be paid in any event, but only if the annuitant is the
spouse of the joint annuitant as of the annuity starting date or the difference
in age between the annuitant and joint annuitant is 15 years or less.</text>
</subclause></clause><clause id="IDB95F5D7954EC4F87B205A64C10A91BD8"><enum>(iii)</enum><header>Exceptions</header><text>For
purposes of clause (ii), annuity payments shall not fail to be treated as part
of a series of substantially equal periodic payments—</text>
<subclause id="ID8A29BE0E85DC4B01A0773D30E256DB4F"><enum>(I)</enum><text>because the
amount of the periodic payments may vary in accordance with investment
experience, reallocations among investment options, actuarial gains or losses,
cost-of-living indices, a constant percentage (not less than zero) applied not
less frequently than annually, or similar fluctuating criteria,</text>
</subclause><subclause id="IDF70276FFEAD849718EAEDA381BCE43B9"><enum>(II)</enum><text>due to the
existence of, or modification of the duration of, a provision in the contract
permitting a lump-sum withdrawal after the annuity starting date, or</text>
</subclause><subclause id="ID6D03487A5F4644D393EE3BB3239D7F75"><enum>(III)</enum><text>because the
period between each such payment is lengthened or shortened, but only if at all
times such period is no longer than 1 calendar year.</text>
</subclause></clause></subparagraph><subparagraph id="ID5F0C73499F94476488BB12E9B8E5AE2E"><enum>(B)</enum><header>Annuity
contract</header><text>For purposes of subparagraph (A) and subsections (b)(5)
and (x), the term <term>annuity contract</term> means a commercial annuity (as
defined by section 3405(e)(6)), other than an endowment or life insurance
contract.</text>
</subparagraph><subparagraph id="ID543DF4E8BEAF4151AF0948ED6934E15A"><enum>(C)</enum><header>Minimum period
of payments</header><text>For purposes of subparagraph (A), the minimum period
of payments is a guaranteed term of payments which does not exceed the greater
of—</text>
<clause id="ID32333DB81C314FCDAB8225AE589A8401"><enum>(i)</enum><text>10 years,
or</text>
</clause><clause id="ID785342EA20F644D4BAF9C6700D37048E"><enum>(ii)</enum><text>the life
expectancy of—</text>
<subclause id="ID18D9EA8876664E97B4FD93EDFC6BDC2C"><enum>(I)</enum><text>the annuitant as
of the annuity starting date, in the case of lifetime annuity payments
described in subparagraph (A)(ii)(III), or</text>
</subclause><subclause id="ID972F07E1C579447388724AFB78D8CB96"><enum>(II)</enum><text>the annuitant
and joint annuitant as of the annuity starting date, in the case of lifetime
annuity payments described in subparagraph (A)(ii)(IV).</text>
</subclause></clause><continuation-text continuation-text-level="subparagraph">For
purposes of this subparagraph, life expectancy shall be computed with reference
to the tables prescribed by the Secretary under paragraph (3). For purposes of
subsection (x)(1)(C)(ii), the permissible minimum period of payments shall be
determined as of the annuity starting date and reduced by one for each
subsequent year.</continuation-text></subparagraph><subparagraph id="ID0AEE96B7158D461EB18A6DF2464DA48B"><enum>(D)</enum><header>Minimum amount
that must be paid in any event</header><text>For purposes of subparagraph (A),
the minimum amount that must be paid in any event is an amount payable to the
designated beneficiary under an annuity contract which is in the nature of a
refund and does not exceed the greater of the amount applied to produce the
lifetime annuity payments under the contract or the amount, if any, available
for withdrawal under the contract on the date of
death.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="IDC59A2C7B36744996B047BC433BF3C295"><enum>(c)</enum><header>Recapture Tax
for Lifetime Annuity Payments</header><text>Section 72 is amended by
redesignating subsection (x) as subsection (y) and by inserting after
subsection (x) the following new subsection:</text>
<quoted-block id="IDC92374CDC1854B89B86E6139FF44E260" style="OLC">
<subsection id="ID69CAAEB2A6A742A1A4DC07A9F0CB8847"><enum>(x)</enum><header>Recapture Tax
for Modifications to or Reductions in Lifetime Annuity Payments</header>
<paragraph id="ID34A6CB6E84374FE8861C537036D1FAD3"><enum>(1)</enum><header>In
general</header><text>If—</text>
<subparagraph id="ID28E812A4269049E3B51F4D898EB82043"><enum>(A)</enum><text>any amount
received under an annuity contract is excluded from income by reason of
subsection (b)(5) (relating to lifetime annuity payments) for any taxable year,
and</text>
</subparagraph><subparagraph id="IDBDC97BD3B6A743C7B4245BFFE851C101"><enum>(B)</enum><text>a recapture event
described in paragraph (2) occurs in any subsequent taxable year,</text>
</subparagraph><continuation-text continuation-text-level="paragraph">then gross
income for the first taxable year in which the recapture event occurs shall be
increased by the recapture amount.</continuation-text></paragraph><paragraph id="IDF9301E237D534D749C9C73AE5E76F049"><enum>(2)</enum><header>Recapture
event</header><text>For purposes of paragraph (1), a recapture event occurs
if—</text>
<subparagraph id="IDC191431EEE024C75AB549FE405582076"><enum>(A)</enum><text>the series of
payments under an annuity contract is subsequently modified so any future
payments are not lifetime annuity payments,</text>
</subparagraph><subparagraph id="ID5EB8F6C532954939AB6F69AC2723FFFA"><enum>(B)</enum><text>after the date of
receipt of the first lifetime annuity payment under the contract an annuitant
receives a lump sum and thereafter is to receive annuity payments in a reduced
amount under the contract, or</text>
</subparagraph><subparagraph id="ID95C022B49DBB4ECFA0801C62EB6D1669"><enum>(C)</enum><text>after the date of
receipt of the first lifetime annuity payment under the contract the dollar
amount of any subsequent annuity payment is reduced and a lump sum is not paid
in connection with the reduction, unless such reduction is—</text>
<clause id="IDF180A6DC7FCF49FDB49F7C4233370A58"><enum>(i)</enum><text>due to an event
described in subsection (c)(5)(A)(iii), or</text>
</clause><clause id="IDD72C635D08A74E3EA31CD3713D6CC6B3"><enum>(ii)</enum><text>due to the
addition of, or increase in, a minimum period of payments (within the meaning
of subsection (c)(5)(C)) or a minimum amount that must be paid in any event
(within the meaning of subsection (c)(5)(D)).</text>
</clause></subparagraph></paragraph><paragraph id="ID6BDA14F7FAEF495187B081412A837D21"><enum>(3)</enum><header>Recapture
amount</header>
<subparagraph id="IDB10AC33953974FEDA06A17C0A8DC1B8A"><enum>(A)</enum><header>In
general</header><text>For purposes of this subsection, the recapture amount
shall be the amount, determined under rules prescribed by the Secretary, equal
to the amount which (but for subsection (b)(5)) would have been includible in
the taxpayer’s gross income if the modification or reduction described in
subparagraph (A), (B), or (C) of paragraph (2) had been in effect at all times,
plus interest for the deferral period at the underpayment rate established by
section 6621.</text>
</subparagraph><subparagraph id="ID9163B97ACFE9498280C74808E7DC8238"><enum>(B)</enum><header>Deferral
period</header><text>For purposes of this subsection, the term <term>deferral
period</term> means, with respect to any amount, the period beginning with the
taxable year in which (without regard to subsection (b)(5)) the amount would
have been includible in gross income and ending with the taxable year in which
the modification or reduction described in subparagraph (A), (B), or (C) of
paragraph (2) occurs.</text>
</subparagraph></paragraph><paragraph id="IDDC832B695BEE493C89DED17C9C1E20BC"><enum>(4)</enum><header>Exceptions to
recapture tax</header><text>Paragraph (1) shall not apply in the case of any
recapture event which occurs because an annuitant—</text>
<subparagraph id="ID509F55D33C944F319C62B9DF75E39446"><enum>(A)</enum><text>dies or becomes
disabled (within the meaning of subsection (m)(7)),</text>
</subparagraph><subparagraph id="ID352DA59955A743B48240ADA7B77225BC"><enum>(B)</enum><text>becomes a
chronically ill individual within the meaning of section 7702B(c)(2), or</text>
</subparagraph><subparagraph id="ID17FBE9BFD0C74A0298ACE3F1DE5C6234"><enum>(C)</enum><text>encounters
hardship.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="ID333C8E3600C64690A6F7CEFCA7FD052E"><enum>(d)</enum><header>Lifetime
Distributions of Life Insurance Death Benefits</header>
<paragraph id="ID9C0D335DFC5F4F6BBBC1BA8F5D9C4A2F"><enum>(1)</enum><header>In
general</header><text>Section 101(d) (relating to payment of life insurance
proceeds at a date later than death) is amended by adding at the end the
following new paragraph:</text>
<quoted-block id="IDCC906A1D8E7E42B29955148E7B1CE1D1" style="OLC">
<paragraph id="ID47FA624DC95A411D9B40C7843D11FC80"><enum>(4)</enum><header>Exclusion for
lifetime annuity payments</header>
<subparagraph id="IDABF6618B04A9493C9F34B44C0EB59318"><enum>(A)</enum><header>In
general</header><text>In the case of amounts to which this subsection applies,
gross income for any taxable year shall not include the lesser of—</text>
<clause id="IDB79DF78C9FEC45BABEF591646879D06F"><enum>(i)</enum><text>50 percent of the
portion of lifetime annuity payments which (without regard to this paragraph)
is includible in gross income under this section, or</text>
</clause><clause id="ID0D5EEE38C63B492DB38E20DB1D07BA99"><enum>(ii)</enum><text>the amount in
effect under section 72(b)(5)(A)(ii) for the taxable year.</text>
</clause></subparagraph><subparagraph id="IDBB7BB61A82494151B1D29BE0C7FA67DF"><enum>(B)</enum><header>Rules of
section <enum-in-header>72(b)(5)</enum-in-header> to apply</header><text>For
purposes of this paragraph, rules similar to the rules of section 72(b)(5) and
section 72(x) shall apply, except that the term <term>beneficiary of the life
insurance contract</term> shall be substituted for the term
<term>annuitant</term> each place it appears, and the term <term>life insurance
contract</term> shall be substituted for the term <term>annuity contract</term>
each place it
appears.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="ID6D88726D79D44BC2AB35B2253B89EECC"><enum>(2)</enum><header>Conforming
amendment</header><text>Section 101(d)(1) is amended by inserting <quote>or
paragraph (4)</quote> after <quote>to the extent not excluded by the preceding
sentence</quote>.</text>
</paragraph></subsection><subsection id="IDD2F573A8232F4C96A39F1456FAE1816A"><enum>(e)</enum><header>Effective
Date</header>
<paragraph id="IDC728B04423C346109CE20BDEE4B143F0"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
amounts received in calendar years beginning after the date of the enactment of
this Act.</text>
</paragraph><paragraph id="ID81ECDE8C77F54A078F91C16C57F7619A"><enum>(2)</enum><header>Special rule
for existing contracts</header><text>In the case of a contract in force on the
date of the enactment of this Act that does not satisfy the requirements of
section 72(c)(5)(A) of the Internal Revenue Code of 1986 (as added by this
section), or requirements similar to such section 72(c)(5)(A) in the case of a
life insurance contract, any modification to such contract (including a change
in ownership) or to the payments under such contract that is made to satisfy
the requirements of such section (or similar requirements) shall not result in
the recognition of any gain or loss, any amount being included in gross income,
or any addition to tax that otherwise might result from such modification, but
only if the modification is completed before the date which is 2 years after
the date of the enactment of this Act.</text>
</paragraph></subsection></section><section id="ID60E5A30755F04E729EB47489FAF6D254"><enum>203.</enum><header>Joint study of
application of spousal consent rules to defined contribution plans</header>
<subsection id="ID2D17EA64C628448388AC9D000EE0ED0A"><enum>(a)</enum><header>Study</header><text>The
Secretary of Labor and the Secretary of the Treasury shall jointly conduct a
study of the feasibility and desirability of extending the application of the
requirements of section 205 of the <act-name parsable-cite="ERISA">Employee
Retirement Income Security Act of 1974</act-name> and sections 401(a)(11) and
417 of the Internal Revenue Code of 1986 (relating to spousal consent
requirements) to defined contribution plans to which such requirements do not
apply. Such study shall include consideration of—</text>
<paragraph id="IDACDE2029635B47ECA4097433F62C2DFD"><enum>(1)</enum><text>any modifications
of such requirements that are necessary to apply such requirements to such
plans, and</text>
</paragraph><paragraph id="IDB9DCAA83A01049C2A924CF916BC3127F"><enum>(2)</enum><text>the feasibility
of providing notice and spousal consent in 1 or more electronic forms that are
capable of authentication.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDB4E70C77C7F9409C8EEC5E941D8C2F83"><enum>(b)</enum><header>Report</header><text>Not
later than 2 years after the date of the enactment of this Act, the Secretaries
shall report the results of the study, together with any recommendations for
legislative changes, to the Committees on Finance and Health, Education, Labor,
and Pensions of the Senate and the Committees on Ways and Means and Education,
and the Workforce of the House of Representatives.</text>
</subsection></section><section id="id5CF0880F118741FCBC7753111E9A86D8"><enum>204.</enum><header>Facilitating
longevity insurance</header>
<subsection id="ID51762EF17C7E441EA537A480EEFF21B2"><enum>(a)</enum><header>In
General</header><text>Paragraph (9) of section 401(a) is amended by inserting
after subparagraph (G) the following new subparagraph:</text>
<quoted-block id="ID62018D68CAED4426946FB67B30D681A5" style="OLC">
<subparagraph id="IDD82445B04C724EA8A487D7B5EFC009EC"><enum>(H)</enum><header>Longevity
insurance</header>
<clause id="ID2A86373758CB4E1AB9D3512FFD11B414"><enum>(i)</enum><header>In
general</header><text>For purposes of this paragraph, any value attributable to
longevity insurance shall be disregarded in determining the value of an
employee’s interest under a plan prior to the first date that payments are made
under the longevity insurance.</text>
</clause><clause id="ID988B2A7157D3430BB38CEF90F860FDC6"><enum>(ii)</enum><header>Longevity
insurance defined</header><text>For purposes of this subparagraph, the term
<term>longevity insurance</term> means an annuity payable on behalf of the
employee under which—</text>
<subclause id="ID88721A62C98547F2A37D15831D7BB0BF"><enum>(I)</enum><text>payments commence
not later than 12 months following the calendar month in which the employee
attains age 85 (or would have attained age 85),</text>
</subclause><subclause id="ID88CC1DE0A809498A90F01F32BDEF9534"><enum>(II)</enum><text>payments are
made in substantially equal periodic payments (not less frequently than
annually) over the life of the employee or the joint lives of the employee and
the employee’s designated beneficiary, taking into account the rules of clause
(i) of section 402(e)(7)(D), except as otherwise provided in subclause (III) of
such section,</text>
</subclause><subclause id="IDF1D1134E8BE04FB88A9134A6A91C8B39"><enum>(III)</enum><text>prior to the
death of the employee, the annuity does not make available any commutation
benefit, cash surrender value, or other similar feature, and</text>
</subclause><subclause id="ID8CCFB605295340F0A673C64262FA9EE1"><enum>(IV)</enum><text>except as
provided in rules prescribed by the Secretary, in the case of an employee’s
death prior to the date that payments commence, the value of any death benefits
paid may not exceed the premiums paid for such annuity, plus interest
compounded annually at 3 percent.</text>
</subclause></clause><clause id="IDE79E4F9C99F44877A23D88BD9522C9CD"><enum>(iii)</enum><header>Adjusting
age</header><text>For purposes of clause (ii)(I), the Secretary shall annually
increase age 85 to reflect increases in life expectancy (as determined by the
Secretary) that occur on or after January 1, 2006, except that any such
increased age which is not a whole number shall be rounded to the next lower
whole
number.</text>
</clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="ID9E85430B0A6D45DB84A7B54A27118123"><enum>(b)</enum><header>Rules</header><text>Not
later than one year after the date of enactment of this Act, the Secretary of
the Treasury shall prescribe rules under which all or a portion of a
participant’s benefits under any plan described in section 402(c)(8)(B) of the
Internal Revenue Code of 1986 may be treated as longevity insurance under the
rules of section 401(a)(9)(H) of such Code.</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id6AFA2AD83FC14A5FA15FA8366BC05EED"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to years
beginning after December 31, 2007.</text>
</subsection></section><enum>III</enum><header>Provisions
ensuring equity in divorce</header>
<section id="idC8E60CFEC32B4351B51B03CCB7D2A169"><enum>301.</enum><header>Elimination of
current connection requirement under Railroad Retirement Act for certain
survivors</header>
<subsection id="idA270863FF2594300BF93571F0C7E942C"><enum>(a)</enum><header>In
general</header><text>Section 2(d)(1) of the Railroad Retirement Act of 1974
(45 U.S.C. 231a(d)(1)), in the matter preceding paragraph (i), is amended by
inserting <quote>, except with respect to survivors described in paragraph (i),
(ii), or (v),</quote> after <quote>December 31, 1995) and</quote>.</text>
</subsection><subsection id="idC4971EE184564C50B4C41064C2591042"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by subsection (a) shall take effect on
the date of enactment of this Act and shall apply to annuity amounts accruing
for months on or after such date.</text>
</subsection></section><section id="id25449423549641DEB9905686F1C113FB"><enum>302.</enum><header>Permitting
divorced spouses and widows and widowers to remarry after turning 60 without a
penalty under Railroad Retirement Act</header>
<subsection id="id3AC664D633D646DABFEC09EC695DD239"><enum>(a)</enum><header>In
general</header>
<paragraph id="idC655D1BC4E0E47E9B4C3EFFA58E2B9FF"><enum>(1)</enum><header>Divorced
spouse</header><text>Section 2(c)(4) of the Railroad Retirement Act of 1974 (45
U.S.C. 231a(c)(4) is amended by adding at the end the following new sentence:
<quote>For purposes of paragraph (ii)(B), if a divorced wife marries after
attaining age 60, such marriage shall be deemed not to have
occurred.</quote></text>
</paragraph><paragraph id="idADDD56EDE2BC4C908691DE39E88BC32D"><enum>(2)</enum><header>Widows and
widowers</header><text>Section 2(d)(1)(v) of the Railroad Retirement Act of
1974 (45 U.S.C. 231a(d)(1)(v)) is amended by adding at the end the following
new sentence: <quote>For purposes of this paragraph, if a widow marries after
attaining age 60, such marriage shall be deemed not to have
occurred.</quote></text>
</paragraph></subsection><subsection id="id3F62B2F01A4C49C1BC0FF5C35B0E29FC"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall take effect on the
date of enactment of this Act and shall apply to annuity amounts accruing for
months on or after such date.</text>
</subsection></section><section commented="no" display-inline="no-display-inline" id="ID152A3487CDFE4C6B9C2A03FDC28E7DFB" section-type="subsequent-section"><enum>303.</enum><header>Repeal of
jurisdictional requirement for court to treat military retirement pay as
property of the military member and spouse</header>
<subsection commented="no" display-inline="no-display-inline" id="idD57A7281A75F44C59DAC89B3DBE51D2D"><enum>(a)</enum><header>In
general</header><text>Section 1408(c) of title 10, United States Code, is
amended by striking paragraph (4).</text>
</subsection><subsection commented="no" display-inline="no-display-inline" id="id71529CA06948481DB5CEC2608F500C74"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall apply to final
decrees issued on or after the date of the enactment of this Act.</text>
</subsection></section><enum>IV</enum><header>Provisions to
improve financial literacy</header>
<section id="idEDA21761158A448DA60E337889234A85"><enum>401.</enum><header>Grants to
community-based taxpayer clinics to provide retirement savings advice</header>
<subsection id="id0C8FE06B4F0D4C36AB2EAEA286F7861F"><enum>(a)</enum><header>In
general</header><text>Section 7526 (relating to low-income taxpayer clinics) is
amended by adding at the end the following:</text>
<quoted-block display-inline="no-display-inline" id="id35026D52B84D4754BC5DB244B85BA593" style="OLC">
<subsection id="id77BD9CE1CB8D487992C3CF7AE1214CF5"><enum>(d)</enum><header>Additional
grants for retirement savings advice</header>
<paragraph id="id6AF86C22698D47FD944F49CAE9069540"><enum>(1)</enum><header>Making of
grants</header><text>The Secretary may, subject to the availability of
appropriated funds, make grants to qualified low-income taxpayer clinics to
provide retirement savings counseling to low-income taxpayers.</text>
</paragraph><paragraph id="id15BB0EF8E9BA4E7797D3D8B1664741FB"><enum>(2)</enum><header>Use of grant
funds</header><text>Grants under paragraph (1) shall be used to—</text>
<subparagraph id="id4B0C5143630F4875A5AF548D96A7E15A"><enum>(A)</enum><text>develop the
infrastructure necessary to carry out retirement savings counseling for
low-income taxpayers, including the development of software to assist
low-income taxpayers in beginning a retirement savings program, monitoring
their savings behavior, and taking advantage of tax benefits provided under
this title to assist in retirement savings,</text>
</subparagraph><subparagraph id="id4FC4ECBCFCB045C7941261340E742D62"><enum>(B)</enum><text>develop
partnerships with certified financial planners and other financial experts to
assist in carrying out the retirement savings program, and</text>
</subparagraph><subparagraph id="id861F23DE9DC5407A9D76F4704A811412"><enum>(C)</enum><text>train advisors to
assist low-income taxpayers with retirement savings.</text>
</subparagraph></paragraph><paragraph id="idB2D90AB6D14441B8A7DC93FA78CAF67F"><enum>(3)</enum><header>Criteria for
awards</header><text>The provisions of subsection (c)(4) shall apply in
determining whether to make a grant under paragraph (1).</text>
</paragraph><paragraph id="idC6112FB656434DD79701D6C87AFE4F92"><enum>(4)</enum><header>Limitations and
special rules</header>
<subparagraph id="id7253D3537CE3437D9E71F9A1641B9F92"><enum>(A)</enum><header>Aggregate
limitation</header><text>Unless otherwise provided by specific appropriations,
the Secretary shall not allocate more than $25,000,000 per year (exclusive of
costs of administering the program) to grants under paragraph (1).</text>
</subparagraph><subparagraph id="idF7273DC5D11648F1BAFF5C1F81541BFE"><enum>(B)</enum><header>Limitation on
annual grants to a clinic</header><text>The aggregate amount of grants which
may be made under paragraph (1) to a clinic for a year shall not exceed
$100,000.</text>
</subparagraph><subparagraph id="id552AB0F70EA4469AAC23DF6B05345A6A"><enum>(C)</enum><header>Multi-year
grants</header><text>The provisions of subsection (c)(3) shall apply to grants
under paragraph (1).</text>
</subparagraph><subparagraph id="idB3AC724B166840A9BA127DB86F160DC6"><enum>(D)</enum><header>Additional
amounts</header><text>Grants under paragraph (1) shall be in addition to any
grants under subsection (a).</text>
</subparagraph></paragraph></subsection><after-quoted-block></after-quoted-block></quoted-block>
</subsection><subsection id="id74FD3B5E35314687B0311C7F825C765B"><enum>(b)</enum><header>Conforming
amendments</header>
<paragraph id="id83571F12C0C7431FA3CD36B0363A2B91"><enum>(1)</enum><text>Section 7526(c)
(relating to special rules and limitations) is amended by striking <quote>this
section</quote> each place it appears and inserting <quote>subsection
(a)</quote>.</text>
</paragraph><paragraph id="id041CB556CD714590AD66913AA5A37BA8"><enum>(2)</enum><text>Section
7526(c)(3) is amended by inserting <quote>under subsection (a)</quote> after
<quote>award</quote>.</text>
</paragraph></subsection><subsection id="id02C230FB429F4AAE8B8FF0D735C7FCA6"><enum>(c)</enum><header>Authorization
of appropriations</header><text>There is authorized to be appropriated for each
fiscal year beginning after September 30, 2006, $25,000,000 to carry out the
provisions of this section.</text>
</subsection></section><section id="id19D984667FCE4ED08B286140B8278FD5"><enum>402.</enum><header>Treatment of
qualified retirement planning services</header>
<subsection id="IDCE443E8A71294B03A9B3CC0BA2C8A479"><enum>(a)</enum><header>In
General</header><text>Subsection (m) of section 132 (defining qualified
retirement services) is amended by adding at the end the following new
paragraph:</text>
<quoted-block id="ID06A6789973B84360B6A9527A0760D97C" style="OLC">
<paragraph id="IDF018EEE85D124BDF9C3BDC93F595D7B8"><enum>(4)</enum><header>No constructive
receipt</header>
<subparagraph id="IDD76B5FE3569B4CE3B00A613C4D92E4AE"><enum>(A)</enum><header>In
general</header><text>No amount shall be included in the gross income of any
employee solely because the employee may choose between any qualified
retirement planning services provided by an eligible investment advisor and
compensation which would otherwise be includible in the gross income of such
employee. The preceding sentence shall apply to highly compensated employees
only if the choice described in such sentence is available on substantially the
same terms to each member of the group of employees normally provided education
and information regarding the employer’s qualified employer plan.</text>
</subparagraph><subparagraph id="IDA04D655286F84CBC86F31DFDFFE219C4"><enum>(B)</enum><header>Limitation</header><text>The
maximum amount which may be excluded under subparagraph (A) with respect to any
employee for any taxable year shall not exceed $1,000.</text>
</subparagraph><subparagraph id="ID47FBF870755043E483A85EB744BEEDB8"><enum>(C)</enum><header>Eligible
investment adviser</header><text>For purposes of this paragraph, the term
<term>eligible investment adviser</term> means, with respect to a plan, a
person—</text>
<clause id="IDE025DA3DF3654C85AE655D907F34E29F"><enum>(i)</enum><text>who—</text>
<subclause id="IDC0130ED520C340EF999C54C4C73D9103"><enum>(I)</enum><text>is registered as
an investment adviser under the <act-name parsable-cite="IAA40">Investment
Advisers Act of 1940</act-name> (15 U.S.C. 80b–1 et seq.),</text>
</subclause><subclause id="ID65C865277DA7482CBD8AC800896408E6"><enum>(II)</enum><text>is registered as
an investment adviser under the laws of the State in which such adviser
maintains the principal office and place of business of such adviser, but only
if such State laws are consistent with section 203A of the
<act-name parsable-cite="IAA40">Investment Advisers Act of 1940</act-name> (15
U.S.C. 80b–3a),</text>
</subclause><subclause id="ID7E13369562884CA19739813F4A6AC0BD"><enum>(III)</enum><text>is a bank or
similar financial institution referred to in section 408(b)(4),</text>
</subclause><subclause id="ID5CE1CCBD07DA49BF85019A9F1E6D3933"><enum>(IV)</enum><text>is an insurance
company qualified to do business under the laws of a State, or</text>
</subclause><subclause id="ID41FDE09E2E544957B6B6E335CF72A771"><enum>(V)</enum><text>is any other
comparably qualified entity which satisfies such criteria as the Secretary
determines appropriate, consistent with the purposes of this subsection,
and</text>
</subclause></clause><clause id="IDBC1AC0A3044D42A8830C0B4ED4119A24"><enum>(ii)</enum><text>who meets the
requirements of subparagraph (D).</text>
</clause></subparagraph><subparagraph id="ID3D688EFE23CC45F99515CEFF057BFB7A"><enum>(D)</enum><header>Adviser
requirements</header><text>The requirements of this subparagraph are met if
every individual employed (or otherwise compensated) by a person described in
subparagraph (C)(i) who provides investment advice on behalf of such person to
any plan participant or beneficiary is—</text>
<clause id="ID342F2C4CBAAD444895585769B612F6E0"><enum>(i)</enum><text>an individual
described in subclause (I) of subparagraph (C)(i),</text>
</clause><clause id="ID0F4FCAF247E04463B68101A87714C113"><enum>(ii)</enum><text>an individual
described in subclause (II) of subparagraph (C)(i), but only if such State has
an examination requirement to qualify for registration,</text>
</clause><clause id="ID40FA533C1CB942AD8E198DAFF595179B"><enum>(iii)</enum><text>registered as a
broker or dealer under the <act-name parsable-cite="SEA34">Securities Exchange
Act of 1934</act-name> (15 U.S.C. 78a et seq.),</text>
</clause><clause id="ID9C464636DD3E4537AFF2D3DD86A90009"><enum>(iv)</enum><text>a registered
representative as described in section 3(a)(18) of the
<act-name parsable-cite="SEA34">Securities Exchange Act of 1934</act-name> (15
U.S.C. 78c(a)(18)) or section 202(a)(17) of the <act-name parsable-cite="IAA40">Investment Advisers Act of 1940</act-name> (15 U.S.C.
80b–2(a)(17)), or</text>
</clause><clause id="IDAB1E47CB0276491F903F0DE0B40601D9"><enum>(v)</enum><text>any other
comparably qualified individual who satisfies such criteria as the Secretary
determines appropriate, consistent with the purposes of this paragraph.</text>
</clause></subparagraph><subparagraph id="ID1EC487EF5A424755AAEB387E8929F325"><enum>(E)</enum><header>Termination</header><text>This
paragraph shall not apply to taxable years beginning after December 31,
2011.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="IDC0A09D5B93174B19AD427AE8E8161DF5"><enum>(b)</enum><header>Conforming
Amendments</header>
<paragraph id="IDE2F72FE382284B37BA663697A6CC93A8"><enum>(1)</enum><text>Section
403(b)(3)(B) is amended by inserting <quote>132(m)(4),</quote> after
<quote>132(f)(4),</quote>.</text>
</paragraph><paragraph id="ID487DE259DE6446488F490792E91937F2"><enum>(2)</enum><text>Section 414(s)(2)
is amended by inserting <quote>132(m)(4),</quote> after
<quote>132(f)(4),</quote>.</text>
</paragraph><paragraph id="IDD030FB02C4244A42848C3A00D630A7F5"><enum>(3)</enum><text>Section
415(c)(3)(D)(ii) is amended by inserting <quote>132(m)(4),</quote> after
<quote>132(f)(4),</quote>.</text>
</paragraph></subsection><subsection commented="no" display-inline="no-display-inline" id="IDB94044803DF7416A94CF91E7F00B5F06"><enum>(c)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to taxable
years beginning after December 31, 2006.</text>
</subsection></section><section id="id9203D5FC63904CEBBC527BB115A7781D"><enum>403.</enum><header>Retirement
handbook and retirement readiness checklist</header>
<subsection id="id306A1892D0BC48CC9DEB327DC1F5AA53"><enum>(a)</enum><header>In
general</header><text>Section 704 of the Social Security Act is amended by
adding at the end the following new subsection:</text>
<quoted-block act-name="" display-inline="no-display-inline" id="id8E6AD117D8AF4C75BF24A4BBE88ACB3B" style="OLC">
<subsection id="id78A915A3459644DE8EE7680454A80583"><enum>(f)</enum><header>Retirement
information</header>
<paragraph id="idE58DC9E362D2424090C1C2E6DDA8E18B"><enum>(1)</enum><header>In
general</header><text>The Commissioner, in consultation with the Social
Security Advisory Board, shall prepare—</text>
<subparagraph id="idF681EF5DD9A5478AA1EB2215752486F3"><enum>(A)</enum><text>the financial
reference handbook described in paragraph (2), and</text>
</subparagraph><subparagraph id="id84B3E0B11DAF4CA69C173943AAD3EF46"><enum>(B)</enum><text>the retirement
readiness checklist described in paragraph (3).</text>
</subparagraph></paragraph><paragraph id="idE4BD0566CE11467C98E59F9ED65F77F5"><enum>(2)</enum><header>Financial
reference handbook</header><text>The handbook described in this paragraph is a
pamphlet which—</text>
<subparagraph id="id2A7D209EDD754BBC89C983AD5B7A3B2F"><enum>(A)</enum><text>includes
definitions of basic financial terms,</text>
</subparagraph><subparagraph id="idD3629FC9837E49E0BFA2EF756122D2BB"><enum>(B)</enum><text>contains a
listing of financial issues and problems facing individuals who are retiring
and explanations of methods of dealing with the issues and problems, and</text>
</subparagraph><subparagraph id="id6553DC4C70A14209B119324217C6CD23"><enum>(C)</enum><text>is in a form
readily understandable by the average retiree.</text>
</subparagraph></paragraph><paragraph id="id3B46F8927C0440EEA6AF27B485DB0F69"><enum>(3)</enum><header>Readiness
checklist</header><text>The checklist described in this paragraph is a list of
questions that individuals need to consider in preparation for retirement,
including the following:</text>
<subparagraph id="id56B99ECC8432457C884D7CD1D132590B"><enum>(A)</enum><text>What annual
income will the individual need in retirement?</text>
</subparagraph><subparagraph id="id325C13B2AB5E4EB6B348E564C31EC59B"><enum>(B)</enum><text>How many years
will the individual live in retirement?</text>
</subparagraph><subparagraph id="idF9C9D739968D4CDD9951B4A50BF282AE"><enum>(C)</enum><text>What will be the
cost of Medicare premiums?</text>
</subparagraph><subparagraph id="id9DDAF757F2694D64BA13BCAA9B049619"><enum>(D)</enum><text>What will be the
cost of insurance necessary to supplement Medicare?</text>
</subparagraph><subparagraph id="idF71C4E286E0648F29E2C0F57222E78DC"><enum>(E)</enum><text>How will savings
be invested in retirement?</text>
</subparagraph><subparagraph id="id5E777661D338468396A14E86A38814FE"><enum>(F)</enum><text>How will taxes
affect your retirement income?</text>
</subparagraph><continuation-text continuation-text-level="paragraph">The
checklist will include answers to the questions or directions as to where
information is available to answer the questions. All information shall be in a
form readily understandable to the average recipient of the checklist.</continuation-text></paragraph><paragraph id="idA1A25DD23C8142D9BC2B9A2023039081"><enum>(4)</enum><header>Revisions</header><text>The
Commissioner shall periodically revise and update the handbook and checklist
prepared under this subsection.</text>
</paragraph><paragraph id="id0E0F0931921045D7B0DDF5641A8EA4DA"><enum>(5)</enum><header>Distribution of
materials</header>
<subparagraph id="id790635ECDC104CE5B3A71060D9CC44B5"><enum>(A)</enum><header>Handbook</header><text>The
financial reference handbook described in paragraph (2) shall be included with
materials provided to an individual when the individual first applies for
benefits under title II and such other times as the Commissioner determines
appropriate.</text>
</subparagraph><subparagraph id="idE28AB4EC72F345109AEA3A5F3A171318"><enum>(B)</enum><header>Checklist</header><text>The
retirement readiness checklist described in paragraph (3) shall be included
with an individual's annual social security account statement provided under
section
1143.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" display-inline="no-display-inline" id="idB01A21D4DB4144158BEBAEFE68185172"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall take effect on the
date of the enactment of this Act, but the handbooks and checklists required to
be provided by such amendment shall be provided on or after January 1, 2008 (or
such earlier date as the Commissioner of Social Security may provide).</text>
</subsection></section><enum>V</enum><header>Incentives for
small businesses to establish and maintain retirement plans for
employees</header>
<section changed="not-changed" id="ID56A5226258AB43CFA4AAAF99C296CAC3"><enum>501.</enum><header>Credit for
qualified pension plan contributions of small employers</header>
<subsection changed="not-changed" id="ID5B00F1E94331481C907F2E5EF806A20E"><enum>(a)</enum><header>In
General</header><text>Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by section 102, is amended
by adding at the end the following new section:</text>
<quoted-block id="ID7399E6A09A8A4932B80AADBE8E70D3C5" style="OLC">
<section changed="not-changed" id="ID92A9F90D6DEE41DBA0772ACEADDB3C5A"><enum>45O.</enum><header>Small employer
pension plan contributions</header>
<subsection changed="not-changed" id="ID62E11F0C6692404B8605A36CC4113596"><enum>(a)</enum><header>General
Rule</header><text>For purposes of section 38, in the case of an eligible
employer, the small employer pension plan contribution credit determined under
this section for any taxable year is an amount equal to 50 percent of the
amount which would (but for subsection (f)(1)) be allowed as a deduction under
section 404 for such taxable year for qualified employer contributions made to
any qualified retirement plan on behalf of any employee who is not a highly
compensated employee.</text>
</subsection><subsection changed="not-changed" id="ID69260EBA6EF346CF88F0F5AEC6427378"><enum>(b)</enum><header>Credit Limited
to 3 Years</header><text>The credit allowable by this section shall be allowed
only with respect to the period of 3 taxable years beginning with the first
taxable year for which a credit is allowable with respect to a plan under this
section.</text>
</subsection><subsection changed="not-changed" id="ID5BFC72016EA74EFC9A2A603CC4AC55D8"><enum>(c)</enum><header>Qualified
Employer Contribution</header><text>For purposes of this section—</text>
<paragraph changed="not-changed" id="ID1618023982EB471FBE630FC59C6C9A29"><enum>(1)</enum><header>Defined
contribution plans</header><text>In the case of a defined contribution plan,
the term <term>qualified employer contribution</term> means the amount of
nonelective and matching contributions to the plan made by the employer on
behalf of any employee who is not a highly compensated employee to the extent
such amount does not exceed 3 percent of such employee’s compensation from the
employer for the year.</text>
</paragraph><paragraph changed="not-changed" id="ID631B72AFC2684BFB9D849958D15AF5F1"><enum>(2)</enum><header>Defined benefit
plans</header><text>In the case of a defined benefit plan, the term
<term>qualified employer contribution</term> means the amount of employer
contributions to the plan made on behalf of any employee who is not a highly
compensated employee to the extent that the accrued benefit of such employee
derived from employer contributions for the year does not exceed the equivalent
(as determined under regulations prescribed by the Secretary and without regard
to contributions and benefits under the <act-name parsable-cite="SSA">Social
Security Act</act-name>) of 3 percent of such employee’s compensation from the
employer for the year.</text>
</paragraph></subsection><subsection changed="not-changed" id="IDF535EE4A37394D4B83780F7BCC76D7EB"><enum>(d)</enum><header>Qualified
Retirement Plan</header>
<paragraph changed="not-changed" id="ID9D811D4EBFDD453597170870BAF42C26"><enum>(1)</enum><header>In
general</header><text>The term <term>qualified retirement plan</term> means any
plan described in section 401(a) which includes a trust exempt from tax under
section 501(a) if the plan meets—</text>
<subparagraph changed="not-changed" id="ID27CDFCE6AD5B41C4AA9817F31E28E7C7"><enum>(A)</enum><text>the contribution
requirements of paragraph (2),</text>
</subparagraph><subparagraph changed="not-changed" id="ID97CE3F71C02846C892D8689307E4E795"><enum>(B)</enum><text>the vesting
requirements of paragraph (3), and</text>
</subparagraph><subparagraph changed="not-changed" id="IDAE0D3CEB711D4771A57E4D725A6908C0"><enum>(C)</enum><text>the distribution
requirements of paragraph (4).</text>
</subparagraph></paragraph><paragraph changed="not-changed" id="IDA079432A0B554F55BB1DA790CA0A5E37"><enum>(2)</enum><header>Contribution
requirements</header>
<subparagraph changed="not-changed" id="ID692F420FB0A94101A854C0F4DC16F1A3"><enum>(A)</enum><header>In
general</header><text>The requirements of this paragraph are met if, under the
plan—</text>
<clause changed="not-changed" id="IDFA19A88882754EB3918E15F1FC291DE1"><enum>(i)</enum><text>the employer is
required to make nonelective contributions of at least 1 percent of
compensation (or the equivalent thereof in the case of a defined benefit plan)
for each employee who is not a highly compensated employee who is eligible to
participate in the plan, and</text>
</clause><clause changed="not-changed" id="ID3393BC37818A43E999A4475A3CBA337B"><enum>(ii)</enum><text>allocations of
nonelective employer contributions, in the case of a defined contribution plan,
are either in equal dollar amounts for all employees covered by the plan or
bear a uniform relationship to the total compensation, or the basic or regular
rate of compensation, of the employees covered by the plan (and an equivalent
requirement is met with respect to a defined benefit plan).</text>
</clause></subparagraph><subparagraph changed="not-changed" id="IDAE94AA725FC04A15B0B1B3EEA7BBF9A8"><enum>(B)</enum><header>Compensation
limitation</header><text>The compensation taken into account under subparagraph
(A) for any year shall not exceed the limitation in effect for such year under
section 401(a)(17).</text>
</subparagraph></paragraph><paragraph changed="not-changed" id="ID47016CB085064E3FAD16C98B0830701B"><enum>(3)</enum><header>Vesting
requirements</header><text>The requirements of this paragraph are met if the
plan satisfies the requirements of either of the following
subparagraphs:</text>
<subparagraph changed="not-changed" id="ID4482A525097B421EACD6734721762A66"><enum>(A)</enum><header>3-year
vesting</header><text>A plan satisfies the requirements of this subparagraph if
an employee who has completed at least 3 years of service has a nonforfeitable
right to 100 percent of the employee’s accrued benefit derived from employer
contributions.</text>
</subparagraph><subparagraph changed="not-changed" id="ID35BA060A5954413AAD3BD73ACCB81649"><enum>(B)</enum><header>5-year graded
vesting</header><text>A plan satisfies the requirements of this subparagraph if
an employee has a nonforfeitable right to a percentage of the employee’s
accrued benefit derived from employer contributions determined under the
following table:</text>
<table align-to-level="section" frame="none" line-rules="no-gen" rule-weights="0.0.0.4.0.0" subformat="S6211" table-type="subformat-2-Flush/hang:-1-text,-1-num,-bold-hds">
<tgroup cols="2"><colspec coldef="txt" colname="col1" colsep="0" colwidth="275" min-data-value="0"></colspec><colspec coldef="txt" colname="col2" colsep="0" colwidth="100" min-data-value="0"></colspec>
<thead>
<row><entry align="left" colname="I49" rowsep="0"></entry><entry align="right" colname="I50" rowsep="0"><bold>The nonforfeitable</bold></entry>
</row>
<row><entry align="left" colname="I49" rowsep="0"><bold>Years of
service:</bold></entry><entry align="right" colname="I50" rowsep="0"><bold>percentage is:</bold></entry>
</row>
</thead>
<tbody>
<row><entry align="left" colname="I15" rowsep="0" stub-definition="txt-ldr">1</entry><entry align="right" colname="I07" rowsep="0">20</entry>
</row>
<row><entry align="left" colname="I15" rowsep="0" stub-definition="txt-ldr">2</entry><entry align="right" colname="I07" rowsep="0">40</entry>
</row>
<row><entry align="left" colname="I15" rowsep="0" stub-definition="txt-ldr">3</entry><entry align="right" colname="I07" rowsep="0">60</entry>
</row>
<row><entry align="left" colname="I15" rowsep="0" stub-definition="txt-ldr">4</entry><entry align="right" colname="I07" rowsep="0">80</entry>
</row>
<row><entry align="left" colname="I15" rowsep="0" stub-definition="txt-ldr">5</entry><entry align="right" colname="I07" rowsep="0">100.</entry>
</row>
</tbody>
</tgroup>
</table>
</subparagraph></paragraph><paragraph changed="not-changed" id="ID626D9CA510AD4C008A7F7E35F8416C27"><enum>(4)</enum><header>Distribution
requirements</header><text>In the case of a profit-sharing or stock bonus plan,
the requirements of this paragraph are met if, under the plan, qualified
employer contributions are distributable only as provided in section
401(k)(2)(B).</text>
</paragraph></subsection><subsection changed="not-changed" id="ID781ED05BD842461FBFCDE54988E24DFD"><enum>(e)</enum><header>Other
Definitions</header><text>For purposes of this section—</text>
<paragraph changed="not-changed" id="ID5E6B10C6D695436F840C095C4E733EFD"><enum>(1)</enum><header>Eligible
employer</header>
<subparagraph changed="not-changed" id="ID40997EBECE7B4DBB9DEF1CB8DAEE88E7"><enum>(A)</enum><header>In
general</header><text>The term <term>eligible employer</term> means, with
respect to any year, an employer which has no more than 25 employees who
received at least $5,000 of compensation from the employer for the preceding
year.</text>
</subparagraph><subparagraph changed="not-changed" id="ID787F9A8B7AEE4E6BB00D4BCDC085D26D"><enum>(B)</enum><header>Requirement for
new qualified employer plans</header><text>Such term shall not include an
employer if, during the 3-taxable year period immediately preceding the first
taxable year for which the credit under this section is otherwise allowable for
a qualified employer plan of the employer, the employer or any member of any
controlled group including the employer (or any predecessor of either)
established or maintained a qualified employer plan with respect to which
contributions were made, or benefits were accrued, for substantially the same
employees as are in the qualified employer plan.</text>
</subparagraph></paragraph><paragraph changed="not-changed" id="ID3AC0F77275684BC0B344E180E5E02F36"><enum>(2)</enum><header>Highly
compensated employee</header><text>The term <term>highly compensated
employee</term> has the meaning given such term by section 414(q) (determined
without regard to section 414(q)(1)(B)(ii)).</text>
</paragraph></subsection><subsection changed="not-changed" id="IDF7A1D04375544575A7A275D638175784"><enum>(f)</enum><header>Special
Rules</header>
<paragraph changed="not-changed" id="IDAA72C85153F4428F8A25528681776A2D"><enum>(1)</enum><header>Disallowance of
deduction</header><text>No deduction shall be allowed for that portion of the
qualified employer contributions paid or incurred for the taxable year which is
equal to the credit determined under subsection (a).</text>
</paragraph><paragraph changed="not-changed" id="IDC8AC6802C69E4790AE742CF98EAA44ED"><enum>(2)</enum><header>Election not to
claim credit</header><text>This section shall not apply to a taxpayer for any
taxable year if such taxpayer elects to have this section not apply for such
taxable year.</text>
</paragraph><paragraph changed="not-changed" id="ID0156853834F445F998EA986B2410E0A4"><enum>(3)</enum><header>Aggregation
rules</header><text>All persons treated as a single employer under subsection
(a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be
treated as one person. All eligible employer plans shall be treated as 1
eligible employer plan.</text>
</paragraph></subsection><subsection changed="not-changed" id="ID2DB668890BC94F07BEB5CBAA8D494ECB"><enum>(g)</enum><header>Recapture of
Credit on Forfeited Contributions</header>
<paragraph changed="not-changed" id="IDE9B845EC559D40A39D7151E78522AAC1"><enum>(1)</enum><header>In
general</header><text>Except as provided in paragraph (2), if any accrued
benefit which is forfeitable by reason of subsection (d)(3) is forfeited, the
employer’s tax imposed by this chapter for the taxable year in which the
forfeiture occurs shall be increased by 35 percent of the employer
contributions from which such benefit is derived to the extent such
contributions were taken into account in determining the credit under this
section.</text>
</paragraph><paragraph changed="not-changed" id="ID9EB5562AF4474B76A62E1D6F44441F5B"><enum>(2)</enum><header>Reallocated
contributions</header><text>Paragraph (1) shall not apply to any contribution
which is reallocated by the employer under the plan to employees who are not
highly compensated
employees.</text>
</paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection changed="not-changed" id="ID3C80A148F91C4073B503D1B800D70C2C"><enum>(b)</enum><header>Credit Allowed
as Part of General Business Credit</header><text>Section 38(b) (defining
current year business credit) , as amended by section 102, is amended by
striking <quote>and</quote> at the end of paragraph (30), by striking the
period at the end of paragraph (31) and inserting <quote>, and</quote>, and by
adding at the end the following new paragraph:</text>
<quoted-block id="ID2D61D8982876442EA090CC68062BC3FE" style="OLC">
<paragraph changed="not-changed" id="ID39823A62FF85411E90ED04A2A155BD73"><enum>(32)</enum><text>in the case of
an eligible employer (as defined in section 45O(e)), the small employer pension
plan contribution credit determined under section
45O(a).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection changed="not-changed" id="ID4B04D617F6644B61BE86CDDBF9624B72"><enum>(c)</enum><header>Conforming
Amendments</header>
<paragraph changed="not-changed" id="ID2686735CDD7C44DBB91FD4682ACA881B"><enum>(1)</enum><text>Subsection (c) of
section 196 is amended by striking <quote>and</quote> at the end of paragraph
(12), by striking the period at the end of paragraph (13) and inserting
<quote>, and</quote>, and by adding at the end the following new
paragraph:</text>
<quoted-block id="ID1CF850D4AFD1443EB0DD9F096D57253B" style="OLC">
<paragraph changed="not-changed" id="IDE46A50BB0D4343FF9A294C73DBE6C1C1"><enum>(14)</enum><text>the small
employer pension plan contribution credit determined under section
45O(a).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph changed="not-changed" id="ID6620F6E11B994CED8C597BA09E51485F"><enum>(2)</enum><text>The table of
sections for subpart D of part IV of subchapter A of chapter 1, as amended by
section 102, is amended by adding at the end the following new item:</text>
<quoted-block id="ID96695EFF11F54E368CEA0B734EE8BDB3" style="OLC">
<toc regeneration="no-regeneration">
<toc-entry changed="not-changed" level="section">Sec. 45O. Small
employer pension plan
contributions.</toc-entry>
</toc>
<after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection changed="not-changed" id="ID9985E258978642AE805421E83D16AFF2"><enum>(d)</enum><header>Effective
Date</header><text>The amendments made by this section shall apply to
contributions paid or incurred in taxable years beginning after December 31,
2006.</text>
</subsection></section><section changed="not-changed" id="id863E436B49744465A2791051061246BF"><enum>502.</enum><header>Deduction for
pension contributions allowed in computing net earnings from
self-employment</header>
<subsection changed="not-changed" id="id13D3656E21374B79815B1DF968E3A1B4"><enum>(a)</enum><header>In
general</header><text>Section 1402(a) (defining net earnings from
self-employment) is amended by striking <quote>and</quote> at the end of
paragraph (15), by striking the period at the end of paragraph (16) and
inserting <quote>, and</quote>, and by inserting after paragraph (16) the
following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="idA58DDFF5C8C443D7BB4CEC2213C4C08C" style="OLC">
<paragraph changed="not-changed" id="id1E3748ED06B64DA6AC0E77982B0D7474"><enum>(17)</enum><text>any deduction
allowed under section 404 by reason of section 404(a)(8)(C) shall be allowed,
except that the amount of such deduction shall be determined without regard to
this
paragraph.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection changed="not-changed" id="id7F71A189F94F4CACB5A5B73E7A43E133"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after December 31, 2006.</text>
</subsection></section><section commented="no" id="id90D40F80E17B4BAC98320FEC226A28C6"><enum>503.</enum><header>Exemption of
deferral-only qualified cash or deferred arrangements from top-heavy plan
rules</header>
<subsection commented="no" id="idAF2A7D6670D5465E858B698D0FEA7C1B"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 416(g)
(defining top-heavy plan) is amended by adding at the end the following new
paragraph:</text>
<quoted-block display-inline="no-display-inline" id="id65AC09F72F2B4BD1BF7AF430101104FB" style="OLC">
<paragraph commented="no" id="id76EFF3E1376A43BE99C14EFD860263C1"><enum>(5)</enum><header>Exception for
deferral-only cash or deferred arrangements</header><text>In the case of a plan
which consists solely of a qualified cash or deferred arrangement (as defined
in section 401(k)(2)) under which no amounts may be contributed other than
elective deferrals (as defined in section 402(g)(3)), such plan shall not be
treated as a top-heavy
plan.</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" id="id6E76FC2A99A049A18A669EEEB97D0E57"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to years
beginning after December 31, 2006.</text>
</subsection></section><section id="idAF83781E3E4849789AFC511E83F65352"><enum>504.</enum><header>Extension of
time for small pension plans to adopt required plan qualification
amendments</header>
<subsection id="idFF16B1616F254EA487B2AD9F6371C72E"><enum>(a)</enum><header>In
general</header><text>In the case of an eligible small plan for which a
remedial amendment period is established under Internal Revenue Procedure
2005-66 (or any regulation, revenue ruling, revenue procedure, or guidance
providing for a similar period), no amendment to the plan necessary for the
plan to meet the qualification requirements under the Internal Revenue Code of
1986 shall be required before the close of such period.</text>
</subsection><subsection id="id00CD269DCBFE4B4BBF11B2F7C5450907"><enum>(b)</enum><header>Additional
requirements</header><text>Subsection (a) shall not apply to an eligible small
plan unless—</text>
<paragraph id="idC3B7C539A4B94EA1A46A436D9925B5A9"><enum>(1)</enum><text>any amendment
described in subsection (a) applies retroactively to the period during which
such amendment would otherwise have been required to be in effect,</text>
</paragraph><paragraph id="id0758FE13334A40AF9E9D8F09A0F9FB46"><enum>(2)</enum><text>the plan is
operated during the period described in paragraph (1) as if the amendment were
in effect, and</text>
</paragraph><paragraph id="id973AF623846248208D835EFE9ED5EEC0"><enum>(3)</enum><text>the plan meets
such requirements as the Secretary of the Treasury may prescribe to ensure that
the Secretary, the Secretary of Labor, employers maintaining the plan, and
participants and beneficiaries of the plan are adequately notified of the terms
of the plan actually in effect during a plan year.</text>
</paragraph></subsection><subsection id="id4B7E10CE6DCB4E4CBE4D67571749C386"><enum>(c)</enum><header>Eligible small
plan</header><text>For purposes of this section—</text>
<paragraph id="id8541B64FCF764EFCAC1C662C02BDF755"><enum>(1)</enum><header>In
general</header><text>The term <term>eligible small plan</term> means a plan
which, as of the beginning of a remedial amendment or similar period described
in subsection (a), had 100 or fewer participants. For purposes of this
paragraph, all defined benefit plans which are single-employer plans and are
maintained by the same employer (or any member of such employer’s controlled
group) shall be treated as 1 plan, but only participants with respect to such
employer or member shall be taken into account.</text>
</paragraph><paragraph id="H49C1BCB205E64D7096C2688000C2004E"><enum>(2)</enum><header>Application of
certain rules in determination of plan size</header><text>For purposes of this
subsection—</text>
<subparagraph id="H3108D11EFDD24DDD98DD91011C908085"><enum>(A)</enum><header>Plans not in
existence in preceding year</header><text>In the case of the first plan year of
any plan, subparagraph (B) shall apply to such plan by taking into account the
number of participants that the plan is reasonably expected to have on days
during such first plan year.</text>
</subparagraph><subparagraph id="H158B0608B6D5466F9370D6C78732037"><enum>(B)</enum><header>Predecessors</header><text>Any
reference in paragraph (1) to an employer shall include a reference to any
predecessor of such employer.</text>
</subparagraph></paragraph></subsection><subsection id="idDA911FEB826545639FF57F0F3E6DAC8B"><enum>(d)</enum><header>Effective
date</header><text>This section shall apply to amendments required to be
adopted for plan years beginning after December 31, 2006.</text>
</subsection></section>