1.
Employer Retirement Savings Accounts
(a)
Subpart A of part 1 of subchapter D of chapter 1 of the Internal
Revenue Code of 1986 is amended by inserting after section 401 the following
new section:
401A.
Employer Retirement Savings Accounts
(a)
A defined contribution plan shall not fail to meet the
requirements of section 401(a) merely because the plan includes an employer
retirement savings account arrangement.
(b)
Employer retirement savings account arrangement
An employer retirement savings account arrangement is any
arrangement which is part of a plan which meets the requirements of section
401(a)—
(1)
under which a covered employee may elect to have the employer
make payments as contributions to a trust under the plan on behalf of the
employee, or to the employee directly in cash,
(2)
under which amounts held by the trust which are attributable to
employer contributions made pursuant to the employee’s election—
(A)
may not be distributable to participants or other beneficiaries
earlier than—
(i)
severance from employment, death, or disability,
(ii)
an event described in subsection (g),
(iii)
the attainment of age 59½, or
(iv)
upon hardship of the employee, and
(B)
will not be distributable merely by reason of the completion of
a stated period of participation or the lapse of a fixed number of
years,
(3)
which provides that an employee’s right to the employee's
accrued benefit derived from employer contributions made to the trust pursuant
to the employee's election is nonforfeitable, and
(4)
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 period permitted under
section 410(a)(1) (determined without regard to subparagraph (B)(i)
thereof).
(c)
Application of nondiscrimination standards
(1)
Contribution percentage requirement
An arrangement shall not be treated as an employer retirement
savings account arrangement for any plan year unless—
(A)
the contribution percentage for eligible highly compensated
employees for the plan year does not exceed 200 percent of such percentage for
all other eligible employees for the preceding plan year, or
(B)
the contribution percentage of nonhighly compensated employees
for the preceding plan year exceeded 6 percent.
(2)
Alternative methods of meeting nondiscrimination
requirements
(A)
An arrangement shall be treated as meeting the requirements of
paragraph (1)(A) if such arrangement—
(i)
meets the contribution requirements of subparagraph (B),
and
(ii)
meets the notice requirements of subparagraph (D).
(B)
The requirements of this subparagraph are met if, under the
arrangement, the employer is required to make contributions to a defined
contribution plan on behalf of each eligible employee who is not a highly
compensated employee in an amount equal to at least 3 percent of the employee’s
compensation. For purposes of this subparagraph, elective deferrals and
employee contributions shall not be taken into account in determining the
amount of contributions the employer makes to the plan.
(C)
Special rules for matching contributions
(i)
If an employer takes matching contributions into account for
purposes of subparagraph (B), the requirements of such subparagraph shall be
treated as met only if the matching contributions on behalf of each employee
who is not a highly compensated employee are equal to 50 percent of the
elective deferrals of the employee to the extent that such elective deferrals
do not exceed 6 percent of the employee’s compensation.
(ii)
If the rate of any matching contribution with respect to any
rate of elective deferral is not equal to the percentage required under clause
(i), an arrangement shall not be treated as failing to meet the requirements of
clause (i) if—
(I)
the rate of an employer’s matching contribution does not
increase as an employee’s rate of elective contributions increases, and
(II)
the aggregate amount of matching contributions at such rate of
elective contribution is at least equal to the aggregate amount of matching
contributions which would be made if matching contributions were made on the
basis of the percentages described in clause (i).
(iii)
Rate for highly compensated employees
The requirements of this subparagraph are not met if, under the
arrangement, the rate of matching contribution with respect to any elective
deferral of a highly compensated employee at any rate of elective deferral is
greater than that with respect to an employee who is not a highly compensated
employee.
(D)
An arrangement meets the requirements of this subparagraph if,
under the arrangement, each employee eligible to participate is, within a
reasonable period before any year, given written notice of the employee’s
rights and obligations under the arrangement which—
(i)
is sufficiently accurate and comprehensive to apprise the
employee of such rights and obligations, and
(ii)
is written in a manner calculated to be understood by the
average employee eligible to participate.
(E)
(i)
Withdrawal and vesting restrictions
An arrangement shall not be treated as meeting the requirements
of subparagraph (B) unless the requirements of paragraphs (2) and (3) of
subsection (b) are met with respect to all employer contributions (including
matching contributions) taken into account in determining whether the
requirements of subparagraph (B) are met.
(ii)
Social security and similar contributions not taken into
account
An arrangement shall not be treated as meeting the requirements
of subparagraph (B) unless such requirements are met without regard to section
401(l), and, for purposes of section 401(l), employer contributions under
subparagraph (B) shall not be taken into account.
(F)
An arrangement shall be treated as meeting the requirements of
subparagraph (B) if any other plan maintained by the employer meets such
requirements with respect to employees eligible under the arrangement.
(3)
For purposes of paragraph (1), the contribution percentage for
an eligible employee for a specified group of employees for a plan year shall
be the average of the ratios (calculated separately for each employee in such
group) of—
(A)
the sum of the elective deferrals, matching contributions,
employee contributions, and qualified nonelective contributions paid under the
plan on behalf of each such employee for such plan year, to
(B)
the employee’s compensation for such plan year.
(4)
For purposes of this subsection—
(A)
If 2 or more plans which include employer retirement savings
account arrangements are considered as 1 plan for purposes of section 401(a)(4)
or 410(b), all such arrangements included in such plans shall be treated as 1
arrangement.
(B)
Employees in more than 1 arrangement
If any highly compensated employee is a participant under 2 or
more employer retirement savings account arrangements of the employer, for
purposes of determining the contribution percentage with respect to such
employee, all such arrangements shall be treated as 1 arrangement.
(C)
An employer may elect to apply paragraph (1) (A) or (B) by
using the plan year rather than the preceding plan year. An employer may change
such an election only with the consent of the Secretary.
(D)
In the case of the first plan year of any plan (other than a
successor plan), the amount taken into account as the contribution percentage
of nonhighly compensated employees for the preceding plan year shall be—
(i)
3 percent, or
(ii)
if the employer makes an election under this clause, the
contribution percentage of nonhighly compensated employees determined for such
first plan year.
(E)
Special rule for early participation
If an employer elects to apply section 410(b)(4)(B) in
determining whether an employer retirement savings account arrangement meets
the requirements of section 410(b)(1), the employer may, in determining whether
the arrangement meets the requirements of this subsection, exclude from
consideration all eligible employees (other than highly compensated employees)
who have not met the minimum age and service requirements of section
410(a)(1)(A).
(5)
(A)
A governmental plan (within the meaning of section 414(d))
maintained by a State or local government or political subdivision thereof (or
agency or instrumentality thereof) shall be treated as meeting the requirements
of this subsection.
(B)
(i)
A plan not described in subparagraph (A) which is maintained by
an organization described in section 501(c)(3) shall be treated as meeting the
requirements of this subsection for any plan year if the plan provides that all
employees of such organization may elect to have the employer make
contributions of more than $200 pursuant to a salary reduction agreement if any
employee of the organization may elect to have the organization make
contributions pursuant to such agreement.
(ii)
Clause (i) shall not apply to any plan if under the
plan—
(I)
matching contributions may be made on behalf of any employee,
or
(II)
an employee may make contributions other than elective
deferrals.
(iii)
For purposes of clause (i), there may be excluded any employee
who is—
(I)
a participant in another employer retirement savings account
arrangement of the organization,
(II)
a nonresident alien described in section 410(b)(3)(C),
or
(III)
subject to the conditions applicable under section 410(b)(4), a
student performing services described in section 3121(b)(10) or an employee who
normally works less than 20 hours per week.
(6)Coordination
with subsection (a)(4)A cash or
deferred arrangement shall be treated as meeting the requirements of subsection
(a)(4) with respect to contributions if the requirements of paragraph (1) are
met.
(d)
For purposes of this section—
(1)
Benefits (other than matching contributions) must not be
contingent on election to defer
An employer retirement savings account arrangement of any
employer shall not be treated as such an arrangement if any other benefit is
conditioned (directly or indirectly) on the employee electing to have the
employer make or not make contributions under the arrangement in lieu of
receiving cash. The preceding sentence shall not apply to any matching
contribution made by reason of such an election.
(2)
Coordination with other plans
Any employer contribution made pursuant to an employee’s
election under an employer retirement savings account arrangement shall not be
taken into account for purposes of determining whether any other plan meets the
requirements of section 401(a) or 410(b). This paragraph shall not apply for
purposes of determining whether a plan meets the average benefit requirement of
section 410(b)(2)(A)(ii).
(e)
For purposes of this section—
(1)
The term eligible employee means any employee who
is eligible to benefit under the employer retirement savings account
arrangement.
(2)
Highly compensated employee
For purposes of this subsection, the term highly
compensated employee has the meaning given such term by section
414(q).
(3)
The term matching contribution means—
(A)
any employer contribution made to a defined contribution plan
on behalf of an employee on account of an employee contribution made by such
employee, and
(B)
any employer contribution made to a defined contribution plan
on behalf of an employee on account of an employee’s elective deferral.
(4)
The term elective deferral means any employer
contribution described in section 402(g)(3).
(5)
Qualified nonelective contributions
The term qualified nonelective contribution means
any employer contribution (other than a matching contribution) with respect to
which—
(A)
the employee may not elect to have the contribution paid to the
employee in cash instead of being contributed to the plan, and
(B)
the requirements of paragraphs (2) and (3) of subsection (b)
are met.
(6)
The term compensation has the meaning given such
term by section 414(s).
(f)
Arrangement not disqualified if excess contributions
distributed
(1)
An employer retirement savings account arrangement shall not be
treated as failing to meet the requirements of subsection (c)(1)(A) for any
plan year if, before the close of the following plan year—
(A)
the amount of the excess contributions for such plan year (and
any income allocable to such contributions) is distributed, or
(B)
to the extent provided in regulations, the employee elects to
treat the amount of the excess contributions as an amount distributed to the
employee and then contributed by the employee to the plan.
Any
distribution of excess contributions (and income) may be made without regard to
any other provision of law.
(2)
For purposes of paragraph (1), the term excess
contributions means, with respect to any plan year, the excess
of—
(A)
the aggregate amount of employer contributions actually paid
over to the trust on behalf of highly compensated employees for such plan year,
over
(B)
the maximum amount of such contributions permitted under the
limitations of subsection (c)(1)(A) (determined by reducing contributions made
on behalf of highly compensated employees in order of the contribution
percentages beginning with the highest of such percentages).
(3)
Method of distributing excess contributions
Any distribution of the excess contributions for any plan year
shall be made to highly compensated employees on the basis of the amount of
contributions by, or on behalf of, each of such employees.
(4)
Additional tax under Section
72(t) not to apply
No tax shall be imposed under section 72(t) on any amount
required to be distributed under this subsection.
(5)
Treatment of matching contributions forfeited by reason of
excess deferral or contribution
For purposes of subsection (b)(3), a matching contribution
shall not be treated as forfeitable merely because such contribution is
forfeitable if the contribution to which the matching contribution relates is
treated as an excess contribution under paragraph (2) or an excess deferral
under section 402(g)(2)(A).
(6)
For excise tax on certain excess contributions, see section
4979.
(g)
Distributions upon termination of plan
(1)
An event described in this subsection is the termination of the
plan without establishment or maintenance of another defined contribution plan
(other than an employee stock ownership plan as defined in section
4975(e)(7)).
(2)
Distributions must be lump sum distributions
(A)
A termination shall not be treated as described in paragraph
(1) with respect to any employee unless the employee receives a lump sum
distribution by reason of the termination.
(B)
For purposes of this paragraph, the term lump-sum
distribution has the meaning given such term by section 402(e)(4)(D)
(without regard to subclauses (I), (II), (III), and (IV) of clause (i)
thereof). Such term includes a distribution of an annuity contract from—
(i)
a trust which forms a part of a plan described in section
401(a) and which is exempt from tax under section 501(a), or
(ii)
an annuity plan described in section 403(a).
(h)
Special rules for small employers
(1)
An arrangement maintained by an eligible employer shall not
fail to meet the requirements of this section merely because contributions
under the arrangement on behalf of any employee are made to an individual
retirement plan (as defined under section 7701(a)(37)) established on behalf of
the employee.
(2)
For purposes of paragraph (1), the term eligible
employer means, with respect to any year, an employer which had no more
than 10 employees who received at least $5,000 of compensation from the
employer for the preceding year. An eligible employer who establishes and
maintains an arrangement under this subsection for 1 or more years and who
fails to be an eligible employer for any subsequent year shall be treated as an
eligible employer for the 2 years following the last year the employer was an
eligible employer. If such failure is due to any acquisition, disposition, or
similar transaction involving an eligible employer, the preceding sentence
shall not apply.
(i)
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including regulations
permitting appropriate aggregation of plans and contributions.
(j)
(1)
Any arrangement which, as of December 31, 2005—
(A)
is part of a plan meeting the requirements of section 401(a),
and
(B)
is—
(i)
a qualified cash or deferred arrangement (as defined in section
401(k)(2)), or
(ii)
subject to the requirements of section 401(m),
shall be
treated as an employer retirement savings account arrangement and subject to
the requirements of this title applicable to such an arrangement for plan years
beginning after December 31, 2005.
(2)
(A)
If an employer makes an election under this paragraph with
respect to any applicable arrangement, such arrangement shall be treated as an
employer retirement savings account arrangement and subject to the requirements
of this title applicable to such an arrangement for plan years beginning after
December 31, 2005.
(B)
For purposes of subparagraph (A), the term applicable
arrangement means an arrangement which, as of December 31, 2005,
is—
(i)
an arrangement under which amounts are contributed by an
individual’s employer for an annuity contract described in section
403(b),
(ii)
an eligible deferred compensation plan (within the meaning of
section 457(b)) maintained by an eligible employer described in section
457(e)(1)(A),
(iii)
a simplified employee pension (within the meaning of section
408(k)) for which an election is in effect under paragraph (6) thereof,
or
(iv)
a simple retirement account (within the meaning of section
408(p).
.
(b)
Section 402 of such Code is amended—
(1)
in subsection (e)(3), by inserting , an employer
retirement savings account arrangement (as defined in section 401A(b)),
after section 401(k)(2))
, and
(2)
in subsection (g)(3)(A), by inserting , or an employer
retirement savings account arrangement (as defined in section 401A(b)),
before to the extent
.
(c)
Termination of contributions to other plans
(1)
Section 401(k) of such Code is amended by adding at the end the
following new paragraph:
(13)
This subsection shall not apply to any plan year beginning
after December 31, 2005.
.
(2)
Section 403(b) of such Code is amended by adding at the end the
following new paragraph:
(14)
No elective deferral (as defined in section 402(g)(3)) may be
contributed under this subsection by an employer, and no amount may be
transferred under an eligible rollover, for an annuity contract after December
31, 2006.
.
(3)
Section 457 of such Code is amended by adding at the end the
following new subsection:
(h)
No amount may be deferred under this subsection under a plan
maintained by an eligible employer described in subsection (e)(1)(A), and no
amount may be transferred under an eligible rollover to an eligible deferred
compensation plan maintained by such an employer, after December 31,
2006.
.
(4)
Subparagraph (H) of section 408(k)(6) of such Code is amended by
adding at the end the following new sentence: No amount may be
contributed under this paragraph to a simplified employee pension by an
employer, and no amount may be transferred to a simplified employee pension
maintained under this paragraph under an eligible rollover, after December 31,
2006.
.
(5)
Section 408(p) of such Code is amended by adding at the end the
following new paragraph:
(11)
No amount may be contributed under this paragraph to a simple
retirement account after December 31, 2006.
.
(d)
(1)
Section 401 of such Code is amended by striking subsection
(m).
(2)
Section 7701(j) of such Code (relating to tax treatment of
Federal Thrift Savings Fund) is amended—
(A)in paragraph
(1)(C), by striking section 401(k)(4)(B)
and inserting
section 401A(d)(1)
, and
(B)in paragraph (2),
by striking section 401(k)
and inserting section
401A
.
(3)The Secretary of
the Treasury shall, not later than 90 days after the date of the enactment of
this Act, submit such technical and other conforming changes as are necessary
to carry out the amendments made by this section.
(e)
The table of sections for subpart A of part 1 of subchapter D of
chapter 1 of such Code is amended by inserting after the item relating to
section 401 the following new item:
Sec. 401A. Employer Retirement Savings
Accounts.
.
(f)
The amendments made by this section shall apply to years
beginning after December 31, 2005.
(g)
Provisions relating to plan amendments
(1)
If this subsection applies to any plan or contract
amendment—
(A)
such plan or contract shall be treated as being operated in
accordance with the terms of the plan during the period described in paragraph
(2)(C)(i), and
(B)
except as provided by the Secretary of the Treasury, such plan
shall not fail to meet the requirements of section 401A of the Internal Revenue
Code of 1986 by reason of such amendment.
(2)
Amendments to which Section applies
(A)
This subsection shall apply to any amendment to any plan or
annuity contract which is made—
(i)
pursuant to any amendment made by this section, or pursuant to
any regulation issued by the Secretary of the Treasury or the Secretary of
Labor under this section, and
(ii)
on or before the last day of the first plan year beginning on or
after January 1, 2007.
(B)
In the case of a governmental plan (as defined in section 414(d)
of the Internal Revenue Code of 1986), subparagraph (A) shall be applied by
substituting 2009
for 2007
.
(C)
This subsection shall not apply to any amendment unless—
(i)
during the period—
(I)
beginning on the date the legislative or regulatory amendment
described in subparagraph (A)(i) takes effect (or in the case of a plan or
contract amendment not required by such legislative or regulatory amendment,
the effective date specified by the plan), and
(II)
ending on the date described in subparagraph (A)(ii) (or, if
earlier, the date the plan or contract amendment is adopted), the plan or
contract is operated as if such plan or contract amendment were in effect;
and
(ii)
such plan or contract amendment applies retroactively for such
period.