[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5543 Introduced in House (IH)]







110th CONGRESS
  2d Session
                                H. R. 5543

To amend the Internal Revenue Code of 1986 and the Employee Retirement 
  Income Security Act of 1974 to increase the retirement security of 
        women and small business owners, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 6, 2008

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

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Employee Retirement 
  Income Security Act of 1974 to increase the retirement security of 
        women and small business owners, and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Women's Retirement 
Security Act of 2008''.
    (b) Amendment of 1986 Code.--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) Table of Contents.--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; saver's 
                            credit made refundable.
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.
       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. Special rules relating to treatment of qualified domestic 
                            relations orders.
Sec. 302. Elimination of current connection requirement under Railroad 
                            Retirement Act for certain survivors.
Sec. 303. Permitting divorced spouses and widows and widowers to 
                            remarry after turning 60 without a penalty 
                            under Railroad Retirement Act.
           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.
       TITLE VI--PROVISIONS RELATING TO LONG-TERM CARE INSURANCE

Sec. 601. Treatment of premiums on qualified long-term care insurance 
                            contracts.
Sec. 602. Credit for taxpayers with long-term care needs.
Sec. 603. Additional consumer protections for long-term care insurance.
Sec. 604. Treatment of exchanges of long-term care insurance contracts.

           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.

    (a) In General.--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:

``SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGEMENTS AT WORK.

    ``(a) Requirement To Provide Payroll Deposit IRA Arrangement.--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.
    ``(b) Payroll Deposit IRA Arrangement.--For purposes of this 
section--
            ``(1) In general.--The term `payroll deposit IRA 
        arrangement' means a written arrangement of an employer--
                    ``(A) 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
                    ``(B) which meets the requirements of paragraph 
                (2).
            ``(2) Administrative requirements.--The requirements of 
        this paragraph are met with respect to any payroll deposit IRA 
        arrangement if--
                    ``(A) the employer must make the payments elected 
                under paragraph (1)(A) on or before the later of--
                            ``(i) 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
                            ``(ii) the 30th day following the last day 
                        of the month with respect to which the payments 
                        are to be made,
                    ``(B) 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,
                    ``(C) 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,
                    ``(D) the employer provides--
                            ``(i) 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
                            ``(ii) if the arrangement includes an 
                        automatic enrollment arrangement, the notices 
                        required under subsection (h) with respect to 
                        the automatic enrollment arrangement,
                    ``(E) 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
                    ``(F) if the arrangement does not include an 
                automatic enrollment arrangement--
                            ``(i) 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
                            ``(ii) 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 enrollment arrangement 
                        under subsection (g).
    ``(c) Applicable Employee Defined; Related Definitions and Rules.--
For purposes of this section--
            ``(1) Applicable employee.--
                    ``(A) In general.--The term `applicable employee' 
                means, with respect to any calendar year, any 
                employee--
                            ``(i) who was not eligible under a 
                        qualified plan or arrangement maintained by the 
                        employer for service for the preceding calendar 
                        year, and
                            ``(ii) 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.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)(i)--
                            ``(i) Eligibility.--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.
                            ``(ii) Excluded plans.--A qualified plan or 
                        arrangement shall not be taken into account 
                        under this paragraph if--
                                    ``(I) the plan or arrangement is 
                                frozen as of the first day of the 
                                preceding calendar year, or
                                    ``(II) 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.
            ``(2) Excludable employees.--An employer may elect to 
        exclude from treatment as applicable employees under paragraph 
        (1)--
                    ``(A) employees described in section 410(b)(3),
                    ``(B) employees who have not attained the age of 18 
                before the beginning of the calendar year,
                    ``(C) employees who have not completed at least 3 
                months of service with the employer,
                    ``(D) in the case of an employer that maintains a 
                qualified plan or arrangement which generally excludes 
                employees who have not satisfied the eligibility 
                requirements described in section 410(a)(1)(A) (without 
                regard to section 410(a)(1)(B)), employees who have not 
                yet satisfied such requirements,
                    ``(E) employees who are eligible to make salary 
                reduction contributions under an arrangement which 
                meets the requirements of section 403(b), and
                    ``(F) all employees of the employer if the employer 
                maintains an arrangement described in section 408(p).
            ``(3) Qualified plan or arrangement.--The term `qualified 
        plan or arrangement' means a plan, contract, pension, or trust 
        described in section 219(g)(5).
            ``(4) Exception for employees of governments and 
        churches.--The term `applicable employee' shall not include an 
        employee of--
                    ``(A) a government or entity described in section 
                414(d), or
                    ``(B) 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).
            ``(5) Designation of applicable employees.--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.
    ``(d) Payroll Deposit IRA Contributions Treated Like Other 
Contributions to Individual Retirement Plans.--
            ``(1) Tax treatment unaffected.--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.
            ``(2) Payroll savings contributions taken into account.--
        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.
    ``(e) Exception for Certain Small and New Employers.--
            ``(1) In general.--The requirements of this section shall 
        not apply for any calendar year to an employer if--
                    ``(A) 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
                    ``(B) 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.
            ``(2) Operating rules.--In determining the number of 
        employees for purposes of this subsection--
                    ``(A) any rule applicable in determining the number 
                of employees for purposes of section 408(p)(2)(C) shall 
                be applicable under this subsection,
                    ``(B) all members of the same family (within the 
                meaning of section 318(a)(1)) shall be treated as 1 
                individual, and
                    ``(C) any reference to an employer shall include a 
                reference to any predecessor employer.
    ``(f) Deposits to Individual Retirement Plans Other Than Those 
Selected by Employee.--
            ``(1) In general.--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 individual retirement 
        plans specified in paragraph (2) or (4).
            ``(2) Plans of a designated trustee or issuer.--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.
            ``(3) Payroll tax deposit procedure.--The Secretary, in 
        consultation with the TSP II Board, shall establish a procedure 
        under which an employer--
                    ``(A) may include 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 have designated 
                under subsection (b)(1)(A) (or are deemed to have 
                designated under subsection (b)(2)(F)(ii) or under an 
                automatic enrollment arrangement described in 
                subsection (g)) for contribution to individual 
                retirement plans, established on behalf of the 
                employees under paragraph (4), and
                    ``(B) specifies, in such manner as the Secretary 
                may prescribe, the following information for each 
                applicable employee for whom a contribution is to be 
                made:
                            ``(i) The employee's name and TIN.
                            ``(ii) The amount of the contribution.
                            ``(iii) The investment options selected by 
                        the employee (or deemed to have been selected 
                        by the employee under such automatic enrollment 
                        arrangement) and the amount of the contribution 
                        allocated to each option.
            ``(4) Establishment and maintenance of accounts under 
        payroll tax deposit procedure.--
                    ``(A) In general.--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 under 
                paragraph (3). To the maximum extent practicable, the 
                TSP II Board shall--
                            ``(i) 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
                            ``(ii) 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.
                    ``(B) Payroll deposit features.--The TSP II Board 
                shall establish procedures so that contributions may be 
                made to individual retirement plans (including 
                automatic IRAs) under paragraph (3) without undue 
                administrative or paperwork requirements on 
                participating employers. Such procedures shall ensure 
                that only 1 such plan may be established for each TIN.
                    ``(C) Limitation on rollovers.--If--
                            ``(i) any amount is paid or distributed out 
                        of an individual retirement plan established 
                        under this paragraph, and
                            ``(ii) such amount is paid into an 
                        individual retirement plan which was not 
                        established under this paragraph,
                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.
    ``(g) Coordination With Automatic Enrollment and Other Default 
Election Provisions.--
            ``(1) In general.--Contributions under a payroll deposit 
        IRA arrangement may be made pursuant to an automatic enrollment 
        arrangement.
            ``(2) Automatic enrollment arrangement.--The term 
        `automatic enrollment arrangement' means an arrangement under a 
        payroll deposit IRA arrangement and subject to rules prescribed 
        by the Secretary--
                    ``(A) under which an individual may elect to have 
                the employer make payments as contributions to an 
                individual account plan on behalf of the individual, or 
                to the individual directly in cash,
                    ``(B) under which the individual is treated as 
                having elected to have the employer make such 
                contributions in an amount equal to a specified 
                percentage of compensation or dollar amount until the 
                individual specifically elects not to have such 
                contributions made (or specifically elects to have such 
                contributions made at a different percentage or in a 
                different amount), and
                    ``(C) which meets notice requirements substantially 
                similar to those described in section 414(w)(4).
            ``(3) Default investments.--If an employee is deemed under 
        an automatic enrollment arrangement to have made an election to 
        participate in a payroll deposit IRA arrangement--
                    ``(A) the employee shall be deemed to have made an 
                election to make contributions in the amount specified 
                in paragraph (4),
                    ``(B) such contributions shall be transferred to--
                            ``(i) an automatic IRA, or
                            ``(ii) 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
                    ``(C) such contributions shall be invested as 
                provided in paragraph (5).
            ``(4) Amount of contributions.--
                    ``(A) In general.--The amount specified in this 
                paragraph is 3 percent of compensation.
                    ``(B) Authority of board to provide for annual 
                increases.--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.
                    ``(C) Contribution limit.--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.
            ``(5) Investment in life cycle fund or other investments 
        specified by the board.--Amounts contributed under paragraph 
        (3) shall be invested in--
                    ``(A) 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
                    ``(B) such other investment or investments as the 
                TSP II Board specifies in regulations (which shall be 
                promulgated after taking into account, but not 
                necessarily conforming to, regulations prescribed by 
                the Secretary of Labor under section 404(c)(5) of the 
                Employee Retirement Income Security Act of 1974) and 
                which entails asset allocation and extensive 
                diversification.
            ``(6) Coordination with withholding.--The Secretary shall 
        modify the withholding exemption certificate under section 
        3402(f) so that any notice and election requirements with 
        respect to an automatic enrollment arrangement which is part of 
        a payroll deposit IRA arrangement may be met through the use of 
        such certificate.
    ``(h) Model Notice.--The Secretary, in consultation with the TSP II 
Board, shall--
            ``(1) provide a model notice, written in a manner 
        calculated to be understandable to the average worker, that is 
        simple for employers to use--
                    ``(A) 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
                    ``(B) to satisfy the requirements of subsection 
                (b)(2)(D),
            ``(2) provide uniform forms for enrollment, including 
        automatic enrollment, in a payroll deposit IRA arrangement, and
            ``(3) 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.
    ``(i) Cross Reference.--For provision preempting conflicting State 
laws, see section 2(g) of the Women's Retirement Security Act of 
2008.''.
    (b) Notice of Availability of Investment Guidelines.--Section 
408(i) (relating to reports) is amended by adding at the end the 
following new sentence: ``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.''.
    (c) Development of Basic Investment Guidelines.--
            (1) In general.--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--
                    (A) information on the benefits of diversification,
                    (B) 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,
                    (C) 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,
                    (D) sources of information where individuals may 
                learn more about pension rights, individual investing, 
                and investment advice, and
                    (E) such other information related to individual 
                investing as the Secretary of Labor determines 
                appropriate.
            (2) Calculation information.--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--
                    (A) 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
                    (B) 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).
            (3) Public comment.--The Secretary of Labor shall provide 
        at least 90 days for public comment on proposed guidelines 
        before publishing the final guidelines.
            (4) Rules relating to guidelines.--The guidelines under 
        paragraph (1)--
                    (A) shall be written in a manner calculated to be 
                understood by the average plan participant, and
                    (B) 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.
    (d) Penalty for Failure To Provide Access to Payroll Savings 
Arrangements.--Chapter 43 (relating to qualified pension, etc., plans) 
is amended by adding at the end the following new section:

``SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PROVIDE EMPLOYEES ACCESS TO 
              PAYROLL DEPOSIT IRA ARRANGEMENTS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure 
by an employer to meet the requirements of subsection (d) for a 
calendar year.
    ``(b) Amount.--
            ``(1) In general.--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.
            ``(2) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--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).
            ``(3) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) the employer subject to liability for the tax 
                under subsection (a) exercised reasonable diligence to 
                meet the requirements of subsection (d), and
                    ``(B) 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.
            ``(4) Waiver by secretary.--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.
    ``(c) Procedures for Notice.--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.
    ``(d) Requirement To Provide Employee Access to Payroll Deposit IRA 
Arrangements.--The requirements of this subsection are met if the 
employer meets the requirements of section 408B.''.
    (e) Coordination With ERISA Fiduciary Duties.--Section 404(c)(2) of 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(2)) 
is amended--
            (1) by inserting ``or an individual retirement plan 
        designated by the employer under section 408B of such Code'' 
        after ``1986'',
            (2) by inserting ``(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)'' after ``established'' in subparagraph (C), and
            (3) by inserting ``or with respect to an individual 
        retirement plan designated by an employer under section 408B of 
        such Code'' after ``arrangement'' in the last sentence.
    (f) Conforming Amendments.--
            (1) 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:

``Sec. 408B. Right to payroll deposit IRA arrangements at work.''.
            (2) The table of sections for chapter 43 is amended by 
        adding at the end the following new item:

``Sec. 4980H. Requirements for employers to provide employees access to 
                            payroll deposit IRA arrangements.''.
    (g) Preemption of Conflicting State Laws.--The amendments made by 
this section shall supersede any law of a State that would directly or 
indirectly prohibit or restrict the establishment or operation of a 
payroll deposit IRA arrangement meeting the requirements of section 
408B of the Internal Revenue Code of 1986 (including the inclusion in 
any such arrangement of an automatic enrollment arrangement as defined 
in section 408B(g) of such Code).
    (h) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 2008.

SEC. 102. CREDIT FOR SMALL EMPLOYERS MAINTAINING PAYROLL DEPOSIT IRA 
              ARRANGEMENTS.

    (a) In General.--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:

``SEC. 45O. SMALL EMPLOYER PAYROLL DEPOSIT IRA ARRANGEMENT COSTS.

    ``(a) General Rule.--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).
    ``(b) Amount of Credit.--
            ``(1) In general.--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--
                    ``(A) $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
                    ``(B) $250.
            ``(2) Duration of credit.--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.
            ``(3) Coordination with small employer startup credit.--No 
        credit shall be allowed under this section for any taxable year 
        if a credit is determined under section 45E for the taxable 
        year.
    ``(c) Eligible Employer.--For purposes of this section, the term 
`eligible employer' 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.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``plus'' at the end of paragraph (30), by striking the period at the 
end of paragraph (31) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(32) in the case of an eligible employer (as defined in 
        section 45O(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 45O(a).''
    (c) Clerical Amendment.--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:

``Sec. 45O. Small employer payroll deposit IRA arrangement costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 103. ESTABLISHMENT OF AUTOMATIC IRAS.

    (a) In General.--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:

``SEC. 408C. AUTOMATIC IRAS.

    ``(a) General Rule.--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.
    ``(b) Automatic IRA.--For purposes of this section, the term 
`automatic IRA' 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).
    ``(c) Investment and Fee Requirements.--
            ``(1) In general.--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.
            ``(2) Investment options.--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:
                    ``(A) 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.
                    ``(B) Any other investment option specified in the 
                regulations.
        Such regulations shall specify which of the investment options 
        shall be treated as default investment options for purposes of 
        section 408B(g)(5).
            ``(3) Investment fees.--
                    ``(A) In general.--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).
                    ``(B) Investment fees.--For purposes of this 
                paragraph, the term `investment fees' 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.''.
    (b) Studies of Spousal Consent Requirements and Promotion of 
Certain Lifetime Income Arrangements.--
            (1) In general.--The Secretary of the Treasury and the 
        Secretary of Labor shall jointly conduct a separate study of 
        the feasibility and desirability of each of the following:
                    (A) Extending to automatic IRAs spousal consent 
                requirements similar to, or based on, those that apply 
                under the Federal employees' Thrift Savings Plan, 
                including consideration of whether modifications of 
                such requirements are necessary to apply them to 
                automatic IRAs.
                    (B) Promoting the use of low-cost annuities, 
                longevity insurance, or other guaranteed lifetime 
                income arrangements in automatic IRAs, including 
                consideration of--
                            (i) appropriate means of arranging for, or 
                        encouraging, individuals to receive at least a 
                        portion of their distributions in some form of 
                        low-cost guaranteed lifetime income, and
                            (ii) issues presented by possible 
                        additional differences in, or uniformity of, 
                        provisions governing different IRAs.
            (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Secretaries shall report the results 
        of each study conducted under subsection (a), 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 
        Labor of the House of Representatives.
    (c) Mandatory Transfers.--Section 401(a)(31)(B) is amended--
            (1) by inserting ``(including an automatic IRA)'' after 
        ``individual retirement plan'' each place it appears, and
            (2) by adding at the end the following new sentence: ``Any 
        amount so transferred (and any earnings thereon) shall be 
        invested in a default investment described in section 
        408B(g)(5).''
    (d) Clerical Amendment.--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:

``Sec. 408C. Automatic IRAs.''.
    (e) Effective Date.--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.

SEC. 104. ESTABLISHMENT OF TSP II BOARD.

    (a) Establishment.--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.
    (b) Executive Director.--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.
    (c) Duties of Board.--The TSP II Board shall establish policies and 
procedures for--
            (1) establishment and maintenance of individual retirement 
        plans under section 408B(f)(3) of the Internal Revenue Code of 
        1986,
            (2) the investment and management of contributions to such 
        individual retirement plans,
            (3) 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
            (4) the establishment of automatic IRAs under section 408C 
        of such Code, including the issuance of regulations under 
        subsection (c) of such section.
    (d) Best Practices.--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.
    (e) Expansion of Use of IRAs by Self-Employed and Other 
Individuals.--The TSP II Board shall establish procedures to 
disseminate information (through use of the Internet and other 
appropriate means) to facilitate and encourage--
            (1) the use by self-employed and other individuals of 
        automatic debit and similar arrangements for investment in 
        individual retirement plans, including automatic IRAs,
            (2) efforts by voluntary associations to promote savings in 
        individual retirement plans, including automatic IRAs, by their 
        members and others, and
            (3) the direct deposit of Federal and State income tax 
        refunds in individual retirement plans, including automatic 
        IRAs.
    (f) Exclusive Interest.--The members of the TSP II Board shall 
discharge their responsibilities solely in the interest of participants 
and beneficiaries under individual retirement plans described in 
section 408B of the Internal Revenue Code of 1986.
    (g) Other Provisions Made Applicable.--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.

                      Subtitle B--Other Provisions

SEC. 111. MODIFICATIONS TO COMPUTATION OF SAVER'S CREDIT; SAVER'S 
              CREDIT MADE REFUNDABLE.

    (a) In General.--Section 25B(b) (defining applicable percentage), 
as amended by section 833 of the Pension Protection Act of 2006, is 
amended to read as follows:
    ``(b) Applicable Percentage.--For purposes of this section--
            ``(1) In general.--The applicable percentage is 50 percent 
        reduced (but not below zero) by 1 percentage point for each 
        phaseout amount by which the taxpayer's adjusted gross income 
        for the taxable year exceeds the threshold amount.
            ``(2) Phaseout amount; threshold amount.--The phaseout 
        amount and the threshold amount shall be determined as follows:


------------------------------------------------------------------------
                                                    The          The
              ``In the case of:                  phaseout     threshold
                                                amount  is:  amount  is:
------------------------------------------------------------------------
A joint return...............................         $200       $50,000
A head of household return...................         $150       $37,500
Any other return.............................         $100      $25,000.
------------------------------------------------------------------------

            ``(3) Inflation adjustment.--
                    ``(A) Joint returns.--In the case of any taxable 
                year beginning in a calendar year after 2009, the 
                $50,000 amount under paragraph (2) shall be increased 
                by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2008' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                Any increase determined under the preceding sentence 
                shall be rounded to the nearest multiple of $500.
                    ``(B) Other returns.--In the case of any taxable 
                year for which there is an increase under subparagraph 
                (A)--
                            ``(i) the $37,500 under paragraph (2) shall 
                        be increased to an amount equal to 75 percent 
                        of the amount determined under subparagraph 
                        (A), and
                            ``(ii) the $25,000 amount under paragraph 
                        (2) shall be increased to an amount equal to 50 
                        percent of the amount determined under 
                        subparagraph (A).''.
    (b) Credit Made Refundable.--
            (1) Transfer of credit to refundable credits.--
                    (A) In general.--Section 25B, as amended by 
                subsection (a), is hereby moved to subpart C of part IV 
                of subchapter A of chapter 1 (relating to refundable 
                credits) and inserted after section 35.
                    (B) Conforming amendments.--
                            (i) Section 24(b)(3)(B) is amended by 
                        striking ``and 25B''.
                            (ii) Section 25(e)(1)(C)(ii) is amended by 
                        striking ``, 25B''.
                            (iii) Section 25D(c)(2) is amended by 
                        striking ``24, and 25B'' and inserting ``and 
                        24''.
                            (iv) Section 26(a)(1) is amended by 
                        striking ``24, and 25B'' and inserting ``and 
                        24''.
                            (v) Section 25B, as moved by subparagraph 
                        (A), is redesignated as section 36.
                            (vi) Section 904(i) is amended by striking 
                        ``24, and 25B'' and inserting `` and 24''.
                            (vii) Section 1400C(d)(2) is amended by 
                        striking ``, 25B''.
                            (viii) The table of sections for subpart C 
                        of part IV of subchapter A of chapter 1 is 
                        amended by striking the item relating to 
                        section 36 and inserting the following:

``Sec. 36. Elective deferrals and IRA contributions by certain 
                            individuals.
``Sec. 37. Overpayments of tax.''.
                            (ix) The table of sections for subpart A of 
                        part IV of subchapter A of chapter 1 is amended 
                        by striking the item relating to section 25B.
                            (x) Section 1324 of title 31, United States 
                        Code, is amended by inserting ``, or enacted by 
                        the Women's Retirement Security Act of 2008'' 
                        before the period at the end.
            (2) Mandatory deposit into qualified account.--
                    (A) No reduction of tax.--Subsection (a) of section 
                36, as moved and redesignated by paragraph (1), is 
                amended by striking ``credit against the tax imposed by 
                this subtitle'' and inserting ``tax credit''.
                    (B) Deposit into qualified account.--Subsection (g) 
                of section 36, as moved and redesignated by paragraph 
                (1), is amended to read as follows:
    ``(g) Deposit Into Qualified Account.--
            ``(1) In general.--Any amount allowed as a tax credit under 
        subsection (a) shall not be allowed as a credit against any tax 
        imposed by this subtitle but instead shall be treated as an 
        overpayment under section 6401(b) and--
                    ``(A) shall be paid on behalf of the individual 
                taxpayer to an applicable retirement plan designated by 
                the individual to be invested in a manner designated by 
                the individual, except that in the case of a joint 
                return, each spouse shall be entitled to designate an 
                applicable retirement plan and investments with respect 
                to payments attributable to such spouse, or
                    ``(B) in the case of taxpayer who does not properly 
                designate an applicable retirement plan in a timely 
                manner or who designates an applicable retirement plan 
                that does not accept such amount in a timely manner, 
                shall be paid or credited on behalf of the individual 
                taxpayer in a manner determined under rules prescribed 
                by the Secretary that provides treatment comparable to 
                the treatment under subparagraph (A).
            ``(2) Applicable retirement plan.--For purposes of this 
        subsection, the term `applicable retirement plan' means a plan 
        that elects to accept deposits under this subsection and that 
        is described in clause (iii), (iv), (v), or (vi) of section 
        402(c)(8)(B) or in section 408A(b).
            ``(3) Treatment of direct payments.--All amounts paid under 
        this subsection shall be treated for purposes of this title as 
        income attributable to--
                    ``(A) a Roth IRA contribution in the case of a 
                payments to an individual retirement plan, or
                    ``(B) a designated Roth contribution in the case of 
                a payment to an applicable retirement plan described in 
                section 402A(e).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

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.

    (a) Participation Requirement.--
            (1) In general.--Subparagraph (D) of section 401(k)(2) 
        (defining qualified cash or deferred arrangement) is amended to 
        read as follows:
                    ``(D) 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--
                            ``(i) the period permitted under section 
                        410(a)(1) (determined without regard to 
                        subparagraph (B)(i) thereof), or
                            ``(ii) 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.''.
            (2) Special rules.--Subsection (k) of section 401 (relating 
        to cash or deferred arrangements) is amended by adding at the 
        end the following new paragraph:
            ``(14) Special rules for participation requirement for 
        long-term, part-time workers.--For purposes of paragraph 
        (2)(D)(ii)--
                    ``(A) Age requirement must be met.--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.
                    ``(B) Nondiscrimination and top-heavy rules not to 
                apply.--
                            ``(i) Nondiscrimination rules.--In the case 
                        of employees who are eligible to participate in 
                        the arrangement solely by reason of paragraph 
                        (2)(D)(ii)--
                                    ``(I) 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
                                    ``(II) an employer may elect to 
                                exclude such employees from the 
                                application of paragraph (3) and 
                                subsection (m)(2).
                            ``(ii) Top-heavy rules.--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--
                                    ``(I) the determination of whether 
                                the plan is a top-heavy plan under 
                                section 416, and
                                    ``(II) 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.
                            ``(iii) Vesting.--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.
                            ``(iv) Employees who become full-time 
                        employees.--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).
                    ``(C) Exception for employees under collectively 
                bargained plans, etc.--Paragraph (2)(D)(ii) shall not 
                apply to employees described in section 410(b)(3).
                    ``(D) Special rules.--
                            ``(i) Time of participation.--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).
                            ``(ii) 12-month periods.--12-month periods 
                        shall be determined in the same manner as under 
                        the last sentence of section 410(a)(3)(A).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2008, 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 
January 1, 2009, shall not be taken into account.

SEC. 113. TRANSFERS OF UNUSED BENEFITS OF HEALTH FLEXIBLE SPENDING 
              ARRANGEMENT TO CERTAIN RETIREMENT PLANS.

    (a) In General.--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:
    ``(h) Contributions of Certain Unused Health Benefits.--
            ``(1) In general.--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--
                    ``(A) a qualified retirement plan (as defined in 
                section 4974(c)), or
                    ``(B) an eligible deferred compensation plan (as 
                defined in section 457(b)) maintained by an eligible 
                employer described in section 457(e)(1)(A).
            ``(2) Treatment of contribution of unused health 
        benefits.--
                    ``(A) In general.--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.
                    ``(B) Exclusion or deduction.--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.
            ``(3) Health flexible spending arrangement.--For purposes 
        of this subsection, the term `health flexible spending 
        arrangement' 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).
            ``(4) Unused health benefits.--For purposes of this 
        subsection, the term `unused health benefits' means, with 
        respect to a participant, the excess of--
                    ``(A) 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
                    ``(B) the actual amount of reimbursement with 
                respect to such year under such arrangement.''.
    (b) Special Rules.--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.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2008.

SEC. 114. COMPUTATION OF LIMITS ON IRA AND ROTH IRA CONTRIBUTIONS.

    (a) Certain Wage Replacement Income Treated as Compensation.--
            (1) Wage replacement income.--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:
            ``(8) Treatment of certain wage replacement income as 
        compensation.--
                    ``(A) In general.--Notwithstanding paragraph (1), 
                applicable wage replacement income not otherwise 
                treated as compensation shall be treated as 
                compensation for purposes of this section.
                    ``(B) Applicable wage replacement income.--For 
                purposes of this paragraph, the term `applicable wage 
                replacement income' means any amount received by an 
                individual--
                            ``(i) as the result of the individual 
                        having become disabled,
                            ``(ii) as unemployment compensation (as 
                        defined in section 85(b)),
                            ``(iii) under workmen's compensation acts, 
                        or
                            ``(iv) which constitutes wage replacement 
                        income under regulations prescribed by the 
                        Secretary.''.
            (2) Certain excludable amounts may be taken into account 
        for purposes of roth iras.--Section 408A(c)(2) (relating to 
        contribution limit) is amended by adding at the end the 
        following new flush sentence:
        ``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.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2008.
    (b) Computation of Maximum IRA Deduction for Roth IRAs Using 
Compensation From 2 Preceding Taxable Years.--
            (1) In general.--Section 408A(c) (relating to treatment of 
        contributions) is amended by adding at the end the following 
        new paragraph:
            ``(8) Compensation from preceding 2 years may be taken into 
        account.--
                    ``(A) In general.--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.
                    ``(B) Unused compensation.--For purposes of this 
                paragraph, the term `unused compensation' 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--
                            ``(i) the amount allowed as a deduction 
                        under 219(a) to such individual for such 
                        taxable year,
                            ``(ii) the amount of any designated 
                        nondeductible contribution (as defined in 
                        section 408(o)) on behalf of such individual 
                        for such taxable year,
                            ``(iii) the amount of any contribution on 
                        behalf of such individual to a Roth IRA under 
                        this section for such taxable year, and
                            ``(iv) 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.
                    ``(C) Application to special rule for married 
                individuals.--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.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to taxable years beginning after December 31, 2008, 
        but unused compensation for taxable years beginning before 
        January 1, 2009, may be taken into account for taxable years 
        beginning after December 31, 2008.

       TITLE II--PROVISIONS PROVIDING FOR PRESERVATION OF INCOME

SEC. 201. EXCLUSION OF CERTAIN QUALIFIED ANNUITY PAYMENTS.

    (a) Exclusion.--
            (1) Qualified plans.--Section 402(e) (relating to exempt 
        trusts) is amended by adding at the end the following new 
        paragraph:
            ``(7) Exclusion of percentage of lifetime annuity 
        payments.--
                    ``(A) In general.--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.
                    ``(B) Limitation.--
                            ``(i) In general.--If--
                                    ``(I) 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
                                    ``(II) 50 percent of the applicable 
                                amount for the taxable year under 
                                section 415(a),
                        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.
                            ``(ii) Allocation rule.--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).
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Lifetime annuity payment.--
                                    ``(I) In general.--Except as 
                                provided in this clause, the term 
                                `lifetime annuity payment' 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 `annuity contract' means a 
                                commercial annuity (as defined in 
                                section 3405(e)(6)), other than an 
                                endowment or life insurance contract.
                                    ``(II) Certain fluctuating 
                                payments.--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.
                                    ``(III) Certain changes in the mode 
                                of payment.--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.
                                    ``(IV) Permitted reductions.--
                                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.
                                    ``(V) Certain contract benefits.--
                                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.
                                    ``(VI) Trust payments.--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.
                                    ``(VII) Qualified domestic 
                                relations orders.--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.
                            ``(ii) Qualified distributee.--The term 
                        `qualified distributee' means the employee, the 
                        surviving spouse of the employee, and an 
                        alternate payee who is the spouse or former 
                        spouse of the employee.
                    ``(D) Recapture tax.--
                            ``(i) In general.--If--
                                    ``(I) an amount is not includible 
                                in gross income by reason of 
                                subparagraph (A), and
                                    ``(II) 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,
                        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.
                            ``(ii) Deferral period.--For purposes of 
                        this subparagraph, the term `deferral period' 
                        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.
                    ``(E) Investment in the contract.--For purposes of 
                section 72, the investment in the contract shall be 
                determined without regard to this paragraph.''.
            (2) Qualified annuity plans.--Section 403(a) (relating to 
        qualified annuity plans) is amended by adding at the end the 
        following new paragraph:
            ``(6) Exclusion of percentage of lifetime annuity 
        payments.--Rules similar to the rules of section 402(e)(7) 
        shall apply to distributions under any annuity contract to 
        which this subsection applies.''.
            (3) Purchased annuities.--Section 403(b) (relating to 
        purchased annuities) is amended by adding at the end the 
        following new paragraph:
            ``(14) Exclusion of percentage of lifetime annuity 
        payments.--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.''.
            (4) Iras.--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:
            ``(10) Exclusion of percentage of lifetime annuity 
        payments.--Rules similar to the rules of section 402(e)(7) 
        shall apply to distributions out of an individual retirement 
        plan.''.
            (5) Section 457 plans.--Section 457(e) (relating to special 
        rules for deferred compensation plans) is amended by adding at 
        the end the following new paragraph:
            ``(19) Exclusion of percentage of lifetime annuity 
        payments.--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).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2008.

SEC. 202. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS.

    (a) Lifetime Annuity Payments Under Annuity Contracts.--Section 
72(b) (relating to exclusion ratio) is amended by adding at the end the 
following new paragraph:
            ``(5) Exclusion for lifetime annuity payments.--
                    ``(A) In general.--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--
                            ``(i) 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
                            ``(ii) $20,000.
                    ``(B) Cost-of-living adjustment.--In the case of 
                taxable years beginning after December 31, 2009, the 
                $20,000 amount in subparagraph (A)(ii) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 
                        [2008]' for `calendar year 1992' in 
                        subparagraph (B) thereof.
                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.
                    ``(C) Application of paragraph.--Subparagraph (A) 
                shall not apply to--
                            ``(i) 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)),
                            ``(ii) any amount paid under an annuity 
                        contract which is received by the beneficiary 
                        under the contract--
                                    ``(I) 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
                                    ``(II) 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
                            ``(iii) 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.
                    ``(D) Investment in the contract.--For purposes of 
                this section, the investment in the contract shall be 
                determined without regard to this paragraph.''.
    (b) Definitions.--Section 72(c) is amended by adding at the end the 
following new paragraph:
            ``(5) Lifetime annuity payment.--
                    ``(A) In general.--For purposes of subsection 
                (b)(5), the term `lifetime annuity payment' means any 
                amount received as an annuity under any portion of an 
                annuity contract, but only if--
                            ``(i) 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
                            ``(ii) such amount is part of a series of 
                        substantially equal periodic payments made not 
                        less frequently than annually over--
                                    ``(I) the life of the annuitant,
                                    ``(II) 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,
                                    ``(III) the life of the annuitant 
                                with a minimum period of payments or 
                                with a minimum amount that must be paid 
                                in any event, or
                                    ``(IV) 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.
                            ``(iii) Exceptions.--For purposes of clause 
                        (ii), annuity payments shall not fail to be 
                        treated as part of a series of substantially 
                        equal periodic payments--
                                    ``(I) 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,
                                    ``(II) 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
                                    ``(III) 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.
                    ``(B) Annuity contract.--For purposes of 
                subparagraph (A) and subsections (b)(5) and (x), the 
                term `annuity contract' means a commercial annuity (as 
                defined by section 3405(e)(6)), other than an endowment 
                or life insurance contract.
                    ``(C) Minimum period of payments.--For purposes of 
                subparagraph (A), the minimum period of payments is a 
                guaranteed term of payments which does not exceed the 
                greater of--
                            ``(i) 10 years, or
                            ``(ii) the life expectancy of--
                                    ``(I) the annuitant as of the 
                                annuity starting date, in the case of 
                                lifetime annuity payments described in 
                                subparagraph (A)(ii)(III), or
                                    ``(II) the annuitant and joint 
                                annuitant as of the annuity starting 
                                date, in the case of lifetime annuity 
                                payments described in subparagraph 
                                (A)(ii)(IV).
                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.
                    ``(D) Minimum amount that must be paid in any 
                event.--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.''.
    (c) Recapture Tax for Lifetime Annuity Payments.--Section 72 is 
amended by redesignating subsection (x) as subsection (y) and by 
inserting after subsection (x) the following new subsection:
    ``(x) Recapture Tax for Modifications To or Reductions In Lifetime 
Annuity Payments.--
            ``(1) In general.--If--
                    ``(A) 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
                    ``(B) a recapture event described in paragraph (2) 
                occurs in any subsequent taxable year,
        then gross income for the first taxable year in which the 
        recapture event occurs shall be increased by the recapture 
        amount.
            ``(2) Recapture event.--For purposes of paragraph (1), a 
        recapture event occurs if--
                    ``(A) the series of payments under an annuity 
                contract is subsequently modified so any future 
                payments are not lifetime annuity payments,
                    ``(B) 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
                    ``(C) 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--
                            ``(i) due to an event described in 
                        subsection (c)(5)(A)(iii), or
                            ``(ii) 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)).
            ``(3) Recapture amount.--
                    ``(A) In general.--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.
                    ``(B) Deferral period.--For purposes of this 
                subsection, the term `deferral period' 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.
            ``(4) Exceptions to recapture tax.--Paragraph (1) shall not 
        apply in the case of any recapture event which occurs because 
        an annuitant--
                    ``(A) dies or becomes disabled (within the meaning 
                of subsection (m)(7)),
                    ``(B) becomes a chronically ill individual within 
                the meaning of section 7702B(c)(2), or
                    ``(C) encounters hardship.''.
    (d) Lifetime Distributions of Life Insurance Death Benefits.--
            (1) In general.--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:
            ``(4) Exclusion for lifetime annuity payments.--
                    ``(A) In general.--In the case of amounts to which 
                this subsection applies, gross income for any taxable 
                year shall not include the lesser of--
                            ``(i) 50 percent of the portion of lifetime 
                        annuity payments which (without regard to this 
                        paragraph) is includible in gross income under 
                        this section, or
                            ``(ii) the amount in effect under section 
                        72(b)(5)(A)(ii) for the taxable year.
                    ``(B) Rules of section 72(b)(5) to apply.--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 `beneficiary of the life insurance 
                contract' shall be substituted for the term `annuitant' 
                each place it appears, and the term `life insurance 
                contract' shall be substituted for the term `annuity 
                contract' each place it appears.''.
            (2) Conforming amendment.--Section 101(d)(1) is amended by 
        inserting ``or paragraph (4)'' after ``to the extent not 
        excluded by the preceding sentence''.
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts received in calendar years beginning after the 
        date of the enactment of this Act.
            (2) Special rule for existing contracts.--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.

SEC. 203. JOINT STUDY OF APPLICATION OF SPOUSAL CONSENT RULES TO 
              DEFINED CONTRIBUTION PLANS.

    (a) Study.--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 Employee Retirement Income Security Act of 1974 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 any modifications of such requirements that are 
necessary to apply such requirements to such plans.
    (b) Report.--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 Labor of 
the House of Representatives.

SEC. 204. FACILITATING LONGEVITY INSURANCE.

    (a) In General.--Paragraph (9) of section 401(a) is amended by 
inserting after subparagraph (G) the following new subparagraph:
                    ``(H) Longevity insurance.--
                            ``(i) In general.--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.
                            ``(ii) Longevity insurance defined.--For 
                        purposes of this subparagraph, the term 
                        `longevity insurance' means an annuity payable 
                        on behalf of the employee under which--
                                    ``(I) payments commence not later 
                                than 12 months following the calendar 
                                month in which the employee attains age 
                                85 (or would have attained age 85),
                                    ``(II) 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,
                                    ``(III) prior to the death of the 
                                employee, the annuity does not make 
                                available any commutation benefit, cash 
                                surrender value, or other similar 
                                feature, and
                                    ``(IV) 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.
                            ``(iii) Adjusting age.--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, 2008, except 
                        that any such increased age which is not a 
                        whole number shall be rounded to the next lower 
                        whole number.''.
    (b) Rules.--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.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2008.

            TITLE III--PROVISIONS ENSURING EQUITY IN DIVORCE

SEC. 301. SPECIAL RULES RELATING TO TREATMENT OF QUALIFIED DOMESTIC 
              RELATIONS ORDERS.

    (a) Preservation of Assets.--
            (1) Amendment of 1986 code.--Section 414(p) is amended by 
        redesignating paragraph (13) as paragraph (14) and by inserting 
        after paragraph (12) the following new paragraph:
            ``(13) Preservation of assets.--
                    ``(A) In general.--If a spouse or former spouse of 
                a participant notifies a plan in writing that--
                            ``(i) an action is pending pursuant to a 
                        State domestic relations law (including a 
                        community property law), and
                            ``(ii) all or a portion of the benefits 
                        payable with respect to the participant under 
                        the plan are a subject of such action,
                and includes with the notice evidence of the pendency 
                of the action, the plan administrator shall, during the 
                segregation period, separately account for 50 percent 
                of such benefits. Any amounts so separately accounted 
                for may not be distributed by the plan during the 
                segregation period.
                    ``(B) Segregation period.--For purposes of 
                subparagraph (A), the term `segregation period' means 
                the period--
                            ``(i) beginning on the date of the receipt 
                        of the notice, and
                            ``(ii) ending as of the close of the 90-day 
                        period beginning on such date (or, if earlier, 
                        the date of receipt of a domestic relations 
                        order with respect to the participant and the 
                        spouse or former spouse or the date the action 
                        is no longer pending).
                The segregation period shall be extended for 1 or more 
                additional periods described in the preceding sentence 
                upon notice by the spouse or former spouse that the 
                action described in subparagraph (A) is still pending 
                as of the close of any prior segregation period.''
            (2) Amendment of erisa.--Section 206(d)(3) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)) 
        is amended by redesignating subparagraph (N) as subparagraph 
        (O) and by inserting after subparagraph (M) the following new 
        subparagraph:
                    ``(N) Preservation of assets.--
                            ``(i) In general.--If a spouse or former 
                        spouse of a participant notifies a plan in 
                        writing that--
                                    ``(I) an action is pending pursuant 
                                to a State domestic relations law 
                                (including a community property law), 
                                and
                                    ``(II) all or a portion of the 
                                benefits payable with respect to the 
                                participant under the plan are a 
                                subject of such action,
                        and includes with the notice evidence of the 
                        pendency of the action, the plan administrator 
                        shall, during the segregation period, 
                        separately account for 50 percent of such 
                        benefits. Any amounts so separately accounted 
                        for may not be distributed by the plan during 
                        the segregation period.
                            ``(ii) Segregation period.--For purposes of 
                        clause (i), the term `segregation period' means 
                        the period--
                                    ``(I) beginning on the date of the 
                                receipt of the notice, and
                                    ``(II) ending as of the close of 
                                the 90-day period beginning on such 
                                date (or, if earlier, the date of 
                                receipt of a domestic relations order 
                                with respect to the participant and the 
                                spouse or former spouse or the date the 
                                action is no longer pending).
                        The segregation period shall be extended for 1 
                        or more additional periods described in the 
                        preceding sentence upon notice by the spouse or 
                        former spouse that the action described in 
                        clause (i) is still pending as of the close of 
                        any prior segregation period.''
    (b) Penalty for Failure To Provide Information Regarding Alternate 
Payees.--Section 502(c) of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1132(c)) is amended by redesignating paragraph (8) 
as paragraph (9) and by inserting after paragraph (7) the following new 
paragraph:
            ``(8) Failure to provide information regarding alternate 
        payees.--The Secretary may assess a civil penalty against any 
        plan administrator of up to $100 a day from the date of the 
        plan administrator's failure or refusal to provide the 
        information the plan administrator is required to provide under 
        regulations under this Act to prospective alternative payees 
        under a domestic relations order under section 206(d)(3) or to 
        the Secretary or any representative of a prospective 
        alternative payee in connection with such an order.''
    (c) Allocation of Plan Expenses in Complying With Domestic 
Relations Orders.--
            (1) Amendment of 1986 code.--Section 414(p), as amended by 
        subsection (a), is amended by redesignating paragraph (14) as 
        paragraph (15) and by inserting after paragraph (13) the 
        following new paragraph:
            ``(14) Allocation of expenses.--Any expenses incurred by a 
        plan with respect to compliance with the requirements of this 
        subsection shall not be allocated to an individual participant 
        but rather shall be allocated among all participants on the 
        basis of the relative value of each participant's share of the 
        assets of the plan, on the basis of a flat amount per 
        participant, or on any other reasonable basis provided for 
        under the plan.''.
            (2) Amendment of erisa.--Section 206(d)(3) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)), 
        as amended by subsection (a), is amended by redesignating 
        subparagraph (O) as subparagraph (P) and by inserting after 
        subparagraph (N) the following new subparagraph:
                    ``(O) Allocation of expenses.--Any expenses 
                incurred by a plan with respect to compliance with the 
                requirements of this paragraph shall not be allocated 
                to an individual participant but rather shall be 
                allocated among all participants on the basis of the 
                relative value of each participant's share of the 
                assets of the plan, on the basis of a flat amount per 
                participant, or on any other reasonable basis provided 
                for under the plan.''.

SEC. 302. ELIMINATION OF CURRENT CONNECTION REQUIREMENT UNDER RAILROAD 
              RETIREMENT ACT FOR CERTAIN SURVIVORS.

    (a) In General.--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 ``, except with respect to survivors described in 
paragraph (i), (ii), or (v),'' after ``December 31, 1995) and''.
    (b) Effective Dates.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of enactment of this Act.
            (2) Retroactive application to certain survivors.--If a 
        survivor of a deceased employee would be entitled to an annuity 
        by reason of the amendment made by subsection (a) but for the 
        fact that the employee died before the date of the enactment of 
        this Act, the survivor shall be entitled to such an annuity but 
        only with respect to annuity payments for months beginning on 
        or after such date. Appropriate adjustments shall be made in 
        annuity payments of other individuals to reflect any annuity 
        payable by reason of this paragraph.

SEC. 303. PERMITTING DIVORCED SPOUSES AND WIDOWS AND WIDOWERS TO 
              REMARRY AFTER TURNING 60 WITHOUT A PENALTY UNDER RAILROAD 
              RETIREMENT ACT.

    (a) In General.--
            (1) Divorced spouse.--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: ``For purposes of 
        paragraph (ii)(B), if a divorced wife marries after attaining 
        age 60, such marriage shall be deemed not to have occurred.''
            (2) Widows and widowers.--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: ``For 
        purposes of this paragraph, if a widow marries after attaining 
        age 60, such marriage shall be deemed not to have occurred.''
    (b) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        take effect on the date of enactment of this Act.
            (2) Retroactive application.--If a divorced wife, widow, or 
        widower would be entitled to an annuity by reason of the 
        amendments made by this section but for the fact the individual 
        was married before the date of the enactment of this Act, the 
        individual shall be entitled to such an annuity but only with 
        respect to annuity payments for months beginning on or after 
        such date. Appropriate adjustments shall be made in annuity 
        payments of other individuals to reflect any annuity payable by 
        reason of this paragraph.

           TITLE IV--PROVISIONS TO IMPROVE FINANCIAL LITERACY

SEC. 401. GRANTS TO COMMUNITY-BASED TAXPAYER CLINICS TO PROVIDE 
              RETIREMENT SAVINGS ADVICE.

    (a) In General.--Section 7526 (relating to low-income taxpayer 
clinics) is amended by adding at the end the following:
    ``(d) Additional Grants for Retirement Savings Advice.--
            ``(1) Making of grants.--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.
            ``(2) Use of grant funds.--Grants under paragraph (1) shall 
        be used to--
                    ``(A) 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,
                    ``(B) develop partnerships with certified financial 
                planners and other financial experts to assist in 
                carrying out the retirement savings program, and
                    ``(C) train advisors to assist low-income taxpayers 
                with retirement savings.
            ``(3) Criteria for awards.--The provisions of subsection 
        (c)(4) shall apply in determining whether to make a grant under 
        paragraph (1).
            ``(4) Limitations and special rules.--
                    ``(A) Aggregate limitation.--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).
                    ``(B) Limitation on annual grants to a clinic.--The 
                aggregate amount of grants which may be made under 
                paragraph (1) to a clinic for a year shall not exceed 
                $100,000.
                    ``(C) Multi-year grants.--The provisions of 
                subsection (c)(3) shall apply to grants under paragraph 
                (1).
                    ``(D) Additional amounts.--Grants under paragraph 
                (1) shall be in addition to any grants under subsection 
                (a).''
    (b) Conforming Amendments.--
            (1) Section 7526(c) (relating to special rules and 
        limitations) is amended by striking ``this section'' each place 
        it appears and inserting ``subsection (a)''.
            (2) Section 7526(c)(3) is amended by inserting ``under 
        subsection (a)'' after ``award''.
    (c) Authorization of Appropriations.--There is authorized to be 
appropriated for each fiscal year beginning after September 30, 2008, 
$25,000,000 to carry out the provisions of this section.

SEC. 402. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.

    (a) In General.--Subsection (m) of section 132 (defining qualified 
retirement services) is amended by adding at the end the following new 
paragraph:
            ``(4) No constructive receipt.--
                    ``(A) In general.--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.
                    ``(B) Limitation.--The maximum amount which may be 
                excluded under subparagraph (A) with respect to any 
                employee for any taxable year shall not exceed $1,000.
                    ``(C) Eligible investment adviser.--For purposes of 
                this paragraph, the term `eligible investment adviser' 
                means, with respect to a plan, a person--
                            ``(i) who--
                                    ``(I) is registered as an 
                                investment adviser under the Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-1 
                                et seq.),
                                    ``(II) 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 Investment 
                                Advisers Act of 1940 (15 U.S.C. 80b-
                                3a),
                                    ``(III) is a bank or similar 
                                financial institution referred to in 
                                section 408(b)(4),
                                    ``(IV) is an insurance company 
                                qualified to do business under the laws 
                                of a State, or
                                    ``(V) is any other comparably 
                                qualified entity which satisfies such 
                                criteria as the Secretary determines 
                                appropriate, consistent with the 
                                purposes of this subsection, and
                            ``(ii) who meets the requirements of 
                        subparagraph (D).
                    ``(D) Adviser requirements.--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--
                            ``(i) an individual described in subclause 
                        (I) of subparagraph (C)(i),
                            ``(ii) an individual described in subclause 
                        (II) of subparagraph (C)(i), but only if such 
                        State has an examination requirement to qualify 
                        for registration,
                            ``(iii) registered as a broker or dealer 
                        under the Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.),
                            ``(iv) a registered representative as 
                        described in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or 
                        section 202(a)(17) of the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-2(a)(17)), or
                            ``(v) any other comparably qualified 
                        individual who satisfies such criteria as the 
                        Secretary determines appropriate, consistent 
                        with the purposes of this paragraph.
                    ``(E) Termination.--This paragraph shall not apply 
                to taxable years beginning after December 31, 2012.''.
    (b) Conforming Amendments.--
            (1) Section 403(b)(3)(B) is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (2) Section 414(s)(2) is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (3) Section 415(c)(3)(D)(ii) is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 403. RETIREMENT HANDBOOK AND RETIREMENT READINESS CHECKLIST.

    (a) In General.--Section 704 of the Social Security Act is amended 
by adding at the end the following new subsection:
    ``(f) Retirement Information.--
            ``(1) In general.--The Commissioner, in consultation with 
        the Social Security Advisory Board, shall prepare--
                    ``(A) the financial reference handbook described in 
                paragraph (2), and
                    ``(B) the retirement readiness checklist described 
                in paragraph (3).
            ``(2) Financial reference handbook.--The handbook described 
        in this paragraph is a pamphlet which--
                    ``(A) includes definitions of basic financial 
                terms,
                    ``(B) 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
                    ``(C) is in a form readily understandable by the 
                average retiree.
            ``(3) Readiness checklist.--The checklist described in this 
        paragraph is a list of questions that individuals need to 
        consider in preparation for retirement, including the 
        following:
                    ``(A) What annual income will the individual need 
                in retirement?
                    ``(B) How many years will the individual live in 
                retirement?
                    ``(C) What will be the cost of Medicare premiums?
                    ``(D) What will be the cost of insurance necessary 
                to supplement Medicare?
                    ``(E) How will savings be invested in retirement?
                    ``(F) How will taxes affect your retirement income?
        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.
            ``(4) Revisions.--The Commissioner shall periodically 
        revise and update the handbook and checklist prepared under 
        this subsection.
            ``(5) Distribution of materials.--
                    ``(A) Handbook.--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.
                    ``(B) Checklist.--The retirement readiness 
                checklist described in paragraph (3) shall be included 
                with an individual's annual social security account 
                statement provided under section 1143.''.
    (b) Effective Date.--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, 2010 (or such earlier date as the Commissioner 
of Social Security may provide).

  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.

    (a) In General.--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:

``SEC. 45P. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.

    ``(a) General Rule.--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.
    ``(b) Credit Limited to 3 Years.--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.
    ``(c) Qualified Employer Contribution.--For purposes of this 
section--
            ``(1) Defined contribution plans.--In the case of a defined 
        contribution plan, the term `qualified employer contribution' 
        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.
            ``(2) Defined benefit plans.--In the case of a defined 
        benefit plan, the term `qualified employer contribution' 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 Social Security Act) of 3 percent of such employee's 
        compensation from the employer for the year.
    ``(d) Qualified Retirement Plan.--
            ``(1) In general.--The term `qualified retirement plan' 
        means any plan described in section 401(a) which includes a 
        trust exempt from tax under section 501(a), any simplified 
        pension (as defined in section 408(k)), or any simple 
        retirement account (as defined in section 408(p) if the 
        following requirements are met with respect to such plan, 
        pension, or account:
                    ``(A) The contribution requirements of paragraph 
                (2).
                    ``(B) The vesting requirements of paragraph (3).
                    ``(C) The distribution requirements of paragraph 
                (4).
        The contribution and vesting requirements of paragraphs (2) and 
        (3) shall be treated as met in the case of a simple retirement 
        account under a qualified salary reduction arrangement (as 
        defined in section 408(p)(2)) or a cash or deferred arrangement 
        meeting the requirements of section 401(k)(11).
            ``(2) Contribution requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if, under the plan--
                            ``(i) 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
                            ``(ii) 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).
                    ``(B) Compensation limitation.--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).
            ``(3) Vesting requirements.--The requirements of this 
        paragraph are met if the plan satisfies the requirements of 
        either of the following subparagraphs:
                    ``(A) 3-year vesting.--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.
                    ``(B) 5-year graded vesting.--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:

                                                     The nonforfeitable
``Years of service:                                      percentage is:
        1......................................................     20 
        2......................................................     40 
        3......................................................     60 
        4......................................................     80 
        5......................................................    100.
            ``(4) Distribution requirements.--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).
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Eligible employer.--
                    ``(A) In general.--The term `eligible employer' 
                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.
                    ``(B) Requirement for new qualified employer 
                plans.--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.
            ``(2) Highly compensated employee.--The term `highly 
        compensated employee' has the meaning given such term by 
        section 414(q) (determined without regard to section 
        414(q)(1)(B)(ii)).
    ``(f) Special Rules.--
            ``(1) Disallowance of deduction.--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).
            ``(2) Election not to claim credit.--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.
            ``(3) Aggregation rules.--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.
    ``(g) Recapture of Credit on Forfeited Contributions.--
            ``(1) In general.--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.
            ``(2) Reallocated contributions.--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.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit), as amended by section 
102, is amended by striking ``and'' at the end of paragraph (31), by 
striking the period at the end of paragraph (32) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(33) in the case of an eligible employer (as defined in 
        section 45P(e)), the small employer pension plan contribution 
        credit determined under section 45P(a).''.
    (c) Conforming Amendments.--
            (1) Subsection (c) of section 196 is amended by striking 
        ``and'' at the end of paragraph (12), by striking the period at 
        the end of paragraph (13) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(14) the small employer pension plan contribution credit 
        determined under section 45P(a).''.
            (2) 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:

``Sec. 45P. Small employer pension plan contributions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions paid or incurred in taxable years beginning 
after December 31, 2008.

SEC. 502. DEDUCTION FOR PENSION CONTRIBUTIONS ALLOWED IN COMPUTING NET 
              EARNINGS FROM SELF-EMPLOYMENT.

    (a) In General.--Section 1402(a) (defining net earnings from self-
employment) is amended by striking ``and'' at the end of paragraph 
(15), by striking the period at the end of paragraph (16) and inserting 
``, and'', and by inserting after paragraph (16) the following new 
paragraph:
            ``(17) 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.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 503. EXEMPTION OF DEFERRAL-ONLY QUALIFIED CASH OR DEFERRED 
              ARRANGEMENTS FROM TOP-HEAVY PLAN RULES.

    (a) In General.--Section 416(g) (defining top-heavy plan) is 
amended by adding at the end the following new paragraph:
            ``(5) Exception for deferral-only cash or deferred 
        arrangements.--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.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2008.

SEC. 504. EXTENSION OF TIME FOR SMALL PENSION PLANS TO ADOPT REQUIRED 
              PLAN QUALIFICATION AMENDMENTS.

    (a) In General.--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.
    (b) Additional Requirements.--Subsection (a) shall not apply to an 
eligible small plan unless--
            (1) any amendment described in subsection (a) applies 
        retroactively to the period during which such amendment would 
        otherwise have been required to be in effect,
            (2) the plan is operated during the period described in 
        paragraph (1) as if the amendment were in effect, and
            (3) 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.
    (c) Eligible Small Plan.--For purposes of this section--
            (1) In general.--The term ``eligible small plan'' 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.
            (2) Application of certain rules in determination of plan 
        size.--For purposes of this subsection--
                    (A) Plans not in existence in preceding year.--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.
                    (B) Predecessors.--Any reference in paragraph (1) 
                to an employer shall include a reference to any 
                predecessor of such employer.
    (d) Effective Date.--This section shall apply to amendments 
required to be adopted for plan years beginning after December 31, 
2007.

       TITLE VI--PROVISIONS RELATING TO LONG-TERM CARE INSURANCE

SEC. 601. TREATMENT OF PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE 
              CONTRACTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions) is amended by redesignating section 224 as section 225 and 
by inserting after section 223 the following new section:

``SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the applicable percentage of 
the amount of eligible long-term care premiums (as defined in section 
213(d)(10)) paid during the taxable year for coverage for the taxpayer 
and the taxpayer's spouse and dependents under a qualified long-term 
care insurance contract (as defined in section 7702B(b)).
    ``(b) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage shall be determined in accordance with the 
following table:

``For taxable years beginning                            The applicable
  in calendar year--                                    percentage is--
        2008...................................................     25 
        2009...................................................     35 
        2010...................................................     65 
        2011 or thereafter.....................................    100.
    ``(c) Coordination With Other Deductions.--Any amount paid by a 
taxpayer for any qualified long-term care insurance contract to which 
subsection (a) applies shall not be taken into account in computing the 
amount allowable to the taxpayer as a deduction under section 162(l) or 
213(a).''.
    (b) Long-Term Care Insurance Permitted to Be Offered Under 
Cafeteria Plans and Flexible Spending Arrangements.--
            (1) Cafeteria plans.--The last sentence of section 125(f) 
        of such Code (defining qualified benefits) is amended by 
        inserting before the period at the end ``; except that such 
        term shall include the payment of premiums for any qualified 
        long-term care insurance contract (as defined in section 7702B) 
        to the extent the amount of such payment does not exceed the 
        eligible long-term care premiums (as defined in section 
        213(d)(10)) for such contract''.
            (2) Flexible spending arrangements.--Section 106 of such 
        Code (relating to contributions by an employer to accident and 
        health plans) is amended by striking subsection (c) and 
        redesignating subsection (d) as subsection (c).
    (c) Conforming Amendments.--
            (1) Section 62(a) of such Code is amended by inserting 
        before the last sentence at the end the following new 
        paragraph:
            ``(22) Premiums on qualified long-term care insurance 
        contracts.--The deduction allowed by section 224.''.
            (2) Sections 223(b)(4)(B), 223(d)(4)(C), 223(f)(3)(B), 
        3231(e)(11), 3306(b)(18), 3401(a)(22), 4973(g)(1), and 
        4973(g)(2)(B)(i) of such Code are each amended by striking 
        ``section 106(d)'' and inserting ``section 106(c)''.
            (3) Section 6041 of such Code is amended--
                    (A) in subsection (f)(1) by striking ``(as defined 
                in section 106(c)(2))'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(h) Flexible Spending Arrangement Defined.--For purposes of this 
section, a flexible spending arrangement is a benefit program which 
provides employees with coverage under which--
            ``(1) specified incurred expenses may be reimbursed 
        (subject to reimbursement maximums and other reasonable 
        conditions), and
            ``(2) the maximum amount of reimbursement which is 
        reasonably available to a participant for such coverage is less 
        than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably available 
shall be determined on the basis of the underlying coverage.''.
            (4) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following new items:

``Sec. 224. Premiums on qualified long-term care insurance contracts.
``Sec. 225. Cross reference''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2007.
            (2) Cafeteria plans and flexible spending arrangements.--
        The amendments made by subsection (b) shall apply to taxable 
        years beginning after December 31, 2009.

SEC. 602. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25D the 
following new section:

``SEC. 25E. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

    ``(a) Allowance of Credit.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year an 
        amount equal to the applicable credit amount multiplied by the 
        number of applicable individuals with respect to whom the 
        taxpayer is an eligible caregiver for the taxable year.
            ``(2) Applicable credit amount.--For purposes of paragraph 
        (1), the applicable credit amount shall be determined in 
        accordance with the following table:

``For taxable years beginning                            The applicable
  in calendar year--                                 credit amount is--
        2008.........................................           $1,000 
        2009.........................................            1,500 
        2010.........................................            2,000 
        2011.........................................            2,500 
        2012 or thereafter...........................            3,000.
    ``(b) Limitation Based on Adjusted Gross Income.--
            ``(1) In general.--The amount of the credit allowable under 
        subsection (a) shall be reduced (but not below zero) by $100 
        for each $1,000 (or fraction thereof) by which the taxpayer's 
        modified adjusted gross income exceeds the threshold amount. 
        For purposes of the preceding sentence, the term `modified 
        adjusted gross income' means adjusted gross income increased by 
        any amount excluded from gross income under section 911, 931, 
        or 933.
            ``(2) Threshold amount.--For purposes of paragraph (1), the 
        term `threshold amount' means--
                    ``(A) $150,000 in the case of a joint return, and
                    ``(B) $75,000 in any other case.
            ``(3) Indexing.--In the case of any taxable year beginning 
        in a calendar year after 2008, each dollar amount contained in 
        paragraph (2) shall be increased by an amount equal to the 
        product of--
                    ``(A) such dollar amount, and
                    ``(B) the medical care cost adjustment determined 
                under section 213(d)(10)(B)(ii) for the calendar year 
                in which the taxable year begins, determined by 
                substituting `August 2007' for `August 1996' in 
                subclause (II) thereof.
        If any increase determined under the preceding sentence is not 
        a multiple of $50, such increase shall be rounded to the next 
        lowest multiple of $50.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Applicable individual.--
                    ``(A) In general.--The term `applicable individual' 
                means, with respect to any taxable year, any individual 
                who has been certified, before the due date for filing 
                the return of tax for the taxable year (without 
                extensions), by a physician (as defined in section 
                1861(r)(1) of the Social Security Act) as being an 
                individual with long-term care needs described in 
                subparagraph (B) for a period--
                            ``(i) which is at least 180 consecutive 
                        days, and
                            ``(ii) a portion of which occurs within the 
                        taxable year.
                Notwithstanding the preceding sentence, a certification 
                shall not be treated as valid unless it is made within 
                the 39\1/2\ month period ending on such due date (or 
                such other period as the Secretary prescribes).
                    ``(B) Individuals with long-term care needs.--An 
                individual is described in this subparagraph if the 
                individual meets any of the following requirements:
                            ``(i) The individual is at least 6 years of 
                        age and--
                                    ``(I) is unable to perform (without 
                                substantial assistance from another 
                                individual) at least 3 activities of 
                                daily living (as defined in section 
                                7702B(c)(2)(B)) due to a loss of 
                                functional capacity, or
                                    ``(II) requires substantial 
                                supervision to protect such individual 
                                from threats to health and safety due 
                                to severe cognitive impairment and is 
                                unable to preform, without reminding or 
                                cuing assistance, at least 1 activity 
                                of daily living (as so defined) or to 
                                the extent provided in regulations 
                                prescribed by the Secretary (in 
                                consultation with the Secretary of 
                                Health and Human Services), is unable 
                                to engage in age appropriate 
                                activities.
                            ``(ii) The individual is at least 2 but not 
                        6 years of age and is unable due to a loss of 
                        functional capacity to perform (without 
                        substantial assistance from another individual) 
                        at least 2 of the following activities: eating, 
                        transferring, or mobility.
                            ``(iii) The individual is under 2 years of 
                        age and requires specific durable medical 
                        equipment by reason of a severe health 
                        condition or requires a skilled practitioner 
                        trained to address the individual's condition 
                        to be available if the individual's parents or 
                        guardians are absent.
            ``(2) Eligible caregiver.--
                    ``(A) In general.--A taxpayer shall be treated as 
                an eligible caregiver for any taxable year with respect 
                to the following individuals:
                            ``(i) The taxpayer.
                            ``(ii) The taxpayer's spouse.
                            ``(iii) An individual with respect to whom 
                        the taxpayer is allowed a deduction under 
                        section 151 for the taxable year.
                            ``(iv) An individual who would be described 
                        in clause (iii) for the taxable year if section 
                        152(d)(1)(B) were applied by substituting for 
                        the exemption amount an amount equal to the sum 
                        of the exemption amount, the standard deduction 
                        under section 63(c)(2)(C), and any additional 
                        standard deduction under section 63(c)(3) which 
                        would be applicable to the individual if clause 
                        (iii) applied.
                            ``(v) An individual who would be described 
                        in clause (iii) for the taxable year if--
                                    ``(I) the requirements of 
                                subparagraph (B) are met with respect 
                                to the individual in lieu of the 
                                support test of section 152(c)(1)(D) or 
                                152(d)(1)(C), as the case may be, and
                                    ``(II) in the case of an individual 
                                who is not a qualifying child (as 
                                defined in section 152(d)) for the 
                                taxable year, the requirements of 
                                clause (iv) are met with respect to the 
                                individual.
                    ``(B) Residency test.--The requirements of this 
                subparagraph are met if an individual has as his 
                principal place of abode the home of the taxpayer and--
                            ``(i) in the case of an individual who is 
                        an ancestor or descendant of the taxpayer or 
                        the taxpayer's spouse, is a member of the 
                        taxpayer's household for over half the taxable 
                        year, or
                            ``(ii) in the case of any other individual, 
                        is a member of the taxpayer's household for the 
                        entire taxable year.
                    ``(C) Special rules where more than 1 eligible 
                caregiver.--
                            ``(i) In general.--If more than 1 
                        individual is an eligible caregiver with 
                        respect to the same applicable individual for 
                        taxable years ending with or within the same 
                        calendar year, a taxpayer shall be treated as 
                        the eligible caregiver if each such individual 
                        (other than the taxpayer) files a written 
                        declaration (in such form and manner as the 
                        Secretary may prescribe) that such individual 
                        will not claim such applicable individual for 
                        the credit under this section.
                            ``(ii) No agreement.--If each individual 
                        required under clause (i) to file a written 
                        declaration under clause (i) does not do so, 
                        the individual with the highest adjusted gross 
                        income shall be treated as the eligible 
                        caregiver.
                            ``(iii) Married individuals filing 
                        separately.--In the case of married individuals 
                        filing separately, the determination under this 
                        subparagraph as to whether the husband or wife 
                        is the eligible caregiver shall be made under 
                        the rules of clause (ii) (whether or not one of 
                        them has filed a written declaration under 
                        clause (i)).
    ``(d) Identification Requirement.--No credit shall be allowed under 
this section to a taxpayer with respect to any applicable individual 
unless the taxpayer includes the name and taxpayer identification 
number of such individual, and the identification number of the 
physician certifying such individual, on the return of tax for the 
taxable year.
    ``(e) Taxable Year Must Be Full Taxable Year.--Except in the case 
of a taxable year closed by reason of the death of the taxpayer, no 
credit shall be allowable under this section in the case of a taxable 
year covering a period of less than 12 months.''.
    (b) Conforming Amendments.--
            (1) Section 6213(g)(2) of such Code is amended by striking 
        ``and'' at the end of subparagraph (L), by striking the period 
        at the end of subparagraph (M) and inserting ``, and'', and by 
        inserting after subparagraph (M) the following new 
        subparagraph:
                    ``(N) an omission of a correct TIN or physician 
                identification required under section 25E(d) (relating 
                to credit for taxpayers with long-term care needs) to 
                be included on a return.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25D the following new item:

``Sec. 25E. Credit for taxpayers with long-term care needs''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 603. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.

    (a) Additional Protections Applicable to Long-Term Care 
Insurance.--Subparagraphs (A) and (B) of section 7702B(g)(2) of the 
Internal Revenue Code of 1986 (relating to requirements of model 
regulation and Act) are amended to read as follows:
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any contract if such 
                contract meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 6A (relating to 
                                guaranteed renewal or 
                                noncancellability), other than 
                                paragraph (5) thereof, and the 
                                requirements of section 6B of the model 
                                Act relating to such section 6A.
                                    ``(II) Section 6B (relating to 
                                prohibitions on limitations and 
                                exclusions) other than paragraph (7) 
                                thereof.
                                    ``(III) Section 6C (relating to 
                                extension of benefits).
                                    ``(IV) Section 6D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 6E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 7 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 8 (relating to 
                                disclosure), other than sections 8F, 
                                8G, 8H, and 8I thereof.
                                    ``(VIII) Section 11 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 12 (relating to 
                                minimum standards).
                                    ``(X) Section 13 (relating to 
                                requirement to offer inflation 
                                protection).
                                    ``(XI) Section 25 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                                    ``(XII) The provisions of section 
                                26 relating to contingent nonforfeiture 
                                benefits, if the policyholder declines 
                                the offer of a nonforfeiture provision 
                                described in paragraph (4).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                                    ``(III) The provisions of section 8 
                                relating to contingent nonforfeiture 
                                benefits, if the policyholder declines 
                                the offer of a nonforfeiture provision 
                                described in paragraph (4).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted as of 
                        October 2000).
                            ``(ii) Coordination.--Any provision of the 
                        model regulation or model Act listed under 
                        clause (i) or (ii) of subparagraph (A) shall be 
                        treated as including any other provision of 
                        such regulation or Act necessary to implement 
                        the provision.
                            ``(iii) Determination.--For purposes of 
                        this section and section 4980C, the 
                        determination of whether any requirement of a 
                        model regulation or the model Act has been met 
                        shall be made by the Secretary.''.
    (b) Excise Tax.--Paragraph (1) of section 4980C(c) of the Internal 
Revenue Code of 1986 (relating to requirements of model provisions) is 
amended to read as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                            ``(i) Section 9 (relating to required 
                        disclosure of rating practices to consumer).
                            ``(ii) Section 14 (relating to application 
                        forms and replacement coverage).
                            ``(iii) Section 15 (relating to reporting 
                        requirements).
                            ``(iv) Section 22 (relating to filing 
                        requirements for marketing).
                            ``(v) Section 23 (relating to standards for 
                        marketing), including inaccurate completion of 
                        medical histories, other than paragraphs (1), 
                        (6), and (9) of section 23C.
                            ``(vi) Section 24 (relating to 
                        suitability).
                            ``(vii) Section 29 (relating to standard 
                        format outline of coverage).
                            ``(viii) Section 30 (relating to 
                        requirement to deliver shopper's guide).
                The requirements referred to in clause (vi) shall not 
                include those portions of the personal worksheet 
                described in Appendix B relating to consumer protection 
                requirements not imposed by section 4980C or 7702B.
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                            ``(i) Section 6F (relating to right to 
                        return).
                            ``(ii) Section 6G (relating to outline of 
                        coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under group 
                        plans).
                            ``(iv) Section 6J (relating to policy 
                        summary).
                            ``(v) Section 6K (relating to monthly 
                        reports on accelerated death benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(g)(2)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to policies issued more than 1 year after the date of the 
enactment of this Act.

SEC. 604. TREATMENT OF EXCHANGES OF LONG-TERM CARE INSURANCE CONTRACTS.

    (a) In General.--Subsection (a) of section 1035 of the Internal 
Revenue Code of 1986 (relating to exchanges of insurance policies) is 
amended by striking the period at the end of paragraph (3) and 
inserting ``; or'' and by adding at the end the following new 
paragraph:
            ``(4) a qualified long-term care insurance contract for 
        another qualified long-term care insurance contract.''.
    (b) Qualified Long-Term Care Insurance Contract.--Subsection (b) of 
section 1035 of such Code (relating to definitions) is amended by 
adding at the end the following new paragraph:
            ``(4) Qualified long-term care insurance contract.--The 
        term `qualified long-term care insurance contract' means--
                    ``(A) any qualified long-term care insurance 
                contract (as defined in section 7702B), and
                    ``(B) any contract which is treated as such by 
                section 321(f)(2) of the Health Insurance Portability 
                and Accountability Act of 1996.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to exchanges after December 31, 1997.
            (2) Waiver of limitations.--If the credit or refund of any 
        overpayment of tax with respect to a taxable year ending before 
        the date of the enactment of this Act resulting from the 
        application of section 1035(a)(4) of the Internal Revenue Code 
        of 1986, as added by this section, is prevented at any time by 
        the operation of any law or rule of law (including res 
        judicata), such credit or refund may nevertheless be allowed or 
        made if the claim therefor is filed before the close of the 1-
        year period beginning on the date of the enactment of this Act.
                                 <all>