[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7242 Introduced in House (IH)]







110th CONGRESS
  2d Session
                                H. R. 7242

  To make technical corrections to the Pension Protection Act of 2006 
 relating to the Internal Revenue Code of 1986, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 2, 2008

 Mr. Andrews 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 make technical corrections to the Pension Protection Act of 2006 
 relating to the Internal Revenue Code of 1986, 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 AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Pension Protection 
Act IRC Amendments of 2008''.
    (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title and table of contents.
Sec. 2. Interest rate assumption for applying benefit limitations to 
                            lump sum distributions.
Sec. 3. Technical correction to effective date of tax-free exchange 
                            provisions with respect to qualified long-
                            term care insurance contracts.
Sec. 4. Clarification of minimum required distribution rules for 
                            nonspouse beneficiaries of certain 
                            retirement plan distributions.
Sec. 5. Amendments related to title IX of the Pension Protection Act of 
                            2006.
Sec. 6. Modification of IRA minimum distribution requirements.
Sec. 7. Treatment of certain employer-owned life insurance contracts 
                            based on insured's status.
Sec. 8. Failure to satisfy notice and consent requirement for employer-
                            owned life insurance contracts.
Sec. 9. Clarification of deductibility of contributions to both defined 
                            contribution plans and defined benefit 
                            plans.
Sec. 10. Clarifications relating to treatment of distributions from 
                            governmental retirement plans for health 
                            and long-term care insurance for public 
                            safety officers.
Sec. 11. Non-safe harbor formulas permitted for combined plans.
Sec. 12. Safe harbor cash balance formula to deemed to meet 
                            requirements of sections 401(a)(4) and 
                            411(B)(1).
Sec. 13. Single participant combined plans.
Sec. 14. Matching contributions provided through cash balance plan.
Sec. 15. ESOP may form part of eligible combined plan.
Sec. 16. Special funding target rule for plans computing accrued 
                            benefits by reference to hypothetical 
                            account balance.

SEC. 2. INTEREST RATE ASSUMPTION FOR APPLYING BENEFIT LIMITATIONS TO 
              LUMP SUM DISTRIBUTIONS.

    (a) In General.--Clause (ii) of section 415(b)(2)(E) of the 
Internal Revenue Code of 1986 is amended--
            (1) by striking subclause (II),
            (2) by redesignating subclause (III) as subclause (II),
            (3) by inserting ``or'' at the end of subclause (I), and
            (4) by striking ``the greatest of'' and inserting ``the 
        greater of''.
    (b) Effective Date.--The amendments made by this section shall be 
effective as if included in the enactment of section 303 of the Pension 
Protection Act of 2006.

SEC. 3. TECHNICAL CORRECTION TO EFFECTIVE DATE OF TAX-FREE EXCHANGE 
              PROVISIONS WITH RESPECT TO QUALIFIED LONG-TERM CARE 
              INSURANCE CONTRACTS.

    (a) In General.--Section 844(g)(2) of the Pension Protection Act of 
2006 (relating to effective date of amendments made to section 1035 of 
the Internal Revenue Code of 1986) is amended to read as follows:
            ``(2) Tax-free exchanges.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the amendments made by subsection (b) 
                shall apply with respect to exchanges occurring after 
                December 31, 2009.
                    ``(B) Exchanges of qualified long-term care 
                insurance contracts.--The amendment made by subsection 
                (b)(4) shall apply with respect to exchanges occurring 
                on or after the date of the enactment of this Act.''.
    (b) No Inference.--Nothing in the amendment made by this section or 
the amendment made by section 844(b)(4) of the Pension Protection Act 
of 2006 shall be construed to create an inference with respect to the 
treatment of exchanges of qualified long-term care insurance contracts 
under the Internal Revenue Code of 1986 (as in effect before the date 
of the enactment of the Pension Protection Act of 2006) other than 
section 1035(a)(4) of the Internal Revenue Code of 1986.
    (c) Effective Date.--The provisions of this section (including the 
amendment made thereby) shall apply as if included in the enactment of 
section 844 of the Pension Protection Act of 2006.

SEC. 4. CLARIFICATION OF MINIMUM REQUIRED DISTRIBUTION RULES FOR 
              NONSPOUSE BENEFICIARIES OF CERTAIN RETIREMENT PLAN 
              DISTRIBUTIONS.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall issue the following guidance:
            (1) Permitting a nonspouse beneficiary who is receiving 
        distributions from an eligible retirement plan under the 5-year 
        rule of section 401(a)(9)(B)(ii) of the Internal Revenue Code 
        of 1986, to elect to use the life expectancy rule of section 
        401(a)(9)(B)(iii) of such Code in connection with an eligible 
        rollover distribution described in section 402(c)(11) of such 
        Code, provided that any amounts that would have been required 
        to be distributed under the life expectancy rule of section 
        401(a)(9)(B)(iii) of such Code are distributed by the earlier 
        of December 31, 2010 or the end of the 5-year period determined 
        under section 401(a)(9)(B)(ii) of such Code.
            (2) Providing that a direct trustee-to-trustee transfer 
        under section 402(c)(11) that is made in the year following the 
        year of the employee's death may include any undistributed 
        required minimum distributions under section 401(a)(9) for such 
        year if the nonspouse beneficiary on whose behalf the transfer 
        is made is eligible to elect the 5-year rule of section 
        401(a)(9)(B)(ii).

SEC. 5. AMENDMENTS RELATED TO TITLE IX OF THE PENSION PROTECTION ACT OF 
              2006.

    (a) Amendments Related to Section 902.--
            (1) Subclause (I) of section 401(k)(13)(D)(i) of the 
        Internal Revenue Code of 1986 is amended by striking ``such 
        compensation as exceeds 1 percent but does not'' and inserting 
        ``such contributions as exceed 1 percent but do not''.
            (2) Subparagraph (E) of section 401(k)(8) and subparagraph 
        (G) of section 411(a)(3) of such Code are each amended--
                    (A) by striking ``an erroneous automatic 
                contribution'' and inserting ``a permissible 
                withdrawal'', and
                    (B) by striking ``erroneous automatic 
                contribution'' in the heading and inserting 
                ``permissible withdrawal''.
            (3) Clause (ii) of section 402(g)(2)(A) of such Code is 
        amended by inserting ``through the end of such taxable year'' 
        after ``such amount''.
            (4) Paragraph (3) of section 414(w) of such Code is 
        amended--
                    (A) by inserting ``and'' at the end of subparagraph 
                (B),
                    (B) by striking subparagraph (C), and
                    (C) by redesignating subparagraph (D) as 
                subparagraph (C).
            (5) Paragraph (5) of section 414(w) of such Code is amended 
        by striking ``and'' at the end of subparagraph (B), by striking 
        the period at the end of subparagraph (C) and inserting a 
        comma, and by adding at the end the following new subsections:
                    ``(D) a simplified employee pension the terms of 
                which provide for a salary reduction arrangement 
                described in section 408(k)(6), and
                    ``(E) a simple retirement account (as defined in 
                section 408(p)).''.
    (b) Amendments Related to Section 903.--
            (1) Amendment of 1986 code.--Paragraph (1) of section 
        414(x) of such Code is amended by adding at the end of 
        paragraph (1) the following new sentence: ``The requirements 
        for termination of either of the 2 plans shall be applicable 
        separately with respect to each plan, except that, prior to 
        final distribution of assets pursuant to such termination, 
        nothing in this sentence shall be construed to affect the 
        application of paragraphs (3) and (4) to the applicable defined 
        contribution plan forming part of the eligible combined plan.''
            (2) Amendment of erisa.--Section 210(e)(1) the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1060(e)(1)) 
        is amended by adding at the end the following new sentence: 
        ``The requirements for termination of either of the 2 plans 
        shall be applicable separately with respect to each plan, 
        except that, prior to final distribution of assets pursuant to 
        such termination, nothing in this sentence shall be construed 
        to affect the application of paragraphs (3) and (4) to the 
        applicable individual account plan forming part of the eligible 
        combined plan.''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply as if included in the enactment of sections 902 and 903, 
respectively, of the Pension Protection Act of 2006.

SEC. 6. MODIFICATION OF IRA MINIMUM DISTRIBUTION REQUIREMENTS.

    (a) In General.--
            (1) Minimum distribution exclusion amount.--Subsection (a) 
        of section 408 of the Internal Revenue Code of 1986 (relating 
        to individual retirement account) is amended by adding at the 
        end the following new paragraph:
            ``(7) In the case of an interest not acquired by reason of 
        the death of another individual, minimum distributions shall be 
        required under rules prescribed under paragraph (6) only to the 
        extent the value of all individual retirement plans of an 
        individual exceeds $200,000 as of the close of the calendar 
        year in which the taxable year begins.''.
            (2) Tax-sheltered annuities and individual retirement 
        plans.--
                    (A) Paragraph (10) of section 403(b) of such Code 
                (relating to distribution requirements) is amended by 
                adding at the end the following new sentence: ``For 
                purposes of meeting any minimum distribution 
                requirement with respect to a contract described in 
                this subsection, all of an individual's contracts 
                described in this subsection and individual retirement 
                accounts and annuities shall be treated as 1 contract, 
                and all amounts paid or distributed out of such 
                contracts, accounts, and annuities shall be treated as 
                1 distribution.''
                    (B) Paragraph (2) of section 408(d) of such Code 
                (relating to special rules for applying section 72) is 
                amended by adding at the end the following new 
                sentence: ``For purposes of meeting any minimum 
                distribution requirement with respect to an individual 
                retirement account or annuity, all of an individual's 
                contracts described in section 403(b) and individual 
                retirement accounts and annuities shall be treated as 1 
                contract, and all amounts paid or distributed out of 
                such contracts, accounts, and annuities shall be 
                treated as 1 distribution.''
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions made after December 31, 2008.

SEC. 7. TREATMENT OF CERTAIN EMPLOYER-OWNED LIFE INSURANCE CONTRACTS 
              BASED ON INSURED'S STATUS.

    (a) In General.--Clause (ii) of section 101(j)(2)(A) of the 
Internal Revenue Code of 1986 (relating to exceptions based on 
insured's status) is amended by striking subclause (II), by 
redesignating subclause (III) as subclause (IV), and by inserting after 
subclause (I) the following:
                                    ``(II) a 5-percent owner (as 
                                defined in section 414(q)(2)) at any 
                                time during the current or preceding 
                                year,
                                    ``(III) an employee who had 
                                compensation (as defined in section 
                                415(c)(3)) for the preceding year, or 
                                whose annual rate of compensation (as 
                                so defined) for the current year is, in 
                                excess of the amount described in 
                                section 414(q)(1)(B)(i), or''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to life insurance contracts issued after the date of the 
enactment of this Act.

SEC. 8. FAILURE TO SATISFY NOTICE AND CONSENT REQUIREMENT FOR EMPLOYER-
              OWNED LIFE INSURANCE CONTRACTS.

    (a) In General.--Subsection (h) of section 101 the Internal Revenue 
Code of 1986 (relating to treatment of certain employer-owned life 
insurance contracts) is amended by adding at the end the following new 
paragraph:
            ``(6) Special rule relating to notice and consent.--The 
        notice and consent requirements of paragraph (4) shall be 
        treated as met with respect to an employer-owned life insurance 
        contract, if--
                    ``(A) the requirements of subparagraphs (A), (B), 
                and (C) of such paragraph are met with respect to the 
                employee not later than 90 days after the later of--
                            ``(i) the date of the issuance of such 
                        contract, or
                            ``(ii) the date the applicable policyholder 
                        first becomes the owner of such contract, and
                    ``(B) it is shown that failure to otherwise meet 
                the requirements of paragraph (4) is due to reasonable 
                cause and not to willful neglect.''.
    (b) Effective Date.--The amendment made by this section shall apply 
as if included in the enactment of section 863 of the Pension 
Protection Act of 2006.

SEC. 9. CLARIFICATION OF DEDUCTIBILITY OF CONTRIBUTIONS TO BOTH DEFINED 
              CONTRIBUTION PLANS AND DEFINED BENEFIT PLANS.

    (a) In General.--Section 404(a)(3)(C)(iii) of the Internal Revenue 
Code of 1986 is amended by striking ``In the case of'' and all that 
follows through ``exceed'' and inserting ``Subparagraph (A) shall apply 
in the case of the contributions to the plans referred to in 
subparagraph (A), and trusts forming a part of such plans, only if, and 
to the extent that, the total of all such contributions which are made 
to defined contribution plans, or trusts forming a part of defined 
contribution plans, exceed''.
    (b) Effective Date.--The amendment made by this section shall apply 
as if included in the enactment of section 803 of the Pension 
Protection Act of 2006.

SEC. 10. CLARIFICATIONS RELATING TO TREATMENT OF DISTRIBUTIONS FROM 
              GOVERNMENTAL RETIREMENT PLANS FOR HEALTH AND LONG-TERM 
              CARE INSURANCE FOR PUBLIC SAFETY OFFICERS.

    (a) Definition of Dependent.--Section 402(l)(1) of the Internal 
Revenue Code of 1986 is amended by striking ``(as defined in section 
152)'' and inserting ``(as defined in section 152, determined without 
regard to subsections (b)(1), (b)(2), and (d)(1)(B) of section 152)''.
    (b) Clarification of Definition of Qualified Health Insurance 
Premiums.--Section 402(l)(4)(D) of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new sentence: ``In the case 
of any such coverage provided under a self-insured arrangement, such 
term includes the cost of providing such coverage.''.
    (c) Effective Date.--The amendments made by this section shall 
apply as if included in the enactment of section 845 of the Pension 
Protection Act of 2006.

SEC. 11. NON-SAFE HARBOR FORMULAS PERMITTED FOR COMBINED PLANS.

    (a) Amendments to Internal Revenue Code of 1986.--
            (1) Elimination of safe harbor requirement for combined 
        plans.--Subparagraph (A) of section 414(x)(2) of the Internal 
        Revenue Code of 1986 is amended--
                    (A) by striking clause (iv), and
                    (B) by striking ``, and'' at the end of clause 
                (iii) and inserting a period.
            (2) Safe harbor made permissible.--
                    (A) In general.--Paragraph (1) of section 414(x) of 
                such Code is amended--
                            (i) by striking ``(1) General rule.--Except 
                        as provided'' and inserting the following:
            ``(1) General rules.--
                    ``(A) Treatment of eligible combined plan.--Except 
                as provided'', and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(B) Permissible combined plan safe harbor.--
                            ``(i) Satisfaction of nondiscrimination 
                        requirements for qualified cash or deferred 
                        arrangements.--A qualified cash or deferred 
                        arrangement which is included in an applicable 
                        defined contribution plan forming part of a 
                        safe harbor eligible combined plan shall be 
                        treated as meeting the requirements of section 
                        401(k)(3)(A)(ii) if the requirements of 
                        paragraph (2)(C) are met with respect to such 
                        arrangement.
                            ``(ii) Satisfaction of top-heavy rules.--A 
                        defined benefit plan and applicable defined 
                        contribution plan forming part of a safe harbor 
                        eligible combined plan for any plan year shall 
                        be treated as meeting the requirements of 
                        section 416 for the plan year.''.
                    (B) Safe harbor eligible combined plan defined.--
                Paragraph (2) of section 414(x) of such Code is 
                amended--
                            (i) in subparagraph (A), by redesignating 
                        clauses (i), (ii), and (iii) as subclauses (I), 
                        (II), and (III), respectively, and moving such 
                        subclauses (as so redesignated) 2 ems to the 
                        right, and
                            (ii) by striking ``(2) Eligible combined 
                        plan.--'' and all that follows through ``(A) In 
                        general.--The term'' and inserting the 
                        following:
            ``(2) Eligible combined plans.--For purposes of this 
        subsection--
                    ``(A) In general.--
                            ``(i) Eligible combined plan.--The term'', 
                        and
                            (iii) by inserting after subparagraph 
                        (A)(i) (as amended by this subparagraph) the 
                        following new clause:
                            ``(ii) Safe harbor eligible combined 
                        plan.--The term `safe harbor eligible combined 
                        plan' means an eligible combined plan with 
                        respect to which the benefit, contribution, 
                        vesting, and nondiscrimination requirements of 
                        subparagraphs (B), (C), (D), (E), and (F) are 
                        met.''.
            (3) Conforming amendment.--(A) Paragraph (3) of section 
        414(x) of such Code is amended by striking ``(3) 
        Nondiscrimination requirements'' and all that follows through 
        ``(B) Matching contributions.--In applying'' and inserting the 
        following:
            ``(3) Contribution and notice requirements relating to 
        matching contributions.--In applying''.
            (B) Section 414(x) of such Code is amended by striking 
        paragraph (4) and renumbering paragraphs (5), (6), and (7) as 
        paragraphs (4), (5), and (6), respectively.
            (C) Paragraph (3) of section 414(x) of such Code is amended 
        by striking ``paragraph (5)(B)'' and inserting ``paragraph 
        (4)(B)''.
    (b) Amendments to Employee Retirement Income Security Act of 
1974.--
            (1) Elimination of safe harbor requirement for combined 
        plans.--Section 210(e)(2)(A) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1060(e)(2)(A)) is amended--
                    (A) by striking clause (iv), and
                    (B) by striking ``, and'' at the end of clause 
                (iii) and inserting a period.
            (2) Safe harbor made permissible.--
                    (A) In general.--Section 210(e)(1) of such Act (29 
                U.S.C. 1060(e)(1)) is amended--
                            (i) by striking ``(1) General rule.--Except 
                        as provided'' and inserting the following:
            ``(1) General rules.--
                    ``(A) Treatment of eligible combined plan.--Except 
                as provided'', and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(B) Permissible combined plan safe harbor.--
                            ``(i) Satisfaction of nondiscrimination 
                        requirements for qualified cash or deferred 
                        arrangements.--A qualified cash or deferred 
                        arrangement which is included in an applicable 
                        individual account plan forming part of a safe 
                        harbor eligible combined plan shall be treated 
                        as meeting the requirements of section 
                        401(k)(3)(A)(ii) of the Internal Revenue Code 
                        of 1986 if the requirements of paragraph (2) 
                        are met with respect to such arrangement.''.
                    (B) Safe harbor eligible combined plan defined.--
                Section 210(e)(2) of such Act (29 U.S.C. 1060(e)(2)) is 
                amended--
                            (i) in subparagraph (A) by redesignating 
                        clauses (i), (ii), and (iii) as subclauses (I), 
                        (II), and (III), respectively, and moving such 
                        subclauses (as so redesignated) 2 ems to the 
                        right, and
                            (ii) by striking ``(2) Eligible combined 
                        plan.--'' and all that follows through ``(A) In 
                        general.--The term'' and inserting the 
                        following:
            ``(2) Eligible combined plans.--For purposes of this 
        subsection--
                    ``(A) In general.--
                            ``(i) Eligible combined plan.--The term'', 
                        and
                            (iii) by inserting after subparagraph 
                        (A)(i) (as amended by this subparagraph) the 
                        following new clause:
                            ``(ii) Safe harbor eligible combined 
                        plan.--The term `safe harbor eligible combined 
                        plan' means an eligible combined plan with 
                        respect to which the benefit, contribution, 
                        vesting, and nondiscrimination requirements of 
                        subparagraphs (B), (C), (D), (E), and (F) are 
                        met.''.
            (3) Conforming amendments.--Section 210(e) of such Act (29 
        U.S.C. 1060(e)) is amended by striking ``(3) Nondiscrimination 
        requirements'' and all that follows through ``(B) Matching 
        contributions.--In applying'' and inserting the following:
            ``(3) Contribution and notice requirements relating to 
        matching contributions.--In applying''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 2009.

SEC. 12. SAFE HARBOR CASH BALANCE FORMULA TO DEEMED TO MEET 
              REQUIREMENTS OF SECTIONS 401(A)(4) AND 411(B)(1).

    (a) Amendments to Internal Revenue Code of 1986.--
            (1) Limitation on cash balance formula.--Subparagraph (B) 
        of section 414(x)(2) of the Internal Revenue Code of 1986 
        (relating to benefit requirements) is amended by adding at the 
        end the following new clause:
                            ``(v) Limitations on modified cash balance 
                        formula.--In the case of a defined benefit plan 
                        under which a participant over age 30 receives 
                        a pay credit for the year which is greater than 
                        the minimum percentage of compensation for such 
                        participant under the table described in clause 
                        (iii), such plan shall be treated as meeting 
                        the requirements of such clause only if--
                                    ``(I) the ratio which such pay 
                                credit (expressed as a percentage of 
                                compensation) bears to the pay credit 
                                (expressed as a percentage of 
                                compensation) for the immediately 
                                preceding age bracket under the plan 
                                for the year, is no greater than
                                    ``(II) the ratio which the minimum 
                                percentage for such participant under 
                                such table bears to the minimum 
                                percentage for the immediately 
                                preceding age bracket under such 
                                table.''.
            (2) Nondiscrimination and benefit requirements.--
        Subagragraph (B) of section 414(x) of such Code is amended by 
        adding at the end the following new clause:
                            ``(iii) Satisfaction of nondiscrimination 
                        and benefit requirements for defined benefit 
                        plans.--A defined benefit plan forming part of 
                        a safe harbor eligible combined plan shall be 
                        treated as meeting the requirements of sections 
                        401(a)(4) and 411(b)(1)(B) if the requirements 
                        of paragraph (2)(B)(iii) are met with respect 
                        to such arrangement.''.
    (b) Amendments to Employee Retirement Income Security Act of 
1974.--
            (1) Limitation on cash balance formula.--Section 
        210(e)(2)(B) of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1060(e)(2)(B)) is amended by adding at the end 
        the following new clause:
                            ``(v) Limitations on modified cash balance 
                        formula.--In the case of a defined benefit plan 
                        under which a participant over age 30 receives 
                        a pay credit for the year which is greater than 
                        the minimum percentage of compensation for such 
                        participant under the table described in clause 
                        (iii), such plan shall be treated as meeting 
                        the requirements of such clause only if--
                                    ``(I) the ratio which such pay 
                                credit (expressed as a percentage of 
                                compensation) bears to the pay credit 
                                (expressed as a percentage of 
                                compensation) for the immediately 
                                preceding age bracket under the plan 
                                for the year, is no greater than
                                    ``(II) the ratio which the minimum 
                                percentage for such participant under 
                                such table bears to the minimum 
                                percentage for the immediately 
                                preceding age bracket under such 
                                table.''.
            (2) Nondiscrimination and benefit requirements.--Section 
        210(e)(1) of such Act (29 U.S.C. 1060(e)(1)) is amended by 
        adding at the end the following new subparagraph:
                            ``(ii) Satisfaction of nondiscrimination 
                        and benefit requirements for defined benefit 
                        plans.--A defined benefit plan forming part of 
                        a safe harbor eligible combined plan shall be 
                        treated as meeting the requirements of section 
                        204(b)(1)(B) if the requirements of paragraph 
                        (2)(B)(iii) are met with respect to such 
                        arrangement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 2009.

SEC. 13. SINGLE PARTICIPANT COMBINED PLANS.

    (a) Amendment to Internal Revenue Code of 1986.--The last sentence 
of section 414(x)(2)(A) of the Internal Revenue Code of 1986 is amended 
by inserting before the period at the end the following: ``and by 
substituting `1' for `2' each place it appears. For purposes of the 
preceding sentence, a self-employed individual described in section 
401(c)(1) shall be treated as an employee, and an employee who is a 
nonresident alien individual who receives no earned income (within the 
meaning of section 911(d)(2)) from the employer which constitutes 
income from sources within the United States (within the meaning of 
section 861(a)(3)) shall not be treated as an employee.''
    (b) Amendment to Employee Retirement Income Security Act of 1974.--
The last sentence of section 210(e)(2)(A) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1060(e)(2)(A)) is amended by 
inserting before the period at the end the following: ``and by 
substituting `1' for `2' each place it appears. For purposes of the 
preceding sentence, a self-employed individual described in section 
401(c)(1) of such Code shall be treated as an employee, and an employee 
who is a nonresident alien individual who receives no earned income 
(within the meaning of section 911(d)(2) of such Code) from the 
employer which constitutes income from sources within the United States 
(within the meaning of section 861(a)(3) of such Code) shall not be 
treated as an employee.''
    (c) Effective Date.--The amendments made by this section shall 
apply as if included in the enactment of section 903 of the Pension 
Protection Act of 2006.

SEC. 14. MATCHING CONTRIBUTIONS PROVIDED THROUGH CASH BALANCE PLAN.

    (a) In General.--
            (1) Additional accruals under defined benefit plan forming 
        part of eligible combined plan provided as matching 
        contributions.--
                    (A) Certain arrangements under defined benefit plan 
                satisfy definitely determinable benefit requirement.--
                Subsection (a) of section 401 of the Internal Revenue 
                Code of 1986 is amended by inserting after paragraph 
                (37) the following new paragraph:
            ``(38) Qualified matching accrual under eligible combined 
        plan satisfies definitely determinable benefit requirement.--A 
        trust forming part of a defined benefit plan which forms part 
        of an eligible combined plan (as defined in section 414(x)) 
        shall not be treated as failing to constitute a qualified trust 
        merely because such plan includes qualified matching accruals 
        (as defined in subsection (m)(13)).''.
                    (B) Matching accruals.--Subsection (m) of section 
                401 of such Code is amended by redesignating paragraph 
                (13) as paragraph (14) and by inserting after paragraph 
                (12) the following new paragraph:
            ``(13) Special rules relating to qualified matching 
        accruals under a eligible combined plan.--For purposes of this 
        section--
                    ``(A) Qualified matching accrual.--The term 
                `qualified matching accrual' means an amount funded by 
                an employer in the form of a benefit accrual under a 
                defined benefit plan forming part of an eligible 
                combined plan (as defined in section 414(x)) to match 
                elective deferrals under a qualified cash or deferred 
                arrangement which is part of such eligible combined 
                plan (as so defined) and which meets the formula 
                requirements of subparagraph (B). The benefit accrual 
                shall be determined under a nondiscretionary formula 
                set forth in the defined benefit plan. For purposes of 
                determining such benefit accrual, the amount of 
                elective deferrals taken into account under such 
                formula may be limited under the plan.
                    ``(B) Formula requirements.--A benefit accrual 
                meets the requirements of this subparagraph if such 
                accrual is a hypothetical contribution that is added to 
                a participant's hypothetical account balance, the 
                amount of which is determined, in accordance with the 
                matching accrual formula set forth in the plan, with 
                reference to the amount of the elective deferrals made 
                by the participant for the plan year to a qualified 
                cash or deferred arrangement which is part of the 
                eligible combined plan (as defined in section 414(x)). 
                Matching accruals under the formula may vary with age 
                or other employment-related factors.
                    ``(C) Coordinate with employer contributions.--For 
                purposes of paragraph (4), the term `employer 
                contributions' shall not include any amount contributed 
                by an employer to a defined benefit plan for the 
                purpose of funding any qualified matching accruals.
                    ``(D) Safe harbor formula.--A qualified matching 
                accrual formula shall be deemed to satisfy subsection 
                (a)(4) if it satisfies the requirements of clauses (i) 
                and (ii).
                            ``(i) Elective deferrals at or above 
                        maximum matchable rate.--For an employee who 
                        makes elective deferrals at or above the 
                        maximum matchable rate, the qualified matching 
                        benefit accrual for the plan year is a 
                        hypothetical allocation under a cash balance 
                        plan that equals a percentage (not greater than 
                        4 percent) of compensation (as defined in 
                        section 414(s)).
                            ``(ii) Elective deferrals below maximum 
                        matchable rate.--For employees who make 
                        elective deferrals at a rate that is below the 
                        maximum matchable rate, the qualified matching 
                        benefit accrual for such plan year shall be 
                        prorated. The plan may prorate the qualified 
                        benefit accrual on the basis of whole 
                        percentages, and the plan may require that an 
                        employee's elective deferrals be stated as 
                        whole percentages.
                            ``(iii) Maximum matchable rate.--For 
                        purposes of this subparagraph, the maximum 
                        matchable rate must be a specified percentage 
                        of compensation which does not exceed 4 
                        percent.
                            ``(iv) Cash balance plan defined.--For 
                        purposes of clause (i), a cash balance plan is 
                        a defined benefit plan that defines an 
                        employee's benefits by reference to the 
                        employee's hypothetical account. Such 
                        hypothetical account is determined by 
                        reference, first, to hypothetical contribution 
                        allocations, and, second, to hypothetical 
                        interest credits (on an annual or more frequent 
                        basis). The right to future interest credits 
                        are determined without regard to future 
                        service.''.
                    (C) Exception to benefit contingency rule.--
                Subparagraph (A) of section 401(k)(4) of such Code is 
                amended by inserting ``or qualified matching accruals 
                (as defined in subsection (m)(13)'' after ``section 
                401(m))''.
                    (D) Forfeitures by reason of excess deferral.--
                Subparagraph (G) of section 411(a)(3) of the Code is 
                amended by adding at the end the following: ``A rule 
                similar to the rule of the preceding sentence shall 
                apply with respect to qualified matching accruals (as 
                defined in section 401(m)(13)).''
                    (E) Accrued benefit requirement with respect to 
                matching accruals.--Paragraph (1) of section 411(b) of 
                such Code is amended by adding at the end the following 
                new subparagraph:
                    ``(I) In the case of qualified matching accruals 
                (as defined in section 401(m)(13)), the requirements 
                for accrued benefits set forth in subparagraphs (A) 
                through (H) of this subsection shall be applied on the 
                basis of the rate of matching accruals available to 
                participants, without regard to the actual elective 
                deferrals made by participants.''.
                    (F) Participation requirements with respect to 
                qualified matching accruals.--Paragraph (26) of section 
                401(a) of such Code is amended by redesignating 
                subparagraph (H) as subparagraph (I), and by inserting 
                after subparagraph (G) the following new subparagraph:
                    ``(H) Special testing rules for qualified matching 
                accruals.--
                            ``(i) If an eligible combined plan (as 
                        defined in section 414(x)) includes qualified 
                        matching accruals (as defined in section 
                        401(m)(13)), the rules in clauses (ii) and 
                        (iii) shall apply.
                            ``(ii) Qualified matching accruals only 
                        benefit formula.--If the only benefit formula 
                        in the defined benefit plan forming a part of 
                        the eligible combined plan is a qualified 
                        matching accrual formula, the requirements of 
                        this paragraph shall be applied by treating a 
                        participant's annual benefit accrual as the 
                        maximum accrual that was available to the 
                        participant for the plan year, regardless of 
                        whether the maximum matchable elective 
                        deferrals were actually made by the 
                        participant. If the qualified matching accrual 
                        formula applies to elective deferrals in excess 
                        of 6 percent of compensation, then the 
                        requirements of this paragraph must be applied 
                        by taking into account the actual matching 
                        accruals earned by participants for the plan 
                        year.
                            ``(iii) Multiple formulas.--If the defined 
                        benefit plan includes one or more benefit 
                        formulas in addition to a qualified matching 
                        accrual formula, the employer may elect to 
                        apply clause (ii) to the qualified matching 
                        accrual formulas only if the requirements of 
                        this paragraph are satisfied separately with 
                        respect to the benefit accruals that are 
                        determined without regard to the qualified 
                        matching accrual formula.''.
                    (G) Regulations for meeting nondiscrimination 
                requirements.--
                            (i) In general.--The Secretary of the 
                        Treasury shall prescribe regulations on ways in 
                        which qualified matching accruals (as defined 
                        by section 401(m)(13) of the Internal Revenue 
                        Code of 1986, as added by this section) that do 
                        not satisfy the formula requirements of section 
                        401(m)(13)(D) of such Code (as enacted by 
                        subsection (b) of this section) can satisfy the 
                        nondiscrimination requirements of section 
                        401(a)(4) of such Code. The regulations may 
                        prescribe safe harbor formulas in addition to 
                        those prescribed by section 401(m)(13)(D).
                            (ii) Temporary and final form.--The 
                        Secretary shall prescribe the regulations 
                        required by clause (i) in temporary form not 
                        later than 6 months after the effective date of 
                        this section and in final form not later than 
                        18 months after the effective date of this 
                        section.
                    (H) Plan years beginning before issuance of 
                regulations.--For plan years beginning prior to the 
                date the regulations described in subsection (g) are 
                issued in final form (and after the effective date of 
                this section), a plan's qualified matching accrual 
                formula must satisfy a reasonable, good faith, 
                interpretation of section 401(a)(4) of such Code.
            (2) Cash balance matching to satisfy contribution safe 
        harbor for combined plan.--Subparagraph (C) of section 
        414(x)(2) of such Code is amended by adding at the end the 
        following new clause:
                            ``(iii) Special rule for matching pay 
                        credits.--If the defined benefit plan forming 
                        part of the eligible combined plan is an 
                        applicable defined benefit plan as defined in 
                        section 411(a)(13)(B) which meets the interest 
                        credit requirements of section 411(b)(5)(B)(i), 
                        the plan shall be treated as meeting the 
                        requirements of clause (i) if with respect to 
                        any plan year each participant receives a 
                        matching pay credit in an amount equal to 50 
                        percent of so much of the pay credit otherwise 
                        received by the participant as does not exceed 
                        4 percent of compensation. A plan shall not 
                        fail to meet the requirements of sections 
                        401(a)(4) and 411(b)(1) merely because the plan 
                        provides matching pay credit as provided in 
                        this clause.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 2009.

SEC. 15. ESOP MAY FORM PART OF ELIGIBLE COMBINED PLAN.

    (a) Amendment to Internal Revenue Code of 1986.--Paragraph (6) of 
section 414(x) of the Internal Revenue Code of 1986 (defining 
applicable defined contribution plan), as amended by this Act) is 
amended by adding at the end the following new subparagraph:
                    ``(C) ESOP.--An applicable defined contribution 
                plan forming part of an eligible combined plan may 
                include an employee stock ownership plan (as defined in 
                section 4975(e)(7)).''.
    (b) Amendment to Employee Retirement Income Security Act of 1974.--
Section 210(e)(6) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1060(e)(6)) is amended by adding at the end the 
following new subparagraph:
                    ``(C) ESOP.--An applicable individual account plan 
                forming part of an eligible combined plan may include 
                an employee stock ownership plan (as defined in section 
                4975(e)(7) of the Internal Revenue Code of 1986).''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 2009.

SEC. 16. SPECIAL FUNDING TARGET RULE FOR PLANS COMPUTING ACCRUED 
              BENEFITS BY REFERENCE TO HYPOTHETICAL ACCOUNT BALANCE.

    (a) Amendment to Internal Revenue Code 1986.--Paragraph (1) of 
section 436(j) of the Internal Revenue Code of 1986 (defining funding 
target attainment percentage) is amended by adding at the end the 
following: ``For purposes of the preceding sentence, in the case of a 
defined benefit plan under which the accrued benefit (or portion 
thereof) is expressed as the balance of a hypothetical account, the 
funding target with respect to such benefits shall be the lesser of--
                    ``(A) the funding target with respect to such 
                benefits determined under such section (without regard 
                to this sentence), or
                    ``(B) the aggregate balance of the hypothetical 
                accounts.''.
    (b) Amendment to Employee Retirement Income Security Act of 1974.--
Section 206(g)(9)(A) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1056(g)(9)(A)) is amended by adding at the end the 
following: ``For purposes of the preceding sentence, in the case of a 
defined benefit plan under which the accrued benefit (or portion 
thereof) is expressed as the balance of a hypothetical account, the 
funding target with respect to such benefits shall be the lesser of--
                            ``(i) the funding target with respect to 
                        such benefits determined under such section 
                        (without regard to this sentence), or
                            ``(ii) the aggregate balance of the 
                        hypothetical accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to plan years beginning after December 31, 2008.
                                 <all>