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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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

(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.

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

(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.

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.

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.

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.

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.