[Congressional Record Volume 151, Number 26 (Tuesday, March 8, 2005)]
[Senate]
[Pages S2246-S2252]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. THOMAS (for himself and Mr. Kyl):
  S. 547. A bill to amend the Internal Revenue Code of 1986 to provide 
for employer retirement savings accounts, and for other purposes; to 
the Committee on Finance.
  Mr. THOMAS. Mr. President, today I rise to introduce the Savings 
Account Vehicle Enhancement, or ``SAVE,'' initiative, comprised of 
three separate bills to create, respectively, Lifetime Savings 
Accounts, Retirement Savings Accounts, and Employer Retirement Savings 
Accounts.
  Much attention has been focused lately on the retirement security of 
Americans, but the focus thus far has centered primarily on Social 
Security. It is imperative that we remember that Social Security was 
never intended as a primary income source for retirees, but rather as a 
safety net and a supplement to private savings. The bills I introduce 
today focus on private savings, for both pre-retirement expenses and 
retirement security.
  My reasons for introducing these bills are threefold. First of all, 
it is important that we address the appallingly-low personal savings 
rate in this country. Personal savings rates in the United States since 
1960 have reached a new low at less than 2 percent. These bills will 
encourage additional savings and reduce the temptation for individuals 
to tap into retirement savings for other, pre-retirement purposes.
  Secondly, our tax code is entirely too complex and contributes to 
lack of participation in the tax-preferred vehicles that already exist. 
These bills, by allowing individuals to accumulate tax-free interest 
and by streamlining current savings vehicles, represent an important 
step toward fundamental tax reform.
  Finally, as the Social Security system strains under increasing 
pressure, it is even more important that we provide a better, more 
responsive, simpler system for Americans to accumulate personal savings 
for retirement.
  Mr. President, I ask unanimous consent that the text of the bills be 
printed in the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                 S. 545

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Lifetime Savings Account Act 
     of 2005''.

     SEC. 2. LIFETIME SAVINGS ACCOUNTS.

       (a) In General.--Subchapter F of Chapter 1 of the Internal 
     Revenue Code of 1986 (relating to exempt organizations) is 
     amended by adding at the end the following new part:

                  ``PART IX--LIFETIME SAVINGS ACCOUNTS

     ``SEC. 530A. LIFETIME SAVINGS ACCOUNTS.

       ``(a) General Rule.--A Lifetime Savings Account shall be 
     exempt from taxation under this subtitle. Notwithstanding the 
     preceding sentence, such account shall be subject to the 
     taxes imposed by section 511 (relating to imposition of tax 
     on unrelated business income of charitable organizations).
       ``(b) Lifetime Savings Account.--For purposes of this 
     section, the term `Lifetime Savings Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of an individual or his beneficiaries and which is 
     designated (in such manner as the Secretary shall prescribe) 
     at the time of the establishment of the trust as a Lifetime 
     Savings Account, but only if the written governing instrument 
     creating the trust meets the following requirements:
       ``(1) Except in the case of a qualified rollover 
     contribution described in subsection (d)--
       ``(A) no contribution will be accepted unless it is in 
     cash, and
       ``(B) contributions will not be accepted for the calendar 
     year in excess of the contribution limit specified in 
     subsection (c)(1).
       ``(2) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which that person will 
     administer the trust will be consistent with the requirements 
     of this section or who has so demonstrated with respect to 
     any individual retirement plan.
       ``(3) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(4) The interest of an individual in the balance of his 
     account is nonforfeitable.
       ``(5) The assets of the trust shall not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(c) Treatment of Contributions and Distributions.--
       ``(1) Contribution limit.--
       ``(A) In general.--The aggregate amount of contributions 
     (other than qualified rollover contributions described in 
     subsection

[[Page S2247]]

     (d)) for any calendar year to all Lifetime Savings Accounts 
     maintained for the benefit of an individual shall not exceed 
     $5,000.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of any calendar year after 
     2006, the $5,000 amount under subparagraph (A) 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, determined by 
     substituting `calendar year 2005' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $500, such amount shall 
     be rounded to the next lower multiple of $500.
       ``(2) Distributions.--Any distribution from a Lifetime 
     Savings Account shall not be includible in gross income.
       ``(d) Qualified Rollover Contribution.--For purposes of 
     this section, the term `qualified rollover contribution' 
     means a contribution to a Lifetime Savings Account--
       ``(1) from another such account of the same beneficiary, 
     but only if such amount is contributed not later than the 
     60th day after the distribution from such other account,
       ``(2) from a Lifetime Savings Account of a spouse of the 
     beneficiary of the account to which the contribution is made, 
     but only if such amount is contributed not later than the 
     60th day after the distribution from such other account, and
       ``(3) before January 1, 2007, from--
       ``(A) a qualified tuition program pursuant to section 
     529(c)(3)(E), or
       ``(B) a Coverdell education savings account pursuant to 
     section 530(d)(9).
       ``(e) Loss of Taxation Exemption of Account Where 
     Beneficiary Engages in Prohibited Transaction.--Rules similar 
     to the rules of paragraph (2) of section 408(e) shall apply 
     to any Lifetime Savings Account.
       ``(f) Custodial Accounts.--For purposes of this section, a 
     custodial account or an annuity contract issued by an 
     insurance company qualified to do business in a State shall 
     be treated as a trust under this section if--
       ``(1) the custodial account or annuity contract would, 
     except for the fact that it is not a trust, constitute a 
     trust which meets the requirements of subsection (b), and
       ``(2) in the case of a custodial account, the assets of 
     such account are held by a bank (as defined in section 
     408(n)) or another person who demonstrates, to the 
     satisfaction of the Secretary, that the manner in which he 
     will administer the account will be consistent with the 
     requirements of this section.

     For purposes of this title, in the case of a custodial 
     account or annuity contract treated as a trust by reason of 
     the preceding sentence, the person holding the assets of such 
     account or holding such annuity contract shall be treated as 
     the trustee thereof.
       ``(g) Reports.--The trustee of a Lifetime Savings Account 
     shall make such reports regarding such account to the 
     Secretary and to the beneficiary of the account with respect 
     to contributions, distributions, and such other matters as 
     the Secretary may require. The reports required by this 
     subsection shall be filed at such time and in such manner and 
     furnished to such individuals at such time and in such manner 
     as may be required.''.
       (b) Tax on Excess Contributions.--
       (1) In general.--Subsection (a) of section 4973 of the 
     Internal Revenue Code of 1986 (relating to tax on excess 
     contributions to certain tax-favored accounts and annuities) 
     is amended by striking ``or'' at the end of paragraph (4), by 
     inserting ``or'' at the end of paragraph (5), and by 
     inserting after paragraph (5) the following new paragraph:
       ``(6) a Lifetime Savings Account (as defined in section 
     530A),''.
       (2) Excess contribution.--Section 4973 of such Code is 
     amended by adding at the end the following new subsection:
       ``(h) Excess Contributions to Lifetime Savings Accounts.--
     For purposes of this section--
       ``(1) In general.--In the case of Lifetime Savings Accounts 
     (within the meaning of section 530A), the term `excess 
     contributions' means the sum of--
       ``(A) the amount by which the amount contributed for the 
     calendar year to such accounts (other than qualified rollover 
     contributions (as defined in section 530A(d))) exceeds the 
     contribution limit under section 530A(c)(1), and
       ``(B) the amount determined under this subsection for the 
     preceding calendar year, reduced by the excess (if any) of 
     the maximum amount allowable as a contribution under section 
     530A(c)(1) for the calendar year over the amount contributed 
     to the accounts for the calendar year.
       ``(2) Special rule.--A contribution shall not be taken into 
     account under paragraph (1) if such contribution (together 
     with the amount of net income attributable to such 
     contribution) is returned to the beneficiary before July 1 of 
     the year following the year in which the contribution is 
     made.''.
       (c) Failure to Provide Reports on Lifetime Savings 
     Accounts.--Paragraph (2) of section 6693(a) of the Internal 
     Revenue Code of 1986 (relating to failure to provide reports 
     on individual retirement accounts or annuities) is amended by 
     striking ``and'' at the end of subparagraph (D), by striking 
     the period at the end of subparagraph (E) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(F) section 530A(g) (relating to Lifetime Savings 
     Accounts).''.
       (d) Rollovers From Certain Other Tax-Free Accounts.--
       (1) Qualified state tuition plans.--Paragraph (3) of 
     section 529(c) of the Internal Revenue Code of 1986 (relating 
     to distributions) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Rollovers to lifetime savings accounts.--
       ``(i) In general.--Subparagraph (A) shall not apply to the 
     qualified portion of any distribution which, before January 
     1, 2007, and within 60 days of such distribution, is 
     transferred to a Lifetime Savings Account (within the meaning 
     of section 530A) of the designated beneficiary. This 
     subparagraph shall only apply to distributions in accordance 
     with the previous sentence from an account which was in 
     existence with respect to such designated beneficiary on 
     December 31, 2004.
       ``(ii) Qualified portion.--For purposes of this 
     subparagraph, the term `qualified portion' means the amount 
     equal to the sum of--

       ``(I) the lesser of $50,000 or the amount which is in the 
     account of the designated beneficiary on December 31, 2004,
       ``(II) any contributions to such account for the taxable 
     year beginning after December 31, 2004, and before January 1, 
     2006, and
       ``(III) any earnings of such account for such year.

       ``(iii) Limitation.--The sum of the amounts taken into 
     account under clause (ii)(II) with respect to all accounts of 
     the designated beneficiary plus any amounts with respect to 
     such designated beneficiary taken into account under section 
     530(d)(9)(B)(ii) shall not exceed the sum of $5,000 plus the 
     earnings attributable to such amounts.''.
       (2) Coverdell education savings accounts.--Subsection (d) 
     of section 530 of such Code (relating to tax treatment of 
     distributions) is amended by inserting at the end the 
     following new paragraph:
       ``(9) Rollovers to lifetime savings accounts.--
       ``(A) In general.--Paragraph (1) shall not apply to the 
     qualified portion of any amount paid or distributed from a 
     Coverdell education savings account to the extent that the 
     amount received is paid, before January 1, 2007, and not 
     later than the 60th day after the date of such payment or 
     distribution, into a Lifetime Savings Account (within the 
     meaning of section 530A) for the benefit of the same 
     beneficiary. This paragraph shall only apply to amounts paid 
     or distributed in accordance with the preceding sentence from 
     an account which was in existence with respect to such 
     beneficiary on December 31, 2004.
       ``(B) Qualified portion.--For purposes of this paragraph, 
     the term `qualified portion' means the amount equal to the 
     sum of--
       ``(i) the amount which is in the account of the beneficiary 
     on December 31, 2004,
       ``(ii) any contributions to such account for the taxable 
     year beginning after December 31, 2004, and before January 1, 
     2006 and
       ``(iii) any earnings of such account for such year.
       ``(C) Limitation.--The sum of the amounts taken into 
     account under subparagraph (B)(ii) with respect to all 
     accounts of the beneficiary plus any amounts with respect to 
     such beneficiary taken into account under section 
     529(c)(3)(E)(ii)(II) shall not exceed the sum of $5,000 plus 
     the earnings attributable to such amounts.''.
       (e) Conforming Amendment.--The table of parts for 
     subchapter F of chapter 1 of the Internal Revenue Code of 
     1986 is amended by adding at the end the following new item:

                ``Part IX. Lifetime Savings Accounts''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                                 S. 546

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

     SECTION 1. SHORT TITLE, ETC.

       (a) Short Title.--This Act may be cited as the ``Retirement 
     Savings Account Act''.
       (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.

     SEC. 2. RETIREMENT SAVINGS ACCOUNTS.

       (a) In General.--Section 408A (relating to Roth IRAs) is 
     amended to read as follows:

     ``SEC. 408A. RETIREMENT SAVINGS ACCOUNTS.

       ``(a) In General.--Except as provided in this section, a 
     retirement savings account shall be treated for purposes of 
     this title in the same manner as an individual retirement 
     plan.
       ``(b) Retirement Savings Account.--For purposes of this 
     title, the term `retirement savings account' means an 
     individual retirement plan (as defined in section 
     7701(a)(37)) which--
       ``(1) is designated (in such manner as the Secretary may 
     prescribe) at the time of establishment of the plan as a 
     retirement savings account, and
       ``(2) does not accept any contribution (other than a 
     qualified rollover contribution) which is not in cash.
       ``(c) Treatment of Contributions.--
       ``(1) Contribution limit.--Notwithstanding subsections 
     (a)(1) and (b)(2)(A) of section 408, the aggregate amount of 
     contributions for any taxable year to all retirement savings 
     accounts maintained for the benefit of an individual shall 
     not exceed the lesser of--

[[Page S2248]]

       ``(A) $5,000, or
       ``(B) the amount of compensation includible in the 
     individual's gross income for such taxable year.
       ``(2) Special rule for certain married individuals.--In the 
     case of any individual who files a joint return for the 
     taxable year, the amount taken into account under paragraph 
     (1)(B) shall be increased by the excess (if any) of--
       ``(A) the compensation includible in the gross income of 
     such individual's spouse for the taxable year, over
       ``(B) the aggregate amount of contributions for the taxable 
     year to all retirement savings accounts maintained for the 
     benefit of such spouse.
       ``(3) Contributions permitted after age 70\1/2\.--
     Contributions to a retirement savings account may be made 
     even after the individual for whom the account is maintained 
     has attained age 70\1/2\.
       ``(4) Mandatory distribution rules not to apply before 
     death.--Notwithstanding subsections (a)(6) and (b)(3) of 
     section 408 (relating to required distributions), the 
     following provisions shall not apply to any retirement 
     savings account:
       ``(A) Section 401(a)(9)(A).
       ``(B) The incidental death benefit requirements of section 
     401(a).
       ``(5) Rollover contributions.--
       ``(A) In general.--No rollover contribution may be made to 
     a retirement savings account unless it is a qualified 
     rollover contribution.
       ``(B) Coordination with limit.--A qualified rollover 
     contribution shall not be taken into account for purposes of 
     paragraph (1).
       ``(6) Rollovers from plans with taxable distributions.--
       ``(A) In general.--Notwithstanding sections 402(c), 
     403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16), in the case 
     of any contribution to which this paragraph applies--
       ``(i) there shall be included in gross income any amount 
     which would be includible were it not part of a qualified 
     rollover contribution,
       ``(ii) section 72(t) shall not apply, and
       ``(iii) unless the taxpayer elects not to have this clause 
     apply for any taxable year, any amount required to be 
     included in gross income for such taxable year by reason of 
     this paragraph for any contribution before January 1, 2007, 
     shall be so included ratably over the 4-taxable year period 
     beginning with such taxable year.

     Any election under clause (iii) for any contributions during 
     a taxable year may not be changed after the due date 
     (including extensions of time) for filing the taxpayer's 
     return for such taxable year.
       ``(B) Contributions to which paragraph applies.--This 
     paragraph shall apply to any qualified rollover contribution 
     to a retirement savings account (other than a rollover 
     contribution from another such account).
       ``(C) Conversions of iras.--The conversion of an individual 
     retirement plan (other than a retirement savings account) to 
     a retirement savings account shall be treated for purposes of 
     this paragraph as a contribution to which this paragraph 
     applies.
       ``(D) Additional reporting requirements.--Trustees and plan 
     administrators of eligible retirement plans (as defined in 
     section 402(c)(8)(B)) and retirement savings accounts shall 
     report such information as the Secretary may require to 
     ensure that amounts required to be included in gross income 
     under subparagraph (A) are so included. Such reports shall be 
     made at such time and in such form and manner as the 
     Secretary may require. The Secretary may provide that such 
     information be included as additional information in reports 
     required under section 408(i) or 6047.
       ``(E) Special rules for contributions to which a 4-year 
     averaging applies.--In the case of a qualified rollover 
     contribution to which subparagraph (A)(iii) applied, the 
     following rules shall apply:
       ``(i) Acceleration of inclusion.--

       ``(I) In general.--The amount required to be included in 
     gross income for each of the first 3 taxable years in the 4-
     year period under subparagraph (A)(iii) shall be increased by 
     the aggregate distributions from retirement savings accounts 
     for such taxable year which are allocable under subsection 
     (d)(3) to the portion of such qualified rollover contribution 
     required to be included in gross income under subparagraph 
     (A)(i).
       ``(II) Limitation on aggregate amount included.--The amount 
     required to be included in gross income for any taxable year 
     under subparagraph (A)(iii) shall not exceed the aggregate 
     amount required to be included in gross income under 
     subparagraph (A)(iii) for all taxable years in the 4-year 
     period (without regard to subclause (I)) reduced by amounts 
     included for all preceding taxable years.

       ``(ii) Death of distributee.--

       ``(I) In general.--If the individual required to include 
     amounts in gross income under such subparagraph dies before 
     all of such amounts are included, all remaining amounts shall 
     be included in gross income for the taxable year which 
     includes the date of death.
       ``(II) Special rule for surviving spouse.--If the spouse of 
     the individual described in subclause (I) acquires the 
     individual's entire interest in any retirement savings 
     account to which such qualified rollover contribution is 
     properly allocable, the spouse may elect to treat the 
     remaining amounts described in subclause (I) as includible in 
     the spouse's gross income in the taxable years of the spouse 
     ending with or within the taxable years of such individual in 
     which such amounts would otherwise have been includible. Any 
     such election may not be made or changed after the due date 
     (including extensions of time) for filing the spouse's return 
     for the taxable year which includes the date of death.

       ``(F) 5-year holding period rules.--If--
       ``(i) any portion of a distribution from a retirement 
     savings account is properly allocable to a qualified rollover 
     contribution with respect to which an amount is includible in 
     gross income under subparagraph (A)(i),
       ``(ii) such distribution is made during the 5-taxable year 
     period beginning with the taxable year for which such 
     contribution was made, and
       ``(iii) such distribution is not described in clause (i), 
     (ii), or (iii) of subsection (d)(2)(A),

     then section 72(t) shall be applied as if such portion were 
     includible in gross income.
       ``(7) Time when contributions made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a 
     contribution to a retirement savings account on the last day 
     of the preceding taxable year if the contribution is made on 
     account of such taxable year and is made not later than the 
     time prescribed by law for filing the return for such taxable 
     year (not including extensions thereof).
       ``(8) Cost-of-living adjustment.--
       ``(A) In general.--In the case of any taxable year 
     beginning in a calendar year after 2006, the $5,000 amount 
     under paragraph (1)(A) 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 2005' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(B) Rounding rules.--If any amount after adjustment under 
     subparagraph (A) is not a multiple of $500, such amount shall 
     be rounded to the next lower multiple of $500.
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) Exclusion.--Any qualified distribution from a 
     retirement savings account shall not be includible in gross 
     income.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' means 
     any payment or distribution--
       ``(i) made on or after the date on which the individual 
     attains age 58,
       ``(ii) made to a beneficiary (or to the estate of the 
     individual) on or after the death of the individual,
       ``(iii) attributable to the individual's being disabled 
     (within the meaning of section 72(m)(7)), or
       ``(iv) to which section 72(t)(2)(F) applies (if such 
     payment or distribution is made before January 1, 2009).
       ``(B) Distributions of excess contributions and earnings.--
     The term `qualified distribution' shall not include any 
     distribution of any contribution described in section 
     408(d)(4) and any net income allocable to the contribution.
       ``(3) Ordering rules.--For purposes of applying this 
     section and section 72 to any distribution from a retirement 
     savings account, such distribution shall be treated as made--
       ``(A) from contributions to the extent that the amount of 
     such distribution, when added to all previous distributions 
     from the retirement savings account, does not exceed the 
     aggregate contributions to the retirement savings account, 
     and
       ``(B) from such contributions in the following order:
       ``(i) Contributions other than qualified rollover 
     contributions with respect to which an amount is includible 
     in gross income under subsection (c)(6)(A)(i).
       ``(ii) Qualified rollover contributions with respect to 
     which an amount is includible in gross income under 
     subsection (c)(6)(A)(i) on a first-in, first-out basis.

     Any distribution allocated to a qualified rollover 
     contribution under subparagraph (B)(ii) shall be allocated 
     first to the portion of such contribution required to be 
     included in gross income.
       ``(4) Aggregation rules.--Section 408(d)(2) shall be 
     applied separately with respect to retirement savings 
     accounts and other individual retirement plans.
       ``(e) Qualified Rollover Contribution.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified rollover contribution' means--
       ``(A) a rollover contribution to a retirement savings 
     account of an individual from another such account of such 
     individual or such individual's spouse, or from an individual 
     retirement plan of such individual, but only if such rollover 
     contribution meets the requirements of section 408(d)(3), and
       ``(B) a rollover contribution described in section 402(c), 
     402A(c)(3)(A), 403(a)(4), 403(b)(8), or 457(e)(16).
       ``(2) Coordination with limitation on ira rollovers.--For 
     purposes of section 408(d)(3)(B), there shall be disregarded 
     any qualified rollover contribution from an individual 
     retirement plan (other than a retirement savings account) to 
     a retirement savings account.
       ``(f) Individual Retirement Plan.--For purposes of this 
     section--
       ``(1) a simplified employee pension or a simple retirement 
     account may not be designated as a retirement savings 
     account, and

[[Page S2249]]

       ``(2) contributions to any such pension or account shall 
     not be taken into account for purposes of subsection (c)(1).
       ``(g) Compensation.--For purposes of this section, the term 
     `compensation' includes earned income (as defined in section 
     401(c)(2)). Such term does not include any amount received as 
     a pension or annuity and does not include any amount received 
     as deferred compensation. Such term shall include any amount 
     includible in the individual's gross income under section 71 
     with respect to a divorce or separation instrument described 
     in section 71(b)(2)(A). For purposes of this subsection, 
     section 401(c)(2) shall be applied as if the term trade or 
     business for purposes of section 1402 included service 
     described in section 1402(c)(6).''.
       (b) Roth IRAs Treated as Retirement Savings Accounts.--In 
     the case of any taxable year beginning after December 31, 
     2005, any Roth IRA (as defined in section 408A(b) of the 
     Internal Revenue Code of 1986, as in effect on the day before 
     the date of the enactment of this Act) shall be treated for 
     purposes of such Code as having been designated at the time 
     of the establishment of the plan as a retirement savings 
     account under section 408A(b) of such Code (as amended by 
     this section).
       (c) Contributions to Other Individual Retirement Plans 
     Prohibited.--
       (1) Individual retirement accounts.--Paragraph (1) of 
     section 408(a) is amended to read as follows:
       ``(1) Except in the case of a simplified employee pension, 
     a simple retirement account, or a rollover contribution 
     described in subsection (d)(3) or in section 402(c), 
     403(a)(4), 403(b)(8), or 457(e)(16), no contribution will be 
     accepted on behalf of any individual for any taxable year 
     beginning after December 31, 2005. In the case of any 
     simplified employee pension or simple retirement account, no 
     contribution will be accepted unless it is in cash and 
     contributions will not be accepted for the taxable year on 
     behalf of any individual in excess of--
       ``(A) in the case of a simplified employee pension, the 
     amount of the limitation in effect under section 
     415(c)(1)(A), and
       ``(B) in the case of a simple retirement account, the sum 
     of the dollar amount in effect under subsection (p)(2)(A)(ii) 
     and the employer contribution required under subparagraph 
     (A)(iii) or (B)(i) of subsection (p)(2).''.
       (2) Individual retirement annuities.--Paragraph (2) of 
     section 408(b) is amended--
       (A) by redesignating subparagraphs (A), (B), and (C) as 
     subparagraphs (B), (C), and (D), respectively, and by 
     inserting before subparagraph (B), as so redesignated, the 
     following new subparagraph:
       ``(A) except in the case of a simplified employee pension, 
     a simple retirement account, or a rollover contribution 
     described in subsection (d)(3) or in section 402(c), 
     403(a)(4), 403(b)(8), or 457(e)(16), a premium shall not be 
     accepted on behalf of any individual for any taxable year 
     beginning after December 31, 2005,'', and
       (B) by amending subparagraph (C), as redesignated by 
     subparagraph (A), to read as follows:
       ``(C) the annual premium on behalf of any individual will 
     not exceed--
       ``(i) in the case of a simplified employee pension, the 
     amount of the limitation in effect under section 
     415(c)(1)(A), and
       ``(ii) in the case of a simple retirement account, the sum 
     of the dollar amount in effect under subsection (p)(2)(A)(ii) 
     and the employer contribution required under subparagraph 
     (A)(iii) or (B)(i) of subsection (p)(2), and''.
       (d) Conforming Amendments.--
       (1)(A) Section 219 is amended to read as follows:

     ``SEC. 219. CONTRIBUTIONS TO CERTAIN RETIREMENT PLANS 
                   ALLOWING ONLY EMPLOYEE CONTRIBUTIONS.

       ``(a) Allowance of Deduction.--In the case of an 
     individual, there shall be allowed as a deduction the amount 
     contributed on behalf of such individual to a plan described 
     in section 501(c)(18).
       ``(b) Maximum Amount of Deduction.--The amount allowable as 
     a deduction under subsection (a) to any individual for any 
     taxable year shall not exceed the lesser of--
       ``(1) $7,000, or
       ``(2) an amount equal to 25 percent of the compensation (as 
     defined in section 415(c)(3)) includible in the individual's 
     gross income for such taxable year.
       ``(c) Beneficiary Must Be Under Age 70\1/2\.--No deduction 
     shall be allowed under this section with respect to any 
     contribution on behalf of an individual if such individual 
     has attained age 70\1/2\ before the close of such 
     individual's taxable year for which the contribution was 
     made.
       ``(d) Special Rules.--
       ``(1) Married individuals.--The maximum deduction under 
     subsection (b) shall be computed separately for each 
     individual, and this section shall be applied without regard 
     to any community property laws.
       ``(2) Reports.--The Secretary shall prescribe regulations 
     which prescribe the time and the manner in which reports to 
     the Secretary and plan participants shall be made by the plan 
     administrator of a qualified employer or government plan 
     receiving qualified voluntary employee contributions.
       ``(e) Cross Reference.--For failure to provide required 
     reports, see section 6652(g).''.
       (B) Section 25B(d) is amended--
       (i) in paragraph (1)(A), by striking ``(as defined in 
     section 219(e))'', and
       (ii) by adding at the end the following new paragraph:
       ``(3) Qualified retirement contribution.--The term 
     `qualified retirement contribution' means--
       ``(A) any amount paid in cash for the taxable year by or on 
     behalf of an individual to an individual retirement plan for 
     such individual's benefit, and
       ``(B) any amount contributed on behalf of any individual to 
     a plan described in section 501(c)(18).''.
       (C) Section 86(f)(3) is amended by striking ``section 
     219(f)(1)'' and inserting ``section 408A(g)''.
       (D) Section 132(m)(3) is amended by inserting ``(as in 
     effect on the day before the date of the enactment of the 
     Retirement Savings Account Act)'' after ``section 
     219(g)(5)''.
       (E) Subparagraphs (A), (B), and (C) of section 220(d)(4) 
     are each amended by inserting ``, as in effect on the day 
     before the date of the enactment of the Retirement Savings 
     Account Act'' at the end.
       (F) Section 408(b) is amended in the last sentence by 
     striking ``section 219(b)(1)(A)'' and inserting ``paragraph 
     (2)(C)''.
       (G) Section 408(p)(2)(D)(ii) is amended by inserting ``(as 
     in effect on the day before the date of the enactment of the 
     Retirement Savings Account Act)'' after ``section 
     219(g)(5)''.
       (H) Section 409A(d)(2) is amended by inserting ``(as in 
     effect on the day before the date of the enactment of the 
     Retirement Savings Account Act)'' after ``subparagraph 
     (A)(iii))''.
       (I) Section 501(c)(18)(D)(i) is amended by striking 
     ``section 219(b)(3)'' and inserting ``section 219(b)''.
       (J) Section 6652(g) is amended by striking ``section 
     219(f)(4)'' and inserting ``section 219(d)(2)''.
       (K) The table of sections for part VII of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     219 and inserting the following new item:

``Sec. 219. Contributions to certain retirement plans allowing only 
              employee contributions.''.

       (2)(A) Section 408(d)(4)(B) is amended to read as follows:
       ``(B) no amount is excludable from gross income under 
     subsection (h) or (k) of section 402 with respect to such 
     contribution, and''.
       (B) Section 408(d)(5)(A) is amended to read as follows:
       ``(A) In general.--In the case of any individual, if the 
     aggregate contributions (other than rollover contributions) 
     paid for any taxable year to an individual retirement account 
     or for an individual retirement annuity do not exceed the 
     dollar amount in effect under subsection (a)(1) or (b)(2)(C), 
     as the case may be, paragraph (1) shall not apply to the 
     distribution of any such contribution to the extent that such 
     contribution exceeds the amount which is excludable from 
     gross income under subsection (h) or (k) of section 402, as 
     the case may be, for the taxable year for which the 
     contribution was paid--
       ``(i) if such distribution is received after the date 
     described in paragraph (4),
       ``(ii) but only to the extent that such excess contribution 
     has not been excluded from gross income under subsection (h) 
     or (k) of section 402.''.
       (C) Section 408(d)(5) is amended by striking the last 
     sentence.
       (D) Section 408(d)(7) is amended to read as follows:
       ``(7) Certain transfers from simplified employee pensions 
     prohibited until deferral test met.--Notwithstanding any 
     other provision of this subsection or section 72(t), 
     paragraph (1) and section 72(t)(1) shall apply to the 
     transfer or distribution from a simplified employee pension 
     of any contribution under a salary reduction arrangement 
     described in subsection (k)(6) (or any income allocable 
     thereto) before a determination as to whether the 
     requirements of subsection (k)(6)(A)(iii) are met with 
     respect to such contribution.''.
       (E) Section 408 is amended by striking subsection (j).
       (F)(i) Section 408 is amended by striking subsection (o).
       (ii) Section 6693 is amended by striking subsection (b) and 
     by redesignating subsections (c) and (d) as subsections (b) 
     and (c), respectively.
       (G) Section 408(p) is amended by striking paragraph (8) and 
     by redesignating paragraphs (9) and (10) as paragraphs (8) 
     and (9), respectively.
       (3)(A) Section 4973(a)(1) is amended to read as follows:
       ``(1) an individual retirement plan,''.
       (B) Section 4973(b) is amended to read as follows:
       ``(b) Excess Contributions to Simplified Employee Pensions 
     and Simple Retirement Accounts.--For purposes of this 
     section, in the case of simplified employee pensions or 
     simple retirement accounts, the term `excess contributions' 
     means the sum of--
       ``(1) the excess (if any) of--
       ``(A) the amount contributed for the taxable year to the 
     pension or account, over
       ``(B) the amount applicable to the pension or account under 
     subsection (a)(1) or (b)(2) of section 408, and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year, reduced by the sum of--
       ``(A) the distributions out of the account for the taxable 
     year which were included in the gross income of the payee 
     under section 408(d)(1),
       ``(B) the distributions out of the account for the taxable 
     year to which section 408(d)(5) applies, and
       ``(C) the excess (if any) of the maximum amount excludable 
     from gross income for the

[[Page S2250]]

     taxable year under subsection (h) or (k) of section 402 over 
     the amount contributed to the pension or account for the 
     taxable year.

     For purposes of this subsection, any contribution which is 
     distributed from a simplified employee pension or simple 
     retirement account in a distribution to which section 
     408(d)(4) applies shall be treated as an amount not 
     contributed.''.
       (C) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(h) Excess Contributions to Certain Individual Retirement 
     Plans.--For purposes of this section, in the case of 
     individual retirement plans (other than retirement savings 
     accounts, simplified employee pensions, and simple retirement 
     accounts), the term `excess contribution' means the sum of--
       ``(1) the aggregate amount contributed for the taxable year 
     to the individual retirement plans, and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year, reduced by the sum of--
       ``(A) the distributions out of the plans which were 
     included in gross income under section 408(d)(1), and
       ``(B) the distributions out of the plans for the taxable 
     year to which section 408(d)(5) applies.

     For purposes of this subsection, any contribution which is 
     distributed from the plan in a distribution to which section 
     408(d)(4) applies shall be treated as an amount not 
     contributed.''.
       (4)(A) Sections 402(c)(8)(B), 402A(c)(3)(A)(ii), 
     1361(c)(2)(A), 3405(e)(1)(B), and 4973(f) are each amended by 
     striking ``Roth IRA'' each place it appears and inserting 
     ``retirement savings account''.
       (B) Section 4973(f)(1)(A) is amended by striking ``Roth 
     IRAs'' and inserting ``retirement savings accounts''.
       (C) Paragraphs (1)(B) and (2)(B) of section 4973(f) are 
     each amended by striking ``sections 408A(c)(2) and (c)(3)'' 
     and inserting ``section 408A(c)(1)''.
       (D) Subsection (f) of section 4973 is amended in the 
     heading by striking ``Roth IRAs'' and inserting ``Retirement 
     Savings Accounts''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                                 S. 547

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

     SECTION 1. EMPLOYER RETIREMENT SAVINGS ACCOUNTS.

       (a) In General.--Subpart A of part 1 of subchapter D of 
     chapter 1 of the Internal Revenue Code of 1986 is amended by 
     inserting after section 401 the following new section:

     ``SEC. 401A. EMPLOYER RETIREMENT SAVINGS ACCOUNTS.

       ``(a) In General.--A defined contribution plan shall not 
     fail to meet the requirements of section 401(a) merely 
     because the plan includes an employer retirement savings 
     account arrangement.
       ``(b) Employer Retirement Savings Account Arrangement.--An 
     employer retirement savings account arrangement is any 
     arrangement which is part of a plan which meets the 
     requirements of section 401(a)--
       ``(1) under which a covered employee may elect to have the 
     employer make payments as contributions to a trust under the 
     plan on behalf of the employee, or to the employee directly 
     in cash,
       ``(2) under which amounts held by the trust which are 
     attributable to employer contributions made pursuant to the 
     employee's election--
       ``(A) may not be distributable to participants or other 
     beneficiaries earlier than--
       ``(i) severance from employment, death, or disability,
       ``(ii) an event described in subsection (g),
       ``(iii) the attainment of age 59\1/2\, or
       ``(iv) upon hardship of the employee, and
       ``(B) will not be distributable merely by reason of the 
     completion of a stated period of participation or the lapse 
     of a fixed number of years,
       ``(3) which provides that an employee's right to the 
     employee's accrued benefit derived from employer 
     contributions made to the trust pursuant to the employee's 
     election is nonforfeitable, and
       ``(4) which does not require, as a condition of 
     participation in the arrangement, that an employee complete a 
     period of service with the employer (or employers) 
     maintaining the plan extending beyond the period permitted 
     under section 410(a)(1) (determined without regard to 
     subparagraph (B)(i) thereof).
       ``(c) Application of Nondiscrimination Standards.--
       ``(1) Contribution percentage requirement.--An arrangement 
     shall not be treated as an employer retirement savings 
     account arrangement for any plan year unless--
       ``(A) the contribution percentage for eligible highly 
     compensated employees for the plan year does not exceed 200 
     percent of such percentage for all other eligible employees 
     for the preceding plan year, or
       ``(B) the contribution percentage of nonhighly compensated 
     employees for the preceding plan year exceeded 6 percent.
       ``(2) Alternative methods of meeting nondiscrimination 
     requirements.--
       ``(A) In general.--An arrangement shall be treated as 
     meeting the requirements of paragraph (1)(A) if such 
     arrangement--
       ``(i) meets the contribution requirements of subparagraph 
     (B), and
       ``(ii) meets the notice requirements of subparagraph (D).
       ``(B) Contribution requirement.--The requirements of this 
     subparagraph are met if, under the arrangement, the employer 
     is required to make contributions to a defined contribution 
     plan on behalf of each eligible employee who is not a highly 
     compensated employee in an amount equal to at least 3 percent 
     of the employee's compensation. For purposes of this 
     subparagraph, elective deferrals and employee contributions 
     shall not be taken into account in determining the amount of 
     contributions the employer makes to the plan.
       ``(C) Special rules for matching contributions.--
       ``(i) In general.--If an employer takes matching 
     contributions into account for purposes of subparagraph (B), 
     the requirements of such subparagraph shall be treated as met 
     only if the matching contributions on behalf of each employee 
     who is not a highly compensated employee are equal to 50 
     percent of the elective deferrals of the employee to the 
     extent that such elective deferrals do not exceed 6 percent 
     of the employee's compensation.
       ``(ii) Alternative plan designs.--If the rate of any 
     matching contribution with respect to any rate of elective 
     deferral is not equal to the percentage required under clause 
     (i), an arrangement shall not be treated as failing to meet 
     the requirements of clause (i) if--

       ``(I) the rate of an employer's matching contribution does 
     not increase as an employee's rate of elective contributions 
     increases, and
       ``(II) the aggregate amount of matching contributions at 
     such rate of elective contribution is at least equal to the 
     aggregate amount of matching contributions which would be 
     made if matching contributions were made on the basis of the 
     percentages described in clause (i).

       ``(iii) Rate for highly compensated employees.--The 
     requirements of this subparagraph are not met if, under the 
     arrangement, the rate of matching contribution with respect 
     to any elective deferral of a highly compensated employee at 
     any rate of elective deferral is greater than that with 
     respect to an employee who is not a highly compensated 
     employee.
       ``(D) Notice requirement.--An arrangement meets the 
     requirements of this subparagraph if, under the arrangement, 
     each employee eligible to participate is, within a reasonable 
     period before any year, given written notice of the 
     employee's rights and obligations under the arrangement 
     which--
       ``(i) is sufficiently accurate and comprehensive to apprise 
     the employee of such rights and obligations, and
       ``(ii) is written in a manner calculated to be understood 
     by the average employee eligible to participate.
       ``(E) Other requirements.--
       ``(i) Withdrawal and vesting restrictions.--An arrangement 
     shall not be treated as meeting the requirements of 
     subparagraph (B) unless the requirements of paragraphs (2) 
     and (3) of subsection (b) are met with respect to all 
     employer contributions (including matching contributions) 
     taken into account in determining whether the requirements of 
     subparagraph (B) are met.
       ``(ii) Social security and similar contributions not taken 
     into account.--An arrangement shall not be treated as meeting 
     the requirements of subparagraph (B) unless such requirements 
     are met without regard to section 401(l), and, for purposes 
     of section 401(l), employer contributions under subparagraph 
     (B) shall not be taken into account.
       ``(F) Other plans.--An arrangement shall be treated as 
     meeting the requirements of subparagraph (B) if any other 
     plan maintained by the employer meets such requirements with 
     respect to employees eligible under the arrangement.
       ``(3) Contribution percentage.--For purposes of paragraph 
     (1), the contribution percentage for an eligible employee for 
     a specified group of employees for a plan year shall be the 
     average of the ratios (calculated separately for each 
     employee in such group) of--
       ``(A) the sum of the elective deferrals, matching 
     contributions, employee contributions, and qualified 
     nonelective contributions paid under the plan on behalf of 
     each such employee for such plan year, to
       ``(B) the employee's compensation for such plan year.
       ``(4) Special rules.--For purposes of this subsection--
       ``(A) Multiple arrangements.--If 2 or more plans which 
     include employer retirement savings account arrangements are 
     considered as 1 plan for purposes of section 401(a)(4) or 
     410(b), all such arrangements included in such plans shall be 
     treated as 1 arrangement.
       ``(B) Employees in more than 1 arrangement.--If any highly 
     compensated employee is a participant under 2 or more 
     employer retirement savings account arrangements of the 
     employer, for purposes of determining the contribution 
     percentage with respect to such employee, all such 
     arrangements shall be treated as 1 arrangement.
       ``(C) Use of current year.--An employer may elect to apply 
     paragraph (1) (A) or (B) by using the plan year rather than 
     the preceding plan year. An employer may change such an 
     election only with the consent of the Secretary.
       ``(D) 1st plan year.--In the case of the first plan year of 
     any plan (other than a successor plan), the amount taken into 
     account as the contribution percentage of nonhighly 
     compensated employees for the preceding plan year shall be--

[[Page S2251]]

       ``(i) 3 percent, or
       ``(ii) if the employer makes an election under this clause, 
     the contribution percentage of nonhighly compensated 
     employees determined for such first plan year.
       ``(E) Special rule for early participation.--If an employer 
     elects to apply section 410(b)(4)(B) in determining whether 
     an employer retirement savings account arrangement meets the 
     requirements of section 410(b)(1), the employer may, in 
     determining whether the arrangement meets the requirements of 
     this subsection, exclude from consideration all eligible 
     employees (other than highly compensated employees) who have 
     not met the minimum age and service requirements of section 
     410(a)(1)(A).
       ``(5) Exceptions.--
       ``(A) Governmental plans.--A governmental plan (within the 
     meaning of section 414(d)) maintained by a State or local 
     government or political subdivision thereof (or agency or 
     instrumentality thereof) shall be treated as meeting the 
     requirements of this subsection.
       ``(B) Tax exempt plans.--
       ``(i) In general.--A plan not described in subparagraph (A) 
     which is maintained by an organization described in section 
     501(c)(3) shall be treated as meeting the requirements of 
     this subsection for any plan year if the plan provides that 
     all employees of such organization may elect to have the 
     employer make contributions of more than $200 pursuant to a 
     salary reduction agreement if any employee of the 
     organization may elect to have the organization make 
     contributions pursuant to such agreement.
       ``(ii) Exception.--Clause (i) shall not apply to any plan 
     if under the plan--

       ``(I) matching contributions may be made on behalf of any 
     employee, or
       ``(II) an employee may make contributions other than 
     elective deferrals.

       ``(iii) Exclusion.--For purposes of clause (i), there may 
     be excluded any employee who is--

       ``(I) a participant in another employer retirement savings 
     account arrangement of the organization,
       ``(II) a nonresident alien described in section 
     410(b)(3)(C), or
       ``(III) subject to the conditions applicable under section 
     410(b)(4), a student performing services described in section 
     3121(b)(10) or an employee who normally works less than 20 
     hours per week.

       ``(6) Coordination with subsection (a)(4).--A cash or 
     deferred arrangement shall be treated as meeting the 
     requirements of subsection (a)(4) with respect to 
     contributions if the requirements of paragraph (1) are met.
       ``(d) Other Requirements.--For purposes of this section--
       ``(1) Benefits (other than matching contributions) must not 
     be contingent on election to defer.--An employer retirement 
     savings account arrangement of any employer shall not be 
     treated as such an arrangement if any other benefit is 
     conditioned (directly or indirectly) on the employee electing 
     to have the employer make or not make contributions under the 
     arrangement in lieu of receiving cash. The preceding sentence 
     shall not apply to any matching contribution made by reason 
     of such an election.
       ``(2) Coordination with other plans.--Any employer 
     contribution made pursuant to an employee's election under an 
     employer retirement savings account arrangement shall not be 
     taken into account for purposes of determining whether any 
     other plan meets the requirements of section 401(a) or 
     410(b). This paragraph shall not apply for purposes of 
     determining whether a plan meets the average benefit 
     requirement of section 410(b)(2)(A)(ii).
       ``(e) Definitions.--For purposes of this section--
       ``(1) Eligible employee.--The term `eligible employee' 
     means any employee who is eligible to benefit under the 
     employer retirement savings account arrangement.
       ``(2) Highly compensated employee.--For purposes of this 
     subsection, the term `highly compensated employee' has the 
     meaning given such term by section 414(q).
       ``(3) Matching contribution.--The term `matching 
     contribution' means--
       ``(A) any employer contribution made to a defined 
     contribution plan on behalf of an employee on account of an 
     employee contribution made by such employee, and
       ``(B) any employer contribution made to a defined 
     contribution plan on behalf of an employee on account of an 
     employee's elective deferral.
       ``(4) Elective deferral.--The term `elective deferral' 
     means any employer contribution described in section 
     402(g)(3).
       ``(5) Qualified nonelective contributions.--The term 
     `qualified nonelective contribution' means any employer 
     contribution (other than a matching contribution) with 
     respect to which--
       ``(A) the employee may not elect to have the contribution 
     paid to the employee in cash instead of being contributed to 
     the plan, and
       ``(B) the requirements of paragraphs (2) and (3) of 
     subsection (b) are met.
       ``(6) Compensation.--The term `compensation' has the 
     meaning given such term by section 414(s).
       ``(f) Arrangement Not Disqualified If Excess Contributions 
     Distributed.--
       ``(1) In general.--An employer retirement savings account 
     arrangement shall not be treated as failing to meet the 
     requirements of subsection (c)(1)(A) for any plan year if, 
     before the close of the following plan year--
       ``(A) the amount of the excess contributions for such plan 
     year (and any income allocable to such contributions) is 
     distributed, or
       ``(B) to the extent provided in regulations, the employee 
     elects to treat the amount of the excess contributions as an 
     amount distributed to the employee and then contributed by 
     the employee to the plan.

     Any distribution of excess contributions (and income) may be 
     made without regard to any other provision of law.
       ``(2) Excess contributions.--For purposes of paragraph (1), 
     the term `excess contributions' means, with respect to any 
     plan year, the excess of--
       ``(A) the aggregate amount of employer contributions 
     actually paid over to the trust on behalf of highly 
     compensated employees for such plan year, over
       ``(B) the maximum amount of such contributions permitted 
     under the limitations of subsection (c)(1)(A) (determined by 
     reducing contributions made on behalf of highly compensated 
     employees in order of the contribution percentages beginning 
     with the highest of such percentages).
       ``(3) Method of distributing excess contributions.--Any 
     distribution of the excess contributions for any plan year 
     shall be made to highly compensated employees on the basis of 
     the amount of contributions by, or on behalf of, each of such 
     employees.
       ``(4) Additional tax under section 72(t) not to apply.--No 
     tax shall be imposed under section 72(t) on any amount 
     required to be distributed under this subsection.
       ``(5) Treatment of matching contributions forfeited by 
     reason of excess deferral or contribution.--For purposes of 
     subsection (b)(3), a matching contribution shall not be 
     treated as forfeitable merely because such contribution is 
     forfeitable if the contribution to which the matching 
     contribution relates is treated as an excess contribution 
     under paragraph (2) or an excess deferral under section 
     402(g)(2)(A).
       ``(6) Cross reference.--For excise tax on certain excess 
     contributions, see section 4979.
       ``(g) Distributions Upon Termination of Plan.--
       ``(1) In general.--An event described in this subsection is 
     the termination of the plan without establishment or 
     maintenance of another defined contribution plan (other than 
     an employee stock ownership plan as defined in section 
     4975(e)(7)).
       ``(2) Distributions must be lump sum distributions.--
       ``(A) In general.--A termination shall not be treated as 
     described in paragraph (1) with respect to any employee 
     unless the employee receives a lump sum distribution by 
     reason of the termination.
       ``(B) Lump-sum distribution.--For purposes of this 
     paragraph, the term `lump-sum distribution' has the meaning 
     given such term by section 402(e)(4)(D) (without regard to 
     subclauses (I), (II), (III), and (IV) of clause (i) thereof). 
     Such term includes a distribution of an annuity contract 
     from--
       ``(i) a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 
     501(a), or
       ``(ii) an annuity plan described in section 403(a).
       ``(h) Special Rules for Small Employers.--
       ``(1) In general.--An arrangement maintained by an eligible 
     employer shall not fail to meet the requirements of this 
     section merely because contributions under the arrangement on 
     behalf of any employee are made to an individual retirement 
     plan (as defined under section 7701(a)(37)) established on 
     behalf of the employee.
       ``(2) Eligible employer.--For purposes of paragraph (1), 
     the term `eligible employer' means, with respect to any year, 
     an employer which had no more than 10 employees who received 
     at least $5,000 of compensation from the employer for the 
     preceding year. An eligible employer who establishes and 
     maintains an arrangement under this subsection for 1 or more 
     years and who fails to be an eligible employer for any 
     subsequent year shall be treated as an eligible employer for 
     the 2 years following the last year the employer was an 
     eligible employer. If such failure is due to any acquisition, 
     disposition, or similar transaction involving an eligible 
     employer, the preceding sentence shall not apply.
       ``(i) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section, including regulations permitting appropriate 
     aggregation of plans and contributions.
       ``(j) Transition Rules.--
       ``(1) Deemed ersas.--Any arrangement which, as of December 
     31, 2005--
       ``(A) is part of a plan meeting the requirements of section 
     401(a), and
       ``(B) is--
       ``(i) a qualified cash or deferred arrangement (as defined 
     in section 401(k)(2)), or
       ``(ii) subject to the requirements of section 401(m),

     shall be treated as an employer retirement savings account 
     arrangement and subject to the requirements of this title 
     applicable to such an arrangement for plan years beginning 
     after December 31, 2005.
       ``(2) Electable ersas.--
       ``(A) In general.--If an employer makes an election under 
     this paragraph with respect to

[[Page S2252]]

     any applicable arrangement, such arrangement shall be treated 
     as an employer retirement savings account arrangement and 
     subject to the requirements of this title applicable to such 
     an arrangement for plan years beginning after December 31, 
     2005.
       ``(B) Applicable arrangement.--For purposes of subparagraph 
     (A), the term `applicable arrangement' means an arrangement 
     which, as of December 31, 2005, is--
       ``(i) an arrangement under which amounts are contributed by 
     an individual's employer for an annuity contract described in 
     section 403(b),
       ``(ii) an eligible deferred compensation plan (within the 
     meaning of section 457(b)) maintained by an eligible employer 
     described in section 457(e)(1)(A),
       ``(iii) a simplified employee pension (within the meaning 
     of section 408(k)) for which an election is in effect under 
     paragraph (6) thereof, or
       ``(iv) a simple retirement account (within the meaning of 
     section 408(p).''.
       (b) Elective Deferrals.--Section 402 of such Code is 
     amended--
       (1) in subsection (e)(3), by inserting ``, an employer 
     retirement savings account arrangement (as defined in section 
     401A(b)),'' after ``section 401(k)(2))'' , and
       (2) in subsection (g)(3)(A), by inserting ``, or an 
     employer retirement savings account arrangement (as defined 
     in section 401A(b)),'' before ``to the extent''.
       (c) Termination of Contributions to Other Plans.--
       (1) 401(k) plans.--Section 401(k) of such Code is amended 
     by adding at the end the following new paragraph:
       ``(13) Termination.--This subsection shall not apply to any 
     plan year beginning after December 31, 2005.''.
       (2) 403(b) annuity contracts.--Section 403(b) of such Code 
     is amended by adding at the end the following new paragraph:
       ``(14) Termination.--No elective deferral (as defined in 
     section 402(g)(3)) may be contributed under this subsection 
     by an employer, and no amount may be transferred under an 
     eligible rollover, for an annuity contract after December 31, 
     2006.''.
       (3) Governmental 457 plans.--Section 457 of such Code is 
     amended by adding at the end the following new subsection:
       ``(h) Termination.--No amount may be deferred under this 
     subsection under a plan maintained by an eligible employer 
     described in subsection (e)(1)(A), and no amount may be 
     transferred under an eligible rollover to an eligible 
     deferred compensation plan maintained by such an employer, 
     after December 31, 2006.''.
       (4) Sarseps.--Subparagraph (H) of section 408(k)(6) of such 
     Code is amended by adding at the end the following new 
     sentence: ``No amount may be contributed under this paragraph 
     to a simplified employee pension by an employer, and no 
     amount may be transferred to a simplified employee pension 
     maintained under this paragraph under an eligible rollover, 
     after December 31, 2006.''.
       (5) Simple iras.--Section 408(p) of such Code is amended by 
     adding at the end the following new paragraph:
       ``(11) Termination.--No amount may be contributed under 
     this paragraph to a simple retirement account after December 
     31, 2006.''.
       (d) Other Conforming Changes.--
       (1) Section 401 of such Code is amended by striking 
     subsection (m).
       (2) Section 7701(j) of such Code (relating to tax treatment 
     of Federal Thrift Savings Fund) is amended--
       (A) in paragraph (1)(C), by striking ``section 
     401(k)(4)(B)'' and inserting ``section 401A(d)(1)'', and
       (B) in paragraph (2), by striking ``section 401(k)'' and 
     inserting ``section 401A''.
       (3) The Secretary of the Treasury shall, not later than 90 
     days after the date of the enactment of this Act, submit such 
     technical and other conforming changes as are necessary to 
     carry out the amendments made by this section.
       (e) Clerical Amendment.--The table of sections for subpart 
     A of part 1 of subchapter D of chapter 1 of such Code is 
     amended by inserting after the item relating to section 401 
     the following new item:

``Sec. 401A. Employer Retirement Savings Accounts.''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2005.
       (g) Provisions Relating to Plan Amendments.--
       (1) In general.--If this subsection applies to any plan or 
     contract amendment--
       (A) such plan or contract shall be treated as being 
     operated in accordance with the terms of the plan during the 
     period described in paragraph (2)(C)(i), and
       (B) except as provided by the Secretary of the Treasury, 
     such plan shall not fail to meet the requirements of section 
     401A of the Internal Revenue Code of 1986 by reason of such 
     amendment.
       (2) Amendments to which section applies.--
       (A) In general.--This subsection shall apply to any 
     amendment to any plan or annuity contract which is made--
       (i) pursuant to any amendment made by this section, or 
     pursuant to any regulation issued by the Secretary of the 
     Treasury or the Secretary of Labor under this section, and
       (ii) on or before the last day of the first plan year 
     beginning on or after January 1, 2007.
       (B) Governmental plan.--In the case of a governmental plan 
     (as defined in section 414(d) of the Internal Revenue Code of 
     1986), subparagraph (A) shall be applied by substituting 
     ``2009'' for ``2007''.
       (C) Conditions.--This subsection shall not apply to any 
     amendment unless--
       (i) during the period--

       (I) beginning on the date the legislative or regulatory 
     amendment described in subparagraph (A)(i) takes effect (or 
     in the case of a plan or contract amendment not required by 
     such legislative or regulatory amendment, the effective date 
     specified by the plan), and
       (II) ending on the date described in subparagraph (A)(ii) 
     (or, if earlier, the date the plan or contract amendment is 
     adopted), the plan or contract is operated as if such plan or 
     contract amendment were in effect; and

       (ii) such plan or contract amendment applies retroactively 
     for such period.
                                 ______