[Congressional Record (Bound Edition), Volume 150 (2004), Part 5]
[House]
[Pages 6287-6305]
[From the U.S. Government Publishing Office, www.gpo.gov]




   CONFERENCE REPORT ON H.R. 3108, PENSION FUNDING EQUITY ACT OF 2004

  Mr. BOEHNER submitted the following conference report and statement 
on the bill (H.R. 3108) to amend the Employee Retirement Income 
Security Act of 1974 and the Internal Revenue Code of 1986 to 
temporarily replace the 30-year Treasury rate with a rate based on 
long-term corporate bonds for certain pension plan funding 
requirements, and for other purposes:

                  Conference Report (H. Rept. 108-457)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to the bill (H.R. 
     3108), to amend the Employee Retirement Income Security Act 
     of 1974 and the Internal Revenue Code of 1986 to temporarily 
     replace the 30-year Treasury rate with a rate based on long-
     term corporate bonds for certain pension plan funding 
     requirements, and for other purposes, having met, after full 
     and free conference, have agreed to recommend and do 
     recommend to their respective Houses as follows:
       That the House recede from its disagreement to the 
     amendment of the Senate and agree to the same with an 
     amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment, insert the following:

     1. SHORT TITLE.

       This Act may be cited as the ``Pension Funding Equity Act 
     of 2004''.
                        TITLE I--PENSION FUNDING

     SEC. 101. TEMPORARY REPLACEMENT OF 30-YEAR TREASURY RATE.

       (a) Employee Retirement Income Security Act of 1974.--
       (1) Determination of permissible range.--
       (A) In general.--Clause (ii) of section 302(b)(5)(B) of the 
     Employee Retirement Income Security Act of 1974 is amended by 
     redesignating subclause (II) as subclause (III) and by 
     inserting after subclause (I) the following new subclause:
       ``(II) Special rule for years 2004 and 2005.--In the case 
     of plan years beginning after December 31, 2003, and before 
     January 1, 2006, the term `permissible range' means a rate of 
     interest which is not above, and not more than 10 percent 
     below, the weighted average of the rates of interest on 
     amounts invested conservatively in long-term investment grade 
     corporate bonds during the 4-year period ending on the last 
     day before the beginning of the plan year. Such rates shall 
     be determined by the Secretary of the Treasury on the basis 
     of 2 or more indices that are selected periodically by the 
     Secretary of the Treasury and that are in the top 3 quality 
     levels available. The Secretary of the Treasury shall make 
     the permissible range, and the indices and methodology used 
     to determine the average rate, publicly available.''.
       (B) Secretarial authority.--Subclause (III) of section 
     302(b)(5)(B)(ii) of such Act, as redesignated by subparagraph 
     (A), is amended--
       (i) by inserting ``or (II)'' after ``subclause (I)'' the 
     first place it appears, and
       (ii) by striking ``subclause (I)'' the second place it 
     appears and inserting ``such subclause''.
       (C) Conforming amendment.--Subclause (I) of section 
     302(b)(5)(B)(ii) of such Act is amended by inserting ``or 
     (III)'' after ``subclause (II)''.
       (2) Determination of current liability.--Clause (i) of 
     section 302(d)(7)(C) of such Act is amended by adding at the 
     end the following new subclause:

       ``(IV) Special rule for 2004 and 2005.--For plan years 
     beginning in 2004 or 2005, notwithstanding subclause (I), the 
     rate of interest used to determine current liability under 
     this subsection shall be the rate of interest under 
     subsection (b)(5).''.

       (3) Conforming amendment.--Paragraph (7) of section 302(e) 
     of such Act is amended to read as follows:
       ``(7) Special rule for 2002.--In any case in which the 
     interest rate used to determine current liability is 
     determined under subsection (d)(7)(C)(i)(III), for purposes 
     of applying paragraphs (1) and (4)(B)(ii) for plan years 
     beginning in 2002, the current liability for the preceding 
     plan year shall be redetermined using 120 percent as the 
     specified percentage determined under subsection 
     (d)(7)(C)(i)(II).''.
       (4) PBGC.--Clause (iii) of section 4006(a)(3)(E) of such 
     Act is amended by adding at the end the following new 
     subclause:
       ``(V) In the case of plan years beginning after December 
     31, 2003, and before January 1, 2006, the annual yield taken 
     into account under subclause (II) shall be the annual rate of 
     interest determined by the Secretary of the Treasury on 
     amounts invested conservatively in long-term investment grade 
     corporate bonds for the month preceding the month in which 
     the plan year begins. For purposes of the preceding sentence, 
     the Secretary of the Treasury shall determine such rate of 
     interest on the basis of 2 or more indices that are selected 
     periodically by the Secretary of the Treasury and that are in 
     the top 3 quality levels available. The Secretary of the 
     Treasury shall make the permissible range, and the indices 
     and methodology used to determine the rate, publicly 
     available.''.
       (b) Internal Revenue Code of 1986.--
       (1) Determination of permissible range.--
       (A) In general.--Clause (ii) of section 412(b)(5)(B) of the 
     Internal Revenue Code of 1986 is amended by redesignating 
     subclause (II) as subclause (III) and by inserting after 
     subclause (I) the following new subclause:

       ``(II) Special rule for years 2004 and 2005.--In the case 
     of plan years beginning after December 31, 2003, and before 
     January 1, 2006, the term `permissible range' means a rate of 
     interest which is not above, and not more than 10 percent 
     below, the weighted average of the rates of interest on 
     amounts invested conservatively in long-term investment grade 
     corporate bonds during the 4-year period ending on the last 
     day before the beginning of the plan year. Such rates shall 
     be determined by the Secretary on the basis of 2 or more 
     indices that are selected periodically by the Secretary and 
     that are in the top 3 quality levels available. The Secretary 
     shall make the permissible range, and the indices and 
     methodology used to determine the average rate, publicly 
     available.''.

       (B) Secretarial authority.--Subclause (III) of section 
     412(b)(5)(B)(ii) of such Code, as redesignated by 
     subparagraph (A), is amended--
       (i) by inserting ``or (II)'' after ``subclause (I)'' the 
     first place it appears, and
       (ii) by striking ``subclause (I)'' the second place it 
     appears and inserting ``such subclause''.
       (C) Conforming amendment.--Subclause (I) of section 
     412(b)(5)(B)(ii) of such Code is amended by inserting ``or 
     (III)'' after ``subclause (II)''.

[[Page 6288]]

       (2) Determination of current liability.--Clause (i) of 
     section 412(l)(7)(C) of such Code is amended by adding at the 
     end the following new subclause:

       ``(IV) Special rule for 2004 and 2005.--For plan years 
     beginning in 2004 or 2005, notwithstanding subclause (I), the 
     rate of interest used to determine current liability under 
     this subsection shall be the rate of interest under 
     subsection (b)(5).''.

       (3) Conforming amendment.--Paragraph (7) of section 412(m) 
     of such Code is amended to read as follows:
       ``(7) Special rule for 2002.--In any case in which the 
     interest rate used to determine current liability is 
     determined under subsection (l)(7)(C)(i)(III), for purposes 
     of applying paragraphs (1) and (4)(B)(ii) for plan years 
     beginning in 2002, the current liability for the preceding 
     plan year shall be redetermined using 120 percent as the 
     specified percentage determined under subsection 
     (l)(7)(C)(i)(II).''.
       (4) Limitation on certain assumptions.--Section 
     415(b)(2)(E)(ii) of such Code is amended by inserting ``, 
     except that in the case of plan years beginning in 2004 or 
     2005, `5.5 percent' shall be substituted for `5 percent' in 
     clause (i)'' before the period at the end.
       (5) Election to disregard modification for deduction 
     purposes.--Section 404(a)(1) of such Code is amended by 
     adding at the end the following new subparagraph:
       ``(F) Election to disregard modified interest rate.--An 
     employer may elect to disregard subsections (b)(5)(B)(ii)(II) 
     and (l)(7)(C)(i)(IV) of section 412 solely for purposes of 
     determining the interest rate used in calculating the maximum 
     amount of the deduction allowable under this paragraph.''.
       (c) Provisions Relating to Plan Amendments.--
       (1) In general.--If this subsection applies to any plan or 
     annuity contract amendment--
       (A) such plan or contract shall be treated as being 
     operated in accordance with the terms of the plan or contract 
     during the period described in paragraph (2)(B)(i), and
       (B) except as provided by the Secretary of the Treasury, 
     such plan shall not fail to meet the requirements of section 
     411(d)(6) of the Internal Revenue Code of 1986 and section 
     204(g) of the Employee Retirement Income Security Act of 1974 
     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, and
       (ii) on or before the last day of the first plan year 
     beginning on or after January 1, 2006.
       (B) Conditions.--This subsection shall not apply to any 
     plan or annuity contract amendment unless--
       (i) during the period beginning on the date the amendment 
     described in subparagraph (A)(i) takes effect and 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.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall apply to plan 
     years beginning after December 31, 2003.
       (2) Lookback rules.--For purposes of applying subsections 
     (d)(9)(B)(ii) and (e)(1) of section 302 of the Employee 
     Retirement Income Security Act of 1974 and subsections 
     (l)(9)(B)(ii) and (m)(1) of section 412 of the Internal 
     Revenue Code of 1986 to plan years beginning after December 
     31, 2003, the amendments made by this section may be applied 
     as if such amendments had been in effect for all prior plan 
     years. The Secretary of the Treasury may prescribe simplified 
     assumptions which may be used in applying the amendments made 
     by this section to such prior plan years.
       (3) Transition rule for section 415 limitation.--In the 
     case of any participant or beneficiary receiving a 
     distribution after December 31, 2003 and before January 1, 
     2005, the amount payable under any form of benefit subject to 
     section 417(e)(3) of the Internal Revenue Code of 1986 and 
     subject to adjustment under section 415(b)(2)(B) of such Code 
     shall not, solely by reason of the amendment made by 
     subsection (b)(4), be less than the amount that would have 
     been so payable had the amount payable been determined using 
     the applicable interest rate in effect as of the last day of 
     the last plan year beginning before January 1, 2004.

     SEC. 102. ELECTION OF ALTERNATIVE DEFICIT REDUCTION 
                   CONTRIBUTION.

       (a) Amendment of ERISA.--Section 302(d) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1082(d)) is 
     amended by adding at the end the following new paragraph:
       ``(12) Election for certain plans.--
       ``(A) In general.--In the case of a defined benefit plan 
     established and maintained by an applicable employer, if this 
     subsection did not apply to the plan for the plan year 
     beginning in 2000 (determined without regard to paragraph 
     (6)), then, at the election of the employer, the increased 
     amount under paragraph (1) for any applicable plan year shall 
     be the greater of--
       ``(i) 20 percent of the increased amount under paragraph 
     (1) determined without regard to this paragraph, or
       ``(ii) the increased amount which would be determined under 
     paragraph (1) if the deficit reduction contribution under 
     paragraph (2) for the applicable plan year were determined 
     without regard to subparagraphs (A), (B), and (D) of 
     paragraph (2).
       ``(B) Restrictions on benefit increases.--No amendment 
     which increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits become 
     nonforfeitable under the plan shall be adopted during any 
     applicable plan year, unless--
       ``(i) the plan's enrolled actuary certifies (in such form 
     and manner prescribed by the Secretary of the Treasury) that 
     the amendment provides for an increase in annual 
     contributions which will exceed the increase in annual 
     charges to the funding standard account attributable to such 
     amendment, or
       ``(ii) the amendment is required by a collective bargaining 
     agreement which is in effect on the date of enactment of this 
     subparagraph.

     If a plan is amended during any applicable plan year in 
     violation of the preceding sentence, any election under this 
     paragraph shall not apply to any applicable plan year ending 
     on or after the date on which such amendment is adopted.
       ``(C) Applicable employer.--For purposes of this paragraph, 
     the term `applicable employer' means an employer which is--
       ``(i) a commercial passenger airline,
       ``(ii) primarily engaged in the production or manufacture 
     of a steel mill product or the processing of iron ore 
     pellets, or
       ``(iii) an organization described in section 501(c)(5) of 
     the Internal Revenue Code of 1986 and which established the 
     plan to which this paragraph applies on June 30, 1955.
       ``(D) Applicable plan year.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `applicable plan year' means 
     any plan year beginning after December 27, 2003, and before 
     December 28, 2005, for which the employer elects the 
     application of this paragraph.
       ``(ii) Limitation on number of years which may be 
     elected.--An election may not be made under this paragraph 
     with respect to more than 2 plan years.
       ``(E) Notice requirements for plans electing alternative 
     deficit reduction contributions.--
       ``(i) In general.--If an employer elects an alternative 
     deficit reduction contribution under this paragraph and 
     section 412(l)(12) of the Internal Revenue Code of 1986 for 
     any year, the employer shall provide, within 30 days of 
     filing the election for such year, written notice of the 
     election to participants and beneficiaries and to the Pension 
     Benefit Guaranty Corporation.
       ``(ii) Notice to participants and beneficiaries.--The 
     notice under clause (i) to participants and beneficiaries 
     shall include with respect to any election--

       ``(I) the due date of the alternative deficit reduction 
     contribution and the amount by which such contribution was 
     reduced from the amount which would have been owed if the 
     election were not made, and
       ``(II) a description of the benefits under the plan which 
     are eligible to be guaranteed by the Pension Benefit Guaranty 
     Corporation and an explanation of the limitations on the 
     guarantee and the circumstances under which such limitations 
     apply, including the maximum guaranteed monthly benefits 
     which the Pension Benefit Guaranty Corporation would pay if 
     the plan terminated while underfunded.

       ``(iii) Notice to pbgc.--The notice under clause (i) to the 
     Pension Benefit Guaranty Corporation shall include--

       ``(I) the information described in clause (ii)(I),
       ``(II) the number of years it will take to restore the plan 
     to full funding if the employer only makes the required 
     contributions, and
       ``(III) information as to how the amount by which the plan 
     is underfunded compares with the capitalization of the 
     employer making the election.

       ``(F) Election.--An election under this paragraph shall be 
     made at such time and in such manner as the Secretary of the 
     Treasury may prescribe.''
       (b) Amendment of 1986 Code.--Section 412(l) of the Internal 
     Revenue Code of 1986 (relating to applicability of 
     subsection) is amended by adding at the end the following new 
     paragraph:
       ``(12) Election for certain plans.--
       ``(A) In general.--In the case of a defined benefit plan 
     established and maintained by an applicable employer, if this 
     subsection did not apply to the plan for the plan year 
     beginning in 2000 (determined without regard to paragraph 
     (6)), then, at the election of the employer, the increased 
     amount under paragraph (1) for any applicable plan year shall 
     be the greater of--
       ``(i) 20 percent of the increased amount under paragraph 
     (1) determined without regard to this paragraph, or
       ``(ii) the increased amount which would be determined under 
     paragraph (1) if the deficit reduction contribution under 
     paragraph (2) for the applicable plan year were determined 
     without regard to subparagraphs (A), (B), and (D) of 
     paragraph (2).
       ``(B) Restrictions on benefit increases.--No amendment 
     which increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits become 
     nonforfeitable under the plan shall be adopted during any 
     applicable plan year, unless--
       ``(i) the plan's enrolled actuary certifies (in such form 
     and manner prescribed by the Secretary) that the amendment 
     provides for an increase in annual contributions which will 
     exceed the increase in annual charges to the funding standard 
     account attributable to such amendment, or

[[Page 6289]]

       ``(ii) the amendment is required by a collective bargaining 
     agreement which is in effect on the date of enactment of this 
     subparagraph.

     If a plan is amended during any applicable plan year in 
     violation of the preceding sentence, any election under this 
     paragraph shall not apply to any applicable plan year ending 
     on or after the date on which such amendment is adopted.
       ``(C) Applicable employer.--For purposes of this paragraph, 
     the term `applicable employer' means an employer which is--
       ``(i) a commercial passenger airline,
       ``(ii) primarily engaged in the production or manufacture 
     of a steel mill product or the processing of iron ore 
     pellets, or
       ``(iii) an organization described in section 501(c)(5) and 
     which established the plan to which this paragraph applies on 
     June 30, 1955.
       ``(D) Applicable plan year.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `applicable plan year' means 
     any plan year beginning after December 27, 2003, and before 
     December 28, 2005, for which the employer elects the 
     application of this paragraph.
       ``(ii) Limitation on number of years which may be 
     elected.--An election may not be made under this paragraph 
     with respect to more than 2 plan years.
       ``(E) Election.--An election under this paragraph shall be 
     made at such time and in such manner as the Secretary may 
     prescribe.''
       (c) Effect of Election.--An election under section 
     302(d)(12) of the Employee Retirement Income Security Act of 
     1974 or section 412(l)(12) of the Internal Revenue Code of 
     1986 (as added by this section) with respect to a plan shall 
     not invalidate any obligation (pursuant to a collective 
     bargaining agreement in effect on the date of the election) 
     to provide benefits, to change the accrual of benefits, or to 
     change the rate at which benefits become nonforfeitable under 
     the plan.
       (d) Penalty for Failing To Provide Notice.--Section 
     502(c)(3) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1132(c)(3)) is amended by inserting ``or who 
     fails to meet the requirements of section 302(d)(12)(E) with 
     respect to any person'' after ``101(e)(2) with respect to any 
     person''.

     SEC. 103. MULTIEMPLOYER PLAN FUNDING NOTICES.

       (a) In General.--Section 101 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1021) is amended by 
     inserting after subsection (e) the following new subsection:
       ``(f) Multiemployer Defined Benefit Plan Funding Notices.--
       ``(1) In general.--The administrator of a defined benefit 
     plan which is a multiemployer plan shall for each plan year 
     provide a plan funding notice to each plan participant and 
     beneficiary, to each labor organization representing such 
     participants or beneficiaries, to each employer that has an 
     obligation to contribute under the plan, and to the Pension 
     Benefit Guaranty Corporation.
       ``(2) Information contained in notices.--
       ``(A) Identifying information.--Each notice required under 
     paragraph (1) shall contain identifying information, 
     including the name of the plan, the address and phone number 
     of the plan administrator and the plan's principal 
     administrative officer, each plan sponsor's employer 
     identification number, and the plan number of the plan.
       ``(B) Specific information.--A plan funding notice under 
     paragraph (1) shall include--
       ``(i) a statement as to whether the plan's funded current 
     liability percentage (as defined in section 302(d)(8)(B)) for 
     the plan year to which the notice relates is at least 100 
     percent (and, if not, the actual percentage);
       ``(ii) a statement of the value of the plan's assets, the 
     amount of benefit payments, and the ratio of the assets to 
     the payments for the plan year to which the notice relates;
       ``(iii) a summary of the rules governing insolvent 
     multiemployer plans, including the limitations on benefit 
     payments and any potential benefit reductions and suspensions 
     (and the potential effects of such limitations, reductions, 
     and suspensions on the plan); and
       ``(iv) a general description of the benefits under the plan 
     which are eligible to be guaranteed by the Pension Benefit 
     Guaranty Corporation, along with an explanation of the 
     limitations on the guarantee and the circumstances under 
     which such limitations apply.
       ``(C) Other information.--Each notice under paragraph (1) 
     shall include any additional information which the plan 
     administrator elects to include to the extent not 
     inconsistent with regulations prescribed by the Secretary.
       ``(3) Time for providing notice.--Any notice under 
     paragraph (1) shall be provided no later than two months 
     after the deadline (including extensions) for filing the 
     annual report for the plan year to which the notice relates.
       ``(4) Form and manner.--Any notice under paragraph (1)--
       ``(A) shall be provided in a form and manner prescribed in 
     regulations of the Secretary,
       ``(B) shall be written in a manner so as to be understood 
     by the average plan participant, and
       ``(C) may be provided in written, electronic, or other 
     appropriate form to the extent such form is reasonably 
     accessible to persons to whom the notice is required to be 
     provided.''
       (b) Penalties.--Section 502(c)(1) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1132(c)(1)) 
     is amended by striking ``or section 101(e)(1)'' and inserting 
     ``, section 101(e)(1), or section 101(f)''.
       (c) Regulations and Model Notice.--The Secretary of Labor 
     shall, not later than 1 year after the date of the enactment 
     of this Act, issue regulations (including a model notice) 
     necessary to implement the amendments made by this section.
       (d) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2004.

     SEC. 104. ELECTION FOR DEFERRAL OF CHARGE FOR PORTION OF NET 
                   EXPERIENCE LOSS.

       (a) Employee Retirement Income Security Act of 1974.--
       (1) In general.--Section 302(b)(7) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C.1082(b)(7)) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(F) Election for deferral of charge for portion of net 
     experience loss.--
       ``(i) In general.--With respect to the net experience loss 
     of an eligible multiemployer plan for the first plan year 
     beginning after December 31, 2001, the plan sponsor may elect 
     to defer up to 80 percent of the amount otherwise required to 
     be charged under paragraph (2)(B)(iv) for any plan year 
     beginning after June 30, 2003, and before July 1, 2005, to 
     any plan year selected by the plan from either of the 2 
     immediately succeeding plan years.
       ``(ii) Interest.--For the plan year to which a charge is 
     deferred pursuant to an election under clause (i), the 
     funding standard account shall be charged with interest on 
     the deferred charge for the period of deferral at the rate 
     determined under section 304(a) for multiemployer plans.
       ``(iii) Restrictions on benefit increases.--No amendment 
     which increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits become 
     nonforfeitable under the plan shall be adopted during any 
     period for which a charge is deferred pursuant to an election 
     under clause (i), unless--

       ``(I) the plan's enrolled actuary certifies (in such form 
     and manner prescribed by the Secretary of the Treasury) that 
     the amendment provides for an increase in annual 
     contributions which will exceed the increase in annual 
     charges to the funding standard account attributable to such 
     amendment, or
       ``(II) the amendment is required by a collective bargaining 
     agreement which is in effect on the date of enactment of this 
     subparagraph.

     If a plan is amended during any such plan year in violation 
     of the preceding sentence, any election under this paragraph 
     shall not apply to any such plan year ending on or after the 
     date on which such amendment is adopted.
       ``(iv) Eligible multiemployer plan.--For purposes of this 
     subparagraph, the term `eligible multiemployer plan' means a 
     multiemployer plan--

       ``(I) which had a net investment loss for the first plan 
     year beginning after December 31, 2001, of at least 10 
     percent of the average fair market value of the plan assets 
     during the plan year, and
       ``(II) with respect to which the plan's enrolled actuary 
     certifies (not taking into account the application of this 
     subparagraph), on the basis of the acutuarial assumptions 
     used for the last plan year ending before the date of the 
     enactment of this subparagraph, that the plan is projected to 
     have an accumulated funding deficiency (within the meaning of 
     subsection (a)(2)) for any plan year beginning after June 30, 
     2003, and before July 1, 2006.

     For purposes of subclause (I), a plan's net investment loss 
     shall be determined on the basis of the actual loss and not 
     under any actuarial method used under subsection (c)(2).
       ``(v) Exception to treatment of eligible multiemployer 
     plan.--In no event shall a plan be treated as an eligible 
     multiemployer plan under clause (iv) if--

       ``(I) for any taxable year beginning during the 10-year 
     period preceding the first plan year for which an election is 
     made under clause (i), any employer required to contribute to 
     the plan failed to timely pay any excise tax imposed under 
     section 4971 of the Internal Revenue Code of 1986 with 
     respect to the plan,
       ``(II) for any plan year beginning after June 30, 1993, and 
     before the first plan year for which an election is made 
     under clause (i), the average contribution required to be 
     made by all employers to the plan does not exceed 10 cents 
     per hour or no employer is required to make contributions to 
     the plan, or
       ``(III) with respect to any of the plan years beginning 
     after June 30, 1993, and before the first plan year for which 
     an election is made under clause (i), a waiver was granted 
     under section 303 of this Act or section 412(d) of the 
     Internal Revenue Code of 1986 with respect to the plan or an 
     extension of an amortization period was granted under section 
     304 of this Act or section 412(e) of such Code with respect 
     to the plan.

       ``(vi) Notice.--If a plan sponsor makes an election under 
     this subparagraph or section 412(b)(7)(F) of the Internal 
     Revenue Code of 1986 for any plan year, the plan 
     administrator shall provide, within 30 days of filing the 
     election for such year, written notice of the election to 
     participants and beneficiaries, to each labor organization 
     representing such participants or beneficiaries, to each 
     employer that has an obligation to contribute under the plan, 
     and to the Pension Benefit Guaranty Corporation. Such notice 
     shall include with respect to any election the amount of any 
     charge to be deferred and the period of the deferral. Such 
     notice shall also include the maximum guaranteed monthly 
     benefits which the Pension Benefit Guaranty Corporation would 
     pay if the plan terminated while underfunded.

[[Page 6290]]

       ``(vii) Election.--An election under this subparagraph 
     shall be made at such time and in such manner as the 
     Secretary of the Treasury may prescribe.''
       (2) Penalty.--Section 502(c)(4) of such Act (29 U.S.C. 
     1132(c)(4)) is amended to read as follows:
       ``(4) The Secretary may assess a civil penalty of not more 
     than $1,000 a day for each violation by any person of section 
     302(b)(7)(F)(vi).''
       (b) Internal Revenue Code of 1986.--Section 412(b)(7) of 
     the Internal Revenue Code of 1986 (relating to special rules 
     for multiemployer plans) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Election for deferral of charge for portion of net 
     experience loss.--
       ``(i) In general.--With respect to the net experience loss 
     of an eligible multiemployer plan for the first plan year 
     beginning after December 31, 2001, the plan sponsor may elect 
     to defer up to 80 percent of the amount otherwise required to 
     be charged under paragraph (2)(B)(iv) for any plan year 
     beginning after June 30, 2003, and before July 1, 2005, to 
     any plan year selected by the plan from either of the 2 
     immediately succeeding plan years.
       ``(ii) Interest.--For the plan year to which a charge is 
     deferred pursuant to an election under clause (i), the 
     funding standard account shall be charged with interest on 
     the deferred charge for the period of deferral at the rate 
     determined under subsection (d) for multiemployer plans.
       ``(iii) Restrictions on benefit increases.--No amendment 
     which increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits become 
     nonforfeitable under the plan shall be adopted during any 
     period for which a charge is deferred pursuant to an election 
     under clause (i), unless--

       ``(I) the plan's enrolled actuary certifies (in such form 
     and manner prescribed by the Secretary) that the amendment 
     provides for an increase in annual contributions which will 
     exceed the increase in annual charges to the funding standard 
     account attributable to such amendment, or
       ``(II) the amendment is required by a collective bargaining 
     agreement which is in effect on the date of enactment of this 
     subparagraph.

     If a plan is amended during any such plan year in violation 
     of the preceding sentence, any election under this paragraph 
     shall not apply to any such plan year ending on or after the 
     date on which such amendment is adopted.
       ``(iv) Eligible multiemployer plan.--For purposes of this 
     subparagraph, the term `eligible multiemployer plan' means a 
     multiemployer plan--

       ``(I) which had a net investment loss for the first plan 
     year beginning after December 31, 2001, of at least 10 
     percent of the average fair market value of the plan assets 
     during the plan year, and
       ``(II) with respect to which the plan's enrolled actuary 
     certifies (not taking into account the application of this 
     subparagraph), on the basis of the acutuarial assumptions 
     used for the last plan year ending before the date of the 
     enactment of this subparagraph, that the plan is projected to 
     have an accumulated funding deficiency (within the meaning of 
     subsection (a)) for any plan year beginning after June 30, 
     2003, and before July 1, 2006.

     For purposes of subclause (I), a plan's net investment loss 
     shall be determined on the basis of the actual loss and not 
     under any actuarial method used under subsection (c)(2).
       ``(v) Exception to treatment of eligible multiemployer 
     plan.--In no event shall a plan be treated as an eligible 
     multiemployer plan under clause (iv) if--

       ``(I) for any taxable year beginning during the 10-year 
     period preceding the first plan year for which an election is 
     made under clause (i), any employer required to contribute to 
     the plan failed to timely pay any excise tax imposed under 
     section 4971 with respect to the plan,
       ``(II) for any plan year beginning after June 30, 1993, and 
     before the first plan year for which an election is made 
     under clause (i), the average contribution required to be 
     made by all employers to the plan does not exceed 10 cents 
     per hour or no employer is required to make contributions to 
     the plan, or
       ``(III) with respect to any of the plan years beginning 
     after June 30, 1993, and before the first plan year for which 
     an election is made under clause (i), a waiver was granted 
     under section 412(d) or section 303 of the Employee 
     Retirement Income Security Act of 1974 with respect to the 
     plan or an extension of an amortization period was granted 
     under subsection (e) or section 304 of such Act with respect 
     to the plan.

       ``(vi) Election.--An election under this subparagraph shall 
     be made at such time and in such manner as the Secretary may 
     prescribe.''
                       TITLE II--OTHER PROVISIONS

     SEC. 201. 2-YEAR EXTENSION OF TRANSITION RULE TO PENSION 
                   FUNDING REQUIREMENTS.

       (a) In General.--Section 769(c) of the Retirement 
     Protection Act of 1994, as added by section 1508 of the 
     Taxpayer Relief Act of 1997, is amended--
       (1) by inserting ``except as provided in paragraph (3),'' 
     before ``the transition rules'', and
       (2) by adding at the end the following:
       ``(3) Special rules.--In the case of plan years beginning 
     in 2004 and 2005, the following transition rules shall apply 
     in lieu of the transition rules described in paragraph (2):
       ``(A) For purposes of section 412(l)(9)(A) of the Internal 
     Revenue Code of 1986 and section 302(d)(9)(A) of the Employee 
     Retirement Income Security Act of 1974, the funded current 
     liability percentage for any plan year shall be treated as 
     not less than 90 percent.
       ``(B) For purposes of section 412(m) of the Internal 
     Revenue Code of 1986 and section 302(e) of the Employee 
     Retirement Income Security Act of 1974, the funded current 
     liability percentage for any plan year shall be treated as 
     not less than 100 percent.
       ``(C) For purposes of determining unfunded vested benefits 
     under section 4006(a)(3)(E)(iii) of the Employee Retirement 
     Income Security Act of 1974, the mortality table shall be the 
     mortality table used by the plan.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2003.

     SEC. 202. PROCEDURES APPLICABLE TO DISPUTES INVOLVING PENSION 
                   PLAN WITHDRAWAL LIABILITY.

       (a) In General.--Section 4221 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1401) is amended by 
     adding at the end the following new subsection:
       ``(f) Procedures Applicable to Certain Disputes.--
       ``(1) In general.--If--
       ``(A) a plan sponsor of a plan determines that--
       ``(i) a complete or partial withdrawal of an employer has 
     occurred, or
       ``(ii) an employer is liable for withdrawal liability 
     payments with respect to the complete or partial withdrawal 
     of an employer from the plan,
       ``(B) such determination is based in whole or in part on a 
     finding by the plan sponsor under section 4212(c) that a 
     principal purpose of a transaction that occurred before 
     January 1, 1999, was to evade or avoid withdrawal liability 
     under this subtitle, and
       ``(C) such transaction occurred at least 5 years before the 
     date of the complete or partial withdrawal,

     then the special rules under paragraph (2) shall be used in 
     applying subsections (a) and (d) of this section and section 
     4219(c) to the employer.
       ``(2) Special rules.--
       ``(A) Determination.--Notwithstanding subsection (a)(3)--
       ``(i) a determination by the plan sponsor under paragraph 
     (1)(B) shall not be presumed to be correct, and
       ``(ii) the plan sponsor shall have the burden to establish, 
     by a preponderance of the evidence, the elements of the claim 
     under section 4212(c) that a principal purpose of the 
     transaction was to evade or avoid withdrawal liability under 
     this subtitle.

     Nothing in this subparagraph shall affect the burden of 
     establishing any other element of a claim for withdrawal 
     liability under this subtitle.
       ``(B) Procedure.--Notwithstanding subsection (d) and 
     section 4219(c), if an employer contests the plan sponsor's 
     determination under paragraph (1) through an arbitration 
     proceeding pursuant to subsection (a), or through a claim 
     brought in a court of competent jurisdiction, the employer 
     shall not be obligated to make any withdrawal liability 
     payments until a final decision in the arbitration 
     proceeding, or in court, upholds the plan sponsor's 
     determination.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any employer that receives a notification 
     under section 4219(b)(1) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1399(b)(1)) after October 31, 
     2003.

     SEC. 203. SENSE OF CONGRESS REGARDING DEFINED BENEFIT PENSION 
                   SYSTEM REFORM.

       It is the sense of the Congress that the Congress must 
     ensure the financial health of the defined benefit pension 
     system by working to promptly implement--
       (1) a permanent replacement for the pension discount rate 
     used for defined benefit pension plan calculations, and
       (2) comprehensive funding reforms for all defined benefit 
     pension plans aimed at achieving accurate and sound pension 
     funding to enhance retirement security for workers who rely 
     on defined pension plan benefits, to reduce the volatility of 
     contributions, to provide plan sponsors with predictability 
     for plan contributions, and to ensure adequate disclosures 
     for plan participants in the case of underfunded pension 
     plans.

     SEC. 204. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO 
                   RETIREE HEALTH ACCOUNTS.

       (a) Amendment of Internal Revenue Code of 1986.--Paragraph 
     (5) of section 420(b) of the Internal Revenue Code of 1986 
     (relating to expiration) is amended by striking ``December 
     31, 2005'' and inserting ``December 31, 2013''.
       (b) Amendments of ERISA.--
       (1) Section 101(e)(3) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
     striking ``Tax Relief Extension Act of 1999'' and inserting 
     ``Pension Funding Equity Act of 2004''.
       (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
     amended by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Pension Funding Equity Act of 2004''.
       (3) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
     1108(b)(3)) is amended--
       (A) by striking ``January 1, 2006'' and inserting ``January 
     1, 2014'', and
       (B) by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Pension Funding Equity Act of 2004''.

     SEC. 205. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE 
                   INSURANCE COMPANIES.

       (a) In General.--Section 809 of the Internal Revenue Code 
     of 1986 (relating to reductions in

[[Page 6291]]

     certain deduction of mutual life insurance companies) is 
     hereby repealed.
       (b) Conforming Amendments.--
       (1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 of 
     such Code are each amended by striking ``the sum of (i)'' and 
     by striking ``plus (ii) any excess described in section 
     809(a)(2) for the taxable year,''.
       (2)(A) The last sentence of section 807(d)(1) of such Code 
     is amended by striking ``section 809(b)(4)(B)'' and inserting 
     ``paragraph (6)''.
       (B) Subsection (d) of section 807 of such Code is amended 
     by adding at the end the following new paragraph:
       ``(6) Statutory reserves.--The term `statutory reserves' 
     means the aggregate amount set forth in the annual statement 
     with respect to items described in section 807(c). Such term 
     shall not include any reserve attributable to a deferred and 
     uncollected premium if the establishment of such reserve is 
     not permitted under section 811(c).''
       (3) Subsection (c) of section 808 of such Code is amended 
     to read as follows:
       ``(c) Amount of Deduction.--The deduction for policyholder 
     dividends for any taxable year shall be an amount equal to 
     the policyholder dividends paid or accrued during the taxable 
     year.''
       (4) Subparagraph (A) of section 812(b)(3) of such Code is 
     amended by striking ``sections 808 and 809'' and inserting 
     ``section 808''.
       (5) Subsection (c) of section 817 of such Code is amended 
     by striking ``(other than section 809)''.
       (6) Subsection (c) of section 842 of such Code is amended 
     by striking paragraph (3) and by redesignating paragraph (4) 
     as paragraph (3).
       (7) The table of sections for subpart C of part I of 
     subchapter L of chapter 1 of such Code is amended by striking 
     the item relating to section 809.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 206. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 501(c)(15)(A) of the Internal 
     Revenue Code of 1986 is amended to read as follows:
       ``(A) Insurance companies (as defined in section 816(a)) 
     other than life (including interinsurers and reciprocal 
     underwriters) if--
       ``(i)(I) the gross receipts for the taxable year do not 
     exceed $600,000, and
       ``(II) more than 50 percent of such gross receipts consist 
     of premiums, or
       ``(ii) in the case of a mutual insurance company--
       ``(I) the gross receipts of which for the taxable year do 
     not exceed $150,000, and
       ``(II) more than 35 percent of such gross receipts consist 
     of premiums.

     Clause (ii) shall not apply to a company if any employee of 
     the company, or a member of the employee's family (as defined 
     in section 2032A(e)(2)), is an employee of another company 
     exempt from taxation by reason of this paragraph (or would be 
     so exempt but for this sentence).''.
       (b) Controlled Group Rule.--Section 501(c)(15)(C) of the 
     Internal Revenue Code of 1986 is amended by inserting ``, 
     except that in applying section 831(b)(2)(B)(ii) for purposes 
     of this subparagraph, subparagraphs (B) and (C) of section 
     1563(b)(2) shall be disregarded'' before the period at the 
     end.
       (c) Definition of Insurance Company for Section 831.--
     Section 831 of the Internal Revenue Code of 1986 is amended 
     by redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Insurance Company Defined.--For purposes of this 
     section, the term `insurance company' has the meaning given 
     to such term by section 816(a)).''.
       (d) Conforming Amendment.--Clause (i) of section 
     831(b)(2)(A) of the Internal Revenue Code of 1986 is amended 
     by striking ``exceed $350,000 but''.
       (e) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2003.
       (2) Transition rule for companies in receivership or 
     liquidation.--In the case of a company or association which--
       (A) for the taxable year which includes April 1, 2004, 
     meets the requirements of section 501(c)(15)(A) of the 
     Internal Revenue Code of 1986, as in effect for the last 
     taxable year beginning before January 1, 2004, and
       (B) on April 1, 2004, is in a receivership, liquidation, or 
     similar proceeding under the supervision of a State court,

     the amendments made by this section shall apply to taxable 
     years beginning after the earlier of the date such proceeding 
     ends or December 31, 2007.

     SEC. 207. CONFIRMATION OF ANTITRUST STATUS OF GRADUATE 
                   MEDICAL RESIDENT MATCHING PROGRAMS.

       (a) Findings and Purposes.--
       (1) Findings.--Congress makes the following findings:
       (A) For over 50 years, most United States medical school 
     seniors and the large majority of graduate medical education 
     programs (popularly known as ``residency programs'') have 
     chosen to use a matching program to match medical students 
     with residency programs to which they have applied. These 
     matching programs have been an integral part of an 
     educational system that has produced the finest physicians 
     and medical researchers in the world.
       (B) Before such matching programs were instituted, medical 
     students often felt pressure, at an unreasonably early stage 
     of their medical education, to seek admission to, and accept 
     offers from, residency programs. As a result, medical 
     students often made binding commitments before they were in a 
     position to make an informed decision about a medical 
     specialty or a residency program and before residency 
     programs could make an informed assessment of students' 
     qualifications. This situation was inefficient, chaotic, and 
     unfair and it often led to placements that did not serve the 
     interests of either medical students or residency programs.
       (C) The original matching program, now operated by the 
     independent non-profit National Resident Matching Program and 
     popularly known as ``the Match,'' was developed and 
     implemented more than 50 years ago in response to widespread 
     student complaints about the prior process. This Program 
     includes on its board of directors individuals nominated by 
     medical student organizations as well as by major medical 
     education and hospital associations.
       (D) The Match uses a computerized mathematical algorithm, 
     as students had recommended, to analyze the preferences of 
     students and residency programs and match students with their 
     highest preferences from among the available positions in 
     residency programs that listed them. Students thus obtain a 
     residency position in the most highly ranked program on their 
     list that has ranked them sufficiently high among its 
     preferences. Each year, about 85 percent of participating 
     United States medical students secure a place in one of their 
     top 3 residency program choices.
       (E) Antitrust lawsuits challenging the matching process, 
     regardless of their merit or lack thereof, have the potential 
     to undermine this highly efficient, pro-competitive, and 
     long-standing process. The costs of defending such litigation 
     would divert the scarce resources of our country's teaching 
     hospitals and medical schools from their crucial missions of 
     patient care, physician training, and medical research. In 
     addition, such costs may lead to abandonment of the matching 
     process, which has effectively served the interests of 
     medical students, teaching hospitals, and patients for over 
     half a century.
       (2) Purposes.--It is the purpose of this section to--
       (A) confirm that the antitrust laws do not prohibit 
     sponsoring, conducting, or participating in a graduate 
     medical education residency matching program, or agreeing to 
     do so; and
       (B) ensure that those who sponsor, conduct or participate 
     in such matching programs are not subjected to the burden and 
     expense of defending against litigation that challenges such 
     matching programs under the antitrust laws.
       (b) Application of Antitrust Laws to Graduate Medical 
     Education Residency Matching Programs.--
       (1) Definitions.--In this subsection:
       (A) Antitrust laws.--The term ``antitrust laws''--
       (i) has the meaning given such term in subsection (a) of 
     the first section of the Clayton Act (15 U.S.C. 12(a)), 
     except that such term includes section 5 of the Federal Trade 
     Commission Act (15 U.S.C. 45) to the extent such section 5 
     applies to unfair methods of competition; and
       (ii) includes any State law similar to the laws referred to 
     in clause (i).
       (B) Graduate medical education program.--The term 
     ``graduate medical education program'' means--
       (i) a residency program for the medical education and 
     training of individuals following graduation from medical 
     school;
       (ii) a program, known as a specialty or subspecialty 
     fellowship program, that provides more advanced training; and
       (iii) an institution or organization that operates, 
     sponsors or participates in such a program.
       (C) Graduate medical education residency matching 
     program.--The term ``graduate medical education residency 
     matching program'' means a program (such as those conducted 
     by the National Resident Matching Program) that, in 
     connection with the admission of students to graduate medical 
     education programs, uses an algorithm and matching rules to 
     match students in accordance with the preferences of students 
     and the preferences of graduate medical education programs.
       (D) Student.--The term ``student'' means any individual who 
     seeks to be admitted to a graduate medical education program.
       (2) Confirmation of Antitrust Status.--It shall not be 
     unlawful under the antitrust laws to sponsor, conduct, or 
     participate in a graduate medical education residency 
     matching program, or to agree to sponsor, conduct, or 
     participate in such a program. Evidence of any of the conduct 
     described in the preceding sentence shall not be admissible 
     in Federal court to support any claim or action alleging a 
     violation of the antitrust laws.
       (3) Applicability.--Nothing in this section shall be 
     construed to exempt from the antitrust laws any agreement on 
     the part of 2 or more graduate medical education programs to 
     fix the amount of the stipend or other benefits received by 
     students participating in such programs.
       (c) Effective Date.--This section shall take effect on the 
     date of enactment of this Act, shall apply to conduct whether 
     it occurs prior to, on, or after such date of enactment, and 
     shall apply to all judicial and administrative actions or 
     other proceedings pending on such date of enactment.

[[Page 6292]]

       And the Senate agree to the same.

     From the Committee on Education and the Workforce, for 
     consideration of the House bill and the Senate amendment, and 
     modifications committed to conference:
     John Boehner,
     Howard ``Buck'' McKeon,
     Sam Johnson,
     Patrick J. Tiberi,
     From the Committee on Ways and Means, for consideration of 
     the House bill and the Senate amendment, and modifications 
     committed to conference:
     William Thomas,
     Rob Portman,
                                Managers on the Part of the House.

     Chuck Grassley,
     Judd Gregg,
     Mitch McConnell,
                               Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the Senate to the bill (H.R. 3108), to amend the 
     Employee Retirement Income Security Act of 1974 and the 
     Internal Revenue Code of 1986 to temporarily replace the 30-
     year Treasury rate with a rate based on long-term corporate 
     bonds for certain pension plan funding requirements, and for 
     other purposes, submit the following joint statement to the 
     House and the Senate in explanation of the effect of the 
     action agreed upon by the managers and recommended in the 
     accompanying conference report:
       The Senate amendment struck all of the House bill after 
     ``SECTION'' (page 2, line 3) and inserted a substitute text.
       The House recedes from its disagreement to the amendment of 
     the Senate with an amendment that is a substitute for the 
     House bill and the Senate amendment. The differences between 
     the House bill, the Senate amendment, and the substitute 
     agreed to in conference are noted below, except for clerical 
     corrections, conforming changes made necessary by agreements 
     reached by the conferees, and minor drafting and clarifying 
     changes.

A. Temporary Replacement of Interest Rate Used for Certain Pension Plan 
  Purposes and Alternative Deficit Reduction Contribution for Certain 
                                 Plans

     (Sec. 3 of the House bill, secs. 2-3 of the Senate Amendment, 
         secs. 302 and 4006 of ERISA, and secs. 404, 412 and 415 
         of the Code)


                              Present Law

     In general
       Under present law, the interest rate on 30-year Treasury 
     securities is used for several purposes related to defined 
     benefit pension plans. Specifically, the interest rate on 30-
     year Treasury securities is used: (1) in determining current 
     liability for purposes of the funding and deduction rules; 
     (2) in determining unfunded vested benefits for purposes of 
     Pension Benefit Guaranty Corporation (``PBGC'') variable rate 
     premiums; and (3) in determining the minimum required value 
     of lump-sum distributions from a defined benefit pension plan 
     and maximum lump-sum values for purposes of the limits on 
     benefits payable under a defined benefit pension plan.
       The IRS publishes the interest rate on 30-year Treasury 
     securities on a monthly basis. The Department of the Treasury 
     does not currently issue 30-year Treasury securities. As of 
     March 2002, the IRS publishes the average yield on the 30-
     year Treasury bond maturing in February 2031 as a substitute.
     Funding rules
       In general
       The Internal Revenue Code (the ``Code'') and the Employee 
     Retirement Income Security Act of 1974 (``ERISA'') impose 
     minimum funding requirements with respect to defined benefit 
     pension plans.\1\ Under the funding rules, the amount of 
     contributions required for a plan year is generally the 
     plan's normal cost for the year (i.e., the cost of benefits 
     allocated to the year under the plan's funding method) plus 
     that year's portion of other liabilities that are amortized 
     over a period of years, such as benefits resulting from a 
     grant of past service credit.
---------------------------------------------------------------------------
     \1\Code sec. 412; ERISA sec. 302. The Code also imposes 
     limits on deductible contributions, as discussed below.
---------------------------------------------------------------------------
       Additional contributions for underfunded plans
       Under special funding rules (referred to as the ``deficit 
     reduction contribution'' rules),\2\ an additional 
     contribution to a plan is generally required if the plan's 
     funded current liability percentage is less than 90 
     percent.\3\ A plan's ``funded current liability percentage'' 
     is the actuarial value of plan assets\4\ as a percentage of 
     the plan's current liability. In general, a plan's current 
     liability means all liabilities to employees and their 
     beneficiaries under the plan.
---------------------------------------------------------------------------
     \2\The deficit reduction contribution rules apply to single-
     employer plans, other than single-employer plans with no more 
     than 100 participants on any day in the preceding plan year. 
     Single-employer plans with more than 100 but not more than 
     150 participants are generally subject to lower contribution 
     requirements under these rules.
     \3\Under an alternative test, a plan is not subject to the 
     deficit reduction contribution rules for a plan year if (1) 
     the plan's funded current liability percentage for the plan 
     year is at least 80 percent, and (2) the plan's funded 
     current liability percentage was at least 90 percent for each 
     of the two immediately preceding plan years or each of the 
     second and third immediately preceding plan years.
     \4\The actuarial value of plan assets is the value determined 
     under an actuarial valuation method that takes into account 
     fair market value and meets certain other requirements. The 
     use of an actuarial valuation method allows appreciation or 
     depreciation in the market value of plan assets to be 
     recognized gradually over several plan years. Sec. 412(c)(2); 
     Treas. reg. sec. 1.412(c)(2)-1.
---------------------------------------------------------------------------
       The amount of the additional contribution required under 
     the deficit reduction contribution rules is the sum of two 
     amounts: (1) the excess, if any, of (a) the deficit reduction 
     contribution (as described below), over (b) the contribution 
     required under the normal funding rules; and (2) the amount 
     (if any) required with respect to unpredictable contingent 
     event benefits.\5\ The amount of the additional contribution 
     cannot exceed the amount needed to increase the plan's funded 
     current liability percentage to 100 percent.
---------------------------------------------------------------------------
     \5\A plan may provide for unpredictable contingent event 
     benefits, which are benefits that depend on contingencies 
     that are not reliably and reasonably predictable, such as 
     facility shutdowns or reductions in workforce. An additional 
     contribution is generally not required with respect to 
     unpredictable contingent event benefits unless the event 
     giving rise to the benefits has occurred.
---------------------------------------------------------------------------
       The deficit reduction contribution is the sum of (1) the 
     ``unfunded old liability amount,'' (2) the ``unfunded new 
     liability amount,'' and (3) the expected increase in current 
     liability due to benefits accruing during the plan year.\6\ 
     The ``unfunded old liability amount'' is the amount needed to 
     amortize certain unfunded liabilities under 1987 and 1994 
     transition rules. The ``unfunded new liability amount'' is 
     the applicable percentage of the plan's unfunded new 
     liability. Unfunded new liability generally means the 
     unfunded current liability of the plan (i.e., the amount by 
     which the plan's current liability exceeds the actuarial 
     value of plan assets), but determined without regard to 
     certain liabilities (such as the plan's unfunded old 
     liability and unpredictable contingent event benefits). The 
     applicable percentage is generally 30 percent, but is reduced 
     if the plan's funded current liability percentage. is greater 
     than 60 percent.
---------------------------------------------------------------------------
     \6\If the Secretary of the Treasury prescribes a new 
     mortality table to be used in determining current liability, 
     as described below, the deficit reduction contribution may 
     include an additional amount.
---------------------------------------------------------------------------
       Required interest rate and mortality table
       Specific interest rate and mortality assumptions must be 
     used in determining a plan's current liability for purposes 
     of the special funding rule. The interest rate used to 
     determine a plan's current liability must be within a 
     permissible range of the weighted average\7\ of the interest 
     rates on 30-year Treasury securities for the four-year period 
     ending on the last day before the plan year begins. The 
     permissible range is generally from 90 percent to 105 
     percent.\8\ The interest rate used under the plan must be 
     consistent with the assumptions which reflect the purchase 
     rates which would be used by insurance companies to satisfy 
     the liabilities under the plan.\9\
---------------------------------------------------------------------------
     \7\The weighting used for this purpose is 40 percent, 30 
     percent, 20 percent and 10 percent, starting with the most 
     recent year in the four-year period. Notice 88-73, 1988-2 
     C.B. 383.
     \8\If the Secretary of the Treasury determines that the 
     lowest permissible interest rate in this range is 
     unreasonably high, the Secretary may prescribe a lower rate, 
     but not less than 80 percent of the weighted average of the 
     30-year Treasury rate.
     \9\Code sec. 412(b)(5)(B)(iii)(II); ERISA sec. 
     302(b)(5)(B)(iii)(II). Under Notice 90-11, 1990-1 C.B. 319, 
     the interest rates in the permissible range are deemed to be 
     consistent with the assumptions reflecting the purchase rates 
     that would be used by insurance companies to satisfy the 
     liabilities under the plan.
---------------------------------------------------------------------------
       The Job Creation and Worker Assistance Act of 2002\10\ 
     amended the permissible range of the statutory interest rate 
     used in calculating a plan's current liability for purposes 
     of applying the additional contribution requirements. Under 
     this provision, the permissible range is from 90 percent to 
     120 percent for plan years beginning after December 31, 2001, 
     and before January 1, 2004.
---------------------------------------------------------------------------
     \10\Pub. L. No. 107-147.
---------------------------------------------------------------------------
       The Secretary of the Treasury is required to prescribe 
     mortality tables and to periodically review (at least every 
     five years) and update such tables to reflect the actuarial 
     experience of pension plans and projected trends in such 
     experience.\11\ The Secretary of the Treasury has required 
     the use of the 1983 Group Annuity Mortality Table.\12\
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     \11\Code sec. 412(1)(7)(C)(ii); ERISA sec. 302(d)(7)(C)(ii).
     \12\Rev. Rul. 95-28, 1995-1 C.B. 74. The IRS and the Treasury 
     Department have announced that they are undertaking a review 
     of the applicable mortality table and have requested comments 
     on related issues, such as how mortality trends should be 
     reflected. Notice 2003-62, 2003-38 I.R.B. 576; Announcement 
     2000-7, 2000-1 C.B. 586.
---------------------------------------------------------------------------
       Full funding limitation
       No contributions are required under the minimum funding 
     rules in excess of the full funding limitation. In 2004 and 
     thereafter, the full funding limitation is the excess, if 
     any, of (1) the accrued liability under the plan (including 
     normal cost), over (2) the lesser of (a) the market value of 
     plan assets or (b) the actuarial value of plan assets.\13\

[[Page 6293]]

     However, the full funding limitation may not be less than the 
     excess, if any, of 90 percent of the plan's current liability 
     (including the current liability normal cost) over the 
     actuarial value of plan assets. In general, current liability 
     is all liabilities to plan participants and beneficiaries 
     accrued to date, whereas the accrued liability under the full 
     funding limitation may be based on projected future benefits, 
     including future salary increases.
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     \13\For plan years beginning before 2004, the full funding 
     limitation was generally defined as the excess, if any, of 
     (1) the lesser of (a) the accrued liability under the plan 
     (including normal cost) or (b) a percentage (170 percent for 
     2003) of the plan's current liability (including the current 
     liability normal cost), over (2) the lesser of (a) the market 
     value of plan assets or (b) the actuarial value of plan 
     assets, but in no case less than the excess, if any, of 90 
     percent of the plan's current liability over the actuarial 
     value of plan assets. Under the Economic Growth and Tax 
     Relief Reconciliation Act of 2001 (``EGTRRA''), the full 
     funding limitation based on 170 percent of current liability 
     is repealed for plan years beginning in 2004 and thereafter. 
     The provisions of EGTRRA generally do not apply for years 
     beginning after December 31, 2010.
---------------------------------------------------------------------------
       Timing of plan contributions
       In general, plan contributions required to satisfy the 
     funding rules must be made within 8\1/2\ months after the end 
     of the plan year. If the contribution is made by such due 
     date, the contribution is treated as if it were made on the 
     last day of the plan year.
       In the case of a plan with a funded current liability 
     percentage of less than 100 percent for the preceding plan 
     year, estimated contributions for the current plan year must 
     be made in quarterly installments during the current plan 
     year.\14\ The amount of each required installment is 25 
     percent of the lesser of (1) 90 percent of the amount 
     required to be contributed for the current plan year or (2) 
     100 percent of the amount required to be contributed for the 
     preceding plan year.\15\
---------------------------------------------------------------------------
     \14\Code sec. 412(m); ERISA sec. 302(e).
     \15\In connection with the expanded interest rate range 
     available for 2002 and 2003, special rules apply in 
     determining current liability for the preceding plan year for 
     purposes of applying the quarterly contributions requirements 
     to plan years beginning in 2002 (when the expanded range 
     first applies) and 2004 (when the expanded range no longer 
     applies). In each of those years (``present year''), current 
     liability for the preceding year is redetermined, using the 
     permissible range applicable to the present year. This 
     redetermined current liability will be used for purposes of 
     the plan's funded current liability percentage for the 
     preceding year, which may affect the need to make quarterly 
     contributions, and for purposes of determining the amount of 
     any quarterly contributions in the present year, which is 
     based in part on the preceding year.
---------------------------------------------------------------------------
       Funding waivers
       Within limits, the IRS is permitted to waive all or a 
     portion of the contributions required under the minimum 
     funding standard for a plan year.\16\ A waiver may be granted 
     if the employer (or employers) responsible for the 
     contribution could not make the required contribution without 
     temporary substantial business hardship and if requiring the 
     contribution would be adverse to the interests of plan 
     participants in the aggregate. Generally, no more than three 
     waivers may be granted within any period of 15 consecutive 
     plan years.
---------------------------------------------------------------------------
     \16\Code sec. 412(d); ERISA sec. 303.
---------------------------------------------------------------------------
       If a funding waiver is in effect for a plan, subject to 
     certain exceptions, no plan amendment may be adopted that 
     increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits vest under the 
     plan. In addition, the IRS is authorized to require security 
     to be granted as a condition of granting a funding waiver if 
     the sum of the plan's accumulated funding deficiency and the 
     balance of any outstanding waived funding deficiencies 
     exceeds $1 million.
       Excise tax
       An employer is generally subject to an excise tax if it 
     fails to make minimum required contributions and fails to 
     obtain a waiver from the IRS. \17\ The excise tax is 
     generally 10 percent of the amount of the funding deficiency. 
     In addition, a tax of 100 percent may be imposed if the 
     funding deficiency is not corrected within a certain period.
---------------------------------------------------------------------------
     \17\Code sec. 4971.
---------------------------------------------------------------------------
     Deductions for contributions
       Employer contributions to qualified retirement plans are 
     deductible, subject to certain limits. In the case of a 
     defined benefit pension plan, the employer generally may 
     deduct the greater of: (1) the amount necessary to satisfy 
     the minimum funding requirement of the plan for the year; or 
     (2) the amount of the plan's normal cost for the year plus 
     the amount necessary to amortize certain unfunded liabilities 
     over ten years, but limited to the full funding limitation 
     for the year. \18\ However, the maximum amount of deductible 
     contributions is generally not less than the plan's unfunded 
     current liability. \19\
---------------------------------------------------------------------------
     \18\Code sec. 404(a)(1).
     \19\Code sec. 404(a)(1)(D). In the case of a plan that 
     terminates during the year, the maximum deductible amount is 
     generally not less than the amount needed to make the plan 
     assets sufficient to fund benefit liabilities as defined for 
     purposes of the PBGC termination insurance program (sometimes 
     referred to as ``termination liability'').
---------------------------------------------------------------------------
     PBGC premiums
       Because benefits under a defined benefit pension plan may 
     be funded over a period of years, plan assets may not be 
     sufficient to provide the benefits owed under the plan to 
     employees and their beneficiaries if the plan terminates 
     before all benefits are paid. The PBGC generally insures the 
     benefits owed under defined benefit pension plans (up to 
     certain limits) in the event a plan is terminated with 
     insufficient assets. Employers pay premiums to the PBGC for 
     this insurance coverage.
       PBGC premiums include a flat-rate premium and, in the case 
     of an underfunded plan, a variable rate premium based on the 
     amount of unfunded vested benefits. \20\ In determining the 
     amount of unfunded vested benefits, the interest rate used is 
     85 percent of the annual yield on 30-year Treasury securities 
     for the month preceding the month in which the plan year 
     begins.
---------------------------------------------------------------------------
     \20\ERISA sec. 4006.
---------------------------------------------------------------------------
       Under the Job Creation and Worker Assistance Act of 2002, 
     for plan years beginning after December 31, 2001, and before 
     January 1, 2004, the interest rate used in determining the 
     amount of unfunded vested benefits for PBGC variable rate 
     premium purposes is increased to 100 percent of the annual 
     yield on 30-year Treasury securities for the month preceding 
     the month in which the plan year begins.
     Lump-sum distributions
       Accrued benefits under a defined benefit pension plan 
     generally must be paid in the form of an annuity for the life 
     of the participant unless the participant consents to a 
     distribution in another form. Defined benefit pension plans 
     generally provide that a participant may choose among other 
     forms of benefit offered under the plan, such as a lump-sum 
     distribution. These optional forms of benefit generally must 
     be actuarially equivalent to the life annuity benefit payable 
     to the participant.
       A defined benefit pension plan must specify the actuarial 
     assumptions that will be used in determining optional forms 
     of benefit under the plan in a manner that precludes employer 
     discretion in the assumptions to be used. For example, a plan 
     may specify that a variable interest rate will be used in 
     determining actuarial equivalent forms of benefit, but may 
     not give the employer discretion to choose the interest rate.
       Statutory assumptions must be used in determining the 
     minimum value of certain optional forms of benefit, such as a 
     lump sum.\21\ That is, the lump sum payable under the plan 
     may not be less than the amount of the lump sum that is 
     actuarially equivalent to the life annuity payable to the 
     participant, determined using the statutory assumptions. The 
     statutory assumptions consist of an applicable mortality 
     table (as published by the IRS) and an applicable interest 
     rate.
---------------------------------------------------------------------------
     \21\Code sec. 417(e)(3); ERISA sec. 205(g)(3).
---------------------------------------------------------------------------
       The applicable interest rate is the annual interest rate on 
     30-year Treasury securities, determined as of the time that 
     is permitted under regulations. The regulations provide 
     various options for determining the interest rate to be used 
     under the plan, such as the period for which the interest 
     rate will remain constant (``stability period'') and the use 
     of averaging.
     Limits on benefits
       Annual benefits payable under a defined benefit pension 
     plan generally may not exceed the lesser of (1) 100 percent 
     of average compensation, or (2) $165,000 (for 2004). \22\ The 
     dollar limit generally applies to a benefit payable in the 
     form of a straight life annuity beginning no earlier than age 
     62. The limit is reduced if benefits are paid before age 62. 
     In addition, if the benefit is not in the form of a straight 
     life annuity, the benefit generally is adjusted to an 
     equivalent straight life annuity. In making these reductions 
     and adjustments, the interest rate used generally must be not 
     less than the greater of (1) five percent; or (2) the 
     interest rate specified in the plan. However, for purposes of 
     adjusting a benefit in a form that is subject to the minimum 
     value rules (including the use of the interest rate on 30-
     year Treasury securities), such as a lump-sum benefit, the 
     interest rate used must be not less than the greater of: (1) 
     the interest rate on 30-year Treasury securities; or (2) the 
     interest rate specified in the plan.
---------------------------------------------------------------------------
     \22\Code sec. 415(b).
---------------------------------------------------------------------------


                               house bill

     Interest rate for determining current liability and PBGC 
         premiums
       The House bill changes the interest rate used for plan 
     years beginning after December 31, 2003, and before January 
     1, 2006, in determining current liability for funding and 
     deduction purposes and in determining PBGC variable rate 
     premiums. For these purposes, the House bill replaces the 
     interest rate on 30-year Treasury securities with the rate of 
     interest on amounts conservatively invested in long-term 
     corporate bonds.
       For purposes of determining a plan's current liability for 
     plan years beginning after December 31, 2003, and before 
     January 1, 2006, the interest rate used must be within a 
     permissible range of the weighted average of the rates of 
     interest on amounts conservatively invested in long-term 
     corporate bonds during the four-year period ending on the 
     last day before the plan year begins, as determined by the 
     Secretary of the Treasury on the basis of one or more indices 
     selected periodically by the Secretary. The permissible range 
     for these years is from 90 percent to 100 percent. The 
     Secretary of the Treasury is directed to publish the interest 
     rate within the permissible range.

[[Page 6294]]

       In determining the amount of unfunded vested benefits for 
     PBGC variable rate premium purposes for plan years beginning 
     after December 31, 2003, and before January 1, 2006, the 
     interest rate used is 85 percent of the annual yield on 
     amounts conservatively invested in long-term corporate bonds 
     for the month preceding the month in which the plan year 
     begins, as determined by the Secretary of the Treasury on the 
     basis of one or more indices selected periodically by the 
     Secretary. The Secretary of the Treasury is directed to 
     publish such annual yield.
     Interest rate used to apply benefit limits to lump sums
       No provision.
     Alternative deficit reduction contribution for certain plans
       No provision. \23\
---------------------------------------------------------------------------
     \23\Section 2002 of H.R. 3521, the ``Tax Relief Extension Act 
     of 2003,'' as passed by the House of Representatives on 
     November 20, 2003, provides for a reduced deficit reduction 
     contribution for plan years beginning after December 27, 
     2003, and before December 28, 2005, in the case of plans 
     maintained by commercial passenger airlines. For each year of 
     these years, the reduced contribution is 20 percent of the 
     otherwise required additional contribution.
---------------------------------------------------------------------------

                             Effective date

       The House bill is generally effective for plan years 
     beginning after December 31, 2003. For purposes of applying 
     certain rules (``lookback rules'') to plan years beginning 
     after December 31, 2003, the amendments made by the provision 
     may be applied as if they had been in effect for all years 
     beginning before the effective date. For purposes of the 
     provision, ``lookback rules'' means: (1) the rule under which 
     a plan is not subject to the additional funding requirements 
     for a plan year if the plan's funded current liability 
     percentage was at least 90 percent for each of the two 
     immediately preceding plan years or each of the second and 
     third immediately preceding plan years; and (2) the rule 
     under which quarterly contributions are required for a plan 
     year if the plan's funded current liability percentage was 
     less than 100 percent for the preceding plan year.


                            senate amendment

     Interest rate for determining current liability and PBGC 
         premiums
       The Senate amendment is the same as the House bill, with 
     the following modifications.
       The Senate amendment replaces the interest rate on 30-year 
     Treasury securities with a conservative long-term bond rate 
     reflecting the rates of interest on amounts invested 
     conservatively in long term corporate bonds and based on the 
     use of two or more indices that are in the top two quality 
     levels available reflecting average maturities of 20 years or 
     more. The Secretary of the Treasury is directed to prescribe 
     by regulation a method for periodically determining 
     conservative long-term corporate bond rates. \24\
---------------------------------------------------------------------------
     \24\The Senate amendment also repeals the present-law rule 
     under which, for purposes of applying the quarterly 
     contributions requirements to plan years beginning in 2004, 
     current liability for the preceding year is redetermined.
---------------------------------------------------------------------------
       Under the Senate amendment, an employer may elect to 
     disregard the temporary interest rate change for purposes of 
     determining the maximum amount of deductible contributions to 
     a defined benefit pension plan (regardless of whether the 
     plan is subject to the deficit reduction contribution 
     requirements). In such a case, the present-law interest rate 
     rules apply, i.e., the interest rate used in determining 
     current liability for that purpose must be within the 
     permissible range (90 to 105 percent) of the weighted average 
     of the interest rates on 30-year Treasury securities for the 
     preceding four-year period.
     Interest rate used to apply benefit limits to lump sums
       Under the Senate amendment, in the case of plan years 
     beginning in 2004 or 2005, in adjusting a form of benefit 
     that is subject to the minimum value rules, such as a lump-
     sum benefit, for purposes of applying the limits on benefits 
     payable under a defined benefit pension plan, the interest 
     rate used must be not less than the greater of: (1) 5.5 
     percent; or (2) the interest rate specified in the plan.
     Alternative deficit reduction contribution for certain plans
       In general
       The Senate amendment allows certain employers (``applicable 
     employers'') to elect a reduced amount of additional required 
     contribution under the deficit reduction contribution rules 
     (an ``alternative deficit reduction contribution'') with 
     respect to certain plans for applicable plan years. An 
     applicable plan year is a plan year beginning after December 
     27, 2003, and before December 28, 2005, for which the 
     employer elects a reduced contribution. If an employer so 
     elects, the amount of the additional deficit reduction 
     contribution for an applicable plan year is the greater of: 
     (1) 20 percent (40 percent in the case of a plan year 
     beginning after December 27, 2004) of the amount of the 
     additional contribution that would otherwise be required; or 
     (2) the additional contribution that would be required if the 
     deficit reduction contribution for the plan year were 
     determined as the expected increase in current liability due 
     to benefits accruing during the plan year.
       An election of an alternative deficit reduction 
     contribution may be made only with respect to a plan that was 
     not subject to the deficit reduction contribution rules for 
     the plan year beginning in 2000. An election may not be made 
     with respect to more than two plan years. An election is to 
     be made at such time and in such manner as the Secretary of 
     the Treasury prescribes. An election does not invalidate any 
     obligation pursuant to a collective bargaining agreement in 
     effect on the date of the election to provide benefits, to 
     change the accrual of benefits, or to change the rate at 
     which benefits vest under the plan.
       An applicable employer is an employer that is: (1) a 
     commercial passenger airline; (2) primarily engaged in the 
     production or manufacture of a steel mill product, or in the 
     mining or processing of iron ore or beneficiated iron ore 
     products; or (3) an organization described in section 
     501(c)(5) that established the plan for which an alternative 
     deficit reduction contribution is elected on June 30, 1955. 
     In addition, an employer not described in the preceding 
     sentence is treated as an applicable employer if the employer 
     files an application (at such time and in such manner as the 
     Secretary of the Treasury prescribes) to be treated as an 
     applicable employer. However, an employer making such an 
     application is not treated as an applicable employer if, 
     within 90 days of the application, the Secretary determines 
     (taking into account the application of the provision) that 
     there is a reasonable likelihood that the employer will be 
     unable to make required future contributions to the plan in a 
     timely manner.
       Restrictions on amendments
       Certain plan amendments may not be adopted during an 
     applicable plan year (i.e., a plan year for which an 
     alternative deficit reduction contribution is elected). This 
     restriction applies to an amendment that increases the 
     liabilities of the plan by reason of any increase in 
     benefits, any change in the accrual of benefits, or any 
     change in the rate at which benefits vest under the plan. The 
     restriction applies unless: (1) the plan's funded current 
     liability percentage as of the end of the applicable plan 
     year is projected to be at least 75 percent (taking into 
     account the effect of the amendment); (2) the amendment 
     provides for an increase in benefits under a formula that is 
     not based on a participant's compensation, but only if the 
     rate of the increase does not exceed the contemporaneous rate 
     of increase in average wages of participants covered by the 
     amendment; (3) the amendment is required by a collective 
     bargaining agreement that is in effect on the date of 
     enactment of the provision; (4) the amendment is determined 
     by the Secretary of Labor to be reasonable and provides for 
     only de minimis increases in plan liabilities; or (5) the 
     amendment is required as a condition of qualified retirement 
     plan status.
       If a plan is amended during an applicable plan year in 
     violation of the provision, an election of an alternative 
     deficit reduction contribution does not apply to any 
     applicable plan year ending on after the date on which the 
     amendment is adopted.
       Notice requirement
       The Senate amendment amends ERISA to provide that, if an 
     employer elects an alternative deficit reduction contribution 
     for any applicable plan year, the employer must provide 
     written notice of the election to participants and 
     beneficiaries within 30 days of filing the election (120 days 
     in the case of an employer that files an application to be 
     treated as an applicable employer). The notice to 
     participants must include: (1) the due date of the 
     alternative deficit reduction contribution; (2) the amount by 
     which the required contribution to the plan was reduced as a 
     result of the election; (3) a description of the benefits 
     under the plan that are eligible for guarantee by the PBGC; 
     and (4) an explanation of the limitations on the PBGC 
     guarantee and the circumstances in which the limitations 
     apply, including the maximum guaranteed monthly benefits that 
     the PBGC would pay if the plan terminated while underfunded. 
     An employer that fails to provide the required notice to a 
     participant or beneficiary may (in the discretion of a court) 
     be liable to the participant or beneficiary in the amount of 
     up to $100 a day from the date of the failure, and the court 
     may in its discretion order such other relief as it deems 
     proper.
       The Senate amendment also amends ERISA to require that an 
     employer electing an alternative deficit reduction 
     contribution for any year must provide written notice of the 
     election to the PBGC within 30 days of the election (120 days 
     in the case of an employer that files an application to be 
     treated as an applicable employer). The notice to the PBGC 
     must include: (1) the due date of the alternative deficit 
     reduction contribution; (2) the amount by which the required 
     contribution to the plan was reduced as a result of the 
     election; (3) the number of years it will take to restore the 
     plan to full funding if the employer makes only the required 
     contributions; and (4) information as to how the amount by 
     which the plan is underfunded compares with the 
     capitalization of the employer.

[[Page 6295]]


     Effective date
       Interest rate for determining current liability and PBGC 
           premiums
       The Senate amendment is generally effective for plan years 
     beginning after December 31, 2003. For purposes of applying 
     certain rules (``lookback rules'') to plan years beginning 
     after December 31, 2003, the amendments made by the provision 
     may be applied as if they had been in effect for all years 
     beginning before the effective date. For purposes of the 
     provision, ``lookback rules'' means: (1) the rule under which 
     a plan is not subject to the additional funding requirements 
     for a plan year if the plan's funded current liability 
     percentage was at least 90 percent for each of the two 
     immediately preceding plan years or each of the second and 
     third immediately preceding plan years; and (2) the rule 
     under which quarterly contributions are required for a plan 
     year if the plan's funded current liability percentage was 
     less than 100 percent for the preceding plan year.
       Interest rate used to apply benefit limits to lump sums
       The Senate amendment is generally effective for plan years 
     beginning after December 31, 2003. Under a special rule, in 
     the case of a distribution made to a participant or 
     beneficiary after December 31, 2003, and before January 1, 
     2005, in a form of benefit that is subject to the minimum 
     value rules, such as a lump-sum benefit, and that is subject 
     to adjustment in applying the limit on benefits payable under 
     a defined benefit pension plan, the amount payable may not, 
     solely by reason of the Senate amendment, be less than the 
     amount that would have been payable if the amount payable had 
     been determined using the applicable interest rate in effect 
     as of the last day of the last plan year beginning before 
     January 31, 2004.
       Alternative deficit reduction contribution for certain 
           plans
       The Senate amendment is effective on the date of enactment.


                          conference agreement

     Interest rate for determining current liability and PBGC 
         premiums
       The conference agreement follows the House bill with 
     modifications.
       Under the conference agreement, the interest rate used for 
     plan years beginning after December 31, 2003, and before 
     January 1, 2006, in determining current liability for funding 
     and deduction purposes and in determining PBGC variable rate 
     premiums is generally the rate of interest on amounts 
     invested conservatively in long-term investment-grade 
     corporate bonds.\25\
---------------------------------------------------------------------------
     \25\The conference agreement also repeals the present-law 
     rule under which, for purposes of applying the quarterly 
     contributions requirements to plan years beginning in 2004, 
     current liability for the preceding year is redetermined.
---------------------------------------------------------------------------
       For purposes of determining a plan's current liability for 
     plan years beginning after December 31, 2003, and before 
     January 1, 2006, the interest rate used must be within a 
     permissible range of the weighted average of the rates of 
     interest on amounts invested conservatively in long-term 
     investment-grade corporate bonds during the four-year period 
     ending on the last day before the plan year begins. The 
     permissible range for these years is from 90 percent to 100 
     percent. The interest rate is to be determined by the 
     Secretary of the Treasury on the basis of two or more indices 
     that are selected periodically by the Secretary and are in 
     the top three quality levels available.
       The interest rate on long-term corporate bonds shall be 
     calculated pursuant to a method, prescribed by the Secretary 
     of the Treasury, which relies on publicly available indices 
     of high-quality bonds (i.e., the top three quality levels). 
     The Secretary may use bonds with average maturities of 20 
     years or more in determining the rate. The Secretary of 
     Treasury may prescribe that two thirds of the rate may be 
     based on two or more indices that are in the top three 
     quality levels, and one third of such rate may be based on 
     two or more indices that are in the third quality level. The 
     Secretary shall have discretion to determine which publicly 
     available indices to use.
       The Secretary is directed to make the permissible range of 
     the interest rate, as well as the indices and methodology 
     used to determine the average rate, publicly available. The 
     methodology used by the Secretary to arrive at a single rate 
     shall be publicly available (including for a subscription fee 
     or other charge). The Secretary shall publish the rate on a 
     monthly basis, along with an updated four-year weighted 
     average of the rate and an updated permissible range. The 
     Secretary shall consider and monitor the current marketplace 
     indices to produce the specified rate to ensure that the 
     indices continue to be appropriate for this purpose. Through 
     regulations, the Secretary shall, as appropriate, make 
     prospective changes in the indices used to determine the 
     rate.
       For purposes of determining the four-year weighted average 
     of interest rates under the temporary provision, the 
     weighting applicable under present law applies (i.e., 40 
     percent, 30 percent, 20 percent and 10 percent, starting with 
     the most recent year in the four-year period). In addition, 
     consistent with current IRS guidance, the interest rates in 
     the permissible range under the temporary provision are 
     deemed to be consistent with the assumptions reflecting the 
     purchase rates that would be used by insurance companies to 
     satisfy the liabilities under the plan. Thus, any interest 
     rate in the permissible range may be used in determining 
     current liability while the temporary provision is in effect.
       The temporary interest rate generally applies in 
     determining current liability for purposes of determining the 
     maximum amount of deductible contributions to a defined 
     benefit pension plan (regardless of whether the plan is 
     subject to the deficit reduction contribution requirements). 
     However, under the conference agreement, an employer may 
     elect to disregard the temporary interest rate change for 
     purposes of determining the maximum amount of deductible 
     contributions (regardless of whether the plan is subject to 
     the deficit reduction contribution requirements). In such a 
     case, the present-law interest rate rules apply, i.e., the 
     interest rate used in determining current liability for that 
     purpose must be within the permissible range (90 to 105 
     percent) of the weighted average of the interest rates on 30-
     year Treasury securities for the preceding four-year period. 
     This is intended solely as a temporary provision to ensure 
     that, pending long-term reform of the funding and deduction 
     rules, the deduction limit is neither increased nor decreased 
     so that employers are not penalized for fully funding their 
     plans. Because the 30-year Treasury rate is an obsolete rate, 
     its use must be revisited promptly in the context of long-
     term funding and deduction reform. However, the use of the 30 
     Year Treasury rate for the purposes of determining maximum 
     deduction limits should not be considered precedent for the 
     determination of other pension plan calculations. 
     Furthermore, the use of different interest rates for certain 
     pension plan calculations in the context of this temporary 
     bill should not be considered precedent for the use of 
     different discount rates to measure pension plan liabilities.
       Under the conference agreement, in determining the amount 
     of unfunded vested benefits for PBGC variable rate premium 
     purposes for plan years beginning after December 31, 2003, 
     and before January 1, 2006, the interest rate used is 85 
     percent of the annual rate of interest determined by the 
     Secretary of the Treasury on amounts invested conservatively 
     in long-term investment-grade corporate bonds for the month 
     preceding the month in which the plan year begins (subject to 
     the same requirements applicable to the determination of the 
     interest rate used in determining current liability).
     Interest rate used to apply benefit limits to lump sums
       The conference agreement follows the Senate amendment.
       Under the conference agreement, in the case of plan years 
     beginning in 2004 or 2005, in adjusting a form of benefit 
     that is subject to the minimum value rules, such as a lump-
     sum benefit, for purposes of applying the limits on benefits 
     payable under a defined benefit pension plan, the interest 
     rate used must be not less than the greater of: (1) 5.5 
     percent; or (2) the interest rate specified in the plan.
     Plan amendments
       The conference agreement permits certain plan amendments 
     made pursuant to the interest rate provision of the bill to 
     be retroactively effective. If certain requirements are met, 
     the plan will be treated as being operated in accordance with 
     its terms, and the amendment will not violate the anticutback 
     rules (except as provided by the Secretary of the 
     Treasury).\26\ In order for this treatment to apply, the plan 
     amendment must be made on or before the last day of the first 
     plan year beginning on or after January 1, 2006. In addition, 
     the amendment must apply retroactively as of the date on 
     which the interest rate provision became effective with 
     respect to the plan and the plan must be operated in 
     compliance with the interest rate provision until the 
     amendment is made.
---------------------------------------------------------------------------
     \26\Code sec. 411(d)(6); ERISA sec. 204(g).
---------------------------------------------------------------------------
       A plan amendment will not be considered to be pursuant to 
     the interest rate provision of the bill if it has an 
     effective date before the effective date of the interest rate 
     provision. Similarly, relief from the anticutback rules does 
     not apply for periods prior to the effective date of the 
     interest rate provision or the plan amendment.
     Alternative deficit reduction contribution for certain plans
       In general
       The conference agreement follows the Senate amendment with 
     modifications.
       The conference agreement allows certain employers 
     (``applicable employers'') to elect a reduced amount of 
     additional required contribution under the deficit reduction 
     contribution rules (an ``alternative deficit reduction 
     contribution'') with respect to certain plans for applicable 
     plan years. An applicable plan year is a plan year beginning 
     after December 27, 2003, and before December 28, 2005, for 
     which the employer elects a reduced contribution. If an 
     employer so elects, the amount of the additional deficit 
     reduction contribution for an applicable plan year

[[Page 6296]]

     is the greater of (1) 20 percent of the amount of the 
     additional contribution that would otherwise be required; or 
     (2) the additional contribution that would be required if the 
     deficit reduction contribution for the plan year were 
     determined as the expected increase in current liability due 
     to benefits accruing during the plan year.
       An election of an alternative deficit reduction 
     contribution may be made only with respect to a plan that was 
     not subject to the deficit reduction contribution rules for 
     the plan year beginning in 2000.\27\ An election may not be 
     made with respect to more than two plan years. An election is 
     to be made at such time and in such manner as the Secretary 
     of the Treasury prescribes. Guidance relating to the time and 
     manner in which an election is made is to be issued 
     expeditiously. An election does not invalidate any obligation 
     pursuant to a collective bargaining agreement in effect on 
     the date of the election to provide benefits, to change the 
     accrual of benefits, or to change the rate at which benefits 
     vest under the plan.
---------------------------------------------------------------------------
     \27\Whether a plan was subject to the deficit reduction 
     contribution rules for the plan year beginning in 2000 is 
     determined without regard to the rule that allows the 
     temporary interest rate based on amounts invested 
     conservatively in long-term investment-grade corporate bonds 
     to be used for lookback rule purposes, as discussed below.
---------------------------------------------------------------------------
       An applicable employer is an employer that is: (1) a 
     commercial passenger airline; (2) primarily engaged in the 
     production or manufacture of a steel mill product, or the 
     processing of iron ore pellets; or (3) an organization 
     described in section 501(c)(5) that established the plan for 
     which an alternative deficit reduction contribution is 
     elected on June 30, 1955.
       Restrictions on amendments
       Certain plan amendments may not be adopted during an 
     applicable plan year (i.e., a plan year for which an 
     alternative deficit reduction contribution is elected). This 
     restriction applies to an amendment that increases the 
     liabilities of the plan by reason of any increase in 
     benefits, any change in the accrual of benefits, or any 
     change in the rate at which benefits vest under the plan. The 
     restriction applies unless: (1) the plan's enrolled actuary 
     certifies (in such form and manner as prescribed by the 
     Secretary of the Treasury) that the amendment provides for an 
     increase in annual contributions that will exceed the 
     increase in annual charges to the funding standard account 
     attributable to such amendment; or (2) the amendment is 
     required by a collective bargaining agreement that is in 
     effect on the date of enactment of the provision.
       If a plan is amended during an applicable plan year in 
     violation of the provision, an election of an alternative 
     deficit reduction contribution does not apply to any 
     applicable plan year ending on after the date on which the 
     amendment is adopted.
       Notice requirement
       The conference agreement amends ERISA to provide that, if 
     an employer elects an alternative deficit reduction 
     contribution for any applicable plan year, the employer must 
     provide written notice of the election to participants and 
     beneficiaries and to the PBGC within 30 days of filing the 
     election. The notice to participants and beneficiaries must 
     include: (1) the due date of the alternative deficit 
     reduction contribution; (2) the amount by which the required 
     contribution to the plan was reduced as a result of the 
     election; (3) a description of the benefits under the plan 
     that are eligible for guarantee by the PBGC; and (4) an 
     explanation of the limitations on the PBGC guarantee and the 
     circumstances in which the limitations apply, including the 
     maximum guaranteed monthly benefits that the PBGC would pay 
     if the plan terminated while underfunded. The notice to the 
     PBGC must include: (1) the due date of the alternative 
     deficit reduction contribution; (2) the amount by which the 
     required contribution to the plan was reduced as a result of 
     the election; (3) the number of years it will take to restore 
     the plan to full funding if the employer makes only the 
     required contributions; and (4) information as to how the 
     amount by which the plan is underfunded compares with the 
     capitalization of the employer.
       An employer that fails to provide the required notice to a 
     participant, beneficiary, or the PBGC may (in the discretion 
     of a court) be liable to the participant, beneficiary, or 
     PBGC in the amount of up to $100 a day from the date of the 
     failure, and the court may in its discretion order such other 
     relief as it deems proper.
     Effective date
       Interest rate for determining current liability and PBGC 
           premiums
       The conference agreement is generally effective for plan 
     years beginning after December 31, 2003. For purposes of 
     applying certain rules (``lookback rules'') to plan years 
     beginning after December 31, 2003, the amendments made by the 
     provision may be applied as if they had been in effect for 
     all years beginning before the effective date. For purposes 
     of the provision, ``lookback rules'' means: (1) the rule 
     under which a plan is not subject to the additional funding 
     requirements for a plan year if the plan's funded current 
     liability percentage was at least 90 percent for each of the 
     two immediately preceding plan years or each of the second 
     and third immediately preceding plan years; and (2) the rule 
     under which quarterly contributions are required for a plan 
     year if the plan's funded current liability percentage was 
     less than 100 percent for the preceding plan year. The 
     amendments made by the provision may be applied for purposes 
     of the lookback rules, regardless of the funded current 
     liability percentage reported for the plan on the plan's 
     annual reports (i.e., Form 5500) for preceding years.
       Interest rate used to apply benefit limits to lump sums
       The conference agreement is generally effective for plan 
     years beginning after December 31, 2003. Under a special 
     rule, in the case of a distribution made to a participant or 
     beneficiary after December 31, 2003, and before January 1, 
     2005, in a form of benefit that is subject to the minimum 
     value rules, such as a lump-sum benefit, and that is subject 
     to adjustment in applying the limit on benefits payable under 
     a defined benefit pension plan, the amount payable may not, 
     solely by reason of the conference agreement, be less than 
     the amount that would have been payable if the amount payable 
     had been determined using the applicable interest rate in 
     effect as of the last day of the last plan year beginning 
     before January 31, 2004.
       Alternative deficit reduction contribution for certain 
           plans
       The conference agreement is effective on the date of 
     enactment.

                 B. Multiemployer Plan Funding Notices

     (Sec. 4 of the Senate amendment and secs. 101 and 502 of 
         ERISA)


                              Present Law

       Under present law, defined benefit plans are generally 
     required to meet certain minimum funding rules. These rules 
     are designed to help ensure that such plans are adequately 
     funded. Both single-employer plans and multiemployer plans 
     are subject to minimum funding requirements; however, the 
     requirements are different for each type of plan.
       Similarly, the Pension Benefit Guaranty Corporation 
     (``PBGC'') insures certain benefits under both single-
     employer and multiemployer defined benefit plans, but the 
     rules relating to the guarantee vary for each type of plan. 
     In the case of multiemployer plans, the PBGC guarantees 
     against plan insolvency. Under its multiemployer program, 
     PBGC provides financial assistance through loans to plans 
     that are insolvent (that is, plans that are unable to pay 
     basic PBGC-guaranteed benefits when due).
       Employers maintaining single-employer defined benefit plans 
     are required to provide certain notices to plan participants 
     relating to the funding status of the plan. For example, 
     ERISA requires an employer of a single-employer defined 
     benefit plan to notify plan participants if the employer 
     fails to make required contributions (unless a request for a 
     funding waiver is pending).\28\ In addition, in the case of 
     an underfunded plan for which variable rate PBGC premiums are 
     required, the plan administrator generally must notify plan 
     participants of the plan's funding status and the limits on 
     the PBGC benefit guarantee if the plan terminates while 
     underfunded.\29\
---------------------------------------------------------------------------
     \28\ERISA sec. 101(d).
     \29\ERISA sec. 4011. Multiemployer plans are not required to 
     pay variable rate premiums.
---------------------------------------------------------------------------


                               HOUSE BILL

       No provision


                            SENATE AMENDMENT

     In general
       The Senate amendment requires the administrator of a 
     defined benefit plan which is a multiemployer plan to provide 
     an annual funding notice to: (1) each participant and 
     beneficiary; (2) each labor organization representing such 
     participants or beneficiaries; and (3) each employer that has 
     an obligation to contribute under the plan.
       Such a notice must include: (1) identifying information, 
     including the name of the plan, the address and phone number 
     of the plan administrator and the plan's principal 
     administrative officer, each plan sponsor's employer 
     identification number, and the plan identification number; 
     (2) a statement as to whether the plan's funded current 
     liability percentage for the plan year to which the notice 
     relates is at least 100 percent (and if not, a statement of 
     the percentage); (3) a statement of the value of the plan's 
     assets, the amount of benefit payments, and the ratio of the 
     assets to the payments for the plan year to which the report 
     relates; (4) a summary of the rules governing insolvent 
     multiemployer plans, including the limitations on benefit 
     payments and any potential benefit reductions and suspensions 
     (and the potential effects of such limitations, reductions, 
     and suspensions on the plan); (5) a general description of 
     the benefits under the plan which are eligible to be 
     guaranteed by the PBGC and the limitations of the guarantee 
     and circumstances in which such limitations apply; and (6) 
     any additional information which the plan administrator 
     elects to include to the extent it is not inconsistent with 
     regulations prescribed by the Secretary of Labor.
       The annual funding notice must be provided no later than 
     two months after the

[[Page 6297]]

     deadline (including extensions) for filing the plan's annual 
     report for the plan year to which the notice relates. The 
     funding notice must be provided in a form and manner 
     prescribed in regulations by the Secretary of Labor. 
     Additionally, it must be written so as to be understood by 
     the average plan participant and may be provided in written, 
     electronic, or some other appropriate form to the extent that 
     it is reasonably accessible to persons to whom the notice is 
     required to be provided.
       The Secretary of Labor is directed to issue regulations 
     (including a model notice) necessary to implement the 
     provision no later than one year after the date of enactment.
     Sanction for failure to provide notice
       In the case of a failure to provide the annual 
     multiemployer plan funding notice, the Secretary of Labor may 
     assess a civil penalty against a plan administrator of up to 
     $100 per day for each failure to provide a notice. For this 
     purpose, each violation with respect to a single participant 
     or beneficiary is treated as a separate violation.
     Effective date
       The Senate amendment is effective for plan years beginning 
     after December 31, 2004.


                          CONFERENCE AGREEMENT

     In general
       The conference agreement follows the Senate amendment, with 
     the following modification. The administrator of a defined 
     benefit plan which is a multiemployer plan is also required 
     to provide an annual funding notice to the PBGC.
       The conference agreement requires the administrator of a 
     defined benefit plan which is a multiemployer plan to provide 
     an annual funding notice to: (1) each participant and 
     beneficiary; (2) each labor organization representing such 
     participants or beneficiaries; (3) each employer that has an 
     obligation to contribute under the plan; and (4) the PBGC.
       Such a notice must include: (1) identifying information, 
     including the name of the plan, the address and phone number 
     of the plan administrator and the plan's principal 
     administrative officer, each plan sponsor's employer 
     identification number, and the plan identification number; 
     (2) a statement as to whether the plan's funded current 
     liability percentage for the plan year to which the notice 
     relates is at least 100 percent (and if not, a statement of 
     the percentage); (3) a statement of the value of the plan's 
     assets, the amount of benefit payments, and the ratio of the 
     assets to the payments for the plan year to which the report 
     relates; (4) a summary of the rules governing insolvent 
     multiemployer plans, including the limitations on benefit 
     payments and any potential benefit reductions and suspensions 
     (and the potential effects of such limitations, reductions, 
     and suspensions on the plan); (5) a general description of 
     the benefits under the plan which are eligible to be 
     guaranteed by the PBGC and the limitations of the guarantee 
     and circumstances in which such limitations apply; and (6) 
     any additional information which the plan administrator 
     elects to include to the extent it is not inconsistent with 
     regulations prescribed by the Secretary of Labor.
       The annual funding notice must be provided no later than 
     two months after the deadline (including extensions) for 
     filing the plan's annual report for the plan year to which 
     the notice relates. The funding notice must be provided in a 
     form and manner prescribed in regulations by the Secretary of 
     Labor. Additionally, it must be written so as to be 
     understood by the average plan participant and may be 
     provided in written, electronic, or some other appropriate 
     form to the extent that it is reasonably accessible to 
     persons to whom the notice is required to be provided.
       The Secretary of Labor is directed to issue regulations 
     (including a model notice) necessary to implement the 
     provision no later than one year after the date of enactment.
     Sanction for failure to provide notice
       In the case of a failure to provide the annual 
     multiemployer plan funding notice, the Secretary of Labor may 
     assess a civil penalty against a plan administrator of up to 
     $100 per day for each failure to provide a notice. For this 
     purpose, each violation with respect to a single participant 
     or beneficiary is treated as a separate violation.
     Effective date
       The conference agreement is effective for plan years 
     beginning after December 31, 2004.

 C. Election for Deferral of Charge for Portion of Net Experience Loss 
                         of Multiemployer Plans

     (Sec. 5 of the Senate amendment, sec. 302(b)(7) of ERISA, and 
         sec. 412(b)(7) of the Code)


                              Present Law

     General funding requirements
       The Code and ERISA impose minimum funding requirements with 
     respect to defined benefit plans.\30\ Under the minimum 
     funding rules, the amount of contributions required for a 
     plan year is generally the plan's normal cost for the year 
     (i.e., the cost of benefits allocated to the year under the 
     plan's funding method) plus that year's portion of other 
     liabilities that are amortized over a period of years, such 
     as benefits resulting from a grant of past service 
     credit.\30\ A plan's normal cost and other liabilities must 
     be determined under an actuarial cost method permissible 
     under the Code and ERISA.
---------------------------------------------------------------------------
     \30\Code sec. 412; ERISA sec. 302.
     \31\Under special funding rules (referred to as the ``deficit 
     reduction contribution'' rules), an additional contribution 
     may be required to a single-employer plan if the plan's 
     funded current liability percentage is less than 90 percent. 
     The deficit reduction contribution rules do not apply to 
     multiemployer plans.
---------------------------------------------------------------------------
     Funding standard account
       As an administrative aid in the application of the funding 
     requirements, a defined benefit plan is required to maintain 
     a special account called a ``funding standard account'' to 
     which specified charges and credits (including credits for 
     contributions to the plan), plus interest, are made for each 
     plan year. If, as of the close of a plan year, the account 
     reflects credits equal to or in excess of charges, the plan 
     is generally treated as meeting the minimum funding standard 
     for the year. Thus, as a general rule, the minimum 
     contribution for a plan year is determined as the amount by 
     which the charges to the account would exceed credits to the 
     account if no contribution were made to the plan. If, as of 
     the close of the plan year, charges to the funding standard 
     account exceed credits to the account, then the excess is 
     referred to as an ``accumulated funding deficiency.''\32\
---------------------------------------------------------------------------
     \32\In addition to the funding standard account, a 
     reconciliation account is sometimes used to balance certain 
     items for purposes of reporting actuarial information about 
     the plan on the plan's annual report (Schedule B of Form 
     5500).
---------------------------------------------------------------------------
     Experience gains and losses
       In determining plan funding under an actuarial cost method, 
     a plan's actuary generally makes certain assumptions 
     regarding the future experience of a plan. These assumptions 
     typically involve rates of interest, mortality, disability, 
     salary increases, and other factors affecting the value of 
     assets and liabilities, such as increases or decreases in 
     asset values. The actuarial assumptions are required to be 
     reasonable and may be subject to other restrictions. If, on 
     the basis of these assumptions, the contributions made to the 
     plan result in actual unfunded liabilities that are less than 
     those anticipated by the actuary, then the excess is an 
     experience gain. If the actual unfunded liabilities are 
     greater than those anticipated, then the difference is an 
     experience loss.
       If a plan has a net experience gain, the funding standard 
     account is credited with the amount needed to amortize the 
     net experience gain over a certain period. If a plan has a 
     net experience loss, the funding standard account is charged 
     with the amount needed to amortize the net experience loss 
     over a certain period. In the case of a multiemployer plan, 
     the amortization period for net experience gains and losses 
     is 15 years.
     Funding waivers
       Within limits, the IRS is permitted to waive all or a 
     portion of the contributions required under the minimum 
     funding standard for a plan year.\33\ A waiver may be granted 
     if the employer (or employers) responsible for the 
     contribution could not make the required contribution without 
     temporary substantial business hardship and if requiring the 
     contribution would be adverse to the interests of plan 
     participants in the aggregate. In the case of a multiemployer 
     plan, no more than five waivers may be granted within any 
     period of 15 consecutive plan years.
---------------------------------------------------------------------------
     \33\Sec. 412(d).
---------------------------------------------------------------------------
       If a funding waiver is in effect for a plan, subject to 
     certain exceptions, no plan amendment may be adopted that 
     increases the liabilities of the plan by reason of any 
     increase in benefits, any change in the accrual of benefits, 
     or any change in the rate at which benefits vest under the 
     plan.
     Excise tax
       An employer is generally subject to an excise tax if it 
     fails to make minimum required contributions and fails to 
     obtain a waiver from the IRS.\34\ The excise tax is 10 
     percent of the amount of the funding deficiency (five percent 
     in the case of a multiemployer plan). In addition, a tax of 
     100 percent may be imposed if the funding deficiency is not 
     corrected within a certain period.
---------------------------------------------------------------------------
     \34\Sec. 4971.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment allows certain multiemployer plans to 
     elect to defer the beginning of the amortization of certain 
     net experience losses for up to three plan years. The period 
     during which the amortization of a net experience loss is 
     deferred by reason of such an election is referred to as a 
     ``hiatus period.'' The Senate amendment applies to a 
     multiemployer plan that has a net experience loss for any 
     plan year beginning after June 30, 2002, and before July 1, 
     2006. Such a plan may elect to begin the 15-year amortization 
     period with respect to such a loss in any of the three 
     immediately succeeding plan years as selected by the plan. A 
     plan may elect to delay the beginning of the amortization of 
     net experience losses with respect to net experience losses 
     occurring for only two plan years beginning after June 30,

[[Page 6298]]

     2002, and before July 1, 2006 (regardless of the number of 
     plan years in that period for which the plan has net 
     experience losses). An election under the Senate amendment is 
     to be made at such time and in such manner as the Secretary 
     of Labor prescribes, after consultation with the Secretary of 
     the Treasury.
       If an election is made, the net experience loss is treated, 
     for purposes of determining any charge to the funding 
     standard account (or interest) with respect to the loss, in 
     the same manner as if the net experience loss occurred in the 
     year selected by the plan for the amortization period to 
     begin (without regard to any net experience loss or gain 
     otherwise determined for such year). Interest accrued on any 
     net experience loss during a hiatus period is charged to a 
     reconciliation account and not to the funding standard 
     account.
       Certain plan amendments may not take effect for any plan 
     year in the hiatus period. This restriction applies to an 
     amendment that increases the liabilities of the plan by 
     reason of any increase in benefits, any change in the accrual 
     of benefits, or any change in the rate at which benefits vest 
     under the plan. The restriction applies unless: (1) the 
     plan's funded current liability percentage as of the end of 
     the plan year is projected to be at least 75 percent (taking 
     into account the effect of the amendment); (2) the plan's 
     actuary certifies that, due to an increase in the rates of 
     contributions to the plan, the normal cost attributable to 
     the benefit increase or other change is expected to be fully 
     funded in the year following the year in which the increase 
     or other change takes effect, and any increase in the plan's 
     accrued liabilities attributable to the benefit increase or 
     other change is expected to be fully funded by the end of the 
     third plan year following the end of the plan hiatus period 
     of the plan; (3) the amendment is determined by the Secretary 
     of Labor to be reasonable and provides for only de minimis 
     increases in plan liabilities; or (4) the amendment is 
     required as a condition of qualified retirement plan status. 
     The restriction on amendments does not apply to an increase 
     in benefits for a group of participants resulting solely from 
     a collectively bargained increase in the contributions on 
     their behalf. Failure to comply with this restriction is a 
     violation of ERISA and of the qualification requirements of 
     the Code.
       If a plan elects to defer the beginning of an amortization 
     period, the plan administrator must provide written notice of 
     the election within 30 days to participants and 
     beneficiaries, to each labor organization representing 
     participants and beneficiaries, and to each employer that has 
     an obligation to contribute under the plan. The notice must 
     include: (1) the amount of the net experience loss to be 
     deferred under the election and the period of the deferral; 
     and (2) the maximum guaranteed monthly benefits that the PBGC 
     would pay if the plan terminated while underfunded. If a plan 
     administrator fails to comply with the notice requirement, 
     the Secretary of Labor may assess a civil penalty of not more 
     than $1,000 a day for each violation.
       Effective date.--The Senate amendment is effective on the 
     date of enactment.


                          Conference Agreement

       The conference agreement allows the plan sponsor of an 
     eligible multiemployer plan to elect to defer certain charges 
     to the funding standard account that would otherwise be made 
     to the plan's funding standard account for a plan year 
     beginning after June 30, 2003, and before July 1, 2005. The 
     charges may be deferred to any plan year selected by the plan 
     sponsor from either of the two plan years immediately 
     succeeding the plan year for which the charge would otherwise 
     be made. An election may be made with respect to up to 80 
     percent of the charge to the funding standard account 
     attributable to the amortization of a net experience loss for 
     the first plan year beginning after December 31, 2001. An 
     election is to be made at such time and in such manner as the 
     Secretary of the Treasury prescribes. For the plan year to 
     which a charge is deferred under the plan sponsor's election, 
     the funding standard account is required to be charged with 
     interest at the short-term Federal rate on the deferred 
     charge for the period of the deferral.
       An eligible multiemployer plan is a multiemployer plan: (1) 
     that, for the first plan year beginning after December 31, 
     2001, had an actual net investment loss of at least 10 
     percent of the average fair market value of plan assets 
     during the plan year; and (2) with respect to which the 
     plan's enrolled actuary certifies that (not taking into 
     account the deferral of charges under the provision and based 
     on the actuarial assumptions used for the last plan year 
     before date of enactment of the provision), the plan is 
     projected to have an accumulated funding deficiency for any 
     plan year beginning after June 30, 2003, and before July 1, 
     2006. In addition, a plan is not treated as an eligible 
     multiemployer plan if: (1) for any taxable year beginning 
     during the ten year period preceding the first plan year for 
     which an election is made under the provision, any employer 
     required to contribute to the plan failed to timely pay an 
     excise tax imposed on the plan for failure to make required 
     contributions; (2) for any plan year beginning after June 30, 
     1993, and before the first plan year for which an election is 
     made under the provision, the average contribution required 
     to be made to the plan by all employers does not exceed 10 
     cents per hour, or no employer is required to make 
     contributions to the plan; or (3) with respect to any plan 
     year beginning after June 30, 1993, and before the first plan 
     year for which an election is made under the provision, a 
     funding waiver or extension of an amortization period was 
     granted to the plan.
       Certain plan amendments may not be adopted during the 
     period for which a charge is deferred. This restriction 
     applies to an amendment that increases the liabilities of the 
     plan by reason of any increase in benefits, any change in the 
     accrual of benefits, or any change in the rate at which 
     benefits vest under the plan. The restriction applies unless: 
     (1) the plan's enrolled actuary certifies (in such form and 
     manner as prescribed by the Secretary of the Treasury) that 
     the amendment provides for an increase in annual 
     contributions that will exceed the increase in annual charges 
     to the funding standard account attributable to such 
     amendment; or (2) the amendment is required by a collective 
     bargaining agreement that is in effect on the date of 
     enactment of the provision. If a plan is amended in violation 
     of the provision, an election under the provision does not 
     apply to any plan year ending on after the date on which the 
     amendment is adopted.
       If a plan sponsor elects to defer charges attributable to a 
     net experience loss, the plan administrator must provide 
     written notice of the election within 30 days to participants 
     and beneficiaries, to each labor organization representing 
     participants and beneficiaries, to each employer that has an 
     obligation to contribute under the plan, and to the PBGC. The 
     notice must include: (1) the amount of the charges to be 
     deferred under the election and the period of the deferral; 
     and (2) the maximum guaranteed monthly benefits that the PBGC 
     would pay if the plan terminated while underfunded. If a plan 
     administrator fails to comply with the notice requirement, 
     the Secretary of Labor may assess a civil penalty of not more 
     than $1,000 a day for each violation.
       Effective date.--The conference agreement is effective on 
     the date of enactment.

      D. Two-Year Extension of Transition Rule to Pension Funding 
                Requirements for Interstate Bus Company

     (Sec. 6 of the Senate amendment, and sec. 769(c) of the 
         Retirement Protection Act of 1994 (as added by sec. 1508 
         of the Taxpayer Relief Act of 1997))


                              Present Law

       Under present law, defined benefit plans are required to 
     meet certain minimum funding rules. In some cases, additional 
     contributions are required if a defined benefit plan is 
     underfunded. Additional contributions generally are not 
     required in the case of a plan with a funded current 
     liability percentage of at least 90 percent. A plan's funded 
     current liability percentage is the value of plan assets as a 
     percentage of current liability. In general, a plan's current 
     liability means all liabilities to employees and their 
     beneficiaries under the plan. In the case of a plan with a 
     funded current liability percentage of less than 100 percent 
     for the preceding plan year, estimated contributions for the 
     current plan year must be made in quarterly installments 
     during the current plan year.
       The PBGC insures benefits under most single-employer 
     defined benefit plans in the event the plan is terminated 
     with insufficient assets to pay for plan benefits. The PBGC 
     is funded in part by a flat-rate premium per plan 
     participant, and a variable rate premium based on the amount 
     of unfunded vested benefits under the plan. A specified 
     interest rate and a specified mortality table apply in 
     determining unfunded vested benefits for this purpose.
       Under present law, a special rule modifies the minimum 
     funding requirements in the case of certain plans. The 
     special rule applies in the case of plans that (1) were not 
     required to pay a variable rate PBGC premium for the plan 
     year beginning in 1996, (2) do not, in plan years beginning 
     after 1995 and before 2009, merge with another plan (other 
     than a plan sponsored by an employer that was a member of the 
     controlled group of the employer in 1996), and (3) are 
     sponsored by a company that is engaged primarily in 
     interurban or interstate passenger bus service.
       The special rule treats a plan to which it applies as 
     having a funded current liability percentage of at least 90 
     percent for plan years beginning after 1996 and before 2005 
     if for such plan year the funded current liability percentage 
     is at least 85 percent. If the funded current liability of 
     the plan is less than 85 percent for any plan year beginning 
     after 1996 and before 2005, the relief from the minimum 
     funding requirements applies only if certain specified 
     contributions are made.
       For plan years beginning after 2004 and before 2010, the 
     funded current liability percentage will be deemed to be at 
     least 90 percent if the actual funded current liability 
     percentage is at least at certain specified levels. The 
     relief from the minimum funding requirements applies for a 
     plan year beginning in 2005, 2006, 2007, or 2008 only if 
     contributions to the plan for the plan year equal at least 
     the expected increase in current liability due to benefits 
     accruing during the plan year.

[[Page 6299]]




                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment modifies the special funding rules for 
     plans sponsored by a company engaged primarily in interurban 
     or interstate passenger bus service by providing that, for 
     plan years beginning in 2004 and 2005, the funded current 
     liability percentage of the plan will be treated as at least 
     90 percent for purposes of determining the amount of required 
     contributions (100 percent for purposes of determining 
     whether quarterly contributions are required). As a result, 
     for these years, additional contributions and quarterly 
     contributions are not required with respect to the plan. In 
     addition, for these years, the mortality table used under the 
     plan is used in determining the amount of unfunded vested 
     benefits under the plan for purposes of calculating PBGC 
     variable rate premiums.
       Effective date.--The Senate amendment is effective for plan 
     years beginning after December 31, 2003.


                          Conference Agreement

       The conference agreement follows the Senate amendment.
       The conference agreement modifies the special funding rules 
     for plans sponsored by a company engaged primarily in 
     interurban or interstate passenger bus service by providing 
     that, for plan years beginning in 2004 and 2005, the funded 
     current liability percentage of the plan will be treated as 
     at least 90 percent for purposes of determining the amount of 
     required contributions (100 percent for purposes of 
     determining whether quarterly contributions are required). As 
     a result, for these years, additional contributions and 
     quarterly contributions are not required with respect to the 
     plan. In addition, for these years, the mortality table used 
     under the plan is used in determining the amount of unfunded 
     vested benefits under the plan for purposes of calculating 
     PBGC variable rate premiums.
       Effective date.--The Senate amendment is effective for plan 
     years beginning after December 31, 2003.

E. Procedures Applicable to Disputes Involving Pension Plan Withdrawal 
                               Liability

     (Sec. 7 of the Senate amendment and sec. 4221 of ERISA)


                              Present Law

       Under ERISA, when an employer withdraws from a 
     multiemployer plan, the employer is generally liable for its 
     share of unfunded vested benefits, determined as of the date 
     of withdrawal (generally referred to as the ``withdrawal 
     liability''). Whether and when a withdrawal has occurred and 
     the amount of the withdrawal liability is determined by the 
     plan sponsor. The plan sponsor's assessment of withdrawal 
     liability is presumed correct unless the employer shows by a 
     preponderance of the evidence that the plan sponsor's 
     determination of withdrawal liability was unreasonable or 
     clearly erroneous. A similar standard applies in the event 
     the amount of the plan's unfunded vested benefits is 
     challenged.
       The first payment of withdrawal liability determined by the 
     plan sponsor is due no later than 60 days after demand, even 
     if the employer contests the determination of liability. 
     Disputes between an employer and plan sponsor concerning 
     withdrawal liability are resolved through arbitration, which 
     can be initiated by either party. Even if the employer 
     contests the determination, payments of withdrawal liability 
     must be made by the employer until the arbitrator issues a 
     final decision with respect to the determination submitted 
     for arbitration.
       For purposes of withdrawal liability, all trades or 
     businesses under common control are treated as a single 
     employer. In addition, the plan sponsor may disregard a 
     transaction in order to assess withdrawal liability if the 
     sponsor determines that the principal purpose of the 
     transaction was to avoid or evade withdrawal liability. For 
     example, if a subsidiary of a parent company is sold and the 
     subsidiary then withdraws from a multiemployer plan, the plan 
     sponsor may assess withdrawal liability as if the subsidiary 
     were still part of the parent company's controlled group if 
     the sponsor determines that a principal purpose of the sale 
     of the subsidiary was to evade or avoid withdrawal liability.


                               House Bill

       No provision.


                            Senate Amendment

       Under the Senate amendment, a special rule may apply if a 
     transaction is disregarded by a plan sponsor in determining 
     that a withdrawal has occurred or that an employer is liable 
     for withdrawal liability. If the transaction that is 
     disregarded by the plan sponsor occurred before January 1, 
     1999, and at least five years before the date of the 
     withdrawal, then (1) the determination by the plan sponsor 
     that a principal purpose of the transaction was to evade or 
     avoid withdrawal liability is not be presumed to be correct, 
     (2) the plan sponsor, rather than the employer, has the 
     burden to establish, by a preponderance of the evidence, the 
     elements of the claim that a principal purpose of the 
     transaction was to evade or avoid withdrawal liability, and 
     (3) if an employer contests the plan sponsor's determination 
     through an arbitration proceeding, or through a claim brought 
     in a court of competent jurisdiction, the employer is not 
     obligated to make any withdrawal liability payments until a 
     final decision in the arbitration proceeding, or in 30 court, 
     upholds the plan sponsor's determination. The provision does 
     not modify the burden of establishing other elements of a 
     claim for withdrawal liability other than whether the purpose 
     of the transaction was to evade or avoid withdrawal 
     liability.
       Effective date.--The provision applies to an employer that 
     receives a notification of withdrawal liability and demand 
     for payment under ERISA section 4219(b)(1) after October 31, 
     2003.


                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Under the conference agreement, a special rule may apply if 
     a transaction is disregarded by a plan sponsor in determining 
     that a withdrawal has occurred or that an employer is liable 
     for withdrawal liability. If the transaction that is 
     disregarded by the plan sponsor occurred before January 1, 
     1999, and at least five years before the date of the 
     withdrawal, then (1) the determination by the plan sponsor 
     that a principal purpose of the transaction was to evade or 
     avoid withdrawal liability is not be presumed to be correct, 
     (2) the plan sponsor, rather than the employer, has the 
     burden to establish, by a preponderance of the evidence, the 
     elements of the claim that a principal purpose of the 
     transaction was to evade or avoid withdrawal liability, and 
     (3) if an employer contests the plan sponsor's determination 
     through an arbitration proceeding, or through a claim brought 
     in a court of competent jurisdiction, the employer is not 
     obligated to make any withdrawal liability payments until a 
     final decision in the arbitration proceeding, or in court, 
     upholds the plan sponsor's determination. The provision does 
     not modify the burden of establishing other elements of a 
     claim for withdrawal liability other than whether the purpose 
     of the transaction was to evade or avoid withdrawal 
     liability.
       Effective date.--The provision applies to an employer that 
     receives a notification of withdrawal liability and demand 
     for payment under ERISA section 4219(b)(1) after October 31, 
     2003.

  F. Modify Qualification Rules for Tax-Exempt Property and Casualty 
                          Insurance Companies

     (Sec. 10 of the Senate amendment and sees. 501 and 831 of the 
         Code)


                              Present Law

       A property and casualty insurance company generally is 
     subject to tax on its taxable income (sec. 831(a)). The 
     taxable income of a property and casualty insurance company 
     is determined as the sum of its underwriting income and 
     investment income (as well as gains and other income items), 
     reduced by allowable deductions (sec. 832).
       A property and casualty insurance company is eligible to be 
     exempt from Federal income tax if its net written premiums or 
     direct written premiums (whichever is greater) for the 
     taxable year do not exceed $350,000 (sec. 501(c)(15)).
       A property and casualty insurance company may elect to be 
     taxed only on taxable investment income if its net written 
     premiums or direct written premiums (whichever is greater) 
     for the taxable year exceed $350,000, but do not exceed $1.2 
     million (sec. 831(b)).
       For purposes of determining the amount of a company's net 
     written premiums or direct written premiums under these 
     rules, premiums received by all members of a controlled group 
     of corporations of which the company is a part are taken into 
     account. For this purpose, a more-than-50-percent threshhold 
     applies under the vote and value requirements with respect to 
     stock ownership for determining a controlled group, and rules 
     treating a life insurance company as part of a separate 
     controlled group or as an excluded member of a group do not 
     apply (secs. 501(c)(15), 831(b)(2)(B) and 1563).


                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment modifies the requirements for a 
     property and casualty insurance company to be eligible for 
     tax-exempt status, and to elect to be taxed only on taxable 
     investment income.
       Under the Senate amendment, a property and casualty 
     insurance company is eligible to be exempt from Federal 
     income tax if (a) its gross receipts for the taxable year do 
     not exceed $600,000, and (b) the premiums received for the 
     taxable year are greater than 50 percent of its gross 
     receipts. For purposes of determining gross receipts, the 
     gross receipts of all members of a controlled group of 
     corporations of which the company is a part are taken into 
     account. The Senate amendment expands the present-law 
     controlled group rule so that it also takes into account 
     gross receipts of foreign and tax-exempt corporations.
       A company that does not meet the definition of an insurance 
     company is not eligible to be exempt from Federal income tax 
     under

[[Page 6300]]

     the Senate amendment. For this purpose, the term ``insurance 
     company'' means any company, more than half of the business 
     of which during the taxable year is the issuing of insurance 
     or annuity contracts or the reinsuring of risks underwritten 
     by insurance companies (sec. 816(a) and new sec. 831(c)). A 
     company whose investment activities outweigh its insurance 
     activities is not considered to be an insurance company for 
     this purpose.\35\ It is intended that IRS enforcement 
     activities address the misuse of present-law section 
     501(c)(15).
---------------------------------------------------------------------------
     \35\35 See, e.g., Inter-American Life Insurance Co. v. 
     Comm'r, 56 T.C. 497, aff'd per curiam, 469 F.2d 697 (9th Cir. 
     1972).
---------------------------------------------------------------------------
       The Senate amendment also provides that a property and 
     casualty insurance company may elect to be taxed only on 
     taxable investment income if its net written premiums or 
     direct written premiums (whichever is greater) do not exceed 
     $1.2 million (without regard to whether such premiums exceed 
     $350,000) (sec. 831(b)). Asunder present law, for purposes of 
     determining the amount of a company's net written premiums or 
     direct written premiums under this rule, premiums received by 
     all members of a controlled group of corporations (as defined 
     in section 831(b)) of which the company is a part are taken 
     into account.
       It is intended that regulations or other Treasury guidance 
     provide for anti-abuse rules so as to prevent improper use of 
     the provision, including, for example, by attempts to 
     characterize as premiums any income that is other than 
     premium income.
       Effective date.--The Senate amendment provisions are 
     effective for taxable years beginning after December 31, 
     2003.


                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     modifications.
       Under the conference agreement, an additional special rule 
     provides that a mutual property and casualty insurance 
     company is eligible to be exempt from Federal income tax 
     under the provision if (a) its gross receipts for the taxable 
     year do not exceed $150,000, and (b) the premiums received 
     for the taxable year are greater than 35 percent of its gross 
     receipts, provided certain requirements are met. The 
     requirements are that no employee of the company or member of 
     the employee's family is an employee of another company that 
     is exempt from tax under section 501(c)(15). The limitation 
     to mutual companies and the limitation on employees are 
     intended to address the conferees' concern about the 
     inappropriate use of tax-exempt insurance companies to 
     shelter investment income, including in the case of companies 
     with gross receipts under $150,000. For example, it is 
     intended that the provision not permit the use of small 
     companies with common owners or employees to shelter 
     investment income for the benefit of such owners or 
     employees.
       Effective date.--The provision generally is effective for 
     taxable years beginning after December 31, 2003.
       Under the conference agreement, a special transition rule 
     applies with respect to certain companies. This transition 
     rule applies in the case of a company that, (1) for its 
     taxable year that includes April 1, 2004, meets the 
     requirements of present law section 501(c)(15)(A) (as in 
     effect for the taxable year beginning before January 1, 
     2004), and (2) on April 1, 2004, is in a receivership, 
     liquidation or similar proceeding under the supervision of a 
     State court. Under the transition rule, in the case of such a 
     company, the general rule of the provision in the conference 
     agreement applies to taxable years beginning after the 
     earlier of (1) the date the proceeding ends, or (2) December 
     31, 2007.
       For such a company, present-law limitations on the 
     carryover of net operating losses to or from years in which 
     the company was not subject to tax (including section 
     831(b)(3)) continue to apply. A company that is not otherwise 
     eligible for tax-exempt status under present-law section 
     501(c)(15) (e.g., a company that is or becomes a life 
     insurance company, or a company with net (or, if greater, 
     direct) written premiums exceeding $350,000 for the taxable 
     year) is not eligible for the transition rule.

G. Definition of Insurance Company for Property and Casualty Insurance 
                           Company Tax Rules

     (Sec. 11 of the Senate amendment and sec. 831 of the Code)


                              Present Law

       Present law provides specific rules for taxation of the 
     life insurance company taxable income of a life insurance 
     company (sec. 801), and for taxation of the taxable income of 
     an insurance company other than a life insurance company 
     (sec. 831) (generally referred to as a property and casualty 
     insurance company). For Federal income tax purposes, a life 
     insurance company means an insurance company that is engaged 
     in the business of issuing life insurance and annuity 
     contracts, or noncancellable health and accident insurance 
     contracts, and that meets a 50-percent test with respect to 
     its reserves (sec. 816(a)). This statutory provision 
     applicable to life insurance companies explicitly defines the 
     term ``insurance company'' to mean any company, more than 
     half of the business of which during the taxable year is the 
     issuing of insurance or annuity contracts or the reinsuring 
     of risks underwritten by insurance companies (sec. 816(a)).
       The life insurance company statutory definition of an 
     insurance company does not explicitly apply to property and 
     casualty insurance companies, although a long-standing 
     Treasury regulation\36\ that is applied to property and 
     casualty companies provides a somewhat similar definition of 
     an ``insurance company'' based on the company's ``primary and 
     predominant business activity.''\37\
---------------------------------------------------------------------------
     \36\The Treasury regulation provides that ``the term 
     `insurance company' means a company whose primary and 
     predominant business activity during the taxable year is the 
     issuing of insurance or annuity contracts or the reinsuring 
     of risks underwritten by insurance companies. Thus, though 
     its name, charter powers, and subjection to State insurance 
     laws are significant in determining the business which a 
     company is authorized and intends to carry on, it is the 
     character of the business actually done in the taxable year 
     which determines whether a company is taxable as an insurance 
     company under the Internal Revenue Code.'' Treas. Reg. sec. 
     1.801-3(a)(1).
     \37\Court cases involving a determination of whether a 
     company is an insurance company for Federal tax purposes have 
     examined all of the business and other activities of the 
     company. In considering whether a company is an insurance 
     company for such purposes, courts have considered, among 
     other factors, the amount and source of income received by 
     the company from its different activities. See Bowers v. 
     Lawyers Mortgage Co., 285 U.S. 182 (1932); United States v. 
     Home Title Insurance Co., 285 U.S. 191 (1932). See also 
     Inter-American Life Insurance Co. v. Comm'r, 56 T.C. 497, aff 
     d per curiam, 469 F.2d 697 (9th Cir. 1972), in which the 
     court concluded that the company was not an insurance 
     company: ``The. . . financial data clearly indicates that 
     petitioner's primary and predominant source of income was 
     from its investments and not from issuing insurance contracts 
     or reinsuring risks underwritten by insurance companies. 
     During each of the years in issue, petitioner's investment 
     income far exceeded its premiums and the amounts of earned 
     premiums were de minimis during those years. It is equally as 
     clear that petitioner's primary and predominant efforts were 
     not expended in issuing insurance contracts or in 
     reinsurance. Of the relatively few policies directly written 
     by petitioner, nearly all were issued to [family members]. 
     Also, Investment Life, in which [family members] each owned a 
     substantial stock interest, was the source of nearly all of 
     the policies reinsured by petitioner. These facts, coupled 
     with the fact that petitioner did not maintain an active 
     sales staff soliciting or selling insurance policies . . ., 
     indicate a lack of concentrated effort on petitioner's behalf 
     toward its chartered purpose of engaging in the insurance 
     business. . . For the above reasons, we hold that during the 
     years in issue, petitioner was not `an insurance company. . . 
     engaged in the business of issuing life insurance' and hence, 
     that petitioner was not a life insurance company within the 
     meaning of section 801.'' 56 T.C. 497, 507-508.
---------------------------------------------------------------------------
       When enacting the statutory definition of an insurance 
     company in 1984, Congress stated, ``[b]y requiring [that] 
     more than half rather than the `primary and predominant 
     business activity' be insurance activity, the bill adopts a 
     stricter and more precise standard for a company to be taxed 
     as a life insurance company than does the general regulatory 
     definition of an insurance company applicable for both life 
     and nonlife insurance companies. . . Whether more than half 
     of the business activity is related to the issuing of 
     insurance or annuity contracts will depend on the facts and 
     circumstances and factors to be considered will include the 
     relative distribution of the number of employees assigned to, 
     the amount of space allocated to, and the net income derived 
     from, the various business activities.''\38\
---------------------------------------------------------------------------
     \38\H.R. Rep. 98-432, part 2, at 1402-1403 (1984); S. Prt. 
     No. 98-169, vol. I, at 525-526 (1984); see also H.R. Rep. No. 
     98-861 at 1043-1044 (1985) (Conference Report).
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment provides that, for purposes of 
     determining whether a company is a property and casualty 
     insurance company, the term ``insurance company'' is defined 
     to mean any company, more than half of the business of which 
     during the taxable year is the issuing of insurance or 
     annuity contracts or the reinsuring of risks underwritten by 
     insurance companies. Thus, the Senate amendment conforms the 
     definition of an insurance company for purposes of the rules 
     taxing property and casualty insurance companies to the rules 
     taxing life insurance companies, so that the definition is 
     uniform. The Senate amendment adopts a stricter and more 
     precise standard than the ``primary and predominant business 
     activity'' test contained in Treasury Regulations. A company 
     whose investment activities outweigh its insurance activities 
     is not considered to be an insurance company under the Senate 
     amendment.\39\ It is not intended that a company whose sole 
     activity is the run-off of risks under the company's 
     insurance contracts be treated as a company other than an 
     insurance company, even if the company has little or no 
     premium income.
---------------------------------------------------------------------------
     \39\See Inter-American Life Insurance Co. v. Comm'r, supra.
---------------------------------------------------------------------------
       Effective date.--The Senate amendment provision applies to 
     taxable years beginning after December 31, 2003.


                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--The Senate amendment provision applies to 
     taxable years beginning after December 31, 2003.

[[Page 6301]]



    H. Repeal of Reduction of Deductions for Mutual Life Insurance 
                               Companies

     (Sec. 809 of the Code)


                         Prior and Present Law

       In general, a corporation may not deduct amounts 
     distributed to shareholders with respect to the corporation's 
     stock. The Deficit Reduction Act of 1984 added a provision to 
     the rules governing insurance companies that was intended to 
     remedy the failure of prior law to distinguish between 
     amounts returned by mutual life insurance companies to 
     policyholders as customers, and amounts distributed to them 
     as owners of the mutual company.
       Under the provision, section 809, a mutual life insurance 
     company is required to reduce its deduction for policyholder 
     dividends by the company's differential earnings amount. If 
     the company's differential earnings amount exceeds the amount 
     of its deductible policyholder dividends, the company is 
     required to reduce its deduction for changes in its reserves 
     by the excess of its differential earnings amount over the 
     amount of its deductible policyholder dividends. The 
     differential earnings amount is the product of the 
     differential earnings rate and the average equity base of a 
     mutual life insurance company.
       The differential earnings rate is based on the difference 
     between the average earnings rate of the 50 largest stock 
     life insurance companies and the earnings rate of all mutual 
     life insurance companies. The mutual earnings rate applied 
     under the provision is the rate for the second calendar year 
     preceding the calendar year in which the taxable year begins. 
     Under present law, the differential earnings rate cannot be a 
     negative number.
       A company's equity base equals the sum of: (1) Its surplus 
     and capital increased by 50 percent of the amount of any 
     provision for policyholder dividends payable in the following 
     taxable year; (2) the amount of its nonadmitted financial 
     assets; (3) the excess of its statutory reserves over its tax 
     reserves; and (4) the amount of any mandatory security 
     valuation reserves, deficiency reserves, and voluntary 
     reserves. A company's average equity base is the average of 
     the company's equity base at the end of the taxable year and 
     its equity base at the end of the preceding taxable year.
       A recomputation or ``true-up'' in the succeeding year is 
     required if the differential earnings amount for the taxable 
     year either exceeds, or is less than, the recomputed 
     differential earnings amount. The recomputed differential 
     earnings amount is calculated taking into account the average 
     mutual earnings rate for the calendar year (rather than the 
     second preceding calendar year, as above). The amount of the 
     true-up for any taxable year is added to, or deducted from, 
     the mutual company's income for the succeeding taxable year.
       For taxable years beginning in 2001, 2002, or 2003, the 
     differential earnings amount is treated as zero for purposes 
     of computing both the differential earnings amount and the 
     recomputed differential earnings amount (true-up).


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement repeals the rule requiring 
     reduction in certain deductions of a mutual life insurance 
     company (section 809).
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2004. Thus, for taxable 
     years beginning in 2003, the differential earnings amount is 
     treated as zero under present law; for taxable years 
     beginning in 2004, this rule does not apply and section 809 
     is in effect (including the true-up applicable with respect 
     to taxable years beginning in 2004).

  I. Sense of Congress Regarding Defined Benefit Pension System Reform

     (Sec. 2 of the House bill and sec. 8 of the Senate amendment)


                              Present Law

       No provision.


                               House Bill

       The House bill makes various findings and expresses the 
     sense of the Congress with respect to the interest rate used 
     to value pension plan liabilities.
       Specifically, the House bill provides that the Congress 
     finds the following:
       The defined benefit pension system has recently experienced 
     severe difficulties due to an unprecedented economic climate 
     of low interest rates, market losses and an increased number 
     of retirees;
       The discontinuance of the issuance of 30-year Treasury 
     securities has made the interest rate on such securities an 
     inappropriate and inaccurate benchmark for measuring pension 
     liabilities;
       Using the current 30-year Treasury bond interest rate has 
     artificially inflated pension liabilities and adversely 
     affected employers offering defined benefit pension plans and 
     working families who rely on the safe and secure benefits 
     these plans provide;
       There is consensus among pension experts that an interest 
     rate based on long-term, conservative corporate bonds would 
     provide a more accurate benchmark for measuring pension plan 
     liabilities; and
       A temporary replacement for the 30-year Treasury bond 
     interest rate should be enacted while the Congress evaluates 
     permanent and comprehensive funding reforms.
       In addition, the House bill provides that it is the sense 
     of the Congress that the Congress must ensure the financial 
     health of the defined benefit pension system by working to 
     promptly implement: (1) a permanent replacement for the 
     discount rate used for defined benefit pension plan 
     calculations; and (2) comprehensive funding reforms aimed at 
     achieving accurate and sound pension plan funding to enhance 
     retirement security for workers who rely on defined benefit 
     pension plan benefits, to reduce the volatility of 
     contributions, to provide plan sponsors with predictability 
     for plan contributions, and to ensure adequate disclosures 
     for plan participants in the case of underfunded plans.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment makes various findings of the Congress 
     relating to the private pension system and the Pension 
     Benefit Guaranty Corporation (``PBGC'') and expresses the 
     sense of the Senate with respect to future legislative 
     action.
       Specifically, the Senate amendment provides that the 
     Congress makes the following findings:
       The private pension system is integral to the retirement 
     security of Americans, along with individual savings and 
     Social Security.
       The PBGC is responsible for insuring the nation's private 
     pension system, and currently insures the pensions of 
     34,500,000 participants in 29,500 single-employer plans, and 
     9,700,000 participants in more than 1,600 multiemployer 
     plans;
       The PBGC announced on January 15, 2004, that it suffered a 
     net loss in fiscal year 2003 of $7,600,000,000 for single-
     employer pension plans, bringing the PBGC's deficit to 
     $11,200,000,000. This deficit is the PBGC's worst on record, 
     three times larger than the $3,600,000,000 deficit 
     experienced in fiscal year 2002.
       The PBGC also announced that the separate insurance program 
     for multiemployer pension plans sustained a net loss of 
     $419,000,000 in fiscal year 2003, resulting in a fiscal year-
     end deficit of $261,000,000. The 2003 multiemployer plan 
     deficit is the first deficit in more than 20 years and is the 
     largest deficit on record.
       The PBGC estimates that the total underfunding in 
     multiemployer pension plans is roughly $100,000,000,000 and 
     in single-employer plans is approximately $400,000,000,000. 
     This underfunding is due in part to the recent decline in the 
     stock market and low interest rates, but is also due to 
     demographic changes. For example, in 1980, there were four 
     active workers for every one retiree in a multiemployer plan, 
     but in 2002, there was only one active worker for every one 
     retiree.
       This pension plan underfunding is concentrated in mature 
     and often-declining industries, where plan liabilities will 
     come due sooner.
       Neither the Senate Committee on Finance nor the Senate 
     Committee on Health, Education, Labor and Pensions 
     (``HELP''), the committees of jurisdiction over pension 
     matters, has held hearings this Congress nor reported 
     legislation addressing the funding of multiemployer pension 
     plans.
       The Senate is concerned about the current funding status of 
     the private pension system, both single and multiemployer 
     plans.
       The Senate is concerned about the potential liabilities 
     facing the PBGC and, as a result, the potential burdens 
     facing healthy pension plans and taxpayers.
       In addition, the Senate amendment provides that it is the 
     sense of the Senate that the Committee on Finance and the 
     Committee on Health, Education, Labor and Pensions should 
     conduct hearings on the status of multiemployer pension plans 
     and should work in consultation with the Departments of Labor 
     and Treasury on permanent measures to strengthen the 
     integrity of the private pension system in order to protect 
     the benefits of current and future pension plan 
     beneficiaries.
       Effective date.--The Senate amendment is effective on the 
     date of enactment.


                          Conference Agreement

       The conference agreement follows the House bill, with 
     modifications. Under the conference agreement, it is the 
     sense of the Congress that the Congress must ensure the 
     financial health of the defined benefit pension system by 
     working to promptly implement: (1) a permanent replacement 
     for the discount rate used for defined benefit pension plan 
     calculations; and (2) comprehensive funding reforms for all 
     defined benefit pension plans aimed at achieving accurate and 
     sound pension plan funding to enhance retirement security for 
     workers who rely on defined benefit pension plan benefits, to 
     reduce the volatility of contributions, to provide plan 
     sponsors with predictability for plan contributions, and to 
     ensure adequate disclosures for plan participants in the case 
     of underfunded plans.
       Effective date.--The conference agreement is effective on 
     the date of enactment.

[[Page 6302]]



  J. Extension of Provision Permitting Qualified Transfers of Excess 
               Pension Assets to Retiree Health Accounts

     (Sec. 9 of the Senate amendment, sec. 420 of the Code, and 
         secs. 101, 403, and 408 of ERISA)


                              Present Law

       Defined benefit plan assets generally may not revert to an 
     employer prior to termination of the plan and satisfaction of 
     all plan liabilities. In addition, a reversion may occur only 
     if the plan so provides. A reversion prior to plan 
     termination may constitute a prohibited transaction and may 
     result in plan disqualification. Any assets that revert to 
     the employer upon plan termination are includible in the 
     gross income of the employer and subject to an excise tax. 
     The excise tax rate is 20 percent if the employer maintains a 
     replacement plan or makes certain benefit increases in 
     connection with the termination; if not, the excise tax rate 
     is 50 percent. Upon plan termination, the accrued benefits of 
     all plan participants are required to be 100-percent vested.
       A pension plan may provide medical benefits to retired 
     employees through a separate account that is part of such 
     plan. A qualified transfer of excess assets of a defined 
     benefit plan to such a separate account within the plan may 
     be made in order to fund retiree health benefits.\40\ A 
     qualified transfer does not result in plan disqualification, 
     is not a prohibited transaction, and is not treated as a 
     reversion. Thus, transferred assets are not includible in the 
     gross income of the employer and are not subject to the 
     excise tax on reversions. No more than one qualified transfer 
     may be made in any taxable year. A qualified transfer can be 
     made only from a single-employer plan.
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     \40\Sec. 420.
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       Excess assets generally means the excess, if any, of the 
     value of the plan's assets\41\ over the greater of (1) the 
     accrued liability under the plan (including normal cost) or 
     (2) 125 percent of the plan's current liability.\42\ In 
     addition, excess assets transferred in a qualified transfer 
     may not exceed the amount reasonably estimated to be the 
     amount that the employer will pay out of such account during 
     the taxable year of the transfer for qualified current 
     retiree health liabilities. No deduction is allowed to the 
     employer for (1) a qualified transfer or (2) the payment of 
     qualified current retiree health liabilities out of 
     transferred funds (and any income thereon).
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     \41\The value of plan assets for this purpose is the lesser 
     of fair market value or actuarial value.
     \42\In the case of plan years beginning before January 1, 
     2004, excess assets generally means the excess, if any, of 
     the value of the plan's assets over the greater of (1) the 
     lesser of (a) the accrued liability under the plan (including 
     normal cost) or (b) 170 percent of the plan's current 
     liability (for 2003), or (2) 125 percent of the plan's 
     current liability. The current liability full funding limit 
     was repealed for years beginning after 2003. Under the 
     general sunset provision of EGTRRA, the limit is reinstated 
     for years after 2010.
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       Transferred assets (and any income thereon) must be used to 
     pay qualified current retiree health liabilities for the 
     taxable year of the transfer. Transferred amounts generally 
     must benefit pension plan participants, other than key 
     employees, who are entitled upon retirement to receive 
     retiree medical benefits through the separate account. 
     Retiree health benefits of key employees may not be paid out 
     of transferred assets.
       Amounts not used to pay qualified current retiree health 
     liabilities for the taxable year of the transfer are to be 
     returned to the general assets of the plan. These amounts are 
     not includible in the gross income of the employer, but are 
     treated as an employer reversion and are subject to a 20-
     percent excise tax.
       In order for the transfer to be qualified, accrued 
     retirement benefits under the pension plan generally must be 
     100-percent vested as if the plan terminated immediately 
     before the transfer (or in the case of a participant who 
     separated in the one-year period ending on the date of the 
     transfer, immediately before the separation).
       In order for a transfer to be qualified, the employer 
     generally must maintain retiree health benefits at the same 
     level for the taxable year of the transfer and the following 
     four years.
       In addition, the ERISA provides that, at least 60 days 
     before the date of a qualified transfer, the employer must 
     notify the Secretary of Labor, the Secretary of the Treasury, 
     employee representatives, and the plan administrator of the 
     transfer, and the plan administrator must notify each plan 
     participant and beneficiary of the transfer.\43\
---------------------------------------------------------------------------
     \43\ERISA sec. 101(e). ERISA also provides that a qualified 
     transfer is not a prohibited transaction under ERISA or a 
     prohibited reversion.
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       No qualified transfer may be made after December 31, 2005.


                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment allows qualified transfers of excess 
     defined benefit plan assets through December 31, 2013.
       Effective date.--The provision is effective on the date of 
     enactment.


                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conference agreement allows qualified transfers of excess 
     defined benefit plan assets through December 31, 2013.
       Effective date.--The provision is effective on the date of 
     enactment.

   K. Confirmation of Antitrust Status of Graduate Medical Resident 
                           Matching Programs


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement confirms that the antitrust laws 
     do not prohibit the sponsorship, conduct, or participation in 
     a graduate medical education residency matching program and 
     that evidence of that conduct shall not be admissible to 
     support any claim or action alleging a violation of the 
     antitrust laws.
       Effective date.--The provision is effective on the date of 
     enactment. It applies to conduct whether it occurs prior to, 
     on, or after such date and applies to all judicial and 
     administrative actions or other proceedings pending on such 
     date.

                       L. Tax Complexity Analysis

       Section 4022(b) of the Internal Revenue Service Reform and 
     Restructuring Act of 1998 (the ``IRS Reform Act'') requires 
     the Joint Committee on Taxation (in consultation with the 
     Internal Revenue Service and the Department of the Treasury) 
     to provide a tax complexity analysis. The complexity analysis 
     is required for all legislation reported by the Senate 
     Committee on Finance, the House Committee on Ways and Means, 
     or any committee of conference if the legislation includes a 
     provision that directly or indirectly amends the Internal 
     Revenue Code (the ``Code'') and has widespread applicability 
     to individuals or small businesses.
       The staff of the Joint Committee on Taxation has determined 
     that a complexity analysis is not required under section 
     4022(b) of the IRS Reform Act because the bill contains no 
     provisions that amend the Internal Revenue Code and that have 
     ``widespread applicability'' to individuals or small 
     businesses.

[[Page 6303]]

     
     


[[Page 6304]]

      

[[Page 6305]]

     From the Committee on Education and the Workforce, for 
     consideration of the House bill and the Senate amendment, and 
     modifications committed to conference:
     John Boehner,
     Howard ``Buck'' McKeon,
     Sam Johnson,
     Patrick J. Tiberi,
     From the Committee on Ways and Means, for consideration of 
     the House bill and the Senate amendment, and modifications 
     committed to conference:
     William Thomas,
     Rob Portman,
                                Managers on the Part of the House.

     Chuck Grassley,
     Judd Gregg,
     Mitch McConnell,
     Managers on the Part of the Senate.

                          ____________________