[House Report 107-51]
[From the U.S. Government Publishing Office]



107th Congress                                             Rept. 107-51
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
    COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT OF 2001

                                _______
                                

  May 1, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                         [To accompany H.R. 10]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 10) to provide for pension reform, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................41
        A. Purpose and Summary...................................    41
        B. Background and Need for Legislation...................    49
        C. Legislative History...................................    49
 II. Explanation of the Revenue Provisions of the Bill...............49
     Title I. Individual Retirement Arrangements (``IRAS'')...........4
     Title II. Expanding Coverage.....................................4
        A. Increase In Benefit and Contribution Limits...........     4
        B. Plan Loans for S Corporation Shareholders, Partners 
            and Sole Proprietors.................................     7
        C. Modification of Top-Heavy Rules.......................     7
        D. Elective Deferrals Not Taken Into Account For Purposes 
            of Deduction Limits..................................     8
        E. Repeal of Coordination Requirements for Deferred 
            Compensation Plans of State and Local Governments and 
            Tax-Exempt Organizations.............................     8
        F. Eliminate IRS User Fees for Certain Determination 
            Letter Requests Regarding Employer Plans.............     9
        G. Deduction Limits......................................     9
        H. Option to Treat Elective Deferrals as After-Tax 
            Contributions........................................     9
        I. Treatment of Self-Employment Income of Members of 
            Certain Religious Faiths.............................    11
        J. Certain Nonresident Aliens Excluded in Applying 
            Minimum Coverage Requirements........................    11
     Title III. Enhancing Fairness for Women.........................12
        A. Additional salary reduction catch-up contributions....    12
        B. Equitable treatment for contributions of employees to 
            defined contribution plans...........................    13
        C. Faster vesting of employer matching contributions.....    14
        D. Modifications to minimum distribution rules...........    15
        E. Clarification of tax treatment of division of section 
            457 plan benefits upon divorce.......................    16
        F. Provisions relating to hardship withdrawals from 
            section 401(k) plans.................................    16
        G. Pension Coverage for Domestic and Similar Workers.....    16
     Title IV. Increasing Portability for Participants...............17
        A. Rollovers Of Retirement Plan and IRA Distributions....    17
        B. Waiver of 60-Day Rule.................................    20
        C. Treatment of Forms of Distribution....................    20
        D. Rationalization of Restrictions on Distributions......    22
        E. Purchase of Service Credit Under Governmental Pension 
            Plans................................................    22
        F. Employers May Disregard Rollovers for Purposes of 
            Cash-Out Rules.......................................    23
        G. Minimum Distribution and Inclusion Requirements for 
            Section 457 Plans....................................    23
     Title V. Strengthening Pension Security and Enforcement.........24
        A. Phase in Repeal of 160 Percent of Current Liability 
            Funding Limit; Deduction for Contributions to Fund 
            Termination Liability................................    24
        B. Excise Tax Relief for Sound Pension Funding...........    25
        C. Notice of Significant Reduction in Plan Benefit 
            Accruals.............................................    25
        D. Modifications to Section 415 Limits for Multiemployer 
            Plans................................................    28
        E. Prohibited Allocations of Stock in an S Corporation 
            ESOP.................................................
     Title VI. Reducing Regulatory Burdens...........................32
        A. Modification of Timing of Plan Valuations.............    32
        B. ESOP Dividends May be Reinvested Without Loss of 
            Dividend Deduction...................................    32
        C. Repeal Transition Rule Relating to Certain Highly 
            Compensated Employees................................    32
        D. Employees of Tax-Exempt Entities......................    33
        E. Treatment of Employer-Provided Retirement Advice......    33
        F. Reporting Simplification..............................    33
        G. Improvement to Employee Plans Compliance Resolution 
            System...............................................    34
        H. Repeal of the Multiple Use Test.......................    34
        I. Flexibility in Nondiscrimination, Coverage, and Line 
            of Business Rules....................................    34
        J. Extension to all Governmental Plans of Moratorium on 
            Application of Certain Nondiscrimination Rules 
            Applicable to State and Local Government Plans.......    35
        K. Notice and Consent Period Regarding Distributions.....    35
     Title VII. Other Erisa Provisions...............................37
        A. Extension of PBGC Missing Participants Program........    37
        B. Reduce PBGC Premiums for Small and New Plans..........    37
        C. Authorization for PBGC to Pay Interest on Premium 
            Overpayment Refunds..................................    38
        D. Rules for Substantial Owner Benefits in Terminated 
            Plans................................................    39
     Title VIII. Provisions Relating to Plan Amendments..............40
III. Votes of the Committee.........................................120
 IV. Budget Effects of the Bill.....................................122
        A. Committee Estimates of Budgetary Effects..............   122
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................   123
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................   123
  V. Other Matters To Be Discussed Under the Rules of the House.....128
        A. Committee Oversight Findings and Recommendations......   128
        B. Statement of General Performance Goals and Objectives.   128
        C. Constitutional Authority Statement....................   128
        D. Information Relating to Unfunded Mandates.............   128
        C. Applicability of House Rule XXI 5(b)..................   129
        D. Tax Complexity Analysis...............................   129
 VI. Changes in Existing Law Made by the Bill as Reported...........129
VII. Additional and Dissenting Views................................208

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Comprehensive 
Retirement Security and Pension Reform Act of 2001''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:
Sec. 1. Short title; references; table of contents.

           TITLE I--INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

Sec. 101. Modification of IRA contribution limits.

                      TITLE II--EXPANDING COVERAGE

Sec. 201. Increase in benefit and contribution limits.
Sec. 202. Plan loans for subchapter S owners, partners, and sole 
proprietors.
Sec. 203. Modification of top-heavy rules.
Sec. 204. Elective deferrals not taken into account for purposes of 
deduction limits.
Sec. 205. Repeal of coordination requirements for deferred compensation 
plans of State and local governments and tax-exempt organizations.
Sec. 206. Elimination of user fee for requests to IRS regarding pension 
plans.
Sec. 207. Deduction limits.
Sec. 208. Option to treat elective deferrals as after-tax 
contributions.
Sec. 209. Availability of qualified plans to self-employed individuals 
who are exempt from the self-employment tax by reason of their 
religious beliefs.
Sec. 210. Certain nonresident aliens excluded in applying minimum 
coverage requirements.

                TITLE III--ENHANCING FAIRNESS FOR WOMEN

Sec. 301. Catch-up contributions for individuals age 50 or over.
Sec. 302. Equitable treatment for contributions of employees to defined 
contribution plans.
Sec. 303. Faster vesting of certain employer matching contributions.
Sec. 304. Modifications to minimum distribution rules.
Sec. 305. Clarification of tax treatment of division of section 457 
plan benefits upon divorce.
Sec. 306. Provisions relating to hardship distributions.
Sec. 307. Waiver of tax on nondeductible contributions for domestic or 
similar workers.

           TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS

Sec. 401. Rollovers allowed among various types of plans.
Sec. 402. Rollovers of IRAs into workplace retirement plans.
Sec. 403. Rollovers of after-tax contributions.
Sec. 404. Hardship exception to 60-day rule.
Sec. 405. Treatment of forms of distribution.
Sec. 406. Rationalization of restrictions on distributions.
Sec. 407. Purchase of service credit in governmental defined benefit 
plans.
Sec. 408. Employers may disregard rollovers for purposes of cash-out 
amounts.
Sec. 409. Minimum distribution and inclusion requirements for section 
457 plans.

        TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

Sec. 501. Repeal of percent of current liability funding limit.
Sec. 502. Maximum contribution deduction rules modified and applied to 
all defined benefit plans.
Sec. 503. Excise tax relief for sound pension funding.
Sec. 504. Excise tax on failure to provide notice by defined benefit 
plans significantly reducing future benefit accruals.
Sec. 505. Treatment of multiemployer plans under section 415.
Sec. 506. Protection of investment of employee contributions to 401(k) 
plans.
Sec. 507. Periodic pension benefits statements.
Sec. 508. Prohibited allocations of stock in S corporation ESOP.

                 TITLE VI--REDUCING REGULATORY BURDENS

Sec. 601. Modification of timing of plan valuations.
Sec. 602. ESOP dividends may be reinvested without loss of dividend 
deduction.
Sec. 603. Repeal of transition rule relating to certain highly 
compensated employees.
Sec. 604. Employees of tax-exempt entities.
Sec. 605. Clarification of treatment of employer-provided retirement 
advice.
Sec. 606. Reporting simplification.
Sec. 607. Improvement of employee plans compliance resolution system.
Sec. 608. Repeal of the multiple use test.
Sec. 609. Flexibility in nondiscrimination, coverage, and line of 
business rules.
Sec. 610. Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to State and 
local plans.
Sec. 611. Notice and consent period regarding distributions.
Sec. 612. Annual report dissemination.
Sec. 613. Technical corrections to SAVER Act.

                   TITLE VII--OTHER ERISA PROVISIONS

Sec. 701. Missing participants.
Sec. 702. Reduced PBGC premium for new plans of small employers.
Sec. 703. Reduction of additional PBGC premium for new and small plans.
Sec. 704. Authorization for PBGC to pay interest on premium overpayment 
refunds.
Sec. 705. Substantial owner benefits in terminated plans.
Sec. 706. Civil penalties for breach of fiduciary responsibility.
Sec. 707. Benefit suspension notice.

                      TITLE VIII--PLAN AMENDMENTS

Sec. 801. Provisions relating to plan amendments.

                TITLE I--INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 101. MODIFICATION OF IRA CONTRIBUTION LIMITS.

  (a) Increase in Contribution Limit.--
          (1) In general.--Paragraph (1)(A) of section 219(b) (relating 
        to maximum amount of deduction) is amended by striking 
        ``$2,000'' and inserting ``the deductible amount''.
          (2) Deductible amount.--Section 219(b) is amended by adding 
        at the end the following new paragraph:
          ``(5) Deductible amount.--For purposes of paragraph (1)(A)--
                  ``(A) In general.--The deductible amount shall be 
                determined in accordance with the following table:

                ``For taxable years
                                                         The deductible
                  beginning in:
                                                           amount is:  
                  2002.....................................     $3,000 
                  2003.....................................     $4,000 
                  2004 and thereafter......................     $5,000.

                  ``(B) Catch-up contributions for individuals 50 or 
                older.--In the case of an individual who has attained 
                the age of 50 before the close of the taxable year, the 
                deductible amount for taxable years beginning in 2002 
                or 2003 shall be $5,000.
                  ``(C) Cost-of-living adjustment.--
                          ``(i) In general.--In the case of any taxable 
                        year beginning in a calendar year after 2004, 
                        the $5,000 amount under subparagraph (A) shall 
                        be increased by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f )(3) for 
                                the calendar year in which the taxable 
                                year begins, determined by substituting 
                                `calendar year 2003' for `calendar year 
                                1992' in subparagraph (B) thereof.
                          ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.''.
  (b) Conforming Amendments.--
          (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
          (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
          (3) Section 408(b) is amended by striking ``$2,000'' in the 
        matter following paragraph (4) and inserting ``the dollar 
        amount in effect under section 219(b)(1)(A)''.
          (4) Section 408( j) is amended by striking ``$2,000''.
          (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

                      TITLE II--EXPANDING COVERAGE

SEC. 201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

  (a) Defined Benefit Plans.--
          (1) Dollar limit.--
                  (A) Subparagraph (A) of section 415(b)(1) (relating 
                to limitation for defined benefit plans) is amended by 
                striking ``$90,000'' and inserting ``$160,000''.
                  (B) Subparagraphs (C) and (D) of section 415(b)(2) 
                are each amended by striking ``$90,000'' each place it 
                appears in the headings and the text and inserting 
                ``$160,000''.
                  (C) Paragraph (7) of section 415(b) (relating to 
                benefits under certain collectively bargained plans) is 
                amended by striking ``the greater of $68,212 or one-
                half the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000' '' and inserting 
                ``one-half the amount otherwise applicable for such 
                year under paragraph (1)(A) for `$160,000' ''.
          (2) Limit reduced when benefit begins before age 62.--
        Subparagraph (C) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 62'' and by striking 
        the second sentence.
          (3) Limit increased when benefit begins after age 65.--
        Subparagraph (D) of section 415(b)(2) is amended by striking 
        ``the social security retirement age'' each place it appears in 
        the heading and text and inserting ``age 65''.
          (4) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) by striking ``$90,000'' in paragraph (1)(A) and 
                inserting ``$160,000''; and
                  (B) in paragraph (3)(A)--
                          (i) by striking ``$90,000'' in the heading 
                        and inserting ``$160,000''; and
                          (ii) by striking ``October 1, 1986'' and 
                        inserting ``July 1, 2001''.
          (5) Conforming amendments.--
                  (A) Section 415(b)(2) is amended by striking 
                subparagraph (F).
                  (B) Section 415(b)(9) is amended to read as follows:
          ``(9) Special rule for commercial airline pilots.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), in the case of any participant who is a commercial 
                airline pilot, if, as of the time of the participant's 
                retirement, regulations prescribed by the Federal 
                Aviation Administration require an individual to 
                separate from service as a commercial airline pilot 
                after attaining any age occurring on or after age 60 
                and before age 62, paragraph (2)(C) shall be applied by 
                substituting such age for age 62.
                  ``(B) Individuals who separate from service before 
                age 60.--If a participant described in subparagraph (A) 
                separates from service before age 60, the rules of 
                paragraph (2)(C) shall apply.''.
                  (C) Section 415(b)(10)(C)(i) is amended by striking 
                ``applied without regard to paragraph (2)(F)''.
  (b) Defined Contribution Plans.--
          (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``$30,000'' and inserting ``$40,000''.
          (2) Cost-of-living adjustments.--Subsection (d) of section 
        415 (related to cost-of-living adjustments) is amended--
                  (A) by striking ``$30,000'' in paragraph (1)(C) and 
                inserting ``$40,000''; and
                  (B) in paragraph (3)(D)--
                          (i) by striking ``$30,000'' in the heading 
                        and inserting ``$40,000''; and
                          (ii) by striking ``October 1, 1993'' and 
                        inserting ``July 1, 2001''.
  (c) Qualified Trusts.--
          (1) Compensation limit.--Sections 401(a)(17), 404(l), 408(k), 
        and 505(b)(7) are each amended by striking ``$150,000'' each 
        place it appears and inserting ``$200,000''.
          (2) Base period and rounding of cost-of-living adjustment.--
        Subparagraph (B) of section 401(a)(17) is amended--
                  (A) by striking ``October 1, 1993'' and inserting 
                ``July 1, 2001''; and
                  (B) by striking ``$10,000'' both places it appears 
                and inserting ``$5,000''.
  (d) Elective Deferrals.--
          (1) In general.--Paragraph (1) of section 402(g) (relating to 
        limitation on exclusion for elective deferrals) is amended to 
        read as follows:
          ``(1) In general.--
                  ``(A) Limitation.--Notwithstanding subsections (e)(3) 
                and (h)(1)(B), the elective deferrals of any individual 
                for any taxable year shall be included in such 
                individual's gross income to the extent the amount of 
                such deferrals for the taxable year exceeds the 
                applicable dollar amount.
                  ``(B) Applicable dollar amount.--For purposes of 
                subparagraph (A), the applicable dollar amount shall be 
                the amount determined in accordance with the following 
                table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                  2002.....................................    $11,000 
                  2003.....................................    $12,000 
                  2004.....................................    $13,000 
                  2005.....................................    $14,000 
                  2006 or thereafter....................... $15,000.''.

          (2) Cost-of-living adjustment.--Paragraph (5) of section 
        402(g) is amended to read as follows:
          ``(5) Cost-of-living adjustment.--In the case of taxable 
        years beginning after December 31, 2006, the Secretary shall 
        adjust the $15,000 amount under paragraph (1)(B) at the same 
        time and in the same manner as under section 415(d), except 
        that the base period shall be the calendar quarter beginning 
        July 1, 2005, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next lowest 
        multiple of $500.''.
          (3) Conforming amendments.--
                  (A) Section 402(g) (relating to limitation on 
                exclusion for elective deferrals), as amended by 
                paragraphs (1) and (2), is further amended by striking 
                paragraph (4) and redesignating paragraphs (5), (6), 
                (7), (8), and (9) as paragraphs (4), (5), (6), (7), and 
                (8), respectively.
                  (B) Paragraph (2) of section 457(c) is amended by 
                striking ``402(g)(8)(A)(iii)'' and inserting 
                ``402(g)(7)(A)(iii)''.
                  (C) Clause (iii) of section 501(c)(18)(D) is amended 
                by striking ``(other than paragraph (4) thereof)''.
  (e) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
          (1) In general.--Section 457 (relating to deferred 
        compensation plans of State and local governments and tax-
        exempt organizations) is amended--
                  (A) in subsections (b)(2)(A) and (c)(1) by striking 
                ``$7,500'' each place it appears and inserting ``the 
                applicable dollar amount''; and
                  (B) in subsection (b)(3)(A) by striking ``$15,000'' 
                and inserting ``twice the dollar amount in effect under 
                subsection (b)(2)(A)''.
          (2) Applicable dollar amount; cost-of-living adjustment.--
        Paragraph (15) of section 457(e) is amended to read as follows:
          ``(15) Applicable dollar amount.--
                  ``(A) In general.--The applicable dollar amount shall 
                be the amount determined in accordance with the 
                following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                  2002.....................................    $11,000 
                  2003.....................................    $12,000 
                  2004.....................................    $13,000 
                  2005.....................................    $14,000 
                  2006 or thereafter.......................    $15,000.

                  ``(B) Cost-of-living adjustments.--In the case of 
                taxable years beginning after December 31, 2006, the 
                Secretary shall adjust the $15,000 amount under 
                subparagraph (A) at the same time and in the same 
                manner as under section 415(d), except that the base 
                period shall be the calendar quarter beginning July 1, 
                2005, and any increase under this paragraph which is 
                not a multiple of $500 shall be rounded to the next 
                lowest multiple of $500.''.
  (f) Simple Retirement Accounts.--
          (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
        (relating to general rule for qualified salary reduction 
        arrangement) is amended by striking ``$6,000'' and inserting 
        ``the applicable dollar amount''.
          (2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2) 
        is amended to read as follows:
                  ``(E) Applicable dollar amount; cost-of-living 
                adjustment.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable dollar 
                        amount shall be the amount determined in 
                        accordance with the following table:

                ``For taxable years
                                                         The applicable
                  beginning in
                                                         dollar amount:
                  calendar year:
                          2002.............................     $7,000 
                          2003.............................     $8,000 
                          2004.............................     $9,000 
                          2005 or thereafter...............    $10,000.

                          ``(ii) Cost-of-living adjustment.--In the 
                        case of a year beginning after December 31, 
                        2005, the Secretary shall adjust the $10,000 
                        amount under clause (i) at the same time and in 
                        the same manner as under section 415(d), except 
                        that the base period taken into account shall 
                        be the calendar quarter beginning July 1, 2004, 
                        and any increase under this subparagraph which 
                        is not a multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
          (3) Conforming amendments.--
                  (A) Subclause (I) of section 401(k)(11)(B)(i) is 
                amended by striking ``$6,000'' and inserting ``the 
                amount in effect under section 408(p)(2)(A)(ii)''.
                  (B) Section 401(k)(11) is amended by striking 
                subparagraph (E).
  (g) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
          ``(4) Rounding.--
                  ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.
                  ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not a 
                multiple of $1,000 shall be rounded to the next lowest 
                multiple of $1,000.''.
  (h) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
                    PROPRIETORS.

  (a) Amendment of Internal Revenue Code.--Subparagraph (B) of section 
4975(f)(6) (relating to exemptions not to apply to certain 
transactions) is amended by adding at the end the following new clause:
                          ``(iii) Loan exception.--For purposes of 
                        subparagraph (A)(i), the term `owner-employee' 
                        shall only include a person described in 
                        subclause (II) or (III) of clause (i).''.
  (b) Amendment of ERISA.--Section 408(d)(2) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is amended by adding 
at the end the following new subparagraph:
  ``(C) For purposes of paragraph (1)(A), the term `owner-employee' 
shall only include a person described in clause (ii) or (iii) of 
subparagraph (A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 203. MODIFICATION OF TOP-HEAVY RULES.

  (a) Simplification of Definition of Key Employee.--
          (1) In general.--Section 416(i)(1)(A) (defining key employee) 
        is amended--
                  (A) by striking ``or any of the 4 preceding plan 
                years'' in the matter preceding clause (i);
                  (B) by striking clause (i) and inserting the 
                following:
                          ``(i) an officer of the employer having an 
                        annual compensation greater than $150,000,'';
                  (C) by striking clause (ii) and redesignating clauses 
                (iii) and (iv) as clauses (ii) and (iii), respectively; 
                and
                  (D) by striking the second sentence in the matter 
                following clause (iii), as redesignated by subparagraph 
                (C).
          (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
        amended by striking ``and subparagraph (A)(ii)''.
  (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph.''.
  (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
          (1) In general.--Paragraph (3) of section 416(g) is amended 
        to read as follows:
          ``(3) Distributions during last year before determination 
        date taken into account.--
                  ``(A) In general.--For purposes of determining--
                          ``(i) the present value of the cumulative 
                        accrued benefit for any employee, or
                          ``(ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased by the 
                aggregate distributions made with respect to such 
                employee under the plan during the 1-year period ending 
                on the determination date. The preceding sentence shall 
                also apply to distributions under a terminated plan 
                which if it had not been terminated would have been 
                required to be included in an aggregation group.
                  ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution made for 
                a reason other than separation from service, death, or 
                disability, subparagraph (A) shall be applied by 
                substituting `5-year period' for `1-year period'.''.
          (2) Benefits not taken into account.--Subparagraph (E) of 
        section 416(g)(4) is amended--
                  (A) by striking ``last 5 years'' in the heading and 
                inserting ``last year before determination date''; and
                  (B) by striking ``5-year period'' and inserting ``1-
                year period''.
  (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
                  ``(H) Cash or deferred arrangements using alternative 
                methods of meeting nondiscrimination requirements.--The 
                term `top-heavy plan' shall not include a plan which 
                consists solely of--
                          ``(i) a cash or deferred arrangement which 
                        meets the requirements of section 401(k)(12), 
                        and
                          ``(ii) matching contributions with respect to 
                        which the requirements of section 401(m)(11) 
                        are met.
                If, but for this subparagraph, a plan would be treated 
                as a top-heavy plan because it is a member of an 
                aggregation group which is a top-heavy group, 
                contributions under the plan may be taken into account 
                in determining whether any other plan in the group 
                meets the requirements of subsection (c)(2).''.
  (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
                  (A) by striking ``clause (ii)'' in clause (i) and 
                inserting ``clause (ii) or (iii)''; and
                  (B) by adding at the end the following:
                          ``(iii) Exception for frozen plan.--For 
                        purposes of determining an employee's years of 
                        service with the employer, any service with the 
                        employer shall be disregarded to the extent 
                        that such service occurs during a plan year 
                        when the plan benefits (within the meaning of 
                        section 410(b)) no key employee or former key 
                        employee.''.
  (f) Elimination of Family Attribution.--Section 416(i)(1)(B) 
(defining 5-percent owner) is amended by adding at the end the 
following new clause:
                          ``(iv) Family attribution disregarded.--
                        Solely for purposes of applying this paragraph 
                        (and not for purposes of any provision of this 
                        title which incorporates by reference the 
                        definition of a key employee or 5-percent owner 
                        under this paragraph), section 318 shall be 
                        applied without regard to subsection (a)(1) 
                        thereof in determining whether any person is a 
                        5-percent owner.''.
  (g) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DEDUCTION LIMITS.

  (a) In General.--Section 404 (relating to deduction for contributions 
of an employer to an employees' trust or annuity plan and compensation 
under a deferred payment plan) is amended by adding at the end the 
following new subsection:
  ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3)) 
shall not be subject to any limitation contained in paragraph (3), (7), 
or (9) of subsection (a), and such elective deferrals shall not be 
taken into account in applying any such limitation to any other 
contributions.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 205. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
                    PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Subsection (c) of section 457 (relating to deferred 
compensation plans of State and local governments and tax-exempt 
organizations), as amended by section 201, is amended to read as 
follows:
  ``(c) Limitation.--The maximum amount of the compensation of any one 
individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to years beginning after December 31, 2001.

SEC. 206. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
                    PLANS.

  (a) Elimination of Certain User Fees.--The Secretary of the Treasury 
or the Secretary's delegate shall not require payment of user fees 
under the program established under section 10511 of the Revenue Act of 
1987 for requests to the Internal Revenue Service for determination 
letters with respect to the qualified status of a pension benefit plan 
maintained solely by one or more eligible employers or any trust which 
is part of the plan. The preceding sentence shall not apply to any 
request--
          (1) made after the later of--
                  (A) the fifth plan year the pension benefit plan is 
                in existence; or
                  (B) the end of any remedial amendment period with 
                respect to the plan beginning within the first 5 plan 
                years; or
          (2) made by the sponsor of any prototype or similar plan 
        which the sponsor intends to market to participating employers.
  (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
  (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' has the same meaning given such term in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986. The 
determination of whether an employer is an eligible employer under this 
section shall be made as of the date of the request described in 
subsection (a).
  (d) Determination of Average Fees Charged.--For purposes of any 
determination of average fees charged, any request to which subsection 
(a) applies shall not be taken into account.
  (e) Effective Date.--The provisions of this section shall apply with 
respect to requests made after December 31, 2001.

SEC. 207. DEDUCTION LIMITS.

  (a) Stock Bonus and Profit Sharing Trusts.--
          (1) In general.--Subclause (I) of section 404(a)(3)(A)(i) 
        (relating to stock bonus and profit sharing trusts) is amended 
        by striking ``15 percent'' and inserting ``20 percent''.
          (2) Conforming amendment.--Subparagraph (C) of section 
        404(h)(1) is amended by striking ``15 percent'' each place it 
        appears and inserting ``20 percent''.
  (b) Compensation.--
          (1) In general.--Section 404(a) (relating to general rule) is 
        amended by adding at the end the following:
          ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term `compensation 
        otherwise paid or accrued during the taxable year' shall 
        include amounts treated as `participant's compensation' under 
        subparagraph (C) or (D) of section 415(c)(3).''.
          (2) Conforming amendments.--
                  (A) Subparagraph (B) of section 404(a)(3) is amended 
                by striking the last sentence.
                  (B) Clause (i) of section 4972(c)(6)(B) is amended by 
                striking ``(within the meaning of section 404(a))'' and 
                inserting ``(within the meaning of section 404(a) and 
                as adjusted under section 404(a)(12))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 208. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                    CONTRIBUTIONS.

  (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to deferred compensation, etc.) is amended by inserting after 
section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                    CONTRIBUTIONS.

  ``(a) General Rule.--If an applicable retirement plan includes a 
qualified plus contribution program--
          ``(1) any designated plus contribution made by an employee 
        pursuant to the program shall be treated as an elective 
        deferral for purposes of this chapter, except that such 
        contribution shall not be excludable from gross income, and
          ``(2) such plan (and any arrangement which is part of such 
        plan) shall not be treated as failing to meet any requirement 
        of this chapter solely by reason of including such program.
  ``(b) Qualified Plus Contribution Program.--For purposes of this 
section--
          ``(1) In general.--The term `qualified plus contribution 
        program' means a program under which an employee may elect to 
        make designated plus contributions in lieu of all or a portion 
        of elective deferrals the employee is otherwise eligible to 
        make under the applicable retirement plan.
          ``(2) Separate accounting required.--A program shall not be 
        treated as a qualified plus contribution program unless the 
        applicable retirement plan--
                  ``(A) establishes separate accounts (`designated plus 
                accounts') for the designated plus contributions of 
                each employee and any earnings properly allocable to 
                the contributions, and
                  ``(B) maintains separate recordkeeping with respect 
                to each account.
  ``(c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
          ``(1) Designated plus contribution.--The term `designated 
        plus contribution' means any elective deferral which--
                  ``(A) is excludable from gross income of an employee 
                without regard to this section, and
                  ``(B) the employee designates (at such time and in 
                such manner as the Secretary may prescribe) as not 
                being so excludable.
          ``(2) Designation limits.--The amount of elective deferrals 
        which an employee may designate under paragraph (1) shall not 
        exceed the excess (if any) of--
                  ``(A) the maximum amount of elective deferrals 
                excludable from gross income of the employee for the 
                taxable year (without regard to this section), over
                  ``(B) the aggregate amount of elective deferrals of 
                the employee for the taxable year which the employee 
                does not designate under paragraph (1).
          ``(3) Rollover contributions.--
                  ``(A) In general.--A rollover contribution of any 
                payment or distribution from a designated plus account 
                which is otherwise allowable under this chapter may be 
                made only if the contribution is to--
                          ``(i) another designated plus account of the 
                        individual from whose account the payment or 
                        distribution was made, or
                          ``(ii) a Roth IRA of such individual.
                  ``(B) Coordination with limit.--Any rollover 
                contribution to a designated plus account under 
                subparagraph (A) shall not be taken into account for 
                purposes of paragraph (1).
  ``(d) Distribution Rules.--For purposes of this title--
          ``(1) Exclusion.--Any qualified distribution from a 
        designated plus account shall not be includible in gross 
        income.
          ``(2) Qualified distribution.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `qualified distribution' 
                has the meaning given such term by section 
                408A(d)(2)(A) (without regard to clause (iv) thereof).
                  ``(B) Distributions within nonexclusion period.--A 
                payment or distribution from a designated plus account 
                shall not be treated as a qualified distribution if 
                such payment or distribution is made within the 5-
                taxable-year period beginning with the earlier of--
                          ``(i) the first taxable year for which the 
                        individual made a designated plus contribution 
                        to any designated plus account established for 
                        such individual under the same applicable 
                        retirement plan, or
                          ``(ii) if a rollover contribution was made to 
                        such designated plus account from a designated 
                        plus account previously established for such 
                        individual under another applicable retirement 
                        plan, the first taxable year for which the 
                        individual made a designated plus contribution 
                        to such previously established account.
                  ``(C) Distributions of excess deferrals and 
                contributions and earnings thereon.--The term 
                `qualified distribution' shall not include any 
                distribution of an excess deferral under section 
                402(g)(2) or any excess contribution under section 
                401(k)(8), and any income on the excess deferral or 
                contribution.
          ``(3) Treatment of distributions of certain excess 
        deferrals.--Notwithstanding section 72, if any excess deferral 
        under section 402(g)(2) attributable to a designated plus 
        contribution is not distributed on or before the 1st April 15 
        following the close of the taxable year in which such excess 
        deferral is made, the amount of such excess deferral shall--
                  ``(A) not be treated as investment in the contract, 
                and
                  ``(B) be included in gross income for the taxable 
                year in which such excess is distributed.
          ``(4) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments from a 
        designated plus account and other distributions and payments 
        from the plan.
  ``(e) Other Definitions.--For purposes of this section--
          ``(1) Applicable retirement plan.--The term `applicable 
        retirement plan' means--
                  ``(A) an employees' trust described in section 401(a) 
                which is exempt from tax under section 501(a), and
                  ``(B) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
          ``(2) Elective deferral.--The term `elective deferral' means 
        any elective deferral described in subparagraph (A) or (C) of 
        section 402(g)(3).''.
  (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
          (1) by adding at the end of paragraph (1)(A) (as added by 
        section 201(d)(1)) the following new sentence: ``The preceding 
        sentence shall not apply to so much of such excess as does not 
        exceed the designated plus contributions of the individual for 
        the taxable year.''; and
          (2) by inserting ``(or would be included but for the last 
        sentence thereof)'' after ``paragraph (1)'' in paragraph 
        (2)(A).
  (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
                ``If any portion of an eligible rollover distribution 
                is attributable to payments or distributions from a 
                designated plus account (as defined in section 402A), 
                an eligible retirement plan with respect to such 
                portion shall include only another designated plus 
                account and a Roth IRA.''.
  (d) Reporting Requirements.--
          (1) W-2 information.--Section 6051(a)(8) is amended by 
        inserting ``, including the amount of designated plus 
        contributions (as defined in section 402A)'' before the comma 
        at the end.
          (2) Information.--Section 6047 is amended by redesignating 
        subsection (f) as subsection (g) and by inserting after 
        subsection (e) the following new subsection:
  ``(f) Designated Plus Contributions.--The Secretary shall require the 
plan administrator of each applicable retirement plan (as defined in 
section 402A) to make such returns and reports regarding designated 
plus contributions (as so defined) to the Secretary, participants and 
beneficiaries of the plan, and such other persons as the Secretary may 
prescribe.''.
  (e) Conforming Amendments.--
          (1) Section 408A(e) is amended by adding after the first 
        sentence the following new sentence: ``Such term includes a 
        rollover contribution described in section 402A(c)(3)(A).''.
          (2) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 is amended by inserting after the 
        item relating to section 402 the following new item:

                              ``Sec. 402A. Optional treatment of 
                                        elective deferrals as plus 
                                        contributions.''.

  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 209. AVAILABILITY OF QUALIFIED PLANS TO SELF-EMPLOYED INDIVIDUALS 
                    WHO ARE EXEMPT FROM THE SELF-EMPLOYMENT TAX BY 
                    REASON OF THEIR RELIGIOUS BELIEFS.

  (a) In General.--Subparagraph (A) of section 401(c)(2) (defining 
earned income) is amended by adding at the end thereof the following 
new sentence: ``For purposes of this part only (other than sections 419 
and 419A), this subparagraph shall be applied as if the term `trade or 
business' for purposes of section 1402 included service described in 
section 1402(c)(6).''.
  (b) Simple Retirement Accounts.--Clause (ii) of section 408(p)(6)(A) 
(defining self-employed) is amended by adding at the end the following 
new sentence: ``The preceding sentence shall be applied as if the term 
`trade or business' for purposes of section 1402 included service 
described in section 1402(c)(6).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 210. CERTAIN NONRESIDENT ALIENS EXCLUDED IN APPLYING MINIMUM 
                    COVERAGE REQUIREMENTS.

  (a) In General.--Subparagraph (C) of section 410(b)(3) (relating to 
exclusion of certain employees) is amended by inserting ``, determined 
without regard to the reference to subchapter D in the last sentence 
thereof'' after ``section 861(a)(3)''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to plan years beginning after December 31, 2001.

                TITLE III--ENHANCING FAIRNESS FOR WOMEN

SEC. 301. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

  (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
  ``(v) Catch-up Contributions for Individuals Age 50 or Over.--
          ``(1) In general.--An applicable employer plan shall not be 
        treated as failing to meet any requirement of this title solely 
        because the plan permits an eligible participant to make 
        additional elective deferrals in any plan year.
          ``(2) Limitation on amount of additional deferrals.--A plan 
        shall not permit additional elective deferrals under paragraph 
        (1) for any year in an amount greater than the lesser of--
                  ``(A) $5,000, or
                  ``(B) the excess (if any) of--
                          ``(i) the participant's compensation for the 
                        year, over
                          ``(ii) any other elective deferrals of the 
                        participant for such year which are made 
                        without regard to this subsection.
          ``(3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1), such contribution 
        shall not, with respect to the year in which the contribution 
        is made--
                  ``(A) be subject to any otherwise applicable 
                limitation contained in section 402(g), 402(h)(2), 
                404(a), 404(h), 408(p)(2)(A)(ii), 415, or 457, or
                  ``(B) be taken into account in applying such 
                limitations to other contributions or benefits under 
                such plan or any other such plan.
          ``(4) Application of nondiscrimination rules.--
                  ``(A) In general.--An applicable employer plan shall 
                not be treated as failing to meet the nondiscrimination 
                requirements under section 401(a)(4) with respect to 
                benefits, rights, and features if the plan allows all 
                eligible participants to make the same election with 
                respect to the additional elective deferrals under this 
                subsection.
                  ``(B) Aggregation.--For purposes of subparagraph (A), 
                all plans maintained by employers who are treated as a 
                single employer under subsection (b), (c), (m), or (o) 
                of section 414 shall be treated as 1 plan.
          ``(5) Eligible participant.--For purposes of this subsection, 
        the term `eligible participant' means, with respect to any plan 
        year, a participant in a plan--
                  ``(A) who has attained the age of 50 before the close 
                of the plan year, and
                  ``(B) with respect to whom no other elective 
                deferrals may (without regard to this subsection) be 
                made to the plan for the plan year by reason of the 
                application of any limitation or other restriction 
                described in paragraph (3) or comparable limitation 
                contained in the terms of the plan.
          ``(6) Other definitions and rules.--For purposes of this 
        subsection--
                  ``(A) Applicable employer plan.--The term `applicable 
                employer plan' means--
                          ``(i) an employees' trust described in 
                        section 401(a) which is exempt from tax under 
                        section 501(a),
                          ``(ii) a plan under which amounts are 
                        contributed by an individual's employer for an 
                        annuity contract described in section 403(b),
                          ``(iii) an eligible deferred compensation 
                        plan under section 457 of an eligible employer 
                        as defined in section 457(e)(1)(A), and
                          ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                  ``(B) Elective deferral.--The term `elective 
                deferral' has the meaning given such term by subsection 
                (u)(2)(C).
                  ``(C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable employer 
                plan described in subparagraph (A)(iii) for any year to 
                which section 457(b)(3) applies.
                  ``(D) Cost-of-living adjustment.--In the case of a 
                year beginning after December 31, 2006, the Secretary 
                shall adjust annually the $5,000 amount in paragraph 
                (2)(A) for increases in the cost-of-living at the same 
                time and in the same manner as adjustments under 
                section 415(d); except that the base period taken into 
                account shall be the calendar quarter beginning July 1, 
                2005, and any increase under this subparagraph which is 
                not a multiple of $500 shall be rounded to the next 
                lower multiple of $500.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2001.

SEC. 302. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
                    CONTRIBUTION PLANS.

  (a) Equitable Treatment.--
          (1) In general.--Subparagraph (B) of section 415(c)(1) 
        (relating to limitation for defined contribution plans) is 
        amended by striking ``25 percent'' and inserting ``100 
        percent''.
          (2) Application to section 403(b).--Section 403(b) is 
        amended--
                  (A) by striking ``the exclusion allowance for such 
                taxable year'' in paragraph (1) and inserting ``the 
                applicable limit under section 415'';
                  (B) by striking paragraph (2); and
                  (C) by inserting ``or any amount received by a former 
                employee after the fifth taxable year following the 
                taxable year in which such employee was terminated'' 
                before the period at the end of the second sentence of 
                paragraph (3).
          (3) Conforming amendments.--
                  (A) Subsection (f) of section 72 is amended by 
                striking ``section 403(b)(2)(D)(iii))'' and inserting 
                ``section 403(b)(2)(D)(iii), as in effect before the 
                enactment of the Comprehensive Retirement Security and 
                Pension Reform Act of 2001)''.
                  (B) Section 404(a)(10)(B) is amended by striking ``, 
                the exclusion allowance under section 403(b)(2),''.
                  (C) Section 404(j) is amended by adding at the end 
                the following new paragraph:
          ``(3) Special rule for money purchase plans.--For purposes of 
        paragraph (1)(B), in the case of a defined contribution plan 
        which is subject to the funding standards of section 412, 
        section 415(c)(1)(B) shall be applied by substituting `25 
        percent' for `100 percent'.''.
                  (D) Section 415(a)(2) is amended by striking ``, and 
                the amount of the contribution for such portion shall 
                reduce the exclusion allowance as provided in section 
                403(b)(2)''.
                  (E) Section 415(c)(3) is amended by adding at the end 
                the following new subparagraph:
                  ``(E) Annuity contracts.--In the case of an annuity 
                contract described in section 403(b), the term 
                `participant's compensation' means the participant's 
                includible compensation determined under section 
                403(b)(3).''.
                  (F) Section 415(c) is amended by striking paragraph 
                (4).
                  (G) Section 415(c)(7) is amended to read as follows:
          ``(7) Certain contributions by church plans not treated as 
        exceeding limit.--
                  ``(A) In general.--Notwithstanding any other 
                provision of this subsection, at the election of a 
                participant who is an employee of a church or a 
                convention or association of churches, including an 
                organization described in section 414(e)(3)(B)(ii), 
                contributions and other additions for an annuity 
                contract or retirement income account described in 
                section 403(b) with respect to such participant, when 
                expressed as an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual addition is 
                not in excess of $10,000.
                  ``(B) $40,000 aggregate limitation.--The total amount 
                of additions with respect to any participant which may 
                be taken into account for purposes of this subparagraph 
                for all years may not exceed $40,000.
                  ``(C) Annual addition.--For purposes of this 
                paragraph, the term `annual addition' has the meaning 
                given such term by paragraph (2).''.
                  (H) Subparagraph (B) of section 402(g)(7) (as 
                redesignated by section 201) is amended by inserting 
                before the period at the end the following: ``(as in 
                effect before the enactment of the Comprehensive 
                Retirement Security and Pension Reform Act of 2001)''.
                  (I) Section 664(g) is amended--
                          (i) in paragraph (3)(E) by striking 
                        ``limitations under section 415(c)'' and 
                        inserting ``applicable limitation under 
                        paragraph (7)'', and
                          (ii) by adding at the end the following new 
                        paragraph:
          ``(7) Applicable limitation.--
                  ``(A) In general.--For purposes of paragraph (3)(E), 
                the applicable limitation under this paragraph with 
                respect to a participant is an amount equal to the 
                lesser of--
                          ``(i) $30,000, or
                          ``(ii) 25 percent of the participant's 
                        compensation (as defined in section 415(c)(3)).
                  ``(B) Cost-of-living adjustment.--The Secretary shall 
                adjust annually the $30,000 amount under subparagraph 
                (A)(i) at the same time and in the same manner as under 
                section 415(d), except that the base period shall be 
                the calendar quarter beginning October 1, 1993, and any 
                increase under this subparagraph which is not a 
                multiple of $5,000 shall be rounded to the next lowest 
                multiple of $5,000.''.
          (4) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.
  (b) Special Rules for Sections 403(b) and 408.--
          (1) In general.--Subsection (k) of section 415 is amended by 
        adding at the end the following new paragraph:
          ``(4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract described in 
        section 403(b) for the benefit of a participantshall be treated 
as a defined contribution plan maintained by each employer with respect 
to which the participant has the control required under subsection (b) 
or (c) of section 414 (as modified by subsection (h)). For purposes of 
this section, any contribution by an employer to a simplified employee 
pension plan for an individual for a taxable year shall be treated as 
an employer contribution to a defined contribution plan for such 
individual for such year.''.
          (2) Effective date.--
                  (A) In general.--The amendment made by paragraph (1) 
                shall apply to limitation years beginning after 
                December 31, 1999.
                  (B) Exclusion allowance.--Effective for limitation 
                years beginning in 2000, in the case of any annuity 
                contract described in section 403(b) of the Internal 
                Revenue Code of 1986, the amount of the contribution 
                disqualified by reason of section 415(g) of such Code 
                shall reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
          (3) Modification of 403(b) exclusion allowance to conform to 
        415 modification.--The Secretary of the Treasury shall modify 
        the regulations regarding the exclusion allowance under section 
        403(b)(2) of the Internal Revenue Code of 1986 to render void 
        the requirement that contributions to a defined benefit pension 
        plan be treated as previously excluded amounts for purposes of 
        the exclusion allowance. For taxable years beginning after 
        December 31, 1999, such regulations shall be applied as if such 
        requirement were void.
  (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
          (1) In general.--Subparagraph (B) of section 457(b)(2) 
        (relating to salary limitation on eligible deferred 
        compensation plans) is amended by striking ``33\1/3\ percent'' 
        and inserting ``100 percent''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2001.

SEC. 303. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

  (a) Amendment of Internal Revenue Code.--Section 411(a) (relating to 
minimum vesting standards) is amended--
          (1) in paragraph (2) in the matter preceding subparagraph 
        (A), by striking ``A plan'' and inserting ``Except as provided 
        in paragraph (12), a plan''; and
          (2) by adding at the end the following:
          ``(12) Faster vesting for matching contributions.--In the 
        case of matching contributions (as defined in section 
        401(m)(4)(A)), paragraph (2) shall be applied--
                  ``(A) by substituting `3 years' for `5 years' in 
                subparagraph (A), and
                  ``(B) by substituting the following table for the 
                table contained in subparagraph (B):

                  
                                                     The nonforfeitable
                ``Years of service:
                                                       percentage is:  
                  2........................................        20  
                  3........................................        40  
                  4........................................        60  
                  5........................................        80  
                  6........................................     100.''.

  (b) Amendment of ERISA.--Section 203(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
          (1) in paragraph (2), by striking ``A plan'' and inserting 
        ``Except as provided in paragraph (4), a plan'', and
          (2) by adding at the end the following:
          ``(4) In the case of matching contributions (as defined in 
        section 401(m)(4)(A) of the Internal Revenue Code of 1986), 
        paragraph (2) shall be applied--
                  ``(A) by substituting `3 years' for `5 years' in 
                subparagraph (A), and
                  ``(B) by substituting the following table for the 
                table contained in subparagraph (B):

                  
                                                     The nonforfeitable
                ``Years of service:
                                                       percentage is:  
                  2........................................        20  
                  3........................................        40  
                  4........................................        60  
                  5........................................        80  
                  6........................................     100.''.

  (c) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to contributions 
        for plan years beginning after December 31, 2001.
          (2) Collective bargaining agreements.--In the case of a plan 
        maintained pursuant to one or more collective bargaining 
        agreements between employee representatives and one or more 
        employers ratified by the date of the enactment of this Act, 
        the amendments made by this section shall not apply to 
        contributions on behalf of employees covered by any such 
        agreement for plan years beginning before the earlier of--
                  (A) the later of--
                          (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of the 
                        enactment); or
                          (ii) January 1, 2002; or
                  (B) January 1, 2006.
          (3) Service required.--With respect to any plan, the 
        amendments made by this section shall not apply to any employee 
        before the date that such employee has 1 hour of service under 
        such plan in any plan year to which the amendments made by this 
        section apply.

SEC. 304. MODIFICATIONS TO MINIMUM DISTRIBUTION RULES.

  (a) Life Expectancy Tables.--The Secretary of the Treasury shall 
modify the life expectancy tables under the regulations relating to 
minimum distribution requirements under sections 401(a)(9), 408(a)(6) 
and (b)(3), 403(b)(10), and 457(d)(2) of the Internal Revenue Code to 
reflect current life expectancy.
  (b) Repeal of Rule Where Distributions Had Begun Before Death 
Occurs.--
          (1) In general.--Subparagraph (B) of section 401(a)(9) is 
        amended by striking clause (i) and redesignating clauses (ii), 
        (iii), and (iv) as clauses (i), (ii), and (iii), respectively.
          (2) Conforming changes.--
                  (A) Clause (i) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``for other cases'' in the 
                        heading; and
                          (ii) by striking ``the distribution of the 
                        employee's interest has begun in accordance 
                        with subparagraph (A)(ii)'' and inserting ``his 
                        entire interest has been distributed to him''.
                  (B) Clause (ii) of section 401(a)(9)(B) (as so 
                redesignated) is amended by striking ``clause (ii)'' 
                and inserting ``clause (i)''.
                  (C) Clause (iii) of section 401(a)(9)(B) (as so 
                redesignated) is amended--
                          (i) by striking ``clause (iii)(I)'' and 
                        inserting ``clause (ii)(I)'';
                          (ii) by striking ``clause (iii)(III)'' in 
                        subclause (I) and inserting ``clause 
                        (ii)(III)'';
                          (iii) by striking ``the date on which the 
                        employee would have attained age 70\1/2\,'' in 
                        subclause (I) and inserting ``April 1 of the 
                        calendar year following the calendar year in 
                        which the spouse attains 70\1/2\,''; and
                          (iv) by striking ``the distributions to such 
                        spouse begin,'' in subclause (II) and inserting 
                        ``his entire interest has been distributed to 
                        him,''.
          (3) Effective date.--
                  (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to years beginning after December 31, 2001.
                  (B) Distributions to surviving spouse.--
                          (i) In general.--In the case of an employee 
                        described in clause (ii), distributions to the 
                        surviving spouse of the employee shall not be 
                        required to commence prior to the date on which 
                        such distributions would have been required to 
                        begin under section 401(a)(9)(B) of the 
                        Internal Revenue Code of 1986 (as in effect on 
                        the day before the date of the enactment of 
                        this Act).
                          (ii) Certain employees.--An employee is 
                        described in this clause if such employee dies 
                        before--
                                  (I) the date of the enactment of this 
                                Act, and
                                  (II) the required beginning date 
                                (within the meaning of section 
                                401(a)(9)(C) of the Internal Revenue 
                                Code of 1986) of the employee.
  (c) Reduction in Excise Tax.--
          (1) In general.--Subsection (a) of section 4974 is amended by 
        striking ``50 percent'' and inserting ``10 percent''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to years beginning after December 31, 2001.

SEC. 305. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
                    PLAN BENEFITS UPON DIVORCE.

  (a) In General.--Section 414(p)(11) (relating to application of rules 
to governmental and church plans) is amended--
          (1) by inserting ``or an eligible deferred compensation plan 
        (within the meaning of section 457(b))'' after ``subsection 
        (e))''; and
          (2) in the heading, by striking ``governmental and church 
        plans'' and inserting ``certain other plans''.
  (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
  (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
          ``(12) Tax treatment of payments from a section 457 plan.--If 
        a distribution or payment from an eligible deferred 
        compensation plan described in section 457(b) is made pursuant 
        to a qualified domestic relations order, rules similar to the 
        rules of section 402(e)(1)(A) shall apply to such distribution 
        or payment.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to transfers, distributions, and payments made after December 31, 2001.

SEC. 306. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

  (a) Safe Harbor Relief.--
          (1) In general.--The Secretary of the Treasury shall revise 
        the regulations relating to hardship distributions under 
        section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 
        1986 to provide that the period an employee is prohibited from 
        making elective and employee contributions in order for a 
        distribution to be deemed necessary to satisfy financial need 
        shall be equal to 6 months.
          (2) Effective date.--The revised regulations under this 
        subsection shall apply to years beginning after December 31, 
        2001.
  (b) Hardship Distributions Not Treated as Eligible Rollover 
Distributions.--
          (1) Modification of definition of eligible rollover.--
        Subparagraph (C) of section 402(c)(4) (relating to eligible 
        rollover distribution) is amended to read as follows:
                  ``(C) any distribution which is made upon hardship of 
                the employee.''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to distributions made after December 31, 2001.

SEC. 307. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR 
                    SIMILAR WORKERS.

  (a) In General.--Section 4972(c)(6) (relating to exceptions to 
nondeductible contributions), as amended by section 502, is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
and inserting ``, and'' at the end of subparagraph (B), and by 
inserting after subparagraph (B) the following new subparagraph:
                  ``(C) so much of the contributions to a simple 
                retirement account (within the meaning of section 
                408(p)) or a simple plan (within the meaning of section 
                401(k)(11)) which are not deductible when contributed 
                solely because such contributions are not made in 
                connection with a trade or business of the employer.''
  (b) Exclusion of Certain Contributions.--Section 4972(c)(6) is 
amended by adding at the end the following new sentence: ``Subparagraph 
(C) shall not apply to contributions made on behalf of the employer or 
a member of the employer's family (as defined in section 447(e)(1)).''.
  (c) No Inference.--Nothing in the amendments made by this section 
shall be construed to infer the proper treatment of nondeductible 
contributions under the laws in effect before such amendments.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

           TITLE IV--INCREASING PORTABILITY FOR PARTICIPANTS

SEC. 401. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

  (a) Rollovers From and to Section 457 Plans.--
          (1) Rollovers from section 457 plans.--
                  (A) In general.--Section 457(e) (relating to other 
                definitions and special rules) is amended by adding at 
                the end the following:
          ``(16) Rollover amounts.--
                  ``(A) General rule.--In the case of an eligible 
                deferred compensation plan established and maintained 
                by an employer described in subsection (e)(1)(A), if--
                          ``(i) any portion of the balance to the 
                        credit of an employee in such plan is paid to 
                        such employee in an eligible rollover 
                        distribution (within the meaning of section 
                        402(c)(4) without regard to subparagraph (C) 
                        thereof),
                          ``(ii) the employee transfers any portion of 
                        the property such employee receives in such 
                        distribution to an eligible retirement plan 
                        described in section 402(c)(8)(B), and
                          ``(iii) in the case of a distribution of 
                        property other than money, the amount so 
                        transferred consists of the property 
                        distributed,
                then such distribution (to the extent so transferred) 
                shall not be includible in gross income for the taxable 
                year in which paid.
                  ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) (other than paragraph 
                (4)(C)) and (9) of section 402(c) and section 402(f) 
                shall apply for purposes of subparagraph (A).
                  ``(C) Reporting.--Rollovers under this paragraph 
                shall be reported to the Secretary in the same manner 
                as rollovers from qualified retirement plans (as 
                defined in section 4974(c)).''.
                  (B) Deferral limit determined without regard to 
                rollover amounts.--Section 457(b)(2) (defining eligible 
                deferred compensation plan) is amended by inserting 
                ``(other than rollover amounts)'' after ``taxable 
                year''.
                  (C) Direct rollover.--Paragraph (1) of section 457(d) 
                is amended by striking ``and'' at the end of 
                subparagraph (A), by striking the period at the end of 
                subparagraph (B) and inserting ``, and'', and by 
                inserting after subparagraph (B) the following:
                  ``(C) in the case of a plan maintained by an employer 
                described in subsection (e)(1)(A), the plan meets 
                requirements similar to the requirements of section 
                401(a)(31).
        Any amount transferred in a direct trustee-to-trustee transfer 
        in accordance with section 401(a)(31) shall not be includible 
        in gross income for the taxable year of transfer.''.
                  (D) Withholding.--
                          (i) Paragraph (12) of section 3401(a) is 
                        amended by adding at the end the following:
                  ``(E) under or to an eligible deferred compensation 
                plan which, at the time of such payment, is a plan 
                described in section 457(b) maintained by an employer 
                described in section 457(e)(1)(A); or''.
                          (ii) Paragraph (3) of section 3405(c) is 
                        amended to read as follows:
          ``(3) Eligible rollover distribution.--For purposes of this 
        subsection, the term `eligible rollover distribution' has the 
        meaning given such term by section 402(f)(2)(A).''.
                          (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) is 
                        amended by striking ``or'' at the end of clause 
                        (ii), by striking the period at the end of 
                        clause (iii) and inserting ``, or'', and by 
                        adding at the end the following:
                          ``(iv) section 457(b) and which is maintained 
                        by an eligible employer described in section 
                        457(e)(1)(A).''.
          (2) Rollovers to section 457 plans.--
                  (A) In general.--Section 402(c)(8)(B) (defining 
                eligible retirement plan) is amended by striking 
                ``and'' at the end of clause (iii), by striking the 
                period at the end of clause (iv) and inserting ``, 
                and'', and by inserting after clause (iv) the following 
                new clause:
                          ``(v) an eligible deferred compensation plan 
                        described in section 457(b) which is maintained 
                        by an eligible employer described in section 
                        457(e)(1)(A).''.
                  (B) Separate accounting.--Section 402(c) is amended 
                by adding at the end the following new paragraph:
          ``(10) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately account for 
        amounts rolled into such plan from eligible retirement plans 
        not described in such clause, the plan described in such clause 
        may not accept transfers or rollovers from such retirement 
        plans.''.
                  (C) 10 percent additional tax.--Subsection (t) of 
                section 72 (relating to 10-percent additional tax on 
                early distributions from qualified retirement plans) is 
                amended by adding at the end the following new 
                paragraph:
          ``(9) Special rule for rollovers to section 457 plans.--For 
        purposes of this subsection, a distribution from an eligible 
        deferred compensation plan (as defined in section 457(b)) of an 
        eligible employer described in section 457(e)(1)(A) shall be 
        treated as a distribution from a qualified retirement plan 
        described in section 4974(c)(1) to the extent that such 
        distribution is attributable to an amount transferred to an 
        eligible deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).''.
  (b) Allowance of Rollovers From and to 403(b) Plans.--
          (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
        striking ``such distribution'' and all that follows and 
        inserting ``such distribution to an eligible retirement plan 
        described in section 402(c)(8)(B), and''.
          (2) Rollovers to section 403(b) plans.--Section 402(c)(8)(B) 
        (defining eligible retirement plan), as amended by subsection 
        (a), is amended by striking ``and'' at the end of clause (iv), 
        by striking the period at the end of clause (v) and inserting 
        ``, and'', and by inserting after clause (v) the following new 
        clause:
                          ``(vi) an annuity contract described in 
                        section 403(b).''.
  (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) is amended 
by striking ``and'' at the end of subparagraph (C), by striking the 
period at the end of subparagraph (D) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
                  ``(E) of the provisions under which distributions 
                from the eligible retirement plan receiving the 
                distribution may be subject to restrictions and tax 
                consequences which are different from those applicable 
                to distributions from the plan making such 
                distribution.''.
  (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover where 
spouse receives distribution after death of employee) is amended by 
striking ``; except that'' and all that follows up to the end period.
  (e) Conforming Amendments.--
          (1) Section 72(o)(4) is amended by striking ``and 408(d)(3)'' 
        and inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
          (2) Section 219(d)(2) is amended by striking ``or 408(d)(3)'' 
        and inserting ``408(d)(3), or 457(e)(16)''.
          (3) Section 401(a)(31)(B) is amended by striking ``and 
        403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
        457(e)(16)''.
          (4) Subparagraph (A) of section 402(f)(2) is amended by 
        striking ``or paragraph (4) of section 403(a)'' and inserting 
        ``, paragraph (4) of section 403(a), subparagraph (A) of 
        section 403(b)(8), or subparagraph (A) of section 457(e)(16)''.
          (5) Paragraph (1) of section 402(f) is amended by striking 
        ``from an eligible retirement plan''.
          (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
        amended by striking ``another eligible retirement plan'' and 
        inserting ``an eligible retirement plan''.
          (7) Subparagraph (B) of section 403(b)(8) is amended to read 
        as follows:
                  ``(B) Certain rules made applicable.--The rules of 
                paragraphs (2) through (7) and (9) of section 402(c) 
                and section 402(f) shall apply for purposes of 
                subparagraph (A), except that section 402(f) shall be 
                applied to the payor in lieu of the plan 
                administrator.''.
          (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
          (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
        amended by striking ``and 408(d)(3)'' and inserting 
        ``403(b)(8), 408(d)(3), and 457(e)(16)''.
          (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
          (11) Section 4973(b)(1)(A) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
  (f) Effective Date; Special Rule.--
          (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
          (2) Reasonable notice.--No penalty shall be imposed on a plan 
        for the failure to provide the information required by the 
        amendment made by subsection (c) with respect to any 
        distribution made before the date that is 90 days after the 
        date on which the Secretary of the Treasury issues a safe 
        harbor rollover notice after the date of the enactment of this 
        Act, if the administrator of such plan makes a reasonable 
        attempt to comply with such requirement.
          (3) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of any amendment made by this section.

SEC. 402. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

  (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                          ``(ii) the entire amount received (including 
                        money and any other property) is paid into an 
                        eligible retirement plan for the benefit of 
                        such individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that the 
                        maximum amount which may be paid into such plan 
                        may not exceed the portion of the amount 
                        received which is includible in gross income 
                        (determined without regard to this paragraph).
                For purposes of clause (ii), the term `eligible 
                retirement plan' means an eligible retirement plan 
                described in clause (iii), (iv), (v), or (vi) of 
                section 402(c)(8)(B).''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 403(b) is amended by striking 
        ``section 408(d)(3)(A)(iii)'' and inserting ``section 
        408(d)(3)(A)(ii)''.
          (2) Clause (i) of section 408(d)(3)(D) is amended by striking 
        ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
          (3) Subparagraph (G) of section 408(d)(3) is amended to read 
        as follows:
                  ``(G) Simple retirement accounts.--In the case of any 
                payment or distribution out of a simple retirement 
                account (as defined in subsection (p)) to which section 
                72(t)(6) applies, this paragraph shall not apply unless 
                such payment or distribution is paid into another 
                simple retirement account.''.
  (c) Effective Date; Special Rule.--
          (1) Effective date.--The amendments made by this section 
        shall apply to distributions after December 31, 2001.
          (2) Special rule.--Notwithstanding any other provision of 
        law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
        Reform Act of 1986 shall not apply to any distribution from an 
        eligible retirement plan (as defined in clause (iii) or (iv) of 
        section 402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such plan on 
        behalf of such individual which is permitted solely by reason 
        of the amendments made by this section.

SEC. 403. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

  (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
                  ``(A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified trust which 
                is part of a plan which is a defined contribution plan 
                and which agrees to separately account for amounts so 
                transferred, including separately accounting for the 
                portion of such distribution which is includible in 
                gross income and the portion of such distribution which 
                is not so includible, or
                  ``(B) such portion is transferred to an eligible 
                retirement plan described in clause (i) or (ii) of 
                paragraph (8)(B).''.
  (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following:
                ``The preceding sentence shall not apply to such 
                distribution if the plan to which such distribution is 
                transferred--
                          ``(i) agrees to separately account for 
                        amounts so transferred, including separately 
                        accounting for the portion of such distribution 
                        which is includible in gross income and the 
                        portion of such distribution which is not so 
                        includible, or
                          ``(ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of section 
                        402(c)(8)(B).''.
  (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of section 
408(d) (relating to special rules for applying section 72) is amended 
by inserting at the end the following:
                  ``(H) Application of section 72.--
                          ``(i) In general.--If--
                                  ``(I) a distribution is made from an 
                                individual retirement plan, and
                                  ``(II) a rollover contribution is 
                                made to an eligible retirement plan 
                                described in section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect to all 
                                or part of such distribution,
                        then, notwithstanding paragraph (2), the rules 
                        of clause (ii) shall apply for purposes of 
                        applying section 72.
                          ``(ii) Applicable rules.--In the case of a 
                        distribution described in clause (i)--
                                  ``(I) section 72 shall be applied 
                                separately to such distribution,
                                  ``(II) notwithstanding the pro rata 
                                allocation of income on, and investment 
                                in, the contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an eligible 
                                retirement plan described in clause (i) 
                                shall be treated as from income on the 
                                contract (to the extent of the 
                                aggregate income on the contract from 
                                all individual retirement plans of the 
                                distributee), and
                                  ``(III) appropriate adjustments shall 
                                be made in applying section 72 to other 
                                distributions in such taxable year and 
                                subsequent taxable years.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2001.

SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.

  (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
          ``(3) Transfer must be made within 60 days of receipt.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), paragraph (1) shall not apply to any transfer of a 
                distribution made after the 60th day following the day 
                on which the distributee received the property 
                distributed.
                  ``(B) Hardship exception.--The Secretary may waive 
                the 60-day requirement under subparagraph (A) where the 
                failure to waive such requirement would be against 
                equity or good conscience, including casualty, 
                disaster, or other events beyond the reasonable control 
                of the individual subject to such requirement.''.
  (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 403, is amended by adding after 
subparagraph (H) the following new subparagraph:
                  ``(I) Waiver of 60-day requirement.--The Secretary 
                may waive the 60-day requirement under subparagraphs 
                (A) and (D) where the failure to waive such requirement 
                would be against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to such 
                requirement.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2001.

SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.

  (a) Plan Transfers.--
          (1) Amendment of internal revenue code.--Paragraph (6) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended by adding at the end the following:
                  ``(D) Plan transfers.--
                          ``(i) In general.--A defined contribution 
                        plan (in this subparagraph referred to as the 
                        `transferee plan') shall not be treated as 
                        failing to meet the requirements of this 
                        subsection merely because the transferee plan 
                        does not provide some or all of the forms of 
                        distribution previously available under another 
                        defined contribution plan (in this subparagraph 
                        referred to as the `transferor plan') to the 
                        extent that--
                                  ``(I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the account 
                                of a participant or beneficiary under 
                                the transferor plan that was 
                                transferred from the transferor plan to 
                                the transferee plan pursuant to a 
                                direct transfer rather than pursuant to 
                                a distribution from the transferor 
                                plan,
                                  ``(II) the terms of both the 
                                transferor plan and the transferee plan 
                                authorize the transfer described in 
                                subclause (I),
                                  ``(III) the transfer described in 
                                subclause (I) was made pursuant to a 
                                voluntary election by the participant 
                                or beneficiary whose account was 
                                transferred to the transferee plan,
                                  ``(IV) the election described in 
                                subclause (III) was made after the 
                                participant or beneficiary received a 
                                notice describing the consequences of 
                                making the election, and
                                  ``(V) the transferee plan allows the 
                                participant or beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the participant 
                                or beneficiary is entitled under the 
                                transferee plan in the form of a single 
                                sum distribution.
                          ``(ii) Exception.--Clause (i) shall apply to 
                        plan mergers and other transactions having the 
                        effect of a direct transfer, including 
                        consolidations of benefits attributable to 
                        different employers within a multiple employer 
                        plan.
                  ``(E) Elimination of form of distribution.--Except to 
                the extent provided in regulations, a defined 
                contribution plan shall not be treated as failing to 
                meet the requirements of this section merely because of 
                the elimination of a form of distribution previously 
                available thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution with 
                respect to any participant unless--
                          ``(i) a single sum payment is available to 
                        such participant at the same time or times as 
                        the form of distribution being eliminated, and
                          ``(ii) such single sum payment is based on 
                        the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.''.
          (2) Amendment of erisa.--Section 204(g) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
        amended by adding at the end the following:
  ``(4)(A) A defined contribution plan (in this subparagraph referred 
to as the `transferee plan') shall not be treated as failing to meet 
the requirements of this subsection merely because the transferee plan 
does not provide some or all of the forms of distribution previously 
available under another defined contribution plan (in this subparagraph 
referred to as the `transferor plan') to the extent that--
          ``(i) the forms of distribution previously available under 
        the transferor plan applied to the account of a participant or 
        beneficiary under the transferor plan that was transferred from 
        the transferor plan to the transferee plan pursuant to a direct 
        transfer rather than pursuant to a distribution from the 
        transferor plan;
          ``(ii) the terms of both the transferor plan and the 
        transferee plan authorize the transfer described in clause (i);
          ``(iii) the transfer described in clause (i) was made 
        pursuant to a voluntary election by the participant or 
        beneficiary whose account was transferred to the transferee 
        plan;
          ``(iv) the election described in clause (iii) was made after 
        the participant or beneficiary received a notice describing the 
        consequences of making the election; and
          ``(v) the transferee plan allows the participant or 
        beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a single sum 
        distribution.
  ``(B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including 
consolidations of benefits attributable to different employers within a 
multiple employer plan.
  ``(5) Except to the extent provided in regulations promulgated by the 
Secretary of the Treasury, a defined contribution plan shall not be 
treated as failing to meet the requirements of this subsection merely 
because of the elimination of a form of distribution previously 
available thereunder. This paragraph shall not apply to the elimination 
of a form of distribution with respect to any participant unless--
          ``(A) a single sum payment is available to such participant 
        at the same time or times as the form of distribution being 
        eliminated; and
          ``(B) such single sum payment is based on the same or greater 
        portion of the participant's account as the form of 
        distribution being eliminated.''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to years beginning after December 31, 2001.
  (b) Regulations.--
          (1) Amendment of internal revenue code.--Paragraph (6)(B) of 
        section 411(d) (relating to accrued benefit not to be decreased 
        by amendment) is amended by inserting after the second sentence 
        the following new sentence: ``The Secretary shall by 
        regulations provide that this subparagraph shall not apply to 
        any plan amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or complexities for 
        the plan and plan participants and does not adversely affect 
        the rights of any participant in a more than de minimis 
        manner.''.
          (2) Amendment of erisa.--Section 204(g)(2) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) 
        is amended by inserting before the last sentence the following 
        new sentence: ``The Secretary of the Treasury shall by 
        regulations provide that this paragraph shall not apply to any 
        plan amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or complexities for 
        the plan and plan participants and does not adversely affect 
        the rights of any participant in a more than de minimis 
        manner.''.
          (3) Secretary directed.--Not later than December 31, 2003, 
        the Secretary of the Treasury is directed to issue regulations 
        under section 411(d)(6) of the Internal Revenue Code of 1986 
        and section 204(g) of the Employee Retirement Income Security 
        Act of 1974, including the regulations required by the 
        amendment made by this subsection. Such regulations shall apply 
        to plan years beginning after December 31, 2003, or such 
        earlier date as is specified by the Secretary of the Treasury.

SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

  (a) Modification of Same Desk Exception.--
          (1) Section 401(k).--
                  (A) Section 401(k)(2)(B)(i)(I) (relating to qualified 
                cash or deferred arrangements) is amended by striking 
                ``separation from service'' and inserting ``severance 
                from employment''.
                  (B) Subparagraph (A) of section 401(k)(10) (relating 
                to distributions upon termination of plan or 
                disposition of assets or subsidiary) is amended to read 
                as follows:
                  ``(A) In general.--An event described in this 
                subparagraph is the termination of the plan without 
                establishment or maintenance of another defined 
                contribution plan (other than an employee stock 
                ownership plan as defined in section 4975(e)(7)).''.
                  (C) Section 401(k)(10) is amended--
                          (i) in subparagraph (B)--
                                  (I) by striking ``An event'' in 
                                clause (i) and inserting ``A 
                                termination''; and
                                  (II) by striking ``the event'' in 
                                clause (i) and inserting ``the 
                                termination'';
                          (ii) by striking subparagraph (C); and
                          (iii) by striking ``or disposition of assets 
                        or subsidiary'' in the heading.
          (2) Section 403(b).--
                  (A) Paragraphs (7)(A)(ii) and (11)(A) of section 
                403(b) are each amended by striking ``separates from 
                service'' and inserting ``has a severance from 
                employment''.
                  (B) The heading for paragraph (11) of section 403(b) 
                is amended by striking ``separation from service'' and 
                inserting ``severance from employment''.
          (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
        amended by striking ``is separated from service'' and inserting 
        ``has a severance from employment''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2001.

SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
                    PLANS.

  (a) 403(b) Plans.--Subsection (b) of section 403 is amended by adding 
at the end the following new paragraph:
          ``(13) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                  ``(B) a repayment to which section 415 does not apply 
                by reason of subsection (k)(3) thereof.''.
  (b) 457 Plans.--Subsection (e) of section 457 is amended by adding 
after paragraph (16) the following new paragraph:
          ``(17) Trustee-to-trustee transfers to purchase permissive 
        service credit.--No amount shall be includible in gross income 
        by reason of a direct trustee-to-trustee transfer to a defined 
        benefit governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  ``(A) for the purchase of permissive service credit 
                (as defined in section 415(n)(3)(A)) under such plan, 
                or
                  ``(B) a repayment to which section 415 does not apply 
                by reason of subsection (k)(3) thereof.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to trustee-to-trustee transfers after December 31, 2001.

SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
                    AMOUNTS.

  (a) Qualified Plans.--
          (1) Amendment of internal revenue code.--Section 411(a)(11) 
        (relating to restrictions on certain mandatory distributions) 
        is amended by adding at the end the following:
                  ``(D) Special rule for rollover contributions.--A 
                plan shall not fail to meet the requirements of this 
                paragraph if, under the terms of the plan, the present 
                value of the nonforfeitable accrued benefit is 
                determined without regard to that portion of such 
                benefit which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes of this 
                subparagraph, the term `rollover contributions' means 
                any rollover contribution under sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
                457(e)(16).''.
          (2) Amendment of erisa.--Section 203(e) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
        amended by adding at the end the following:
  ``(4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value of the 
nonforfeitable accrued benefit is determined without regard to that 
portion of such benefit which is attributable to rollover contributions 
(and earnings allocable thereto). For purposes of this subparagraph, 
the term `rollover contributions' means any rollover contribution under 
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
  (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2001.

SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
                    457 PLANS.

  (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
          ``(2) Minimum distribution requirements.--A plan meets the 
        minimum distribution requirements of this paragraph if such 
        plan meets the requirements of section 401(a)(9).''.
  (b) Inclusion in Gross Income.--
          (1) Year of inclusion.--Subsection (a) of section 457 
        (relating to year of inclusion in gross income) is amended to 
        read as follows:
  ``(a) Year of inclusion in gross income.--
          ``(1) In general.--Any amount of compensation deferred under 
        an eligible deferred compensation plan, and any income 
        attributable to the amounts so deferred, shall be includible in 
        gross income only for the taxable year in which such 
        compensation or other income--
                  ``(A) is paid to the participant or other 
                beneficiary, in the case of a plan of an eligible 
                employer described in subsection (e)(1)(A), and
                  ``(B) is paid or otherwise made available to the 
                participant or other beneficiary, in the case of a plan 
                of an eligible employer described in subsection 
                (e)(1)(B).
          ``(2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply to any 
        amount includible in gross income under this subsection.''.
          (2) Conforming amendments.--
                  (A) So much of paragraph (9) of section 457(e) as 
                precedes subparagraph (A) is amended to read as 
                follows:
          ``(9) Benefits of tax exempt organization plans not treated 
        as made available by reason of certain elections, etc.--In the 
        case of an eligible deferred compensation plan of an employer 
        described in subsection (e)(1)(B)--''.
                  (B) Section 457(d) is amended by adding at the end 
                the following new paragraph:
          ``(3) Special rule for government plan.--An eligible deferred 
        compensation plan of an employer described in subsection 
        (e)(1)(A) shall not be treated as failing to meet the 
        requirements of this subsection solely by reason of making a 
        distribution described in subsection (e)(9)(A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2001.

        TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

SEC. 501. REPEAL OF PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

  (a) Amendment of Internal Revenue Code.--Section 412(c)(7) (relating 
to full-funding limitation) is amended--
          (1) by striking ``the applicable percentage'' in subparagraph 
        (A)(i)(I) and inserting ``in the case of plan years beginning 
        before January 1, 2004, the applicable percentage''; and
          (2) by amending subparagraph (F) to read as follows:
                  ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                  2002.....................................       165  
                  2003.....................................     170.''.

  (b) Amendment of ERISA.--Section 302(c)(7) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is amended--
          (1) by striking ``the applicable percentage'' in subparagraph 
        (A)(i)(I) and inserting ``in the case of plan years beginning 
        before January 1, 2004, the applicable percentage''; and
          (2) by amending subparagraph (F) to read as follows:
                  ``(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable percentage shall 
                be determined in accordance with the following table:

                ``In the case of any plan year
                                                         The applicable
                  beginning in--
                                                        percentage is--
                  2002.....................................       165  
                  2003.....................................     170.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2001.

SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
                    ALL DEFINED BENEFIT PLANS.

  (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
                  ``(D) Special rule in case of certain plans.--
                          ``(i) In general.--In the case of any defined 
                        benefit plan, except as provided in 
                        regulations, the maximum amount deductible 
                        under the limitations of this paragraph shall 
                        not be less than the unfunded termination 
                        liability (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee Retirement 
                        Income Security Act of 1974 were the last day 
                        of the plan year).
                          ``(ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan which has 
                        less than 100 participants for the plan year, 
                        termination liability shall not include the 
                        liability attributable to benefit increases for 
                        highly compensated employees (as defined in 
                        section 414(q)) resulting from a plan amendment 
                        which is made or becomes effective, whichever 
                        is later, within the last 2 years before the 
                        termination date.
                          ``(iii) Rule for determining number of 
                        participants.--For purposes of determining 
                        whether a plan has more than 100 participants, 
                        all defined benefit plans maintained by the 
                        same employer (or any member of such employer's 
                        controlled group (within the meaning of section 
                        412(l)(8)(C))) shall be treated as one plan, 
                        but only employees of such member or employer 
                        shall be taken into account.
                          ``(iv) Plans maintained by professional 
                        service employers.--Clause (i) shall not apply 
                        to a plan described in section 4021(b)(13) of 
                        the Employee Retirement Income Security Act of 
                        1974.''.
  (b) Conforming Amendment.--Paragraph (6) of section 4972(c), as 
amended by section 207, is amended to read as follows:
          ``(6) Exceptions.--In determining the amount of nondeductible 
        contributions for any taxable year, there shall not be taken 
        into account so much of the contributions to one or more 
        defined contribution plans which are not deductible when 
        contributed solely because of section 404(a)(7) as does not 
        exceed the greater of--
                  ``(A) the amount of contributions not in excess of 6 
                percent of compensation (within the meaning of section 
                404(a)) paid or accrued (during the taxable year for 
                which the contributions were made) to beneficiaries 
                under the plans, or
                  ``(B) the sum of--
                          ``(i) the amount of contributions described 
                        in section 401(m)(4)(A), plus
                          ``(ii) the amount of contributions described 
                        in section 402(g)(3)(A).
        For purposes of this paragraph, the deductible limits under 
        section 404(a)(7) shall first be applied to amounts contributed 
        to a defined benefit plan and then to amounts described in 
        subparagraph (B).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2001.

SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

  (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
          ``(7) Defined benefit plan exception.--In determining the 
        amount of nondeductible contributions for any taxable year, an 
        employer may elect for such year not to take into account any 
        contributions to a defined benefit plan except to the extent 
        that such contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard to 
        subparagraph (A)(i)(I) thereof). For purposes of this 
        paragraph, the deductible limits under section 404(a)(7) shall 
        first be applied to amounts contributed to defined contribution 
        plans and then to amounts described in this paragraph. If an 
        employer makes an election under this paragraph for a taxable 
        year, paragraph (6) shall not apply to such employer for such 
        taxable year.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
                    PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT 
                    ACCRUALS.

  (a) Amendment of Internal Revenue Code.--
          (1) In general.--Chapter 43 (relating to qualified pension, 
        etc., plans) is amended by adding at the end the following new 
        section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
                    SATISFY NOTICE REQUIREMENTS.

  ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
  ``(b) Amount of Tax.--
          ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        individual shall be $100 for each day in the noncompliance 
        period with respect to such failure.
          ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period beginning on the date the failure first 
        occurs and ending on the date the notice to which the failure 
        relates is provided or the failure is otherwise corrected.
  ``(c) Limitations on Amount of Tax.--
          ``(1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that any 
        person subject to liability for the tax under subsection (d) 
        did not know that the failure existed and exercised reasonable 
        diligence to meet the requirements of subsection (e).
          ``(2) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                  ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                  ``(B) such person provides the notice described in 
                subsection (e) during the 30-day period beginning on 
                the first date such person knew, or exercising 
                reasonable diligence would have known, that such 
                failure existed.
          ``(3) Overall limitation for unintentional failures.--
                  ``(A) In general.--If the person subject to liability 
                for tax under subsection (d) exercised reasonable 
                diligence to meet the requirements of subsection (e), 
                the tax imposed by subsection (a) for failures during 
                the taxable year of the employer (or, in the case of a 
                multiemployer plan, the taxable year of the trust 
                forming part of the plan) shall not exceed $500,000. 
                For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                  ``(B) Taxable years in the case of certain controlled 
                groups.--For purposes of this paragraph, if all persons 
                who are treated as a single employer for purposes of 
                this section do not have the same taxable year, the 
                taxable years taken into account shall be determined 
                under principles similar to the principles of section 
                1561.
          ``(4) Waiver by secretary.--In the case of a failure which is 
        due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
  ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
          ``(1) In the case of a plan other than a multiemployer plan, 
        the employer.
          ``(2) In the case of a multiemployer plan, the plan.
  ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
          ``(1) In general.--If an applicable pension plan is amended 
        to provide for a significant reduction in the rate of future 
        benefit accrual, the plan administrator shall provide written 
        notice to each applicable individual (and to each employee 
        organization representing applicable individuals).
          ``(2) Notice.--The notice required by paragraph (1) shall be 
        written in a manner calculated to be understood by the average 
        plan participant and shall provide sufficient information (as 
        determined in accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to understand the 
        effect of the plan amendment. The Secretary may provide a 
        simplified form of notice for, or exempt from any notice 
        requirement, a plan--
                  ``(A) which has fewer than 100 participants who have 
                accrued a benefit under the plan, or
                  ``(B) which offers participants the option to choose 
                between the new benefit formula and the old benefit 
                formula.
          ``(3) Timing of notice.--Except as provided in regulations, 
        the notice required by paragraph (1) shall be provided within a 
        reasonable time before the effective date of the plan 
        amendment.
          ``(4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the person to 
        which it would otherwise be provided.
          ``(5) Notice before adoption of amendment.--A plan shall not 
        be treated as failing to meet the requirements of paragraph (1) 
        merely because notice is provided before the adoption of the 
        plan amendment if no material modification of the amendment 
        occurs before the amendment is adopted.
  ``(f) Definitions and Special Rules.--For purposes of this section--
          ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                  ``(A) each participant in the plan, and
                  ``(B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under an 
                applicable qualified domestic relations order (within 
                the meaning of section 414(p)(1)(A)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by such plan 
        amendment.
          ``(2) Applicable pension plan.--The term `applicable pension 
        plan' means--
                  ``(A) any defined benefit plan, or
                  ``(B) an individual account plan which is subject to 
                the funding standards of section 412.
        Such term shall not include a governmental plan (within the 
        meaning of section 414(d)) or a church plan (within the meaning 
        of section 414(e)) with respect to which the election provided 
        by section 410(d) has not been made.
          ``(3) Early retirement.--A plan amendment which eliminates or 
        significantly reduces any early retirement benefit or 
        retirement-type subsidy (within the meaning of section 
        411(d)(6)(B)(i)) shall be treated as having the effect of 
        significantly reducing the rate of future benefit accrual.
  ``(g) New Technologies.--The Secretary may by regulations allow any 
notice under subsection (e) to be provided by using new 
technologies.''.
          (2) Clerical amendment.--The table of sections for chapter 43 
        is amended by adding at the end the following new item:

                               ``Sec. 4980F. Failure of applicable 
                                        plans reducing benefit accruals 
                                        to satisfy notice 
                                        requirements.''.

  (b) Amendment of ERISA.--Section 204(h) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1054(h)) is amended by adding at 
the end the following new paragraphs:
  ``(3)(A) An applicable pension plan to which paragraph (1) applies 
shall not be treated as meeting the requirements of such paragraph 
unless, in addition to any notice required to be provided to an 
individual or organization under such paragraph, the plan administrator 
provides the notice described in subparagraph (B) to each applicable 
individual (and to each employee organization representing applicable 
individuals).
  ``(B) The notice required by subparagraph (A) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall provide sufficient information (as determined in accordance with 
regulations prescribed by the Secretary of the Treasury) to allow 
applicable individuals to understand the effect of the plan amendment. 
The Secretary of the Treasury may provide a simplified form of notice 
for, or exempt from any notice requirement, a plan--
          ``(i) which has fewer than 100 participants who have accrued 
        a benefit under the plan, or
          ``(ii) which offers participants the option to choose between 
        the new benefit formula and the old benefit formula.
  ``(C) Except as provided in regulations prescribed by the Secretary 
of the Treasury, the notice required by subparagraph (A) shall be 
provided within a reasonable time before the effective date of the plan 
amendment.
  ``(D) Any notice under subparagraph (A) may be provided to a person 
designated, in writing, by the person to which it would otherwise be 
provided.
  ``(E) A plan shall not be treated as failing to meet the requirements 
of subparagraph (A) merely because notice is provided before the 
adoption of the plan amendment if no material modification of the 
amendment occurs before the amendment is adopted.
  ``(F) The Secretary of the Treasury may by regulations allow any 
notice under this paragraph to be provided by using new technologies.
  ``(4) For purposes of paragraph (3)--
          ``(A) The term `applicable individual' means, with respect to 
        any plan amendment--
                  ``(i) each participant in the plan; and
                  ``(ii) any beneficiary who is an alternate payee 
                (within the meaning of section 206(d)(3)(K)) under an 
                applicable qualified domestic relations order (within 
                the meaning of section 206(d)(3)(B)(i)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by such plan 
        amendment.
          ``(B) The term `applicable pension plan' means--
                  ``(i) any defined benefit plan; or
                  ``(ii) an individual account plan which is subject to 
                the funding standards of section 412 of the Internal 
                Revenue Code of 1986.
          ``(C) A plan amendment which eliminates or significantly 
        reduces any early retirement benefit or retirement-type subsidy 
        (within the meaning of subsection (g)(2)(A)) shall be treated 
        as having the effect of significantly reducing the rate of 
        future benefit accrual.''.
  (c) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to plan amendments taking effect on or after the date of 
        the enactment of this Act.
          (2) Transition.--Until such time as the Secretary of the 
        Treasury issues regulations under sections 4980F(e)(2) and (3) 
        of the Internal Revenue Code of 1986, and section 204(h)(3) of 
        the Employee Retirement Income Security Act of 1974, as added 
        by the amendments made by this section, a plan shall be treated 
        as meeting the requirements of such sections if it makes a good 
        faith effort to comply with such requirements.
          (3) Special notice rule.--
                  (A) In general.--The period for providing any notice 
                required by the amendments made by this section shall 
                not end before the date which is 3 months after the 
                date of the enactment of this Act.
                  (B) Reasonable notice.--The amendments made by this 
                section shall not apply to any plan amendment taking 
                effect on or after the date of the enactment of this 
                Act if, before April 25, 2001, notice was provided to 
                participants and beneficiaries adversely affected by 
                the plan amendment (or their representatives) which was 
                reasonably expected to notify them of the nature and 
                effective date of the plan amendment.
  (d) Study.--The Secretary of the Treasury shall prepare a report on 
the effects of conversions of traditional defined benefit plans to cash 
balance or hybrid formula plans. Such study shall examine the effect of 
such conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time after the 
conversion. As soon as practicable, but not later than 60 days after 
the date of the enactment of this Act, the Secretary shall submit such 
report, together with recommendations thereon, to the Committee on Ways 
and Means and the Committee on Education and the Workforce of the House 
of Representatives and the Committee on Finance and the Committee on 
Health, Education, Labor, and Pensions of the Senate.

SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

  (a) Compensation Limit.--
          (1) In general.--Paragraph (11) of section 415(b) (relating 
        to limitation for defined benefit plans) is amended to read as 
        follows:
          ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental plan (as 
        defined in section 414(d)) or a multiemployer plan (as defined 
        in section 414(f)), subparagraph (B) of paragraph (1) shall not 
        apply.''.
          (2) Conforming amendment.--Section 415(b)(7) (relating to 
        benefits under certain collectively bargained plans) is amended 
        by inserting ``(other than a multiemployer plan)'' after 
        ``defined benefit plan'' in the matter preceding subparagraph 
        (A).
  (b) Combining and Aggregation of Plans.--
          (1) Combining of plans.--Subsection (f) of section 415 
        (relating to combining of plans) is amended by adding at the 
        end the following:
          ``(3) Exception for multiemployer plans.--Notwithstanding 
        paragraph (1) and subsection (g), a multiemployer plan (as 
        defined in section 414(f)) shall not be combined or 
        aggregated--
                  ``(A) with any other plan which is not a 
                multiemployer plan for purposes of applying subsection 
                (b)(1)(B) to such other plan, or
                  ``(B) with any other multiemployer plan for purposes 
                of applying the limitations established in this 
                section.''.
          (2) Conforming amendment for aggregation of plans.--
        Subsection (g) of section 415 (relating to aggregation of 
        plans) is amended by striking ``The Secretary'' and inserting 
        ``Except as provided in subsection (f)(3), the Secretary''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 506. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
                    PLANS.

  (a) In General.--Section 1524(b) of the Taxpayer Relief Act of 1997 
is amended to read as follows:
  ``(b) Effective Date.--
          ``(1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to elective 
        deferrals for plan years beginning after December 31, 1998.
          ``(2) Nonapplication to previously acquired property.--The 
        amendments made by this section shall not apply to any elective 
        deferral which is invested in assets consisting of qualifying 
        employer securities, qualifying employer real property, or 
        both, if such assets were acquired before January 1, 1999.''.
  (b) Effective Date.--The amendment made by this section shall apply 
as if included in the provision of the Taxpayer Relief Act of 1997 to 
which it relates.

SEC. 507. PERIODIC PENSION BENEFITS STATEMENTS.

  (a) In General.--Section 105(a) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1025 (a)) is amended to read as 
follows:
  ``(a)(1) Except as provided in paragraph (2)--
          ``(A) the administrator of an individual account plan shall 
        furnish a pension benefit statement--
                  ``(i) to a plan participant at least once annually, 
                and
                  ``(ii) to a plan beneficiary upon written request, 
                and
          ``(B) the administrator of a defined benefit plan shall 
        furnish a pension benefit statement--
                  ``(i) at least once every 3 years to each participant 
                with a nonforfeitable accrued benefit who is employed 
                by the employer maintaining the plan at the time the 
                statement is furnished to participants, and
                  ``(ii) to a plan participant or plan beneficiary of 
                the plan upon written request.
  ``(2) Notwithstanding paragraph (1), the administrator of a plan to 
which more than 1 unaffiliated employer is required to contribute shall 
only be required to furnish a pension benefit statement under paragraph 
(1) upon the written request of a participant or beneficiary of the 
plan.
  ``(3) A pension benefit statement under paragraph (1)--
          ``(A) shall indicate, on the basis of the latest available 
        information--
                  ``(i) the total benefits accrued, and
                  ``(ii) the nonforfeitable pension benefits, if any, 
                which have accrued, or the earliest date on which 
                benefits will become nonforfeitable,
          ``(B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
          ``(C) may be provided in written, electronic, telephonic, or 
        other appropriate form.
  ``(4)(A) In the case of a defined benefit plan, the requirements of 
paragraph (1)(B)(i) shall be treated as met with respect to a 
participant if the administrator provides the participant at least once 
each year with notice of the availability of the pension benefit 
statement and the ways in which the participant may obtain such 
statement. Such notice shall be provided in written, electronic, 
telephonic, or other appropriate form, and may be included with other 
communications to the participant if done in a manner reasonably 
designed to attract the attention of the participant.
  ``(B) The Secretary may provide that years in which no employee or 
former employee benefits (within the meaning of section 410(b) of the 
Internal Revenue Code of 1986) under the plan need not be taken into 
account in determining the 3-year period under paragraph (1)(B)(i).''.
  (b) Conforming Amendments.--
          (1) Section 105 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1025) is amended by striking subsection 
        (d).
          (2) Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended 
        to read as follows:
  ``(b) In no case shall a participant or beneficiary of a plan be 
entitled to more than one statement described in subsection (a)(1)(A) 
or (a)(1)(B)(ii), whichever is applicable, in any 12-month period.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2002.

SEC. 508. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

  (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
  ``(p) Prohibited Allocations of Securities in an S Corporation.--
          ``(1) In general.--An employee stock ownership plan holding 
        employer securities consisting of stock in an S corporation 
        shall provide that no portion of the assets of the plan 
        attributable to (or allocable in lieu of) such employer 
        securities may, during a nonallocation year, accrue (or be 
        allocated directly or indirectly under any plan of the employer 
        meeting the requirements of section 401(a)) for the benefit of 
        any disqualified person.
          ``(2) Failure to meet requirements.--
                  ``(A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall be 
                treated as having distributed to any disqualified 
                person the amount allocated to the account of such 
                person in violation of paragraph (1) at the time of 
                such allocation.
                  ``(B) Cross reference.--

                  ``For excise tax relating to violations of paragraph 
(1) and ownership of synthetic equity, see section 4979A.

          ``(3) Nonallocation year.--For purposes of this subsection--
                  ``(A) In general.--The term `nonallocation year' 
                means any plan year of an employee stock ownership plan 
                if, at any time during such plan year--
                          ``(i) such plan holds employer securities 
                        consisting of stock in an S corporation, and
                          ``(ii) disqualified persons own at least 50 
                        percent of the number of shares of stock in the 
                        S corporation.
                  ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                          ``(i) In general.--The rules of section 
                        318(a) shall apply for purposes of determining 
                        ownership, except that--
                                  ``(I) in applying paragraph (1) 
                                thereof, the members of an individual's 
                                family shall include members of the 
                                family described in paragraph (4)(D), 
                                and
                                  ``(II) paragraph (4) thereof shall 
                                not apply.
                          ``(ii) Deemed-owned shares.--Notwithstanding 
                        the employee trust exception in section 
                        318(a)(2)(B)(i), individual shall be treated as 
                        owning deemed-owned shares of the individual.
                Solely for purposes of applying paragraph (5), this 
                subparagraph shall be applied after the attribution 
                rules of paragraph (5) have been applied.
          ``(4) Disqualified person.--For purposes of this subsection--
                  ``(A) In general.--The term `disqualified person' 
                means any person if--
                          ``(i) the aggregate number of deemed-owned 
                        shares of such person and the members of such 
                        person's family is at least 20 percent of the 
                        number of deemed-owned shares of stock in the S 
                        corporation, or
                          ``(ii) in the case of a person not described 
                        in clause (i), the number of deemed-owned 
                        shares of such person is at least 10 percent of 
                        the number of deemed-owned shares of stock in 
                        such corporation.
                  ``(B) Treatment of family members.--In the case of a 
                disqualified person described in subparagraph (A)(i), 
                any member of such person's family with deemed-owned 
                shares shall be treated as a disqualified person if not 
                otherwise treated as a disqualified person under 
                subparagraph (A).
                  ``(C) Deemed-owned shares.--
                          ``(i) In general.--The term `deemed-owned 
                        shares' means, with respect to any person--
                                  ``(I) the stock in the S corporation 
                                constituting employer securities of an 
                                employee stock ownership plan which is 
                                allocated to such person under the 
                                plan, and
                                  ``(II) such person's share of the 
                                stock in such corporation which is held 
                                by such plan but which is not allocated 
                                under the plan to participants.
                          ``(ii) Person's share of unallocated stock.--
                        For purposes of clause (i)(II), a person's 
                        share of unallocated S corporation stock held 
                        by such plan is the amount of the unallocated 
                        stock which would be allocated to such person 
                        if the unallocated stock were allocated to all 
                        participants in the same proportions as the 
                        most recent stock allocation under the plan.
                  ``(D) Member of family.--For purposes of this 
                paragraph, the term `member of the family' means, with 
                respect to any individual--
                          ``(i) the spouse of the individual,
                          ``(ii) an ancestor or lineal descendant of 
                        the individual or the individual's spouse,
                          ``(iii) a brother or sister of the individual 
                        or the individual's spouse and any lineal 
                        descendant of the brother or sister, and
                          ``(iv) the spouse of any individual described 
                        in clause (ii) or (iii).
                A spouse of an individual who is legally separated from 
                such individual under a decree of divorce or separate 
                maintenance shall not be treated as such individual's 
                spouse for purposes of this subparagraph.
          ``(5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who owns 
        synthetic equity in the S corporation, except to the extent 
        provided in regulations, the shares of stock in such 
        corporation on which such synthetic equity is based shall be 
        treated as outstanding stock in such corporation and deemed-
        owned shares of such person if such treatment of synthetic 
        equity of 1 or more such persons results in--
                  ``(A) the treatment of any person as a disqualified 
                person, or
                  ``(B) the treatment of any year as a nonallocation 
                year.
        For purposes of this paragraph, synthetic equity shall be 
        treated as owned by a person in the same manner as stock is 
        treated as owned by a person under the rules of paragraphs (2) 
        and (3) of section 318(a). If, without regard to this 
        paragraph, a person is treated as a disqualified person or a 
        year is treated as a nonallocation year, this paragraph shall 
        not be construed to result in the person or year not being so 
        treated.
          ``(6) Definitions.--For purposes of this subsection--
                  ``(A) Employee stock ownership plan.--The term 
                `employee stock ownership plan' has the meaning given 
                such term by section 4975(e)(7).
                  ``(B) Employer securities.--The term `employer 
                security' has the meaning given such term by section 
                409(l).
                  ``(C) Synthetic equity.--The term `synthetic equity' 
                means any stock option, warrant, restricted stock, 
                deferred issuance stock right, or similar interest or 
                right that gives the holder the right to acquire or 
                receive stock of the S corporation in the future. 
                Except to the extent provided in regulations, synthetic 
                equity also includes a stock appreciation right, 
                phantom stock unit, or similar right to a future cash 
                payment based on the value of such stock or 
                appreciation in such value.
          ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection.''.
  (b) Coordination With Section 4975(e)(7).--The last sentence of 
section 4975(e)(7) (defining employee stock ownership plan) is amended 
by inserting ``, section 409(p),'' after ``409(n)''.
  (c) Excise Tax.--
          (1) Application of tax.--Subsection (a) of section 4979A 
        (relating to tax on certain prohibited allocations of employer 
        securities) is amended--
                  (A) by striking ``or'' at the end of paragraph (1), 
                and
                  (B) by striking all that follows paragraph (2) and 
                inserting the following:
          ``(3) there is any allocation of employer securities which 
        violates the provisions of section 409(p), or a nonallocation 
        year described in subsection (e)(2)(C) with respect to an 
        employee stock ownership plan, or
          ``(4) any synthetic equity is owned by a disqualified person 
        in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 
50 percent of the amount involved.''.
          (2) Liability.--Section 4979A(c) (defining liability for tax) 
        is amended to read as follows:
  ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid--
          ``(1) in the case of an allocation referred to in paragraph 
        (1) or (2) of subsection (a), by--
                  ``(A) the employer sponsoring such plan, or
                  ``(B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), 
        and
          ``(2) in the case of an allocation or ownership referred to 
        in paragraph (3) or (4) of subsection (a), by the S corporation 
        the stock in which was so allocated or owned.''.
          (3) Definitions.--Section 4979A(e) (relating to definitions) 
        is amended to read as follows:
  ``(e) Definitions and Special Rules.--For purposes of this section--
          ``(1) Definitions.--Except as provided in paragraph (2), 
        terms used in this section have the same respective meanings as 
        when used in sections 409 and 4978.
          ``(2) Special rules relating to tax imposed by reason of 
        paragraph (3) or (4) of subsection (a).--
                  ``(A) Prohibited allocations.--The amount involved 
                with respect to any tax imposed by reason of subsection 
                (a)(3) is the amount allocated to the account of any 
                person in violation of section 409(p)(1).
                  ``(B) Synthetic equity.--The amount involved with 
                respect to any tax imposed by reason of subsection 
                (a)(4) is the value of the shares on which the 
                synthetic equity is based.
                  ``(C) Special rule during first nonallocation year.--
                For purposes of subparagraph (A), the amount involved 
                for the first nonallocation year of any employee stock 
                ownership plan shall be determined by taking into 
                account the total value of all the deemed-owned shares 
                of all disqualified persons with respect to such plan.
                  ``(D) Statute of limitations.--The statutory period 
                for the assessment of any tax imposed by this section 
                by reason of paragraph (3) or (4) of subsection (a) 
                shall not expire before the date which is 3 years from 
                the later of--
                          ``(i) the allocation or ownership referred to 
                        in such paragraph giving rise to such tax, or
                          ``(ii) the date on which the Secretary is 
                        notified of such allocation or ownership.''.
  (d) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2004.
          (2) Exception for certain plans.--In the case of any--
                  (A) employee stock ownership plan established after 
                March 14, 2001, or
                  (B) employee stock ownership plan established on or 
                before such date if employer securities held by the 
                plan consist of stock in a corporation with respect to 
                which an election under section 1362(a) of the Internal 
                Revenue Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan years 
        ending after March 14, 2001.

                 TITLE VI--REDUCING REGULATORY BURDENS

SEC. 601. MODIFICATION OF TIMING OF PLAN VALUATIONS.

  (a) Amendment of Internal Revenue Code.--Paragraph (9) of section 
412(c) (relating to annual valuation) is amended to read as follows:
          ``(9) Annual valuation.--
                  ``(A) In general.--For purposes of this section, a 
                determination of experience gains and losses and a 
                valuation of the plan's liability shall be made not 
                less frequently than once every year, except that such 
                determination shall be made more frequently to the 
                extent required in particular cases under regulations 
                prescribed by the Secretary.
                  ``(B) Valuation date.--
                          ``(i) Current year.--Except as provided in 
                        clause (ii), the valuation referred to in 
                        subparagraph (A) shall be made as of a date 
                        within the plan year to which the valuation 
                        refers or within one month prior to the 
                        beginning of such year.
                          ``(ii) Election to use prior year 
                        valuation.--The valuation referred to in 
                        subparagraph (A) may be made as of a date 
                        within the plan year prior to the year to which 
                        the valuation refers if--
                                  ``(I) an election is in effect under 
                                this clause with respect to the plan, 
                                and
                                  ``(II) as of such date, the value of 
                                the assets of the plan are not less 
                                than 125 percent of the plan's current 
                                liability (as defined in paragraph 
                                (7)(B)).
                          ``(iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                          ``(iv) Election.--An election under clause 
                        (ii), once made, shall be irrevocable without 
                        the consent of the Secretary.''.
  (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
amended--
          (1) by inserting ``(A)'' after ``(9)''; and
          (2) by adding at the end the following:
  ``(B)(i) Except as provided in clause (ii), the valuation referred to 
in subparagraph (A) shall be made as of a date within the plan year to 
which the valuation refers or within one month prior to the beginning 
of such year.
  ``(ii) The valuation referred to in subparagraph (A) may be made as 
of a date within the plan year prior to the year to which the valuation 
refers if--
          ``(I) an election is in effect under this clause with respect 
        to the plan; and
          ``(II) as of such date, the value of the assets of the plan 
        are not less than 125 percent of the plan's current liability 
        (as defined in paragraph (7)(B)).
  ``(iii) Information under clause (ii) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant differences 
in participants.
  ``(iv) An election under clause (ii), once made, shall be irrevocable 
without the consent of the Secretary of the Treasury.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2001.

SEC. 602. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

  (a) In General.--Section 404(k)(2)(A) (defining applicable dividends) 
is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                          ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                  ``(I) payable as provided in clause 
                                (i) or (ii), or
                                  ``(II) paid to the plan and 
                                reinvested in qualifying employer 
                                securities, or''.
  (b) Standards for Disallowance.--Section 404(k)(5)(A) (relating to 
disallowance of deduction) is amended by inserting ``avoidance or'' 
before ``evasion''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

SEC. 603. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
                    COMPENSATED EMPLOYEES.

  (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
  (b) Effective Date.--The repeal made by subsection (a) shall apply to 
plan years beginning after December 31, 2001.

SEC. 604. EMPLOYEES OF TAX-EXEMPT ENTITIES.

  (a) In General.--The Secretary of the Treasury shall modify Treasury 
Regulations section 1.410(b)-6(g) to provide that employees of an 
organization described in section 403(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 who are eligible to make contributions under 
section 403(b) of such Code pursuant to a salary reduction agreement 
may be treated as excludable with respect to a plan under section 
401(k) or (m) of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
          (1) no employee of an organization described in section 
        403(b)(1)(A)(i) of such Code is eligible to participate in such 
        section 401(k) plan or section 401(m) plan; and
          (2) 95 percent of the employees who are not employees of an 
        organization described in section 403(b)(1)(A)(i) of such Code 
        are eligible to participate in such plan under such section 
        401(k) or (m).
  (b) Effective Date.--The modification required by subsection (a) 
shall apply as of the same date set forth in section 1426(b) of the 
Small Business Job Protection Act of 1996.

SEC. 605. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

  (a) In General.--Subsection (a) of section 132 (relating to exclusion 
from gross income) is amended by striking ``or'' at the end of 
paragraph (5), by striking the period at the end of paragraph (6) and 
inserting ``, or'', and by adding at the end the following new 
paragraph:
          ``(7) qualified retirement planning services.''.
  (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
  ``(m) Qualified Retirement Planning Services.--
          ``(1) In general.--For purposes of this section, the term 
        `qualified retirement planning services' means any retirement 
        planning advice or information provided to an employee and his 
        spouse by an employer maintaining a qualified employer plan.
          ``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply 
        in the case of highly compensated employees only if such 
        services are available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.
          ``(3) Qualified employer plan.--For purposes of this 
        subsection, the term `qualified employer plan' means a plan, 
        contract, pension, or account described in section 
        219(g)(5).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 606. REPORTING SIMPLIFICATION.

  (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
          (1) In general.--The Secretary of the Treasury and the 
        Secretary of Labor shall modify the requirements for filing 
        annual returns with respect to one-participant retirement plans 
        to ensure that such plans with assets of $250,000 or less as of 
        the close of the plan year need not file a return for that 
        year.
          (2) One-participant retirement plan defined.--For purposes of 
        this subsection, the term ``one-participant retirement plan'' 
        means a retirement plan that--
                  (A) on the first day of the plan year--
                          (i) covered only the employer (and the 
                        employer's spouse) and the employer owned the 
                        entire business (whether or not incorporated); 
                        or
                          (ii) covered only one or more partners (and 
                        their spouses) in a business partnership 
                        (including partners in an S or C corporation);
                  (B) meets the minimum coverage requirements of 
                section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business;
                  (C) does not provide benefits to anyone except the 
                employer (and the employer's spouse) or the partners 
                (and their spouses);
                  (D) does not cover a business that is a member of an 
                affiliated service group, a controlled group of 
                corporations, or a group of businesses under common 
                control; and
                  (E) does not cover a business that leases employees.
          (3) Other definitions.--Terms used in paragraph (2) which are 
        also used in section 414 of the Internal Revenue Code of 1986 
        shall have the respective meanings given such terms by such 
        section.
  (b) Simplified Annual Filing Requirement for Plans With Fewer Than 25 
Employees.--In the case of plan years beginning after December 31, 
2002, the Secretary of the Treasury and the Secretary of Labor shall 
provide for the filing of a simplified annual return for any retirement 
plan which covers less than 25 employees on the first day of a plan 
year and which meets the requirements described in subparagraphs (B), 
(D), and (E) of subsection (a)(2).
  (c) Effective Date.--The provisions of this section shall take effect 
on January 1, 2002.

SEC. 607. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

  The Secretary of the Treasury shall continue to update and improve 
the Employee Plans Compliance Resolution System (or any successor 
program) giving special attention to--
          (1) increasing the awareness and knowledge of small employers 
        concerning the availability and use of the program;
          (2) taking into account special concerns and circumstances 
        that small employers face with respect to compliance and 
        correction of compliance failures;
          (3) extending the duration of the self-correction period 
        under the Self-Correction Program for significant compliance 
        failures;
          (4) expanding the availability to correct insignificant 
        compliance failures under the Self-Correction Program during 
        audit; and
          (5) assuring that any tax, penalty, or sanction that is 
        imposed by reason of a compliance failure is not excessive and 
        bears a reasonable relationship to the nature, extent, and 
        severity of the failure.

SEC. 608. REPEAL OF THE MULTIPLE USE TEST.

  (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
          ``(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection and subsection (k), including regulations 
        permitting appropriate aggregation of plans and 
        contributions.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 609. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

  (a) Nondiscrimination.--
          (1) In general.--The Secretary of the Treasury shall, by 
        regulation, provide that a plan shall be deemed to satisfy the 
        requirements of section 401(a)(4) of the Internal Revenue Code 
        of 1986 if such plan satisfies the facts and circumstances test 
        under section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                  (A) the plan satisfies conditions prescribed by the 
                Secretary to appropriately limit the availability of 
                such test; and
                  (B) the plan is submitted to the Secretary for a 
                determination of whether it satisfies such test.
        Subparagraph (B) shall only apply to the extent provided by the 
        Secretary.
          (2) Effective dates.--
                  (A) Regulations.--The regulation required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2003.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                paragraph (1)(A) shall not apply before the first year 
                beginning not less than 120 days after the date on 
                which such condition is prescribed.
  (b) Coverage Test.--
          (1) In general.--Section 410(b)(1) (relating to minimum 
        coverage requirements) is amended by adding at the end the 
        following:
                  ``(D) In the case that the plan fails to meet the 
                requirements of subparagraphs (A), (B) and (C), the 
                plan--
                          ``(i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment of the 
                        Tax Reform Act of 1986,
                          ``(ii) is submitted to the Secretary for a 
                        determination of whether it satisfies the 
                        requirement described in clause (i), and
                          ``(iii) satisfies conditions prescribed by 
                        the Secretary by regulation that appropriately 
                        limit the availability of this subparagraph.
                Clause (ii) shall apply only to the extent provided by 
                the Secretary.''.
          (2) Effective dates.--
                  (A) In general.--The amendment made by paragraph (1) 
                shall apply to years beginning after December 31, 2003.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                regulations prescribed by the Secretary under section 
                410(b)(1)(D) of the Internal Revenue Code of 1986 shall 
                not apply before the first year beginning not less than 
                120 days after the date on which such condition is 
                prescribed.
  (c) Line of Business Rules.--The Secretary of the Treasury shall, on 
or before December 31, 2003, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 610. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

  (a) In General.--
          (1) Subparagraph (G) of section 401(a)(5) of the Internal 
        Revenue Code of 1986 and subparagraph (H) of section 401(a)(26) 
        are each amended by striking ``section 414(d))'' and all that 
        follows and inserting ``section 414(d)).''.
          (2) Subparagraph (G) of section 401(k)(3) and paragraph (2) 
        of section 1505(d) of the Taxpayer Relief Act of 1997 are each 
        amended by striking ``maintained by a State or local government 
        or political subdivision thereof (or agency or instrumentality 
        thereof)''.
  (b) Conforming Amendments.--
          (1) The heading for subparagraph (G) of section 401(a)(5) is 
        amended to read as follows: ``Governmental plans.--''.
          (2) The heading for subparagraph (H) of section 401(a)(26) is 
        amended to read as follows: ``Exception for governmental 
        plans.--''.
          (3) Subparagraph (G) of section 401(k)(3) is amended by 
        inserting ``Governmental plans.--'' after ``(G)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 611. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

  (a) Expansion of Period.--
          (1) Amendment of internal revenue code.--
                  (A) In general.--Subparagraph (A) of section 
                417(a)(6) is amended by striking ``90-day'' and 
                inserting ``180-day''.
                  (B) Modification of regulations.--The Secretary of 
                the Treasury shall modify the regulations under 
                sections 402(f), 411(a)(11), and 417 of the Internal 
                Revenue Code of 1986 to substitute ``180 days'' for 
                ``90 days''each place it appears in Treasury 
Regulations sections 1.402(f)-1, 1.411(a)-11(c), and 1.417(e)-1(b).
          (2) Amendment of erisa.--Section 205(c)(7)(A) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1055(c)(7)(A)) is amended by striking ``90-day'' and inserting 
        ``180-day''.
          (3) Effective date.--The amendments made by paragraph (1)(A) 
        and (2) and the modifications required by paragraph (1)(B) 
        shall apply to years beginning after December 31, 2001.
  (b) Consent Regulation Inapplicable to Certain Distributions.--
          (1) In general.--The Secretary of the Treasury shall modify 
        the regulations under section 411(a)(11) of the Internal 
        Revenue Code of 1986 to provide that the description of a 
        participant's right, if any, to defer receipt of a distribution 
        shall also describe the consequences of failing to defer such 
        receipt.
          (2) Effective date.--The modifications required by paragraph 
        (1) shall apply to years beginning after December 31, 2001.

SEC. 612. ANNUAL REPORT DISSEMINATION.

  (a) Report Available Through Electronic Means.--Section 104(b)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1024(b)(3)) is amended by adding at the end the following new sentence: 
``The requirement to furnish information under the previous sentence 
shall be satisfied if the administrator makes such information 
reasonably available through electronic means or other new 
technology.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to reports for years beginning after December 31, 2000.

SEC. 613. TECHNICAL CORRECTIONS TO SAVER ACT.

  Section 517 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1147) is amended--
          (1) in subsection (a), by striking ``2001 and 2005 on or 
        after September 1 of each year involved'' and inserting ``2001, 
        2005, and 2009 in the month of September of each year 
        involved'';
          (2) in subsection (b), by adding at the end the following new 
        sentence: ``To effectuate the purposes of this paragraph, the 
        Secretary may enter into a cooperative agreement, pursuant to 
        the Federal Grant and Cooperative Agreement Act of 1977 (31 
        U.S.C. 6301 et seq.), with the American Savings Education 
        Council.'';
          (3) in subsection (e)(2)--
                  (A) by striking ``Committee on Labor and Human 
                Resources'' in subparagraph (D) and inserting 
                ``Committee on Health, Education, Labor, and 
                Pensions'';
                  (B) by striking subparagraph (F) and inserting the 
                following:
                  ``(F) the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human Services, and 
                Education of the Committee on Appropriations of the 
                House of Representatives and the Chairman and Ranking 
                Member of the Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;'';
                  (C) by redesignating subparagraph (G) as subparagraph 
                (J); and
                  (D) by inserting after subparagraph (F) the following 
                new subparagraphs:
                  ``(G) the Chairman and Ranking Member of the 
                Committee on Finance of the Senate;
                  ``(H) the Chairman and Ranking Member of the 
                Committee on Ways and Means of the House of 
                Representatives;
                  ``(I) the Chairman and Ranking Member of the 
                Subcommittee on Employer-Employee Relations of the 
                Committee on Education and the Workforce of the House 
                of Representatives; and'';
          (4) in subsection (e)(3)(A)--
                  (A) by striking ``There shall be no more than 200 
                additional participants.'' and inserting ``The 
                participants in the National Summit shall also include 
                additional participants appointed under this 
                subparagraph.'';
                  (B) by striking ``one-half shall be appointed by the 
                President,'' in clause (i) and inserting ``not more 
                than 100 participants shall be appointed under this 
                clause by the President,'', and by striking ``and'' at 
                the end of clause (i);
                  (C) by striking ``one-half shall be appointed by the 
                elected leaders of Congress'' in clause (ii) and 
                inserting ``not more than 100 participants shall be 
                appointed under this clause by the elected leaders of 
                Congress'', and by striking the period at the end of 
                clause (ii) and inserting ``; and'';
                  (D) by adding at the end the following new clause:
                          ``(iii) The President, in consultation with 
                        the elected leaders of Congress referred to in 
                        subsection (a), may appoint under this clause 
                        additional participants to the National Summit. 
                        The number of such additional participants 
                        appointed under this clause may not exceed the 
                        lesser of 3 percent of the total number of all 
                        additional participants appointed under this 
                        paragraph, or 10. Such additional participants 
                        shall be appointed from persons nominated by 
                        the organization referred to in subsection 
                        (b)(2) which is made up of private sector 
                        businesses and associations partnered with 
                        Government entities to promote long term 
                        financial security in retirement through 
                        savings and with which the Secretary is 
                        required thereunder to consult and cooperate 
                        and shall not be Federal, State, or local 
                        government employees.'';
          (5) in subsection (e)(3)(B), by striking ``January 31, 1998'' 
        in subparagraph (B) and inserting ``May 1, 2001, May 1, 2005, 
        and May 1, 2009, for each of the subsequent summits, 
        respectively'';
          (6) in subsection (f)(1)(C), by inserting ``, no later than 
        90 days prior to the date of the commencement of the National 
        Summit,'' after ``comment'' in paragraph (1)(C);
          (7) in subsection (g), by inserting ``, in consultation with 
        the congressional leaders specified in subsection (e)(2),'' 
        after ``report'';
          (8) in subsection (i)--
                  (A) by striking ``beginning on or after October 1, 
                1997'' in paragraph (1) and inserting ``2001, 2005, and 
                2009''; and
                  (B) by adding at the end the following new paragraph:
          ``(3) Reception and representation authority.--The Secretary 
        is hereby granted reception and representation authority 
        limited specifically to the events at the National Summit. The 
        Secretary shall use any private contributions accepted in 
        connection with the National Summit prior to using funds 
        appropriated for purposes of the National Summit pursuant to 
        this paragraph.''; and
          (9) in subsection (k)--
                  (A) by striking ``shall enter into a contract on a 
                sole-source basis'' and inserting ``may enter into a 
                contract on a sole-source basis''; and
                  (B) by striking ``fiscal year 1998'' and inserting 
                ``fiscal years 2001, 2005, and 2009''.

                   TITLE VII--OTHER ERISA PROVISIONS

SEC. 701. MISSING PARTICIPANTS.

  (a) In General.--Section 4050 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections:
  ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
  ``(d) Plans Not Otherwise Subject to Title.--
          ``(1) Transfer to corporation.--The plan administrator of a 
        plan described in paragraph (4) may elect to transfer a missing 
        participant's benefits to the corporation upon termination of 
        the plan.
          ``(2) Information to the corporation.--To the extent provided 
        in regulations, the plan administrator of a plan described in 
        paragraph (4) shall, upon termination of the plan, provide the 
        corporation information with respect to benefits of a missing 
        participant if the plan transfers such benefits--
                  ``(A) to the corporation, or
                  ``(B) to an entity other than the corporation or a 
                plan described in paragraph (4)(B)(ii).
          ``(3) Payment by the corporation.--If benefits of a missing 
        participant were transferred to the corporation under paragraph 
        (1), the corporation shall, upon location of the participant or 
        beneficiary, pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) either--
                  ``(A) in a single sum (plus interest), or
                  ``(B) in such other form as is specified in 
                regulations of the corporation.
          ``(4) Plans described.--A plan is described in this paragraph 
        if--
                  ``(A) the plan is a pension plan (within the meaning 
                of section 3(2))--
                          ``(i) to which the provisions of this section 
                        do not apply (without regard to this 
                        subsection), and
                          ``(ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 4021(b), 
                        and
                  ``(B) at the time the assets are to be distributed 
                upon termination, the plan--
                          ``(i) has missing participants, and
                          ``(ii) has not provided for the transfer of 
                        assets to pay the benefits of all missing 
                        participants to another pension plan (within 
                        the meaning of section 3(2)).
          ``(5) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (4).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to distributions made after final regulations implementing subsections 
(c) and (d) of section 4050 of the Employee Retirement Income Security 
Act of 1974 (as added by subsection (a)), respectively, are prescribed.

SEC. 702. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

  (a) In General.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
          (1) in clause (i), by inserting ``other than a new single-
        employer plan (as defined in subparagraph (F)) maintained by a 
        small employer (as so defined),'' after ``single-employer 
        plan,'',
          (2) in clause (iii), by striking the period at the end and 
        inserting ``, and'', and
          (3) by adding at the end the following new clause:
          ``(iv) in the case of a new single-employer plan (as defined 
        in subparagraph (F)) maintained by a small employer (as so 
        defined) for the plan year, $5 for each individual who is a 
        participant in such plan during the plan year.''.
  (b) Definition of New Single-Employer Plan.--Section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)) is amended by adding at the end the following new 
subparagraph:
  ``(F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years if, during the 36-
month period ending on the date of the adoption of such plan, the 
sponsor or any member of such sponsor's controlled group (or any 
predecessor of either) did not establish or maintain a plan to which 
this title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new single-employer 
plan.
  ``(ii)(I) For purposes of this paragraph, the term `small employer' 
means an employer which on the first day of any plan year has, in 
aggregation with all members of the controlled group of such employer, 
100 or fewer employees.
  ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plans established after December 31, 2001.

SEC. 703. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

  (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following new 
clause:
  ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an amount equal 
to the product of the amount determined under clause (ii) and the 
applicable percentage. For purposes of this clause, the term 
`applicable percentage' means--
          ``(I) 0 percent, for the first plan year.
          ``(II) 20 percent, for the second plan year.
          ``(III) 40 percent, for the third plan year.
          ``(IV) 60 percent, for the fourth plan year.
          ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in 
section 3(35)) maintained by a contributing sponsor shall be treated as 
a new defined benefit plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption of the 
plan, the sponsor and each member of any controlled group including the 
sponsor (or any predecessor of either) did not establish or maintain a 
plan to which this title applies with respect to which benefits were 
accrued for substantially the same employees as are in the new plan.''.
  (b) Small Plans.--Paragraph (3) of section 4006(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), as amended 
by section 702(b), is amended--
          (1) by striking ``The'' in subparagraph (E)(i) and inserting 
        ``Except as provided in subparagraph (G), the'', and
          (2) by inserting after subparagraph (F) the following new 
        subparagraph:
  ``(G)(i) In the case of an employer who has 25 or fewer employees on 
the first day of the plan year, the additional premium determined under 
subparagraph (E) for each participant shall not exceed $5 multiplied by 
the number of participants in the plan as of the close of the preceding 
plan year.
  ``(ii) For purposes of clause (i), whether an employer has 25 or 
fewer employees on the first day of the plan year is determined taking 
into consideration all of the employees of all members of the 
contributing sponsor's controlled group. In the case of a plan 
maintained by two or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether the 25-or-fewer-employees 
limitation has been satisfied.''.
  (c) Effective Dates.--
          (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to plans established after December 31, 2001.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2001.

SEC. 704. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
                    REFUNDS.

  (a) In General.--Section 4007(b) of the Employment Retirement Income 
Security Act of 1974 (29 U.S.C. 1307(b)) is amended--
          (1) by striking ``(b)'' and inserting ``(b)(1)'', and
          (2) by inserting at the end the following new paragraph:
  ``(2) The corporation is authorized to pay, subject to regulations 
prescribed by the corporation, interest on the amount of any 
overpayment of premium refunded to a designated payor. Interest under 
this paragraph shall be calculated at the same rate and in the same 
manner as interest is calculated for underpayments under paragraph 
(1).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to interest accruing for periods beginning not earlier than the date of 
the enactment of this Act.

SEC. 705. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

  (a) Modification of Phase-In of Guarantee.--Section 4022(b)(5) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1322(b)(5)) 
is amended to read as follows:
  ``(5)(A) For purposes of this paragraph, the term `majority owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
          ``(i) owns the entire interest in an unincorporated trade or 
        business,
          ``(ii) in the case of a partnership, is a partner who owns, 
        directly or indirectly, 50 percent or more of either the 
        capital interest or the profits interest in such partnership, 
        or
          ``(iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of clause (iii), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).
  ``(B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal the 
product of--
          ``(i) a fraction (not to exceed 1) the numerator of which is 
        the number of years from the later of the effective date or the 
        adoption date of the plan to the termination date, and the 
        denominator of which is 10, and
          ``(ii) the amount of benefits that would be guaranteed under 
        this section if the participant were not a majority owner.''.
  (b) Modification of Allocation of Assets.--
          (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
        striking ``section 4022(b)(5)'' and inserting ``section 
        4022(b)(5)(B)''.
          (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
        amended--
                  (A) by striking ``(5)'' in paragraph (2) and 
                inserting ``(4), (5),'', and
                  (B) by redesignating paragraphs (3) through (6) as 
                paragraphs (4) through (7), respectively, and by 
                inserting after paragraph (2) the following new 
                paragraph:
          ``(3) If assets available for allocation under paragraph (4) 
        of subsection (a) are insufficient to satisfy in full the 
        benefits of all individuals who are described in that 
        paragraph, the assets shall be allocated first to benefits 
        described in subparagraph (A) of that paragraph. Any remaining 
        assets shall then be allocated to benefits described in 
        subparagraph (B) of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full the 
        benefits described in that subparagraph, the assets shall be 
        allocated pro rata among individuals on the basis of the 
        present value (as of the termination date) of their respective 
        benefits described in that subparagraph.''.
  (c) Conforming Amendments.--
          (1) Section 4021 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1321) is amended--
                  (A) in subsection (b)(9), by striking ``as defined in 
                section 4022(b)(6)'', and
                  (B) by adding at the end the following new 
                subsection:
  ``(d) For purposes of subsection (b)(9), the term `substantial owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
          ``(1) owns the entire interest in an unincorporated trade or 
        business,
          ``(2) in the case of a partnership, is a partner who owns, 
        directly or indirectly, more than 10 percent of either the 
        capital interest or the profits interest in such partnership, 
        or
          ``(3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of paragraph (3), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).''.
  (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) is amended 
by striking ``section 4022(b)(6)'' and inserting ``section 4021(d)''.
  (d) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan 
        terminations--
                  (A) under section 4041(c) of the Employee Retirement 
                Income Security Act of 1974 (29 U.S.C. 1341(c)) with 
                respect to which notices of intent to terminate are 
                provided under section 4041(a)(2) of such Act (29 
                U.S.C. 1341(a)(2)) after December 31, 2001, and
                  (B) under section 4042 of such Act (29 U.S.C. 1342) 
                with respect to which proceedings are instituted by the 
                corporation after such date.
          (2) Conforming amendments.--The amendments made by subsection 
        (c) shall take effect on January 1, 2002.

SEC. 706. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY.

  (a) Imposition and Amount of Penalty Made Discretionary.--Section 
502(l)(1) of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1132(l)(1)) is amended--
          (1) by striking ``shall'' and inserting ``may'', and
          (2) by striking ``equal to'' and inserting ``not greater 
        than''.
  (b) Applicable Recovery Amount.--Section 502(l)(2) of such Act (29 
U.S.C. 1132(l)(2)) is amended to read as follows:
  ``(2) For purposes of paragraph (1), the term `applicable recovery 
amount' means any amount which is recovered from any fiduciary or other 
person (or from any other person on behalf of any such fiduciary or 
other person) with respect to a breach or violation described in 
paragraph (1) on or after the 30th day following receipt by such 
fiduciary or other person of written notice from the Secretary of the 
violation, whether paid voluntarily or by order of a court in a 
judicial proceeding instituted by the Secretary under subsection (a)(2) 
or (a)(5). The Secretary may, in the Secretary's sole discretion, 
extend the 30-day period described in the preceding sentence.''.
  (c) Other Rules.--Section 502(l) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1132(l)) is amended by adding at the 
end the following new paragraph:
  ``(5) A person shall be jointly and severally liable for the penalty 
described in paragraph (1) to the same extent that such person is 
jointly and severally liable for the applicable recovery amount on 
which the penalty is based.
  ``(6) No penalty shall be assessed under this subsection unless the 
person against whom the penalty is assessed is given notice and 
opportunity for a hearing with respect to the violation and applicable 
recovery amount.''.
  (d) Effective Dates.--
          (1) In general.--The amendments made by this section shall 
        apply to any breach of fiduciary responsibility or other 
        violation of part 4 of subtitle B of title I of the Employee 
        Retirement Income Security Act of 1974 occurring on or after 
        the date of enactment of this Act.
          (2) Transition rule.--In applying the amendment made by 
        subsection (b) (relating to applicable recovery amount), a 
        breach or other violation occurring before the date of 
        enactment of this Act which continues after the 180th day after 
        such date (and which may have been discontinued at any time 
        during its existence) shall be treated as having occurred after 
        such date of enactment.

SEC. 707. BENEFIT SUSPENSION NOTICE.

  (a) Modification of Regulation.--The Secretary of Labor shall modify 
the regulation under section 203(a)(3)(B) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)(3)(B)) to provide that 
the notification required by such regulation--
          (1) in the case of an employee who returns to work for a 
        former employer after commencement of payment of benefits under 
        the plan shall--
                  (A) be made during the first calendar month or 
                payroll period in which the plan withholds payments, 
                and
                  (B) if a reduced rate of future benefit accruals will 
                apply to the returning employee (as of the first date 
                of participation in the plan by the employee after 
                returning to work), include a statement that the rate 
                of future benefit accruals will be reduced, and
          (2) in the case of any employee who is not described in 
        paragraph (1)--
                  (A) may be included in the summary plan description 
                for the plan furnished in accordance with section 
                104(b) of such Act (29 U.S.C. 1024(b)), rather than in 
                a separate notice, and
                  (B) need not include a copy of the relevant plan 
                provisions.
  (b) Effective Date.--The modification made under this section shall 
apply to plan years beginning after December 31, 2001.

                      TITLE VIII--PLAN AMENDMENTS

SEC. 801. PROVISIONS RELATING TO PLAN AMENDMENTS.

  (a) In General.--If this section applies to any plan or contract 
amendment--
          (1) such plan or contract shall be treated as being operated 
        in accordance with the terms of the plan during the period 
        described in subsection (b)(2)(A); and
          (2) 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 or section 
        204(g) of the Employee Retirement Income Security Act of 1974 
        by reason of such amendment.
  (b) Amendments to Which Section Applies.--
          (1) In general.--This section shall apply to any amendment to 
        any plan or annuity contract which is made--
                  (A) pursuant to any amendment made by this Act, or 
                pursuant to any regulation issued under this Act; and
                  (B) on or before the last day of the first plan year 
                beginning on or after January 1, 2004.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2006'' for ``2004''.
          (2) Conditions.--This section shall not apply to any 
        amendment unless--
                  (A) during the period--
                          (i) beginning on the date the legislative or 
                        regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan); and
                          (ii) ending on the date described in 
                        paragraph (1)(B) (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
                  (B) such plan or contract amendment applies 
                retroactively for such period.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                Purpose

    The revenue provisions of the bill, H.R. 10, as amended, 
included in the Committee bill (the ``Comprehensive Retirement 
Security and Pension Reform Act of 2001'') (the ``bill''), 
provide for (1) modifying Individual Retirement Arrangement 
contribution limits (Title I); (2) expanding coverage (Title 
II); (3) enhancing fairness for women (Title III); (4) 
increasing portability for participants (Title IV); (5) 
strengthening pension security and enforcement (Title V); (6) 
reducing regulatory burdens (Title VI); (7) ERISA provisions 
(Title VII); and (8) special rules for plan amendments relating 
to the bill (Title VIII).
    The bill provides net tax reductions of over $16 billion 
over fiscal years 2002-2006. This will provide needed 
retirement security and pension reform.

                                Summary

I. Individual Retirement Arrangements (``IRAs'')

    Increase in IRA contribution limit.--The bill increases the 
annual dollar IRA contribution limit from $2,000 to $3,000 in 
2002, $4,000 in 2003, and $5,000 in 2004, with indexing in $500 
increments thereafter.
    Catch-up contributions.--The bill accelerates the increase 
of the IRA maximum contribution limit for individuals age 50 
and older. The limit for such individuals is $5,000 beginning 
in 2002, with indexing in $500 increments after 2004.

II. Expanding Coverage

    Increase in benefit and contribution limits.--The bill 
increases the dollar limit on deferrals under section 401(k) 
plans, section 403(b) annuities, and salary reduction SEPs to 
$11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in 
2005, and $15,000 in 2006. After 2006, the limit is indexed in 
$500 increments. The bill increases the maximum annual elective 
deferrals that may be made to a SIMPLE plan to $7,000 in 2002, 
$8,000 in 2003, $9,000 in 2004, and $10,000 in 2005. After 
2005, the limit is indexed in $500 increments. The bill 
increases the dollar limit on deferrals under a section 457 
plan to $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, 
$14,000 in 2005, and $15,000 in 2006. After 2006, the limit is 
indexed in $500 increments. The limit is twice the otherwise 
applicable dollar limit in the three years prior to retirement. 
Effective in 2002, the bill: increases the $140,000 annual 
benefit limit for defined benefit plans to $160,000 (indexed in 
$5,000 increments) and lowers the early retirement age to 62 
and the normal retirement age to 65 for purposes of applying 
the limit; increases the $35,000 annual contribution limit for 
defined contribution plans to $40,000 (indexed in $1,000 
increments); and increases the limit on compensation that may 
be taken into account under a plan to $200,000 (indexed in 
$5,000 increments).
    Plan loans for S corporation shareholders, partners, and 
sole proprietors.--The bill generally eliminates the special 
present-law rules relating to plan loans made to an owner-
employee. Thus, the general statutory exemption applies to such 
transactions. Present law applies with respect to IRAs. The 
provision is effective with respect to loans made in years 
beginning after December 31, 2001.
    Modification of top-heavy rules.--The bill provides that a 
safe-harbor section 401(k) plan is not a top-heavy plan and 
that matching contributions may be taken into account in 
satisfying the minimum contribution requirements for top-heavy 
plans. In addition, the bill simplifies the definition of key 
employee and the determination of top-heavy status and repeals 
the family attribution rule used to determine whether an 
individual is a key employee by reason of being a five-percent 
owner of the employer. The provision is effective for years 
beginning after December 31, 2001.
    Elective deferrals not taken into account for purposes of 
deduction limits.--The bill provides that elective deferral 
contributions are not subject to the qualified plan deduction 
limits, and the application of a deduction limitation to any 
other employer contribution to a qualified retirement plan does 
not take into account elective deferral contributions. The 
provision is effective for years beginning after December 31, 
2001.
    Repeal of coordination requirements for deferred 
compensation plans of State and local governments and tax-
exempt organizations.--For years beginning after December 31, 
2001, the bill repeals the rules coordinating the section 457 
dollar limit with contributions under other types of plans.
    Eliminate IRS user fees for certain determination letter 
requests regarding employer plans.--Under the bill, an employer 
with no more than 100 employees is not required to pay a user 
fee for any determination letter request made during the first 
five plan years or before the end of any remedial amendment 
period beginning within the first five plan years with respect 
to the qualified status of a retirement plan that the employer 
maintains. The provision is effective for determination letter 
requests made after December 31, 2001.
    Deduction limits.--The bill provides that, for purposes of 
the qualified plan deduction limits, compensation includes 
elective deferrals and certain other salary reduction amounts. 
In addition, the bill increases the limit on deductible 
contributions under a profit-sharing or stock bonus plan from 
15 percent to 20 percent of compensation. The provision is 
effective for years beginning after December 31, 2001.
    Option to treat elective deferrals as after-tax 
contributions.--The bill provides that a section 401(k) plan or 
a section 403(b) annuity may permit a participant to elect to 
have all or a portion of the participant's elective deferrals 
under the plan treated as designated plus contributions. A 
qualified distribution from a participant's designated plus 
contributions account is not includible in the participant's 
gross income. Designated plus contributions are generally 
otherwise treated the same as elective deferrals for purposes 
of the qualified plan rules. The provision is effective for 
taxable years beginning after December 31, 2001.
    Treatment of self-employment income of members of certain 
religious faiths.--The bill amends the definition of 
compensation for purposes of qualified plans and SIMPLE IRAs to 
include an individual's net earnings that would be subject to 
SECA taxes but for the fact that the individual is covered by a 
religious exemption. The provision is effective for taxable 
years beginning after December 31, 2001.
    Certain nonresident aliens excluded in applying minimum 
coverage requirements.--The bill modifies the minimum coverage 
rules so that compensation is not treated as U.S. source income 
if the compensation is paid for labor or services performed by 
a nonresident alien in connection with the individual's 
temporary presence in the United States as a regular member of 
the crew of a foreign vessel engaged in transportation between 
the United States and a foreign country or a possession of the 
United States. As a result, such nonresident aliens are 
excluded from consideration in the application of the minimum 
coverage requirements. The provision is effective with respect 
to plan years beginning after December 31, 2001.

III. Enhancing Fairness for Women

    Additional salary reduction catch-up contributions.--The 
bill permits individuals who are age 50 or older to make 
additional contributions to a section 401(k) (or similar plan). 
The maximum permitted additional contribution is $5,000 
(indexed in 2007 and thereafter) or the participant's 
compensation reduced by other elective deferrals for the year. 
Catch-up contributions to a section 401(k) (or similar) plan 
are not subject to any other contribution limits and are not 
taken into account in applying other contribution limits. 
Catch-up contributions are subject to nondiscrimination rules. 
The provision applies to contributions in taxable years 
beginning after December 31, 2001.
    Equitable treatment for contributions of employees to 
defined contribution plans.--The bill (1) increases the 25 
percent of compensation limitation on annual additions under a 
defined contribution plan to 100 percent, (2) conforms the 
limits on contributions to a tax-sheltered annuity to the 
limits applicable to tax-qualified plans, and (3) increases the 
33\1/3\ percent of compensation limitation on deferrals under a 
section 457 plan to 100 percent of compensation. The provision 
is effective for years beginning after December 31, 2001.
    Faster vesting of employer matching contributions.--Under 
the bill, employer matching contributions have to vest at least 
as rapidly as under three-year cliff vesting or under six-year 
graded vesting that provides for a nonforfeitable right to 20 
percent of employer matching contributions for each year of 
service beginning with the participant's second year of service 
and ending with 100 percent after 6 years of service. The 
provision is effective for contributions for plan years 
beginning after December 31, 2001, with a delayed effective 
date for plans maintained pursuant to a collective bargaining 
agreement.
    Modifications to minimum distribution rules.--The bill 
applies the present-law rules applicable if the participant 
dies before distribution of minimum benefits has begun to all 
post-death distributions. The bill reduces the excise tax on 
failures to satisfy the minimum distribution rules to 10 
percent of the amount that was required to be distributed but 
was not distributed. The Treasury is directed to revise the 
life expectancy tables under the regulations relating to the 
minimum distribution rules to reflect current life expectancy. 
The provision is effective for years beginning after December 
31, 2001.
    Clarification of tax treatment of division of section 457 
plan benefits upon divorce.--The bill applies the taxation 
rules for qualified plan distributions pursuant to a QDRO to 
distributions made pursuant to a domestic relations order from 
a section 457 plan. In addition, a section 457 plan is not 
treated as violating the restrictions on distributions from 
such plans due to payments to an alternate payee under a QDRO. 
The provision is effective for transfers, distributions, and 
payments made after December 31, 2001.
    Hardship withdrawals.--The bill directs the Secretary of 
the Treasury to revise the applicable regulations (to be 
effective for years beginning after December 31, 2001) to 
reduce from 12 months to six months the period during which an 
employee must be prohibited from making elective contributions 
and employee contributions in order for a distribution to be 
deemed necessary to satisfy an immediate and heavy financial 
need. The bill also provides that a hardship distribution from 
a qualified plan or a section 403(b) plan is not an eligible 
rollover distribution. The provision directing the Secretary to 
revise the regulations is effective on the date of enactment; 
the provision that hardship distributions are not eligible for 
rollover is effective for years beginning after December 31, 
2001.
    Pension coverage for domestic and similar workers.--The 10-
percent excise tax on nondeductible contributions does not 
apply to contributions to a SIMPLE 401(k) plan or SIMPLE IRA 
that are nondeductible solely because they are not made in 
connection with a trade or business of the employer (e.g., 
contributions made for domestic workers). No inference is 
intended with respect to present law in the case of 
contributions that are not made in connection with the 
employer's trade or business. The provision is effective for 
years beginning after December 31, 2001.

IV. Increasing Portability for Participants

    Rollovers of retirement plan and IRA distributions.--The 
bill provides that eligible rollover distributions from 
qualified retirement plans, section 403(b) annuities, IRAs and 
governmental section 457 plans generally can be rolled over to 
any of such plans or arrangements. The direct rollover and 
withholding rules are extended to distributions from a 
governmental section 457 plan. The bill provides that employee 
after-tax contributions can be rolled over into another 
qualified plan or a traditional IRA. In the case of a rollover 
from a qualified plan to another qualified plan, the rollover 
can be accomplished only through a direct rollover. The bill 
provides that surviving spouses can roll over distributions to 
a qualified plan, section 403(b) annuity, or governmental 
section 457 plan in which the spouse participates. The 
provision is effective for distributions made after December 
31, 2001.
    Waiver of 60-day rule.--The bill provides that the 
Secretary may waive the 60-day rollover period if the failure 
to waive such requirement would be against equity or good 
conscience, including cases of casualty, disaster, or other 
events beyond the reasonable control of the individual subject 
to such requirement. The provision applies to distributions 
made after December 31, 2001.
    Treatment of forms of distribution.--Under the bill, if 
certain requirements are satisfied, a defined contribution plan 
may eliminate optional forms of benefit (1) in connection with 
certain transfers of benefits, or (2) if a single sum 
distribution is offered. In addition, the Secretary is to 
provide for circumstances under which early retirement 
benefits, retirement-type subsidies, or an optional form of 
benefit may be reduced or eliminated if the rights of 
participants are not adversely affected in more than a de 
minimis manner. The provision is effective for years beginning 
after December 31, 2001, except that the direction to issue 
regulations is effective on date of enactment.
    Rationalization of restrictions on distributions.--The bill 
modifies the distribution restrictions applicable to section 
401(k) plans, section 403(b) annuities, and section 457 plans 
to provide that distributions may occur upon severance from 
employment rather than separation from service. The provision 
is effective for distributions after December 31, 2001.
    Purchase of service credit under governmental pension 
plans.--Under the bill, a participant in a State or local 
governmental plan is not required to include in gross income a 
direct trustee-to-trustee transfer to a governmental defined 
benefit plan from a section 403(b) annuity or a section 457 
plan if the transferred amount is used (1) to purchase 
permissive service credits under the plan, or (2) to repay 
certain contributions. The provision is effective for transfers 
after December 31, 2001.
    Employers may disregard rollovers for purposes of cash-out 
rules.--Under the bill, a plan is permitted to disregard 
benefits attributable to rollover contributions for purposes of 
the cash-out rules. The provision is effective for 
distributions after December 31, 2001.
    Minimum distribution and inclusion requirements for section 
457 plans.--Under the bill amounts deferred under a 
governmental section 457 plan are includible in income when 
paid, and section 457 plans are subject to the same minimum 
distributions rules as qualified plans. The provision is 
effective for distributions after December 31, 2001.

V. Strengthening Pension Security And Enforcement

    Phase in repeal of 160 percent of current liability full 
funding limit; deduction for contributions to fund termination 
liability.--Under the bill, the current liability full funding 
limit is 165 percent of current liability for plan years 
beginning in 2002 and 170 percent for plan years beginning in 
2003. The current liability full funding limit is repealed for 
plan years beginning in 2004 and thereafter. The special rule 
allowing a deduction for unfunded current liability generally 
is extended to all defined benefit pension plans covered by the 
PBGC, effective for years beginning after December 31, 2001. 
The General Accounting Office is directed to conduct a study of 
whether certain present-law rules create hardships or 
disincentives to fund defined benefit pension plans in the case 
of economically distressed taxpayers. The study is to consider 
whether funding of underfunded defined benefit plans would be 
enhanced if contributions to such plans were eligible for 10-
year specified liability carryback treatment.
    Excise tax relief for sound pension funding.--If an 
employer elects, contributions in excess of the current 
liability full funding limit are not subject to the excise tax 
on nondeductible contributions. The provision is effective for 
years beginning after December 31, 2001.
    Notice of significant reduction in plan benefit accruals.--
The bill requires the plan administrator of a pension plan 
(other than governmental plans and certain church plans) to 
notify plan participants in advance of an amendment that 
significantly reduces the rate of future benefit accruals. The 
notice must include sufficient information to allow 
participants to understand the effect of the amendment. The 
bill authorizes regulations to provide for the use of new 
technologies in providing the required notice and to provide a 
simplified notice or exemption for plans with less than 100 
participants or if participants are given a choice of benefits 
under the old or the new plan formula. An excise tax applies if 
the required notice is not provided. The bill also directs the 
Secretary of the Treasury to report on the effects of 
conversions of traditional defined benefit plans to cash 
balance or hybrid formula plans. The provision is generally 
effective for plan amendments taking effect on or after the 
date of enactment.
    Modifications to section 415 limits for multiemployer 
plans.--The bill provides that the 100 percent of compensation 
limitation does not apply to defined benefit multiemployer 
plans. In addition, the bill modifies the aggregation rules 
applicable to multiemployer plans. The provision is effective 
for years beginning after December 31, 2001.
    Prohibited allocations of stock in an S corporation ESOP.--
Under the bill, if certain shareholders own at least 50 percent 
of an S corporation, they are prohibited from receiving 
allocations under the S corporation's ESOP. If a prohibited 
allocation is made, it is treated as a distribution (i.e., 
included in income) and certain excise taxes are imposed on the 
S corporation. The provision is generally effective for years 
beginning after December 31, 2004, with a special rule for 
ESOPs established after March 14, 2001, or maintained by an 
employer that becomes an S corporation after March 14, 2001.

VI. Reducing Regulatory Burdens

    Modification of timing of plan valuations.--The bill 
permits a defined benefit plan with assets of at least 125 
percent of current liability to use a valuation date within the 
prior plan year. The provision is effective for plan years 
beginning after December 31, 2001.
    ESOP dividends may be reinvested without loss of dividend 
deduction.--Under the bill, an employer is entitled to deduct 
dividends that, at the election of plan participants or 
beneficiaries, are paid to the plan and reinvested in employer 
securities. The provision is effective for taxable years 
beginning after December 31, 2001.
    Repeal transition rule relating to certain highly 
compensated employees.--The bill repeals the special definition 
of highly compensated employee under the Tax Reform Act of 
1986. The provision is effective for plan years beginning after 
December 31, 2001.
    Employees of tax-exempt entities.--The bill directs the 
Treasury Department to revise its regulations under section 
410(b) to provide that, if certain requirements are satisfied, 
employees of a tax-exempt charitable organization who are 
eligible to make salary reduction contributions under a section 
403(b) annuity may be treated as excludable employees for 
purposes of testing a section 401(k) plan. The provision is 
effective on the date of enactment.
    Treatment of employer-provided retirement advice.--Under 
the bill, qualified retirement planning advice or information 
provided to an employee and his or her spouse by an employer 
maintaining a qualified plan are generally excludable from 
income and wages. The provision is effective with respect to 
taxable years beginning after December 31, 2001.
    Reporting simplification.--The bill directs the Secretary 
of the Treasury to provide an exemption from the annual return 
requirement for a plan that covers only the sole owner of a 
business that maintains the plan (and such owner's spouse), or 
partners in a partnership that maintains the plan (and such 
partners' spouses), if the total value of the plan assets as of 
the end of the plan year and all prior plan years does not 
exceed $250,000 and the plan meets certain other requirements. 
In addition, the Secretary of the Treasury and the Secretary of 
Labor are directed to provide simplified reporting requirements 
for plans with fewer than 25 employees. The provision is 
effective on January 1, 2002.
    Improvement to Employee Plans Compliance Resolution 
System.--The bill directs the Secretary of the Treasury to 
continue to update and improve EPCRS, giving special attention 
to (1) increasing the awareness and knowledge of small 
employers concerning the availability and use of EPCRS, (2) 
taking into account special concerns and circumstances that 
small employers face with respect to compliance and correction 
of compliance failures, (3) extending the duration of the self-
correction period under SCP for significant compliance 
failures, (4) expanding the availability to correct 
insignificant compliance failures under SCP during audit, and 
(5) assuring that any tax, penalty, or sanction that is imposed 
by reason of a compliance failure is not excessive and bears a 
reasonable relationship to the nature, extent, and severity of 
the failure. The provision is effective on the date of 
enactment.
    Repeal of the multiple use test.--The bill repeals the 
multiple use test, effective for years beginning after December 
31, 2001.
    Flexibility in nondiscrimination, coverage, and line of 
business rules.--The bill directs the Secretary of the Treasury 
to modify the regulations dealing with line of business, 
nondiscrimination, and minimum coverage, so that plans may use 
facts and circumstances and prior-law tests to satisfy these 
rules. The provision is generally effective on the date of 
enactment, except the changes relating to minimum coverage are 
generally effective for years beginning after December 31, 
2003.
    Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to 
State and local government plans.--Under the bill, a plan 
maintained by any governmental entity is exempt from the 
nondiscrimination and minimum participation rules. The 
provision is effective for plan years beginning after December 
31, 2001.
    Notice and consent period regarding distributions.--Under 
the bill, a qualified retirement plan is required to provide 
the applicable distribution notice no less than 30 days and no 
more than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and to provide that the description of a participant's 
right, if any, to defer receipt of a distribution shall also 
describe the consequences of failing to defer such receipt. The 
provision is effective for years beginning after December 31, 
2001.

VII. ERISA provisions

    Extension of PBGC missing participants program.--The bill 
directs the PBGC to issue missing participant rules for 
multiemployer plans. In addition, in the case of certain plans 
not subject to the PBGC termination insurance program, missing 
participants' benefits may be transferred to the PBGC upon plan 
termination. The provision is effective for distributions from 
terminating plans that occur after the PBGC has adopted final 
regulations implementing the provision.
    Reduce PBGC premiums for small and new plans.--Under the 
bill the flat-rate PBGC premium is $5 per plan participant for 
the first five years of a new single-employer plan of an 
employer with 100 or fewer employees. The bill also provides 
that, for a new defined benefit plan, the variable-rate premium 
is phased in over a six-year period and, for a plan maintained 
by an employer with 25 or fewer employees, the variable-rate 
premium is no more than $5 multiplied by the number of plan 
participants at the end of the preceding year. The changes in 
premiums for new plans are effective with respect to plans 
established after December 31, 2001. The reduction of the 
variable-rate premium is effective with respect to plan years 
beginning after December 31, 2001.
    Authorization for PBGC to pay interest on premium 
overpayment refunds.--The bill allows the PBGC to pay interest 
on overpayments made by premium payors. The provision is 
effective with respect to interest accruing for periods 
beginning not earlier than the date of enactment.
    Rules for substantial owner benefits in terminated plans.--
The bill reduces the phase-in periods for guaranteed benefits 
for a 10-percent or more owner (``substantial owner'') in the 
case of plan termination. The bill also applies the allocation 
of asset rules to a substantial owner with less than 50 percent 
ownership in the same manner as other participants. The 
provision is effective for plan terminations with respect to 
which notices of intent to terminate are provided, or for which 
termination proceedings are instituted by the PBGC, after 
December 31, 2001.

VIII. Provisions relating to plan amendments

    Any amendments to a plan or annuity contract required to be 
made by the bill are not required to be made before the last 
day of the first plan year beginning on or after January 1, 
2004 (January 1, 2006 in the case of a governmental plan). 
Amendments may be retroactively effective if certain 
requirements are met, including that the plan was operated in 
accordance with the requirements of the bill. The bill also 
authorizes the Secretary of Treasury to provide appropriate 
exceptions to the relief from the prohibition on reductions in 
accrued benefits. The provision is effective on the date of 
enactment.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for tax relief for retirement security and pension reforms.

                         C. Legislative History


                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on April 25, 2001, and reported the provisions, as 
amended, on April 25, 2001, by a roll call vote of 35 yeas and 
6 nays, with a quorum present.

                           Committee Hearing

    A full Committee hearing on the provisions of the 
President's individual income tax proposals was held on March 
21, 2001.

                      II. EXPLANATION OF THE BILL


         TITLE I. INDIVIDUAL RETIREMENT ARRANGEMENTS (``IRAS'')


    (Sec. 101 of the bill and secs. 219, 408, and 408A of the Code)


                              Present Law

In general

    There are two general types of individual retirement 
arrangements (``IRAs'') under present law: traditional IRAs, to 
which both deductible and nondeductible contributions may be 
made, and Roth IRAs. The Federal income tax rules regarding 
each type of IRA (and IRA contribution) differ.

Traditional IRAs

    Under present law, an individual may make deductible 
contributions to an IRA up to the lesser of $2,000 or the 
individual's compensation if neither the individual nor the 
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple, 
deductible IRA contributions of up to $2,000 can be made for 
each spouse (including, for example, a homemaker who does not 
work outside the home), if the combined compensation of both 
spouses is at least equal to the contributed amount. If the 
individual (or the individual's spouse) is an active 
participant in an employer-sponsored retirement plan, the 
$2,000 deduction limit is phased out for taxpayers with 
adjusted gross income (``AGI'') over certain levels for the 
taxable year.
    The AGI phase-out limits for taxpayers who are active 
participants in employer-sponsored plans are as follows.

Single Taxpayers

        Taxable years beginning in                       Phase-out range
2001....................................................  $33,000-43,000
2002....................................................   34,000-44,000
2003....................................................   40,000-50,000
2004....................................................   45,000-55,000
2005 and thereafter.....................................   50,000-60,000

Joint Returns

2000....................................................   53,000-63,000
2002....................................................   54,000-64,000
2003....................................................   60,000-70,000
2004....................................................   65,000-75,000
2005....................................................   70,000-80,000
2006....................................................   75,000-85,000
2007 and thereafter.....................................  80,000-100,000

    The AGI phase-out range for married taxpayers filing a 
separate return is $0 to $10,000.
    If the individual is not an active participant in an 
employer-sponsored retirement plan, but the individual's spouse 
is, the $2,000 deduction limit is phased out for taxpayers with 
AGI between $150,000 and $160,000.
    To the extent an individual cannot or does not make 
deductible contributions to an IRA or contributions to a Roth 
IRA, the individual may make nondeductible contributions to a 
traditional IRA.
    Amounts held in a traditional IRA are includible in income 
when withdrawn (except to the extent the withdrawal is a return 
of nondeductible contributions). Includible amounts withdrawn 
prior to attainment of age 59\1/2\ are subject to an additional 
10-percent early withdrawal tax, unless the withdrawal is due 
to death or disability, is made in the form of certain periodic 
payments, is used to pay medical expenses in excess of 7.5 
percent of AGI, is used to purchase health insurance of an 
unemployed individual, is used for education expenses, or is 
used for first-time homebuyer expenses of up to $10,000.

Roth IRAs

    Individuals with AGI below certain levels may make 
nondeductible contributions to a Roth IRA. The maximum annual 
contribution that may be made to a Roth IRA is the lesser of 
$2,000 or the individual's compensation for the year. The 
contribution limit is reduced to the extent an individual makes 
contributions to any other IRA for the same taxable year. As 
under the rules relating to IRAs generally, a contribution of 
up to $2,000 for each spouse may be made to a Roth IRA provided 
the combined compensation of the spouses is at least equal to 
the contributed amount. The maximum annual contribution that 
can be made to a Roth IRA is phased out for single individuals 
with AGI between $95,000 and $110,000 and for joint filers with 
AGI between $150,000 and $160,000.
    Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into a Roth IRA. The amount 
converted is includible in income as if a withdrawal had been 
made, except that the 10-percent early withdrawal tax does not 
apply and, if the conversion occurred in 1998, the income 
inclusion may be spread ratably over 4 years. Married taxpayers 
who file separate returns cannot convert a traditional IRA into 
a Roth IRA.
    Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, or subject 
to the additional 10-percent tax on early withdrawals. A 
qualified distribution is a distribution that (1) is made after 
the 5-taxable year period beginning with the first taxable year 
for which the individual made a contribution to a Roth IRA, and 
(2) which is made after attainment of age 59\1/2\, on account 
of death or disability, or is made for first-time homebuyer 
expenses of up to $10,000.
    Distributions from a Roth IRA that are not qualified 
distributions are includible in income to the extent 
attributable to earnings, and subject to the 10-percent early 
withdrawal tax(unless an exception applies).\1\ The same 
exceptions to the early withdrawal tax that apply to IRAs apply to Roth 
IRAs.
---------------------------------------------------------------------------
    \1\ Early distribution of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee is concerned about the low national savings 
rate, and that individuals may not be saving adequately for 
retirement. The present-law IRA contribution limits have not 
been increased since 1981. The Committee believes that the 
limits should be raised in order to allow greater savings 
opportunities.
    The Committee understands that, for a variety of reasons, 
older individuals may not have been saving sufficiently for 
retirement. For example, some individuals, especially women, 
may have left the workforce temporarily in order to care for 
children. Such individuals may have missed retirement savings 
options that would have been available had they remained in the 
workforce. Thus, the Committee believes it appropriate to 
accelerate the increase in the IRA contribution limits for such 
individuals.

                        Explanation of Provision

Increase in annual contribution limits

    The provision increases the maximum annual dollar 
contribution limit for IRA contributions from $2,000 to $3,000 
in 2002, $4,000 in 2003, and $5,000 in 2004. The limit is 
indexed in $500 increments in 2005 and thereafter.

Additional catch-up contributions

    The provision accelerates the increase of the IRA maximum 
contribution limit for individuals who have attained age 50 
before the end of the taxable year. The maximum dollar 
contribution limit (before application of the AGI phase-out 
limits) for such an individual is increased to $5,000 in 2002 
and 2003. In 2004 and thereafter, the general limit applies to 
all individuals.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

                      TITLE II. EXPANDING COVERAGE


             A. Increase in Benefit and Contribution Limits


(Sec. 201 of the bill and secs. 401(a)(17), 402(g), 408(p), 415 and 457 
                              of the Code)


                              Present Law

In general

    Present law imposes limits on contributions and benefits 
under qualified plans (sec. 415), the amount of compensation 
that may be taken into account under a plan for determining 
benefits (sec. 401(a)(17)), the amount of elective deferrals 
that an individual may make to a salary reduction plan or tax 
sheltered annuity (sec. 402(g)), and deferrals under an 
eligible deferred compensation plan of a tax-exempt 
organization or a State or local government (sec. 457).

Limitations on contributions and benefits

    Under present law, the limits on contributions and benefits 
under qualified plans are based on the type of plan. Under a 
defined contribution plan, the qualification rules limit the 
annual additions to the plan with respect to each plan 
participant to the lesser of (1) 25 percent of compensation or 
(2) $35,000 (for 2001). Annual additions are the sum of 
employer contributions, employee contributions, and forfeitures 
with respect to an individual under all defined contribution 
plans of the same employer. The $35,000 limit is indexed for 
cost-of-living adjustments in $5,000 increments.
    Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation, or (2) $140,000 (for 2001). 
The dollar limit is adjusted for cost-of-living increases in 
$5,000 increments.
    Under present law, in general, the dollar limit on annual 
benefits is reduced if benefits under the plan begin before the 
social security retirement age (currently, age 65) and 
increased if benefits begin after social security retirement 
age.

Compensation limitation

    Under present law, the annual compensation of each 
participant that may be taken into account for purposes of 
determining contributions and benefits under a plan, applying 
the deduction rules, and for nondiscrimination testing purposes 
is limited to $170,000 (for 2001). The compensation limit is 
indexed for cost-of-living adjustments in $10,000 increments.

Elective deferral limitations

    Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
    The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``section 401(k) plan''), a tax-sheltered annuity (``section 
403(b) annuity'') or a salary reduction simplified employee 
pension plan (``SEP'') is $10,500 (for 2001). The maximum 
annual amount of elective deferrals that an individual may make 
to a SIMPLE plan is $6,500 (for 2001). These limits are indexed 
for inflation in $500 increments.

Section 457 plans

    The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,500 (for 2001) or (2) 33\1/3\ percent of compensation. The 
$8,500 dollar limit is increased for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                           Reasons for Change

    The tax benefits provided under qualified plans are a 
departure from the normally applicable income tax rules. The 
special tax benefits for qualified plans are generally 
justified on the ground that they serve an important social 
policy objective, i.e., the provision of retirement benefits to 
a broad group of employees. The limits on contributions and 
benefits, elective deferrals, and compensation that may be 
taken into account under a qualified plan all serve to limit 
the tax benefits associated with such plans. The level at which 
to place such limits involves a balancing of different policy 
objectives and a judgment as to what limits are most likely to 
best further policy goals.
    One of the factors that may influence the decision of an 
employer, particularly a small employer, to adopt a plan is the 
extent to which the owners of the business, the decision-
makers, or other highly compensated employees will benefit 
under the plan. The Committee believes that increasing the 
dollar limits on qualified plan contributions and benefits will 
encourage employers to establish qualified plans for their 
employees.
    The Committee understands that, in recent years, section 
401(k) plans have become increasingly more prevalent. The 
Committee believes it is important to increase the amount of 
employee elective deferrals allowed under such plans, and other 
plans that allow deferrals, to better enable plan participants 
to save for their retirement.

                        Explanation of Provision

Limits on contributions and benefits

    The provision increases the $35,000 limit on annual 
additions to a defined contribution plan to $40,000. This 
amount is indexed in $1,000 increments.\2\
---------------------------------------------------------------------------
    \2\ The 25 percent of compensation limitation is increased to 100 
percent of compensation under another provision of the bill.
---------------------------------------------------------------------------
    The provision increases the $140,000 annual benefit limit 
under a defined benefit plan to $160,000. The dollar limit is 
reduced for benefit commencement before age 62 and increased 
for benefit commencement after age 65.\3\ In adopting rules 
regarding the application of the increase in the defined 
benefit plan limits under the bill, it is intended that the 
Secretary will apply rules similar to those adopted in Notice 
99-44 regarding benefit increases due to the repeal of the 
combined plan limit under former section 415(e). Thus, for 
example, a defined benefit plan could provide for benefit 
increases to reflect the provisions of the bill for a current 
or former employee who has commenced benefits under the plan 
prior to the effective date of the bill if the employee or 
former employee has an accrued benefit under the plan (other 
than an accrued benefit resulting from a benefit increase 
solely as a result of the increases in the section 415 limits 
under the bill). As under the notice, the maximum amount of 
permitted increase is generally the amount that could have been 
provided had the provisions of the bill been in effect at the 
time of the commencement of benefit. In no case may benefits 
reflect increases that could not be paid prior to the effective 
date because of the limits in effect under present law. In 
addition, in no case may plan amendments providing increased 
benefits under the relevant provision of the bill be effective 
prior to the effective date of the provision.
---------------------------------------------------------------------------
    \3\ Another provision of the bill modifies the defined benefit 
pension plan limits for multiemployer plans.
---------------------------------------------------------------------------

Compensation limitation

    The provision increases the limit on compensation that may 
be taken into account under a plan to $200,000. This amount is 
indexed in $5,000 increments.

Elective deferral limitations

    The provision increases the dollar limit on annual elective 
deferrals under section 401(k) plans, section 403(b) annuities 
and salary reduction SEPs to $11,000 in 2002. In 2003 and 
thereafter, the limits are increased in $1,000 annual 
increments until the limits reach $15,000 in 2006, with 
indexing in $500 increments thereafter. The provision increases 
the maximum annual elective deferrals that may be made to a 
SIMPLE plan to $7,000 in 2002. In 2003 and thereafter, the 
SIMPLE plan deferral limit is increased in $1,000 annual 
increments until the limit reaches $10,000 in 2005. Beginning 
after 2005, the $10,000 dollar limit is indexed in $500 
increments.

Section 457 plans

    The provision increases the dollar limit on deferrals under 
a section 457 plan to conform to the elective deferral 
limitation. Thus, the limit is $11,000 in 2002, and is 
increased in $1,000 annual increments thereafter until the 
limit reaches $15,000 in 2006. The limit is indexed thereafter 
in $500 increments. The limit is twice the otherwise applicable 
dollar limit in the three years prior to retirement.\4\
---------------------------------------------------------------------------
    \4\ Another provision increases the 33-1/3 percentage of 
compensation limit to 100 percent.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2001.

   B. Plan Loans for S Corporation Shareholders, Partners, and Sole 
                              Proprietors


            (Sec. 202 of the bill and sec. 4975 of the Code)


                              Present Law

    The Internal Revenue Code prohibits certain transactions 
(``prohibited transactions'') between a qualified plan and a 
disqualified person in order to prevent persons with a close 
relationship to the qualified plan from using that relationship 
to the detriment of plan participants and beneficiaries.\5\ 
Certain types of transactions are exempted from the prohibited 
transaction rules, including loans from the plan to plan 
participants, if certain requirements are satisfied. In 
addition, the Secretary of Labor can grant an administrative 
exemption from the prohibited transaction rules if she finds 
the exemption is administratively feasible, in the interest of 
the plan and plan participants and beneficiaries, and 
protective of the rights of participants and beneficiaries of 
the plan. Pursuant to this exemption process, the Secretary of 
Labor grants exemptions both with respect to specific 
transactions and classes of transactions.
---------------------------------------------------------------------------
    \5\ Title I of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), also contains prohibited transaction rules. The 
Code and ERISA provisions are substantially similar, although not 
identical.
---------------------------------------------------------------------------
    The statutory exemptions to the prohibited transaction 
rules do not apply to certain transactions in which the plan 
makes a loan to an owner-employee.\6\ Loans to participants 
other than owner-employees are permitted if loans are available 
to all participants on a reasonably equivalent basis, are not 
made available to highly compensated employees in an amount 
greater than made available to other employees, are made in 
accordance with specific provisions in the plan, bear a 
reasonable rate of interest, and are adequately secured. In 
addition, the Code places limits on the amount of loans and 
repayment terms.
---------------------------------------------------------------------------
    \6\ Certain transactions involving a plan and S corporation 
shareholders are permitted.
---------------------------------------------------------------------------
    For purposes of the prohibited transaction rules, an owner-
employee means (1) a sole proprietor, (2) a partner who owns 
more than 10 percent of either the capital interest or the 
profits interest in the partnership, (3) an employee or officer 
of a Subchapter S corporation who owns more than 5 percent of 
the outstanding stock of the corporation, and (4) the owner of 
an individual retirement arrangement (``IRA''). The term owner-
employee also includes certain family members of an owner-
employee and certain corporations owned by an owner-employee.
    Under the Internal Revenue Code, a two-tier excise tax is 
imposed on disqualified persons who engage in a prohibited 
transaction. The first level tax is equal to 15 percent of the 
amount involved in the transaction. The second level tax is 
imposed if the prohibited transaction is not corrected within a 
certain period, and is equal to 100 percent of the amount 
involved.

                           Reasons for Change

    The Committee believes that the present-law prohibited 
transaction rules regarding loans unfairly discriminate against 
the owners of unincorporated businesses and S corporations. For 
example, under present law, the sole shareholder of a C 
corporation may take advantage of the statutory exemption to 
the prohibited transaction rules for loans, but an individual 
who does business as a sole proprietor may not.

                        Explanation of Provision

    The provision generally eliminates the special present-law 
rules relating to plan loans made to an owner-employee (other 
than the owner of an IRA). Thus, the general statutory 
exemption applies to such transactions. Present law continues 
to apply with respect to IRAs.

                             Effective Date

    The provision is effective with respect to years beginning 
after December 31, 2001.

                   C. Modification of Top-heavy Rules


            (Sec. 203 of the bill and sec. 416 of the Code)


                              Present Law

In general

    Under present law, additional qualification requirements 
apply to plans that primarily benefit an employer's key 
employees (``top-heavy plans''). These additional requirements 
provide (1) more rapid vesting for plan participants who are 
nonkey employees and (2) minimum nonintegrated employer 
contributions or benefits for plan participants who are non-key 
employees.

Definition of top-heavy plan

    A defined benefit plan is a top-heavy plan if more than 60 
percent of the cumulative accrued benefits under the plan are 
for key employees. A defined contribution plan is top heavy if 
the sum of the account balances of key employees is more than 
60 percent of the total account balances under the plan. For 
each plan year, the determination of top-heavy status generally 
is made as of the last day of the preceding plan year (``the 
determination date'').
    For purposes of determining whether a plan is a top-heavy 
plan, benefits derived both from employer and employee 
contributions, including employee elective contributions, are 
taken into account. In addition, the accrued benefit of a 
participant in a defined benefit plan and the account balance 
of a participant in a defined contribution plan includes any 
amount distributed within the five-year period ending on the 
determination date.
    An individual's accrued benefit or account balance is not 
taken into account in determining whether a plan is top-heavy 
if the individual has not performed services for the employer 
during the five-year period ending on the determination date.
    In some cases, two or more plans of a single employer must 
be aggregated for purposes of determining whether the group of 
plans is top-heavy. The following plans must be aggregated: (1) 
plans which cover a key employee (including collectively 
bargained plans); and (2) any plan upon which a plan covering a 
key employee depends for purposes of satisfying the Code's 
nondiscrimination rules. The employer may be required to 
include terminated plans in the required aggregation group. In 
some circumstances, an employer may elect to aggregate plans 
for purposes of determining whether they are top heavy.
    SIMPLE plans are not subject to the top-heavy rules.

Definition of key employee

    A key employee is an employee who, during the plan year 
that ends on the determination date or any of the 4 preceding 
plan years, is (1) an officer earning over one-half of the 
defined benefit plan dollar limitation of section 415 ($70,000 
for 2001), (2) a 5-percent owner of the employer, (3) a 1-
percent owner of the employer earning over $150,000, or (4) one 
of the 10 employees earning more than the defined contribution 
plan dollar limit ($35,000 for 2001) with the largest ownership 
interests in the employer. A family ownership attribution rule 
applies to the determination of one-percent owner status, five-
percent owner status, and largest ownership interest. Under 
this attribution rule, an individual is treated as owning stock 
owned by the individual's spouse, children, grandchildren, or 
parents.

Minimum benefit for non-key employees

    A minimum benefit generally must be provided to all non-key 
employees in a top-heavy plan. In general, a top-heavy defined 
benefit plan must provide a minimum benefit equal to the lesser 
of (1) two percent of compensation multiplied by the employee's 
years of service, or (2) 20 percent of compensation. A top-
heavy defined contribution plan must provide a minimum annual 
contribution equal to the lesser of (1) three percent of 
compensation, or (2) the percentage of compensation at which 
contributions were made for key employees (including employee 
elective contributions made by key employees and employer 
matching contributions).
    For purposes of the minimum benefit rules, only benefits 
derived from employer contributions (other than amounts 
employees have elected to defer) to the plan are taken into 
account, and an employee's social security benefits are 
disregarded (i.e., the minimum benefit is nonintegrated). 
Employer matching contributions may be used to satisfy the 
minimum contribution requirement; however, in such a case the 
contributions are not treated as matching contributions for 
purposes of applying the special nondiscrimination requirements 
applicable to employee elective contributions and matching 
contributions under sections 401(k) and (m). Thus, such 
contributions would have to meet the general nondiscrimination 
test of section 401(a)(4).\7\
---------------------------------------------------------------------------
    \7\ Treas. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------

Top-heavy vesting

    Benefits under a top-heavy plan must vest at least as 
rapidly as under one of the following schedules: (1) three-year 
cliff vesting, which provides for 100 percent vesting after 
three years of service; and (2) two-six year graduated vesting, 
which provides for 20 percent vesting after two years of 
service, and 20 percent more each year thereafter so that a 
participant is fully vested after six years of service.\8\
---------------------------------------------------------------------------
    \8\ Benefits under a plan that is not top heavy must vest at least 
as rapidly as under one of the following schedules: (1) five-year cliff 
vesting; and (2) three-seven year graded vesting, which provides for 20 
percent vesting after three years and 20 percent more each year 
thereafter so that a participant is fully vested after seven years of 
service.
---------------------------------------------------------------------------

Qualified cash or deferred arrangements

    Under a qualified cash or deferred arrangement (a ``section 
401(k) plan''), an employee may elect to have the employer make 
payments as contributions to a qualified plan on behalf of the 
employee, or to the employee directly in cash. Contributions 
made at the election of the employee are called elective 
deferrals. A special nondiscrimination test applies to elective 
deferrals under cash or deferred arrangements, which compares 
the elective deferrals of highly compensated employees with 
elective deferrals of nonhighly compensated employees. (This 
test is called the actual deferral percentage test or the 
``ADP'' test). Employer matching contributions under qualified 
defined contribution plans are also subject to a similar 
nondiscrimination test. (This test is called the actual 
contribution percentage test or the ``ACP'' test.)
    Under a design-based safe harbor, a cash or deferred 
arrangement is deemed to satisfy the ADP test if the plan 
satisfies one of two contribution requirements and satisfies a 
notice requirement. A plan satisfies the contribution 
requirement under the safe harbor rule for qualified cash or 
deferred arrangements if the employer either (1) satisfies a 
matching contribution requirement or (2) makes a nonelective 
contribution to a defined contribution plan of at least three 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the arrangement without regard to the permitted disparity 
rules (sec. 401(1)). A plan satisfies the matching contribution 
requirement if, under the arrangement: (1) the employer makes a 
matching contribution on behalf of each nonhighly compensated 
employee that is equal to (a) 100 percent of the employee's 
elective deferrals up to three percent of compensation and (b) 
50 percent of the employee's elective deferrals from three to 
five percent of compensation; and (2), the rate of match with 
respect to any elective contribution for highly compensated 
employees is not greater than the rate of match for nonhighly 
compensated employees. Matching contributions that satisfy the 
design-based safeharbor for cash or deferred arrangements are 
deemed to satisfy the ACP test. Certain additional matching 
contributions are also deemed to satisfy the ACP test.

                           Reasons for Change

    The top-heavy rules primarily affect the plans of small 
employers. While the top-heavy rules were intended to provide 
additional minimum benefits to rank-and-file employees, the 
Committee is concerned that in some cases the top-heavy rules 
may act as a deterrent to the establishment of a plan by a 
small employer. The Committee believes that simplification of 
the top-heavy rules will help alleviate the additional 
administrative burdens the rules place on small employers. The 
Committee also believes that, in applying the top-heavy minimum 
benefit rules, the employer should receive credit for all 
contributions the employer makes, including matching 
contributions.
    The Committee understands that some employers may have been 
discouraged from adopting a safe harbor section 401(k) plan due 
to concerns about the top-heavy rules. The Committee believes 
that facilitating the adoption of such plans will broaden 
coverage. Thus, the Committee believes it appropriate to 
provide that such plans are not subject to the top-heavy rules.

                        Explanation of Provision

Definition of top-heavy plan

    The provision provides that a plan consisting of a cash-or-
deferred arrangement that satisfies the design-based safe 
harbor for such plans and matching contributions that satisfy 
the safe harbor rule for such contributions is not a top-heavy 
plan. Matching or nonelective contributions provided under such 
a plan may be taken into account in satisfying the minimum 
contribution requirements applicable to top-heavy plans.\9\
---------------------------------------------------------------------------
    \9\ This provision is not intended to preclude the use of 
nonelective contributions that are used to satisfy the safe harbor 
rules from being used to satisfy other qualified retirement plan 
nondiscrimination rules, including those involving cross-testing.
---------------------------------------------------------------------------
    In determining whether a plan is top-heavy, distributions 
during the year ending on the date the top-heavy determination 
is being made are taken into account. The present-law five-year 
rule would apply with respect to in-service distributions. 
Similarly, the provision provides that an individual's accrued 
benefit or account balance is not taken into account if the 
individual has not performed services for the employer during 
the one-year period ending on the date the top-heavy 
determination is being made.

Definition of key employee

    The bill (1) provides that an employee is not considered a 
key employee by reason of officer status unless the employee 
earns more than $150,000 and (2) repeals the top-10 owner key 
employee category. The bill repeals the four-year lookback rule 
for determining key employee status and provide that an 
employee is a key employee only if he or she is a key employee 
during the preceding plan year.
    Thus, under the bill, an employee is considered a key 
employee if, during the prior year, the employee was (1) an 
officer with compensation in excess of $150,000, (2) a five-
percent owner, or (3) a one-percent owner with compensation in 
excess of $150,000. The present-law limits on the number of 
officers treated as key employees under (1) continue to apply.
    The family ownership attribution rule no longer applies in 
determining whether an individual is a five-percent owner of 
the employer for purposes of the top-heavy rules only. The 
family ownership attribution rule continues to apply to other 
provisions that cross reference the top-heavy rules, such as 
the definition of highly compensated employee and the 
definition of one-percent owner under the top-heavy rules.

Minimum benefit for nonkey employees

    Under the bill, matching contributions are taken into 
account in determining whether the minimum benefit requirement 
has been satisfied.\10\
---------------------------------------------------------------------------
    \10\ Thus, this provision overrides the provision in Treasury 
regulations that, if matching contributions are used to satisfy the 
minimum benefit requirement, then they are not treated as matching 
contributions for purposes of the section 401(m) nondiscrimination 
rules.
---------------------------------------------------------------------------
    The bill provides that, in determining the minimum benefit 
required under a defined benefit plan, a year of service does 
not include any year in which no key employee or former key 
employee benefits under the plan (as determined under sec. 
410).

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2001.

D. Elective Deferrals Not Taken Into Account for Purposes of Deduction 
                                 Limits


            (Sec. 204 of the bill and sec. 404 of the Code)


                              Present Law

    Employer contributions to one or more qualified retirement 
plans are deductible subject to certain limits. In general, the 
deduction limit depends on the kind of plan.
    In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
    In the case of a profit-sharing or stock bonus plan, the 
employer generally may deduct an amount equal to 15 percent of 
compensation of the employees covered by the plan for the year.
    If an employer sponsors both a defined benefit pension plan 
and a defined contribution plan that covers some of the same 
employees (or a money purchase pension plan and another kind of 
defined contribution plan), the total deduction for all plans 
for a plan year generally is limited to the greater of (1) 25 
percent of compensation or (2) the contribution necessary to 
meet the minimum funding requirements of the defined benefit 
pension plan for the year (or the amount of the plan's unfunded 
current liabilities, in the case of a plan with more than 100 
participants).
    For purposes of the deduction limits, employee elective 
deferral contributions to a section 401(k) plan are treated as 
employer contributions and, thus, are subject to the generally 
applicable deduction limits.
    Subject to certain exceptions, nondeductible contributions 
are subject to a 10-percent excise tax.

                           reasons for change

    Subjecting elective deferrals to the normally applicable 
deduction limits may cause employers to restrict the amount of 
elective deferrals an employee may make or to restrict employer 
contributions to the plan, thereby reducing participants' 
ultimate retirement benefits and their ability to save 
adequately for retirement. The Committee believes that the 
amount of elective deferrals otherwise allowable should not be 
further limited through application of the deduction rules.

                        explanation of provision

    Under the provision, elective deferral contributions are 
not subject to the deduction limits, and the application of a 
deduction limitation to any other employer contribution to a 
qualified retirement plan does not take into account elective 
deferral contributions.

                             effective date

    The provision is effective for years beginning after 
December 31, 2001.

E. Repeal of Coordination Requirements for Deferred Compensation Plans 
      of State and Local Governments and Tax-exempt Organizations


            (Sec. 205 of the bill and sec. 457 of the Code)


                              present law

    Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local government 
employer (a ``section 457 plan'') is not includible in gross 
income until paid or made available. In general, the maximum 
permitted annual deferral under such a plan is the lesser of 
(1) $8,500 (in 2001) or (2) 33\1/3\ percent of compensation. 
The $8,500 limit is increased for inflation in $500 increments. 
Under a special catch-up rule, a section 457 plan may provide 
that, for one or more of the participant's last 3 years before 
retirement, the otherwise applicable limit is increased to the 
lesser of (1) $15,000 or (2) the sum of the otherwise 
applicable limit for the year plus the amount by which the 
limit applicable in preceding years of participation exceeded 
the deferrals for that year.
    The $8,500 limit (as modified under the catch-up rule), 
applies to all deferrals under all section 457 plans in which 
the individual participates. In addition, in applying the 
$8,500 limit, contributions under a tax-sheltered annuity 
(``section 403(b) annuity''), elective deferrals under a 
qualified cash or deferred arrangement (``section 401(k) 
plan''), salary reduction contributions under a simplified 
employee pension plan (``SEP''), and contributions under a 
SIMPLE plan are taken into account. Further, the amount 
deferred under a section 457 plan is taken into account in 
applying a special catch-up rule for section 403(b) annuities.

                           reasons for change

    The Committee believes that individuals participating in a 
section 457 plan should also be able to fully participate in a 
section 403(b) annuity or section 401(k) plan of the employer. 
Eliminating the coordination rule may also encourage the 
establishment of section 403(b) or 401(k) plans by tax-exempt 
and governmental employers (as permitted under present law).

                        explanation of provision

    The provision repeals the rules coordinating the section 
457 dollar limit with contributions under other types of 
plans.\11\
---------------------------------------------------------------------------
    \11\ The limits on deferrals under a section 457 plan are modified 
under other provisions of the bill.
---------------------------------------------------------------------------

                             effective date

    The provision is effective for years beginning after 
December 31, 2001.

 F. Eliminate IRS User Fees for Certain Determination Letter Requests 
                        Regarding Employer Plans


                         (Sec. 206 of the bill)


                              present law

    An employer that maintains a retirement plan for the 
benefit of its employees may request from the IRS a 
determination as to whether the form of the plan satisfies the 
requirements applicable to tax-qualified plans (sec. 401(a)). 
In order to obtain from the IRS a determination letter on the 
qualified status of the plan, the employer must pay a user fee. 
The Secretary determines the user fee applicable for various 
types of requests, subject to statutory minimum requirements 
for average fees based on the category of the request. The user 
fee may range from $125 to $1,250, depending upon the scope of 
the request and the type and format of the plan.\12\
---------------------------------------------------------------------------
    \12\ Authorization for the user fees was originally enacted in 
section 10511 of the Revenue Act of 1987 (Pub. L. No. 100-203, December 
22, 1987). The authorization was extended through September 30, 2003, 
by Public Law Number 104-117 (An Act to provide that members of the 
Armed Forces preforming services for the peacekeeping efforts in Bosnia 
and Herzegovina, Croatia, and Macedonia shall be entitled to tax 
benefits in the same manner as if such services were performed in a 
combat zone, and for other purposes (March 20, 1996)).
---------------------------------------------------------------------------
    Present law provides that plans that do not meet the 
qualification requirements will be treated as meeting such 
requirements if appropriate retroactive plan amendments are 
made during the remedial amendment period. In general, the 
remedial amendment period ends on the due date for the 
employer's tax return (including extensions) for the taxable 
year in which the event giving rise to the disqualifying 
provision occurred (e.g., a plan amendment or a change in the 
law). The Secretary may provide for general extensions of the 
remedial amendment period or for extensions in certain cases. 
For example, the remedial amendment period with respect to 
amendments relating to the qualification requirements affected 
by the General Agreements on Tariffs and Trade, the Uniformed 
Services Employment and Reemployment Rights Act of 1994, the 
Small Business Job Protection Act of 1996, the Taxpayer Relief 
Act of 1997, and the Internal Revenue Service Restructuring and 
Reform Act of 1998 generally ends the last day of the first 
plan year beginning on or after January 1, 2001.\13\
---------------------------------------------------------------------------
    \13\ Rev. Proc. 2000-27, 2000-26 I.R.B. 1272.
---------------------------------------------------------------------------

                           reasons for change

    One of the factors affecting the decision of a small 
employer to adopt a plan is the level of administrative costs 
associated with the plan. The Committee believes that reducing 
administrative costs, such as IRS user fees, will help further 
the establishment of qualified plans by small employers.

                        explanation of provision

    A small employer (100 or fewer employees) is not required 
to pay a user fee for a determination letter request with 
respect to the qualified status of a retirement plan that the 
employer maintains if the request is made before the later of 
(1) the last day of the fifth plan year of the plan or (2) the 
end of any applicable remedial amendment period with respect to 
the plan that begins before the end of the fifth plan year of 
the plan. In addition, determination letter requests for which 
user fees are not required under the provision are not taken 
into account in determining average user fees. The provision 
would apply only to requests by employers for determination 
letters concerning the qualified retirement plans they 
maintain. Therefore, a sponsor of a prototype plan is required 
to pay a user fee for a request for a notification letter, 
opinion letter, or similar ruling. A small employer that adopts 
a prototype plan, however, is not required to pay a user fee 
for a determination letter request with respect to the 
employer's plan.

                             effective date

    The provision is effective for determination letter 
requests made after December 31, 2001.

                          G. Deduction Limits


            (Sec. 207 of the bill and sec. 404 of the Code)


                              present law

    Employer contributions to one or more qualified retirement 
plans are deductible subject to certain limits. In general, the 
deduction limit depends on the kind of plan. Subject to certain 
exceptions, nondeductible contributions are subject to a 10-
percent excise tax.
    In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
    In some cases, the amount of deductible contributions is 
limited by compensation. In the case of a profit-sharing or 
stock bonus plan, the employer generally may deduct an amount 
equal to 15 percent of compensation of the employees covered by 
the plan for the year.
    If an employer sponsors both a defined benefit pension plan 
and a defined contribution plan that covers some of the same 
employees (or a money purchase pension plan and another kind of 
defined contribution plan), the total deduction for all plans 
for a plan year generally is limited to the greater of (1) 25 
percent of compensation or (2) the contribution necessary to 
meet the minimum funding requirements of the defined benefit 
pension plan for the year (or the amount of the plan's unfunded 
current liabilities, in the case of a plan with more than 100 
participants).
    In the case of an employee stock ownership plan (``ESOP''), 
principal payments on a loan used to acquire qualifying 
employer securities are deductible up to 25 percent of 
compensation.
    For purposes of the deduction limits, employee elective 
deferral contributions to a qualified cash or deferred 
arrangement (``section 401(k) plan'') are treated as employer 
contributions and, thus, are subject to the generally 
applicable deduction limits.\14\
---------------------------------------------------------------------------
    \14\ Another provision provides that elective deferrals are not 
subject to the deduction limits.
---------------------------------------------------------------------------
    For purposes of the deduction limits, compensation means 
the compensation otherwise paid or accrued during the taxable 
year to the beneficiaries under the plan, and the beneficiaries 
under a profit-sharing or stock bonus plan are the employees 
who benefit under the plan with respect to the employer's 
contribution.\15\ An employee who is eligible to make elective 
deferrals under a section 401(k) plan is treated as benefitting 
under the arrangement even if the employee elects not to 
defer.\16\
---------------------------------------------------------------------------
    \15\ Rev. Rul. 65-295, 1965-2 C.B. 148.
    \16\ Treas. Reg. sec. 1.410(b)-3.
---------------------------------------------------------------------------
    For purposes of the deduction rules, compensation generally 
includes only taxable compensation, and thus does not include 
salary reduction amounts, such as elective deferrals under a 
section 401(k) plan or a tax-sheltered annuity (``section 
403(b) annuity''), elective contributions under a deferred 
compensation plan of a tax-exempt organization or a State or 
local government (``section 457 plan''), and salary reduction 
contributions under a section 125 cafeteria plan. For purposes 
of the contribution limits under section 415, compensation does 
include such salary reduction amounts.

                           reasons for change

    The Committee believes that compensation unreduced by 
employee elective contributions is a more appropriate measure 
of compensation for plan purposes, including deduction limits, 
than the present-law rule. Applying the same definition for 
deduction purposes as is generally used for other qualified 
plan purposes will also simplify application of the qualified 
plan rules. The Committee also believes that the 15 percent of 
compensation limit may restrict the amount of employer 
contributions to the plan, thereby reducing participants' 
ultimate retirement benefits and their ability to adequately 
save for retirement.

                        explanation of provision

    Under the provision, the definition of compensation for 
purposes of the deduction rules includes salary reduction 
amounts treated as compensation under section 415. In addition, 
the annual limitation on the amount of deductible contributions 
to a profit-sharing or stock bonus plan is increased from 15 
percent to 20 percent of compensation of the employees covered 
by the plan for the year.

                             effective date

    The provision is effective for years beginning after 
December 31, 2001.

    H. Option To Treat Elective Deferrals as After-Tax Contributions


          (Sec. 208 of the bill and new sec. 402A of the Code)


                              present law

    A qualified cash or deferred arrangement (``section 401(k) 
plan'') or a tax-sheltered annuity (``section 403(b) annuity'') 
may permit a participant to elect to have the employer make 
payments as contributions to the plan or to the participant 
directly in cash. Contributions made to the plan at the 
election of a participant are elective deferrals. Elective 
deferrals must be nonforfeitable and are subject to an annual 
dollar limitation (sec. 402(g)) and distribution restrictions. 
In addition, elective deferrals under a section 401(k) plan are 
subject to special nondiscrimination rules. Elective deferrals 
(and earnings attributable thereto) are not includible in a 
participant's gross income until distributed from the plan.
    Elective deferrals for a taxable year that exceed the 
annual dollar limitation (``excess deferrals'') are includible 
in gross income for the taxable year. If an employee makes 
elective deferrals under a plan (or plans) of a single employer 
that exceed the annual dollar limitation (``excess 
deferrals''), then the plan may provide for the distribution of 
the excess deferrals, with earnings thereon. If the excess 
deferrals are made to more than one plan of unrelated 
employers, then the plan may permit the individual to allocate 
excess deferrals among the various plans, no later than the 
March 1 (April 15 under the applicable regulations) following 
the end of the taxable year. If excess deferrals are 
distributed not later than April 15 following the end of the 
taxable year, along with earnings attributable to the excess 
deferrals, then the excess deferrals are not again includible 
in income when distributed. The earnings are includible in 
income in the year distributed. If excess deferrals (and income 
thereon) are not distributed by the applicable April 15, then 
the excess deferrals (and income thereon) are includible in 
income when received by the participant. Thus, excess deferrals 
that are not distributed by the applicable April 15th are 
taxable both in the taxable year when the deferral was made and 
in the year the participant receives a distribution of the 
excess deferral.
    Individuals with adjusted gross income below certain levels 
generally may make nondeductible contributions to a Roth IRA 
and may convert a deductible or nondeductible IRA into a Roth 
IRA. Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable-year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) is made after attainment of age 59\1/2\, is 
made on account of death or disability, or is a qualified 
special purpose distribution (i.e., for first-time homebuyer 
expenses of up to $10,000). A distribution from a Roth IRA that 
is not a qualified distribution is includible in income to the 
extent attributable to earnings, and is subject to the 10-
percent tax on early withdrawals (unless an exception 
applies).\17\
---------------------------------------------------------------------------
    \17\ Early distributions of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
---------------------------------------------------------------------------

                           reasons for change

    The recently-enacted Roth IRA provisions have provided 
individuals with another form of tax-favored retirement 
savings. For a variety of reasons, some individuals may prefer 
to save through a Roth IRA rather than a traditional deductible 
IRA. The Committee believes that similar savings choices should 
be available to participants in section 401(k) plans and tax-
sheltered annuities.

                        explanation of provision

    A section 401(k) plan or a section 403(b) annuity is 
permitted to include a ``qualified plus contribution program'' 
that permits a participant to elect to have all or a portion of 
the participant's elective deferrals under the plan treated as 
designated plus contributions. Designated plus contributions 
are elective deferrals that the participant designates (at such 
time and in such manner as the Secretary may prescribe) \18\ as 
not excludable from the participant's gross income.
---------------------------------------------------------------------------
    \18\ It is intended that the Secretary will generally not permit 
retroactive designations of elective deferrals as designated plus 
contributions.
---------------------------------------------------------------------------
    The annual dollar limitation on a participant's designated 
plus contributions is the section 402(g) annual limitation on 
elective deferrals, reduced by the participant's elective 
deferrals that the participant does not designate as designated 
plus contributions. Designated plus contributions are treated 
as any other elective deferral for purposes of 
nonforfeitability requirements and distribution 
restrictions.\19\ Under a section 401(k) plan, designated plus 
contributions also are treated as any other elective deferral 
for purposes of the special nondiscrimination requirements.\20\
---------------------------------------------------------------------------
    \19\ Similarly, designated plus contributions to a section 403(b) 
annuity are treated the same as other salary reduction contributions to 
the annuity (except that designated plus contributions are includible 
in income).
    \20\ It is intended that the Secretary provide ordering rules 
regarding the return of excess contributions under the special 
nondiscrimination rules (pursuant to sec. 401(k)(8)) in the event a 
participant makes both regular elective deferrals and designated plus 
contributions. It is intended that such rules will generally permit a 
plan to allow participants to designate which contributions are 
returned first or to permit the plan to specify which contributions are 
returned first. ?It is also intended that the Secretary will provide 
ordering rules to determine the extent to which a distribution consists 
of excess Roth contributions.
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    The plan is required to establish a separate account, and 
maintain separate recordkeeping, for a participant's designated 
plus contributions (and earnings allocable thereto). A 
qualified distribution from a participant's designated plus 
contributions account would not be includible in the 
participant's gross income. A qualified distribution is a 
distribution that is made after the end of a specified 
nonexclusion period and that is (1) made on or after the date 
on which the participant attains age 59-1/2, (2) made to a 
beneficiary (or to the estate of the participant) on or after 
the death of the participant, or (3) attributable to the 
participant's being disabled.\21\ The nonexclusion period is 
the 5-year-taxable period beginning with the earlier of (1) the 
first taxable year for which the participant made a designated 
plus contribution to any designated plus contribution account 
established for the participant under the plan, or (2) if the 
participant has made a rollover contribution to the designated 
plus contribution account that is the source of the 
distribution from a designated plus contribution account 
established for the participant under another plan, the first 
taxable year for which the participant made a designated plus 
contribution to the previously established account.
---------------------------------------------------------------------------
    \21\ A qualified special purpose distribution, as defined under the 
rules relating to Roth IRAs, does not qualify as a tax-free 
distribution from a designated plus contributions account.
---------------------------------------------------------------------------
    A distribution from a designated plus contributions account 
that is a corrective distribution of an elective deferral (and 
income allocable thereto) that exceeds the section 402(g) 
annual limit on elective deferrals or a corrective distribution 
of an excess contribution under the special nondiscrimination 
rules (pursuant to sec. 401(k)(8) and income allocable thereto) 
would not be a qualified distribution. In addition, the 
treatment of excess designated plus contributions is similar to 
the treatment of excess deferrals attributable to non-
designated plus contributions. If excess designated plus 
contributions (including earnings thereon) are distributed no 
later than the April 15th following the taxable year, then the 
designated plus contributions would not be includible in gross 
income as a result of the distribution, because such 
contributions are includible in gross income when made. 
Earnings on such excess designated plus contributions are 
treated the same as earnings on excess deferrals distributed no 
later than April 15th, i.e., they are includible in income when 
distributed. If excess designated plus contributions are not 
distributed no later than the applicable April 15th, then such 
contributions (and earnings thereon) are taxable when 
distributed. Thus, as is the case with excess elective 
deferrals that are not distributed by the applicable April 
15th, the contributions are includible in income in the year 
when made and again when distributed from the plan. Earnings on 
such contributions are taxable when received.
    A participant is permitted to roll over a distribution from 
a designated plus contributions account only to another 
designated plus contributions account or a Roth IRA of the 
participant.
    The Secretary of the Treasury is directed to require the 
plan administrator of each section 401(k) plan or section 
403(b) annuity that permits participants to make designated 
plus contributions to make such returns and reports regarding 
designated plus contributions to the Secretary, plan 
participants and beneficiaries, and other persons that the 
Secretary may designate.

                             effective date

    The provision is effective for taxable years beginning 
after December 31, 2001.

I. Treatment of Self-employment Income of Members of Certain Religious 
                                 Faiths


(Sec. 209 of the bill and secs. 401(c)(2) and 408(p)(6)(A) of the Code)


                              present law

    In general, contributions to qualified plans and IRAs are 
based on compensation. For a self-employed individual, 
compensation generally means net earnings subject to self-
employment taxes (``SECA taxes''). Members of certain religious 
faiths may elect to be exempt from SECA taxes on religious 
grounds. Because the net earnings of such individuals are not 
subject to SECA taxes, these individuals are considered to have 
no compensation on which to base contributions to a retirement 
plan. Under an exception to this rule, net earnings of such 
individuals are treated as compensation for purposes of making 
contributions to an IRA.

                           reasons for change

    The Committee believes that present law inappropriately 
restricts the ability of members of certain religious faiths to 
save for retirement. The Committee believes these individuals 
should be able to contribute to other retirement plans in 
addition to IRAs.

                        explanation of provision

    The provision amends the definition of compensation for 
purposes of all qualified plans and IRAs (including SIMPLE 
arrangements) to include an individual's net earnings that 
would be subject to SECA taxes but for the fact that the 
individual is covered by a religious exemption.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

  J. Certain Nonresident Aliens Excluded in Applying Minimum Coverage 
                              Requirements


         (Sec. 210 of the bill and sec. 410(b)(3) of the Code)


                              Present Law

    Under the minimum coverage requirements (sec. 410(b)), a 
qualified plan must benefit a minimum number of the employer's 
nonhighly compensated employees. In applying the minimum 
coverage requirements, employees who are nonresident aliens are 
disregarded if they have no earned income from sources within 
the United States (``U.S. source income''). Generally, 
compensation for services performed in the United States is 
treated as U.S. source income. Under a special rule, 
compensation is not treated as U.S. source income if the 
compensation is paid for labor or services performed by a 
nonresident alien in connection with the individual's temporary 
presence in the United States as a regular member of the crew 
of a foreign vessel engaged in transportation between the 
United States and a foreign country or a possession of the 
United States. However, this special rule does not apply for 
qualified plan purposes, including the minimum coverage 
requirements. As a result, such nonresident aliens must be 
taken into account in determining whether the plan satisfies 
the minimum coverage requirements.

                           Reasons for Change

    The Committee believes that nonresident aliens who are in 
the United States temporarily as crew members of foreign 
vessels engaged in transportation between the United States and 
a foreign country or a possession of the United States and who 
otherwise have no U.S. source income for Federal tax purposes 
should be disregarded in applying the minimum coverage 
requirements.

                        Explanation of Provision

    For purposes of the application of the minimum coverage 
requirements (sec. 410(b)), compensation is not treated as U.S. 
source income if the compensation is paid for labor or services 
performed by a nonresident alien in connection with the 
individual's temporary presence in the United States as a 
regular member of the crew of a foreign vessel engaged in 
transportation between the United States and a foreign country 
or a possession of the United States. As a result, such 
nonresident aliens are excluded from consideration in the 
application of the minimum coverage requirements.

                             Effective Date

    The provision is effective with respect to plan years 
beginning after December 31, 2001.

                TITLE III. ENHANCING FAIRNESS FOR WOMEN


         A. Additional Salary Reduction Catch-Up Contributions


            (Sec. 301 of the bill and sec. 414 of the Code)


                              Present Law

Elective deferral limitations

    Under present law, under certain salary reduction 
arrangements, an employee may elect to have the employer make 
payments as contributions to a plan on behalf of the employee, 
or to the employee directly in cash. Contributions made at the 
election of the employee are called elective deferrals.
    The maximum annual amount of elective deferrals that an 
individual may make to a qualified cash or deferred arrangement 
(a ``401(k) plan''), a tax-sheltered annuity (``section 403(b) 
annuity'') or a salary reduction simplified employee pension 
plan (``SEP'') is $10,500 (for 2001). The maximum annual amount 
of elective deferrals that an individual may make to a SIMPLE 
plan is $6,500 (for 2001). These limits are indexed for 
inflation in $500 increments.

Section 457 plans

    The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,500 (for 2001) or (2) 33\1/3\ percent of compensation. The 
$8,500 dollar limit is increased for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                           Reasons for Change

    Although the Committee believes that individuals should be 
saving for retirement throughout their working lives, as a 
practical matter, many individuals simply do not focus on the 
amount of retirement savings they need until they near 
retirement. In addition, many individuals may have difficulty 
saving more in earlier years, e.g., because an employee leaves 
the workplace to care for a family. Some individuals may have a 
greater ability to save as they near retirement.
    The Committee believes that the pension laws should assist 
individuals who are nearing retirement to save more for their 
retirement.

                        Explanation of Provision

    The provision provides that the otherwise applicable dollar 
limit on elective deferrals under a section 401(k) plan, 
section 403(b) annuity, SEP, or SIMPLE, or deferrals under 
asection 457 plan are increased for individuals who have attained age 
50 by the end of the year.\22\ Additional contributions are permitted 
by an individual who has attained age 50 before the end of the plan 
year and with respect to whom no other elective deferrals may otherwise 
be made to the plan for the year because of the application of any 
limitation of the Code (e.g., the annual limit on elective deferrals) 
or of the plan. Under the provision, the additional amount of elective 
contributions that are permitted to be made by an eligible individual 
participating in such a plan is the lesser of (1) $5,000, or (2) the 
participant's compensation for the year reduced by any other elective 
deferrals of the participant for the year. This $5,000 amount is 
indexed for inflation in $500 increments in 2007 and thereafter.\23\
---------------------------------------------------------------------------
    \22\ Another provision increases the dollar limit on elective 
deferrals under such arrangements.
    \23\ In the case of a section 457 plans, this catch-up rule does 
not apply during the participant's last three years before retirement 
(in those years, the regularly applicable dollar limit is doubled).
---------------------------------------------------------------------------
    Catch-up contributions made under the provision are not 
subject to any other contribution limits and would not be taken 
into account in applying other contribution limits. Such 
contributions are subject to applicable nondiscrimination 
rules. Although catch-up contributions are subject to 
applicable nondiscrimination rules, a plan does not fail to 
meet the applicable nondiscrimination requirements under 
section 401(a)(4) with respect to benefits, rights, and 
features if the plan allows all eligible individuals 
participating in the plan to make the same election with 
respect to catch-up contributions. For purposes of this rule, 
all plans of related employers are treated as a single plan.
    An employer is permitted to make matching contributions 
with respect to catch-up contributions. Any such matching 
contributions are subject to the normally applicable rules.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

   B. Equitable Treatment for Contributions of Employees to Defined 
                           Contribution Plans


   (Sec. 302 of the bill and secs. 403(b), 415, and 457 of the Code)


                              Present Law

    Present law imposes limits on the contributions that may be 
made to tax-favored retirement plans.

Defined contribution plans

    In the case of a tax-qualified defined contribution plan, 
the limit on annual additions that can be made to the plan on 
behalf of an employee is the lesser of $35,000 (for 2001) or 25 
percent of the employee's compensation (sec. 415(c)). Annual 
additions include employer contributions, including 
contributions made at the election of the employee (i.e., 
employee elective deferrals), after-tax employee contributions, 
and any forfeitures allocated to the employee. For this 
purpose, compensation means taxable compensation of the 
employee, plus elective deferrals, and similar salary reduction 
contributions. A separate limit applies to benefits under a 
defined benefit plan.
    For years before January 1, 2000, an overall limit applied 
if an employee was a participant in both a defined contribution 
plan and a defined benefit plan of the same employer.

Tax-sheltered annuities

    In the case of a tax-sheltered annuity (a ``section 403(b) 
annuity''), the annual contribution generally cannot exceed the 
lesser of the exclusion allowance or the section 415(c) defined 
contribution limit. The exclusion allowance for a year is equal 
to 20 percent of the employee's includible compensation, 
multiplied by the employee's years of service, minus excludable 
contributions for prior years under qualified plans, tax-
sheltered annuities or section 457 plans of the employer.
    In addition to this general rule, employees of nonprofit 
educational institutions, hospitals, home health service 
agencies, health and welfare service agencies, and churches may 
elect application of one of several special rules that increase 
the amount of the otherwise permitted contributions. The 
election of a special rule is irrevocable; an employee may not 
elect to have more than one special rule apply.
    Under one special rule, in the year the employee separates 
from service, the employee may elect to contribute up to the 
exclusion allowance, without regard to the 25 percent of 
compensation limit under section 415. Under this rule, the 
exclusion allowance is determined by taking into account no 
more than 10 years of service.
    Under a second special rule, the employee may contribute up 
to the lesser of: (1) the exclusion allowance; (2) 25 percent 
of the participant's includible compensation; or (3) $15,000.
    Under a third special rule, the employee may elect to 
contribute up to the section 415(c) limit, without regard to 
the exclusion allowance. If this option is elected, then 
contributions to other plans of the employer are also taken 
into account in applying the limit.
    For purposes of determining the contribution limits 
applicable to section 403(b) annuities, includible compensation 
means the amount of compensation received from the employer for 
the most recent period which may be counted as a year of 
service under the exclusion allowance. In addition, includible 
compensation includes elective deferrals and similar salary 
reduction amounts.
    Treasury regulations include provisions regarding 
application of the exclusion allowance in cases where the 
employee participates in a section 403(b) annuity and a defined 
benefit plan. The Taxpayer Relief Act of 1997 directed the 
Secretary of the Treasury to revise these regulations, 
effective for years beginning after December 31, 1999, to 
reflect the repeal of the overall limit on contributions and 
benefits.

Section 457 plans

    Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local 
governmental employer (a ``section 457 plan'') is not 
includible in gross income until paid or made available. In 
general, the maximum permitted annual deferral under such a 
plan is the lesser of (1) $8,500 (in 2001) or (2) 33\1/3\ 
percent of compensation. The $8,500 limit is increased for 
inflation in $500 increments.

                           Reasons for Change

    The present-law rules that limit contributions to defined 
contribution plans by a percentage of compensation reduce the 
amount that lower- and middle-income workers can save for 
retirement. The present-law limits may not allow such workers 
to accumulate adequate retirement benefits, particularly if a 
defined contribution plan is the only type of retirement plan 
maintained by the employer.
    Conforming the contribution limits for tax-sheltered 
annuities to the limits applicable to retirement plans will 
simplify the administration of the pension laws, and provide 
more equitable treatment for participants in similar types of 
plans.

                        Explanation of Provision

Increase in defined contribution plan limit

    The provision increases the 25 percent of compensation 
limitation on annual additions under a defined contribution 
plan \24\ to 100 percent.\25\
---------------------------------------------------------------------------
    \24\ Another provision increases the defined contribution plan 
dollar limit.
    \25\ The provision preserves the present-law deduction rules for 
money purchase pension plans. Thus, for purposes of such rules, the 
limitation on the amount the employer generally may deduct is an amount 
equal to 25 percent of compensation of the employees covered by the 
plan for the year.
---------------------------------------------------------------------------

Conforming limits on tax-sheltered annuities

    The provision repeals the exclusion allowance applicable to 
contributions to tax-sheltered annuities. Thus, such annuities 
are subject to the limits applicable to tax-qualified plans.
    The provision also directs the Secretary of the Treasury to 
revise the regulations relating to the exclusion allowance 
under section 403(b)(2) to render void the requirement that 
contributions to a defined benefit plan be treated as 
previously excluded amounts for purposes of the exclusion 
allowance. For taxable years beginning after December 31, 1999, 
the regulatory provisions regarding the exclusion allowance are 
to be applied as if the requirement that contributions to a 
defined benefit plan be treated as previously excluded amounts 
for purposes of the exclusion allowance were void.

Section 457 plans

    The provision increases the 33\1/3\ percent of compensation 
limitation on deferrals under a section 457 plan to 100 percent 
of compensation.

                             Effective Date

    The provision generally is effective for years beginning 
after December 31, 2001. The provision regarding the 
regulations under section 403(b)(2) is effective on the date of 
enactment.

          C. Faster Vesting of Employer Matching Contributions


            (Sec. 303 of the bill and sec. 411 of the Code)


                              Present Law

    Under present law, a plan is not a qualified plan unless a 
participant's employer-provided benefit vests at least as 
rapidly as under one of two alternative minimum vesting 
schedules. A plan satisfies the first schedule if a participant 
acquires a nonforfeitable right to 100 percent of the 
participant's accrued benefit derived from employer 
contributions upon the completion of 5 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to at least 20 percent of the 
participant's accrued benefit derived from employer 
contributions after 3 years of service, 40 percent after 4 
years of service, 60 percent after 5 years of service, 80 
percent after 6 years of service, and 100 percent after 7 years 
of service.\26\
---------------------------------------------------------------------------
    \26\ The minimum vesting requirements are also contained in Title I 
of ERISA.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee understands that many employees, particularly 
lower- and middle-income employees, do not take full advantage 
of the retirement savings opportunities provided by their 
employer's section 401(k) plan. The Committee believes that 
providing faster vesting for matching contributions will make 
section 401(k) plans more attractive for employees, 
particularly lower- and middle-income employees, and will 
encourage employees to save more for their own retirement. In 
addition, faster vesting for matching contributions will enable 
short-service employees to accumulate greater retirement 
savings.

                        Explanation of Provision

    The provision applies faster vesting schedules to employer 
matching contributions. Under the provision, employer matching 
contributions are required to vest at least as rapidly as under 
one of the following two alternative minimum vesting schedules. 
A plan satisfies the first schedule if a participant acquires a 
nonforfeitable right to 100 percent of employer matching 
contributions upon the completion of three years of service. A 
plan satisfies the second schedule if a participant has a 
nonforfeitable right to 20 percent of employer matching 
contributions for each year of service beginning with the 
participant's second year of service and ending with 100 
percent after six years of service.

                             Effective Date

    The provision is effective for contributions for plan years 
beginning after December 31, 2001, with a delayed effective 
date for plans maintained pursuant to a collective bargaining 
agreement. The provision does not apply to any employee until 
the employee has an hour of service after the effective date. 
In applying the new vesting schedule, service before the 
effective date is taken into account.

             D. Modifications to Minimum Distribution Rules


         (Sec. 304 of the bill and sec. 401(a)(9) of the Code)


                              Present Law

In general

    Minimum distribution rules apply to all types of tax-
favored retirement vehicles, including qualified plans, 
individual retirement arrangements (``IRAs''), tax-sheltered 
annuities (``section 403(b) annuities''), and eligible deferred 
compensation plans of tax-exempt and State and local government 
employers (``section 457 plans''). In general, under these 
rules, distribution of minimum benefits must begin no later 
than the required beginning date. Minimum distribution rules 
also apply to benefits payable with respect to a plan 
participant who has died. Failure to comply with the minimum 
distribution rules results in an excise tax imposed on the 
individual plan participant equal to 50 percent of the required 
minimum distribution not distributed for the year. The excise 
tax may be waived if the individual establishes to the 
satisfaction of the Commissioner that the shortfall in the 
amount distributed was due to reasonable error and reasonable 
steps are being taken to remedy the shortfall. Under certain 
circumstances following the death of a participant, the excise 
tax is automatically waived under proposed Treasury 
regulations.

Distributions prior to the death of the individual

    In the case of distributions prior to the death of the plan 
participant, the minimum distribution rules are satisfied if 
either (1) the participant's entire interest in the plan is 
distributed by the required beginning date, or (2) the 
participant's interest in the plan is to be distributed (in 
accordance with regulations), beginning not later than the 
required beginning date, over a permissible period. The 
permissible periods are (1) the life of the participant, (2) 
the lives of the participant and a designated beneficiary, (3) 
the life expectancy of the participant, or (4) the joint life 
and last survivor expectancy of the participant and a 
designated beneficiary. In calculating minimum required 
distributions, life expectancies of the participant and the 
participant's spouse may be recomputed annually.
    In the case of qualified plans, tax-sheltered annuities, 
and section 457 plans, the required beginning date is the April 
1 of the calendar year following the later of (1) the calendar 
year in which the employee attains age 70\1/2\ or (2) the 
calendar year in which the employee retires. However, in the 
case of a 5-percent owner of the employer, distributions are 
required to begin no later than the April 1 of the calendar 
year following the year in which the 5-percent owner attains 
age 70\1/2\. If commencement of benefits is delayed beyond age 
70\1/2\ from a defined benefit plan, then the accrued benefit 
of the employee must be actuarially increased to take into 
account the period after age 70\1/2\ in which the employee was 
not receiving benefits under the plan.\27\ In the case of 
distributions from an IRA other than a Roth IRA, the required 
beginning date is the April 1 of the calendar year following 
the calendar year in which the IRA owner attains age 70\1/2\. 
The pre-death minimum distribution rules do not apply to Roth 
IRAs.
---------------------------------------------------------------------------
    \27\ State and local government plans and church plans are not 
required to actuarially increase benefits that begin after age 70\1/2\.
---------------------------------------------------------------------------
    In general, under the proposed Treasury regulations, in 
order to satisfy the minimum distribution rules, annuity 
payments under a defined benefit plan must be paid in periodic 
payments made at intervals not longer than one year over a 
permissible period, and must be nonincreasing, or increase only 
as a result of the following: (1) cost-of-living adjustments; 
(2) cash refunds of employee contributions; (3) benefit 
increases under the plan; or (4) an adjustment due to death of 
the employee's beneficiary. In the case of a defined 
contribution plan, the minimum required distribution is 
determined by dividing the employee's benefit by an amount from 
the uniform table provided in the proposed regulations.

Distributions after the death of the plan participant

    The minimum distribution rules also apply to distributions 
to beneficiaries of deceased participants. In general, if the 
participant dies after minimum distributions have begun, the 
remaining interest must be distributed at least as rapidly as 
under the minimum distribution method being used as of the date 
of death. If the participant dies before minimum distributions 
have begun, then the entire remaining interest must generally 
be distributed within 5 years of the participant's death. The 
5-year rule does not apply if distributions begin within 1 year 
of the participant's death and are payable over the life of a 
designated beneficiary or over the life expectancy of a 
designated beneficiary. A surviving spouse beneficiary is not 
required to begin distribution until the date the deceased 
participant would have attained age 70\1/2\.

                           Reasons for Change

    For many years, the minimum distribution rules have been 
among the most complex of the rules relating to tax-favored 
arrangements. On January 17, 2001, the Secretary of the 
Treasury issued revised proposed regulations relating to the 
minimum distribution rules. The Committee believes that the 
implementation of these revised proposed regulations, along 
with additional statutory modifications of the minimum 
distribution rules, will result in significant simplification 
for individuals and plan administrators.
    The sanction for failure to comply with the minimum 
distribution rules is severe. The Committee believes this 
sanction is inappropriate.

                        Explanation of Provision

Modification of post-death distribution rules

    The provision applies the present-law rules applicable if 
the participant dies before distribution of minimum benefits 
has begun to all post-death distributions. Thus, in general, 
ifthe employee dies before his or her entire interest has been 
distributed, distribution of the remaining interest is required to be 
made within five years of the date of death, or begin within one year 
of the date of death and paid over the life or life expectancy of a 
designated beneficiary. In the case of a surviving spouse, 
distributions are not required to begin until April 1 of the calendar 
year following the calendar year in which the surviving spouse attains 
age 70\1/2\. The provision includes a transition rule with respect to 
the provision providing that the required beginning date in the case of 
a surviving spouse is no earlier than the April 1 of the calendar year 
following the calendar year in which the surviving spouse attains age 
70\1/2\. In the case of an individual who died before the date of 
enactment and prior to his or her required beginning date and whose 
beneficiary is the surviving spouse, minimum distributions to the 
surviving spouse are not required to begin earlier than the date 
distributions would have been required to begin under present law.

Reduction in excise tax

    The provision reduces the excise tax on failures to satisfy 
the minimum distribution rules to 10 percent of the amount that 
was required to be distributed but was not distributed.

Treasury regulations

    The Treasury is directed to revise the life expectancy 
tables under the applicable regulations to reflect current life 
expectancy.

                             effective date

    In general, the provision is effective for years beginning 
after December 31, 2001.

   E. Clarification of Tax Treatment of Division of Section 457 Plan 
                         Benefits Upon Divorce


      (Sec. 305 of the bill and secs. 414(p) and 457 of the Code)


                              present law

    Under present law, benefits provided under a qualified 
retirement plan for a participant may not be assigned or 
alienated to creditors of the participant, except in very 
limited circumstances. One exception to the prohibition on 
assignment or alienation rule is a qualified domestic relations 
order (``QDRO''). A QDRO is a domestic relations order that 
creates or recognizes a right of an alternate payee to any plan 
benefit payable with respect to a participant, and that meets 
certain procedural requirements.
    Under present law, a distribution from a governmental plan 
or a church plan is treated as made pursuant to a QDRO if it is 
made pursuant to a domestic relations order that creates or 
recognizes a right of an alternate payee to any plan benefit 
payable with respect to a participant. Such distributions are 
not required to meet the procedural requirements that apply 
with respect to distributions from qualified plans.
    Under present law, amounts distributed from a qualified 
plan generally are taxable to the participant in the year of 
distribution. However, if amounts are distributed to the spouse 
(or former spouse) of the participant by reason of a QDRO, the 
benefits are taxable to the spouse (or former spouse). Amounts 
distributed pursuant to a QDRO to an alternate payee other than 
the spouse (or former spouse) are taxable to the plan 
participant.
    Section 457 of the Internal Revenue Code provides rules for 
deferral of compensation by an individual participating in an 
eligible deferred compensation plan (``section 457 plan'') of a 
tax-exempt or State and local government employer. The QDRO 
rules do not apply to section 457 plans.

                           reasons for change

    The Committee believes that the rules regarding qualified 
domestic relations orders should apply to all types of 
employer-sponsored retirement plans.

                        explanation of provision

    The provision applies the taxation rules for qualified plan 
distributions pursuant to a QDRO to distributions made pursuant 
to a domestic relations order from a section 457 plan. In 
addition, a section 457 plan does not violate the restrictions 
on distributions from such plans due to payments to an 
alternate payee under a QDRO. The special rule applicable to 
governmental plans and church plans applies for purposes of 
determining whether a distribution is pursuant to a QDRO.

                             effective date

    The provision is effective for transfers, distributions, 
and payments made after December 31, 2001.

             F. Provisions Relating to Hardship Withdrawals


       (Sec. 306 of the bill and sec. 401(k) and 402 of the Code)


                              present law

    Elective deferrals under a qualified cash or deferred 
arrangement (a ``section 401(k) plan'') may not be 
distributable prior to the occurrence of one or more specified 
events. One event upon which distribution is permitted is the 
financial hardship of the employee. Applicable Treasury 
regulations \28\ provide that a distribution is made on account 
of hardship only if the distribution is made on account of an 
immediate and heavy financial need of the employee and is 
necessary to satisfy the heavy need.
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    \28\ Treas. Reg. sec. 1.401(k)-1.
---------------------------------------------------------------------------
    The Treasury regulations provide a safe harbor under which 
a distribution may be deemed necessary to satisfy an immediate 
and heavy financial need. One requirement of this safe harbor 
is that the employee be prohibited from making elective 
contributions and employee contributions to the plan and all 
other plans maintained by the employer for at least 12 months 
after receipt of the hardship distribution.
    Under present law, hardship withdrawals of elective 
deferrals from a qualified cash or deferred arrangement (or 
403(b) annuity) are not eligible rollover distributions. Other 
types of hardship distributions, e.g., employer matching 
contributions distributed on account of hardship, are eligible 
rollover distributions. Different withholding rules apply to 
distributions that are eligible rollover distributions and to 
distributions that are not eligible rollover distributions. 
Eligible rollover distributions that are not directly rolled 
over are subject to withholding at a flat rate of 20 percent. 
Distributions that are not eligible rollover distributions are 
subject to elective withholding. Periodic distributions are 
subject to withholding as if the distribution were wages; 
nonperiodic distributions are subject to withholding at a rate 
of 10 percent. In either case, the individual may elect not to 
have withholding apply.

                           reasons for change

    Although the Committee believes that it is appropriate to 
restrict the circumstances in which an in-service distribution 
from a 401(k) plan is permitted and to encourage participants 
to take such distributions only when necessary to satisfy an 
immediate and heavy financial need, the Committee is concerned 
about the impact that a 12-month suspension of contributions 
may have on the retirement savings of a participant who 
experiences a hardship. The Committee believes that the 
combination of a 6-month contribution suspension and the other 
elements of the regulatory safe harbor will provide an adequate 
incentive for a participant to seek sources of funds other than 
his or her 401(k) plan account balance in order to satisfy 
financial hardships.
    The present-law rules regarding the ability to rollover 
hardship distributions create administrative burdens for plan 
administrators and confusion on the part of plan participants. 
The Committee believes that providing a uniform rule for all 
hardship distributions will simplify application of the 
rollover rules.

                        explanation of provision

    The Secretary of the Treasury is directed to revise the 
applicable regulations to reduce from 12 months to 6 months the 
period during which an employee must be prohibited from making 
elective contributions and employee contributions in order for 
a distribution to be deemed necessary to satisfy an immediate 
and heavy financial need. The revised regulations are to be 
effective for years beginning after December 31, 2001.
    In addition, any distribution made upon hardship of an 
employee is not an eligible rollover distribution. Thus, such 
distributions may not be rolled over, and are subject to the 
withholding rules applicable to distributions that are not 
eligible rollover distributions. The provision does not modify 
the rules under which hardship distributions may be made. For 
example, as under present law, hardship distributions of 
qualified employer matching contributions are only permitted 
under the rules applicable to elective deferrals.
    The provision is intended to clarify that all assets 
distributed as a hardship withdrawal, including assets 
attributable to employee elective deferrals and those 
attributable to employer matching or nonelective contributions, 
are ineligible for rollover. This rule is intended to apply to 
all hardship distributions from any tax qualified plan, 
including those made pursuant to standards set forth in section 
401(k)(2)(B)(i)(IV) (which are applicable to section 401(k) 
plans and section 403(b) annuities) and to those treated as 
hardship distributions under any profit-sharing plan (whether 
or not in accordance with the standards set forth in section 
401(k)(2)(B)(i)(IV)). For this purpose, a distribution that 
could be made either under the hardship provisions of a plan or 
under other provisions of the plan (such as provisions 
permitting in-service withdrawal of assets attributable to 
employer matching or nonelective contributions after a fixed 
period of years) could be treated as made upon hardship of the 
employee if the plan treats it that way. For example, if a plan 
makes an in-service distribution that consists of assets 
attributable to both elective deferrals (in circumstances where 
those assets could be distributed only upon hardship) and 
employer matching or nonelective contributions (which could be 
distributed in nonhardship circumstances under the plan), the 
plan is permitted to treat the distribution in its entirety as 
made upon hardship of the employee.

                             effective date

    The provision directing the Secretary to revise the rules 
relating to safe harbor hardship distributions is effective on 
the date of enactment. The provision providing that hardship 
distributions are not eligible rollover distributions is 
effective for distributions made after December 31, 2001. The 
Secretary has the authority to issue transitional guidance with 
respect to the provision providing that hardship distributions 
are not eligible rollover distributions to provide sufficient 
time for plans to implement the new rule.

          G. Pension Coverage for Domestic and Similar Workers


         (Sec. 307 of the bill and sec. 4972(c)(6) of the Code)


                              present law

    Under present law, within limits, employers may make 
deductible contributions to qualified retirement plans for 
employees. Subject to certain exceptions, a 10-percent excise 
tax applies to nondeductible contributions to such plans.
    Employers of household workers may establish a pension plan 
for their employees. Contributions to such plans are not 
deductible because they are not made in connection with a trade 
or business of the employer.

                           Reasons for Change

    Under present law, individuals who employ domestic and 
similar workers may be discouraged from providing pension plan 
coverage for such employees because of the possible adverse tax 
consequences from making nondeductible contributions. As a 
result, such workers, who are typically lower income, may be 
denied the opportunity for tax-favored retirement savings. The 
Committee believes that such individuals who employ such 
workers should be encouraged to provide pension coverage.

                        Explanation of Provision

    The 10-percent excise tax on nondeductible contributions 
does not apply to contributions to a SIMPLE plan or a SIMPLE 
IRA that are nondeductible solely because the contributions are 
not a trade or business expense under section 162 because they 
are not made in connection with atrade or business of the 
employer. Thus, for example, employers of household workers are able to 
make contributions to such plans without imposition of the excise tax. 
As under present law, the contributions are not deductible. The 
present-law rules applicable to such plans, e.g., contribution limits 
and nondiscrimination rules, continue to apply. The provision does not 
apply with respect to contributions on behalf of the individual and 
members of his or her family.
    No inference is intended with respect to the application of 
the excise tax under present law to contributions that are not 
deductible because they are not made in connection with a trade 
or business of the employer.
    As under present law, a plan covering domestic workers is 
not qualified unless the coverage rules are satisfied by 
aggregating all employees of family members taken into account 
under the attribution rules in section 414(c), but disregarding 
employees employed by a controlled group of corporations or a 
trade or business.
    It is intended that the provision is restricted to 
contributions made by employers of household workers with 
respect to whom all applicable employment taxes have been and 
are being paid.

                             effective date

    The provision is effective for taxable years beginning 
after December 31, 2001.

           TITLE IV. INCREASING PORTABILITY FOR PARTICIPANTS


         A. Rollovers of Retirement Plan and IRA Distributions


  (Secs. 401-403 and 409 of the bill and secs. 401, 402, 403(b), 408, 
                       457, and 3405 of the Code)


                              present law

In general

    Present law permits the rollover of funds from a tax-
favored retirement plan to another tax-favored retirement plan. 
The rules that apply depend on the type of plan involved. 
Similarly, the rules regarding the tax treatment of amounts 
that are not rolled over depend on the type of plan involved.

Distributions from qualified plans

    Under present law, an ``eligible rollover distribution'' 
from a tax-qualified employer-sponsored retirement plan may be 
rolled over tax free to a traditional individual retirement 
arrangement (``IRA'') \29\ or another qualified plan.\30\ An 
``eligible rollover distribution'' means any distribution to an 
employee of all or any portion of the balance to the credit of 
the employee in a qualified plan, except the term does not 
include (1) any distribution which is one of a series of 
substantially equal periodic payments made (a) for the life (or 
life expectancy) of the employee or the joint lives (or joint 
life expectancies) of the employee and the employee's 
designated beneficiary, or (b) for a specified period of 10 
years or more, (2) any distribution to the extent such 
distribution is required under the minimum distribution rules, 
and (3) certain hardship distributions. The maximum amount that 
can be rolled over is the amount of the distribution includible 
in income, i.e., after-tax employee contributions cannot be 
rolled over. Qualified plans are not required to accept 
rollovers.
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    \29\ A ``traditional'' IRA refers to IRAs other than Roth IRAs or 
SIMPLE IRAs. All references to IRAs refer only to traditional IRAs.
    \30\ An eligible rollover distribution may either be rolled over by 
the distributee within 60 days of the date of the distribution or, as 
described below, directly rolled over by the distributing plan.
---------------------------------------------------------------------------

Distributions from tax-sheltered annuities

    Eligible rollover distributions from a tax-sheltered 
annuity (``section 403(b) annuity'') may be rolled over into an 
IRA or another section 403(b) annuity. Distributions from a 
section 403(b) annuity cannot be rolled over into a tax-
qualified plan. Section 403(b) annuities are not required to 
accept rollovers.

IRA distributions

    Distributions from a traditional IRA, other than minimum 
required distributions, can be rolled over into another IRA. In 
general, distributions from an IRA cannot be rolled over into 
aqualified plan or section 403(b) annuity. An exception to this rule 
applies in the case of so-called ``conduit IRAs.'' Under the conduit 
IRA rule, amounts can be rolled from a qualified plan into an IRA and 
then subsequently rolled back to another qualified plan if the amounts 
in the IRA are attributable solely to rollovers from a qualified plan. 
Similarly, an amount may be rolled over from a section 403(b) annuity 
to an IRA and subsequently rolled back into a section 403(b) annuity if 
the amounts in the IRA are attributable solely to rollovers from a 
section 403(b) annuity.

Distributions from section 457 plans

    A ``section 457 plan'' is an eligible deferred compensation 
plan of a State or local government or tax-exempt employer that 
meets certain requirements. In some cases, different rules 
apply under section 457 to governmental plans and plans of tax-
exempt employers. For example, governmental section 457 plans 
are like qualified plans in that plan assets are required to be 
held in a trust for the exclusive benefit of plan participants 
and beneficiaries. In contrast, benefits under a section 457 
plan of a tax-exempt employer are unfunded, like nonqualified 
deferred compensation plans of private employers.
    Section 457 benefits can be transferred to another section 
457 plan. Distributions from a section 457 plan cannot be 
rolled over to another section 457 plan, a qualified plan, a 
section 403(b) annuity, or an IRA.

Rollovers by surviving spouses

    A surviving spouse that receives an eligible rollover 
distribution may roll over the distribution into an IRA, but 
not a qualified plan or section 403(b) annuity.

Direct rollovers and withholding requirements

    Qualified plans and section 403(b) annuities are required 
to provide that a plan participant has the right to elect that 
an eligible rollover distribution be directly rolled over to 
another eligible retirement plan. If the plan participant does 
not elect the direct rollover option, then withholding is 
required on the distribution at a 20-percent rate.\31\
---------------------------------------------------------------------------
    \31\ Distributions from qualified plans and section 403(b) 
annuities that are not eligible rollover distributions are subject to 
elective withholding. Periodic distributions are subject to withholding 
as if the distribution were wages; nonperiodic distributions are 
subject to withholding at a rate of 10 percent. In either case, the 
individual may elect not to have withholding apply.
---------------------------------------------------------------------------

Notice of eligible rollover distribution

    The plan administrator of a qualified plan or a section 
403(b) annuity is required to provide a written explanation of 
rollover rules to individuals who receive a distribution 
eligible for rollover. In general, the notice is to be provided 
within a reasonable period of time before making the 
distribution and is to include an explanation of (1) the 
provisions under which the individual may have the distribution 
directly rolled over to another eligible retirement plan, (2) 
the provision that requires withholding if the distribution is 
not directly rolled over, (3) the provision under which the 
distribution may be rolled over within 60 days of receipt, and 
(4) if applicable, certain other rules that may apply to the 
distribution. The Treasury Department has provided more 
specific guidance regarding timing and content of the notice.

Taxation of distributions

    As is the case with the rollover rules, different rules 
regarding taxation of benefits apply to different types of tax-
favored arrangements. In general, distributions from a 
qualified plan, section 403(b) annuity, or IRA are includible 
in income in the year received. In certain cases, distributions 
from qualified plans are eligible for capital gains treatment 
and averaging. These rules do not apply to distributions from 
another type of plan. Distributions from a qualified plan, IRA, 
and section 403(b) annuity generally are subject to an 
additional 10-percent early withdrawal tax if made before age 
59\1/2\. There are a number of exceptions to the early 
withdrawal tax. Some of the exceptions apply to all three types 
of plans, and others apply only to certain types of plans. For 
example, the 10-percent early withdrawal tax does not apply to 
IRA distributions for educational expenses, but does apply to 
similar distributions from qualified plans and section 403(b) 
annuities. Benefits under a section 457 plan are generally 
includible in income when paid or made available. The 10-
percent early withdrawal tax does not apply to section 457 
plans.

                           reasons for change

    Present law encourages individuals who receive 
distributions from qualified plans and similar arrangements to 
save those distributions for retirement by facilitating tax-
free rollovers to an IRA or another qualified plan. The 
Committee believes that expanding the rollover options for 
individuals in employer-sponsored retirement plans and owners 
of IRAs will provide further incentives for individuals to 
continue to accumulate funds for retirement. The Committee 
believes it appropriate to extend the same rollover rules to 
governmental section 457 plans; like qualified plans, such 
plans are required to hold plan assets in trust for employees.

                        explanation of provision

In general

    The provision provides that eligible rollover distributions 
from qualified retirement plans, section 403(b) annuities, and 
governmental section 457 plans generally could be rolled over 
to any of such plans or arrangements.\32\ Similarly, 
distributions from an IRA generally are permitted to be rolled 
over into a qualified plan, section 403(b) annuity, or 
governmental section 457 plan. The direct rollover and 
withholding rules are extended to distributions from a 
governmental section 457 plan, and such plans are required to 
provide the written notification regarding eligible rollover 
distributions.\33\ The rollover notice (with respect to all 
plans) is required to include a description of the provisions 
under which distributions from the plan to which the 
distribution is rolled over may be subject to restrictions and 
tax consequences different than those applicable to 
distributions from the distributing plan. Qualified plans, 
section 403(b) annuities, and section 457 plans would not be 
required to accept rollovers.
---------------------------------------------------------------------------
    \32\ Hardship distributions from governmental section 457 plans 
would be considered eligible rollover distributions.
    \33\ The elective withholding rules applicable to distributions 
from qualified plans and section 403(b) annuities that are not eligible 
rollover distributions are also extended to distributions from 
governmental section 457 plans. Thus, periodic distributions from 
governmental section 457 plans that are not eligible rollover 
distributions are subject to withholding as if the distribution were 
wages and nonperiodic distributions from such plans that are not 
eligible rollover distributions are subject to withholding at a 10-
percent rate. In either case, the individual may elect not to have 
withholding apply.
---------------------------------------------------------------------------
    Some special rules apply in certain cases. A distribution 
from a qualified plan is not eligible for capital gains or 
averaging treatment if there was a rollover to the plan that 
would not have been permitted under present law. Thus, in order 
to preserve capital gains and averaging treatment for a 
qualified plan distribution that is rolled over, the rollover 
would have to be made to a ``conduit IRA'' as under present 
law, and then rolled back into a qualified plan. Amounts 
distributed from a section 457 plan are subject to the early 
withdrawal tax to the extent the distribution consists of 
amounts attributable to rollovers from another type of plan. 
Section 457 plans are required to separately account for such 
amounts.

Rollover of after-tax contributions

    The provision provides that employee after-tax 
contributions may be rolled over into another qualified plan or 
a traditional IRA. In the case of a rollover from a qualified 
plan to another qualified plan, the rollover is permitted to be 
accomplished only through a direct rollover. In addition, a 
qualified plan would not be permitted to accept rollovers of 
after-tax contributions unless the plan provides separate 
accounting for such contributions (and earnings thereon). 
After-tax contributions (including nondeductible contributions 
to an IRA) would not be permitted to be rolled over from an IRA 
into a qualified plan, tax-sheltered annuity, or section 457 
plan.
    In the case of a distribution from a traditional IRA that 
is rolled over into an eligible rollover plan that is not an 
IRA, the distribution is attributed first to amounts other than 
after-tax contributions.

Expansion of spousal rollovers

    The provision provides that surviving spouses may roll over 
distributions to a qualified plan, section 403(b) annuity, or 
governmental section 457 plan in which the surviving spouse 
participates.

Treasury regulations

    The Secretary is directed to prescribe rules necessary to 
carry out the provision. Such rules may include, for example, 
reporting requirements and mechanisms to address mistakes 
relating to rollovers. It is anticipated that the IRS would 
develop forms to assist individuals who roll over after-tax 
contributions to an IRA in keeping track of such contributions. 
Such forms could, for example, expand Form 8606--Nondeductible 
IRAs, to include information regarding after-tax contributions.

                             Effective Date

    The provision is effective for distributions made after 
December 31, 2001. It is intended that the Secretary will 
revise the safe harbor rollover notice that plans may use to 
satisfy the rollover requirements. No penalty is imposed on a 
plan for a failure to provide the information required under 
the provision with respect to any distribution made before the 
date that is 90 days after the date the Secretary issues a new 
safe harbor rollover notice, if the plan administrator makes a 
reasonable attempt to comply with such notice requirement. For 
example, the provision requires that the rollover notice 
include a description of the provisions under which 
distributions from the eligible retirement plan receiving the 
distribution may be subject to restrictions and tax 
consequences which are different from those applicable to 
distributions from the plan making the distribution. A plan is 
treated as making a reasonable good faith effort to comply with 
this requirement if the notice states that distributions from 
the plan to which the rollover is made may be subject to 
different restrictions and tax consequences than those that 
apply to distributions from the plan from which the rollover is 
made.

                        B. Waiver of 60-Day Rule


        (Sec. 404 of the bill and secs. 402 and 408 of the Code)


                              Present Law

    Under present law, amounts received from an IRA or 
qualified plan may be rolled over tax free if the rollover is 
made within 60 days of the date of the distribution. The 
Secretary does not have the authority to waive the 60-day 
requirement, except during military service in a combat zone or 
by reason of a Presidentially declared disaster. The Secretary 
has issued regulations postponing the 60-day rule in such 
cases.

                           Reasons for Change

    The inability of the Secretary to waive the 60-day rollover 
period may result in adverse tax consequences for individuals. 
The Committee believes such harsh results are inappropriate and 
that providing for waivers of the rule will help facilitate 
rollovers.

                        Explanation of Provision

    The provision provides that the Secretary may waive the 60-
day rollover period if the failure to waive such requirement 
would be against equity or good conscience, including cases of 
casualty, disaster, or other events beyond the reasonable 
control of the individual subject to such requirement. For 
example, the Secretary may issue guidance that includes 
objective standards for a waiver of the 60-day rollover period, 
such as waiving the rule due to military service in a combat 
zone or during a Presidentially declared disaster (both of 
which are provided for under present law), or for a period 
during which the participant has received payment in the form 
of a check, but has not cashed the check, or for errors 
committed by a financial institution.

                             Effective Date

    The provision applies to distributions made after December 
31, 2001.

                 C. Treatment of Forms of Distribution


         (Sec. 405 of the bill and sec. 411(d)(6) of the Code)


                              Present Law

    An amendment of a qualified retirement plan may not 
decrease the accrued benefit of a plan participant. An 
amendment is treated as reducing an accrued benefit if, with 
respect to benefits accrued before the amendment is adopted, 
the amendment has the effect of either (1) eliminating or 
reducing an early retirement benefit or a retirement-type 
subsidy, or (2) except as provided by Treasury regulations, 
eliminating an optional form of benefit (sec. 411(d)(6)).\34\
---------------------------------------------------------------------------
    \34\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
    Under regulations recently issued by the Secretary,\35\ 
this prohibition against the elimination of an optional form of 
benefit does not apply in the case of (1) a defined 
contribution plan that offers a lump sum at the same time as 
the form being eliminated if the participant receives at least 
90 days' advance notice of the elimination, or (2) a voluntary 
transfer between defined contribution plans, subject to the 
requirements that a transfer from a money purchase pension 
plan, an ESOP, or a section 401(k) plan must be to a plan of 
the same type and that the transfer be made in connection with 
certain corporate mergers, acquisitions, or similar 
transactions or changes in employment status.
---------------------------------------------------------------------------
    \35\ Treas. Reg. sec. 1.411(d)-4, Q&A-2(e) and Q&A-(3)(b).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee understands that the application of the 
prohibition against the elimination of any optional form of 
benefit frequently results in complexity and confusion, 
especially in the context of business acquisitions and similar 
transactions, and makes it difficult for participants to 
understand their benefit options and make choices that are 
best-suited to their needs. The Committee believes that it is 
appropriate to permit the elimination of duplicative benefit 
options that develop following plan mergers and similar events 
while ensuring that meaningful early retirement benefit payment 
options and subsidies may not be eliminated. In addition, the 
Committee understands that a defined contribution plan 
participant who is entitled to receive a single sum 
distribution generally may roll over such a distribution to an 
IRA and control the manner of distribution from the IRA, thus 
reducing the need to prohibit the elimination of all optional 
forms of benefits.

                        Explanation of Provision

    A defined contribution plan to which benefits are 
transferred would not be treated as reducing a participant's or 
beneficiary's accrued benefit even though it does not provide 
all of the forms of distribution previously available under the 
transferor plan if (1) the plan receives from another defined 
contribution plan a direct transfer of the participant's or 
beneficiary's benefit accrued under the transferor plan, or the 
plan results from a merger or other transaction that has the 
effect of a direct transfer (including consolidations of 
benefits attributable to different employers within a multiple 
employer plan), (2) the terms of both the transferor plan and 
the transferee plan authorize the transfer, (3) the transfer 
occurs pursuant to a voluntary election by the participant or 
beneficiary that is made after the participant or beneficiary 
received a notice describing the consequences of making the 
election, and (4) the transferee plan allows the participant or 
beneficiary to receive distribution of his or her benefit under 
the transferee plan in the form of a single sum distribution. 
The bill does not modify the rules relating to survivor 
annuities under section 417. Thus, as under present law, a plan 
that is a transferee of a plan subject to the joint and 
survivor rules is also subject to those rules.
    Except to the extent provided by the Secretary of the 
Treasury in regulations, a defined contribution plan is not 
treated as reducing a participant's accrued benefit if (1) a 
plan amendment eliminates a form of distribution previously 
available under the plan, (2) a single sum distribution is 
available to the participant at the same time or times as the 
form of distribution eliminated by the amendment, and (3) the 
single sum distribution is based on the same or greater portion 
of the participant's accrued benefit as the form of 
distribution eliminated by the amendment.
    Furthermore, the provision directs the Secretary of the 
Treasury to provide by regulations that the prohibitions 
against eliminating or reducing an early retirement benefit, a 
retirement-type subsidy, or an optional form of benefit do not 
apply to plan amendments that eliminate or reduce early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit that create significant burdens and 
complexities for a plan and its participants, but only if such 
an amendment does not adversely affect the rights of any 
participant in more than a de minimis manner.
    It is intended that the factors to be considered in 
determining whether an amendment has more than a de minimis 
adverse effect on any participant would include (1) all of the 
participant's early retirement benefits, retirement-type 
subsidies, and optional forms of benefits that are reduced or 
eliminated by the amendment, (2) the extent to which early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit in effect with respect to a participant after 
the amendment effective date provide rights that are comparable 
to the rights that are reduced or eliminated by the plan 
amendment, (3) the number of years before the participant 
attains normal retirement age under the plan (or early 
retirement age, as applicable), (4) the size of the 
participant's benefit that is affected by the plan amendment, 
in relation to the amount of the participant's compensation, 
and (5) the number of years before the plan amendment is 
effective.
    This provision of the bill does not affect the rules 
relating to involuntary cash outs (sec. 411(a)(11)) or survivor 
annuity requirements (sec. 417). Accordingly, if a participant 
is entitled to protections of the joint and survivor rules, 
those protections may not be eliminated. The intent of the 
provision authorizing regulations is solely to permit the 
elimination of early retirement benefits, retirement-type 
subsidies, or optional forms of benefit that have no more than 
a de minimis effect on any participant but create 
disproportionate burdens and complexities for a plan and its 
participants.
    For example, assume the following. Employer A acquires 
employer B and merges B's defined benefit plan into A's defined 
benefit plan. The defined benefit plan maintained by B before 
the merger provides an early retirement subsidy for individuals 
age 55 with a specifiednumber of years of service. E1 and E2 
are were employees of B and who transfer to A in connection with the 
merger. E1 is 25 years old and has compensation of $40,000. The present 
value of E1's early retirement subsidy under B's plan is $75. E2 is 50 
years old and also has compensation of $40,000. The present value of 
E2's early retirement subsidy under B's plan is $10,000.
    Assume that A's plan has an early retirement subsidy for 
individuals who have attained age 50 with a specified number of 
years of service, but the subsidy is not the same as under B's 
plan. Under A's plan, the present value of E2's early 
retirement subsidy is $9,500. Maintenance of both subsidies 
would create burdens for the plan and complexities for the plan 
and its participants.
    Treasury regulations could permit E1's early retirement 
subsidy under B's plan to be eliminated entirely (i.e., even if 
A's plan did not have an early retirement subsidy). Taking into 
account all relevant factors, including the value of the 
benefit, E1's compensation, and the number of years until E1 
would be eligible to receive the subsidy, the subsidy is de 
minimis. Treasury regulations could permit E2's early 
retirement subsidy under B's plan to be eliminated as to be 
replaced by the subsidy under A's plan, because the difference 
in the subsidies is de minimis. However, A's subsidy could not 
be entirely eliminated.
    The Secretary is directed to issue, not later than December 
31, 2003, final regulations under section 411(d)(6), including 
regulations required under the provision.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2001, except that the direction to the Secretary 
is effective on the date of enactment.

          D. Rationalization of Restrictions on Distributions


  (Sec. 406 of the bill and secs. 401(k), 403(b), and 457 of the Code)


                              Present Law

    Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan''), tax-sheltered annuity 
(``section 403(b) annuity''), or an eligible deferred 
compensation plan of a tax-exempt organization or State or 
local government (``section 457 plan''), may not be 
distributable prior to the occurrence of one or more specified 
events. These permissible distributable events include 
``separation from service.''
    A separation from service occurs only upon a participant's 
death, retirement, resignation or discharge, and not when the 
employee continues on the same job for a different employer as 
a result of the liquidation, merger, consolidation or other 
similar corporate transaction. A severance from employment 
occurs when a participant ceases to be employed by the employer 
that maintains the plan. Under a so-called ``same desk rule,'' 
a participant's severance from employment does not necessarily 
result in a separation from service.\36\
---------------------------------------------------------------------------
    \36\ Rev. Rul. 79-336, 1979-2 C.B. 187.
---------------------------------------------------------------------------
    In addition to separation from service and other events, a 
section 401(k) plan that is maintained by a corporation may 
permit distributions to certain employees who experience a 
severance from employment with the corporation that maintains 
the plan but do not experience a separation from service 
because the employees continue on the same job for a different 
employer as a result of a corporate transaction. If the 
corporation disposes of substantially all of the assets used by 
the corporation in a trade or business, a distributable event 
occurs with respect to the accounts of the employees who 
continue employment with the corporation that acquires the 
assets. If the corporation disposes of its interest in a 
subsidiary, a distributable event occurs with respect to the 
accounts of the employees who continue employment with the 
subsidiary. Under a recent IRS ruling, a person is generally 
deemed to have separated from service if that person is 
transferred to another employer in connection with a sale of 
less than substantially all the assets of a trade or 
business.\37\
---------------------------------------------------------------------------
    \37\ Rev. Rul. 2000-27, 2000-21 I.R.B. 1016.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that application of the ``same 
desk'' rule is inappropriate because it hinders portability of 
retirement benefits, creates confusion for employees, and 
results in significant administrative burdens for employers 
that engage in business acquisition transactions.

                        Explanation of Provision

    The provision modifies the distribution restrictions 
applicable to section 401(k) plans, section 403(b) annuities, 
and section 457 plans to provide that distribution may occur 
upon severance from employment rather than separation from 
service. In addition, the provisions for distribution from a 
section 401(k) plan based upon a corporation's disposition of 
its assets or a subsidiary are repealed; this special rule is 
no longer necessary under the provision.

                             Effective Date

    The provision is effective for distributions after December 
31, 2001, regardless of when the severance of employment 
occurred.

     E. Purchase of Service Credit under Governmental Pension Plans


      (Sec. 407 of the bill and secs. 403(b) and 457 of the Code)


                              Present Law

    A qualified retirement plan maintained by a State or local 
government employer may provide that a participant may make 
after-tax employee contributions in order to purchase 
permissive service credit, subject to certain limits (sec. 
415). Permissive service credit means credit for a period of 
service recognized by the governmental plan only if the 
employee voluntarily contributes to the plan an amount (as 
determined by the plan) that does not exceed the amount 
necessary to fund the benefit attributable to the period of 
service and that is in addition to the regular employee 
contributions, if any, under the plan.
    In the case of any repayment of contributions and earnings 
to a governmental plan with respect to an amount previously 
refunded upon a forfeiture of service credit under the plan (or 
another plan maintained by a State or local government employer 
within the same State), any such repayment is not taken into 
account for purposes of the section 415 limits on contributions 
and benefits. Also, service credit obtained as a result of such 
a repayment is not considered permissive service credit for 
purposes of the section 415 limits.
    A participant may not use a rollover or direct transfer of 
benefits from a tax-sheltered annuity (``section 403(b) 
annuity'') or an eligible deferred compensation plan of a tax-
exempt organization or a State or local government (``section 
457 plan'') to purchase permissive service credits or repay 
contributions and earnings with respect to a forfeiture of 
service credit.

                           Reasons for Change

    The Committee understands that many employees work for 
multiple State or local government employers during their 
careers. The Committee believes that allowing such employees to 
use their section 403(b) annuity and section 457 plan accounts 
to purchase permissive service credits or make repayments with 
respect to forfeitures of service credit will result in more 
significant retirement benefits for employees who would not 
otherwise be able to afford such credits or repayments.

                        Explanation of Provision

    A participant in a State or local governmental plan is not 
required to include in gross income a direct trustee-to-trustee 
transfer to a governmental defined benefit plan from a section 
403(b) annuity or a section 457 plan if the transferred amount 
is used (1) to purchase permissive service credits under the 
plan, or (2) to repay contributions and earnings with respect 
to an amount previously refunded under a forfeiture of service 
credit under the plan (or another plan maintained by a State or 
local government employer within the same State).

                             Effective Date

    The provision is effective for transfers after December 31, 
2001.

  F. Employers May Disregard Rollovers for Purposes of Cash-out Rules


         (Sec. 408 of the bill and sec. 411(a)(11) of the Code)


                              Present Law

    If an qualified retirement plan participant ceases to be 
employed by the employer that maintains the plan, the plan may 
distribute the participant's nonforfeitable accrued benefit 
without the consent of the participant and, if applicable, the 
participant's spouse, if the present value of the benefit does 
not exceed $5,000. If such an involuntary distribution occurs 
and the participant subsequently returns to employment covered 
by the plan, then service taken into account in computing 
benefits payable under the plan after the return need not 
include service with respect to which a benefit was 
involuntarily distributed unless the employee repays the 
benefit.\38\
---------------------------------------------------------------------------
    \38\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
    Generally, a participant may roll over an involuntary 
distribution from a qualified plan to an IRA or to another 
qualified plan.\39\
---------------------------------------------------------------------------
    \39\ Other provisions expand the kinds of plans to which benefits 
may be rolled over.
---------------------------------------------------------------------------

                           Reasons for Change

    The present-law cash-out rule reflects a balancing of 
various policies. On the one hand is the desire to assist 
individuals to save for retirement by making it easier to keep 
retirement funds in tax-favored vehicles. On the other hand is 
the recognition that keeping track of small account balances of 
former employees creates administrative burdens for plans.
    The Committee is concerned that, in some cases, the cash-
out rule may discourage plans from accepting rollovers because 
the rollover will increase participants' benefits to above the 
cash-out amount, and increase administrative burdens. The 
Committee believes that disregarding rollovers for purposes of 
the cash-out rule will further the intent of the cash-out rule 
by removing a possible disincentive for plans to accept 
rollovers.

                        Explanation of Provision

    For purposes of the cash-out rule, a plan is permitted to 
provide that the present value of a participant's 
nonforfeitable accrued benefit is determined without regard to 
the portion of such benefit that is attributable to rollover 
contributions (and any earnings allocable thereto).

                             Effective Date

    The provision is effective for distributions after December 
31, 2001.

  G. Minimum Distribution and Inclusion Requirements for Section 457 
                                 Plans


            (Sec. 409 of the bill and sec. 457 of the Code)


                              Present Law

    A ``section 457 plan'' is an eligible deferred compensation 
plan of a State or local government or tax-exempt employer that 
meets certain requirements. For example, amounts deferred under 
a section 457 plan cannot exceed certain limits. Amounts 
deferred under a section 457 plan are generally includible in 
income when paid or made available. Amounts deferred under a 
plan of deferred compensation of a State or local government or 
tax-exempt employer that does not meet the requirements of 
section 457 are includible in income when the amounts are not 
subject to a substantial risk of forfeiture, regardless of 
whether the amounts have been paid or made available.\40\
---------------------------------------------------------------------------
    \40\ This rule of inclusion does not apply to amounts deferred 
under a tax-qualified retirement plan or similar plans.
---------------------------------------------------------------------------
    Section 457 plans are subject to the minimum distribution 
rules applicable to tax-qualified pension plans. In addition, 
such plans are subject to additional minimum distribution rules 
(sec. 457(d)(2)(B)).

                           Reasons for Change

    The Committee believes that the rules for timing of 
inclusion of benefits under a governmental section 457 plan 
should be conformed to the rules relating to qualified plans. 
The Committee also believes that section 457 plans should be 
subject to the same minimum distribution rules applicable to 
qualified plans.

                        Explanation of Provision

    The provision provides that amounts deferred under a 
section 457 plan of a State or local government are includible 
in income when paid. The provision also repeals the special 
minimum distribution rules applicable to section 457 plans. 
Thus, such plans are subject to the minimum distribution rules 
applicable to qualified plans.

                             Effective Date

    The provision is effective for distributions after December 
31, 2001.

        TITLE V. STRENGTHENING PENSION SECURITY AND ENFORCEMENT


 A. Phase in Repeal of 160 Percent of Current Liability Funding Limit; 
       Deduction for Contributions to Fund Termination Liability


  (Secs. 501 and 502 of the bill and secs. 404(a)(1), 412(c)(7), and 
                          4972(c) of the Code)


                              Present Law

    Under present law, defined benefit pension plans are 
subject to minimum funding requirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined 
benefit pension plan is funded using one of a number of 
acceptable actuarial cost methods.
    No contribution is required under the minimum funding rules 
in excess of the full funding limit. The full funding limit is 
generally defined as the excess, if any, of (1) the lesser of 
(a) the accrued liability under the plan (including normal 
cost) or (b) 160 percent of the plan's current liability, over 
(2) the value of the plan's assets (sec. 412(c)(7)).\41\ In 
general, current liability is all liabilities to plan 
participants and beneficiaries accrued to date, whereas the 
accrued liability full funding limit is based on projected 
benefits. The current liability full funding limit is scheduled 
to increase as follows: 165 percent for plan years beginning in 
2003 and 2004, and 170 percent for plan years beginning in 2005 
and thereafter.\42\ In no event is a plan's full funding limit 
less than 90 percent of the plan's current liability over the 
value of the plan's assets.
---------------------------------------------------------------------------
    \41\ The minimum funding requirements, including the full funding 
limit, are also contained in title I of ERISA.
    \42\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, 160 
percent in 2001 and 2002, and adopted the scheduled increases described 
in the text.
---------------------------------------------------------------------------
    An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.

                           Reasons for Change

    The Committee is concerned that the current liability full 
funding limit, which focuses on current but not projected 
benefits, may result in inadequate funding of pension plans and 
thus jeopardize pension security. The Committee believes that 
repealing the current liability full funding limit will 
encourage responsible pension funding and help ensure that plan 
participants receive promised benefits. Also, the Committee 
believes that the special deduction rule should be expanded to 
give more plan sponsors incentives to adequately fund their 
plans.

                        Explanation of Provision

Current liability full funding limit

    The provision gradually increases and then repeals the 
current liability full funding limit. Under the bill, the 
current liability full funding limit is 165 percent of current 
liability for plan years beginning in 2002, and 170 percent for 
plan years beginning in 2003. The current liability full 
funding limit is repealed for plan years beginning in 2004 and 
thereafter. Thus, in 2004 and thereafter, the full funding 
limit is the excess, if any, of (1) the accrued liability under 
the plan (including normal cost), over (2) the value of the 
plan's assets.

Deduction for contributions to fund termination liability

    The special rule allowing a deduction for unfunded current 
liability generally is extended to all defined benefit pension 
plans, i.e., the provision would apply to multiemployer plans 
and plans with 100 or fewer participants. The special rule does 
not apply to plans not covered by the PBGC termination 
insurance program.\43\
---------------------------------------------------------------------------
    \43\ The PBGC termination insurance program does not cover plans of 
professional service employers that have fewer than 25 participants.
---------------------------------------------------------------------------
    The provision also would modify the rule by providing that 
the deduction is for up to 100 percent of unfunded termination 
liability, determined as if the plan terminated at the end of 
the plan year. In the case of a plan with less than 100 
participants for the plan year, termination liability would not 
include the liability attributable to benefit increases for 
highly compensated employees resulting from a plan amendment 
which was made or became effective, whichever is later, within 
the last two years.

General Accounting Office study

    In connection with the Committee's desire to strengthen 
pension security, the Committee directs the General Accounting 
Office to conduct a study examining the extent to which certain 
present-law rules create obstacles or disincentives for 
taxpayers experiencing financial hardships to make current and 
future contributions to underfunded defined benefit pension 
plans. The Committee is concerned that, as a result of not 
obtaining a current or carryback deduction for pension 
contributions, taxpayers experiencing financial hardships will 
be subject to higher after-tax costs of maintaining pension 
funding levels. In the study, the General Accounting Office is 
to consider whether pension funding would be enhanced if 
section 172(f), which since 1998 has permitted only listed 
items to be carried back, were modified to list deductions for 
payments to defined benefit pension plans as an item for which 
10-year specified loss carrybacks may be available. This study 
is to be submitted to the Committee on Ways and Means of the 
House of Representatives and the Committee on Finance of the 
Senate not later than one year after the date of enactment.

                             effective date

    The provision is effective for plan years beginning after 
December 31, 2001.

             B. Excise Tax Relief for Sound Pension Funding


            (Sec. 503 of the bill and sec. 4972 of the Code)


                              Present Law

    Under present law, defined benefit pension plans are 
subject to minimum funding requirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined 
benefit pension plan is funded using one of a number of 
acceptable actuarial cost methods.
    No contribution is required under the minimum funding rules 
in excess of the full funding limit. The full funding limit is 
generally defined as the excess, if any, of (1) the lesser of 
(a) the accrued liability under the plan (including normal 
cost) or (b) 160 percent of the plan's current liability, over 
(2) the value of the plan's assets (sec. 412(c)(7)). In 
general, current liability is all liabilities to plan 
participants and beneficiaries accrued to date, whereas the 
accrued liability full funding limit is based on projected 
benefits. The current liability full funding limit is scheduled 
to increase as follows: 165 percent for plan years beginning in 
2003 and 2004, and 170 percent for plan years beginning in 2005 
and thereafter.\44\ In no event is a plan's full funding limit 
less than 90 percent of the plan's current liability over the 
value of the plan's assets.
---------------------------------------------------------------------------
    \44\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, 160 
percent in 2001 and 2002, and adopted the scheduled increases described 
in the text. Another provision would gradually increase and then repeal 
the current liability full funding limit.
---------------------------------------------------------------------------
    An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.
    Present law also provides that contributions to defined 
contribution plans are deductible, subject to certain 
limitations.
    Subject to certain exceptions, an employer that makes 
nondeductible contributions to a plan is subject to an excise 
tax equal to 10 percent of the amount of the nondeductible 
contributions for the year. The 10-percent excise tax does not 
apply to contributions to certain terminating defined benefit 
plans. The 10-percent excise tax also does not apply to 
contributions of up to 6 percent of compensation to a defined 
contribution plan for employer matching and employee elective 
deferrals.

                           reasons for change

    The Committee believes that employers should be encouraged 
to adequately fund their pension plans. Therefore, the 
Committee does not believe that an excise tax should be imposed 
on employer contributions that do not exceed the accrued 
liability full funding limit.

                        explanation of provision

    In determining the amount of nondeductible contributions, 
the employer is permitted to elect not to take into account 
contributions to a defined benefit pension plan except to the 
extent they exceed the accrued liability full funding limit. 
Thus, if an employer elects, contributions in excess of the 
current liability full funding limit would not be subject to 
the excise tax on nondeductible contributions. An employer 
making such an election for a year would not be permitted to 
take advantage of the present-law exceptions for certain 
terminating plans and certain contributions to defined 
contribution plans. The provision applies to terminated plans 
as well as ongoing plans.

                             effective date

    The provision is effective for years beginning after 
December 31, 2001.

      C. Notice of Significant Reduction in Plan Benefit Accruals


         (Sec. 504 of the bill and new sec. 4980f of the Code)


                              Present Law

    Section 204(h) of Title I of ERISA provides that a defined 
benefit pension plan or a money purchase pension plan may not 
be amended so as to provide for a significant reduction in the 
rate of future benefit accrual, unless, after adoption of the 
plan amendment and not less than 15 days before the effective 
date of the plan amendment, the plan administrator provides a 
written notice (``section 204(h) notice''), setting forth the 
plan amendment (or a summary of the amendment written in a 
manner calculated to be understood by the average plan 
participant) and its effective date. The plan administrator 
must provide the section 204(h) notice to each plan 
participant, each alternate payee under an applicable qualified 
domestic relations order (``QDRO''), and each employee 
organization representing participants in the plan. The 
applicable Treasury regulations \45\ provide, however, that a 
plan administrator need not provide the section 204(h) notice 
to any participant or alternate payee whose rate of future 
benefit accrual is reasonably expected not to be reduced by the 
amendment, nor to an employee organization that does not 
represent a participant to whom the section 204(h) notice must 
be provided. In addition, the regulations provide that the rate 
of future benefit accrual is determined without regard to 
optional forms of benefit, early retirement benefits, 
retirement-type subsidiaries, ancillary benefits, and certain 
other rights and features.
---------------------------------------------------------------------------
    \45\ Treas. Reg. sec. 1.411(d)-6.
---------------------------------------------------------------------------
    A covered amendment generally will not become effective 
with respect to any participants and alternate payees whose 
rate of future benefit accrual is reasonably expected to be 
reduced by the amendment but who do not receive a section 
204(h) notice. An amendment will become effective with respect 
to all participants and alternate payees to whom the section 
204(h) notice was required to be provided if the plan 
administrator (1) has made a good faith effort to comply with 
the section 204(h) notice requirements, (2) has provided a 
section 204(h) notice to each employee organization that 
represents any participant to whom a section 204(h) notice was 
required to be provided, (3) has failed to provide a section 
204(h) notice to no more than a de minimis percentage of 
participants and alternate payees to whom a section 204(h) 
notice was required to be provided, and (4) promptly upon 
discovering the oversight, provides a section 204(h) notice to 
each omitted participant and alternate payee.
    The Internal Revenue Code does not require any notice 
concerning a plan amendment that provides for a significant 
reduction in the rate of future benefit accrual.

                           reasons for change

    The Committee is aware of recent significant publicity 
concerning conversions of traditional defined benefit pension 
plans to ``cash balance'' plans, with particular focus on the 
impact such conversions have on affected workers. Several 
legislative proposals have been introduced to address some of 
the issues relating to such conversions.
    The Committee believes that employees are entitled to 
meaningful disclosure concerning plan amendments that may 
result in reductions of future benefit accruals. The Committee 
has determined that present law does not require employers to 
provide such disclosure, particularly in cases where 
traditional defined benefit plans are converted to cash balance 
plans. The Committee also believes that any disclosure 
requirements applicable to plan amendments should strike a 
balance between providing meaningful disclosure and avoiding 
the imposition of unnecessary administrative burdens on 
employers, and that this balance may best be struck through the 
regulatory process with an opportunity for input from affected 
parties.
    The Committee understands that there are other issues in 
addition to disclosure that have arisen with respect to the 
conversion of defined benefit plans to cash balance or other 
hybrid plans, particularly situations in which plan 
participants do not earn any additional benefit under the plan 
for some time after conversion (called a ``wear away''). The 
Committee believes that this issue should be further studied by 
the Treasury in order to provide guidance to the Congress.

                        explanation of provision

    The provision adds to the Internal Revenue Code a 
requirement that the plan administrator of a defined benefit 
pension plan or a money purchase pension plan furnish a written 
notice concerning a plan amendment that provides for a 
significant reduction in the rate of future benefit accrual, 
including any elimination or reduction of an early retirement 
benefit or retirement-type subsidy. The plan administrator is 
required to provide in this notice, in a manner calculated to 
be understood by the average plan participant, sufficient 
information (as defined in Treasury regulations) to allow 
participants to understand the effect of the amendment.
    The notice requirement does not apply to governmental plans 
or church plans with respect to which an election to have the 
qualified plan participation, vesting, and funding rules apply 
has not been made (sec. 410(d)). The provision authorizes the 
Secretary of the Treasury toprovide a simplified notice 
requirement or an exemption from the notice requirement for plans with 
less than 100 participants and to allow any notice required under the 
provision to be provided by using new technologies. The provision also 
authorizes the Secretary to provide a simplified notice requirement or 
an exemption from the notice requirement if participants are given the 
option to choose between benefits under the new plan formula and the 
old plan formula. In such cases, the provision would have no effect on 
the fiduciary rules applicable to pension plans that may require 
appropriate disclosure to participants, even if no disclosure is 
required under the provision.
    The plan administrator is required to provide this notice 
to each affected participant, each affected alternate payee, 
and each employee organization representing affected 
participants. For purposes of the provision, an affected 
participant or alternate payee is a participant or alternate 
payee whose rate of future benefit accrual may reasonably be 
expected to be significantly reduced by the plan amendment.
    Except to the extent provided by Treasury regulations, the 
plan administrator is required to provide the notice within a 
reasonable time before the effective date of the plan 
amendment. The provision permits a plan administrator to 
provide any notice required under the provision to a person 
designated in writing by the individual to whom it would 
otherwise be provided.
    The provision imposes on a plan administrator that fails to 
comply with the notice requirement an excise tax equal to $100 
per day per omitted participant and alternate payee. No excise 
tax is imposed during any period during which any person 
subject to liability for the tax did not know that the failure 
existed and exercised reasonable diligence to meet the notice 
requirement. In addition, no excise tax is imposed on any 
failure if any person subject to liability for the tax 
exercised reasonable diligence to meet the notice requirement 
and such person provides the required notice during the 30-day 
period beginning on the first date such person knew, or 
exercising reasonable diligence would have known, that the 
failure existed. Also, if the person subject to liability for 
the excise tax exercised reasonable diligence to meet the 
notice requirement, the total excise tax imposed during a 
taxable year of the employer would not exceed $500,000. 
Furthermore, in the case of a failure due to reasonable cause 
and not to willful neglect, the Secretary of the Treasury is 
authorized to waive the excise tax to the extent that the 
payment of the tax would be excessive relative to the failure 
involved.
    It is intended under the provision that the Secretary issue 
the necessary regulations with respect to disclosure within 90 
days of enactment. It is also intended that such guidance may 
be relatively detailed because of the need to provide for 
alternative disclosures rather than a single disclosure 
methodology that may not fit all situations, and the need to 
consider the complex actuarial calculations and assumptions 
involved in providing necessary disclosures.
    In addition, the provision directs the Secretary of the 
Treasury to prepare a report on the effects of conversions of 
traditional defined benefit plans to cash balance or hybrid 
formula plans. Such study is to examine the effect of such 
conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time 
after the conversion. The Secretary is directed to submit such 
report, together with recommendations thereon, to the Committee 
on Ways and Means and the Committee on Education and the 
Workforce of the House of Representatives and the Committee on 
Finance and the Committee on Health, Education, Labor, and 
Pensions of the Senate as soon as practicable, but not later 
than 60 days after the date of enactment.

                             effective date

    The provision is effective for plan amendments taking 
effect on or after the date of enactment. The period for 
providing any notice required under the provision would not end 
before the last day of the 3-month period following the date of 
enactment. Prior to the issuance of Treasury regulations, a 
plan is treated as meeting the requirements of the provision if 
the plan makes a good faith effort to comply with such 
requirements. The notice requirement under the provision does 
not apply to any plan amendment taking effect on or after the 
date of enactment if, before April 25, 2001, notice is provided 
to participants and beneficiaries adversely affected by the 
plan amendment (or their representatives) that is reasonably 
expected to notify them of the nature and effective date of the 
plan amendment.

     D. Modifications to Section 415 Limits for Multiemployer Plans


            (Sec. 505 of the bill and sec. 415 of the Code)


                              present law

    Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415). The limits on 
contributions and benefits under qualified plans are based on 
the type of plan.
    Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation for the highest three years, or 
(2) $140,000 (for 2001). The dollar limit is adjusted for cost-
of-living increases in $5,000 increments. The dollar limit is 
reduced in the case of retirement before the social security 
retirement age and increases in the case of retirement after 
the social security retirement age.
    A special rule applies to governmental defined benefit 
plans. In the case of such plans, the defined benefit dollar 
limit is reduced in the case of retirement before age 62 and 
increased in the case of retirement after age 65. In addition, 
there is a floor on early retirement benefits. Pursuant to this 
floor, the minimum benefit payable at age 55 is $75,000.
    In the case of a defined contribution plan, the limit on 
annual is additions if the lesser of (1) 25 percent of 
compensation \46\ or (2) $35,000 (for 2001).
---------------------------------------------------------------------------
    \46\ Another provision increases this limit to 100 percent of 
compensation.
---------------------------------------------------------------------------
    In applying the limits on contributions and benefits, plans 
of the same employer are aggregated. That is, all defined 
benefit plans of the same employer are treated as a single 
plan, and all defined contribution plans of the same employer 
are treated as a single plan. Under Treasury regulations, 
multiemployer plans are not aggregated with other multiemployer 
plans. However, if an employer maintains both a plan that is 
not a multiemployer plan and a mulitemployer plan, the plan 
that is not a multiemployer plan is aggregated with 
themultiemployer plan to the extent that benefits provided under the 
multiemployer plan are provided with respect to a common 
participant.\47\
---------------------------------------------------------------------------
    \47\ Treas. Reg. sec. 1.415-8(e).
---------------------------------------------------------------------------

                           reasons for change

    The Committee understands that, because pension benefits 
under multiemployer plans are typically based upon factors 
other than compensation, the section 415 benefit limits 
frequently result in benefit reductions for employees in 
industries in which wages vary annually.

                        explanation of provision

    Under the provision, the 100 percent of compensation 
defined benefit plan limit would not apply to multiemployer 
plans. With respect to aggregation of multiemployer plans with 
other plans, the provision provides that multiemployer plans 
are not aggregated with single-employer defined benefit plans 
maintained by an employer contributing to the multiemployer 
plan for purposes of applying the 100 percent of compensation 
limit to such single-employer plan.

                             effective date

    The provision is effective for years beginning after 
December 31, 2001.

      E. Prohibited Allocations of Stock in an S Corporation ESOP


       (Sec. 508 of the bill and secs. 409 and 4979a of the Code)


                              present law

    The Small Business Job Protection Act of 1996 allowed 
qualified retirement plan trusts described in section 401(a) to 
own stock in an S corporation. That Act treated the plan's 
share of the S corporation's income (and gain on the 
disposition of the stock) as includible in full in the trust's 
unrelated business taxable income (``UBTI'').
    The Tax Relief Act of 1997 repealed the provision treating 
items of income or loss of an S corporation as UBTI in the case 
of an employee stock ownership plan (``ESOP''). Thus, the 
income of an S corporation allocable to an ESOP is not subject 
to current taxation.
    Present law provides a deferral of income on the sales of 
certain employer securities to an ESOP (sec. 1042). A 50-
percent excise tax is imposed on certain prohibited allocations 
of securities acquired by an ESOP in a transaction to which 
section 1042 applies. In addition, such allocations are 
currently includible in the gross income of the individual 
receiving the prohibited allocation.

                           reasons for change

    In enacting the 1996 Act provision allowing ESOPs to be 
shareholders of S corporations, the Congress intended to 
encourage employee ownership of closely-held businesses, and to 
facilitate the establishment of ESOPs by S corporations. At the 
same time, the Congress provided that all income flowing 
through to an ESOP (or other tax-exempt S shareholder), and 
gains and losses from the disposition of the stock, was treated 
as unrelated business taxable income. This treatment was 
consistent with the premise underlying the S corporation rules 
that all income of an S corporation (including all gains of the 
sale of the stock of the corporation) should be subject to a 
shareholder-level tax.
    In enacting the present-law rule relating to S corporation 
ESOPs in 1997, the Congress was concerned that the 1996 Act 
rule imposed double taxation on such ESOPs and ESOP 
participants. The Congress believed such a result was 
inappropriate. Since the enactment of the 1997 Act, however, 
the Committee has become aware that the present-law rules allow 
inappropriate deferral and possibly tax avoidance in some 
cases.
    The Committee continues to believe that S corporations 
should be able to encourage employee ownership through an ESOP. 
The Committee does not believe, however, that ESOPs should be 
used by S corporations owners to obtain inappropriate tax 
deferral or avoidance.
    Specifically, the Committee believes that the tax deferral 
opportunities provided by an S corporation ESOP should be 
limited to those situations in which there is broad-based 
employee coverage under the ESOP and the ESOP benefits rank-
and-file employees as well as highly compensated employees and 
historical owners.

                        explanation of provision

In general

    Under the provision, if there is a nonallocation year with 
respect to an ESOP maintained by an S corporation: (1) the 
amount allocated in a prohibited allocation to an individual 
who is a disqualified person is treated as distributed to such 
individual (i.e., the value of the prohibited allocation is 
includible in the gross income of the individual receiving the 
prohibited allocation); (2) an excise tax is imposed on the S 
corporation equal to 50 percent of the amount involved in a 
prohibited allocation; and (3) an excise tax is imposed on the 
S corporation with respect to any synthetic equity owned by a 
disqualified person.\48\
---------------------------------------------------------------------------
    \48\ The plan is not disqualified merely because an excise tax is 
imposed under the provision.
---------------------------------------------------------------------------
    It is intended that the provision will limit the 
establishment of ESOPs by S corporations to those that provide 
broad-based employee coverage and that benefit rank-and-file 
employees as well as highly compensated employees and 
historical owners.

Definition of nonallocation year

    A nonallocation year means any plan year of an ESOP holding 
shares in an S corporation if, at any time during the plan 
year, disqualified persons own at least 50 percent of the 
number of outstanding shares of the S corporation.
    A person is a disqualified person if the person is either 
(1) a member of a ``deemed 20-percent shareholder group'' or 
(2) a ``deemed 10-percent shareholder.'' A person is a member 
of a ``deemed 20-percent shareholder group'' if the aggregate 
number of deemed-owned shares of the person and his or her 
family members is at least 20 percent of the number of deemed-
owned shares of stock in the S corporation.\49\ A person is a 
deemed 10-percent shareholder if the person is not a member of 
a deemed 20-percent shareholder group and the number of the 
person's deemed-owned shares is at least 10 percent of the 
number of deemed-owned shares of stock of the corporation.
---------------------------------------------------------------------------
    \49\ A family member of a member of a ``deemed 20-percent 
shareholder group'' with deemed owned shares is also treated as a 
disqualified person.
---------------------------------------------------------------------------
    In general, ``deemed-owned shares'' means: (1) stock 
allocated to the account of an individual under the ESOP, and 
(2) an individual's share of unallocated stock held by the 
ESOP. An individual's share of unallocated stock held by an 
ESOP is determined in the same manner as the most recent 
allocation of stock under the terms of the plan.
    For purposes of determining whether there is a 
nonallocation year, ownership of stock generally is attributed 
under the rules of section 318,\50\ except that: (1) the family 
attribution rules are modified to include certain other family 
members, as described below, (2) option attribution would not 
apply (but instead special rules relating to synthetic equity 
described below would apply), and (3) ``deemed-owned shares'' 
held by the ESOP are treated as held by the individual with 
respect to whom they are deemed owned.
---------------------------------------------------------------------------
    \50\ These attribution rules also apply to stock treated as owned 
by reason of the ownership of synthetic equity.
---------------------------------------------------------------------------
    Under the provision, family members of an individual 
include (1) the spouse \51\ of the individual, (2) an ancestor 
or lineal descendant of the individual or his or her spouse, 
(3) a sibling of the individual (or the individual's spouse) 
and any lineal descendant of the brother or sister, and (4) the 
spouse of any person described in (2) or (3).
---------------------------------------------------------------------------
    \51\ As under section 318, an individual's spouse is not treated as 
a member of the individual's family if the spouses are legally 
separated.
---------------------------------------------------------------------------
    The provision contains special rules applicable to 
synthetic equity interests. Except to the extent provided in 
regulations, the stock on which a synthetic equity interest is 
based are treated as outstanding stock of the S corporation and 
as deemed-owned shares of the person holding the synthetic 
equity interest if such treatment would result in the treatment 
of any person as a disqualified person or the treatment of any 
year as a nonallocation year. Thus, for example, disqualified 
persons for a year include those individuals who are 
disqualified persons under the general rule (i.e., treating 
only those shares held by the ESOP as deemed-owned shares) and 
those individuals who are disqualified individuals if synthetic 
equity interests are treated as deemed-owned shares.
    ``Synthetic equity'' means any stock option, warrant, 
restricted stock, deferred issuance stock right, or similar 
interest that gives the holder the right to acquire or receive 
stock of the S corporation in the future. Except to the extent 
provided in regulations, synthetic equity also includes a stock 
appreciation right, phantom stock unit, or similar right to a 
future cash payment based on the value of such stock or 
appreciation in such value.\52\
---------------------------------------------------------------------------
    \52\ The provisions relating to synthetic equity do not modify the 
rules relating to S corporations, e.g., the circumstances in which 
options or similar interests are treated as creating a second class of 
stock.
---------------------------------------------------------------------------
    Ownership of synthetic equity is attributed in the same 
manner as stock is attributed under the provision (as described 
above). In addition, ownership of synthetic equity is 
attributed under the rules of section 318(a)(2) and (3) in the 
same manner as stock.

Definition of prohibited allocation

    An ESOP of an S corporation is required to provide that no 
portion of the assets of the plan attributable to (or allocable 
in lieu of) S corporation stock may, during a nonallocation 
year, accrue (or be allocated directly or indirectly under any 
qualified plan of the S corporation) for the benefit of a 
disqualified person. A ``prohibited allocation'' refers to 
violations of this provision. A prohibited allocation occurs, 
for example, if income on S corporation stock held by an ESOP 
is allocated to the account of an individual who is a 
disqualified person.

Application of excise tax

    In the case of a prohibited allocation, the S corporation 
is liable for an excise tax equal to 50 percent of the amount 
of the allocation. For example, if S corporation stock is 
allocated in a prohibited allocation, the excise tax would 
equal to 50 percent of the fair market value of such stock.
    A special rule would apply in the case of the first 
nonallocation year, regardless of whether there is a prohibited 
allocation. In that year, the excise tax also would apply to 
the fair market value of the deemed-owned shares of any 
disqualified person held by the ESOP, even though those shares 
are not allocated to the disqualified person in that year.
    As mentioned above, the S corporation also is liable for an 
excise tax with respect to any synthetic equity interest owned 
by any disqualified person in a nonallocation year. The excise 
tax is 50 percent of the value of the shares on which synthetic 
equity is based.

Treasury regulations

    The Treasury Department is given the authority to prescribe 
such regulations as may be necessary to carry out the purposes 
of the provision.

                             effective date

    The provision generally is effective with respect to plan 
years beginning after December 31, 2004. In the case of an ESOP 
established after March 14, 2001, or an ESOP established on or 
before such date if the employer maintaining the plan was not 
an S corporation on such date, the provision is effective with 
respect to plan years ending after March 14, 2001.

                 TITLE VI. REDUCING REGULATORY BURDENS


              A. Modification of Timing of Plan Valuations


            (Sec. 601 of the bill and sec. 412 of the Code)


                              Present Law

    Under present law, plan valuations are generally required 
annually for plans subject to the minimum funding rules. Under 
proposed Treasury regulations, except as provided by the 
Commissioner, the valuation must be as of a date within the 
plan year to which the valuation refers or within the month 
prior to the beginning of that year.\53\
---------------------------------------------------------------------------
    \53\ Prop. Treas. Reg. sec. 1.412(c)(9)-1(b)(1).
---------------------------------------------------------------------------

                           Reasons for Change

    While plan valuations are necessary to ensure adequate 
funding of defined benefit pension plans, they also create 
administrative burdens for employers. The Committee believes 
that permitting limited elections to use as the valuation date 
for a plan year any date within the immediately preceding plan 
year in the case of well-funded plans strikes an appropriate 
balance between funding concerns and employer concerns about 
plan administrative burdens.

                        Explanation of Provision

    The provision incorporates into the statute the proposed 
regulation regarding the date of valuations. The provision also 
provides, as an exception to this general rule, that the 
valuation date with respect to a plan year may be any date 
within the immediately preceding plan year if, as of such date, 
plan assets are not less than 125 percent of the plan's current 
liability. Information determined as of such date is required 
to be adjusted actuarially, in accordance with Treasury 
regulations, to reflect significant differences in plan 
participants. An election to use a prior plan year valuation 
date, once made, may only be revoked with the consent of the 
Secretary.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2001.

 B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction


            (Sec. 602 of the bill and sec. 404 of the Code)


                              Present Law

    An employer is entitled to deduct certain dividends paid in 
cash during the employer's taxable year with respect to stock 
of the employer that is held by an employee stock ownership 
plan (``ESOP''). The deduction is allowed with respect to 
dividends that, in accordance with plan provisions, are (1) 
paid in cash directly to the plan participants or their 
beneficiaries, (2) paid to the plan and subsequently 
distributed to the participants or beneficiaries in cash no 
later than 90 days after the close of the plan year in which 
the dividends are paid to the plan, or (3) used to make 
payments on loans (including payments of interest as well as 
principal) that were used to acquire the employer securities 
(whether or not allocated to participants) with respect to 
which the dividend is paid.
    The Secretary may disallow the deduction for any ESOP 
dividend if he determines that the dividend constitutes, in 
substance, an evasion of taxation (sec. 404(k)(5)).

                           Reasons for Change

    The Committee believes that it is appropriate to provide 
incentives for the accumulation of retirement benefits and 
expansion of employee ownership. The Committee has determined 
that the present-law rules concerning the deduction of 
dividends on employer stock held by an ESOP discourage 
employers from permitting such dividends to be reinvested in 
employer stock and accumulated for retirement purposes.

                        Explanation of Provision

    In addition to the deductions permitted under present law 
for dividends paid with respect to employer securities that are 
held by an ESOP, an employer is entitled to deduct dividends 
that, at the election of plan participants or their 
beneficiaries, are (1) payable in cash directly to plan 
participants or beneficiaries, (2) paid to the plan and 
subsequently distributed to the participants or beneficiaries 
in cash no later than 90 days after the close of the plan year 
in which the dividends are paid to the plan, or (3) paid to the 
plan and reinvested in qualifying employer securities.
    The provision permits the Secretary to disallow the 
deduction for any ESOP dividend if the Secretary determines 
that the dividend constitutes, in substance, the avoidance or 
evasion of taxation.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

   C. Repeal Transition Rule Relating to Certain Highly Compensated 
                               Employees


  (Sec. 603 of the bill and sec. 1114(c)(4) of the Tax Reform Act of 
                                 1986)


                              Present Law

    Under present law, for purposes of the rules relating to 
qualified plans, a highly compensated employee is generally 
defined as an employee\54\ who (1) was a 5-percent owner of the 
employer at any time during the year or the preceding year or 
(2) either (a) had compensation for the preceding year in 
excess of $85,000 (for 2001) or (b) at the election of the 
employer, had compensation in excess of $85,000 for the 
preceding year and was in the top 20 percent of employees by 
compensation for such year.
---------------------------------------------------------------------------
    \5\ An employee includes a self-employed individual.
---------------------------------------------------------------------------
    Under a rule enacted in the Tax Reform Act of 1986, a 
special definition of highly compensated employee applies for 
purposes of the nondiscrimination rules relating to qualified 
cash or deferred arrangements (``section 401(k) plans'') and 
matching contributions. This special definition applies to an 
employer incorporated on December 15, 1924, that meets certain 
specific requirements.

                           Reasons for Change

    The Committee believes it appropriate to repeal the special 
definition of highly compensated employee in light of the 
substantial modification of the general definition of highly 
compensated employee in the Small Business Job Protection Act 
of 1996.

                        Explanation of Provision

    The provision repeals the special definition of highly 
compensated employee under the Tax Reform Act of 1986. Thus, 
the present-law definition applies.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2001.

                  D. Employees of Tax-Exempt Entities


                         (Sec. 604 of the bill)


                              Present Law

    The Tax Reform Act of 1986 provided that nongovernmental 
tax-exempt employers were not permitted to maintain a qualified 
cash or deferred arrangement (``section 401(k) plan''). This 
prohibition was repealed, effective for years beginning after 
December 31, 1996, by the Small Business Job Protection Act of 
1996.
    Treasury regulations provide that, in applying the 
nondiscrimination rules to a section 401(k) plan (or a section 
401(m) plan that is provided under the same general arrangement 
as the section 401(k) plan), the employer may treat as 
excludable those employees of a tax-exempt entity who could not 
participate in the arrangement due to the prohibition on 
maintenance of a section 401(k) plan by such entities. Such 
employees may be disregarded only if more than 95 percent of 
the employees who could participate in the section 401(k) plan 
benefit under the plan for the plan year.\55\
---------------------------------------------------------------------------
    \55\ Treas. Reg. sec. 1.410(b)-6(g).
---------------------------------------------------------------------------
    Tax-exempt charitable organizations may maintain a tax-
sheltered annuity (a ``section 403(b) annuity'') that allows 
employees to make salary reduction contributions.

                           Reasons for Change

    The Committee believes it appropriate to modify the special 
rule regarding the treatment of certain employees of a tax-
exempt organization as excludable for section 401(k) plan 
nondiscrimination testing purposes in light of the provision of 
the Small Business Job Protection Act of 1996 that permits such 
organizations to maintain section 401(k) plans.

                        Explanation of Provision

    The Treasury Department is directed to revise its 
regulations under section 410(b) to provide that employees of a 
tax-exempt charitable organization who are eligible to make 
salary reduction contributions under a section 403(b) annuity 
may be treated as excludable employees for purposes of testing 
a section 401(k) plan, or a section 401(m) plan that is 
provided under the same general arrangement as the section 
401(k) plan of the employer if (1) no employee of such tax-
exempt entity is eligible to participate in the section 401(k) 
or 401(m) plan and (2) at least 95 percent of the employees who 
are not employees of the charitable employer are eligible to 
participate in such section 401(k) plan or section 401(m) plan.
    The revised regulations are to be effective for years 
beginning after December 31, 1996.

                             Effective Date

    The provision is effective on the date of enactment.

          E. Treatment of Employer-Provided Retirement Advice


            (Sec. 605 of the bill and sec. 132 of the Code)


                              Present Law

    Under present law, certain employer-provided fringe 
benefits are excludable from gross income (sec. 132) and wages 
for employment tax purposes. These excludable fringe benefits 
include working condition fringe benefits and de minimis 
fringes. In general, a working condition fringe benefit is any 
property or services provided by an employer to an employee to 
the extent that, if the employee paid for such property or 
services, such payment would be allowable as a deduction as a 
business expense. A de minimis fringe benefit is any property 
or services provided by the employer the value of which, after 
taking into account the frequency with which similar fringes 
are provided, is so small as to make accounting for it 
unreasonable or administratively impracticable.
    In addition, if certain requirements are satisfied, up to 
$5,250 annually of employer-provided educational assistance is 
excludable from gross income (sec. 127) and wages. This 
exclusion expires with respect to courses beginning after 
December 31, 2001.\56\ Education not excludable under section 
127 may be excludable as a working condition fringe.
---------------------------------------------------------------------------
    \56\ The exclusion does not apply with respect to graduate-level 
courses.
---------------------------------------------------------------------------
    There is no specific exclusion under present law for 
employer-provided retirement planning services. However, such 
services may be excludable as employer-provided educational 
assistance or a fringe benefit.

                           Reasons for Change

    In order to plan adequately for retirement, individuals 
must anticipate retirement income needs and understand how 
their retirement income goals can be achieved. Employer-
sponsored plans are a key part of retirement income planning. 
The Committee believes that employers sponsoring retirement 
plans should be encouraged to provide retirement planning 
services for their employees in order to assist them in 
preparing for retirement.

                        Explanation of Provision

    Qualified retirement planning services provided to an 
employee and his or her spouse by an employer maintaining a 
qualified plan are excludable from income and wages. The 
exclusion does not apply with respect to highly compensated 
employees unless the services are available on substantially 
the same terms to each member of the group of employees 
normally provided education and information regarding the 
employer's qualified plan. ``Qualified retirement planning 
services'' are retirement planning advice and information. The 
exclusion is not limited to information regarding the qualified 
plan, and, thus, for example, applies to advice and information 
regarding retirement income planning for an individual and his 
or her spouse and how the employer's plan fits into the 
individual's overall retirement income plan. On the other hand, 
the exclusion does not apply to services that may be related to 
retirement planning, such as tax preparation, accounting, legal 
or brokerage services.
    It is intended that the provision will clarify the 
treatment of retirement advice provided in a nondiscriminatory 
manner. It is intended that the Secretary, in determining the 
application of the exclusion to highly compensated employees, 
may permit employers to take into consideration employee 
circumstances other than compensation and position in providing 
advice to classifications of employees. Thus, for example, the 
Secretary may permit employers to limit certain advice to 
individuals nearing retirement age under the plan.

                             Effective Date

    The provision is effective with respect to years beginning 
after December 31, 2001.

                      F. Reporting Simplification


                         (Sec. 606 of the bill)


                              Present Law

    A plan administrator of a pension, annuity, stock bonus, 
profit-sharing or other funded plan of deferred compensation 
generally must file with the Secretary of the Treasury an 
annual return for each plan year containing certain information 
with respect to the qualification, financial condition, and 
operation of the plan. Title I of ERISA also may require the 
plan administrator to file annual reports concerning the plan 
with the Department of Labor and the Pension Benefit Guaranty 
Corporation (``PBGC''). The plan administrator must use the 
Form 5500 series as the format for the required annual 
return.\57\ The Form 5500 series annual return/report, which 
consists of a primary form and various schedules, includes the 
information required to be filed with all three agencies. The 
plan administrator satisfies the reporting requirement with 
respect to each agency by filing the Form 5500 series annual 
return/report with the Department of Labor, which forwards the 
form to the Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
    \57\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
    The Form 5500 series consists of 2 different forms: Form 
5500 and Form 5500-EZ. Form 5500 is the more comprehensive of 
the forms and requires the most detailed financial information. 
A plan administrator generally may file Form 5500-EZ, which 
consists of only one page, if (1) the only participants in the 
plan are the sole owner of a business that maintains the plan 
(and such owner's spouse), or partners in a partnership that 
maintains the plan (and such partners' spouses), (2) the plan 
is not aggregated with another plan in order to satisfy the 
minimum coverage requirements of section 410(b), (3) the 
employer is not a member of a related group of employers, and 
(4) the employer does not receive the services of leased 
employees. If the plan satisfies the eligibility requirements 
for Form 5500-EZ and the total value of the plan assets as of 
the end of the plan year and all prior plan years beginning on 
or after January 1, 1994, does not exceed $100,000, the plan 
administrator is not required to file a return.
    With respect to a plan that does not satisfy the 
eligibility requirements for Form 5500-EZ, the characteristics 
and the size of the plan determine the amount of detailed 
financial information that the plan administrator must provide 
on Form 5500. If the plan has more than 100 participants at the 
beginning of the plan year, the plan administrator generally 
must provide more information.

                           Reasons for Change

    The Committee believes that simplification of the reporting 
requirements applicable to plans of small employers will 
encourage such employers to provide retirement benefits for 
their employees.

                        Explanation of Provision

    The Secretary of the Treasury is directed to modify the 
annual return filing requirements with respect to plans that 
satisfy the eligibility requirements for Form 5500-EZ to 
provide that if the total value of the plan assets of such a 
plan as of the end of the plan year and all prior plan years 
beginning on or after January 1, 1994, does not exceed 
$250,000, the plan administrator is not required to file a 
return. In addition, the provision would direct the Secretary 
of the Treasury and the Secretary of Labor to provide 
simplified reporting requirements for certain plans with fewer 
than 25 employees.

                             Effective Date

    The provision is effective on January 1, 2002.

     G. Improvement to Employee Plans Compliance Resolution System


                         (Sec. 607 of the bill)


                              Present Law

    A retirement plan that is intended to be a tax-qualified 
plan provides retirement benefits on a tax-favored basis if the 
plan satisfies all of the requirements of section 401(a). 
Similarly, an annuity that is intended to be a tax-sheltered 
annuity provides retirement benefits on a tax-favored basis if 
the program satisfies all of the requirements of section 
403(b). Failure to satisfy all of the applicable requirements 
of section 401(a) or section 403(b) may disqualify a plan or 
annuity for the intended tax-favored treatment.
    The Internal Revenue Service (``IRS'') has established the 
Employee Plans Compliance Resolution System (``EPCRS''), which 
is a comprehensive system of correction programs for sponsors 
of retirement plans and annuities that are intended, but have 
failed, to satisfy the requirements of section 401(a), section 
403(a), or section 403(b), as applicable.\58\ EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
    \58\ Rev. Proc. 2001-17, 2001-7 I.R.B. 589.
---------------------------------------------------------------------------
    The IRS has designed EPCRS to (1) encourage operational and 
formal compliance, (2) promote voluntary and timely correction 
of compliance failures, (3) provide sanctions for compliance 
failures identified on audit that are reasonable in light of 
the nature, extent, and severity of the violation, (4) provide 
consistent and uniform administration of the correction 
programs, and (5) permit employers to rely on the availability 
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
    The basic elements of the programs that comprise EPCRS are 
self-correction, voluntary correction with IRS approval, and 
correction on audit. The Self-Correction Program (``SCP'') 
generally permits a plan sponsor that has established 
compliance practices to correct certain insignificant failures 
at any time (including during an audit), and certain 
significant failures within a 2-year period, without payment of 
any fee or sanction. The Voluntary Correction Program (``VCP'') 
program permits an employer, at any time before an audit, to 
pay a limited fee and receive IRS approval of a correction. For 
a failure that is discovered on audit and corrected, the Audit 
Closing Agreement Program (``Audit CAP'') provides for a 
sanction that bears a reasonable relationship to the nature, 
extent, and severity of the failure and that takes into account 
the extent to which correction occurred before audit.
    The IRS has expressed its intent that EPCRS will be updated 
and improved periodically in light of experience and comments 
from those who use it.

                           Reasons for Change

    The Committee commends the IRS for the establishment of 
EPCRS and agrees with the IRS that EPCRS should be updated and 
improved periodically. The Committee believes that future 
improvements should facilitate use of the compliance and 
correction programs by small employers and expand the 
flexibility of the programs.

                        Explanation of Provision

    The Secretary of the Treasury is directed to continue to 
update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (2) taking into 
account special concerns and circumstances that small employers 
face with respect to compliance and correction of compliance 
failures, (3) extending the duration of the self-correction 
period under SCP for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under SCP during audit, and (5) assuring that any tax, 
penalty, or sanction that is imposed by reason of a compliance 
failure is not excessive and bears a reasonable relationship to 
the nature, extent, and severity of the failure.

                             Effective Date

    The provision is effective on the date of enactment.

                   H. Repeal of the Multiple Use Test


           (Sec. 608 of the bill and sec. 401(m) of the Code)


                              Present Law

    Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan'') are subject to a special 
annual nondiscrimination test (``ADP test''). The ADP test 
compares the actual deferral percentages (``ADPs'') of the 
highly compensated employee group and the nonhighly compensated 
employee group. The ADP for each group generally is the average 
of the deferral percentages separately calculated for the 
employees in the group who are eligible to make elective 
deferrals for all or a portion of the relevant plan year. Each 
eligible employee's deferral percentage generally is the 
employee's elective deferrals for the year divided by the 
employee's compensation for the year.
    The plan generally satisfies the ADP test if the ADP of the 
highly compensated employee group for the current plan year is 
either (1) not more than 125 percent of the ADP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ADP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ADP of the nonhighly 
compensated employee group for the prior plan year.
    Employer matching contributions and after-tax employee 
contributions under a defined contribution plan also are 
subject to a special annual nondiscrimination test (``ACP 
test''). The ACP test compares the actual deferral percentages 
(``ACPs'') of the highly compensated employee group and the 
nonhighly compensated employee group. The ACP for each group 
generally is the average of the contribution percentages 
separately calculated for the employees in the group who are 
eligible to make after-tax employee contributions or who are 
eligible for an allocation of matching contributions for all or 
a portion of the relevant plan year. Each eligible employee's 
contribution percentage generally is the employee's aggregate 
after-tax employeecontributions and matching contributions for 
the year divided by the employee's compensation for the year.
    The plan generally satisfies the ACP test if the ACP of the 
highly compensated employee group for the current plan year is 
either (1) not more than 125 percent of the ACP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ACP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ACP of the nonhighly 
compensated employee group for the prior plan year.
    For any year in which (1) at least one highly compensated 
employee is eligible to participate in an employer's plan or 
plans that are subject to both the ADP test and the ACP test, 
(2) the plan subject to the ADP test satisfies the ADP test but 
the ADP of the highly compensated employee group exceeds 125 
percent of the ADP of the nonhighly compensated employee group, 
and (3) the plan subject to the ACP test satisfies the ACP test 
but the ACP of the highly compensated employee group exceeds 
125 percent of the ACP of the nonhighly compensated employee 
group, an additional special nondiscrimination test (``multiple 
use test'') applies to the elective deferrals, employer 
matching contributions, and after-tax employee contributions. 
The plan or plans generally satisfy the multiple use test if 
the sum of the ADP and the ACP of the highly compensated 
employee group does not exceed the greater of (1) the sum of 
(A) 1.25 times the greater of the ADP or the ACP of the 
nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the lesser of the ADP 
or the ACP of the nonhighly compensated employee group, or (2) 
the sum of (A) 1.25 times the lesser of the ADP or the ACP of 
the nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the greater of the ADP 
or the ACP of the nonhighly compensated employee group.

                           Reasons for Change

    The Committee believes that the ADP test and the ACP test 
are adequate to prevent discrimination in favor of highly 
compensated employees under 401(k) plans and has determined 
that the multiple use test unnecessarily complicates 401(k) 
plan administration.

                        Explanation of Provision

    The provision repeals the multiple use test.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2001.

  I. Flexibility in Nondiscrimination, Coverage, and Line of Business 
                                 Rules


 (Sec. 609 of the bill and secs. 401(a)(4), 410(b), and 414(r) of the 
                                 Code)


                              Present Law

    A plan is not a qualified retirement plan if the 
contributions or benefits provided under the plan discriminate 
in favor of highly compensated employees (sec. 401(a)(4)). The 
applicable Treasury regulations set forth the exclusive rules 
for determining whether a plan satisfies the nondiscrimination 
requirement. These regulations state that the form of the plan 
and the effect of the plan in operation determine whether the 
plan is nondiscriminatory and that intent is irrelevant.
    Similarly, a plan is not a qualified retirement plan if the 
plan does not benefit a minimum number of employees (sec. 
410(b)). A plan satisfies this minimum coverage requirement if 
and only if it satisfies one of the tests specified in the 
applicable Treasury regulations. If an employer is treated as 
operating separate lines of business, the employer may apply 
the minimum coverage requirements to a plan separately with 
respect to the employees in each separate line of business 
(sec. 414(r)). Under a so-called ``gateway'' requirement, 
however, the plan must benefit a classification of employees 
that does not discriminate in favor of highly compensated 
employees in order for the employer to apply the minimum 
coverage requirements separately for the employees in each 
separate line of business. A plan satisfies this gateway 
requirement only if it satisfies one of the tests specified in 
the applicable Treasury regulations.

                           Reasons for Change

    It has been brought to the attention of the Committee that 
some plans are unable to satisfy the mechanical tests used to 
determine compliance with the nondiscrimination and line of 
business requirements solely as a result of relatively minor 
plan provisions. The Committee believes that, in such cases, it 
may be appropriate to expand the consideration of facts and 
circumstances in the application of the mechanical tests.

                        Explanation of Provision

    The Secretary of the Treasury is directed to modify, on or 
before December 31, 2003, the existing regulations issued under 
section 414(r) in order to expand (to the extent that the 
Secretary may determine to be appropriate) the ability of a 
plan to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.
    The Secretary of the Treasury is directed to provide by 
regulation applicable to years beginning after December 31, 
2003, that a plan is deemed to satisfy the nondiscrimination 
requirements of section 401(a)(4) if the plan satisfies the 
pre-1994 facts and circumstances test, satisfies the conditions 
prescribed by the Secretary to appropriately limit the 
availability of such test, and is submitted to the Secretary 
for a determination of whether it satisfies such test (to the 
extent provided by the Secretary).
    Similarly, a plan complies with the minimum coverage 
requirement of section 410(b) if the plan satisfies the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfies the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.

                             Effective Date

    The provision relating to the line of business requirements 
under section 414(r) is effective on the date of enactment. The 
provision relating to the nondiscrimination requirements under 
section 401(a)(4) is effective on the date of enactment, except 
that any condition of availability prescribed by the Secretary 
is not effective before the first year beginning not less than 
120 days after the date on which such condition is prescribed. 
The provision relating to the minimum coverage requirements 
under section 410(b) is effective for years beginning after 
December 31, 2003, except that any condition of availability 
prescribed by the Secretary by regulation would not apply 
before the first year beginning not less than 120 days after 
the date on which such condition is prescribed.

J. Extension to All Governmental Plans of Moratorium on Application of 
     Certain Nondiscrimination Rules Applicable to State and Local 
                            Government Plans


 (Sec. 610 of the bill, sec. 1505 of the Taxpayer Relief Act of 1997, 
                and secs. 401(a) and 401(k) of the Code)


                              Present Law

    A qualified retirement plan maintained by a State or local 
government is exempt from the rules concerning 
nondiscrimination (sec. 401(a)(4)) and minimum participation 
(sec. 401(a)(26)). All other governmental plans are not exempt 
from the nondiscrimination and minimum participation rules.

                           Reasons for Change

    The Committee believes that application of the 
nondiscrimination and minimum participation rules to 
governmental plans is unnecessary and inappropriate in light of 
the unique circumstances under which such plans and 
organizations operate. Further, the Committee believes that it 
is appropriate to provide for consistent application of the 
minimum coverage, nondiscrimination, and minimum participation 
rules for governmental plans.

                        Explanation of Provision

    The provision exempts all governmental plans (as defined in 
sec. 414(d)) from the nondiscrimination and minimum 
participation rules.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 2001.

          K. Notice and Consent Period Regarding Distributions


            (Sec. 611 of the bill and sec. 417 of the Code)


                              Present Law

    Notice and consent requirements apply to certain 
distributions from qualified retirement plans. These 
requirements relate to the content and timing of information 
that a plan must provide to a participant prior to a 
distribution, and to whether the plan must obtain the 
participant's consent to the distribution. The nature and 
extent of the notice and consent requirements applicable to a 
distribution depend upon the value of the participant's vested 
accrued benefit and whether the joint and survivor annuity 
requirements (sec. 417) apply to the participant.\59\
---------------------------------------------------------------------------
    \59\ Similar provisions are contained in title I of ERISA.
---------------------------------------------------------------------------
    If the present value of the participant's vested accrued 
benefit exceeds $5,000, the plan may not distribute the 
participant's benefit without the written consent of the 
participant. The participant's consent to a distribution is not 
valid unless the participant has received from the plan a 
notice that contains a written explanation of (1) the material 
features and the relative values of the optional forms of 
benefit available under the plan, (2) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (3) the rules concerning 
the taxation of a distribution. If the joint and survivor 
annuity requirements apply to the participant, this notice also 
must contain a written explanation of (1) the terms and 
conditions of the qualified joint and survivor annuity 
(``QJSA''), (2) the participant's right to make, and the effect 
of, an election to waive the QJSA, (3) the rights of the 
participant's spouse with respect to a participant's waiver of 
the QJSA, and (4) the right to make, and the effect of, a 
revocation of a waiver of the QJSA. The plan generally must 
provide this notice to the participant no less than 30 and no 
more than 90 days before the date distribution commences.
    If the participant's vested accrued benefit does not exceed 
$5,000, the terms of the plan may provide for distribution 
without the participant's consent. The plan generally is 
required, however, to provide to the participant a notice that 
contains a written explanation of (1) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (2) the rules concerning 
the taxation of a distribution. The plan generally must provide 
this notice to the participant no less than 30 and no more than 
90 days before the date distribution commences.

                           Reasons for Change

    The Committee understands that an employee is not always 
able to evaluate distribution alternatives, select the most 
appropriate alternative, and notify the plan of the selection 
within a 90-day period. The Committee believes that requiring a 
plan to furnish multiple distribution notices to an employee 
who does not make a distribution election within 90 days is 
administratively burdensome. In addition, the Committee 
believes that participants who are entitled to defer 
distributions should be informed of the impact of a decision 
not to defer distribution on the taxation and accumulation of 
their retirement benefits.

                        Explanation of Provision

    A qualified retirement plan is required to provide the 
applicable distribution notice no less than 30 days and no more 
than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and to provide that the description of a participant's 
right, if any, to defer receipt of a distribution shall also 
describe the consequences of failing to defer such receipt.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 2001.

                   TITLE VII. OTHER ERISA PROVISIONS


           A. Extension of PBGC Missing Participants Program


       (Sec. 701 of the bill and secs. 206(f) and 4050 of ERISA)


                              Present Law

    The plan administrator of a defined benefit pension plan 
that is subject to Title IV of ERISA, is maintained by a single 
employer, and terminates under a standard termination is 
required to distribute the assets of the plan. With respect to 
a participant whom the plan administrator of a single employer 
plan cannot locate after a diligent search, the plan 
administrator satisfies the distribution requirement only by 
purchasing irrevocable commitments from an insurer to provide 
all benefit liabilities under the plan or transferring the 
participant's designated benefit to the Pension Benefit 
Guaranty Corporation (``PBGC''), which holds the benefit of the 
missing participant as trustee until the PBGC locates the 
missing participant and distributes the benefit.
    The PBGC missing participant program is not available to 
multiemployer plans or defined contribution plans and other 
plans not covered by Title IV of ERISA.

                           Reasons for Change

    The Committee recognizes that no statutory provision or 
formal regulatory guidance exists concerning an appropriate 
method of handling missing participants in terminated 
multiemployer plans or defined contribution plans and other 
plans not subject to the PBGC termination insurance program. 
Therefore, sponsors of these plans face uncertainty with 
respect to missing participants. The Committee believes that it 
is appropriate to extend the established PBGC missing 
participant program to these plans in order to reduce 
uncertainty for plan sponsors and increase the likelihood that 
missing participants will receive their retirement benefits.

                        Explanation of Provision

    The PBGC is directed to prescribe for terminating 
multiemployer plans rules similar to the present-law missing 
participant rules applicable to terminating single-employer 
plans that are subject to Title IV of ERISA.
    In addition, plan administrators of certain types of plans 
not subject to the PBGC termination insurance program under 
present law are permitted, but not required, to elect to 
transfer missing participants' benefits to the PBGC upon plan 
termination. Specifically, the provision extends the missing 
participants program to defined contribution plans, defined 
benefit plans that have no more than 25 active participants and 
are maintained by professional service employers, and the 
portion of defined benefit plans that provide benefits based 
upon the separate accounts of participants and therefore are 
treated as defined contribution plans under ERISA.

                             Effective Date

    The provision is effective for distributions from 
terminating plans that occur after the PBGC has adopted final 
regulations implementing the provision.

            B. Reduce PBGC Premiums for Small and New Plans


         (Secs. 702 and 703 of the bill and sec. 4006 of ERISA)


                              Present Law

    Under present law, the Pension Benefit Guaranty Corporation 
(``PBGC'') provides insurance protection for participants and 
beneficiaries under certain defined benefit pension plans by 
guaranteeing certain basic benefits under the plan in the event 
the plan is terminated with insufficient assets to pay benefits 
promised under the plan. The guaranteed benefits are funded in 
part by premium payments from employers who sponsor defined 
benefit plans. The amount of the required annual PBGC premium 
for a single-employer plan is generally a flat rate premium of 
$19 per participant and an additional variable-rate premium 
based on a charge of $9 per $1,000 of unfunded vested benefits. 
Unfunded vested benefits under a plan generally means (1) the 
unfunded current liability for vested benefits under the plan, 
over (2) the value of the plan's assets, reduced by any credit 
balance in the funding standard account. No variable-rate 
premium is imposed for a year if contributions to the plan were 
at least equal to the full funding limit.
    The PBGC guarantee is phased in ratably in the case of 
plans that have been in effect for less than 5 years, and with 
respect to benefit increases from a plan amendment that was in 
effect for less than 5 years before termination of the plan.

                           Reasons for Change

    The Committee believes that reducing the PBGC premiums for 
new plans and small plans will help encourage the establishment 
of defined benefit pension plans, particularly by small 
employers.

                        Explanation of Provision

Reduced flat-rate premiums for new plans of small employers

    Under the provision, for the first five plan years of a new 
single-employer plan of a small employer, the flat-rate PBGC 
premium is $5 per plan participant.
    A small employer is a contributing sponsor that, on the 
first day of the plan year, has 100 or fewer employees. For 
this purpose, all employees of the members of the controlled 
group of the contributing sponsor are taken into account. In 
the case of a plan to which more than one unrelated 
contributing sponsor contributes, employees of all contributing 
sponsors (and their controlled group members) are taken into 
account in determining whether the plan is a plan of a small 
employer.
    A new plan means a defined benefit plan maintained by a 
contributing sponsor if, during the 36-month period ending on 
the date of adoption of the plan, such contributing sponsor (or 
controlled group member or a predecessor of either) has not 
established or maintained a plan subject to PBGC coverage with 
respect to which benefits were accrued for substantially the 
same employees as are in the new plan.

Reduced variable-rate PBGC premium for new plans

    The provision provides that the variable-rate premium is 
phased in for new defined benefit plans over a six-year period 
starting with the plan's first plan year. The amount of the 
variable-rate premium is a percentage of the variable premium 
otherwise due, as follows: 0 percent of the otherwise 
applicable variable-rate premium in the first plan year; 20 
percent in the second plan year; 40 percent in the third plan 
year; 60 percent in the fourth plan year; 80 percent in the 
fifth plan year; and 100 percent in the sixth plan year (and 
thereafter).
    A new defined benefit plan is defined as described above 
under the flat-rate premium provision relating to new small 
employer plans.

Reduced variable-rate PBGC premium for small plans

    In the case of a plan of a small employer, the variable-
rate premium is no more than $5 multiplied by the number of 
plan participants in the plan at the end of the preceding plan 
year. For purposes of the provision, a small employer is a 
contributing sponsor that, on the first day of the plan year, 
has 25 or fewer employees. For this purpose, all employees of 
the members of the controlled group of the contributing sponsor 
are taken into account. In the case of a plan to which more 
than one unrelated contributing sponsor contributes, employees 
of all contributing sponsors (and their controlled group 
members) are taken into account in determining whether the plan 
is a plan of a small employer.

                             Effective date

    The reduction of the flat-rate premium for new plans of 
small employers and the reduction of the variable-rate premium 
for new plans is effective with respect to plans established 
after December 31, 2001. The reduction of the variable-rate 
premium for small plans is effective with respect to plan years 
beginning after December 31, 2001.

   C. Authorization for PBGC to Pay Interest on Premium Overpayment 
                                Refunds


            (Sec. 704 of the bill and sec. 4007(b) of ERISA)


                              Present Law

    The PBGC charges interest on underpayments of premiums, but 
is not authorized to pay interest on overpayments.

                           Reasons for Change

    The Committee believes that an employer or other person who 
overpays PBGC premiums should receive interest on a refund of 
the overpayment.

                        explanation of provision

    The provision would allow the PBGC to pay interest on 
overpayments made by premium payors. Interest paid on 
overpayments is calculated at the same rate and in the same 
manner as interest is charged on premium underpayments.

                             Effective Date

    The provision is effective with respect to interest 
accruing for periods beginning not earlier than the date of 
enactment.

      D. Rules for Substantial Owner Benefits in Terminated Plans


  (Sec. 705 of the bill and secs. 4021, 4022, 4043 and 4044 of ERISA)


                              Present Law

    Under present law, the Pension Benefit Guaranty Corporation 
(``PBGC'') provides participants and beneficiaries in a defined 
benefit pension plan with certain minimal guarantees as to the 
receipt of benefits under the plan in case of plan termination. 
The employer sponsoring the defined benefit pension plan is 
required to pay premiums to the PBGC to provide insurance for 
the guaranteed benefits. In general, the PBGC will guarantee 
all basic benefits which are payable in periodic installments 
for the life (or lives) of the participant and his or her 
beneficiaries and are non-forfeitable at the time of plan 
termination. The amount of the guaranteed benefit is subject to 
certain limitations. One limitation is that the plan (or an 
amendment to the plan which increases benefits) must be in 
effect for 60 months before termination for the PBGC to 
guarantee the full amount of basic benefits for a plan 
participant, other than a substantial owner. In the case of a 
substantial owner, the guaranteed basic benefit is phased in 
over 30 years beginning with participation in the plan. A 
substantial owner is one who owns, directly or indirectly, more 
than 10 percent of the voting stock of a corporation or all the 
stock of a corporation. Special rules restricting the amount of 
benefit guaranteed and the allocation of assets also apply to 
substantial owners.

                           Reasons for Change

    The Committee believes that the present-law rules 
concerning limitations on guaranteed benefits for substantial 
owners are overly complicated and restrictive and thus may 
discourage some small business owners from establishing defined 
benefit pension plans.

                        Explanation of Provision

    The provision provides that the 60-month phase-in of 
guaranteed benefits would apply to a substantial owner with 
less than 50 percent ownership interest. For a substantial 
owner with a 50 percent or more ownership interest (``majority 
owner''), the phase-in occurs over a 10-year period and depends 
on the number of years the plan has been in effect. The 
majority owner's guaranteed benefit is limited so that it could 
not be more than the amount phased in over 60 months for other 
participants. The rules regarding allocation of assets would 
apply to substantial owners, other than majority owners, in the 
same manner as other participants.

                             Effective Date

    The provision is effective for plan terminations with 
respect to which notices of intent to terminate are provided, 
or for which proceedings for termination are instituted by the 
PBGC, after December 31, 2001.

           TITLE VIII. PROVISIONS RELATING TO PLAN AMENDMENTS


                         (Sec. 801 of the bill)


                              Present Law

    Plan amendments to reflect amendments to the law generally 
must be made by the time prescribed by law for filing the 
income tax return of the employer for the employer's taxable 
year in which the change in law occurs.

                           Reasons for Change

    The Committee believes that employers should have adequate 
time to amend their plans to reflect amendments to the law 
while operating their plans in compliance with such amendments.

                        Explanation of Provision

    The provision permits certain plan amendments made pursuant 
to the changes made by the bill (or regulations issued under 
the provisions of the bill) to be retroactively effective. If 
the plan amendment meets the requirements of the bill, then the 
plan is treated as being operated in accordance with its terms 
and the amendment does not violate the prohibition of 
reductions of accrued benefits. 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, 
2004 (January 1, 2006, in the case of a governmental plan). If 
the amendment is required to be made to retain qualified status 
as a result of the changes in the bill (or regulations) the 
amendment must be made retroactively effective as of the date 
on which the change became effective with respect to the plan 
and the plan must be operated in compliance until the amendment 
is made. Amendments that are not required to retain qualified 
status but that are made pursuant to the changes made by the 
bill (or applicable regulations) may be made retroactive as of 
the first day the plan was operated in accordance with the 
amendment.
    A plan amendment is not considered to be pursuant to the 
bill (or applicable regulations) if it has an effective date 
before the effective date of the provision of the bill (or 
regulations) to which it relates. Similarly, the provision does 
not provide relief from section 411(d)(6) for periods prior to 
the effective date of the relevant provision of the bill (or 
regulations) or the plan amendment.
    The Secretary is authorized to provide exceptions to the 
relief from the prohibition on reductions in accrued benefits. 
It is intended that the Secretary will not permit inappropriate 
reductions in contributions or benefits that are not directly 
related to the provisions of the bill. For example, it is 
intended that a plan that incorporates the section 415 limits 
by reference could be retroactively amended to impose the 
section 415 limits in effect before the bill. On the other 
hand, suppose a plan that incorporates the section 401(a)(17) 
limit on compensation by reference provides for an employer 
contribution of 3 percent of compensation. It is expected that 
the Secretary would provide that the plan could not be amended 
retroactively to reduce the contribution percentage for those 
participants not affected by the section 401(a)(17) limit, even 
though the reduction will result in the same dollar level of 
contributions for some participants because of the increase in 
compensation taken into account under the plan. As another 
example, suppose that under present law a plan is top-heavy and 
therefore a minimum benefit is required under the plan, and 
that under the provisions of the bill, the plan would not be 
considered to be top heavy. It is expected that the Secretary 
would generally permit plans to be retroactively amended to 
reflect the new top-heavy provisions of the bill.

                             Effective Date

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 10.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 10, as amended, was ordered favorably 
reported by a roll call vote of 35 yeas to 6 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.............................        X   ........  Mr. Rangel.....................  ........        X
Mr. Crane..............................        X   ........  Mr. Stark......................  ........        X
Mr. Shaw...............................        X   ........  Mr. Matsui.....................  ........        X
Mrs. Johnson...........................        X   ........  Mr. Coyne......................        X   ........
Mr. Houghton...........................        X   ........  Mr. Levin......................        X   ........
Mr. Herger.............................        X   ........  Mr. Cardin.....................        X   ........
Mr. McCrery............................        X   ........  Mr. McDermott..................  ........        X
Mr. Camp...............................        X   ........  Mr. Kleczka....................        X   ........
Mr. Ramstad............................        X   ........  Mr. Lewis (GA).................        X   ........
Mr. Nussle.............................        X   ........  Mr. Neal.......................  ........        X
Mr. Johnson............................        X   ........  Mr. McNulty....................        X   ........
Ms. Dunn...............................        X   ........  Mr. Jefferson..................        X   ........
Mr. Collins............................        X   ........  Mr. Tanner.....................        X   ........
Mr. Portman............................        X   ........  Mr. Becerra....................  ........        X
Mr. English............................        X   ........  Mrs. Thurman...................        X   ........
Mr. Watkins............................        X   ........  Mr. Doggett....................        X   ........
Mr. Hayworth...........................        X   ........  Mr. Pomeroy....................        X   ........
Mr. Weller.............................        X   ........  ...............................  ........  ........
Mr. Hulshof............................        X   ........  ...............................  ........  ........
Mr. McInnis............................        X   ........  ...............................  ........  ........
Mr. Lewis (KY).........................        X   ........  ...............................  ........  ........
Mr. Foley..............................        X   ........  ...............................  ........  ........
Mr. Brady..............................        X   ........  ...............................  ........  ........
Mr. Ryan...............................        X   ........  ...............................  ........  ........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A roll call vote was conducted on the following amendment 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Shaw to provide that for purposes of 
section 410(b) of the Code, compensation for services performed 
in the United States by nonresident alien individuals 
temporarily present in the United States as a crew member for a 
foreign vessel shall not be deemed to be United States source 
income, was agreed to by a roll call vote of 27 yeas to 12 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.............................        X   ........  Mr. Rangel.....................        X   ........
Mr. Crane..............................        X   ........  Mr. Stark......................  ........        X
Mr. Shaw...............................        X   ........  Mr. Matsui.....................  ........        X
Mrs. Johnson...........................        X   ........  Mr. Coyne......................  ........        X
Mr. Houghton...........................        X   ........  Mr. Levin......................  ........        X
Mr. Herger.............................        X   ........  Mr. Cardin.....................  ........        X
Mr. McCrery............................        X   ........  Mr. McDermott..................  ........  ........
Mr. Camp...............................        X   ........  Mr. Kleczka....................  ........        X
Mr. Ramstad............................        X   ........  Mr. Lewis (GA).................  ........  ........
Mr. Nussle.............................        X   ........  Mr. Neal.......................  ........        X
Mr. Johnson............................        X   ........  Mr. McNulty....................  ........        X
Ms. Dunn...............................        X   ........  Mr. Jefferson..................        X   ........
Mr. Collins............................        X   ........  Mr. Tanner.....................        X   ........
Mr. Portman............................        X   ........  Mr. Becerra....................  ........        X
Mr. English............................        X   ........  Mrs. Thurman...................  ........        X
Mr. Watkins............................        X   ........  Mr. Doggett....................  ........        X
Mr. Hayworth...........................        X   ........  Mr. Pomeroy....................  ........        X
Mr. Weller.............................        X   ........  ...............................  ........  ........
Mr. Hulshof............................        X   ........  ...............................  ........  ........
Mr. McInnis............................        X   ........  ...............................  ........  ........
Mr. Lewis (KY).........................        X   ........  ...............................  ........  ........
Mr. Foley..............................        X   ........  ...............................  ........  ........
Mr. Brady..............................        X   ........  ...............................  ........  ........
Mr. Ryan...............................        X   ........  ...............................  ........  ........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neal to add to the bill a refundable 
tax credit to low-and middle-income workers of up to 50 percent 
of annual contributions made to a traditional (deductible) 
Individual Retirement Account or an employer-sponsored pension 
plan such as a section 401(k), 403(b), or 457 plan, was 
defeated by a roll call vote of 15 yeas to 24 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Shaw...............................  ........        X   Mr. Matsui.....................        X   ........
Mrs. Johnson...........................  ........        X   Mr. Coyne......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Levin......................        X   ........
Mr. Herger.............................  ........        X   Mr. Cardin.....................        X   ........
Mr. McCrery............................  ........        X   Mr. McDermott..................        X   ........
Mr. Camp...............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Ramstad............................  ........        X   Mr. Lewis (GA).................  ........  ........
Mr. Nussle.............................  ........        X   Mr. Neal.......................        X   ........
Mr. Johnson............................  ........        X   Mr. McNulty....................        X   ........
Ms. Dunn...............................  ........        X   Mr. Jefferson..................        X   ........
Mr. Collins............................  ........        X   Mr. Tanner.....................  ........  ........
Mr. Portman............................  ........        X   Mr. Becerra....................        X   ........
Mr. English............................  ........        X   Mrs. Thurman...................        X   ........
Mr. Watkins............................  ........        X   Mr. Doggett....................        X   ........
Mr. Hayworth...........................  ........        X   Mr. Pomeroy....................        X   ........
Mr. Weller.............................  ........        X   ...............................  ........  ........
Mr. Hulshof............................  ........        X   ...............................  ........  ........
Mr. McInnis............................  ........        X   ...............................  ........  ........
Mr. Lewis (KY).........................  ........        X   ...............................  ........  ........
Mr. Foley..............................  ........        X   ...............................  ........  ........
Mr. Brady..............................  ........        X   ...............................  ........  ........
Mr. Ryan...............................  ........        X   ...............................  ........  ........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neal to add to the bill two tax credits 
for small employers: (1) a tax credit for expenses of starting 
new pension plans, and (2) a tax credit for employer 
contributions to a pension plan, was defeated by a roll call 
vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Shaw...............................  ........        X   Mr. Matsui.....................        X   ........
Mrs. Johnson...........................  ........        X   Mr. Coyne......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Levin......................        X   ........
Mr. Herger.............................  ........        X   Mr. Cardin.....................        X   ........
Mr. McCrery............................  ........        X   Mr. McDermott..................        X   ........
Mr. Camp...............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Ramstad............................  ........        X   Mr. Lewis (GA).................        X   ........
Mr. Nussle.............................  ........        X   Mr. Neal.......................        X   ........
Mr. Johnson............................  ........        X   Mr. McNulty....................        X   ........
Ms. Dunn...............................  ........        X   Mr. Jefferson..................        X   ........
Mr. Collins............................  ........        X   Mr. Tanner.....................  ........  ........
Mr. Portman............................  ........        X   Mr. Becerra....................        X   ........
Mr. English............................  ........        X   Mrs. Thurman...................        X   ........
Mr. Watkins............................  ........        X   Mr. Doggett....................        X   ........
Mr. Hayworth...........................  ........        X   Mr. Pomeroy....................        X   ........
Mr. Weller.............................  ........        X   ...............................  ........  ........
Mr. Hulshof............................  ........        X   ...............................  ........  ........
Mr. McInnis............................  ........        X   ...............................  ........  ........
Mr. Lewis (KY).........................  ........        X   ...............................  ........  ........
Mr. Foley..............................  ........        X   ...............................  ........  ........
Mr. Brady..............................  ........        X   ...............................  ........  ........
Mr. Ryan...............................  ........        X   ...............................  ........  ........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 10 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2006:

ESTIMATED REVENUE EFFECTS OF H.R. 10, THE ``COMPREHENSIVE RETIREMENT SECURITY AND PENSION REFORM ACT OF 2001,'' AS REPORTED BY THE COMMITTEE ON WAYS AND
                                                                          MEANS
                                                    [Fiscal years 2002-2006, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              Provision                                      Effective         2002      2003      2004      2005      2006     2002-06
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Individual Retirement Arrangement Provisions

1. Modification of IRA Contribution Limits--increase the maximum             tyba 12/31/01       -368    -1,203    -2,059    -2,762    -3,311     -9,703
 contribution limit for traditional and Roth IRAs to: $3,000 in 2002,
 $4,000 in 2003, $5,000 in 2004, and index for inflation thereafter..
2. IRA Catch-Up Contributions--increase maximum contribution limits          tyba 12/31/01       -193      -294      -126       -48       -48       -710
 for traditional and Roth IRAs for individuals age 50 and above to
 $5,000 in 2002 and 2003.............................................
                                                                                            ------------------------------------------------------------
      Total of Individuals Retirement Arrangement Provisions.........  ....................      -561    -1,497    -2,185    -2,810    -3,359    -10,413
                                                                                            ============================================================
                   Provisions of Expanding Coverage

1. Increase contribution and benefit limits:
    a. Increase limitation on exclusion for elective deferrals to:            yba 12/31/01   ........      -100      -328      -500      -636     -1,564
     $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in
     2005, and $15,000 in 2006; index thereafter \1\ \2\.............
    b. Increase limitation in SIMPLE elective contributions to:               yba 12/31/01        -10       -30       -42       -51       -55       -188
     $7,000 in 2002, $8,000 in 2003, $9,000 in 2004, $10,000 in 2005,
     index thereafter \1\ \2\........................................
c. Increase defined benefit dollar limit to $160,000.................         yba 12/31/01        -23       -42       -46       -47       -48       -207
d. Lower early retirement age to 62; lower normal retirement age to           yba 12/31/01         -3        -4        -4        -5        -5        -21
 65..................................................................
e. Increase annual addition limitation for defined contribution plans         yba 12/31/01         -7       -15       -19       -21       -17        -79
 to $40,000 with indexing in $1,000 increments \1\...................
f. Increase qualified plan compensation limit to $200,000 with                yba 12/31/01        -54      -117      -121      -138      -135       -565
 indexing in $5,000 increments \1\...................................
    g. Increase limits on deferrals under deferred compensation plans         yba 12/31/01        -29       -61       -87      -108      -127       -411
     of State and local governments and tax-exempt organizations to:
     $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in
     2005, and $15,000 in 2006; index thereafter \1\ \2\.............
2. Plan loans for subchapter S owners, partners, and sole proprietors         lma 12/31/01        -21       -32       -34       -36       -39       -162
3. Modification of top-heavy rules...................................         yba 12/31/01         -4        -9       -11       -13       -14        -51
4. Elective deferrals not taken into account for purposes of                  yba 12/31/01        -47       -88      -103      -111      -119       -468
 deduction limits....................................................
5. Repeal of coordination requirements for deferred compensation              yba 12/31/01        -16       -27       -27       -25       -23       -118
 plans of State and local governments and tax-exempt organizations...
6. elimination of user fee for certain requests regarding small               rma 12/31/01         -5        -8  ........  ........  ........        -13
 employer pension plans; waiver applies only for request made during
 first 5 plan years \3\..............................................
7. Definition of compensation for purposes of deduction limits \1\...         yba 12/31/01         -1        -3        -3        -3        -3        -14
8. Option to treat elective deferrals as after-tax contributions.....        tyba 12/31/01         42       105       148       132        88        516
9. Increase stock bonus and profit sharing plan deduction limit from         tyba 12/31/01         -5       -10       -12       -13       -15        -56
 15% to 20% \1\......................................................
10. Availability of qualified plans to self-employed individuals who         tyba 12/31/01         -1        -2        -4        -5        -6        -18
 are exempt from the self-employment tax by reason of their religious
 beliefs.............................................................
                                                                                            ------------------------------------------------------------
      Total of Provisions for Expanding Coverage.....................  ....................      -184      -443      -693      -944    -1,154     -3,419
                                                                                            ============================================================
             Provisions for Enhancing Fairness for Women

1. Additional catch-up contributions for individuals age 50 and              tyba 12/31/01       -241      -320      -239      -155       -96     -1,052
 above--increase the otherwise applicable contribution limit by
 $5,000 in 2002 through 2006 and index for inflation thereafter......
2. Equitable treatment for contributions of employees to defined              yba 12/31/01        -45       -84       -98      -106      -113       -446
 contribution plans \1\..............................................
3. Faster vesting of certain employer matching contributions.........        pyba 12/31/01                     Negligible Revenue Effect
4. Simplify and update the minimum distribution rules by modifying            yba 12/31/01        -49      -116      -136      -153      -176       -630
 post-death distribution rules, reducing (to 10%) the excise tax on
 failures to make minimum distributions, and directing the Treasury
 to revise regulations relating to the minimum distribution rules to
 reflect current life expectancy.....................................
5. Clarification of Tax treatment of division of section 457 plan          tdapma 12/31/01                    Negligible Revenue Effect
 benefits upon divorce...............................................
6. Modification of safe harbor relief for hardship withdrawals from           yba 12/31/01                    Negligible Revenue Effect
 401(k) plans........................................................
7. Waiver of tax on nondeductible contributions for domestic or              tyba 12/31/01        (7)       (7)        -1        -2        -4         -8
 similar workers.....................................................
                                                                                            ------------------------------------------------------------
      Total of Provisions for Enhancing Fairness for Women...........  ....................      -335      -520      -474      -416      -389     -2,136
                                                                                            ============================================================
        Provisions for Increasing Portability for Participants

1. Rollovers allowed among governmental section 457 plans, section             da 12/31/01         27        -4        -4        -5        -5         10
 403(b) plans, and qualified plans...................................
2. Rollovers of IRAs to workplace retirement plans...................          da 12/31/01                    Negligible Revenue Effect
3. Rollovers of after-tax retirement plan contributions..............         dma 12/31/01                    Negligible Revenue Effect
4. Waiver of 60-day rule.............................................          da 12/31/01                    Negligible Revenue Effect
5. Treatment of forms of qualified plan distributions................         yba 12/31/01                    Negligible Revenue Effect
6. Rationalization of restrictions on distributions..................          da 12/31/01                    Negligible Revenue Effect
7. Purchase of service credit in governmental defined benefit plans..          ta 12/31/01                    Negligible Revenue Effect
8. Employers may disregard rollovers for cash-out amounts............          da 12/31/01                    Negligible Revenue Effect
9. Minimum distribution and inclusion requirements for section 457             da 12/31/01                  Considered in Other Provisions
 plans...............................................................
                                                                                            ------------------------------------------------------------
      Total of Provisions for Increasing Portability for Participants  ....................        27        -4        -4        -5        -5         10
                                                                                            ============================================================
    Provisions for Strengthening Pension Security and Enforcement

1. Phase-in repeal of 160% of current liability funding limit; extend        pyba 12/31/01         -3        -3       -22       -36       -38       -102
 maximum deduction rule..............................................
2. Excise tax relief for sound pension funding.......................         yba 12/31/01         -2        -3        -3        -3        -3        -14
3. Notice of significant reduction in plan benefit accruals..........          pateo/a DOE                    Negligible Revenue Effect
4. Repeal 100% of compensation limit for multiemployer plans.........         yba 12/31/01         -2        -4        -4        -4        -4        -18
5. Modification of section 415 aggregation rules for multi-employer          tyba 12/31/01         -1        -1        -1        -1        -1         -4
 plans...............................................................
6. Prohibited allocations of stock in an ESOP of a subchapter S                        (4)          3         5         6         8         8         30
 corporation.........................................................
                                                                                            ------------------------------------------------------------
      Total of Provisions for Strengthening Pension Security and       ....................        -5        -6       -24       -36       -38       -108
       Enforcement...................................................
                                                                                            ============================================================
              Provisions for Reducing Regulatory Burdens

1. Modification of timing of plan valuations.........................        pyba 12/31/01                    Negligible Revenue Effect
2. ESOP dividends may be reinvested without loss of dividend                 tyba 12/31/01        -20       -49       -59       -63       -66       -258
 deduction...........................................................
3. Repeal transition rule relating to certain highly compensated             pyba 12/31/01         -2        -3        -3        -3        -3        -14
 employees...........................................................
4. Employees of tax-exempt entities \5\..............................                  DOE                     Negligible Revenue Effect
5. Treatment of employer-provided retirement advice..................         yba 12/31/01                     Negligible Revenue Effect
6. Pension plan reporting simplification \5\.........................               1/1/01                     Negligible Revenue Effect
7. Improvement to Employee Plans Compliance Resolution System \5\....                  DOE                     Negligible Revenue Effect
8. Repeal of multiple use test.......................................         yba 12/31/01                  Considered in Other Provisions
9 Flexibility in nondiscrimination, coverage, and line of business                     DOE                     Negligible Revenue Effect
 rules \5\...........................................................
10. Extension to all governmental plans of moratorium on application          yba 12/31/01                     Negligible Revenue Effect
 of certain nondiscrimination rules applicable to State and local
 government plans....................................................
11. Notice and consent period regarding distributions................         yba 12/31/01                         No Revenue Effect
12. Certain nonresident aliens excluded in applying minimum coverage         tyba 12/31/01         -3        -5        -5        -5        -6        -24
 requirements........................................................
                                                                                            ------------------------------------------------------------
      Total of Provisions for Reducing Regulatory Burdens............  ....................       -25       -57       -67       -71       -75       -296
                                                                                            ============================================================
Provisions Relating to Plan Amendments...............................                  DOE                         No Revenue Effect
                           ERISA Provisions

1. Missing plan participants \3\.....................................                (\6\)   ........     (\7\)     (\7\)     (\7\)     (\7\)      (\7\)
2. Reduce PBGC premium for new plans of small employers \3\..........         pea 12/31/01   ........     (\7\)     (\7\)     (\7\)     (\7\)         -2
3. Phase-in of additional PBGC premium for new plans; include                 pea 12/31/01   ........        -9        -9        -9        -9        -35
 additional variable premium relief for small employers \3\..........
4. Authorization for PBGC to pay interest on premium overpayment              iafpbnet DOE         -3        -3        -3        -3        -3        -15
 refunds \3\.........................................................
5. Rules for substantial owner benefits in terminated plans \3\......      noitta 12/31/01      (\7\)     (\7\)     (\7\)     (\7\)     (\7\)         -2
                                                                                            ------------------------------------------------------------
      Total of ERISA provisions......................................  ....................        -3       -13       -13       -13       -13        -54
                                                                                            ============================================================
      Net Total......................................................  ....................    -1,086    -2,540    -3,460    -4,295    -5,033   -16,416
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Provision includes interaction with other provisions in Provisions for Expanding Coverage.
\2\ Provision includes interaction with the Individual Retirement Arrangement Provisions.
\3\ Estimate provided by the Congressional Budget Office.
\4\ Generally effective with respect to years beginning after December 31, 2004. In the case of an ESOP established after March 14, 2001, or an ESOP
  established on or before such date if the employer maintaining the plan was not an S corporation on such date, the proposal would be effective with
  respect to plan years ending after March 14, 2001.
\5\ Directs the Secretary of the Treasury to modify rules through regulations.
\6\ Effective for distributions from terminating plans that occur after PBGC has adopted final regulations implementing provision.
\7\ Loss of less than $500,000.

Legend for ``Effective'' column: da=distributions after; dma=distributions made after; DOE=date of enactment; iafpbnet=interest accruing for periods
  beginning not earlier than; lma=loans made after; noitia=notice of intent to terminate after; pateo/a=plan amendments taking effect on or after;
  pea=plans established afer; pyba=plan years beginning after; rma=requests made after; ta=transfers after; tdapma=transfers, distributions, and
  payments made after; tyba=taxable years beginning after; and yba=years beginning after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

    B. Statement Regarding New Budget Authority and Tax 
Expenditures Budget Authority

Budget authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

Tax expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
revenue-reducing income tax provisions involve increased tax 
expenditures, and the revenue-increasing income tax provisions 
involve reduced tax expenditures. (See amounts in table in Part 
IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 10, the 
Comprehensive Retirement Security and Pension Reform Act of 
2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 10--Comprehensive Retirement Security and Pension Reform Act of 
        2001

            Summary
    H.R. 10 would make numerous changes to the Internal Revenue 
Code (IRC) and the Employee Retirement Income Security Act of 
1974 (ERISA) that would affect the taxation and operation of 
private pension plans.
    CBO and the Joint Committee on Taxation (JCT) estimate that 
the bill would reduce federal revenues by $1.1 billion in 2002, 
by $16.4 billion over the 2002-2006 period, and by $51.7 
billion over the 2002-2011 period. CBO estimates that the bill 
would increase direct spending by $2 million in 2002, by $49 
million over the 2002-2006 period, and by $112 million over the 
2002-2011 period. Since this bill would affect direct spending 
and revenues, pay-as-you-go procedures would apply.
    JCT and CBO have determined that H.R. 10 contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would not affect the budgets of state, 
local, or tribal governments. The bill contains one new 
private-sector mandate. JCT has determined that the cost of 
this mandate would not exceed the threshold established by UMRA 
for private-sector mandates ($113 million in fiscal year 2001, 
adjusted annually for inflation).
            Estimated cost to the Federal Government
    The estimated budgetary impact of H.R. 10 is shown in the 
following table. The costs of this legislation would fall 
within budget functions 600 (income security) and 800 (general 
government).

----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2001      2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Modification of IRA Contribution Limits.............         0      -368    -1,203    -2,059    -2,762    -3,311
Increased Limitation on Exclusion for Elective               0      -100      -328      -500      -636      -708
 Deferrals..........................................
Additional Increased Limitation on Exclusion for             0      -241      -320      -239      -155       -96
 Elective Deferrals for Individuals Age 50 and Above
Other Estimated Revenues............................         0      -385      -700      -663      -743      -919
                                                     -----------------------------------------------------------
      Total Revenues................................         0    -1,094    -2,551    -3,461    -4,296    -5,034

                                           CHANGES IN DIRECT SPENDING

IRS User Fees.......................................         0        -1        -1       \1\         0         0
Reduced PBGC Flat-Rate Premiums.....................         0         0       \1\       \1\         0         0
Reduced PBGC Variable Premiums......................         0         0         9         9         9         9
Missing Participants in Terminated Plans............         0         0       \1\       \1\       \1\       \1\
Payment of Interest on PBGC Premium Overpayment.....         0         3         3         3         3         3
Benefits Paid to Substantial Owners.................         0         0       \1\       \1\       \1\       \1\
                                                     -----------------------------------------------------------
      Total Direct Spending.........................         0         2        11        12        12        12

                                                  TOTAL CHANGES

Net Decrease in Budget Surplus......................         0    -1,096    -2,562    -3,473    -4,308    -5,046
----------------------------------------------------------------------------------------------------------------
\1\ = Less than $500,000.

Notes: Components may not sum to totals because of rounding.

Sources: CBO and Joint Committee on Taxation.

            Basis of estimate
            Revenues
    Federal Tax Revenues.--JCT estimates that H.R. 10 would 
reduce federal tax revenues by $1.1 billion in 2002, by $16.4 
billion over the 2002-2006 period, and by $51.7 billion over 
the 2002-2011 period. The bill would increase the maximum 
contribution limit for Individual Retirement Accounts (IRAs) to 
$3,000 in 2002, $4,000 in 2003, and $5,000 in 2004. After 2004, 
the maximum contribution rate would be indexed for inflation. 
The bill also would increase the maximum IRA contribution to 
$5,000 for individuals aged 50 or older in 2002 and 2003. In 
addition, the bill would make numerous changes to pension laws. 
For 2002, it would increase to $11,000 the dollar limit on 
certain contributions made to qualified plans (``elective 
deferrals'') under section 401(k) plans, section 403(b) 
annuities, and simplified employee pension plans (SEPs). That 
limitation would increase further, in $1,000 annual increments, 
until it reaches $15,000 in 2005. After 2005, the dollar limit 
would be indexed for inflation. The bill also would increase 
the otherwise applicable dollar limit on elective deferrals by 
$5,000 for individuals aged 5 or older in 2002 through 2006. 
After 2006, the dollar limit would be indexed for inflation.
    IRS User Fees.--H.R. 10 would eliminate the fee that the 
IRS charges small businesses for providing ruling, opinion, and 
determination letters regarding the firms' pension plans if 
certain conditions are met. This provision would take effect 
after December 31, 2001. Based on the amount of fees collected 
in recent years and on information from the IRS. CBO estimates 
that eliminating the fee would decrease governmental receipts 
by the total of $17 million over fiscal years 2002 and 2003. 
Under current law, the IRS's authority to charge such fees will 
expire at the end of fiscal year 2003, so the provision would 
have no impact on receipts beyond that year.
    Department of Labor Civil Penalties.--Under current law, 
the Department of Labor (DoL) is responsible for administering 
ERISA's reporting, disclosure, and fiduciary conduct 
requirements for private pension plans. In cases of fiduciary 
misconduct, DoL is required to assess a civil penalty equal to 
20 percent of any amount that is restored to a pension plan as 
part of a settlement or court judgment. These penalties, which 
totaled $3 million in 1998, are recorded as miscellaneous 
receipts.
    The bill would allow DoL to assess these civil penalties at 
its discretion and to assess penalties that could be less than 
20 percent of the recovered amount. With this more flexible 
authority, DoL has indicated that it would no longer assess 
penalties in cases where companies comply voluntarily with the 
department's enforcement efforts. According to DoL, these cases 
comprise about a third of the total. The full 20-percent 
penalty would still be assessed in the remaining cases, which 
are typically resolved through litigation. CBO estimates that 
this provision would reduce penalties collected by about a 
third, and that the drop in penalties would total $5 million 
over the 2002-2006 period.
            Spending subject to appropriation
    H.R. 10 would amend ERISA to require the President to 
convene an additional conference on national savings in 2009. 
Under current law, the President is required to convene 
aNational Summit on Retirement Income Security in 2001 and 2005. The 
appropriation of such sums as may be necessary is authorized for that 
purpose. The Secretary of Labor is also authorized to accept private 
donations to defray the costs of the conference. Based upon the 
experience of the 1998 National Summit, CBO estimates that the 2009 
National Summit would cost less than $1 million and that more than one-
half of the expenses would be offset by private donations. (See the 
discussion under direct spending for more details.)
            Direct spending
    National Summit on Retirement Income Security.--The bill 
would extend the authorization for the National Summit on 
Retirement Income Security to include a meeting in 2009. CBO 
estimates that the Department of Labor would receive at least 
$500,000 in private donations which would be spent to defray 
part of the costs of the conference. Therefore, this provision 
would increase revenues and direct spending by the same amounts 
and would have no net impact on the budget surplus.
    IRS User Fees.--The Internal Revenue Service (IRS) has the 
authority to retain and spend without further appropriation 
action a small portion of the fees it collects from taxpayers 
for certain rulings and determinations by the Office of the 
Chief Counsel and by the Office for Employee Plans and Exempt 
Organizations. Because H.R. 10 would eliminate the fee paid by 
small businesses for rulings and determinations, the bill would 
also reduce the amounts available for the IRS to spend. These 
fees are recorded in the budget as revenues, and are scheduled 
to expire in 2003. CBO estimates that eliminating the fee would 
decrease direct spending by a total of $2 million over the 
2002-2004 period.
    Reduced Flat-Rate Premiums Paid to the PBGC.--Under current 
law, defined benefit pension plans operated by a single 
employer pay two types of annual premiums to the Pension 
Benefit Guaranty Corporation (PBGC). All covered plans are 
subject to a flat-rate premium of $19 per participant. In 
addition, underfunded plans must also pay a variable premium 
that depends on the amount by which the plan's liabilities 
exceed its assets.
    The bill would reduce the flat-rate premium from $19 to $5 
per participant for plans established by employers with 100 or 
fewer employees during the first five years of the plan's 
operation. According to information obtained from the PBGC, 
approximately 3,000 plans would qualify for this reduction. 
Those plans cover an average of about 10 participants each. CBO 
estimates that the change would reduce PBGC's premium income, 
which is classified as an offsetting collection, by about 
$400,000 annually beginning in 2003 and by about $1.7 million 
over the 2003-2006 period.
    Reduced Variable Premiums Paid to the PBGC.--H.R. 10 would 
make two changes affecting the variable-rate premium paid by 
underfunded plans. First, for all new plans that are 
underfunded, the bill would phase in the variable-rate premium. 
In the first year, plans would pay nothing. In the succeeding 
four years, they would pay 20 percent, 40 percent, 60 percent, 
and 80 percent, respectively, of the full amount. In the sixth 
and later years, they would pay the full variable-rate premium 
determined by their funding status. On the basis of information 
about premiums paid to the PBGC in 1998 and 1999, CBO estimates 
that this change would affect the premiums of approximately 400 
plans per year. It would reduce PBGC's total premium receipts 
by about $28 million over the 2003-2006 period.
    The bill would also reduce the variable-rate premium paid 
by all underfunded plans (not just new plans) established by 
employers with 25 or fewer employees. Under the bill, the 
variable-rate premium per participant paid by those plans would 
not exceed $5 multiplied by the number of participants in the 
plan. CBO estimates that approximately 8,300 plans would have 
their premium payments to PBGC reduced by this provision 
beginning in 2003. As a result, premium receipts would decline 
by $1.6 million in 2003 and by $7 million over the 2003-2006 
period.
    Missing Participants in Terminated Pension Plans.--The 
legislation would expand the PBGC's missing participant 
program. The Retirement Protection Act of 1994 established a 
program to locate missing participants when defined benefit 
plans are terminated. The bill would expand the program to 
include terminating multiemployer plans, defined benefit plans 
not covered by the PBGC, and defined contribution plans.
    The budgetary impact of this provision would be less than 
$500,000 annually. The PBGC does not expect a high volume of 
missing participants as a result of this proposal, and the 
administrative costs of expanding the program would not be 
significant. The net budgetary effect of increased benefit 
payments would also be small. Amounts paid by a pension plan to 
the PBGC for missing participants are held in the PBGC's trust 
fund, which is not part of the federal budget. Amounts paid by 
the PBGC to participants at the time they are located are 
funded in the same manner as benefit payments to participants 
in plans for which PBGC is the trustee--partially by the trust 
fund and partially by on-budget revolving funds.
    Authorization for PBGC to Pay Interest on Premium 
Overpayment Refunds.--The legislation would authorize the PBGC 
to pay interest to plan sponsors on premium overpayments. 
Interest paid on overpayments would be calculated at the same 
time rate as interest changed on premium underpayments. On 
average, PBGC receives $19 million per year in premium 
overpayments, charges an interest rate of 8 percent for 
underpayments, and allows for a two-year lag between the 
receipt of payments and the issuance of refunds. The agency 
would pay the same rate for premium overpayments as it charges 
for underpayments. Basedon this information, CBO estimates that 
direct spending would increase by $3 million annually.
    Substantial Owner Benefits in Terminated Plans.--H.R. 10 
would simplify the rules by which the PBGC pays benefits to 
substantial owners (those with an ownership interest of at 
least 10 percent) of terminated pension plans. Only about one-
third of the plans taken over by the PBGC involve substantial 
owners, and the change in benefits paid to owner-employees 
under this provision would be less than $500,00 annually.
            Pay-as-you-go considerations
    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in outlays and 
governmental receipts that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
current year, the budget year, and the succeeding four years 
are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                By fiscal year, in millions of dollars--
                                              ----------------------------------------------------------------------------------------------------------
                                                2001    2002      2003      2004      2005      2006      2007      2008      2009      2010      2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..........................      0    -1,094    -2,551    -3,461    -4,296    -5,034    -5,664    -6,287    -7,005    -7,799    -8,496
Changes in outlays...........................      0         2        11        12        12        12        12        12        13        13        13
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on State, local, and tribal governments: 
JCT has determined that H.R. 10 contains no intergovernmental 
mandates as defined in UMRA and would impose no costs on state, 
local, or tribal governments.
    Estimated impact on the private sector: JCT has determined 
the provision that would prohibit allocations of stock in an 
Employee Stock Ownership Plan of a subchapter S corporation 
would be a new private sector mandate. JCT has estimated that 
the cost of this mandate would not exceed the threshold 
established by UMRA for private-sector mandates ($113 million 
in fiscal year 2001, adjusted annually for inflation).
    Estimate prepared by: Federal revenues: Erin Whitaker; IRS 
user fees (direct spending): John R. Righter; DoL civil 
penalties and administrative expenses: Christi Hawley Sadoti; 
Pension Benefit Guaranty Corporation: Tamara Ohler.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis; Roberton Williams, Deputy 
Assistant Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning retirement security and pension 
reforms that the Committee concluded that it is appropriate and 
timely to enact the revenue provisions included in the bill as 
reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises. . .''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the following provision 
of the bill contains Federal mandates on the private sector 
(for amounts, see tables in Part IV.A., above): prohibited 
allocation of stock in an S corporation ESOP.
    The costs required to comply with the Federal private 
sector mandate generally are no greater than the estimated 
budget effects of the provision. Benefits from the provision 
include improved administration of the Federal tax laws and a 
more accurate measurement of income for Federal income tax 
purposes.
    The Committee has determined that the bill does not impose 
a Federal intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. 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 House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue 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.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *



SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Special Rules for Computing Employees' Contributions.--In 
computing, for purposes of subsection (c)(1)(A), the aggregate 
amount of premiums or other consideration paid for the 
contract, and for purposes of subsection (e)(6), the aggregate 
premiums or other consideration paid, amounts contributed by 
the employer shall be included, but only to the extent that--
          (1) * * *

           *       *       *       *       *       *       *

Paragraph (2) shall not apply to amounts which were contributed 
by the employer after December 31, 1962, and which would not 
have been includible in the gross income of the employee by 
reason of the application of section 911 if such amounts had 
been paid directly to the employee at the time of contribution. 
The preceding sentence shall not apply to amounts which were 
contributed by the employer, as determined under regulations 
prescribed by the Secretary, to provide pension or annuity 
credits, to the extent such credits are attributable to 
services performed before January 1, 1963, and are provided 
pursuant to pension or annuity plan provisions in existence on 
March 12, 1962, and on that date applicable to such services, 
or to the extent such credits are attributable to services 
performed as a foreign missionary (within the meaning of 
[section 403(b)(2)(D)(iii)] section 403(b)(2)(D)(iii), as in 
effect before the enactment of the Comprehensive Retirement 
Security and Pension Reform Act of 2001).

           *       *       *       *       *       *       *

  (o) Special rules for distributions from qualified plans to 
which employee made deductible contributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rule for treatment of rollover amounts.--
        For purposes of sections 402(c), 403(a)(4), [and 
        408(d)(3)] 403(b)(8), 408(d)(3), and 457(e)(16), the 
        Secretary shall prescribe regulations providing for 
        such allocations of amounts attributable to accumulated 
        deductible employee contributions, and for such other 
        rules, as may be necessary to insure that such 
        accumulated deductible employee contributions do not 
        become eligible for additional tax benefits (or freed 
        from limitations) through the use of rollovers.

           *       *       *       *       *       *       *

  (t) 10-Percent Additional Tax on Early Distributions From 
Qualified Retirement Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an eligible employer described in 
        section 457(e)(1)(A) shall be treated as a distribution 
        from a qualified retirement plan described in section 
        4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible 
        deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) Exclusion From Gross Income.--Gross income shall not 
include any fringe benefit which qualifies as a--
          (1) * * *

           *       *       *       *       *       *       *

          (5) qualified transportation fringe, [or]
          (6) qualified moving expense reimbursement[.]; or
          (7) qualified retirement planning services.

           *       *       *       *       *       *       *

  (m) Qualified Retirement Planning Services.--
          (1) In general.--For purposes of this section, the 
        term ``qualified retirement planning services'' means 
        any retirementplanning advice or information provided 
to an employee and his spouse by an employer maintaining a qualified 
employer plan.
          (2) Nondiscrimination rule.--Subsection (a)(7) shall 
        apply in the case of highly compensated employees only 
        if such services are available on substantially the 
        same terms to each member of the group of employees 
        normally provided education and information regarding 
        the employer's qualified employer plan.
          (3) Qualified employer plan.--For purposes of this 
        subsection, the term ``qualified employer plan'' means 
        a plan, contract, pension, or account described in 
        section 219(g)(5).
  [(m)] (n) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

           *       *       *       *       *       *       *


PART VII--ADDTIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) * * *
  (b) Maximum Amount of Deduction.--
          (1) In general.--The amount allowable as a deduction 
        under subsection (a) to any individual for any taxable 
        year shall not exceed the lesser of--
                  (A) [$2,000] the deductible amount, or

           *       *       *       *       *       *       *

          (5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                  (A) In general.--The deductible amount shall 
                be determined in accordance with the following 
                table:
        For taxable years                                 The deductible
          beginning in:                                     amount is:  
          2002................................................   $3,000 
          2003................................................   $4,000 
          2004 and thereafter.................................   $5,000.

                  (B) Catch-up contributions for individuals 50 
                or older.--In the case of an individual who has 
                attained the age of 50 before the close of the 
                taxable year, the deductible amount for taxable 
                years beginning in 2002 or 2003 shall be 
                $5,000.
                  (C) Cost-of-living adjustment.--
                          (i) In general.--In the case of any 
                        taxable year beginning in a calendar 
                        year after 2004, the $5,000 amount 
                        under subparagraph (A) shall be 
                        increased by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f )(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting ``calendar year 
                                2003'' for ``calendar year 
                                1992'' in subparagraph (B) 
                                thereof.
                          (ii) Rounding rules.--If any amount 
                        after adjustment under clause (i) is 
                        not a multiple of $500, such amount 
                        shall be rounded to the next lower 
                        multiple of $500.

           *       *       *       *       *       *       *

  (d) Other Limitations and Restrictions.--
          (1) * * *
          (2) Recontributed amounts.--No deduction shall be 
        allowed under this section with respect to a rollover 
        contribution described in section 402(c), 403(a)(4), 
        403(b)(8), or [408(d)(3)] 408(d)(3), or 457(e)(16).

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, Etc.

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


                        Subpart A--General Rule

        Sec. 401. Qualified pension, profit-sharing, and stock bonus 
                  plans.
     * * * * * * *
        Sec. 402A. Optional treatment of elective deferrals as plus 
                  contributions.

           *       *       *       *       *       *       *


SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

  (a) Requirements for Qualification.--A trust created or 
organized in the United States and forming part of a stock 
bonus, pension, or profit-sharing plan of an employer for the 
exclusive benefit of his employees or their beneficiaries shall 
constitute a qualified trust under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) [State and local governmental plans] 
                Governmental plans.--Paragraphs (3) and (4) 
                shall not apply to a governmental plan (within 
                the meaning of [section 414(d)) maintained by a 
                State or local government or political 
                subdivision thereof (or agency or 
                instrumentality thereof).] section 414(d)).

           *       *       *       *       *       *       *

          (9) Required distributions.--
                  (A) * * *
                  (B) Required distribution where employee dies 
                before entire interest is distributed.--
                          [(i) Where distributions have begun 
                        under subparagraph (a)(ii).--A trust 
                        shall not constitute a qualified trust 
                        under this section unless the plan 
                        provides that if--
                                  [(I) the distribution of the 
                                employee's interest has begun 
                                in accordance with subparagraph 
                                (A)(ii), and
                                  [(II) the employee dies 
                                before his entire interest has 
                                been distributed to him,
                        the remaining portion of such interest 
                        will be distributed at least as rapidly 
                        as under the method of distributions 
                        being used under subparagraph (A)(ii) 
                        as of the date of his death.]
                          [(ii)] (i) 5-year rule [for other 
                        cases].--A trust shall not constitute a 
                        qualified trust under this section 
                        unless the plan provides that, if an 
                        employee dies before [the distribution 
                        of the employee's interest has begun in 
                        accordance with subparagraph (A)(ii)] 
                        his entire interest has been 
                        distributed to him, the entire interest 
                        of the employee will be distributed 
                        within 5 years after the death of such 
                        employee.
                          [(iii)] (ii) Exception to 5-year rule 
                        for certain amounts payable over life 
                        of beneficiary.--If--
                                  (I) * * *

           *       *       *       *       *       *       *

                        for purposes of clause [(ii)] (i), the 
                        portion referred to in subclause (I) 
                        shall be treated as distributed on the 
                        date on which such distributions begin.
                          [(iv)] (iii) Special rule for 
                        surviving spouse of employee.--If the 
                        designated beneficiary referred to in 
                        clause [(iii)(I)] (ii)(I) is the 
                        surviving spouse of the employee--
                                  (I) the date on which the 
                                distributions are required to 
                                begin under clause [(iii)(III)] 
                                (ii)(III) shall not be earlier 
                                than [the date on which the 
                                employee would have attained 
                                age 70\1/2\,] April 1 of the 
                                calendar year following the 
                                calendar year in which the 
                                spouse attains 70\1/2\, and
                                  (II) if the surviving spouse 
                                dies before [the distributions 
                                to such spouse begin,] his 
                                entire interest has been 
                                distributed to him, this 
                                subparagraph shall be applied 
                                as if the surviving spouse were 
                                the employee.

           *       *       *       *       *       *       *

          (17) Compensation limit.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless, 
                under the plan of which such trust is a part, 
                the annual compensation of each employee taken 
                into account under the plan for any year does 
                not exceed [$150,000] $200,000.
                  (B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the [$150,000] $200,000 
                amount in subparagraph (A) for increases in the 
                cost-of-living at the same time and in the same 
                manner as adjustments under section 415(d); 
                except that the base period shall be the 
                calendar quarter beginning [October 1, 1993] 
                July 1, 2001, and any increase which is not a 
                multiple of [$10,000] $5,000 shall be rounded 
                to the next lowest multiple of [$10,000] 
                $5,000.

           *       *       *       *       *       *       *

          (26) Additional participation requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) [Exception for state and local 
                governmental plans] Exception for governmental 
                plans.--This paragraph shall not apply to a 
                governmental plan (within the meaning of 
                [section 414(d)) maintained by a State or local 
                government or political subdivision thereof (or 
                agency or instrumentality thereof).] section 
                414(d)).

           *       *       *       *       *       *       *

          (31) Optional direct transfer of eligible rollover 
        distributions.--
                  (A) * * *
                  (B) Limitation.--Subparagraph (A) shall apply 
                only to the extent that the eligible rollover 
                distribution would be includible in gross 
                income if not transferred as provided in 
                subparagraph (A) (determined without regard to 
                sections 402(c) [and 403(a)(4)], 403(a)(4), 
                403(b)(8), and 457(e)(16)). The preceding 
                sentence shall not apply to such distribution 
                if the plan to which such distribution is 
                transferred--
                          (i) agrees to separately account for 
                        amounts so transferred, including 
                        separately accounting for the portion 
                        of such distribution which is 
                        includible in gross income and the 
                        portion of such distribution which is 
                        not so includible, or
                          (ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of 
                        section 402(c)(8)(B).

           *       *       *       *       *       *       *

  (c) Definitions and Rules Relating to Self-Employed 
Individuals and Owner-Employees.--For purposes of this 
section--
          (1) * * *
          (2) Earned income.--
                  (A) In general.--The term ``earned income'' 
                means the net earnings from self-employment (as 
                defined in section 1402(a)), but such net 
                earnings shall be determined--
                          (i) * * *

           *       *       *       *       *       *       *

                For purposes of this subparagraph, section 
                1402, as in effect for a taxable year ending on 
                December 31, 1962, shall be treated as having 
                been in effect for all taxable years ending 
                before such date. For purposes of this part 
                only(other than sections 419 and 419A), this 
subparagraph shall be applied as if the term ``trade or business'' for 
purposes of section 1402 included service described in section 
1402(c)(6).

           *       *       *       *       *       *       *

  (k) Cash or Deferred Arrangements.--
          (1) * * *
          (2) Qualified cash or deferred arrangement.--A 
        qualified cash or deferred arrangement is any 
        arrangement which is part of a profit-sharing or stock 
        bonus plan, a pre-ERISA money purchase plan, or a rural 
        cooperative plan which meets the requirements of 
        subsection (a)--
                  (A) * * *
                  (B) under which amounts held by the trust 
                which are attributable to employer 
                contributions made pursuant to the employee's 
                election--
                          (i) may not be distributable to 
                        participants or other beneficiaries 
                        earlier than--
                                  (I) [separation from service] 
                                severance from employment, 
                                death, or disability,

           *       *       *       *       *       *       *

          (3) Application of participation and discrimination 
        standards.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) Governmental plans.--A governmental plan 
                (within the meaning of section 414(d) 
                [maintained by a State or local government or 
                political subdivision thereof (or agency or 
                instrumentality thereof)] shall be treated as 
                meeting the requirements of this paragraph.

           *       *       *       *       *       *       *

          (10) Distributions upon termination of plan [or 
        disposition of assets or subsidiary].--
                  [(A) In general.--The following events are 
                described in this paragraph:
                          [(i) Termination.--The termination of 
                        the plan without establishment or 
                        maintenance of another defined 
                        contribution plan (other than an 
                        employee stock ownership plan as 
                        defined in section 4975(e)(7)).
                          [(ii) Disposition of assets.--The 
                        disposition by a corporation of 
                        substantially all of the assets (within 
                        the meaning of section 409(d)(2)) used 
                        by such corporation in a trade or 
                        business of such corporation, but only 
                        with respect to an employee who 
                        continues employment with the 
                        corporation acquiring such assets.
                          [(iii) Disposition of subsidiary.--
                        The disposition by a corporation of 
                        such corporation's interest in a 
                        subsidiary (within the meaning of 
                        section 409(d)(3)), but only with 
                        respect to an employee who continues 
                        employment with such subsidiary.]
                  (A) In general.--An event described in this 
                subparagraph is the termination of the plan 
                without establishment or maintenance of another 
                defined contribution plan (other than an 
                employee stock ownership plan as defined in 
                section 4975(e)(7)).
                  (B) Distributions must be lump sum 
                distributions.--
                          (i) In general.--[An event] A 
                        termination shall not be treated as 
                        described in subparagraph (A) with 
                        respect to any employee unless the 
                        employee receives a lump sum 
                        distribution by reason of [the event] 
                        the termination.

           *       *       *       *       *       *       *

                  [(C) Transferor corporation must maintain 
                plan.--An event shall not be treated as 
                described in clause (ii) or (iii) of 
                subparagraph (A) unless the transferor 
                corporation continues to maintain the plan 
                after the disposition.]
          (11) Adoption of simple plan to meet 
        nondiscrimination tests.--
                  (A)  * * *
                  (B) Contribution requirements.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement--
                                  (I) an employee may elect to 
                                have the employer make elective 
                                contributions for the year on 
                                behalf of the employee to a 
                                trust under the plan in an 
                                amount which is expressed as a 
                                percentage ofcompensation of 
                                the employee but which in no 
                                event exceeds [$6,000] the 
                                amount in effect under section 
                                408(p)(2)(A)(ii).

           *       *       *       *       *       *       *

                  [(E) Cost-of-living adjustment.--The 
                Secretary shall adjust the $6,000 amount under 
                subparagraph (B)(i)(I) at the same time and in 
                the same manner as under section 408(p)(2)(E).]

           *       *       *       *       *       *       *

  (m) Nondiscrimination Test for Matching Contributions and 
Employee Contributions.--
          (1) * * *

           *       *       *       *       *       *       *

          [(9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of this subsection and subsection (k) 
        including--
                  [(A) such regulations as may be necessary to 
                prevent the multiple use of the alternative 
                limitation with respect to any highly 
                compensated employee, and
                  [(B) regulations permitting appropriate 
                aggregation of plans and contributions.
        For purposes of the preceding sentence, the term 
        ``alternative limitation'' means the limitation of 
        section 401(k)(3)(A)(ii)(II) and the limitation of 
        paragraph (2)(A)(ii) of this subsection.]
          (9) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of thissubsection and subsection (k), 
including regulations permitting appropriate aggregation of plans and 
contributions.

           *       *       *       *       *       *       *


SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Rules Applicable to Rollovers From Exempt Trusts.--
          (1) * * *
          (2) Maximum amount which may be rolled over.--In the 
        case of any eligible rollover distribution, the maximum 
        amount transferred to which paragraph (1) applies shall 
        not exceed the portion of such distribution which is 
        includible in gross income (determined without regard 
        to paragraph (1)). The preceding sentence shall not 
        apply to such distribution to the extent--
                  (A) such portion is transferred in a direct 
                trustee-to-trustee transfer to a qualified 
                trust which is part of a plan which is a 
                defined contribution plan and which agrees to 
                separately account for amounts so transferred, 
                including separately accounting for the portion 
                of such distribution which is includible in 
                gross income and the portion of such 
                distribution which is not so includible, or
                  (B) such portion is transferred to an 
                eligible retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B).
          [(3) Transfer must be made within 60 days of 
        receipt.--Paragraph (1) shall not apply to any transfer 
        of a distribution made after the 60th day following the 
        day on which the distributee received the property 
        distributed.]
          (3) Transfer must be made within 60 days of 
        receipt.--
                  (A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply 
                to any transfer of a distribution made after 
                the 60th day following the day on which the 
                distributee received the property distributed.
                  (B) Hardship exception.--The Secretary may 
                waive the 60-day requirement under subparagraph 
                (A) where the failure to waive such requirement 
                would be against equity or good conscience, 
                including casualty, disaster, or other events 
                beyond the reasonable control of the individual 
                subject to such requirement.
          (4) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``eligible rollover 
        distribution'' means any distribution to an employee of 
        all or any portion of the balance to the credit of the 
        employee in a qualified trust; except that such term 
        shall not include--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) any hardship distribution described in 
                section 401(k)(2)(B)(i)(IV).]
                  (C) any distribution which is made upon 
                hardship of the employee.

           *       *       *       *       *       *       *

          (8) Definitions.--For purposes of this subsection--
                  (A) * * *
                  (B) Eligible retirement plan.--The term 
                ``eligible retirement plan'' means--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) a qualified trust, [and]
                          (iv) an annuity plan described in 
                        section 403(a)[.],
                          (v) an eligible deferred compensation 
                        plan described in section 457(b) which 
                        is maintained by an eligible employer 
                        described in section 457(e)(1)(A), and
                          (vi) an annuity contract described in 
                        section 403(b).
                If any portion of an eligible rollover 
                distribution is attributable to payments or 
                distributions from a designated plus account 
                (as defined in section 402A), an eligible 
                retirement plan with respect to such portion 
                shall include only another designated plus 
                account and a Roth IRA.
          (9) Rollover where spouse receives distribution after 
        death of employee.--If any distribution attributable to 
        an employee is paid to the spouse of the employee after 
        the employee's death, the preceding provisions of this 
        subsection shall apply to such distribution in the same 
        manner as if the spouse were the employee[; except that 
        a trust or plan described in clause (iii) or (iv) of 
        paragraph (8)(B) shall not be treated as an eligible 
        retirement plan with respect to such distribution].

           *       *       *       *       *       *       *

          (10) Separate accounting.--Unless a plan described in 
        clause (v) of paragraph (8)(B) agrees to separately 
        account for amounts rolled into such plan from eligible 
        retirement plans not described in such clause, the plan 
        described in such clause may not accept transfers or 
        rollovers from such retirement plans.

           *       *       *       *       *       *       *

  (f) Written Explanation to Recipients of Distributions 
Eligible for Rollover Treatment.--
          (1) In general.--The plan administrator of any plan 
        shall, within a reasonable period of time before making 
        an eligible rollover distribution [from an eligible 
        retirement plan], provide a written explanation to the 
        recipient--
                  (A) of the provisions under which the 
                recipient may have the distribution directly 
                transferred to [another eligible retirement 
                plan] an eligible retirement plan,
                  (B) of the provision which requires the 
                withholding of tax on the distribution if it is 
                not directly transferred to [another eligible 
                retirement plan] an eligible retirement plan,
                  (C) of the provisions under which the 
                distribution will not be subject to tax if 
                transferred to an eligible retirement plan 
                within 60 days after the date on which the 
                recipient received the distribution, [and]
                  (D) if applicable, of the provisions of 
                subsections (d) and (e) of this section[.], and
                  (E) of the provisions under which 
                distributions from the eligible retirement plan 
                receiving the distribution may be subject to 
                restrictions and tax consequences which are 
                different from those applicable to 
                distributions from the plan making such 
                distribution.
          (2) Definitions.--For purposes of this subsection--
                  (A) Eligible rollover distribution.--The term 
                ``eligible rollover distribution'' has the same 
                meaning as when used in subsection (c) of this 
                section [or paragraph (4) of section 403(a)], 
                paragraph (4) of section 403(a), subparagraph 
                (A) of section 403(b)(8), or subparagraph (A) 
                of section 457(e)(16).

           *       *       *       *       *       *       *

  (g) Limitation on Exclusion for Elective Deferrals.--
          [(1) In general.--Notwithstanding subsections (e)(3) 
        and (h)(1)(B), the elective deferrals of any individual 
        for any taxable year shall be included in such 
        individual's gross income to the extent the amount of 
        such deferrals for the taxable year exceeds $7,000.]
          (1) In general.--
                  (A) Limitation.--Notwithstanding subsections 
                (e)(3) and (h)(1)(B), the elective deferrals of 
                any individual for any taxable year shall be 
                included in such individual's gross income to 
                the extent the amount of such deferrals for the 
                taxable year exceeds the applicable dollar 
                amount. The preceding sentence shall not apply 
                to so much of such excess as does not exceed 
                the designated plus contributions of the 
                individual for the taxable year.
                  (B) Applicable dollar amount.--For purposes 
                of subparagraph (A), the applicable dollar 
                amount shall be the amount determined in 
                accordance with the following table:
        For taxable years                                 The applicable
          beginning in                                    dollar amount:
          calendar year:
          2002................................................  $11,000 
          2003................................................  $12,000 
          2004................................................  $13,000 
          2005................................................  $14,000 
          2006 or thereafter..................................  $15,000.

          (2) Distribution of excess deferrals.--
                  (A) In general.--If any amount (hereinafter 
                in this paragraph referred to as ``excess 
                deferrals'') is included in the gross income of 
                an individual under paragraph (1) (or would be 
                included but for the last sentence thereof) for 
                any taxable year--
                          (i) * * *

           *       *       *       *       *       *       *

          [(4) Increase in limit for amounts contributed under 
        section 403(b) contracts.--The limitation under 
        paragraph (1) shall be increased (but not to an amount 
        in excess of $9,500) by the amount of any employer 
        contributions for the taxable year described in 
        paragraph (3)(C).
          [(5) Cost-of-living adjustment.--The Secretary shall 
        adjust the $7,000 amount under paragraph (1) at the 
        same time and in the same manner as under section 
        415(d); except that any increase under this paragraph 
        which is not a multiple of $500 shall be rounded to the 
        next lowest multiple of $500.]
          (4) Cost-of-living adjustment.--In the case of 
        taxable years beginning after December 31, 2006, the 
        Secretary shall adjust the $15,000 amount under 
        paragraph (1)(B) at the same time and in the same 
        manner as under section 415(d), except that the base 
        period shall be the calendar quarter beginning July 1, 
        2005, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next 
        lowest multiple of $500.
          [(6)] (5) Disregard of community property laws.--This 
        subsection shall be applied without regard to community 
        property laws.
          [(7)] (6) Coordination with section 72.--For purposes 
        of applying section 72, any amount includible in gross 
        income for any taxable year under this subsection but 
        which is not distributed from the plan during such 
        taxable year shall not be treated as investment in the 
        contract.
          [(8)] (7) Special rule for certain organizations.--
                  (A) * * *
                  (B) Qualified organizationFor purposes of 
                this paragraph, the term ``qualified 
                organization'' means any educational 
                organization, hospital, home health service 
                agency, health and welfare service agency, 
                church, or convention or association of 
                churches. Such term includes any organization 
                described in section 414(e)(3)(B)(ii). Terms 
                used in this subparagraph shall have the same 
                meaning as when used in section 415(c)(4) (as 
                in effect before the enactment of the 
                Comprehensive Retirement Security and Pension 
                Reform Act of 2001).

           *       *       *       *       *       *       *

          [(9)] (8) Matching contributions on behalf of self-
        employed individuals not treated as elective employer 
        contributions.--Except as provided in section 
        401(k)(3)(D)(ii), any matching contribution described 
        in section 401(m)(4)(A) which is made on behalf of a 
        self-employed individual (as defined in section 401(c) 
        shall not be treated as an elective employer 
        contribution under a qualified cash or deferred 
        arrangement (as defined in section 401(k) for purposes 
        of this title.

           *       *       *       *       *       *       *


SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                    CONTRIBUTIONS.

  (a) General Rule.--If an applicable retirement plan includes 
a qualified plus contribution program--
          (1) any designated plus contribution made by an 
        employee pursuant to the program shall be treated as an 
        elective deferral for purposes of this chapter, except 
        that such contribution shall not be excludable from 
        gross income, and
          (2) such plan (and any arrangement which is part of 
        such plan) shall not be treated as failing to meet any 
        requirement of this chapter solely by reason of 
        including such program.
  (b) Qualified Plus Contribution Program.--For purposes of 
this section--
          (1) In general.--The term ``qualified plus 
        contribution program'' means a program under which an 
        employee may elect to make designated plus 
        contributions in lieu of all or a portion of elective 
        deferrals the employee is otherwise eligible to make 
        under the applicable retirement plan.
          (2) Separate accounting required.--A program shall 
        not be treated as a qualified plus contribution program 
        unless the applicable retirement plan--
                  (A) establishes separate accounts 
                (``designated plus accounts'') for the 
                designated plus contributions of each employee 
                and any earnings properly allocable to the 
                contributions, and
                  (B) maintains separate recordkeeping with 
                respect to each account.
  (c) Definitions and Rules Relating to Designated Plus 
Contributions.--For purposes of this section--
          (1) Designated plus contribution.--The term 
        ``designated plus contribution'' means any elective 
        deferral which--
                  (A) is excludable from gross income of an 
                employee without regard to this section, and
                  (B) the employee designates (at such time and 
                in such manner as the Secretary may prescribe) 
                as not being so excludable.
          (2) Designation limits.--The amount of elective 
        deferrals which an employee may designate under 
        paragraph (1) shall not exceed the excess (if any) of--
                  (A) the maximum amount of elective deferrals 
                excludable from gross income of the employee 
                for the taxable year (without regard to this 
                section), over
                  (B) the aggregate amount of elective 
                deferrals of the employee for the taxable year 
                which the employee does not designate under 
                paragraph (1).
          (3) Rollover contributions.--
                  (A) In general.--A rollover contribution of 
                any payment or distribution from a designated 
                plus account which is otherwise allowable under 
                this chapter may be made only if the 
                contribution is to--
                          (i) another designated plus account 
                        of the individual from whose account 
                        the payment or distribution was made, 
                        or
                          (ii) a Roth IRA of such individual.
                  (B) Coordination with limit.--Any rollover 
                contribution to a designated plus account under 
                subparagraph (A) shall not be taken into 
                account for purposes of paragraph (1).
  (d) Distribution Rules.--For purposes of this title--
          (1) Exclusion.--Any qualified distribution from a 
        designated plus account shall not be includible in 
        gross income.
          (2) Qualified distribution.--For purposes of this 
        subsection--
                  (A) In general.--The term ``qualified 
                distribution'' has the meaning given such term 
                by section 408A(d)(2)(A) (without regard to 
                clause (iv) thereof).
                  (B) Distributions within nonexclusion 
                period.--A payment or distribution from a 
                designated plus account shall not be treated as 
                a qualified distribution if such payment or 
                distribution is made within the 5-taxable-year 
                period beginning with the earlier of--
                          (i) the first taxable year for which 
                        the individual made a designated plus 
                        contribution to any designated plus 
                        account established for such individual 
                        under the same applicable retirement 
                        plan, or
                          (ii) if a rollover contribution was 
                        made to such designated plus account 
                        from a designated plus account 
                        previously established for such 
                        individual under another applicable 
                        retirement plan, the first taxable year 
                        for which the individual made a 
                        designated plus contribution to such 
                        previously established account.
                  (C) Distributions of excess deferrals and 
                contributions and earnings thereon.--The term 
                ``qualified distribution'' shall not include 
                any distribution of an excess deferral under 
                section 402(g)(2) or any excess contribution 
                under section 401(k)(8), and any income on the 
                excess deferral or contribution.
          (3) Treatment of distributions of certain excess 
        deferrals.--Notwithstanding section 72, if any excess 
        deferral under section 402(g)(2) attributable to a 
        designated plus contribution is not distributed on or 
        before the 1st April 15 following the close of the 
        taxable year in which such excess deferral is made, the 
        amount of such excess deferral shall--
                  (A) not be treated as investment in the 
                contract, and
                  (B) be included in gross income for the 
                taxable year in which such excess is 
                distributed.
          (4) Aggregation rules.--Section 72 shall be applied 
        separately with respect to distributions and payments 
        from a designated plus account and other distributions 
        and payments from the plan.
  (e) Other Definitions.--For purposes of this section--
          (1) Applicable retirement plan.--The term 
        ``applicable retirement plan'' means--
                  (A) an employees' trust described in section 
                401(a) which is exempt from tax under section 
                501(a), and
                  (B) a plan under which amounts are 
                contributed by an individual's employer for an 
                annuity contract described in section 403(b).
          (2) Elective deferral.--The term ``elective 
        deferral'' means any elective deferral described in 
        subparagraph (A) or (C) of section 402(g)(3).

SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) * * *
  (b) Taxability of Beneficiary Under Annuity Purchased by 
Section 501(c)(3) Organization or Public School.--
          (1) General rule.--If--
                  (A) * * *

           *       *       *       *       *       *       *

then amounts contributed by such employer for such annuity 
contract on or after such rights become nonforfeitable shall be 
excluded from the gross income of the employee for the taxable 
year to the extent that the aggregate of such amounts does not 
exceed [the exclusion allowance for such taxable year] the 
applicable limit under section 415. The amount actually 
distributed to any distributee under such contract shall be 
taxable to the distributee (in the year in which so 
distributed) under section 72 (relating to annuities). For 
purposes of applying the rules of this subsection to amounts 
contributed by an employer for a taxable year, amounts 
transferred to a contract described in this paragraph by reason 
of a rollover contribution described in paragraph (8) of this 
subsection or [section 408(d)(3)(A)(iii)] section 
408(d)(3)(A)(ii) shall not be considered contributed by such 
employer.
          [(2) Exclusion allowance.--
                  [(A) In general.--For purposes of this 
                subsection, the exclusion allowance for any 
                employee for the taxable year is an amount 
                equal to the excess, if any, of--
                          [(i) the amount determined by 
                        multiplying 20 percent of his 
                        includible compensation by the number 
                        of years of service, over
                          [(ii) the aggregate of the amounts 
                        contributed by the employer for annuity 
                        contracts and excludable from the gross 
                        income of the employee for any prior 
                        taxable year.
                  [(B) Election to have allowance determined 
                under section 415 rules.--In the case of an 
                employee who makes an election under section 
                415(c)(4)(D) to have the provisions of section 
                415(c)(4)(C) (relating to special rule for 
                section 403(b) contracts purchased by 
                educational institutions, hospitals, home 
                health service agencies, and certain churches, 
                etc.) apply, the exclusion allowance for any 
                such employee for the taxable year is the 
                amount which could be contributed (under 
                section 415 without regard to section 
                415(c)(8)[(7)]) by his employer under a plan 
                described in section 403(a) if the annuity 
                contract for the benefit of such employee were 
                treated as a defined contribution plan 
                maintained by the employer.
                  [(C) Number of years of service for duly 
                ordained, commissioned, or licensed ministers 
                or lay employees.--For purposes of this 
                subsection and section 415(c)(4)(A)--
                          [(i) all years of service by--
                                  [(I) a duly ordained, 
                                commissioned, or licensed 
                                minister of a church, or
                                  [(II) a lay person,as an 
                                employee of a church, a 
                                convention or association of 
                                churches, including an 
                                organization described in 
                                section 414(e)(3)(B)(ii), shall 
                                be considered as years of 
                                service for 1 employer, and
                          [(ii) all amounts contributed for 
                        annuity contracts by each such church 
                        (or convention or association of 
                        churches) or such organization during 
                        such years for such minister or lay 
                        person shall be considered to have been 
                        contributed by 1 employer.
        For purposes of the preceding sentence, the terms 
        ``church'' and ``convention or association of 
        churches'' have the same meaning as when used in 
        section 414(e).
                  [(D) Alternative exclusion allowance.--
                          [(i) In general.--In the case of any 
                        individual described in subparagraph 
                        (C), the amount determined under 
                        subparagraph (A) shall not be less than 
                        the lesser of--
                                  [(I) $3,000, or
                                  [(II) the includible 
                                compensation of such 
                                individual.
                          [(ii) Subparagraph not to apply to 
                        individuals with adjusted gross income 
                        over $17,000.--This subparagraph shall 
                        not apply with respect to any taxable 
                        year to any individual whose adjusted 
                        gross income for such taxable year 
                        (determined separately and without 
                        regard to any community property laws) 
                        exceeds $17,000.
                          [(iii) Special rule for foreign 
                        missionaries.--In the case of an 
                        individual described in subparagraph 
                        (C)(i) performing services outside the 
                        United States, there shall be included 
                        as includible compensation for any year 
                        under clause (i)(II) any amount 
                        contributed during such year by a 
                        church (or convention or association of 
                        churches) for an annuity contract with 
                        respect to such individual.]
          (3) Includible compensation.--For purposes of this 
        subsection, the term ``includible compensation'' means, 
        in the case of any employee, the amount of compensation 
        which is received from the employer described in 
        paragraph (1)(A), and which is includible in gross 
        income (computed without regard to section 911) for the 
        most recent period (ending not later than the close of 
        the taxable year) which under paragraph (4) may be 
        counted as one year of service. Such term does not 
        include any amount contributed by the employer for any 
        annuity contract to which this subsection applies or 
        any amount received by a former employee after the 
        fifth taxable year following the taxable year in which 
        such employee was terminated. Such term includes--
                  (A) * * *

           *       *       *       *       *       *       *

          (7) Custodial accounts for regulated investment 
        company stock.--
                  (A) Amounts paid treated as contributions.--
                For purposes of this title, amounts paid by an 
                employer described in paragraph (1)(A) to a 
                custodial account which satisfies the 
                requirements of section 401(f)(2) shall be 
                treated as amounts contributed by him for an 
                annuity contract for his employee if--
                          (i) * * *
                          (ii) under the custodial account no 
                        such amounts may be paid or made 
                        available to any distributee before the 
                        employee dies, attains age 59\1/2\, 
                        [separates from service] has a 
                        severance from employment, becomes 
                        disabled (within the meaning of section 
                        72(m)(7)), or in the case of 
                        contributions made pursuant to a salary 
                        reduction agreement (within the meaning 
                        of section 3121(a)(1)(D), encounters 
                        financial hardship.

           *       *       *       *       *       *       *

          (8) Rollover amounts.--
                  (A) General rule.--If--
                          (i) * * *
                          (ii) the employee transfers any 
                        portion of the property he receives in 
                        [such distribution to an individual 
                        retirement plan or to an annuity 
                        contract described in paragraph (1), 
                        and] such distribution to an eligible 
                        retirement plan described in section 
                        402(c)(8)(B), and

           *       *       *       *       *       *       *

                  [(B) Certain rules made applicable.--Rules 
                similar to the rules of paragraphs (2) through 
                (7) of section 402(c) (including paragraph 
                (4)(C) thereof) shall apply for purposes of 
                subparagraph (A).]
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A), except that 
                section 402(f) shall be applied to the payor in 
                lieu of the plan administrator.

           *       *       *       *       *       *       *

          (11) Requirement that distributions not begin before 
        age 59\1/2\, [separation from service] severance from 
        employment, death, or disability.--This subsection 
        shall not apply to any annuity contract unless under 
        such contract distributions attributable to 
        contributions made pursuant to a salary reduction 
        agreement (within the meaning of section 402(g)(3)(C)) 
        may be paid only--
                  (A) when the employee attains age 59\1/2\, 
                [separates from service] has a severance from 
                employment, dies, or becomes disabled (within 
                the meaning of section 72(m)(7)), or

           *       *       *       *       *       *       *

          (13) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  (A) for the purchase of permissive service 
                credit (as defined in section 415(n)(3)(A)) 
                under such plan, or
                  (B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.

           *       *       *       *       *       *       *


SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES' 
                    TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A 
                    DEFERRED-PAYMENT PLAN.

  (a) General Rule.--If contributions are paid by an employer 
to or under a stock bonus, pension, profit-sharing, or annuity 
plan, or if compensation is paid or accrued on account of any 
employee under a plan deferring the receipt of such 
compensation, such contributions or compensation shall not be 
deductible under this chapter; but, if they would otherwise be 
deductible, they shall be deductible under this section, 
subject, however, to the following limitations as to the 
amounts deductible in any year:
          (1) Pension trusts.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) Special rule in case of certain plans.--
                In the case of any defined benefit plan (other 
                than a multiemployer plan) which has more than 
                100 participants for the plan year, except as 
                provided in regulations, the maximum amount 
                deductible under the limitations of this 
                paragraph shall not be less than the unfunded 
                current liability determined under section 
                412(l). For purposes of determining whether a 
                plan has more than 100 participants, all 
                defined benefit plans maintained by the same 
                employer (or any member of such employer's 
                controlled group (within the meaning of section 
                412(l)(8)(C))) shall be treated as 1 plan, but 
                only employees of such member or employer shall 
                be taken into account.]
                  (D) Special rule in case of certain plans.--
                          (i) In general.--In the case of any 
                        defined benefit plan, except as 
                        provided in regulations, the maximum 
                        amount deductible under the limitations 
                        of this paragraph shall not be less 
                        than the unfunded termination liability 
                        (determined as if the proposed 
                        termination date referred to in section 
                        4041(b)(2)(A)(i)(II) of the Employee 
                        Retirement Income Security Act of 1974 
                        were the last day of the plan year).
                          (ii) Plans with less than 100 
                        participants.--For purposes of this 
                        subparagraph, in the case of a plan 
                        which has less than 100 participants 
                        for the plan year, termination 
                        liability shall not include the 
                        liability attributable to benefit 
                        increases for highly compensated 
                        employees (as defined in section 
                        414(q)) resulting from a plan amendment 
                        which is made or becomes effective, 
                        whichever is later, within the last 2 
                        years before the termination date.
                          (iii) Rule for determining number of 
                        participants.--For purposes of 
                        determining whether a plan has more 
                        than 100 participants, all defined 
                        benefit plans maintained by the same 
                        employer (or any member of such 
                        employer's controlled group (within the 
                        meaning of section 412(l)(8)(C))) shall 
                        be treated as one plan, but only 
                        employees of such member or employer 
                        shall be taken into account.
                          (iv) Plans maintained by professional 
                        service employers.--Clause (i) shall 
                        not apply to a plan described in 
                        section 4021(b)(13) of the Employee 
                        Retirement Income Security Act of 1974.

           *       *       *       *       *       *       *

          (3) Stock bonus and profit-sharing trusts.--
                  (A) Limits on deductible contributions.--
                          (i) In general.--In the taxable year 
                        when paid, if the contributions are 
                        paid into a stock bonus or profit-
                        sharing trust, and if such taxable year 
                        ends within or with a taxable year of 
                        the trust with respect to which the 
                        trust is exempt under section 501(a), 
                        in an amount not in excess of the 
                        greater of--
                                  (I) [15] 20 percent of the 
                                compensation otherwise paid or 
                                accrued during the taxable year 
                                to the beneficiaries under the 
                                stock bonus or profit-sharing 
                                plan, or

           *       *       *       *       *       *       *

                  (B) Profit-sharing plan of affiliated 
                group.--In the case of a profit-sharing plan, 
                or a stock bonus plan in which contributions 
                are determined with reference to profits, of a 
                group of corporations which is an affiliated 
                group within the meaning of section 1504, if 
                any member of such affiliated group is 
                prevented from making a contribution which it 
                would otherwise have made under the plan, by 
                reason of having no current or accumulated 
                earnings or profits or because such earnings or 
                profits are less than the contributions which 
                it would otherwise have made, then so much of 
                the contribution which such member was so 
                prevented from making may be made, for the 
                benefit of the employees of such member, by the 
                other members of the group, to the extent of 
                current or accumulated earnings or profits, 
                except that such contribution by each such 
                other member shall be limited, where the group 
                does not file a consolidated return, to that 
                proportion of its total current and accumulated 
                earnings or profits remaining after adjustment 
                for its contribution deductible without regard 
                to this subparagraph which the total prevented 
                contribution bears to the total current and 
                accumulated earnings or profits of all the 
                members of the group remaining after adjustment 
                for all contributions deductible without regard 
                to this subparagraph. Contributions made under 
                the preceding sentence shall be deductible 
                under subparagraph (A) of this paragraph by the 
                employer making such contribution, and, for the 
                purpose of determining amounts which may be 
                carried forward and deducted under the second 
                sentence of subparagraph (A) of this paragraph 
                in succeeding taxable years, shall be deemed to 
                have been made by the employer on behalf of 
                whose employees such contributions were made. 
                [The term ``compensation otherwise paid or 
                accrued during the taxable year to all 
                employees'' shall include any amount with 
                respect to which an election under section 
                415(c)(3)(C) is in effect, but only to the 
                extent that any contribution with respect to 
                such amount is nonforfeitable.]

           *       *       *       *       *       *       *

          (10) Contributions by certain ministers to retirement 
        income accounts.--In the case of contributions made by 
        a minister described in section 414(e)(5) to a 
        retirement income account described in section 
        403(b)(9) and not by a person other than such minister, 
        such contributions--
                  (A) * * *
                  (B) shall be deductible under this subsection 
                to the extent such contributions do not exceed 
                the limit on elective deferrals under section 
                402(g)[, the exclusion allowance under section 
                403(b)(2),] or the limit on annual additions 
                under section 415.
        For purposes of this paragraph, all plans in which the 
        minister is a participant shall be treated as one plan.

           *       *       *       *       *       *       *

          (12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term 
        ``compensation otherwise paid or accrued during the 
        taxable year'' shall include amounts treated as 
        ``participant's compensation'' under subparagraph (C) 
        or (D) of section 415(c)(3).

           *       *       *       *       *       *       *

  (h) Special Rules for Simplified Employee Pensions.--
          (1) In general.--Employer contributions to a 
        simplified employee pension shall be treated as if they 
        are made to a plan subject to the requirements of this 
        section. Employer contributions to a simplified 
        employee pension are subject to the following 
        limitations:
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) The amount deductible in a taxable year 
                for a simplified employee pension shall not 
                exceed [15] 20 percent of the compensation paid 
                to the employees during the calendar year 
                ending with or within the taxable year (or 
                during the taxable year in the case of a 
                taxable year described in subparagraph 
                (A)(ii)). The excess of the amount contributed 
                over the amount deductible for a taxable year 
                shall be deductible in the succeeding taxable 
                years in order of time, subject to the [15] 20 
                percent limit of the preceding sentence.

           *       *       *       *       *       *       *

  (j) Special Rules Relating to Application with Section 415.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rule for money purchase plans.--For 
        purposes of paragraph (1)(B), in the case of a defined 
        contribution plan which is subject to the funding 
        standards of section 412, section 415(c)(1)(B) shall be 
        applied by substituting ``25 percent'' for ``100 
        percent''.
  (k) Deduction for Dividends Paid on Certain Employer 
Securities.--
          (1) * * *
          (2) Applicable dividend.--For purposes of this 
        subsection--
                  (A) In general.--The term ``applicable 
                dividend'' means any dividend which, in 
                accordance with the plan provisions--
                          (i) is paid in cash to the 
                        participants in the plan or their 
                        beneficiaries,
                          (ii) is paid to the plan and is 
                        distributed in cash to participants in 
                        the plan or their beneficiaries not 
                        later than 90 days after the close of 
                        the plan year in which paid, [or]
                          (iii) is, at the election of such 
                        participants or their beneficiaries--
                                  (I) payable as provided in 
                                clause (i) or (ii), or
                                  (II) paid to the plan and 
                                reinvested in qualifying 
                                employer securities, or
                          [(iii)] (iv) is used to make payments 
                        on a loan described in subsection 
                        (a)(9) the proceeds of which were used 
                        to acquire the employer securities 
                        (whether or not allocated to 
                        participants) with respect to which the 
                        dividend is paid.

           *       *       *       *       *       *       *

          (5) Other rules.--For purposes of this subsection--
                  (A) Disallowance of deduction.--The Secretary 
                may disallow the deduction under paragraph (1) 
                for any dividend if the Secretary determines 
                that such dividend constitutes, in substance, 
                an avoidance or evasion of taxation.

           *       *       *       *       *       *       *

  (l) Limitation on Amount of Annual Compensation Taken Into 
Account.--For purposes of applying the limitations of this 
section, the amount of annual compensation of each employee 
taken into account under the plan for any year shall not exceed 
[$150,000] $200,000. The Secretary shall adjust the [$150,000] 
$200,000 amount at the same time, and by the same amount, as 
any adjustment under section 401(a)(17)(B). For purposes of 
clause (i), (ii), or (iii) of subsection (a)(1)(A), and in 
computing the full funding limitation, any adjustment under the 
preceding sentence shall not be taken into account for any year 
before the year for which such adjustment first takes effect.

           *       *       *       *       *       *       *

  (n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 
402(g)(3)) shall not be subject to any limitation contained in 
paragraph (3), (7), or (9) of subsection (a), and such elective 
deferrals shall not be taken into account in applying any such 
limitation to any other contributions.

           *       *       *       *       *       *       *


SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) Individual Retirement Account.--For purposes of this 
section, the term ``individual retirement account'' means a 
trust created or organized in the United States for the 
exclusive benefit of an individual or his beneficiaries, but 
only if the written governing instrument creating the trust 
meets the following requirements:
          (1) Except in the case of a rollover contribution 
        described in subsection (d)(3) in section 402(c), 
        403(a)(4), [or 403(b)(8),] 403(b)(8), or 457(e)(16) no 
        contribution will be accepted unless it is in cash, and 
        contributions will not be accepted for the taxable year 
        [in excess of $2,000 on behalf of any individual] on 
        behalf of any individual in excess of the amount in 
        effect for such taxable year under section 
        219(b)(1)(A).

           *       *       *       *       *       *       *

  (b) Individual Retirement Annuity.--For purposes of this 
section, the term ``individual retirement annuity'' means an 
annuity contract, or an endowment contract (as determined under 
regulations prescribed by the Secretary), issued by an 
insurance company which meets the following requirements:
          (1) * * *
          (2) Under the contract--
                  (A) the premiums are not fixed,
                  (B) the annual premium on behalf of any 
                individual will not exceed [$2,000] the dollar 
                amount in effect under section 219(b)(1)(A), 
                and

           *       *       *       *       *       *       *

          (4) The entire interest of the owner is 
        nonforfeitable.
Such term does not include such an annuity contract for any 
taxable year of the owner in which it is disqualified on the 
application of subsection (e) or for any subsequent taxable 
year. For purposes of this subsection, no contract shall be 
treated as an endowment contract if it matures later than the 
taxable year in which the individual in whose name such 
contract is purchased attains age 70\1/2\; if it is not for the 
exclusive benefit of the individual in whose name it is 
purchased or his beneficiaries; or if the aggregate annual 
premiums under all such contracts purchased in the name of such 
individual for any taxable year exceed [$2,000] the dollar 
amount in effect under section 219(b)(1)(A).

           *       *       *       *       *       *       *

  (d) Tax Treatment of Distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets 
        the requirements of subparagraphs (A) and (B).
                  (A) In general.--Paragraph (1) does not apply 
                to any amount paid or distributed out of an 
                individual retirement account or individual 
                retirement annuity to the individual for whose 
                benefit the account or annuity is maintained 
                if--
                          (i) the entire amount received 
                        (including money and any other 
                        property) is paid into an 
individualretirement account or individual retirement annuity (other 
than an endowment contract) for the benefit of such individual not 
later than the 60th day after the day on which he receives the payment 
or distribution; or
                          [(ii) no amount in the account and no 
                        part of the value of the annuity is 
                        attributable to any source other than a 
                        rollover contribution (as defined in 
                        section 402 from an employee's trust 
                        described in section 401(a) which is 
                        exempt from tax under section 501(a) or 
                        from an annuity plan described in 
                        section 403(a) (and any earnings on 
                        such contribution), and the entire 
                        amount received (including property and 
                        other money) is paid (for the benefit 
                        of such individual) into another such 
                        trust or annuity plan not later than 
                        the 60th day on which the individual 
                        receives the payment or the 
                        distribution; or
                          [(iii)(I) the entire amount received 
                        (including money and other property) 
                        represents the entire interest in the 
                        account or the entire value of the 
                        annuity,
                                  [(II) no amount in the 
                                account and no part of the 
                                value of the annuity is 
                                attributable to any source 
                                other than a rollover 
                                contribution from an annuity 
                                contract described in section 
                                403(b) and any earnings on such 
                                rollover, and
                                  [(II) the entire amount 
                                thereof is paid into another 
                                annuity contract described in 
                                section 403(b) (for the benefit 
                                of such individual) not later 
                                than the 60th day after he 
                                receives the payment or 
                                distribution.]
                          (ii) the entire amount received 
                        (including money and any other 
                        property) is paid into an eligible 
                        retirement plan for the benefit of such 
                        individual not later than the 60th day 
                        after the date on which the payment or 
                        distribution is received, except that 
                        the maximum amount which may be paid 
                        into such plan may not exceed the 
                        portion of the amount received which is 
                        includible in gross income (determined 
                        without regard to this paragraph).
                For purposes of clause (ii), the term 
                ``eligible retirement plan'' means an eligible 
                retirement plan described in clause (iii), 
                (iv), (v), or (vi) of section 402(c)(8)(B).

           *       *       *       *       *       *       *

                  (D) Partial rollovers permitted.--
                          (i) In general.--If any amount paid 
                        or distributed out of an individual 
                        retirement account or individual 
                        retirement annuity would meet the 
                        requirements of subparagraph (A) but 
                        for the fact that the entire amount was 
                        not paid into an eligible plan as 
                        required by clause [(i), (ii), or 
                        (iii)] (i) or (ii) of subparagraph (A), 
                        such amount shall be treated as meeting 
                        the requirements of subparagraph (A) to 
                        the extent it is paid into an eligible 
                        plan referred to in such clause not 
                        later than the 60th day referred to in 
                        such clause.

           *       *       *       *       *       *       *

                  [(G) Simple retirements accounts.--This 
                paragraph shall not apply to any amount paid or 
                distributed out of a simple retirement account 
                (as defined in subsection (p)) unless--
                          [(i) it is paid into another simple 
                        retirement account, or
                          [(ii) in the case of any payment or 
                        distribution to which section 72(t)(6) 
                        does not apply, it is paid into an 
                        individual retirement plan.]
                  (G) Simple retirement accounts.--In the case 
                of any payment or distribution out of a simple 
                retirement account (as defined in subsection 
                (p)) to which section 72(t)(6) applies, this 
                paragraph shall not apply unless such payment 
                or distribution is paid into another simple 
                retirement account.
                  (H) Application of section 72.--
                          (i) In general.--If--
                                  (I) a distribution is made 
                                from an individual retirement 
                                plan, and
                                  (II) a rollover contribution 
                                is made to an eligible 
                                retirement plan described in 
                                section 402(c)(8)(B)(iii), 
                                (iv), (v), or (vi) with respect 
                                to all or part of such 
                                distribution,
                        then, notwithstanding paragraph (2), 
                        the rules of clause (ii) shall apply 
                        for purposes of applying section 72.
                          (ii) Applicable rules.--In the case 
                        of a distribution described in clause 
                        (i)--
                                  (I) section 72 shall be 
                                applied separately to such 
                                distribution,
                                  (II) notwithstanding the pro 
                                rata allocation of income on, 
                                and investment in, the contract 
                                to distributions under section 
                                72, the portion of such 
                                distribution rolled over to an 
                                eligible retirement plan 
                                described in clause (i) shall 
                                be treated as from income on 
                                the contract (to the extent of 
                                the aggregate income on the 
                                contract from all individual 
                                retirement plans of the 
                                distributee), and
                                  (III) appropriate adjustments 
                                shall be made in applying 
                                section 72 to other 
                                distributions in such taxable 
                                year and subsequent taxable 
                                years.
                  (I) Waiver of 60-day requirement.--The 
                Secretary may waive the 60-day requirement 
                under subparagraphs (A) and (D) where the 
                failure to waive such requirement would be 
                against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to 
                such requirement.

           *       *       *       *       *       *       *

  (j) Increase in Maximum Limitations for Simplified Employee 
Pensions.--In the case of any simplified employee 
pension,subsections (a)(1) and (b)(2) of this section shall be applied 
by increasing the [$2,000] amounts contained therein by the amount of 
the limitation in effect under section 415(c)(1)(A).
  (k) Simplified Employee Pension Defined.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Contributions may not discriminate in favor of 
        the highly compensated, etc.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Contributions must bear uniform 
                relationship to total compensation.--For 
                purposes of subparagraph (A), and except as 
                provided in subparagraph (D), employer 
                contributions to simplified employee pensions 
                (other than contributions under an arrangement 
                described in paragraph (6)) shall be considered 
                discriminatory unless contributions thereto 
                bear a uniform relationship to the compensation 
                (not in excess of the first [$150,000] 
                $200,000) of each employee maintaining a 
                simplified employee pension.

           *       *       *       *       *       *       *

          (6) Employee may elect salary reduction 
        arrangement.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Deferral percentage.--For purposes of 
                this paragraph, the deferral percentage for an 
                employee for a year shall be the ratio of--
                          (i) * * *
                          (ii) the employee's compensation (not 
                        in excess of the first [$150,000] 
                        $200,000) for the year.

           *       *       *       *       *       *       *

          (8) Cost-of-living adjustment.--The Secretary shall 
        adjust the $300 amount in paragraph (2)(C) at the same 
        time and in the same manner as under section 415(d) and 
        shall adjust the [$150,000] $200,000 amount in 
        paragraphs (3)(C) and (6)(D)(ii) at the same time, and 
        by the same amount, as any adjustment under section 
        401(a)(17)(B) ; except that any increase in the $300 
        amount which is not a multiple of $50 shall be rounded 
        to the next lowest multiple of $50.

           *       *       *       *       *       *       *

  (p) Simple Retirement Accounts.--
          (1) * * *
          (2) Qualified salary reduction arrangement.--
                  (A) In general.--For purposes of this 
                subsection, the term ``qualified salary 
                reduction arrangement'' means a written 
                arrangement of an eligible employer under 
                which--
                          (i) * * *
                          (ii) the amount which an employee may 
                        elect under clause (i) for any year is 
                        required to be expressed as a 
                        percentage of compensation and may not 
                        exceed a total of [$6,000] the 
                        applicable dollar amount for any year,

           *       *       *       *       *       *       *

                  [(E) Cost-of-living adjustment.--The 
                Secretary shall adjust the $6,000 amount under 
                subparagraph (A)(ii) at the same time and in 
                the same manner as under section 415(d), except 
                that the base period taken into account shall 
                be the calendar quarter ending September 30, 
                1996, and any increase under this subparagraph 
                which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.]
                  (E) Applicable dollar amount; cost-of-living 
                adjustment.--
                          (i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable 
                        dollar amount shall be the amount 
                        determined in accordance with the 
                        following table:

        For taxable years                                 The applicable
          beginning in                                    dollar amount:
          calendar year:
              2002............................................   $7,000 
              2003............................................   $8,000 
              2004............................................   $9,000 
              2005 or thereafter..............................  $10,000.

                          (ii) Cost-of-living adjustment.--In 
                        the case of a year beginning after 
                        December 31, 2005, the Secretary shall 
                        adjust the $10,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2004, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.

           *       *       *       *       *       *       *

          (6) Definitions.--For purposes of this subsection--
                  (A) Compensation.--
                          (i) * * *
                          (ii) Self-employed.--In the case of 
                        an employee described in subparagraph 
                        (B), the term ``compensation'' means 
                        net earnings from self-employment 
                        determined under section 1402(a) 
                        without regard to any contribution 
                        under this subsection. The preceding 
                        sentence shall be applied as if the 
                        term ``trade or business'' for purposes 
                        of section 1402 included service 
                        described in section 1402(c)(6).

           *       *       *       *       *       *       *

          (8) Coordination with maximum limitation under 
        subsection (a).--In the case of any simple retirement 
        account, subsections (a)(1) and (b)(2) shall be applied 
        by substituting ``the sum of the dollar amount in 
        effect under paragraph (2)(A)(ii) of this subsection 
        and the employer contribution required under 
        subparagraph (A)(ii) or (B)(i) of paragraph (2) ofthis 
subsection, whichever is applicable'' for ``[$2,000] the dollar amount 
in effect under section 219(b)(1)(A)''.

           *       *       *       *       *       *       *


SEC. 408A. ROTH IRA'S.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Qualified Rollover Contribution.--For purposes of this 
section, the term ``qualified rollover contribution'' means a 
rollover contribution to a Roth IRA from another such account, 
or from an individual retirement plan, but only if such 
rollover contribution meets the requirements of section 
408(d)(3). Such term includes a rollover contribution described 
in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B), 
there shall be disregarded any qualified rollover contribution 
from an individual retirement plan (other than a Roth IRA) to a 
Roth IRA.

           *       *       *       *       *       *       *


SEC. 409. QUALIFICATIONS FOR TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (p) Prohibited Allocations of Securities in an S 
Corporation.--
          (1) In general.--An employee stock ownership plan 
        holding employer securities consisting of stock in an S 
        corporation shall provide that no portion of the assets 
        of the plan attributable to (or allocable in lieu of) 
        such employer securities may, during a nonallocation 
        year, accrue (or be allocated directly or indirectly 
        under any plan of the employer meeting the requirements 
        of section 401(a)) for the benefit of any disqualified 
        person.
          (2) Failure to meet requirements.--
                  (A) In general.--If a plan fails to meet the 
                requirements of paragraph (1), the plan shall 
                be treated as having distributed to any 
                disqualified person the amount allocated to the 
                account of such person in violation of 
                paragraph (1) at the time of such allocation.
                  (B) Cross reference.--

          For excise tax relating to violations of paragraph (1) and 
        ownership of synthetic equity, see section 4979A.

          (3) Nonallocation year.--For purposes of this 
        subsection--
                  (A) In general.--The term ``nonallocation 
                year'' means any plan year of an employee stock 
                ownership plan if, at any time during such plan 
                year--
                          (i) such plan holds employer 
                        securities consisting of stock in an S 
                        corporation, and
                          (ii) disqualified persons own at 
                        least 50 percent of the number of 
                        shares of stock in the S corporation.
                  (B) Attribution rules.--For purposes of 
                subparagraph (A)--
                          (i) In general.--The rules of section 
                        318(a) shall apply for purposes of 
                        determining ownership, except that--
                                  (I) in applying paragraph (1) 
                                thereof, the members of an 
                                individual's family shall 
                                include members of the family 
                                described in paragraph (4)(D), 
                                and
                                  (II) paragraph (4) thereof 
                                shall not apply.
                          (ii) Deemed-owned shares.--
                        Notwithstanding the employee trust 
                        exception in section 318(a)(2)(B)(i), 
                        individual shall be treated as owning 
                        deemed-owned shares of the individual.
                Solely for purposes of applying paragraph (5), 
                this subparagraph shall be applied after the 
                attribution rules of paragraph (5) have been 
                applied.
          (4) Disqualified person.--For purposes of this 
        subsection--
                  (A) In general.--The term ``disqualified 
                person'' means any person if--
                          (i) the aggregate number of deemed-
                        owned shares of such person and the 
                        members of such person's family is at 
                        least 20 percent of the number of 
                        deemed-owned shares of stock in the S 
                        corporation, or
                          (ii) in the case of a person not 
                        described in clause (i), the number of 
                        deemed-owned shares of such person is 
                        at least 10 percent of the number of 
                        deemed-owned shares of stock in such 
                        corporation.
                  (B) Treatment of family members.--In the case 
                of a disqualified person described in 
                subparagraph (A)(i), any member of such 
                person's family with deemed-owned shares shall 
                be treated as a disqualified person if not 
                otherwise treated as a disqualified person 
                under subparagraph (A).
                  (C) Deemed-owned shares.--
                          (i) In general.--The term ``deemed-
                        owned shares'' means, with respect to 
                        any person--
                                  (I) the stock in the S 
                                corporation constituting 
                                employer securities of an 
                                employee stock ownership plan 
                                which is allocated to such 
                                person under the plan, and
                                  (II) such person's share of 
                                the stock in such corporation 
                                which is held by such plan but 
                                which is not allocated under 
                                the plan to participants.
                          (ii) Person's share of unallocated 
                        stock.--For purposes of clause (i)(II), 
                        a person's share of unallocated S 
                        corporation stock held by such plan is 
                        the amount of the unallocated stock 
                        which would be allocated to such person 
                        if the unallocated stock were allocated 
                        to all participants in the same 
                        proportions as the most recent stock 
                        allocation under the plan.
                  (D) Member of family.--For purposes of this 
                paragraph, the term ``member of the family'' 
                means, with respect to any individual--
                          (i) the spouse of the individual,
                          (ii) an ancestor or lineal descendant 
                        of the individual or the individual's 
                        spouse,
                          (iii) a brother or sister of the 
                        individual or the individual's spouse 
                        and any lineal descendant of the 
                        brother or sister, and
                          (iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally 
                separated from such individual under a decree 
                of divorce or separate maintenance shall not be 
                treated as such individual's spouse for 
                purposes of this subparagraph.
          (5) Treatment of synthetic equity.--For purposes of 
        paragraphs (3) and (4), in the case of a person who 
        owns synthetic equity in the S corporation, except to 
        the extent provided in regulations, the shares of stock 
        in such corporation on which such synthetic equity is 
        based shall be treated as outstanding stock in such 
        corporation and deemed-owned shares of such person if 
        such treatment of synthetic equity of 1 or more such 
        persons results in--
                  (A) the treatment of any person as a 
                disqualified person, or
                  (B) the treatment of any year as a 
                nonallocation year.
        For purposes of this paragraph, synthetic equity shall 
        be treated as owned by a person in the same manner as 
        stock is treated as owned by a person under the rules 
        of paragraphs (2) and (3) of section 318(a). If, 
        without regard to this paragraph, a person is treated 
        as a disqualified person or a year is treated as a 
        nonallocation year, this paragraph shall not be 
        construed to result in the person or year not being so 
        treated.
          (6) Definitions.--For purposes of this subsection--
                  (A) Employee stock ownership plan.--The term 
                ``employee stock ownership plan'' has the 
                meaning given such term by section 4975(e)(7).
                  (B) Employer securities.--The term ``employer 
                security'' has the meaning given such term by 
                section 409(l).
                  (C) Synthetic equity.--The term ``synthetic 
                equity'' means any stock option, warrant, 
                restricted stock, deferred issuance stock 
                right, or similar interest or right that gives 
                the holder the right to acquire or receive 
                stock of the S corporation in the future. 
                Except to the extent provided in regulations, 
                synthetic equity also includes a stock 
                appreciation right, phantom stock unit, or 
                similar right to a future cash payment based on 
                the value of such stock or appreciation in such 
                value.
          (7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        purposes of this subsection.
  [(p)] (q) Cross references.--

          (1) For requirements for allowance of employee plan credit, 
        see section 48(n).
          (2) For assessable penalties for failure to meet requirements 
        of this section, or for failure to make contributions required 
        with respect to the allowance of an employee plan credit or 
        employee stock ownership credit, see section 6699.
          (3) For requirements for allowance of an employee stock 
        ownership credit, see section 41.

           *       *       *       *       *       *       *


Subpart B--Special Rules

           *       *       *       *       *       *       *


SEC. 410. MINIMUM PARTICIPATION STANDARDS.

  (a) * * *
  (b) Minimum Coverage Requirements.--
          (1) In general.--A trust shall not constitute a 
        qualified trust under section 401(a) unless such trust 
        is designated by the employer as part of a plan which 
        meets 1 of the following requirements:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) In the case that the plan fails to meet 
                the requirements of subparagraphs (A), (B) and 
                (C), the plan--
                          (i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment 
                        of the Tax Reform Act of 1986,
                          (ii) is submitted to the Secretary 
                        for a determination of whether it 
                        satisfies the requirement described in 
                        clause (i), and
                          (iii) satisfies conditions prescribed 
                        by the Secretary by regulation that 
                        appropriately limit the availability of 
                        this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.

           *       *       *       *       *       *       *

          (3) Exclusion of certain employees.--For purposes of 
        this subsection, there shall be excluded from 
        consideration--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) employees who are nonresident aliens and 
                who receive no earned income (within the 
                meaning of section 911(d)(2)) from the employer 
                which constitutes income from sources within 
                the United States (within the meaning of 
                section 861(a)(3), determined without regard to 
                the reference to subchapter D in the last 
                sentence thereof).

           *       *       *       *       *       *       *


SEC. 411. MINIMUM VESTING STANDARDS.

  (a) General Rule.--A trust shall not constitute a qualified 
trust under section 401(a) unless the plan of which such trust 
is a part provides that an employee's right to his normal 
retirement benefit is nonforfeitable upon the attainment of 
normal retirement age (as defined in paragraph (8)) and in 
addition satisfies the requirements of paragraphs (1), (2), and 
(11) of this subsection and the requirements of subsection 
(b)(3), and also satisfies, in the case of a defined benefit 
plan, the requirements of subsection (b)(1) and, in the case of 
a defined contribution plan, the requirements of subsection 
(b)(2).
          (1) * * *
          (2) Employer contributions.--[A plan] Except as 
        provided in paragraph (12), a plan satisfies the 
        requirements of this paragraph if it satisfies the 
        requirements of subparagraph (A) or (B).
                  (A) * * *
          (11) Restrictions on certain mandatory 
        distributions.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Special rule for rollover 
                contributions.--A plan shall not fail to meet 
                the requirements of this paragraph if, under 
                the terms of the plan, the present value of the 
                nonforfeitable accrued benefit is determined 
                without regard to that portion of such benefit 
                which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes 
                of this subparagraph, the term ``rollover 
                contributions'' means any rollover contribution 
                under sections 402(c), 403(a)(4), 403(b)(8), 
                408(d)(3)(A)(ii), and 457(e)(16).

           *       *       *       *       *       *       *

          (12) Faster vesting for matching contributions.--In 
        the case of matching contributions (as defined in 
        section 401(m)(4)(A)), paragraph (2) shall be applied--
                  (A) by substituting ``3 years'' for ``5 
                years'' in subparagraph (A), and
                  (B) by substituting the following table for 
                the table contained in subparagraph (B):

                                                      The nonforfeitable
        Years of service:                               percentage is:  
          2...................................................      20  
          3...................................................      40  
          4...................................................      60  
          5...................................................      80  
          6...................................................    100.  
  (d) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Accrued benefit not to be decreased by 
        amendment.--
                  (A) * * *
                  (B) Treatment of certain plan amendments.--
                For purposes of subparagraph (A), a plan 
                amendment which has the effect of--
                          (i) eliminating or reducing an early 
                        retirement benefit or a retirement-type 
                        subsidy (as defined in regulations), or
                          (ii) eliminating an optional form of 
                        benefit,
                with respect to benefits attributable to 
                service before the amendment shall be treated 
                as reducing accrued benefits. In the case of a 
                retirement-type subsidy, the preceding sentence 
                shall apply only with respect to a participant 
                who satisfies (either before or after the 
                amendment) the preamendment conditions for the 
                subsidy. The Secretary shall by regulations 
                provide that this subparagraph shall not apply 
                to any plan amendment which reduces or 
                eliminates benefits or subsidies which create 
                significant burdens or complexities for the 
                plan and plan participants and does not 
                adversely affect the rights of any participant 
                in a more than de minimis manner. The Secretary 
                may by regulations provide that this 
                subparagraph shall not apply to a plan 
                amendment described in clause (ii) (other than 
                a plan amendment having an effect described in 
                clause (i)).

           *       *       *       *       *       *       *

                  (D) Plan transfers.--
                          (i) In general.--A defined 
                        contribution plan (in this subparagraph 
                        referred to as the ``transferee plan'') 
                        shall not be treated as failing to meet 
                        the requirements of this subsection 
                        merely because the transferee plan does 
                        not provide some or all of the forms of 
                        distribution previously available under 
                        another defined contribution plan (in 
                        this subparagraph referred to as the 
                        ``transferor plan'') to the extent 
                        that--
                                  (I) the forms of distribution 
                                previously available under the 
                                transferor plan applied to the 
                                account of a participant or 
                                beneficiary under the 
                                transferor plan that was 
                                transferred from the transferor 
                                plan to the transferee plan 
                                pursuant to a direct transfer 
                                rather than pursuant to a 
                                distribution from the 
                                transferor plan,
                                  (II) the terms of both the 
                                transferor plan and the 
                                transferee plan authorize the 
                                transfer described in subclause 
                                (I),
                                  (III) the transfer described 
                                in subclause (I) was made 
                                pursuant to a voluntary 
                                election by the participant or 
                                beneficiary whose account was 
                                transferred to the transferee 
                                plan,
                                  (IV) the election described 
                                in subclause (III) was made 
                                after the participant or 
                                beneficiary received a notice 
                                describing the consequences of 
                                making the election, and
                                  (V) the transferee plan 
                                allows the participant or 
                                beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the 
                                participant or beneficiary is 
                                entitled under the transferee 
                                plan in the form of a single 
                                sum distribution.
                          (ii) Exception.--Clause (i) shall 
                        apply to plan mergers and other 
                        transactions having the effect of a 
                        direct transfer, including 
                        consolidations of benefits attributable 
                        to different employers within a 
                        multiple employer plan.
                  (E) Elimination of form of distribution.--
                Except to the extent provided in regulations, a 
                defined contribution plan shall not be treated 
                as failing to meet the requirements of this 
                section merely because of the elimination of a 
                form of distribution previously available 
                thereunder. This subparagraph shall not apply 
                to the elimination of a form of distribution 
                with respect to any participant unless--
                          (i) a single sum payment is available 
                        to such participant at the same time or 
                        times as the form of distribution being 
                        eliminated, and
                          (ii) such single sum payment is based 
                        on the same or greater portion of the 
                        participant's account as the form of 
                        distribution being eliminated.

           *       *       *       *       *       *       *


SEC. 412. MINIMUM FUNDING STANDARDS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Full-funding limitation.--
                  (A) In general.--For purposes of paragraph 
                (6), the term ``full-funding limitation'' means 
                the excess (if any) of--
                          (i) the lesser of
                                  (I) [the applicable 
                                percentage] in the case of plan 
                                years beginning before January 
                                1, 2004, the applicable 
                                percentage of current liability 
                                (including the expected 
                                increase in current liability 
                                due to benefits accruing during 
                                the plan year), or

           *       *       *       *       *       *       *

                  [(F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

[In the case of any plan                                  The applicable
year beginning in--                                      percentage is--
    1999 or 2000.................................................. 155  
    2001 or 2002.................................................. 160  
    2003 or 2004.................................................. 165  
    2005 and succeeding years.....................................170]  

                  (F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

        In the case of any plan year                      The applicable
          beginning in--                                 percentage is--
          2002................................................    165   
170.    2003................................................

           *       *       *       *       *       *       *

          [(9) Annual valuation.--For purposes of this section, 
        a determination of experience gains and losses and a 
        valuation of the plan's liability shall be made not 
        less frequently than once every year, except that such 
        determination shall be made more frequently to the 
        extent required in particular cases under regulations 
        prescribed by the Secretary.]
          (9) Annual valuation.--
                  (A) In general.--For purposes of this 
                section, a determination of experience gains 
                and losses and a valuation of the plan's 
                liability shall be made not less frequently 
                than once every year, except that such 
                determination shall be made more frequently to 
                the extent required in particular cases under 
                regulations prescribed by the Secretary.
                  (B) Valuation date.--
                          (i) Current year.--Except as provided 
                        in clause (ii), the valuation referred 
                        to in subparagraph (A) shall be made as 
                        of a date within the plan year to which 
                        the valuation refers or within one 
                        month prior to the beginning of such 
                        year.
                          (ii) Election to use prior year 
                        valuation.--The valuation referred to 
                        in subparagraph (A) may be made as of a 
                        date within the plan year prior to the 
                        year to which the valuation refers if--
                                  (I) an election is in effect 
                                under this clause with respect 
                                to the plan, and
                                  (II) as of such date, the 
                                value of the assets of the plan 
                                are not less than 125 percent 
                                of the plan's current liability 
                                (as defined in paragraph 
                                (7)(B)).
                          (iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to 
                        reflect significant differences in 
                        participants.
                          (iv) Election.--An election under 
                        clause (ii), once made, shall be 
                        irrevocable without the consent of the 
                        Secretary.

           *       *       *       *       *       *       *


SEC. 414. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (p) Qualified Domestic Relations Order Defined.--For purposes 
of this subsection and section 401(a)(13)--
          (1) * * *

           *       *       *       *       *       *       *

          (10) Waiver of certain distribution requirements.--
        With respect to the requirements of subsections (a) and 
        (k) of section 401, section 403(b), [and section 
        409(d)] section 409(d), and section 457(d), a plan 
        shall not be treated as failing to meet such 
        requirements solely by reason of payments to an 
        alternative payee pursuant to a qualified domestic 
        relations order.
          (11) Application of rules to [governmental and church 
        plans] certain other plans.--For purposes of this 
        title, a distribution or payment from a governmental 
        plan (as defined in subsection (d)) or a church plan 
        (as described in subsection (e)) or an eligible 
        deferred compensation plan (within the meaning of 
        section 457(b)) shall be treated as made pursuant to a 
        qualified domestic relations order if it is made 
        pursuant to a domestic relations order which meets the 
        requirement of clause (i) of paragraph (1)(A).
          (12) Tax treatment of payments from a section 457 
        plan.--If a distribution or payment from an eligible 
        deferred compensation plan described in section 457(b) 
        is made pursuant to a qualified domestic relations 
        order, rules similar to therules of section 
402(e)(1)(A) shall apply to such distribution or payment.
          [(12)] (13) Consultation with the Secretary.--In 
        prescribing regulations under this subsection and 
        section 401(a)(13), the Secretary of Labor shall 
        consult with the Secretary.

           *       *       *       *       *       *       *

  (v) Catch-up Contributions for Individuals Age 50 or Over.--
          (1) In general.--An applicable employer plan shall 
        not be treated as failing to meet any requirement of 
        this title solely because the plan permits an eligible 
        participant to make additional elective deferrals in 
        any plan year.
          (2) Limitation on amount of additional deferrals.--A 
        plan shall not permit additional elective deferrals 
        under paragraph (1) for any year in an amount greater 
        than the lesser of--
                  (A) $5,000, or
                  (B) the excess (if any) of--
                          (i) the participant's compensation 
                        for the year, over
                          (ii) any other elective deferrals of 
                        the participant for such year which are 
                        made without regard to this subsection.
          (3) Treatment of contributions.--In the case of any 
        contribution to a plan under paragraph (1), such 
        contribution shall not, with respect to the year in 
        which the contribution is made--
                  (A) be subject to any otherwise applicable 
                limitation contained in section 402(g), 
                402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii), 
                415, or 457, or
                  (B) be taken into account in applying such 
                limitations to other contributions or benefits 
                under such plan or any other such plan.
          (4) Application of nondiscrimination rules.--
                  (A) In general.--An applicable employer plan 
                shall not be treated as failing to meet the 
                nondiscrimination requirements under section 
                401(a)(4) with respect to benefits, rights, and 
                features if the plan allows all eligible 
                participants to make the same election with 
                respect to the additional elective deferrals 
                under this subsection.
                  (B) Aggregation.--For purposes of 
                subparagraph (A), all plans maintained by 
                employers who are treated as a single employer 
                under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as 1 plan.
          (5) Eligible participant.--For purposes of this 
        subsection, the term ``eligible participant'' means, 
        with respect to any plan year, a participant in a 
        plan--
                  (A) who has attained the age of 50 before the 
                close of the plan year, and
                  (B) with respect to whom no other elective 
                deferrals may (without regard to this 
                subsection) be made to the plan for the plan 
                year by reason of the application of any 
                limitation or other restriction described in 
                paragraph (3) or comparable limitation 
                contained in the terms of the plan.
          (6) Other definitions and rules.--For purposes of 
        this subsection--
                  (A) Applicable employer plan.--The term 
                ``applicable employer plan'' means--
                          (i) an employees' trust described in 
                        section 401(a) which is exempt from tax 
                        under section 501(a),
                          (ii) a plan under which amounts are 
                        contributed by an individual's employer 
                        for an annuity contract described in 
                        section 403(b),
                          (iii) an eligible deferred 
                        compensation plan under section 457 of 
                        an eligible employer as defined in 
                        section 457(e)(1)(A), and
                          (iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                  (B) Elective deferral.--The term ``elective 
                deferral'' has the meaning given such term by 
                subsection (u)(2)(C).
                  (C) Exception for section 457 plans.--This 
                subsection shall not apply to an applicable 
                employer plan described in subparagraph 
                (A)(iii) for any year to which section 
                457(b)(3) applies.
                  (D) Cost-of-living adjustment.--In the case 
                of a year beginning after December 31, 2006, 
                the Secretary shall adjust annually the $5,000 
                amount in paragraph (2)(A) for increases in the 
                cost-of-living at the same time and in the same 
                manner as adjustments under section 415(d); 
                except that the base period taken into account 
                shall be the calendar quarter beginning July 1, 
                2005, and any increase under this subparagraph 
                which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.

SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED 
                    PLANS.

  (a) General Rule.--
          (1) * * *
          (2) Section applies to certain annuities and 
        accounts.--In the case of--
                  (A) * * *

           *       *       *       *       *       *       *

        such a contract, plan, or pension shall not be 
        considered to be described in section 403(a), 403(b), 
        or 408(k), as the case may be, unless it satisfies the 
        requirements of subparagraph (A) or subparagraph (B) of 
        paragraph (1), whichever is appropriate, and has not 
        been disqualified under subsection (g). In the case of 
        an annuity contract described in section 403(b), the 
        preceding sentence shall apply only to the portion of 
        the annuity contract which exceeds the limitation of 
        subsection (b) or the limitation of subsection (c), 
        whichever is appropriate[, and the amount of the 
        contribution for such portion shall reduce the 
        exclusion allowance as provided in section 403(b)(2)].
  (b) Limitation for Defined Benefit Plans.--
          (1) In general.--Benefits with respect to a 
        participant exceed the limitation of this subsection 
        if, when expressed as an annual benefit (within the 
        meaning of paragraph (2)), such annual benefit is 
        greater than the lesser of--
                  (A) [$90,000] $160,000, or

           *       *       *       *       *       *       *

          (2) Annual benefit.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``annual benefit'' means a 
                benefit payable annually in the form of a 
                straight life annuity (with no ancillary 
                benefits) under a plan to which employees do 
                not contribute and under which no rollover 
                contributions (as defined in sections 402(c), 
                403(a)(4), [and 408(d)(3)] 403(b)(8), 
                408(d)(3), and 457(e)(16)) are made.
                  (B) Adjustment for certain other forms of 
                benefit.--If the benefit under the plan is 
                payable in any form other than the form 
                described in subparagraph (A), or if the 
                employees contribute to the plan or make 
                rollover contributions (as defined in sections 
                402(c), 403(a)(4), [and 408(d)(3)] 403(b)(8), 
                408(d)(3), and 457(e)(16)), the determinations 
                as to whether the limitation described in 
                paragraph (1) has been satisfied shall be made, 
                in accordance with regulations prescribed by 
                the Secretary by adjusting such benefit so that 
                it is equivalent to the benefit described in 
                subparagraph (A). For purposes of this 
                subparagraph, any ancillary benefit which is 
                not directly related to retirement income 
                benefits shall not be taken into account; and 
                that portion of any joint and survivor annuity 
                which constitutes a qualified joint and 
                survivor annuity (as defined in section 417 
                shall not be taken into account.
                  (C) Adjustment to [$90,000] $160,000 limit 
                where benefit begins before [the social 
                security retirement age] age 62.--If the 
                retirement income benefit under the plan begins 
                before [the social security retirement age] age 
                62, the determination as to whether the 
                [$90,000] $160,000 limitation set forth in 
                paragraph (1)(A) has been satisfied shall be 
                made, in accordance with regulations prescribed 
                by the Secretary, by reducing the limitation of 
                paragraph (1)(A) so that such limitation (as so 
                reduced) equals an annual benefit (beginning 
                when such retirement income benefit begins) 
                which is equivalent to a [$90,000] $160,000 
                annual benefit beginning at [the social 
                security retirement age] age 62. [The reduction 
                under this subparagraph shall be made in such 
                manner as the Secretary may prescribe which is 
                consistent with the reduction for old-age 
                insurance benefits commencing before the social 
                security retirement age under the Social 
                Security Act.]
                  (D) Adjustment to [$90,000] $160,000 limit 
                where benefit begins after [the social security 
                retirement age] age 65.--If the retirement 
                income benefit under the plan begins after [the 
                social security retirement age] age 65, the 
                determination as to whether the [$90,000] 
                $160,000 limitation set forth in paragraph 
                (1)(A) has been satisfied shall be made, in 
                accordance with regulations prescribed by the 
                Secretary, by increasing the limitation of 
                paragraph (1)(A) so that such limitation (as so 
                increased) equals an annual benefit (beginning 
                when such retirement income benefit begins) 
                which is equivalent to a [$90,000] $160,000 
                annual benefit beginning at [the social 
                security retirement age] age 65.

           *       *       *       *       *       *       *

                  [(F) Plans maintained by governments and tax-
                exempt organizations.--In the case of a 
                governmental plan (within the meaning of 
                section 414(d)), a plan maintained by an 
                organization (other than a governmental unit) 
                exempt from tax under this subtitle, or a 
                qualified merchant marine plan--
                          [(i) subparagraph (C) shall be 
                        applied--
                                  [(I) by substituting ``age 
                                62'' for ``social security 
                                retirement age'' each place it 
                                appears, and
                                  [(II) as if the last sentence 
                                thereof read as follows: ``The 
                                reduction under this 
                                subparagraph shall not reduce 
                                the limitation of paragraph 
                                (1)(A) below (i) $75,000 if the 
                                benefit begins at or after age 
                                55, or (ii) if the benefit 
                                begins before age 55, the 
                                equivalent of the $75,000 
                                limitation for age 55.'', and
                          [(ii) subparagraph (D) shall be 
                        applied by substituting ``age 65'' for 
                        ``social security retirement age'' each 
                        place it appears.
                For purposes of this subparagraph, the term 
                ``qualified merchant marine plan'' means a plan 
                in existence on January 1, 1986, the 
                participants in which are merchant marine 
                officers holding licenses issued by the 
                Secretary of Transportation under title 46, 
                United States Code.]

           *       *       *       *       *       *       *

          (7) Benefits under certain collectively bargained 
        plans.--For a year, the limitation referred to in 
        paragraph (1)(B) shall not apply to benefits with 
        respect to a participant under a defined benefit plan 
        (other than a multiemployer plan)--
                  (A) * * *

           *       *       *       *       *       *       *

        This paragraph shall not apply to a participant whose 
        compensation for any 3 years during the 10-year period 
        immediately preceding the year in which he separates 
        from service exceeded the average compensation for such 
        3 years of all participants in such plan. This 
        paragraph shall not apply to a participant for any 
        period for which he is a participant under another plan 
        to which this section applies which is maintained by an 
        employer maintaining this plan. For any year for which 
        the paragraph applies to benefits with respect to a 
        participant, paragraph (1)(A) and subsection (d)(1)(A) 
        shall be applied with respect to such participant by 
        substituting [the greater of $68,212 or one-half the 
        amount otherwise applicable for such year under 
        paragraph (1)(A) for ``$90,000''] one-half the amount 
        otherwise applicable for such year under paragraph 
        (1)(A) for ``$160,000''.

           *       *       *       *       *       *       *

          [(9) Special rule for commercial airline pilots.--
                  [(A) In general.--Except as provided in 
                subparagraph (B), in the case of any 
                participant who is a commercial airline pilot--
                          [(i) the rule of paragraph 
                        (2)(F)(i)(II) shall apply, and
                          [(ii) if, as of the time of the 
                        participant's retirement, regulations 
                        prescribed by the Federal Aviation 
                        Administration require an individual to 
                        separate from service as a commercial 
                        airline pilot after attaining any age 
                        occurring on or after age 60 and before 
                        the social security retirement age, 
                        paragraph (2)(C) (after application of 
                        clause (i)) shall be applied by 
                        substituting such age for the social 
                        security retirement age.
                  [(B) Individuals who separate from service 
                before age 60.--If a participant described in 
                subparagraph (A) separates from service before 
                age 60, the rules of paragraph (2)(F) shall 
                apply.]
          (9) Special rule for commercial airline pilots.--
                  (A) In general.--Except as provided in 
                subparagraph (B), in the case of any 
                participant who is a commercial airline pilot, 
                if, as of the time of the participant's 
                retirement, regulations prescribed by the 
                Federal Aviation Administration require an 
                individual to separate from service as a 
                commercial airline pilot after attaining any 
                age occurring on or after age 60 and before age 
                62, paragraph (2)(C) shall be applied by 
                substituting such age for age 62.
                  (B) Individuals who separate from service 
                before age 60.--If a participant described in 
                subparagraph (A) separates from service before 
                age 60, the rules of paragraph (2)(C) shall 
                apply.
          (10) Special rule for state and local government 
        plans.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Election.--
                          (i) In general--.--This paragraph 
                        shall not apply to any plan unless each 
                        employer maintaining the plan elects 
                        before the close of the 1st plan year 
                        beginning after December 31, 1989, to 
                        have this subsection (other than 
                        paragraph (2)(G)) [applied without 
                        regard to paragraph (2)(F)].
          [(11) Special limitation rule for governmental 
        plans.--In the case of a governmental plan (as defined 
        in section 414(d), subparagraph (B) of paragraph (1) 
        shall not apply.]
          (11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.
  (c) Limitation for Defined Contribution Plans.--
          (1) In general.--Contributions and other additions 
        with respect to a participant exceed the limitation of 
        this subsection if, when expressed as an annual 
        addition (within the meaning of paragraph (2)) to the 
        participant's account, such annual addition is greater 
        than the lesser of--
                  (A) [$30,000] $40,000, or
                  (B) [25] 100 percent of the participant's 
                compensation.
          (2) Annual addition.--For purposes of paragraph (1), 
        the term ``annual addition'' means the sum for any year 
        of--
                  (A) * * *

           *       *       *       *       *       *       *

        For the purposes of this paragraph, employee 
        contributions under subparagraph (B) are determined 
        without regard to any rollover contributions (as 
        defined in sections 402(c), 403(a)(4), 403(b)(8), [and 
        408(d)(3)] 408(d)(3), and 457(e)(16)) without regard to 
        employee contributions to a simplified employee pension 
        which are excludable from gross income under section 
        408(k)(6). Subparagraph (B) of paragraph (1) shall not 
        apply to any contribution for medical benefits (within 
        the meaning of section 419A(f)(2)) after separation 
        from service which is treated as an annual addition.
          (3) Participant's compensation.--For purposes of 
        paragraph (1)--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Annuity contracts.--In the case of an 
                annuity contract described in section 403(b), 
                the term ``participant's compensation'' means 
                the participant's includible compensation 
                determined under section 403(b)(3).
          [(4) Special election for section 403(b) contracts 
        purchased by educational organizations, hospitals, home 
        health service agencies, and certain churches, etc.--
                  [(A) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for the year in which occurs a participant's 
                separation from the service with an educational 
                organization, a hospital, a home health service 
                agency, a health and welfare service agency, or 
                a church, convention or association of 
                churches, or an organization described in 
                section 414(e)(3)(B)(ii), at the election of 
                the participant there is substituted for the 
                amount specified in paragraph (1)(B) the amount 
                of the exclusion allowance which would be 
                determined under section 403(b)(2) (without 
                regard to this section) for the participant's 
                taxable year in which such separation occurs if 
                the participant's years of service were 
                computed only by taking into account his 
                service for the employer (as determined for 
                purposes of section 403(b)(2)) during the 
                period of years (not exceeding ten) ending on 
                the date of such separation.
                  [(B) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for any year in the case of a participant who 
                is an employee of an educational organization, 
                a hospital, a home health service agency, 
ahealth and welfare service agency, or a church, convention or 
association of churches, or an organization described in section 
414(e)(3)(B)(ii), at the election of the participant there is 
substituted for the amount specified in paragraph (1)(B) the least of--
                          [(i) 25 percent of the participant's 
                        includible compensation (as defined in 
                        section 403(b)(3)) plus $4,000,
                          [(ii) the amount of the exclusion 
                        allowance determined for the year under 
                        section 403(b)(2), or
                          [(iii) $15,000.
                  [(C) In the case of amounts contributed for 
                an annuity contract described in section 403(b) 
                for any year for a participant who is an 
                employee of an educational organization, a 
                hospital, a home health service agency, a 
                health and welfare service agency, or a church, 
                convention or association of churches, or an 
                organization described in section 
                414(e)(3)(B)(ii), at the election of the 
                participant the provisions of section 
                403(b)(2)(A) shall not apply.
                  [(D)(i) The provisions of this paragraph 
                apply only if the participant elects its 
                application at the time and in the manner 
                provided under regulations prescribed by the 
                Secretary. Not more than one election may be 
                made under subparagraph (A) by any participant. 
                A participant who elects to have the provisions 
                of subparagraph (A), (B), or (C) of this 
                paragraph apply to him may not elect to have 
                any other subparagraph of this paragraph apply 
                to him. Any election made under this paragraph 
                is irrevocable.
                          [(ii) For purposes of this paragraph 
                        the term ``educational organization'' 
                        means an educational organization 
                        described in section 170(b)(1)(A)(ii).
                          [(iii) For purposes of this paragraph 
                        the term ``home health service agency'' 
                        means an organization described in 
                        subsection 501(c)(3) which is exempt 
                        from tax under section 501(a) and which 
                        has been determined by the Secretary of 
                        Health, Education, and Welfare to be a 
                        home health agency (as defined in 
                        section 1861(o) of the Social Security 
                        Act).
                          [(iv) For purposes of this paragraph, 
                        the terms ``church'' and ``convention 
                        or association of churches'' have the 
                        same meaning as when used in section 
                        414(e).]

           *       *       *       *       *       *       *

          [(7) Certain contributions by church plans not 
        treated as exceeding limits.--
                  [(A) Alternative exclusion allowance.--Any 
                contribution or addition with respect to any 
                participant, when expressed as an annual 
                addition, which is allocable to the application 
                of section 403(b)(2)(D) to such participant for 
                such year, shall be treated as not exceeding 
                the limitations of paragraph (1).
                  [(B) Contributions not in excess of $40,000 
                ($10,000 per year).--
                          [(i) In general.--Notwithstanding any 
                        other provision of this subsection, at 
                        the election of a participant who is an 
                        employee of a church, a convention or 
                        association of churches, including an 
                        organization described in section 
                        414(e)(3)(B)(ii), contributions and 
                        other additions for an annuity contract 
                        or retirement income account described 
                        in section 403(b) with respect to such 
                        participant, when expressed as an 
                        annual addition to such participant's 
                        account, shall be treated as not 
                        exceeding the limitation of paragraph 
                        (1) if such annual addition is not in 
                        excess of $10,000.
                          [(ii) $40,000 aggregate limitation.--
                        The total amount of additions with 
                        respect to any participant which may be 
                        taken into account for purposes of this 
                        subparagraph for all years may not 
                        exceed $40,000.
                          [(iii) No election if paragraph 
                        (4)(A) election made.--No election may 
                        be made under this subparagraph for any 
                        year if an election is made under 
                        paragraph (4)(A) for such year.
                  [(C) Annual addition.--For purposes of this 
                paragraph, the term ``annual addition'' has the 
                meaning given such term by paragraph (2).]
          (7) Certain contributions by church plans not treated 
        as exceeding limit.--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, at the election 
                of a participant who is an employee of a church 
                or a convention or association of churches, 
                including an organization described in section 
                414(e)(3)(B)(ii), contributions and other 
                additions for an annuity contract or retirement 
                income account described in section 403(b) with 
                respect to such participant, when expressed as 
                an annual addition to such participant's 
                account, shall be treated as not exceeding the 
                limitation of paragraph (1) if such annual 
                addition is not in excess of $10,000.
                  (B) $40,000 aggregate limitation.--The total 
                amount of additions with respect to any 
                participant which may be taken into account for 
                purposes of this subparagraph for all years may 
                not exceed $40,000.
                  (C) Annual addition.--For purposes of this 
                paragraph, the term ``annual addition'' has the 
                meaning given such term by paragraph (2).
  (d) Cost-of-Living Adjustments.--
          (1) In general.--The Secretary shall adjust 
        annually--
                  (A) the [$90,000] $160,000 amount in 
                subsection (b)(1)(A),

           *       *       *       *       *       *       *

                  (C) the [$30,000] $40,000 amount in 
                subsection (c)(1)(A),for increases in the cost-
                of-living in accordance with regulations 
                prescribed by the Secretary.

           *       *       *       *       *       *       *

          (3) Base period.--For purposes of paragraph (2)--
                  (A) [$90,000] $160,000 Amount.--The base 
                period taken into account for purposes of 
                paragraph (1)(A) is thecalendar quarter 
beginning [October 1, 1986] July 1, 2001.

           *       *       *       *       *       *       *

                  (D) [$30,000] $40,000 Amount.--The base 
                period taken into account for purposes of 
                paragraph (1)(C) is the calendar quarter 
                beginning [October 1, 1993] July 1, 2001.
          [(4) Rounding.--Any increase under subparagraph (A) 
        or (C) of paragraph (1) which is not a multiple of 
        $5,000 shall be rounded to the next lowest multiple of 
        $5,000.]
          (4) Rounding.--
                  (A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not 
                a multiple of $5,000 shall be rounded to the 
                next lowest multiple of $5,000.
                  (B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not 
                a multiple of $1,000 shall be rounded to the 
                next lowest multiple of $1,000.

           *       *       *       *       *       *       *

  (f) Combining of Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for multiemployer plans.--
        Notwithstanding paragraph (1) and subsection (g), a 
        multiemployer plan (as defined in section 414(f)) shall 
        not be combined or aggregated--
                  (A) with any other plan which is not a 
                multiemployer plan for purposes of applying 
                subsection (b)(1)(B) to such other plan, or
                  (B) with any other multiemployer plan for 
                purposes of applying the limitations 
                established in this section.
  (g) Aggregation of Plans.--[The Secretary] Except as provided 
in subsection (f)(3), the Secretary, in applying the provisions 
of this section to benefits or contributions under more than 
one plan maintained by the same employer, and to any trusts, 
contracts, accounts, or bonds referred to in subsection (a)(2), 
with respect to which the participant has the control required 
under section 414(b) or (c), as modified by subsection (h), 
shall, under regulations prescribed by the Secretary, 
disqualify one or more trusts, plans, contracts, accounts, or 
bonds, or any combination thereof until such benefits or 
contributions do not exceed the limitations contained in this 
section. In addition to taking into account such other factors 
as may be necessary to carry out the purposes of subsection 
(f), the regulations prescribed under this paragraph shall 
provide that no plan which has been terminated shall be 
disqualified until all other trusts, plans, contracts, 
accounts, or bonds have been disqualified.

           *       *       *       *       *       *       *

  (k) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules for sections 403(b) and 408.--For 
        purposes of this section, any annuity contract 
        described in section 403(b) for the benefit of a 
        participant shall be treated as a defined contribution 
        plan maintained by each employer with respect to which 
        the participant has the control required under 
        subsection (b) or (c) of section 414 (as modified by 
        subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee 
        pension plan for an individual for a taxable year shall 
        be treated as an employer contribution to a defined 
        contribution plan for such individual for such year.

SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Plan Must Provide Minimum Benefits.--
          (1) Defined benefit plans.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Years of service.--For purposes of this 
                paragraph--
                          (i) In general.--Except as provided 
                        in [clause (ii)] clause (ii) or (iii), 
                        years of service shall be determined 
                        under the rules of paragraphs (4), (5), 
                        and (6) of section 411(a).

           *       *       *       *       *       *       *

                          (iii) Exception for frozen plan.--For 
                        purposes of determining an employee's 
                        years of service with the employer, any 
                        service with the employer shall be 
                        disregarded to the extent that such 
                        service occurs during a plan year when 
                        the plan benefits (within the meaning 
                        of section 410(b)) no key employee or 
                        former key employee.
          (2) Defined contribution plans.--
                  (A) In general.--A defined contribution plan 
                meets the requirements of the subsection if the 
                employer contribution for the year for each 
                participant who is a non-key employee is not 
                less than 3 percent of such participant's 
                compensation (within the meaning of section 
                415). Employer matching contributions (as 
                defined in section 401(m)(4)(A)) shall be taken 
                into account for purposes of this subparagraph.

           *       *       *       *       *       *       *

  (g) Top-Heavy Plan Defined.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Distributions during last 5 years taken into 
        account.--For purposes of determining--
                  [(A) the present value of the cumulative 
                accrued benefit for any employee, or
                  [(B) the amount of the account of any 
                employee, such present value or amount shall be 
                increased by the aggregate distributions made 
                with respect to such employee under the plan 
                during the 5-year period ending on the 
                determination date. The preceding sentence 
                shall also apply to distributions under a 
                terminated plan which if it had not been 
                terminated would have been required to be 
                included in an aggregation group.]
          (3) Distributions during last year before 
        determination date taken into account.--
                  (A) In general.--For purposes of 
                determining--
                          (i) the present value of the 
                        cumulative accrued benefit for any 
                        employee, or
                          (ii) the amount of the account of any 
                        employee,
                such present value or amount shall be increased 
                by the aggregate distributions made with 
                respect to such employee under the plan during 
                the 1-year period ending on the determination 
                date. The preceding sentence shall also apply 
                to distributions under a terminated plan which 
                if it had not been terminated would have been 
                required to be included in an aggregation 
                group.
                  (B) 5-year period in case of in-service 
                distribution.--In the case of any distribution 
                made for a reason other than separation from 
                service, death, or disability, subparagraph (A) 
                shall be applied by substituting ``5-year 
                period'' for ``1-year period''.
          (4) Other special rules.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Benefits not taken into account if 
                employee not employed for [last 5 years] last 
                year before determination date.--If any 
                individual has not performed services for the 
                employer maintaining the plan at any time 
                during the [5] 1-year period ending on the 
                determination date, any accrued benefit for 
                such individual (and the account of such 
                individual) shall not be taken into account.

           *       *       *       *       *       *       *

                  (H) Cash or deferred arrangements using 
                alternative methods of meeting 
                nondiscrimination requirements.--The term 
                ``top-heavy plan'' shall not include a plan 
                which consists solely of--
                          (i) a cash or deferred arrangement 
                        which meets the requirements of section 
                        401(k)(12), and
                          (ii) matching contributions with 
                        respect to which the requirements of 
                        section 401(m)(11) are met.
                If, but for this subparagraph, a plan would be 
                treated as a top-heavy plan because it is a 
                member of an aggregation group which is a top-
                heavy group, contributions under the plan may 
                be taken into account in determining whether 
                any other plan in the group meets the 
                requirements of subsection (c)(2).

           *       *       *       *       *       *       *

  (i) Definitions.--For purposes of this section--
          (1) Key employee.--
                  (A) In general.--The term ``key employee'' 
                means an employee who, at any time during the 
                plan year [or any of the 4 preceding plan 
                years], is--
                          [(i) an officer of the employer 
                        having an annual compensation greater 
                        than 50 percent of the amount in effect 
                        under section 415(b)(1)(A) for any such 
                        plan year,
                          [(ii) 1 of the 10 employees having 
                        annual compensation from the employer 
                        of more than the limitation in effect 
                        under section 415(c)(1)(A) and owning 
                        (or considered as owning within the 
                        meaning of section 318 the largest 
                        interests in the employer,]
                          (i) an officer of the employer having 
                        an annual compensation greater than 
                        $150,000,
                          [(iii)] (ii) a 5-percent owner of the 
                        employer, or
                          [(iv)] (iii) a 1-percent owner of the 
                        employer having an annual compensation 
                        from the employer of more than 
                        $150,000.
                For purposes of clause (i), no more than 50 
                employees (or, if lesser, the greater of 3 or 
                10 percent of the employees) shall be treated 
                as officers. [For purposes of clause (ii), if 2 
                employees have the same interest in the 
                employer, the employee having greater annual 
                compensation from the employer shall be treated 
                as having a larger interest.] Such term shall 
                not include any officer or employee of an 
                entity referred to in section 414(d) (relating 
                to governmental plans). For purposes of 
                determining the number of officers taken into 
                account under clause (i), employees described 
                in section 414(q)(5) shall be excluded.
                  (B) Percentage owners.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Constructive ownership rules.--
                        For purposes of this subparagraph [and 
                        subparagraph (A)(ii)]--
                                  (I) * * *

           *       *       *       *       *       *       *

                          (iv) Family attribution 
                        disregarded.--Solely for purposes of 
                        applying this paragraph (and not for 
                        purposes of any provision of this title 
                        which incorporates by reference the 
                        definition of a key employee or 5-
                        percent owner under this paragraph), 
                        section 318 shall be applied without 
                        regard to subsection (a)(1) thereof in 
                        determining whether any person is a 5-
                        percent owner.

           *       *       *       *       *       *       *


SEC. 417. DEFINITIONS AND SPECIAL RULES FOR PURPOSES OF MINIMUM 
                    SURVIVOR ANNUITY REQUIREMENTS.

  (a) Election to Waive Qualified Joint and Survivor Annuity or 
Qualified Preretirement Survivor Annuity.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Applicable election period defined.--For purposes 
        of this subsection, the term ``applicable election 
        period'' means--
                  (A) in the case of an election to waive the 
                qualified joint and survivor annuity form of 
                benefit, the [90] 180-day period ending on the 
                annuity starting date, or

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *


SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS 
                    AND TAX-EXEMPT ORGANIZATIONS.

  [(a) Year of Inclusion in Gross Income.--In the case of a 
participant in an eligible deferred compensation plan, any 
amount of compensation deferred under the plan, and any income 
attributable to the amounts so deferred, shall be includible in 
gross income only for the taxable year in which such 
compensation or other income is paid or otherwise made 
available to the participant or other beneficiary.]
  (a) Year of inclusion in gross income.--
          (1) In general.--Any amount of compensation deferred 
        under an eligible deferred compensation plan, and any 
        income attributable to the amounts so deferred, shall 
        be includible in gross income only for the taxable year 
        in which such compensation or other income--
                  (A) is paid to the participant or other 
                beneficiary, in the case of a plan of an 
                eligible employer described in subsection 
                (e)(1)(A), and
                  (B) is paid or otherwise made available to 
                the participant or other beneficiary, in the 
                case of a plan of an eligible employer 
                described in subsection (e)(1)(B).
          (2) Special rule for rollover amounts.--To the extent 
        provided in section 72(t)(9), section 72(t) shall apply 
        to any amount includible in gross income under this 
        subsection.
  (b) Eligible Deferred Compensation Plan Defined.--For 
purposes of this section, the term ``eligible deferred 
compensation plan'' means a plan established and maintained by 
an eligible employer--
          (1) in which only individuals who perform service for 
        the employer may be participants,
          (2) which provides that (except as provided in 
        paragraph (3)) the maximum amount which may be deferred 
        under the plan for the taxable year (other than 
        rollover amounts) shall not exceed the lesser of--
                  (A) [$7,500] the applicable dollar amount, or
                  (B) [33\1/3\] 100 percent of the 
                participant's includible compensation,
          (3) which may provide that, for 1 or more of the 
        participant's last 3 taxable years ending before he 
        attains normal retirement age under the plan, the 
        ceiling set forth in paragraph (2) shall be the lesser 
        of--
                  (A) [$15,000] twice the dollar amount in 
                effect under subsection (b)(2)(A), or

           *       *       *       *       *       *       *

  [(c) Individuals Who Are Participants in More Than 1 Plan.--
          [(1) In general.--The maximum amount of the 
        compensation of any one individual which may be 
        deferred under subsection (a) during any taxable year 
        shall not exceed $7,500 (as modified by any adjustment 
        provided under subsection (b)(3)).
          [(2) Coordination with certain other deferrals.--In 
        applying paragraph (1) of this subsection--
                  [(A) any amount excluded from gross income 
                under section 403(b) for the taxable year, and
                  [(B) any amount--
                          [(i) excluded from gross income under 
                        section 402(e)(3) or section 
                        402(h)(1)(B) or (k) for the taxable 
                        year, or
                          [(ii) with respect to which a 
                        deduction is allowable by reason of a 
                        contribution to an organization 
                        described in section 501(c)(18) for the 
                        taxable year,
        shall be treated as an amount deferred under subsection 
        (a). In applying section 402(g)(8)(A)(iii) or 
        403(b)(2)(A)(ii), an amount deferred under subsection 
        (a) for any year of service shall be taken into account 
        as if described in section 402(g)(3)(C) or 
        403(b)(2)(A)(ii), respectively. Subparagraph (B) shall 
        not apply in the case of a participant in a rural 
        cooperative plan (as defined in section 401(k)(7)).]
  (c) Limitation.--The maximum amount of the compensation of 
any one individual which may be deferred under subsection (a) 
during any taxable year shall not exceed the amount in effect 
under subsection (b)(2)(A) (as modified by any adjustment 
provided under subsection (b)(3)).
  (d) Distribution Requirements.--
          (1) In general.--For purposes of subsection (b)(5), a 
        plan meets the distribution requirements of this 
        subsection if--
                  (A) under the plan amounts will not be made 
                available to participants or beneficiaries 
                earlier than--
                          (i) the calendar year in which the 
                        participant attains age 70\1/2\,
                          (ii) when the participant [is 
                        separated from service] has a severance 
                        from employment with the employer, or
                          (iii) when the participant is faced 
                        with an unforeseeable emergency 
                        (determined in the manner prescribed by 
                        the Secretary in regulations), [and]
                  (B) the plan meets the minimum distribution 
                requirements of paragraph (2)[.], and
                  (C) in the case of a plan maintained by an 
                employer described in subsection (e)(1)(A), the 
                plan meets requirements similar to the 
                requirements of section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee 
        transfer in accordance with section 401(a)(31) shall 
        not be includible in gross income for the taxable year 
        of transfer.
          [(2) Minimum distribution requirements.--A plan meets 
        the minimum distribution requirements of this paragraph 
        if such plan meets the requirements of subparagraphs 
        (A), (B), and (C):
                  [(A) Application of section 401(a)(9).--A 
                plan meets the requirements of this 
                subparagraph if the plan meets the requirements 
                of section 401(a)(9).
                  [(B) Additional distribution requirements.--A 
                plan meets the requirements of this 
                subparagraph if--
                          [(i) in the case of a distribution 
                        beginning before the death of the 
                        participant, such distribution will be 
                        made in a form under which--
                                  [(I) the amounts payable with 
                                respect to the participant will 
                                be paid at times specified by 
                                the Secretary which are not 
                                later than the time determined 
                                under section 401(a)(9)(G) 
                                (relating to incidental death 
                                benefits), and
                                  [(II) any amount not 
                                distributed to the participant 
                                during his life will be 
                                distributed after the death of 
                                the participant at least as 
                                rapidly as under the method of 
                                distributions being used under 
                                subclause (I) as of the date of 
                                his death, or
                          [(ii) in the case of a distribution 
                        which does not begin before the death 
                        of the participant, the entire amount 
                        payable with respect to the participant 
                        will be paid during a period not to 
                        exceed 15 years (or the life expectancy 
                        of the surviving spouse if such spouse 
                        is the beneficiary).
                  [(C) Nonincreasing benefits.--A plan meets 
                the requirements of this subparagraph if any 
                distribution payable over a period of more than 
                1 year can only be made in substantially 
                nonincreasing amounts (paid not less frequently 
                than annually).]
          (2) Minimum distribution requirements.--A plan meets 
        the minimum distribution requirements of this paragraph 
        if such plan meets the requirements of section 
        401(a)(9).
          (3) Special rule for government plan.--An eligible 
        deferred compensation plan of an employer described in 
        subsection (e)(1)(A) shall not be treated as failing to 
        meet the requirements of this subsection solely by 
        reason of making a distribution described in subsection 
        (e)(9)(A).
  (e) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(9) Benefits not treated as made available by reason 
        of certain elections, etc.--]
          (9) Benefits of tax exempt organization plans not 
        treated as made available by reason of certain 
        elections, etc.--In the case of an eligible deferred 
        compensation plan of an employer described in 
        subsection (e)(1)(B)--
                  (A) Total amount payable is dollar limit or 
                less.--The total amount payable to a 
                participant under the plan shall not be treated 
                as made available merely because the 
                participant may elect to receive such amount 
                (or the plan may distribute such amount without 
                the participant's consent) if--
                          (i) [such amount] the portion of such 
                        amount which is not attributable to 
                        rollover contributions (as defined in 
                        section 411(a)(11)(D)) does not exceed 
                        the dollar limit under section 
                        411(a)(11)(A), and

           *       *       *       *       *       *       *

          [(15) Cost-of-living adjustment of maximum deferral 
        amount.--The Secretary shall adjust the $7,500 amount 
        specified in subsections (b)(2) and (c)(1) at the same 
        time and in the same manner as under section 415(d), 
        except that the base period shall be the calendar 
        quarter ending September 30, 1994, and any increase 
        under this paragraph which is not a multiple of $500 
        shall be rounded to the next lowest multiple of $500.]
          (15) Applicable dollar amount.--
                  (A) In general.--The applicable dollar amount 
                shall be the amount determined in accordance 
                with the following table:

        For taxable years                                               
          beginning in                                    The applicable
          calendar year:                                  dollar amount:
          2002................................................  $11,000 
          2003................................................  $12,000 
          2004................................................  $13,000 
          2005................................................  $14,000 
          2006 or thereafter..................................  $15,000.

                  (B) Cost-of-living adjustments.--In the case 
                of taxable years beginning after December 31, 
                2006, the Secretary shall adjust the $15,000 
                amount under subparagraph (A) at the same time 
                and in the same manner as under section 415(d), 
                except that the base period shall be the 
                calendar quarter beginning July 1, 2005, and 
                any increase under this paragraph which is not 
                a multiple of $500 shall be rounded to the next 
                lowest multiple of $500.
          (16) Rollover amounts.--
                  (A) General rule.--In the case of an eligible 
                deferred compensation plan established and 
                maintained by an employer described in 
                subsection (e)(1)(A), if--
                          (i) any portion of the balance to the 
                        credit of an employee in such plan is 
                        paid to such employee in an eligible 
                        rollover distribution (within the 
                        meaning of section 402(c)(4) without 
                        regard to subparagraph (C) thereof),
                          (ii) the employee transfers any 
                        portion of the property such employee 
                        receives in such distribution to an 
                        eligible retirement plan described in 
                        section 402(c)(8)(B), and
                          (iii) in the case of a distribution 
                        of property other than money, the 
                        amount so transferred consists of the 
                        property distributed,
                then such distribution (to the extent so 
                transferred) shall not be includible in gross 
                income for the taxable year in which paid.
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) (other than 
                paragraph (4)(C)) and (9) of section 402(c) and 
                section 402(f) shall apply for purposes of 
                subparagraph (A).
                  (C) Reporting.--Rollovers under this 
                paragraph shall be reported to the Secretary in 
                the same manner as rollovers from qualified 
                retirement plans (as defined in section 
                4974(c)).
          (17) Trustee-to-trustee transfers to purchase 
        permissive service credit.--No amount shall be 
        includible in gross income by reason of a direct 
        trustee-to-trustee transfer to a defined benefit 
        governmental plan (as defined in section 414(d)) if 
        such transfer is--
                  (A) for the purchase of permissive service 
                credit (as defined in section 415(n)(3)(A)) 
                under such plan, or
                  (B) a repayment to which section 415 does not 
                apply by reason of subsection (k)(3) thereof.

           *       *       *       *       *       *       *


Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


PART I--GENERAL RULE

           *       *       *       *       *       *       *


SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *

           *       *       *       *       *       *       *

          (18) A trust or trusts created before June 25, 1959, 
        forming part of a plan providing for the payment of 
        benefits under a pension plan funded only by 
        contributions of employees, if--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) in the case of a plan under which an 
                employee may designate certain contributions as 
                deductible--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) such contributions are treated 
                        as elective deferrals for purposes of 
                        section 402(g) [(other than paragraph 
                        (4) thereof)], and

           *       *       *       *       *       *       *


SEC. 505. ADDITIONAL REQUIREMENTS FOR ORGANIZATIONS DESCRIBED IN 
                    PARAGRAPH (9), (17), OR (20) OF SECTION 501(C).

  (a) * * *
  (b) Nondiscrimination Requirements.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Compensation limit.--A plan shall not be treated 
        as meeting the requirements of this subsection unless 
        under the plan the annual compensation of each employee 
        taken into account for any year does not exceed 
        [$150,000] $200,000. The Secretary shall adjust the 
        [$150,000] $200,000 amount at the same time, and by the 
        same amount, as any adjustment under section 
        401(a)(17)(B). This paragraph shall not apply in 
        determining whether the requirements of section 79(d) 
        are met.

           *       *       *       *       *       *       *


Subchapter J--Estates, Trusts, Beneficiaries, and Decedents

           *       *       *       *       *       *       *


PART I--ESTATES, TRUSTS, AND BENEFICIARIES

           *       *       *       *       *       *       *


  Subpart C--Estates and Trusts Which May Accumulate Income or Which 
Distribute Corpus

           *       *       *       *       *       *       *


SEC. 664. CHARITABLE REMAINDER TRUSTS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Qualified Gratuitous Transfer of Qualified Employer 
Securities.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Plan requirements.--A plan contains the 
        provisions required by this paragraph if such plan 
        provides that--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) such securities are held in a suspense 
                account under the plan to be allocated each 
                year, up to the [limitations under section 
                415(c)] applicable limitation under paragraph 
                (7), after first allocating all other annual 
                additions for the limitation year, up to the 
                limitations under sections 415 (c) and (e), and

           *       *       *       *       *       *       *

          (7) Applicable limitation.--
                  (A) In general.--For purposes of paragraph 
                (3)(E), the applicable limitation under this 
                paragraph with respect to a participant is an 
                amount equal to the lesser of--
                          (i) $30,000, or
                          (ii) 25 percent of the participant's 
                        compensation (as defined in section 
                        415(c)(3)).
                  (B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the $30,000 amount under 
                subparagraph (A)(i) at the same time and in the 
                same manner as under section 415(d), except 
                that the base period shall be the calendar 
                quarter beginning October 1, 1993, and any 
                increase under this subparagraph which is not a 
                multiple of $5,000 shall be rounded to the next 
                lowest multiple of $5,000.

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


Subchapter A--Withholding from Wages

           *       *       *       *       *       *       *


SEC. 3401. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration (other than fees paid to a public 
official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) * * *

           *       *       *       *       *       *       *

          (12) to, or on behalf of, an employee or his 
        beneficiary--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                maintained by an employer described in section 
                457(e)(1)(A); or

           *       *       *       *       *       *       *


SEC. 3405. SPECIAL RULES FOR PENSIONS, ANNUITIES, AND CERTAIN OTHER 
                    DEFERRED INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Eligible Rollover Distributions.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``eligible rollover 
        distribution'' has the meaning given such term by 
        section 402(f)(2)(A) (or in the case of an annuity 
        contract under section 403(b), a distribution from such 
        contract described in section 402(f)(2)(A)).]
          (3) Eligible rollover distribution.--For purposes of 
        this subsection, the term ``eligible rollover 
        distribution'' has the meaning given such term by 
        section 402(f)(2)(A).
  (d) Liability for Withholding.--
          (1) * * *
          (2) Plan administrator liable in certain cases.--
                  (A) * * *
                  (B) Plans to which paragraph applies.--This 
                paragraph applies to any plan described in, or 
                which at any time has been determined to be 
                described in--
                          (i) section 401(a),
                          (ii) section 403(a), [or]
                          (iii) section 301(d) of the Tax 
                        Reduction Act of 1975[.], or
                          (iv) section 457(b) and which is 
                        maintained by an eligible employer 
                        described in section 457(e)(1)(A).

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

        Sec. 4971. Taxes on failure to meet minimum funding standards.
     * * * * * * *
        Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.

           *       *       *       *       *       *       *


SEC. 4972. TAX ON NONDEDUCTIBLE CONTRIBUTIONS TO QUALIFIED EMPLOYER 
                    PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Nondeductible Contributions.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there 
        shall not be taken into account--
                  [(A) contributions that would be deductible 
                under section 404(a)(1)(D) if the plan had more 
                than 100 participants if--
                          [(i) the plan is covered under 
                        section 4021 of the Employee Retirement 
                        Income Security Act of 1974, and
                          [(ii) the plan is terminated under 
                        section 4041(b) of such Act on or 
                        before the last day of the taxable 
                        year, and
                  [(B) so much of the contributions to 1 or 
                more defined contribution plans which are not 
                deductible when contributed solely because of 
                section 404(a)(7) as does not exceed the 
                greater of--
                          [(i) the amount of contributions not 
                        in excess of 6 percent of compensation 
                        (within the meaning of section 404(a) 
                        paid or accrued (during the taxable 
                        year for which the contributions were 
                        made) to beneficiaries under the plans, 
                        or]
          (6) Exceptions.--In determining the amount of 
        nondeductible contributions for any taxable year, there 
        shall not be taken into account so much of the 
        contributions to one or more defined contribution plans 
        which are not deductible when contributed solely 
        because of section 404(a)(7) as does not exceed the 
        greater of--
                  (A) the amount of contributions not in excess 
                of 6 percent of compensation (within the 
                meaning of section 404(a)) paid or accrued 
                (during the taxable year for which the 
                contributions were made) to beneficiaries under 
                the plans,
                  (B) the sum of--
                          (i) the amount of contributions 
                        described in section 401(m)(4)(A), plus
                          (ii) the amount of contributions 
                        described in section 402(g)(3)(A), and
                  (C) so much of the contributions to a simple 
                retirement account (within the meaning of 
                section 408(p)) or a simple plan (within the 
                meaning of section 401(k)(11)) which are not 
                deductible when contributed solely because such 
                contributions are not made in connection with a 
                trade or business of the employer.
        For purposes of this paragraph, the deductible limits 
        under section 404(a)(7) shall first be applied to 
        amounts contributed to a defined benefit plan and then 
        to amounts described in subparagraph (B). Subparagraph 
        (C) shall not apply to contributions made on behalf of 
        the employer or a member of the employer's family.
          (7) Defined benefit plan exception.--In determining 
        the amount of nondeductible contributions for any 
        taxable year, an employer may elect for such year not 
        to take into account any contributions to a defined 
        benefit plan except to the extent that such 
        contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard 
        to subparagraph (A)(i)(I) thereof). For purposes of 
        this paragraph, the deductible limits under section 
        404(a)(7) shall first be applied to amounts contributed 
        to defined contribution plans and then to amounts 
        described in this paragraph. If an employer makes an 
        election under this paragraph for a taxable year, 
        paragraph (6) shall not apply to such employer for such 
        taxable year.

           *       *       *       *       *       *       *


SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED ACCOUNTS 
                    AND ANNUITIES.

  (a) * * *
  (b) Excess Contributions.--For purposes of this section, in 
the case of individual retirement accounts or individual 
retirement annuities, the term ``excess contributions'' means 
the sum of--
          (1) the excess (if any) of--
                  (A) the amount contributed for the taxable 
                year to the accounts or for the annuities 
                (other than a contribution to a Roth IRA or a 
                rollover contribution described in section 
                402(c), 403(a)(4), 403(b)(8), [or 408(d)(3)] 
                408(d)(3), or 457(e)(16)), over

           *       *       *       *       *       *       *


SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED RETIREMENT 
                    PLANS.

  (a) General Rule.--If the amount distributed during the 
taxable year of the payee under any qualified retirement plan 
or any eligible deferred compensation plan (as defined in 
section 457(b)) is less than the minimum required distribution 
for such taxable year, there is hereby imposed a tax equal to 
[50] 10 percent of the amount by which such minimum required 
distribution exceeds the actual amount distributed during the 
taxable year. The tax imposed by this section shall be paid by 
the payee.

           *       *       *       *       *       *       *


SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Definitions.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Employee stock ownership plan.--The term 
        ``employee stock ownership plan'' means a defined 
        contribution plan--
                  (A) which is a stock bonus plan which is 
                qualified, or a stock bonus and a money 
                purchase plan both of whichare qualified under 
section 401(a), and which are designed to invest primarily in 
qualifying employer securities; and
                  (B) which is otherwise defined in regulations 
                prescribed by the Secretary.
        A plan shall not be treated as an employee stock 
        ownership plan unless it meets the requirements of 
        section 409(h), section 409(o), and, if applicable, 
        section 409(n), section 409(p), and section 664(g) and, 
        if the employer has a registration-type class of 
        securities (as defined in section 409(e)(4)), it meets 
        the requirements of section 409(e).

           *       *       *       *       *       *       *

  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Exemptions not to apply to certain 
        transactions.--
                  (A) * * *
                  (B) Special rules for shareholder-employees, 
                etc.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Loan exception.--For purposes 
                        of subparagraph (A)(i), the term 
                        ``owner-employee'' shall only include a 
                        person described in subclause (II) or 
                        (III) of clause (i).

           *       *       *       *       *       *       *


SEC. 4979A. TAX ON CERTAIN PROHIBITED ALLOCATIONS OF QUALIFIED 
                    SECURITIES.

  (a) Imposition of Tax.--If--
          (1) there is a prohibited allocation of qualified 
        securities by any employee stock ownership plan or 
        eligible worker-owned cooperative, [or]
          (2) there is an allocation described in section 
        664(g)(5)(A), there is hereby imposed a tax on such 
        allocation equal to 50 percent of the amount involved.
[there is hereby imposed a tax on such allocation equal to 50 
percent of the amount involved.]
          (3) there is any allocation of employer securities 
        which violates the provisions of section 409(p), or a 
        nonallocation year described in subsection (e)(2)(C) 
        with respect to an employee stock ownership plan, or
          (4) any synthetic equity is owned by a disqualified 
        person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership 
equal to 50 percent of the amount involved.

           *       *       *       *       *       *       *

  [(c) Liability for Tax.--The tax imposed by this section 
shall be paid by--
          [(1) the employer sponsoring such plan, or
          [(2) the eligible worker-owned cooperative,
which made the written statement described in section 
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be).]
  (c) Liability for Tax.--The tax imposed by this section shall 
be paid--
          (1) in the case of an allocation referred to in 
        paragraph (1) or (2) of subsection (a), by--
                  (A) the employer sponsoring such plan, or
                  (B) the eligible worker-owned cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case 
        may be), and
          (2) in the case of an allocation or ownership 
        referred to in paragraph (3) or (4) of subsection (a), 
        by the S corporation the stock in which was so 
        allocated or owned.

           *       *       *       *       *       *       *

  [(e) Definitions.--Terms used in this section have the same 
respective meaning as when used in section 4978.]
  (e) Definitions and Special Rules.--For purposes of this 
section--
          (1) Definitions.--Except as provided in paragraph 
        (2), terms used in this section have the same 
        respective meanings as when used in sections 409 and 
        4978.
          (2) Special rules relating to tax imposed by reason 
        of paragraph (3) or (4) of subsection (a).--
                  (A) Prohibited allocations.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(3) is the amount 
                allocated to the account of any person in 
                violation of section 409(p)(1).
                  (B) Synthetic equity.--The amount involved 
                with respect to any tax imposed by reason of 
                subsection (a)(4) is the value of the shares on 
                which the synthetic equity is based.
                  (C) Special rule during first nonallocation 
                year.--For purposes of subparagraph (A), the 
                amount involved for the first nonallocation 
                year of any employee stock ownership plan shall 
                be determined by taking into account the total 
                value of all the deemed-owned shares of all 
                disqualified persons with respect to such plan.
                  (D) Statute of limitations.--The statutory 
                period for the assessment of any tax imposed by 
                this section by reason of paragraph (3) or (4) 
                of subsection (a) shall not expire before the 
                date which is 3 years from the later of--
                          (i) the allocation or ownership 
                        referred to in such paragraph giving 
                        rise to such tax, or
                          (ii) the date on which the Secretary 
                        is notified of such allocation or 
                        ownership.

           *       *       *       *       *       *       *


SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
                    SATISFY NOTICE REQUIREMENTS.

  (a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements 
of subsection (e) with respect to any applicable individual.
  (b) Amount of Tax.--
          (1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any 
        applicable individual shall be $100 for each day in the 
        noncompliance period with respect to such failure.
          (2) Noncompliance period.--For purposes of this 
        section, the term ``noncompliance period'' means, with 
        respect to any failure, the period beginning on the 
        date the failure first occurs and ending on the date 
        the notice to which the failure relates is provided or 
        the failure is otherwise corrected.
  (c) Limitations on Amount of Tax.--
          (1) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be 
        imposed by subsection (a) on any failure during any 
        period for which it is established to the satisfaction 
        of the Secretary that any person subject to liability 
        for the tax under subsection (d) did not know that the 
        failure existed and exercised reasonable diligence to 
        meet the requirements of subsection (e).
          (2) Tax not to apply to failures corrected within 30 
        days.--No tax shall be imposed by subsection (a) on any 
        failure if--
                  (A) any person subject to liability for the 
                tax under subsection (d) exercised reasonable 
                diligence to meet the requirements of 
                subsection (e), and
                  (B) such person provides the notice described 
                in subsection (e) during the 30-day period 
                beginning on the first date such person knew, 
                or exercising reasonable diligence would have 
                known, that such failure existed.
          (3) Overall limitation for unintentional failures.--
                  (A) In general.--If the person subject to 
                liability for tax under subsection (d) 
                exercised reasonable diligence to meet the 
                requirements of subsection (e), the tax imposed 
                by subsection (a) for failures during the 
                taxable year of the employer (or, in the case 
                of a multiemployer plan, the taxable year of 
                the trust forming part of the plan) shall not 
                exceed $500,000. For purposes of the preceding 
                sentence, all multiemployer plans of which the 
                same trust forms a part shall be treated as 1 
                plan.
                  (B) Taxable years in the case of certain 
                controlled groups.--For purposes of this 
                paragraph, if all persons who are treated as a 
                single employer for purposes of this section do 
                not have the same taxable year, the taxable 
                years taken into account shall be determined 
                under principles similar to the principles of 
                section 1561.
          (4) Waiver by secretary.--In the case of a failure 
        which is due to reasonable cause and not to willful 
        neglect, the Secretary may waive part or all of the tax 
        imposed by subsection (a) to the extent that the 
        payment of such tax would be excessive or otherwise 
        inequitable relative to the failure involved.
  (d) Liability for Tax.--The following shall be liable for the 
tax imposed by subsection (a):
          (1) In the case of a plan other than a multiemployer 
        plan, the employer.
          (2) In the case of a multiemployer plan, the plan.
  (e) Notice Requirements for Plans Significantly Reducing 
Benefit Accruals.--
          (1) In general.--If an applicable pension plan is 
        amended to provide for a significant reduction in the 
        rate of future benefit accrual, the plan administrator 
        shall provide written notice to each applicable 
        individual (and to each employee organization 
        representing applicable individuals).
          (2) Notice.--The notice required by paragraph (1) 
        shall be written in a manner calculated to be 
        understood by the average plan participant and shall 
        provide sufficient information (as determined in 
        accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment. The 
        Secretary may provide a simplified form of notice for, 
        or exempt from any notice requirement, a plan--
                  (A) which has fewer than 100 participants who 
                have accrued a benefit under the plan, or
                  (B) which offers participants the option to 
                choose between the new benefit formula and the 
                old benefit formula.
          (3) Timing of notice.--Except as provided in 
        regulations, the notice required by paragraph (1) shall 
        be provided within a reasonable time before the 
        effective date of the plan amendment.
          (4) Designees.--Any notice under paragraph (1) may be 
        provided to a person designated, in writing, by the 
        person to which it would otherwise be provided.
          (5) Notice before adoption of amendment.--A plan 
        shall not be treated as failing to meet the 
        requirements of paragraph (1) merely because notice is 
        provided before the adoption of the plan amendment if 
        no material modification of the amendment occurs before 
        the amendment is adopted.
  (f) Definitions and Special Rules.--For purposes of this 
section--
          (1) Applicable individual.--The term ``applicable 
        individual'' means, with respect to any plan 
        amendment--
                  (A) each participant in the plan, and
                  (B) any beneficiary who is an alternate payee 
                (within the meaning of section 414(p)(8)) under 
                an applicable qualified domestic relations 
                order (within the meaning of section 
                414(p)(1)(A)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by 
        such plan amendment.
          (2) Applicable pension plan.--The term ``applicable 
        pension plan'' means--
                  (A) any defined benefit plan, or
                  (B) an individual account plan which is 
                subject to the funding standards of section 
                412.
        Such term shall not include a governmental plan (within 
        the meaning of section 414(d)) or a church plan (within 
        the meaning of section 414(e)) with respect to which 
        the election provided by section 410(d) has not been 
        made.
          (3) Early retirement.--A plan amendment which 
        eliminates or significantly reduces any early 
        retirement benefit orretirement-type subsidy (within 
the meaning of section 411(d)(6)(B)(i)) shall be treated as having the 
effect of significantly reducing the rate of future benefit accrual.
  (g) New Technologies.--The Secretary may by regulations allow 
any notice under subsection (e) to be provided by using new 
technologies.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart B--Information Concerning Transactions with Other Persons

           *       *       *       *       *       *       *


SEC. 6047. INFORMATION RELATING TO CERTAIN TRUSTS AND ANNUITY PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Designated Plus Contributions.--The Secretary shall 
require the plan administrator of each applicable retirement 
plan (as defined in section 402A) to make such returns and 
reports regarding designated plus contributions (as so defined) 
to the Secretary, participants and beneficiaries of the plan, 
and such other persons as the Secretary may prescribe.
  [(f)] (g) Cross References.--

          (1) For provisions relating to penalties for failures to file 
        returns and reports required under this section, see sections 
        6652(e), 6721, and 6722.
          (2) For criminal penalty for furnishing fraudulent 
        information, see section 7207.
          (3) For provisions relating to penalty for failure to comply 
        with the provisions of subsection (d), see section 6704.

           *       *       *       *       *       *       *


Subpart C--Information Regarding Wages Paid Employees

           *       *       *       *       *       *       *


SEC. 6051. RECEIPTS FOR EMPLOYEES.

  (a) Requirement.--Every person required to deduct and 
withhold from an employee a tax under section 3101 or 3402, or 
who would have been required to deduct and withhold a tax under 
section 3402 (determined without regard to subsection (n)) if 
the employee had claimed no more than one withholding 
exemption, or every employer engaged in a trade or business who 
pays remuneration for services performed by an employee, 
including the cash value of such remuneration paid in any 
medium other than cash, shall furnish to each such employee in 
respect of the remuneration paid by such person to such 
employee during the calendar year, on or before January 31 of 
the succeeding year, or, if his employment is terminated before 
the close of such calendar year, within 30 days after the date 
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing 
the following:
          (1) * * *

           *       *       *       *       *       *       *

          (8) the total amount of elective deferrals (within 
        the meaning of section 402(g)(3)) and compensation 
        deferred under section 457, including the amount of 
        designated plus contributions (as defined in section 
        402A),

           *       *       *       *       *       *       *

                              ----------                              


            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

           *       *       *       *       *       *       *


                   Subtitle B--Regulatory Provisions

Part 1--Reporting and Disclosure

           *       *       *       *       *       *       *


    filing with secretary and furnishing information to participants

  Sec. 104. (a) * * *
  (b) Publication of the summary plan descriptions and annual 
reports shall be made to participants and beneficiaries of the 
particular plan as follows:
  (1) * * *

           *       *       *       *       *       *       *

  (3) Within 210 days after the close of the fiscal year of the 
plan, the administrators shall furnish to each participant, and 
to each beneficiary receiving benefits under the plan, a copy 
of the statements and schedules, for such fiscal year, 
described in subparagraphs (A) and (B) of section 103(b)(3) and 
such other material (including the percentage determined under 
section 103(d)(11)) as is necessary to fairly summarize the 
latest annual report. The requirement to furnish information 
under the previous sentence shallbe satisfied if the 
administrator makes such information reasonably available through 
electronic means or other new technology.

           *       *       *       *       *       *       *


               REPORTING OF PARTICIPANT'S BENEFIT RIGHTS

  Sec. 105. [(a) Each administrator of an employee pension 
benefit plan shall furnish to any plan participant or 
beneficiary who so requests in writing, a statement indicating, 
on the basis of the latest available information--
          [(1) the total benefits accrued, and
          [(2) the nonforfeitable pension benefits, if any, 
        which have accrued, or the earliest date on which 
        benefits will become nonforfeitable.
  [(b) In no case shall a participant or beneficiary be 
entitled under this section to receive more than one report 
described in subsection (a) during any one 12-month period.]
  (a)(1) Except as provided in paragraph (2)--
          (A) the administrator of an individual account plan 
        shall furnish a pension benefit statement--
                  (i) to a plan participant at least once 
                annually, and
                  (ii) to a plan beneficiary upon written 
                request, and
          (B) the administrator of a defined benefit plan shall 
        furnish a pension benefit statement--
                  (i) at least once every 3 years to each 
                participant with a nonforfeitable accrued 
                benefit who is employed by the employer 
                maintaining the plan at the time the statement 
                is furnished to participants, and
                  (ii) to a plan participant or plan 
                beneficiary of the plan upon written request.
  (2) Notwithstanding paragraph (1), the administrator of a 
plan to which more than 1 unaffiliated employer is required to 
contribute shall only be required to furnish a pension benefit 
statement under paragraph (1) upon the written request of a 
participant or beneficiary of the plan.
  (3) A pension benefit statement under paragraph (1)--
          (A) shall indicate, on the basis of the latest 
        available information--
                  (i) the total benefits accrued, and
                  (ii) the nonforfeitable pension benefits, if 
                any, which have accrued, or the earliest date 
                on which benefits will become nonforfeitable,
          (B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
          (C) may be provided in written, electronic, 
        telephonic, or other appropriate form.
  (4)(A) In the case of a defined benefit plan, the 
requirements of paragraph (1)(B)(i) shall be treated as met 
with respect to a participant if the administrator provides the 
participant at least once each year with notice of the 
availability of the pension benefit statement and the ways in 
which the participant may obtain such statement. Such notice 
shall be provided in written, electronic, telephonic, or other 
appropriate form, and may be included with other communications 
to the participant if done in a manner reasonably designed to 
attract the attention of the participant.
  (B) The Secretary may provide that years in which no employee 
or former employee benefits (within the meaning of section 
410(b) of the Internal Revenue Code of 1986) under the plan 
need not be taken into account in determining the 3-year period 
under paragraph (1)(B)(i).
  (b) In no case shall a participant or beneficiary of a plan 
be entitled to more than one statement described in subsection 
(a)(1)(A) or (a)(1)(B)(ii), whichever is applicable, in any 12-
month period.

           *       *       *       *       *       *       *

  [(d) Subsection (a) of this section shall apply to a plan to 
which more than one unaffiliated employer is required to 
contribute only to the extent provided in regulations 
prescribed by the Secretary in coordination with the Secretary 
of the Treasury.]

           *       *       *       *       *       *       *


Part 2--Participation and Vesting

           *       *       *       *       *       *       *


                       MINIMUM VESTING STANDARDS

  Sec. 203. (a) Each pension plan shall provide that an 
employee's right to his normal retirement benefit is 
nonforfeitable upon the attainment of normal retirement age and 
in addition shall satisfy the requirements of paragraphs (1) 
and (2) of this subsection.
          (1)  * * *
          (2) [A plan] Except as provided in paragraph (4), a 
        plan satisfies the requirements of this paragraph if it 
        satisfies the requirements of subparagraph (A) or (B).
                  (A)  * * *

           *       *       *       *       *       *       *

          (4) In the case of matching contributions (as defined 
        in section 401(m)(4)(A) of the Internal Revenue Code of 
        1986), paragraph (2) shall be applied--
                  (A) by substituting ``3 years'' for ``5 
                years'' in subparagraph (A), and
                  (B) by substituting the following table for 
                the table contained in subparagraph (B):

                                                      The nonforfeitable
        Years of service:                               percentage is:  
          2...................................................     20   
          3...................................................     40   
          4...................................................     60   
          5...................................................     80   
100.    6...................................................

           *       *       *       *       *       *       *

  (e)(1) * * *

           *       *       *       *       *       *       *

  (4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value 
of the nonforfeitable accrued benefit is determined without 
regard to that portion of such benefit which is attributable to 
rollover contributions(and earnings allocable thereto). For 
purposes of this subparagraph, the term ``rollover contributions'' 
means any rollover contribution under sections 402(c), 403(a)(4), 
403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue 
Code of 1986.

                      BENEFIT ACCRUAL REQUIREMENTS

  Sec. 204. (a) * * *

           *       *       *       *       *       *       *

  (g)(1) * * *
  (2) For purposes of paragraph (1), a plan amendment which has 
the effect of--
          (A) eliminating or reducing an early retirement 
        benefit or a retirement-type subsidy (as defined in 
        regulations), or
          (B) eliminating an optional form of benefit,
with respect to benefits attributable to service before the 
amendment shall be treated as reducing accrued benefits. In the 
case of a retirement-type subsidy, the preceding sentence shall 
apply only with respect to a participant who satisfies (either 
before or after the amendment) the preamendment conditions for 
the subsidy. The Secretary of the Treasury shall by regulations 
provide that this paragraph shall not apply to any plan 
amendment which reduces or eliminates benefits or subsidies 
which create significant burdens or complexities for the plan 
and plan participants and does not adversely affect the rights 
of any participant in a more than de minimis manner. The 
Secretary of the Treasury may by regulations provide that this 
subparagraph shall not apply to a plan amendment described in 
subparagraph (B) (other than a plan amendment having an effect 
described in subparagraph (A)).

           *       *       *       *       *       *       *

  (4)(A) A defined contribution plan (in this subparagraph 
referred to as the ``transferee plan'') shall not be treated as 
failing to meet the requirements of this subsection merely 
because the transferee plan does not provide some or all of the 
forms of distribution previously available under another 
defined contribution plan (in this subparagraph referred to as 
the ``transferor plan'') to the extent that--
          (i) the forms of distribution previously available 
        under the transferor plan applied to the account of a 
        participant or beneficiary under the transferor plan 
        that was transferred from the transferor plan to the 
        transferee plan pursuant to a direct transfer rather 
        than pursuant to a distribution from the transferor 
        plan;
          (ii) the terms of both the transferor plan and the 
        transferee plan authorize the transfer described in 
        clause (i);
          (iii) the transfer described in clause (i) was made 
        pursuant to a voluntary election by the participant or 
        beneficiary whose account was transferred to the 
        transferee plan;
          (iv) the election described in clause (iii) was made 
        after the participant or beneficiary received a notice 
        describing the consequences of making the election; and
          (v) the transferee plan allows the participant or 
        beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a 
        single sum distribution.
  (B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including 
consolidations of benefits attributable to different employers 
within a multiple employer plan.
  (5) Except to the extent provided in regulations promulgated 
by the Secretary of the Treasury, a defined contribution plan 
shall not be treated as failing to meet the requirements of 
this subsection merely because of the elimination of a form of 
distribution previously available thereunder. This paragraph 
shall not apply to the elimination of a form of distribution 
with respect to any participant unless--
          (A) a single sum payment is available to such 
        participant at the same time or times as the form of 
        distribution being eliminated; and
          (B) such single sum payment is based on the same or 
        greater portion of the participant's account as the 
        form of distribution being eliminated.
  (h)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) An applicable pension plan to which paragraph (1) 
applies shall not be treated as meeting the requirements of 
such paragraph unless, in addition to any notice required to be 
provided to an individual or organization under such paragraph, 
the plan administrator provides the notice described in 
subparagraph (B) to each applicable individual (and to each 
employee organization representing applicable individuals).
  (B) The notice required by subparagraph (A) shall be written 
in a manner calculated to be understood by the average plan 
participant and shall provide sufficient information (as 
determined in accordance with regulations prescribed by the 
Secretary of the Treasury) to allow applicable individuals to 
understand the effect of the plan amendment. The Secretary of 
the Treasury may provide a simplified form of notice for, or 
exempt from any notice requirement, a plan--
          (i) which has fewer than 100 participants who have 
        accrued a benefit under the plan, or
          (ii) which offers participants the option to choose 
        between the new benefit formula and the old benefit 
        formula.
  (C) Except as provided in regulations prescribed by the 
Secretary of the Treasury, the notice required by subparagraph 
(A) shall be provided within a reasonable time before the 
effective date of the plan amendment.
  (D) Any notice under subparagraph (A) may be provided to a 
person designated, in writing, by the person to which it would 
otherwise be provided.
  (E) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because notice is 
provided before the adoption of the plan amendment if no 
material modification of the amendment occurs before the 
amendment is adopted.
  (F) The Secretary of the Treasury may by regulations allow 
any notice under this paragraph to be provided by using new 
technologies.
  (4) For purposes of paragraph (3)--
          (A) The term ``applicable individual'' means, with 
        respect to any plan amendment--
                  (i) each participant in the plan; and
                  (ii) any beneficiary who is an alternate 
                payee (within the meaning of section 
                206(d)(3)(K)) under an applicable qualified 
                domestic relations order (within the meaning of 
                section 206(d)(3)(B)(i)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by 
        such plan amendment.
          (B) The term ``applicable pension plan'' means--
                  (i) any defined benefit plan; or
                  (ii) an individual account plan which is 
                subject to the funding standards of section 412 
                of the Internal Revenue Code of 1986.
          (C) A plan amendment which eliminates or 
        significantly reduces any early retirement benefit or 
        retirement-type subsidy (within the meaning of 
        subsection (g)(2)(A)) shall be treated as having the 
        effect of significantly reducing the rate of future 
        benefit accrual.

           *       *       *       *       *       *       *


 requirement of joint and survivor annuity and preretirement survivor 
                                annuity

  Sec. 205. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (7) For purposes of this subsection, the term ``applicable 
election period'' means--
          (A) in the case of an election to waive the qualified 
        joint and survivor annuity form of benefit, the [90-
        day] 180-day period ending on the annuity starting 
        date, or

           *       *       *       *       *       *       *


Part 3--Funding

           *       *       *       *       *       *       *


                       minimum funding standards

  Sec. 302. (a) * * *
  (c)(1) * * *

           *       *       *       *       *       *       *

  (7) Full-funding limitation.--
          (A) In general.--For purposes of paragraph (6), the 
        term ``full-funding limitation'' means the excess (if 
        any) of--
                  (i) the lesser of (I) [the applicable 
                percentage] in the case of plan years beginning 
                before January 1, 2004, the applicable 
                percentage of current liability (including the 
                expected increase in current liability due to 
                benefits accruing during the plan year), or 
                (II) the accrued liability (including normal 
                cost) under the plan (determined under the 
                entry age normal funding method if such accrued 
                liability cannot be directly calculated under 
                the funding method used for the plan), over

           *       *       *       *       *       *       *

          [(F) Applicable percentage.--For purposes of 
        subparagraph (A)(i)(I), the applicable percentage shall 
        be determined in accordance with the following table:

[In the case of any plan year                             The applicable
  beginning in--                                         percentage is--
    1999 or 2000..............................................     155  
    2001 or 2002..............................................     160  
    2003 or 2004..............................................     165  
    2005 and succeeding years.................................    170.] 
                  (F) Applicable percentage.--For purposes of 
                subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:
        In the case of any plan year                      The applicable
          beginning in--                                 percentage is--
          2002................................................    165   
170.    2003................................................

           *       *       *       *       *       *       *

  (9)(A) For purposes of this part, a determination of 
experience gains and losses and a valuation of the plan's 
liability shall be made not less frequently than once every 
year, except that such determination shall be made more 
frequently to the extent required in particular cases under 
regulations prescribed by the Secretary of the Treasury.
  (B)(i) Except as provided in clause (ii), the valuation 
referred to in subparagraph (A) shall be made as of a date 
within the plan year to which the valuation refers or within 
one month prior to the beginning of such year.
  (ii) The valuation referred to in subparagraph (A) may be 
made as of a date within the plan year prior to the year to 
which the valuation refers if--
          (I) an election is in effect under this clause with 
        respect to the plan; and
          (II) as of such date, the value of the assets of the 
        plan are not less than 125 percent of the plan's 
        current liability (as defined in paragraph (7)(B)).
  (iii) Information under clause (ii) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant 
differences in participants.
  (iv) An election under clause (ii), once made, shall be 
irrevocable without the consent of the Secretary of the 
Treasury.

           *       *       *       *       *       *       *


Part 4--Fiduciary Responsibility

           *       *       *       *       *       *       *


                EXEMPTIONS FROM PROHIBITED TRANSACTIONS

  Sec. 408. (a) * * *

           *       *       *       *       *       *       *

  (d)(1) * * *
  (2)(A) * * *

           *       *       *       *       *       *       *

  (C) For purposes of paragraph (1)(A), the term ``owner-
employee'' shall only include a person described in clause (ii) 
or (iii) of subparagraph (A).

           *       *       *       *       *       *       *


Part 5--Administration and Enforcement

           *       *       *       *       *       *       *


                           civil enforcement

  Sec. 502. (a) * * *

           *       *       *       *       *       *       *

  (l)(1) In the case of--
          (A) any breach of fiduciary responsibility under (or 
        other violation of) part 4 by a fiduciary, or
          (B) any knowing participation in such a breach or 
        violation by any other person,
the Secretary [shall] may assess a civil penalty against such 
fiduciary or other person in an amount [equal to] not greater 
than 20 percent of the applicable recovery amount.
  [(2) For purposes of paragraph (1), the term ``applicable 
recovery amount'' means any amount which is recovered from a 
fiduciary or other person with respect to a breach or violation 
described in paragraph (1)--
          [(A) pursuant to any settlement agreement with the 
        Secretary, or
          [(B) ordered by a court to be paid by such fiduciary 
        or other person to a plan or its participants and 
        beneficiaries in a judicial proceeding instituted by 
        the Secretary under subsection (a)(2) or (a)(5).]
  (2) For purposes of paragraph (1), the term ``applicable 
recovery amount'' means any amount which is recovered from any 
fiduciary or other person (or from any other person on behalf 
of any such fiduciary or other person) with respect to a breach 
or violation described in paragraph (1) on or after the 30th 
day following receipt by such fiduciary or other person of 
written notice from the Secretary of the violation, whether 
paid voluntarily or by order of a court in a judicial 
proceeding instituted by the Secretary under subsection (a)(2) 
or (a)(5). The Secretary may, in the Secretary's sole 
discretion, extend the 30-day period described in the preceding 
sentence.

           *       *       *       *       *       *       *

  (5) A person shall be jointly and severally liable for the 
penalty described in paragraph (1) to the same extent that such 
person is jointly and severally liable for the applicable 
recovery amount on which the penalty is based.
  (6) No penalty shall be assessed under this subsection unless 
the person against whom the penalty is assessed is given notice 
and opportunity for a hearing with respect to the violation and 
applicable recovery amount.

           *       *       *       *       *       *       *


                 national summit on retirement savings

  Sec. 517. (a) Authority To Call Summit.--Not later than July 
15, 1998, the President shall convene a National Summit on 
Retirement Income Savings at the White House, to be co-hosted 
by the President and the Speaker and the Minority Leader of the 
House of Representatives and the Majority Leader and Minority 
Leader of the Senate. Such a National Summit shall be convened 
thereafter in [2001 and 2005 on or after September 1 of each 
year involved] 2001, 2005, and 2009 in the month of September 
of each year involved. Such a National Summit shall--
          (1)  * * *

           *       *       *       *       *       *       *

  (b) Planning and Direction.--The National Summit shall be 
planned and conducted under the direction of the Secretary, in 
consultation with, and with the assistance of, the heads of 
such other Federal departments and agencies as the President 
may designate. Such assistance may include the assignment of 
personnel. The Secretary shall, in planning and conducting the 
National Summit, consult with the congressional leaders 
specified in subsection (e)(2). The Secretary shall also, in 
carrying out the Secretary's duties under this subsection, 
consult and coordinate with at least one organization made up 
of private sector businesses and associations partnered with 
Government entities to promote long-term financial security in 
retirement through savings. To effectuate the purposes of this 
paragraph, the Secretary may enter into a cooperative 
agreement, pursuant to the Federal Grant and Cooperative 
Agreement Act of 1977 (31 U.S.C. 6301 et seq.), with the 
American Savings Education Council.

           *       *       *       *       *       *       *

  (e) National Summit Participants.--
          (1) * * *
          (2) Statutorily required participation.--The 
        participants in the National Summit shall include the 
        following individuals or their designees:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) the Chairman and ranking Member of the 
                [Committee on Labor and Human Resources] 
                Committee on Health, Education, Labor, and 
                Pensions of the Senate;
                  (E)  * * *
                  [(F) the Chairman and ranking Member of the 
                Subcommittees on Labor, Health and Human 
                Services, and Education of the Senate and House 
                of Representatives; and]
                  (F) the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the House of Representatives 
                and the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;
                  (G) the Chairman and Ranking Member of the 
                Committee on Finance of the Senate;
                  (H) the Chairman and Ranking Member of the 
                Committee on Ways and Means of the House of 
                Representatives;
                  (I) the Chairman and Ranking Member of the 
                Subcommittee on Employer-Employee Relations of 
                the Committee on Education and the Workforce of 
                the House of Representatives; and
                  [(G)] (J) the parties referred to in 
                subsection (b).
          (3) Additional participants.--
                  (A) In general.--[There shall be not more 
                than 200 additional participants.] The 
                participants in the National Summit shall also 
                include additional participants appointed under 
                this subparagraph. Of such additional 
                participants--
                          (i) [one-half shall be appointed by 
                        the President,] not more than 100 
                        participants shall be appointed under 
                        this clause by the President, in 
                        consultation with the elected leaders 
                        of the President's party in Congress 
                        (either the Speaker of the House of 
                        Representatives or the Minority Leader 
                        of the House of Representatives, and 
                        either the Majority Leader or the 
                        Minority Leader of the Senate; [and]
                          (ii) [one-half shall be appointed by 
                        the elected leaders of Congress] not 
                        more than 100 participants shall be 
                        appointed under this clause by the 
                        elected leaders of Congress of the 
                        party to which the President does not 
                        belong (one-half of that allotment to 
                        be appointed by either the Speaker of 
                        the House of Representatives or the 
                        Minority Leader of the House of 
                        Representatives, and one-half of that 
                        allotment to be appointed by either the 
                        Majority Leader or the Minority Leader 
                        of the Senate)[.]; and
                          (iii) The President, in consultation 
                        with the elected leaders of Congress 
                        referred to in subsection (a), may 
                        appoint under this clause additional 
                        participants to the National Summit. 
                        The number of such additional 
                        participants appointed under this 
                        clause may not exceed the lesser of 3 
                        percent of the total number of all 
                        additional participants appointed under 
                        this paragraph, or 10. Such additional 
                        participants shall be appointed from 
                        persons nominated by the organization 
                        referred to in subsection (b)(2) which 
                        is made up of private sector businesses 
                        and associations partnered with 
                        Government entities to promote long 
                        term financial security in retirement 
                        through savings and with which the 
                        Secretary is required thereunder to 
                        consult and cooperate and shall not be 
                        Federal, State, or local government 
                        employees.
                  (B) Appointment requirements.--The additional 
                participants described in subparagraph (A) 
                shall be--
                          (i) appointed not later than [January 
                        31, 1998] May 1, 2001, May 1, 2005, and 
                        May 1, 2009, for each of the subsequent 
                        summits, respectively;

           *       *       *       *       *       *       *

  (f) National Summit Administration.--
          (1) Administration.--In administering this section, 
        the Secretary shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) make available for public comment, no 
                later than 90 days prior to the date of the 
                commencement of the National Summit, a proposed 
                agenda for the National Summit that reflects to 
                the greatest extent possible the purposes for 
                the National Summit set out in this section;

           *       *       *       *       *       *       *

  (g) Report.--The Secretary shall prepare a report, in 
consultation with the congressional leaders specified in 
subsection (e)(2), describing the activities of the National 
Summit and shall submit the report to the President, the 
Speaker and Minority Leader of the House of Representatives, 
the Majority and Minority Leaders of the Senate, and the chief 
executive officers of the States not later than 90 days after 
the date on which the National Summit is adjourned.

           *       *       *       *       *       *       *

  (i) Authorization of Appropriations.--
          (1) In general.--There is authorized to be 
        appropriated for fiscal years [beginning on or after 
        October 1, 1997] 2001, 2005, and 2009, such sums as are 
        necessary to carry out this section.

           *       *       *       *       *       *       *

          (3) Reception and representation authority.--The 
        Secretary is hereby granted reception and 
        representation authority limited specifically to the 
        events at the National Summit. The Secretary shall use 
        any private contributions accepted in connection with 
        the National Summit prior to using funds appropriated 
        for purposes of the National Summit pursuant to this 
        paragraph.

           *       *       *       *       *       *       *

  (k) Contracts.--The Secretary may enter into contracts to 
carry out the Secretary's responsibilities under this section. 
The Secretary [shall enter into a contract on a sole-source 
basis] may enter into a contract on a sole-source basis to 
ensure the timely completion of the National Summit in [fiscal 
year 1998] fiscal years 2001, 2005, and 2009.

           *       *       *       *       *       *       *


                  TITLE IV--PLAN TERMINATION INSURANCE


Subtitle A--Pension Benefit Guaranty Corporation

           *       *       *       *       *       *       *



                             PREMIUM RATES

  Sec. 4006. (a)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) Except as provided in subparagraph (C), the annual 
premium rate payable to the corporation by all plans for basic 
benefits guaranteed under this title is--
          (i) in the case of a single-employer plan, other than 
        a new single-employer plan (as defined in subparagraph 
        (F)) maintained by a small employer (as so defined), 
        for plan years beginning after December 31, 1990, an 
        amount equal to the sum of $19 plus the additional 
        premium (if any) determined under subparagraph (E) for 
        each individual who is a participant in such plan 
        during the plan year;

           *       *       *       *       *       *       *

          (iii) in the case of a multiemployer plan, for plan 
        years beginning after the date of enactment of the 
        Multiemployer Pension Plan Amendments Act of 1980, an 
        amount equal to--
                  (I) $1.40 for each participant, for the 
                first, second, third, and fourth plan years,
                  (II) $1.80 for each participant, for the 
                fifth and sixth plan years,
                  (III) $2.20 for each participant, for the 
                seventh and eighth plan years, and
                  (IV) $2.60 for each participant, for the 
                ninth plan year, and for each succeeding plan 
                year[.], and
          (iv) in the case of a new single-employer plan (as 
        defined in subparagraph (F)) maintained by a small 
        employer (as so defined) for the plan year, $5 for each 
        individual who is a participant in such plan during the 
        plan year.

           *       *       *       *       *       *       *

  (E)(i) [The] Except as provided in subparagraph (G), the 
additional premium determined under this subparagraph with 
respect to any plan for any plan year shall be an amount equal 
to the amount determined under clause (ii) divided by the 
number of participants in such plan as of the close of the 
preceding plan year.

           *       *       *       *       *       *       *

  (v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an 
amount equal to the product of the amount determined under 
clause (ii) and the applicable percentage. For purposes of this 
clause, the term ``applicable percentage'' means--
          (I) 0 percent, for the first plan year.
          (II) 20 percent, for the second plan year.
          (III) 40 percent, for the third plan year.
          (IV) 60 percent, for the fourth plan year.
          (V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined 
in section 3(35)) maintained by a contributing sponsor shall be 
treated as a new defined benefit plan for each of its first 5 
plan years if, during the 36-month period ending on the date of 
the adoption of the plan, the sponsor and each member of any 
controlled group including the sponsor (or any predecessor of 
either) did not establish or maintain a plan to which this 
title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new plan.
  (F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new 
single-employer plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption 
of such plan, the sponsor or any member of such sponsor's 
controlled group (or any predecessor of either) did not 
establish or maintain a plan to which this title applies with 
respect to which benefits were accrued for substantially the 
same employees as are in the new single-employer plan.
  (ii)(I) For purposes of this paragraph, the term ``small 
employer'' means an employer which on the first day of any plan 
year has, in aggregation with all members of the controlled 
group of such employer, 100 or fewer employees.
  (II) In the case of a plan maintained by two or more 
contributing sponsors that are not part of the same controlled 
group, the employees of all contributing sponsors and 
controlled groups of such sponsors shall be aggregated for 
purposes of determining whether any contributing sponsor is a 
small employer.
  (G)(i) In the case of an employer who has 25 or fewer 
employees on the first day of the plan year, the additional 
premium determined under subparagraph (E) for each participant 
shall not exceed $5 multiplied by the number of participants in 
the plan as of the close of the preceding plan year.
  (ii) For purposes of clause (i), whether an employer has 25 
or fewer employees on the first day of the plan year is 
determined taking into consideration all of the employees of 
all members of the contributing sponsor's controlled group. In 
the case of a plan maintained by two or more contributing 
sponsors, the employees of all contributing sponsors and their 
controlled groups shall be aggregated for purposes of 
determining whether the 25-or-fewer-employees limitation has 
been satisfied.

                          PAYMENT OF PREMIUMS

  Sec. 4007. (a) * * *
  (b)(1) If any basic benefit premium is not paid when it is 
due the corporation is authorized to assess a late payment 
charge of not more than 100 percent of the premium payment 
which was not timely paid. The preceding sentence shall not 
apply to any payment of premium made within 60 days after the 
date on which payment is due, if before such date, the 
designated payor obtains a waiver from the corporation based 
upon a showing of substantial hardship arising from the timely 
payment of the premium. The corporation is authorized to grant 
a waiver under this subsection upon application made by the 
designated payor, but the corporation may not grant a waiver if 
it appears that the designated payor will beunable to pay the 
premium within 60 days after the date on which it is due. If any 
premium is not paid by the last date prescribed for a payment, interest 
on the amount of such premium at the rate imposed under section 6601(a) 
of the Internal Revenue Code of 1986 (relating to interest on 
underpayment, nonpayment, or extensions of time for payment of tax) 
shall be paid for the period from such last date to the date paid.
  (2) The corporation is authorized to pay, subject to 
regulations prescribed by the corporation, interest on the 
amount of any overpayment of premium refunded to a designated 
payor. Interest under this paragraph shall be calculated at the 
same rate and in the same manner as interest is calculated for 
underpayments under paragraph (1).

           *       *       *       *       *       *       *


                          Subtitle B--Coverage

                             PLANS COVERED

  Sec. 4021. (a) * * *
  (b) This section does not apply to any plan--
          (1) * * *

           *       *       *       *       *       *       *

          (9) which is established and maintained exclusively 
        for substantial owners [as defined in section 
        4022(b)(6)];

           *       *       *       *       *       *       *

  (d) For purposes of subsection (b)(9), the term ``substantial 
owner'' means an individual who, at any time during the 60-
month period ending on the date the determination is being 
made--
          (1) owns the entire interest in an unincorporated 
        trade or business,
          (2) in the case of a partnership, is a partner who 
        owns, directly or indirectly, more than 10 percent of 
        either the capital interest or the profits interest in 
        such partnership, or
          (3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the 
        voting stock of that corporation or all the stock of 
        that corporation.
For purposes of paragraph (3), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).

                SINGLE-EMPLOYER PLAN BENEFITS GUARANTEED

  Sec. 4022. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  [(5)(A) For purposes of this title, the term ``substantial 
owner'' means an individual who--
          [(i) owns the entire interest in an unincorporated 
        trade or business,
          [(ii) in the case of a partnership, is a partner who 
        owns, directly or indirectly, more than 10 percent of 
        either the capital interest or the profits interest in 
        such partnership, or
          [(iii) in the case of a corporation, owns, directly 
        or indirectly, more than 10 percent in value of either 
        the voting stock of that corporation or all the stock 
        of that corporation.
For purposes of clause (iii) the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)). For 
purposes of this title an individual is also treated as a 
substantial owner with respect to a plan if, at any time within 
the 60 months preceding the date on which the determination is 
made, he was a substantial owner under the plan.
  [(B) In the case of a participant in a plan under which 
benefits have not been increased by reason of any plan 
amendments and who is covered by the plan as a substantial 
owner, the amount of benefits guaranteed under this section 
shall not exceed the product of--
          [(i) a fraction (not to exceed 1) the numerator of 
        which is the number of years the substantial owner was 
        an active participant in the plan, and the denominator 
        of which is 30, and
          [(ii) the amount of the substantial owner's monthly 
        benefits guaranteed under subsection (a) (as limited 
        under paragraph (3) of this subsection).
  [(C) In the case of a participant in a plan, other than a 
plan described in subparagraph (B), who is covered by the plan 
as a substantial owner, the amount of the benefit guaranteed 
under this section shall, under regulations prescribed by the 
corporation, treat each benefit increase attributable to a plan 
amendment as if it were provided under a new plan. The benefits 
guaranteed under this section with respect to all such 
amendments shall not exceed the amount which would be 
determined under subparagraph (B) if subparagraph (B) applied.]
  (5)(A) For purposes of this paragraph, the term ``majority 
owner'' means an individual who, at any time during the 60-
month period ending on the date the determination is being 
made--
          (i) owns the entire interest in an unincorporated 
        trade or business,
          (ii) in the case of a partnership, is a partner who 
        owns, directly or indirectly, 50 percent or more of 
        either the capital interest or the profits interest in 
        such partnership, or
          (iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the 
        voting stock of that corporation or all the stock of 
        that corporation.
For purposes of clause (iii), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).
  (B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal 
the product of--
          (i) a fraction (not to exceed 1) the numerator of 
        which is the number of years from the later of the 
        effective date or the adoption date of the plan to the 
        termination date, and the denominator of which is 10, 
        and
          (ii) the amount of benefits that would be guaranteed 
        under this section if the participant were not a 
        majority owner.

           *       *       *       *       *       *       *


Subtitle C--Terminations

           *       *       *       *       *       *       *


                           REPORTABLE EVENTS

  Sec. 4043. (a) * * *

           *       *       *       *       *       *       *

  (c) For purposes of this section a reportable event occurs--
          (1) * * *

           *       *       *       *       *       *       *

          (7) when there is a distribution under the plan to a 
        participant who is a substantial owner as defined in 
        section [4022(b)(6)] 4021(d) if--
                  (A)  * * *

           *       *       *       *       *       *       *


                          ALLOCATION OF ASSETS

  Sec. 4044. (a) In the case of the termination of a single-
employer plan, the plan administrator shall allocate the assets 
of the plan (available to provide benefits) among the 
participants and beneficiaries of the plan in the following 
order:
          (1) * * *

           *       *       *       *       *       *       *

          (4) Fourth--
                  (A) * * *
                  (B) to the additional benefits (if any) which 
                would be determined under subparagraph (A) if 
                section [4022(b)(5)] 4022(b)(5)(B) did not 
                apply.
        For purposes of this paragraph, section 4021 shall be 
        applied without regard to subsection (c) thereof.
  (b) For purposes of subsection (a)--
          (1) * * *
          (2) If the assets available for allocation under any 
        paragraph of subsection (a) (other than paragraphs 
        [(5)] (4), (5), and (6)) are insufficient to satisfy in 
        full the benefits of all individuals which are 
        described in that paragraph, the assets shall be 
        allocated pro rata among such individuals on the basis 
        of the present value (as of the termination date) of 
        their respective benefits described in that paragraph.
          (3) If assets available for allocation under 
        paragraph (4) of subsection (a) are insufficient to 
        satisfy in full the benefits of all individuals who are 
        described in that paragraph, the assets shall be 
        allocated first to benefits described in subparagraph 
        (A) of that paragraph. Any remaining assets shall then 
        be allocated to benefits described in subparagraph (B) 
        of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full 
        the benefits described in that subparagraph, the assets 
        shall be allocated pro rata among individuals on the 
        basis of the present value (as of the termination date) 
        of their respective benefits described in that 
        subparagraph.
          [(3)] (4) This paragraph applies if the assets 
        available for allocation under paragraph (5) of 
        subsection (a) are not sufficient to satisfy in full 
        the benefits of individuals described in that 
        paragraph.

           *       *       *       *       *       *       *

          [(4)] (5) If the Secretary of the Treasury determines 
        that the allocation made pursuant to this section 
        (without regard to this paragraph) results in 
        discrimination prohibited by section 401(a)(4) of the 
        Internal Revenue Code of 1986 then, if required to 
        prevent the disqualification of the plan (or any trust 
        under the plan) under section 401(a) or 403(a) of such 
        Code, the assets allocated under subsections (a)(4)(B), 
        (a)(5), and (a)(6) shall be reallocated to the extent 
        necessary to avoid such discrimination.
          [(5)] (6) The term ``mandatory contributions'' means 
        amounts contributed to the plan by a participant which 
        are required as a condition of employment, as a 
        condition of participation in such plan, or as a 
        condition of obtaining benefits under the plan 
        attributable to employer contributions. For this 
        purpose, the total amount of mandatory contributions of 
        a participant is the amount of such contributions 
        reduced (but not below zero) by the sum of the amounts 
        paid or distributed to him under the plan before its 
        termination.
          [(6)] (7) A plan may establish subclasses and 
        categories within the classes described in paragraphs 
        (1) through (6) of subsection (a) in accordance with 
        regulations prescribed by the corporation.

           *       *       *       *       *       *       *


SEC. 4050. MISSING PARTICIPANTS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Multiemployer Plans.--The corporation shall prescribe 
rules similar to the rules in subsection (a) for multiemployer 
plans covered by this title that terminate under section 4041A.
  (d) Plans Not Otherwise Subject to Title.--
          (1) Transfer to corporation.--The plan administrator 
        of a plan described in paragraph (4) may elect to 
        transfer a missing participant's benefits to the 
        corporation upon termination of the plan.
          (2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a 
        plan described in paragraph (4) shall, upon termination 
        of the plan, provide the corporation information with 
        respect to benefits of a missing participant if the 
        plan transfers such benefits--
                  (A) to the corporation, or
                  (B) to an entity other than the corporation 
                or a plan described in paragraph (4)(B)(ii).
          (3) Payment by the corporation.--If benefits of a 
        missing participant were transferred to the corporation 
        under paragraph (1), the corporation shall, upon 
        location of the participant or beneficiary, pay to the 
        participant or beneficiary the amount transferred (or 
        the appropriate survivor benefit) either--
                  (A) in a single sum (plus interest), or
                  (B) in such other form as is specified in 
                regulations of the corporation.
          (4) Plans described.--A plan is described in this 
        paragraph if--
                  (A) the plan is a pension plan (within the 
                meaning of section 3(2))--
                          (i) to which the provisions of this 
                        section do not apply (without regard to 
                        this subsection), and
                          (ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 
                        4021(b), and
                  (B) at the time the assets are to be 
                distributed upon termination, the plan--
                          (i) has missing participants, and
                          (ii) has not provided for the 
                        transfer of assets to pay the benefits 
                        of all missing participants to another 
                        pension plan (within the meaning of 
                        section 3(2)).
          (5) Certain provisions not to apply.--Subsections 
        (a)(1) and (a)(3) shall not apply to a plan described 
        in paragraph (4).
  [(c)] (e) Regulatory Authority.--The corporation shall 
prescribe such regulations as are necessary to carry out the 
purposes of this section, including rules relating to what will 
be considered a diligent search, the amount payable to the 
corporation, and the amount to be paid by the corporation.

           *       *       *       *       *       *       *

                              ----------                              


TAXPAYER RELIEF ACT OF 1997

           *       *       *       *       *       *       *


                TITLE XV--PENSIONS AND EMPLOYEE BENEFITS

Subtitle A--Simplification

           *       *       *       *       *       *       *


SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                    NONDISCRIMINATION RULES TO STATE AND LOCAL 
                    GOVERNMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Dates.--
          (1) * * *
          (2) Treatment for years beginning before date of 
        enactment.--A governmental plan (within the meaning of 
        section 414(d) of the Internal Revenue Code of 1986) 
        [maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality 
        thereof)] shall be treated as satisfying the 
        requirements of sections 401(a)(3), 401(a)(4), 
        401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and 
        (b)(12)(A)(i), and 410 of such Code for all taxable 
        years beginning before the date of enactment of this 
        Act.

           *       *       *       *       *       *       *


Subtitle B--Other Provisions Relating to Pensions and Employee Benefits

           *       *       *       *       *       *       *


SEC. 1524. DIVERSIFICATION OF SECTION 401(K) PLAN INVESTMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  [(b) Effective Date.--The amendments made by this section 
shall apply to elective deferrals for plan years beginning 
after December 31, 1998.]
  (b) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), 
        the amendments made by this section shall apply to 
        elective deferrals for plan years beginning after 
        December 31, 1998.
          (2) Nonapplication to previously acquired property.--
        The amendments made by this section shall not apply to 
        any elective deferral which is invested in assets 
        consisting of qualifying employer securities, 
        qualifying employer real property, or both, if such 
        assets were acquired before January 1, 1999.

           *       *       *       *       *       *       *

                              ----------                              


               SECTION 1114 OF THE TAX REFORM ACT OF 1986

SEC. 1114. DEFINITION OF HIGHLY COMPENSATED EMPLOYEE.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Effective Date.--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Special rule for determining highly compensated 
        employees.--For purposes of sections 401(k) and 401(m) 
        of the Internal Revenue Code of 1986, in the case of an 
        employer incorporated on December 15, 1924, if more 
        than 50 percent of its employees in the top-paid group 
        (within the meaning of section 414(q)(4) of such Code) 
        earn less than $25,000 (indexed at the same time and in 
        the same manner as under section 415(d) of such Code), 
        then the highly compensated employees shall include 
        employees described in section 414(q)(1)(C) of such 
        Code determined without regard to the level of 
        compensation of such employees. Any reference in this 
        paragraph to section 414(q) shall be treated as a 
        reference to such section as in effect on the day 
        before the date of the enactment of the Small Business 
        Job Protection Act of 1996.]

           *       *       *       *       *       *       *


                  VII. ADDITIONAL AND DISSENTING VIEWS

                            ADDITIONAL VIEWS

    We strongly support the underlying goal of H.R. 10, the 
Comprehensive Retirement Security and Pension Reform Act of 
2001, to provide a secured retirement for the working men and 
women of this country. This goal is shared by Members of both 
parties and is reflected in the level of bipartisan support 
this legislation has received. Many of the provisions that were 
included in the original bill in the last Congress, H.R. 1102, 
are noncontroversial, while others have been improved since the 
initial date of introduction of the bill. Consequently, H.R. 10 
is a more balanced bill than the previous versions. However, we 
remain concerned about the distributional effect of the 
benefits under the bill, as well as the lack of strong 
incentives for small employers to establish plans for their 
employees.
    This legislation provides us with a unique opportunity to 
respond to the pressing need for adequate and secured 
retirement savings for all workers. However, the legislation, 
in its current form, fails to accomplish this goal. Unlike 
their high-paid counterparts, low- and moderate-income workers 
would receive little or no direct help in securing adequate 
retirement savings under the bill. Because there is so much 
work left to be done in this area, and we must begin now. We 
cannot allow this opportunity to pass us by.
    H.R. 10 should provide additional incentives for increased 
retirement savings by rank and file workers, as well as 
additional incentives for small businesses to offer pension 
plans to their workers. These are two areas which continue to 
loom over us with an added sense of urgency as we face the 
imminent retirement of many baby boomers. A significant number 
from this group will face retirement with no financial 
resources other than Social Security. They will be forced into 
a retirement of poverty.
    H.R. 10 would make many changes to our current pension 
system, a system built on the assumption that Social Security 
must be supplemented by other sources of savings such as 
employment-based pensions and personal savings. Recent studies 
have shown that high-paid workers are far more likely to have 
additional retirement savings. Therefore, we must remain 
committed to enacting legislation designed to bring more 
balance into our current system. Adequate retirement savings is 
important for all working Americans.
    High-income workers who are currently saving the maximum 
permitted under our pension laws would receive great benefits 
from the provisions contained in H.R. 10. Such provisions would 
increase the limit on annual contributions to a defined 
contribution plan to $15,000, or annual additions of up to 
$40,000 for such plans. Workers who are age 50 or older would 
be able to make an annual contribution of $20,000. Workers 
participating in a defined benefit plan would receive an annual 
benefit of up to $160,000. These amounts would increase over 
time since they would be indexed for inflation.
    We believe the option to save for retirement must be 
offered to all workers. This option is too fundamental to 
creating a secured retirement not to be made available to 
everyone in our workforce. We must ensure that no segment of 
our workforce is excluded from the opportunity to secure their 
retirement.
    While H.R. 10 provides significant opportunities for those 
workers who can most afford to, and currently do, save the 
maximum amount allowed, it provides few or no opportunities to 
low- and moderate-income workers. We must continue to work 
together to improve this aspect of the bill. The pressure to 
save adequate amounts for retirement affects all workers. We 
must be committed to responding to these needs in a fair 
manner.
    The first amendment offered by Rep. Richard Neal, and 
defeated on a party-line vote, would have added an incentive 
for low- and middle-income workers either to begin saving in a 
pension plan or to increase their savings for retirement. The 
amendment would have added to H.R. 10 a Retirement Savings 
Account (RSA) credit, an important element needed to perfect 
the underlying bill.
    This amendment would have been a good first step in 
addressing the balance needed in this legislation. It would 
provide a refundable credit to low- and middle-income workers 
who participate in either an employer-sponsored plan, or an 
Individual Retirement Account (IRA). The maximum credit would 
equal 50 percent of the annual contribution limit, up to 
$2,000. The credit would be available to all qualifying 
taxpayers whose adjusted gross income does not exceed certain 
specified limits.
    The RSA proposal does not create a separate savings 
vehicle. Rather, it works with existing employer-sponsored 
plans and IRAs. This feature would provide simplicity and ease 
of administration for plan sponsors. The proposal is designed 
to promote significant savings among low- and middle-income 
workers who need it most.
    The amendment is intended to provide some help for our most 
vulnerable workers to save for their retirement. Because many 
of these workers have not yet begun to save for retirement, we 
believe a 50 percent credit would go a long way in encouraging 
them to take that important step. Many of these workers will 
begin with small account balances, but evidence has shown that 
the benefit of compounded interest, good investment returns, 
and a growing account balance will eventually win these workers 
over to the rewards of continuing to save.
    This amendment is necessary for us to meet our goal of a 
secured retirement for all workers. Low-income workers can 
bebrought into our employment-based retirement system only through some 
method other than the current ``do-it-yourself'' approach. Evidence 
confirms that our current system has failed this group of workers. 
Currently, the median retirement account balance for workers who earn 
less than $10,000 is a mere $7,500. This represents total savings, 
outside of Social Security, that must finance their many years of 
retirement. The numbers are not much better for workers who earn 
between $10,000 and $25,000. The median account balance for this group 
is a mere $8,000.
    It is clear that our current system is working very well 
for high-income workers, and this bill would ensure that these 
workers do even better. The median account balance for workers 
who earn $100,000 is $93,000. More important, this generally is 
not the only source of retirement savings for this group of 
workers.
    In addition to inadequate savings, actual participation in 
employer-sponsored plans is low among low- and middle-income 
workers. Recent statistics reveal that the participation rate 
for workers who earn between $10,000 and $25,000 is 25 percent. 
However, it is clear that participation increases with income. 
Workers who earn between $25,000 and $50,000 have a 
participation rate of fifty-eight percent. These numbers tell 
us that among low-income workers, 3 out of every 4 workers do 
not participate in a pension plan. This paints a very grim 
picture for these workers and their retirement. If we fail to 
enact legislation that would address these needs, we would have 
failed these workers.
    H.R. 10, in its current form, would continue this skewed 
distributional impact of our pension system. Under the bill, 
76.9 percent of the benefits from contribution limits and 
benefit increases would accrue to the 20 percent of workers 
with the highest incomes. On the other hand, the 20 percent of 
workers with the lowest incomes, less than $14,000, would 
receive 1 percent of the benefits. We must make take every step 
necessary to turn this around. We cannot afford to enact 
legislation that would leave any worker behind.
    The refundable aspect of the RSA credit is a key feature in 
reaching this group of workers. We believe this credit would do 
a better job of bringing more low- and middle-income workers 
into our current retirement system. Receiving a credit of up to 
$1,000 would go a long way in enabling these individuals to 
continue contributing annually to their pension plans. We 
believe the RSA proposal would have accomplished the goal of 
extending to all American workers the opportunity to establish 
a more financially secured retirement.
    The second amendment offered by Rep. Neal would have 
provided additional incentives to small businesses to offer 
pension plans to their workers. The incentives would have been 
provided through two tax credits for small employers. This 
amendment also was defeated along a party-line vote.
    The amendment would provide a 50 percent tax credit to 
small employers for up to $2,000 of their start-up costs 
associated with establishing and administering pension plans 
for their employees. This credit would be available for the 
first three years of the plan. The amendment also would provide 
eligible small employers with a 50 percent tax credit for 
certain employer contributions, up to 3 percent of 
compensation, made to a plan on behalf of its non-highly 
compensated employees.
    It is critical that we improve plan sponsorship among small 
employers because this is an important link to expanding 
coverage for workers currently without coverage. Small 
employers (100 or fewer employees) currently employ 38 million 
workers, yet less than 33 percent of these businesses offer a 
retirement plan. These workers deserve the same retirement 
security as theircounterparts who work for large companies, but 
pension coverage for these workers continues to lag far behind coverage 
for employees of large businesses.
    In a recent Small Employer Retirement survey conducted by 
the Employee Benefit Research Institute (EBRI), 65 percent of 
small employers not currently offering a pension plan listed 
the availability of tax credits as a significant factor in 
their decision on whether to offer a pension plan. The 
availability of tax credits was second in significance only to 
an increase in business profits. Sixty-five percent is a very 
substantial number. With this compelling evidence, we are 
convinced that adopting the tax credits included in the 
Amendment is the right thing to do.
    We are all aware of how small employers struggle in this 
business economy to attract and retain quality employees. They 
can succeed in this effort only if they can compete effectively 
with large businesses. The ability of small employers to offer 
pension benefits is an important element in this process and is 
as valuable to them as it is to large businesses. The unique 
challenges small employers face make effective competition more 
difficult. We must do what we can to provide a level playing 
field for all businesses in the retirement benefits area.
    In its current form, the legislation would fail to provide 
a secured and adequate retirement for all Americans. In 
addition, the bill can do more to expand pension coverage to 
the employees of small employers. We must continue to work in a 
bipartisan manner to meet these goals.

                                   Charles B. Rangel.
                                   John Lewis.
                                   Karen L. Thurman.
                                   Xavier Becerra.
                                   William J. Coyne.
                                   William J. Jefferson.
                                   Lloyd Doggett.
                                   Jim McDermott.
                                   Robert T. Matsui.
                                   Richard E. Neal.

                            DISSENTING VIEWS

    Although the idea behind H.R. 10 is to expand pension 
availability to low- and moderate-income workers, this bill 
misses its target completely. Nearly 70 percent of the IRA 
contribution changes accrue to taxpayers in the top 20 percent 
income group while only 0.1 percent of the IRA provisions 
accrue to workers in the bottom 20 percent income group. The 
provisions in the bill with respect to the pension portability 
and Section 415(b), multi-employer pension plans are welcome 
changes. However, these changes comprise less than 2 percent of 
the bill's total cost. This is not enough to offset the 
potential limits H.R. 10 imposes on access to pensions for 
small business employees.
    The Washington Post says it best in the attached opinion 
editorial (Sunday, April 29, 2001), ``A Miserable Pension 
Bill.'' I agree with the editorial that this bill ought not 
pass.

                        A Miserable Pension Bill

    The House Way and Means Committee has approved still 
another tax cut bill, the third this year. Unlike the first 
two, this one is relatively small, was not proposed by 
President Bush and has strong bipartisan support. The House is 
expected to pass it over-whelmingly this week. But that's 
unfortunate, because the bill would not produce the healthy 
result its sponsors suggest.
    The bill, is presented as a way of increasing the 
retirement savings of the middle class. But in fact the tax 
savings, an estimated $52 billion over 10 years--would go 
mainly to people whose incomes already permit them to save a 
great deal. The committee rightly observes that too many 
workers approach retirement with insufficient savings; half of 
all private-sector workers lack pension coverage. But most of 
them will continue to lack it if this bill is passed. Those who 
already have the most coverage will be eligible for more; that 
will be the main effect.
    The bill would significantly increase the amounts of money 
that can be set aside each year in tax-favored individual 
retirement and 401(k) accounts. An estimated three-fourths of 
the benefit of the bill would go to taxpayers in the highest 
income quintile, and two-fifths would go to the highest income 
5 percent. Democratic efforts to broaden the bill to benefit 
lower-income taxpayers failed. The bill also contains 
provisions that critics think would induce small employers to 
reduce pension coverage rather than expand it, as the sponsors 
suggest.
    This one won't break the bank, but neither is it likely to 
increase savings that much. For the most part, it will confer 
in the name of savings a tidy tax break on people who were 
going to save anyway. It ought not to pass.

                                                        Pete Stark.

                                
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