[House Report 117-250]
[From the U.S. Government Publishing Office]
117th Congress } { Rept. 117-250
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
RETIREMENT IMPROVEMENT AND SAVINGS ENHANCEMENT ACT OF 2021
_______
February 25, 2022.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Scott of Virginia, from the Committee on Education and Labor,
submitted the following
R E P O R T
[To accompany H.R. 5891]
The Committee on Education and Labor, to whom was referred
the bill (H.R. 5891) to improve and enhance retirement savings,
and for other purposes, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 11
Committee Action................................................. 12
Committee Views.................................................. 13
Section-by-Section Analysis...................................... 18
Explanation of Amendments........................................ 21
Application of Law to the Legislative Branch..................... 21
Unfunded Mandate Statement....................................... 21
Earmark Statement................................................ 21
Roll Call Votes.................................................. 21
Statement of Performance Goals and Objectives.................... 21
Duplication of Federal Programs.................................. 22
Hearings......................................................... 22
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 22
New Budget Authority and CBO Cost Estimate....................... 22
Committee Cost Estimate.......................................... 22
Changes in Existing Law Made by the Bill, as Reported............ 23
Committee Correspondence......................................... 252
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Retirement
Improvement and Savings Enhancement Act of 2021'' or the ``RISE Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Retirement savings lost and found.
Sec. 3. Retirement plan modernization act.
Sec. 4. Multiple employer 403(b) plans.
Sec. 5. Small immediate financial incentives for contributing to a
plan.
Sec. 6. Performance benchmarks for asset allocation funds.
Sec. 7. Pooled employer plans modification.
Sec. 8. Review of pension risk transfer interpretive bulletin.
Sec. 9. Review and report to congress relating to reporting and
disclosure requirements.
Sec. 10. Eliminating unnecessary plan requirements related to
unenrolled participants.
Sec. 11. Recovery of retirement plan overpayments.
Sec. 12. Improving coverage for part-time workers.
SEC. 2. RETIREMENT SAVINGS LOST AND FOUND.
(a) Establishment of Retirement Savings Lost and Found.--Part 5 of
title I of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1341 et seq.) is amended by adding at the end the following:
``SEC. 523. RETIREMENT SAVINGS LOST AND FOUND.
``(a) Establishment.--
``(1) In general.--Not later than 2 years after the date of
the enactment of this section, the Secretary of Labor, in
consultation with the Secretary of the Treasury, shall
establish an online searchable database (to be managed by the
Department of Labor in accordance with this section) to be
known as the `Retirement Savings Lost and Found'. The
Retirement Savings Lost and Found shall--
``(A) allow an individual to search for information
that enables the individual to locate the administrator
of any plan described in paragraph (2) with respect to
which the individual is or was a participant or
beneficiary, and provide contact information for the
administrator of any such plan;
``(B) allow the Department of Labor to assist such an
individual in locating any such plan of the individual;
and
``(C) allow the Department of Labor to make any
necessary changes to contact information on record for
the administrator based on any changes to the plan due
to merger or consolidation of the plan with any other
plan, division of the plan into two or more plans,
bankruptcy, termination, change in name of the plan,
change in name or address of the administrator, or
other causes.
The Retirement Savings Lost and Found established under this
paragraph shall include information reported under this section
and other relevant information obtained by the Department of
Labor.
``(2) Plans described.--A plan described in this paragraph is
a plan to which the vesting standards of section 203 apply.
``(b) Administration.--The Retirement Savings Lost and Found
established under subsection (a) shall provide individuals described in
subsection (a)(1) only with the ability to search for information that
enables the individual to locate the administrator and contact
information for the administrator of any plan with respect to which the
individual is or was a participant or beneficiary, sufficient to allow
the individual to locate the individual's plan in order to recover any
benefit owing to the individual under the plan.
``(c) Safeguarding Participant Privacy and Security.--In establishing
the Retirement Savings Lost and Found under subsection (a), the
Department of Labor shall take all necessary and proper precautions to
ensure that individuals' plan information maintained by the Retirement
Savings Lost and Found is protected.
``(d) Definition of Administrator.--For purposes of this section and
section 523, the term `administrator' has the meaning given such term
in section 3(16)(A).
``(e) Information Collection From Plans.--Effective with respect to
plan years beginning after the second December 31 occurring after the
date of the enactment of this subsection, the administrator of a plan
to which the vesting standards of section 203 apply shall submit to the
Department of Labor, at such time and in such form and manner as is
prescribed in regulations--
``(1) the information described in paragraphs (1) through (4)
of section 6057(b) of the Internal Revenue Code of 1986;
``(2) the information described in subparagraphs (A), (B),
(E), and (F) of section 6057(a)(2) of the Internal Revenue Code
of 1986; and
``(3) such other information as the Secretary of Labor may
require.
``(f) Information Collection From Federal Agencies.--The Secretary of
Labor is authorized to access and receive information collected by
other Federal agencies that may be necessary to perform work related to
the Retirement Savings Lost and Found. Such necessary and appropriate
information, which shall be furnished to the Secretary of Labor on
request, includes information covered by section 6103 of the Internal
Revenue Code of 1986 and section 205(r) of the Social Security Act.
``(g) Program Integrity Audit.--On an annual basis for each of the
first 5 years beginning one year after the establishment of the
database in subsection (a)(1) and every 5 years thereafter, the
Inspector General of the Department of Labor shall conduct an audit of
the administration of the Retirement Savings Lost and Found.''.
(b) Conforming Amendment.--The table of contents for the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.) is
amended by inserting after the matter relating to section 521 the
following:
``Sec. 523.Retirement Savings Lost and Found.''.
SEC. 3. RETIREMENT PLAN MODERNIZATION ACT.
Section 203(e)(1) of the Employee Retirement Income Security Act of
1974 and sections 401(a)(31)(B)(ii) and 411(a)(11)(A) of the Internal
Revenue Code of 1986 and are each amended by striking ``$5,000'' and
inserting ``$7,000''.
SEC. 4. MULTIPLE EMPLOYER 403(B) PLANS.
(a) In General.--Section 403(b) of the Internal Revenue Code of 1986
is amended by adding at the end the following new paragraph:
``(15) Multiple employer plans.--
``(A) In general.--Except in the case of a church
plan, this subsection shall not be treated as failing
to apply to an annuity contract solely by reason of
such contract being purchased under a plan maintained
by more than 1 employer.
``(B) Treatment of employers failing to meet
requirements of plan.--
``(i) In general.--In the case of a plan
maintained by more than 1 employer, this
subsection shall not be treated as failing to
apply to an annuity contract held under such
plan merely because of one or more employers
failing to meet the requirements of this
subsection if such plan satisfies rules similar
to the rules of section 413(e)(2) with respect
to any such employer failure.
``(ii) Additional requirements in case of
non-governmental plans.--A plan shall not be
treated as meeting the requirements of this
subparagraph unless the plan meets the
requirements of subparagraph (A) or (B) of
section 413(e)(1), except in the case of a
multiple employer plan maintained solely by any
of the following: A State, a political
subdivision of a State, or an agency or
instrumentality of any one or more of the
foregoing.''.
(b) Annual Registration for 403(b) Multiple Employer Plan.--Section
6057 of the Internal Revenue Code of 1986 is amended by redesignating
subsection (g) as subsection (h) and by inserting after subsection (f)
the following new subsection:
``(g) 403(b) Multiple Employer Plans Treated as One Plan.--In the
case of annuity contracts to which this section applies and to which
section 403(b) applies by reason of the plan under which such contracts
are purchased meeting the requirements of paragraph (15) thereof, such
plan shall be treated as a single plan for purposes of this section.''.
(c) Annual Information Returns for 403(b) Multiple Employer Plan.--
Section 6058 of the Internal Revenue Code of 1986 is amended by
redesignating subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f) 403(b) Multiple Employer Plans Treated as One Plan.--In the
case of annuity contracts to which this section applies and to which
section 403(b) applies by reason of the plan under which such contracts
are purchased meeting the requirements of paragraph (15) thereof, such
plan shall be treated as a single plan for purposes of this section.''.
(d) Amendments to Employee Retirement Income Security Act of 1974.--
(1) In general.--Section 3(43)(A) of the Employee Retirement
Income Security Act of 1974 is amended--
(A) in clause (ii), by striking ``section 501(a) of
such Code or'' and inserting ``section 501(a) of such
Code, a plan that consists of contracts described in
section 403(b) of such Code, or''; and
(B) in the flush text at the end, by striking ``the
plan.'' and inserting ``the plan, but such term shall
include any program (other than a governmental plan)
maintained for the benefit of the employees of more
than 1 employer that consists of contracts described in
section 403(b) of such Code and that meets the
requirements of subparagraph (A) or (B) of section
413(e)(1) of such Code.''.
(2) Conforming amendments.--Sections 3(43)(B)(v)(II) and
3(44)(A)(i)(I) of the Employee Retirement Income Security Act
of 1974 are each amended by striking ``section 401(a) of such
Code or'' and inserting ``section 401(a) of such Code, a plan
that consists of contracts described in section 403(b) of such
Code, or''.
(e) Regulations Relating to Plan Termination.--The Secretary of the
Treasury (or the Secretary's designee) shall prescribe such regulations
as may be necessary to clarify the treatment of a plan termination by
an employer in the case of plans to which section 403(b)(15) of the
Internal Revenue Code of 1986 applies.
(f) Modification of Model Plan Language, etc.--
(1) Plan notifications.--The Secretary of the Treasury (or
the Secretary's designee) shall modify the model plan language
published under section 413(e)(5) of the Internal Revenue Code
of 1986 to include language that notifies participating
employers described in section 501(c)(3), and which are exempt
from tax under section 501(a), that the plan is subject to the
Employee Retirement Income Security Act of 1974 and that such
employer is a plan sponsor with respect to its employees
participating in the multiple employer plan and, as such, has
certain fiduciary duties with respect to the plan and to its
employees.
(2) Model plans for multiple employer 403(b) non-governmental
plans.--For plans to which section 403(b)(15)(A) of the
Internal Revenue Code of 1986 applies (other than a plan
maintained for its employees by a State, a political
subdivision of a State, or an agency or instrumentality of any
one or more of the foregoing), the Secretary of the Treasury
shall publish model plan language similar to model plan
language published under section 413(e)(5) of such Code.
(3) Educational outreach to employers exempt from tax.--The
Secretary of the Treasury shall provide education and outreach
to increase awareness to employers described in section
501(c)(3) of the Internal Revenue Code of 1986, and which are
exempt from tax under section 501(a) of such Code, that
multiple employer plans are subject to the Employee Retirement
Income Security Act of 1974 and that such employer is a plan
sponsor with respect to its employees participating in the
multiple employer plan and, as such, has certain fiduciary
duties with respect to the plan and to its employees.
(g) No Inference With Respect to Church Plans.--Regarding any
application of section 403(b) of the Internal Revenue Code of 1986 to
an annuity contract purchased under a church plan (as defined in
section 414(e) of such Code) maintained by more than 1 employer, or to
any application of rules similar to section 413(e) of such Code to such
a plan, no inference shall be made from section 403(b)(15)(A) of such
Code (as added by this Act) not applying to such plans.
(h) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2021.
(2) Rule of construction.--Nothing in the amendments made by
subsection (a) shall be construed as limiting the authority of
the Secretary of the Treasury or the Secretary's delegate
(determined without regard to such amendment) to provide for
the proper treatment of a failure to meet any requirement
applicable under the Internal Revenue Code of 1986 with respect
to one employer (and its employees) in the case of a plan to
which section 403(b)(15) of the Internal Revenue Code of 1986
applies.
SEC. 5. SMALL IMMEDIATE FINANCIAL INCENTIVES FOR CONTRIBUTING TO A
PLAN.
(a) In General.--Subparagraph (A) of section 401(k)(4) of the
Internal Revenue Code of 1986 is amended by inserting ``(other than a
de minimis financial incentive)'' after ``any other benefit''.
(b) Section 403(b) Plans.--Subparagraph (A) of section 403(b)(12) of
the Internal Revenue Code of 1986, is further amended by adding at the
end the following: ``A plan shall not fail to satisfy clause (ii)
solely by reason of offering a de minimis financial incentive to
employees to elect to have the employer make contributions pursuant to
a salary reduction agreement.''.
(c) Exemption From Prohibited Transaction Rules.--Subsection (d) of
section 4975 of the Internal Revenue Code of 1986 is amended by
striking ``or'' at the end of paragraph (22), by striking the period at
the end of paragraph (23) and inserting ``, or'', and by adding at the
end the following new paragraph:
``(24) the provision of a de minimis financial incentive
described in section 401(k)(4)(A) or 403(b)(12)(A).''.
(d) Amendment of Employee Retirement Income Security Act of 1974.--
Subsection (b) of section 408 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1108(b)) is amended by adding at the
end the following new paragraph:
``(21) The provision of a de minimis financial incentive
described in section 401(k)(4)(A) or section 403(b)(12)(A) of
the Internal Revenue Code of 1986.''.
(e) Effective Date.--The amendments made by this section shall apply
with respect to plan years beginning after the date of enactment of
this Act.
SEC. 6. PERFORMANCE BENCHMARKS FOR ASSET ALLOCATION FUNDS.
(a) In General.--Not later than 1 year after the date of enactment of
this Act, the Secretary of Labor shall provide that, in the case of a
designated investment alternative that contains a mix of asset classes,
the administrator of a plan may, but is not required to, use a
benchmark that is a blend of different broad-based securities market
indices if--
(1) the blend is reasonably representative of the asset class
holdings of the designated investment alternative;
(2) for purposes of determining the blend's returns for 1-,
5-, and 10-calendar-year periods (or for the life of the
alternative, if shorter), the blend is modified at least once
per year to reflect changes in the asset class holdings of the
designated investment alternative;
(3) the blend is furnished to participants and beneficiaries
in a manner that is reasonably designed to be understandable;
and
(4) each securities market index that is used for an
associated asset class would separately satisfy the
requirements of such regulation for such asset class.
(b) Study.--Not later than 3 years after the date of enactment of
this Act, the Secretary of Labor shall deliver a report to the
Committees on Finance and Health, Education, Labor, and Pensions of the
Senate and the Committees on Ways and Means and Education and Labor of
the House of Representatives regarding the utilization, effectiveness,
and participants' understanding of the benchmarking requirements under
this section.
SEC. 7. POOLED EMPLOYER PLANS MODIFICATION.
Section 3(43)(B)(ii) of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1002(43)(B)(ii)) is amended to read as follows:
``(ii) designate a named fiduciary (other
than an employer in the plan) to be responsible
for collecting contributions to the plan and
require such fiduciary to implement written
contribution collection procedures that are
reasonable, diligent, and systematic;''.
SEC. 8. REVIEW OF PENSION RISK TRANSFER INTERPRETIVE BULLETIN.
Not later than 1 year after the date of enactment of this Act, the
Secretary of Labor shall--
(1) review section 2509.95-1 of title 29, Code of Federal
Regulations (relating to the fiduciary standards under the
Employee Retirement Income Security Act of 1974 when selecting
an annuity provider for a defined benefit pension plan) to
determine whether amendments to such section are warranted; and
(2) report to Congress on the findings of such review,
including an assessment of any risk to participants.
SEC. 9. REVIEW AND REPORT TO CONGRESS RELATING TO REPORTING AND
DISCLOSURE REQUIREMENTS.
(a) Study.--As soon as practicable after the date of enactment of
this Act, the Secretary of Labor, the Secretary of the Treasury, and
the Director of the Pension Benefit Guaranty Corporation shall review
the reporting and disclosure requirements as applicable to each such
agency head, of--
(1) the Employee Retirement Income Security Act of 1974
applicable to pension plans (as defined in section 3(2) of such
Act (29 U.S.C. 1002(2)); and
(2) the Internal Revenue Code of 1986 applicable to qualified
retirement plans (as defined in section 4974(c) of such Code,
without regard to paragraphs (4) and (5) of such section).
(b) Report.--
(1) In general.--Not later than 2 years after the date of
enactment of this Act, the Secretary of Labor, the Secretary of
the Treasury, and the Director of the Pension Benefit Guaranty
Corporation, jointly, and after consultation with a balanced
group of participant and employer representatives, shall with
respect to plans referenced in subsection (a) report on the
effectiveness of the applicable reporting and disclosure
requirements and make such recommendations as may be
appropriate to the Committee on Education and Labor and the
Committee on Ways and Means of the House of Representatives and
the Committee on Health, Education, Labor, and Pensions and the
Committee on Finance of the Senate to consolidate, simplify,
standardize, and improve such requirements so as to simplify
reporting for such plans and ensure that plans can furnish and
participants and beneficiaries timely receive and better
understand the information they need to monitor their plans,
plan for retirement, and obtain the benefits they have earned.
(2) Analysis of effectiveness.--To assess the effectiveness
of the applicable reporting and disclosure requirements, the
report shall include an analysis, based on plan data, of how
participants and beneficiaries are providing preferred contact
information, the methods by which plan sponsors and plans are
furnishing disclosures, and the rate at which participants and
beneficiaries (grouped by key demographics) are receiving,
accessing, understanding, and retaining disclosures.
(3) Collection of information.--The agencies shall conduct
appropriate surveys and data collection to obtain any needed
information.
SEC. 10. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
(a) Amendment of Employee Retirement Income Security Act of 1974.--
(1) In general.--Part 1 of subtitle B of subchapter I of the
Employee Retirement Income Security Act of 1974 is amended by
redesignating section 111 as section 112 and by inserting after
section 110 the following new section:
``SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
``(a) In General.--Notwithstanding any other provision of this title,
with respect to any individual account plan, no disclosure, notice, or
other plan document (other than the notices and documents described in
paragraphs (1) and (2)) shall be required to be furnished under this
title to any unenrolled participant if the unenrolled participant
receives--
``(1) an annual reminder notice of such participant's
eligibility to participate in such plan and any applicable
election deadlines under the plan; and
``(2) any document requested by such participant that the
participant would be entitled to receive notwithstanding this
section.
``(b) Unenrolled Participant.--For purposes of this section, the term
`unenrolled participant' means an employee who--
``(1) is eligible to participate in an individual account
plan;
``(2) has received the summary plan description pursuant to
section 104(b) and any other eligibility notices required to be
furnished under this title in connection with such
participant's initial eligibility to participate in such plan;
``(3) is not participating in such plan;
``(4) does not have a balance in the plan; and
``(5) satisfies such other criteria as the Secretary of Labor
may determine appropriate, as prescribed in guidance issued in
consultation with the Secretary of Treasury.
For purposes of this section, any eligibility to participate in the
plan following any period for which such employee was not eligible to
participate shall be treated as initial eligibility.
``(c) Annual Reminder Notice.--For purposes of this section, the term
`annual reminder notice' means a notice provided in accordance with
section 2520.104b-1 of title 29, Code of Federal Regulations (or any
successor regulation), which--
``(1) is furnished in connection with the annual open season
election period with respect to the plan or, if there is no
such period, is furnished within a reasonable period prior to
the beginning of each plan year;
``(2) notifies the unenrolled participant of--
``(A) the unenrolled participant's eligibility to
participate in the plan; and
``(B) the key benefits and rights under the plan,
with a focus on employer contributions and vesting
provisions; and
``(3) provides such information in a prominent manner
calculated to be understood by the average participant.''.
(2) Clerical amendment.--The table of contents in section 1
of the Employee Retirement Income Security Act of 1974 is
amended by striking the item relating to section 111 and by
inserting after the item relating to section 110 the following
new items:
``Sec. 111. Eliminating unnecessary plan requirements related to
unenrolled participants.
``Sec. 112. Repeal and effective date.''.
(b) Amendment of Internal Revenue Code of 1986.--Section 414 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subsection:
``(aa) Eliminating Unnecessary Plan Requirements Related to
Unenrolled Participants.--
``(1) In general.--Notwithstanding any other provision of
this title, with respect to any defined contribution plan, no
disclosure, notice, or other plan document (other than the
notices and documents described in subparagraphs (A) and (B))
shall be required to be furnished under this title to any
unenrolled participant if the unenrolled participant receives--
``(A) an annual reminder notice of such participant's
eligibility to participate in such plan and any
applicable election deadlines under the plan, and
``(B) any document requested by such participant that
the participant would be entitled to receive
notwithstanding this subsection.
``(2) Unenrolled participant.--For purposes of this
subsection, the term `unenrolled participant' means an employee
who--
``(A) is eligible to participate in a defined
contribution plan,
``(B) has received the summary plan description
pursuant to section 104(b) of the Employee Retirement
Income Security Act of 1974 and any other eligibility
notices in connection with such participant's initial
eligibility to participate in such plan,
``(C) is not participating in such plan,
``(D) does not have a balance in the plan, and
``(E) satisfies such other criteria as the Secretary
of the Treasury may determine appropriate, as
prescribed in guidance issued in consultation with the
Secretary of Labor.
For purposes of this subsection, any eligibility to participate
in the plan following any period for which such employee was
not eligible to participate shall be treated as initial
eligibility.
``(3) Annual reminder notice.--For purposes of this
subsection, the term `annual reminder notice' means the notice
described in section 111(c) of the Employee Retirement Income
Security Act of 1974.''.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2021.
SEC. 11. RECOVERY OF RETIREMENT PLAN OVERPAYMENTS.
(a) Overpayments Under ERISA.--Section 206 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1056) is amended by adding at
the end the following new subsection:
``(h) Special Rules Applicable to Benefit Overpayments.--
``(1) General rule.--In the case of an inadvertent benefit
overpayment by any pension plan, the responsible plan fiduciary
shall not be considered to have failed to comply with the
requirements of this title merely because such fiduciary
determines, in the exercise of its fiduciary discretion, not to
seek recovery of all or part of such overpayment from--
``(A) any participant or beneficiary,
``(B) any plan sponsor of, or contributing employer
to--
``(i) an individual account plan, provided
that the amount needed to prevent or restore
any impermissible forfeiture from any
participant's or beneficiary's account arising
in connection with the overpayment is,
separately from and independently of the
overpayment, allocated to such account pursuant
to the nonforfeitability requirements of
section 203 (for example, out of the plan's
forfeiture account, additional employer
contributions, or recoveries from those
responsible for the overpayment), or
``(ii) a defined benefit pension plan subject
to the funding rules in part 3 of this subtitle
B, unless the responsible plan fiduciary
determines, in the exercise of its fiduciary
discretion, that failure to recover all or part
of the overpayment faster than required under
such funding rules would materially affect the
plan's ability to pay benefits due to other
participants and beneficiaries, or
``(C) any fiduciary of the plan, other than a
fiduciary (including a plan sponsor or contributing
employer acting in a fiduciary capacity) whose breach
of its fiduciary duties resulted in such overpayment,
provided that if the plan has established prudent
procedures to prevent and minimize overpayment of
benefits and the relevant plan fiduciaries have
followed such procedures, an inadvertent benefit
overpayment will not give rise to a breach of fiduciary
duty.
``(2) Reduction in future benefit payments and recovery from
responsible party.--Paragraph (1) shall not fail to apply with
respect to any inadvertent benefit overpayment merely because,
after discovering such overpayment, the responsible plan
fiduciary--
``(A) reduces future benefit payments to the correct
amount provided for under the terms of the plan, or
``(B) seeks recovery from the person or persons
responsible for the overpayment.
``(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation imposed
on it to make contributions to a plan to meet the minimum
funding standards under part 3 of this subtitle B or to prevent
or restore an impermissible forfeiture in accordance with
section 203.
``(4) Recoupment from participants and beneficiaries.--If the
responsible plan fiduciary, in the exercise of its fiduciary
discretion, decides to seek recoupment from a participant or
beneficiary of all or part of an inadvertent benefit
overpayment made by the plan to such participant or
beneficiary, it may do so, subject to the following conditions:
``(A) No interest or other additional amounts (such
as collection costs or fees) are sought on overpaid
amounts for any period before or after the date of
correction of such overpayment.
``(B) If the plan seeks to recoup past overpayments
of a non-decreasing periodic benefit by reducing future
benefit payments--
``(i) the reduction ceases after the plan has
recovered the full dollar amount of the
overpayment,
``(ii) the amount recouped each calendar year
does not exceed 10 percent of the full dollar
amount of the overpayment, and
``(iii) future benefit payments are not
reduced to below 90 percent of the periodic
amount otherwise payable under the terms of the
plan.
Alternatively, if the plan seeks to recoup past
overpayments of a non-decreasing periodic benefit
through one or more installment payments, the sum of
such installment payments in any calendar year does not
exceed the sum of the reductions that would be
permitted in such year under the preceding sentence.
``(C) If the plan seeks to recoup past overpayments
of a benefit other than a non-decreasing periodic
benefit, the plan satisfies requirements developed by
the Secretary for purposes of this subparagraph.
``(D) Efforts to recoup overpayments are--
``(i) not accompanied by threats of
litigation, unless the responsible plan
fiduciary reasonably believes it could prevail
in a civil action brought in Federal or State
court to recoup the overpayments, and
``(ii) not made through a collection agency
or similar third party, unless the participant
or beneficiary ignores or rejects efforts to
recoup the overpayment following either a final
judgment in Federal or State court or a
settlement between the participant or
beneficiary and the plan, in either case
authorizing such recoupment.
``(E) Recoupment of past overpayments to a
participant is not sought from any beneficiary of the
participant, including a spouse, surviving spouse,
former spouse, or other beneficiary.
``(F) Recoupment may not be sought if the first
overpayment occurred more than 3 years before the
participant or beneficiary is first notified in writing
of the error.
``(G) A participant or beneficiary from whom
recoupment is sought is entitled to contest all or part
of the recoupment pursuant to the plan's claims
procedures.
``(H) In determining the amount of recoupment to
seek, the responsible plan fiduciary may take into
account the hardship that recoupment likely would
impose on the participant or beneficiary.
``(5) Effect of culpability.--Subparagraphs (A) through (F)
of paragraph (4) shall not apply to protect a participant or
beneficiary who is culpable. For purposes of this paragraph, a
participant or beneficiary is culpable if the individual bears
responsibility for the overpayment (such as through
misrepresentations or omissions that led to the overpayment),
or if the individual knew, or had good reason to know under the
circumstances, that the benefit payment or payments were
materially in excess of the correct amount. Notwithstanding the
preceding sentence, an individual is not culpable merely
because the individual believed the benefit payment or payments
were or might be in excess of the correct amount, if the
individual raised that question with an authorized plan
representative and was told the payment or payments were not in
excess of the correct amount. With respect to a culpable
participant or beneficiary, efforts to recoup overpayments
shall not be made through threats of litigation, unless a
lawyer for the plan could make the representations required
under Rule 11 of the Federal Rules of Civil Procedure if the
litigation were brought in Federal court.''.
(b) Overpayments Under Internal Revenue Code of 1986.--
(1) Qualification requirements.--Section 414 of the Internal
Revenue Code of 1986, is further amended by adding at the end
the following new subsection:
``(bb) Special Rules Applicable to Benefit Overpayments.--
``(1) In general.--A plan shall not fail to be treated as
described in clause (i), (ii), (iii), or (iv) of section
219(g)(5)(A) (and shall not fail to be treated as satisfying
the requirements of section 401(a) or 403) merely because--
``(A) the plan fails to obtain payment from any
participant, beneficiary, employer, plan sponsor,
fiduciary, or other party on account of any inadvertent
benefit overpayment made by the plan, or
``(B) the plan sponsor amends the plan to reduce past
or future benefit payments to affected participants and
beneficiaries in order to adjust for prior inadvertent
benefit overpayments.
``(2) Reduction in future benefit payments and recovery from
responsible party.--Paragraph (1) shall not fail to apply to a
plan merely because, after discovering a benefit overpayment,
such plan--
``(A) reduces future benefit payments to the correct
amount provided for under the terms of the plan, or
``(B) seeks recovery from the person or persons
responsible for such overpayment.
``(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation imposed
on it to make contributions to a plan to meet the minimum
funding standards under sections 412 and 430 or to prevent or
restore an impermissible forfeiture in accordance with section
411.
``(4) Observance of benefit limitations.--Notwithstanding
paragraph (1), a plan to which paragraph (1) applies shall
observe any limitations imposed on it by section 401(a)(17) or
415. The plan may enforce such limitations using any method
approved by the Secretary of the Treasury for recouping
benefits previously paid or allocations previously made in
excess of such limitations.
``(5) Coordination with other qualification requirements.--
The Secretary of the Treasury may issue regulations or other
guidance of general applicability specifying how benefit
overpayments and their recoupment or non-recoupment from a
participant or beneficiary shall be taken into account for
purposes of satisfying any requirement applicable to a plan to
which paragraph (1) applies.''.
(2) Rollovers.--Section 402(c) of such Code is amended by
adding at the end the following new paragraph:
``(12) In the case of an inadvertent benefit overpayment from
a plan to which section 414(bb)(1) applies that is transferred
to an eligible retirement plan by or on behalf of a participant
or beneficiary--
``(A) the portion of such overpayment with respect to
which recoupment is not sought on behalf of the plan
shall be treated as having been paid in an eligible
rollover distribution if the payment would have been an
eligible rollover distribution but for being an
overpayment, and
``(B) the portion of such overpayment with respect to
which recoupment is sought on behalf of the plan shall
be permitted to be returned to such plan and in such
case shall be treated as an eligible rollover
distribution transferred to such plan by the
participant or beneficiary who received such
overpayment (and the plans making and receiving such
transfer shall be treated as permitting such transfer).
In any case in which recoupment is sought on behalf of the plan
but is disputed by the participant or beneficiary who received
such overpayment, such dispute shall be subject to the claims
procedures of the plan that made such overpayment, such plan
shall notify the plan receiving the rollover of such dispute,
and the plan receiving the rollover shall retain such
overpayment on behalf of the participant or beneficiary (and
shall be entitled to treat such overpayment as plan assets)
pending the outcome of such procedures.''.
(c) Effective Date.--The amendments made by this section shall apply
as of the date of the enactment of this Act.
(d) Certain Actions Before Date of Enactment.--Plans, fiduciaries,
employers, and plan sponsors are entitled to rely on--
(1) a good faith interpretation of then existing
administrative guidance for inadvertent benefit overpayment
recoupments and recoveries that commenced before the date of
enactment of this Act, and
(2) determinations made before the date of enactment of this
Act by the responsible plan fiduciary, in the exercise of its
fiduciary discretion, not to seek recoupment or recovery of all
or part of an inadvertent benefit overpayment.
In the case of a benefit overpayment that occurred prior to the date of
enactment of this Act, any installment payments by the participant or
beneficiary to the plan or any reduction in periodic benefit payments
to the participant or beneficiary, which were made in recoupment of
such overpayment and which commenced prior to such date, may continue
after such date. Nothing in this subsection shall relieve a fiduciary
from responsibility for an overpayment that resulted from a breach of
its fiduciary duties.
SEC. 12. IMPROVING COVERAGE FOR PART-TIME WORKERS.
(a) Amendment of Employee Retirement Income Security Act of 1974.--
(1) In general.--Section 202 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1052) is amended by
adding at the end the following new subsection:
``(c) Special Rule for Certain Part-time Employees.--
``(1) In general.--A pension plan that includes either a
qualified cash or deferred arrangement (as defined in section
401(k) of the Internal Revenue Code of 1986) or a salary
reduction agreement (as described in section 403(b) of such
Code) shall not require, as a condition of participation in the
arrangement or agreement, that an employee complete a period of
service with the employer (or employers) maintaining the plan
extending beyond the close of the earlier of--
``(A) the period permitted under subsection (a)(1)
(determined without regard to subparagraph (B)(i)
thereof); or
``(B) the first 24-month period--
``(i) consisting of 2 consecutive 12-month
periods during each of which the employee has
at least 500 hours of service; and
``(ii) by the close of which the employee has
attained the age of 21.
``(2) Exception.--Paragraph (1)(B) shall not apply to any
employee described in section 410(b)(3) of the Internal Revenue
Code of 1986.
``(3) Coordination with other rules.--
``(A) In general.--In the case of employees who are
eligible to participate in the arrangement or agreement
solely by reason of paragraph (1)(B):
``(i) Exclusions.--An employer may elect to
exclude such employees from the application of
subsections (a)(4), (k)(3), (k)(12), (k)(13),
(k)(15)(B)(i)(I), and (m)(2) of section 401 of
the Internal Revenue Code of 1986 and section
410(b) of such Code.
``(ii) Time of participation.--The rules of
subsection (a)(4) shall apply to such
employees.
``(B) Top-heavy rules.--An employer may elect to
exclude all employees who are eligible to participate
in a plan maintained by the employer solely by reason
of paragraph (1)(B) from the application of the vesting
and benefit requirements under subsections (b) and (c)
of section 416 of the Internal Revenue Code of 1986.
``(4) 12-month period.--For purposes of this subsection, 12-
month periods shall be determined in the same manner as under
the last sentence of subsection (a)(3)(A), except that 12-month
periods beginning before January 1, 2021, shall not be taken
into account.''
(2) Vesting.--Section 203(b) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended by
redesignating paragraph (4) as paragraph (5) and by inserting
after paragraph (3) the following new paragraph:
``(4) Part-time employees.--For purposes of determining
whether an employee who is eligible to participate in a
qualified cash or deferred arrangement or a salary reduction
agreement under a plan solely by reason of section 202(c)(1)(B)
has a nonforfeitable right to employer contributions--
``(A) except as provided in subparagraph (B), each
12-month period for which the employee has at least 500
hours of service shall be treated as a year of service;
``(B) paragraph (3) shall be applied by substituting
`at least 500 hours of service' for `more than 500
hours of service' in subparagraph (A) thereof; and
``(C) 12-month periods occurring before the 24-month
period described in section 202(c)(1)(B) shall not be
treated as years of service.
For purposes of this paragraph, 12-month periods shall be
determined in the same manner as under the last sentence of
section 202(a)(3)(A), except that 12-month periods beginning
before January 1, 2021, shall not be taken into account.''.
(3) Pre-2021 service.--Section 112(b) of the Setting Every
Community Up for Retirement Enhancement Act of 2019 (26 U.S.C.
401 note) is amended by striking ``section 401(k)(2)(D)(ii)''
and inserting ``paragraphs (2)(D)(ii) and (15)(B)(iii) of
section 401(k)''.
(b) Conforming Amendments to Internal Revenue Code of 1986.--
(1) In general.--Section 410(a) of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
paragraph:
``(6) Special rule for certain part-time employees.--
``(A) In general.--In the case of a plan that
includes either a qualified cash or deferred
arrangement (as defined in section 401(k)), a trust of
which such plan is a part shall not constitute a
qualified trust under section 401(a) if the plan
requires, as a condition of participation in the plan
or arrangement, that an employee complete a period of
service with the employer (or employers) maintaining
the plan extending beyond the close of the earlier of--
``(i) the period permitted under paragraph
(1) (determined without regard to subparagraph
(B)(i) thereof), or
``(ii) the first 24-month period--
``(I) consisting of 2 consecutive 12-
month periods during each of which the
employee has at least 500 hours of
service, and
``(II) by the close of which the
employee has attained the age of 21.
``(B) Exception.--Subparagraph (A)(ii) shall not
apply to any employee described in section 410(b)(3).
``(C) Coordination with other rules.--
``(i) In general.--In the case of employees
who are eligible to participate in the
arrangement or agreement solely by reason of
subparagraph (A)(ii)--
``(I) Exclusions.--An employer may
elect to exclude such employees from
the application of subsection (b) and
of subsections (a)(4), (k)(3), (k)(12),
(k)(13), (k)(15)(B)(i)(I), and (m)(2)
of section 401.
``(II) Time of participation.--The
rules of paragraph (4) shall apply to
such employees.
``(ii) Top-heavy rules.--An employer may
elect to exclude all employees who are eligible
to participate in a plan maintained by the
employer solely by reason of subparagraph
(A)(ii) from the application of the vesting and
benefit requirements under subsections (b) and
(c) of section 416.
``(D) 12-month period.--For purposes of this
paragraph, 12-month periods shall be determined in the
same manner as under the last sentence of paragraph
(3)(A), except that 12-month periods beginning before
January 1, 2021, shall not be taken into account.''.
(2) Vesting.--Section 410(a) of the Internal Revenue Code of
1986 is amended by adding at the end the following:
``(7) Part-time employees.--For purposes of determining
whether an employee who is eligible to participate in a
qualified cash or deferred arrangement or a salary reduction
agreement under a plan solely by reason of paragraph (6)(A)(ii)
has a nonforfeitable right to employer contributions--
``(A) except as provided in subparagraph (B), each
12-month period for which the employee has at least 500
hours of service shall be treated as a year of service,
``(B) section 411(a)(6) shall be applied by
substituting `at least 500 hours of service' for `more
than 500 hours of service' in subparagraph (A) thereof,
and
``(C) 12-month periods occurring before the 24-month
period described in paragraph (6)(A)(ii) shall not be
treated as years of service.
For purposes of this paragraph, 12-month periods shall be
determined in the same manner as under paragraph (6)(D).''.
Purpose and Summary
The purpose of H.R. 5891, the bipartisan Retirement
Improvement and Savings Enhancement (RISE) Act of 2021, is to
improve America's retirement system so it better serves
workers, employers, and retirees. It does so by establishing an
on-line, searchable database at the U.S. Department of Labor
(DOL) to help workers locate their retirement savings plans as
they move from job to job; allowing 403(b) retirement plans to
participate in multiple employer plans and pooled employer
plans; allowing more part-time workers to join retirement
savings plans; clarifying rules regarding the recovery of
inadvertent overpayments to retirees to minimize hardships;
enabling employers to provide small financial incentives to
their employees to encourage their participation in workplace
retirement plans; and simplifying and streamlining reporting
and disclosure requirements related to retirement plans.
The bipartisan RISE Act has been endorsed by the American
Benefits Council (ABC), the American Retirement Association
(ARA), the ERISA Industry Committee (ERIC), the Insured
Retirement Institute (IRI), and the Spark Institute. AARP
indicated the RISE Act ``would make a number of important
improvements to current law.''\1\ Additionally, the Pension
Rights Center has supported addressing the recovery of
inadvertent overpayments to retirees and establishing a
database to enable workers to locate retirement benefits from
former employers.\2\
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\1\Letter from Bill Sweeney, Senior Vice President, Gov't Aff.,
AARP, to Rep. Bobby Scott, Chairman, Comm. on Educ. and Lab., and Rep.
Virginia Foxx, Ranking Member, Comm. on Educ. and Lab. (Nov. 10, 2021),
https://edlabor.house.gov/imo/media/doc/AARP%20Letter
%20of%20Support%20for%20the%20Retirement%20Improvement%20and%20Savings%2
0 Enhancement%20Act1.pdf.
\2\Consumer Agenda for Retirement Security, Pension Rts. Ctr.,
http://www.pensionrights.org/learn-issues/policy-agenda.
---------------------------------------------------------------------------
Committee Action
115TH CONGRESS
On October 26, 2017, Rep. Tim Walberg (R-MI-7) introduced
H.R. 4158, the Retirement Plan Modernization Act. H.R. 4158 was
referred to the Committees on Education and the Workforce and
Ways and Means.
On May 16, 2018, the Committee on Education and the
Workforce's Subcommittee on Health, Employment, Labor, and
Pensions held a hearing entitled ``Enhancing Retirement
Security: Examining Proposals to Simplify and Modernize
Retirement Plan Administration'' (2018 Hearing). The witnesses
were: Ms. Krista D'Aloia, Vice President and Associate General
Counsel, Fidelity Investments, Boston, MA, on behalf of the
American Benefits Council; Mr. Paul Schott Stevens, President
and CEO, Investment Company Institute, Washington, DC; Mr. J.
Mark Iwry, Nonresident Senior Fellow, Brookings Institution,
and Senior Policy Advisor, AARP, Washington, DC; and Mr. Tim
Walsh, Senior Managing Director, Institutional Investment
Product Distribution, TIAA, Waltham, MA. The 2018 Hearing
examined bipartisan proposals to simplify and modernize
retirement plan administration and make it easier to offer
retirement plans to employees.
116TH CONGRESS
On January 24, 2020, Rep. Gregorio Kilili Camacho Sablan
(D-MP-AL) introduced H.R. 5676, the Retirement Plan
Modernization Act. H.R. 5676 was referred to the Committees on
Education and Labor and Ways and Means.
On July 1, 2020, Rep. Suzanne Bonamici (D-OR-1) introduced
H.R. 7439, the Retirement Savings Lost and Found Act. H.R. 7439
was referred to the Committees on Ways and Means and Education
and Labor.
117TH CONGRESS
On May 4, 2021, Congressman Richard Neal (D-MA-1)
introduced H.R. 2954, the Securing a Strong Retirement Act of
2021. H.R. 2954 was referred to the Committees on Ways and
Means, Financial Services, and Education and Labor. On May 5,
2021, the Committee on Ways and Means reported the bill
favorably, as amended, to the House of Representatives by voice
vote.
On June 23, 2021, the Committee on Education and Labor's
(Committee) Subcommittee on Health, Employment, Labor, and
Pensions (HELP Subcommittee) held a hearing entitled
``Examining Pathways to Build a Stronger, More Inclusive
Retirement System'' (June 23rd Hearing). The witnesses were:
Dr. Teresa Ghilarducci, Professor of Economics and Policy
Analysis, New School for Social Research, New York, NY; Dr.
Nari Rhee, Director, Retirement Security Program, University of
California at Berkeley, Berkeley, CA; Dr. Andrew Biggs,
Resident Scholar, American Enterprise Institute, Washington,
DC; and Mr. David Certner, Legislative Counsel and Director of
Legislative Policy for Government Affairs, AARP, Washington,
DC. The June 23rd Hearing explored the strengths, challenges,
and inequities of America's retirement system, and policies
that would improve our nation's retirement system that fall
within the Committee's jurisdiction were discussed.
On November 3, 2021, Rep. Bonamici introduced H.R. 5832,
the Retirement Savings Lost and Found Act of 2021. H.R. 5832
was referred to the Committees on Ways and Means and Education
and Labor.
On November 4, 2021, Rep. Kathy Manning (D-NC-6) introduced
H.R. 5873, the Improving Part-Time Workers Access to Retirement
Act of 2021. H.R. 5873 was referred to the Committees on
Education and Labor and Ways and Means.
On November 4, 2021, Rep. Frank Mrvan (D-IN-1) introduced
H.R. 5877, the Pension Risk Transfer Accountability Act of
2021. H.R. 5877 was referred to the Committee on Education and
Labor.
On November 5, 2021, Committee Chairman Robert C. ``Bobby''
Scott (D-VA-3) and Ranking Member Virginia Foxx (R-NC-5), along
with HELP Subcommittee Chairman Mark DeSaulnier (D-CA-11) and
Ranking Member Rick Allen (R-GA-12), introduced H.R. 5891, the
Retirement Improvement and Savings Enhancement (RISE) Act of
2021. The bill incorporated all or portions of H.R. 2954, H.R.
5832, H.R. 5873, and H.R. 5877, amended provisions of H.R. 2954
within the Committee's jurisdiction, and included other
provisions. The bill was referred to the Committees on
Education and Labor and Ways and Means.
On November 10, 2021, the Committee marked up H.R. 5891. An
Amendment in the Nature of a Substitute (ANS) was offered by
Rep. Joseph Morelle (D-NY-25) that incorporated the provisions
of H.R. 5891, as introduced, and added ``of 2021'' to the short
title of the bill. The ANS was adopted by voice vote. The
Committee ordered H.R. 5891 to be reported favorably, as
amended, to the House of Representatives by voice vote.
Committee Views
The Committee has jurisdiction over the employer-sponsored
retirement system and a history of advancing consequential
legislation in this area.
CURRENT STATE OF AMERICA'S EMPLOYER-SPONSORED RETIREMENT SYSTEM
Sixty-eight percent of private industry workers had access
to retirement plans in 2021.\3\ Worker access to, and
participation in, employer-sponsored retirement plans has
improved over the last three decades. According to Dr. Andrew
Biggs, who testified at the June 23rd Hearing:
---------------------------------------------------------------------------
\3\This rate is even higher among certain private sector workers.
According to the U.S. Bureau of Labor Statistics (BLS), 91 percent of
union workers had access to private sector retirement benefits, and 85
percent of union workers participate in plans.
In 1990, only 45 percent of retirees received income
from a private pension or retirement account. Today 61
percent do, according to Census Bureau research. This
is a 35 percent relative increase, much of which likely
occurred among smaller employers who could not offer a
defined benefit pension . . . More Americans are saving
for retirement than ever before. At the peak of
traditional pension participation in the mid-1970s,
fewer than four-in-ten private sector workers
participated in a retirement plan. The most recent IRS
data show that 60 percent of employees aged 25-64 in
2017 were participating in a retirement plan, a 50
percent relative increase in retirement plan
participation.\4\
---------------------------------------------------------------------------
\4\Examining Pathways to Build a Stronger, More Inclusive
Retirement System Before H. Subcomm. on Health Emp., Lab., and Pensions
of the H. Comm. On Educ. and Lab., 117th Cong. 5-7 (2021) (written
testimony of Andrew Biggs).
Furthermore, workers are saving more in employer-sponsored
---------------------------------------------------------------------------
retirement plans than ever before. Dr. Biggs also noted:
Total pension contributions as a share of employee
wages are 45 percent higher today than in the 1970s.
Total retirement savings today are more than seven
times higher than in the 1970s. Since 1989, retirement
savings have increased among every age, income,
education and racial/ethnic group.\5\
---------------------------------------------------------------------------
\5\Id, at 1.
However, there remains room for improvement. Millions of
workers across the country lack access to retirement benefits
through their employer. Access and participation rates vary
depending on certain factors such as occupation, wage level,
and part-time/full-time status. According to Dr. Nari Rhee, who
---------------------------------------------------------------------------
testified at the June 23rd Hearing:
84% of management and professional workers in the
private sector have access to an employer sponsored
plan, compared to only 41% of workers in service jobs.
The bottom 25% of workers by wage level are less than
half as likely as the top 25% of workers to have access
(42% vs 88%). Similarly, only 39% of workers in part-
time jobs have access, compared to 77% of workers in
full-time jobs.\6\
---------------------------------------------------------------------------
\6\Examining Pathways to Build a Stronger, More Inclusive
Retirement System Before H. Subcomm. on Health Emp., Lab., and Pensions
of the H. Comm. On Educ. and Lab., 117th Cong. 2 (2021) (written
testimony of Nari Rhee).
Dr. Rhee also noted:
The gap in take-up--the share of workers with access who
actually participate in the retirement plan--is even greater
than the gap in reported access. This difference is
particularly stark for workers in low-wage jobs. Among the
bottom 25% of workers by wage level, only 52% of those with
access participate--which translates to just 21% of all workers
in this wage bracket.\7\ Retirement disparities along race and
ethnic lines are particularly pronounced. By and large, white
people have substantially more retirement savings and
retirement plan participation than people of color.\8\
According to the Urban Institute:
---------------------------------------------------------------------------
\7\Id.
\8\Mark Miller, America's Retirement Race Gap, and Ideas for
Closing It, N.Y. Times (Aug. 14, 2020), https://www.nytimes.com/2020/
08/14/business/retirement-inequality-racism.html.
In 2016, white families had about $130,000 more (or
six times more) in average liquid retirement savings
than Black and Hispanic families. In sheer dollar
terms, this disparity has increased more than fivefold
over the past quarter-century: in 1989, white families
had about $25,000 more (or five times more) in average
retirement savings than Black and Hispanic families.
This gap is becoming more pronounced as liquid
retirement savings vehicles, like 401(k)s, replace more
traditional defined-benefit pension plans.\9\
---------------------------------------------------------------------------
\9\Urban Inst., Nine Charts About Wealth Inequality in America,
https://apps.urban.org/features/wealth-inequality-charts/, (last
updated Oct. 5, 2017).
To that point, according to the Federal Reserve Bank of St.
Louis, Black and Hispanic families are far less likely than
white families to have Individual Retirement Accounts (IRAs)
and defined contribution (DC) plans (such as 401(k)s), and they
have smaller asset values compared to white families when they
do.\10\
---------------------------------------------------------------------------
\10\Ana Hernandez Kent & Lowell Ricketts, Wealth Gaps between
White, Black, and Hispanic Families in 2019, N.Y. Fed. Res. Bank of St.
Louis (Jan. 5, 2021), https://www.stlouisfed.org/on-the-economy/2021/
january/wealth-gaps-white-black-hispanic-families-2019.
---------------------------------------------------------------------------
In addition, African Americans have less access to
retirement plans than their white counterparts and fewer
earnings from which to contribute to a retirement plan. For
instance, according to the Urban Institute, compared with white
workers, African American workers face higher rates of
unemployment at every education level.\11\ As a result of
occupational distribution, African Americans are also
disproportionately employed in jobs that do not offer
retirement savings plans.\12\
---------------------------------------------------------------------------
\11\Kilolo Kijakazi, Karen Smith, & Charmaine Runes, African
American Economic Security and the Role of Social Security, Urban Inst.
(July 24, 2019), https://www.urban.org/research/publication/african-
american-economic-security-and-role-social-security.
\12\Id.
---------------------------------------------------------------------------
The RISE Act improves policies and incentives for workers
to put money towards retirement savings voluntarily so they can
make decisions appropriate for their individual circumstances
and have peace of mind when they retire. This is crucial for
the long-term financial health of American workers and
families.
ADDITIONAL CHALLENGES CONFRONTING EMPLOYER-SPONSORED RETIREMENT SYSTEM
Over the years, employers have shifted away from offering
traditional defined benefit (DB) pension plans, which provide a
benefit for the life of the participant based on a formula that
typically considers factors such as an employee's salary, years
of service, and age at retirement. Now, when a private sector
employer offers a retirement plan, it is usually a DC plan.\13\
This shift to DC plans transferred risks and some
responsibilities of planning and managing retirement savings
from the employer to the worker. As a result, many Americans
have difficulty tracking their retirement savings accounts when
they move from job to job. The U.S. Government Accountability
Office (GAO) found that approximately 25 million people changed
jobs between 2004 and 2014 and left one or more retirement
accounts behind, despite efforts of plan sponsors and
regulators to help participants manage their accounts.\14\
---------------------------------------------------------------------------
\13\According to the DOL, in 1975, there were 103,346 DB plans
compared with 207,748 DC plans. As of 2018, which is the most recent
year data is available, the DOL indicated the number of DB plans had
decreased to 46,869, while the number of DC plans had increased to
675,007.
\14\U.S. Gov't Accountability Off., GAO-18-19, Workplace Retirement
Accounts: Better Guidance and Information Could Help Plan Participants
at Home and Abroad Manage Their Retirement Savings (2018), https://
www.gao.gov/assets/gao-18-19.pdf.
---------------------------------------------------------------------------
According to the Insured Retirement Institute (IRI), an
industry trade association, many charities, non-profit
organizations, and educational institutions do not offer a
retirement plan to their employees.\15\ However, IRI suggests
these entities would be more likely to offer one if they could
band together to achieve economies of scale.\16\ Multiple
employer plans (MEPs) are retirement savings plans--typically
DC plans, such as 401(k)s--in which two or more employers
participate. A typical MEP arrangement allows businesses with a
common interest (such as those within the same industry) to
share administrative costs and responsibilities associated with
providing a retirement plan. MEPs pool employee contributions
so participants can benefit from economies of scale and
potentially avoid paying higher fees. In 2019, Congress
established the concept of pooled employer plans (PEPs), which
operate like a MEP but enable a group of employers that do not
have a common interest to participate in a single, shared
retirement plan.\17\
---------------------------------------------------------------------------
\15\Insured Ret. Inst., 2021 Federal Retirement Security Blueprint,
https://www.myirionline.org/docs/default-source/default-document-
library/iri_advocacy-blueprint_2021-final-2.pdf.
\16\Id.
\17\29 U.S.C. Sec. 1002(43)(B).
---------------------------------------------------------------------------
Sometimes retirees mistakenly receive more money than they
are owed under their retirement plans. These mistakes cause
problems, as plan fiduciaries may later seek to recover the
overpayments from retirees. Internal Revenue Service correction
procedures in some cases require plans to recoup from
participants a discovered overpayment. When an overpayment has
lasted for years, plans may compel retirees to repay the amount
of the overpayment plus interest. This amount can be
substantial, and even small overpayment amounts can create a
hardship for retirees living on fixed incomes.
According to the BLS, over 26 million workers over the age
of 16 years old are currently classified as part-time.\18\ Many
of them are not able to participate in their employers' DC
plans due to the current eligibility requirements. Women in
particular are more likely to work part-time jobs without
access to workplace retirement plans.\19\
---------------------------------------------------------------------------
\18\Labor Force Statistics from Current Population Survey, Bureau
of Lab. Stat. (Nov. 2021), https://www.bls.gov/web/empsit/cpseea18.htm.
\19\Women and Retirement Savings, Dep't of Lab. (Sept. 2017),
https://www.dol.gov/sites/dolgov/files/legacy-files/ebsa/about-ebsa/
our-activities/resource-center/publications/women-and-retirement-
savings.pdf.
---------------------------------------------------------------------------
A pension risk transfer (PRT) occurs when plan sponsors
purchase annuity contracts from insurance providers to transfer
DB pension obligations to insurance companies. When PRTs occur,
retirees see no difference in their retirement check. However,
when the insurer assumes responsibility as an annuity provider,
participants no longer have their pension insured by the
Pension Benefit Guaranty Corporation (PBGC). The volume of PRTs
for 2021 could be the largest in years, possibly record
setting, ranging between $30 billion and $40 billion.\20\
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\20\Rob Kozlowski, Pension Risk Transfer Market Poised for Record
Year, Pensions & Inv. (Aug. 6, 2021, 1:57 PM), https://
www.pionline.com/pension-risk-transfer/pension-risk-transfer-market-
poised-record-year.
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ACTIONS TO STRENGTHEN AMERICA'S EMPLOYER-SPONSORED RETIREMENT SYSTEM
In recent years, Congress has taken steps to improve
workers' access to retirement savings plans. In 2019, Congress
passed H.R. 1994, the Setting Every Community Up for Retirement
Enhancement (SECURE) Act, which provided tax credits to help
small businesses provide 401(k)s to employees and removed
barriers preventing unrelated businesses from forming MEPs.\21\
According to AARP, the SECURE Act would ``help close the gap''
in the number of workers who are not offered retirement plans
by their employers.\22\
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\21\29 U.S.C. Sec. 1002(43)(B).
\22\Kenneth Terrell, House Passes Bill to Expand Access to
Retirement Savings Options, AARP (May 24, 2019), https://www.aarp.org/
politics-society/advocacy/info-2019/house-passes-secure-act.html.
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This Congress, H.R. 2954, the Securing a Strong Retirement
Act of 2021, a companion bill to the RISE Act that makes
changes to the Internal Revenue Code (IRC), increases workers'
access to retirement plans through mandating automatic
enrollment in certain 401(k) plans. Automatic enrollment is an
elective practice by which employers default employees into
their workplace retirement plan unless an employee takes the
initiative to opt out of it. H.R. 2954's automatic enrollment
requirements, which fall within the jurisdiction of the Ways
and Means Committee, would not apply to existing 401(k) plans,
small businesses with 10 or fewer employees, new businesses
(ones that have been in business for less than 3 years), church
plans, and government plans. H.R. 2954 also increases the tax
credit for small employer pension plan startup costs and
increases the required minimum distribution age.
Strengthening the provisions in H.R. 2954 within the
Committee's jurisdiction, the RISE Act addresses challenges in
America's employer-sponsored retirement system. Specifically:
It establishes a national online searchable
database at the DOL within two years after the date of
enactment. The database enables individuals to search
for their former employers and find contact information
for them, so they can claim the DB pension or 401(k) of
which they might have lost track.
It builds on current law and allows 403(b)
retirement plans, which are generally sponsored by
charities, educational institutions, and non-profits,
to participate in MEPs and PEPs.
It responsibly corrects the long-standing
problem of recovering inadvertent benefit overpayments
to retirees by clarifying plan rules.
It allows more long-term part-time workers
to participate in their employers' retirement plans.
It enables employers to provide small
financial incentives, such as low-dollar gift cards, to
encourage workers' participation in retirement plans.
It directs the DOL to modify its regulations
so an investment that uses a mix of asset classes (such
as a target date fund) can be benchmarked against a
blend of broad-based securities market indices, such as
the S&P 500 Index, to help participants better
understand their investments.
It directs the DOL to review the 1990s-era
guidance governing PRTs, determine if changes to it are
warranted, and report to Congress.
It improves retirement plan administration
and increases efficiency by allowing employers to roll
over the retirement accounts of former employees into
an Individual Retirement Account (IRA) if their balance
does not exceed $7,000.
It also makes a commonsense change to
improve PEPs by clarifying trustees' responsibilities,
reduces unneeded notices that may unnecessarily
increase plan costs, and requires the DOL to review
current disclosures to plan participants and make
recommendations to simplify and streamline them.
In sum, the bipartisan RISE Act makes meaningful progress
toward helping workers plan and save for retirement.
Section-by-Section Analysis
Sec. 1. Short title; Table of contents
This section specifies that the title of the bill may be
cited as the Retirement Improvement and Savings Enhancement Act
of 2021 or the RISE Act.
Sec. 2. Retirement savings lost and found
This section establishes a national online searchable
database at the DOL within two years after the date of
enactment. The database would enable retirement savers, who
might have lost track of their pension or 401(k), to search for
the contact information of their plan administrator. The
information in the online database is required to be updated
regularly based on the latest information provided from federal
agencies and by employers. For the pension plans to which the
database applies, employers are required by law to register
specific plan information, including name and address of the
plan administrator with the Internal Revenue Service (IRS).
This section requires this plan information to be shared with
the DOL and permits the U.S. Secretary of Labor to require
additional information from employers to assist with the
database. In establishing the database, the DOL is required to
take all necessary and proper precautions to protect
individuals' personal account information.
Sec. 3. Retirement Plan Modernization Act
This section permits employers to transfer former
employees' retirement accounts to an IRA if the balance is
between $1,000 and $7,000. Under current law, the upper limit
is $5,000.
Sec. 4. Multiple employer 403(b) plans
This section permits 403(b) plans to participate in MEPs
and PEPs.
Sec. 5. Small immediate financial incentives for contributing to a plan
This section allows employers to offer de minimis financial
incentives--such as low-dollar gift cards--to their employees
to incentivize participation in workplace retirement plans.
Sec. 6. Performance benchmarks for asset allocation funds
This section directs the DOL to update its guidelines
related to benchmarking investments, such as target-date funds,
that include a mix of asset classes. The section also requires
the DOL to report to Congress on the utilization,
effectiveness, and participants' understanding of its
benchmarking requirements.
Sec. 7. Pooled employer plans modification
The section requires PEPs to assign a named fiduciary the
responsibilities for collecting contributions in a PEP and
implementing written contribution collection procedures that
are reasonable, diligent, and systematic. One or more trustees
will remain responsible for holding assets of the plan. Current
law requires a PEP to: (1) designate one or more trustees to be
responsible for collecting contributions to and holding assets
of the plan, and (2) require such trustees to implement written
contribution collection procedures that are reasonable,
diligent, and systematic.
Sec. 8. Review of pension risk transfer interpretive bulletin
This section requires the DOL to review the current PRT
guidance, determine if changes to it are warranted, and report
to Congress.
Sec. 9. Review and report to congress on reporting and disclosure
requirements
This section directs the DOL, the U.S. Department of the
Treasury, and the PBGC to review reporting and disclosure
requirements for pension plans and make recommendations to
Congress to consolidate, simplify, standardize, and improve
such requirements.
Sec. 10. Eliminating unnecessary plan requirements related to
unenrolled participants
This section removes the requirement for employers to
provide certain notices (such as those regarding different
investment options available under the plan) to employees who
have not elected to participate in the workplace retirement
plan. Employers are still required to send annual eligibility
notices to unenrolled participants to encourage their
participation in the workplace retirement plan.
Sec. 11. Recovery of retirement plan overpayments
This section clarifies and improves the rules related to
recouping overpayments to retirees to help plan sponsors and
protect plan participants. The section specifies that, in the
case of an inadvertent overpayment by a pension plan, the plan
fiduciary will not have failed to meet its fiduciary
obligations merely because such fiduciary determines not to
seek recovery of an overpayment from:
(1) any participant or beneficiary;
(2) any plan sponsor or contributing employer to an
individual account plan or a defined benefit plan as
long as the fiduciary determines the failure to recover
all or part of the overpayment more quickly than
required under plan funding rules would materially
affect the plan's ability to pay benefits due to other
participants and beneficiaries; and
(3) any fiduciary of the plan, other than a
fiduciary whose breach of its duties resulted in such
overpayment; however, if the plan established
procedures to prevent and minimize overpayment of
benefits and the fiduciaries followed such procedures,
then an inadvertent overpayment would not give rise to
a fiduciary duty breach.
This section still permits a responsible plan fiduciary to
reduce future benefit payments to the correct amount under the
terms of the plan or seek recovery from the person or persons
responsible for the overpayment. If the responsible plan
fiduciary decides to do that, it may do so subject to the
following conditions:
No interest or other additional amounts
(such as collection costs or fees) are sought on
overpayment amounts.
If the plan seeks to recoup past overpayment
by reducing future benefit payments, the reduction
ceases after the plan recovers the full dollar amount
of the overpayment; the amount recouped each year does
not exceed 10% of the full dollar amount of the
overpayment; and future benefit payments are not
reduced to below 90% of the amount payable.
Alternatively, if the plan seeks to recoup
past overpayments through one or more installment
payments, the sum of such installment payments must not
exceed the sum of what the reductions would have been
as referenced in the bullet above.
Efforts to recoup overpayments are not made
through a collection agency or similar third party, and
such efforts are not accompanied by the threat of
litigation unless the responsible plan fiduciary
reasonably believes it could prevail in a civil action
brought in federal or state court to recoup the
overpayments.
Recoupment of past overpayments to a
participant is not sought from any beneficiary of the
participant, including a spouse or former spouse.
Recoupment may not be sought if the first
overpayment occurred more than three years before the
participant or beneficiary was notified in writing of
the error.
A participant or beneficiary from whom
recoupment is sought is entitled to contest all or part
of the recoupment pursuant to the plan's claims and
appeals procedures.
In determining the amount of recoupment to
seek, the responsible plan fiduciary may consider the
hardship that recoupment likely would impose on the
participant or beneficiary.
The above conditions do not apply to protect any
participant or beneficiary who bears responsibility for the
overpayment through misrepresentations or omissions that led to
the overpayment. The conditions also do not apply to any
individual who knew that the payments were in materially excess
of the correct amount. However, an individual is not culpable
merely because the individual believed the benefit payments
were or might be in excess of the correct amount if the
individual raised that question with an authorized plan
official and was told the payments were not in excess.
Sec. 12. Improving coverage for part-time workers
This section reduces the requirement for a part-time worker
to participate in an employer's retirement savings plan from
three years of service with the employer to two years.
Explanation of Amendments
The Amendment in the Nature of a Substitute is explained in
the descriptive portions of this report.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act of 1995, Pub. L. No. 104-1, H.R. 5891, as
amended, does not apply to terms and conditions of employment
or to access to public services or accommodations within the
legislative branch.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act of 1974, Pub. L. No. 93-344 (as amended
by Section 101(a)(2) of the Unfunded Mandates Reform Act of
1995, Pub. L. No. 104-4), the Committee traditionally adopts as
its own the cost estimate prepared by the Director of the
Congressional Budget Office (CBO) pursuant to section 402 of
the Congressional Budget and Impoundment Control Act of 1974.
The Committee reports that because this cost estimate was not
timely submitted to the Committee before the filing of this
report, the Committee is not in a position to make a cost
estimate for H.R. 5891, as amended.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5891 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Roll Call Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that no
roll call votes occurred during the Committee's consideration
of H.R. 5891.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c)(4) of rule XIII of the Rules of
the House of Representatives, the goal of H.R. 5891 is to
improve and enhance retirement security for workers and
retirees and simplify employer options for offering retirement
savings plans.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 5891 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Pub. L. No. 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Hearings
Pursuant to clause 3(c)(6) of rule XIII of the Rules of the
House of Representatives, the Committee on Education and
Labor's Subcommittee on Health, Employment, Labor, and Pensions
held a hearing on June 23, 2021, entitled ``Examining Pathways
to Build a Stronger, More Inclusive Retirement System,'' which
was used to develop H.R. 5891. The witnesses were: Dr. Teresa
Ghilarducci, Professor of Economics and Policy Analysis, New
School for Social Research, New York, NY; Dr. Nari Rhee,
Director, Retirement Security Program, University of California
at Berkeley, Berkeley, CA; Dr. Andrew Biggs, Resident Scholar,
American Enterprise Institute, Washington, DC; and Mr. David
Certner, Legislative Counsel and Director of Legislative Policy
for Government Affairs, AARP, Washington, DC. The hearing
explored the strengths, challenges, and inequities of America's
retirement system, and policies that would improve our nation's
retirement system that fall within the Committee's jurisdiction
were discussed.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget and Impoundment Control Act of 1974, and
pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives and section 402 of the Congressional
Budget and Impoundment Control Act of 1974, the Committee has
requested but not received a cost estimate for the bill from
the Director of the Congressional Budget Office.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 5891.
However, Clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget and Impoundment
Control Act of 1974. The Committee reports that because this
cost estimate was not timely submitted to the Committee before
the filing of this report, the Committee is not in a position
to make a cost estimate for H.R. 5891, as amended.
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, H.R. 5891, as reported, are shown as follows:
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, and existing law in which no
change is proposed is shown in roman):
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
short title and table of contents
Section 1. This Act may be cited as the ``Employee Retirement
Income Security Act of 1974''.
TABLE OF CONTENTS
Sec. 1. Short title and table of contents.
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
Part 1--Reporting and Disclosure
Sec. 101. Duty of disclosure and reporting.
* * * * * * *
Sec. 110. Alternative methods of compliance.
[Sec. 111. Repeal and effective date.]
Sec. 111. Eliminating unnecessary plan requirements related to
unenrolled participants.
Sec. 112. Repeal and effective date.
* * * * * * *
Part 5--Administration and Enforcement
* * * * * * *
Sec. 522. Coordination of enforcement regarding violations of certain
health care provider requirements; complaint process.
Sec. 523.Retirement Savings Lost and Found.
* * * * * * *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
Subtitle A--General Provisions
* * * * * * *
DEFINITIONS
Sec. 3. For purposes of this title:
(1) The terms ``employee welfare benefit plan'' and ``welfare
plan'' mean any plan, fund, or program which was heretofore or
is hereafter established or maintained by an employer or by an
employee organization, or by both, to the extent that such
plan, fund, or program was established or is maintained for the
purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise,
(A) medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death
or unemployment, or vacation benefits, apprenticeship or other
training programs, or day care centers, scholarship funds, or
prepaid legal services, or (B) any benefit described in section
302(c) of the Labor Management Relations Act, 1947 (other than
pensions on retirement or death, and insurance to provide such
pensions).
(2)(A) Except as provided in subparagraph (B), the terms
``employee pension benefit plan'' and ``pension plan'' mean any
plan, fund, or program which was heretofore or is hereafter
established or maintained by an employer or by an employee
organization, or by both, to the extent that by its express
terms or as a result of surrounding circumstances such plan,
fund, or program--
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for
periods extending to the termination of covered
employment or beyond,
regardless of the method of calculating the contributions made
to the plan, the method of calculating the benefits under the
plan or the method of distributing benefits from the plan. A
distribution from a plan, fund, or program shall not be treated
as made in a form other than retirement income or as a
distribution prior to termination of covered employment solely
because such distribution is made to an employee who has
attained age 62 and who is not separated from employment at the
time of such distribution.
(B) The Secretary may by regulation prescribe rules
consistent with the standards and purposes of this Act
providing one or more exempt categories under which--
(i) severance pay arrangements, and
(ii) supplemental retirement income payments, under
which the pension benefits of retirees or their
beneficiaries are supplemented to take into account
some portion or all of the increases in the cost of
living (as determined by the Secretary of Labor) since
retirement,
shall, for purposes of this title, be treated as welfare plans
rather than pension plans. In the case of any arrangement or
payment a principal effect of which is the evasion of the
standards or purposes of this Act applicable to pension plans,
such arrangement or payment shall be treated as a pension plan.
An applicable voluntary early retirement incentive plan (as
defined in section 457(e)(11)(D)(ii) of the Internal Revenue
Code of 1986) making payments or supplements described in
section 457(e)(11)(D)(i) of such Code, and an applicable
employment retention plan (as defined in section 457(f)(4)(C)
of such Code) making payments of benefits described in section
457(f)(4)(A) of such Code, shall, for purposes of this title,
be treated as a welfare plan (and not a pension plan) with
respect to such payments and supplements.
(C) A pooled employer plan shall be treated as--
(i) a single employee pension benefit plan or
single pension plan; and
(ii) a plan to which section 210(a) applies.
(3) The term ``employee benefit plan'' or ``plan'' means an
employee welfare benefit plan or an employee pension benefit
plan or a plan which is both an employee welfare benefit plan
and an employee pension benefit plan.
(4) The term ``employee organization'' means any labor union
or any organization of any kind, or any agency or employee
representation committee, association, group, or plan, in which
employees participate and which exists for the purpose, in
whole or in part, of dealing with employers concerning an
employee benefit plan, or other matters incidental to
employment relationships; or any employees' beneficiary
association organized for the purpose in whole or in part, of
establishing such a plan.
(5) The term ``employer'' means any person acting directly as
an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or
association of employers acting for an employer in such
capacity.
(6) The term ``employee'' means any individual employed by an
employer.
(7) The term ``participant'' means any employee or former
employee of an employer, or any member or former member of an
employee organization, who is or may become eligible to receive
a benefit of any type from an employee benefit plan which
covers employees of such employer or members of such
organization, or whose beneficiaries may be eligible to receive
any such benefit.
(8) The term ``beneficiary'' means a person designated by a
participant, or by the terms of an employee benefit plan, who
is or may become entitled to a benefit thereunder.
(9) The term ``person'' means an individual, partnership,
joint venture, corporation, mutual company, joint-stock
company, trust, estate, unincorporated organization,
association, or employee organization.
(10) The term ``State'' includes any State of the United
States, the District of Columbia, Puerto Rico, the Virgin
Islands, American Samoa, Guam, Wake Island, and the Canal Zone.
The term ``United States'' when used in the geographic sense
means the States and the Outer Continental Shelf lands defined
in the Outer Continental Shelf Lands Act (43 U.S.C. 1331-1343).
(11) The term ``commerce'' means trade, traffic, commerce,
transportation, or communication between any State and any
place outside thereof.
(12) The term ``industry or activity affecting commerce''
means any activity, business, or industry in commerce or in
which a labor dispute would hinder or obstruct commerce or the
free flow of commerce, and includes any activity or industry
``affecting commerce'' within the meaning of the Labor
Management Relations Act, 1947, or the Railway Labor Act.
(13) The term ``Secretary'' means the Secretary of Labor.
(14) The term ``party in interest'' means, as to an employee
benefit plan--
(A) any fiduciary (including, but not limited to, any
administrator, officer, trustee, or custodian),
counsel, or employee of such employee benefit plan;
(B) a person providing services to such plan;
(C) an employer any of whose employees are covered by
such plan;
(D) an employee organization any of whose members are
covered by such plan;
(E) an owner, direct or indirect, of 50 percent or
more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of a
corporation,
(ii) the capital interest or the profits
interest of a partnership, or
(iii) the beneficial interest of a trust or
unincorporated enterprise,
which is an employer or an employee organization
described in subparagraph (C) or (D);
(F) a relative (as defined in paragraph (15)) of any
individual described in subparagraph (A), (B), (C), or
(E);
(G) a corporation, partnership, or trust or estate of
which (or in which) 50 percent or more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of such
corporation,
(ii) the capital interest or profits interest
of such partnership, or
(iii) the beneficial interest of such trust
or estate,
is owned directly or indirectly, or held by persons
described in subparagraph (A), (B), (C), (D), or (E);
(H) an employee, officer, director (or an individual
having powers or responsibilities similar to those of
officers or directors), or a 10 percent or more
shareholder directly or indirectly, of a person
described in subparagraph (B), (C), (D), (E), or (G),
or of the employee benefit plan; or
(I) a 10 percent or more (directly or indirectly in
capital or profits) partner or joint venturer of a
person described in subparagraph (B), (C), (D), (E), or
(G).
The Secretary, after consultation and coordination with the
Secretary of the Treasury, may by regulation prescribe a
percentage lower than 50 percent for subparagraph (E) and (G)
and lower than 10 percent for subparagraph (H) or (I). The
Secretary may prescribe regulations for determining the
ownership (direct or indirect) of profits and beneficial
interests, and the manner in which indirect stockholdings are
taken into account. Any person who is a party in interest with
respect to a plan to which a trust described in section
501(c)(22) of the Internal Revenue Code of 1986 is permitted to
make payments under section 4223 shall be treated as a party in
interest with respect to such trust.
(15) The term ``relative'' means a spouse, ancestor, lineal
descendant, or spouse of a lineal descendant.
(16)(A) The term ``administrator'' means--
(i) the person specifically so designated by the
terms of the instrument under which the plan is
operated;
(ii) if an administrator is not so designated, the
plan sponsor; or
(iii) in the case of a plan for which an
administrator is not designated and a plan sponsor
cannot be identified, such other person as the
Secretary may by regulation prescribe.
(B) The term ``plan sponsor'' means (i) the employer in the
case of an employee benefit plan established or maintained by a
single employer, (ii) the employee organization in the case of
a plan established or maintained by an employee organization,
(iii) in the case of a plan established or maintained by two or
more employers or jointly by one or more employers and one or
more employee organizations, the association, committee, joint
board of trustees, or other similar group of representatives of
the parties who establish or maintain the plan, or (iv) in the
case of a pooled employer plan, the pooled plan provider.
(17) The term ``separate account'' means an account
established or maintained by an insurance company under which
income, gains, and losses, whether or not realized, from assets
allocated to such account, are, in accordance with the
applicable contract, credited to or charged against such
account without regard to other income, gains, or losses of the
insurance company.
(18) The term ``adequate consideration'' when used in part 4
of subtitle B means (A) in the case of a security for which
there is a generally recognized market, either (i) the price of
the security prevailing on a national securities exchange which
is registered under section 6 of the Securities Exchange Act of
1934, or (ii) if the security is not traded on such a national
securities exchange, a price not less favorable to the plan
than the offering price for the security as established by the
current bid and asked prices quoted by persons independent of
the issuer and of any party in interest; and (B) in the case of
an asset other than a security for which there is a generally
recognized market, the fair market value of the asset as
determined in good faith by the trustee or named fiduciary
pursuant to the terms of the plan and in accordance with
regulations promulgated by the Secretary.
(19) The term ``nonforfeitable'' when used with respect to a
pension benefit or right means a claim obtained by a
participant or his beneficiary to that part of an immediate or
deferred benefit under a pension plan which arises from the
participant's service, which is unconditional, and which is
legally enforceable against the plan. For purposes of this
paragraph, a right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable merely
because the plan contains a provision described in section
203(a)(3).
(20) The term ``security'' has the same meaning as such term
has under section 2(1) of the Securities Act of 1933 (15 U.S.C.
77b(1)).
(21)(A) Except as otherwise provided in subparagraph (B), a
person is a fiduciary with respect to a plan to the extent (i)
he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any
authority or control respecting management or disposition of
its assets, (ii) he renders investment advice for a fee or
other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority or
responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the administration
of such plan. Such term includes any person designated under
section 405(c)(1)(B).
(B) If any money or other property of an employee benefit
plan is invested in securities issued by an investment company
registered under the Investment Company Act of 1940, such
investment shall not by itself cause such investment company or
such investment company's investment adviser or principal
underwriter to be deemed to be a fiduciary or a party in
interest as those terms are defined in this title, except
insofar as such investment company or its investment adviser or
principal underwriter acts in connection with an employee
benefit plan covering employees of the investment company, the
investment adviser, or its principal underwriter. Nothing
contained in this subparagraph shall limit the duties imposed
on such investment company, investment adviser, or principal
underwriter by any other law.
(22) The term ``normal retirement benefit'' means the greater
of the early retirement benefit under the plan, or the benefit
under the plan commencing at normal retirement age. The normal
retirement benefit shall be determined without regard to--
(A) medical benefits, and
(B) disability benefits not in excess of the
qualified disability benefit.
For purposes of this paragraph, a qualified disability benefit
is a disability benefit provided by a plan which does not
exceed the benefit which would be provided for the participant
if he separated from the service at normal retirement age. For
purposes of this paragraph, the early retirement benefit under
a plan shall be determined without regard to any benefit under
the plan which the Secretary of the Treasury finds to be a
benefit described in section 204(b)(1)(G).
(23) The term ``accrued benefit'' means--
(A) in the case of a defined benefit plan, the
individual's accrued benefit determined under the plan
and, except as provided in section 204(c)(3), expressed
in the form of an annual benefit commencing at normal
retirement age, or
(B) in the case of a plan which is an individual
account plan, the balance of the individual's account.
The accrued benefit of an employee shall not be less than the
amount determined under section 204(c)(2)(B) with respect to
the employee's accumulated contribution.
(24) The term ``normal retirement age'' means the earlier
of--
(A) the time a plan participant attains normal
retirement age under the plan, or
(B) the later of--
(i) the time a plan participant attains age
65, or
(ii) the 5th anniversary of the time a plan
participant commenced participation in the
plan.
(25) The term ``vested liabilities'' means the present value
of the immediate or deferred benefits available at normal
retirement age for participants and their beneficiaries which
are nonforfeitable.
(26) The term ``current value'' means fair market value where
available and otherwise the fair value as determined in good
faith by a trustee or a named fiduciary (as defined in section
402(a)(2)) pursuant to the terms of the plan and in accordance
with regulations of the Secretary, assuming an orderly
liquidation at the time of such determination.
(27) The term ``present value'', with respect to a liability,
means the value adjusted to reflect anticipated events. Such
adjustments shall conform to such regulations as the Secretary
of the Treasury may prescribe.
(28) The term ``normal service cost'' or ``normal cost''
means the annual cost of future pension benefits and
administrative expenses assigned, under an actuarial cost
method, to years subsequent to a particular valuation date of a
pension plan. The Secretary of the Treasury may prescribe
regulations to carry out this paragraph.
(29) The term ``accrued liability'' means the excess of the
present value, as of a particular valuation date of a pension
plan, of the projected future benefit costs and administrative
expenses for all plan participants and beneficiaries over the
present value of future contributions for the normal cost of
all applicable plan participants and beneficiaries. The
Secretary of the Treasury may prescribe regulations to carry
out this paragraph.
(30) The term ``unfunded accrued liability'' means the excess
of the accrued liability, under an actuarial cost method which
so provides, over the present value of the assets of a pension
plan. The Secretary of the Treasury may prescribe regulations
to carry out this paragraph.
(31) The term ``advance funding actuarial cost method'' or
``actuarial cost method'' means a recognized actuarial
technique utilized for establishing the amount and incidence of
the annual actuarial cost of pension plan benefits and
expenses. Acceptable actuarial cost methods shall include the
accrued benefit cost method (unit credit method), the entry age
normal cost method, the individual level premium cost method,
the aggregate cost method, the attained age normal cost method,
and the frozen initial liability cost method. The terminal
funding cost method and the current funding (pay-as-you-go)
cost method are not acceptable actuarial cost methods. The
Secretary of the Treasury shall issue regulations to further
define acceptable actuarial cost methods.
(32) The term ``governmental plan'' means a plan established
or maintained for its employees by the Government of the United
States, by the government of any State or political subdivision
thereof, or by any agency or instrumentality of any of the
foregoing. The term ``governmental plan'' also includes any
plan to which the Railroad Retirement Act of 1935 or 1937
applies, and which is financed by contributions required under
that Act and any plan of an international organization which is
exempt from taxation under the provisions of the International
Organizations Immunities Act (59 Stat. 669). The term
``governmental plan'' includes a plan which is established and
maintained by an Indian tribal government (as defined in
section 7701(a)(40) of the Internal Revenue Code of 1986), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d) of such Code), or an agency or
instrumentality of either, and all of the participants of which
are employees of such entity substantially all of whose
services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential government
function)
(33)(A) The term ``church plan'' means a plan established and
maintained (to the extent required in clause (ii) of
subparagraph (B)) for its employees (or their beneficiaries) by
a church or by a convention or association of churches which is
exempt from tax under section 501 of the Internal Revenue Code
of 1986.
(B) The term ``church plan'' does not include a plan--
(i) which is established and maintained primarily for
the benefit of employees (or their beneficiaries) of
such church or convention or association of churches
who are employed in connection with one or more
unrelated trades or businesses (within the meaning of
section 513 of the Internal Revenue Code of 1986), or
(ii) if less than substantially all of the
individuals included in the plan are individuals
described in subparagraph (A) or in clause (ii) of
subparagraph (C) (or their beneficiaries).
(C) For purposes of this paragraph--
(i) A plan established and maintained for its
employees (or their beneficiaries) by a church or by a
convention or association of churches includes a plan
maintained by an organization, whether a civil law
corporation or otherwise, the principal purpose or
function of which is the administration or funding of a
plan or program for the provision of retirement
benefits or welfare benefits, or both, for the
employees of a church or a convention or association of
churches, if such organization is controlled by or
associated with a church or a convention or association
of churches.
(ii) The term employee of a church or a convention or
association of churches includes--
(I) a duly ordained, commissioned, or
licensed minister of a church in the exercise
of his ministry, regardless of the source of
his compensation;
(II) an employee of an organization, whether
a civil law corporation or otherwise, which is
exempt from tax under section 501 of the
Internal Revenue Code of 1986 and which is
controlled by or associated with a church or a
convention or association of churches; and
(III) an individual described in clause (v).
(iii) A church or a convention or association of
churches which is exempt from tax under section 501 of
the Internal Revenue Code of 1986 shall be deemed the
employer of any individual included as an employee
under clause (ii).
(iv) An organization, whether a civil law corporation
or otherwise, is associated with a church or a
convention or association of churches if it shares
common religious bonds and convictions with that church
or convention or association of churches.
(v) If an employee who is included in a church plan
separates from the service of a church or a convention
or association of churches or an organization, whether
a civil law corporation or otherwise, which is exempt
from tax under section 501 of the Internal Revenue Code
of 1986 and which is controlled by or associated with a
church or a convention or association of churches, the
church plan shall not fail to meet the requirements of
this paragraph merely because the plan--
(I) retains the employee's accrued benefit or
account for the payment of benefits to the
employee or his beneficiaries pursuant to the
terms of the plan; or
(II) receives contributions on the employee's
behalf after the employee's separation from
such service, but only for a period of 5 years
after such separation, unless the employee is
disabled (within the meaning of the disability
provisions of the church plan or, if there are
no such provisions in the church plan, within
the meaning of section 72(m)(7) of the Internal
Revenue Code of 1986) at the time of such
separation from service.
(D)(i) If a plan established and maintained for its employees
(or their beneficiaries) by a church or by a convention or
association of churches which is exempt from tax under section
501 of the Internal Revenue Code of 1986 fails to meet one or
more of the requirements of this paragraph and corrects its
failure to meet such requirements within the correction period,
the plan shall be deemed to meet the requirements of this
paragraph for the year in which the correction was made and for
all prior years.
(ii) If a correction is not made within the correction
period, the plan shall be deemed not to meet the requirements
of this paragraph beginning with the date on which the earliest
failure to meet one or more of such requirements occurred.
(iii) For purposes of this subparagraph, the term
``correction period'' means--
(I) the period ending 270 days after the date of
mailing by the Secretary of the Treasury of a notice of
default with respect to the plan's failure to meet one
or more of the requirements of this paragraph; or
(II) any period set by a court of competent
jurisdiction after a final determination that the plan
fails to meet such requirements, or, if the court does
not specify such period, any reasonable period
determined by the Secretary of the Treasury on the
basis of all the facts and circumstances, but in any
event not less than 270 days after the determination
has become final; or
(III) any additional period which the Secretary of
the Treasury determines is reasonable or necessary for
the correction of the default,
whichever has the latest ending date.
(34) The term ``individual account plan'' or ``defined
contribution plan'' means a pension plan which provides for an
individual account for each participant and for benefits based
solely upon the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which may be
allocated to such participant's account.
(35) The term ``defined benefit plan'' means a pension plan
other than an individual account plan; except that a pension
plan which is not an individual account plan and which provides
a benefit derived from employer contributions which is based
partly on the balance of the separate account of a
participant--
(A) for the purposes of section 202, shall be treated
as an individual account plan, and
(B) for the purposes of paragraph (23) of this
section and section 204, shall be treated as an
individual account plan to the extent benefits are
based upon the separate account of a participant and as
a defined benefit plan with respect to the remaining
portion of benefits under the plan.
(36) The term ``excess benefit plan'' means a plan maintained
by an employer solely for the purpose of providing benefits for
certain employees in excess of the limitations on contributions
and benefits imposed by section 415 of the Internal Revenue
Code of 1986 on plans to which that section applies, without
regard to whether the plan is funded. To the extent that a
separable part of a plan (as determined by the Secretary of
Labor) maintained by an employer is maintained for such
purpose, that part shall be treated as a separate plan which is
an excess benefit plan.
(37)(A) The term ``multiemployer plan'' means a plan--
(i) to which more than one employer is required to
contribute,
(ii) which is maintained pursuant to one or more
collective bargaining agreements between one or more
employee organizations and more than one employer, and
(iii) which satisfies such other requirements as the
Secretary may prescribe by regulation.
(B) For purposes of this paragraph, all trades or businesses
(whether or not incorporated) which are under common control
within the meaning of section 4001(b)(1) are considered a
single employer.
(C) Notwithstanding subparagraph (A), a plan is a
multiemployer plan on and after its termination date if the
plan was a multiemployer plan under this paragraph for the plan
year preceding its termination date.
(D) For purposes of this title, notwithstanding the preceding
provisions of this paragraph, for any plan year which began
before the date of the enactment of the Multiemployer Pension
Plan Amendments Act of 1980, the term ``multiemployer plan''
means a plan described in section 3(37) of this Act as in
effect immediately before such date.
(E) Within one year after the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980, a
multiemployer plan may irrevocably elect, pursuant to
procedures established by the corporation and subject to the
provisions of sections 4403(b) and (c), that the plan shall not
be treated as a multiemployer plan for all purposes under this
Act or the Internal Revenue Code of 1954 if for each of the
last 3 plan years ending prior to the effective date of the
Multiemployer Pension Plan Amendments Act of 1980--
(i) the plan was not a multiemployer plan because the
plan was not a plan described in section 3(37)(A)(iii)
of this Act and section 414(f)(1)(C) of the Internal
Revenue Code of 1954 (as such provisions were in effect
on the day before the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980 );
and
(ii) the plan had been identified as a plan that was
not a multiemployer plan in substantially all its
filings with the corporation, the Secretary of Labor
and the Secretary of the Treasury.
(F)(i) For purposes of this title a qualified football
coaches plan--
(I) shall be treated as a multiemployer plan to the
extent not inconsistent with the purposes of this
subparagraph; and
(II) notwithstanding section 401(k)(4)(B) of the
Internal Revenue Code of 1986, may include a qualified
cash and deferred arrangement.
(ii) For purposes of this subparagraph, the term ``qualified
football coaches plan'' means any defined contribution plan
which is established and maintained by an organization--
(I) which is described in section 501(c) of such
Code;
(II) the membership of which consists entirely of
individuals who primarily coach football as full-time
employees of 4-year colleges or universities described
in section 170(b)(1)(A)(ii) of such Code; and
(III) which was in existence on September 18, 1986.
(G)(i) Within 1 year after the enactment of the
Pension Protection Act of 2006--
(I) an election under subparagraph (E) may be
revoked, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, if,
for each of the 3 plan years prior to the date
of the enactment of that Act, the plan would
have been a multiemployer plan but for the
election under subparagraph (E), and
(II) a plan that meets the criteria in
clauses (i) and (ii) of subparagraph (A) of
this paragraph or that is described in clause
(vi) may, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, elect
to be a multiemployer plan, if--
(aa) for each of the 3 plan years
immediately preceding the first plan
year for which the election under this
paragraph is effective with respect to
the plan, the plan has met those
criteria or is so described,
(bb) substantially all of the plan's
employer contributions for each of
those plan years were made or required
to be made by organizations that were
exempt from tax under section 501 of
the Internal Revenue Code of 1986, and
(cc) the plan was established prior
to September 2, 1974.
(ii) An election under this subparagraph shall be
effective for all purposes under this Act and under the
Internal Revenue Code of 1986, starting with any plan
year beginning on or after January 1, 1999, and ending
before January 1, 2008, as designated by the plan in
the election made under clause (i)(II).
(iii) Once made, an election under this subparagraph
shall be irrevocable, except that a plan described in
clause (i)(II) shall cease to be a multiemployer plan
as of the plan year beginning immediately after the
first plan year for which the majority of its employer
contributions were made or required to be made by
organizations that were not exempt from tax under
section 501 of the Internal Revenue Code of 1986.
(iv) The fact that a plan makes an election under
clause (i)(II) does not imply that the plan was not a
multiemployer plan prior to the date of the election or
would not be a multiemployer plan without regard to the
election.
(v)(I) No later than 30 days before an election is
made under this subparagraph, the plan administrator
shall provide notice of the pending election to each
plan participant and beneficiary, each labor
organization representing such participants or
beneficiaries, and each employer that has an obligation
to contribute to the plan, describing the principal
differences between the guarantee programs under title
IV and the benefit restrictions under this title for
single employer and multiemployer plans, along with
such other information as the plan administrator
chooses to include.
(II) Within 180 days after the date of enactment of
the Pension Protection Act of 2006, the Secretary shall
prescribe a model notice under this clause.
(III) A plan administrator's failure to provide the
notice required under this subparagraph shall be
treated for purposes of section 502(c)(2) as a failure
or refusal by the plan administrator to file the annual
report required to be filed with the Secretary under
section 101(b)(1).
(vi) A plan is described in this clause if it is a
plan sponsored by an organization which is described in
section 501(c)(5) of the Internal Revenue Code of 1986
and exempt from tax under section 501(a) of such Code
and which was established in Chicago, Illinois, on
August 12, 1881.
(vii) For purposes of this Act and the Internal Revenue Code
of 1986, a plan making an election under this subparagraph
shall be treated as maintained pursuant to a collective
bargaining agreement if a collective bargaining agreement,
expressly or otherwise, provides for or permits employer
contributions to the plan by one or more employers that are
signatory to such agreement, or participation in the plan by
one or more employees of an employer that is signatory to such
agreement, regardless of whether the plan was created,
established, or maintained for such employees by virtue of
another document that is not a collective bargaining agreement.
(38) The term ``investment manager'' means any fiduciary
(other than a trustee or named fiduciary, as defined in section
402(a)(2))--
(A) who has the power to manage, acquire, or dispose
of any asset of a plan;
(B) who (i) is registered as an investment adviser
under the Investment Advisers Act of 1940; (ii) is not
registered as an investment adviser under such Act by
reason of paragraph (1) of section 203A(a) of such Act,
is registered as an investment adviser under the laws
of the State (referred to in such paragraph (1)) in
which it maintains its principal office and place of
business, and, at the time the fiduciary last filed the
registration form most recently filed by the fiduciary
with such State in order to maintain the fiduciary's
registration under the laws of such State, also filed a
copy of such form with the Secretary; (iii) is a bank,
as defined in that Act; or (iv) is an insurance company
qualified to perform services described in subparagraph
(A) under the laws of more than one State; and
(C) has acknowledged in writing that he is a
fiduciary with respect to the plan.
(39) The terms ``plan year'' and ``fiscal year of the plan''
mean, with respect to a plan, the calendar, policy, or fiscal
year on which the records of the plan are kept.
(40)(A) The term ``multiple employer welfare arrangement''
means an employee welfare benefit plan, or any other
arrangement (other than an employee welfare benefit plan),
which is established or maintained for the purpose of offering
or providing any benefit described in paragraph (1) to the
employees of two or more employers (including one or more self-
employed individuals), or to their beneficiaries, except that
such term does not include any such plan or other arrangement
which is established or maintained--
(i) under or pursuant to one or more agreements which
the Secretary finds to be collective bargaining
agreements,
(ii) by a rural electric cooperative, or
(iii) by a rural telephone cooperative association.
(B) For purposes of this paragraph--
(i) two or more trades or businesses, whether or not
incorporated, shall be deemed a single employer if such
trades or businesses are within the same control group,
(ii) the term ``control group'' means a group of
trades or businesses under common control,
(iii) the determination of whether a trade or
business is under ``common control'' with another trade
or business shall be determined under regulations of
the Secretary applying principles similar to the
principles applied in determining whether employees of
two or more trades or businesses are treated as
employed by a single employer under section 4001(b),
except that, for purposes of this paragraph, common
control shall not be based on an interest of less than
25 percent,
(iv) the term ``rural electric cooperative'' means--
(I) any organization which is exempt from tax
under section 501(a) of the Internal Revenue
Code of 1986 and which is engaged primarily in
providing electric service on a mutual or
cooperative basis, and
(II) any organization described in paragraph
(4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax
under section 501(a) of such Code and at least
80 percent of the members of which are
organizations described in subclause (I), and
(v) the term ``rural telephone cooperative
association'' means an organization described in
paragraph (4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax under
section 501(a) of such Code and at least 80 percent of
the members of which are organizations engaged
primarily in providing telephone service to rural areas
of the United States on a mutual, cooperative, or other
basis.
(41) Single-employer plan.--The term ``single-employer plan''
means an employee benefit plan other than a multiemployer plan.
(42) the term ``plan assets'' means plan assets as defined by
such regulations as the Secretary may prescribe, except that
under such regulations the assets of any entity shall not be
treated as plan assets if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25
percent of the total value of each class of equity interest in
the entity is held by benefit plan investors. For purposes of
determinations pursuant to this paragraph, the value of any
equity interest held by a person (other than such a benefit
plan investor) who has discretionary authority or control with
respect to the assets of the entity or any person who provides
investment advice for a fee (direct or indirect) with respect
to such assets, or any affiliate of such a person, shall be
disregarded for purposes of calculating the 25 percent
threshold. An entity shall be considered to hold plan assets
only to the extent of the percentage of the equity interest
held by benefit plan investors. For purposes of this paragraph,
the term ``benefit plan investor'' means an employee benefit
plan subject to part 4, any plan to which section 4975 of the
Internal Revenue Code of 1986 applies, and any entity whose
underlying assets include plan assets by reason of a plan's
investment in such entity.
(43) Pooled employer plan.--
(A) In general.--The term ``pooled employer
plan'' means a plan--
(i) which is an individual account
plan established or maintained for the
purpose of providing benefits to the
employees of 2 or more employers;
(ii) which is a plan described in
section 401(a) of the Internal Revenue
Code of 1986 which includes a trust
exempt from tax under [section 501(a)
of such Code or] section 501(a) of such
Code, a plan that consists of contracts
described in section 403(b) of such
Code, or a plan that consists of
individual retirement accounts
described in section 408 of such Code
(including by reason of subsection (c)
thereof); and
(iii) the terms of which meet the
requirements of subparagraph (B).
Such term shall not include a plan maintained
by employers which have a common interest other
than having adopted [the plan.] the plan, but
such term shall include any program (other than
a governmental plan) maintained for the benefit
of the employees of more than 1 employer that
consists of contracts described in section
403(b) of such Code and that meets the
requirements of subparagraph (A) or (B) of
section 413(e)(1) of such Code.
(B) Requirements for plan terms.--The
requirements of this subparagraph are met with
respect to any plan if the terms of the plan--
(i) designate a pooled plan provider
and provide that the pooled plan
provider is a named fiduciary of the
plan;
[Reconcile conflicting amendments in sections 4(d)(2) and 7 of
the bill to clause (ii) below]
[(ii) designate one or more [trustees
meeting the requirements of section
408(a)(2) of the Internal Revenue Code
of 1986] trustees (or other fiduciaries
in the case of a plan that consists of
contracts described in section 403(b)
of the Internal Revenue Code of 1986)
meeting the requirements of section
408(a)(2) of such Code (other than an
employer in the plan) to be responsible
for collecting contributions to, and
[holding] holding (or causing to be
held under the terms of a plan
consisting of such contracts) the
assets of, the plan and require such
trustees to implement written
contribution collection procedures that
are reasonable, diligent, and
systematic;]
(ii) designate a named fiduciary
(other than an employer in the plan) to
be responsible for collecting
contributions to the plan and require
such fiduciary to implement written
contribution collection procedures that
are reasonable, diligent, and
systematic;
(iii) provide that each employer in
the plan retains fiduciary
responsibility for--
(I) the selection and
monitoring in accordance with
section 404(a) of the person
designated as the pooled plan
provider and any other person
who, in addition to the pooled
plan provider, is designated as
a named fiduciary of the plan;
and
(II) to the extent not
otherwise delegated to another
fiduciary by the pooled plan
provider and subject to the
provisions of section 404(c),
the investment and management
of the portion of the plan's
assets attributable to the
employees of the employer (or
beneficiaries of such
employees);
(iv) provide that employers in the
plan, and participants and
beneficiaries, are not subject to
unreasonable restrictions, fees, or
penalties with regard to ceasing
participation, receipt of
distributions, or otherwise
transferring assets of the plan in
accordance with section 208 or
paragraph (44)(C)(i)(II);
(v) require--
(I) the pooled plan provider
to provide to employers in the
plan any disclosures or other
information which the Secretary
may require, including any
disclosures or other
information to facilitate the
selection or any monitoring of
the pooled plan provider by
employers in the plan; and
(II) each employer in the
plan to take such actions as
the Secretary or the pooled
plan provider determines are
necessary to administer the
plan or for the plan to meet
any requirement applicable
under this Act or the Internal
Revenue Code of 1986 to a plan
described in [section 401(a) of
such Code or] section 401(a) of
such Code, a plan that consists
of contracts described in
section 403(b) of such Code, or
to a plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable,
including providing any
disclosures or other
information which the Secretary
may require or which the pooled
plan provider otherwise
determines are necessary to
administer the plan or to allow
the plan to meet such
requirements; and
(vi) provide that any disclosure or
other information required to be
provided under clause (v) may be
provided in electronic form and will be
designed to ensure only reasonable
costs are imposed on pooled plan
providers and employers in the plan.
(C) Exceptions.--The term ``pooled employer
plan'' does not include--
(i) a multiemployer plan; or
(ii) a plan established before the
date of the enactment of the Setting
Every Community Up for Retirement
Enhancement Act of 2019 unless the plan
administrator elects that the plan will
be treated as a pooled employer plan
and the plan meets the requirements of
this title applicable to a pooled
employer plan established on or after
such date.
(D) Treatment of employers as plan
sponsors.--Except with respect to the
administrative duties of the pooled plan
provider described in paragraph (44)(A)(i),
each employer in a pooled employer plan shall
be treated as the plan sponsor with respect to
the portion of the plan attributable to
employees of such employer (or beneficiaries of
such employees).
(44) Pooled plan provider.--
(A) In general.--The term ``pooled plan
provider'' means a person who--
(i) is designated by the terms of a
pooled employer plan as a named
fiduciary, as the plan administrator,
and as the person responsible for the
performance of all administrative
duties (including conducting proper
testing with respect to the plan and
the employees of each employer in the
plan) which are reasonably necessary to
ensure that--
(I) the plan meets any
requirement applicable under
this Act or the Internal
Revenue Code of 1986 to a plan
described in [section 401(a) of
such Code or] 401(a) of such
Code, a plan that consists of
contracts described in section
403(b) of such Code, or to a
plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable; and
(II) each employer in the
plan takes such actions as the
Secretary or pooled plan
provider determines are
necessary for the plan to meet
the requirements described in
subclause (I), including
providing the disclosures and
information described in
paragraph (43)(B)(v)(II);
(ii) registers as a pooled plan
provider with the Secretary, and
provides to the Secretary such other
information as the Secretary may
require, before beginning operations as
a pooled plan provider;
(iii) acknowledges in writing that
such person is a named fiduciary, and
the plan administrator, with respect to
the pooled employer plan; and
(iv) is responsible for ensuring that
all persons who handle assets of, or
who are fiduciaries of, the pooled
employer plan are bonded in accordance
with section 412.
(B) Audits, examinations and
investigations.--The Secretary may perform
audits, examinations, and investigations of
pooled plan providers as may be necessary to
enforce and carry out the purposes of this
paragraph and paragraph (43).
(C) Guidance.--The Secretary shall issue such
guidance as the Secretary determines
appropriate to carry out this paragraph and
paragraph (43), including guidance--
(i) to identify the administrative
duties and other actions required to be
performed by a pooled plan provider
under either such paragraph; and
(ii) which requires in appropriate
cases that if an employer in the plan
fails to take the actions required
under subparagraph (A)(i)(II)--
(I) the assets of the plan
attributable to employees of
such employer (or beneficiaries
of such employees) are
transferred to a plan
maintained only by such
employer (or its successor), to
an eligible retirement plan as
defined in section 402(c)(8)(B)
of the Internal Revenue Code of
1986 for each individual whose
account is transferred, or to
any other arrangement that the
Secretary determines is
appropriate in such guidance;
and
(II) such employer (and not
the plan with respect to which
the failure occurred or any
other employer in such plan)
shall, except to the extent
provided in such guidance, be
liable for any liabilities with
respect to such plan
attributable to employees of
such employer (or beneficiaries
of such employees).
The Secretary shall take into account
under clause (ii) whether the failure
of an employer or pooled plan provider
to provide any disclosures or other
information, or to take any other
action, necessary to administer a plan
or to allow a plan to meet requirements
described in subparagraph (A)(i)(II)
has continued over a period of time
that demonstrates a lack of commitment
to compliance. The Secretary may waive
the requirements of subclause (ii)(I)
in appropriate circumstances if the
Secretary determines it is in the best
interests of the employees of the
employer referred to in such clause
(and the beneficiaries of such
employees) to retain the assets in the
plan with respect to which the
employer's failure occurred.
(D) Good faith compliance with law before
guidance.--An employer or pooled plan provider
shall not be treated as failing to meet a
requirement of guidance issued by the Secretary
under subparagraph (C) if, before the issuance
of such guidance, the employer or pooled plan
provider complies in good faith with a
reasonable interpretation of the provisions of
this paragraph, or paragraph (43), to which
such guidance relates.
(E) Aggregation rules.--For purposes of this
paragraph, in determining whether a person
meets the requirements of this paragraph to be
a pooled plan provider with respect to any
plan, all persons who perform services for the
plan and who are treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 of the Internal Revenue Code of
1986 shall be treated as one person.
* * * * * * *
Subtitle B--Regulatory Provisions
* * * * * * *
Part 1--Reporting and Disclosure
* * * * * * *
SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
(a) In General.--Notwithstanding any other provision of this
title, with respect to any individual account plan, no
disclosure, notice, or other plan document (other than the
notices and documents described in paragraphs (1) and (2))
shall be required to be furnished under this title to any
unenrolled participant if the unenrolled participant receives--
(1) an annual reminder notice of such participant's
eligibility to participate in such plan and any
applicable election deadlines under the plan; and
(2) any document requested by such participant that
the participant would be entitled to receive
notwithstanding this section.
(b) Unenrolled Participant.--For purposes of this section,
the term ``unenrolled participant'' means an employee who--
(1) is eligible to participate in an individual
account plan;
(2) has received the summary plan description
pursuant to section 104(b) and any other eligibility
notices required to be furnished under this title in
connection with such participant's initial eligibility
to participate in such plan;
(3) is not participating in such plan;
(4) does not have a balance in the plan; and
(5) satisfies such other criteria as the Secretary of
Labor may determine appropriate, as prescribed in
guidance issued in consultation with the Secretary of
Treasury.
For purposes of this section, any eligibility to participate in
the plan following any period for which such employee was not
eligible to participate shall be treated as initial
eligibility.
(c) Annual Reminder Notice.--For purposes of this section,
the term ``annual reminder notice'' means a notice provided in
accordance with section 2520.104b-1 of title 29, Code of
Federal Regulations (or any successor regulation), which--
(1) is furnished in connection with the annual open
season election period with respect to the plan or, if
there is no such period, is furnished within a
reasonable period prior to the beginning of each plan
year;
(2) notifies the unenrolled participant of--
(A) the unenrolled participant's eligibility
to participate in the plan; and
(B) the key benefits and rights under the
plan, with a focus on employer contributions
and vesting provisions; and
(3) provides such information in a prominent manner
calculated to be understood by the average participant.
REPEAL AND EFFECTIVE DATE
Sec. [111.] 112. (a)(1) The Welfare and Pension Plans
Disclosure Act is repealed except that such Act shall continue
to apply to any conduct and events which occurred before the
effective date of this part.
(2)
(b)(1) Except as provided in paragraph (2), this part
(including the amendments and repeals made by subsection (a))
shall take effect on January 1, 1975.
(2) In the case of a plan which has a plan year which begins
before January 1, 1975, and ends after December 31, 1974, the
Secretary may postpone by regulation the effective date of the
repeal of any provision of the Welfare and Pension Plans
Disclosure Act (and of any amendment made by subsection (a)(2))
and the effective date of any provision of this part, until the
beginning of the first plan year of such plan which begins
after January 1, 1975.
(c) The provisions of this title authorizing the Secretary to
promulgate regulations shall take effect on the date of
enactment of this Act.
(d) Subsections (b) and (c) shall not apply with respect to
amendments made to this part in provisions enacted after the
date of the enactment of this Act.
Part 2--Participation and Vesting
* * * * * * *
MINIMUM PARTICIPATION STANDARDS
Sec. 202. (a)(1)(A) No pension plan may require, as a
condition of participation in the plan, that an employee
complete a period of service with the employer or employers
maintaining the plan extending beyond the later of the
following dates--
(i) the date on which the employee attains the age of
21; or
(ii) the date on which he completes 1 year of
service.
(B)(i) In the case of any plan which provides that after not
more than 2 years of service each participant has a right to
100 percent of his accrued benefit under the plan which is
nonforfeitable at the time such benefit accrues, clause (ii) of
subparagraph (A) shall be applied by substituting ``2 years of
service'' for ``1 year of service''.
(ii) In the case of any plan maintained exclusively for
employees of an educational organization (as defined in section
170(b)(1)(A)(ii) of the Internal Revenue Code of 1986) by an
employer which is exempt from tax under section 501(a) of such
Code, which provides that each participant having at least 1
year of service has a right to 100 percent of his accrued
benefit under the plan which is nonforfeitable at the time such
benefit accrues, clause (i) of subparagraph (A) shall be
applied by substituting ``26'' for ``21''. This clause shall
not apply to any plan to which clause (i) applies.
(2) No pension plan may exclude from participation (on the
basis of age) employees who have attained a specified age.
(3)(A) For purposes of this section, the term ``year of
service'' means a 12-month period during which the employee has
not less than 1,000 hours of service. For purposes of this
paragraph, computation of any 12-month period shall be made
with reference to the date on which the employee's employment
commenced, except that, in accordance with regulations
prescribed by the Secretary, such computation may be made by
reference to the first day of a plan year in the case of an
employee who does not complete 1,000 hours of service during
the 12-month period beginning on the date his employment
commenced.
(B) In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term ``year of service'' shall be such period as may
be determined under regulations prescribed by the Secretary.
(C) For purposes of this section, the term ``hour of
service'' means a time of service determined under regulations
prescribed by the Secretary.
(D) For purposes of this section, in the case of any maritime
industry, 125 days of service shall be treated as 1,000 hours
of service. The Secretary may prescribe regulations to carry
out the purposes of this subparagraph.
(4) A plan shall be treated as not meeting the requirements
of paragraph (1) unless it provides that any employee who has
satisfied the minimum age and service requirements specified in
such paragraph, and who is otherwise entitled to participate in
the plan, commences participation in the plan no later than the
earlier of--
(A) the first day of the first plan year beginning
after the date on which such employee satisfied such
requirements, or
(B) the date 6 months after the date on which he
satisfied such requirements,
unless such employee was separated from the service before the
date referred to in subparagraph (A) or (B), whichever is
applicable.
(b)(1) Except as otherwise provided in paragraphs (2), (3),
and (4), all years of service with the employer or employers
maintaining the plan shall be taken into account in computing
the period of service for purposes of subsection (a)(1).
(2) In the case of any employee who has any 1-year break in
service (as defined in section 203(b)(3)(A)) under a plan to
which the service requirements of clause (i) of subsection
(a)(1)(B) apply, if such employee has not satisfied such
requirements, service before such break shall not be required
to be taken into account.
(3) In computing an employee's period of service for purposes
of subsection (a)(1) in the case of any participant who has any
1-year break in service (as defined in section 203(b)(3)(A)),
service before such break shall not be required to be taken
into account under the plan until he has completed a year of
service (as defined in subsection (a)(3)) after his return.
(4)(A) For purposes of paragraph (1), in the case of a
nonvested participant, years of service with the employer or
employers maintaining the plan before any period of consecutive
1-year breaks in service shall not be required to be taken into
account in computing the period of service if the number of
consecutive 1-year breaks in service within such period equals
or exceeds the greater of--
(i) 5, or
(ii) the aggregate number of years of service before
such period.
(B) If any years of service are not required to be taken into
account by reason of a period of breaks in service to which
subparagraph (A) applies, such years of service shall not be
taken into account in applying subparagraph (A) to a subsequent
period of breaks in service.
(C) For purposes of subparagraph (A), the term ``nonvested
participant'' means a participant who does not have any
nonforfeitable right under the plan to an accrued benefit
derived from employer contributions.
(5)(A) In the case of each individual who is absent from work
for any period--
(i) by reason of the pregnancy of the individual,
(ii) by reason of the birth of a child of the
individual,
(iii) by reason of the placement of a child with the
individual in connection with the adoption of such
child by such individual, or
(iv) for purposes of caring for such child for a
period beginning immediately following such birth or
placement,
the plan shall treat as hours of service, solely for purposes
of determining under this subsection whether a 1-year break in
service (as defined in section 203(b)(3)(A)) has occurred, the
hours described in subparagraph (B).
(B) The hours described in this subparagraph are--
(i) the hours of service which otherwise would
normally have been credited to such individual but for
such absence, or
(ii) in any case in which the plan is unable to
determine the hours described in clause (i), 8 hours of
service per day of such absence,
except that the total number of hours treated as hours of
service under this subparagraph by reason of any such pregnancy
or placement shall not exceed 501 hours.
(C) The hours described in subparagraph (B) shall be treated
as hours of service as provided in this paragraph--
(i) only in the year in which the absence from work
begins, if a participant would be prevented from
incurring a 1-year break in service in such year solely
because the period of absence is treated as hours of
service as provided in subparagraph (A); or
(ii) in any other case, in the immediately following
year.
(D) For purposes of this paragraph, the term ``year'' means
the period used in computations pursuant to section
202(a)(3)(A).
(E) A plan may provide that no credit will be given pursuant
to this paragraph unless the individual furnishes to the plan
administrator such timely information as the plan may
reasonably require to establish--
(i) that the absence from work is for rasons referred
to in subparagraph (A), and
(ii) the number of days for which there was such an
absence.
(c) Special Rule for Certain Part-time Employees.--
(1) In general.--A pension plan that includes either
a qualified cash or deferred arrangement (as defined in
section 401(k) of the Internal Revenue Code of 1986) or
a salary reduction agreement (as described in section
403(b) of such Code) shall not require, as a condition
of participation in the arrangement or agreement, that
an employee complete a period of service with the
employer (or employers) maintaining the plan extending
beyond the close of the earlier of--
(A) the period permitted under subsection
(a)(1) (determined without regard to
subparagraph (B)(i) thereof); or
(B) the first 24-month period--
(i) consisting of 2 consecutive 12-
month periods during each of which the
employee has at least 500 hours of
service; and
(ii) by the close of which the
employee has attained the age of 21.
(2) Exception.--Paragraph (1)(B) shall not apply to
any employee described in section 410(b)(3) of the
Internal Revenue Code of 1986.
(3) Coordination with other rules.--
(A) In general.--In the case of employees who
are eligible to participate in the arrangement
or agreement solely by reason of paragraph
(1)(B):
(i) Exclusions.--An employer may
elect to exclude such employees from
the application of subsections (a)(4),
(k)(3), (k)(12), (k)(13),
(k)(15)(B)(i)(I), and (m)(2) of section
401 of the Internal Revenue Code of
1986 and section 410(b) of such Code.
(ii) Time of participation.--The
rules of subsection (a)(4) shall apply
to such employees.
(B) Top-heavy rules.--An employer may elect
to exclude all employees who are eligible to
participate in a plan maintained by the
employer solely by reason of paragraph (1)(B)
from the application of the vesting and benefit
requirements under subsections (b) and (c) of
section 416 of the Internal Revenue Code of
1986.
(4) 12-month period.--For purposes of this
subsection, 12-month periods shall be determined in the
same manner as under the last sentence of subsection
(a)(3)(A), except that 12-month periods beginning
before January 1, 2021, shall not be taken into
account.
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) A plan satisfies the requirements of this
paragraph if an employee's rights in his accrued
benefit derived from his own contributions are
nonforfeitable.
(2)(A)(i) In the case of a defined benefit plan, a
plan satisfies the requirements of this paragraph if it
satisfies the requirements of clause (ii) or (iii).
(ii) A plan satisfies the requirements of this clause
if an employee who has completed at least 5 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(iii) A plan satisfies the requirements of this
clause if an employee has a nonforfeitable right to a
percentage of the employee's accrued benefit derived
from employer contributions determined under the
following table:
Years of service: The nonforfeitable
percentage is:
3............................................................. 20
4............................................................. 40
5............................................................. 60
6............................................................. 80
7 or more..................................................... 100.
(B)(i) In the case of an individual account plan, a
plan satisfies the requirements of this paragraph if it
satisfies the requirements of clause (ii) or (iii).
(ii) A plan satisfies the requirements of this clause
if an employee who has completed at least 3 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(iii) A plan satisfies the requirements of this
clause if an employee has a nonforfeitable right to a
percentage of the employee's accrued benefit derived
from employer contributions determined under the
following table:
Years of service: The nonforfeitable
percentage is:
2............................................................. 20
3............................................................. 40
4............................................................. 60
5............................................................. 80
6 or more..................................................... 100.
(3)(A) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that it is
not payable if the participant dies (except in the case
of a survivor annuity which is payable as provided in
section 205).
(B) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that the
payment of benefits is suspended for such period as the
employee is employed, subsequent to the commencement of
payment of such benefits--
(i) in the case of a plan other than a
multiemployer plan, by an employer who
maintains the plan under which such benefits
were being paid; and
(ii) in the case of a multiemployer plan, in
the same industry, in the same trade or craft,
and the same geographic area covered by the
plan, as when such benefits commenced.
The Secretary shall prescribe such regulations as may
be necessary to carry out the purposes of this
subparagraph, including regulations with respect to the
meaning of the term ``employed''.
(C) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because plan amendments may be given
retroactive application as provided in section
302(d)(2).
(D)(i) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that, in
the case of a participant who does not have a
nonforfeitable right to at least 50 percent of his
accrued benefit derived from employer contributions,
such accrued benefit may be forfeited on account of the
withdrawal by the participant of any amount
attributable to the benefit derived from mandatory
contributions (as defined in the last sentence of
section 204(c)(2)(C)) made by such participant.
(ii) Clause (i) shall not apply to a plan unless the
plan provides that any accrued benefit forfeited under
a plan provision described in such clause shall be
restored upon repayment by the participant of the full
amount of the withdrawal described in such clause plus,
in the case of a defined benefit plan, interest. Such
interest shall be computed on such amount at the rate
determined for purposes of section 204(c)(2)(C) (if
such subsection applies) on the date of such repayment
(computed annually from the date of such withdrawal).
The plan provision required under this clause may
provide that such repayment must be made (I) in the
case of a withdrawal on account of separation from
service, before the earlier of 5 years after the first
date on which the participant is subsequently re-
employed by the employer, or the close of the first
period of 5 consecutive 1-year breaks in service
commencing after the withdrawal; or (II) in the case of
any other withdrawal, 5 years after the date of the
withdrawal.
(iii) In the case of accrued benefits derived from
employer contributions which accrued before the date of
the enactment of this Act, a right to such accrued
benefit derived from employer contributions shall not
be treated as forfeitable solely because the plan
provides that an amount of such accrued benefit may be
forfeited on account of the withdrawal by the
participant of an amount attributable to the benefit
derived from mandatory contributions, made by such
participant before the date of the enactment of this
Act if such amount forfeited is proportional to such
amount withdrawn. This clause shall not apply to any
plan to which any mandatory contribution is made after
the date of the enactment of this Act. The Secretary of
the Treasury shall prescribe such regulations as may be
necessary to carry out the purposes of this clause.
(iv) For purposes of this subparagraph, in the case
of any class-year plan, a withdrawal of employee
contributions shall be treated as a withdrawal of such
contributions on a plan year by plan year basis in
succeeding order of time.
(v) Cross Reference.--For nonforfeitability where the
employee has a nonforfeitable right to at least 50
percent of his accrued benefit, see section 206(c).
(E)(i) A right to an accrued benefit derived from
employer contributions under a multiemployer plan shall
not be treated as forfeitable solely because the plan
provides that benefits accrued as a result of service
with the participant's employer before the employer had
an obligation to contribute under the plan may not be
payable if the employer ceases contributions to the
multiemployer plan.
(ii) A participant's right to an accrued benefit
derived from employer contributions under a
multiemployer plan shall not be treated as forfeitable
solely because--
(I) the plan is amended to reduce benefits
under section 4244A or 4281, or
(II) benefit payments under the plan may be
suspended under section 4245 or 4281.
(F) A matching contribution (within the meaning of
section 401(m) of the Internal Revenue Code of 1986)
shall not be treated as forfeitable merely because such
contribution is forfeitable if the contribution to
which the matching contribution relates is treated as
an excess contribution under section 401(k)(8)(B) of
such Code, an excess deferral under section
402(g)(2)(A) of such Code, an erroneous automatic
contribution under section 414(w) of such Code, or an
excess aggregate contribution under section
401(m)(6)(B) of such Code.
(b)(1) In computing the period of service under the plan for
purposes of determining the nonforfeitable percentage under
subsection (a)(2), all of an employee's years of service with
the employer or employers maintaining the plan shall be taken
into account, except that the following may be disregarded:
(A) years of service before age 18,
(B) years of service during a period for which the
employee declined to contribute to a plan requiring
employee contributions;
(C) years of service with an employer during any
period for which the employer did not maintain the plan
or a predecessor plan, defined by the Secretary of the
Treasury;
(D) service not required to be taken into account
under paragraph (3);
(E) years of service before January 1, 1971, unless
the employee has had at least 3 years of service after
December 31, 1970;
(F) years of service before this part first applies
to the plan if such service would have been disregarded
under the rules of the plan with regard to breaks in
service, as in effect on the applicable date; and
(G) in the case of a multiemployer plan, years of
service--
(i) with an employer after--
(I) a complete withdrawal of such
employer from the plan (within the
meaning of section 4203), or
(II) to the extent permitted by
regulations prescribed by the Secretary
of the Treasury, a partial withdrawal
described in section 4205(b)(2)(A)(i)
of this title in connection with the
decertification of the collective
bargaining representative; and
(ii) with any employer under the plan after
the termination date of the plan under section
4048.
(2)(A) For purposes of this section, except as provided in
subparagraph (C), the term ``year of service'' means a calendar
year, plan year, or other 12-consecutive month period
designated by the plan (and not prohibited under regulations
prescribed by the Secretary) during which the participant has
completed 1,000 hours of service.
(B) For purposes of this section, the term ``hour of
service'' has the meaning provided by section 202(a)(3)(C).
(C) In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term ``year of service'' shall be such period as
determined under regulations of the Secretary.
(D) For purposes of this section, in the case of any maritime
industry, 125 days of service shall be treated as 1,000 hours
of service. The Secretary may prescribe regulations to carry
out the purposes of this subparagraph.
(3)(A) For purposes of this paragraph, the term ``1-year
break in service'' means a calendar year, plan year, or other
12-consecutive-month period designated by the plan (and not
prohibited under regulations prescribed by the Secretary)
during which the participant has not completed more than 500
hours of service.
(B) For purposes of paragraph (1), in the case of any
employee who has any 1-year break in service, years of service
before such break shall not be required to be taken into
account until he has completed a year of service after his
return.
(C) For purposes of paragraph (1), in the case of any
participant in an individual account plan or an insured defined
benefit plan which satisfies the requirements of subsection
204(b)(1)(F) who has 5 consecutive 1-year breaks in service,
years of service after such 5-year period shall not be required
to be taken into account for purposes of determining the
nonforfeitable percentage of his accrued benefit derived from
employer contributions which accrued before such break.
(D)(i) For purposes of paragraph (1), in the case of a
nonvested participant, years of service with the employer or
employers maintaining the plan before any period of consecutive
1-year breaks in service shall not be required to be taken into
account if the number of consecutive 1-year breaks in service
within such period equals or exceeds the greater of--
(I) 5, or
(II) the aggregate number of years of service before
such period.
(ii) If any years of service are not required to be taken
into account by reason of a period of breaks in service to
which clause (i) applies, such years of service shall not be
taken into account in applying clause (i) to a subsequent
period of breaks in service.
(iii) For purposes of clause (i), the term ``nonvested
participant'' means a participant who does not have any
nonforfeitable right under the plan to an accrued benefit
derived from employer contributions.
(E)(i) In the case of each individual who is absent from work
for any period--
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the
individual,
(III) by reason of the placement of a child with the
individual in connection with the adoption of such
child by such individual, or
(IV) for purposes of caring for such child for a
period beginning immediately following such birth or
placement,
the plan shall treat as hours of service, solely for
purposes of determining under this paragraph whether a
1-year break in service has occurred, the hours
described in clause (ii).
(ii) The hours described in this clause are--
(I) the hours of service which otherwise would
normally have been credited to such individual but for
such absence, or
(II) in any case in which the plan is unable to
determine the hours described in subclause (I), 8 hours
of service per day of absence,
except that the total number of hours treated as hours of
service under this clause by reason of such pregnancy or
placement shall not exceed 501 hours.
(iii) The hours described in clause (ii) shall be treated as
hours of service as provided in this subparagraph--
(I) only in the year in which the absence from work
begins, if a participant would be prevented from
incurring a 1-year break in service in such year solely
because the period of absence is treated as hours of
service as provided in clause (i); or
(II) in any other case, in the immediately following
year.
(iv) For purposes of this subparagraph, the term ``year''
means the period used in computations pursuant to paragraph
(2).
(v) A plan may provide that no credit will be given pursuant
to this subparagraph unless the individual furnishes to the
plan administrator such timely information as the plan may
reasonably require to establish--
(I) that the absence from work is for reasons
referred to in clause (i), and
(II) the number of days for which there was such an
absence.
(4) Part-time employees.--For purposes of determining
whether an employee who is eligible to participate in a
qualified cash or deferred arrangement or a salary
reduction agreement under a plan solely by reason of
section 202(c)(1)(B) has a nonforfeitable right to
employer contributions--
(A) except as provided in subparagraph (B),
each 12-month period for which the employee has
at least 500 hours of service shall be treated
as a year of service;
(B) paragraph (3) shall be applied by
substituting ``at least 500 hours of service''
for ``more than 500 hours of service'' in
subparagraph (A) thereof; and
(C) 12-month periods occurring before the 24-
month period described in section 202(c)(1)(B)
shall not be treated as years of service.
For purposes of this paragraph, 12-month periods shall
be determined in the same manner as under the last
sentence of section 202(a)(3)(A), except that 12-month
periods beginning before January 1, 2021, shall not be
taken into account.
[(4)] (5) Cross References.--
(A) For definitions of ``accrued benefit'' and
``normal retirement age'', see sections 3(23) and (24).
(B) For effect of certain cash out distributions, see
section 204(d)(1).
(c)(1)(A) A plan amendment changing any vesting schedule
under this plan shall be treated as not satisfying the
requirements of subsection (a)(2) if the nonforfeitable
percentage of the accrued benefit derived from employer
contributions (determined as of the later of the date such
amendment is adopted, or the date such amendment becomes
effective) of any employee who is a participant in the plan is
less than such nonforfeitable percentage computed under the
plan without regard to such amendment.
(B) A plan amendment changing any vesting schedule under the
plan shall be treated as not satisfying the requirements of
subsection (a)(2) unless each participant having not less than
3 years of service is permitted to elect, within a reasonable
period after adoption of such amendment, to have his
nonforfeitable percentage computed under the plan without
regard to such amendment.
(2) Subsection (a) shall not apply to benefits which may not
be provided for designated employees in the event of early
termination of the plan under provisions of the plan adopted
pursuant to regulations prescribed by the Secretary of the
Treasury to preclude the discrimination prohibited by section
401(a)(4) of the Internal Revenue Code of 1986.
(d) A pension plan may allow for nonforfeitable benefits
after a lesser period and in greater amounts than are required
by this part.
(e)(1) If the present value of any nonforfeitable benefit
with respect to a participant in a plan exceeds [$5,000]
$7,000, the plan shall provide that such benefit may not be
immediately distributed without the consent of the participant.
(2) For purposes of paragraph (1), the present value
shall be calculated in accordance with section
205(g)(3).
(3) This subsection shall not apply to any distribution of
dividends to which section 404(k) of the Internal Revenue Code
of 1986 applies.
(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.
(f) Special Rules for Plans Computing Accrued Benefits by
Reference to Hypothetical Account Balance or Equivalent
Amounts.--
(1) In general.--An applicable defined benefit plan
shall not be treated as failing to meet--
(A) subject to paragraph (2), the
requirements of subsection (a)(2), or
(B) the requirements of section 204(c) or
205(g), or the requirements of subsection (e),
with respect to accrued benefits derived from
employer contributions,
solely because the present value of the accrued benefit
(or any portion thereof) of any participant is, under
the terms of the plan, equal to the amount expressed as
the balance in the hypothetical account described in
paragraph (3) or as an accumulated percentage of the
participant's final average compensation.
(2) 3-year vesting.--In the case of an applicable
defined benefit plan, such plan shall be treated as
meeting the requirements of subsection (a)(2) only if
an employee who has completed at least 3 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(3) Applicable defined benefit plan and related
rules.--For purposes of this subsection--
(A) In general.--The term ``applicable
defined benefit plan'' means a defined benefit
plan under which the accrued benefit (or any
portion thereof) is calculated as the balance
of a hypothetical account maintained for the
participant or as an accumulated percentage of
the participant's final average compensation.
(B) Regulations to include similar plans.--
The Secretary of the Treasury shall issue
regulations which include in the definition of
an applicable defined benefit plan any defined
benefit plan (or any portion of such a plan)
which has an effect similar to an applicable
defined benefit plan.
* * * * * * *
other provisions relating to form and payment of benefits
Sec. 206. (a) Each pension plan shall provide that unless the
participant otherwise elects, the payment of benefits under the
plan to the participant shall begin not later than the 60th day
after the latest of the close of the plan year in which--
(1) occurs the date on which the participant attains
the earlier of age 65 or the normal retirement age
specified under the plan,
(2) occurs the 10th anniversary of the year in which
the participant commenced participation in the plan, or
(3) the participant terminates his service with the
employer.
In the case of a plan which provides for the payment of an
early retirement benefit, such plan shall provide that a
participant who satisfied the service requirements for such
early retirement benefit, but separated from the service (with
any nonforfeitable right to an accrued benefit) before
satisfying the age requirement for such early retirement
benefit, is entitled upon satisfaction of such age requirement
to receive a benefit not less than the benefit to which he
would be entitled at the normal retirement age, actuarially
reduced under regulations prescribed by the Secretary of the
Treasury.
(b) If--
(1) a participant or beneficiary is receiving
benefits under a pension plan, or
(2) a participant is separated from the service and
has non-forfeitable rights to benefits,
a plan may not decrease benefits of such a participant by
reason of any increase in the benefit levels payable under
title II of the Social Security Act or the Railroad Retirement
Act of 1937 or any increase in the wage base under such title
II, if such increase takes place after the date of the
enactment of this Act or (if later) the earlier of the date of
first entitlement of such benefits or the date of such
separation.
(c) No pension plan may provide that any part of a
participant's accrued benefit derived from employer
contributions (whether or not otherwise nonforfeitable) is
forfeitable solely because of withdrawal by such participant of
any amount attributable to the benefit derived from
contributions made by such participant. The preceding sentence
shall not apply (1) to the accrued benefit of any participant
unless, at the time of such withdrawal, such participant has a
nonforfeitable right to at least 50 percent of such accrued
benefit, or (2) to the extent that an accrued benefit is
permitted to be forfeited in accordance with section
203(a)(3)(D)(iii).
(d)(1) Each pension plan shall provide that benefits provided
under the plan may not be assigned or alienated.
(2) For the purposes of paragraph (1) of this subsection,
there shall not be taken into account any voluntary and
revocable assignment of not to exceed 10 percent of any benefit
payment, or of any irrevocable assignment or alienation of
benefits executed before the date of enactment of this Act. The
preceding sentence shall not apply to any assignment or
alienation made for the purposes of defraying plan
administration costs. For purposes of this paragraph a loan
made to a participant or beneficiary shall not be treated as an
assignment or alienation if such loan is secured by the
participant's accrued nonforfeitable benefit and is exempt from
the tax imposed by section 4975 of the Internal Revenue Code of
1986 (relating to tax on prohibited transactions) by reason of
section 4975(d)(1) of such Code.
(3)(A) Paragraph (1) shall apply to the creation, assignment,
or recognition of a right to any benefit payable with respect
to a participant pursuant to a domestic relations order, except
that paragraph (1) shall not apply if the order is determined
to be a qualified domestic relations order. Each pension plan
shall provide for the payment of benefits in accordance with
the applicable requirements of any qualified domestic relations
order.
(B) For purposes of this paragraph--
(i) the term ``qualified domestic relations order''
means a domestic relations order--
(I) which creates or recognizes the existence
of an alternate payee's right to, or assigns to
an alternate payee the right to, receive all or
a portion of the benefits payable with respect
to a participant under a plan, and
(II) with respect to which the requirements
of subparagraphs (C) and (D) are met, and
(ii) the term ``domestic relations order'' means any
judgment, decree, or order (including approval of a
property settlement agreement) which--
(I) relates to the provision of child
support, alimony payments, or marital property
rights to a spouse, former spouse, child, or
other dependent of a participant, and
(II) is made pursuant to a State domestic
relations law (including a community property
law).
(C) A domestic relations order meets the requirements of this
subparagraph only if such order clearly specifies--
(i) the name and the last known mailing address (if
any) of the participant and the name and mailing
address of each alternate payee covered by the order,
(ii) the amount or percentage of the participant's
benefits to be paid by the plan to each such alternate
payee, or the manner in which such amount or percentage
is to be determined,
(iii) the number of payments or period to which such
order applies, and
(iv) each plan to which such order applies.
(D) A domestic relations order meets the requirements of this
subparagraph only if such order--
(i) does not require a plan to provide any type or
form of benefit, or any option, not otherwise provided
under the plan,
(ii) does not require the plan to provide increased
benefits (determined on the basis of actuarial value),
and
(iii) does not require the payment of benefits to an
alternate payee which are required to be paid to
another alternate payee under another order previously
determined to be a qualified domestic relations order.
(E)(i) A domestic relations order shall not be treated as
failing to meet the requirements of clause (i) of subparagraph
(D) solely because such order requires that payment of benefits
be made to an alternate payee--
(I) in the case of any payment before a participant
has separated from service, on or after the date on
which the participant attains (or would have attained)
the earliest retirement age,
(II) as if the participant had retired on the date on
which such payment is to begin under such order (but
taking into account only the present value of benefits
actually accrued and not taking into account the
present value of any employer subsidy for early
retirement), and
(III) in any form in which such benefits may be paid
under the plan to the participant (other than in the
form of a joint and survivor annuity with respect to
the alternate payee and his or her subsequent spouse).
For purposes of subclause (II), the interest rate
assumption used in determining the present value shall
be the interest rate specified in the plan or, if no
rate is specified, 5 percent.
(ii) For purposes of this subparagraph, the term ``earliest
retirement age'' means the earlier of--
(I) the date on which the participant is entitled to
a distribution under the plan, or
(II) the later of the date of the participant attains
age 50 or the earliest date on which the participant
could begin receiving benefits under the plan if the
participant separated from service.
(F) To the extent provided in any qualified domestic
relations order--
(i) the former spouse of a participant shall be
treated as a surviving spouse of such participant for
purposes of section 205 (and any spouse of the
participant shall not be treated as a spouse of the
participant for such purposes), and
(ii) if married for at least 1 year, the surviving
former spouse shall be treated as meeting the
requirements of section 205(f).
(G)(i) In the case of any domestic relations order received
by a plan--
(I) the plan administrator shall promptly notify the
participant and each alternate payee of the receipt of
such order and the plan's procedures for determining
the qualified status of domestic relations orders, and
(II) within a reasonable period after receipt of such
order, the plan administrator shall determine whether
such order is a qualified domestic relations order and
notify the participant and each alternate payee of such
determination.
(ii) Each plan shall establish reasonable procedures to
determine the qualified status of domestic relations orders and
to administer distributions under such qualified orders. Such
procedures--
(I) shall be in writing,
(II) shall provide for the notification of each
person specified in a domestic relations order as
entitled to payment of benefits under the plan (at the
address included in the domestic relations order) of
such procedures promptly upon receipt by the plan of
the domestic relations order, and
(III) shall permit an alternate payee to designate a
representative for receipt of copies of notices that
are sent to the alternate payee with respect to a
domestic relations order.
(H)(i) During any period in which the issue of whether a
domestic relations order is a qualified domestic relations
order is being determined (by the plan administrator, by a
court of competent jurisdiction, or otherwise), the plan
administrator shall separately account for the amounts
(hereinafter in this subparagraph referred to as the
``segregated amounts'') which would have been payable to the
alternate payee during such period if the order had been
determined to be a qualified domestic relations order.
(ii) If within the 18-month period described in clause (v)
the order (or modification thereof) is determined to be a
qualified domestic relations order, the plan administrator
shall pay the segregated amounts (including any interest
thereon) to the person or persons entitled thereto.
(iii) If within the 18-month period described in clause (v)--
(I) it is determined that the order is not a
qualified domestic relations order, or
(II) the issue as to whether such order is a
qualified domestic relations order is not resolved,
then the plan administrator shall pay the segregated amounts
(including any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no
order.
(iv) Any determination that an order is a qualified domestic
relations order which is made after the close of the 18-month
period described in clause (v) shall be applied prospectively
only.
(v) For purposes of this subparagraph, the 18-month period
described in this clause is the 18-month period beginning with
the date on which the first payment would be required to be
made under the domestic relations order.
(I) If a plan fiduciary acts in accordance with part 4 of
this subtitle in--
(i) treating a domestic relations order as being (or
not being) a qualified domestic relations order, or
(ii) taking action under subparagraph (H),
then the plan's obligation to the participant and each
alternate payee shall be discharged to the extent of any
payment made pursuant to such Act.
(J) A person who is an alternate payee under a qualified
domestic relations order shall be considered for purposes of
any provision of this Act a beneficiary under the plan. Nothing
in the preceding sentence shall permit a requirement under
section 4001 of the payment of more than 1 premium with respect
to a participant for any period.
(K) The term ``alternate payee'' means any spouse, former
spouse, child, or other dependent of a participant who is
recognized by a domestic relations order as having a right to
receive all, or a portion of, the benefits payable under a plan
with respect to such participant.
(L) This paragraph shall not apply to any plan to which
paragraph (1) does not apply.
(M) Payment of benefits by a pension plan in accordance with
the applicable requirements of a qualified domestic relations
order shall not be treated as garnishment for purposes of
section 303(a) of the Consumer Credit Protection Act.
(N) In prescribing regulations under this paragraph, the
Secretary shall consult with the Secretary of the Treasury.
(4) Paragraph (1) shall not apply to any offset of a
participant's benefits provided under an employee pension
benefit plan against an amount that the participant is ordered
or required to pay to the plan if--
(A) the order or requirement to pay arises--
(i) under a judgment of conviction for a
crime involving such plan,
(ii) under a civil judgment (including a
consent order or decree) entered by a court in
an action brought in connection with a
violation (or alleged violation) of part 4 of
this subtitle, or
(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
settlement agreement between the Pension
Benefit Guaranty Corporation and the
participant, in connection with a violation (or
alleged violation) of part 4 of this subtitle
by a fiduciary or any other person,
(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid to
the plan against the participant's benefits provided
under the plan, and
(C) in a case in which the survivor annuity
requirements of section 205 apply with respect to
distributions from the plan to the participant, if the
participant has a spouse at the time at which the
offset is to be made--
(i) either--
(I) such spouse has consented in
writing to such offset and such consent
is witnessed by a notary public or
representative of the plan (or it is
established to the satisfaction of a
plan representative that such consent
may not be obtained by reason of
circumstances described in section
205(c)(2)(B)), or
(II) an election to waive the right
of the spouse to a qualified joint and
survivor annuity or a qualified
preretirement survivor annuity is in
effect in accordance with the
requirements of section 205(c),
(ii) such spouse is ordered or required in
such judgment, order, decree, or settlement to
pay an amount to the plan in connection with a
violation of part 4 of this subtitle, or
(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to
receive the survivor annuity under a qualified
joint and survivor annuity provided pursuant to
section 205(a)(1) and under a qualified
preretirement survivor annuity provided
pursuant to section 205(a)(2), determined in
accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements
of section 205 solely by reason of an offset under this
paragraph.
(5)(A) The survivor annuity described in paragraph
(4)(C)(iii) shall be determined as if--
(i) the participant terminated employment on the date
of the offset,
(ii) there was no offset,
(iii) the plan permitted commencement of benefits
only on or after normal retirement age,
(iv) the plan provided only the minimum-required
qualified joint and survivor annuity, and
(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the amount
of the survivor annuity payable under the minimum-
required qualified joint and survivor annuity.
(B) For purposes of this paragraph, the term ``minimum-
required qualified joint and survivor annuity'' means the
qualified joint and survivor annuity which is the actuarial
equivalent of the participant's accrued benefit (within the
meaning of section 3(23)) and under which the survivor annuity
is 50 percent of the amount of the annuity which is payable
during the joint lives of the participant and the spouse.
(e) Limitation on Distributions Other Than Life Annuities
Paid By The Plan.--
(1) In general.--Notwithstanding any other provision
of this part, the fiduciary of a pension plan that is
subject to the additional funding requirements of
section 303(j)(4) shall not permit a prohibited payment
to be made from a plan during a period in which such
plan has a liquidity shortfall (as defined in section
303(j)(4)(E)(i)).
(2) Prohibited payment.--For purposes of paragraph
(1), the term ``prohibited payment'' means--
(A) any payment, in excess of the monthly
amount paid under a single life annuity (plus
any social security supplements described in
the last sentence of section 204(b)(1)(G)), to
a participant or beneficiary whose annuity
starting date (as defined in section
205(h)(2)), that occurs during the period
referred to in paragraph (1),
(B) any payment for the purchase of an
irrevocable commitment from an insurer to pay
benefits, and
(C) any other payment specified by the
Secretary of the Treasury by regulations.
(3) Period of shortfall.--For purposes of this
subsection, a plan has a liquidity shortfall during the
period that there is an underpayment of an installment
under section 303(j)(3) by reason of section
303(j)(4)(A).
(4) Coordination with other provisions.--Compliance
with this subsection shall not constitute a violation
of any other provision of this Act.
(f) Missing Participants in Terminated Plans.--In the case of
a plan covered by section 4050, upon termination of the plan,
benefits of missing participants shall be treated in accordance
with section 4050.
(g) Funding-Based Limits on Benefits and Benefit Accruals
Under Single-Employer Plans.--
(1) Funding-based limitation on shutdown benefits and
other unpredictable contingent event benefits under
single-employer plans.--
(A) In general.--If a participant of a
defined benefit plan which is a single-employer
plan is entitled to an unpredictable contingent
event benefit payable with respect to any event
occurring during any plan year, the plan shall
provide that such benefit may not be provided
if the adjusted funding target attainment
percentage for such plan year--
(i) is less than 60 percent, or
(ii) would be less than 60 percent
taking into account such occurrence.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year,
upon payment by the plan sponsor of a
contribution (in addition to any minimum
required contribution under section 303) equal
to--
(i) in the case of subparagraph
(A)(i), the amount of the increase in
the funding target of the plan (under
section 303) for the plan year
attributable to the occurrence referred
to in subparagraph (A), and
(ii) in the case of subparagraph
(A)(ii), the amount sufficient to
result in an adjusted funding target
attainment percentage of 60 percent.
(C) Unpredictable contingent event benefit.--
For purposes of this paragraph, the term
``unpredictable contingent event benefit''
means any benefit payable solely by reason of--
(i) a plant shutdown (or similar
event, as determined by the Secretary
of the Treasury), or
(ii) an event other than the
attainment of any age, performance of
any service, receipt or derivation of
any compensation, or occurrence of
death or disability.
(2) Limitations on plan amendments increasing
liability for benefits.--
(A) In general.--No amendment to a defined
benefit plan which is a single-employer plan
which has the effect of increasing liabilities
of the plan by reason of increases in benefits,
establishment of new benefits, changing the
rate of benefit accrual, or changing the rate
at which benefits become nonforfeitable may
take effect during any plan year if the
adjusted funding target attainment percentage
for such plan year is--
(i) less than 80 percent, or
(ii) would be less than 80 percent
taking into account such amendment.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year
(or if later, the effective date of the
amendment), upon payment by the plan sponsor of
a contribution (in addition to any minimum
required contribution under section 303) equal
to--
(i) in the case of subparagraph
(A)(i), the amount of the increase in
the funding target of the plan (under
section 303) for the plan year
attributable to the amendment, and
(ii) in the case of subparagraph
(A)(ii), the amount sufficient to
result in an adjusted funding target
attainment percentage of 80 percent.
(C) Exception for certain benefit
increases.--Subparagraph (A) shall not apply to
any amendment which provides for an increase in
benefits under a formula which is not based on
a participant's compensation, but only if the
rate of such increase is not in excess of the
contemporaneous rate of increase in average
wages of participants covered by the amendment.
(3) Limitations on accelerated benefit
distributions.--
(A) Funding percentage less than 60
percent.--A defined benefit plan which is a
single-employer plan shall provide that, in any
case in which the plan's adjusted funding
target attainment percentage for a plan year is
less than 60 percent, the plan may not pay any
prohibited payment after the valuation date for
the plan year.
(B) Bankruptcy.--A defined benefit plan which
is a single-employer plan shall provide that,
during any period in which the plan sponsor is
a debtor in a case under title 11, United
States Code, or similar Federal or State law,
the plan may not pay any prohibited payment.
The preceding sentence shall not apply on or
after the date on which the enrolled actuary of
the plan certifies that the adjusted funding
target attainment percentage of such plan
(determined by not taking into account any
adjustment of segment rates under section
303(h)(2)(C)(iv)) is not less than 100 percent.
(C) Limited payment if percentage at least 60
percent but less than 80 percent.--
(i) In general.--A defined benefit
plan which is a single-employer plan
shall provide that, in any case in
which the plan's adjusted funding
target attainment percentage for a plan
year is 60 percent or greater but less
than 80 percent, the plan may not pay
any prohibited payment after the
valuation date for the plan year to the
extent the amount of the payment
exceeds the lesser of--
(I) 50 percent of the amount
of the payment which could be
made without regard to this
subsection, or
(II) the present value
(determined under guidance
prescribed by the Pension
Benefit Guaranty Corporation,
using the interest and
mortality assumptions under
section 205(g)) of the maximum
guarantee with respect to the
participant under section 4022.
(ii) One-time application.--
(I) In general.--The plan
shall also provide that only 1
prohibited payment meeting the
requirements of clause (i) may
be made with respect to any
participant during any period
of consecutive plan years to
which the limitations under
either subparagraph (A) or (B)
or this subparagraph applies.
(II) Treatment of
beneficiaries.--For purposes of
this clause, a participant and
any beneficiary on his behalf
(including an alternate payee,
as defined in section
206(d)(3)(K)) shall be treated
as 1 participant. If the
accrued benefit of a
participant is allocated to
such an alternate payee and 1
or more other persons, the
amount under clause (i) shall
be allocated among such persons
in the same manner as the
accrued benefit is allocated
unless the qualified domestic
relations order (as defined in
section 206(d)(3)(B)(i))
provides otherwise.
(D) Exception.--This paragraph shall not
apply to any plan for any plan year if the
terms of such plan (as in effect for the period
beginning on September 1, 2005, and ending with
such plan year) provide for no benefit accruals
with respect to any participant during such
period.
(E) Prohibited payment.--For purpose of this
paragraph, the term ``prohibited payment''
means--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 204(b)(1)(G)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 205(h)(2)) occurs during any
period a limitation under subparagraph
(A) or (B) is in effect,
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary of the Treasury by
regulations.
Such term shall not include the payment of a
benefit which under section 203(e) may be
immediately distributed without the consent of
the participant.
(4) Limitation on benefit accruals for plans with
severe funding shortfalls.--
(A) In general.--A defined benefit plan which
is a single-employer plan shall provide that,
in any case in which the plan's adjusted
funding target attainment percentage for a plan
year is less than 60 percent, benefit accruals
under the plan shall cease as of the valuation
date for the plan year.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year,
upon payment by the plan sponsor of a
contribution (in addition to any minimum
required contribution under section 303) equal
to the amount sufficient to result in an
adjusted funding target attainment percentage
of 60 percent.
(5) Rules relating to contributions required to avoid
benefit limitations.--
(A) Security may be provided.--
(i) In general.--For purposes of this
subsection, the adjusted funding target
attainment percentage shall be
determined by treating as an asset of
the plan any security provided by a
plan sponsor in a form meeting the
requirements of clause (ii).
(ii) Form of security.--The security
required under clause (i) shall consist
of--
(I) a bond issued by a
corporate surety company that
is an acceptable surety for
purposes of section 412 of this
Act,
(II) cash, or United States
obligations which mature in 3
years or less, held in escrow
by a bank or similar financial
institution, or
(III) such other form of
security as is satisfactory to
the Secretary of the Treasury
and the parties involved.
(iii) Enforcement.--Any security
provided under clause (i) may be
perfected and enforced at any time
after the earlier of--
(I) the date on which the
plan terminates,
(II) if there is a failure to
make a payment of the minimum
required contribution for any
plan year beginning after the
security is provided, the due
date for the payment under
section 303(j), or
(III) if the adjusted funding
target attainment percentage is
less than 60 percent for a
consecutive period of 7 years,
the valuation date for the last
year in the period.
(iv) Release of security.--The
security shall be released (and any
amounts thereunder shall be refunded
together with any interest accrued
thereon) at such time as the Secretary
of the Treasury may prescribe in
regulations, including regulations for
partial releases of the security by
reason of increases in the adjusted
funding target attainment percentage.
(B) Prefunding balance or funding standard
carryover balance may not be used.--No
prefunding balance or funding standard
carryover balance under section 303(f) may be
used under paragraph (1), (2), or (4) to
satisfy any payment an employer may make under
any such paragraph to avoid or terminate the
application of any limitation under such
paragraph.
(C) Deemed reduction of funding balances.--
(i) In general.--Subject to clause
(iii), in any case in which a benefit
limitation under paragraph (1), (2),
(3), or (4) would (but for this
subparagraph and determined without
regard to paragraph (1)(B), (2)(B), or
(4)(B)) apply to such plan for the plan
year, the plan sponsor of such plan
shall be treated for purposes of this
Act as having made an election under
section 303(f) to reduce the prefunding
balance or funding standard carryover
balance by such amount as is necessary
for such benefit limitation to not
apply to the plan for such plan year.
(ii) Exception for insufficient
funding balances.--Clause (i) shall not
apply with respect to a benefit
limitation for any plan year if the
application of clause (i) would not
result in the benefit limitation not
applying for such plan year.
(iii) Restrictions of certain rules
to collectively bargained plans.--With
respect to any benefit limitation under
paragraph (1), (2), or (4), clause (i)
shall only apply in the case of a plan
maintained pursuant to 1 or more
collective bargaining agreements
between employee representatives and 1
or more employers.
(6) New plans.--Paragraphs (1), (2), and (4) shall
not apply to a plan for the first 5 plan years of the
plan. For purposes of this paragraph, the reference in
this paragraph to a plan shall include a reference to
any predecessor plan.
(7) Presumed underfunding for purposes of benefit
limitations.--
(A) Presumption of continued underfunding.--
In any case in which a benefit limitation under
paragraph (1), (2), (3), or (4) has been
applied to a plan with respect to the plan year
preceding the current plan year, the adjusted
funding target attainment percentage of the
plan for the current plan year shall be
presumed to be equal to the adjusted funding
target attainment percentage of the plan for
the preceding plan year until the enrolled
actuary of the plan certifies the actual
adjusted funding target attainment percentage
of the plan for the current plan year.
(B) Presumption of underfunding after 10th
month.--In any case in which no certification
of the adjusted funding target attainment
percentage for the current plan year is made
with respect to the plan before the first day
of the 10th month of such year, for purposes of
paragraphs (1), (2), (3), and (4), such first
day shall be deemed, for purposes of such
paragraph, to be the valuation date of the plan
for the current plan year and the plan's
adjusted funding target attainment percentage
shall be conclusively presumed to be less than
60 percent as of such first day.
(C) Presumption of underfunding after 4th
month for nearly underfunded plans.--In any
case in which--
(i) a benefit limitation under
paragraph (1), (2), (3), or (4) did not
apply to a plan with respect to the
plan year preceding the current plan
year, but the adjusted funding target
attainment percentage of the plan for
such preceding plan year was not more
than 10 percentage points greater than
the percentage which would have caused
such paragraph to apply to the plan
with respect to such preceding plan
year, and
(ii) as of the first day of the 4th
month of the current plan year, the
enrolled actuary of the plan has not
certified the actual adjusted funding
target attainment percentage of the
plan for the current plan year,
until the enrolled actuary so certifies, such
first day shall be deemed, for purposes of such
paragraph, to be the valuation date of the plan
for the current plan year and the adjusted
funding target attainment percentage of the
plan as of such first day shall, for purposes
of such paragraph, be presumed to be equal to
10 percentage points less than the adjusted
funding target attainment percentage of the
plan for such preceding plan year.
(8) Treatment of plan as of close of prohibited or
cessation period.--For purposes of applying this part--
(A) Operation of plan after period.--Unless
the plan provides otherwise, payments and
accruals will resume effective as of the day
following the close of the period for which any
limitation of payment or accrual of benefits
under paragraph (3) or (4) applies.
(B) Treatment of affected benefits.--Nothing
in this paragraph shall be construed as
affecting the plan's treatment of benefits
which would have been paid or accrued but for
this subsection.
(9) Terms relating to funding target attainment
percentage.--For purposes of this subsection--
(A) In general.--The term ``funding target
attainment percentage'' has the same meaning
given such term by section 303(d)(2).
(B) Adjusted funding target attainment
percentage.--The term ``adjusted funding target
attainment percentage'' means the funding
target attainment percentage which is
determined under subparagraph (A) by increasing
each of the amounts under subparagraphs (A) and
(B) of section 303(d)(2) by the aggregate
amount of purchases of annuities for employees
other than highly compensated employees (as
defined in section 414(q) of the Internal
Revenue Code of 1986) which were made by the
plan during the preceding 2 plan years.
(C) Application to plans which are fully
funded without regard to reductions for funding
balances.--In the case of a plan for any plan
year, if the funding target attainment
percentage is 100 percent or more (determined
without regard to the reduction in the value of
assets under section 303(f)(4)), the funding
target attainment percentage for purposes of
subparagraphs (A) and (B) shall be determined
without regard to such reduction.
(10) Secretarial authority for plans with alternate
valuation date.--In the case of a plan which has
designated a valuation date other than the first day of
the plan year, the Secretary of the Treasury may
prescribe rules for the application of this subsection
which are necessary to reflect the alternate valuation
date.
(12) CSEC plans.--This subsection shall not apply to
a CSEC plan (as defined in section 210(f)).
(h) Special Rules Applicable to Benefit Overpayments.--
(1) General rule.--In the case of an inadvertent
benefit overpayment by any pension plan, the
responsible plan fiduciary shall not be considered to
have failed to comply with the requirements of this
title merely because such fiduciary determines, in the
exercise of its fiduciary discretion, not to seek
recovery of all or part of such overpayment from--
(A) any participant or beneficiary,
(B) any plan sponsor of, or contributing
employer to--
(i) an individual account plan,
provided that the amount needed to
prevent or restore any impermissible
forfeiture from any participant's or
beneficiary's account arising in
connection with the overpayment is,
separately from and independently of
the overpayment, allocated to such
account pursuant to the
nonforfeitability requirements of
section 203 (for example, out of the
plan's forfeiture account, additional
employer contributions, or recoveries
from those responsible for the
overpayment), or
(ii) a defined benefit pension plan
subject to the funding rules in part 3
of this subtitle B, unless the
responsible plan fiduciary determines,
in the exercise of its fiduciary
discretion, that failure to recover all
or part of the overpayment faster than
required under such funding rules would
materially affect the plan's ability to
pay benefits due to other participants
and beneficiaries, or
(C) any fiduciary of the plan, other than a
fiduciary (including a plan sponsor or
contributing employer acting in a fiduciary
capacity) whose breach of its fiduciary duties
resulted in such overpayment, provided that if
the plan has established prudent procedures to
prevent and minimize overpayment of benefits
and the relevant plan fiduciaries have followed
such procedures, an inadvertent benefit
overpayment will not give rise to a breach of
fiduciary duty.
(2) Reduction in future benefit payments and recovery
from responsible party.--Paragraph (1) shall not fail
to apply with respect to any inadvertent benefit
overpayment merely because, after discovering such
overpayment, the responsible plan fiduciary--
(A) reduces future benefit payments to the
correct amount provided for under the terms of
the plan, or
(B) seeks recovery from the person or persons
responsible for the overpayment.
(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation
imposed on it to make contributions to a plan to meet
the minimum funding standards under part 3 of this
subtitle B or to prevent or restore an impermissible
forfeiture in accordance with section 203.
(4) Recoupment from participants and beneficiaries.--
If the responsible plan fiduciary, in the exercise of
its fiduciary discretion, decides to seek recoupment
from a participant or beneficiary of all or part of an
inadvertent benefit overpayment made by the plan to
such participant or beneficiary, it may do so, subject
to the following conditions:
(A) No interest or other additional amounts
(such as collection costs or fees) are sought
on overpaid amounts for any period before or
after the date of correction of such
overpayment.
(B) If the plan seeks to recoup past
overpayments of a non-decreasing periodic
benefit by reducing future benefit payments--
(i) the reduction ceases after the
plan has recovered the full dollar
amount of the overpayment,
(ii) the amount recouped each
calendar year does not exceed 10
percent of the full dollar amount of
the overpayment, and
(iii) future benefit payments are not
reduced to below 90 percent of the
periodic amount otherwise payable under
the terms of the plan.
Alternatively, if the plan seeks to recoup past
overpayments of a non-decreasing periodic
benefit through one or more installment
payments, the sum of such installment payments
in any calendar year does not exceed the sum of
the reductions that would be permitted in such
year under the preceding sentence.
(C) If the plan seeks to recoup past
overpayments of a benefit other than a non-
decreasing periodic benefit, the plan satisfies
requirements developed by the Secretary for
purposes of this subparagraph.
(D) Efforts to recoup overpayments are--
(i) not accompanied by threats of
litigation, unless the responsible plan
fiduciary reasonably believes it could
prevail in a civil action brought in
Federal or State court to recoup the
overpayments, and
(ii) not made through a collection
agency or similar third party, unless
the participant or beneficiary ignores
or rejects efforts to recoup the
overpayment following either a final
judgment in Federal or State court or a
settlement between the participant or
beneficiary and the plan, in either
case authorizing such recoupment.
(E) Recoupment of past overpayments to a
participant is not sought from any beneficiary
of the participant, including a spouse,
surviving spouse, former spouse, or other
beneficiary.
(F) Recoupment may not be sought if the first
overpayment occurred more than 3 years before
the participant or beneficiary is first
notified in writing of the error.
(G) A participant or beneficiary from whom
recoupment is sought is entitled to contest all
or part of the recoupment pursuant to the
plan's claims procedures.
(H) In determining the amount of recoupment
to seek, the responsible plan fiduciary may
take into account the hardship that recoupment
likely would impose on the participant or
beneficiary.
(5) Effect of culpability.--Subparagraphs (A) through
(F) of paragraph (4) shall not apply to protect a
participant or beneficiary who is culpable. For
purposes of this paragraph, a participant or
beneficiary is culpable if the individual bears
responsibility for the overpayment (such as through
misrepresentations or omissions that led to the
overpayment), or if the individual knew, or had good
reason to know under the circumstances, that the
benefit payment or payments were materially in excess
of the correct amount. Notwithstanding the preceding
sentence, an individual is not culpable merely because
the individual believed the benefit payment or payments
were or might be in excess of the correct amount, if
the individual raised that question with an authorized
plan representative and was told the payment or
payments were not in excess of the correct amount. With
respect to a culpable participant or beneficiary,
efforts to recoup overpayments shall not be made
through threats of litigation, unless a lawyer for the
plan could make the representations required under Rule
11 of the Federal Rules of Civil Procedure if the
litigation were brought in Federal court.
* * * * * * *
Part 4--Fiduciary Responsibility
* * * * * * *
EXEMPTIONS FROM PROHIBITED TRANSACTIONS
Sec. 408. (a) The Secretary shall establish an exemption
procedure for purposes of this subsection. Pursuant to such
procedure, he may grant a conditional or unconditional
exemption of any fiduciary or transaction, or class of
fiduciaries or transactions, from all or part of the
restrictions imposed by sections 406 and 407(a). Action under
this subsection may be taken only after consultation and
coordination with the Secretary of the Treasury. An exemption
granted under this section shall not relieve a fiduciary from
any other applicable provision of this Act. The Secretary may
not grant an exemption under this subsection unless he finds
that such exemption is--
(1) administratively feasible,
(2) in the interests of the plan and of its
participants and beneficiaries, and
(3) protective of the rights of participants and
beneficiaries of such plan.
Before granting an exemption under this subsection from section
406(a) or 407(a), the Secretary shall publish notice in the
Federal Register of the pendency of the exemption, shall
require that adequate notice be given to interested persons,
and shall afford interested persons opportunity to present
views. The Secretary may not grant an exemption under this
subsection from section 406(b) unless he affords an opportunity
for a hearing and makes a determination on the record with
respect to the findings required by paragraphs (1), (2), and
(3) of this subsection.
(b) The prohibitions provided in section 406 shall not apply
to any of the following transactions:
(1) Any loans made by the plan to parties in interest
who are participants or beneficiaries of the plan if
such loans (A) are available to all such participants
and beneficiaries on a reasonably equivalent basis, (B)
are not made available to highly compensated employees
(within the meaning of section 414(q) of the Internal
Revenue Code of 1986) in an amount greater than the
amount made available to other employees, (C) are made
in accordance with specific provisions regarding such
loans set forth in the plan, (D) bear a reasonable rate
of interest, and (E) are adequately secured. A loan
made by a plan shall not fail to meet the requirements
of the preceding sentence by reason of a loan repayment
suspension described under section 414(u)(4) of the
Internal Revenue Code of 1986.
(2)(A) Contracting or making reasonable arrangements
with a party in interest for office space, or legal,
accounting, or other services necessary for the
establishment or operation of the plan, if no more than
reasonable compensation is paid therefor.
(B)(i) No contract or arrangement for services
between a covered plan and a covered service provider,
and no extension or renewal of such a contract or
arrangement, is reasonable within the meaning of this
paragraph unless the requirements of this clause are
met.
(ii)(I) For purposes of this subparagraph:
(aa) The term ``covered plan'' means a group
health plan as defined section 733(a).
(bb) The term ``covered service provider''
means a service provider that enters into a
contract or arrangement with the covered plan
and reasonably expects $1,000 (or such amount
as the Secretary may establish in regulations
to account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation, direct or indirect, to be
received in connection with providing one or
more of the following services, pursuant to the
contract or arrangement, regardless of whether
such services will be performed, or such
compensation received, by the covered service
provider, an affiliate, or a subcontractor:
(AA) Brokerage services, for which
the covered service provider, an
affiliate, or a subcontractor
reasonably expects to receive indirect
compensation or direct compensation
described in item (dd), provided to a
covered plan with respect to selection
of insurance products (including vision
and dental), recordkeeping services,
medical management vendor, benefits
administration (including vision and
dental), stop-loss insurance, pharmacy
benefit management services, wellness
services, transparency tools and
vendors, group purchasing organization
preferred vendor panels, disease
management vendors and products,
compliance services, employee
assistance programs, or third party
administration services.
(BB) Consulting, for which the
covered service provider, an affiliate,
or a subcontractor reasonably expects
to receive indirect compensation or
direct compensation described in item
(dd), related to the development or
implementation of plan design,
insurance or insurance product
selection (including vision and
dental), recordkeeping, medical
management, benefits administration
selection (including vision and
dental), stop-loss insurance, pharmacy
benefit management services, wellness
design and management services,
transparency tools, group purchasing
organization agreements and services,
participation in and services from
preferred vendor panels, disease
management, compliance services,
employee assistance programs, or third
party administration services.
(cc) The term ``affiliate'', with respect to
a covered service provider, means an entity
that directly or indirectly (through one or
more intermediaries) controls, is controlled
by, or is under common control with, such
provider, or is an officer, director, or
employee of, or partner in, such provider.
(dd)(AA) The term ``compensation'' means
anything of monetary value, but does not
include non-monetary compensation valued at
$250 (or such amount as the Secretary may
establish in regulations to account for
inflation since the date of enactment of the
Consolidated Appropriations Act, 2021, as
appropriate) or less, in the aggregate, during
the term of the contract or arrangement.
(BB) The term ``direct compensation'' means
compensation received directly from a covered
plan.
(CC) The term ``indirect compensation'' means
compensation received from any source other
than the covered plan, the plan sponsor, the
covered service provider, or an affiliate.
Compensation received from a subcontractor is
indirect compensation, unless it is received in
connection with services performed under a
contract or arrangement with a subcontractor.
(ee) The term ``responsible plan fiduciary''
means a fiduciary with authority to cause the
covered plan to enter into, or extend or renew,
the contract or arrangement.
(ff) The term ``subcontractor'' means any
person or entity (or an affiliate of such
person or entity) that is not an affiliate of
the covered service provider and that, pursuant
to a contract or arrangement with the covered
service provider or an affiliate, reasonably
expects to receive $1,000 (or such amount as
the Secretary may establish in regulations to
account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation for performing one or more
services described in item (bb) under a
contract or arrangement with the covered plan.
(II) For purposes of this subparagraph, a description
of compensation or cost may be expressed as a monetary
amount, formula, or a per capita charge for each
enrollee or, if the compensation or cost cannot
reasonably be expressed in such terms, by any other
reasonable method, including a disclosure that
additional compensation may be earned but may not be
calculated at the time of contract if such a disclosure
includes a description of the circumstances under which
the additional compensation may be earned and a
reasonable and good faith estimate if the covered
service provider cannot otherwise readily describe
compensation or cost and explains the methodology and
assumptions used to prepare such estimate. Any such
description shall contain sufficient information to
permit evaluation of the reasonableness of the
compensation or cost.
(III) No person or entity is a ``covered service
provider'' within the meaning of subclause (I)(bb)
solely on the basis of providing services as an
affiliate or a subcontractor that is performing one or
more of the services described in subitem (AA) or (BB)
of such subclause under the contract or arrangement
with the covered plan.
(iii) A covered service provider shall disclose to a
responsible plan fiduciary, in writing, the following:
(I) A description of the services to be
provided to the covered plan pursuant to the
contract or arrangement.
(II) If applicable, a statement that the
covered service provider, an affiliate, or a
subcontractor will provide, or reasonably
expects to provide, services pursuant to the
contract or arrangement directly to the covered
plan as a fiduciary (within the meaning of
section 3(21)).
(III) A description of all direct
compensation, either in the aggregate or by
service, that the covered service provider, an
affiliate, or a subcontractor reasonably
expects to receive in connection with the
services described in subclause (I).
(IV)(aa) A description of all indirect
compensation that the covered service provider,
an affiliate, or a subcontractor reasonably
expects to receive in connection with the
services described in subclause (I)--
(AA) including compensation from a
vendor to a brokerage firm based on a
structure of incentives not solely
related to the contract with the
covered plan; and
(BB) not including compensation
received by an employee from an
employer on account of work performed
by the employee.
(bb) A description of the arrangement between
the payer and the covered service provider, an
affiliate, or a subcontractor, as applicable,
pursuant to which such indirect compensation is
paid.
(cc) Identification of the services for which
the indirect compensation will be received, if
applicable.
(dd) Identification of the payer of the
indirect compensation.
(V) A description of any compensation that
will be paid among the covered service
provider, an affiliate, or a subcontractor, in
connection with the services described in
subclause (I) if such compensation is set on a
transaction basis (such as commissions,
finder's fees, or other similar incentive
compensation based on business placed or
retained), including identification of the
services for which such compensation will be
paid and identification of the payers and
recipients of such compensation (including the
status of a payer or recipient as an affiliate
or a subcontractor), regardless of whether such
compensation also is disclosed pursuant to
subclause (III) or (IV).
(VI) A description of any compensation that
the covered service provider, an affiliate, or
a subcontractor reasonably expects to receive
in connection with termination of the contract
or arrangement, and how any prepaid amounts
will be calculated and refunded upon such
termination.
(iv) A covered service provider shall disclose to a
responsible plan fiduciary, in writing a description of
the manner in which the compensation described in
clause (iii), as applicable, will be received.
(v)(I) A covered service provider shall disclose the
information required under clauses (iii) and (iv) to
the responsible plan fiduciary not later than the date
that is reasonably in advance of the date on which the
contract or arrangement is entered into, and extended
or renewed.
(II) A covered service provider shall disclose any
change to the information required under clause (iii)
and (iv) as soon as practicable, but not later than 60
days from the date on which the covered service
provider is informed of such change, unless such
disclosure is precluded due to extraordinary
circumstances beyond the covered service provider's
control, in which case the information shall be
disclosed as soon as practicable.
(vi)(I) Upon the written request of the responsible
plan fiduciary or covered plan administrator, a covered
service provider shall furnish any other information
relating to the compensation received in connection
with the contract or arrangement that is required for
the covered plan to comply with the reporting and
disclosure requirements under this Act.
(II) The covered service provider shall disclose the
information required under clause (iii)(I) reasonably
in advance of the date upon which such responsible plan
fiduciary or covered plan administrator states that it
is required to comply with the applicable reporting or
disclosure requirement, unless such disclosure is
precluded due to extraordinary circumstances beyond the
covered service provider's control, in which case the
information shall be disclosed as soon as practicable.
(vii) No contract or arrangement will fail to be
reasonable under this subparagraph solely because the
covered service provider, acting in good faith and with
reasonable diligence, makes an error or omission in
disclosing the information required pursuant to clause
(iii) (or a change to such information disclosed
pursuant to clause (v)(II)) or clause (vi), provided
that the covered service provider discloses the correct
information to the responsible plan fiduciary as soon
as practicable, but not later than 30 days from the
date on which the covered service provider knows of
such error or omission.
(viii)(I) Pursuant to subsection (a), subparagraphs
(C) and (D) of section 406(a)(1) shall not apply to a
responsible plan fiduciary, notwithstanding any failure
by a covered service provider to disclose information
required under clause (iii), if the following
conditions are met:
(aa) The responsible plan fiduciary did not
know that the covered service provider failed
or would fail to make required disclosures and
reasonably believed that the covered service
provider disclosed the information required to
be disclosed.
(bb) The responsible plan fiduciary, upon
discovering that the covered service provider
failed to disclose the required information,
requests in writing that the covered service
provider furnish such information.
(cc) If the covered service provider fails to
comply with a written request described in
subclause (II) within 90 days of the request,
the responsible plan fiduciary notifies the
Secretary of the covered service provider's
failure, in accordance with subclauses (II) and
(III).
(II) A notice described in subclause (I)(cc) shall
contain--
(aa) the name of the covered plan;
(bb) the plan number used for the annual
report on the covered plan;
(cc) the plan sponsor's name, address, and
employer identification number;
(dd) the name, address, and telephone number
of the responsible plan fiduciary;
(ee) the name, address, phone number, and, if
known, employer identification number of the
covered service provider;
(ff) a description of the services provided
to the covered plan;
(gg) a description of the information that
the covered service provider failed to
disclose;
(hh) the date on which such information was
requested in writing from the covered service
provider; and
(ii) a statement as to whether the covered
service provider continues to provide services
to the plan.
(III) A notice described in subclause (I)(cc) shall
be filed with the Department not later than 30 days
following the earlier of--
(aa) The covered service provider's refusal
to furnish the information requested by the
written request described in subclause (I)(bb);
or
(bb) 90 days after the written request
referred to in subclause (I)(cc) is made.
(IV) If the covered service provider fails to comply
with the written request under subclause (I)(bb) within
90 days of such request, the responsible plan fiduciary
shall determine whether to terminate or continue the
contract or arrangement under section 404. If the
requested information relates to future services and is
not disclosed promptly after the end of the 90-day
period, the responsible plan fiduciary shall terminate
the contract or arrangement as expeditiously as
possible, consistent with such duty of prudence.
(ix) Nothing in this subparagraph shall be construed
to supersede any provision of State law that governs
disclosures by parties that provide the services
described in this section, except to the extent that
such law prevents the application of a requirement of
this section.
(3) A loan to an employee stock ownership plan (as
defined in section 407(d)(6)), if--
(A) such loan is primarily for the benefit of
participants and beneficiaries of the plan, and
(B) such loan is at an interest rate which is
not in excess of a reasonable rate.
If the plan gives collateral to a party in interest for
such loan, such collateral may consist only of
qualifying employer securities (as defined in section
407(d)(5)).
(4) The investment of all or part of a plan's assets
in deposits which bear a reasonable interest rate in a
bank or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan and if--
(A) the plan covers only employees of such
bank or other institution and employees of
affiliates of such bank or other institution,
or
(B) such investment is expressly authorized
by a provision of the plan or by a fiduciary
(other than such bank or institution or
affiliate thereof) who is expressly empowered
by the plan to so instruct the trustee with
respect to such investment.
(5) Any contract for life insurance, health
insurance, or annuities with one or more insurers which
are qualified to do business in a State, if the plan
pays no more than adequate consideration, and if each
such insurer or insurers is--
(A) the employer maintaining the plan, or
(B) a party in interest which is wholly owned
(directly or indirectly) by the employer
maintaining the plan, or by any person which is
a party in interest with respect to the plan,
but only if the total premiums and annuity
considerations written by such insurers for
life insurance, health insurance, or annuities
for all plans (and their employers) with
respect to which such insurers are parties in
interest (not including premiums or annuity
considerations written by the employer
maintaining the plan) do not exceed 5 percent
of the total premiums and annuity
considerations written for all lines of
insurance in that year by such insurers (not
including premiums or annuity considerations
written by the employer maintaining the plan).
(6) The providing of any ancillary service by a bank
or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan, and if--
(A) such bank or similar financial
institution has adopted adequate internal
safeguards which assure that the providing of
such ancillary service is consistent with sound
banking and financial practice, as determined
by Federal or State supervisory authority, and
(B) the extent to which such ancillary
service is provided is subject to specific
guidelines issued by such bank or similar
financial institution (as determined by the
Secretary after consultation with Federal and
State supervisory authority), and adherence to
such guidelines would reasonably preclude such
bank or similar financial institution from
providing such ancillary service (i) in an
excessive or unreasonable manner, and (ii) in a
manner that would be inconsistent with the best
interests of participants and beneficiaries of
employee benefit plans.
Such ancillary services shall not be provided at more
than reasonable compensation.
(7) The exercise of a privilege to convert
securities, to the extent provided in regulations of
the Secretary, but only if the plan receives no less
than adequate consideration pursuant to such
conversion.
(8) Any transaction between a plan and (i) a common
or collective trust fund or pooled investment fund
maintained by a party in interest which is a bank or
trust company supervised by a State or Federal agency
or (ii) a pooled investment fund of an insurance
company qualified to do business in a State, if--
(A) the transaction is a sale or purchase of
an interest in the fund,
(B) the bank, trust company, or insurance
company receives not more than reasonable
compensation, and
(C) such transaction is expressly permitted
by the instrument under which the plan is
maintained, or by a fiduciary (other than the
bank, trust company, or insurance company, or
an affiliate thereof) who has authority to
manage and control the assets of the plan.
(9) The making by a fiduciary of a distribution of
the assets of the plan in accordance with the terms of
the plan if such assets are distributed in the same
manner as provided under section 4044 of this Act
(relating to allocation of assets).
(10) Any transaction required or permitted under part
1 of subtitle E of title IV.
(11) A merger of multiemployer plans, or the transfer
of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation
to meet the requirements of section 4231.
(12) The sale by a plan to a party in interest on or
after December 18, 1987, of any stock, if--
(A) the requirements of paragraphs (1) and
(2) of subsection (e) are met with respect to
such stock,
(B) on the later of the date on which the
stock was acquired by the plan, or January 1,
1975, such stock constituted a qualifying
employer security (as defined in section
407(d)(5) as then in effect), and
(C) such stock does not constitute a
qualifying employer security (as defined in
section 407(d)(5) as in effect at the time of
the sale).
(13) Any transfer made before January 1, 2026, of
excess pension assets from a defined benefit plan to a
retiree health account in a qualified transfer
permitted under section 420 of the Internal Revenue
Code of 1986 (as in effect on the date of the enactment
of the Surface Transportation and Veterans Health Care
Choice Improvement Act of 2015).
(14) Any transaction in connection with the provision
of investment advice described in section 3(21)(A)(ii)
to a participant or beneficiary of an individual
account plan that permits such participant or
beneficiary to direct the investment of assets in their
individual account, if--
(A) the transaction is--
(i) the provision of the investment
advice to the participant or
beneficiary of the plan with respect to
a security or other property available
as an investment under the plan,
(ii) the acquisition, holding, or
sale of a security or other property
available as an investment under the
plan pursuant to the investment advice,
or
(iii) the direct or indirect receipt
of fees or other compensation by the
fiduciary adviser or an affiliate
thereof (or any employee, agent, or
registered representative of the
fiduciary adviser or affiliate) in
connection with the provision of the
advice or in connection with an
acquisition, holding, or sale of a
security or other property available as
an investment under the plan pursuant
to the investment advice; and
(B) the requirements of subsection (g) are
met.
(15)(A) Any transaction involving the purchase or
sale of securities, or other property (as determined by
the Secretary), between a plan and a party in interest
(other than a fiduciary described in section 3(21)(A))
with respect to a plan if--
(i) the transaction involves a block trade,
(ii) at the time of the transaction, the
interest of the plan (together with the
interests of any other plans maintained by the
same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
(iii) the terms of the transaction, including
the price, are at least as favorable to the
plan as an arm's length transaction, and
(iv) the compensation associated with the
purchase and sale is not greater than the
compensation associated with an arm's length
transaction with an unrelated party.
(B) For purposes of this paragraph, the term ``block
trade'' means any trade of at least 10,000 shares or
with a market value of at least $200,000 which will be
allocated across two or more unrelated client accounts
of a fiduciary.
(16) Any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary), between a plan and a party in interest if--
(A) the transaction is executed through an
electronic communication network, alternative
trading system, or similar execution system or
trading venue subject to regulation and
oversight by--
(i) the applicable Federal regulating
entity, or
(ii) such foreign regulatory entity
as the Secretary may determine by
regulation,
(B) either--
(i) the transaction is effected
pursuant to rules designed to match
purchases and sales at the best price
available through the execution system
in accordance with applicable rules of
the Securities and Exchange Commission
or other relevant governmental
authority, or
(ii) neither the execution system nor
the parties to the transaction take
into account the identity of the
parties in the execution of trades,
(C) the price and compensation associated
with the purchase and sale are not greater than
the price and compensation associated with an
arm's length transaction with an unrelated
party,
(D) if the party in interest has an ownership
interest in the system or venue described in
subparagraph (A), the system or venue has been
authorized by the plan sponsor or other
independent fiduciary for transactions
described in this paragraph, and
(E) not less than 30 days prior to the
initial transaction described in this paragraph
executed through any system or venue described
in subparagraph (A), a plan fiduciary is
provided written or electronic notice of the
execution of such transaction through such
system or venue.
(17)(A) Transactions described in subparagraphs (A),
(B), and (D) of section 406(a)(1) between a plan and a
person that is a party in interest other than a
fiduciary (or an affiliate) who has or exercises any
discretionary authority or control with respect to the
investment of the plan assets involved in the
transaction or renders investment advice (within the
meaning of section 3(21)(A)(ii)) with respect to those
assets, solely by reason of providing services to the
plan or solely by reason of a relationship to such a
service provider described in subparagraph (F), (G),
(H), or (I) of section 3(14), or both, but only if in
connection with such transaction the plan receives no
less, nor pays no more, than adequate consideration.
(B) For purposes of this paragraph, the term
``adequate consideration'' means--
(i) in the case of a security for which there
is a generally recognized market--
(I) the price of the security
prevailing on a national securities
exchange which is registered under
section 6 of the Securities Exchange
Act of 1934, taking into account
factors such as the size of the
transaction and marketability of the
security, or
(II) if the security is not traded on
such a national securities exchange, a
price not less favorable to the plan
than the offering price for the
security as established by the current
bid and asked prices quoted by persons
independent of the issuer and of the
party in interest, taking into account
factors such as the size of the
transaction and marketability of the
security, and
(ii) in the case of an asset other than a
security for which there is a generally
recognized market, the fair market value of the
asset as determined in good faith by a
fiduciary or fiduciaries in accordance with
regulations prescribed by the Secretary.
(18) Foreign exchange transactions.--Any foreign
exchange transactions, between a bank or broker-dealer
(or any affiliate of either), and a plan (as defined in
section 3(3)) with respect to which such bank or
broker-dealer (or affiliate) is a trustee, custodian,
fiduciary, or other party in interest, if--
(A) the transaction is in connection with the
purchase, holding, or sale of securities or
other investment assets (other than a foreign
exchange transaction unrelated to any other
investment in securities or other investment
assets),
(B) at the time the foreign exchange
transaction is entered into, the terms of the
transaction are not less favorable to the plan
than the terms generally available in
comparable arm's length foreign exchange
transactions between unrelated parties, or the
terms afforded by the bank or broker-dealer (or
any affiliate of either) in comparable arm's-
length foreign exchange transactions involving
unrelated parties,
(C) the exchange rate used by such bank or
broker-dealer (or affiliate) for a particular
foreign exchange transaction does not deviate
by more than 3 percent from the interbank bid
and asked rates for transactions of comparable
size and maturity at the time of the
transaction as displayed on an independent
service that reports rates of exchange in the
foreign currency market for such currency, and
(D) the bank or broker-dealer (or any
affiliate of either) does not have investment
discretion, or provide investment advice, with
respect to the transaction.
(19) Cross trading.--Any transaction described in
sections 406(a)(1)(A) and 406(b)(2) involving the
purchase and sale of a security between a plan and any
other account managed by the same investment manager,
if--
(A) the transaction is a purchase or sale,
for no consideration other than cash payment
against prompt delivery of a security for which
market quotations are readily available,
(B) the transaction is effected at the
independent current market price of the
security (within the meaning of section
270.17a-7(b) of title 17, Code of Federal
Regulations),
(C) no brokerage commission, fee (except for
customary transfer fees, the fact of which is
disclosed pursuant to subparagraph (D)), or
other remuneration is paid in connection with
the transaction,
(D) a fiduciary (other than the investment
manager engaging in the cross-trades or any
affiliate) for each plan participating in the
transaction authorizes in advance of any cross-
trades (in a document that is separate from any
other written agreement of the parties) the
investment manager to engage in cross trades at
the investment manager's discretion, after such
fiduciary has received disclosure regarding the
conditions under which cross trades may take
place (but only if such disclosure is separate
from any other agreement or disclosure
involving the asset management relationship),
including the written policies and procedures
of the investment manager described in
subparagraph (H),
(E) each plan participating in the
transaction has assets of at least
$100,000,000, except that if the assets of a
plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group (as defined in
section 407(d)(7)), the master trust has assets
of at least $100,000,000,
(F) the investment manager provides to the
plan fiduciary who authorized cross trading
under subparagraph (D) a quarterly report
detailing all cross trades executed by the
investment manager in which the plan
participated during such quarter, including the
following information, as applicable: (i) the
identity of each security bought or sold; (ii)
the number of shares or units traded; (iii) the
parties involved in the cross-trade; and (iv)
trade price and the method used to establish
the trade price,
(G) the investment manager does not base its
fee schedule on the plan's consent to cross
trading, and no other service (other than the
investment opportunities and cost savings
available through a cross trade) is conditioned
on the plan's consent to cross trading,
(H) the investment manager has adopted, and
cross-trades are effected in accordance with,
written cross-trading policies and procedures
that are fair and equitable to all accounts
participating in the cross-trading program, and
that include a description of the manager's
pricing policies and procedures, and the
manager's policies and procedures for
allocating cross trades in an objective manner
among accounts participating in the cross-
trading program, and
(I) the investment manager has designated an
individual responsible for periodically
reviewing such purchases and sales to ensure
compliance with the written policies and
procedures described in subparagraph (H), and
following such review, the individual shall
issue an annual written report no later than 90
days following the period to which it relates
signed under penalty of perjury to the plan
fiduciary who authorized cross trading under
subparagraph (D) describing the steps performed
during the course of the review, the level of
compliance, and any specific instances of non-
compliance.
The written report under subparagraph (I) shall also
notify the plan fiduciary of the plan's right to
terminate participation in the investment manager's
cross-trading program at any time.
(20)(A) Except as provided in subparagraphs (B) and
(C), a transaction described in section 406(a) in
connection with the acquisition, holding, or
disposition of any security or commodity, if the
transaction is corrected before the end of the
correction period.
(B) Subparagraph (A) does not apply to any
transaction between a plan and a plan sponsor or its
affiliates that involves the acquisition or sale of an
employer security (as defined in section 407(d)(1)) or
the acquisition, sale, or lease of employer real
property (as defined in section 407(d)(2)).
(C) In the case of any fiduciary or other party in
interest (or any other person knowingly participating
in such transaction), subparagraph (A) does not apply
to any transaction if, at the time the transaction
occurs, such fiduciary or party in interest (or other
person) knew (or reasonably should have known) that the
transaction would (without regard to this paragraph)
constitute a violation of section 406(a).
(D) For purposes of this paragraph, the term
``correction period'' means, in connection with a
fiduciary or party in interest (or other person
knowingly participating in the transaction), the 14-day
period beginning on the date on which such fiduciary or
party in interest (or other person) discovers, or
reasonably should have discovered, that the transaction
would (without regard to this paragraph) constitute a
violation of section 406(a).
(E) For purposes of this paragraph--
(i) The term ``security'' has the meaning
given such term by section 475(c)(2) of the
Internal Revenue Code of 1986 (without regard
to subparagraph (F)(iii) and the last sentence
thereof).
(ii) The term ``commodity'' has the meaning
given such term by section 475(e)(2) of such
Code (without regard to subparagraph (D)(iii)
thereof).
(iii) The term ``correct'' means, with
respect to a transaction--
(I) to undo the transaction to the
extent possible and in any case to make
good to the plan or affected account
any losses resulting from the
transaction, and
(II) to restore to the plan or
affected account any profits made
through the use of assets of the plan.
(21) The provision of a de minimis financial
incentive described in section 401(k)(4)(A) or section
403(b)(12)(A) of the Internal Revenue Code of 1986.
(c) Nothing in section 406 shall be construed to prohibit any
fiduciary from--
(1) receiving any benefit to which he may be entitled
as a participant or beneficiary in the plan, so long as
the benefit is computed and paid on a basis which is
consistent with the terms of the plan as applied to all
other participants and beneficiaries;
(2) receiving any reasonable compensation for
services rendered, or for the reimbursement of expenses
properly and actually incurred, in the performance of
his duties with the plan; except that no person so
serving who already receives full time pay from an
employer or an association of employers, whose
employees are participants in the plan, or from an
employee organization whose members are participants in
such plan shall receive compensation from such plan,
except for reimbursement of expenses properly and
actually incurred; or
(3) serving as a fiduciary in addition to being an
officer, employee, agent, or other representative of a
party in interest.
(d)(1) Section 407(b) and subsections (b), (c), and (e) of
this section shall not apply to a transaction in which a plan
directly or indirectly--
(A) lends any part of the corpus or income of the
plan to,
(B) pays any compensation for personal services
rendered to the plan to, or
(C) acquires for the plan any property from, or sells
any property to,
any person who is with respect to the plan an owner-employee
(as defined in section 401(c)(3) of the Internal Revenue Code
of 1986), a member of the family (as defined in section
267(c)(4) of such Code) of any such owner-employee, or any
corporation in which any such owner-employee owns, directly or
indirectly, 50 percent or more of the total combined voting
power of all classes of stock entitled to vote or 50 percent or
more of the total value of shares of all classes of stock of
the corporation.
(2)(A) For purposes of paragraph (1), the following shall be
treated as owner-employees:
(i) A shareholder-employee.
(ii) A participant or beneficiary of an individual
retirement plan (as defined in section 7701(a)(37) of
the Internal Revenue Code of 1986).
(iii) An employer or association of employees which
establishes such an individual retirement plan under
section 408(c) of such Code.
(B) Paragraph (1)(C) shall not apply to a transaction which
consists of a sale of employer securities to an employee stock
ownership plan (as defined in section 407(d)(6)) by a
shareholder-employee, a member of the family (as defined in
section 267(c)(4) of such Code) of any such owner-employee, or
a corporation in which such a shareholder-employee owns stock
representing a 50 percent or greater interest described in
paragraph (1).
(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).
(3) For purposes of paragraph (2), the term ``shareholder-
employee'' means an employee or officer of an S corporation (as
defined in section 1361(a)(1) of such Code) who owns (or is
considered as owning within the meaning of section 318(a)(1) of
such Code) more than 5 percent of the outstanding stock of the
corporation on any day during the taxable year of such
corporation.
(e) Sections 406 and 407 shall not apply to the acquisition
or sale by a plan of qualifying employer securities (as defined
in section 407(d)(5)) or acquisition, sale or lease by a plan
of qualifying employer real property (as defined in section
407(d)(4))--
(1) if such acquisition, sale, or lease is for
adequate consideration (or in the case of a marketable
obligation, at a price not less favorable to the plan
than the price determined under section 407(e)(1)),
(2) if no commission is charged with respect thereto,
and
(3) if--
(A) the plan is an eligible individual
account plan (as defined in section 407(d)(3)),
or
(B) in the case of an acquisition or lease of
qualifying employer real property by a plan
which is not an eligible individual account
plan, or of an acquisition of qualifying
employer securities by such a plan, the lease
or acquisition is not prohibited by section
407(a).
(f) Section 406(b)(2) shall not apply to any merger or
transfer described in subsection (b)(11).
(g) Provision of Investment Advice to Participant and
Beneficiaries.--
(1) In general.--The prohibitions provided in section
406 shall not apply to transactions described in
subsection (b)(14) if the investment advice provided by
a fiduciary adviser is provided under an eligible
investment advice arrangement.
(2) Eligible investment advice arrangement.--For
purposes of this subsection, the term ``eligible
investment advice arrangement'' means an arrangement--
(A) which either--
(i) provides that any fees (including
any commission or other compensation)
received by the fiduciary adviser for
investment advice or with respect to
the sale, holding, or acquisition of
any security or other property for
purposes of investment of plan assets
do not vary depending on the basis of
any investment option selected, or
(ii) uses a computer model under an
investment advice program meeting the
requirements of paragraph (3) in
connection with the provision of
investment advice by a fiduciary
adviser to a participant or
beneficiary, and
(B) with respect to which the requirements of
paragraph (4), (5), (6), (7), (8), and (9) are
met.
(3) Investment advice program using computer model.--
(A) In general.--An investment advice program
meets the requirements of this paragraph if the
requirements of subparagraphs (B), (C), and (D)
are met.
(B) Computer model.--The requirements of this
subparagraph are met if the investment advice
provided under the investment advice program is
provided pursuant to a computer model that--
(i) applies generally accepted
investment theories that take into
account the historic returns of
different asset classes over defined
periods of time,
(ii) utilizes relevant information
about the participant, which may
include age, life expectancy,
retirement age, risk tolerance, other
assets or sources of income, and
preferences as to certain types of
investments,
(iii) utilizes prescribed objective
criteria to provide asset allocation
portfolios comprised of investment
options available under the plan,
(iv) operates in a manner that is not
biased in favor of investments offered
by the fiduciary adviser or a person
with a material affiliation or
contractual relationship with the
fiduciary adviser, and
(v) takes into account all investment
options under the plan in specifying
how a participant's account balance
should be invested and is not
inappropriately weighted with respect
to any investment option.
(C) Certification.--
(i) In general.--The requirements of
this subparagraph are met with respect
to any investment advice program if an
eligible investment expert certifies,
prior to the utilization of the
computer model and in accordance with
rules prescribed by the Secretary, that
the computer model meets the
requirements of subparagraph (B).
(ii) Renewal of certifications.--If,
as determined under regulations
prescribed by the Secretary, there are
material modifications to a computer
model, the requirements of this
subparagraph are met only if a
certification described in clause (i)
is obtained with respect to the
computer model as so modified.
(iii) Eligible investment expert.--
The term ``eligible investment expert''
means any person--
(I) which meets such
requirements as the Secretary
may provide, and
(II) does not bear any
material affiliation or
contractual relationship with
any investment adviser or a
related person thereof (or any
employee, agent, or registered
representative of the
investment adviser or related
person).
(D) Exclusivity of recommendation.--The
requirements of this subparagraph are met with
respect to any investment advice program if--
(i) the only investment advice
provided under the program is the
advice generated by the computer model
described in subparagraph (B), and
(ii) any transaction described in
subsection (b)(14)(A)(ii) occurs solely
at the direction of the participant or
beneficiary.
Nothing in the preceding sentence shall
preclude the participant or beneficiary from
requesting investment advice other than that
described in subparagraph (A), but only if such
request has not been solicited by any person
connected with carrying out the arrangement.
(4) Express authorization by separate fiduciary.--The
requirements of this paragraph are met with respect to
an arrangement if the arrangement is expressly
authorized by a plan fiduciary other than the person
offering the investment advice program, any person
providing investment options under the plan, or any
affiliate of either.
(5) Annual audit.--The requirements of this paragraph
are met if an independent auditor, who has appropriate
technical training or experience and proficiency and so
represents in writing--
(A) conducts an annual audit of the
arrangement for compliance with the
requirements of this subsection, and
(B) following completion of the annual audit,
issues a written report to the fiduciary who
authorized use of the arrangement which
presents its specific findings regarding
compliance of the arrangement with the
requirements of this subsection.
For purposes of this paragraph, an auditor is
considered independent if it is not related to the
person offering the arrangement to the plan and is not
related to any person providing investment options
under the plan.
(6) Disclosure.--The requirements of this paragraph
are met if--
(A) the fiduciary adviser provides to a
participant or a beneficiary before the initial
provision of the investment advice with regard
to any security or other property offered as an
investment option, a written notification
(which may consist of notification by means of
electronic communication)--
(i) of the role of any party that has
a material affiliation or contractual
relationship with the fiduciary adviser
in the development of the investment
advice program and in the selection of
investment options available under the
plan,
(ii) of the past performance and
historical rates of return of the
investment options available under the
plan,
(iii) of all fees or other
compensation relating to the advice
that the fiduciary adviser or any
affiliate thereof is to receive
(including compensation provided by any
third party) in connection with the
provision of the advice or in
connection with the sale, acquisition,
or holding of the security or other
property,
(iv) of any material affiliation or
contractual relationship of the
fiduciary adviser or affiliates thereof
in the security or other property,
(v) the manner, and under what
circumstances, any participant or
beneficiary information provided under
the arrangement will be used or
disclosed,
(vi) of the types of services
provided by the fiduciary adviser in
connection with the provision of
investment advice by the fiduciary
adviser,
(vii) that the adviser is acting as a
fiduciary of the plan in connection
with the provision of the advice, and
(viii) that a recipient of the advice
may separately arrange for the
provision of advice by another adviser,
that could have no material affiliation
with and receive no fees or other
compensation in connection with the
security or other property, and
(B) at all times during the provision of
advisory services to the participant or
beneficiary, the fiduciary adviser--
(i) maintains the information
described in subparagraph (A) in
accurate form and in the manner
described in paragraph (8),
(ii) provides, without charge,
accurate information to the recipient
of the advice no less frequently than
annually,
(iii) provides, without charge,
accurate information to the recipient
of the advice upon request of the
recipient, and
(iv) provides, without charge,
accurate information to the recipient
of the advice concerning any material
change to the information required to
be provided to the recipient of the
advice at a time reasonably
contemporaneous to the change in
information.
(7) Other conditions.--The requirements of this
paragraph are met if--
(A) the fiduciary adviser provides
appropriate disclosure, in connection with the
sale, acquisition, or holding of the security
or other property, in accordance with all
applicable securities laws,
(B) the sale, acquisition, or holding occurs
solely at the direction of the recipient of the
advice,
(C) the compensation received by the
fiduciary adviser and affiliates thereof in
connection with the sale, acquisition, or
holding of the security or other property is
reasonable, and
(D) the terms of the sale, acquisition, or
holding of the security or other property are
at least as favorable to the plan as an arm's
length transaction would be.
(8) Standards for presentation of information.--
(A) In general.--The requirements of this
paragraph are met if the notification required
to be provided to participants and
beneficiaries under paragraph (6)(A) is written
in a clear and conspicuous manner and in a
manner calculated to be understood by the
average plan participant and is sufficiently
accurate and comprehensive to reasonably
apprise such participants and beneficiaries of
the information required to be provided in the
notification.
(B) Model form for disclosure of fees and
other compensation.--The Secretary shall issue
a model form for the disclosure of fees and
other compensation required in paragraph
(6)(A)(iii) which meets the requirements of
subparagraph (A).
(9) Maintenance for 6 years of evidence of
compliance.--The requirements of this paragraph are met
if a fiduciary adviser who has provided advice referred
to in paragraph (1) maintains, for a period of not less
than 6 years after the provision of the advice, any
records necessary for determining whether the
requirements of the preceding provisions of this
subsection and of subsection (b)(14) have been met. A
transaction prohibited under section 406 shall not be
considered to have occurred solely because the records
are lost or destroyed prior to the end of the 6-year
period due to circumstances beyond the control of the
fiduciary adviser.
(10) Exemption for plan sponsor and certain other
fiduciaries.--
(A) In general.--Subject to subparagraph (B),
a plan sponsor or other person who is a
fiduciary (other than a fiduciary adviser)
shall not be treated as failing to meet the
requirements of this part solely by reason of
the provision of investment advice referred to
in section 3(21)(A)(ii) (or solely by reason of
contracting for or otherwise arranging for the
provision of the advice), if--
(i) the advice is provided by a
fiduciary adviser pursuant to an
eligible investment advice arrangement
between the plan sponsor or other
fiduciary and the fiduciary adviser for
the provision by the fiduciary adviser
of investment advice referred to in
such section,
(ii) the terms of the eligible
investment advice arrangement require
compliance by the fiduciary adviser
with the requirements of this
subsection, and
(iii) the terms of the eligible
investment advice arrangement include a
written acknowledgment by the fiduciary
adviser that the fiduciary adviser is a
fiduciary of the plan with respect to
the provision of the advice.
(B) Continued duty of prudent selection of
adviser and periodic review.--Nothing in
subparagraph (A) shall be construed to exempt a
plan sponsor or other person who is a fiduciary
from any requirement of this part for the
prudent selection and periodic review of a
fiduciary adviser with whom the plan sponsor or
other person enters into an eligible investment
advice arrangement for the provision of
investment advice referred to in section
3(21)(A)(ii). The plan sponsor or other person
who is a fiduciary has no duty under this part
to monitor the specific investment advice given
by the fiduciary adviser to any particular
recipient of the advice.
(C) Availability of plan assets for payment
for advice.--Nothing in this part shall be
construed to preclude the use of plan assets to
pay for reasonable expenses in providing
investment advice referred to in section
3(21)(A)(ii).
(11) Definitions.--For purposes of this subsection
and subsection (b)(14)--
(A) Fiduciary adviser.--The term ``fiduciary
adviser'' means, with respect to a plan, a
person who is a fiduciary of the plan by reason
of the provision of investment advice referred
to in section 3(21)(A)(ii) by the person to a
participant or beneficiary of the plan and who
is--
(i) registered as an investment
adviser under the Investment Advisers
Act of 1940 (15 U.S.C. 80b-1 et seq.)
or under the laws of the State in which
the fiduciary maintains its principal
office and place of business,
(ii) a bank or similar financial
institution referred to in subsection
(b)(4) or a savings association (as
defined in section 3(b)(1) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(1)), but only if the
advice is provided through a trust
department of the bank or similar
financial institution or savings
association which is subject to
periodic examination and review by
Federal or State banking authorities,
(iii) an insurance company qualified
to do business under the laws of a
State,
(iv) a person registered as a broker
or dealer under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.),
(v) an affiliate of a person
described in any of clauses (i) through
(iv), or
(vi) an employee, agent, or
registered representative of a person
described in clauses (i) through (v)
who satisfies the requirements of
applicable insurance, banking, and
securities laws relating to the
provision of the advice.
For purposes of this part, a person who
develops the computer model described in
paragraph (3)(B) or markets the investment
advice program or computer model shall be
treated as a person who is a fiduciary of the
plan by reason of the provision of investment
advice referred to in section 3(21)(A)(ii) to a
participant or beneficiary and shall be treated
as a fiduciary adviser for purposes of this
subsection and subsection (b)(14), except that
the Secretary may prescribe rules under which
only 1 fiduciary adviser may elect to be
treated as a fiduciary with respect to the
plan.
(B) Affiliate.--The term ``affiliate'' of
another entity means an affiliated person of
the entity (as defined in section 2(a)(3) of
the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(3))).
(C) Registered representative.--The term
``registered representative'' of another entity
means a person described in section 3(a)(18) of
the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(18)) (substituting the entity for the
broker or dealer referred to in such section)
or a person described in section 202(a)(17) of
the Investment Advisers Act of 1940 (15 U.S.C.
80b-2(a)(17)) (substituting the entity for the
investment adviser referred to in such
section).
(h) Provision of Pharmacy Benefit Services.--
(1) In general.--Provided that all of the conditions
described in paragraph (2) are met, the restrictions
imposed by subsections (a), (b)(1), and (b)(2) of
section 406 shall not apply to--
(A) the offering of pharmacy benefit services
to a group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or to
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
(B) the purchase of pharmacy benefit services
by plan participants and beneficiaries of a
group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or of
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
or
(C) the operation or implementation of
pharmacy benefit services by an entity
described in section 3(37)(G)(vi) or by any
other group health plan that is sponsored by a
regional council, local union, or other labor
organization affiliated with such entity,
in any arrangement where such entity described in
section 3(37)(G)(vi) or any related organization or
subsidiary of such entity provides pharmacy benefit
services that include prior authorization and appeals,
a retail pharmacy network, pharmacy benefit
administration, mail order fulfillment, formulary
support, manufacturer payments, audits, and specialty
pharmacy and goods, to any such group health plan.
(2) Conditions.--The conditions described in this
paragraph are the following:
(A) The terms of the arrangement are at least
as favorable to the group health plan as such
group health plan could obtain in a similar
arm's length arrangement with an unrelated
third party.
(B) At least 50 percent of the providers
participating in the pharmacy benefit services
offered by the arrangement are unrelated to the
contributing employers or any other party in
interest with respect to the group health plan.
(C) The group health plan retains an
independent fiduciary who will be responsible
for monitoring the group health plan's
consultants, contractors, subcontractors, and
other service providers for purposes of
pharmacy benefit services described in
paragraph (1) offered by such entity or any of
its related organizations or subsidiaries and
monitors the transactions of such entity and
any of its related organizations or
subsidiaries to ensure that all conditions of
this exemption are satisfied during each plan
year.
(D) Any decisions regarding the provision of
pharmacy benefit services described in
paragraph (1) are made by the group health
plan's independent fiduciary, based on
objective standards developed by the
independent fiduciary in reliance on
information provided by the arrangement.
(E) The independent fiduciary of the group
health plan provides an annual report to the
Secretary and the congressional committees of
jurisdiction attesting that the conditions
described in subparagraphs (C) and (D) have
been met for the applicable plan year, together
with a statement that use of the arrangement's
services are in the best interest of the
participants and beneficiaries in the aggregate
for that plan year compared to other similar
arrangements the group health plan could have
obtained in transactions with an unrelated
third party.
(F) The arrangement is not designed to
benefit any party in interest with respect to
the group health plan.
(3) Violations.--In the event an entity described in
section 3(37)(G)(vi) or any affiliate of such entity
violates any of the conditions of such exemption, such
exemption shall not apply with respect to such entity
or affiliate and all enforcement and claims available
under this Act shall apply with respect to such entity
or affiliate.
(4) Rule of construction.--Nothing in this subsection
shall be construed to modify any obligation of a group
health plan otherwise set forth in this Act.
(5) Group health plan.--In this subsection, the term
``group health plan'' has the meaning given such term
in section 733(a).
* * * * * * *
Part 5--Administration and Enforcement
* * * * * * *
SEC. 523. RETIREMENT SAVINGS LOST AND FOUND.
(a) Establishment.--
(1) In general.--Not later than 2 years after the
date of the enactment of this section, the Secretary of
Labor, in consultation with the Secretary of the
Treasury, shall establish an online searchable database
(to be managed by the Department of Labor in accordance
with this section) to be known as the ``Retirement
Savings Lost and Found''. The Retirement Savings Lost
and Found shall--
(A) allow an individual to search for
information that enables the individual to
locate the administrator of any plan described
in paragraph (2) with respect to which the
individual is or was a participant or
beneficiary, and provide contact information
for the administrator of any such plan;
(B) allow the Department of Labor to assist
such an individual in locating any such plan of
the individual; and
(C) allow the Department of Labor to make any
necessary changes to contact information on
record for the administrator based on any
changes to the plan due to merger or
consolidation of the plan with any other plan,
division of the plan into two or more plans,
bankruptcy, termination, change in name of the
plan, change in name or address of the
administrator, or other causes.
The Retirement Savings Lost and Found established under
this paragraph shall include information reported under
this section and other relevant information obtained by
the Department of Labor.
(2) Plans described.--A plan described in this
paragraph is a plan to which the vesting standards of
section 203 apply.
(b) Administration.--The Retirement Savings Lost and Found
established under subsection (a) shall provide individuals
described in subsection (a)(1) only with the ability to search
for information that enables the individual to locate the
administrator and contact information for the administrator of
any plan with respect to which the individual is or was a
participant or beneficiary, sufficient to allow the individual
to locate the individual's plan in order to recover any benefit
owing to the individual under the plan.
(c) Safeguarding Participant Privacy and Security.--In
establishing the Retirement Savings Lost and Found under
subsection (a), the Department of Labor shall take all
necessary and proper precautions to ensure that individuals'
plan information maintained by the Retirement Savings Lost and
Found is protected.
(d) Definition of Administrator.--For purposes of this
section and section 523, the term ``administrator'' has the
meaning given such term in section 3(16)(A).
(e) Information Collection From Plans.--Effective with
respect to plan years beginning after the second December 31
occurring after the date of the enactment of this subsection,
the administrator of a plan to which the vesting standards of
section 203 apply shall submit to the Department of Labor, at
such time and in such form and manner as is prescribed in
regulations--
(1) the information described in paragraphs (1)
through (4) of section 6057(b) of the Internal Revenue
Code of 1986;
(2) the information described in subparagraphs (A),
(B), (E), and (F) of section 6057(a)(2) of the Internal
Revenue Code of 1986; and
(3) such other information as the Secretary of Labor
may require.
(f) Information Collection From Federal Agencies.--The
Secretary of Labor is authorized to access and receive
information collected by other Federal agencies that may be
necessary to perform work related to the Retirement Savings
Lost and Found. Such necessary and appropriate information,
which shall be furnished to the Secretary of Labor on request,
includes information covered by section 6103 of the Internal
Revenue Code of 1986 and section 205(r) of the Social Security
Act.
(g) Program Integrity Audit.--On an annual basis for each of
the first 5 years beginning one year after the establishment of
the database in subsection (a)(1) and every 5 years thereafter,
the Inspector General of the Department of Labor shall conduct
an audit of the administration of the Retirement Savings Lost
and Found.
* * * * * * *
----------
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
CHAPTER 1--NORMAL TAXES AND SURTAXES
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.
(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) if contributions are made to the trust by such
employer, or employees, or both, or by another employer
who is entitled to deduct his contributions under
section 404(a)(3)(B) (relating to deduction for
contributions to profit-sharing and stock bonus plans),
or by a charitable remainder trust pursuant to a
qualified gratuitous transfer (as defined in section
664(g)(1)), for the purpose of distributing to such
employees or their beneficiaries the corpus and income
of the fund accumulated by the trust in accordance with
such plan;
(2) if under the trust instrument it is impossible,
at any time prior to the satisfaction of all
liabilities with respect to employees and their
beneficiaries under the trust, for any part of the
corpus or income to be (within the taxable year or
thereafter) used for, or diverted to, purposes other
than for the exclusive benefit of his employees or
their beneficiaries (but this paragraph shall not be
construed, in the case of a multiemployer plan, to
prohibit the return of a contribution within 6 months
after the plan administrator determines that the
contribution was made by a mistake of fact or law
(other than a mistake relating to whether the plan is
described in section 401(a) or the trust which is part
of such plan is exempt from taxation under section
501(a), or the return of any withdrawal liability
payment determined to be an overpayment within 6 months
of such determination));
(3) if the plan of which such trust is a part
satisfies the requirements of section 410 (relating to
minimum participation standards); and
(4) if the contributions or benefits provided under
the plan do not discriminate in favor of highly
compensated employees (within the meaning of section
414(q)). For purposes of this paragraph, there shall be
excluded from consideration employees described in
section 410(b)(3)(A) and (C).
(5) Special rules relating to nondiscrimination
requirements.--
(A) Salaried or clerical employees.--A
classification shall not be considered
discriminatory within the meaning of paragraph
(4) or section 410(b)(2)(A)(i) merely because
it is limited to salaried or clerical
employees.
(B) Contributions and benefits may bear
uniform relationship to compensation.--A plan
shall not be considered discriminatory within
the meaning of paragraph (4) merely because the
contributions or benefits of, or on behalf of,
the employees under the plan bear a uniform
relationship to the compensation (within the
meaning of section 414(s)) of such employees.
(C) Certain disparity permitted.--A plan
shall not be considered discriminatory within
the meaning of paragraph (4) merely because the
contributions or benefits of, or on behalf of,
the employees under the plan favor highly
compensated employees (as defined in section
414(q)) in the manner permitted under
subsection (l).
(D) Integrated defined benefit plan.--
(i) In general.--A defined benefit
plan shall not be considered
discriminatory within the meaning of
paragraph (4) merely because the plan
provides that the employer-derived
accrued retirement benefit for any
participant under the plan may not
exceed the excess (if any) of--
(I) the participant's final
pay with the employer, over
(II) the employer-derived
retirement benefit created
under Federal law attributable
to service by the participant
with the employer.
For purposes of this clause, the employer-
derived retirement benefit created under
Federal law shall be treated as accruing
ratably over 35 years.
(ii) Final pay.--For purposes of this
subparagraph, the participant's final
pay is the compensation (as defined in
section 414(q)(4)) paid to the
participant by the employer for any
year--
(I) which ends during the 5-
year period ending with the
year in which the participant
separated from service for the
employer, and
(II) for which the
participant's total
compensation from the employer
was highest.
(E) 2 or more plans treated as single plan.--
For purposes of determining whether 2 or more
plans of an employer satisfy the requirements
of paragraph (4) when considered as a single
plan--
(i) Contributions.--If the amount of
contributions on behalf of the
employees allowed as a deduction under
section 404 for the taxable year with
respect to such plans, taken together,
bears a uniform relationship to the
compensation (within the meaning of
section 414(s)) of such employees, the
plans shall not be considered
discriminatory merely because the
rights of employees to, or derived
from, the employer contributions under
the separate plans do not become
nonforfeitable at the same rate.
(ii) Benefits.--If the employees'
rights to benefits under the separate
plans do not become nonforfeitable at
the same rate, but the levels of
benefits provided by the separate plans
satisfy the requirements of regulations
prescribed by the Secretary to take
account of the differences in such
rates, the plans shall not be
considered discriminatory merely
because of the difference in such
rates.
(F) Social security retirement age.--For
purposes of testing for discrimination under
paragraph (4)--
(i) the social security retirement
age (as defined in section 415(b)(8))
shall be treated as a uniform
retirement age, and
(ii) subsidized early retirement
benefits and joint and survivor
annuities shall not be treated as being
unavailable to employees on the same
terms merely because such benefits or
annuities are based in whole or in part
on an employee's social security
retirement age (as so defined).
(G) Governmental plans.--Paragraphs (3) and
(4) shall not apply to a governmental plan
(within the meaning of section 414(d)).
(6) A plan shall be considered as meeting the
requirements of paragraph (3) during the whole of any
taxable year of the plan if on one day in each quarter
it satisfied such requirements.
(7) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part satisfies the requirements of section 411
(relating to minimum vesting standards).
(8) A trust forming part of a defined benefit plan
shall not constitute a qualified trust under this
section unless the plan provides that forfeitures must
not be applied to increase the benefits any employee
would otherwise receive under the plan.
(9) Required distributions.--
(A) In general.--A trust shall not constitute
a qualified trust under this subsection unless
the plan provides that the entire interest of
each employee--
(i) will be distributed to such
employee not later than the required
beginning date, or
(ii) will be distributed, beginning
not later than the required beginning
date, in accordance with regulations,
over the life of such employee or over
the lives of such employee and a
designated beneficiary (or over a
period not extending beyond the life
expectancy of such employee or the life
expectancy of such employee and a
designated beneficiary).
(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) 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),
the entire interest of the employee
will be distributed within 5 years
after the death of such employee.
(iii) Exception to 5-year rule for
certain amounts payable over life of
beneficiary.--If--
(I) any portion of the
employee's interest is payable
to (or for the benefit of) a
designated beneficiary,
(II) such portion will be
distributed (in accordance with
regulations) over the life of
such designated beneficiary (or
over a period not extending
beyond the life expectancy of
such beneficiary), and
(III) such distributions
begin not later than 1 year
after the date of the
employee's death or such later
date as the Secretary may by
regulations prescribe,
for purposes of clause (ii), the portion
referred to in subclause (I) shall be treated
as distributed on the date on which such
distributions begin.
(iv) Special rule for surviving
spouse of employee.--If the designated
beneficiary referred to in clause
(iii)(I) is the surviving spouse of the
employee--
(I) the date on which the
distributions are required to
begin under clause (iii)(III)
shall not be earlier than the
date on which the employee
would have attained age 72, and
(II) if the surviving spouse
dies before the distributions
to such spouse begin, this
subparagraph shall be applied
as if the surviving spouse were
the employee.
(C) Required beginning date.--For purposes of
this paragraph--
(i) In general.--The term ``required
beginning date'' means April 1 of the
calendar year following the later of--
(I) the calendar year in
which the employee attains age
72, or
(II) the calendar year in
which the employee retires.
(ii) Exception.--Subclause (II) of
clause (i) shall not apply--
(I) except as provided in
section 409(d), in the case of
an employee who is a 5-percent
owner (as defined in section
416) with respect to the plan
year ending in the calendar
year in which the employee
attains age 72, or
(II) for purposes of section
408(a)(6) or (b)(3).
(iii) Actuarial adjustment.--In the
case of an employee to whom clause
(i)(II) applies who retires in a
calendar year after the calendar year
in which the employee attains age 701/
2, the employee's accrued benefit shall
be actuarially increased to take into
account the period after age 701/2 in
which the employee was not receiving
any benefits under the plan.
(iv) Exception for governmental and
church plans.--Clauses (ii) and (iii)
shall not apply in the case of a
governmental plan or church plan. For
purposes of this clause, the term
``church plan'' means a plan maintained
by a church for church employees, and
the term ``church'' means any church
(as defined in section 3121(w)(3)(A))
or qualified church-controlled
organization (as defined in section
3121(w)(3)(B)).
(D) Life expectancy.--For purposes of this
paragraph, the life expectancy of an employee
and the employee's spouse (other than in the
case of a life annuity) may be redetermined but
not more frequently than annually.
(E) Definitions and rules relating to
designated beneficiaries.--For purposes of this
paragraph--
(i) Designated beneficiary.--The term
``designated beneficiary'' means any
individual designated as a beneficiary
by the employee.
(ii) Eligible designated
beneficiary.--The term ``eligible
designated beneficiary'' means, with
respect to any employee, any designated
beneficiary who is--
(I) the surviving spouse of
the employee,
(II) subject to clause (iii),
a child of the employee who has
not reached majority (within
the meaning of subparagraph
(F)),
(III) disabled (within the
meaning of section 72(m)(7)),
(IV) a chronically ill
individual (within the meaning
of section 7702B(c)(2), except
that the requirements of
subparagraph (A)(i) thereof
shall only be treated as met if
there is a certification that,
as of such date, the period of
inability described in such
subparagraph with respect to
the individual is an indefinite
one which is reasonably
expected to be lengthy in
nature), or
(V) an individual not
described in any of the
preceding subclauses who is not
more than 10 years younger than
the employee.
The determination of whether a designated
beneficiary is an eligible designated
beneficiary shall be made as of the date of
death of the employee.
(iii) Special rule for children.--
Subject to subparagraph (F), an
individual described in clause (ii)(II)
shall cease to be an eligible
designated beneficiary as of the date
the individual reaches majority and any
remainder of the portion of the
individual's interest to which
subparagraph (H)(ii) applies shall be
distributed within 10 years after such
date.
(F) Treatment of payments to children.--Under
regulations prescribed by the Secretary, for
purposes of this paragraph, any amount paid to
a child shall be treated as if it had been paid
to the surviving spouse if such amount will
become payable to the surviving spouse upon
such child reaching majority (or other
designated event permitted under regulations).
(G) Treatment of incidental death benefit
distributions.--For purposes of this title, any
distribution required under the incidental
death benefit requirements of this subsection
shall be treated as a distribution required
under this paragraph.
(H) Special rules for certain defined
contribution plans.--In the case of a defined
contribution plan, if an employee dies before
the distribution of the employee's entire
interest--
(i) In general.--Except in the case
of a beneficiary who is not a
designated beneficiary, subparagraph
(B)(ii)--
(I) shall be applied by
substituting ``10 years'' for
``5 years'', and
(II) shall apply whether or
not distributions of the
employee's interests have begun
in accordance with subparagraph
(A).
(ii) Exception for eligible
designated beneficiaries.--Subparagraph
(B)(iii) shall apply only in the case
of an eligible designated beneficiary.
(iii) Rules upon death of eligible
designated beneficiary.--If an eligible
designated beneficiary dies before the
portion of the employee's interest to
which this subparagraph applies is
entirely distributed, the exception
under clause (ii) shall not apply to
any beneficiary of such eligible
designated beneficiary and the
remainder of such portion shall be
distributed within 10 years after the
death of such eligible designated
beneficiary.
(iv) Special rule in case of certain
trusts for disabled or chronically ill
beneficiaries.--In the case of an
applicable multi-beneficiary trust, if
under the terms of the trust--
(I) it is to be divided
immediately upon the death of
the employee into separate
trusts for each beneficiary, or
(II) no individual (other
than a eligible designated
beneficiary described in
subclause (III) or (IV) of
subparagraph (E)(ii)) has any
right to the employee's
interest in the plan until the
death of all such eligible
designated beneficiaries with
respect to the trust,
for purposes of a trust described in subclause
(I), clause (ii) shall be applied separately
with respect to the portion of the employee's
interest that is payable to any eligible
designated beneficiary described in subclause
(III) or (IV) of subparagraph (E)(ii); and, for
purposes of a trust described in subclause
(II), subparagraph (B)(iii) shall apply to the
distribution of the employee's interest and any
beneficiary who is not such an eligible
designated beneficiary shall be treated as a
beneficiary of the eligible designated
beneficiary upon the death of such eligible
designated beneficiary.
(v) Applicable multi-beneficiary
trust.--For purposes of this
subparagraph, the term ``applicable
multi-beneficiary trust'' means a
trust--
(I) which has more than one
beneficiary,
(II) all of the beneficiaries
of which are treated as
designated beneficiaries for
purposes of determining the
distribution period pursuant to
this paragraph, and
(III) at least one of the
beneficiaries of which is an
eligible designated beneficiary
described in subclause (III) or
(IV) of subparagraph (E)(ii).
(vi) Application to certain eligible
retirement plans.--For purposes of
applying the provisions of this
subparagraph in determining amounts
required to be distributed pursuant to
this paragraph, all eligible retirement
plans (as defined in section
402(c)(8)(B), other than a defined
benefit plan described in clause (iv)
or (v) thereof or a qualified trust
which is a part of a defined benefit
plan) shall be treated as a defined
contribution plan.
(I) Temporary waiver of minimum required
distribution.--
(i) In general.--The requirements of
this paragraph shall not apply for
calendar year 2020 to--
(I) a defined contribution
plan which is described in this
subsection or in section 403(a)
or 403(b),
(II) a defined contribution
plan which is an eligible
deferred compensation plan
described in section 457(b) but
only if such plan is maintained
by an employer described in
section 457(e)(1)(A), or
(III) an individual
retirement plan.
(ii) Special rule for required
beginning dates in 2020.--Clause (i)
shall apply to any distribution which
is required to be made in calendar year
2020 by reason of--
(I) a required beginning date
occurring in such calendar
year, and
(II) such distribution not
having been made before January
1, 2020.
(iii) Special rules regarding waiver
period.--For purposes of this
paragraph--
(I) the required beginning
date with respect to any
individual shall be determined
without regard to this
subparagraph for purposes of
applying this paragraph for
calendar years after 2020, and
(II) if clause (ii) of
subparagraph (B) applies, the
5-year period described in such
clause shall be determined
without regard to calendar year
2020.
(10) Other requirements.--
(A) Plans benefiting owner-employees.--In the
case of any plan which provides contributions
or benefits for employees some or all of whom
are owner-employees (as defined in subsection
(c)(3)), a trust forming part of such plan
shall constitute a qualified trust under this
section only if the requirements of subsection
(d) are also met.
(B) Top-heavy plans.--
(i) In general.--In the case of any
top-heavy plan, a trust forming part of
such plan shall constitute a qualified
trust under this section only if the
requirements of section 416 are met.
(ii) Plans which may become top-
heavy.--Except to the extent provided
in regulations, a trust forming part of
a plan (whether or not a top-heavy
plan) shall constitute a qualified
trust under this section only if such
plan contains provisions--
(I) which will take effect if
such plan becomes a top-heavy
plan, and
(II) which meet the
requirements of section 416.
(iii) Exemption for governmental
plans.--This subparagraph shall not
apply to any governmental plan.
(11) Requirement of joint and survivor annuity and
preretirement survivor annuity.--
(A) In general.--In the case of any plan to
which this paragraph applies, except as
provided in section 417, a trust forming part
of such plan shall not constitute a qualified
trust under this section unless--
(i) in the case of a vested
participant who does not die before the
annuity starting date, the accrued
benefit payable to such participant is
provided in the form of a qualified
joint and survivor annuity, and
(ii) in the case of a vested
participant who dies before the annuity
starting date and who has a surviving
spouse, a qualified preretirement
survivor annuity is provided to the
surviving spouse of such participant.
(B) Plans to which paragraph applies.--This
paragraph shall apply to--
(i) any defined benefit plan,
(ii) any defined contribution plan
which is subject to the funding
standards of section 412, and
(iii) any participant under any other
defined contribution plan unless--
(I) such plan provides that
the participant's
nonforfeitable accrued benefit
(reduced by any security
interest held by the plan by
reason of a loan outstanding to
such participant) is payable in
full, on the death of the
participant, to the
participant's surviving spouse
(or, if there is no surviving
spouse or the surviving spouse
consents in the manner required
under section 417(a)(2), to a
designated beneficiary),
(II) such participant does
not elect a payment of benefits
in the form of a life annuity,
and
(III) with respect to such
participant, such plan is not a
direct or indirect transferee
(in a transfer after December
31, 1984) of a plan which is
described in clause (i) or (ii)
or to which this clause applied
with respect to the
participant.
Clause (iii)(III) shall apply only with respect
to the transferred assets (and income
therefrom) if the plan separately accounts for
such assets and any income therefrom.
(C) Exception for certain ESOP benefits.--
(i) In general.--In the case of--
(I) a tax credit employee
stock ownership plan (as
defined in section 409(a)), or
(II) an employee stock
ownership plan (as defined in
section 4975(e)(7)),
subparagraph (A) shall not apply to that
portion of the employee's accrued benefit to
which the requirements of section 409(h) apply.
(ii) Nonforfeitable benefit must be
paid in full, etc.--In the case of any
participant, clause (i) shall apply
only if the requirements of subclauses
(I), (II), and (III) of subparagraph
(B)(iii) are met with respect to such
participant.
(D) Special rule where participant and spouse
married less than 1 year.--A plan shall not be
treated as failing to meet the requirements of
subparagraphs (B)(iii) or (C) merely because
the plan provides that benefits will not be
payable to the surviving spouse of the
participant unless the participant and such
spouse had been married throughout the 1-year
period ending on the earlier of the
participant's annuity starting date or the date
of the participant's death.
(E) Exception for plans described in section
404(c).--This paragraph shall not apply to a
plan which the Secretary has determined is a
plan described in section 404(c) (or a
continuation thereof) in which participation is
substantially limited to individuals who,
before January 1, 1976, ceased employment
covered by the plan.
(F) Cross reference.--For--
(i) provisions under which
participants may elect to waive the
requirements of this paragraph, and
(ii) other definitions and special
rules for purposes of this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part provides that in the case of any merger or
consolidation with, or transfer of assets or
liabilities to, any other plan after September 2, 1974,
each participant in the plan would (if the plan then
terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation,
or transfer (if the plan had then terminated). The
preceding sentence does not apply to any multiemployer
plan with respect to any transaction to the extent that
participants either before or after the transaction are
covered under a multiemployer plan to which title IV of
the Employee Retirement Income Security Act of 1974
applies.
(13) Assignment and alienation.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless the
plan of which such trust is a part provides
that benefits provided under the plan may not
be assigned or alienated. For purposes of the
preceding sentence, there shall not be taken
into account any voluntary and revocable
assignment of not to exceed 10 percent of any
benefit payment made by any participant who is
receiving benefits under the plan unless the
assignment or alienation is made for purposes
of defraying plan administration costs. For
purposes of this paragraph a loan made to a
participant or beneficiary shall not be treated
as an assignment or alienation if such loan is
secured by the participant's accrued
nonforfeitable benefit and is exempt from the
tax imposed by section 4975 (relating to tax on
prohibited transactions) by reason of section
4975(d)(1). This paragraph shall take effect on
January 1, 1976 and shall not apply to
assignments which were irrevocable on September
2, 1974.
(B) Special rules for domestic relations
orders.--Subparagraph (A) shall apply to the
creation, assignment, or recognition of a right
to any benefit payable with respect to a
participant pursuant to a domestic relations
order, except that subparagraph (A) shall not
apply if the order is determined to be a
qualified domestic relations order.
(C) Special rule for certain judgments and
settlements.--Subparagraph (A) shall not apply
to any offset of a participant's benefits
provided under a plan against an amount that
the participant is ordered or required to pay
to the plan if--
(i) the order or requirement to pay
arises--
(I) under a judgment of
conviction for a crime
involving such plan,
(II) under a civil judgment
(including a consent order or
decree) entered by a court in
an action brought in connection
with a violation (or alleged
violation) of part 4 of
subtitle B of title I of the
Employee Retirement Income
Security Act of 1974, or
(III) pursuant to a
settlement agreement between
the Secretary of Labor and the
participant, or a settlement
agreement between the Pension
Benefit Guaranty Corporation
and the participant, in
connection with a violation (or
alleged violation) of part 4 of
such subtitle by a fiduciary or
any other person,
(ii) the judgment, order, decree, or
settlement agreement expressly provides
for the offset of all or part of the
amount ordered or required to be paid
to the plan against the participant's
benefits provided under the plan, and
(iii) in a case in which the survivor
annuity requirements of section
401(a)(11) apply with respect to
distributions from the plan to the
participant, if the participant has a
spouse at the time at which the offset
is to be made--
(I) either such spouse has
consented in writing to such
offset and such consent is
witnessed by a notary public or
representative of the plan (or
it is established to the
satisfaction of a plan
representative that such
consent may not be obtained by
reason of circumstances
described in section
417(a)(2)(B)), or an election
to waive the right of the
spouse to either a qualified
joint and survivor annuity or a
qualified preretirement
survivor annuity is in effect
in accordance with the
requirements of section 417(a),
(II) such spouse is ordered
or required in such judgment,
order, decree, or settlement to
pay an amount to the plan in
connection with a violation of
part 4 of such subtitle, or
(III) in such judgment,
order, decree, or settlement,
such spouse retains the right
to receive the survivor annuity
under a qualified joint and
survivor annuity provided
pursuant to section
401(a)(11)(A)(i) and under a
qualified preretirement
survivor annuity provided
pursuant to section
401(a)(11)(A)(ii), determined
in accordance with subparagraph
(D).
A plan shall not be treated as failing to meet
the requirements of this subsection, subsection
(k), section 403(b), or section 409(d) solely
by reason of an offset described in this
subparagraph.
(D) Survivor annuity.--
(i) In general.--The survivor annuity
described in subparagraph (C)(iii)(III)
shall be determined as if--
(I) the participant
terminated employment on the
date of the offset,
(II) there was no offset,
(III) the plan permitted
commencement of benefits only
on or after normal retirement
age,
(IV) the plan provided only
the minimum-required qualified
joint and survivor annuity, and
(V) the amount of the
qualified preretirement
survivor annuity under the plan
is equal to the amount of the
survivor annuity payable under
the minimum-required qualified
joint and survivor annuity.
(ii) Definition.--For purposes of
this subparagraph, the term ``minimum-
required qualified joint and survivor
annuity'' means the qualified joint and
survivor annuity which is the actuarial
equivalent of the participant's accrued
benefit (within the meaning of section
411(a)(7)) and under which the survivor
annuity is 50 percent of the amount of
the annuity which is payable during the
joint lives of the participant and the
spouse.
(14) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part provides that, unless the participant
otherwise elects, the payment of benefits under the
plan to the participant will begin not later than the
60th day after the latest of the close of the plan year
in which--
(A) the date on which the participant attains
the earlier of age 65 or the normal retirement
age specified under the plan,
(B) occurs the 10th anniversary of the year
in which the participant commenced
participation in the plan, or
(C) the participant terminates his service
with the employer.
In the case of a plan which provides for the payment of
an early retirement benefit, a trust forming a part of
such plan shall not constitute a qualified trust under
this section unless a participant who satisfied the
service requirements for such early retirement benefit,
but separated from the service (with any nonforfeitable
right to an accrued benefit) before satisfying the age
requirement for such early retirement benefit, is
entitled upon satisfaction of such age requirement to
receive a benefit not less than the benefit to which he
would be entitled at the normal retirement age,
actuarially, reduced under regulations prescribed by
the Secretary.
(15) A trust shall not constitute a qualified trust
under this section unless under the plan of which such
trust is a part--
(A) in the case of a participant or
beneficiary who is receiving benefits under
such plan, or
(B) in the case of a participant who is
separated from the service and who has
nonforfeitable rights to benefits,
such benefits are not decreased by reason of any
increase in the benefit levels payable under title II
of the Social Security Act or any increase in the wage
base under such title II, if such increase takes place
after September 2, 1974, or (if later) the earlier of
the date of first receipt of such benefits or the date
of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust
under this section if the plan of which such trust is a
part provides for benefits or contributions which
exceed the limitations of section 415.
(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 $200,000.
(B) Cost-of-living adjustment.--The Secretary
shall adjust annually the $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 July 1, 2001, and any
increase which is not a multiple of $5,000
shall be rounded to the next lowest multiple of
$5,000.
(19) A trust shall not constitute a qualified trust
under this section if under the plan of which such
trust is a part any part of a participant's accrued
benefit derived from employer contributions (whether or
not otherwise nonforfeitable), is forfeitable solely
because of withdrawal by such participant of any amount
attributable to the benefit derived from contributions
made by such participant. The preceding sentence shall
not apply to the accrued benefit of any participant
unless, at the time of such withdrawal, such
participant has a nonforfeitable right to at least 50
percent of such accrued benefit (as determined under
section 411). The first sentence of this paragraph
shall not apply to the extent that an accrued benefit
is permitted to be forfeited in accordance with section
411(a)(3)(D)(iii) (relating to proportional forfeitures
of benefits accrued before September 2, 1974, in the
event of withdrawal of certain mandatory
contributions).
(20) A trust forming part of a pension plan shall not
be treated as failing to constitute a qualified trust
under this section merely because the pension plan of
which such trust is a part makes 1 or more
distributions within 1 taxable year to a distributee on
account of a termination of the plan of which the trust
is a part, or in the case of a profit-sharing or stock
bonus plan, a complete discontinuance of contributions
under such plan. This paragraph shall not apply to a
defined benefit plan unless the employer maintaining
such plan files a notice with the Pension Benefit
Guaranty Corporation (at the time and in the manner
prescribed by the Pension Benefit Guaranty Corporation)
notifying the Corporation of such payment or
distribution and the Corporation has approved such
payment or distribution or, within 90 days after the
date on which such notice was filed, has failed to
disapprove such payment or distribution. For purposes
of this paragraph, rules similar to the rules of
section 402(a)(6)(B) (as in effect before its repeal by
section 521 of the Unemployment Compensation Amendments
of 1992) shall apply.
(22) If a defined contribution plan (other than a
profit-sharing plan)--
(A) is established by an employer whose stock
is not readily tradable on an established
market, and
(B) after acquiring securities of the
employer, more than 10 percent of the total
assets of the plan are securities of the
employer,
any trust forming part of such plan shall not
constitute a qualified trust under this section unless
the plan meets the requirements of subsection (e) of
section 409. The requirements of subsection (e) of
section 409 shall not apply to any employees of an
employer who are participants in any defined
contribution plan established and maintained by such
employer if the stock of such employer is not readily
tradable on an established market and the trade or
business of such employer consists of publishing on a
regular basis a newspaper for general circulation. For
purposes of the preceding sentence, subsections (b),
(c), (m), and (o) of section 414 shall not apply except
for determining whether stock of the employer is not
readily tradable on an established market.
(23) A stock bonus plan shall not be treated as
meeting the requirements of this section unless such
plan meets the requirements of subsections (h) and (o)
of section 409, except that in applying section 409(h)
for purposes of this paragraph, the term ``employer
securities'' shall include any securities of the
employer held by the plan.
(24) Any group trust which otherwise meets the
requirements of this section shall not be treated as
not meeting such requirements on account of the
participation or inclusion in such trust of the moneys
of any plan or governmental unit described in section
818(a)(6).
(25) Requirement that actuarial assumptions be
specified.--A defined benefit plan shall not be treated
as providing definitely determinable benefits unless,
whenever the amount of any benefit is to be determined
on the basis of actuarial assumptions, such assumptions
are specified in the plan in a way which precludes
employer discretion.
(26) Additional participation requirements.--
(A) In general.--In the case of a trust which
is a part of a defined benefit plan, such trust
shall not constitute a qualified trust under
this subsection unless on each day of the plan
year such trust benefits at least the lesser
of--
(i) 50 employees of the employer, or
(ii) the greater of--
(I) 40 percent of all
employees of the employer, or
(II) 2 employees (or if there
is only 1 employee, such
employee).
(B) Treatment of excludable employees.--
(i) In general.--A plan may exclude
from consideration under this paragraph
employees described in paragraphs (3)
and (4)(A) of section 410(b).
(ii) Separate application for certain
excludable employees.--If employees
described in section 410(b)(4)(B) are
covered under a plan which meets the
requirements of subparagraph (A)
separately with respect to such
employees, such employees may be
excluded from consideration in
determining whether any plan of the
employer meets such requirements if--
(I) the benefits for such
employees are provided under
the same plan as benefits for
other employees,
(II) the benefits provided to
such employees are not greater
than comparable benefits
provided to other employees
under the plan, and
(III) no highly compensated
employee (within the meaning of
section 414(q)) is included in
the group of such employees for
more than 1 year.
(C) Special rule for collective bargaining
units.--Except to the extent provided in
regulations, a plan covering only employees
described in section 410(b)(3)(A) may exclude
from consideration any employees who are not
included in the unit or units in which the
covered employees are included.
(D) Paragraph not to apply to multiemployer
plans.--Except to the extent provided in
regulations, this paragraph shall not apply to
employees in a multiemployer plan (within the
meaning of section 414(f)) who are covered by
collective bargaining agreements.
(E) Special rule for certain dispositions or
acquisitions.--Rules similar to the rules of
section 410(b)(6)(C) shall apply for purposes
of this paragraph.
(F) Separate lines of business.--At the
election of the employer and with the consent
of the Secretary, this paragraph may be applied
separately with respect to each separate line
of business of the employer. For purposes of
this paragraph, the term ``separate line of
business'' has the meaning given such term by
section 414(r) (without regard to paragraph
(2)(A) or (7) thereof).
(G) Exception for governmental plans.--This
paragraph shall not apply to a governmental
plan (within the meaning of section 414(d)).
(H) Regulations.--The Secretary may by
regulation provide that any separate benefit
structure, any separate trust, or any other
separate arrangement is to be treated as a
separate plan for purposes of applying this
paragraph.
(I) Protected participants.--
(i) In general.--A plan shall be
deemed to satisfy the requirements of
subparagraph (A) if--
(I) the plan is amended--
(aa) to cease all
benefit accruals, or
(bb) to provide
future benefit accruals
only to a closed class
of participants,
(II) the plan satisfies
subparagraph (A) (without
regard to this subparagraph) as
of the effective date of the
amendment, and
(III) the amendment was
adopted before April 5, 2017,
or the plan is described in
clause (ii).
(ii) Plans described.--A plan is
described in this clause if the plan
would be described in subsection
(o)(1)(C), as applied for purposes of
subsection (o)(1)(B)(iii)(IV) and by
treating the effective date of the
amendment as the date the class was
closed for purposes of subsection
(o)(1)(C).
(iii) Special rules.--For purposes of
clause (i)(II), in applying section
410(b)(6)(C), the amendments described
in clause (i) shall not be treated as a
significant change in coverage under
section 410(b)(6)(C)(i)(II).
(iv) Spun-off plans.--For purposes of
this subparagraph, if a portion of a
plan described in clause (i) is spun
off to another employer, the treatment
under clause (i) of the spun-off plan
shall continue with respect to the
other employer.
(27) Determinations as to profit-sharing plans.--
(A) Contributions need not be based on
profits.--The determination of whether the plan
under which any contributions are made is a
profit-sharing plan shall be made without
regard to current or accumulated profits of the
employer and without regard to whether the
employer is a tax-exempt organization.
(B) Plan must designate type.--In the case of
a plan which is intended to be a money purchase
pension plan or a profit-sharing plan, a trust
forming part of such plan shall not constitute
a qualified trust under this subsection unless
the plan designates such intent at such time
and in such manner as the Secretary may
prescribe.
(28) Additional requirements relating to employee
stock ownership plans.--
(A) In general.--In the case of a trust which
is part of an employee stock ownership plan
(within the meaning of section 4975(e)(7)) or a
plan which meets the requirements of section
409(a), such trust shall not constitute a
qualified trust under this section unless such
plan meets the requirements of subparagraphs
(B) and (C).
(B) Diversification of investments.--
(i) In general.--A plan meets the
requirements of this subparagraph if
each qualified participant in the plan
may elect within 90 days after the
close of each plan year in the
qualified election period to direct the
plan as to the investment of at least
25 percent of the participant's account
in the plan (to the extent such portion
exceeds the amount to which a prior
election under this subparagraph
applies). In the case of the election
year in which the participant can make
his last election, the preceding
sentence shall be applied by
substituting ``50 percent'' for ``25
percent''.
(ii) Method of meeting
requirements.--A plan shall be treated
as meeting the requirements of clause
(i) if--
(I) the portion of the
participant's account covered
by the election under clause
(i) is distributed within 90
days after the period during
which the election may be made,
or
(II) the plan offers at least
3 investment options (not
inconsistent with regulations
prescribed by the Secretary) to
each participant making an
election under clause (i) and
within 90 days after the period
during which the election may
be made, the plan invests the
portion of the participant's
account covered by the election
in accordance with such
election.
(iii) Qualified participant.--For
purposes of this subparagraph, the term
``qualified participant'' means any
employee who has completed at least 10
years of participation under the plan
and has attained age 55.
(iv) Qualified election period.--For
purposes of this subparagraph, the term
``qualified election period'' means the
6-plan-year period beginning with the
later of--
(I) the 1st plan year in
which the individual first
became a qualified participant,
or
(II) the 1st plan year
beginning after December 31,
1986.
For purposes of the preceding sentence, an
employer may elect to treat an individual first
becoming a qualified participant in the 1st
plan year beginning in 1987 as having become a
participant in the 1st plan year beginning in
1988.
(v) Exception.--This subparagraph
shall not apply to an applicable
defined contribution plan (as defined
in paragraph (35)(E)).
(C) Use of independent appraiser.--A plan
meets the requirements of this subparagraph if
all valuations of employer securities which are
not readily tradable on an established
securities market with respect to activities
carried on by the plan are by an independent
appraiser. For purposes of the preceding
sentence, the term ``independent appraiser''
means any appraiser meeting requirements
similar to the requirements of the regulations
prescribed under section 170(a)(1).
(29) Benefit limitations.--In the case of a defined
benefit plan (other than a multiemployer plan or a CSEC
plan) to which the requirements of section 412 apply,
the trust of which the plan is a part shall not
constitute a qualified trust under this subsection
unless the plan meets the requirements of section 436.
(30) Limitations on elective deferrals.--In the case
of a trust which is part of a plan under which elective
deferrals (within the meaning of section 402(g)(3)) may
be made with respect to any individual during a
calendar year, such trust shall not constitute a
qualified trust under this subsection unless the plan
provides that the amount of such deferrals under such
plan and all other plans, contracts, or arrangements of
an employer maintaining such plan may not exceed the
amount of the limitation in effect under section
402(g)(1)(A) for taxable years beginning in such
calendar year.
(31) Direct transfer of eligible rollover
distributions.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless the
plan of which such trust is a part provides
that if the distributee of any eligible
rollover distribution--
(i) elects to have such distribution
paid directly to an eligible retirement
plan, and
(ii) specifies the eligible
retirement plan to which such
distribution is to be paid (in such
form and at such time as the plan
administrator may prescribe),
such distribution shall be made in the form of
a direct trustee-to-trustee transfer to the
eligible retirement plan so specified.
(B) Certain mandatory distributions.--
(i) In general.--In case of a trust
which is part of an eligible plan, such
trust shall not constitute a qualified
trust under this section unless the
plan of which such trust is a part
provides that if--
(I) a distribution described
in clause (ii) in excess of
$1,000 is made, and
(II) the distributee does not
make an election under
subparagraph (A) and does not
elect to receive the
distribution directly,
the plan administrator shall make such
transfer to an individual retirement plan of a
designated trustee or issuer and shall notify
the distributee in writing (either separately
or as part of the notice under section 402(f))
that the distribution may be transferred to
another individual retirement plan.
(ii) Eligible plan.--For purposes of
clause (i), the term ``eligible plan''
means a plan which provides that any
nonforfeitable accrued benefit for
which the present value (as determined
under section 411(a)(11)) does not
exceed [$5,000] $7,000 shall be
immediately distributed to the
participant.
(C) Limitation.--Subparagraphs (A) and (B)
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), 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) is a qualified trust which is
part of a plan which is a defined
contribution plan and 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).
(D) Eligible rollover distribution.--For
purposes of this paragraph, the term ``eligible
rollover distribution'' has the meaning given
such term by section 402(f)(2)(A).
(E) Eligible retirement plan.--For purposes
of this paragraph, the term ``eligible
retirement plan'' has the meaning given such
term by section 402(c)(8)(B), except that a
qualified trust shall be considered an eligible
retirement plan only if it is a defined
contribution plan, the terms of which permit
the acceptance of rollover distributions.
(32) Treatment of failure to make certain payments if
plan has liquidity shortfall.--
(A) In general.--A trust forming part of a
pension plan to which section 430(j)(4) or
433(f)(5) applies shall not be treated as
failing to constitute a qualified trust under
this section merely because such plan ceases to
make any payment described in subparagraph (B)
during any period that such plan has a
liquidity shortfall (as defined in section
430(j)(4) or 433(f)(5)).
(B) Payments described.--A payment is
described in this subparagraph if such payment
is--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 411(a)(9)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 417(f)(2)) occurs during the
period referred to in subparagraph (A),
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary by regulations.
(C) Period of shortfall.--For purposes of
this paragraph, a plan has a liquidity
shortfall during the period that there is an
underpayment of an installment under section
430(j)(3) or 433(f) by reason of section
430(j)(4)(A) or 433(f)(5), respectively.
(33) Prohibition on benefit increases while sponsor
is in bankruptcy.--
(A) In general.--A trust which is part of a
plan to which this paragraph applies shall not
constitute a qualified trust under this section
if an amendment to such plan is adopted while
the employer is a debtor in a case under title
11, United States Code, or similar Federal or
State law, if such amendment increases
liabilities of the plan by reason of--
(i) any increase in benefits,
(ii) any change in the accrual of
benefits, or
(iii) any change in the rate at which
benefits become nonforfeitable under
the plan,
with respect to employees of the debtor, and
such amendment is effective prior to the
effective date of such employer's plan of
reorganization.
(B) Exceptions.--This paragraph shall not
apply to any plan amendment if--
(i) the plan, were such amendment to
take effect, would have a funding
target attainment percentage (as
defined in section 430(d)(2)) of 100
percent or more,
(ii) the Secretary determines that
such amendment is reasonable and
provides for only de minimis increases
in the liabilities of the plan with
respect to employees of the debtor,
(iii) such amendment only repeals an
amendment described in section
412(d)(2), or
(iv) such amendment is required as a
condition of qualification under this
part.
(C) Plans to which this paragraph applies.--
This paragraph shall apply only to plans (other
than multiemployer plans or CSEC plans) covered
under section 4021 of the Employee Retirement
Income Security Act of 1974.
(D) Employer.--For purposes of this
paragraph, the term ``employer'' means the
employer referred to in section 412(b)(1),
without regard to section 412(b)(2).
(34) Benefits of missing participants on plan
termination.--In the case of a plan covered by title IV
of the Employee Retirement Income Security Act of 1974,
a trust forming part of such plan shall not be treated
as failing to constitute a qualified trust under this
section merely because the pension plan of which such
trust is a part, upon its termination, transfers
benefits of missing participants to the Pension Benefit
Guaranty Corporation in accordance with section 4050 of
such Act.
(35) Diversification requirements for certain defined
contribution plans.--
(A) In general.--A trust which is part of an
applicable defined contribution plan shall not
be treated as a qualified trust unless the plan
meets the diversification requirements of
subparagraphs (B), (C), and (D).
(B) Employee contributions and elective
deferrals invested in employer securities.--In
the case of the portion of an applicable
individual's account attributable to employee
contributions and elective deferrals which is
invested in employer securities, a plan meets
the requirements of this subparagraph if the
applicable individual may elect to direct the
plan to divest any such securities and to
reinvest an equivalent amount in other
investment options meeting the requirements of
subparagraph (D).
(C) Employer contributions invested in
employer securities.--In the case of the
portion of the account attributable to employer
contributions other than elective deferrals
which is invested in employer securities, a
plan meets the requirements of this
subparagraph if each applicable individual
who--
(i) is a participant who has
completed at least 3 years of service,
or
(ii) is a beneficiary of a
participant described in clause (i) or
of a deceased participant,
may elect to direct the plan to divest any such
securities and to reinvest an equivalent amount
in other investment options meeting the
requirements of subparagraph (D).
(D) Investment options.--
(i) In general.--The requirements of
this subparagraph are met if the plan
offers not less than 3 investment
options, other than employer
securities, to which an applicable
individual may direct the proceeds from
the divestment of employer securities
pursuant to this paragraph, each of
which is diversified and has materially
different risk and return
characteristics.
(ii) Treatment of certain
restrictions and conditions.--
(I) Time for making
investment choices.--A plan
shall not be treated as failing
to meet the requirements of
this subparagraph merely
because the plan limits the
time for divestment and
reinvestment to periodic,
reasonable opportunities
occurring no less frequently
than quarterly.
(II) Certain restrictions and
conditions not allowed.--Except
as provided in regulations, a
plan shall not meet the
requirements of this
subparagraph if the plan
imposes restrictions or
conditions with respect to the
investment of employer
securities which are not
imposed on the investment of
other assets of the plan. This
subclause shall not apply to
any restrictions or conditions
imposed by reason of the
application of securities laws.
(E) Applicable defined contribution plan.--
For purposes of this paragraph--
(i) In general.--The term
``applicable defined contribution
plan'' means any defined contribution
plan which holds any publicly traded
employer securities.
(ii) Exception for certain esops.--
Such term does not include an employee
stock ownership plan if--
(I) there are no
contributions to such plan (or
earnings thereunder) which are
held within such plan and are
subject to subsection (k) or
(m), and
(II) such plan is a separate
plan for purposes of section
414(l) with respect to any
other defined benefit plan or
defined contribution plan
maintained by the same employer
or employers.
(iii) Exception for one participant
plans.--Such term does not include a
one-participant retirement plan.
(iv) One-participant retirement
plan.--For purposes of clause (iii),
the term ``one-participant retirement
plan'' means a retirement plan that on
the first day of the plan year--
(I) covered only one
individual (or the individual
and the individual's spouse)
and the individual (or the
individual and the individual's
spouse) owned 100 percent of
the plan sponsor (whether or
not incorporated), or
(II) covered only one or more
partners (or partners and their
spouses) in the plan sponsor.
(F) Certain plans treated as holding publicly
traded employer securities.--
(i) In general.--Except as provided
in regulations or in clause (ii), a
plan holding employer securities which
are not publicly traded employer
securities shall be treated as holding
publicly traded employer securities if
any employer corporation, or any member
of a controlled group of corporations
which includes such employer
corporation, has issued a class of
stock which is a publicly traded
employer security.
(ii) Exception for certain controlled
groups with publicly traded
securities.--Clause (i) shall not apply
to a plan if--
(I) no employer corporation,
or parent corporation of an
employer corporation, has
issued any publicly traded
employer security, and
(II) no employer corporation,
or parent corporation of an
employer corporation, has
issued any special class of
stock which grants particular
rights to, or bears particular
risks for, the holder or issuer
with respect to any corporation
described in clause (i) which
has issued any publicly traded
employer security.
(iii) Definitions.--For purposes of
this subparagraph, the term--
(I) ``controlled group of
corporations'' has the meaning
given such term by section
1563(a), except that ``50
percent'' shall be substituted
for ``80 percent'' each place
it appears,
(II) ``employer corporation''
means a corporation which is an
employer maintaining the plan,
and
(III) ``parent corporation''
has the meaning given such term
by section 424(e).
(G) Other definitions.--For purposes of this
paragraph--
(i) Applicable individual.--The term
``applicable individual'' means--
(I) any participant in the
plan, and
(II) any beneficiary who has
an account under the plan with
respect to which the
beneficiary is entitled to
exercise the rights of a
participant.
(ii) Elective deferral.--The term
``elective deferral'' means an employer
contribution described in section
402(g)(3)(A).
(iii) Employer security.--The term
``employer security'' has the meaning
given such term by section 407(d)(1) of
the Employee Retirement Income Security
Act of 1974.
(iv) Employee stock ownership plan.--
The term ``employee stock ownership
plan'' has the meaning given such term
by section 4975(e)(7).
(v) Publicly traded employer
securities.--The term ``publicly traded
employer securities'' means employer
securities which are readily tradable
on an established securities market.
(vi) Year of service.--The term
``year of service'' has the meaning
given such term by section 411(a)(5).
(H) Transition rule for securities
attributable to employer contributions.--
(i) Rules phased in over 3 years.--
(I) In general.--In the case
of the portion of an account to
which subparagraph (C) applies
and which consists of employer
securities acquired in a plan
year beginning before January
1, 2007, subparagraph (C) shall
only apply to the applicable
percentage of such securities.
This subparagraph shall be
applied separately with respect
to each class of securities.
(II) Exception for certain
participants aged 55 or over.--
Subclause (I) shall not apply
to an applicable individual who
is a participant who has
attained age 55 and completed
at least 3 years of service
before the first plan year
beginning after December 31,
2005.
(ii) Applicable percentage.--For
purposes of clause (i), the applicable
percentage shall be determined as
follows:
(36) Distributions during working retirement.--
(A) In general.--A trust forming part of a
pension plan shall not be treated as failing to
constitute a qualified trust under this section
solely because the plan provides that a
distribution may be made from such trust to an
employee who has attained age 591/2 and who is
not separated from employment at the time of
such distribution.
(B) Certain employees in the building and
construction industry.--Subparagraph (A) shall
be applied by substituting ``age 55'' for ``age
591/2'' in the case of a multiemployer plan
described in section 4203(b)(1)(B)(i) of the
Employee Retirement Income Security Act of
1974, with respect to individuals who were
participants in such plan on or before April
30, 2013, if--
(i) the trust to which subparagraph
(A) applies was in existence before
January 1, 1970, and
(ii) before December 31, 2011, at a
time when the plan provided that
distributions may be made to an
employee who has attained age 55 and
who is not separated from employment at
the time of such distribution, the plan
received at least 1 written
determination from the Internal Revenue
Service that the trust to which
subparagraph (A) applies constituted a
qualified trust under this section.
(37) Death benefits under userra-qualified active
military service.--A trust shall not constitute a
qualified trust unless the plan provides that, in the
case of a participant who dies while performing
qualified military service (as defined in section
414(u)), the survivors of the participant are entitled
to any additional benefits (other than benefit accruals
relating to the period of qualified military service)
provided under the plan had the participant resumed and
then terminated employment on account of death.
(38) Portability of lifetime income.--
(A) In general.--Except as may be otherwise
provided by regulations, a trust forming part
of a defined contribution plan shall not be
treated as failing to constitute a qualified
trust under this section solely by reason of
allowing--
(i) qualified distributions of a
lifetime income investment, or
(ii) distributions of a lifetime
income investment in the form of a
qualified plan distribution annuity
contract,
on or after the date that is 90 days prior to
the date on which such lifetime income
investment is no longer authorized to be held
as an investment option under the plan.
(B) Definitions.--For purposes of this
subsection--
(i) the term ``qualified
distribution'' means a direct trustee-
to-trustee transfer described in
paragraph (31)(A) to an eligible
retirement plan (as defined in section
402(c)(8)(B)),
(ii) the term ``lifetime income
investment'' means an investment option
which is designed to provide an
employee with election rights--
(I) which are not uniformly
available with respect to other
investment options under the
plan, and
(II) which are to a lifetime
income feature available
through a contract or other
arrangement offered under the
plan (or under another eligible
retirement plan (as so
defined), if paid by means of a
direct trustee-to-trustee
transfer described in paragraph
(31)(A) to such other eligible
retirement plan),
(iii) the term ``lifetime income
feature'' means--
(I) a feature which
guarantees a minimum level of
income annually (or more
frequently) for at least the
remainder of the life of the
employee or the joint lives of
the employee and the employee's
designated beneficiary, or
(II) an annuity payable on
behalf of the employee under
which payments are made in
substantially equal periodic
payments (not less frequently
than annually) over the life of
the employee or the joint lives
of the employee and the
employee's designated
beneficiary, and
(iv) the term ``qualified plan
distribution annuity contract'' means
an annuity contract purchased for a
participant and distributed to the
participant by a plan or contract
described in subparagraph (B) of
section 402(c)(8) (without regard to
clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall
apply only in the case of a plan to which section 411 (relating
to minimum vesting standards) applies without regard to
subsection (e)(2) of such section.
(b) Certain plan amendments.--
(1) Certain retroactive changes in plan.--A stock
bonus, pension, profit-sharing, or annuity plan shall
be considered as satisfying the requirements of
subsection (a) for the period beginning with the date
on which it was put into effect, or for the period
beginning with the earlier of the date on which there
was adopted or put into effect any amendment which
caused the plan to fail to satisfy such requirements,
and ending with the time prescribed by law for filing
the return of the employer for his taxable year in
which such plan or amendment was adopted (including
extensions thereof) or such later time as the Secretary
may designate, if all provisions of the plan which are
necessary to satisfy such requirements are in effect by
the end of such period and have been made effective for
all purposes for the whole of such period.
(2) Adoption of plan.--If an employer adopts a stock
bonus, pension, profit-sharing, or annuity plan after
the close of a taxable year but before the time
prescribed by law for filing the return of the employer
for the taxable year (including extensions thereof),
the employer may elect to treat the plan as having been
adopted as of the last day of the taxable year.
(c) Definitions and rules relating to self-employed
individuals and owner-employees.--For purposes of this
section--
(1) Self-employed individual treated as employee.--
(A) In general.--The term ``employee''
includes, for any taxable year, an individual
who is a self-employed individual for such
taxable year.
(B) Self-employed individual.--The term
``self-employed individual'' means, with
respect to any taxable year, an individual who
has earned income (as defined in paragraph (2))
for such taxable year. To the extent provided
in regulations prescribed by the Secretary,
such term also includes, for any taxable year--
(i) an individual who would be a
self-employed individual within the
meaning of the preceding sentence but
for the fact that the trade or business
carried on by such individual did not
have net profits for the taxable year,
and
(ii) an individual who has been a
self-employed individual within the
meaning of the preceding sentence for
any prior taxable year.
(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) only with respect to a trade or
business in which personal services of
the taxpayer are a material income-
producing factor,
(ii) without regard to paragraphs (4)
and (5) of section 1402(c),
(iii) in the case of any individual
who is treated as an employee under
subparagraph (A), (C), or (D) of
section 3121(d)(3), without regard to
section 1402(c)(2),
(iv) without regard to items which
are not included in gross income for
purposes of this chapter, and the
deductions properly allocable to or
chargeable against such items,
(v) with regard to the deductions
allowed by section 404 to the taxpayer,
and
(vi) with regard to the deduction
allowed to the taxpayer by section
164(f).
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).
(C) Income from disposition of certain
property.--For purposes of this section, the
term ``earned income'' includes gains (other
than any gain which is treated under any
provision of this chapter as gain from the sale
or exchange of a capital asset) and net
earnings derived from the sale or other
disposition of, the transfer of any interest
in, or the licensing of the use of property
(other than good will) by an individual whose
personal efforts created such property.
(3) Owner-employee.--The term ``owner-employee''
means an employee who--
(A) owns the entire interest in an
unincorporated trade or business, or
(B) in the case of a partnership, is a
partner who owns more than 10 percent of either
the capital interest or the profits interest in
such partnership.
To the extent provided in regulations prescribed by the
Secretary, such term also means an individual who has
been an owner-employee within the meaning of the
preceding sentence.
(4) Employer.--An individual who owns the entire
interest in an unincorporated trade or business shall
be treated as his own employer. A partnership shall be
treated as the employer of each partner who is an
employee within the meaning of paragraph (1).
(5) Contributions on behalf of owner-employees.--The
term ``contribution on behalf of an owner-employee''
includes, except as the context otherwise requires, a
contribution under a plan--
(A) by the employer for an owner-employee,
and
(B) by an owner-employee as an employee.
(6) Special rule for certain fishermen.--For purposes
of this subsection, the term ``self-employed
individual'' includes an individual described in
section 3121(b)(20) (relating to certain fishermen).
(d) Contribution limit on owner-employees.--A trust forming
part of a pension or profit-sharing plan which provides
contributions or benefits for employees some or all of whom are
owner-employees shall constitute a qualified trust under this
section only if, in addition to meeting the requirements of
subsection (a), the plan provides that contributions on behalf
of any owner-employee may be made only with respect to the
earned income of such owner-employee which is derived from the
trade or business with respect to which such plan is
established.
(f) Certain custodial accounts and contracts.--For purposes
of this title, a custodial account, an annuity contract, or a
contract (other than a life, health or accident, property,
casualty, or liability insurance contract) issued by an
insurance company qualified to do business in a State shall be
treated as a qualified trust under this section if--
(1) the custodial account or contract would, except
for the fact that it is not a trust, constitute a
qualified trust under this section, and
(2) in the case of a custodial account the assets
thereof are held by a bank (as defined in section
408(n)) or another person who demonstrates, to the
satisfaction of the Secretary, that the manner in which
he will hold the assets will be consistent with the
requirements of this section.
For purposes of this title, in the case of a custodial account
or contract treated as a qualified trust under this section by
reason of this subsection, the person holding the assets of
such account or holding such contract shall be treated as the
trustee thereof.
(g) Annuity defined.--For purposes of this section and
sections 402, 403, and 404, the term ``annuity'' includes a
face-amount certificate, as defined in section 2(a)(15) of the
Investment Company Act of 1940 (15 U.S.C., sec. 80a-2); but
does not include any contract or certificate issued after
December 31, 1962, which is transferable, if any person other
than the trustee of a trust described in section 401(a) which
is exempt from tax under section 501(a) is the owner of such
contract or certificate.
(h) Medical, etc., benefits for retired employees and their
spouses and dependents.--Under regulations prescribed by the
Secretary, and subject to the provisions of section 420, a
pension or annuity plan may provide for the payment of benefits
for sickness, accident, hospitalization, and medical expenses
of retired employees, their spouses and their dependents, but
only if--
(1) such benefits are subordinate to the retirement
benefits provided by the plan,
(2) a separate account is established and maintained
for such benefits,
(3) the employer's contributions to such separate
account are reasonable and ascertainable,
(4) it is impossible, at any time prior to the
satisfaction of all liabilities under the plan to
provide such benefits, for any part of the corpus or
income of such separate account to be (within the
taxable year or thereafter) used for, or diverted to,
any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection
(a)(2), upon the satisfaction of all liabilities under
the plan to provide such benefits, any amount remaining
in such separate account must, under the terms of the
plan, be returned to the employer, and
(6) in the case of an employee who is a key employee,
a separate account is established and maintained for
such benefits payable to such employee (and his spouse
and dependents) and such benefits (to the extent
attributable to plan years beginning after March 31,
1984, for which the employee is a key employee) are
only payable to such employee (and his spouse and
dependents) from such separate account.
For purposes of paragraph (6), the term ``key employee'' means
any employee, who at any time during the plan year or any
preceding plan year during which contributions were made on
behalf of such employee, is or was a key employee as defined in
section 416(i). In no event shall the requirements of paragraph
(1) be treated as met if the aggregate actual contributions for
medical benefits, when added to actual contributions for life
insurance protection under the plan, exceed 25 percent of the
total actual contributions to the plan (other than
contributions to fund past service credits) after the date on
which the account is established. For purposes of this
subsection, the term ``dependent'' shall include any individual
who is a child (as defined in section 152(f)(1)) of a retired
employee who as of the end of the calendar year has not
attained age 27.
(i) Certain union-negotiated pension plans.--In the case of a
trust forming part of a pension plan which has been determined
by the Secretary to constitute a qualified trust under
subsection (a) and to be exempt from taxation under section
501(a) for a period beginning after contributions were first
made to or for such trust, if it is shown to the satisfaction
of the Secretary that--
(1) such trust was created pursuant to a collective
bargaining agreement between employee representatives
and one or more employers,
(2) any disbursements of contributions, made to or
for such trust before the time as of which the
Secretary determined that the trust constituted a
qualified trust, substantially complied with the terms
of the trust, and the plan of which the trust is a
part, as subsequently qualified, and
(3) before the time as of which the Secretary
determined that the trust constitutes a qualified
trust, the contributions to or for such trust were not
used in a manner which would jeopardize the interests
of its beneficiaries,
then such trust shall be considered as having constituted a
qualified trust under subsection (a) and as having been exempt
from taxation under section 501(a) for the period beginning on
the date on which contributions were first made to or for such
trust and ending on the date such trust first constituted
(without regard to this subsection) a qualified trust under
subsection (a).
(k) Cash or deferred arrangements.--
(1) General rule.--A profit-sharing or stock bonus
plan, a pre-ERISA money purchase plan, or a rural
cooperative plan shall not be considered as not
satisfying the requirements of subsection (a) merely
because the plan includes a qualified cash or deferred
arrangement.
(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) under which a covered employee may elect
to have the employer make payments as
contributions to a trust under the plan on
behalf of the employee, or to the employee
directly in cash;
(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) severance from
employment, death, or
disability,
(II) an event described in
paragraph (10),
(III) in the case of a
profit-sharing or stock bonus
plan, the attainment of age
591/2,
(IV) subject to the
provisions of paragraph (14),
upon hardship of the employee,
(V) in the case of a
qualified reservist
distribution (as defined in
section 72(t)(2)(G)(iii)), the
date on which a period referred
to in subclause (III) of such
section begins, or
(VI) except as may be
otherwise provided by
regulations, with respect to
amounts invested in a lifetime
income investment (as defined
in subsection (a)(38)(B)(ii)),
the date that is 90 days prior
to the date that such lifetime
income investment may no longer
be held as an investment option
under the arrangement,
(ii) will not be distributable merely
by reason of the completion of a stated
period of participation or the lapse of
a fixed number of years, and
(iii) except as may be otherwise
provided by regulations, in the case of
amounts described in clause (i)(VI),
will be distributed only in the form of
a qualified distribution (as defined in
subsection (a)(38)(B)(i)) or a
qualified plan distribution annuity
contract (as defined in subsection
(a)(38)(B)(iv)),
(C) which provides that an employee's right
to his accrued benefit derived from employer
contributions made to the trust pursuant to his
election is nonforfeitable, and
(D) which does not require, as a condition of
participation in the arrangement, that an
employee complete a period of service with the
employer (or employers) maintaining the plan
extending beyond the close of the earlier of--
(i) the period permitted under
section 410(a)(1) (determined without
regard to subparagraph (B)(i) thereof),
or
(ii) subject to the provisions of
paragraph (15), the first period of 3
consecutive 12-month periods during
each of which the employee has at least
500 hours of service.
(3) Application of participation and discrimination
standards.--
(A) A cash or deferred arrangement shall not
be treated as a qualified cash or deferred
arrangement unless--
(i) those employees eligible to
benefit under the arrangement satisfy
the provisions of section 410(b)(1),
and
(ii) the actual deferral percentage
for eligible highly compensated
employees (as defined in paragraph (5))
for the plan year bears a relationship
to the actual deferral percentage for
all other eligible employees for the
preceding plan year which meets either
of the following tests:
(I) The actual deferral
percentage for the group of
eligible highly compensated
employees is not more than the
actual deferral percentage of
all other eligible employees
multiplied by 1.25.
(II) The excess of the actual
deferral percentage for the
group of eligible highly
compensated employees over that
of all other eligible employees
is not more than 2 percentage
points, and the actual deferral
percentage for the group of
eligible highly compensated
employees is not more than the
actual deferral percentage of
all other eligible employees
multiplied by 2.
If 2 or more plans which include cash or
deferred arrangements are considered as 1 plan
for purposes of section 401(a)(4) or 410(b),
the cash or deferred arrangements included in
such plans shall be treated as 1 arrangement
for purposes of this subparagraph.
If any highly compensated employee is a
participant under 2 or more cash or deferred
arrangements of the employer, for purposes of
determining the deferral percentage with
respect to such employee, all such cash or
deferred arrangements shall be treated as 1
cash or deferred arrangement. An arrangement
may apply clause (ii) by using the plan year
rather than the preceding plan year if the
employer so elects, except that if such an
election is made, it may not be changed except
as provided by the Secretary.
(B) For purposes of subparagraph (A), the
actual deferral percentage for a specified
group of employees for a plan year shall be the
average of the ratios (calculated separately
for each employee in such group) of--
(i) the amount of employer
contributions actually paid over to the
trust on behalf of each such employee
for such plan year, to
(ii) the employee's compensation for
such plan year.
(C) A cash or deferred arrangement shall be
treated as meeting the requirements of
subsection (a)(4) with respect to contributions
if the requirements of subparagraph (A)(ii) are
met.
(D) For purposes of subparagraph (B), the
employer contributions on behalf of any
employee--
(i) shall include any employer
contributions made pursuant to the
employee's election under paragraph
(2), and
(ii) under such rules as the
Secretary may prescribe, may, at the
election of the employer, include--
(I) matching contributions
(as defined in 401(m)(4)(A))
which meet the requirements of
paragraph (2)(B) and (C), and
(II) qualified nonelective
contributions (within the
meaning of section
401(m)(4)(C)).
(E) For purposes of this paragraph, in the
case of the first plan year of any plan (other
than a successor plan), the amount taken into
account as the actual deferral percentage of
nonhighly compensated employees for the
preceding plan year shall be--
(i) 3 percent, or
(ii) if the employer makes an
election under this subclause, the
actual deferral percentage of nonhighly
compensated employees determined for
such first plan year.
(F) Special rule for early participation.--If
an employer elects to apply section
410(b)(4)(B) in determining whether a cash or
deferred arrangement meets the requirements of
subparagraph (A)(i), the employer may, in
determining whether the arrangement meets the
requirements of subparagraph (A)(ii), exclude
from consideration all eligible employees
(other than highly compensated employees) who
have not met the minimum age and service
requirements of section 410(a)(1)(A).
(G) Governmental plan.--A governmental plan
(within the meaning of section 414(d)) shall be
treated as meeting the requirements of this
paragraph.
(4) Other requirements.--
(A) Benefits (other than matching
contributions) must not be contingent on
election to defer.--A cash or deferred
arrangement of any employer shall not be
treated as a qualified cash or deferred
arrangement if any other benefit (other than a
de minimis financial incentive) is conditioned
(directly or indirectly) on the employee
electing to have the employer make or not make
contributions under the arrangement in lieu of
receiving cash. The preceding sentence shall
not apply to any matching contribution (as
defined in section 401(m)) made by reason of
such an election.
(B) Eligibility of State and local
governments and tax-exempt organizations.--
(i) Tax-exempts eligible.--Except as
provided in clause (ii), any
organization exempt from tax under this
subtitle may include a qualified cash
or deferred arrangement as part of a
plan maintained by it.
(ii) Governments ineligible.--A cash
or deferred arrangement shall not be
treated as a qualified cash or deferred
arrangement if it is part of a plan
maintained by a State or local
government or political subdivision
thereof, or any agency or
instrumentality thereof. This clause
shall not apply to a rural cooperative
plan or to a plan of an employer
described in clause (iii).
(iii) Treatment of Indian tribal
governments.--An employer which is an
Indian tribal government (as defined in
section 7701(a)(40)), a subdivision of
an Indian tribal government (determined
in accordance with section 7871(d)), an
agency or instrumentality of an Indian
tribal government or subdivision
thereof, or a corporation chartered
under Federal, State, or tribal law
which is owned in whole or in part by
any of the foregoing may include a
qualified cash or deferred arrangement
as part of a plan maintained by the
employer.
(C) Coordination with other plans.--Except as
provided in section 401(m), any employer
contribution made pursuant to an employee's
election under a qualified cash or deferred
arrangement shall not be taken into account for
purposes of determining whether any other plan
meets the requirements of section 401(a) or
410(b). This subparagraph shall not apply for
purposes of determining whether a plan meets
the average benefit requirement of section
410(b)(2)(A)(ii).
(5) Highly compensated employee.--For purposes of
this subsection, the term ``highly compensated
employee'' has the meaning given such term by section
414(q).
(6) Pre-ERISA money purchase plan.--For purposes of
this subsection, the term ``pre-ERISA money purchase
plan'' means a pension plan--
(A) which is a defined contribution plan (as
defined in section 414(i)),
(B) which was in existence on June 27, 1974,
and which, on such date, included a salary
reduction arrangement, and
(C) under which neither the employee
contributions nor the employer contributions
may exceed the levels provided for by the
contribution formula in effect under the plan
on such date.
(7) Rural cooperative plan.--For purposes of this
subsection--
(A) In general.--The term ``rural cooperative
plan'' means any pension plan--
(i) which is a defined contribution
plan (as defined in section 414(i)),
and
(ii) which is established and
maintained by a rural cooperative.
(B) Rural cooperative defined.--For purposes
of subparagraph (A), the term ``rural
cooperative'' means--
(i) any organization which--
(I) is engaged primarily in
providing electric service on a
mutual or cooperative basis, or
(II) is engaged primarily in
providing electric service to
the public in its area of
service and which is exempt
from tax under this subtitle or
which is a State or local
government (or an agency or
instrumentality thereof), other
than a municipality (or an
agency or instrumentality
thereof),
(ii) any organization described in
paragraph (4) or (6) of section 501(c)
and at least 80 percent of the members
of which are organizations described in
clause (i),
(iii) a cooperative telephone company
described in section 501(c)(12),
(iv) any organization which--
(I) is a mutual irrigation or
ditch company described in
section 501(c)(12) (without
regard to the 85 percent
requirement thereof), or
(II) is a district organized
under the laws of a State as a
municipal corporation for the
purpose of irrigation, water
conservation, or drainage, and
(v) an organization which is a
national association of organizations
described in clause (i), (ii),, (iii),
or (iv).
(C) Special rule for certain distributions.--
A rural cooperative plan which includes a
qualified cash or deferred arrangement shall
not be treated as violating the requirements of
section 401(a) or of paragraph (2) merely by
reason of a hardship distribution or a
distribution to a participant after attainment
of age 591/2. For purposes of this section, the
term ``hardship distribution'' means a
distribution described in paragraph
(2)(B)(i)(IV) (without regard to the limitation
of its application to profit-sharing or stock
bonus plans).
(8) Arrangement not disqualified if excess
contributions distributed.--
(A) In general.--A cash or deferred
arrangement shall not be treated as failing to
meet the requirements of clause (ii) of
paragraph (3)(A) for any plan year if, before
the close of the following plan year--
(i) the amount of the excess
contributions for such plan year (and
any income allocable to such
contributions through the end of such
year) is distributed, or
(ii) to the extent provided in
regulations, the employee elects to
treat the amount of the excess
contributions as an amount distributed
to the employee and then contributed by
the employee to the plan.
Any distribution of excess contributions (and
income) may be made without regard to any other
provision of law.
(B) Excess contributions.--For purposes of
subparagraph (A), the term ``excess
contributions'' means, with respect to any plan
year, the excess of--
(i) the aggregate amount of employer
contributions actually paid over to the
trust on behalf of highly compensated
employees for such plan year, over
(ii) the maximum amount of such
contributions permitted under the
limitations of clause (ii) of paragraph
(3)(A) (determined by reducing
contributions made on behalf of highly
compensated employees in order of the
actual deferral percentages beginning
with the highest of such percentages).
(C) Method of distributing excess
contributions.--Any distribution of the excess
contributions for any plan year shall be made
to highly compensated employees on the basis of
the amount of contributions by, or on behalf
of, each of such employees.
(D) Additional tax under section 72(t) not to
apply.--No tax shall be imposed under section
72(t) on any amount required to be distributed
under this paragraph.
(E) Treatment of matching contributions
forfeited by reason of excess deferral or
contribution or permissible withdrawal.--For
purposes of paragraph (2)(C), a matching
contribution (within the meaning of subsection
(m)) shall not be treated as forfeitable merely
because such contribution is forfeitable if the
contribution to which the matching contribution
relates is treated as an excess contribution
under subparagraph (B), an excess deferral
under section 402(g)(2)(A), a permissible
withdrawal under section 414(w), or an excess
aggregate contribution under section
401(m)(6)(B).
(F) Cross reference.--For excise tax on
certain excess contributions, see section 4979.
(9) Compensation.--For purposes of this subsection,
the term ``compensation'' has the meaning given such
term by section 414(s).
(10) Distributions upon termination of plan.--
(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.--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
termination.
(ii) Lump-sum distribution.--For
purposes of this subparagraph, the term
``lump-sum distribution'' has the
meaning given such term by section
402(e)(4)(D) (without regard to
subclauses (I), (II), (III), and (IV)
of clause (i) thereof). Such term
includes a distribution of an annuity
contract from--
(I) a trust which forms a
part of a plan described in
section 401(a) and which is
exempt from tax under section
501(a), or
(II) an annuity plan
described in section 403(a).
(11) Adoption of simple plan to meet
nondiscrimination tests.--
(A) In general.--A cash or deferred
arrangement maintained by an eligible employer
shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if such arrangement
meets--
(i) the contribution requirements of
subparagraph (B),
(ii) the exclusive plan requirements
of subparagraph (C), and
(iii) the vesting requirements of
section 408(p)(3).
(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 of compensation of
the employee but which in no
event exceeds the amount in
effect under section
408(p)(2)(A)(ii),
(II) the employer is required
to make a matching contribution
to the trust for the year in an
amount equal to so much of the
amount the employee elects
under subclause (I) as does not
exceed 3 percent of
compensation for the year, and
(III) no other contributions
may be made other than
contributions described in
subclause (I) or (II).
(ii) Employer may elect 2-percent
nonelective contribution.--An employer
shall be treated as meeting the
requirements of clause (i)(II) for any
year if, in lieu of the contributions
described in such clause, the employer
elects (pursuant to the terms of the
arrangement) to make nonelective
contributions of 2 percent of
compensation for each employee who is
eligible to participate in the
arrangement and who has at least $5,000
of compensation from the employer for
the year. If an employer makes an
election under this subparagraph for
any year, the employer shall notify
employees of such election within a
reasonable period of time before the
60th day before the beginning of such
year.
(iii) Administrative requirements.--
(I) In general.--Rules
similar to the rules of
subparagraphs (B) and (C) of
section 408(p)(5) shall apply
for purposes of this
subparagraph.
(II) Notice of election
period.--The requirements of
this subparagraph shall not be
treated as met with respect to
any year unless the employer
notifies each employee eligible
to participate, within a
reasonable period of time
before the 60th day before the
beginning of such year (and,
for the first year the employee
is so eligible, the 60th day
before the first day such
employee is so eligible), of
the rules similar to the rules
of section 408(p)(5)(C) which
apply by reason of subclause
(I).
(C) Exclusive plan requirement.--The
requirements of this subparagraph are met for
any year to which this paragraph applies if no
contributions were made, or benefits were
accrued, for services during such year under
any qualified plan of the employer on behalf of
any employee eligible to participate in the
cash or deferred arrangement, other than
contributions described in subparagraph (B).
(D) Definitions and special rule.--
(i) Definitions.--For purposes of
this paragraph, any term used in this
paragraph which is also used in section
408(p) shall have the meaning given
such term by such section.
(ii) Coordination with top-heavy
rules.--A plan meeting the requirements
of this paragraph for any year shall
not be treated as a top-heavy plan
under section 416 for such year if such
plan allows only contributions required
under this paragraph.
(12) Alternative methods of meeting nondiscrimination
requirements.--
(A) In general.--A cash or deferred
arrangement shall be treated as meeting the
requirements of paragraph (3)(A)(ii) if such
arrangement--
(i) meets the contribution
requirements of subparagraph (B) and
the notice requirements of subparagraph
(D), or
(ii) meets the contribution
requirements of subparagraph (C).
(B) Matching contributions.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, the employer makes
matching contributions on behalf of
each employee who is not a highly
compensated employee in an amount equal
to--
(I) 100 percent of the
elective contributions of the
employee to the extent such
elective contributions do not
exceed 3 percent of the
employee's compensation, and
(II) 50 percent of the
elective contributions of the
employee to the extent that
such elective contributions
exceed 3 percent but do not
exceed 5 percent of the
employee's compensation.
(ii) Rate for highly compensated
employees.--The requirements of this
subparagraph are not met if, under the
arrangement, the rate of matching
contribution with respect to any
elective contribution of a highly
compensated employee at any rate of
elective contribution is greater than
that with respect to an employee who is
not a highly compensated employee.
(iii) Alternative plan designs.--If
the rate of any matching contribution
with respect to any rate of elective
contribution is not equal to the
percentage required under clause (i),
an arrangement shall not be treated as
failing to meet the requirements of
clause (i) if--
(I) the rate of an employer's
matching contribution does not
increase as an employee's rate
of elective contributions
increase, and
(II) the aggregate amount of
matching contributions at such
rate of elective contribution
is at least equal to the
aggregate amount of matching
contributions which would be
made if matching contributions
were made on the basis of the
percentages described in clause
(i).
(C) Nonelective contributions.--The
requirements of this subparagraph are met if,
under the arrangement, the employer is
required, without regard to whether the
employee makes an elective contribution or
employee contribution, to make a contribution
to a defined contribution plan on behalf of
each employee who is not a highly compensated
employee and who is eligible to participate in
the arrangement in an amount equal to at least
3 percent of the employee's compensation.
(D) Notice requirement.--An arrangement meets
the requirements of this paragraph if, under
the arrangement, each employee eligible to
participate is, within a reasonable period
before any year, given written notice of the
employee's rights and obligations under the
arrangement which--
(i) is sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and
(ii) is written in a manner
calculated to be understood by the
average employee eligible to
participate.
(E) Other requirements.--
(i) Withdrawal and vesting
restrictions.--An arrangement shall not
be treated as meeting the requirements
of subparagraph (B) or (C) of this
paragraph unless the requirements of
subparagraphs (B) and (C) of paragraph
(2) are met with respect to all
employer contributions (including
matching contributions) taken into
account in determining whether the
requirements of subparagraphs (B) and
(C) of this paragraph are met.
(ii) Social security and similar
contributions not taken into account.--
An arrangement shall not be treated as
meeting the requirements of
subparagraph (B) or (C) unless such
requirements are met without regard to
subsection (l), and, for purposes of
subsection (l), employer contributions
under subparagraph (B) or (C) shall not
be taken into account.
(F) Timing of plan amendment for employer
making nonelective contributions.--
(i) In general.--Except as provided
in clause (ii), a plan may be amended
after the beginning of a plan year to
provide that the requirements of
subparagraph (C) shall apply to the
arrangement for the plan year, but only
if the amendment is adopted--
(I) at any time before the
30th day before the close of
the plan year, or
(II) at any time before the
last day under paragraph (8)(A)
for distributing excess
contributions for the plan
year.
(ii) Exception where plan provided
for matching contributions.--Clause (i)
shall not apply to any plan year if the
plan provided at any time during the
plan year that the requirements of
subparagraph (B) or paragraph
(13)(D)(i)(I) applied to the plan year.
(iii) 4-percent contribution
requirement.--Clause (i)(II) shall not
apply to an arrangement unless the
amount of the contributions described
in subparagraph (C) which the employer
is required to make under the
arrangement for the plan year with
respect to any employee is an amount
equal to at least 4 percent of the
employee's compensation.
(G) Other plans.--An arrangement shall be
treated as meeting the requirements under
subparagraph (A)(i) if any other plan
maintained by the employer meets such
requirements with respect to employees eligible
under the arrangement.
(13) Alternative method for automatic contribution
arrangements to meet nondiscrimination requirements.--
(A) In general.--A qualified automatic
contribution arrangement shall be treated as
meeting the requirements of paragraph
(3)(A)(ii).
(B) Qualified automatic contribution
arrangement.--For purposes of this paragraph,
the term ``qualified automatic contribution
arrangement'' means a cash or deferred
arrangement--
(i) which is described in
subparagraph (D)(i)(I) and meets the
applicable requirements of
subparagraphs (C) through (E), or
(ii) which is described in
subparagraph (D)(i)(II) and meets the
applicable requirements of
subparagraphs (C) and (D).
(C) Automatic deferral.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, each employee eligible to
participate in the arrangement is
treated as having elected to have the
employer make elective contributions in
an amount equal to a qualified
percentage of compensation.
(ii) Election out.--The election
treated as having been made under
clause (i) shall cease to apply with
respect to any employee if such
employee makes an affirmative
election--
(I) to not have such
contributions made, or
(II) to make elective
contributions at a level
specified in such affirmative
election.
(iii) Qualified percentage.--For
purposes of this subparagraph, the term
``qualified percentage'' means, with
respect to any employee, any percentage
determined under the arrangement if
such percentage is applied uniformly,
does not exceed 15 percent (10 percent
during the period described in
subclause (I)), and is at least--
(I) 3 percent during the
period ending on the last day
of the first plan year which
begins after the date on which
the first elective contribution
described in clause (i) is made
with respect to such employee,
(II) 4 percent during the
first plan year following the
plan year described in
subclause (I),
(III) 5 percent during the
second plan year following the
plan year described in
subclause (I), and
(IV) 6 percent during any
subsequent plan year.
(iv) Automatic deferral for current
employees not required.--Clause (i) may
be applied without taking into account
any employee who--
(I) was eligible to
participate in the arrangement
(or a predecessor arrangement)
immediately before the date on
which such arrangement becomes
a qualified automatic
contribution arrangement
(determined after application
of this clause), and
(II) had an election in
effect on such date either to
participate in the arrangement
or to not participate in the
arrangement.
(D) Matching or nonelective contributions.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, the employer--
(I) makes matching
contributions on behalf of each
employee who is not a highly
compensated employee in an
amount equal to the sum of 100
percent of the elective
contributions of the employee
to the extent that such
contributions do not exceed 1
percent of compensation plus 50
percent of so much of such
contributions as exceed 1
percent but do not exceed 6
percent of compensation, or
(II) is required, without
regard to whether the employee
makes an elective contribution
or employee contribution, to
make a contribution to a
defined contribution plan on
behalf of each employee who is
not a highly compensated
employee and who is eligible to
participate in the arrangement
in an amount equal to at least
3 percent of the employee's
compensation.
(ii) Application of rules for
matching contributions.--The rules of
clauses (ii) and (iii) of paragraph
(12)(B) shall apply for purposes of
clause (i)(I).
(iii) Withdrawal and vesting
restrictions.--An arrangement shall not
be treated as meeting the requirements
of clause (i) unless, with respect to
employer contributions (including
matching contributions) taken into
account in determining whether the
requirements of clause (i) are met--
(I) any employee who has
completed at least 2 years of
service (within the meaning of
section 411(a)) has a
nonforfeitable right to 100
percent of the employee's
accrued benefit derived from
such employer contributions,
and
(II) the requirements of
subparagraph (B) of paragraph
(2) are met with respect to all
such employer contributions.
(iv) Application of certain other
rules.--The rules of subparagraphs
(E)(ii) and (F) of paragraph (12) shall
apply for purposes of subclauses (I)
and (II) of clause (i).
(E) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if, within a
reasonable period before each plan
year, each employee eligible to
participate in the arrangement for such
year receives written notice of the
employee's rights and obligations under
the arrangement which--
(I) is sufficiently accurate
and comprehensive to apprise
the employee of such rights and
obligations, and
(II) is written in a manner
calculated to be understood by
the average employee to whom
the arrangement applies.
(ii) Timing and content
requirements.--A notice shall not be
treated as meeting the requirements of
clause (i) with respect to an employee
unless--
(I) the notice explains the
employee's right under the
arrangement to elect not to
have elective contributions
made on the employee's behalf
(or to elect to have such
contributions made at a
different percentage),
(II) in the case of an
arrangement under which the
employee may elect among 2 or
more investment options, the
notice explains how
contributions made under the
arrangement will be invested in
the absence of any investment
election by the employee, and
(III) the employee has a
reasonable period of time after
receipt of the notice described
in subclauses (I) and (II) and
before the first elective
contribution is made to make
either such election.
(F) Timing of plan amendment for employer
making nonelective contributions.--
(i) In general.--Except as provided
in clause (ii), a plan may be amended
after the beginning of a plan year to
provide that the requirements of
subparagraph (D)(i)(II) shall apply to
the arrangement for the plan year, but
only if the amendment is adopted--
(I) at any time before the
30th day before the close of
the plan year, or
(II) at any time before the
last day under paragraph (8)(A)
for distributing excess
contributions for the plan
year.
(ii) Exception where plan provided
for matching contributions.--Clause (i)
shall not apply to any plan year if the
plan provided at any time during the
plan year that the requirements of
subparagraph (D)(i)(I) or paragraph
(12)(B) applied to the plan year.
(iii) 4-percent contribution
requirement.--Clause (i)(II) shall not
apply to an arrangement unless the
amount of the contributions described
in subparagraph (D)(i)(II) which the
employer is required to make under the
arrangement for the plan year with
respect to any employee is an amount
equal to at least 4 percent of the
employee's compensation.
(14) Special rules relating to hardship
withdrawals.--For purposes of paragraph (2)(B)(i)(IV)--
(A) Amounts which may be withdrawn.--The
following amounts may be distributed upon
hardship of the employee:
(i) Contributions to a profit-sharing
or stock bonus plan to which section
402(e)(3) applies.
(ii) Qualified nonelective
contributions (as defined in subsection
(m)(4)(C)).
(iii) Qualified matching
contributions described in paragraph
(3)(D)(ii)(I).
(iv) Earnings on any contributions
described in clause (i), (ii), or
(iii).
(B) No requirement to take available loan.--A
distribution shall not be treated as failing to
be made upon the hardship of an employee solely
because the employee does not take any
available loan under the plan.
(15) Special rules for participation requirement for
long-term, part-time workers.--For purposes of
paragraph (2)(D)(ii)--
(A) Age requirement must be met.--Paragraph
(2)(D)(ii) shall not apply to an employee
unless the employee has met the requirement of
section 410(a)(1)(A)(i) by the close of the
last of the 12-month periods described in such
paragraph.
(B) Nondiscrimination and top-heavy rules not
to apply.--
(i) Nondiscrimination rules.--In the
case of employees who are eligible to
participate in the arrangement solely
by reason of paragraph (2)(D)(ii)--
(I) notwithstanding
subsection (a)(4), an employer
shall not be required to make
nonelective or matching
contributions on behalf of such
employees even if such
contributions are made on
behalf of other employees
eligible to participate in the
arrangement, and
(II) an employer may elect to
exclude such employees from the
application of subsection
(a)(4), paragraphs (3), (12),
and (13), subsection (m)(2),
and section 410(b).
(ii) Top-heavy rules.--An employer
may elect to exclude all employees who
are eligible to participate in a plan
maintained by the employer solely by
reason of paragraph (2)(D)(ii) from the
application of the vesting and benefit
requirements under subsections (b) and
(c) of section 416.
(iii) Vesting.--For purposes of
determining whether an employee
described in clause (i) has a
nonforfeitable right to employer
contributions (other than contributions
described in paragraph (3)(D)(i)) under
the arrangement, each 12-month period
for which the employee has at least 500
hours of service shall be treated as a
year of service, and section 411(a)(6)
shall be applied by substituting ``at
least 500 hours of service'' for ``more
than 500 hours of service'' in
subparagraph (A) thereof.
(iv) Employees who become full-time
employees.--This subparagraph (other
than clause (iii)) shall cease to apply
to any employee as of the first plan
year beginning after the plan year in
which the employee meets the
requirements of section
410(a)(1)(A)(ii) without regard to
paragraph (2)(D)(ii).
(C) Exception for employees under
collectively bargained plans, etc..--Paragraph
(2)(D)(ii) shall not apply to employees
described in section 410(b)(3).
(D) Special rules.--
(i) Time of participation.--The rules
of section 410(a)(4) shall apply to an
employee eligible to participate in an
arrangement solely by reason of
paragraph (2)(D)(ii).
(ii) 12-month periods.--12-month
periods shall be determined in the same
manner as under the last sentence of
section 410(a)(3)(A).
(l) Permitted disparity in plan contributions or benefits.--
(1) In general.--The requirements of this subsection
are met with respect to a plan if--
(A) in the case of a defined contribution
plan, the requirements of paragraph (2) are
met, and
(B) in the case of a defined benefit plan,
the requirements of paragraph (3) are met.
(2) Defined contribution plan.--
(A) In general.--A defined contribution plan
meets the requirements of this paragraph if the
excess contribution percentage does not exceed
the base contribution percentage by more than
the lesser of--
(i) the base contribution percentage,
or
(ii) the greater of--
(I) 5.7 percentage points, or
(II) the percentage equal to
the portion of the rate of tax
under section 3111(a) (in
effect as of the beginning of
the year) which is attributable
to old-age insurance.
(B) Contribution percentages.--For purposes
of this paragraph--
(i) Excess contribution percentage.--
The term ``excess contribution
percentage'' means the percentage of
compensation which is contributed by
the employer under the plan with
respect to that portion of each
participant's compensation in excess of
the integration level.
(ii) Base contribution percentage.--
The term ``base contribution
percentage'' means the percentage of
compensation contributed by the
employer under the plan with respect to
that portion of each participant's
compensation not in excess of the
integration level.
(3) Defined benefit plan.--A defined benefit plan
meets the requirements of this paragraph if--
(A) Excess plans.--
(i) In general.--In the case of a
plan other than an offset plan--
(I) the excess benefit
percentage does not exceed the
base benefit percentage by more
than the maximum excess
allowance,
(II) any optional form of
benefit, preretirement benefit,
actuarial factor, or other
benefit or feature provided
with respect to compensation in
excess of the integration level
is provided with respect to
compensation not in excess of
such level, and
(III) benefits are based on
average annual compensation.
(ii) Benefit percentages.--For
purposes of this subparagraph, the
excess and base benefit percentages
shall be computed in the same manner as
the excess and base contribution
percentages under paragraph (2)(B),
except that such determination shall be
made on the basis of benefits
attributable to employer contributions
rather than contributions.
(B) Offset plans.--In the case of an offset
plan, the plan provides that--
(i) a participant's accrued benefit
attributable to employer contributions
(within the meaning of section
411(c)(1)) may not be reduced (by
reason of the offset) by more than the
maximum offset allowance, and
(ii) benefits are based on average
annual compensation.
(4) Definitions relating to paragraph (3).--For
purposes of paragraph (3)--
(A) Maximum excess allowance.--The maximum
excess allowance is equal to--
(i) in the case of benefits
attributable to any year of service
with the employer taken into account
under the plan, 3/4 of a percentage
point, and
(ii) in the case of total benefits,
3/4 of a percentage point, multiplied
by the participant's years of service
(not in excess of 35) with the employer
taken into account under the plan.
In no event shall the maximum excess allowance
exceed the base benefit percentage.
(B) Maximum offset allowance.--The maximum
offset allowance is equal to--
(i) in the case of benefits
attributable to any year of service
with the employer taken into account
under the plan, 3/4 percent of the
participant's final average
compensation, and
(ii) in the case of total benefits,
3/4 percent of the participant's final
average compensation, multiplied by the
participant's years of service (not in
excess of 35) with the employer taken
into account under the plan.
In no event shall the maximum offset allowance
exceed 50 percent of the benefit which would
have accrued without regard to the offset
reduction.
(C) Reductions.--
(i) In general.--The Secretary shall
prescribe regulations requiring the
reduction of the 3/4 percentage factor
under subparagraph (A) or (B)--
(I) in the case of a plan
other than an offset plan which
has an integration level in
excess of covered compensation,
or
(II) with respect to any
participant in an offset plan
who has final average
compensation in excess of
covered compensation.
(ii) Basis of reductions.--Any
reductions under clause (i) shall be
based on the percentages of
compensation replaced by the employer-
derived portions of primary insurance
amounts under the Social Security Act
for participants with compensation in
excess of covered compensation.
(D) Offset plan.--The term ``offset plan''
means any plan with respect to which the
benefit attributable to employer contributions
for each participant is reduced by an amount
specified in the plan.
(5) Other definitions and special rules.--For
purposes of this subsection--
(A) Integration level.--
(i) In general.--The term
``integration level'' means the amount
of compensation specified under the
plan (by dollar amount or formula) at
or below which the rate at which
contributions or benefits are provided
(expressed as a percentage) is less
than such rate above such amount.
(ii) Limitation.--The integration
level for any year may not exceed the
contribution and benefit base in effect
under section 230 of the Social
Security Act for such year.
(iii) Level to apply to all
participants.--A plan's integration
level shall apply with respect to all
participants in the plan.
(iv) Multiple integration levels.--
Under rules prescribed by the
Secretary, a defined benefit plan may
specify multiple integration levels.
(B) Compensation.--The term ``compensation''
has the meaning given such term by section
414(s).
(C) Average annual compensation.--The term
``average annual compensation'' means the
participant's highest average annual
compensation for--
(i) any period of at least 3
consecutive years, or
(ii) if shorter, the participant's
full period of service.
(D) Final average compensation.--
(i) In general.--The term ``final
average compensation'' means the
participant's average annual
compensation for--
(I) the 3-consecutive year
period ending with the current
year, or
(II) if shorter, the
participant's full period of
service.
(ii) Limitation.--A participant's
final average compensation shall be
determined by not taking into account
in any year compensation in excess of
the contribution and benefit base in
effect under section 230 of the Social
Security Act for such year.
(E) Covered compensation.--
(i) In general.--The term ``covered
compensation'' means, with respect to
an employee, the average of the
contribution and benefit bases in
effect under section 230 of the Social
Security Act for each year in the 35-
year period ending with the year in
which the employee attains the social
security retirement age.
(ii) Computation for any year.--For
purposes of clause (i), the
determination for any year preceding
the year in which the employee attains
the social security retirement age
shall be made by assuming that there is
no increase in the bases described in
clause (i) after the determination year
and before the employee attains the
social security retirement age.
(iii) Social security retirement
age.--For purposes of this
subparagraph, the term ``social
security retirement age'' has the
meaning given such term by section
415(b)(8).
(F) Regulations.--The Secretary shall
prescribe such regulations as are necessary or
appropriate to carry out the purposes of this
subsection, including--
(i) in the case of a defined benefit
plan which provides for unreduced
benefits commencing before the social
security retirement age (as defined in
section 415(b)(8)), rules providing for
the reduction of the maximum excess
allowance and the maximum offset
allowance, and
(ii) in the case of an employee
covered by 2 or more plans of the
employer which fail to meet the
requirements of subsection (a)(4)
(without regard to this subsection),
rules preventing the multiple use of
the disparity permitted under this
subsection with respect to any
employee.
For purposes of clause (i), unreduced benefits
shall not include benefits for disability
(within the meaning of section 223(d) of the
Social Security Act).
(6) Special rule for plan maintained by railroads.--
In determining whether a plan which includes employees
of a railroad employer who are entitled to benefits
under the Railroad Retirement Act of 1974 meets the
requirements of this subsection, rules similar to the
rules set forth in this subsection shall apply. Such
rules shall take into account the employer-derived
portion of the employees' tier 2 railroad retirement
benefits and any supplemental annuity under the
Railroad Retirement Act of 1974.
(m) Nondiscrimination test for matching contributions and
employee contributions.--
(1) In general.--A defined contribution plan shall be
treated as meeting the requirements of subsection
(a)(4) with respect to the amount of any matching
contribution or employee contribution for any plan year
only if the contribution percentage requirement of
paragraph (2) of this subsection is met for such plan
year.
(2) Requirements.--
(A) Contribution percentage requirement.--A
plan meets the contribution percentage
requirement of this paragraph for any plan year
only if the contribution percentage for
eligible highly compensated employees for such
plan year does not exceed the greater of--
(i) 125 percent of such percentage
for all other eligible employees for
the preceding plan year, or
(ii) the lesser of 200 percent of
such percentage for all other eligible
employees for the preceding plan year,
or such percentage for all other
eligible employees for the preceding
plan year plus 2 percentage points.
This subparagraph may be applied by using the
plan year rather than the preceding plan year
if the employer so elects, except that if such
an election is made, it may not be changed
except as provided by the Secretary.
(B) Multiple plans treated as a single
plan.--If two or more plans of an employer to
which matching contributions, employee
contributions, or elective deferrals are made
are treated as one plan for purposes of section
410(b), such plans shall be treated as one plan
for purposes of this subsection. If a highly
compensated employee participates in two or
more plans of an employer to which
contributions to which this subsection applies
are made, all such contributions shall be
aggregated for purposes of this subsection.
(3) Contribution percentage.--For purposes of
paragraph (2), the contribution percentage for a
specified group of employees for a plan year shall be
the average of the ratios (calculated separately for
each employee in such group) of--
(A) the sum of the matching contributions and
employee contributions paid under the plan on
behalf of each such employee for such plan
year, to
(B) the employee's compensation (within the
meaning of section 414(s)) for such plan year.
Under regulations, an employer may elect to take into
account (in computing the contribution percentage)
elective deferrals and qualified nonelective
contributions under the plan or any other plan of the
employer. If matching contributions are taken into
account for purposes of subsection (k)(3)(A)(ii) for
any plan year, such contributions shall not be taken
into account under subparagraph (A) for such year.
Rules similar to the rules of subsection (k)(3)(E)
shall apply for purposes of this subsection.
(4) Definitions.--For purposes of this subsection--
(A) Matching contribution.--The term
``matching contribution'' means--
(i) any employer contribution made to
a defined contribution plan on behalf
of an employee on account of an
employee contribution made by such
employee, and
(ii) any employer contribution made
to a defined contribution plan on
behalf of an employee on account of an
employee's elective deferral.
(B) Elective deferral.--The term ``elective
deferral'' means any employer contribution
described in section 402(g)(3).
(C) Qualified nonelective contributions.--The
term ``qualified nonelective contribution''
means any employer contribution (other than a
matching contribution) with respect to which--
(i) the employee may not elect to
have the contribution paid to the
employee in cash instead of being
contributed to the plan, and
(ii) the requirements of
subparagraphs (B) and (C) of subsection
(k)(2) are met.
(5) Employees taken into consideration.--
(A) In general.--Any employee who is eligible
to make an employee contribution (or, if the
employer takes elective contributions into
account, elective contributions) or to receive
a matching contribution under the plan being
tested under paragraph (1) shall be considered
an eligible employee for purposes of this
subsection.
(B) Certain nonparticipants.--If an employee
contribution is required as a condition of
participation in the plan, any employee who
would be a participant in the plan if such
employee made such a contribution shall be
treated as an eligible employee on behalf of
whom no employer contributions are made.
(C) Special rule for early participation.--If
an employer elects to apply section
410(b)(4)(B) in determining whether a plan
meets the requirements of section 410(b), the
employer may, in determining whether the plan
meets the requirements of paragraph (2),
exclude from consideration all eligible
employees (other than highly compensated
employees) who have not met the minimum age and
service requirements of section 410(a)(1)(A).
(6) Plan not disqualified if excess aggregate
contributions distributed before end of following plan
year.--
(A) In general.--A plan shall not be treated
as failing to meet the requirements of
paragraph (1) for any plan year if, before the
close of the following plan year, the amount of
the excess aggregate contributions for such
plan year (and any income allocable to such
contributions through the end of such year) is
distributed (or, if forfeitable, is forfeited).
Such contributions (and such income) may be
distributed without regard to any other
provision of law.
(B) Excess aggregate contributions.--For
purposes of subparagraph (A), the term ``excess
aggregate contributions'' means, with respect
to any plan year, the excess of--
(i) the aggregate amount of the
matching contributions and employee
contributions (and any qualified
nonelective contribution or elective
contribution taken into account in
computing the contribution percentage)
actually made on behalf of highly
compensated employees for such plan
year, over
(ii) the maximum amount of such
contributions permitted under the
limitations of paragraph (2)(A)
(determined by reducing contributions
made on behalf of highly compensated
employees in order of their
contribution percentages beginning with
the highest of such percentages).
(C) Method of distributing excess aggregate
contributions.--Any distribution of the excess
aggregate contributions for any plan year shall
be made to highly compensated employees on the
basis of the amount of contributions on behalf
of, or by, each such employee. Forfeitures of
excess aggregate contributions may not be
allocated to participants whose contributions
are reduced under this paragraph.
(D) Coordination with subsection (k) and
402(g).--The determination of the amount of
excess aggregate contributions with respect to
a plan shall be made after--
(i) first determining the excess
deferrals (within the meaning of
section 402(g)), and
(ii) then determining the excess
contributions under subsection (k).
(7) Treatment of distributions.--
(A) Additional tax of section 72(t) not
applicable.--No tax shall be imposed under
section 72(t) on any amount required to be
distributed under paragraph (6).
(B) Exclusion of employee contributions.--Any
distribution attributable to employee
contributions shall not be included in gross
income except to the extent attributable to
income on such contributions.
(8) Highly compensated employee.--For purposes of
this subsection, the term ``highly compensated
employee'' has the meaning given to such term by
section 414(q).
(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.
(10) Alternative method of satisfying tests.--A
defined contribution plan shall be treated as meeting
the requirements of paragraph (2) with respect to
matching contributions if the plan--
(A) meets the contribution requirements of
subparagraph (B) of subsection (k)(11),
(B) meets the exclusive plan requirements of
subsection (k)(11)(C), and
(C) meets the vesting requirements of section
408(p)(3).
(11) Additional alternative method of satisfying
tests.--
(A) In general.--A defined contribution plan
shall be treated as meeting the requirements of
paragraph (2) with respect to matching
contributions if the plan--
(i) meets the contribution
requirements of subparagraph (B) or (C)
of subsection (k)(12),
(ii) meets the notice requirements of
subsection (k)(12)(D), and
(iii) meets the requirements of
subparagraph (B).
(B) Limitation on matching contributions.--
The requirements of this subparagraph are met
if--
(i) matching contributions on behalf
of any employee may not be made with
respect to an employee's contributions
or elective deferrals in excess of 6
percent of the employee's compensation,
(ii) the rate of an employer's
matching contribution does not increase
as the rate of an employee's
contributions or elective deferrals
increase, and
(iii) the matching contribution with
respect to any highly compensated
employee at any rate of an employee
contribution or rate of elective
deferral is not greater than that with
respect to an employee who is not a
highly compensated employee.
(12) Alternative method for automatic contribution
arrangements.--A defined contribution plan shall be
treated as meeting the requirements of paragraph (2)
with respect to matching contributions if the plan--
(A) is a qualified automatic contribution
arrangement (as defined in subsection (k)(13)),
and
(B) meets the requirements of paragraph
(11)(B).
(13) Cross reference.--For excise tax on certain
excess contributions, see section 4979.
(n) Coordination with qualified domestic relations orders.--
The Secretary shall prescribe such rules or regulations as may
be necessary to coordinate the requirements of subsection
(a)(13)(B) and section 414(p) (and the regulations issued by
the Secretary of Labor thereunder) with the other provisions of
this chapter.
(o) Special rules for applying nondiscrimination rules to
protect older, longer service and grandfathered participants.--
(1) Testing of defined benefit plans with closed
classes of participants.--
(A) Benefits, rights, or features provided to
closed classes.--A defined benefit plan which
provides benefits, rights, or features to a
closed class of participants shall not fail to
satisfy the requirements of subsection (a)(4)
by reason of the composition of such closed
class or the benefits, rights, or features
provided to such closed class, if--
(i) for the plan year as of which the
class closes and the 2 succeeding plan
years, such benefits, rights, and
features satisfy the requirements of
subsection (a)(4) (without regard to
this subparagraph but taking into
account the rules of subparagraph (I)),
(ii) after the date as of which the
class was closed, any plan amendment
which modifies the closed class or the
benefits, rights, and features provided
to such closed class does not
discriminate significantly in favor of
highly compensated employees, and
(iii) the class was closed before
April 5, 2017, or the plan is described
in subparagraph (C).
(B) Aggregate testing with defined
contribution plans permitted on a benefits
basis.--
(i) In general.--For purposes of
determining compliance with subsection
(a)(4) and section 410(b), a defined
benefit plan described in clause (iii)
may be aggregated and tested on a
benefits basis with 1 or more defined
contribution plans, including with the
portion of 1 or more defined
contribution plans which--
(I) provides matching
contributions (as defined in
subsection (m)(4)(A)),
(II) provides annuity
contracts described in section
403(b) which are purchased with
matching contributions or
nonelective contributions, or
(III) consists of an employee
stock ownership plan (within
the meaning of section
4975(e)(7)) or a tax credit
employee stock ownership plan
(within the meaning of section
409(a)).
(ii) Special rules for matching
contributions.--For purposes of clause
(i), if a defined benefit plan is
aggregated with a portion of a defined
contribution plan providing matching
contributions--
(I) such defined benefit plan
must also be aggregated with
any portion of such defined
contribution plan which
provides elective deferrals
described in subparagraph (A)
or (C) of section 402(g)(3),
and
(II) such matching
contributions shall be treated
in the same manner as
nonelective contributions,
including for purposes of
applying the rules of
subsection (l).
(iii) Plans described.--A defined
benefit plan is described in this
clause if--
(I) the plan provides
benefits to a closed class of
participants,
(II) for the plan year as of
which the class closes and the
2 succeeding plan years, the
plan satisfies the requirements
of section 410(b) and
subsection (a)(4) (without
regard to this subparagraph but
taking into account the rules
of subparagraph (I)),
(III) after the date as of
which the class was closed, any
plan amendment which modifies
the closed class or the
benefits provided to such
closed class does not
discriminate significantly in
favor of highly compensated
employees, and
(IV) the class was closed
before April 5, 2017, or the
plan is described in
subparagraph (C).
(C) Plans described.--A plan is described in
this subparagraph if, taking into account any
predecessor plan--
(i) such plan has been in effect for
at least 5 years as of the date the
class is closed, and
(ii) during the 5-year period
preceding the date the class is closed,
there has not been a substantial
increase in the coverage or value of
the benefits, rights, or features
described in subparagraph (A) or in the
coverage or benefits under the plan
described in subparagraph (B)(iii)
(whichever is applicable).
(D) Determination of substantial increase for
benefits, rights, and features.--In applying
subparagraph (C)(ii) for purposes of
subparagraph (A)(iii), a plan shall be treated
as having had a substantial increase in
coverage or value of the benefits, rights, or
features described in subparagraph (A) during
the applicable 5-year period only if, during
such period--
(i) the number of participants
covered by such benefits, rights, or
features on the date such period ends
is more than 50 percent greater than
the number of such participants on the
first day of the plan year in which
such period began, or
(ii) such benefits, rights, and
features have been modified by 1 or
more plan amendments in such a way
that, as of the date the class is
closed, the value of such benefits,
rights, and features to the closed
class as a whole is substantially
greater than the value as of the first
day of such 5-year period, solely as a
result of such amendments.
(E) Determination of substantial increase for
aggregate testing on benefits basis.--In
applying subparagraph (C)(ii) for purposes of
subparagraph (B)(iii)(IV), a plan shall be
treated as having had a substantial increase in
coverage or benefits during the applicable 5-
year period only if, during such period--
(i) the number of participants
benefitting under the plan on the date
such period ends is more than 50
percent greater than the number of such
participants on the first day of the
plan year in which such period began,
or
(ii) the average benefit provided to
such participants on the date such
period ends is more than 50 percent
greater than the average benefit
provided on the first day of the plan
year in which such period began.
(F) Certain employees disregarded.--For
purposes of subparagraphs (D) and (E), any
increase in coverage or value or in coverage or
benefits, whichever is applicable, which is
attributable to such coverage and value or
coverage and benefits provided to employees--
(i) who became participants as a
result of a merger, acquisition, or
similar event which occurred during the
7-year period preceding the date the
class is closed, or
(ii) who became participants by
reason of a merger of the plan with
another plan which had been in effect
for at least 5 years as of the date of
the merger,
shall be disregarded, except that clause (ii)
shall apply for purposes of subparagraph (D)
only if, under the merger, the benefits,
rights, or features under 1 plan are conformed
to the benefits, rights, or features of the
other plan prospectively.
(G) Rules relating to average benefit.--For
purposes of subparagraph (E)--
(i) the average benefit provided to
participants under the plan will be
treated as having remained the same
between the 2 dates described in
subparagraph (E)(ii) if the benefit
formula applicable to such participants
has not changed between such dates, and
(ii) if the benefit formula
applicable to 1 or more participants
under the plan has changed between such
2 dates, then the average benefit under
the plan shall be considered to have
increased by more than 50 percent only
if--
(I) the total amount
determined under section
430(b)(1)(A)(i) for all
participants benefitting under
the plan for the plan year in
which the 5-year period
described in subparagraph (E)
ends, exceeds
(II) the total amount
determined under section
430(b)(1)(A)(i) for all such
participants for such plan
year, by using the benefit
formula in effect for each such
participant for the first plan
year in such 5-year period,
by more than 50 percent. In the case of a CSEC
plan (as defined in section 414(y)), the normal
cost of the plan (as determined under section
433(j)(1)(B)) shall be used in lieu of the
amount determined under section
430(b)(1)(A)(i).
(H) Treatment as single plan.--For purposes
of subparagraphs (E) and (G), a plan described
in section 413(c) shall be treated as a single
plan rather than as separate plans maintained
by each employer in the plan.
(I) Special rules.--For purposes of
subparagraphs (A)(i) and (B)(iii)(II), the
following rules shall apply:
(i) In applying section 410(b)(6)(C),
the closing of the class of
participants shall not be treated as a
significant change in coverage under
section 410(b)(6)(C)(i)(II).
(ii) 2 or more plans shall not fail
to be eligible to be aggregated and
treated as a single plan solely by
reason of having different plan years.
(iii) Changes in the employee
population shall be disregarded to the
extent attributable to individuals who
become employees or cease to be
employees, after the date the class is
closed, by reason of a merger,
acquisition, divestiture, or similar
event.
(iv) Aggregation and all other
testing methodologies otherwise
applicable under subsection (a)(4) and
section 410(b) may be taken into
account.
The rule of clause (ii) shall also apply for
purposes of determining whether plans to which
subparagraph (B)(i) applies may be aggregated
and treated as 1 plan for purposes of
determining whether such plans meet the
requirements of subsection (a)(4) and section
410(b).
(J) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined benefit
plan described in subparagraph (A) or (B)(iii)
is spun off to another employer and the spun-
off plan continues to satisfy the requirements
of--
(i) subparagraph (A)(i) or
(B)(iii)(II), whichever is applicable,
if the original plan was still within
the 3-year period described in such
subparagraph at the time of the spin
off, and
(ii) subparagraph (A)(ii) or
(B)(iii)(III), whichever is applicable,
the treatment under subparagraph (A) or (B) of
the spun-off plan shall continue with respect
to such other employer.
(2) Testing of defined contribution plans.--
(A) Testing on a benefits basis.--A defined
contribution plan shall be permitted to be
tested on a benefits basis if--
(i) such defined contribution plan
provides make-whole contributions to a
closed class of participants whose
accruals under a defined benefit plan
have been reduced or eliminated,
(ii) for the plan year of the defined
contribution plan as of which the class
eligible to receive such make-whole
contributions closes and the 2
succeeding plan years, such closed
class of participants satisfies the
requirements of section 410(b)(2)(A)(i)
(determined by applying the rules of
paragraph (1)(I)),
(iii) after the date as of which the
class was closed, any plan amendment to
the defined contribution plan which
modifies the closed class or the
allocations, benefits, rights, and
features provided to such closed class
does not discriminate significantly in
favor of highly compensated employees,
and
(iv) the class was closed before
April 5, 2017, or the defined benefit
plan under clause (i) is described in
paragraph (1)(C) (as applied for
purposes of paragraph (1)(B)(iii)(IV)).
(B) Aggregation with plans including matching
contributions.--
(i) In general.--With respect to 1 or
more defined contribution plans
described in subparagraph (A), for
purposes of determining compliance with
subsection (a)(4) and section 410(b),
the portion of such plans which
provides make-whole contributions or
other nonelective contributions may be
aggregated and tested on a benefits
basis with the portion of 1 or more
other defined contribution plans
which--
(I) provides matching
contributions (as defined in
subsection (m)(4)(A)),
(II) provides annuity
contracts described in section
403(b) which are purchased with
matching contributions or
nonelective contributions, or
(III) consists of an employee
stock ownership plan (within
the meaning of section
4975(e)(7)) or a tax credit
employee stock ownership plan
(within the meaning of section
409(a)).
(ii) Special rules for matching
contributions.--Rules similar to the
rules of paragraph (1)(B)(ii) shall
apply for purposes of clause (i).
(C) Special rules for testing defined
contribution plan features providing matching
contributions to certain older, longer service
participants.--In the case of a defined
contribution plan which provides benefits,
rights, or features to a closed class of
participants whose accruals under a defined
benefit plan have been reduced or eliminated,
the plan shall not fail to satisfy the
requirements of subsection (a)(4) solely by
reason of the composition of the closed class
or the benefits, rights, or features provided
to such closed class if the defined
contribution plan and defined benefit plan
otherwise meet the requirements of subparagraph
(A) but for the fact that the make-whole
contributions under the defined contribution
plan are made in whole or in part through
matching contributions.
(D) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined
contribution plan described in subparagraph (A)
or (C) is spun off to another employer, the
treatment under subparagraph (A) or (C) of the
spun-off plan shall continue with respect to
the other employer if such plan continues to
comply with the requirements of clauses (ii)
(if the original plan was still within the 3-
year period described in such clause at the
time of the spin off) and (iii) of subparagraph
(A), as determined for purposes of subparagraph
(A) or (C), whichever is applicable.
(3) Definitions and special rule.--For purposes of
this subsection--
(A) Make-whole contributions.--Except as
otherwise provided in paragraph (2)(C), the
term ``make-whole contributions'' means
nonelective allocations for each employee in
the class which are reasonably calculated, in a
consistent manner, to replace some or all of
the retirement benefits which the employee
would have received under the defined benefit
plan and any other plan or qualified cash or
deferred arrangement under subsection (k)(2) if
no change had been made to such defined benefit
plan and such other plan or arrangement. For
purposes of the preceding sentence, consistency
shall not be required with respect to employees
who were subject to different benefit formulas
under the defined benefit plan.
(B) References to closed class of
participants.--References to a closed class of
participants and similar references to a closed
class shall include arrangements under which 1
or more classes of participants are closed,
except that 1 or more classes of participants
closed on different dates shall not be
aggregated for purposes of determining the date
any such class was closed.
(C) Highly compensated employee.--The term
``highly compensated employee'' has the meaning
given such term in section 414(q).
(p) Cross reference.--For exemption from tax of a trust
qualified under this section, see section 501(a).
SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.
(a) Taxability of beneficiary of exempt trust.--Except as
otherwise provided in this section, any amount actually
distributed to any distributee by any employees' trust
described in section 401(a) which is exempt from tax under
section 501(a) shall be taxable to the distributee, in the
taxable year of the distributee in which distributed, under
section 72 (relating to annuities).
(b) Taxability of beneficiary of nonexempt trust.--
(1) Contributions.--Contributions to an employees'
trust made by an employer during a taxable year of the
employer which ends with or within a taxable year of
the trust for which the trust is not exempt from tax
under section 501(a) shall be included in the gross
income of the employee in accordance with section 83
(relating to property transferred in connection with
performance of services), except that the value of the
employee's interest in the trust shall be substituted
for the fair market value of the property for purposes
of applying such section.
(2) Distributions.--The amount actually distributed
or made available to any distributee by any trust
described in paragraph (1) shall be taxable to the
distributee, in the taxable year in which so
distributed or made available, under section 72
(relating to annuities), except that distributions of
income of such trust before the annuity starting date
(as defined in section 72(c)(4)) shall be included in
the gross income of the employee without regard to
section 72(e)(5) (relating to amounts not received as
annuities).
(3) Grantor trusts.--A beneficiary of any trust
described in paragraph (1) shall not be considered the
owner of any portion of such trust under subpart E of
part I of subchapter J (relating to grantors and others
treated as substantial owners).
(4) Failure to meet requirements of section 410(b).--
(A) Highly compensated employees.--If 1 of
the reasons a trust is not exempt from tax
under section 501(a) is the failure of the plan
of which it is a part to meet the requirements
of section 401(a)(26) or 410(b), then a highly
compensated employee shall, in lieu of the
amount determined under paragraph (1) or (2)
include in gross income for the taxable year
with or within which the taxable year of the
trust ends an amount equal to the vested
accrued benefit of such employee (other than
the employee's investment in the contract) as
of the close of such taxable year of the trust.
(B) Failure to meet coverage tests.--If a
trust is not exempt from tax under section
501(a) for any taxable year solely because such
trust is part of a plan which fails to meet the
requirements of section 401(a)(26) or 410(b),
paragraphs (1) and (2) shall not apply by
reason of such failure to any employee who was
not a highly compensated employee during--
(i) such taxable year, or
(ii) any preceding period for which
service was creditable to such employee
under the plan.
(C) Highly compensated employee.--For
purposes of this paragraph, the term ``highly
compensated employee'' has the meaning given
such term by section 414(q).
(c) Rules applicable to rollovers from exempt trusts.--
(1) Exclusion from income.--If--
(A) any portion of the balance to the credit
of an employee in a qualified trust is paid to
the employee in an eligible rollover
distribution,
(B) the distributee transfers any portion of
the property received in such distribution to
an eligible retirement plan, and
(C) 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.
(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 or to an annuity contract described in
section 403(b) and such trust or contract
provides for separate accounting for amounts so
transferred (and earnings thereon), 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).
In the case of a transfer described in subparagraph (A)
or (B), the amount transferred shall be treated as
consisting first of the portion of such distribution
that is includible in gross income (determined without
regard to paragraph (1)).
(3) Time limit on transfers.--
(A) In general.--Except as provided in
subparagraphs (B) and (C), 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.
(C) Rollover of certain plan loan offset
amounts.--
(i) In general.--In the case of a
qualified plan loan offset amount,
paragraph (1) shall not apply to any
transfer of such amount made after the
due date (including extensions) for
filing the return of tax for the
taxable year in which such amount is
treated as distributed from a qualified
employer plan.
(ii) Qualified plan loan offset
amount.--For purposes of this
subparagraph, the term ``qualified plan
loan offset amount'' means a plan loan
offset amount which is treated as
distributed from a qualified employer
plan to a participant or beneficiary
solely by reason of--
(I) the termination of the
qualified employer plan, or
(II) the failure to meet the
repayment terms of the loan
from such plan because of the
severance from employment of
the participant.
(iii) Plan loan offset amount.--For
purposes of clause (ii), the term
``plan loan offset amount'' means the
amount by which the participant's
accrued benefit under the plan is
reduced in order to repay a loan from
the plan.
(iv) Limitation.--This subparagraph
shall not apply to any plan loan offset
amount unless such plan loan offset
amount relates to a loan to which
section 72(p)(1) does not apply by
reason of section 72(p)(2).
(v) Qualified employer plan.--For
purposes of this subsection, the term
``qualified employer plan'' has the
meaning given such term by section
72(p)(4).
(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) any distribution which is one of a series
of substantially equal periodic payments (not
less frequently than annually) made--
(i) 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
(ii) for a specified period of 10
years or more,
(B) any distribution to the extent such
distribution is required under section
401(a)(9), and
(C) any distribution which is made upon
hardship of the employee.
If all or any portion of a distribution during 2020 is
treated as an eligible rollover distribution but would
not be so treated if the minimum distribution
requirements under section 401(a)(9) had applied during
2020, such distribution shall not be treated as an
eligible rollover distribution for purposes of section
401(a)(31) or 3405(c) or subsection (f) of this
section.
(5) Transfer treated as rollover contribution under
section 408.--For purposes of this title, a transfer to
an eligible retirement plan described in clause (i) or
(ii) of paragraph (8)(B) resulting in any portion of a
distribution being excluded from gross income under
paragraph (1) shall be treated as a rollover
contribution described in section 408(d)(3).
(6) Sales of distributed property.--For purposes of
this subsection--
(A) Transfer of proceeds from sale of
distributed property treated as transfer of
distributed property.--The transfer of an
amount equal to any portion of the proceeds
from the sale of property received in the
distribution shall be treated as the transfer
of property received in the distribution.
(B) Proceeds attributable to increase in
value.--The excess of fair market value of
property on sale over its fair market value on
distribution shall be treated as property
received in the distribution.
(C) Designation where amount of distribution
exceeds rollover contribution.--In any case
where part or all of the distribution consists
of property other than money--
(i) the portion of the money or other
property which is to be treated as
attributable to amounts not included in
gross income, and
(ii) the portion of the money or
other property which is to be treated
as included in the rollover
contribution,
shall be determined on a ratable basis unless
the taxpayer designates otherwise. Any
designation under this subparagraph for a
taxable year shall be made not later than the
time prescribed by law for filing the return
for such taxable year (including extensions
thereof). Any such designation, once made,
shall be irrevocable.
(D) Nonrecognition of gain or loss.--No gain
or loss shall be recognized on any sale
described in subparagraph (A) to the extent
that an amount equal to the proceeds is
transferred pursuant to paragraph (1).
(7) Special rule for frozen deposits.--
(A) In general.--The 60-day period described
in paragraph (3) shall not--
(i) include any period during which
the amount transferred to the employee
is a frozen deposit, or
(ii) end earlier than 10 days after
such amount ceases to be a frozen
deposit.
(B) Frozen deposits.--For purposes of this
subparagraph, the term ``frozen deposit'' means
any deposit which may not be withdrawn because
of--
(i) the bankruptcy or insolvency of
any financial institution, or
(ii) any requirement imposed by the
State in which such institution is
located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or
more financial institutions in such
State.
A deposit shall not be treated as a frozen
deposit unless on at least 1 day during the 60-
day period described in paragraph (3) (without
regard to this paragraph) such deposit is
described in the preceding sentence.
(8) Definitions.--For purposes of this subsection--
(A) Qualified trust.--The term ``qualified
trust'' means an employees' trust described in
section 401(a) which is exempt from tax under
section 501(a).
(B) Eligible retirement plan.--The term
``eligible retirement plan'' means--
(i) an individual retirement account
described in section 408(a),
(ii) an individual retirement annuity
described in section 408(b) (other than
an endowment contract),
(iii) a qualified trust,
(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 Roth account
(as defined in section 402A), an eligible
retirement plan with respect to such portion
shall include only another designated Roth
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.
(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.
(11) Distributions to inherited individual retirement
plan of nonspouse beneficiary.--
(A) In general.--If, with respect to any
portion of a distribution from an eligible
retirement plan described in paragraph
(8)(B)(iii) of a deceased employee, a direct
trustee-to-trustee transfer is made to an
individual retirement plan described in clause
(i) or (ii) of paragraph (8)(B) established for
the purposes of receiving the distribution on
behalf of an individual who is a designated
beneficiary (as defined by section
401(a)(9)(E)) of the employee and who is not
the surviving spouse of the employee--
(i) the transfer shall be treated as
an eligible rollover distribution,
(ii) the individual retirement plan
shall be treated as an inherited
individual retirement account or
individual retirement annuity (within
the meaning of section 408(d)(3)(C))
for purposes of this title, and
(iii) section 401(a)(9)(B) (other
than clause (iv) thereof) shall apply
to such plan.
(B) Certain trusts treated as
beneficiaries.--For purposes of this paragraph,
to the extent provided in rules prescribed by
the Secretary, a trust maintained for the
benefit of one or more designated beneficiaries
shall be treated in the same manner as a
designated beneficiary.
(12) In the case of an inadvertent benefit
overpayment from a plan to which section 414(bb)(1)
applies that is transferred to an eligible retirement
plan by or on behalf of a participant or beneficiary--
(A) the portion of such overpayment with
respect to which recoupment is not sought on
behalf of the plan shall be treated as having
been paid in an eligible rollover distribution
if the payment would have been an eligible
rollover distribution but for being an
overpayment, and
(B) the portion of such overpayment with
respect to which recoupment is sought on behalf
of the plan shall be permitted to be returned
to such plan and in such case shall be treated
as an eligible rollover distribution
transferred to such plan by the participant or
beneficiary who received such overpayment (and
the plans making and receiving such transfer
shall be treated as permitting such transfer).
In any case in which recoupment is sought on behalf of
the plan but is disputed by the participant or
beneficiary who received such overpayment, such dispute
shall be subject to the claims procedures of the plan
that made such overpayment, such plan shall notify the
plan receiving the rollover of such dispute, and the
plan receiving the rollover shall retain such
overpayment on behalf of the participant or beneficiary
(and shall be entitled to treat such overpayment as
plan assets) pending the outcome of such procedures.
(d) Taxability of beneficiary of certain foreign situs
trusts.--For purposes of subsections (a), (b), and (c), a stock
bonus, pension, or profit-sharing trust which would qualify for
exemption from tax under section 501(a) except for the fact
that it is a trust created or organized outside the United
States shall be treated as if it were a trust exempt from tax
under section 501(a).
(e) Other rules applicable to exempt trusts.--
(1) Alternate payees.--
(A) Alternate payee treated as distributee.--
For purposes of subsection (a) and section 72,
an alternate payee who is the spouse or former
spouse of the participant shall be treated as
the distributee of any distribution or payment
made to the alternate payee under a qualified
domestic relations order (as defined in section
414(p)).
(B) Rollovers.--If any amount is paid or
distributed to an alternate payee who is the
spouse or former spouse of the participant by
reason of any qualified domestic relations
order (within the meaning of section 414(p)),
subsection (c) shall apply to such distribution
in the same manner as if such alternate payee
were the employee.
(2) Distributions by United States to nonresident
aliens.--The amount includible under subsection (a) in
the gross income of a nonresident alien with respect to
a distribution made by the United States in respect of
services performed by an employee of the United States
shall not exceed an amount which bears the same ratio
to the amount includible in gross income without regard
to this paragraph as--
(A) the aggregate basic pay paid by the
United States to such employee for such
services, reduced by the amount of such basic
pay which was not includible in gross income by
reason of being from sources without the United
States, bears to
(B) the aggregate basic pay paid by the
United States to such employee for such
services.
In the case of distributions under the civil service
retirement laws, the term ``basic pay'' shall have the
meaning provided in section 8331(3) of title 5, United
States Code.
(3) Cash or deferred arrangements.--For purposes of
this title, contributions made by an employer on behalf
of an employee to a trust which is a part of a
qualified cash or deferred arrangement (as defined in
section 401(k)(2)) or which is part of a salary
reduction agreement under section 403(b) shall not be
treated as distributed or made available to the
employee nor as contributions made to the trust by the
employee merely because the arrangement includes
provisions under which the employee has an election
whether the contribution will be made to the trust or
received by the employee in cash.
(4) Net unrealized appreciation.--
(A) Amounts attributable to employee
contributions.--For purposes of subsection (a)
and section 72, in the case of a distribution
other than a lump sum distribution, the amount
actually distributed to any distributee from a
trust described in subsection (a) shall not
include any net unrealized appreciation in
securities of the employer corporation
attributable to amounts contributed by the
employee (other than deductible employee
contributions within the meaning of section
72(o)(5)). This subparagraph shall not apply to
a distribution to which subsection (c) applies.
(B) Amounts attributable to employer
contributions.--For purposes of subsection (a)
and section 72, in the case of any lump sum
distribution which includes securities of the
employer corporation, there shall be excluded
from gross income the net unrealized
appreciation attributable to that part of the
distribution which consists of securities of
the employer corporation. In accordance with
rules prescribed by the Secretary, a taxpayer
may elect, on the return of tax on which a lump
sum distribution is required to be included,
not to have this subparagraph apply to such
distribution.
(C) Determination of amounts and
adjustments.--For purposes of subparagraphs (A)
and (B), net unrealized appreciation and the
resulting adjustments to basis shall be
determined in accordance with regulations
prescribed by the Secretary.
(D) Lump-sum distribution.--For purposes of
this paragraph--
(i) In general.--The term ``lump-sum
distribution'' means the distribution
or payment within one taxable year of
the recipient of the balance to the
credit of an employee which becomes
payable to the recipient--
(I) on account of the
employee's death,
(II) after the employee
attains age 591/2,
(III) on account of the
employee's separation from
service, or
(IV) after the employee has
become disabled (within the
meaning of section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is exempt
from tax under section 501 or from a plan
described in section 403(a). Subclause (III) of
this clause shall be applied only with respect
to an individual who is an employee without
regard to section 401(c)(1), and subclause (IV)
shall be applied only with respect to an
employee within the meaning of section
401(c)(1). For purposes of this clause, a
distribution to two or more trusts shall be
treated as a distribution to one recipient. For
purposes of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contributions
under the plan (within the meaning of section
72(o)(5)).
(ii) Aggregation of certain trusts
and plans.--For purposes of determining
the balance to the credit of an
employee under clause (i)--
(I) all trusts which are part
of a plan shall be treated as a
single trust, all pension plans
maintained by the employer
shall be treated as a single
plan, all profit-sharing plans
maintained by the employer
shall be treated as a single
plan, and all stock bonus plans
maintained by the employer
shall be treated as a single
plan, and
(II) trusts which are not
qualified trusts under section
401(a) and annuity contracts
which do not satisfy the
requirements of section
404(a)(2) shall not be taken
into account.
(iii) Community property laws.--The
provisions of this paragraph shall be
applied without regard to community
property laws.
(iv) Amounts subject to penalty.--
This paragraph shall not apply to
amounts described in subparagraph (A)
of section 72(m)(5) to the extent that
section 72(m)(5) applies to such
amounts.
(v) Balance to credit of employee not
to include amounts payable under
qualified domestic relations order.--
For purposes of this paragraph, the
balance to the credit of an employee
shall not include any amount payable to
an alternate payee under a qualified
domestic relations order (within the
meaning of section 414(p)).
(vi) Transfers to cost-of-living
arrangement not treated as
distribution.--For purposes of this
paragraph, the balance to the credit of
an employee under a defined
contribution plan shall not include any
amount transferred from such defined
contribution plan to a qualified cost-
of-living arrangement (within the
meaning of section 415(k)(2)) under a
defined benefit plan.
(vii) Lump-sum distributions of
alternate payees.--If any distribution
or payment of the balance to the credit
of an employee would be treated as a
lump-sum distribution, then, for
purposes of this paragraph, the payment
under a qualified domestic relations
order (within the meaning of section
414(p)) of the balance to the credit of
an alternate payee who is the spouse or
former spouse of the employee shall be
treated as a lump-sum distribution. For
purposes of this clause, the balance to
the credit of the alternate payee shall
not include any amount payable to the
employee.
(E) Definitions relating to securities.--For
purposes of this paragraph--
(i) Securities.--The term
``securities'' means only shares of
stock and bonds or debentures issued by
a corporation with interest coupons or
in registered form.
(ii) Securities of the employer.--The
term ``securities of the employer
corporation'' includes securities of a
parent or subsidiary corporation (as
defined in subsections (e) and (f) of
section 424) of the employer
corporation.
(6) Direct trustee-to-trustee transfers.--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 such
transfer.
(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, provide a written
explanation to the recipient--
(A) of the provisions under which the
recipient may have the distribution directly
transferred to an eligible retirement plan and
that the automatic distribution by direct
transfer applies to certain distributions in
accordance with section 401(a)(31)(B),
(B) of the provision which requires the
withholding of tax on the distribution if it is
not directly transferred to 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,
(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, paragraph (4) of section 403(a),
subparagraph (A) of section 403(b)(8), or
subparagraph (A) of section 457(e)(16). Such
term shall include any distribution to a
designated beneficiary which would be treated
as an eligible rollover distribution by reason
of subsection (c)(11), or section 403(a)(4)(B),
403(b)(8)(B), or 457(e)(16)(B), if the
requirements of subsection (c)(11) were
satisfied.
(B) Eligible retirement plan.--The term
``eligible retirement plan'' has the meaning
given such term by subsection (c)(8)(B).
(g) Limitation on exclusion for elective deferrals.--
(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 the portion of such excess as does not
exceed the designated Roth contributions of the
individual for the taxable year.
(B) Applicable dollar amount.--For purposes
of subparagraph (A), the applicable dollar
amount is $15,000.
(C) Catch-up contributions.--In addition to
subparagraph (A), in the case of an eligible
participant (as defined in section 414(v)),
gross income shall not include elective
deferrals in excess of the applicable dollar
amount under subparagraph (B) to the extent
that the amount of such elective deferrals does
not exceed the applicable dollar amount under
section 414(v)(2)(B)(i) for the taxable year
(without regard to the treatment of the
elective deferrals by an applicable employer
plan under section 414(v)).
(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) not later than the 1st March 1
following the close of the taxable
year, the individual may allocate the
amount of such excess deferrals among
the plans under which the deferrals
were made and may notify each such plan
of the portion allocated to it, and
(ii) not later than the 1st April 15
following the close of the taxable
year, each such plan may distribute to
the individual the amount allocated to
it under clause (i) (and any income
allocable to such amount through the
end of such taxable year).
The distribution described in clause (ii) may
be made notwithstanding any other provision of
law.
(B) Treatment of distribution under section
401(k).--Except to the extent provided under
rules prescribed by the Secretary,
notwithstanding the distribution of any portion
of an excess deferral from a plan under
subparagraph (A)(ii), such portion shall, for
purposes of applying section 401(k)(3)(A)(ii),
be treated as an employer contribution.
(C) Taxation of distribution.--In the case of
a distribution to which subparagraph (A)
applies--
(i) except as provided in clause
(ii), such distribution shall not be
included in gross income, and
(ii) any income on the excess
deferral shall, for purposes of this
chapter, be treated as earned and
received in the taxable year in which
such income is distributed.
No tax shall be imposed under section 72(t) on
any distribution described in the preceding
sentence.
(D) Partial distributions.--If a plan
distributes only a portion of any excess
deferral and income allocable thereto, such
portion shall be treated as having been
distributed ratably from the excess deferral
and the income.
(3) Elective deferrals.--For purposes of this
subsection, the term ``elective deferrals'' means, with
respect to any taxable year, the sum of--
(A) any employer contribution under a
qualified cash or deferred arrangement (as
defined in section 401(k)) to the extent not
includible in gross income for the taxable year
under subsection (e)(3) (determined without
regard to this subsection),
(B) any employer contribution to the extent
not includible in gross income for the taxable
year under subsection (h)(1)(B) (determined
without regard to this subsection),
(C) any employer contribution to purchase an
annuity contract under section 403(b) under a
salary reduction agreement (within the meaning
of section 3121(a)(5)(D)), and
(D) any elective employer contribution under
section 408(p)(2)(A)(i).
An employer contribution shall not be treated as an
elective deferral described in subparagraph (C) if
under the salary reduction agreement such contribution
is made pursuant to a one-time irrevocable election
made by the employee at the time of initial eligibility
to participate in the agreement or is made pursuant to
a similar arrangement involving a one-time irrevocable
election specified in regulations.
(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.
(5) Disregard of community property laws.--This
subsection shall be applied without regard to community
property laws.
(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.
(7) Special rule for certain organizations.--
(A) In general.--In the case of a qualified
employee of a qualified organization, with
respect to employer contributions described in
paragraph (3)(C) made by such organization, the
limitation of paragraph (1) for any taxable
year shall be increased by whichever of the
following is the least:
(i) $3,000,
(ii) $15,000 reduced by the sum of--
(I) the amounts not included
in gross income for prior
taxable years by reason of this
paragraph, plus
(II) the aggregate amount of
designated Roth contributions
(as defined in section 402A(c))
permitted for prior taxable
years by reason of this
paragraph, or
(iii) the excess of $5,000 multiplied
by the number of years of service of
the employee with the qualified
organization over the employer
contributions described in paragraph
(3) made by the organization on behalf
of such employee for prior taxable
years (determined in the manner
prescribed by the Secretary).
(B) Qualified organization.--For 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 Economic
Growth and Tax Relief Reconciliation Act of
2001).
(C) Qualified employee.--For purposes of this
paragraph, the term ``qualified employee''
means any employee who has completed 15 years
of service with the qualified organization.
(D) Years of service.--For purposes of this
paragraph, the term ``years of service'' has
the meaning given such term by section 403(b).
(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.
(h) Special rules for simplified employee pensions.--For
purposes of this chapter--
(1) In general.--Except as provided in paragraph (2),
contributions made by an employer on behalf of an
employee to an individual retirement plan pursuant to a
simplified employee pension (as defined in section
408(k))--
(A) shall not be treated as distributed or
made available to the employee or as
contributions made by the employee, and
(B) if such contributions are made pursuant
to an arrangement under section 408(k)(6) under
which an employee may elect to have the
employer make contributions to the simplified
employee pension on behalf of the employee,
shall not be treated as distributed or made
available or as contributions made by the
employee merely because the simplified employee
pension includes provisions for such election.
(2) Limitations on employer contributions.--
Contributions made by an employer to a simplified
employee pension with respect to an employee for any
year shall be treated as distributed or made available
to such employee and as contributions made by the
employee to the extent such contributions exceed the
lesser of--
(A) 25 percent of the compensation (within
the meaning of section 414(s)) from such
employer includible in the employee's gross
income for the year (determined without regard
to the employer contributions to the simplified
employee pension), or
(B) the limitation in effect under section
415(c)(1)(A), reduced in the case of any highly
compensated employee (within the meaning of
section 414(q)) by the amount taken into
account with respect to such employee under
section 408(k)(3)(D).
(3) Distributions.--Any amount paid or distributed
out of an individual retirement plan pursuant to a
simplified employee pension shall be included in gross
income by the payee or distributee, as the case may be,
in accordance with the provisions of section 408(d).
(i) Treatment of self-employed individuals.--For purposes of
this section, except as otherwise provided in subsection
(e)(4)(D)(i), the term ``employee'' includes a self-employed
individual (as defined in section 401(c)(1)(B)) and the
employer of such individual shall be the person treated as his
employer under section 401(c)(4).
(j) Effect of disposition of stock by plan on net unrealized
appreciation.--
(1) In general.--For purposes of subsection (e)(4),
in the case of any transaction to which this subsection
applies, the determination of net unrealized
appreciation shall be made without regard to such
transaction.
(2) Transaction to which subsection applies.--This
subsection shall apply to any transaction in which--
(A) the plan trustee exchanges the plan's
securities of the employer corporation for
other such securities, or
(B) the plan trustee disposes of securities
of the employer corporation and uses the
proceeds of such disposition to acquire
securities of the employer corporation within
90 days (or such longer period as the Secretary
may prescribe), except that this subparagraph
shall not apply to any employee with respect to
whom a distribution of money was made during
the period after such disposition and before
such acquisition.
(k) Treatment of simple retirement accounts.--Rules similar
to the rules of paragraphs (1) and (3) of subsection (h) shall
apply to contributions and distributions with respect to a
simple retirement account under section 408(p).
(l) Distributions from governmental plans for health and
long-term care insurance.--
(1) In general.--In the case of an employee who is an
eligible retired public safety officer who makes the
election described in paragraph (6) with respect to any
taxable year of such employee, gross income of such
employee for such taxable year does not include any
distribution from an eligible retirement plan
maintained by the employer described in paragraph
(4)(B) to the extent that the aggregate amount of such
distributions does not exceed the amount paid by such
employee for qualified health insurance premiums for
such taxable year.
(2) Limitation.--The amount which may be excluded
from gross income for the taxable year by reason of
paragraph (1) shall not exceed $3,000.
(3) Distributions must otherwise be includible.--
(A) In general.--An amount shall be treated
as a distribution for purposes of paragraph (1)
only to the extent that such amount would be
includible in gross income without regard to
paragraph (1).
(B) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which an amount is treated as a
distribution for purposes of subparagraph (A),
the aggregate amounts distributed from an
eligible retirement plan in a taxable year (up
to the amount excluded under paragraph (1))
shall be treated as includible in gross income
(without regard to subparagraph (A)) to the
extent that such amount does not exceed the
aggregate amount which would have been so
includible if all amounts to the credit of the
eligible public safety officer in all eligible
retirement plans maintained by the employer
described in paragraph (4)(B) were distributed
during such taxable year and all such plans
were treated as 1 contract for purposes of
determining under section 72 the aggregate
amount which would have been so includible.
Proper adjustments shall be made in applying
section 72 to other distributions in such
taxable year and subsequent taxable years.
(4) Definitions.--For purposes of this subsection--
(A) Eligible retirement plan.--For purposes
of paragraph (1), the term ``eligible
retirement plan'' means a governmental plan
(within the meaning of section 414(d)) which is
described in clause (iii), (iv), (v), or (vi)
of subsection (c)(8)(B).
(B) Eligible retired public safety officer.--
The term ``eligible retired public safety
officer'' means an individual who, by reason of
disability or attainment of normal retirement
age, is separated from service as a public
safety officer with the employer who maintains
the eligible retirement plan from which
distributions subject to paragraph (1) are
made.
(C) Public safety officer.--The term ``public
safety officer'' shall have the same meaning
given such term by section 1204(9)(A) of the
Omnibus Crime Control and Safe Streets Act of
1968 (42 U.S.C. 3796b(9)(A)), as in effect
immediately before the enactment of the
National Defense Authorization Act for Fiscal
Year 2013.
(D) Qualified health insurance premiums.--The
term ``qualified health insurance premiums''
means premiums for coverage for the eligible
retired public safety officer, his spouse, and
dependents (as defined in section 152), by an
accident or health plan or qualified long-term
care insurance contract (as defined in section
7702B(b)).
(5) Special rules.--For purposes of this subsection--
(A) Direct payment to insurer required.--
Paragraph (1) shall only apply to a
distribution if payment of the premiums is made
directly to the provider of the accident or
health plan or qualified long-term care
insurance contract by deduction from a
distribution from the eligible retirement plan.
(B) Related plans treated as 1.--All eligible
retirement plans of an employer shall be
treated as a single plan.
(6) Election described.--
(A) In general.--For purposes of paragraph
(1), an election is described in this paragraph
if the election is made by an employee after
separation from service with respect to amounts
not distributed from an eligible retirement
plan to have amounts from such plan distributed
in order to pay for qualified health insurance
premiums.
(B) Special rule.--A plan shall not be
treated as violating the requirements of
section 401, or as engaging in a prohibited
transaction for purposes of section 503(b),
merely because it provides for an election with
respect to amounts that are otherwise
distributable under the plan or merely because
of a distribution made pursuant to an election
described in subparagraph (A).
(7) Coordination with medical expense deduction.--The
amounts excluded from gross income under paragraph (1)
shall not be taken into account under section 213.
(8) Coordination with deduction for health insurance
costs of self-employed individuals.--The amounts
excluded from gross income under paragraph (1) shall
not be taken into account under section 162(l).
* * * * * * *
SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.
(a) Taxability of beneficiary under a qualified annuity
plan.--
(1) Distributee taxable under section 72.--If an
annuity contract is purchased by an employer for an
employee under a plan which meets the requirements of
section 404(a)(2) (whether or not the employer deducts
the amounts paid for the contract under such section),
the amount actually distributed to any distributee
under the contract shall be taxable to the distributee
(in the year in which so distributed) under section 72
(relating to annuities).
(2) Special rule for health and long-term care
insurance.--To the extent provided in section 402(l),
paragraph (1) shall not apply to the amount distributed
under the contract which is otherwise includible in
gross income under this subsection.
(3) Self-employed individuals.--For purposes of this
subsection, the term ``employee'' includes an
individual who is an employee within the meaning of
section 401(c)(1), and the employer of such individual
is the person treated as his employer under section
401(c)(4).
(4) Rollover amounts.--
(A) General rule.--If--
(i) any portion of the balance to the
credit of an employee in an employee
annuity described in paragraph (1) is
paid to him in an eligible rollover
distribution (within the meaning of
section 402(c)(4)),
(ii) the employee transfers any
portion of the property he receives in
such distribution to an eligible
retirement plan, 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) and (11) and (9)
of section 402(c) and section 402(f) shall
apply for purposes of subparagraph (A).
(5) Direct trustee-to-trustee transfer.--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 such
transfer.
(b) Taxability of beneficiary under annuity purchased by
section 501(c)(3) organization or public school.--
(1) General rule.--If--
(A) an annuity contract is purchased--
(i) for an employee by an employer
described in section 501(c)(3) which is
exempt from tax under section 501(a),
(ii) for an employee (other than an
employee described in clause (i)), who
performs services for an educational
organization described in section
170(b)(1) (A)(ii), by an employer which
is a State, a political subdivision of
a State, or an agency or
instrumentality of any one or more of
the foregoing, or
(iii) for the minister described in
section 414(e)(5)(A) by the minister or
by an employer,
(B) such annuity contract is not subject to
subsection (a),
(C) the employee's rights under the contract
are nonforfeitable, except for failure to pay
future premiums,
(D) except in the case of a contract
purchased by a church, such contract is
purchased under a plan which meets the
nondiscrimination requirements of paragraph
(12), and
(E) in the case of a contract purchased under
a salary reduction agreement, the contract
meets the requirements of section 401(a)(30),
then contributions and other additions by such employer
for such annuity contract shall be excluded from the
gross income of the employee for the taxable year to
the extent that the aggregate of such contributions and
additions (when expressed as an annual addition (within
the meaning of section 415(c)(2))) does not exceed 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 contributions and other additions 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)(ii) shall not
be considered contributed by such employer.
(2) Special rule for health and long-term care
insurance.--To the extent provided in section 402(l),
paragraph (1) shall not apply to the amount distributed
under the contract which is otherwise includible in
gross income under this subsection.
(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, and which precedes the
taxable year by no more than five years. Such term does
not include any amount contributed by the employer for
any annuity contract to which this subsection applies.
Such term includes--
(A) any elective deferral (as defined in
section 402(g)(3)), and
(B) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the
gross income of the employee by reason of
section 125, 132(f)(4), or 457.
(4) Years of service.--In determining the number of
years of service for purposes of this subsection, there
shall be included--
(A) one year for each full year during which
the individual was a full-time employee of the
organization purchasing the annuity for him,
and
(B) a fraction of a year (determined in
accordance with regulations prescribed by the
Secretary) for each full year during which such
individual was a part-time employee of such
organization and for each part of a year during
which such individual was a full-time or part-
time employee of such organization.
In no case shall the number of years of service be less
than one.
(5) Application to more than one annuity contract.--
If for any taxable year of the employee this subsection
applies to 2 or more annuity contracts purchased by the
employer, such contracts shall be treated as one
contract.
(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 the
amounts are to be invested in regulated
investment company stock to be held in that
custodial account, and under the custodial
account--
(i) no such amounts may be paid or
made available to any distributee
(unless such amount is a distribution
to which section 72(t)(2)(G) applies)
before--
(I) the employee dies,
(II) the employee attains age
591/2,
(III) the employee has a
severance from employment,
(IV) the employee becomes
disabled (within the meaning of
section 72(m)(7)),
(V) in the case of
contributions made pursuant to
a salary reduction agreement
(within the meaning of section
3121(a)(5)(D)), the employee
encounters financial hardship,
or
(VI) except as may be
otherwise provided by
regulations, with respect to
amounts invested in a lifetime
income investment (as defined
in section 401(a)(38)(B)(ii)),
the date that is 90 days prior
to the date that such lifetime
income investment may no longer
be held as an investment option
under the contract, and
(ii) in the case of amounts described
in clause (i)(VI), such amounts will be
distributed only in the form of a
qualified distribution (as defined in
section 401(a)(38)(B)(i)) or a
qualified plan distribution annuity
contract (as defined in section
401(a)(38)(B)(iv)).
(B) Account treated as plan.--For purposes of
this title, a custodial account which satisfies
the requirements of section 401(f)(2) shall be
treated as an organization described in section
401(a) solely for purposes of subchapter F and
subtitle F with respect to amounts received by
it (and income from investment thereof).
(C) Regulated investment company.--For
purposes of this paragraph, the term
``regulated investment company'' means a
domestic corporation which is a regulated
investment company within the meaning of
section 851(a).
(8) Rollover amounts.--
(A) General rule.--If--
(i) any portion of the balance to the
credit of an employee in an annuity
contract described in paragraph (1) is
paid to him in an eligible rollover
distribution (within the meaning of
section 402(c)(4)),
(ii) the employee transfers any
portion of the property he 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
property 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), (9), and (11) 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.
(9) Retirement income accounts provided by churches,
etc..--
(A) Amounts paid treated as contributions.--
For purposes of this title--
(i) a retirement income account shall
be treated as an annuity contract
described in this subsection, and
(ii) amounts paid by an employer
described in paragraph (1)(A) to a
retirement income account shall be
treated as amounts contributed by the
employer for an annuity contract for
the employee on whose behalf such
account is maintained.
(B) Retirement income account.--For purposes
of this paragraph, the term ``retirement income
account'' means a defined contribution program
established or maintained by a church, or a
convention or association of churches,
including an organization described in section
414(e)(3)(A), to provide benefits under section
403(b) for an employee described in paragraph
(1) (including an employee described in section
414(e)(3)(B)) or his beneficiaries.
(10) Distribution requirements.--Under regulations
prescribed by the Secretary, this subsection shall not
apply to any annuity contract (or to any custodial
account described in paragraph (7) or retirement income
account described in paragraph (9)) unless requirements
similar to the requirements of sections 401(a)(9) and
401(a)(31) are met (and requirements similar to the
incidental death benefit requirements of section 401(a)
are met) with respect to such annuity contract (or
custodial account or retirement income account). 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 the transfer.
(11) Requirement that distributions not begin before
age 591/2, 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 591/2, has
a severance from employment, dies, or becomes
disabled (within the meaning of section
72(m)(7)),
(B) in the case of hardship,
(C) for distributions to which section
72(t)(2)(G) applies, or
(D) except as may be otherwise provided by
regulations, with respect to amounts invested
in a lifetime income investment (as defined in
section 401(a)(38)(B)(ii))--
(i) on or after the date that is 90
days prior to the date that such
lifetime income investment may no
longer be held as an investment option
under the contract, and
(ii) in the form of a qualified
distribution (as defined in section
401(a)(38)(B)(i)) or a qualified plan
distribution annuity contract (as
defined in section 401(a)(38)(B)(iv)).
Such contract may not provide for the distribution of
any income attributable to such contributions in the
case of hardship.
(12) Nondiscrimination requirements.--
(A) In general.--For purposes of paragraph
(1)(D), a plan meets the nondiscrimination
requirements of this paragraph if--
(i) with respect to contributions not
made pursuant to a salary reduction
agreement, such plan meets the
requirements of paragraphs (4), (5),
(17), and (26) of section 401(a),
section 401(m), and section 410(b) in
the same manner as if such plan were
described in section 401(a), and
(ii) all employees of the
organization may elect to have the
employer make contributions of more
than $200 pursuant to a salary
reduction agreement if any employee of
the organization may elect to have the
organization make contributions for
such contracts pursuant to such
agreement.
For purposes of clause (i), a contribution
shall be treated as not made pursuant to a
salary reduction agreement if under the
agreement it is made pursuant to a 1-time
irrevocable election made by the employee at
the time of initial eligibility to participate
in the agreement or is made pursuant to a
similar arrangement involving a one-time
irrevocable election specified in regulations.
For purposes of clause (ii), there may be
excluded any employee who is a participant in
an eligible deferred compensation plan (within
the meaning of section 457) or a qualified cash
or deferred arrangement of the organization or
another annuity contract described in this
subsection. Any nonresident alien described in
section 410(b)(3)(C) may also be excluded.
Subject to the conditions applicable under
section 410(b)(4), there may be excluded for
purposes of this subparagraph employees who are
students performing services described in
section 3121(b)(10) and employees who normally
work less than 20 hours per week. A plan shall
not fail to satisfy clause (ii) solely by
reason of offering a de minimis financial
incentive to employees to elect to have the
employer make contributions pursuant to a
salary reduction agreement.
(B) Church.--For purposes of paragraph
(1)(D), the term ``church'' has the meaning
given to such term by section 3121(w)(3)(A).
Such term shall include any qualified church-
controlled organization (as defined in section
3121(w)(3)(B)).
(C) State and local governmental plans.--For
purposes of paragraph (1)(D), the requirements
of subparagraph (A)(i) (other than those
relating to section 401(a)(17)) 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).
(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.
(14) Death benefits under USERRA-qualified active
military service.--This subsection shall not apply to
an annuity contract unless such contract meets the
requirements of section 401(a)(37).
(15) Multiple employer plans.--
(A) In general.--Except in the case of a
church plan, this subsection shall not be
treated as failing to apply to an annuity
contract solely by reason of such contract
being purchased under a plan maintained by more
than 1 employer.
(B) Treatment of employers failing to meet
requirements of plan.--
(i) In general.--In the case of a
plan maintained by more than 1
employer, this subsection shall not be
treated as failing to apply to an
annuity contract held under such plan
merely because of one or more employers
failing to meet the requirements of
this subsection if such plan satisfies
rules similar to the rules of section
413(e)(2) with respect to any such
employer failure.
(ii) Additional requirements in case
of non-governmental plans.--A plan
shall not be treated as meeting the
requirements of this subparagraph
unless the plan meets the requirements
of subparagraph (A) or (B) of section
413(e)(1), except in the case of a
multiple employer plan maintained
solely by any of the following: A
State, a political subdivision of a
State, or an agency or instrumentality
of any one or more of the foregoing.
(c) Taxability of beneficiary under nonqualified annuities or
under annuities purchased by exempt organizations.--Premiums
paid by an employer for an annuity contract which is not
subject to subsection (a) shall be included in the gross income
of the employee in accordance with section 83 (relating to
property transferred in connection with performance of
services), except that the value of such contract shall be
substituted for the fair market value of the property for
purposes of applying such section. The preceding sentence shall
not apply to that portion of the premiums paid which is
excluded from gross income under subsection (b). In the case of
any portion of any contract which is attributable to premiums
to which this subsection applies, the amount actually paid or
made available under such contract to any beneficiary which is
attributable to such premiums shall be taxable to the
beneficiary (in the year in which so paid or made available)
under section 72 (relating to annuities).
* * * * * * *
Subpart B--SPECIAL RULES
* * * * * * *
SEC. 410. MINIMUM PARTICIPATION STANDARDS.
(a) Participation.--
(1) Minimum age and service conditions.--
(A) General rule.--A trust shall not
constitute a qualified trust under section
401(a) if the plan of which it is a part
requires, as a condition of participation in
the plan, that an employee complete a period of
service with the employer or employers
maintaining the plan extending beyond the later
of the following dates--
(i) the date on which the employee
attains the age of 21; or
(ii) the date on which he completes 1
year of service.
(B) Special rules for certain plans.--(i) In
the case of any plan which provides that after
not more than 2 years of service each
participant has a right to 100 percent of his
accrued benefit under the plan which is
nonforfeitable (within the meaning of section
411) at the time such benefit accrues, clause
(ii) of subparagraph (A) shall be applied by
substituting ``2 years of service'' for ``1
year of service''.
(ii) In the case of any plan maintained
exclusively for employees of an educational
institution (as defined in section
170(b)(1)(A)(ii)) by an employer which is
exempt from tax under section 501(a) which
provides that each participant having at least
1 year of service has a right to 100 percent of
his accrued benefit under the plan which is
nonforfeitable (within the meaning of section
411) at the time such benefit accrues, clause
(i) of subparagraph (A) shall be applied by
substituting ``26'' for ``21''. This clause
shall not apply to any plan to which clause (i)
applies.
(2) Maximum age conditions.--A trust shall not
constitute a qualified trust under section 401(a) if
the plan of which it is a part excludes from
participation (on the basis of age) employees who have
attained a specified age.
(3) Definition of year of service.--
(A) General rule.--For purposes of this
subsection, the term ``year of service'' means
a 12-month period during which the employee has
not less than 1,000 hours of service. For
purposes of this paragraph, computation of any
12-month period shall be made with reference to
the date on which the employee's employment
commenced, except that, under regulations
prescribed by the Secretary of Labor, such
computation may be made by reference to the
first day of a plan year in the case of an
employee who does not complete 1,000 hours of
service during the 12-month period beginning on
the date his employment commenced.
(B) Seasonal industries.--In the case of any
seasonal industry where the customary period of
employment is less than 1,000 hours during a
calendar year, the term ``year of service''
shall be such period as may be determined under
regulations prescribed by the Secretary of
Labor.
(C) Hours of service.--For purposes of this
subsection, the term ``hour of service'' means
a time of service determined under regulations
prescribed by the Secretary of Labor.
(D) Maritime industries.--For purposes of
this subsection, in the case of any maritime
industry, 125 days of service shall be treated
as 1,000 hours of service. The Secretary of
Labor may prescribe regulations to carry out
this subparagraph.
(4) Time of participation.--A plan shall be treated
as not meeting the requirements of paragraph (1) unless
it provides that any employee who has satisfied the
minimum age and service requirements specified in such
paragraph, and who is otherwise entitled to participate
in the plan, commences participation in the plan no
later than the earlier of--
(A) the first day of the first plan year
beginning after the date on which such employee
satisfied such requirements, or
(B) the date 6 months after the date on which
he satisfied such requirements,
unless such employee was separated from the service
before the date referred to in subparagraph (A) or (B),
whichever is applicable.
(5) Breaks in service.--
(A) General rule.--Except as otherwise
provided in subparagraphs (B), (C), and (D),
all years of service with the employer or
employers maintaining the plan shall be taken
into account in computing the period of service
for purposes of paragraph (1).
(B) Employees under 2-year 100 percent
vesting.--In the case of any employee who has
any 1-year break in service (as defined in
section 411(a)(6)(A)) under a plan to which the
service requirements of clause (i) of paragraph
(1)(B) apply, if such employee has not
satisfied such requirements, service before
such break shall not be required to be taken
into account.
(C) 1-year break in service.--In computing an
employee's period of service for purposes of
paragraph (1) in the case of any participant
who has any 1-year break in service (as defined
in section 411(a)(6)(A)), service before such
break shall not be required to be taken into
account under the plan until he has completed a
year of service (as defined in paragraph (3))
after his return.
(D) Nonvested participants.--
(i) In general.--For purposes of
paragraph (1), in the case of a
nonvested participant, years of service
with the employer or employers
maintaining the plan before any period
of consecutive 1-year breaks in service
shall not be required to be taken into
account in computing the period of
service if the number of consecutive 1-
year breaks in service within such
period equals or exceeds the greater
of--
(I) 5, or
(II) the aggregate number of
years of service before such
period.
(ii) Years of service not taken into
account.--If any years of service are
not required to be taken into account
by reason of a period of breaks in
service to which clause (i) applies,
such years of service shall not be
taken into account in applying clause
(i) to a subsequent period of breaks in
service.
(iii) Nonvested participant
defined.--For purposes of clause (i),
the term ``nonvested participant''
means a participant who does not have
any nonforfeitable right under the plan
to an accrued benefit derived from
employer contributions.
(E) Special rule for maternity or paternity
absences.--
(i) General rule.--In the case of
each individual who is absent from work
for any period--
(I) by reason of the
pregnancy of the individual,
(II) by reason of the birth
of a child of the individual,
(III) by reason of the
placement of a child with the
individual in connection with
the adoption of such child by
such individual, or
(IV) for purposes of caring
for such child for a period
beginning immediately following
such birth or placement,
the plan shall treat as hours of service,
solely for purposes of determining under this
paragraph whether a 1-year break in service (as
defined in section 411(a)(6)(A)) has occurred,
the hours described in clause (ii).
(ii) Hours treated as hours of
service.--The hours described in this
clause are--
(I) the hours of service
which otherwise would normally
have been credited to such
individual but for such
absence, or
(II) in any case in which the
plan is unable to determine the
hours described in subclause
(I), 8 hours of service per day
of such absence,
except that the total number of hours treated
as hours of service under this clause by reason
of any such pregnancy or placement shall not
exceed 501 hours.
(iii) Year to which hours are
credited.--The hours described in
clause (ii) shall be treated as hours
of service as provided in this
subparagraph--
(I) only in the year in which
the absence from work begins,
if a participant would be
prevented from incurring a 1-
year break in service in such
year solely because the period
of absence is treated as hours
of service as provided in
clause (i); or
(II) in any other case, in
the immediately following year.
(iv) Year defined.--For purposes of
this subparagraph, the term ``year''
means the period used in computations
pursuant to paragraph (3).
(v) Information required to be
filed.--A plan shall not fail to
satisfy the requirements of this
subparagraph solely because it provides
that no credit will be given pursuant
to this subparagraph unless the
individual furnishes to the plan
administrator such timely information
as the plan may reasonably require to
establish--
(I) that the absence from
work is for reasons referred to
in clause (i), and
(II) the number of days for
which there was such an
absence.
(6) Special rule for certain part-time employees.--
(A) In general.--In the case of a plan that
includes either a qualified cash or deferred
arrangement (as defined in section 401(k)), a
trust of which such plan is a part shall not
constitute a qualified trust under section
401(a) if the plan requires, as a condition of
participation in the plan or arrangement, that
an employee complete a period of service with
the employer (or employers) maintaining the
plan extending beyond the close of the earlier
of--
(i) the period permitted under
paragraph (1) (determined without
regard to subparagraph (B)(i) thereof),
or
(ii) the first 24-month period--
(I) consisting of 2
consecutive 12-month periods
during each of which the
employee has at least 500 hours
of service, and
(II) by the close of which
the employee has attained the
age of 21.
(B) Exception.--Subparagraph (A)(ii) shall
not apply to any employee described in section
410(b)(3).
(C) Coordination with other rules.--
(i) In general.--In the case of
employees who are eligible to
participate in the arrangement or
agreement solely by reason of
subparagraph (A)(ii)--
(I) Exclusions.--An employer
may elect to exclude such
employees from the application
of subsection (b) and of
subsections (a)(4), (k)(3),
(k)(12), (k)(13),
(k)(15)(B)(i)(I), and (m)(2) of
section 401.
(II) Time of participation.--
The rules of paragraph (4)
shall apply to such employees.
(ii) Top-heavy rules.--An employer
may elect to exclude all employees who
are eligible to participate in a plan
maintained by the employer solely by
reason of subparagraph (A)(ii) from the
application of the vesting and benefit
requirements under subsections (b) and
(c) of section 416.
(D) 12-month period.--For purposes of this
paragraph, 12-month periods shall be determined
in the same manner as under the last sentence
of paragraph (3)(A), except that 12-month
periods beginning before January 1, 2021, shall
not be taken into account.
(7) Part-time employees.--For purposes of determining
whether an employee who is eligible to participate in a
qualified cash or deferred arrangement or a salary
reduction agreement under a plan solely by reason of
paragraph (6)(A)(ii) has a nonforfeitable right to
employer contributions--
(A) except as provided in subparagraph (B),
each 12-month period for which the employee has
at least 500 hours of service shall be treated
as a year of service,
(B) section 411(a)(6) shall be applied by
substituting ``at least 500 hours of service''
for ``more than 500 hours of service'' in
subparagraph (A) thereof, and
(C) 12-month periods occurring before the 24-
month period described in paragraph (6)(A)(ii)
shall not be treated as years of service.
For purposes of this paragraph, 12-month periods shall
be determined in the same manner as under paragraph
(6)(D).
(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) The plan benefits at least 70 percent of
employees who are not highly compensated
employees.
(B) The plan benefits--
(i) a percentage of employees who are
not highly compensated employees which
is at least 70 percent of
(ii) the percentage of highly
compensated employees benefiting under
the plan.
(C) The plan meets the requirements of
paragraph (2).
(2) Average benefit percentage test.--
(A) In general.--A plan shall be treated as
meeting the requirements of this paragraph if--
(i) the plan benefits such employees
as qualify under a classification set
up by the employer and found by the
Secretary not to be discriminatory in
favor of highly compensated employees,
and
(ii) the average benefit percentage
for employees who are not highly
compensated employees is at least 70
percent of the average benefit
percentage for highly compensated
employees.
(B) Average benefit percentage.--For purposes
of this paragraph, the term ``average benefit
percentage'' means, with respect to any group,
the average of the benefit percentages
calculated separately with respect to each
employee in such group (whether or not a
participant in any plan).
(C) Benefit percentage.--For purposes of this
paragraph--
(i) In general.--The term ``benefit
percentage'' means the employer-
provided contribution or benefit of an
employee under all qualified plans
maintained by the employer, expressed
as a percentage of such employee's
compensation (within the meaning of
section 414(s)).
(ii) Period for computing
percentage.--At the election of an
employer, the benefit percentage for
any plan year shall be computed on the
basis of contributions or benefits
for--
(I) such plan year, or
(II) any consecutive plan
year period (not greater than 3
years) which ends with such
plan year and which is
specified in such election.
An election under this clause, once made, may
be revoked or modified only with the consent of
the Secretary.
(D) Employees taken into account.--For
purposes of determining who is an employee for
purposes of determining the average benefit
percentage under subparagraph (B)--
(i) except as provided in clause
(ii), paragraph (4)(A) shall not apply,
or
(ii) if the employer elects,
paragraph (4)(A) shall be applied by
using the lowest age and service
requirements of all qualified plans
maintained by the employer.
(E) Qualified plan.--For purposes of this
paragraph, the term ``qualified plan'' means
any plan which (without regard to this
subsection) meets the requirements of section
401(a).
(3) Exclusion of certain employees.--For purposes of
this subsection, there shall be excluded from
consideration--
(A) employees who are included in a unit of
employees covered by an agreement which the
Secretary of Labor finds to be a collective
bargaining agreement between employee
representatives and one or more employers, if
there is evidence that retirement benefits were
the subject of good faith bargaining between
such employee representatives and such employer
or employers,
(B) in the case of a trust established or
maintained pursuant to an agreement which the
Secretary of Labor finds to be a collective
bargaining agreement between air pilots
represented in accordance with title II of the
Railway Labor Act and one or more employers,
all employees not covered by such agreement,
and
(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)).
Subparagraph (A) shall not apply with respect to
coverage of employees under a plan pursuant to an
agreement under such subparagraph. For purposes of
subparagraph (B), management pilots who are not
represented in accordance with title II of the Railway
Labor Act shall be treated as covered by a collective
bargaining agreement described in such subparagraph if
the management pilots manage the flight operations of
air pilots who are so represented and the management
pilots are, pursuant to the terms of the agreement,
included in the group of employees benefitting under
the trust described in such subparagraph. Subparagraph
(B) shall not apply in the case of a plan which
provides contributions or benefits for employees whose
principal duties are not customarily performed aboard
an aircraft in flight (other than management pilots
described in the preceding sentence).
(4) Exclusion of employees not meeting age and
service requirements.--
(A) In general.--If a plan--
(i) prescribes minimum age and
service requirements as a condition of
participation, and
(ii) excludes all employees not
meeting such requirements from
participation,
then such employees shall be excluded from
consideration for purposes of this subsection.
(B) Requirements may be met separately with
respect to excluded group.--If employees not
meeting the minimum age or service requirements
of subsection (a)(1) (without regard to
subparagraph (B) thereof) are covered under a
plan of the employer which meets the
requirements of paragraph (1) separately with
respect to such employees, such employees may
be excluded from consideration in determining
whether any plan of the employer meets the
requirements of paragraph (1).
(C) Requirements not treated as being met
before entry date.--An employee shall not be
treated as meeting the age and service
requirements described in this paragraph until
the first date on which, under the plan, any
employee with the same age and service would be
eligible to commence participation in the plan.
(5) Line of business exception.--
(A) In general.--If, under section 414(r), an
employer is treated as operating separate lines
of business for a year, the employer may apply
the requirements of this subsection for such
year separately with respect to employees in
each separate line of business.
(B) Plan must be nondiscriminatory.--
Subparagraph (A) shall not apply with respect
to any plan maintained by an employer unless
such plan benefits such employees as qualify
under a classification set up by the employer
and found by the Secretary not to be
discriminatory in favor of highly compensated
employees.
(6) Definitions and special rules.--For purposes of
this subsection--
(A) Highly compensated employee.--The term
``highly compensated employee'' has the meaning
given such term by section 414(q).
(B) Aggregation rules.--An employer may elect
to designate--
(i) 2 or more trusts,
(ii) 1 or more trusts and 1 or more
annuity plans, or
(iii) 2 or more annuity plans,
as part of 1 plan intended to qualify under
section 401(a) to determine whether the
requirements of this subsection are met with
respect to such trusts or annuity plans. If an
employer elects to treat any trusts or annuity
plans as 1 plan under this subparagraph, such
trusts or annuity plans shall be treated as 1
plan for purposes of section 401(a)(4).
(C) Special rules for certain dispositions or
acquisitions.--
(i) In general.--If a person becomes,
or ceases to be, a member of a group
described in subsection (b), (c), (m),
or (o) of section 414, then the
requirements of this subsection shall
be treated as having been met during
the transition period with respect to
any plan covering employees of such
person or any other member of such
group if--
(I) such requirements were
met immediately before each
such change, and
(II) the coverage under such
plan is not significantly
changed during the transition
period (other than by reason of
the change in members of a
group) or such plan meets such
other requirements as the
Secretary may prescribe by
regulation.
(ii) Transition period.--For purposes
of clause (i), the term ``transition
period'' means the period--
(I) beginning on the date of
the change in members of a
group, and
(II) ending on the last day
of the 1st plan year beginning
after the date of such change.
(D) Special rule for certain employee stock
ownership plans.--A trust which is part of a
tax credit employee stock ownership plan which
is the only plan of an employer intended to
qualify under section 401(a) shall not be
treated as not a qualified trust under section
401(a) solely because it fails to meet the
requirements of this subsection if--
(i) such plan benefits 50 percent or
more of all the employees who are
eligible under a nondiscriminatory
classification under the plan, and
(ii) the sum of the amounts allocated
to each participant's account for the
year does not exceed 2 percent of the
compensation of that participant for
the year.
(E) Eligibility to contribute.--In the case
of contributions which are subject to section
401(k) or 401(m), employees who are eligible to
contribute (or elect to have contributions made
on their behalf) shall be treated as benefiting
under the plan (other than for purposes of
paragraph (2)(A)(ii)).
(F) Employers with only highly compensated
employees.--A plan maintained by an employer
which has no employees other than highly
compensated employees for any year shall be
treated as meeting the requirements of this
subsection for such year.
(G) Regulations.--The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purposes of
this subsection.
(c) Application of participation standards to certain
plans.--
(1) The provisions of this section (other than
paragraph (2) of this subsection) shall not apply to--
(A) a governmental plan (within the meaning
of section 414(d)),
(B) a church plan (within the meaning of
section 414(e)) with respect to which the
election provided by subsection (d) of this
section has not been made,
(C) a plan which has not at any time after
September 2, 1974, provided for employer
contributions, and
(D) a plan established and maintained by a
society, order, or association described in
section 501(c)(8) or (9) if no part of the
contributions to or under such plan are made by
employers of participants in such plan.
(2) A plan described in paragraph (1) shall be
treated as meeting the requirements of this section for
purposes of section 401(a), except that in the case of
a plan described in subparagraph (B), (C), or (D) of
paragraph (1), this paragraph shall apply only if such
plan meets the requirements of section 401(a)(3) (as in
effect on September 1, 1974).
(d) Election by church to have participation, vesting,
funding, etc., provisions apply.--
(1) In general.--If the church or convention or
association of churches which maintains any church plan
makes an election under this subsection (in such form
and manner as the Secretary may by regulations
prescribe), then the provisions of this title relating
to participation, vesting, funding, etc. (as in effect
from time to time) shall apply to such church plan as
if such provisions did not contain an exclusion for
church plans.
(2) Election irrevocable.--An election under this
subsection with respect to any church plan shall be
binding with respect to such plan, and, once made,
shall be irrevocable.
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) Employee contributions.--A plan satisfies the
requirements of this paragraph if an employee's rights
in his accrued benefit derived from his own
contributions are nonforfeitable.
(2) Employer contributions.--
(A) Defined benefit plans.--
(i) In general.--In the case of a
defined benefit plan, a plan satisfies
the requirements of this paragraph if
it satisfies the requirements of clause
(ii) or (iii).
(ii) 5-year vesting.--A plan
satisfies the requirements of this
clause if an employee who has completed
at least 5 years of service has a
nonforfeitable right to 100 percent of
the employee's accrued benefit derived
from employer contributions.
(iii) 3 to 7 year vesting.--A plan
satisfies the requirements of this
clause if an employee has a
nonforfeitable right to a percentage of
the employee's accrued benefit derived
from employer contributions determined
under the following table: [Omitted
table]
(B) Defined contribution plans.--
(i) In general.--In the case of a
defined contribution plan, a plan
satisfies the requirements of this
paragraph if it satisfies the
requirements of clause (ii) or (iii).
(ii) 3-year vesting.--A plan
satisfies the requirements of this
clause if an employee who has completed
at least 3 years of service has a
nonforfeitable right to 100 percent of
the employee's accrued benefit derived
from employer contributions.
(iii) 2 to 6 year vesting.--A plan
satisfies the requirements of this
clause if an employee has a
nonforfeitable right to a percentage of
the employee's accrued benefit derived
from employer contributions determined
under the following table: [Omitted
table]
(3) Certain permitted forfeitures, suspensions,
etc..--For purposes of this subsection--
(A) Forfeiture on account of death.--A right
to an accrued benefit derived from employer
contributions shall not be treated as
forfeitable solely because the plan provides
that it is not payable if the participant dies
(except in the case of a survivor annuity which
is payable as provided in section 401(a)(11)).
(B) Suspension of benefits upon reemployment
of retiree.--A right to an accrued benefit
derived from employer contributions shall not
be treated as forfeitable solely because the
plan provides that the payment of benefits is
suspended for such period as the employee is
employed, subsequent to the commencement of
payment of such benefits--
(i) in the case of a plan other than
a multi-employer plan, by the employer
who maintains the plan under which such
benefits were being paid; and
(ii) in the case of a multiemployer
plan, in the same industry, the same
trade or craft, and the same geographic
area covered by the plan as when such
benefits commenced.
The Secretary of Labor shall prescribe such
regulations as may be necessary to carry out
the purposes of this subparagraph, including
regulations with respect to the meaning of the
term ``employed''.
(C) Effect of retroactive plan amendments.--A
right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because plan amendments may
be given retroactive application as provided in
section 412(d)(2).
(D) Withdrawal of mandatory contribution.--
(i) A right to an accrued benefit
derived from employer contributions
shall not be treated as forfeitable
solely because the plan provides that,
in the case of a participant who does
not have a nonforfeitable right to at
least 50 percent of his accrued benefit
derived from employer contributions,
such accrued benefit may be forfeited
on account of the withdrawal by the
participant of any amount attributable
to the benefit derived from mandatory
contributions (as defined in subsection
(c)(2)(C)) made by such participant.
(ii) Clause (i) shall not apply to a
plan unless the plan provides that any
accrued benefit forfeited under a plan
provision described in such clause
shall be restored upon repayment by the
participant of the full amount of the
withdrawal described in such clause
plus, in the case of a defined benefit
plan, interest. Such interest shall be
computed on such amount at the rate
determined for purposes of subsection
(c)(2)(C) on the date of such repayment
(computed annually from the date of
such withdrawal). The plan provision
required under this clause may provide
that such repayment must be made (I) in
the case of a withdrawal on account of
separation from service, before the
earlier of 5 years after the first date
on which the participant is
subsequently re-employed by the
employer, or the close of the first
period of 5 consecutive 1-year breaks
in service commencing after the
withdrawal; or (II) in the case of any
other withdrawal, 5 years after the
date of the withdrawal.
(iii) In the case of accrued benefits
derived from employer contributions
which accrued before September 2, 1974,
a right to such accrued benefit derived
from employer contributions shall not
be treated as forfeitable solely
because the plan provides that an
amount of such accrued benefit may be
forfeited on account of the withdrawal
by the participant of an amount
attributable to the benefit derived
from mandatory contributions (as
defined in subsection (c)(2)(C)) made
by such participant before September 2,
1974 if such amount forfeited is
proportional to such amount withdrawn.
This clause shall not apply to any plan
to which any mandatory contribution is
made after September 2, 1974. The
Secretary shall prescribe such
regulations as may be necessary to
carry out the purposes of this clause.
(iv) For purposes of this
subparagraph, in the case of any class-
year plan, a withdrawal of employee
contributions shall be treated as a
withdrawal of such contributions on a
plan year by plan year basis in
succeeding order of time.
(v) For nonforfeitability where the
employee has a nonforfeitable right to
at least 50 percent of his accrued
benefit, see section 401(a)(19).
(E) Cessation of contributions under a
multiemployer plan.--A right to an accrued
benefit derived from employer contributions
under a multiemployer plan shall not be treated
as forfeitable solely because the plan provides
that benefits accrued as a result of service
with the participant's employer before the
employer had an obligation to contribute under
the plan may not be payable if the employer
ceases contributions to the multiemployer plan.
(F) Reduction and suspension of benefits by a
multiemployer plan.--A participant's right to
an accrued benefit derived from employer
contributions under a multiemployer plan shall
not be treated as forfeitable solely because--
(i) the plan is amended to reduce
benefits under section 4281 of the
Employee Retirement Income Security Act
of 1974, or
(ii) benefit payments under the plan
may be suspended under section 418E or
under section 4281 of the Employee
Retirement Income Security Act of 1974.
(G) Treatment of matching contributions
forfeited by reason of excess deferral or
contribution or permissible withdrawal.--A
matching contribution (within the meaning of
section 401(m)) shall not be treated as
forfeitable merely because such contribution is
forfeitable if the contribution to which the
matching contribution relates is treated as an
excess contribution under section 401(k)(8)(B),
an excess deferral under section 402(g)(2)(A),
a permissible withdrawal under section 414(w),
or an excess aggregate contribution under
section 401(m)(6)(B).
(4) Service included in determination of
nonforfeitable percentage.--In computing the period of
service under the plan for purposes of determining the
nonforfeitable percentage under paragraph (2), all of
an employee's years of service with the employer or
employers maintaining the plan shall be taken into
account, except that the following may be disregarded:
(A) years of service before age 18;
(B) years of service during a period for
which the employee declined to contribute to a
plan requiring employee contributions;
(C) years of service with an employer during
any period for which the employer did not
maintain the plan or a predecessor plan (as
defined under regulations prescribed by the
Secretary);
(D) service not required to be taken into
account under paragraph (6);
(E) years of service before January 1, 1971,
unless the employee has had at least 3 years of
service after December 31, 1970;
(F) years of service before the first plan
year to which this section applies, if such
service would have been disregarded under the
rules of the plan with regard to breaks in
service as in effect on the applicable date;
and
(G) in the case of a multiemployer plan,
years of service--
(i) with an employer after--
(I) a complete withdrawal of
that employer from the plan
(within the meaning of section
4203 of the Employee Retirement
Income Security Act of 1974),
or
(II) to the extent permitted
in regulations prescribed by
the Secretary, a partial
withdrawal described in section
4205(b)(2)(A)(i) of such Act in
conjunction with the
decertification of the
collective bargaining
representative, and
(ii) with any employer under the plan
after the termination date of the plan
under section 4048 of such Act.
(5) Year of service.--
(A) General rule.--For purposes of this
subsection, except as provided in subparagraph
(C), the term ``year of service'' means a
calendar year, plan year, or other 12-
consecutive month period designated by the plan
(and not prohibited under regulations
prescribed by the Secretary of Labor) during
which the participant has completed 1,000 hours
of service.
(B) Hours of service.--For purposes of this
subsection, the term ``hours of service'' has
the meaning provided by section 410(a)(3)(C).
(C) Seasonal industries.--In the case of any
seasonal industry where the customary period of
employment is less than 1,000 hours during a
calendar year, the term ``year of service''
shall be such period as may be determined under
regulations prescribed by the Secretary of
Labor.
(D) Maritime industries.--For purposes of
this subsection, in the case of any maritime
industry, 125 days of service shall be treated
as 1,000 hours of service. The Secretary of
Labor may prescribe regulations to carry out
the purposes of this subparagraph.
(6) Breaks in service.--
(A) Definition of 1-year break in service.--
For purposes of this paragraph, the term ``1-
year break in service'' means a calendar year,
plan year, or other 12-consecutive-month period
designated by the plan (and not prohibited
under regulations prescribed by the Secretary
of Labor) during which the participant has not
completed more than 500 hours of service.
(B) 1 year of service after 1-year break in
service.--For purposes of paragraph (4), in the
case of any employee who has any 1-year break
in service, years of service before such break
shall not be required to be taken into account
until he has completed a year of service after
his return.
(C) 5 consecutive 1-year breaks in service
under defined contribution plan.--For purposes
of paragraph (4), in the case of any
participant in a defined contribution plan, or
an insured defined benefit plan which satisfies
the requirements of subsection (b)(1)(F), who
has 5 consecutive 1-year breaks in service,
years of service after such 5-year period shall
not be required to be taken into account for
purposes of determining the nonforfeitable
percentage of his accrued benefit derived from
employer contributions which accrued before
such 5-year period.
(D) Nonvested participants.--
(i) In general.--For purposes of
paragraph (4), in the case of a
nonvested participant, years of service
with the employer or employers
maintaining the plan before any period
of consecutive 1-year breaks in service
shall not be required to be taken into
account if the number of consecutive 1-
year breaks in service within such
period equals or exceeds the greater
of--
(I) 5, or
(II) the aggregate number of
years of service before such
period.
(ii) Years of service not taken into
account.--If any years of service are
not required to be taken into account
by reason of a period of breaks in
service to which clause (i) applies,
such years of service shall not be
taken into account in applying clause
(i) to a subsequent period of breaks in
service.
(iii) Nonvested participant
defined.--For purposes of clause (i),
the term ``nonvested participant''
means a participant who does not have
any nonforfeitable right under the plan
to an accrued benefit derived from
employer contributions.
(E) Special rule for maternity or paternity
absences.--
(i) General rule.--In the case of
each individual who is absent from work
for any period--
(I) by reason of the
pregnancy of the individual,
(II) by reason of the birth
of a child of the individual,
(III) by reason of the
placement of a child with the
individual in connection with
the adoption of such child by
such individual, or
(IV) for purposes of caring
for such child for a period
beginning immediately following
such birth or placement,
the plan shall treat as hours of service,
solely for purposes of determining under this
paragraph whether a 1-year break in service has
occurred, the hours described in clause (ii).
(ii) Hours treated as hours of
service.--The hours described in this
clause are--
(I) the hours of service
which otherwise would normally
have been credited to such
individual but for such
absence, or
(II) in any case in which the
plan is unable to determine the
hours described in subclause
(I), 8 hours of service per day
of absence,
except that the total number of hours treated
as hours of service under this clause by reason
of any such pregnancy or placement shall not
exceed 501 hours.
(iii) Year to which hours are
credited.--The hours described in
clause (ii) shall be treated as hours
of service as provided in this
subparagraph--
(I) only in the year in which
the absence from work begins,
if a participant would be
prevented from incurring a 1-
year break in service in such
year solely because the period
of absence is treated as hours
of service as provided in
clause (i); or
(II) in any other case, in
the immediately following year.
(iv) Year defined.--For purposes of
this subparagraph, the term ``year''
means the period used in computations
pursuant to paragraph (5).
(v) Information required to be
filed.--A plan shall not fail to
satisfy the requirements of this
subparagraph solely because it provides
that no credit will be given pursuant
to this subparagraph unless the
individual furnishes to the plan
administrator such timely information
as the plan may reasonably require to
establish--
(I) that the absence from
work is for reasons referred to
in clause (i), and
(II) the number of days for
which there was such an
absence.
(7) Accrued benefit.--
(A) In general.--For purposes of this
section, the term ``accrued benefit'' means--
(i) in the case of a defined benefit
plan, the employee's accrued benefit
determined under the plan and, except
as provided in subsection (c)(3),
expressed in the form of an annual
benefit commencing at normal retirement
age, or
(ii) in the case of a plan which is
not a defined benefit plan, the balance
of the employee's account.
(B) Effect of certain distributions.--
Notwithstanding paragraph (4), for purposes of
determining the employee's accrued benefit
under the plan, the plan may disregard service
performed by the employee with respect to which
he has received--
(i) a distribution of the present
value of his entire nonforfeitable
benefit if such distribution was in an
amount (not more than the dollar limit
under section 411(a)(11)(A)) permitted
under regulations prescribed by the
Secretary, or
(ii) a distribution of the present
value of his nonforfeitable benefit
attributable to such service which he
elected to receive.
Clause (i) of this subparagraph shall apply
only if such distribution was made on
termination of the employee's participation in
the plan. Clause (ii) of this subparagraph
shall apply only if such distribution was made
on termination of the employee's participation
in the plan or under such other circumstances
as may be provided under regulations prescribed
by the Secretary.
(C) Repayment of subparagraph (B)
distributions.--For purposes of determining the
employee's accrued benefit under a plan, the
plan may not disregard service as provided in
subparagraph (B) unless the plan provides an
opportunity for the participant to repay the
full amount of the distribution described in
such subparagraph (B) with, in the case of a
defined benefit plan, interest at the rate
determined for purposes of subsection (c)(2)(C)
and provides that upon such repayment the
employee's accrued benefit shall be recomputed
by taking into account service so disregarded.
This subparagraph shall apply only in the case
of a participant who--
(i) received such a distribution in
any plan year to which this section
applies, which distribution was less
than the present value of his accrued
benefit,
(ii) resumes employment covered under
the plan, and
(iii) repays the full amount of such
distribution with, in the case of a
defined benefit plan, interest at the
rate determined for purposes of
subsection (c)(2)(C).
The plan provision required under this
subparagraph may provide that such repayment
must be made (I) in the case of a withdrawal on
account of separation from service, before the
earlier of 5 years after the first date on
which the participant is subsequently re-
employed by the employer, or the close of the
first period of 5 consecutive 1-year breaks in
service commencing after the withdrawal; or
(II) in the case of any other withdrawal, 5
years after the date of the withdrawal.
(D) Accrued benefit attributable to employee
contributions.--The accrued benefit of an
employee shall not be less than the amount
determined under subsection (c)(2)(B) with
respect to the employee's accumulated
contributions.
(8) Normal retirement age.--For purposes of this
section, the term ``normal retirement age'' means the
earlier of--
(A) the time a plan participant attains
normal retirement age under the plan, or
(B) the later of--
(i) the time a plan participant
attains age 65, or
(ii) the 5th anniversary of the time
a plan participant commenced
participation in the plan.
(9) Normal retirement benefit.--For purposes of this
section, the term ``normal retirement benefit'' means
the greater of the early retirement benefit under the
plan, or the benefit under the plan commencing at
normal retirement age. The normal retirement benefit
shall be determined without regard to--
(A) medical benefits, and
(B) disability benefits not in excess of the
qualified disability benefit.
For purposes of this paragraph, a qualified disability
benefit is a disability benefit provided by a plan
which does not exceed the benefit which would be
provided for the participant if he separated from the
service at normal retirement age. For purposes of this
paragraph, the early retirement benefit under a plan
shall be determined without regard to any benefits
commencing before benefits payable under title II of
the Social Security Act become payable which--
(i) do not exceed such social security
benefits, and
(ii) terminate when such social security
benefits commence.
(10) Changes in vesting schedule.--
(A) General rule.--A plan amendment changing
any vesting schedule under the plan shall be
treated as not satisfying the requirements of
paragraph (2) if the nonforfeitable percentage
of the accrued benefit derived from employer
contributions (determined as of the later of
the date such amendment is adopted, or the date
such amendment becomes effective) of any
employee who is a participant in the plan is
less than such nonforfeitable percentage
computed under the plan without regard to such
amendment.
(B) Election of former schedule.--A plan
amendment changing any vesting schedule under
the plan shall be treated as not satisfying the
requirements of paragraph (2) unless each
participant having not less than 3 years of
service is permitted to elect, within a
reasonable period after the adoption of such
amendment, to have his nonforfeitable
percentage computed under the plan without
regard to such amendment.
(11) Restrictions on certain mandatory
distributions.--
(A) In general.--If the present value of any
nonforfeitable accrued benefit exceeds [$5,000]
$7,000, a plan meets the requirements of this
paragraph only if such plan provides that such
benefit may not be immediately distributed
without the consent of the participant.
(B) Determination of present value.--For
purposes of subparagraph (A), the present value
shall be calculated in accordance with section
417(e)(3).
(C) Dividend distributions of ESOPS
arrangement.--This paragraph shall not apply to
any distribution of dividends to which section
404(k) applies.
(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).
(13) Special rules for plans computing accrued
benefits by reference to hypothetical account balance
or equivalent amounts.--
(A) In general.--An applicable defined
benefit plan shall not be treated as failing to
meet--
(i) subject to subparagraph (B), the
requirements of subsection (a)(2), or
(ii) the requirements of subsection
(a)(11) or (c), or the requirements of
section 417(e), with respect to accrued
benefits derived from employer
contributions,
solely because the present value of the accrued
benefit (or any portion thereof) of any
participant is, under the terms of the plan,
equal to the amount expressed as the balance in
the hypothetical account described in
subparagraph (C) or as an accumulated
percentage of the participant's final average
compensation.
(B) 3-year vesting.--In the case of an
applicable defined benefit plan, such plan
shall be treated as meeting the requirements of
subsection (a)(2) only if an employee who has
completed at least 3 years of service has a
nonforfeitable right to 100 percent of the
employee's accrued benefit derived from
employer contributions.
(C) Applicable defined benefit plan and
related rules.--For purposes of this
subsection--
(i) In general.--The term
``applicable defined benefit plan''
means a defined benefit plan under
which the accrued benefit (or any
portion thereof) is calculated as the
balance of a hypothetical account
maintained for the participant or as an
accumulated percentage of the
participant's final average
compensation.
(ii) Regulations to include similar
plans.--The Secretary shall issue
regulations which include in the
definition of an applicable defined
benefit plan any defined benefit plan
(or any portion of such a plan) which
has an effect similar to an applicable
defined benefit plan.
(b) Accrued benefit requirements.--
(1) Defined benefit plans.--
(A) 3-percent method.--A defined benefit plan
satisfies the requirements of this paragraph if
the accrued benefit to which each participant
is entitled upon his separation from the
service is not less than--
(i) 3 percent of the normal
retirement benefit to which he would be
entitled if he commenced participation
at the earliest possible entry age
under the plan and served continuously
until the earlier of age 65 or the
normal retirement age specified under
the plan, multiplied by
(ii) the number of years (not in
excess of 331/3) of his participation
in the plan.
In the case of a plan providing retirement
benefits based on compensation during any
period, the normal retirement benefit to which
a participant would be entitled shall be
determined as if he continued to earn annually
the average rate of compensation which he
earned during consecutive years of service, not
in excess of 10, for which his compensation was
the highest. For purposes of this subparagraph,
social security benefits and all other relevant
factors used to compute benefits shall be
treated as remaining constant as of the current
year for all years after such current year.
(B) 1331/3 percent rule.--A defined benefit
plan satisfies the requirements of this
paragraph for a particular plan year if under
the plan the accrued benefit payable at the
normal retirement age is equal to the normal
retirement benefit and the annual rate at which
any individual who is or could be a participant
can accrue the retirement benefits payable at
normal retirement age under the plan for any
later plan year is not more than 1331/3 percent
of the annual rate at which he can accrue
benefits for any plan year beginning on or
after such particular plan year and before such
later plan year. For purposes of this
subparagraph--
(i) any amendment to the plan which
is in effect for the current year shall
be treated as in effect for all other
plan years;
(ii) any change in an accrual rate
which does not apply to any individual
who is or could be a participant in the
current year shall be disregarded;
(iii) the fact that benefits under
the plan may be payable to certain
employees before normal retirement age
shall be disregarded; and
(iv) social security benefits and all
other relevant factors used to compute
benefits shall be treated as remaining
constant as of the current year for all
years after the current year.
(C) Fractional rule.--A defined benefits plan
satisfies the requirements of this paragraph if
the accrued benefit to which any participant is
entitled upon his separation from the service
is not less than a fraction of the annual
benefit commencing at normal retirement age to
which he would be entitled under the plan as in
effect on the date of his separation if he
continued to earn annually until normal
retirement age the same rate of compensation
upon which his normal retirement benefit would
be computed under the plan, determined as if he
had attained normal retirement age on the date
on which any such determination is made (but
taking into account no more than the 10 years
of service immediately preceding his separation
from service). Such fraction shall be a
fraction, not exceeding 1, the numerator of
which is the total number of his years of
participation in the plan (as of the date of
his separation from the service) and the
denominator of which is the total number of
years he would have participated in the plan if
he separated from the service at the normal
retirement age. For purposes of this
subparagraph, social security benefits and all
other relevant factors used to compute benefits
shall be treated as remaining constant as of
the current year for all years after such
current year.
(D) Accrual for service before effective
date.--Subparagraphs (A), (B), and (C) shall
not apply with respect to years of
participation before the first plan year to
which this section applies, but a defined
benefit plan satisfies the requirements of this
subparagraph with respect to such years of
participation only if the accrued benefit of
any participant with respect to such years of
participation is not less than the greater of--
(i) his accrued benefit determined
under the plan, as in effect from time
to time prior to September 2, 1974, or
(ii) an accrued benefit which is not
less than one-half of the accrued
benefit to which such participant would
have been entitled if subparagraph (A),
(B), or (C) applied with respect to
such years of participation.
(E) First two years of service.--
Notwithstanding subparagraphs (A), (B), and (C)
of this paragraph, a plan shall not be treated
as not satisfying the requirements of this
paragraph solely because the accrual of
benefits under the plan does not become
effective until the employee has two continuous
years of service. For purposes of this
subparagraph, the term ``years of service'' has
the meaning provided by section 410(a)(3)(A).
(F) Certain insured defined benefit plans.--
Notwithstanding subparagraphs (A), (B), and
(C), a defined benefit plan satisfies the
requirements of this paragraph if such plan--
(i) is funded exclusively by the
purchase of insurance contracts, and
(ii) satisfies the requirements of
subparagraphs (B) and (C) of section
412(e)(3) (relating to certain
insurance contract plans),
but only if an employee's accrued benefit as of
any applicable date is not less than the cash
surrender value his insurance contracts would
have on such applicable date if the
requirements of subparagraphs (D), (E), and (F)
of section 412(e)(3) were satisfied.
(G) Accrued benefit may not decrease on
account of increasing age or service.--
Notwithstanding the preceding subparagraphs, a
defined benefit plan shall be treated as not
satisfying the requirements of this paragraph
if the participant's accrued benefit is reduced
on account of any increase in his age or
service. The preceding sentence shall not apply
to benefits under the plan commencing before
entitlement to benefits payable under title II
of the Social Security Act which benefits under
the plan--
(i) do not exceed such social
security benefits, and
(ii) terminate when such social
security benefits commence.
(H) Continued accrual beyond normal
retirement age.--
(i) In general.--Notwithstanding the
preceding subparagraphs, a defined
benefit plan shall be treated as not
satisfying the requirements of this
paragraph if, under the plan, an
employee's benefit accrual is ceased,
or the rate of an employee's benefit
accrual is reduced, because of the
attainment of any age.
(ii) Certain limitations permitted.--
A plan shall not be treated as failing
to meet the requirements of this
subparagraph solely because the plan
imposes (without regard to age) a
limitation on the amount of benefits
that the plan provides or a limitation
on the number of years of service or
years of participation which are taken
into account for purposes of
determining benefit accrual under the
plan.
(iii) Adjustments under plan for
delayed retirement taken into
account.--In the case of any employee
who, as of the end of any plan year
under a defined benefit plan, has
attained normal retirement age under
such plan--
(I) if distribution of
benefits under such plan with
respect to such employee has
commenced as of the end of such
plan year, then any requirement
of this subparagraph for
continued accrual of benefits
under such plan with respect to
such employee during such plan
year shall be treated as
satisfied to the extent of the
actuarial equivalent of
inservice distribution of
benefits, and
(II) if distribution of
benefits under such plan with
respect to such employee has
not commenced as of the end of
such year in accordance with
section 401(a)(14)(C), and the
payment of benefits under such
plan with respect to such
employee is not suspended
during such plan year pursuant
to subsection (a)(3)(B), then
any requirement of this
subparagraph for continued
accrual of benefits under such
plan with respect to such
employee during such plan year
shall be treated as satisfied
to the extent of any adjustment
in the benefit payable under
the plan during such plan year
attributable to the delay in
the distribution of benefits
after the attainment of normal
retirement age.
The preceding provisions of this clause shall
apply in accordance with regulations of the
Secretary. Such regulations may provide for the
application of the preceding provisions of this
clause, in the case of any such employee, with
respect to any period of time within a plan
year.
(iv) Disregard of subsidized portion
of early retirement benefit.--A plan
shall not be treated as failing to meet
the requirements of clause (i) solely
because the subsidized portion of any
early retirement benefit is disregarded
in determining benefit accruals.
(v) Coordination with other
requirements.--The Secretary shall
provide by regulation for the
coordination of the requirements of
this subparagraph with the requirements
of subsection (a), sections 404, 410,
and 415, and the provisions of this
subchapter precluding discrimination in
favor of highly compensated employees.
(2) Defined contribution plans.--
(A) In general.--A defined contribution plan
satisfies the requirements of this paragraph
if, under the plan, allocations to the
employee's account are not ceased, and the rate
at which amounts are allocated to the
employee's account is not reduced, because of
the attainment of any age.
(B) Application to target benefit plans.--The
Secretary shall provide by regulation for the
application of the requirements of this
paragraph to target benefit plans.
(C) Coordination with other requirements.--
The Secretary may provide by regulation for the
coordination of the requirements of this
paragraph with the requirements of subsection
(a), sections 404, 410, and 415, and the
provisions of this subchapter precluding
discrimination in favor of highly compensated
employees.
(3) Separate accounting required in certain cases.--A
plan satisfies the requirements of this paragraph if--
(A) in the case of the defined benefit plan,
the plan requires separate accounting for the
portion of each employee's accrued benefit
derived from any voluntary employee
contributions permitted under the plan; and
(B) in the case of any plan which is not a
defined benefit plan, the plan requires
separate accounting for each employee's accrued
benefit.
(4) Year of participation.--
(A) Definition.--For purposes of determining
an employee's accrued benefit, the term ``year
of participation'' means a period of service
(beginning at the earliest date on which the
employee is a participant in the plan and which
is included in a period of service required to
be taken into account under section 410(a)(5),
determined without regard to section
410(a)(5)(E)) as determined under regulations
prescribed by the Secretary of Labor which
provide for the calculation of such period on
any reasonable and consistent basis.
(B) Less than full time service.--For
purposes of this paragraph, except as provided
in subparagraph (C), in the case of any
employee whose customary employment is less
than full time, the calculation of such
employee's service on any basis which provides
less than a ratable portion of the accrued
benefit to which he would be entitled under the
plan if his customary employment were full time
shall not be treated as made on a reasonable
and consistent basis.
(C) Less than 1,000 hours of service during
year.--For purposes of this paragraph, in the
case of any employee whose service is less than
1,000 hours during any calendar year, plan year
or other 12-consecutive month period designated
by the plan (and not prohibited under
regulations prescribed by the Secretary of
Labor) the calculation of his period of service
shall not be treated as not made on a
reasonable and consistent basis solely because
such service is not taken into account.
(D) Seasonal industries.--In the case of any
seasonal industry where the customary period of
employment is less than 1,000 hours during a
calendar year, the term ``year of
participation'' shall be such period as
determined under regulations prescribed by the
Secretary of Labor.
(E) Maritime industries.--For purposes of
this subsection, in the case of any maritime
industry, 125 days of service shall be treated
as a year of participation. The Secretary of
Labor may prescribe regulations to carry out
the purposes of this subparagraph.
(5) Special rules relating to age.--
(A) Comparison to similarly situated younger
individual.--
(i) In general.--A plan shall not be
treated as failing to meet the
requirements of paragraph (1)(H)(i) if
a participant's accrued benefit, as
determined as of any date under the
terms of the plan, would be equal to or
greater than that of any similarly
situated, younger individual who is or
could be a participant.
(ii) Similarly situated.--For
purposes of this subparagraph, a
participant is similarly situated to
any other individual if such
participant is identical to such other
individual in every respect (including
period of service, compensation,
position, date of hire, work history,
and any other respect) except for age.
(iii) Disregard of subsidized early
retirement benefits.--In determining
the accrued benefit as of any date for
purposes of this subparagraph, the
subsidized portion of any early
retirement benefit or retirement-type
subsidy shall be disregarded.
(iv) Accrued benefit.--For purposes
of this subparagraph, the accrued
benefit may, under the terms of the
plan, be expressed as an annuity
payable at normal retirement age, the
balance of a hypothetical account, or
the current value of the accumulated
percentage of the employee's final
average compensation.
(B) Applicable defined benefit plans.--
(i) Interest credits.--
(I) In general.--An
applicable defined benefit plan
shall be treated as failing to
meet the requirements of
paragraph (1)(H) unless the
terms of the plan provide that
any interest credit (or an
equivalent amount) for any plan
year shall be at a rate which
is not greater than a market
rate of return. A plan shall
not be treated as failing to
meet the requirements of this
subclause merely because the
plan provides for a reasonable
minimum guaranteed rate of
return or for a rate of return
that is equal to the greater of
a fixed or variable rate of
return.
(II) Preservation of
capital.--An applicable defined
benefit plan shall be treated
as failing to meet the
requirements of paragraph
(1)(H) unless the plan provides
that an interest credit (or
equivalent amount) of less than
zero shall in no event result
in the account balance or
similar amount being less than
the aggregate amount of
contributions credited to the
account.
(III) Market rate of
return.--The Secretary may
provide by regulation for rules
governing the calculation of a
market rate of return for
purposes of subclause (I) and
for permissible methods of
crediting interest to the
account (including fixed or
variable interest rates)
resulting in effective rates of
return meeting the requirements
of subclause (I).
(ii) Special rule for plan
conversions.--If, after June 29, 2005,
an applicable plan amendment is
adopted, the plan shall be treated as
failing to meet the requirements of
paragraph (1)(H) unless the
requirements of clause (iii) are met
with respect to each individual who was
a participant in the plan immediately
before the adoption of the amendment.
(iii) Rate of benefit accrual.--
Subject to clause (iv), the
requirements of this clause are met
with respect to any participant if the
accrued benefit of the participant
under the terms of the plan as in
effect after the amendment is not less
than the sum of--
(I) the participant's accrued
benefit for years of service
before the effective date of
the amendment, determined under
the terms of the plan as in
effect before the amendment,
plus
(II) the participant's
accrued benefit for years of
service after the effective
date of the amendment,
determined under the terms of
the plan as in effect after the
amendment.
(iv) Special rules for early
retirement subsidies.--For purposes of
clause (iii)(I), the plan shall credit
the accumulation account or similar
amount with the amount of any early
retirement benefit or retirement-type
subsidy for the plan year in which the
participant retires if, as of such
time, the participant has met the age,
years of service, and other
requirements under the plan for
entitlement to such benefit or subsidy.
(v) Applicable plan amendment.--For
purposes of this subparagraph--
(I) In general.--The term
``applicable plan amendment''
means an amendment to a defined
benefit plan which has the
effect of converting the plan
to an applicable defined
benefit plan.
(II) Special rule for
coordinated benefits.--If the
benefits of 2 or more defined
benefit plans established or
maintained by an employer are
coordinated in such a manner as
to have the effect of the
adoption of an amendment
described in subclause (I), the
sponsor of the defined benefit
plan or plans providing for
such coordination shall be
treated as having adopted such
a plan amendment as of the date
such coordination begins.
(III) Multiple amendments.--
The Secretary shall issue
regulations to prevent the
avoidance of the purposes of
this subparagraph through the
use of 2 or more plan
amendments rather than a single
amendment.
(IV) Applicable defined
benefit plan.--For purposes of
this subparagraph, the term
``applicable defined benefit
plan'' has the meaning given
such term by section
411(a)(13).
(vi) Termination requirements.--An
applicable defined benefit plan shall
not be treated as meeting the
requirements of clause (i) unless the
plan provides that, upon the
termination of the plan--
(I) if the interest credit
rate (or an equivalent amount)
under the plan is a variable
rate, the rate of interest used
to determine accrued benefits
under the plan shall be equal
to the average of the rates of
interest used under the plan
during the 5-year period ending
on the termination date, and
(II) the interest rate and
mortality table used to
determine the amount of any
benefit under the plan payable
in the form of an annuity
payable at normal retirement
age shall be the rate and table
specified under the plan for
such purpose as of the
termination date, except that
if such interest rate is a
variable rate, the interest
rate shall be determined under
the rules of subclause (I).
(C) Certain offsets permitted.--A plan shall
not be treated as failing to meet the
requirements of paragraph (1)(H)(i) solely
because the plan provides offsets against
benefits under the plan to the extent such
offsets are otherwise allowable in applying the
requirements of section 401(a).
(D) Permitted disparities in plan
contributions or benefits.--A plan shall not be
treated as failing to meet the requirements of
paragraph (1)(H) solely because the plan
provides a disparity in contributions or
benefits with respect to which the requirements
of section 401(l) are met.
(E) Indexing permitted.--
(i) In general.--A plan shall not be
treated as failing to meet the
requirements of paragraph (1)(H) solely
because the plan provides for indexing
of accrued benefits under the plan.
(ii) Protection against loss.--Except
in the case of any benefit provided in
the form of a variable annuity, clause
(i) shall not apply with respect to any
indexing which results in an accrued
benefit less than the accrued benefit
determined without regard to such
indexing.
(iii) Indexing.--For purposes of this
subparagraph, the term ``indexing''
means, in connection with an accrued
benefit, the periodic adjustment of the
accrued benefit by means of the
application of a recognized investment
index or methodology.
(F) Early retirement benefit or retirement-
type subsidy.--For purposes of this paragraph,
the terms ``early retirement benefit'' and
``retirement-type subsidy'' have the meaning
given such terms in subsection (d)(6)(B)(i).
(G) Benefit accrued to date.--For purposes of
this paragraph, any reference to the accrued
benefit shall be a reference to such benefit
accrued to date.
(c) Allocation of accrued benefits between employer and
employee contributions.--
(1) Accrued benefit derived from employer
contributions.--For purposes of this section, an
employee's accrued benefit derived from employer
contributions as of any applicable date is the excess,
if any, of the accrued benefit for such employee as of
such applicable date over the accrued benefit derived
from contributions made by such employee as of such
date.
(2) Accrued benefit derived from employee
contributions.--
(A) Plans other than defined benefit plans.--
In the case of a plan other than a defined
benefit plan, the accrued benefit derived from
contributions made by an employee as of any
applicable date is--
(i) except as provided in clause
(ii), the balance of the employee's
separate account consisting only of his
contributions and the income, expenses,
gains, and losses attributable thereto,
or
(ii) if a separate account is not
maintained with respect to an
employee's contributions under such a
plan, the amount which bears the same
ratio to his total accrued benefit as
the total amount of the employee's
contributions (less withdrawals) bears
to the sum of such contributions and
the contributions made on his behalf by
the employer (less withdrawals).
(B) Defined benefit plans.--In the case of a
defined benefit plan, the accrued benefit
derived from contributions made by an employee
as of any applicable date is the amount equal
to the employee's accumulated contributions
expressed as an annual benefit commencing at
normal retirement age, using an interest rate
which would be used under the plan under
section 417(e)(3) (as of the determination
date).
(C) Definition of accumulated
contributions.--For purposes of this
subsection, the term ``accumulated
contribution'' means the total of--
(i) all mandatory contributions made
by the employee,
(ii) interest (if any) under the plan
to the end of the last plan year to
which subsection (a)(2) does not apply
(by reason of the applicable effective
date), and
(iii) interest on the sum of the
amounts determined under clauses (i)
and (ii) compounded annually--
(I) at the rate of 120
percent of the Federal mid-term
rate (as in effect under
section 1274 for the 1st month
of a plan year) for the period
beginning with the 1st plan
year to which subsection (a)(2)
applies (by reason of the
applicable effective date) and
ending with the date on which
the determination is being
made, and
(II) at the interest rate
which would be used under the
plan under section 417(e)(3)
(as of the determination date)
for the period beginning with
the determination date and
ending on the date on which the
employee attains normal
retirement age.
For purposes of this subparagraph, the term
``mandatory contributions'' means amounts
contributed to the plan by the employee 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.
(D) Adjustments.--The Secretary is authorized
to adjust by regulation the conversion factor
described in subparagraph (B) from time to time
as he may deem necessary. No such adjustment
shall be effective for a plan year beginning
before the expiration of 1 year after such
adjustment is determined and published.
(3) Actuarial adjustment.--For purposes of this
section, in the case of any defined benefit plan, if an
employee's accrued benefit is to be determined as an
amount other than an annual benefit commencing at
normal retirement age, or if the accrued benefit
derived from contributions made by an employee is to be
determined with respect to a benefit other than an
annual benefit in the form of a single life annuity
(without ancillary benefits) commencing at normal
retirement age, the employee's accrued benefit, or the
accrued benefits derived from contributions made by an
employee, as the case may be, shall be the actuarial
equivalent of such benefit or amount determined under
paragraph (1) or (2).
(d) Special rules.--
(1) Coordination with section 401(a)(4).--A plan
which satisfies the requirements of this section shall
be treated as satisfying any vesting requirements
resulting from the application of section 401(a)(4)
unless--
(A) there has been a pattern of abuse under
the plan (such as a dismissal of employees
before their accrued benefits become
nonforfeitable) tending to discriminate in
favor of employees who are highly compensated
employees (within the meaning of section
414(q)), or
(B) there have been, or there is reason to
believe there will be, an accrual of benefits
or forfeitures tending to discriminate in favor
of employees who are highly compensated
employees (within the meaning of section
414(q)).
(2) Prohibited discrimination.--Subsection (a) shall
not apply to benefits which may not be provided for
designated employees in the event of early termination
of the plan under provisions of the plan adopted
pursuant to regulations prescribed by the Secretary to
preclude the discrimination prohibited by section
401(a)(4).
(3) Termination or partial termination;
discontinuance of contributions.--Notwithstanding the
provisions of subsection (a), a trust shall not
constitute a qualified trust under section 401(a)
unless the plan of which such trust is a part provides
that--
(A) upon its termination or partial
termination, or
(B) in the case of a plan to which section
412 does not apply, upon complete
discontinuance of contributions under the plan,
the rights of all affected employees to benefits
accrued to the date of such termination, partial
termination, or discontinuance, to the extent funded as
of such date, or the amounts credited to the employees'
accounts, are nonforfeitable. This paragraph shall not
apply to benefits or contributions which, under
provisions of the plan adopted pursuant to regulations
prescribed by the Secretary to preclude the
discrimination prohibited by section 401(a)(4), may not
be used for designated employees in the event of early
termination of the plan. For purposes of this
paragraph, in the case of the complete discontinuance
of contributions under a profit-sharing or stock bonus
plan, such plan shall be treated as having terminated
on the day on which the plan administrator notifies the
Secretary (in accordance with regulations) of the
discontinuance.
(5) Treatment of voluntary employee contributions.--
In the case of a defined benefit plan which permits
voluntary employee contributions, the portion of an
employee's accrued benefit derived from such
contributions shall be treated as an accrued benefit
derived from employee contributions under a plan other
than a defined benefit plan.
(6) Accrued benefit not to be decreased by
amendment.--
(A) In general.--A plan shall be treated as
not satisfying the requirements of this section
if the accrued benefit of a participant is
decreased by an amendment of the plan, other
than an amendment described in section
412(d)(2), or section 4281 of the Employee
Retirement Income Security Act of 1974.
(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, unless such
amendment adversely affects 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)).
(C) Special rule for ESOPS.--For purposes of
this paragraph, any--
(i) tax credit employee stock
ownership plan (as defined in section
409(a)), or
(ii) employee stock ownership plan
(as defined in section 4975(e)(7)),
shall not be treated as failing to meet the
requirements of this paragraph merely because
it modifies distribution options in a
nondiscriminatory manner.
(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) Special rule for mergers,
etc..--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.
(e) Application of vesting standards to certain plans.--(1)
The provisions of this section (other than paragraph (2)) shall
not apply to--
(A) a governmental plan (within the meaning of
section 414(d)),
(B) 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,
(C) a plan which has not, at any time after September
2, 1974, provided for employer contributions, and
(D) a plan established and maintained by a society,
order, or association described in section 501(c)(8) or
(9), if no part of the contributions to or under such
plan are made by employers of participants in such
plan.
(2) A plan described in paragraph (1) shall be treated as
meeting the requirements of this section, for purposes of
section 401(a), if such plan meets the vesting requirements
resulting from the application of sections 401(a)(4) and
401(a)(7) as in effect on September 1, 1974.
(f) Special rule for determining normal retirement age for
certain existing defined benefit plans.--
(1) In general.--Notwithstanding subsection (a)(8),
an applicable plan shall not be treated as failing to
meet any requirement of this subchapter, or as failing
to have a uniform normal retirement age for purposes of
this subchapter, solely because the plan provides for a
normal retirement age described in paragraph (2).
(2) Applicable plan.--For purposes of this
subsection--
(A) In general.--The term ``applicable plan''
means a defined benefit plan the terms of
which, on or before December 8, 2014, provided
for a normal retirement age which is the
earlier of--
(i) an age otherwise permitted under
subsection (a)(8), or
(ii) the age at which a participant
completes the number of years (not less
than 30 years) of benefit accrual
service specified by the plan.
A plan shall not fail to be treated as an
applicable plan solely because the normal
retirement age described in the preceding
sentence only applied to certain participants
or only applied to employees of certain
employers in the case of a plan maintained by
more than 1 employer.
(B) Expanded application.--Subject to
subparagraph (C), if, after December 8, 2014,
an applicable plan is amended to expand the
application of the normal retirement age
described in subparagraph (A) to additional
participants or to employees of additional
employers maintaining the plan, such plan shall
also be treated as an applicable plan with
respect to such participants or employees.
(C) Limitation on expanded application.--A
defined benefit plan shall be an applicable
plan only with respect to an individual who--
(i) is a participant in the plan on
or before January 1, 2017, or
(ii) is an employee at any time on or
before January 1, 2017, of any employer
maintaining the plan, and who becomes a
participant in such plan after such
date.
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) Service for predecessor employer.--For purposes of this
part--
(1) in any case in which the employer maintains a
plan of a predecessor employer, service for such
predecessor shall be treated as service for the
employer, and
(2) in any case in which the employer maintains a
plan which is not the plan maintained by a predecessor
employer, service for such predecessor shall, to the
extent provided in regulations prescribed by the
Secretary, be treated as service for the employer.
(b) Employees of controlled group of corporations.--For
purposes of sections 401, 408(k), 408(p), 410, 411, 415, and
416, all employees of all corporations which are members of a
controlled group of corporations (within the meaning of section
1563(a), determined without regard to section 1563(a)(4) and
(e)(3)(C)) shall be treated as employed by a single employer.
With respect to a plan adopted by more than one such
corporation, the applicable limitations provided by section
404(a) shall be determined as if all such employers were a
single employer, and allocated to each employer in accordance
with regulations prescribed by the Secretary.
(c) Employees of partnerships, proprietorships, etc., which
are under common control.--
(1) In general.--Except as provided in paragraph (2),
for purposes of sections 401, 408(k), 408(p), 410, 411,
415, and 416, under regulations prescribed by the
Secretary, all employees of trades or businesses
(whether or not incorporated) which are under common
control shall be treated as employed by a single
employer. The regulations prescribed under this
subsection shall be based on principles similar to the
principles which apply in the case of subsection (b).
(2) Special rules relating to church plans.--
(A) General rule.--Except as provided in
subparagraphs (B) and (C), for purposes of this
subsection and subsection (m), an organization
that is otherwise eligible to participate in a
church plan shall not be aggregated with
another such organization and treated as a
single employer with such other organization
for a plan year beginning in a taxable year
unless--
(i) one such organization provides
(directly or indirectly) at least 80
percent of the operating funds for the
other organization during the preceding
taxable year of the recipient
organization, and
(ii) there is a degree of common
management or supervision between the
organizations such that the
organization providing the operating
funds is directly involved in the day-
to-day operations of the other
organization.
(B) Nonqualified church-controlled
organizations.--Notwithstanding subparagraph
(A), for purposes of this subsection and
subsection (m), an organization that is a
nonqualified church-controlled organization
shall be aggregated with 1 or more other
nonqualified church-controlled organizations,
or with an organization that is not exempt from
tax under section 501, and treated as a single
employer with such other organization, if at
least 80 percent of the directors or trustees
of such other organization are either
representatives of, or directly or indirectly
controlled by, such nonqualified church-
controlled organization. For purposes of this
subparagraph, the term ``nonqualified church-
controlled organization'' means a church-
controlled tax-exempt organization described in
section 501(c)(3) that is not a qualified
church-controlled organization (as defined in
section 3121(w)(3)(B)).
(C) Permissive aggregation among church-
related organizations.--The church or
convention or association of churches with
which an organization described in subparagraph
(A) is associated (within the meaning of
subsection (e)(3)(D)), or an organization
designated by such church or convention or
association of churches, may elect to treat
such organizations as a single employer for a
plan year. Such election, once made, shall
apply to all succeeding plan years unless
revoked with notice provided to the Secretary
in such manner as the Secretary shall
prescribe.
(D) Permissive disaggregation of church-
related organizations.--For purposes of
subparagraph (A), in the case of a church plan,
an employer may elect to treat churches (as
defined in section 403(b)(12)(B)) separately
from entities that are not churches (as so
defined), without regard to whether such
entities maintain separate church plans. Such
election, once made, shall apply to all
succeeding plan years unless revoked with
notice provided to the Secretary in such manner
as the Secretary shall prescribe.
(d) Governmental plan.--For purposes of this part, the term
``governmental plan'' means a plan established and maintained
for its employees by the Government of the United States, by
the government of any State or political subdivision thereof,
or by any agency or instrumentality of any of the foregoing.
The term ``governmental plan'' also includes any plan to which
the Railroad Retirement Act of 1935 or 1937 applies and which
is financed by contributions required under that Act and any
plan of an international organization which is exempt from
taxation by reason of the International Organizations
Immunities Act (59 Stat. 669). The term ``governmental plan''
includes a plan which is established and maintained by an
Indian tribal government (as defined in section 7701(a)(40)), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d)), or an agency or
instrumentality of either, and all of the participants of which
are employees of such entity substantially all of whose
services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential government
function).
(e) Church plan.--
(1) In general.--For purposes of this part, the term
``church plan'' means a plan established and maintained
(to the extent required in paragraph (2)(B)) for its
employees (or their beneficiaries) by a church or by a
convention or association of churches which is exempt
from tax under section 501.
(2) Certain plans excluded.--The term ``church plan''
does not include a plan--
(A) which is established and maintained
primarily for the benefit of employees (or
their beneficiaries) of such church or
convention or association of churches who are
employed in connection with one or more
unrelated trades or businesses (within the
meaning of section 513); or
(B) if less than substantially all of the
individuals included in the plan are
individuals described in paragraph (1) or
(3)(B) (or their beneficiaries).
(3) Definitions and other provisions.--For purposes
of this subsection--
(A) Treatment as church plan.--A plan
established and maintained for its employees
(or their beneficiaries) by a church or by a
convention or association of churches includes
a plan maintained by an organization, whether a
civil law corporation or otherwise, the
principal purpose or function of which is the
administration or funding of a plan or program
for the provision of retirement benefits or
welfare benefits, or both, for the employees of
a church or a convention or association of
churches, if such organization is controlled by
or associated with a church or a convention or
association of churches.
(B) Employee defined.--The term employee of a
church or a convention or association of
churches shall include--
(i) a duly ordained, commissioned, or
licensed minister of a church in the
exercise of his ministry, regardless of
the source of his compensation;
(ii) an employee of an organization,
whether a civil law corporation or
otherwise, which is exempt from tax
under section 501 and which is
controlled by or associated with a
church or a convention or association
of churches; and
(iii) an individual described in
subparagraph (E).
(C) Church treated as employer.--A church or
a convention or association of churches which
is exempt from tax under section 501 shall be
deemed the employer of any individual included
as an employee under subparagraph (B).
(D) Association with church.--An
organization, whether a civil law corporation
or otherwise, is associated with a church or a
convention or association of churches if it
shares common religious bonds and convictions
with that church or convention or association
of churches.
(E) Special rule in case of separation from
plan.--If an employee who is included in a
church plan separates from the service of a
church or a convention or association of
churches or an organization described in clause
(ii) of paragraph (3)(B), the church plan shall
not fail to meet the requirements of this
subsection merely because the plan--
(i) retains the employee's accrued
benefit or account for the payment of
benefits to the employee or his
beneficiaries pursuant to the terms of
the plan; or
(ii) receives contributions on the
employee's behalf after the employee's
separation from such service, but only
for a period of 5 years after such
separation, unless the employee is
disabled (within the meaning of the
disability provisions of the church
plan or, if there are no such
provisions in the church plan, within
the meaning of section 72(m)(7)) at the
time of such separation from service.
(4) Correction of failure to meet church plan
requirements.--
(A) In general.--If a plan established and
maintained for its employees (or their
beneficiaries) by a church or by a convention
or association of churches which is exempt from
tax under section 501 fails to meet one or more
of the requirements of this subsection and
corrects its failure to meet such requirements
within the correction period, the plan shall be
deemed to meet the requirements of this
subsection for the year in which the correction
was made and for all prior years.
(B) Failure to correct.--If a correction is
not made within the correction period, the plan
shall be deemed not to meet the requirements of
this subsection beginning with the date on
which the earliest failure to meet one or more
of such requirements occurred.
(C) Correction period defined.--The term
``correction period'' means--
(i) the period, ending 270 days after
the date of mailing by the Secretary of
a notice of default with respect to the
plan's failure to meet one or more of
the requirements of this subsection;
(ii) any period set by a court of
competent jurisdiction after a final
determination that the plan fails to
meet such requirements, or, if the
court does not specify such period, any
reasonable period determined by the
Secretary on the basis of all the facts
and circumstances, but in any event not
less than 270 days after the
determination has become final; or
(iii) any additional period which the
Secretary determines is reasonable or
necessary for the correction of the
default,
whichever has the latest ending date.
(5) Special rules for chaplains and self-employed
ministers.--
(A) Certain ministers may participate.--For
purposes of this part--
(i) In general.--A duly ordained,
commissioned, or licensed minister of a
church is described in paragraph (3)(B)
if, in connection with the exercise of
their ministry, the minister--
(I) is a self-employed
individual (within the meaning
of section 401(c)(1)(B), or
(II) is employed by an
organization other than an
organization which is described
in section 501(c)(3) and with
respect to which the minister
shares common religious bonds.
(ii) Treatment as employer and
employee.--For purposes of sections
403(b)(1)(A) and 404(a)(10), a minister
described in clause (i)(I) shall be
treated as employed by the minister's
own employer which is an organization
described in section 501(c)(3) and
exempt from tax under section 501(a).
(B) Special rules for applying section 403(b)
to self-employed ministers.--In the case of a
minister described in subparagraph (A)(i)(I)--
(i) the minister's includible
compensation under section 403(b)(3)
shall be determined by reference to the
minister's earned income (within the
meaning of section 401(c)(2)) from such
ministry rather than the amount of
compensation which is received from an
employer, and
(ii) the years (and portions of
years) in which such minister was a
self-employed individual (within the
meaning of section 401(c)(1)(B)) with
respect to such ministry shall be
included for purposes of section
403(b)(4).
(C) Effect on non-denominational plans.--If a
duly ordained, commissioned, or licensed
minister of a church in the exercise of his or
her ministry participates in a church plan
(within the meaning of this section) and in the
exercise of such ministry is employed by an
employer not otherwise participating in such
church plan, then such employer may exclude
such minister from being treated as an employee
of such employer for purposes of applying
sections 401(a)(3), 401(a)(4), and 401(a)(5),
as in effect on September 1, 1974, and sections
401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3),
401(m), 403(b)(1)(D) (including section
403(b)(12)), and 410 to any stock bonus,
pension, profit-sharing, or annuity plan
(including an annuity described in section
403(b) or a retirement income account described
in section 403(b)(9)). The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purpose of, and
prevent the abuse of, this subparagraph.
(D) Compensation taken into account only
once.--If any compensation is taken into
account in determining the amount of any
contributions made to, or benefits to be
provided under, any church plan, such
compensation shall not also be taken into
account in determining the amount of any
contributions made to, or benefits to be
provided under, any other stock bonus, pension,
profit-sharing, or annuity plan which is not a
church plan.
(E) Exclusion.--In the case of a contribution
to a church plan made on behalf of a minister
described in subparagraph (A)(i)(II), such
contribution shall not be included in the gross
income of the minister to the extent that such
contribution would not be so included if the
minister was an employee of a church.
(f) Multiemployer plan.--
(1) Definition.--For purposes of this part, the term
``multiemployer plan'' means a plan--
(A) to which more than one employer is
required to contribute,
(B) which is maintained pursuant to one or
more collective bargaining agreements between
one or more employee organizations and more
than one employer, and
(C) which satisfies such other requirements
as the Secretary of Labor may prescribe by
regulation.
(2) Cases of common control.--For purposes of this
subsection, all trades or businesses (whether or not
incorporated) which are under common control within the
meaning of subsection (c) are considered a single
employer.
(3) Continuation of status after termination.--
Notwithstanding paragraph (1), a plan is a
multiemployer plan on and after its termination date
under title IV of the Employee Retirement Income
Security Act of 1974 if the plan was a multiemployer
plan under this subsection for the plan year preceding
its termination date.
(4) Transitional rule.--For any plan year which began
before the date of the enactment of the Multiemployer
Pension Plan Amendments Act of 1980, the term
``multiemployer plan'' means a plan described in this
subsection as in effect immediately before that date.
(5) Special election.--Within one year after the date
of the enactment of the Multiemployer Pension Plan
Amendments Act of 1980, a multiemployer plan may
irrevocably elect, pursuant to procedures established
by the Pension Benefit Guaranty Corporation and subject
to the provisions of section 4403(b) and (c) of the
Employee Retirement Income Security Act of 1974, that
the plan shall not be treated as a multiemployer plan
for any purpose under such Act or this title, if for
each of the last 3 plan years ending prior to the
effective date of the Multiemployer Pension Plan
Amendments Act of 1980--
(A) the plan was not a multiemployer plan
because the plan was not a plan described in
section 3(37)(A)(iii) of the Employee
Retirement Income Security Act of 1974 and
section 414(f)(1)(C) (as such provisions were
in effect on the day before the date of the
enactment of the Multiemployer Pension Plan
Amendments Act of 1980); and
(B) the plan had been identified as a plan
that was not a multiemployer plan in
substantially all its filings with the Pension
Benefit Guaranty Corporation, the Secretary of
Labor and the Secretary.
(6) Election with regard to multiemployer status.--
(A) Within 1 year after the enactment of the Pension
Protection Act of 2006--
(i) An election under paragraph (5) may be
revoked, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, if,
for each of the 3 plan years prior to the date
of the enactment of that Act, the plan would
have been a multiemployer plan but for the
election under paragraph (5), and
(ii) a plan that meets the criteria in
subparagraph (A) and (B) of paragraph (1) of
this subsection or that is described in
subparagraph (E) may, pursuant to procedures
prescribed by the Pension Benefit Guaranty
Corporation, elect to be a multiemployer plan,
if--
(I) for each of the 3 plan years
immediately preceding the first plan
year for which the election under this
paragraph is effective with respect to
the plan, the plan has met those
criteria or is so described,
(II) substantially all of the plan's
employer contributions for each of
those plan years were made or required
to be made by organizations that were
exempt from tax under section 501, and
(III) the plan was established prior
to September 2, 1974.
(B) An election under this paragraph shall be
effective for all purposes under this Act and under the
Employee Retirement Income Security Act of 1974,
starting with any plan year beginning on or after
January 1, 1999, and ending before January 1, 2008, as
designated by the plan in the election made under
subparagraph (A)(ii).
(C) Once made, an election under this paragraph shall
be irrevocable, except that a plan described in
subparagraph (A)(ii) shall cease to be a multiemployer
plan as of the plan year beginning immediately after
the first plan year for which the majority of its
employer contributions were made or required to be made
by organizations that were not exempt from tax under
section 501.
(D) The fact that a plan makes an election under
subparagraph (A)(ii) does not imply that the plan was
not a multiemployer plan prior to the date of the
election or would not be a multiemployer plan without
regard to the election.
(E) A plan is described in this subparagraph if it is
a plan sponsored by an organization which is described
in section 501(c)(5) and exempt from tax under section
501(a) and which was established in Chicago, Illinois,
on August 12, 1881.
(F) Maintenance under collective bargaining
agreement.--For purposes of this title and the Employee
Retirement Income Security Act of 1974, a plan making
an election under this paragraph shall be treated as
maintained pursuant to a collective bargaining
agreement if a collective bargaining agreement,
expressly or otherwise, provides for or permits
employer contributions to the plan by one or more
employers that are signatory to such agreement, or
participation in the plan by one or more employees of
an employer that is signatory to such agreement,
regardless of whether the plan was created,
established, or maintained for such employees by virtue
of another document that is not a collective bargaining
agreement.
(g) Plan administrator.--For purposes of this part, the term
``plan administrator'' means--
(1) the person specifically so designated by the
terms of the instrument under which the plan is
operated;
(2) in the absence of a designation referred to in
paragraph (1)--
(A) in the case of a plan maintained by a
single employer, such employer,
(B) in the case of a plan maintained by two
or more employers or jointly by one or more
employers and one or more employee
organizations, the association, committee,
joint board of trustees, or other similar group
of representatives of the parties who
maintained the plan, or
(C) in any case to which subparagraph (A) or
(B) does not apply, such other person as the
Secretary may by regulation, prescribe.
(h) Tax treatment of certain contributions.--
(1) In general.--Effective with respect to taxable
years beginning after December 31, 1973, for purposes
of this title, any amount contributed--
(A) to an employees' trust described in
section 401(a), or
(B) under a plan described in section 403(a),
shall not be treated as having been made by the
employer if it is designated as an employee
contribution.
(2) Designation by units of government.--For purposes
of paragraph (1), in the case of any plan established
by the government of any State or political subdivision
thereof, or by any agency or instrumentality of any of
the foregoing, or a governmental plan described in the
last sentence of section 414(d) (relating to plans of
Indian tribal governments), where the contributions of
employing units are designated as employee
contributions but where any employing unit picks up the
contributions, the contributions so picked up shall be
treated as employer contributions.
(i) Defined contribution plan.--For purposes of this part,
the term ``defined contribution plan'' means a plan which
provides for an individual account for each participant and for
benefits based solely on the amount contributed to the
participant's account, and any income, expenses, gains and
losses, and any forfeitures of accounts of other participants
which may be allocated to such participant's account.
(j) Defined benefit plan.--For purposes of this part, the
term ``defined benefit plan'' means any plan which is not a
defined contribution plan.
(k) Certain plans.--A defined benefit plan which provides a
benefit derived from employer contributions which is based
partly on the balance of the separate account of a participant
shall--
(1) for purposes of section 410 (relating to minimum
participation standards), be treated as a defined
contribution plan,
(2) for purposes of sections 72(d) (relating to
treatment of employee contributions as separate
contract), 411(a)(7)(A) (relating to minimum vesting
standards), 415 (relating to limitations on benefits
and contributions under qualified plans), and 401(m)
(relating to nondiscrimination tests for matching
requirements and employee contributions), be treated as
consisting of a defined contribution plan to the extent
benefits are based on the separate account of a
participant and as a defined benefit plan with respect
to the remaining portion of benefits under the plan,
and
(3) for purposes of section 4975 (relating to tax on
prohibited transactions), be treated as a defined
benefit plan.
(l) Merger and consolidations of plans or transfers of plan
assets.--
(1) In general.--A trust which forms a part of a plan
shall not constitute a qualified trust under section
401 and a plan shall be treated as not described in
section 403(a) unless in the case of any merger or
consolidation of the plan with, or in the case of any
transfer of assets or liabilities of such plan to, any
other trust plan after September 2, 1974, each
participant in the plan would (if the plan then
terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation,
or transfer (if the plan had then terminated). The
preceding sentence does not apply to any multiemployer
plan with respect to any transaction to the extent that
participants either before or after the transaction are
covered under a multiemployer plan to which Title IV of
the Employee Retirement Income Security Act of 1974
applies.
(2) Allocation of assets in plan spin-offs, etc..--
(A) In general.--In the case of a plan spin-
off of a defined benefit plan, a trust which
forms part of--
(i) the original plan, or
(ii) any plan spun off from such
plan,
shall not constitute a qualified trust under
this section unless the applicable percentage
of excess assets are allocated to each of such
plans.
(B) Applicable percentage.--For purposes of
subparagraph (A), the term ``applicable
percentage'' means, with respect to each of the
plans described in clauses (i) and (ii) of
subparagraph (A), the percentage determined by
dividing--
(i) the excess (if any) of--
(I) the sum of the funding
target and target normal cost
determined under section 430,
over
(II) the amount of the assets
required to be allocated to the
plan after the spin-off
(without regard to this
paragraph), by
(ii) the sum of the excess amounts
determined separately under clause (i)
for all such plans.
(C) Excess assets.--For purposes of
subparagraph (A), the term ``excess assets''
means an amount equal to the excess (if any)
of--
(i) the fair market value of the
assets of the original plan immediately
before the spin-off, over
(ii) the amount of assets required to
be allocated after the spin-off to all
plans (determined without regard to
this paragraph).
(D) Certain spun-off plans not taken into
account.--
(i) In general.--A plan involved in a
spin-off which is described in clause
(ii), (iii), or (iv) shall not be taken
into account for purposes of this
paragraph, except that the amount
determined under subparagraph (C)(ii)
shall be increased by the amount of
assets allocated to such plan.
(ii) Plans transferred out of
controlled groups.--A plan is described
in this clause if, after such spin-off,
such plan is maintained by an employer
who is not a member of the same
controlled group as the employer
maintaining the original plan.
(iii) Plans transferred out of
multiple employer plans.--A plan as
described in this clause if, after the
spin-off, any employer maintaining such
plan (and any member of the same
controlled group as such employer) does
not maintain any other plan remaining
after the spin-off which is also
maintained by another employer (or
member of the same controlled group as
such other employer) which maintained
the plan in existence before the spin-
off.
(iv) Terminated plans.--A plan is
described in this clause if, pursuant
to the transaction involving the spin-
off, the plan is terminated.
(v) Controlled group.--For purposes
of this subparagraph, the term
``controlled group'' means any group
treated as a single employer under
subsection (b), (c), (m), or (o).
(E) Paragraph not to apply to multiemployer
plans.--This paragraph does not apply to any
multiemployer plan with respect to any spin-off
to the extent that participants either before
or after the spin-off are covered under a
multiemployer plan to which title IV of the
Employee Retirement Income Security Act of 1974
applies.
(F) Application to similar transaction.--
Except as provided by the Secretary, rules
similar to the rules of this paragraph shall
apply to transactions similar to spin-offs.
(G) Special rules for bridge depository
institutions.--For purposes of this paragraph,
in the case of a bridge depository institution
established under section 11(i) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(i))--
(i) such bank shall be treated as a
member of any controlled group which
includes any insured bank (as defined
in section 3(h) of such Act (12 U.S.C.
1813(h)))--
(I) which maintains a defined
benefit plan,
(II) which is closed by the
appropriate bank regulatory
authorities, and
(III) any asset and
liabilities of which are
received by the bridge
depository institution, and
(ii) the requirements of this
paragraph shall not be treated as met
with respect to such plan unless during
the 180-day period beginning on the
date such insured bank is closed--
(I) the bridge depository
institution has the right to
require the plan to transfer
(subject to the provisions of
this paragraph) not more than
50 percent of the excess assets
(as defined in subparagraph
(C)) to a defined benefit plan
maintained by the bridge
depository institution with
respect to participants or
former participants (including
retirees and beneficiaries) in
the original plan employed by
the bridge depository
institution or formerly
employed by the closed bank,
and
(II) no other merger, spin-
off, termination, or similar
transaction involving the
portion of the excess assets
described in subclause (I) may
occur without the prior written
consent of the bridge
depository institution.
(m) Employees of an affiliated service group.--
(1) In general.--For purposes of the employee benefit
requirements listed in paragraph (4), except to the
extent otherwise provided in regulations, all employees
of the members of an affiliated service group shall be
treated as employed by a single employer.
(2) Affiliated service group.--For purposes of this
subsection, the term ``affiliated service group'' means
a group consisting of a service organization
(hereinafter in this paragraph referred to as the
``first organization'') and one or more of the
following:
(A) any service organization which--
(i) is a shareholder or partner in
the first organization, and
(ii) regularly performs services for
the first organization or is regularly
associated with the first organization
in performing services for third
persons, and
(B) any other organization if--
(i) a significant portion of the
business of such organization is the
performance of services (for the first
organization, for organizations
described in subparagraph (A), or for
both) of a type historically performed
in such service field by employees, and
(ii) 10 percent or more of the
interests in such organization is held
by persons who are highly compensated
employees (within the meaning of
section 414(q)) of the first
organization or an organization
described in subparagraph (A).
(3) Service organizations.--For purposes of this
subsection, the term ``service organization'' means an
organization the principal business of which is the
performance of services.
(4) Employee benefit requirements.--For purposes of
this subsection, the employee benefit requirements
listed in this paragraph are--
(A) paragraphs (3), (4), (7), (16), (17), and
(26) of section 401(a), and
(B) sections 408(k), 408(p), 410, 411, 415,
and 416.
(5) Certain organizations performing management
functions.--For purposes of this subsection, the term
``affiliated service group'' also includes a group
consisting of--
(A) an organization the principal business of
which is performing, on a regular and
continuing basis, management functions for 1
organization (or for 1 organization and other
organizations related to such 1 organization),
and
(B) the organization (and related
organizations) for which such functions are so
performed by the organization described in
subparagraph (A).
For purposes of this paragraph, the term ``related
organizations'' has the same meaning as the term
``related persons'' when used in section 144(a)(3).
(6) Other definitions.--For purposes of this
subsection--
(A) Organization defined.--The term
``organization'' means a corporation,
partnership, or other organization.
(B) Ownership.--In determining ownership, the
principles of section 318(a) shall apply.
(n) Employee leasing.--
(1) In general.--For purposes of the requirements
listed in paragraph (3), with respect to any person
(hereinafter in this subsection referred to as the
``recipient'') for whom a leased employee performs
services--
(A) the leased employee shall be treated as
an employee of the recipient, but
(B) contributions or benefits provided by the
leasing organization which are attributable to
services performed for the recipient shall be
treated as provided by the recipient.
(2) Leased employee.--For purposes of paragraph (1),
the term ``leased employee'' means any person who is
not an employee of the recipient and who provides
services to the recipient if--
(A) such services are provided pursuant to an
agreement between the recipient and any other
person (in this subsection referred to as the
``leasing organization''),
(B) such person has performed such services
for the recipient (or for the recipient and
related persons) on a substantially full-time
basis for a period of at least 1 year, and
(C) such services are performed under primary
direction or control by the recipient.
(3) Requirements.--For purposes of this subsection,
the requirements listed in this paragraph are--
(A) paragraphs (3), (4), (7), (16), (17), and
(26) of section 401(a),
(B) sections 408(k), 408(p), 410, 411, 415,
and 416, and
(C) sections 79, 106, 117(d), 125, 127, 129,
132, 137, 274(j), 505, and 4980B.
(4) Time when first considered as employee.--
(A) In general.--In the case of any leased
employee, paragraph (1) shall apply only for
purposes of determining whether the
requirements listed in paragraph (3) are met
for periods after the close of the period
referred to in paragraph (2)(B).
(B) Years of service.--In the case of a
person who is an employee of the recipient
(whether by reason of this subsection or
otherwise), for purposes of the requirements
listed in paragraph (3), years of service for
the recipient shall be determined by taking
into account any period for which such employee
would have been a leased employee but for the
requirements of paragraph (2)(B).
(5) Safe harbor.--
(A) In general.--In the case of requirements
described in subparagraphs (A) and (B) of
paragraph (3), this subsection shall not apply
to any leased employee with respect to services
performed for a recipient if--
(i) such employee is covered by a
plan which is maintained by the leasing
organization and meets the requirements
of subparagraph (B), and
(ii) leased employees (determined
without regard to this paragraph) do
not constitute more than 20 percent of
the recipient's nonhighly compensated
work force.
(B) Plan requirements.--A plan meets the
requirements of this subparagraph if--
(i) such plan is a money purchase
pension plan with a nonintegrated
employer contribution rate for each
participant of at least 10 percent of
compensation,
(ii) such plan provides for full and
immediate vesting, and
(iii) each employee of the leasing
organization (other than employees who
perform substantially all of their
services for the leasing organization)
immediately participates in such plan.
Clause (iii) shall not apply to any individual
whose compensation from the leasing
organization in each plan year during the 4-
year period ending with the plan year is less
than $1,000.
(C) Definitions.--For purposes of this
paragraph--
(i) Highly compensated employee.--The
term ``highly compensated employee''
has the meaning given such term by
section 414(q).
(ii) Nonhighly compensated work
force.--The term ``nonhighly
compensated work force'' means the
aggregate number of individuals (other
than highly compensated employees)--
(I) who are employees of the
recipient (without regard to
this subsection) and have
performed services for the
recipient (or for the recipient
and related persons) on a
substantially full-time basis
for a period of at least 1
year, or
(II) who are leased employees
with respect to the recipient
(determined without regard to
this paragraph).
(iii) Compensation.--The term
``compensation'' has the same meaning
as when used in section 415; except
that such term shall include--
(I) any employer contribution
under a qualified cash or
deferred arrangement to the
extent not included in gross
income under section 402(e)(3)
or 402(h)(1)(B),
(II) any amount which the
employee would have received in
cash but for an election under
a cafeteria plan (within the
meaning of section 125), and
(III) any amount contributed
to an annuity contract
described in section 403(b)
pursuant to a salary reduction
agreement (within the meaning
of section 3121(a)(5)(D)).
(6) Other rules.--For purposes of this subsection--
(A) Related persons.--The term ``related
persons'' has the same meaning as when used in
section 144(a)(3).
(B) Employees of entities under common
control.--The rules of subsections (b), (c),
(m), and (o) shall apply.
(o) Regulations.--The Secretary shall prescribe such
regulations (which may provide rules in addition to the rules
contained in subsections (m) and (n)) as may be necessary to
prevent the avoidance of any employee benefit requirement
listed in subsection (m)(4) or (n)(3) or any requirement under
section 457 through the use of--
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include
provisions to minimize the recordkeeping requirements of
subsection (n) in the case of an employer which has no top-
heavy plans (within the meaning of section 416(g)) and which
uses the services of persons (other than employees) for an
insignificant percentage of the employer's total workload.
(p) Qualified domestic relations order defined.--For purposes
of this subsection and section 401(a)(13)--
(1) In general.--
(A) Qualified domestic relations order.--The
term ``qualified domestic relations order''
means a domestic relations order--
(i) which creates or recognizes the
existence of an alternate payee's right
to, or assigns to an alternate payee
the right to, receive all or a portion
of the benefits payable with respect to
a participant under a plan, and
(ii) with respect to which the
requirements of paragraphs (2) and (3)
are met.
(B) Domestic relations order.--The term
``domestic relations order'' means any
judgment, decree, or order (including approval
of a property settlement agreement) which--
(i) relates to the provision of child
support, alimony payments, or marital
property rights to a spouse, former
spouse, child, or other dependent of a
participant, and
(ii) is made pursuant to a State
domestic relations law (including a
community property law).
(2) Order must clearly specify certain facts.--A
domestic relations order meets the requirements of this
paragraph only if such order clearly specifies--
(A) the name and the last known mailing
address (if any) of the participant and the
name and mailing address of each alternate
payee covered by the order,
(B) the amount or percentage of the
participant's benefits to be paid by the plan
to each such alternate payee, or the manner in
which such amount or percentage is to be
determined,
(C) the number of payments or period to which
such order applies, and
(D) each plan to which such order applies.
(3) Order may not alter amount, form, etc., of
benefits.--A domestic relations order meets the
requirements of this paragraph only if such order--
(A) does not require a plan to provide any
type or form of benefit, or any option, not
otherwise provided under the plan,
(B) does not require the plan to provide
increased benefits (determined on the basis of
actuarial value), and
(C) does not require the payment of benefits
to an alternate payee which are required to be
paid to another alternate payee under another
order previously determined to be a qualified
domestic relations order.
(4) Exception for certain payments made after
earliest retirement age.--
(A) In general.--A domestic relations order
shall not be treated as failing to meet the
requirements of subparagraph (A) of paragraph
(3) solely because such order requires that
payment of benefits be made to an alternate
payee--
(i) in the case of any payment before
a participant has separated from
service, on or after the date on which
the participant attains (or would have
attained) the earliest retirement age,
(ii) as if the participant had
retired on the date on which such
payment is to begin under such order
(but taking into account only the
present value of the benefits actually
accrued and not taking into account the
present value of any employer subsidy
for early retirement), and
(iii) in any form in which such
benefits may be paid under the plan to
the participant (other than in the form
of a joint and survivor annuity with
respect to the alternate payee and his
or her subsequent spouse).
For purposes of clause (ii), the interest rate
assumption used in determining the present
value shall be the interest rate specified in
the plan or, if no rate is specified, 5
percent.
(B) Earliest retirement age.--For purposes of
this paragraph, the term ``earliest retirement
age'' means the earlier of--
(i) the date on which the participant
is entitled to a distribution under the
plan, or
(ii) the later of--
(I) the date the participant
attains age 50, or
(II) the earliest date on
which the participant could
begin receiving benefits under
the plan if the participant
separated from service.
(5) Treatment of former spouse as surviving spouse
for purposes of determining survivor benefits.--To the
extent provided in any qualified domestic relations
order--
(A) the former spouse of a participant shall
be treated as a surviving spouse of such
participant for purposes of sections 401(a)(11)
and 417 (and any spouse of the participant
shall not be treated as a spouse of the
participant for such purposes), and
(B) if married for at least 1 year, the
surviving former spouse shall be treated as
meeting the requirements of section 417(d).
(6) Plan procedures with respect to orders.--
(A) Notice and determination by
administrator.--In the case of any domestic
relations order received by a plan--
(i) the plan administrator shall
promptly notify the participant and
each alternate payee of the receipt of
such order and the plan's procedures
for determining the qualified status of
domestic relations orders, and
(ii) within a reasonable period after
receipt of such order, the plan
administrator shall determine whether
such order is a qualified domestic
relations order and notify the
participant and each alternate payee of
such determination.
(B) Plan to establish reasonable
procedures.--Each plan shall establish
reasonable procedures to determine the
qualified status of domestic relations orders
and to administer distributions under such
qualified orders.
(7) Procedures for period during which determination
is being made.--
(A) In general.--During any period in which
the issue of whether a domestic relations order
is a qualified domestic relations order is
being determined (by the plan administrator, by
a court of competent jurisdiction, or
otherwise), the plan administrator shall
separately account for the amounts (hereinafter
in this paragraph referred to as the
``segregated amounts'') which would have been
payable to the alternate payee during such
period if the order had been determined to be a
qualified domestic relations order.
(B) Payment to alternate payee if order
determined to be qualified domestic relations
order.--If within the 18-month period described
in subparagraph (E) the order (or modification
thereof) is determined to be a qualified
domestic relations order, the plan
administrator shall pay the segregated amounts
(including any interest thereon) to the person
or persons entitled thereto.
(C) Payment to plan participant in certain
cases.--If within the 18-month period described
in subparagraph (E)--
(i) it is determined that the order
is not a qualified domestic relations
order, or
(ii) the issue as to whether such
order is a qualified domestic relations
order is not resolved,
then the plan administrator shall pay the
segregated amounts (including any interest
thereon) to the person or persons who would
have been entitled to such amounts if there had
been no order.
(D) Subsequent determination or order to be
applied prospectively only.--Any determination
that an order is a qualified domestic relations
order which is made after the close of the 18-
month period described in subparagraph (E)
shall be applied prospectively only.
(E) Determination of 18-month period.--For
purposes of this paragraph, the 18-month period
described in this subparagraph is the 18-month
period beginning with the date on which the
first payment would be required to be made
under the domestic relations order.
(8) Alternate payee defined.--The term ``alternate
payee'' means any spouse, former spouse, child or other
dependent of a participant who is recognized by a
domestic relations order as having a right to receive
all, or a portion of, the benefits payable under a plan
with respect to such participant.
(9) Subsection not to apply to plans to which section
401(a)(13) does not apply.--This subsection shall not
apply to any plan to which section 401(a)(13) does not
apply. For purposes of this title, except as provided
in regulations, any distribution from an annuity
contract under section 403(b) pursuant to a qualified
domestic relations order shall be treated in the same
manner as a distribution from a plan to which section
401(a)(13) applies.
(10) Waiver of certain distribution requirements.--
With respect to the requirements of subsections (a) and
(k) of section 401, section 403(b), 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 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 the rules of section
402(e)(1)(A) shall apply to such distribution or
payment.
(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.
(q) Highly compensated employee.--
(1) In general.--The term ``highly compensated
employee'' means any employee who--
(A) was a 5-percent owner at any time during
the year or the preceding year, or
(B) for the preceding year--
(i) had compensation from the
employer in excess of $80,000, and
(ii) if the employer elects the
application of this clause for such
preceding year, was in the top-paid
group of employees for such preceding
year.
The Secretary shall adjust the $80,000 amount under
subparagraph (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 ending September
30, 1996.
(2) 5-percent owner.--An employee shall be treated as
a 5-percent owner for any year if at any time during
such year such employee was a 5-percent owner (as
defined in section 416(i)(1)) of the employer.
(3) Top-paid group.--An employee is in the top-paid
group of employees for any year if such employee is in
the group consisting of the top 20 percent of the
employees when ranked on the basis of compensation paid
during such year.
(4) Compensation.--For purposes of this subsection,
the term ``compensation'' has the meaning given such
term by section 415(c)(3).
(5) Excluded employees.--For purposes of subsection
(r) and for purposes of determining the number of
employees in the top-paid group, the following
employees shall be excluded--
(A) employees who have not completed 6 months
of service,
(B) employees who normally work less than
171/2 hours per week,
(C) employees who normally work during not
more than 6 months during any year,
(D) employees who have not attained age 21,
and
(E) except to the extent provided in
regulations, employees who are included in a
unit of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee
representatives and the employer.
Except as provided by the Secretary, the employer may
elect to apply subparagraph (A), (B), (C), or (D) by
substituting a shorter period of service, smaller
number of hours or months, or lower age for the period
of service, number of hours or months, or age (as the
case may be) than that specified in such subparagraph.
(6) Former employees.--A former employee shall be
treated as a highly compensated employee if--
(A) such employee was a highly compensated
employee when such employee separated from
service, or
(B) such employee was a highly compensated
employee at any time after attaining age 55.
(7) Coordination with other provisions.--Subsections
(b), (c), (m), (n), and (o) shall be applied before the
application of this subsection.
(8) Special rule for nonresident aliens.--For
purposes of this subsection and subsection (r),
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)) shall not be treated as employees.
(9) Certain employees not considered highly
compensated and excluded employees under pre-ERISA
rules for church plans.--In the case of a church plan
(as defined in subsection (e)), no employee shall be
considered an officer, a person whose principal duties
consist of supervising the work of other employees, or
a highly compensated employee for any year unless such
employee is a highly compensated employee under
paragraph (1) for such year.
(r) Special rules for separate line of business.--
(1) In general.--For purposes of sections 129(d)(8)
and 410(b), an employer shall be treated as operating
separate lines of business during any year if the
employer for bona fide business reasons operates
separate lines of business.
(2) Line of business must have 50 employees, etc..--A
line of business shall not be treated as separate under
paragraph (1) unless--
(A) such line of business has at least 50
employees who are not excluded under subsection
(q)(5),
(B) the employer notifies the Secretary that
such line of business is being treated as
separate for purposes of paragraph (1), and
(C) such line of business meets guidelines
prescribed by the Secretary or the employer
receives a determination from the Secretary
that such line of business may be treated as
separate for purposes of paragraph (1).
(3) Safe harbor rule.--
(A) In general.--The requirements of
subparagraph (C) of paragraph (2) shall not
apply to any line of business if the highly
compensated employee percentage with respect to
such line of business is--
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated
employees are of all employees of the employer.
An employer shall be treated as meeting the
requirements of clause (i) if at least 10
percent of all highly compensated employees of
the employer perform services solely for such
line of business.
(B) Determination may be based on preceding
year.--The requirements of subparagraph (A)
shall be treated as met with respect to any
line of business if such requirements were met
with respect to such line of business for the
preceding year and if--
(i) no more than a de minimis number
of employees were shifted to or from
the line of business after the close of
the preceding year, or
(ii) the employees shifted to or from
the line of business after the close of
the preceding year contained a
substantially proportional number of
highly compensated employees.
(4) Highly compensated employee percentage defined.--
For purposes of this subsection, the term ``highly
compensated employee percentage'' means the percentage
which highly compensated employees performing services
for the line of business are of all employees
performing services for the line of business.
(5) Allocation of benefits to line of business.--For
purposes of this subsection, benefits which are
attributable to services provided to a line of business
shall be treated as provided by such line of business.
(6) Headquarters personnel, etc..--The Secretary
shall prescribe rules providing for--
(A) the allocation of headquarters personnel
among the lines of business of the employer,
and
(B) the treatment of other employees
providing services for more than 1 line of
business of the employer or not in lines of
business meeting the requirements of paragraph
(2).
(7) Separate operating units.--For purposes of this
subsection, the term ``separate line of business''
includes an operating unit in a separate geographic
area separately operated for a bona fide business
reason.
(8) Affiliated service groups.--This subsection shall
not apply in the case of any affiliated service group
(within the meaning of section 414(m)).
(s) Compensation.--For purposes of any applicable provision--
(1) In general.--Except as provided in this
subsection, the term ``compensation'' has the meaning
given such term by section 415(c)(3).
(2) Employer may elect not to treat certain deferrals
as compensation.--An employer may elect not to include
as compensation any amount which is contributed by the
employer pursuant to a salary reduction agreement and
which is not includible in the gross income of an
employee under section 125, 132(f)(4), 402(e)(3),
402(h), or 403(b).
(3) Alternative determination of compensation.--The
Secretary shall by regulation provide for alternative
methods of determining compensation which may be used
by an employer, except that such regulations shall
provide that an employer may not use an alternative
method if the use of such method discriminates in favor
of highly compensated employees (within the meaning of
subsection (q)).
(4) Applicable provision.--For purposes of this
subsection, the term ``applicable provision'' means any
provision which specifically refers to this subsection.
(t) Application of controlled group rules to certain employee
benefits.--
(1) In general.--All employees who are treated as
employed by a single employer under subsection (b),
(c), or (m) shall be treated as employed by a single
employer for purposes of an applicable section. The
provisions of subsection (o) shall apply with respect
to the requirements of an applicable section.
(2) Applicable section.--For purposes of this
subsection, the term ``applicable section'' means
section 79, 106, 117(d), 125, 127, 129, 132, 137,
274(j), 505, or 4980B.
(u) Special rules relating to veterans' reemployment rights
under USERRA and to differential wage payments to members on
active duty.--
(1) Treatment of certain contributions made pursuant
to veterans' reemployment rights.--If any contribution
is made by an employer or an employee under an
individual account plan with respect to an employee, or
by an employee to a defined benefit plan that provides
for employee contributions, and such contribution is
required by reason of such employee's rights under
chapter 43 of title 38, United States Code, resulting
from qualified military service, then--
(A) such contribution shall not be subject to
any otherwise applicable limitation contained
in section 402(g), 402(h), 403(b), 404(a),
404(h), 408, 415, or 457, and shall not be
taken into account in applying such limitations
to other contributions or benefits under such
plan or any other plan, with respect to the
year in which the contribution is made,
(B) such contribution shall be subject to the
limitations referred to in subparagraph (A)
with respect to the year to which the
contribution relates (in accordance with rules
prescribed by the Secretary), and
(C) such plan shall not be treated as failing
to meet the requirements of section 401(a)(4),
401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),
401(m), 403(b)(12), 408(k)(3), 408(k)(6),
408(p), 410(b), or 416 by reason of the making
of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective
deferral or employee contribution made under paragraph
(2) shall be treated as required by reason of the
employee's rights under such chapter 43.
(2) Reemployment rights under USERRA with respect to
elective deferrals.--
(A) In general.--For purposes of this
subchapter and section 457, if an employee is
entitled to the benefits of chapter 43 of title
38, United States Code, with respect to any
plan which provides for elective deferrals, the
employer sponsoring the plan shall be treated
as meeting the requirements of such chapter 43
with respect to such elective deferrals only if
such employer--
(i) permits such employee to make
additional elective deferrals under
such plan (in the amount determined
under subparagraph (B) or such lesser
amount as is elected by the employee)
during the period which begins on the
date of the reemployment of such
employee with such employer and has the
same length as the lesser of--
(I) the product of 3 and the
period of qualified military
service which resulted in such
rights, and
(II) 5 years, and
(ii) makes a matching contribution
with respect to any additional elective
deferral made pursuant to clause (i)
which would have been required had such
deferral actually been made during the
period of such qualified military
service.
(B) Amount of makeup required.--The amount
determined under this subparagraph with respect
to any plan is the maximum amount of the
elective deferrals that the individual would
have been permitted to make under the plan in
accordance with the limitations referred to in
paragraph (1)(A) during the period of qualified
military service if the individual had
continued to be employed by the employer during
such period and received compensation as
determined under paragraph (7). Proper
adjustment shall be made to the amount
determined under the preceding sentence for any
elective deferrals actually made during the
period of such qualified military service.
(C) Elective deferral.--For purposes of this
paragraph, the term ``elective deferral'' has
the meaning given such term by section
402(g)(3); except that such term shall include
any deferral of compensation under an eligible
deferred compensation plan (as defined in
section 457(b)).
(D) After-tax employee contributions.--
References in subparagraphs (A) and (B) to
elective deferrals shall be treated as
including references to employee contributions.
(3) Certain retroactive adjustments not required.--
For purposes of this subchapter and subchapter E, no
provision of chapter 43 of title 38, United States
Code, shall be construed as requiring--
(A) any crediting of earnings to an employee
with respect to any contribution before such
contribution is actually made, or
(B) any allocation of any forfeiture with
respect to the period of qualified military
service.
(4) Loan repayment suspensions permitted.--If any
plan suspends the obligation to repay any loan made to
an employee from such plan for any part of any period
during which such employee is performing service in the
uniformed services (as defined in chapter 43 of title
38, United States Code), whether or not qualified
military service, such suspension shall not be taken
into account for purposes of section 72(p), 401(a), or
4975(d)(1).
(5) Qualified military service.--For purposes of this
subsection, the term ``qualified military service''
means any service in the uniformed services (as defined
in chapter 43 of title 38, United States Code) by any
individual if such individual is entitled to
reemployment rights under such chapter with respect to
such service.
(6) Individual account plan.--For purposes of this
subsection, the term ``individual account plan'' means
any defined contribution plan (including any tax-
sheltered annuity plan under section 403(b), any
simplified employee pension under section 408(k), any
qualified salary reduction arrangement under section
408(p), and any eligible deferred compensation plan (as
defined in section 457(b))).
(7) Compensation.--For purposes of sections
403(b)(3), 415(c)(3), and 457(e)(5), an employee who is
in qualified military service shall be treated as
receiving compensation from the employer during such
period of qualified military service equal to--
(A) the compensation the employee would have
received during such period if the employee
were not in qualified military service,
determined based on the rate of pay the
employee would have received from the employer
but for absence during the period of qualified
military service, or
(B) if the compensation the employee would
have received during such period was not
reasonably certain, the employee's average
compensation from the employer during the 12-
month period immediately preceding the
qualified military service (or, if shorter, the
period of employment immediately preceding the
qualified military service).
(8) USERRA requirements for qualified retirement
plans.--For purposes of this subchapter and section
457, an employer sponsoring a retirement plan shall be
treated as meeting the requirements of chapter 43 of
title 38, United States Code, only if each of the
following requirements is met:
(A) An individual reemployed under such
chapter is treated with respect to such plan as
not having incurred a break in service with the
employer maintaining the plan by reason of such
individual's period of qualified military
service.
(B) Each period of qualified military service
served by an individual is, upon reemployment
under such chapter, deemed with respect to such
plan to constitute service with the employer
maintaining the plan for the purpose of
determining the nonforfeitability of the
individual's accrued benefits under such plan
and for the purpose of determining the accrual
of benefits under such plan.
(C) An individual reemployed under such
chapter is entitled to accrued benefits that
are contingent on the making of, or derived
from, employee contributions or elective
deferrals only to the extent the individual
makes payment to the plan with respect to such
contributions or deferrals. No such payment may
exceed the amount the individual would have
been permitted or required to contribute had
the individual remained continuously employed
by the employer throughout the period of
qualified military service. Any payment to such
plan shall be made during the period beginning
with the date of reemployment and whose
duration is 3 times the period of the qualified
military service (but not greater than 5
years).
(9) Treatment in the case of death or disability
resulting from active military service.--
(A) In general.--For benefit accrual
purposes, an employer sponsoring a retirement
plan may treat an individual who dies or
becomes disabled (as defined under the terms of
the plan) while performing qualified military
service with respect to the employer
maintaining the plan as if the individual has
resumed employment in accordance with the
individual's reemployment rights under chapter
43 of title 38, United States Code, on the day
preceding death or disability (as the case may
be) and terminated employment on the actual
date of death or disability. In the case of any
such treatment, and subject to subparagraphs
(B) and (C), any full or partial compliance by
such plan with respect to the benefit accrual
requirements of paragraph (8) with respect to
such individual shall be treated for purposes
of paragraph (1) as if such compliance were
required under such chapter 43.
(B) Nondiscrimination requirement.--
Subparagraph (A) shall apply only if all
individuals performing qualified military
service with respect to the employer
maintaining the plan (as determined under
subsections (b), (c), (m), and (o)) who die or
became disabled as a result of performing
qualified military service prior to
reemployment by the employer are credited with
service and benefits on reasonably equivalent
terms.
(C) Determination of benefits.--The amount of
employee contributions and the amount of
elective deferrals of an individual treated as
reemployed under subparagraph (A) for purposes
of applying paragraph (8)(C) shall be
determined on the basis of the individual's
average actual employee contributions or
elective deferrals for the lesser of--
(i) the 12-month period of service
with the employer immediately prior to
qualified military service, or
(ii) if service with the employer is
less than such 12-month period, the
actual length of continuous service
with the employer.
(10) Plans not subject to title 38.--This subsection
shall not apply to any retirement plan to which chapter
43 of title 38, United States Code, does not apply.
(11) References.--For purposes of this section, any
reference to chapter 43 of title 38, United States
Code, shall be treated as a reference to such chapter
as in effect on December 12, 1994 (without regard to
any subsequent amendment).
(12) Treatment of differential wage payments.--
(A) In general.--Except as provided in this
paragraph, for purposes of applying this title
to a retirement plan to which this subsection
applies--
(i) an individual receiving a
differential wage payment shall be
treated as an employee of the employer
making the payment,
(ii) the differential wage payment
shall be treated as compensation, and
(iii) the plan shall not be treated
as failing to meet the requirements of
any provision described in paragraph
(1)(C) by reason of any contribution or
benefit which is based on the
differential wage payment.
(B) Special rule for distributions.--
(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of
section 401(k)(2)(B)(i)(I),
403(b)(7)(A)(ii), 403(b)(11)(A), or
457(d)(1)(A)(ii), an individual shall
be treated as having been severed from
employment during any period the
individual is performing service in the
uniformed services described in section
3401(h)(2)(A).
(ii) Limitation.--If an individual
elects to receive a distribution by
reason of clause (i), the plan shall
provide that the individual may not
make an elective deferral or employee
contribution during the 6-month period
beginning on the date of the
distribution.
(C) Nondiscrimination requirement.--
Subparagraph (A)(iii) shall apply only if all
employees of an employer (as determined under
subsections (b), (c), (m), and (o)) performing
service in the uniformed services described in
section 3401(h)(2)(A) are entitled to receive
differential wage payments on reasonably
equivalent terms and, if eligible to
participate in a retirement plan maintained by
the employer, to make contributions based on
the payments on reasonably equivalent terms.
For purposes of applying this subparagraph, the
provisions of paragraphs (3), (4), and (5) of
section 410(b) shall apply.
(D) Differential wage payment.--For purposes
of this paragraph, the term ``differential wage
payment'' has the meaning given such term by
section 3401(h)(2).
(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) In general.--A plan shall not permit
additional elective deferrals under paragraph
(1) for any year in an amount greater than the
lesser of--
(i) the applicable dollar amount, or
(ii) the excess (if any) of--
(I) the participant's
compensation (as defined in
section 415(c)(3)) for the
year, over
(II) any other elective
deferrals of the participant
for such year which are made
without regard to this
subsection.
(B) Applicable dollar amount.--For purposes
of this paragraph--
(i) In the case of an applicable
employer plan other than a plan
described in section 401(k)(11) or
408(p), the applicable dollar amount is
$5,000.
(ii) In the case of an applicable
employer plan described in section
401(k)(11) or 408(p), the applicable
dollar amount is $2,500.
(C) 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 subparagraph (B)(i) and the $2,500
amount in subparagraph (B)(ii) 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.
(D) Aggregation of plans.--For purposes of
this paragraph, plans described in clauses (i),
(ii), and (iv) of paragraph (6)(A) that are
maintained by the same employer (as determined
under subsection (b), (c), (m) or (o)) shall be
treated as a single plan, and plans described
in clause (iii) of paragraph (6)(A) that are
maintained by the same employer shall be
treated as a single plan.
(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1)--
(A) such contribution shall not, with respect
to the year in which the contribution is made--
(i) be subject to any otherwise
applicable limitation contained in
sections 401(a)(30), 402(h), 403(b),
408, 415(c), and 457(b)(2) (determined
without regard to section 457(b)(3)),
or
(ii) be taken into account in
applying such limitations to other
contributions or benefits under such
plan or any other such plan, and
(B) except as provided in paragraph (4), such
plan shall not be treated as failing to meet
the requirements of section 401(a)(4),
401(k)(3), 401(k)(11), 403(b)(12), 408(k),
410(b), or 416 by reason of the making of (or
the right to make) such contribution.
(4) Application of nondiscrimination rules.--
(A) In general.--An applicable employer plan
shall be treated as failing to meet the
nondiscrimination requirements under section
401(a)(4) with respect to benefits, rights, and
features unless 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, except
that a plan described in clause (i) of section
410(b)(6)(C) shall not be treated as a plan of
the employer until the expiration of the
transition period with respect to such plan (as
determined under clause (ii) of such section).
(5) Eligible participant.--For purposes of this
subsection, the term ``eligible participant'' means a
participant in a plan--
(A) who would attain age 50 by the end of the
taxable year,
(B) with respect to whom no other elective
deferrals may (without regard to this
subsection) be made to the plan for the plan
(or other applicable) year by reason of the
application of any limitation or other
restriction described in paragraph (3) or
comparable limitation or restriction 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 described 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 a participant for
any year for which a higher limitation applies
to the participant under section 457(b)(3).
(w) Special rules for certain withdrawals from eligible
automatic contribution arrangements.--
(1) In general.--If an eligible automatic
contribution arrangement allows an employee to elect to
make permissible withdrawals--
(A) the amount of any such withdrawal shall
be includible in the gross income of the
employee for the taxable year of the employee
in which the distribution is made,
(B) no tax shall be imposed under section
72(t) with respect to the distribution, and
(C) the arrangement shall not be treated as
violating any restriction on distributions
under this title solely by reason of allowing
the withdrawal.
In the case of any distribution to an employee by
reason of an election under this paragraph, employer
matching contributions shall be forfeited or subject to
such other treatment as the Secretary may prescribe.
(2) Permissible withdrawal.--For purposes of this
subsection--
(A) In general.--The term ``permissible
withdrawal'' means any withdrawal from an
eligible automatic contribution arrangement
meeting the requirements of this paragraph
which--
(i) is made pursuant to an election
by an employee, and
(ii) consists of elective
contributions described in paragraph
(3)(B) (and earnings attributable
thereto).
(B) Time for making election.--Subparagraph
(A) shall not apply to an election by an
employee unless the election is made no later
than the date which is 90 days after the date
of the first elective contribution with respect
to the employee under the arrangement.
(C) Amount of distribution.--Subparagraph (A)
shall not apply to any election by an employee
unless the amount of any distribution by reason
of the election is equal to the amount of
elective contributions made with respect to the
first payroll period to which the eligible
automatic contribution arrangement applies to
the employee and any succeeding payroll period
beginning before the effective date of the
election (and earnings attributable thereto).
(3) Eligible automatic contribution arrangement.--For
purposes of this subsection, the term ``eligible
automatic contribution arrangement'' means an
arrangement under an applicable employer plan--
(A) under which a participant may elect to
have the employer make payments as
contributions under the plan on behalf of the
participant, or to the participant directly in
cash,
(B) under which the participant is treated as
having elected to have the employer make such
contributions in an amount equal to a uniform
percentage of compensation provided under the
plan until the participant specifically elects
not to have such contributions made (or
specifically elects to have such contributions
made at a different percentage), and
(C) which meets the requirements of paragraph
(4).
(4) Notice requirements.--
(A) In general.--The administrator of a plan
containing an arrangement described in
paragraph (3) shall, within a reasonable period
before each plan year, give to each employee to
whom an arrangement described in paragraph (3)
applies for such plan year notice of the
employee's rights and obligations under the
arrangement which--
(i) is sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and
(ii) is written in a manner
calculated to be understood by the
average employee to whom the
arrangement applies.
(B) Time and form of notice.--A notice shall
not be treated as meeting the requirements of
subparagraph (A) with respect to an employee
unless--
(i) the notice includes an
explanation of the employee's right
under the arrangement to elect not to
have elective contributions made on the
employee's behalf (or to elect to have
such contributions made at a different
percentage),
(ii) the employee has a reasonable
period of time after receipt of the
notice described in clause (i) and
before the first elective contribution
is made to make such election, and
(iii) the notice explains how
contributions made under the
arrangement will be invested in the
absence of any investment election by
the employee.
(5) Applicable employer plan.--For purposes of this
subsection, the term ``applicable employer plan''
means--
(A) an employees' trust described in section
401(a) which is exempt from tax under section
501(a),
(B) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b),
(C) an eligible deferred compensation plan
described in section 457(b) which is maintained
by an eligible employer described in section
457(e)(1)(A),
(D) a simplified employee pension the terms
of which provide for a salary reduction
arrangement described in section 408(k)(6), and
(E) a simple retirement account (as defined
in section 408(p)).
(6) Special rule.--A withdrawal described in
paragraph (1) (subject to the limitation of paragraph
(2)(C)) shall not be taken into account for purposes of
section 401(k)(3) or for purposes of applying the
limitation under section 402(g)(1).
(x) Special rules for eligible combined defined benefit plans
and qualified cash or deferred arrangements.--
(1) General rule.--Except as provided in this
subsection, the requirements of this title shall be
applied to any defined benefit plan or applicable
defined contribution plan which is part of an eligible
combined plan in the same manner as if each such plan
were not a part of the eligible combined plan. In the
case of a termination of the defined benefit plan and
the applicable defined contribution plan forming part
of an eligible combined plan, the plan administrator
shall terminate each such plan separately.
(2) Eligible combined plan.--For purposes of this
subsection--
(A) In general.--The term ``eligible combined
plan'' means a plan--
(i) which is maintained by an
employer which, at the time the plan is
established, is a small employer,
(ii) which consists of a defined
benefit plan and an applicable defined
contribution plan,
(iii) the assets of which are held in
a single trust forming part of the plan
and are clearly identified and
allocated to the defined benefit plan
and the applicable defined contribution
plan to the extent necessary for the
separate application of this title
under paragraph (1), and
(iv) with respect to which the
benefit, contribution, vesting, and
nondiscrimination requirements of
subparagraphs (B), (C), (D), (E), and
(F) are met.
For purposes of this subparagraph, the term
``small employer'' has the meaning given such
term by section 4980D(d)(2), except that such
section shall be applied by substituting
``500'' for ``50'' each place it appears.
(B) Benefit requirements.--
(i) In general.--The benefit
requirements of this subparagraph are
met with respect to the defined benefit
plan forming part of the eligible
combined plan if the accrued benefit of
each participant derived from employer
contributions, when expressed as an
annual retirement benefit, is not less
than the applicable percentage of the
participant's final average pay. For
purposes of this clause, final average
pay shall be determined using the
period of consecutive years (not
exceeding 5) during which the
participant had the greatest aggregate
compensation from the employer.
(ii) Applicable percentage.--For
purposes of clause (i), the applicable
percentage is the lesser of--
(I) 1 percent multiplied by
the number of years of service
with the employer, or
(II) 20 percent.
(iii) Special rule for applicable
defined benefit plans.--If the defined
benefit plan under clause (i) is an
applicable defined benefit plan as
defined in section 411(a)(13)(B) which
meets the interest credit requirements
of section 411(b)(5)(B)(i), the plan
shall be treated as meeting the
requirements of clause (i) with respect
to any plan year if each participant
receives a pay credit for the year
which is not less than the percentage
of compensation determined in
accordance with the following table:
(iv) Years of service.--For purposes
of this subparagraph, years of service
shall be determined under the rules of
paragraphs (4), (5), and (6) of section
411(a), except that the plan may not
disregard any year of service because
of a participant making, or failing to
make, any elective deferral with
respect to the qualified cash or
deferred arrangement to which
subparagraph (C) applies.
(C) Contribution requirements.--
(i) In general.--The contribution
requirements of this subparagraph with
respect to any applicable defined
contribution plan forming part of an
eligible combined plan are met if--
(I) the qualified cash or
deferred arrangement included
in such plan constitutes an
automatic contribution
arrangement, and
(II) the employer is required
to make matching contributions
on behalf of each employee
eligible to participate in the
arrangement in an amount equal
to 50 percent of the elective
contributions of the employee
to the extent such elective
contributions do not exceed 4
percent of compensation.
Rules similar to the rules of clauses (ii) and
(iii) of section 401(k)(12)(B) shall apply for
purposes of this clause.
(ii) Nonelective contributions.--An
applicable defined contribution plan
shall not be treated as failing to meet
the requirements of clause (i) because
the employer makes nonelective
contributions under the plan but such
contributions shall not be taken into
account in determining whether the
requirements of clause (i)(II) are met.
(D) Vesting requirements.--The vesting
requirements of this subparagraph are met if--
(i) in the case of a defined benefit
plan forming part of an eligible
combined plan an employee who has
completed at least 3 years of service
has a nonforfeitable right to 100
percent of the employee's accrued
benefit under the plan derived from
employer contributions, and
(ii) in the case of an applicable
defined contribution plan forming part
of eligible combined plan--
(I) an employee has a
nonforfeitable right to any
matching contribution made
under the qualified cash or
deferred arrangement included
in such plan by an employer
with respect to any elective
contribution, including
matching contributions in
excess of the contributions
required under subparagraph
(C)(i)(II), and
(II) an employee who has
completed at least 3 years of
service has a nonforfeitable
right to 100 percent of the
employee's accrued benefit
derived under the arrangement
from nonelective contributions
of the employer.
For purposes of this subparagraph, the rules
of section 411 shall apply to the extent not
inconsistent with this subparagraph.
(E) Uniform provision of contributions and
benefits.--In the case of a defined benefit
plan or applicable defined contribution plan
forming part of an eligible combined plan, the
requirements of this subparagraph are met if
all contributions and benefits under each such
plan, and all rights and features under each
such plan, must be provided uniformly to all
participants.
(F) Requirements must be met without taking
into account social security and similar
contributions and benefits or other plans.--
(i) In general.--The requirements of
this subparagraph are met if the
requirements of clauses (ii) and (iii)
are met.
(ii) Social security and similar
contributions.--The requirements of
this clause are met if--
(I) the requirements of
subparagraphs (B) and (C) are
met without regard to section
401(l), and
(II) the requirements of
sections 401(a)(4) and 410(b)
are met with respect to both
the applicable defined
contribution plan and defined
benefit plan forming part of an
eligible combined plan without
regard to section 401(l).
(iii) Other plans and arrangements.--
The requirements of this clause are met
if the applicable defined contribution
plan and defined benefit plan forming
part of an eligible combined plan meet
the requirements of sections 401(a)(4)
and 410(b) without being combined with
any other plan.
(3) Nondiscrimination requirements for qualified cash
or deferred arrangement.--
(A) In general.--A qualified cash or deferred
arrangement which is included in an applicable
defined contribution plan forming part of an
eligible combined plan shall be treated as
meeting the requirements of section
401(k)(3)(A)(ii) if the requirements of
paragraph (2)(C) are met with respect to such
arrangement.
(B) Matching contributions.--In applying
section 401(m)(11) to any matching contribution
with respect to a contribution to which
paragraph (2)(C) applies, the contribution
requirement of paragraph (2)(C) and the notice
requirements of paragraph (5)(B) shall be
substituted for the requirements otherwise
applicable under clauses (i) and (ii) of
section 401(m)(11)(A).
(4) Satisfaction of top-heavy rules.--A defined
benefit plan and applicable defined contribution plan
forming part of an eligible combined plan for any plan
year shall be treated as meeting the requirements of
section 416 for the plan year.
(5) Automatic contribution arrangement.--For purposes
of this subsection--
(A) In general.--A qualified cash or deferred
arrangement shall be treated as an automatic
contribution arrangement if the arrangement--
(i) provides that each employee
eligible to participate in the
arrangement is treated as having
elected to have the employer make
elective contributions in an amount
equal to 4 percent of the employee's
compensation unless the employee
specifically elects not to have such
contributions made or to have such
contributions made at a different rate,
and
(ii) meets the notice requirements
under subparagraph (B).
(B) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if the
requirements of clauses (ii) and (iii)
are met.
(ii) Reasonable period to make
election.--The requirements of this
clause are met if each employee to whom
subparagraph (A)(i) applies--
(I) receives a notice
explaining the employee's right
under the arrangement to elect
not to have elective
contributions made on the
employee's behalf or to have
the contributions made at a
different rate, and
(II) has a reasonable period
of time after receipt of such
notice and before the first
elective contribution is made
to make such election.
(iii) Annual notice of rights and
obligations.--The requirements of this
clause are met if each employee
eligible to participate in the
arrangement is, within a reasonable
period before any year, given notice of
the employee's rights and obligations
under the arrangement.
The requirements of clauses (i) and (ii) of
section 401(k)(12)(D) shall be met with respect
to the notices described in clauses (ii) and
(iii) of this subparagraph.
(6) Coordination with other requirements.--
(A) Treatment of separate plans.--Section
414(k) shall not apply to an eligible combined
plan.
(B) Reporting.--An eligible combined plan
shall be treated as a single plan for purposes
of sections 6058 and 6059.
(7) Applicable defined contribution plan.--For
purposes of this subsection--
(A) In general.--The term ``applicable
defined contribution plan'' means a defined
contribution plan which includes a qualified
cash or deferred arrangement.
(B) Qualified cash or deferred arrangement.--
The term ``qualified cash or deferred
arrangement'' has the meaning given such term
by section 401(k)(2).
(y) Cooperative and small employer charity pension plans.--
(1) In general.--For purposes of this title, except
as provided in this subsection, a CSEC plan is a
defined benefit plan (other than a multiemployer
plan)--
(A) to which section 104 of the Pension
Protection Act of 2006 applies, without regard
to--
(i) section 104(a)(2) of such Act;
(ii) the amendments to such section
104 by section 202(b) of the
Preservation of Access to Care for
Medicare Beneficiaries and Pension
Relief Act of 2010; and
(iii) paragraph (3)(B);
(B) that, as of June 25, 2010, was maintained
by more than one employer and all of the
employers were organizations described in
section 501(c)(3);
(C) that, as of June 25, 2010, was maintained
by an employer--
(i) described in section 501(c)(3),
(ii) chartered under part B of
subtitle II of title 36, United States
Code,
(iii) with employees in at least 40
States, and
(iv) whose primary exempt purpose is
to provide services with respect to
children; or
(D) that, as of January 1, 2000, was
maintained by an employer--
(i) described in section 501(c)(3),
(ii) who has been in existence since
at least 1938,
(iii) who conducts medical research
directly or indirectly through grant
making, and
(iv) whose primary exempt purpose is
to provide services with respect to
mothers and children.
(2) Aggregation.--All employers that are treated as a
single employer under subsection (b) or (c) shall be
treated as a single employer for purposes of
determining if a plan was maintained by more than one
employer under subparagraphs (B) and (C) of paragraph
(1).
(3) Election.--
(A) In general.--If a plan falls within the
definition of a CSEC plan under this subsection
(without regard to this paragraph), such plan
shall be a CSEC plan unless the plan sponsor
elects not later than the close of the first
plan year of the plan beginning after December
31, 2013, not to be treated as a CSEC plan. An
election under the preceding sentence shall
take effect for such plan year and, once made,
may be revoked only with the consent of the
Secretary.
(B) Special rule.--If a plan described in
subparagraph (A) is treated as a CSEC plan,
section 104 of the Pension Protection Act of
2006, as amended by the Preservation of Access
to Care for Medicare Beneficiaries and Pension
Relief Act of 2010, shall cease to apply to
such plan as of the first date as of which such
plan is treated as a CSEC plan.
(z) Certain plan transfers and mergers.--
(1) In general.--Under rules prescribed by the
Secretary, except as provided in paragraph (2), no
amount shall be includible in gross income by reason
of--
(A) a transfer of all or a portion of the
accrued benefit of a participant or
beneficiary, whether or not vested, from a
church plan that is a plan described in section
401(a) or an annuity contract described in
section 403(b) to an annuity contract described
in section 403(b), if such plan and annuity
contract are both maintained by the same church
or convention or association of churches,
(B) a transfer of all or a portion of the
accrued benefit of a participant or
beneficiary, whether or not vested, from an
annuity contract described in section 403(b) to
a church plan that is a plan described in
section 401(a), if such plan and annuity
contract are both maintained by the same church
or convention or association of churches, or
(C) a merger of a church plan that is a plan
described in section 401(a), or an annuity
contract described in section 403(b), with an
annuity contract described in section 403(b),
if such plan and annuity contract are both
maintained by the same church or convention or
association of churches.
(2) Limitation.--Paragraph (1) shall not apply to a
transfer or merger unless the participant's or
beneficiary's total accrued benefit immediately after
the transfer or merger is equal to or greater than the
participant's or beneficiary's total accrued benefit
immediately before the transfer or merger, and such
total accrued benefit is nonforfeitable after the
transfer or merger.
(3) Qualification.--A plan or annuity contract shall
not fail to be considered to be described in section
401(a) or 403(b) merely because such plan or annuity
contract engages in a transfer or merger described in
this subsection.
(4) Definitions.--For purposes of this subsection--
(A) Church or convention or association of
churches.--The term ``church or convention or
association of churches'' includes an
organization described in subparagraph (A) or
(B)(ii) of subsection (e)(3).
(B) Annuity contract.--The term ``annuity
contract'' includes a custodial account
described in section 403(b)(7) and a retirement
income account described in section 403(b)(9).
(C) Accrued benefit.--The term ``accrued
benefit'' means--
(i) in the case of a defined benefit
plan, the employee's accrued benefit
determined under the plan, and
(ii) in the case of a plan other than
a defined benefit plan, the balance of
the employee's account under the plan.
(aa) Eliminating Unnecessary Plan Requirements Related to
Unenrolled Participants.--
(1) In general.--Notwithstanding any other provision
of this title, with respect to any defined contribution
plan, no disclosure, notice, or other plan document
(other than the notices and documents described in
subparagraphs (A) and (B)) shall be required to be
furnished under this title to any unenrolled
participant if the unenrolled participant receives--
(A) an annual reminder notice of such
participant's eligibility to participate in
such plan and any applicable election deadlines
under the plan, and
(B) any document requested by such
participant that the participant would be
entitled to receive notwithstanding this
subsection.
(2) Unenrolled participant.--For purposes of this
subsection, the term ``unenrolled participant'' means
an employee who--
(A) is eligible to participate in a defined
contribution plan,
(B) has received the summary plan description
pursuant to section 104(b) of the Employee
Retirement Income Security Act of 1974 and any
other eligibility notices in connection with
such participant's initial eligibility to
participate in such plan,
(C) is not participating in such plan,
(D) does not have a balance in the plan, and
(E) satisfies such other criteria as the
Secretary of the Treasury may determine
appropriate, as prescribed in guidance issued
in consultation with the Secretary of Labor.
For purposes of this subsection, any eligibility to
participate in the plan following any period for which
such employee was not eligible to participate shall be
treated as initial eligibility.
(3) Annual reminder notice.--For purposes of this
subsection, the term ``annual reminder notice'' means
the notice described in section 111(c) of the Employee
Retirement Income Security Act of 1974.
(bb) Special Rules Applicable to Benefit Overpayments.--
(1) In general.--A plan shall not fail to be treated
as described in clause (i), (ii), (iii), or (iv) of
section 219(g)(5)(A) (and shall not fail to be treated
as satisfying the requirements of section 401(a) or
403) merely because--
(A) the plan fails to obtain payment from any
participant, beneficiary, employer, plan
sponsor, fiduciary, or other party on account
of any inadvertent benefit overpayment made by
the plan, or
(B) the plan sponsor amends the plan to
reduce past or future benefit payments to
affected participants and beneficiaries in
order to adjust for prior inadvertent benefit
overpayments.
(2) Reduction in future benefit payments and recovery
from responsible party.--Paragraph (1) shall not fail
to apply to a plan merely because, after discovering a
benefit overpayment, such plan--
(A) reduces future benefit payments to the
correct amount provided for under the terms of
the plan, or
(B) seeks recovery from the person or persons
responsible for such overpayment.
(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation
imposed on it to make contributions to a plan to meet
the minimum funding standards under sections 412 and
430 or to prevent or restore an impermissible
forfeiture in accordance with section 411.
(4) Observance of benefit limitations.--
Notwithstanding paragraph (1), a plan to which
paragraph (1) applies shall observe any limitations
imposed on it by section 401(a)(17) or 415. The plan
may enforce such limitations using any method approved
by the Secretary of the Treasury for recouping benefits
previously paid or allocations previously made in
excess of such limitations.
(5) Coordination with other qualification
requirements.--The Secretary of the Treasury may issue
regulations or other guidance of general applicability
specifying how benefit overpayments and their
recoupment or non-recoupment from a participant or
beneficiary shall be taken into account for purposes of
satisfying any requirement applicable to a plan to
which paragraph (1) applies.
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
* * * * * * *
SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.
(a) Initial taxes on disqualified person.--There is hereby
imposed a tax on each prohibited transaction. The rate of tax
shall be equal to 15 percent of the amount involved with
respect to the prohibited transaction for each year (or part
thereof) in the taxable period. The tax imposed by this
subsection shall be paid by any disqualified person who
participates in the prohibited transaction (other than a
fiduciary acting only as such).
(b) Additional taxes on disqualified person.--In any case in
which an initial tax is imposed by subsection (a) on a
prohibited transaction and the transaction is not corrected
within the taxable period, there is hereby imposed a tax equal
to 100 percent of the amount involved. The tax imposed by this
subsection shall be paid by any disqualified person who
participated in the prohibited transaction (other than a
fiduciary acting only as such).
(c) Prohibited transaction.--
(1) General rule.--For purposes of this section, the
term ``prohibited transaction'' means any direct or
indirect--
(A) sale or exchange, or leasing, of any
property between a plan and a disqualified
person;
(B) lending of money or other extension of
credit between a plan and a disqualified
person;
(C) furnishing of goods, services, or
facilities between a plan and a disqualified
person;
(D) transfer to, or use by or for the benefit
of, a disqualified person of the income or
assets of a plan;
(E) act by a disqualified person who is a
fiduciary whereby he deals with the income or
assets of a plan in his own interest or for his
own account; or
(F) receipt of any consideration for his own
personal account by any disqualified person who
is a fiduciary from any party dealing with the
plan in connection with a transaction involving
the income or assets of the plan.
(2) Special exemption.--The Secretary shall establish
an exemption procedure for purposes of this subsection.
Pursuant to such procedure, he may grant a conditional
or unconditional exemption of any disqualified person
or transaction, orders of disqualified persons or
transactions, from all or part of the restrictions
imposed by paragraph (1) of this subsection. Action
under this subparagraph may be taken only after
consultation and coordination with the Secretary of
Labor. The Secretary may not grant an exemption under
this paragraph unless he finds that such exemption is--
(A) administratively feasible,
(B) in the interests of the plan and of its
participants and beneficiaries, and
(C) protective of the rights of participants
and beneficiaries of the plan.
Before granting an exemption under this paragraph, the
Secretary shall require adequate notice to be given to
interested persons and shall publish notice in the
Federal Register of the pendency of such exemption and
shall afford interested persons an opportunity to
present views. No exemption may be granted under this
paragraph with respect to a transaction described in
subparagraph (E) or (F) of paragraph (1) unless the
Secretary affords an opportunity for a hearing and
makes a determination on the record with respect to the
findings required under subparagraphs (A), (B), and (C)
of this paragraph, except that in lieu of such hearing
the Secretary may accept any record made by the
Secretary of Labor with respect to an application for
exemption under section 408(a) of title I of the
Employee Retirement Income Security Act of 1974.
(3) Special rule for individual retirement
accounts.--An individual for whose benefit an
individual retirement account is established and his
beneficiaries shall be exempt from the tax imposed by
this section with respect to any transaction concerning
such account (which would otherwise be taxable under
this section) if, with respect to such transaction, the
account ceases to be an individual retirement account
by reason of the application of section 408(e)(2)(A) or
if section 408(e)(4) applies to such account.
(4) Special rule for Archer MSAs.--An individual for
whose benefit an Archer MSA (within the meaning of
section 220(d)) is established shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if section
220(e)(2) applies to such transaction.
(5) Special rule for Coverdell education savings
accounts.--An individual for whose benefit a Coverdell
education savings account is established and any
contributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if section
530(d) applies with respect to such transaction.
(6) Special rule for health savings accounts.--An
individual for whose benefit a health savings account
(within the meaning of section 223(d)) is established
shall be exempt from the tax imposed by this section
with respect to any transaction concerning such account
(which would otherwise be taxable under this section)
if, with respect to such transaction, the account
ceases to be a health savings account by reason of the
application of section 223(e)(2) to such account.
(7) Special rule for provision of pharmacy benefit
services.--Any party to an arrangement which satisfies
the requirements of section 408(h) of the Employee
Retirement Income Security Act of 1974 shall be exempt
from the tax imposed by this section with respect to
such arrangement.
(d) Exemptions.--Except as provided in subsection (f)(6), the
prohibitions provided in subsection (c) shall not apply to--
(1) any loan made by the plan to a disqualified
person who is a participant or beneficiary of the plan
if such loan--
(A) is available to all such participants or
beneficiaries on a reasonably equivalent basis,
(B) is not made available to highly
compensated employees (within the meaning of
section 414(q)) in an amount greater than the
amount made available to other employees,
(C) is made in accordance with specific
provisions regarding such loans set forth in
the plan,
(D) bears a reasonable rate of interest, and
(E) is adequately secured;
(2) any contract, or reasonable arrangement, made
with a disqualified person for office space, or legal,
accounting, or other services necessary for the
establishment or operation of the plan, if no more than
reasonable compensation is paid therefor;
(3) any loan to a leveraged employee stock ownership
plan (as defined in subsection (e)(7)), if--
(A) such loan is primarily for the benefit of
participants and beneficiaries of the plan, and
(B) such loan is at a reasonable rate of
interest, and any collateral which is given to
a disqualified person by the plan consists only
of qualifying employer securities (as defined
in subsection (e)(8));
(4) the investment of all or part of a plan's assets
in deposits which bear a reasonable interest rate in a
bank or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan and if--
(A) the plan covers only employees of such
bank or other institution and employees of
affiliates of such bank or other institution,
or
(B) such investment is expressly authorized
by a provision of the plan or by a fiduciary
(other than such bank or institution or
affiliates thereof) who is expressly empowered
by the plan to so instruct the trustee with
respect to such investment;
(5) any contract for life insurance, health
insurance, or annuities with one or more insurers which
are qualified to do business in a State if the plan
pays no more than adequate consideration, and if each
such insurer or insurers is--
(A) the employer maintaining the plan, or
(B) a disqualified person which is wholly
owned (directly or indirectly) by the employer
establishing the plan, or by any person which
is a disqualified person with respect to the
plan, but only if the total premiums and
annuity considerations written by such insurers
for life insurance, health insurance, or
annuities for all plans (and their employers)
with respect to which such insurers are
disqualified persons (not including premiums or
annuity considerations written by the employer
maintaining the plan) do not exceed 5 percent
of the total premiums and annuity
considerations written for all lines of
insurance in that year by such insurers (not
including premiums or annuity considerations
written by the employer maintaining the plan);
(6) the provision of any ancillary service by a bank
or similar financial institution supervised by the
United States or a State, if such service is provided
at not more than reasonable compensation, if such bank
or other institution is a fiduciary of such plan, and
if--
(A) such bank or similar financial
institution has adopted adequate internal
safeguards which assure that the provision of
such ancillary service is consistent with sound
banking and financial practice, as determined
by Federal or State supervisory authority, and
(B) the extent to which such ancillary
service is provided is subject to specific
guidelines issued by such bank or similar
financial institution (as determined by the
Secretary after consultation with Federal and
State supervisory authority), and under such
guidelines the bank or similar financial
institution does not provide such ancillary
service--
(i) in an excessive or unreasonable
manner, and
(ii) in a manner that would be
inconsistent with the best interests of
participants and beneficiaries of
employee benefit plans;
(7) the exercise of a privilege to convert
securities, to the extent provided in regulations of
the Secretary, but only if the plan receives no less
than adequate consideration pursuant to such
conversion;
(8) any transaction between a plan and a common or
collective trust fund or pooled investment fund
maintained by a disqualified person which is a bank or
trust company supervised by a State or Federal agency
or between a plan and a pooled investment fund of an
insurance company qualified to do business in a State
if--
(A) the transaction is a sale or purchase of
an interest in the fund,
(B) the bank, trust company, or insurance
company receives not more than a reasonable
compensation, and
(C) such transaction is expressly permitted
by the instrument under which the plan is
maintained, or by a fiduciary (other than the
bank, trust company, or insurance company, or
an affiliate thereof) who has authority to
manage and control the assets of the plan;
(9) receipt by a disqualified person of any benefit
to which he may be entitled as a participant or
beneficiary in the plan, so long as the benefit is
computed and paid on a basis which is consistent with
the terms of the plan as applied to all other
participants and beneficiaries;
(10) receipt by a disqualified person of any
reasonable compensation for services rendered, or for
the reimbursement of expenses properly and actually
incurred, in the performance of his duties with the
plan, but no person so serving who already receives
full-time pay from an employer or an association of
employers, whose employees are participants in the plan
or from an employee organization whose members are
participants in such plan shall receive compensation
from such fund, except for reimbursement of expenses
properly and actually incurred;
(11) service by a disqualified person as a fiduciary
in addition to being an officer, employee, agent, or
other representative of a disqualified person;
(12) the making by a fiduciary of a distribution of
the assets of the trust in accordance with the terms of
the plan if such assets are distributed in the same
manner as provided under section 4044 of title IV of
the Employee Retirement Income Security Act of 1974
(relating to allocation of assets);
(13) any transaction which is exempt from section 406
of such Act by reason of section 408(e) of such Act (or
which would be so exempt if such section 406 applied to
such transaction) or which is exempt from section 406
of such Act by reason of section 408(b)(12) of such
Act;
(14) any transaction required or permitted under part
1 of subtitle E of title IV or section 4223 of the
Employee Retirement Income Security Act of 1974, but
this paragraph shall not apply with respect to the
application of subsection (c)(1) (E) or (F);
(15) a merger of multiemployer plans, or the transfer
of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation
to meet the requirements of section 4231 of such Act,
but this paragraph shall not apply with respect to the
application of subsection (c)(1)(E) or (F);
(16) a sale of stock held by a trust which
constitutes an individual retirement account under
section 408(a) to the individual for whose benefit such
account is established if--
(A) such stock is in a bank (as defined in
section 581) or a depository institution
holding company (as defined in section 3(w)(1)
of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1))),
(B) such stock is held by such trust as of
the date of the enactment of this paragraph,
(C) such sale is pursuant to an election
under section 1362(a) by such bank or company,
(D) such sale is for fair market value at the
time of sale (as established by an independent
appraiser) and the terms of the sale are
otherwise at least as favorable to such trust
as the terms that would apply on a sale to an
unrelated party,
(E) such trust does not pay any commissions,
costs, or other expenses in connection with the
sale, and
(F) the stock is sold in a single transaction
for cash not later than 120 days after the S
corporation election is made;
(17) any transaction in connection with the provision
of investment advice described in subsection (e)(3)(B)
to a participant or beneficiary in a plan that permits
such participant or beneficiary to direct the
investment of plan assets in an individual account,
if--
(A) the transaction is--
(i) the provision of the investment
advice to the participant or
beneficiary of the plan with respect to
a security or other property available
as an investment under the plan,
(ii) the acquisition, holding, or
sale of a security or other property
available as an investment under the
plan pursuant to the investment advice,
or
(iii) the direct or indirect receipt
of fees or other compensation by the
fiduciary adviser or an affiliate
thereof (or any employee, agent, or
registered representative of the
fiduciary adviser or affiliate) in
connection with the provision of the
advice or in connection with an
acquisition, holding, or sale of a
security or other property available as
an investment under the plan pursuant
to the investment advice; and
(B) the requirements of subsection (f)(8) are
met,
(18) any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary of Labor), between a plan and a disqualified
person (other than a fiduciary described in subsection
(e)(3)) with respect to a plan if--
(A) the transaction involves a block trade,
(B) at the time of the transaction, the
interest of the plan (together with the
interests of any other plans maintained by the
same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
(C) the terms of the transaction, including
the price, are at least as favorable to the
plan as an arm's length transaction, and
(D) the compensation associated with the
purchase and sale is not greater than the
compensation associated with an arm's length
transaction with an unrelated party,
(19) any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary of Labor), between a plan and a disqualified
person if--
(A) the transaction is executed through an
electronic communication network, alternative
trading system, or similar execution system or
trading venue subject to regulation and
oversight by--
(i) the applicable Federal regulating
entity, or
(ii) such foreign regulatory entity
as the Secretary of Labor may determine
by regulation,
(B) either--
(i) the transaction is effected
pursuant to rules designed to match
purchases and sales at the best price
available through the execution system
in accordance with applicable rules of
the Securities and Exchange Commission
or other relevant governmental
authority, or
(ii) neither the execution system nor
the parties to the transaction take
into account the identity of the
parties in the execution of trades,
(C) the price and compensation associated
with the purchase and sale are not greater than
the price and compensation associated with an
arm's length transaction with an unrelated
party,
(D) if the disqualified person has an
ownership interest in the system or venue
described in subparagraph (A), the system or
venue has been authorized by the plan sponsor
or other independent fiduciary for transactions
described in this paragraph, and
(E) not less than 30 days prior to the
initial transaction described in this paragraph
executed through any system or venue described
in subparagraph (A), a plan fiduciary is
provided written or electronic notice of the
execution of such transaction through such
system or venue,
(20) transactions described in subparagraphs (A),
(B), and (D) of subsection (c)(1) between a plan and a
person that is a disqualified person other than a
fiduciary (or an affiliate) who has or exercises any
discretionary authority or control with respect to the
investment of the plan assets involved in the
transaction or renders investment advice (within the
meaning of subsection (e)(3)(B)) with respect to those
assets, solely by reason of providing services to the
plan or solely by reason of a relationship to such a
service provider described in subparagraph (F), (G),
(H), or (I) of subsection (e)(2), or both, but only if
in connection with such transaction the plan receives
no less, nor pays no more, than adequate consideration,
(21) any foreign exchange transactions, between a
bank or broker-dealer (or any affiliate of either) and
a plan (as defined in this section) with respect to
which such bank or broker-dealer (or affiliate) is a
trustee, custodian, fiduciary, or other disqualified
person, if--
(A) the transaction is in connection with the
purchase, holding, or sale of securities or
other investment assets (other than a foreign
exchange transaction unrelated to any other
investment in securities or other investment
assets),
(B) at the time the foreign exchange
transaction is entered into, the terms of the
transaction are not less favorable to the plan
than the terms generally available in
comparable arm's length foreign exchange
transactions between unrelated parties, or the
terms afforded by the bank or broker-dealer (or
any affiliate of either) in comparable arm's-
length foreign exchange transactions involving
unrelated parties,
(C) the exchange rate used by such bank or
broker-dealer (or affiliate) for a particular
foreign exchange transaction does not deviate
by more than 3 percent from the interbank bid
and asked rates for transactions of comparable
size and maturity at the time of the
transaction as displayed on an independent
service that reports rates of exchange in the
foreign currency market for such currency, and
(D) the bank or broker-dealer (or any
affiliate of either) does not have investment
discretion, or provide investment advice, with
respect to the transaction,
(22) any transaction described in subsection
(c)(1)(A) involving the purchase and sale of a security
between a plan and any other account managed by the
same investment manager, if--
(A) the transaction is a purchase or sale,
for no consideration other than cash payment
against prompt delivery of a security for which
market quotations are readily available,
(B) the transaction is effected at the
independent current market price of the
security (within the meaning of section
270.17a-7(b) of title 17, Code of Federal
Regulations),
(C) no brokerage commission, fee (except for
customary transfer fees, the fact of which is
disclosed pursuant to subparagraph (D)), or
other remuneration is paid in connection with
the transaction,
(D) a fiduciary (other than the investment
manager engaging in the cross-trades or any
affiliate) for each plan participating in the
transaction authorizes in advance of any cross-
trades (in a document that is separate from any
other written agreement of the parties) the
investment manager to engage in cross trades at
the investment manager's discretion, after such
fiduciary has received disclosure regarding the
conditions under which cross trades may take
place (but only if such disclosure is separate
from any other agreement or disclosure
involving the asset management relationship),
including the written policies and procedures
of the investment manager described in
subparagraph (H),
(E) each plan participating in the
transaction has assets of at least
$100,000,000, except that if the assets of a
plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group (as defined in
section 407(d)(7) of the Employee Retirement
Income Security Act of 1974), the master trust
has assets of at least $100,000,000,
(F) the investment manager provides to the
plan fiduciary who authorized cross trading
under subparagraph (D) a quarterly report
detailing all cross trades executed by the
investment manager in which the plan
participated during such quarter, including the
following information, as applicable: (i) the
identity of each security bought or sold; (ii)
the number of shares or units traded; (iii) the
parties involved in the cross-trade; and (iv)
trade price and the method used to establish
the trade price,
(G) the investment manager does not base its
fee schedule on the plan's consent to cross
trading, and no other service (other than the
investment opportunities and cost savings
available through a cross trade) is conditioned
on the plan's consent to cross trading,
(H) the investment manager has adopted, and
cross-trades are effected in accordance with,
written cross-trading policies and procedures
that are fair and equitable to all accounts
participating in the cross-trading program, and
that include a description of the manager's
pricing policies and procedures, and the
manager's policies and procedures for
allocating cross trades in an objective manner
among accounts participating in the cross-
trading program, and
(I) the investment manager has designated an
individual responsible for periodically
reviewing such purchases and sales to ensure
compliance with the written policies and
procedures described in subparagraph (H), and
following such review, the individual shall
issue an annual written report no later than 90
days following the period to which it relates
signed under penalty of perjury to the plan
fiduciary who authorized cross trading under
subparagraph (D) describing the steps performed
during the course of the review, the level of
compliance, and any specific instances of non-
compliance.
The written report shall also notify the plan fiduciary
of the plan's right to terminate participation in the
investment manager's cross-trading program at any time,
[or]
(23) except as provided in subsection (f)(11), a
transaction described in subparagraph (A), (B), (C), or
(D) of subsection (c)(1) in connection with the
acquisition, holding, or disposition of any security or
commodity, if the transaction is corrected before the
end of the correction period[.], or
(24) the provision of a de minimis financial
incentive described in section 401(k)(4)(A) or
403(b)(12)(A).
(e) Definitions.--
(1) Plan.--For purposes of this section, the term
``plan'' means--
(A) a trust described in section 401(a) which
forms a part of a plan, or a plan described in
section 403(a), which trust or plan is exempt
from tax under section 501(a),
(B) an individual retirement account
described in section 408(a),
(C) an individual retirement annuity
described in section 408(b),
(D) an Archer MSA described in section
220(d),
(E) a health savings account described in
section 223(d),
(F) a Coverdell education savings account
described in section 530, or
(G) a trust, plan, account, or annuity which,
at any time, has been determined by the
Secretary to be described in any preceding
subparagraph of this paragraph.
(2) Disqualified person.--For purposes of this
section, the term ``disqualified person'' means a
person who is--
(A) a fiduciary;
(B) a person providing services to the plan;
(C) an employer any of whose employees are
covered by the plan;
(D) an employee organization any of whose
members are covered by the plan;
(E) an owner, direct or indirect, of 50
percent or more of--
(i) the combined voting power of all
classes of stock entitled to vote or
the total value of shares of all
classes of stock of a corporation,
(ii) the capital interest or the
profits interest of a partnership, or
(iii) the beneficial interest of a
trust or unincorporated enterprise,
which is an employer or an employee
organization described in subparagraph (C) or
(D);
(F) a member of the family (as defined in
paragraph (6)) of any individual described in
subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or
estate of which (or in which) 50 percent or
more of--
(i) the combined voting power of all
classes of stock entitled to vote or
the total value of shares of all
classes of stock of such corporation,
(ii) the capital interest or profits
interest of such partnership, or
(iii) the beneficial interest of such
trust or estate,
is owned directly or indirectly, or held by
persons described in subparagraph (A), (B),
(C), (D), or (E);
(H) an officer, director (or an individual
having powers or responsibilities similar to
those of officers or directors), a 10 percent
or more shareholder, or a highly compensated
employee (earning 10 percent or more of the
yearly wages of an employer) of a person
described in subparagraph (C), (D), (E), or
(G); or
(I) a 10 percent or more (in capital or
profits) partner or joint venturer of a person
described in subparagraph (C), (D), (E), or
(G).
The Secretary, after consultation and coordination with
the Secretary of Labor or his delegate, may by
regulation prescribe a percentage lower than 50 percent
for subparagraphs (E) and (G) and lower than 10 percent
for subparagraphs (H) and (I).
(3) Fiduciary.--For purposes of this section, the
term ``fiduciary'' means any person who--
(A) exercises any discretionary authority or
discretionary control respecting management of
such plan or exercises any authority or control
respecting management or disposition of its
assets,
(B) renders investment advice for a fee or
other compensation, direct or indirect, with
respect to any moneys or other property of such
plan, or has any authority or responsibility to
do so, or
(C) has any discretionary authority or
discretionary responsibility in the
administration of such plan.
Such term includes any person designated under section
405(c)(1)(B) of the Employee Retirement Income Security
Act of 1974.
(4) Stockholdings.--For purposes of paragraphs
(2)(E)(i) and (G)(i) there shall be taken into account
indirect stockholdings which would be taken into
account under section 267(c), except that, for purposes
of this paragraph, section 267(c)(4) shall be treated
as providing that the members of the family of an
individual are the members within the meaning of
paragraph (6).
(5) Partnerships; trusts.--For purposes of paragraphs
(2)(E)(ii) and (iii), (G)(ii) and (iii), and (I) the
ownership of profits or beneficial interests shall be
determined in accordance with the rules for
constructive ownership of stock provided in section
267(c) (other than paragraph (3) thereof), except that
section 267(c)(4) shall be treated as providing that
the members of the family of an individual are the
members within the meaning of paragraph (6).
(6) Member of family.--For purposes of paragraph
(2)(F), the family of any individual shall include his
spouse, ancestor, lineal descendant, and any spouse of
a lineal descendant.
(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 which are 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).
(8) Qualifying employer security.--The term
``qualifying employer security'' means any employer
security within the meaning of section 409(l). If any
moneys or other property of a plan are invested in
shares of an investment company registered under the
Investment Company Act of 1940, the investment shall
not cause that investment company or that investment
company's investment adviser or principal underwriter
to be treated as a fiduciary or a disqualified person
for purposes of this section, except when an investment
company or its investment adviser or principal
underwriter acts in connection with a plan covering
employees of the investment company, its investment
adviser, or its principal underwriter.
(9) Section made applicable to withdrawal liability
payment funds.--For purposes of this section--
(A) In general.--The term ``plan'' includes a
trust described in section 501(c)(22).
(B) Disqualified person.--In the case of any
trust to which this section applies by reason
of subparagraph (A), the term ``disqualified
person'' includes any person who is a
disqualified person with respect to any plan to
which such trust is permitted to make payments
under section 4223 of the Employee Retirement
Income Security Act of 1974.
(f) Other definitions and special rules.--For purposes of
this section--
(1) Joint and several liability.--If more than one
person is liable under subsection (a) or (b) with
respect to any one prohibited transaction, all such
persons shall be jointly and severally liable under
such subsection with respect to such transaction.
(2) Taxable period.--The term ``taxable period''
means, with respect to any prohibited transaction, the
period beginning with the date on which the prohibited
transaction occurs and ending on the earliest of--
(A) the date of mailing a notice of
deficiency with respect to the tax imposed by
subsection (a) under section 6212,
(B) the date on which the tax imposed by
subsection (a) is assessed, or
(C) the date on which correction of the
prohibited transaction is completed.
(3) Sale or exchange; encumbered property.--A
transfer or real or personal property by a disqualified
person to a plan shall be treated as a sale or exchange
if the property is subject to a mortgage or similar
lien which the plan assumes or if it is subject to a
mortgage or similar lien which a disqualified person
placed on the property within the 10-year period ending
on the date of the transfer.
(4) Amount involved.--The term ``amount involved''
means, with respect to a prohibited transaction, the
greater of the amount of money and the fair market
value of the other property given or the amount of
money and the fair market value of the other property
received; except that, in the case of services
described in paragraphs (2) and (10) of subsection (d)
the amount involved shall be only the excess
compensation. For purposes of the preceding sentence,
the fair market value--
(A) in the case of the tax imposed by
subsection (a), shall be determined as of the
date on which the prohibited transaction
occurs; and
(B) in the case of the tax imposed by
subsection (b), shall be the highest fair
market value during the taxable period.
(5) Correction.--The terms ``correction'' and
``correct'' mean, with respect to a prohibited
transaction, undoing the transaction to the extent
possible, but in any case placing the plan in a
financial position not worse than that in which it
would be if the disqualified person were acting under
the highest fiduciary standards.
(6) Exemptions not to apply to certain
transactions.--
(A) In general.--In the case of a trust
described in section 401(a) which is part of a
plan providing contributions or benefits for
employees some or all of whom are owner-
employees (as defined in section 401(c)(3)),
the exemptions provided by subsection (d)
(other than paragraphs (9) and (12)) shall not
apply to a transaction in which the plan
directly or indirectly--
(i) lends any part of the corpus or
income of the plan to,
(ii) pays any compensation for
personal services rendered to the plan
to, or
(iii) acquires for the plan any
property from, or sells any property
to,
any such owner-employee, a member of the family
(as defined in section 267(c)(4)) of any such
owner-employee, or any corporation in which any
such owner-employee owns, directly or
indirectly, 50 percent or more of the total
combined voting power of all classes of stock
entitled to vote or 50 percent or more of the
total value of shares of all classes of stock
of the corporation.
(B) Special rules for shareholder-employees,
etc..--
(i) In general.--For purposes of
subparagraph (A), the following shall
be treated as owner-employees:
(I) A shareholder-employee.
(II) A participant or
beneficiary of an individual
retirement plan (as defined in
section 7701(a)(37)).
(III) An employer or
association of employees which
establishes such an individual
retirement plan under section
408(c).
(ii) Exception for certain
transactions involving shareholder-
employees.--Subparagraph (A)(iii) shall
not apply to a transaction which
consists of a sale of employer
securities to an employee stock
ownership plan (as defined in
subsection (e)(7)) by a shareholder-
employee, a member of the family (as
defined in section 267(c)(4)) of such
shareholder-employee, or a corporation
in which such a shareholder-employee
owns stock representing a 50 percent or
greater interest described in
subparagraph (A).
(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).
(C) Shareholder-employee.--For purposes of
subparagraph (B), the term ``shareholder-
employee'' means an employee or officer of an S
corporation who owns (or is considered as
owning within the meaning of section 318(a)(1))
more than 5 percent of the outstanding stock of
the corporation on any day during the taxable
year of such corporation.
(7) S corporation repayment of loans for qualifying
employer securities.--A plan shall not be treated as
violating the requirements of section 401 or 409 or
subsection (e)(7), or as engaging in a prohibited
transaction for purposes of subsection (d)(3), merely
by reason of any distribution (as described in section
1368(a)) with respect to S corporation stock that
constitutes qualifying employer securities, which in
accordance with the plan provisions is used to make
payments on a loan described in subsection (d)(3) the
proceeds of which were used to acquire such qualifying
employer securities (whether or not allocated to
participants). The preceding sentence shall not apply
in the case of a distribution which is paid with
respect to any employer security which is allocated to
a participant unless the plan provides that employer
securities with a fair market value of not less than
the amount of such distribution are allocated to such
participant for the year which (but for the preceding
sentence) such distribution would have been allocated
to such participant.
(8) Provision of investment advice to participant and
beneficiaries.--
(A) In general.--The prohibitions provided in
subsection (c) shall not apply to transactions
described in subsection (d)(17) if the
investment advice provided by a fiduciary
adviser is provided under an eligible
investment advice arrangement.
(B) Eligible investment advice arrangement.--
For purposes of this paragraph, the term
``eligible investment advice arrangement''
means an arrangement--
(i) which either--
(I) provides that any fees
(including any commission or
other compensation) received by
the fiduciary adviser for
investment advice or with
respect to the sale, holding,
or acquisition of any security
or other property for purposes
of investment of plan assets do
not vary depending on the basis
of any investment option
selected, or
(II) uses a computer model
under an investment advice
program meeting the
requirements of subparagraph
(C) in connection with the
provision of investment advice
by a fiduciary adviser to a
participant or beneficiary, and
(ii) with respect to which the
requirements of subparagraphs (D), (E),
(F), (G), (H), and (I) are met.
(C) Investment advice program using computer
model.--
(i) In general.--An investment advice
program meets the requirements of this
subparagraph if the requirements of
clauses (ii), (iii), and (iv) are met.
(ii) Computer model.--The
requirements of this clause are met if
the investment advice provided under
the investment advice program is
provided pursuant to a computer model
that--
(I) applies generally
accepted investment theories
that take into account the
historic returns of different
asset classes over defined
periods of time,
(II) utilizes relevant
information about the
participant, which may include
age, life expectancy,
retirement age, risk tolerance,
other assets or sources of
income, and preferences as to
certain types of investments,
(III) utilizes prescribed
objective criteria to provide
asset allocation portfolios
comprised of investment options
available under the plan,
(IV) operates in a manner
that is not biased in favor of
investments offered by the
fiduciary adviser or a person
with a material affiliation or
contractual relationship with
the fiduciary adviser, and
(V) takes into account all
investment options under the
plan in specifying how a
participant's account balance
should be invested and is not
inappropriately weighted with
respect to any investment
option.
(iii) Certification.--
(I) In general.--The
requirements of this clause are
met with respect to any
investment advice program if an
eligible investment expert
certifies, prior to the
utilization of the computer
model and in accordance with
rules prescribed by the
Secretary of Labor, that the
computer model meets the
requirements of clause (ii).
(II) Renewal of
certifications.--If, as
determined under regulations
prescribed by the Secretary of
Labor, there are material
modifications to a computer
model, the requirements of this
clause are met only if a
certification described in
subclause (I) is obtained with
respect to the computer model
as so modified.
(III) Eligible investment
expert.--The term ``eligible
investment expert'' means any
person which meets such
requirements as the Secretary
of Labor may provide and which
does not bear any material
affiliation or contractual
relationship with any
investment adviser or a related
person thereof (or any
employee, agent, or registered
representative of the
investment adviser or related
person).
(iv) Exclusivity of recommendation.--
The requirements of this clause are met
with respect to any investment advice
program if--
(I) the only investment
advice provided under the
program is the advice generated
by the computer model described
in clause (ii), and
(II) any transaction
described in subsection
(d)(17)(A)(ii) occurs solely at
the direction of the
participant or beneficiary.
Nothing in the preceding sentence shall
preclude the participant or beneficiary from
requesting investment advice other than that
described in clause (i), but only if such
request has not been solicited by any person
connected with carrying out the arrangement.
(D) Express authorization by separate
fiduciary.--The requirements of this
subparagraph are met with respect to an
arrangement if the arrangement is expressly
authorized by a plan fiduciary other than the
person offering the investment advice program,
any person providing investment options under
the plan, or any affiliate of either.
(E) Audits.--
(i) In general.--The requirements of
this subparagraph are met if an
independent auditor, who has
appropriate technical training or
experience and proficiency and so
represents in writing--
(I) conducts an annual audit
of the arrangement for
compliance with the
requirements of this paragraph,
and
(II) following completion of
the annual audit, issues a
written report to the fiduciary
who authorized use of the
arrangement which presents its
specific findings regarding
compliance of the arrangement
with the requirements of this
paragraph.
(ii) Special rule for individual
retirement and similar plans.--In the
case of a plan described in
subparagraphs (B) through (F) (and so
much of subparagraph (G) as relates to
such subparagraphs) of subsection
(e)(1), in lieu of the requirements of
clause (i), audits of the arrangement
shall be conducted at such times and in
such manner as the Secretary of Labor
may prescribe.
(iii) Independent auditor.--For
purposes of this subparagraph, an
auditor is considered independent if it
is not related to the person offering
the arrangement to the plan and is not
related to any person providing
investment options under the plan.
(F) Disclosure.--The requirements of this
subparagraph are met if--
(i) the fiduciary adviser provides to
a participant or a beneficiary before
the initial provision of the investment
advice with regard to any security or
other property offered as an investment
option, a written notification (which
may consist of notification by means of
electronic communication)--
(I) of the role of any party
that has a material affiliation
or contractual relationship
with the fiduciary adviser in
the development of the
investment advice program and
in the selection of investment
options available under the
plan,
(II) of the past performance
and historical rates of return
of the investment options
available under the plan,
(III) of all fees or other
compensation relating to the
advice that the fiduciary
adviser or any affiliate
thereof is to receive
(including compensation
provided by any third party) in
connection with the provision
of the advice or in connection
with the sale, acquisition, or
holding of the security or
other property,
(IV) of any material
affiliation or contractual
relationship of the fiduciary
adviser or affiliates thereof
in the security or other
property,
(V) of the manner, and under
what circumstances, any
participant or beneficiary
information provided under the
arrangement will be used or
disclosed,
(VI) of the types of services
provided by the fiduciary
adviser in connection with the
provision of investment advice
by the fiduciary adviser,
(VII) that the adviser is
acting as a fiduciary of the
plan in connection with the
provision of the advice, and
(VIII) that a recipient of
the advice may separately
arrange for the provision of
advice by another adviser, that
could have no material
affiliation with and receive no
fees or other compensation in
connection with the security or
other property, and
(ii) at all times during the
provision of advisory services to the
participant or beneficiary, the
fiduciary adviser--
(I) maintains the information
described in clause (i) in
accurate form and in the manner
described in subparagraph (H),
(II) provides, without
charge, accurate information to
the recipient of the advice no
less frequently than annually,
(III) provides, without
charge, accurate information to
the recipient of the advice
upon request of the recipient,
and
(IV) provides, without
charge, accurate information to
the recipient of the advice
concerning any material change
to the information required to
be provided to the recipient of
the advice at a time reasonably
contemporaneous to the change
in information.
(G) Other conditions.--The requirements of
this subparagraph are met if--
(i) the fiduciary adviser provides
appropriate disclosure, in connection
with the sale, acquisition, or holding
of the security or other property, in
accordance with all applicable
securities laws,
(ii) the sale, acquisition, or
holding occurs solely at the direction
of the recipient of the advice,
(iii) the compensation received by
the fiduciary adviser and affiliates
thereof in connection with the sale,
acquisition, or holding of the security
or other property is reasonable, and
(iv) the terms of the sale,
acquisition, or holding of the security
or other property are at least as
favorable to the plan as an arm's
length transaction would be.
(H) Standards for presentation of
information.--
(i) In general.--The requirements of
this subparagraph are met if the
notification required to be provided to
participants and beneficiaries under
subparagraph (F)(i) is written in a
clear and conspicuous manner and in a
manner calculated to be understood by
the average plan participant and is
sufficiently accurate and comprehensive
to reasonably apprise such participants
and beneficiaries of the information
required to be provided in the
notification.
(ii) Model form for disclosure of
fees and other compensation.--The
Secretary of Labor shall issue a model
form for the disclosure of fees and
other compensation required in
subparagraph (F)(i)(III) which meets
the requirements of clause (i).
(I) Maintenance for 6 years of evidence of
compliance.--The requirements of this
subparagraph are met if a fiduciary adviser who
has provided advice referred to in subparagraph
(A) maintains, for a period of not less than 6
years after the provision of the advice, any
records necessary for determining whether the
requirements of the preceding provisions of
this paragraph and of subsection (d)(17) have
been met. A transaction prohibited under
subsection (c) shall not be considered to have
occurred solely because the records are lost or
destroyed prior to the end of the 6-year period
due to circumstances beyond the control of the
fiduciary adviser.
(J) Definitions.--For purposes of this
paragraph and subsection (d)(17)--
(i) Fiduciary adviser.--The term
``fiduciary adviser'' means, with
respect to a plan, a person who is a
fiduciary of the plan by reason of the
provision of investment advice referred
to in subsection (e)(3)(B) by the
person to a participant or beneficiary
of the plan and who is--
(I) registered as an
investment adviser under the
Investment Advisers Act of 1940
(15 U.S.C. 80b-1 et seq.) or
under the laws of the State in
which the fiduciary maintains
its principal office and place
of business,
(II) a bank or similar
financial institution referred
to in subsection (d)(4) or a
savings association (as defined
in section 3(b)(1) of the
Federal Deposit Insurance Act
(12 U.S.C. 1813(b)(1)), but
only if the advice is provided
through a trust department of
the bank or similar financial
institution or savings
association which is subject to
periodic examination and review
by Federal or State banking
authorities,
(III) an insurance company
qualified to do business under
the laws of a State,
(IV) a person registered as a
broker or dealer under the
Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.),
(V) an affiliate of a person
described in any of subclauses
(I) through (IV), or
(VI) an employee, agent, or
registered representative of a
person described in subclauses
(I) through (V) who satisfies
the requirements of applicable
insurance, banking, and
securities laws relating to the
provision of the advice.
For purposes of this title, a person who
develops the computer model described in
subparagraph (C)(ii) or markets the investment
advice program or computer model shall be
treated as a person who is a fiduciary of the
plan by reason of the provision of investment
advice referred to in subsection (e)(3)(B) to a
participant or beneficiary and shall be treated
as a fiduciary adviser for purposes of this
paragraph and subsection (d)(17), except that
the Secretary of Labor may prescribe rules
under which only 1 fiduciary adviser may elect
to be treated as a fiduciary with respect to
the plan.
(ii) Affiliate.--The term
``affiliate'' of another entity means
an affiliated person of the entity (as
defined in section 2(a)(3) of the
Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(3))).
(iii) Registered representative.--The
term ``registered representative'' of
another entity means a person described
in section 3(a)(18) of the Securities
Exchange Act of 1934 (15 U.S.C.
78c(a)(18)) (substituting the entity
for the broker or dealer referred to in
such section) or a person described in
section 202(a)(17) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-
2(a)(17)) (substituting the entity for
the investment adviser referred to in
such section).
(9) Block trade.--The term ``block trade'' means any
trade of at least 10,000 shares or with a market value
of at least $200,000 which will be allocated across two
or more unrelated client accounts of a fiduciary.
(10) Adequate consideration.--The term ``adequate
consideration'' means--
(A) in the case of a security for which there
is a generally recognized market--
(i) the price of the security
prevailing on a national securities
exchange which is registered under
section 6 of the Securities Exchange
Act of 1934, taking into account
factors such as the size of the
transaction and marketability of the
security, or
(ii) if the security is not traded on
such a national securities exchange, a
price not less favorable to the plan
than the offering price for the
security as established by the current
bid and asked prices quoted by persons
independent of the issuer and of the
party in interest, taking into account
factors such as the size of the
transaction and marketability of the
security, and
(B) in the case of an asset other than a
security for which there is a generally
recognized market, the fair market value of the
asset as determined in good faith by a
fiduciary or fiduciaries in accordance with
regulations prescribed by the Secretary of
Labor.
(11) Correction period.--
(A) In general.--For purposes of subsection
(d)(23), the term ``correction period'' means
the 14-day period beginning on the date on
which the disqualified person discovers, or
reasonably should have discovered, that the
transaction would (without regard to this
paragraph and subsection (d)(23)) constitute a
prohibited transaction.
(B) Exceptions.--
(i) Employer securities.--Subsection
(d)(23) does not apply to any
transaction between a plan and a plan
sponsor or its affiliates that involves
the acquisition or sale of an employer
security (as defined in section
407(d)(1) of the Employee Retirement
Income Security Act of 1974) or the
acquisition, sale, or lease of employer
real property (as defined in section
407(d)(2) of such Act).
(ii) Knowing prohibited
transaction.--In the case of any
disqualified person, subsection (d)(23)
does not apply to a transaction if, at
the time the transaction is entered
into, the disqualified person knew (or
reasonably should have known) that the
transaction would (without regard to
this paragraph) constitute a prohibited
transaction.
(C) Abatement of tax where there is a
correction.--If a transaction is not treated as
a prohibited transaction by reason of
subsection (d)(23), then no tax under
subsections (a) and (b) shall be assessed with
respect to such transaction, and if assessed
the assessment shall be abated, and if
collected shall be credited or refunded as an
overpayment.
(D) Definitions.--For purposes of this
paragraph and subsection (d)(23)--
(i) Security.--The term ``security''
has the meaning given such term by
section 475(c)(2) (without regard to
subparagraph (F)(iii) and the last
sentence thereof).
(ii) Commodity.--The term
``commodity'' has the meaning given
such term by section 475(e)(2) (without
regard to subparagraph (D)(iii)
thereof).
(iii) Correct.--The term ``correct''
means, with respect to a transaction--
(I) to undo the transaction
to the extent possible and in
any case to make good to the
plan or affected account any
losses resulting from the
transaction, and
(II) to restore to the plan
or affected account any profits
made through the use of assets
of the plan.
(g) Application of section.--This section shall not apply--
(1) in the case of a plan to which a guaranteed
benefit policy (as defined in section 401(b)(2)(B) of
the Employee Retirement Income Security Act of 1974) is
issued, to any assets of the insurance company,
insurance service, or insurance organization merely
because of its issuance of such policy;
(2) to a governmental plan (within the meaning of
section 414(d)); or
(3) to 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.
In the case of a plan which invests in any security issued by
an investment company registered under the Investment Company
Act of 1940, the assets of such plan shall be deemed to include
such security but shall not, by reason of such investment, be
deemed to include any assets of such company.
(h) Notification of Secretary of Labor.--Before sending a
notice of deficiency with respect to the tax imposed by
subsection (a) or (b), the Secretary shall notify the Secretary
of Labor and provide him a reasonable opportunity to obtain a
correction of the prohibited transaction or to comment on the
imposition of such tax.
(i) Cross reference.--For provisions concerning coordination
procedures between Secretary of Labor and Secretary of the
Treasury with respect to application of tax imposed by this
section and for authority to waive imposition of the tax
imposed by subsection (b), see section 3003 of the Employee
Retirement Income Security Act of 1974.
* * * * * * *
Subtitle F--Procedure and Administration
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--RETURNS AND RECORDS
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart E--REGISTRATION OF AND INFORMATION CONCERNING PENSION, ETC.,
PLANS
* * * * * * *
SEC. 6057. ANNUAL REGISTRATION, ETC.
(a) Annual registration.--
(1) General rule.--Within such period after the end
of a plan year as the Secretary may by regulations
prescribe, the plan administrator (within the meaning
of section 414(g)) of each plan to which the vesting
standards of section 203 of part 2 of subtitle B of
title I of the Employee Retirement Income Security Act
of 1974 applies for such plan year shall file a
registration statement with the Secretary.
(2) Contents.--The registration statement required by
paragraph (1) shall set forth--
(A) the name of the plan,
(B) the name and address of the plan
administrator,
(C) the name and taxpayer identifying number
of each participant in the plan--
(i) who, during such plan year,
separated from the service covered by
the plan,
(ii) who is entitled to a deferred
vested benefit under the plan as of the
end of such plan year, and
(iii) with respect to whom retirement
benefits were not paid under the plan
during such plan year,
(D) the nature, amount, and form of the
deferred vested benefit to which such
participant is entitled, and
(E) such other information as the Secretary
may require.
At the time he files the registration statement under
this subsection, the plan administrator shall furnish
evidence satisfactory to the Secretary that he has
complied with the requirement contained in subsection
(e).
(b) Notification of change in status.--Any plan administrator
required to register under subsection (a) shall also notify the
Secretary, at such time as may be prescribed by regulations,
of--
(1) any change in the name of the plan,
(2) any change in the name or address of the plan
administrator,
(3) the termination of the plan, or
(4) the merger or consolidation of the plan with any
other plan or its division into two or more plans.
(c) Voluntary reports.--To the extent provided in regulations
prescribed by the Secretary, the Secretary may receive from--
(1) any plan to which subsection (a) applies, and
(2) any other plan (including any governmental plan
or church plan (within the meaning of section 414)),
such information (including information relating to plan years
beginning before January 1, 1974) as the plan administrator may
wish to file with respect to the deferred vested benefit rights
of any participant separated from the service covered by the
plan during any plan year.
(d) Transmission of information to Commissioner of Social
Security.--The Secretary shall transmit copies of any
statements, notifications, reports, or other information
obtained by him under this section to the Commissioner of
Social Security.
(e) Individual statement to participant.--Each plan
administrator required to file a registration statement under
subsection (a) shall, before the expiration of the time
prescribed for the filing of such registration statement, also
furnish to each participant described in subsection (a)(2)(C)
an individual statement setting forth the information with
respect to such participant required to be contained in such
registration statement. Such statement shall also include a
notice to the participant of any benefits which are forfeitable
if the participant dies before a certain date.
(f) Regulations.--
(1) In general.--The Secretary, after consultation
with the Commissioner of Social Security, may prescribe
such regulations as may be necessary to carry out the
provisions of this section.
(2) Plans to which more than one employer
contributes.--This section shall apply to any plan to
which more than one employer is required to contribute
only to the extent provided in regulations prescribed
under this subsection.
(g) 403(b) Multiple Employer Plans Treated as One Plan.--In
the case of annuity contracts to which this section applies and
to which section 403(b) applies by reason of the plan under
which such contracts are purchased meeting the requirements of
paragraph (15) thereof, such plan shall be treated as a single
plan for purposes of this section.
[(g)] (h) Cross references.--For provisions relating to
penalties for failure to register or furnish statements
required by this section, see section 6652(d) and section 6690.
For coordination between Department of the Treasury and the
Department of Labor with regard to administration of this
section, see section 3004 of the Employee Retirement Income
Security Act of 1974.
SEC. 6058. INFORMATION REQUIRED IN CONNECTION WITH CERTAIN PLANS OF
DEFERRED COMPENSATION.
(a) In general.--Every employer who maintains a pension,
annuity, stock bonus, profit-sharing, or other funded plan of
deferred compensation described in part I of subchapter D of
chapter 1, or the plan administrator (within the meaning of
section 414(g)) of the plan, shall file an annual return
stating such information as the Secretary may by regulations
prescribe with respect to the qualification, financial
conditions, and operations of the plan; except that, in the
discretion of the Secretary, the employer may be relieved from
stating in its return any information which is reported in
other returns.
(b) Actuarial statement in case of mergers, etc..--Not less
than 30 days before a merger, consolidation, or transfer of
assets or liabilities of a plan described in subsection (a) to
another plan, the plan administrator (within the meaning of
section 414(g)) shall file an actuarial statement of valuation
evidencing compliance with the requirements of section
401(a)(12).
(c) Employer.--For purposes of this section, the term
``employer'' includes a person described in section 401(c)(4)
and an individual who establishes an individual retirement
plan.
(d) Coordination with income tax returns, etc..--An
individual who establishes an individual retirement plan shall
not be required to file a return under this section with
respect to such plan for any taxable year for which there is--
(1) no special IRP tax, and
(2) no plan activity other than--
(A) the making of contributions (other than
rollover contributions), and
(B) the making of distributions.
(e) Special IRP tax defined.--For purposes of this section,
the term ``special IRP tax'' means a tax imposed by--
(1) section 4973, or
(2) section 4974.
(f) 403(b) Multiple Employer Plans Treated as One Plan.--In
the case of annuity contracts to which this section applies and
to which section 403(b) applies by reason of the plan under
which such contracts are purchased meeting the requirements of
paragraph (15) thereof, such plan shall be treated as a single
plan for purposes of this section.
[(f)] (g) Cross references.--For provisions relating to
penalties for failure to file a return required by this
section, see section 6652(e).
For coordination between the Department of the Treasury and
the Department of Labor with respect to the information
required under this section, see section 3004 of title III of
the Employee Retirement Income Security Act of 1974.
* * * * * * *
----------
SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT OF 2019
DIVISION O--SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT
* * * * * * *
TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS
* * * * * * *
SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW LONG-TERM
EMPLOYEES WORKING MORE THAN 500 BUT LESS THAN 1,000
HOURS PER YEAR TO PARTICIPATE.
(a) Participation Requirement.--
(1) In general.--Section 401(k)(2)(D) of the Internal
Revenue Code of 1986is amended to read as follows:
``(D) which does not require, as a condition
of participation in the arrangement, that an
employee complete a period of service with the
employer (or employers) maintaining the plan
extending beyond the close of the earlier of--
``(i) the period permitted under
section 410(a)(1) (determined without
regard to subparagraph (B)(i) thereof),
or
``(ii) subject to the provisions of
paragraph (15), the first period of 3
consecutive 12-month periods during
each of which the employee has at least
500 hours of service.''.
(2) Special rules.--Section 401(k) of such Code is
amended by adding at the end the following new
paragraph:
``(15) Special rules for participation requirement
for long-term, part-time workers.--For purposes of
paragraph (2)(D)(ii)--
``(A) Age requirement must be met.--Paragraph
(2)(D)(ii) shall not apply to an employee
unless the employee has met the requirement of
section 410(a)(1)(A)(i) by the close of the
last of the 12-month periods described in such
paragraph.
``(B) Nondiscrimination and top-heavy rules
not to apply.--
``(i) Nondiscrimination rules.--In
the case of employees who are eligible
to participate in the arrangement
solely by reason of paragraph
(2)(D)(ii)--
``(I) notwithstanding
subsection (a)(4), an employer
shall not be required to make
nonelective or matching
contributions on behalf of such
employees even if such
contributions are made on
behalf of other employees
eligible to participate in the
arrangement, and
``(II) an employer may elect
to exclude such employees from
the application of subsection
(a)(4), paragraphs (3), (12),
and (13), subsection (m)(2),
and section 410(b).
``(ii) Top-heavy rules.--An employer
may elect to exclude all employees who
are eligible to participate in a plan
maintained by the employer solely by
reason of paragraph (2)(D)(ii) from the
application of the vesting and benefit
requirements under subsections (b) and
(c) of section 416.
``(iii) Vesting.--For purposes of
determining whether an employee
described in clause (i) has a
nonforfeitable right to employer
contributions (other than contributions
described in paragraph (3)(D)(i)) under
the arrangement, each 12-month period
for which the employee has at least 500
hours of service shall be treated as a
year of service, and section 411(a)(6)
shall be applied by substituting `at
least 500 hours of service' for `more
than 500 hours of service' in
subparagraph (A) thereof.
``(iv) Employees who become full-time
employees.--This subparagraph (other
than clause (iii)) shall cease to apply
to any employee as of the first plan
year beginning after the plan year in
which the employee meets the
requirements of section
410(a)(1)(A)(ii) without regard to
paragraph (2)(D)(ii).
``(C) Exception for employees under
collectively bargained plans, etc.--Paragraph
(2)(D)(ii) shall not apply to employees
described in section 410(b)(3).
``(D) Special rules.--
``(i) Time of participation.--The
rules of section 410(a)(4) shall apply
to an employee eligible to participate
in an arrangement solely by reason of
paragraph (2)(D)(ii).
``(ii) 12-month periods.--12-month
periods shall be determined in the same
manner as under the last sentence of
section 410(a)(3)(A).''.
(b) Effective Date.--The amendments made by this section
shall apply to plan years beginning after December 31, 2020,
except that, for purposes of [section 401(k)(2)(D)(ii)]
paragraphs (2)(D)(ii) and (15)(B)(iii) of section 401(k) of the
Internal Revenue Code of 1986 (as added by such amendments),
12-month periods beginning before January 1, 2021, shall not be
taken into account.
* * * * * * *
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