[Senate Report 117-142]
[From the U.S. Government Publishing Office]


                                                      Calendar No. 480
117th Congress     }                                      {     Report
                                 SENATE
 2d Session        }                                      {    117-142

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



 
                 ENHANCING AMERICAN RETIREMENT NOW ACT

                                _______
                                

               September 8, 2022.--Ordered to be printed

                                _______
                                

               Mr. Wyden, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 4808]

    The Committee on Finance, having considered an original 
bill, S. 4808, to amend the Internal Revenue Code of 1986 to 
encourage retirement savings, and for other purposes, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                     Page
 I. LEGISLATIVE BACKGROUND............................................  1
II. EXPLANATION OF THE BILL...........................................  9
TITLE I--INDIVIDUAL RETIREMENT...................................       9
        1. Secure deferral arrangements (sec. 101 of the bill and 
            new secs. 401(k)(16) and 401(m)(13) of the Code).....       9
        2. Matching payments for elective deferral and IRA 
            contributions by certain individuals (sec. 102 of the 
            bill and new sec. 6433 of the Code)..................      13
        3. Modification of participation requirements for long-
            term, part-time workers (sec. 103 of the bill and 
            sec. 401(k) of the Code).............................      17
        4. Treatment of student loan payments as elective 
            deferrals for purposes of matching contributions 
            (sec. 104 of the bill and secs. 401(m), 403(b), 
            408(p), and 457(b) of the Code)......................      20
        5. Withdrawals for certain emergency expenses (sec. 105 
            of the bill and sec. 72(t) of the Code)..............      26
        6. Allow additional nonelective contributions to SIMPLE 
            plans (sec. 106 of the bill and sec. 408(p) of the 
            Code)................................................      29
        7. Small immediate financial incentives for contributing 
            to a plan (sec. 107 of the bill and secs. 401(k),  
            403(b), and 4975 of the Code)........................      31
        8. Indexing IRA catch-up limit (sec. 108 of the bill and 
            sec. 219 of the Code)................................      34
        9. Higher catch-up limit to apply at age 60, 61, 62, and 
            63 (sec. 109 of the bill and sec. 414(v) of the Code)      35
        10. Eliminate the ``first day of the month'' requirement 
            for governmental section 457(b) plans (sec. 110 of 
            the bill and sec. 457(b) of the Code)................      37
        11. Tax treatment of certain non-trade or business SEP 
            contributions (sec. 111 of the bill and sec. 4972 of 
            the Code)............................................      38
        12. Elimination of additional tax on corrective 
            distributions of excess contributions (sec. 112 of 
            the bill and sec. 72 of the Code)....................      39
        13. Employer may rely on employee certifying that deemed 
            hardship distribution conditions are met (sec. 113 of 
            the bill and secs. 401(k), 403(b), and 457(b) of the 
            Code)................................................      41
        14. Penalty-free withdrawals from retirement plans for 
            individuals in case of domestic abuse (sec. 114 of 
            the bill and sec. 72(t) of the Code).................      44
        15. Amendments to increase benefit accruals under plan 
            for previous plan year allowed until employer tax 
            return due date (sec. 115 of the bill and sec. 401(b) 
            of the Code).........................................      47
        16. Retroactive first year elective deferrals for sole 
            proprietors (sec. 116 of the bill and sec. 401(b) of 
            the Code)............................................      48
        17. Treasury guidance on rollovers (sec. 117 of the bill   
            and secs. 402(c) and 408(d) of the Code).............      49
        18. Exemption for automatic portability transactions   
            (sec. 118 of the bill and sec. 4975 of the Code).....      51
        19. Application of section 415 limit for certain 
            employees of rural electric cooperatives (sec. 119 of 
            the bill and sec. 415(b) of the Code)................      57
        20. Insurance-dedicated exchange-traded funds (sec. 120 
            of the bill and Treas. Reg. secs. 1.817-5(f)(2) and  
            (3)).................................................      59
        21. Modification of age requirement for qualified ABLE 
            programs (sec. 121 of the bill and sec. 529A of the 
            Code)................................................      62
        22. Assist savers in recovering unclaimed savings bonds 
            (sec. 122 of the bill)...............................      65
TITLE II--RETIREES...............................................      66
        1. Increase in age for required beginning date for 
            mandatory distributions (sec. 201 of the bill and 
            sec. 401(a)(9) of the Code)..........................      66
        2. Qualifying longevity annuity contracts (sec. 202 of 
            the bill and Treas. Reg. sec. 1.401(a)(9)-6).........      70
        3. Remove required minimum distribution barriers for life 
            annuities (sec. 203 of the bill and sec. 401(a)(9) of 
            the Code)............................................      73
        4. Eliminating a penalty on partial annuitization (sec. 
            204 of the bill and Treas. Reg. secs. 1.401(a)(9)-5 
            and -6)..............................................      76
        5. Reduction in excise tax on certain accumulations in 
            qualified retirement plans (sec. 205 of the bill and 
            sec. 4974 of the Code)...............................      78
        6. Clarification of substantially equal periodic payment 
            rule (sec. 206 of the bill and secs. 72(t) and (q) of 
            the Code)............................................      79
        7. Recovery of retirement plan overpayments (sec. 207 of 
            the bill and secs. 402 and 414 of the Code)..........      81
        8. Retirement Savings Lost and Found (sec. 208 of the 
            bill and secs. 402, 408, 411, 6011, 6057, 6652 and 
            new section 7901 of the Code)........................      86
        9. Roth plan distribution rules (sec. 209 of the bill and 
            sec. 402A(d) of the Code)............................      95
        10. One-time election for qualified charitable 
            distribution to split-interest entity; increase in 
            qualified charitable distribution limitation (sec. 
            210 of the bill and sec. 408(d)(8) of the Code)......      96
        11. Exception to penalty on early distributions from 
            qualified plans for individuals with a terminal 
            illness (sec. 211 of the bill and sec. 72(t) of the 
            Code)................................................     103
        12. Surviving spouse election to be treated as employee 
            (sec. 212 of the bill and sec. 401(a)(9) of the Code)     103
        13. Long-term care contracts purchased with retirement 
            plan distributions (sec. 213 of the bill and new 
            secs. 72(t)(2)(L), 401(a)(39), 403(a)(6), and 6050Z, 
            and sec. 6724(d) of the Code)........................     104
TITLE III--PUBLIC SAFETY OFFICERS AND MILITARY...................     108
        1. Military spouse retirement plan eligibility credit for 
            small employers (sec. 301 of the bill and new sec. 
            45U of the Code).....................................     108
        2. Distributions to firefighters (sec. 302 of the bill 
            and sec. 72(t) of the Code)..........................     109
        3. Exclusion of certain disability-related first 
            responder retirement payments (sec. 303 of the bill 
            and new sec. 139C of the Code).......................     110
        4. Repeal of direct payment requirement on exclusion from 
            gross income of distributions from governmental plans 
            for health and long-term care insurance (sec. 304 of 
            the bill and sec. 402(l)(5)(A) of the Code)..........     112
        5. Modification of eligible age for exemption from early 
            withdrawal penalty (sec. 305 of the bill and sec. 
            72(t) of the Code)...................................     113
        6. Exemption from early withdrawal penalty for certain 
            State and local government corrections employees 
            (sec. 306 of the bill and sec. 72(t) of the Code)....     114
TITLE IV--NONPROFITS AND EDUCATORS...............................     115
        1. Enhancement of 403(b) plans (sec. 401 of the bill and 
            sec. 403(b) of the Code).............................     115
        2. Hardship withdrawal rules for 403(b) plans (sec. 402 
            of the bill and sec. 403(b) of the Code).............     118
        3. Multiple employer 403(b) plans (sec. 403 of the bill 
            and secs. 403(b), 6057 and 6058 of the Code).........     119
TITLE V--DISASTER RELIEF.........................................     129
        1. Special rules for use of retirement funds in 
            connection with qualified federally declared 
            disasters (sec. 501 of the bill and sec. 72 of the 
            Code)................................................     129
TITLE VI--EMPLOYER PLANS.........................................     134
        1. Credit for employers with respect to modified safe 
            harbor requirements (sec. 601 of the bill and new 
            sec. 45V of the Code)................................     134
        2. Application of top-heavy rules to defined contribution 
            plans covering excludible employees (sec. 602 of the  
            bill and sec. 416 of the Code).......................     136
        3. Increase in credit limitation for small employer 
            pension plan startup costs of certain employers (sec. 
            603 of the bill and sec. 45E of the Code)............     138
        4. Expansion of Employee Plans Compliance Resolution 
            System (sec. 604 of the bill)........................     139
        5. Application of credit for small employer pension plan 
            start-up costs to employers which join an existing 
            plan (sec. 605 of bill and sec. 45E of the Code).....     142
        6. Safe harbor for corrections of employee elective 
            deferral failures (sec. 606 of the bill).............     143
        7. Reform of family attribution rule (sec. 607 of the 
            bill and sec. 414 of the Code).......................     145
        8. Contribution limit for SIMPLE IRAs (sec. 608 of the 
            bill and secs. 401(k), 408(p) and 414(v) of the Code)     148
        9. Employers allowed to replace SIMPLE retirement 
            accounts with safe harbor 401(k) plans during a year 
            (sec. 609 of the bill and secs. 72(t), 401(k) and 
            408(p) of the Code)..................................     150
        10. Starter 401(k) plans for employers with no retirement 
            plan (sec. 610 of the bill and new secs. 401(k)(17) 
            and 403(b)(17) of the Code)..........................     151
        11. Credit for small employers that adopt an automatic 
            portability arrangement (sec. 611 of the bill and 
            sec. 45U of the Code)................................     153
        12. Re-enrollment credit (sec. 612 of the bill and sec. 
            45X of the Code).....................................     154
        13. Corrections of mortality tables (sec. 613 of the bill 
            and sec. 430(h) of the Code).........................     158
        14. Enhancing retiree health benefits in pension plans 
            (sec. 614 of the bill and sec. 420 of the Code)......     159
        15. Deferral of tax for certain sales of employer stock 
            to employee stock ownership plan sponsored by S 
            corporation (sec. 615 of the bill and sec. 1042 of 
            the Code)............................................     161
TITLE VII--NOTICES...............................................     167
        1. Review and report to Congress relating to reporting 
            and disclosure requirements (sec. 701 of the bill)...     167
        2. Report to Congress on section 402(f) notices (sec. 702 
            of the bill and sec. 402(f) of the Code).............     169
        3. Eliminating unnecessary plan requirements related to 
            unenrolled participants (sec. 703 of the bill and 
            sec. 414 of the Code)................................     170
TITLE VIII--TECHNICAL MODIFICATIONS..............................     171
        1. Repayment of qualified birth or adoption distributions 
            limited to three years (sec. 801 of the bill and sec. 
            72 of the Code)......................................     171
        2. Amendments relating to the Setting Every Community Up 
            for Retirement Enhancement Act of 2019 (sec. 802 of 
            the bill and secs. 401(k) and 4973 of the Code)......     173
        3. Modification of required minimum distribution rules 
            for special needs trusts (sec. 803 of the bill and 
            sec. 401(a)(9) of the Code)..........................     175
TITLE IX--PLAN AMENDMENTS........................................     177
        1. Provisions relating to plan amendments (sec. 901 of 
            the bill)............................................     177
TITLE X--TAX COURT RETIREMENT PROVISIONS.........................     178
        1. Provisions relating to judges of the Tax Court (sec. 
            1001 of the bill)....................................     178
        2. Provisions relating to special trial judges of the Tax 
            Court (sec. 1002 of the bill)........................     180
TITLE XI--REVENUE PROVISIONS.....................................     182
        1. SIMPLE and SEP Roth IRAs (sec. 1101 of the bill and 
            secs. 408(k) and 408(p) of the Code).................     182
        2. Elective deferrals generally limited to regular 
            contribution limit (sec. 1102 of the bill and secs. 
            402, 411 and 457 of the Code)........................     184
        3. Optional treatment of employer matching and 
            nonelective contributions as Roth contributions (sec. 
            1103 of the bill and sec. 402A of the Code)..........     187
        4. Charitable conservation easements (sec.1104 of the 
            bill and secs.170(h), 6662, and 6664 of the Code)....     188
III.BUDGET EFFECTS OF THE BILL......................................  194

IV. VOTES OF THE COMMITTEE..........................................  201
 V. REGULATORY IMPACT AND OTHER MATTERS.............................  201
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........  202

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 4808, the 
Enhancing American Retirement Now Act, a bill to amend the 
Internal Revenue Code of 1986 to encourage retirement savings, 
and for other purposes, reports favorably thereon and 
recommends that the bill do pass.

Background and need for legislative action

    Background--Based on a proposal recommended by Chairman 
Wyden and Ranking Member Crapo, the Committee on Finance marked 
up original legislation, the ``Enhancing American Retirement 
Now Act'' (the ``EARN'' Act) on June, 22, 2022, and, with a 
majority present, unanimously ordered the bill favorably 
reported.
    Need for legislative action--Tax-preferred retirement 
saving options, such as 401(k) plans and individual retirement 
accounts (``IRAs''), have helped many Americans plan for a 
financially secure retirement. Though some Americans have 
accumulated significant retirement savings, many Americans do 
not have any retirement savings or have inadequate savings. For 
example, only about 36 percent of non-retired adults reported 
that their retirement savings were on track, and about one-
quarter said they did not have any, according to the Federal 
Reserve Board's 2020 Survey of Household Economics and Decision 
making (``SHED'').\1\
---------------------------------------------------------------------------
    \1\Board of Governors of The Federal Reserve System, Economic Well-
Being of U.S. Households in 2020 (May 2021), https://
www.federalreserve.gov/publications/files/2020-report-economic-well-
being-us-households-202105.pdf. Similarly, 49 percent of Americans aged 
55 to 66 said they had no personal retirement savings in 2017 according 
to the U.S. Census Bureau's Survey of Income and Program Participation 
(``SIPP''). Brittany King, Census Bureau, Those Who Married Once More 
Likely Than Others to Have Retirement Savings, America Counts: Stories 
Behind the Numbers (Jan. 13, 2022), https://www.census.gov/library/
stories/2022/01/women-more-likely-than-men-to-have-no-retirement-
savings.html.
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    Certain retirement savings options, such as a 401(k) plan, 
are sponsored by employers and often offer employees the 
convenience of payroll deduction savings opportunities. 
However, not all employees work for employers who offer such 
plans, and of those that do, not all workers are eligible to 
participate or elect not to participate. For example, in March 
of 2021 only 68 percent of private sector workers had access to 
retirement benefits through their employer, and only 51 percent 
of private sector workers elected to participate (a take-up 
rate of 75 percent).\2\
---------------------------------------------------------------------------
    \2\Bureau of Labor Statistics, U.S. Department of Labor, The 
Economics Daily, https://www.bls.gov/opub/ted/2021/68-percent-of-
private-industry-workers-had-access-to-retirement-plans-in-2021.htm 
(visited July 13, 2022).
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    For those employees who can save, the risk that they will 
outlive their savings has increased as life expectancy has 
increased and health and long-term care costs have increased. 
This risk is compounded by the shift in employer-sponsored 
plans from defined benefit plan designs which provide a fixed 
monthly benefit to a retiree for life to defined contribution 
plan designs, such as 401(k) plans, which provide an account 
balance which a retiree must manage both in terms of investment 
and a withdrawal strategy to support retirement expenses.
    Retirement security can be improved by legislation that 
encourages employers to adopt retirement plans, increases 
employee participation in workplace plans and contribution 
rates, encourages IRA contributions, and helps retirees manage 
longevity costs.

Hearings and bills

    In preparation for its June markup, the Committee held two 
hearings in 2020 and 2021 at which it received testimony 
regarding retirement savings. The context of the two hearings 
was the recent passage in late 2019 of the Setting Every 
Community Up for Retirement Enhancement Act (the ``SECURE 
Act''), P.L. 116-94. The SECURE Act was comprised of several 
dozen provisions that provided for various improvements to laws 
regulating retirement saving. The hearings in 2020 and 2021 
focused on additional legislative changes that could improve 
retirement savings and security beyond what was enacted as part 
of the SECURE Act.
    On December 9, 2020, the Subcommittee on Social Security, 
Pensions, and Family Policy held a hearing on ``Investigating 
Challenges to American Retirement Security.'' Invited witnesses 
who attended the hearing included:
           Scott Barr, Financial Advisor, Edward Jones, 
        who testified on his experiences with retirement saving 
        success stories as well as his experience with savings 
        obstacles.
           Eric Stevenson, President, Retirement Plans, 
        Nationwide, who testified on opportunities to improve 
        workers' financial wellness at every phase of life with 
        a focus on employer-sponsored retirement plans.
           Michael P. Kreps, Principal, Groom Law 
        Group, who testified on expanding coverage, 
        strengthening the saver's credit, reducing plan 
        leakage, and underfunded multiemployer pension plans.
           Joshua Luskin, President, National 
        Association of Government Defined Contribution 
        Administrators, who testified on simplifying and 
        providing additional flexibility for governmental 
        retirement savings plans.
    Following the subcommittee hearing, on July 28, 2021, the 
Committee held a hearing on ``Building on Bipartisan Retirement 
Legislation: How Can Congress Help?'' Invited witnesses who 
attended the hearing included:
           Aliya Robinson, Senior Vice President, 
        Retirement and Compensation Policy, ERISA Industry 
        Committee, who testified on promoting employee 
        retirement security and reducing administrative burdens 
        for employers who sponsor retirement plans, with a 
        focus on medium and larger-sized employers.
           Brian H. Graff, Chief Executive Officer, 
        American Retirement Association, who testified on 
        expanding retirement coverage and closing racial 
        disparities in retirement savings, with a focus on 
        smaller employers and reforms to the saver's credit.
           David Certner, Legislative Counsel and 
        Policy Director, AARP, who testified on COVID-19's 
        impact on retirement security and the importance of 
        expanding retirement coverage and workplace saving 
        options.
           Tobias Read, Oregon State Treasurer, who 
        testified on Oregon's experience in expanding 
        retirement coverage and increasing savings rates 
        through a state-based auto-IRA program, OregonSaves.
    Committee members have sponsored or co-sponsored a number 
of bills in the 117th Congress which address retirement saving, 
including:
           S. 243, the Legacy IRA Act, introduced by 
        Senators Cramer and Stabenow and cosponsored by 
        Senators Daines, Rosen, Cornyn, Peters, and Murkowski. 
        This bill would expand the tax exclusion for 
        distributions from IRAs for charitable purposes, 
        including to split-interest entities exclusively funded 
        by charitable distributions.
           S. 331, the ABLE Age Adjustment Act, 
        introduced by Senator Casey and cosponsored by Senators 
        Moran, Wyden, Van Hollen, Boozman, Blumenthal, 
        Murkowski, Marshall, Leahy, Klobuchar, Toomey, Reed, 
        Cardin, Durbin, Whitehouse, Kaine, Duckworth, Brown, 
        Burr, and Feinstein. This bill would increase the age 
        by which a disability must occur for ABLE account 
        eligibility from 26 to 46.
           S. 1272, the SIMPLE Plan Modernization Act, 
        introduced by Senators Collins and Warner. This bill 
        would increase the contribution limits for SIMPLE IRA 
        plans and SIMPLE 401(k) plans and modify the 
        requirements for replacing SIMPLE IRAs with SIMPLE 
        401(k) plans.
           S. 1273, the Military Spouses Retirement 
        Security Act, introduced by Senator Collins and 
        cosponsored by Senators Hassan, Lankford, Bennet, King, 
        Daines, Blunt, and Murkowski. This bill would allow a 
        tax credit for certain small businesses that include 
        military spouses in their retirement plans.
           S. 1300, the Promotion and Expansion of 
        Private Employee Ownership Act of 2021, introduced by 
        Senators Cardin and Portman and cosponsored by Senators 
        Stabenow, Crapo, Cantwell, Daines, Brown, Collins, 
        Casey, Risch, Whitehouse, Blunt, Hassan, Boozman, 
        Leahy, Fischer, Murray, Ernst, Sanders, Klobuchar, 
        Tester, Shaheen, King, Booker, Peters, Van Hollen, 
        Duckworth, Reed, Kennedy, Moran, Grassley, Hoeven, 
        Toomey, Baldwin, Thune, Smith, and Barrasso. This bill 
        expands tax incentives and federal assistance for 
        employee stock ownership plans (``ESOPs'') that are 
        sponsored by S corporations.
           S. 1443, the Retirement Parity for Student 
        Loans Act, introduced by Senator Wyden and cosponsored 
        by Senators Brown, Cantwell, Cardin, Whitehouse, and 
        Murkowski. This bill would allow certain employer-
        sponsored retirement plans to make matching 
        contributions for an employee's student loan payments 
        as if the loan payments were contributions to the 
        retirement plan.
           S. 1618, the Putting First Responders First 
        Act, introduced by Senators Daines and Tester and 
        cosponsored by Senators Brown and Grassley. This bill 
        would allow first responders to exclude from gross 
        income certain service-connected disability payments 
        received as part of a pension or annuity after reaching 
        the age of retirement.
           S. 1703, the Improving Access to Retirement 
        Savings Act, introduced by Senator Grassley and 
        cosponsored by Senators Hassan and Lankford. This bill 
        would make a number of changes to present law, 
        including the expansion of multiple employer plans to 
        include 403(b) plans and allowing small employers that 
        join a multiple employer plan to obtain a tax credit 
        for their plan start-up expenses.
           S. 1730, the Retirement Savings Lost and 
        Found Act of 2021, introduced by Senators Warren and 
        Daines. This bill would establish an online Retirement 
        Savings Lost and Found managed by the Pension Benefit 
        Guaranty Corporation to assist individuals in locating 
        certain employer-sponsored retirement accounts.
           S. 1770, the Retirement Security and Savings 
        Act of 2021, introduced by Senators Cardin and Portman 
        and cosponsored by Senators Hassan, Collins, Brown, 
        Daines, Tester, Capito, Sinema, Blunt, Hickenlooper, 
        and Murkowski. This bill includes several dozen 
        provisions that would make a number of changes to 
        policies, credits, and requirements that apply to 
        employer-sponsored retirement plans and IRAs.
           S. 1870, the Enhancing Emergency and 
        Retirement Savings Act of 2021, introduced by Senators 
        Lankford and Bennet. This bill would permit penalty-
        free distributions, up to $1,000, from retirement plans 
        for emergency personal expenses, and would allow 
        participants to repay such distributions over a three-
        year period.
           S. 1889, the Compassionate Retirement Act of 
        2021, introduced by Senators Burr and Bennet and 
        cosponsored by Senator Van Hollen. This bill would 
        allow early penalty-free distributions from retirement 
        plans that are made to an individual who is certified 
        by a physician as terminally ill.
           S. 2415, the Long-Term Care Affordability 
        Act, introduced by Senator Toomey. This bill would 
        allow retirement plan distributions to be used to pay 
        for long-term care insurance.
           S. 2446, the Women's Retirement Protection 
        Act, introduced by Senator Murray and cosponsored by 
        Senators Blumenthal, Hirono, Klobuchar, Feinstein, 
        Smith, Warren, Cantwell, Wyden, Sanders, Baldwin, 
        Bennet, Menendez, Cortez Masto, Kaine, Padilla, Rosen, 
        Brown, Gillibrand, Stabenow, Durbin, Merkley, 
        Duckworth, Shaheen, Booker, and Casey. This bill would 
        extend spousal protections to defined contribution 
        plans, allow part-time workers to access retirement 
        savings plans one year earlier, and fund community-
        based organizations that support women and survivors of 
        domestic abuse.
           S. 2452, the Encouraging Americans to Save 
        Act, introduced by Senator Wyden and cosponsored by 
        Senators Bennet, Casey, Durbin, Klobuchar, Menendez, 
        and Murray. This bill would modify and expand the 
        saver's credit into matching payments for retirement 
        savings and IRA contributions.
           S. 2583, introduced by Senators Cassidy and 
        Menendez. The bill would provide for rules for the use 
        of retirement funds in connection with federally 
        declared disasters.
           S. 3955, the Starter-K Act of 2022, 
        introduced by Senators Barrasso and Carper. This bill 
        would allow employers who do not provide a retirement 
        plan to establish a starter 401(k) deferral-only 
        arrangement.
           S. 3993, the Savings Access for Escaping and 
        Rebuilding (``SAFER'') Act of 2022, introduced by 
        Senators Cortez Masto and Cornyn. This bill would allow 
        penalty-free distributions from tax-exempt retirement 
        plans for domestic abuse victims.
           S. 4024, the State and Local Corrections 
        Officer Retirement Fairness Act of 2022, introduced by 
        Senators Toomey and Bennet. This bill would extend the 
        exemption from the penalty for early withdrawals from 
        retirement plans currently allowed to federal public 
        safety officers to certain state and local government 
        corrections officers.
           S. 4312, the Healthcare Enhancement for 
        Local Public Safety Act, introduced by Senators Brown 
        and Thune, and cosponsored by Senators Warner and 
        Grassley. This bill would eliminate the requirement 
        that payments be made directly to providers of accident 
        or health plans or qualified long-term care insurance 
        contracts as a condition of eligibility for the tax 
        exclusion of distributions from retirement plans for 
        such health and long-term care insurance.
           S. 4314, the Protecting Public Safety 
        Employees' Timely Retirement Act of 2022, introduced by 
        Senators Toomey and Bennet. This bill would exempt 
        public safety officers from the retirement plan early 
        withdrawal penalty after 25 years of service.
           S. 4406, the Advancing Auto-Portability Act 
        of 2022, introduced by Senators Scott and Brown. This 
        bill would allow a default IRA account to be 
        automatically rolled over into a worker's new 
        employer's retirement plan.
    These hearings and legislative proposals informed the 
content of the EARN Act.

Committee mark-up

    On June 22, 2022, the Committee met to mark up the EARN 
Act. The Committee adopted an amendment to accelerate the 
effective date of the exclusion of changes to certain 
disability related first responder payments by a vote of 23-5. 
The Committee favorably reported the legislation by a vote of 
28-0.

                      II. EXPLANATION OF THE BILL


                     TITLE I--INDIVIDUAL RETIREMENT

  1. Secure deferral arrangements (sec. 101 of the bill and new secs. 
                 401(k)(16) and 401(m)(13) of the Code)


                              PRESENT LAW

Section 401(k) plans

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan'').\3\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $20,500 (for 
2022) or, if less, the employee's compensation.\4\ For an 
employee who attains age 50 by the end of the year, the dollar 
limit on elective deferrals is increased by $6,500 (for 2022) 
(called ``catch-up contributions'').\5\ The dollar limits for 
elective deferrals, including catch-up contributions, are 
indexed for inflation. An employee's elective deferrals must be 
fully vested (nonforfeitable to the employee).\6\ A section 
401(k) plan may also provide for employer matching and 
nonelective contributions, which may be subject to vesting 
conditions. A matching contribution is conditioned on the 
employee making elective deferrals,\7\ while a nonelective 
contribution is not conditioned on whether an employee has 
elected to make contributions to the plan.
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    \3\Except where otherwise provided, all section references are to 
the Internal Revenue Code of 1986, as amended (the ``Code''). Elective 
deferrals are generally made on a pretax basis and distributions 
attributable to elective deferrals are includible in income. However, a 
section 401(k) plan is permitted to include a ``qualified Roth 
contribution program'' that permits a participant to elect to have all 
or a portion of the participant's elective deferrals under the plan 
treated as after-tax Roth contributions. Certain distributions from a 
designated Roth account are excluded from income, even though they 
include earnings not previously taxed.
    \4\Sec. 402(g).
    \5\Sec. 414(v).
    \6\Sec. 411(a).
    \7\Matching contributions may also be conditioned on the employee 
making Roth contributions or after-tax contributions.
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Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\8\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \8\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate when an employee becomes 
eligible to participate unless the employee elects otherwise 
(that is, affirmatively elects not to make contributions or to 
make contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination testing

            Actual deferral percentage test
    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\9\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for non-
highly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for non-highly compensated employees by more than 
certain specified amounts.
---------------------------------------------------------------------------
    \9\Sec. 401(k)(3).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (``401(k) safe 
harbor plan''), described below, as well as certain required 
rights and features and if the plan satisfies a notice 
requirement, if applicable.\10\
---------------------------------------------------------------------------
    \10\Secs. 401(k)(12) and (13).
---------------------------------------------------------------------------
            Matching contribution nondiscrimination test
    Employer matching contributions are also subject to a 
nondiscrimination test that compares the average actual 
contribution percentages of matching contributions for the 
highly compensated employee group and the non-highly 
compensated employee group (the ``ACP'' test). Under the ACP 
test, the actual contribution percentage of the highly 
compensated employee group for the current plan year must not 
exceed the greater of (1) 125 percent of the actual 
contribution percentage of the non-highly compensated employee 
group for the prior plan year, or (2) 200 percent of the actual 
contribution percentage of the non-highly compensated employee 
group for the prior plan year and not more than two percentage 
points greater than the actual contribution percentage of the 
non-highly compensated employee group for the prior plan year.
    The ACP test is deemed to be satisfied if a 401(k) safe 
harbor plan meets the contribution and notice requirements 
under section 401(k), and if the following limits on matching 
contributions are met: (1) matching contributions are not 
provided with respect to elective deferrals in excess of six 
percent of compensation, (2) the rate of matching contribution 
does not increase as the rate of an employee's elective 
deferrals increases, and (3) the rate of matching contribution 
with respect to any rate of elective deferral of a highly 
compensated employee is no greater than the rate of matching 
contribution with respect to the same rate of deferral of a 
non-highly compensated employee.\11\
---------------------------------------------------------------------------
    \11\Sec. 401(m)(11); 401(m)(12).
---------------------------------------------------------------------------
            Safe harbor 401(k) plan designs
    Under one type of 401(k) safe harbor plan (``basic 401(k) 
safe harbor plan''), the plan either (1) satisfies a matching 
contribution requirement, or (2) provides for a nonelective 
contribution to a defined contribution plan of at least three 
percent of an employee's compensation on behalf of each non-
highly compensated employee who is eligible to participate in 
the plan.\12\ The matching contribution requirement under the 
matching contribution basic 401(k) safe harbor requires a 
matching contribution equal to at least 100 percent of elective 
contributions of the employee for contributions not in excess 
of three percent of compensation, and 50 percent of elective 
contributions for contributions that exceed three percent of 
compensation but do not exceed five percent, for a total 
matching contribution of up to four percent of compensation. 
The required matching contributions and the three percent 
nonelective contribution under the basic 401(k) safe harbor 
must be immediately nonforfeitable (that is, 100 percent 
vested) when made.
---------------------------------------------------------------------------
    \12\Sec. 401(k)(12).
---------------------------------------------------------------------------
    Another safe harbor applies for a section 401(k) plan that 
includes automatic enrollment (``automatic enrollment 401(k) 
safe harbor plan'').\13\ An automatic enrollment section 401(k) 
safe harbor plan must provide that, unless an employee elects 
otherwise, the employee is treated as electing to make elective 
deferrals at a default rate equal to a percentage of 
compensation as stated in the plan that is at least (1) three 
percent of compensation through the end of the first plan year 
that begins after the first deemed election applies to the 
participant, (2) four percent during the second plan year, (3) 
five percent during the third plan year, and (4) six percent 
during the fourth plan year and thereafter.\14\ An automatic 
enrollment section 401(k) safe harbor plan generally may 
provide for default rates higher than these minimum rates, but 
the default rate cannot exceed 15 percent for any year (10 
percent during the first year).
---------------------------------------------------------------------------
    \13\Sec. 401(k)(13).
    \14\Sec. 401(k)(13)(C)(iii). These automatic increases in default 
contribution rates are required for plans using the safe harbor. Rev. 
Rul. 2009-30, 2009-39 I.R.B. 391, provides guidance for including 
automatic increases in other plans using automatic enrollment, 
including under a plan that includes an eligible automatic contribution 
arrangement.
---------------------------------------------------------------------------
    The automatic enrollment section 401(k) safe harbor plan 
also must satisfy either (1) a matching contribution 
requirement, or (2) provide for a nonelective contribution. The 
matching contribution requirement under the matching 
contribution automatic enrollment 401(k) safe harbor plan is 
100 percent of elective contributions of the employee for 
contributions not in excess of one percent of compensation, and 
50 percent of elective contributions for contributions that 
exceed one percent of compensation but do not exceed six 
percent, for a total matching contribution of up to 3.5 percent 
of compensation. Alternatively, the plan can provide that the 
employer will make a nonelective contribution of three percent. 
For an automatic enrollment 401(k) safe harbor plan, the 
matching and nonelective contributions are required to become 
100 percent vested only after two years of service (rather than 
being required to be immediately vested when made).
            Safe harbor notice
    Both the matching contribution basic section 401(k) safe 
harbor plan and the matching contribution automatic enrollment 
section 401(k) safe harbor plan are subject to a notice 
requirement.\15\ A written notice must be provided to each 
employee eligible to participate, within a reasonable period 
before each plan year and must describe the employee's rights 
and obligations under the arrangement. Such notice must be (1) 
sufficiently accurate and comprehensive to apprise the employee 
of such rights and obligations, and (2) written in a manner 
calculated to be understood by the average employee to whom the 
arrangement applies.
---------------------------------------------------------------------------
    \15\Secs. 401(k)(12)(A); 401(k)(13)(B).
---------------------------------------------------------------------------
    In the case of a matching contribution automatic enrollment 
section 401(k) safe harbor plan, the notice must also (1) 
explain 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), (2) in the case of an arrangement under which the 
employee may elect among 2 or more investment options, explain 
how contributions made under the arrangement will be invested 
in the absence of any investment election by the employee. 
Additionally, the employee must have a reasonable period of 
time after receipt of the notice and before the first elective 
contribution is made to make either such election.

                           REASONS FOR CHANGE

    The Committee recognizes that one of the primary reasons 
many Americans reach retirement age with little or no savings 
is that too few workers are offered an opportunity to save for 
retirement through their employers. Even for those employees 
who are offered a retirement plan at work, many do not 
participate. However, automatic enrollment in section 401(k) 
plans significantly increases participation. Since first 
defined and approved by Treasury in 1998, automatic enrollment 
has boosted participation by eligible employees generally, and 
particularly for lower-wage employees. For these reasons, the 
Committee believes it is appropriate to create a new automatic 
enrollment safe harbor to promote additional retirement savings 
through higher rate default and matching contributions.

                        EXPLANATION OF PROVISION

    The provision establishes a new automatic enrollment safe 
harbor (``secure deferral arrangement'') in addition to the 
existing automatic enrollment 401(k) safe harbor plan. The 
secure deferral arrangement is required to satisfy certain 
requirements, including providing for certain minimum qualified 
percentages of elective deferrals and certain minimum matching 
contributions. There is also an employee notice requirement. 
However, secure deferral arrangements (like other safe harbor 
401(k) plans) generally are not subject to nondiscrimination 
testing.
    Under the new secure deferral arrangement, the minimum 
qualified percentages of employee elective deferrals are at 
least six percent but not greater than 10 percent during the 
period ending on the last day of the first plan year (instead 
of the current three percent in the existing automatic 
enrollment 401(k) safe harbor) which begins after the date on 
which the first elective contribution is made with respect to 
such employee, at least seven percent in the second year, at 
least eight percent in the third year, at least nine percent in 
the fourth year, and at least 10 percent in all subsequent 
years. The 10 percent cap on the default level of employee 
elective deferrals applies in the first year, but no cap 
applies to any of the following years.
    The employer is required to make matching contributions on 
behalf of all eligible non-highly compensated employees equal 
to at least (a) 100 percent of the employee's elective 
deferrals up to two percent of the employee's compensation, (b) 
50 percent of such employee's elective deferrals that exceed 
two percent but do not exceed six percent of the employee's 
compensation, and (c) 20 percent of such employee's elective 
deferrals that exceed six percent but do not exceed 10 percent 
of the employee's compensation (for a total minimum matching 
contribution of up to 4.8 percent of compensation based on this 
schedule). The matching contribution as specified for each 
increment of deferrals is a minimum requirement for that 
increment meaning that an employer can make matching 
contributions at a higher rate for each increment so long as 
the matching contribution rate does not increase as an 
employee's rate of elective contributions increases. Matching 
contributions with respect to employee contributions or 
deferrals in excess of 10 percent of compensation are not 
permitted.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2023.

  2. Matching payments for elective deferral and IRA contributions by 
  certain individuals (sec. 102 of the bill and new sec. 6433 of the 
                                 Code)


                              PRESENT LAW

    Eligible taxpayers may claim a nonrefundable income tax 
credit for qualified retirement savings contributions to 
certain retirement accounts.\16\ Subject to adjusted gross 
income (``AGI'') limits, the credit is available to individuals 
who are age 18 or older, other than individuals who are full-
time students or claimed as a dependent on another taxpayer's 
return. The maximum amount of the contribution that may be 
taken into account is $2,000 with a maximum credit of $1,000 
per eligible individual.\17\
---------------------------------------------------------------------------
    \16\Sec. 25B; Pub. L. No. 109-290.
    \17\See IRS Form 8880, Credit for Qualified Retirement Savings 
Contributions.
---------------------------------------------------------------------------
    The amount of the credit is based on the taxpayer's AGI and 
filing status. The credit is a percentage of the taxpayer's 
qualified retirement savings contributions with a percentage of 
10 percent, 20 percent, or 50 percent, as shown in the table 
below. The credit is in addition to any deduction or exclusion 
that would otherwise apply with respect to the contribution. 
The credit offsets alternative minimum tax liability as well as 
regular tax liability.

                              TABLE 1.--CREDIT RATES FOR SAVER'S CREDIT (FOR 2022)
----------------------------------------------------------------------------------------------------------------
                                         Heads of  Households      All Other  Filers1
          Joint Filers (AGI)                    (AGI)                    (AGI)                 Credit Rate
----------------------------------------------------------------------------------------------------------------
$0-$41,000...........................               $0-$30,750               $0-$20,500               50 percent
$41,001-$44,000......................          $30,751-$33,000          $20,501-$22,000               20 percent
$44,001-$68,000......................          $33,001-$51,000          $22,001-$34,000               10 percent
more than $68,000....................        more than $51,000        more than $34,000               0 percent
----------------------------------------------------------------------------------------------------------------
Note: AGI amounts are indexed for inflation.
1Includes single, married filing separately, and qualifying widow or widower.

    Eligible contributions for purposes of the credit include 
(1) contributions to traditional and Roth IRAs; (2) elective 
deferrals to a section 401(k) plan, a section 403(b) plan, a 
governmental section 457(b) plan, a SIMPLE IRA, or a SEP; (3) 
voluntary after-tax employee contributions to a qualified 
retirement plan or annuity or a section 403(b) plan; and (4) 
contributions to a section 501(c)(18)(D) plan. Under changes 
enacted by Public Law 115-97, eligible contributions for 
purposes of the credit also include contributions to Achieving 
a Better Life Experience (``ABLE'') accounts for which the 
taxpayer is a designated beneficiary.\18\ ABLE accounts are 
savings accounts utilized by individuals with disabilities. A 
credit for such contributions is available for contributions 
made in calendar years 2018 through 2025.
---------------------------------------------------------------------------
    \18\Pub. L. No. 115-97, sec. 11024, December 22, 2017.
---------------------------------------------------------------------------
    The amount of any contribution eligible for the credit is 
reduced by distributions received by the taxpayer (or by the 
taxpayer's spouse if the taxpayer files a joint return with the 
spouse) from any retirement plan or IRA to which eligible 
contributions can be made during the taxable year for which the 
credit is claimed, during the two taxable years prior to the 
year the credit is claimed, and during the period after the end 
of the taxable year for which the credit is claimed and prior 
to the due date for filing the taxpayer's return for the year. 
Distributions that are rolled over to another retirement plan 
do not affect the credit.

                           REASONS FOR CHANGE

    The Committee believes that the credit for qualified 
retirement savings contributions is an important tool for 
helping middle-class Americans prepare for retirement, but that 
it could be more effective if certain improvements are made. 
For example, the various credit rates under present law change 
substantially as a result of very minor income differences. 
More significantly, the Committee wishes to expand eligibility 
for the credit such that many more taxpayers would qualify as 
compared to present law. A key limitation on eligibility under 
present law is that a taxpayer with no income tax liability is 
ineligible for the credit. Lastly, the Committee believes that 
the credit is more effective if it is structured as an actual 
contribution to a worker's IRA or section 401(k) account, with 
the result that the credit along with years of compounded 
earnings will directly boost retirement savings.

                        EXPLANATION OF PROVISION

    Under the provision, an eligible individual is allowed a 
refundable income tax credit, up to $1,000, equal to a 
percentage of qualified retirement savings contributions made 
by the individual to a retirement account.\19\ The refund must 
be paid by the Secretary of Treasury (``Secretary'') as a 
contribution to the eligible individual's applicable retirement 
savings vehicle and must be made as soon as practicable after 
the eligible individual files a tax return making a claim for 
the credit. This credit generally replaces the present-law 
credit for qualified retirement savings contributions to 
retirement accounts.\20\
---------------------------------------------------------------------------
    \19\Sec. 6433, as added by this provision.
    \20\Sec. 25B. The credit under the provision does not apply with 
respect to contributions made to an ABLE account (within the meaning of 
section 529A) of which such individual is the designated beneficiary. 
Such contributions would continue to be eligible for the credit as it 
exists under present law. See sec. 25B(d)(1)(D).
---------------------------------------------------------------------------

Qualified retirement savings contributions

    The maximum percentage of qualified retirement savings 
contributions eligible for the credit remains 50 percent, and 
the maximum amount of qualified retirement savings 
contributions that may be taken into account remains $2,000. 
This amount is not indexed for inflation. The credit percentage 
is reduced from 50 percent to 0 percent beginning at the 
applicable dollar amount of modified AGI and extending over a 
phaseout range.\21\ For eligible married individuals who file a 
joint tax return and for surviving spouses,\22\ the applicable 
dollar amount is $41,000 of modified AGI, indexed for 
inflation, and the phaseout range is $30,000 of modified AGI. 
For eligible individuals who file as head of household, the 
applicable dollar amount and phaseout range are 75 percent of 
those in effect for joint return filers. For all other 
taxpayers, the applicable dollar amount and phaseout range are 
50 percent of the amounts in effect for joint return filers. 
Taxpayers who are eligible for a credit less than $100 but more 
than $0 receive the amount as a cash refund (rather than as a 
contribution to a retirement account) unless the taxpayer 
elects otherwise.
---------------------------------------------------------------------------
    \21\The percentage is reduced by the number of percentage points 
which bears the same ratio to 50 percentage points as the excess of the 
taxpayer's modified AGI for the taxable year, over the applicable 
dollar amount, bears to the phaseout range. Modified AGI is determined 
as AGI without regard to sections 911, 931, and 933, and without regard 
to any exclusion or deduction allowed for any qualified retirement 
savings contribution made during the taxable year.
    \22\See sec. 2(a) (definition of surviving spouse).
---------------------------------------------------------------------------
    The provision retains the criteria that only individuals 
who have attained age 18 as of the close of the taxable year 
are eligible for the credit. An eligible individual does not 
include any individual who would be claimed as a dependent on 
another individual's return,\23\ or any individual who is a 
student.\24\
---------------------------------------------------------------------------
    \23\As provided in section 151.
    \24\As defined in sec. 152(f)(2).
---------------------------------------------------------------------------
    The qualified retirement savings contribution is the sum of 
the amounts of: (1) the qualified retirement contributions made 
by the eligible individual,\25\ (2) any elective deferrals plus 
elective deferral of compensation by such individuals under a 
governmental section 457(b) plan,\26\ and (3) voluntary 
employee contributions by such individual to a qualified 
retirement plan.\27\
---------------------------------------------------------------------------
    \25\Sec. 219(e).
    \26\Secs. 402(g)(3), 457(b), 457(e)(1)(A).
    \27\Sec. 4974(c).
---------------------------------------------------------------------------
    The amount of qualified retirement savings contributions is 
reduced (but not below zero) by the aggregate distributions 
received by the individual during the testing period from any 
entity of a type to which the foregoing contributions may be 
made. For purposes of determining distributions received by an 
individual, any distribution received by a spouse of such 
individual is treated as received by such individual if they 
file a joint return for such taxable year and for the taxable 
year during which the spouse receives the distribution.
    The testing period is the period that includes the taxable 
year plus the two preceding taxable years and the period after 
such taxable year and before the due date (including 
extensions) for filing the tax return for such taxable year. 
Certain distributions made during the testing period are not 
taken into account for purposes of the reduction.\28\ Finally, 
any portion of a distribution transferred or paid in a rollover 
contribution\29\ to an account or plan to which qualified 
retirement contributions can be made will not be applied to any 
reduction in qualified retirement savings contributions for 
purposes of this provision.
---------------------------------------------------------------------------
    \28\Distributions made during the testing period are not taken into 
account for purposes of the reduction if made under sections 72(p), 
401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4). In addition, 
distributions to which sections 408(d)(3) or 408A(d)(3) applies are not 
taken into account for purposes of the reduction.
    \29\As defined in sections 402(c), 403(a)(4), 403(b)(8), 408A(e), 
or 457(e)(16).
---------------------------------------------------------------------------
    Payment of credits As previously noted, the credit will be 
paid in the form of a contribution to the individual's 
applicable retirement savings vehicle that is an account or 
plan elected by the individual. The contribution is treated as 
a pre-tax contribution to the plan. Thus, the amount will be 
taxable to the distributee when it is distributed from the 
retirement plan.
    In order to receive the credit, an eligible individual must 
elect to have the contribution made to an account or plan which 
(1) is an eligible retirement plan;\30\ (2) is for the benefit 
of the eligible individual; (3) accepts contributions made 
under this provision, and (4) is designated by such individual, 
in such form and manner as the Secretary may provide, on the 
tax return for the taxable year.
---------------------------------------------------------------------------
    \30\Sec. 402(c)(8)(B).
---------------------------------------------------------------------------
    A payment of a credit that is a contribution is treated as 
an elective deferral made by the individual or as an IRA 
contribution (as applicable), except as provided by the 
Secretary under regulations. The contribution is not taken into 
account with respect to any qualified plan limitations.\31\
---------------------------------------------------------------------------
    \31\As imposed by sections 402(g)(1), 403(b), 408(a)(1), 
408(b)(2)(B), 414(v)(2), 415(c), or 457(b)(2). Also, such contributions 
are disregarded for purposes of sections 401(a)(4), 401(k)(3), 
401(k)(11)(B)(i), and 416.
---------------------------------------------------------------------------
    Any contribution that was erroneously paid, including a 
payment that is not made to an applicable retirement saving 
vehicle, is treated as an underpayment of tax\32\ for the 
taxable year in which the Secretary determines that the payment 
was erroneous. In the case of an erroneous credit, the 
distribution of such contribution is excluded from income,\33\ 
and the 10 percent additional tax does not apply to the 
distribution of such contribution or income attributable to 
such contribution, if the distribution of such amounts is 
received no later than the due date (including extensions) for 
filing the individual's tax return. Any plan or arrangement to 
which a contribution is made under this provision, or from 
which a distribution is made, is not treated as violating the 
requirements applicable to such plan solely by reason of such 
contribution or distribution.\34\
---------------------------------------------------------------------------
    \32\Such a payment shall not be treated as an underpayment of tax 
for purposes of Part II of subchapter A of Chapter 68.
    \33\Sections 402(a), 403(a)(1), 403(b)(1), 408(d)(1), and 457(a)(1) 
do not apply to the distribution of the contribution.
    \34\The plan is not treated as violating secs. 401, 403, or 457.
---------------------------------------------------------------------------

Information related to payment of credits

    If an eligible individual elects to have the credit 
contributed to an account or plan, the Secretary must provide 
guidance to the custodian of the account or the plan sponsor, 
as the case may be, detailing the treatment of such 
contribution and reporting requirements with respect to such 
contribution.
    The Secretary is required to amend the reporting 
requirements for retirement plans and IRAs to require separate 
reporting of the aggregate amount of contributions received by 
the plan during the year from the Secretary pursuant to the 
provision.

ABLE Accounts

    The credit under the provision does not apply with respect 
to contributions made to an ABLE account\35\ of which such 
individual is the designated beneficiary. Such contributions 
would continue to be eligible for the credit as it exists under 
present law.\36\
---------------------------------------------------------------------------
    \35\Sec. 529A.
    \36\Sec. 25B(d)(1)(D).
---------------------------------------------------------------------------

Treatment of the U.S. territories

    The Secretary must pay to each territory of the United 
States that has a mirror Code tax system--the U.S. Virgin 
Islands, Commonwealth of the Northern Mariana Islands, and 
Guam--amounts equal to the loss (if any) to that territory by 
reason of amendments made by this provision. Such amounts will 
be determined by the Secretary based on information provided by 
the government of the territory. With respect to any United 
States territory, a mirror Code tax system means the income tax 
system of such territory if the income tax liability of the 
residents of such territory is determined by reference to the 
income tax laws of the United States as if that territory were 
the United States.
    For territories that do not have a mirror Code--Puerto Rico 
and American Samoa--the Secretary will pay amounts estimated by 
the Secretary as being equal to the aggregate benefits (if any) 
that would have been provided to residents of that territory by 
reason of the amendments made by this provision if the 
territory had a mirror Code. The respective territory must have 
a plan, which has been approved by the Secretary, under which 
such territory will promptly distribute such payments to its 
residents in order for the territory to receive amounts 
estimated to equal aggregate benefits.
    A credit under the provision will not be allowed against 
Federal income taxes to any person to whom a credit is allowed 
against taxes imposed by the territory due to this provision, 
or who is eligible for a payment resulting from a determination 
of aggregate benefits in a non-mirror Code territory.

                             EFFECTIVE DATE

    The amendments made by this provision apply to taxable 
years beginning after December 31, 2026.

3. Modification of participation requirements for long-term, part-time 
       workers (sec. 103 of the bill and sec. 401(k) of the Code)


                              PRESENT LAW

    Background on section 401(k) plans may be found in Title I, 
section 1 of this document.

General participation requirements

    A qualified retirement plan generally can delay 
participation in the plan based on attainment of age or 
completion of years of service but not beyond the later of 
completion of one year of service (that is, a 12-month period 
with at least 1,000 hours of service) or attainment of age 
21.\37\ A plan also cannot exclude an employee from 
participation (on the basis of age) when that employee has 
attained a specified age.\38\ Employees can be excluded from 
plan participation on other bases, such as job classification, 
as long as the other basis is not an indirect age or service 
requirement. A plan can provide that an employee is not 
entitled to an allocation of employer nonelective or matching 
contributions for a plan year unless the employee completes 
either 1,000 hours of service during the plan year or is 
employed on the last day of the year even if the employee 
previously completed 1,000 hours of service in a prior year.
---------------------------------------------------------------------------
    \37\Secs. 401(a)(3) and 410(a)(1). Parallel requirements generally 
apply to plans of private employers under section 202 of ERISA. 
Governmental plans under section 414(d) and church plans under section 
414(e) are generally exempt from these Code requirements and from 
ERISA.
    \38\Sec. 410(a)(2).
---------------------------------------------------------------------------

Long-term part-time workers

    Effective generally for plan years beginning in 2021, 
section 401(k) plans generally must permit an employee to make 
elective deferrals if the employee has worked at least 500 
hours per year with the employer for at least three consecutive 
years and has met the minimum age requirement (age 21) by the 
end of the three-consecutive-year period (a ``long-term part-
time employee'').\39\ Thus, a long-term part-time employee may 
not be excluded from the plan merely because the employee has 
not completed a year of service. Once a long-term part-time 
employee meets the age and service requirements, such employee 
must be able to commence participation no later than the 
earlier of (1) the first day of the first plan year beginning 
after the date on which the employee satisfied the age and 
service requirements or (2) six months after the date on which 
the individual satisfied those requirements.
---------------------------------------------------------------------------
    \39\Sec. 401(k)(2)(D). This rule was enacted as part of the Setting 
Every Community Up for Retirement Enhancement Act of 2019, Pub. L. No. 
116-94, Division O, December 20, 2019 (``SECURE Act''), sec. 112. The 
rule does not apply to collectively bargained plans.
---------------------------------------------------------------------------
    The plan is not required to provide that a long-term part-
time employee is otherwise eligible to participate in the plan. 
Thus, the plan can continue to treat a long-term part-time 
employee as ineligible under the plan for employer nonelective 
and matching contributions based on not having completed a year 
of service. However, for a plan that does provide employer 
contributions for long-term part-time employees, the plan must 
credit, for each year in which such an employee worked at least 
500 hours, a year of service for purposes of vesting in any 
employer contributions. If a long-term part-time employee under 
such a plan becomes a full-time employee, the plan must 
continue to credit the employee with any years of service 
earned under the special rule for long-term part-time 
employees.
    Employers are permitted to exclude long-term part-time 
employees from nondiscrimination testing,\40\ including top-
heavy vesting and top-heavy benefit requirements. However, the 
relief from the nondiscrimination rules ceases to apply to any 
employee who becomes a full-time employee (as of the first plan 
year beginning after the plan year in which the employee 
completes a 12-month period with at least 1,000 hours of 
service).
---------------------------------------------------------------------------
    \40\Nondiscrimination testing relief applies to sections 401(a)(4), 
401(k)(3), 401(k)(12), 401(k)(13), 401(m)(2), and 410(b).
---------------------------------------------------------------------------
    The long-term part-time employee rules are effective for 
plan years beginning after December 31, 2020, except that in 
determining whether the three-consecutive-year period has been 
met, 12-month periods beginning before January 1, 2021 are not 
taken into account.

                           REASONS FOR CHANGE

    The SECURE Act requires employers to allow long-term, part-
time workers to participate in their section 401(k) plans after 
the worker has completed three consecutive years of part-time 
service.\41\ As women are more likely to work part-time than 
men, this provision is particularly important for women in the 
workforce. The Committee wishes to make it easier for part-time 
workers to save for retirement by requiring section 401(k) 
plans to allow part-time workers to participate after two 
consecutive years of part-time service.
---------------------------------------------------------------------------
    \41\Sec. 112 of the SECURE Act.
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                        EXPLANATION OF PROVISION

    The provision modifies the rules that apply to long-time 
part-time employees under a section 401(k) plan to reduce the 
service requirement for such employees from three years to two 
years. Thus, under the provision, a section 401(k) plan 
generally must permit an employee to make elective deferrals if 
the employee has worked at least 500 hours per year with the 
employer for at least two consecutive years and has met the 
minimum age requirement (age 21) by the end of the two-
consecutive-year period.
    In addition, the provision clarifies the effective date of 
the long-term part-time employee rules. Under the provision, 
12-month periods beginning before January 1, 2021 are not taken 
into account in determining a year of service for purposes of 
the rules applicable to the vesting of employer contributions. 
Thus, in addition to being disregarded for purposes of 
determining whether the employee has completed three 
consecutive years of service (as under present law), 12-month 
periods beginning before January 1, 2021 are disregarded for 
vesting purposes.
    Finally, the provision clarifies that a section 401(k) safe 
harbor plan that is eligible for an exemption from the top 
heavy rules\42\ does not fail to qualify for such exemption 
merely because the plan does not provide safe harbor matching 
contributions\43\ to long-term part-time employees.
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    \42\Under section 416(g)(4)(H).
    \43\Secs. 401(m)(11) and (12).
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                             EFFECTIVE DATE

    The reduction in service requirement from three years to 
two years is effective for plan years beginning after December 
31, 2022. The clarification of the vesting rule and the top-
heavy rule is effective as if included in the enactment of 
section 112 of the SECURE Act.

    4. Treatment of student loan payments as elective deferrals for 
  purposes of matching contributions (sec. 104 of the bill and secs. 
            401(m), 403(b), 408(p), and 457(b) of the Code)


                              PRESENT LAW

Section 401(k) plans

    A section 401(k) plan is a type of profit-sharing or stock 
bonus plan that contains a qualified cash or deferred 
arrangement. Such arrangements are subject to the rules 
generally applicable to qualified defined contribution plans. 
In addition, special rules apply to such arrangements. 
Employees who participate in a section 401(k) plan may elect to 
have contributions made to the plan (referred to as ``elective 
deferrals'') rather than receive the same amount as current 
compensation.\44\ The maximum annual amount of elective 
deferrals that can be made by an employee for a year is the 
lesser of $20,500 (for 2022) or the employee's 
compensation.\45\ For an employee who attains age 50 by the end 
of the year, the dollar limit on elective deferrals is 
increased by $6,500 (for 2022) (called ``catch-up 
contributions'').\46\ An employee's elective deferrals must be 
fully vested. A section 401(k) plan may also provide for 
employer matching and nonelective contributions.
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    \44\Elective deferrals generally are made on a pre-tax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \45\Sec. 402(g).
    \46\Sec. 414(v).
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    In order to constitute a qualified cash or deferred 
arrangement, no benefit under the arrangement may be 
conditioned, directly or indirectly, on the employee electing 
to have the employer make or not make contributions in lieu of 
receiving cash.\47\ However, matching contributions are exempt 
from this rule.
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    \47\Sec. 401(k)(4)(A).
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Nondiscrimination test

            Actual deferral percentage test
    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\48\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for non-
highly compensated employees. The average deferral rate for 
highly compensated employees must not exceed the average rate 
for non-highly compensated employees by more than certain 
specified amounts. If a plan fails to satisfy the ADP test for 
a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\49\
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    \48\Sec. 401(k)(3). Long-term part-time workers may be excluded 
from this and other nondiscrimination tests. Sec. 401(k)(2)(D).
    \49\Sec. 401(k)(8).
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    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (``401(k) safe 
harbor plans''), described below, as well as certain required 
rights and features and the plan satisfies a notice 
requirement.\50\
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    \50\Sec. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under 401(k) safe harbor plan may also 
satisfy a nondiscrimination test applicable under section 401(m).
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            Section 401(k) safe harbor contributions
    Under one type of section 401(k) safe harbor plan (``basic 
401(k) safe harbor plan''), the plan either (1) satisfies a 
matching contribution requirement (``matching contribution 
basic 401(k) safe harbor plan'') or (2) provides for the 
employer to make a nonelective contribution to a defined 
contribution plan of at least three percent of an employee's 
compensation on behalf of each non-highly compensated employee 
who is eligible to participate in the plan (``nonelective basic 
401(k) safe harbor plan''). The matching contribution basic 
401(k) safe harbor requires a matching contribution equal to at 
least 100 percent of elective contributions of the employee for 
contributions not in excess of three percent of compensation, 
and 50 percent of elective contributions for contributions that 
exceed three percent of compensation but do not exceed five 
percent, for a total matching contribution of up to four 
percent of compensation. The required matching contributions 
and the three percent nonelective contribution under the basic 
401(k) safe harbor must be immediately nonforfeitable (that is, 
100 percent vested) when made.
    Another safe harbor applies for a section 401(k) plan that 
includes automatic enrollment (``automatic enrollment 401(k) 
safe harbor''). Under an automatic enrollment 401(k) safe 
harbor, unless an employee elects otherwise, the employee is 
treated as electing to make elective deferrals equal to a 
percentage of compensation as stated in the plan, not in excess 
of 15 percent and at least (1) three percent of compensation 
for the first year the deemed election applies to the 
participant, (2) four percent during the second year, (3) five 
percent during the third year, and (4) six percent during the 
fourth year and thereafter.\51\ The matching contribution 
requirement under this safe harbor is 100 percent of elective 
contributions of the employee for contributions not in excess 
of one percent of compensation, and 50 percent of elective 
contributions for contributions that exceed one percent of 
compensation but do not exceed six percent, for a total 
matching contribution of up to 3.5 percent of compensation 
(``matching contribution automatic enrollment 401(k) safe 
harbor''). Alternatively, the plan can provide that the 
employer will make a nonelective contribution of three percent, 
as under the basic 401(k) safe harbor (``nonelective 
contribution automatic enrollment 401(k) safe harbor''). 
However, under the automatic enrollment 401(k) safe harbors, 
the matching and nonelective contributions are allowed to 
become 100 percent vested after two years of service (rather 
than being required to be immediately vested when made).
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    \51\These automatic increases in default contribution rates are 
required for plans using the safe harbor. Rev. Rul. 2009-30, 2009-39 
I.R.B. 391, provides guidance for including automatic increases in 
other plans using automatic enrollment, including under a plan that 
includes an eligible automatic contribution arrangement.
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            Matching contribution nondiscrimination test
    Employer matching contributions are also subject to a 
special nondiscrimination test, the ``ACP test,'' which 
compares the average actual contribution percentages (``ACPs'') 
of matching contributions for the highly compensated employee 
group and the non-highly compensated employee group. The plan 
generally satisfies the ACP test if the ACP of the highly 
compensated employee group for the current plan year is either 
(1) not more than 125 percent of the ACP of the non-highly 
compensated employee group for the prior plan year, or (2) not 
more than 200 percent of the ACP of the non-highly compensated 
employee group for the prior plan year and not more than two 
percentage points greater than the ACP of the non-highly 
compensated employee group for the prior plan year.
    A safe harbor section 401(k) plan that provides for 
matching contributions is deemed to satisfy the ACP test 
(``401(m) safe harbor'') if, in addition to meeting the safe 
harbor contribution and notice requirements under section 
401(k), (1) matching contributions are not provided with 
respect to elective deferrals in excess of six percent of 
compensation, (2) the rate of matching contribution does not 
increase as the rate of an employee's elective deferrals 
increases, and (3) the rate of matching contribution with 
respect to any rate of elective deferral of a highly 
compensated employee is no greater than the rate of matching 
contribution with respect to the same rate of deferral of a 
non-highly compensated employee.\52\
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    \52\Sec. 401(m)(11); 401(m)(12).
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SIMPLE IRA plan

    A small employer that employs no more than 100 employees 
who earned $5,000 or more during the prior calendar year can 
establish a simplified tax-favored retirement plan, which is 
called the SIMPLE IRA plan. A SIMPLE IRA plan is generally a 
plan under which contributions are made to an IRA for each 
employee (a ``SIMPLE IRA'').\53\ A SIMPLE IRA plan allows 
employees to make elective deferrals to a SIMPLE IRA, subject 
to a limit of $14,000 (for 2022). An individual who has 
attained age 50 before the end of the taxable year may also 
make catch-up contributions under a SIMPLE IRA plan up to a 
limit of $3,000 (for 2022).
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    \53\Sec. 408(p). Employer may also establish SIMPLE section 401(k) 
plans. Sec. 401(k)(11).
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    In the case of a SIMPLE IRA plan, the group of eligible 
employees generally must include any employee who has received 
at least $5,000 in compensation from the employer in any two 
preceding years and is reasonably expected to receive $5,000 in 
the current year. A SIMPLE IRA plan is not subject to the 
nondiscrimination rules generally applicable to qualified 
retirement plans.
    Employer contributions to a SIMPLE IRA must satisfy one of 
two contribution formulas. Under the matching contribution 
formula, the employer is generally required to match 100 
percent of employee elective contributions up to three percent 
of the employee's compensation. The employer can elect a lower 
percentage matching contribution for all employees (but not 
less than one percent of each employee's compensation); 
however, a lower percentage cannot be elected for more than two 
years out of any five-year period. Alternatively, for any year, 
an employer is permitted to elect, in lieu of making matching 
contributions, to make a nonelective contribution of two 
percent of compensation on behalf of each eligible employee 
with at least $5,000 in compensation for such year, whether or 
not the employee makes an elective contribution.
    The employer must provide each employee who is eligible to 
make elective deferrals under a SIMPLE IRA plan (1) a 60-day 
election period before the beginning of the calendar year and 
(2) a notice at the beginning of the 60-day period explaining 
the employee's choices under the plan.\54\
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    \54\Notice 98-4, 1998-1 C.B. 269.
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    No contributions other than employee elective 
contributions, required employer matching contributions, or 
employer nonelective contributions can be made to a SIMPLE IRA 
plan, and the employer may not maintain any other qualified 
retirement plan.

Section 403(b) and governmental 457(b) plans

    Tax-deferred annuity plans (``section 403(b) plans'') are 
generally similar to qualified defined contribution plans, but 
may be maintained only by (1) tax-exempt charitable 
organizations\55\ and (2) educational institutions of State or 
local governments (that is, public schools, including colleges 
and universities).\56\ Section 403(b) plans may provide for 
employees to make elective deferrals (in pre-tax or designated 
Roth form), including catch-up contributions, or other after-
tax employee contributions, and employers may make nonelective 
or matching contributions on behalf of employees. Contributions 
to a section 403(b) plan are generally subject to the same 
contribution limits applicable to qualified defined 
contribution plans, including the limits on elective deferrals.
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    \55\These are organizations exempt from tax under section 
501(c)(3). Section 403(b) plans of private, tax-exempt employers may be 
subject to ERISA as well as the requirements of section 403(b).
    \56\Sec. 403(b).
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    Contributions to a section 403(b) plan must be fully 
vested. The minimum coverage and general nondiscrimination 
requirements applicable to a qualified retirement plan 
generally apply to a section 403(b) plan, as well as employer 
matching and nonelective contributions and after-tax employee 
contributions to the plan.\57\ If a section 403(b) plan 
provides for elective deferrals, the plan is subject to a 
``universal availability'' requirement under which all 
employees must be given the opportunity to make deferrals of 
more than $200.\58\ In applying this requirement, nonresident 
aliens, students, and employees who normally work less than 20 
hours per week may be excluded.\59\
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    \57\These requirements do not apply to a governmental section 
403(b) plan or a section 403(b) plan maintained by a church or a 
qualified church-controlled organization as defined in section 3121(w).
    \58\Sec. 403(b)(12)(A)(ii).
    \59\For this purpose, nonresident alien has the meaning in section 
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The 
universal availability requirement does not apply to a section 403(b) 
plan maintained by a church or a qualified church-controlled 
organization.
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    An eligible deferred compensation plan of a governmental 
employer (``governmental section 457(b) plan'') is generally 
similar to a qualified cash or deferred arrangement under a 
section 401(k) plan in that it consists of elective deferrals, 
that is, contributions (in pre-tax or designated Roth form) 
made at the election of an employee, including catch-up 
contributions. Deferrals under a governmental section 457(b) 
plan are generally subject to the same limits as elective 
deferrals under a section 401(k) plan or a section 403(b) plan.

                           REASONS FOR CHANGE

    The Committee wishes to assist employees who may not be 
able to save for retirement because they are overwhelmed with 
student debt, and thus are missing out on available matching 
contributions under retirement plans. Thus, this provision 
allows a plan to provide such employees with matching 
contributions based on student loan repayments.

                        EXPLANATION OF PROVISION

    The provision modifies the definition of matching 
contribution\60\ for purposes of defined contribution plans, 
including section 401(k) plans, to include employer 
contributions made to the plan on behalf of an employee on 
account of a qualified student loan payment. For this purpose, 
a qualified student loan payment is a payment made by an 
employee in repayment of a qualified education loan\61\ 
incurred by the employee to pay qualified higher education 
expenses. However, this definition applies only to the extent 
such payments in the aggregate for the year do not exceed the 
amount of elective deferrals that the employee would be 
permitted to contribute under the Code\62\ (reduced by elective 
deferrals made by the employee for the year). Qualified higher 
education expenses are defined as the cost of attendance at an 
eligible educational institution.\63\ In addition, in order for 
a student loan payment to qualify, the employee must certify 
annually to the employer making the matching contribution the 
amount of the loan payments that have been made during the 
year. The employer is permitted to rely on this certification.
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    \60\Under section 401(m)(4)(A)(iii), as added by this provision.
    \61\As defined in section 221(d)(1), a qualified education loan is 
generally any indebtedness incurred by the taxpayer solely to pay 
qualified higher education expenses (1) which are incurred on behalf of 
the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer 
as of the time the indebtedness was incurred; (2) which are paid or 
incurred within a reasonable period of time before or after the 
indebtedness is incurred; and (3) which are attributable to education 
furnished during a period during which the recipient was an eligible 
student.
    \62\The limitation applicable under section 402(g) for the year 
($20,500 for 2022), or, if less, the employee's compensation as defined 
in section 415(c)(3) for the year.
    \63\``Cost of attendance'' for this purpose is defined in section 
472 of the Higher Education Act of 1965, as in effect on the day before 
the enactment of the Taxpayer Relief Act of 1997. ``Eligible 
educational institution'' is defined in section 221(d)(2) of the Code.
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    In order for an employer contribution made on account of a 
qualified student loan payment to be treated as a matching 
contribution under the provision, the plan must satisfy certain 
requirements. The plan must provide matching contributions on 
account of elective deferrals at the same rate as contributions 
on account of qualified student loan payments. The plan must 
provide matching contributions on account of qualified student 
loan payments only on behalf of employees otherwise eligible to 
receive matching contributions on account of elective deferrals 
(and, similarly, must provide matching contributions on account 
of elective deferrals only on behalf of employees eligible to 
receive matching contributions on account of qualified student 
loan payments). The plan must also provide that matching 
contributions on account of qualified student loan payments 
vest in the same manner as matching contributions on account of 
elective deferrals.
    Under the provision, for purposes of certain 
nondiscrimination rules and minimum coverage requirements,\64\ 
matching contributions on account of qualified student loan 
payments do not fail to be treated as available to an employee 
solely because such employee does not have debt incurred under 
a qualified education loan. In addition, the provision provides 
that a qualified student loan payment is generally not treated 
as a plan contribution. However, a plan may treat a qualified 
student loan payment as an elective deferral or an elective 
contribution (as applicable) for purposes of the matching 
contribution requirement under a basic safe harbor 401(k) plan, 
the automatic enrollment safe harbor 401(k) plan, and the 
secure deferral arrangement described in Title I, section 1 of 
this document, as well as for purposes of the section 401(m) 
safe harbors.\65\ A plan is also permitted to apply the ADP 
test separately to employees who receive matching contributions 
on account of qualified student loan payments.
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    \64\This rule applies for purposes of section 401(a)(4), section 
410(b), and the rule under the provision that all employees eligible to 
receive matching contributions on account of elective deferrals be 
eligible to receive matching contributions on account of qualified 
student loan payments.
    \65\This rule applies for purposes of sections 401(k)(12)(B) and 
(13)(B), and sections 401(m)(11)(B) and (12). It also applies to SIMPLE 
section 401(k) plans under section 401(11)(B)(i)(II).
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    The provision also contains similar rules allowing matching 
contributions to be made on account of qualified student loan 
payments in the case of SIMPLE IRAs, section 403(b) plans, and 
section 457(b) plans. In the case of SIMPLE IRAs, the provision 
provides that a SIMPLE IRA does not fail to meet the matching 
contribution requirement applicable to such arrangements solely 
because the arrangement treats qualified student loan payments 
as elective employer contributions to the extent such payments 
do not exceed the amount of elective employer contributions the 
employee is permitted to contribute under the Code\66\ (reduced 
by elective employer contributions contributed by the employee 
for the year). As under a section 401(k) plan, in order for the 
student loan payment to qualify, the employee must certify 
annually to the employer making the matching contribution the 
amount of loan payments that have been made during the year. In 
addition, matching contributions on account of qualified 
student loan payments must be provided only on behalf of 
employees otherwise eligible to make elective employer 
contributions, and all employees otherwise eligible to 
participate in the arrangement must be eligible to receive 
matching contributions on account of qualified student loan 
payments.
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    \66\The limitation applicable under section 408(p)(2)(E) for the 
year, including permitted catch-up contributions under section 414(v), 
or, if less, the employee's compensation as defined in section 
415(c)(3) for the year.
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    In the case of a section 403(b) plan, under the provision, 
the fact that the employer offers matching contributions on 
account of qualified student loan payments\67 \ is not taken 
into account in determining whether the plan satisfies the 
universal availability requirement.\68\ Similarly, in the case 
of a governmental 457(b) plan, the provision provides that a 
plan is not treated as failing to meet the requirements 
applicable to such plans\69\ solely because the plan, or 
another qualified plan\70\ or section 403(b) plan maintained by 
the employer provides for matching contributions on account of 
qualified student loan payments.\71\
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    \67\As described in section 401(m)(13), as added by this provision.
    \68\Sec. 403(b)(12)(A)(ii).
    \69\Under section 457(b).
    \70\Under section 401(a).
    \71\As described in section 401(m)(13), as added by this provision.
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    The provision directs the Secretary to prescribe 
regulations for purposes of implementing the provision, 
including regulations:
            Permitting a plan to make matching 
        contributions for qualified student loan payments\72\ 
        at a different frequency than matching contributions 
        are otherwise made under the plan, provided that the 
        frequency is not less than annually;
---------------------------------------------------------------------------
    \72\As defined in sections 401(m)(4)(D) and 408(p)(2)(F), as added 
by this provision.
---------------------------------------------------------------------------
            Permitting employers to establish 
        reasonable procedures to claim matching contributions 
        for such qualified student loan payments under the 
        plan, including an annual deadline (not earlier than 
        three months after the close of each plan year) by 
        which a claim must be made; and
            Promulgating model amendments which plans 
        may adopt to implement matching contributions on 
        qualified student loan payments.\73\
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    \73\For purposes of sections 401(m), 408(p), 403(b), and 457(b).
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                             EFFECTIVE DATE

    The provision is effective for contributions made for plan 
years beginning after December 31, 2023.

5. Withdrawals for certain emergency expenses (sec. 105 of the bill and 
                        sec. 72(t) of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a tax-qualified plan described in 
section 401(a) (a ``qualified retirement plan''), a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an 
individual retirement arrangement (an ``IRA'') generally is 
included in income for the year distributed.\74\ These plans 
are referred to collectively as ``eligible retirement 
plans.''\75\ In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\76\
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    \74\ Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \75\Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \76\Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
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    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The Internal Revenue Service (``IRS'') 
has the authority to waive the 60-day requirement if failure to 
waive the requirement would be against equity or good 
conscience, including cases of casualty, disaster, or other 
events beyond the reasonable control of the individual.\77\
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    \77\Rev. Proc. 2020-46, 2020-45 I.R.B. 995, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
---------------------------------------------------------------------------
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, for many types of 
plans, restrictions apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions or withdrawals. Despite such restrictions, an in-
service distribution from a qualified retirement plan that 
includes a qualified cash-or-deferred arrangement (a ``section 
401(k) plan''), or a section 403(b) plan may be permitted in 
the case of financial hardship. Similarly, a governmental 
section 457(b) plan may permit distributions in the case of an 
unforeseeable emergency. Under a qualified retirement plan that 
is a pension plan (i.e., defined benefit pension plan or money 
purchase pension plan), distributions generally may be made 
only in the event of retirement, death, disability, or other 
separation from service, although in-service distributions may 
be permitted after age 59\1/2\.\78\
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    \78\Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b)(1)(i). Section 401(k) plans, section 403(b) plans, and 
governmental section 457(b) plans also may permit in-service 
distributions after age 59\1/2\.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that individuals may need funds to 
address unforeseeable and immediate financial needs related to 
personal or family emergencies. The Committee believes that 
individuals should be able to access funds from retirement 
plans when needed for such emergencies, with minimal 
administrative hurdles and without being subject to the 10-
percent early withdrawal tax that otherwise generally applies 
to early distributions from a retirement plan. Allowing such 
access will encourage workers to save more in retirement plans 
since the funds will not be locked away in the case of a 
financial emergency. In addition, the Committee wishes to 
permit individuals to recontribute such withdrawals to a 
retirement plan, so that individuals who can later repay the 
funds do not miss out on valuable compounding of earnings on 
retirement savings.

                        EXPLANATION OF PROVISION

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of withdrawals from 
applicable eligible retirement plans for emergency personal 
expenses. In addition, such eligible distributions may be 
recontributed subject to certain requirements.

Eligible distributions for emergency personal expenses

    An emergency personal expense distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, includes qualified retirement plans (other 
than defined benefit plans), section 403(b) plans, governmental 
section 457(b) plans, and IRAs.\79\ Emergency personal expense 
distribution means any distribution from an applicable 
retirement plan to an individual for purposes of meeting 
unforeseeable or immediate financial needs relating to 
necessary personal or family emergency expenses. In making such 
a distribution, a plan administrator may rely on the employee's 
certification that the distribution is an eligible emergency 
personal expense distribution.\80\
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    \79\An emergency personal expense distribution is subject to income 
tax withholding unless the recipient elects otherwise. Mandatory 20-
percent withholding does not apply.
    \80\The Secretary may provide by regulations for exceptions to this 
rule in cases where the plan administrator has actual knowledge to the 
contrary and for addressing cases of employee misrepresentation.
---------------------------------------------------------------------------
    The maximum aggregate amount which may be treated as an 
emergency personal expense distribution by any individual in 
any calendar year cannot exceed the lesser of $1,000, or an 
amount equal to the excess of (1) the individual's total 
nonforfeitable accrued benefit under the plan (the individual's 
total interest in the plan in the case of an individual 
retirement plan), determined as of the date of each such 
distribution, over (2) $1,000. Not more than one emergency 
personal expense distribution may be made per year per 
individual.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution to an 
individual as an emergency personal expense distribution 
(provided that such distribution would otherwise be an 
emergency personal expense distribution), so long as the 
aggregate amount or number of such distributions to that 
individual from plans maintained by the employer and members of 
the employer's controlled group\81\ does not exceed the limits 
described above. Thus, under such circumstances an employer 
plan is not treated as violating any Code requirement merely 
because an individual might receive total emergency personal 
expense distributions in excess of the limits (pertaining to 
the aggregate amount or number of such distributions) as a 
result of emergency personal expense distributions from plans 
of other employers or IRAs.
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    \81\The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------

Recontributions to applicable eligible retirement plans

    Generally, an individual may recontribute any portion of an 
emergency personal expense distribution at any time during the 
3-year period beginning on the day after the date on which such 
distribution was received, to an applicable eligible retirement 
plan to which a rollover can be made and of which the 
individual is a beneficiary. If an individual makes a 
recontribution of an emergency personal expense distribution, 
then the individual is treated as having received the 
distribution as an eligible rollover distribution (to the 
extent of the amount of the contribution) and as having 
transferred the recontribution amount in a direct trustee to 
trustee transfer within 60 days of the distribution meaning the 
recontribution amount is not includible in income.
    In the case of an eligible retirement plan that is not an 
IRA, an individual may not recontribute more than the aggregate 
amount of emergency personal expense distributions that are 
made from such plan to the individual. In addition, such 
recontributions are permitted only if the individual is 
eligible to make contributions to the plan.

Limitation on subsequent distributions

    If a distribution is treated as an emergency personal 
expense distribution, then no amount may be treated as such a 
distribution during the immediately following three calendar 
years unless the previous emergency personal expense 
distribution is recontributed, or the aggregate of the elective 
deferrals and employee contributions to the plan (the total 
amounts contributed in the case of an IRA) subsequent to such 
previous emergency personal expense distribution is at least 
equal to the amount of such previous distribution which has not 
been recontributed.

                             EFFECTIVE DATE

    The provision is effective for distributions made after 
December 31, 2023.

     6. Allow additional nonelective contributions to SIMPLE plans 
           (sec. 106 of the bill and sec. 408(p) of the Code)


                              PRESENT LAW

    Under present law, certain small businesses can establish a 
simplified retirement plan called the savings incentive match 
plan for employees (``SIMPLE'') retirement plan. SIMPLE plans 
can be adopted by employers who employ 100 or fewer employees 
who received at least $5,000 in compensation during the 
preceding year and who do not maintain another employer-
sponsored retirement plan. A SIMPLE plan can be either an 
individual retirement arrangement (an ``IRA'') for each 
employee or part of a qualified cash or deferred arrangement (a 
section ``401(k) plan'').\82\ If established in IRA form, a 
SIMPLE plan is not subject to the nondiscrimination rules 
generally applicable to qualified retirement plans (including 
the top-heavy rules) and simplified reporting requirements 
apply. If established as part of a 401(k) plan, the SIMPLE does 
not have to satisfy the special nondiscrimination tests 
applicable to 401(k) plans and is not subject to the top-heavy 
rules. The other qualified retirement plan rules continue to 
apply. Within limits, contributions to a SIMPLE plan are not 
taxable until withdrawn.
---------------------------------------------------------------------------
    \82\ Sec. 408(p); 401(k)(11).
---------------------------------------------------------------------------
    Contributions to a SIMPLE plan (whether a SIMPLE IRA or 
SIMPLE 401(k)) may include employee salary reduction 
contributions (``elective deferrals'''). Employers are also 
required to make either a matching contribution or a 
nonelective contribution each year. The matching contribution 
must generally be to up to three percent of an employee's 
compensation, and the nonelective contribution must be of two 
percent of compensation (regardless of the employee's elective 
deferral).\83\ In the case of the nonelective contribution, it 
is required to be provided only to employees who are eligible 
to participate in the plan and who have at least $5,000 of 
compensation from the employer for the year. No other 
contributions are permitted. Contributions to a SIMPLE account 
must be fully vested.\84\
---------------------------------------------------------------------------
    \83\Sec. 408(p)(2)(A)(iii); (B)(i).
    \84\Secs. 401(k)(11)(A)(iii); 408(p)(3).
---------------------------------------------------------------------------
    There is an annual threshold on the amount of an elective 
deferral that an employee may make to a SIMPLE plan (subject to 
cost-of-living adjustments). The elective deferrals under a 
SIMPLE plan count toward the overall annual limit on elective 
deferrals an employee may make to this and other plans 
permitting elective deferrals.\85\ For 2022, the annual 
contribution limit for SIMPLE plans is $14,000.\86\ If 
permitted by the SIMPLE plan, participants who are age 50 or 
above at the end of the calendar year may also make catch up 
contributions ($3,000 for 2022). In the case of a SIMPLE IRA, 
the contribution limit that otherwise applies to IRAs is 
increased to account for the limit on elective deferrals to a 
SIMPLE IRA and the required employer matching or nonelective 
contribution.\87\
---------------------------------------------------------------------------
    \85\Secs. 401(a)(30); 402(g).
    \86\Secs. 401(k)(11)(B)(i)(I); 408(p)(2)(A)(ii).
    \87\Sec. 408(p)(8).
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    In the case of a SIMPLE IRA plan, if a participant receives 
a payment or distribution from the plan during the first two 
years the individual participates in the plan, such payment or 
distribution is not treated as a rollover contribution if it is 
paid to an IRA or retirement plan, unless it is paid to another 
SIMPLE IRA plan.\88\ In addition, the 10-percent tax on early 
distributions from retirement plans is increased to 25 percent 
in the case of any such distributions that are subject to the 
early distribution tax.\89\
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    \88\Sec. 408(d)(3)(G).
    \89\ Sec. 72(t)(6).
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                           REASONS FOR CHANGE

    The Committee wishes to boost the ability of sponsors of 
SIMPLE IRA plans and SIMPLE 401(k) plans to assist their 
workers in saving for retirement. Thus, the Committee believes 
it is appropriate to increase the amount of nonelective 
contributions that are permitted to be made under the plans.

                        EXPLANATION OF PROVISION

    The provision expands the types of contributions that may 
be made to a SIMPLE IRA plan or a SIMPLE 401(k) plan by also 
permitting the employer to make nonelective contributions of a 
uniform percentage of up to 10 percent of compensation, not to 
exceed $5,000. The $5,000 amount is indexed for inflation.\90\ 
As in the case of the two-percent nonelective contribution 
under present law, the nonelective contribution under the 
provision is provided only to employees who are eligible to 
participate in the arrangement and who have at least $5,000 of 
compensation from the employer for the year. The provision also 
increases the IRA contribution limit as it applies to SIMPLE 
IRAs to account for the additional nonelective contribution 
permitted under the provision.
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    \90\Note that the $5,000 amount of compensation that applies to 
determine employee eligibility remains unindexed under the provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2023.

  7. Small immediate financial incentives for contributing to a plan 
 (sec. 107 of the bill and secs. 401(k), 403(b), and 4975 of the Code)


                              PRESENT LAW

Section 401(k) plans

    A section 401(k) plan is a type of profit-sharing or stock 
bonus plan that contains a qualified cash or deferred 
arrangement. Such arrangements are subject to the rules 
generally applicable to qualified defined contribution plans. 
In addition, special rules apply to such arrangements. 
Employees who participate in a section 401(k) plan may elect to 
have contributions made to the plan (elective deferrals) rather 
than receive the same amount as current compensation.\91\ The 
maximum annual amount of elective deferrals that can be made by 
an employee for a year is $20,500 (for 2022) or, if less, the 
employee's compensation.\92\ For an employee who attains age 50 
by the end of the year, the dollar limit on elective deferrals 
is increased by $6,500 (for 2022) (called ``catch-up 
contributions'').\93\ An employee's elective deferrals must be 
fully vested. A section 401(k) plan may also provide for 
employer matching and nonelective contributions.
---------------------------------------------------------------------------
    \91\Elective deferrals generally are made on a pre-tax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \92\Sec. 402(g).
    \93\Sec. 414(v).
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    In order to constitute a qualified cash or deferred 
arrangement, no benefit under the arrangement may be 
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.\94\ However, matching 
contributions are exempt from this rule.
---------------------------------------------------------------------------
    \94\Sec. 401(k)(4)(A).
---------------------------------------------------------------------------

Tax-sheltered annuities (section 403(b) plans)

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans. Employers may make nonelective or 
matching contributions to such plans on behalf of their 
employees, and the plan may provide for employees to make pre-
tax elective deferrals, designated Roth contributions (held in 
designated Roth accounts)\95\ or other after-tax contributions. 
Generally, section 403(b) plans provide for contributions 
toward the purchase of annuity contracts or provide for 
contributions to be held in custodial accounts for each 
employee. In the case of contributions to custodial accounts 
under a section 403(b) plan, the amounts must be invested only 
in regulated investment company stock.\96\
---------------------------------------------------------------------------
    \95\Sec. 402A.
    \96\Sec. 403(b)(7).
---------------------------------------------------------------------------
    Contributions to a section 403(b) plan must be fully 
vested. The minimum coverage and general nondiscrimination 
requirements applicable to a qualified retirement plan 
generally apply to a section 403(b) plan and to employer 
matching and nonelective contributions and after-tax employee 
contributions to the plan.\97\ If a section 403(b) plan 
provides for elective deferrals, the plan is subject to a 
``universal availability'' requirement under which all 
employees must be given the opportunity to make deferrals of 
more than $200. In applying this requirement, nonresident 
aliens, students, and employees who normally work less than 20 
hours per week may be excluded.\98\
---------------------------------------------------------------------------
    \97\These requirements do not apply to a governmental section 
403(b) plan or a section 403(b) plan maintained by a church or a 
qualified church-controlled organization as defined in section 3121(w).
    \98\For this purpose, nonresident has the meaning in section 
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The 
universal availability requirement does not apply to a section 403(b) 
plan maintained by a church or a qualified church-controlled 
organization.
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Prohibited transactions

            In general
    The Code and the Employee Retirement Income Security Act of 
1974 (``ERISA'')\99\ prohibit certain transactions 
(``prohibited transaction'') between a qualified retirement 
plan and a disqualified person (referred to as a ``party in 
interest'' under ERISA).\100\ The prohibited transaction rules 
under the Code apply also to IRAs, Archer MSAs, HSAs, and 
Coverdell ESAs.\101\
---------------------------------------------------------------------------
    \99\Pub. L. No. 93-406, September 2, 1974.
    \100\ Sec. 4975; ERISA sec. 406. The prohibited transaction rules 
of the Code and ERISA are very similar; however, some differences exist 
between the two sets of rules. As mentioned above, ERISA generally does 
not apply to governmental plans or church plans. The prohibited 
transaction rules under the Code also generally do not apply to 
governmental plans or church plans. However, under section 503, the 
trust holding assets of a governmental or church plan may lose its tax-
exempt status in the case of a prohibited transaction listed in section 
503(b). Before the enactment of ERISA in 1974, section 503 applied to 
qualified retirement plans generally. In connection with the enactment 
of section 4975 by ERISA, section 503 was amended to apply only to 
governmental and church plans.
    \101\These are included in the definition of ``plan'' under section 
4975(e)(1).
---------------------------------------------------------------------------
    Disqualified persons include a fiduciary of the plan; a 
person providing services to the plan; an employer with 
employees covered by the plan; an employee organization any of 
whose members are covered by the plan; certain owners, 
officers, directors, highly compensated employees, family 
members, and related entities.\102\ A fiduciary includes any 
person who (1) exercises any discretionary authority or 
discretionary control respecting management of the plan or 
exercises any authority or control respecting management or 
disposition of the plan's assets, (2) renders investment advice 
for a fee or other compensation, direct or indirect, with 
respect to any moneys or other property of the plan, or has any 
authority or responsibility to do so, or (3) has any 
discretionary authority or discretionary responsibility in the 
administration of the plan.\103\
---------------------------------------------------------------------------
    \102\Sec. 4975(e)(2). Party in interest is defined similarly under 
ERISA section 3(14) with respect to an employee benefit plan. Under 
ERISA, employee benefit plans, defined in ERISA section 3(3), consist 
of two types: pension plans (that is, retirement plans), defined in 
ERISA section 3(2), and welfare plans, defined in ERISA section 3(1).
    \103\Sec. 4975(d)(3); ERISA sec. 3(21)(A). Under ERISA, fiduciary 
also includes any person designated under ERISA section 405(c)(1)(B) by 
a named fiduciary (that is, a fiduciary named in the plan document) to 
carry out fiduciary responsibilities.
---------------------------------------------------------------------------
    Prohibited transactions include the following transactions, 
whether direct or indirect, between a plan and a disqualified 
person:
    1. The sale or exchange or leasing of property,
    2. The lending of money or other extension of credit,
    3. The furnishing of goods, services, or facilities,
    4. The transfer to, or use by or for the benefit of, the 
income or assets of the plan,
    5. In the case of a fiduciary, an act dealing with the 
plan's income or assets in the fiduciary's own interest or for 
the fiduciary's own account, and
    6. The receipt by a fiduciary of any consideration for the 
fiduciary's own personal account from any party dealing with 
the plan in connection with a transaction involving the income 
or assets of the plan.\104\
---------------------------------------------------------------------------
    \104\Sec. 4975(c)(1)(A)-(F) and ERISA sec. 406(a)(1)(A)-(D) and 
(b)(1) and (3). Under ERISA section 406(a)(1), a plan fiduciary is 
prohibited from causing the plan to engage in a transaction described 
in paragraphs (A)-(D). ERISA section 406(b)(2) also prohibits a plan 
fiduciary, in the fiduciary's individual capacity or any other 
capacity, from acting in any transaction involving the plan on behalf 
of a party (or represent a party) whose interests are adverse to the 
interests of the plan or the interests of plan participants or 
beneficiaries. ERISA section 406(a)(1)(E) and (a)(2) relate to 
limitations under ERISA section 407 on a plan's acquisition or holding 
of employer securities and real property.
---------------------------------------------------------------------------
            Exemptions from prohibited transaction treatment
    Certain transactions are statutorily exempt from prohibited 
transaction treatment, for example, certain loans to plan 
participants and arrangements with a disqualified person for 
legal, accounting or other services necessary for the 
establishment or operation of a plan if no more than reasonable 
compensation is paid for the services.\105\
---------------------------------------------------------------------------
    \105\Sec. 4975(d) and ERISA sec. 408. The Code and ERISA also 
provide for the grant of administrative exemptions, on either an 
individual or class basis, subject to a finding that the exemption is 
administratively feasible, in the interests of the plan and of its 
participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of the plan.
---------------------------------------------------------------------------
            Sanctions for violations
    Under the Code, if a prohibited transaction occurs, the 
disqualified person who participated in the transaction is 
generally subject to a two-tiered excise tax. The first-tier 
tax is 15 percent of the amount involved in the transaction. 
The second-tier tax, imposed if the prohibited transaction is 
not corrected within a certain period, is 100 percent of the 
amount involved. In the case of an IRA, HSA, Archer MSA or 
Coverdell ESA, the sanction for some prohibited transactions is 
the loss of tax favored status, rather than an excise tax. A 
private right of action is not available for a Code violation.
    Under ERISA, the Department of Labor (``DOL'') may assess a 
civil penalty against a person who engages in a prohibited 
transaction, other than a transaction with a plan covered by 
the prohibited transaction rules of the Code.\106\ The penalty 
may not exceed five percent of the amount involved in the 
transaction for each year or part of a year that the prohibited 
transaction continues. If the prohibited transaction is not 
corrected within 90 days after notice from DOL, the penalty can 
be up to 100 percent of the amount involved in the transaction. 
A prohibited transaction by a fiduciary may also be the basis 
for an action for a breach of fiduciary responsibility by DOL, 
a plan participant or beneficiary, or another plan fiduciary 
(as discussed above).
---------------------------------------------------------------------------
    \106\ERISA sec. 502(i).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that individuals can be especially 
motivated by small immediate financial incentives. Thus, in 
addition to providing matching contributions as a long-term 
incentive for employees to contribute to a section 401(k) plan 
or section 403(b) plan, the Committee wishes to provide 
employers the flexibility to be able to offer small immediate 
financial incentives, such as gift cards in small amounts, to 
employees who participate in the employer's retirement plan.

                        EXPLANATION OF PROVISION

    The provision modifies the rule applicable to section 
401(k) plans that prohibits the conditioning of benefits (other 
than matching contributions) on an employee's election to 
defer. As modified, the rule exempts, in addition to matching 
contributions, a de minimis financial incentive provided to 
employees who elect to make elective deferrals under the plan. 
Thus, a section 401(k) plan will not fail to include a 
qualified cash or deferred arrangement merely because it 
conditions a de minimis financial incentive on an employee's 
election to make an elective deferral. This exemption does not 
apply in the case of a de minimis financial incentive provided 
to employees who elect not to make elective deferrals under the 
plan.
    Similarly, in the case of a section 403(b) plan, the 
provision provides that a plan does not fail to satisfy the 
universal availability requirement\107\ solely by reason of 
offering a de minimis financial incentive to employees who 
elect to have the employer make contributions pursuant to a 
salary reduction agreement.
---------------------------------------------------------------------------
    \107\Sec. 403(b)(12)(A)(ii).
---------------------------------------------------------------------------
    In addition, under the provision, the provision of such de 
minimis financial incentives under a section 401(k) plan or a 
section 403(b) plan is not treated as a prohibited transaction 
under the Code.\108\
---------------------------------------------------------------------------
    \108\Under section 4975. Modifications to Labor provisions are 
necessary to effectuate this provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plan years beginning after the 
date of enactment.

 8. Indexing IRA catch-up limit (sec. 108 of the bill and sec. 219 of 
                               the Code)


                              PRESENT LAW

    There are two general types of individual retirement 
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\109\ 
The total amount that an individual may contribute to one or 
more IRAs for a year is generally limited to the lesser of: (1) 
a dollar amount ($6,000 for 2022); and (2) the amount of the 
individual's compensation that is includible in gross income 
for the year.\110\ In the case of an individual who has 
attained age 50 by the end of the taxable year, the dollar 
amount is increased by $1,000 (referred to as a ``catch-up 
contribution''). In the case of a married couple, contributions 
can be made up to the dollar limit for each spouse if the 
combined compensation of the spouses that is includible in 
gross income is at least equal to the contributed amount. An 
individual may make contributions to a traditional IRA (up to 
the contribution limit) without regard to his or her adjusted 
gross income.
---------------------------------------------------------------------------
    \109\Secs. 408 and 408A.
    \110\Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and 
(b)(2)(B) and 408A(c)(2). Under section 4973, IRA contributions in 
excess of the applicable limit are generally subject to an excise tax 
of six percent per year until withdrawn.
---------------------------------------------------------------------------
    An individual may deduct his or her contributions to a 
traditional IRA if neither the individual nor the individual's 
spouse is an active participant in an employer-sponsored 
retirement plan. If an individual or the individual's spouse is 
an active participant in an employer-sponsored retirement plan, 
the deduction is phased out for taxpayers with adjusted gross 
income over certain levels.\111\
---------------------------------------------------------------------------
    \111\Sec. 219(g).
---------------------------------------------------------------------------
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit).\112\ Contributions to a Roth IRA are not deductible.
---------------------------------------------------------------------------
    \112\Sec. 408A(c)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to enhance an individual's ability to 
save for retirement, and therefore believes it is appropriate 
to increase the amount of catch-up contributions that an 
individual may contribute to an IRA based on increases in cost 
of living.

                        EXPLANATION OF PROVISION

    Under the provision, the $1,000 amount that may be 
contributed as a catch-up contribution by individuals who 
attain age 50 by the end of the taxable year is increased for 
cost-of-living adjustments for taxable years beginning after 
date of enactment.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after the 
date of enactment.

 9. Higher catch-up limit to apply at age 60, 61, 62, and 63 (sec. 109 
                of the bill and sec. 414(v) of the Code)


                              PRESENT LAW

    Under certain types of employer-sponsored retirement plans, 
including section 401(k) plans, section 403(b) plans, SIMPLE 
IRAs,\113\ and governmental section 457(b) plans, an employee 
may elect to have contributions (elective deferrals) made to 
the plan, rather than receive the same amount in cash. The 
maximum annual amount of elective deferrals that can be made by 
an employee for a year is $20,500 for 2022 ($14,000 in the case 
of a SIMPLE IRA or SIMPLE section 401(k) plan\114\) or, if 
less, the employee's compensation.\115\ For individuals who 
will attain age 50 by the end of the taxable year, this limit 
is increased to allow additional ``catch-up 
contributions.''\116\
---------------------------------------------------------------------------
    \113\Sec. 408(p).
    \114\Sec. 401(k)(11).
    \115\Secs. 402(g); 457(c). This limit applies to total elective 
deferrals under all of a participant's section 401(k) plans and section 
403(b) plans but applies separately to any governmental section 457(b) 
plan. Sec. 414(v).
    \116\Sec. 414(v).
---------------------------------------------------------------------------
    A section 401(k) plan, section 403(b) plan, and 
governmental section 457(b) plan may generally permit catch-up 
contributions up to $6,500 in 2022 (indexed for inflation). A 
SIMPLE IRA or SIMPLE section 401(k) plan may permit catch-up 
contributions up to $3,000 in 2022. If elective deferral and 
catch-up contributions are made to both a section 401(k) plan 
and a section 403(b) plan for the same employee, a single limit 
applies to the elective deferrals under both plans. Special 
contribution limits apply to certain employees under a section 
403(b) plan maintained by a church. In addition, under a 
special catch-up rule, an increased elective deferral limit 
applies under a plan maintained by an educational organization, 
hospital, home health service agency, health and welfare 
service agency, church, or convention or association of 
churches in the case of employees who have completed 15 years 
of service. In this case, the limit is increased by the least 
of (1) $3,000, (2) $15,000, reduced by the employee's total 
elective deferrals in prior years, and (3) $5,000 times the 
employee's years of service, reduced by the employee's total 
elective deferrals in prior years.
    The section 457(b) plan limits apply separately from the 
combined limit applicable to section 401(k) and section 403(b) 
plan contributions, so that an employee covered by a 
governmental section 457(b) plan and a section 401(k) or 
section 403(b) plan can contribute the full amount to each 
plan. In addition, under a special catch-up rule, for one or 
more of the participant's last three years before normal 
retirement age, the otherwise applicable limit is increased to 
the lesser of (1) two times the normal annual limit ($41,000 
for 2022) or (2) the sum of the otherwise applicable limit for 
the year plus the amount by which the limit applicable in 
preceding years of participation exceeded the deferrals for 
that year.
    Catch-up contributions are not subject to any other 
contribution limits and are not taken into account in applying 
other contribution limits. In addition, such contributions are 
not subject to applicable nondiscrimination rules. However, a 
plan fails to meet the applicable nondiscrimination 
requirements under section 401(a)(4) with respect to benefits, 
rights, and features unless the plan allows all eligible 
individuals participating in the plan to make the same election 
with respect to catch-up contributions. For purposes of this 
rule, all plans of related employers are treated as a single 
plan. In addition, the special nondiscrimination rule for 
mergers and acquisitions applies for this purpose.\117\
---------------------------------------------------------------------------
    \117\Secs. 410(b)(6)(C); 414(v)(4)(B).
---------------------------------------------------------------------------
    An employer is permitted to make matching contributions 
with respect to catch-up contributions. Any such matching 
contributions are subject to the normally applicable rules.

                           REASONS FOR CHANGE

    Under present law, the Code permits catch-up contributions 
at a time when individuals are typically more advanced in their 
careers and in a better financial position to contribute 
additional funds to their retirement plans. In order to 
increase such individuals' ability to grow their retirement 
savings, the Committee believes it is appropriate to increase 
the limit on catch-up contributions for a limited number of 
years before the individual reaches retirement age under the 
plan.

                        EXPLANATION OF PROVISION

    Under the provision, the limit on catch-up contributions is 
increased for individuals who would attain age 60, 61, 62, or 
63 (but who are not older than age 63), by the end of the 
taxable year. A section 401(k) plan (other than a SIMPLE 
section 401(k) plan), section 403(b) plan, or governmental 
section 457(b) plan may increase the limit on catch-up 
contributions for such individuals to the lesser of (1) $10,000 
or (2) the participant's compensation for the year reduced by 
any other elective deferrals of the participant for the 
year.\118\ A SIMPLE section 401(k) plan or a SIMPLE IRA may 
increase the limit on catch-up contributions for such 
individuals to the lesser of (1) $5,000 or (2) the 
participant's compensation for the year reduced by any other 
elective deferrals of the participant for the year. Both the 
$10,000 amount and the $5,000 amount are indexed for inflation 
beginning in 2025.
---------------------------------------------------------------------------
    \118\This increase also applies to catch-up contributions under a 
simplified employee pension under section 408(k) that includes a salary 
reduction arrangement.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2024.

     10. Eliminate the ``first day of the month'' requirement for 
governmental section 457(b) plans (sec. 110 of the bill and sec. 457(b) 
                              of the Code)


                              PRESENT LAW

Section 457(b) plans

    Among the various types of tax-favored retirement plans 
under present law are eligible deferred compensation plans 
under section 457(b). A section 457(b) plan is a plan 
maintained by a State or local government or a tax-exempt 
organization that meets certain requirements. Generally, the 
maximum amount that can be deferred under a section 457(b) plan 
by an individual during any taxable year is limited to the 
lesser of 100 percent of the participant's includible 
compensation or the applicable dollar amount for the taxable 
year. The applicable dollar amount for 2022 is $20,500 and is 
indexed for future taxable years. For an employee who attains 
age 50 by the end of the year, the dollar limit on deferrals is 
increased by $6,500 (for 2022)\119\ (called catch-up 
contributions).\120\ A participant's includible compensation 
means the compensation of the participant from the eligible 
employer for the taxable year.
---------------------------------------------------------------------------
    \119\For 2020 and 2021, this amount is $6,500.
    \120\Sec. 414(v).
---------------------------------------------------------------------------
    One of the requirements to be an eligible deferred 
compensation plan under section 457(b) is that a participant's 
compensation is deferred for any calendar month only if an 
agreement providing for such deferral has been entered into 
before the beginning of such month.\121\
---------------------------------------------------------------------------
    \121\Sec. 457(b)(4).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the rules for deferral of 
compensation should be consistent between section 401(k), 
section 403(b) and governmental section 457(b) plans, and that 
a participant in a governmental section 457(b) plan should have 
more flexibility on the timing of deferral elections under such 
a plan.

                        EXPLANATION OF PROVISION

    The provision provides that compensation is deferred under 
a governmental section 457(b) plan only if an agreement 
providing for such deferral has been entered into before the 
compensation is currently available to the individual, 
consistent with the rule for section 401(k) and 403(b) plans. 
In the case of a section 457(b) plan maintained by a tax-exempt 
organization, the provision provides that compensation is 
deferred under the plan for a calendar month only if an 
agreement providing for such deferral has been entered into 
before the beginning of such month.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after the 
date of enactment.

 11. Tax treatment of certain non-trade or business SEP contributions 
            (sec. 111 of the bill and sec. 4972 of the Code)


                              PRESENT LAW

Tax on nondeductible contributions to qualified employer plans

    A 10-percent excise tax applies to nondeductible 
contributions made to a qualified employer plan.\122\ The tax 
is imposed on the employer. For this purpose, nondeductible 
contributions generally are the sum of (1) the excess of the 
amount contributed for the taxable year by the employer over 
the amount allowable as a deduction\123\ for contributions to 
the plan, and (2) the amount determined as nondeductible\124\ 
for the preceding year, reduced by any portion returned to the 
employer and by the deductible portion for that year.\125\
---------------------------------------------------------------------------
    \122\Sec. 4972.
    \123\As determined under section 404 without regard to section 
404(e).
    \124\Under section 4972(c).
    \125\As determined under section 404 without regard to section 
404(e).
---------------------------------------------------------------------------
    An exception to the application of the 10-percent excise 
tax applies in certain situations, including in the case of 
contributions to a SIMPLE IRA\126\ or to a Simple 401(k) 
plan\127\ which are not deductible solely because the 
contributions are not made in connection with a trade or 
business (for example, the contributions are made with respect 
to a household employee).
---------------------------------------------------------------------------
    \126\Within the meaning of section 408(p).
    \127\Within the meaning of section 401(k)(11).
---------------------------------------------------------------------------
    The exception does not apply to contributions to a SEP IRA 
plan.

SEP IRA plans

    A Simplified Employee Pension (``SEP'') plan is a type of 
employer-sponsored retirement plan whereby generally only the 
employer makes contributions to the plan.\128\ The amount of 
the contribution to the SEP IRA plan is up to the lesser of 25 
percent of the employee's compensation or the dollar limit 
applicable to contributions to a qualified defined contribution 
plan ($61,000 for 2022). A traditional IRA is set up for each 
eligible employee, and all contributions must be fully vested. 
Any employee must be eligible to participate in the SEP if the 
employee has (1) attained age 21, (2) performed services for 
the employer during at least three of the immediately preceding 
five years, and (3) received at least $650 (for 2022) in 
compensation from the employer for the year.\129\ Contributions 
to a SEP generally must bear a uniform relationship to 
compensation.
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    \128\Sec. 408(k). Certain grandfathered SEP plans may permit 
salary-reduction arrangements (if the SEP was in existence on December 
31, 1996). Sec. 408(k)(6)(H).
    \129\The annual compensation limit for SEPs is $290,000.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes this provision is needed to 
encourage household employers to provide a retirement plan for 
their employees by permitting such employers to make 
contributions to a SEP IRA retirement plan without incurring a 
10-percent excise tax on the contribution. This will make it 
more probable that employers will make contributions on behalf 
of household employees who might not otherwise have tax-favored 
retirement savings because their work is not in connection with 
a trade or business of their employer.

                        EXPLANATION OF PROVISION

    The provision extends the exception from the 10-percent 
excise tax to contributions to a SEP IRA which are not 
deductible solely because the contributions are not made in 
connection with a trade or business.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after the date of enactment.

12. Elimination of additional tax on corrective distributions of excess 
      contributions (sec. 112 of the bill and sec. 72 of the Code)


                              PRESENT LAW

Early withdrawal tax

    A distribution from a tax-qualified plan described in 
section 401(a), a tax-sheltered annuity plan (``section 403(b) 
plan''), an eligible deferred compensation plan of a State or 
local government employer, or an individual retirement 
arrangement (an ``IRA'') generally is included in income for 
the year distributed.\130\ In addition, unless an exception 
applies, a distribution from a qualified retirement plan, a 
section 403(b) plan, or an IRA received before age 59\1/2\ is 
subject to a 10-percent additional tax (referred to as the 
``early withdrawal tax'') on the amount includible in 
income.\131\
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    \130\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions are subject to mandatory income tax withholding 
at a 20-percent rate unless the distribution is rolled over.
    \131\Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
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IRA rules

    There are two basic types of IRAs: traditional IRAs,\132\ 
to which both deductible and nondeductible contributions may be 
made,\133\ and Roth IRAs, to which only nondeductible 
contributions may be made by certain individuals.\134\ For a 
traditional IRA, an eligible contributor may deduct the 
contributions made for the year, but distributions are 
includible in gross income to the extent attributable to 
earnings on the account and the deductible contributions. For a 
Roth IRA, all contributions are after-tax (that is, no 
deduction is allowed), but distributions are not includible in 
gross income if certain requirements are satisfied.\135\ 
Distributions from a Roth IRA that do not meet those 
requirements, however, are not qualified distributions and are 
includible in gross income to the extent attributable to 
earnings. Amounts that are includible in income that are 
withdrawn from a traditional IRA or a Roth IRA before 
attainment of age 59\1/2\ are subject to the 10-percent early 
withdrawal tax unless an exception applies.
---------------------------------------------------------------------------
    \132\Sec. 408.
    \133\Secs. 219 and 408. An individual may make deductible 
contributions to a traditional IRA up to the IRA contribution limit if 
neither the individual nor the individual's spouse is an active 
participant in an employer-sponsored retirement plan. If an individual 
(or the individual's spouse) is an active participant in an employer-
sponsored retirement plan, the deduction is phased out for taxpayers 
with modified adjusted gross income (AGI) for the taxable year over 
certain indexed levels. To the extent an individual cannot or does not 
make deductible contributions to a traditional IRA or contributions to 
a Roth IRA for the taxable year, the individual may make nondeductible 
contributions to a traditional IRA, subject to the same contribution 
limits as deductible contributions, including catch-up contributions.
    \134\Sec. 408A. Individuals with modified AGI below certain levels 
may make nondeductible contributions to a Roth IRA. The maximum annual 
contribution that can be made to a Roth IRA is phased out for taxpayers 
with AGI for the taxable year over certain indexed levels.
    \135\Sec. 408A(d).
---------------------------------------------------------------------------
    An annual limit applies to contributions to IRAs. The 
contribution limit is coordinated so that the aggregate maximum 
amount that can be contributed to all of an individual's IRAs 
(both traditional and Roth) for a taxable year is the lesser of 
a certain dollar amount ($6,000 for 2022) or the individual's 
compensation. An eligible individual who has attained age 50 
before the end of the taxable year may also make catch-up 
contributions to an IRA. For this purpose, the aggregate dollar 
limit is increased by $1,000.
    To the extent that contributions to an IRA exceed the 
contribution limits, an excise tax equal to six percent of the 
excess amount applies.\136\ However, any amount contributed for 
a taxable year that is distributed with allocable income by the 
due date for the taxpayer's return for the year (including 
extensions) will be treated as though not contributed for the 
year.\137\ To receive this treatment, the taxpayer must not 
have claimed a deduction for the amount of the distributed 
contribution.
---------------------------------------------------------------------------
    \136\Secs. 4973(b) and (f).
    \137\Sec. 408(d)(4).
---------------------------------------------------------------------------
    Currently, excess contributions are not expressly exempt 
from the 10-percent early withdrawal tax and any income 
attributable to returned excess contributions may be subject to 
the additional tax.

                           REASONS FOR CHANGE

    Under present law, excess contributions that are returned 
with allocable income within specified timeframes are treated 
as though not contributed to the IRA provided that the taxpayer 
did not claim a deduction for those contribution amounts. The 
Committee believes that it is therefore appropriate that any 
interest or earnings attributable to those returned excess 
contributions be clearly exempt from the 10-percent early 
withdrawal tax.

                        EXPLANATION OF PROVISION

    The provision expressly exempts from the 10-percent early 
withdrawal tax distribution amounts attributable to income on 
excess contributions to an IRA if those contribution amounts 
are returned with the amount of attributable income by the due 
date for the taxpayer's return for the year (including 
extensions), provided the taxpayer did not claim a deduction 
for the amount of the distributed contribution.

                             EFFECTIVE DATE

    The provision is effective for any determination of, or 
affecting, liability for taxes, interest or penalties that is 
made on or after the date of enactment (without regard to 
whether the act or failure to act upon which the determination 
is based occurred before the date of enactment).

   13. Employer may rely on employee certifying that deemed hardship 
distribution conditions are met (sec. 113 of the bill and secs. 401(k), 
                    403(b), and 457(b) of the Code)


                              PRESENT LAW

Section 401(k) plan and section 403(b) plan hardship distributions

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan''). A section 403(b) plan may also include an elective 
deferral arrangement. Amounts attributable to elective 
deferrals under a section 401(k) plan or a section 403(b) plan 
generally cannot be distributed before the occurrence of one or 
more specified events, including financial hardship of the 
employee.\138\
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    \138\Secs. 401(k)(2)(B)(i)(IV) and 403(b)(7)(A)(i)(V) and (11)(B). 
Other types of contributions may also be subject to this restriction.
---------------------------------------------------------------------------
    A hardship distribution from a section 401(k) plan may 
include, in addition to the employee's elective deferrals, 
qualified matching contributions, qualified nonelective 
contributions, and earnings on any of these amounts.\139\ A 
hardship distribution from a section 403(b) plan may include 
elective deferrals, but not earnings on those deferrals.\140\ 
Qualified matching contributions and qualified nonelective 
contributions to a section 403(b) plan that are in a custodial 
account are not eligible to be distributed on account of 
hardship.\141\ A distribution under a section 401(k) plan is 
not treated as failing to be on account of hardship solely 
because the employee does not take any available plan loan. 
Distributions on account of hardship may be subject to an 
additional 10-percent early withdrawal tax.\142\
---------------------------------------------------------------------------
    \139\Sec. 401(k)(14). Qualified matching contributions (as defined 
in section 401(k)(3)(D)(ii)(I)) and qualified nonelective contributions 
(as defined in section 401(m)(4)(C)) may be used to enable the plan to 
satisfy certain nondiscrimination tests, to prevent discrimination in 
favor of highly compensated employees.
    \140\Sec. 403(b)(11).
    \141\Treas. Reg. sec. 1.403(b)-6(c).
    \142\Sec. 72(t).
---------------------------------------------------------------------------
    Applicable Treasury regulations provide that a distribution 
is made on account of hardship only if the distribution is made 
on account of an immediate and heavy financial need of the 
employee and is necessary to satisfy the financial need.\143\ 
Generally, the determination of whether an employee has an 
immediate and heavy financial need is based on the relevant 
facts and circumstances. However, a distribution is deemed to 
be made on account of an immediate and heavy financial need if 
it is for: (1) generally, deductible expenses for medical 
care;\144\ (2) costs directly related to the purchase of a 
principal residence for the employee (excluding mortgage 
payments); (3) payment of tuition, related educational fees, 
and room and board expenses, for up to the next 12 months of 
post-secondary education for the employee, the employee's 
spouse, child, or dependent,\145\ or for a primary beneficiary 
under the plan; (4) payments necessary to prevent the eviction 
of the employee from the employee's principal residence or 
foreclosure on the mortgage on that residence; (5) payments for 
burial or funeral expenses for the employee's deceased parent, 
spouse, child, or dependent, or for a deceased primary 
beneficiary under the plan; (6) expenses for the repair of 
damage to the employee's principal residence that would qualify 
for the casualty deduction;\146\ or (7) expenses and losses 
(including loss of income) incurred by the employee on account 
of a federally-declared disaster.\147\
---------------------------------------------------------------------------
    \143\Treas. Reg. secs. 1.401(k)-1(d)(3); 1.403(b)-6(d)(2).
    \144\Expenses for (or necessary to obtain) medical care that would 
be deductible under section 213(d), determined without regard to the 
limitations in section 213(a) (relating to the applicable percentage of 
adjusted gross income and the recipients of the medical care) provided 
that, if the recipient of the medical care is not listed in section 
213(a), the recipient is a primary beneficiary under the plan.
    \145\As defined in section 152 without regard to section 152(b)(1), 
(b)(2), and (d)(1)(B).
    \146\Under section 165 (determined without regard to section 
165(h)(5) and whether the loss exceeds 10 percent of adjusted gross 
income).
    \147\A disaster declared by the Federal Emergency Management Agency 
(``FEMA'') under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, Pub. L. No. 100-707, provided that the employee's 
principal residence or principal place of employment at the time of the 
disaster was located in an area designated by FEMA for individual 
assistance with respect to the disaster.
---------------------------------------------------------------------------
    A distribution is treated as necessary to satisfy the 
financial need under the Treasury regulations only to the 
extent that the amount of the distribution does not exceed the 
amount required. In addition, in order to be treated as 
necessary to satisfy the financial need, the following 
requirements must be met: (1) the employee has obtained all 
other currently available distributions under all plans of the 
employer; (2) the employee has provided to the plan 
administrator a written representation that he or she has 
insufficient cash or other liquid assets reasonably available 
to satisfy the need; and (3) the plan administrator does not 
have actual knowledge contrary to the representation.\148\
---------------------------------------------------------------------------
    \148\Treas. Reg. sec. 1.401(k)-1(d)(3)(iii).
---------------------------------------------------------------------------

Governmental section 457(b) plan distributions upon unforeseeable 
        emergency

    An eligible deferred compensation plan of a governmental 
employer (referred to as a ``governmental section 457(b) 
plan'') is generally similar to a qualified cash or deferred 
arrangement under a section 401(k) plan in that it consists of 
elective deferrals made at the election of an employee. Such 
deferrals generally may not be distributed from the plan before 
the occurrence of one or more specified events, including when 
the participant is faced with an unforeseeable emergency.\149\ 
Distributions from a governmental section 457(b) plan are not 
subject to the 10-percent early withdrawal tax.\150\
---------------------------------------------------------------------------
    \149\Sec. 457(d)(1)(A)(iii).
    \150\Secs. 72(t)(1); 4974(c).
---------------------------------------------------------------------------
    Under Treasury regulations, the unforeseeable emergency 
must be defined in the plan as a severe financial hardship of 
the participant or beneficiary resulting from an illness or 
accident of the participant or beneficiary, or the 
participant's or beneficiary's spouse or dependent;\151\ loss 
of the participant's or beneficiary's property due to 
casualty;\152\ or other similar extraordinary and unforeseeable 
circumstances arising as a result of events beyond the control 
of the participant or the beneficiary.\153\ The Treasury 
regulations provide the following as examples of unforeseeable 
emergencies: (1) the imminent foreclosure of or eviction from 
the participant's or beneficiary's primary residence; (2) the 
need to pay for medical expenses, including non-refundable 
deductibles, as well as for the cost of prescription drug 
medication; and (3) the need to pay for the funeral expenses of 
a spouse or a dependent of a participant or beneficiary. The 
purchase of a home and the payment of college tuition are not 
unforeseeable emergencies, unless such expenses otherwise 
qualify.
---------------------------------------------------------------------------
    \151\As defined in section 152, and, for taxable years beginning on 
or after January 1, 2005, without regard to section 152(b)(1), (b)(2), 
and (d)(1)(B).
    \152\This includes the need to rebuild a home following damage to a 
home not otherwise covered by homeowner's insurance, such as damage 
that is the result of a natural disaster.
    \153\Treas. Reg. sec. 1.457-6(c)(2).
---------------------------------------------------------------------------
    In general, under the regulations, whether a participant or 
beneficiary is faced with an unforeseeable emergency permitting 
a distribution is to be determined based on the relevant facts 
and circumstances of each case, but, in any case, a 
distribution on account of an unforeseeable emergency may not 
be made to the extent that such emergency is or may be relieved 
through reimbursement or compensation from insurance or 
otherwise, by liquidation of the participant's assets, to the 
extent the liquidation of such assets would not itself cause 
severe financial hardship, or by cessation of deferrals under 
the plan. Distributions on account of an unforeseeable 
emergency must be limited to the amount reasonably necessary to 
satisfy the emergency need.

                           REASONS FOR CHANGE

    The Committee believes that the existing administrative 
barriers to taking hardship withdrawals from retirement plans 
should be reduced, making it easier for participants who wish 
to access retirement funds in times of financial need. Allowing 
such access will encourage workers to save more in retirement 
plans since the funds will not be locked away in the case of a 
financial emergency. The Committee believes that generally 
allowing self-certification is a logical step in light of the 
success of the coronavirus-related distribution self-
certification rules and the current hardship regulations under 
which employees self-certify as to the unavailability of funds 
to address the hardship.

                        EXPLANATION OF PROVISION

    Under the provision, in determining whether a distribution 
is due to an employee hardship, the plan administrator of a 
section 401(k) plan or a section 403(b) plan may rely on the 
employee's written certification that the distribution is on 
account of a financial need of a type that is deemed in 
Treasury regulations to be an immediate and heavy financial 
need. Thus, if the employee certifies that the financial need 
for the hardship distribution is one of the types of deemed 
immediate and heavy financial needs that are described in the 
Treasury regulations,\154\ such as funeral expenses for the 
employee's deceased parent, the distribution is treated as 
being made on account of an immediate and heavy financial need. 
In addition, under the provision, the plan administrator may 
rely on the employee's written certification that the 
distribution is not in excess of the amount required to satisfy 
the financial need, and that the employee has no alternative 
means reasonably available to satisfy such financial need.
---------------------------------------------------------------------------
    \154\Treas. Reg. sec. 1.401(k)-1(d)(3)(ii)(B), or any successor 
regulation.
---------------------------------------------------------------------------
    Similarly, with respect to a governmental section 457(b) 
plan, in determining whether a participant's distribution is 
made when the participant is faced with an unforeseeable 
emergency, a plan administrator may rely on the participant's 
written certification that the distribution is on account of an 
unforeseeable emergency of a type that is specifically 
described in Treasury regulations as an unforeseeable 
emergency,\155\ that the distribution does not exceed the 
amount reasonably necessary to satisfy the emergency need, and 
that the participant has no alternative means reasonably 
available to satisfy such financial need.
---------------------------------------------------------------------------
    \155\Treas. Reg. sec. 1.457-6(c)(2)(i), or any successor 
regulation.
---------------------------------------------------------------------------
    In the case of each of these types of plans, the provision 
provides that the Secretary may by regulation provide for 
exceptions to the plan administrator's ability to rely on 
participant certification where the plan administrator has 
actual knowledge to the contrary. The Secretary may also by 
regulation adopt procedures to address misrepresentation.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
the date of enactment.

 14. Penalty-free withdrawals from retirement plans for individuals in 
  case of domestic abuse (sec. 114 of the bill and sec. 72(t) of the 
                                 Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a tax-qualified plan described in 
section 401(a) (a ``qualified retirement plan''), a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an 
individual retirement arrangement (an ``IRA'') generally is 
included in income for the year distributed.\156\ These plans 
are referred to collectively as ``eligible retirement 
plans.''\157\ In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\158\
---------------------------------------------------------------------------
    \156\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \157\Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \158\Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The IRS has the authority to waive the 
60-day requirement if failure to waive the requirement would be 
against equity or good conscience, including cases of casualty, 
disaster, or other events beyond the reasonable control of the 
individual.\159\
---------------------------------------------------------------------------
    \159\Rev. Proc. 2020-46, 2020-45 I.R.B. 995, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
---------------------------------------------------------------------------
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, for many types of 
plans, restrictions apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions or withdrawals. Despite such restrictions, an in-
service distribution from a qualified retirement plan that 
includes a qualified cash-or-deferred arrangement (a ``section 
401(k) plan'') or a section 403(b) plan may be permitted in the 
case of financial hardship. Similarly, a governmental section 
457(b) plan may permit distributions in the case of an 
unforeseeable emergency. Under a qualified retirement plan that 
is a pension plan (i.e., defined benefit pension plan or money 
purchase pension plan), distributions generally may be made 
only in the event of retirement, death, disability, or other 
separation from service, although in-service distributions may 
be permitted after age 59\1/2\.\160\
---------------------------------------------------------------------------
    \160\Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b)(1)(i). Section 401(k) plans, section 403(b) plans, and 
governmental section 457(b) plans also may permit in-service 
distributions after age 59\1/2\.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that a domestic abuse victim may 
need funds to escape an unsafe situation. The Committee 
believes that such individuals should be able to access funds 
from retirement plans when needed, with minimal administrative 
hurdles and without being subject to the 10-percent early 
withdrawal tax that otherwise generally applies to early 
distributions from a retirement plan. In addition, the 
Committee wishes to permit such individuals to recontribute 
such withdrawals to a retirement plan, so that individuals who 
are able to later repay the funds do not miss out on valuable 
compounding of earnings on retirement savings.

                        EXPLANATION OF PROVISION

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of an eligible distribution 
to a domestic abuse victim. In addition, such eligible 
distributions may be recontributed to applicable eligible 
retirement plans, subject to certain requirements.

Eligible distributions to a domestic abuse victim

    The provision provides that an eligible distribution to a 
domestic abuse victim is a distribution from an applicable 
eligible retirement plan to an individual if made during the 
one-year period beginning on a date on which the individual is 
a victim of domestic abuse by a spouse or domestic partner. 
Domestic abuse is defined under the provision as physical, 
psychological, sexual, emotional, or economic abuse, including 
efforts to control, isolate, humiliate, or intimidate the 
victim, or to undermine the victim's ability to reason 
independently, including by means of abuse of the victim's 
child or another family member living in the household. In 
making such a distribution, a plan administrator may rely on 
the participant's certification that the distribution is an 
eligible distribution to a domestic abuse victim.
    An applicable eligible retirement plan, for this purpose, 
generally includes eligible retirement plans other than defined 
benefit plans, including qualified retirement plans, section 
403(b) plans, governmental section 457(b) plans, and IRAs. It 
does not include a plan that is subject to requirements 
relating to providing joint and survivor annuities and 
preretirement survivor annuities.\161\ The maximum aggregate 
amount which may be treated as an eligible distribution to a 
domestic abuse victim by an individual is the lesser of $10,000 
or 50 percent of the present value of the employee's account 
under the plan.\162\ An eligible distribution to a domestic 
abuse victim is treated as meeting requirements relating to the 
timing of distributions under a section 401(k) plan, section 
403(b) plan, or governmental section 457(b) plan.\163\
---------------------------------------------------------------------------
    \161\Secs. 401(a)(11) and 417.
    \162\50 percent of the present value of the nonforfeitable accrued 
benefit of the employee under the plan.
    \163\An eligible distribution to a domestic abuse victim is subject 
to income tax withholding unless the recipient elects otherwise. 
Mandatory 20-percent withholding does not apply.
---------------------------------------------------------------------------
    Under the provision, an employer plan is not treated as 
violating any Code requirement merely because it treats a 
distribution to an individual (that would otherwise be an 
eligible distribution to a domestic abuse victim) as an 
eligible distribution to a domestic abuse victim, provided that 
the aggregate amount of such distributions to that individual 
from plans maintained by the employer and members of the 
employer's controlled group\164\ does not exceed the lesser of 
$10,000 or 50 percent of the present value of the employee's 
accounts under the plans of the employer's controlled group. 
Thus, under such circumstances an employer plan is not treated 
as violating any Code requirement merely because an individual 
might receive, for example, total distributions in excess of 
$10,000 as a result of distributions from plans of other 
employers or IRAs.
---------------------------------------------------------------------------
    \164\The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------

Recontributions to applicable eligible retirement plans

    The provision provides that any portion of an eligible 
distribution to a domestic abuse victim may, during the three-
year period beginning on the day after the date the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. In the case of a recontribution to an 
applicable eligible retirement plan that is not an IRA, the 
individual may not recontribute an amount greater than the 
amount of eligible distributions made from such plan to the 
individual. In addition, the individual in that case must be 
eligible to contribute to the plan (other than with respect to 
the recontribution of the eligible distribution).

                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date of enactment.

  15. Amendments to increase benefit accruals under plan for previous 
 plan year allowed until employer tax return due date (sec. 115 of the 
                   bill and sec. 401(b) of the Code)


                              PRESENT LAW

    Present law provides a remedial amendment period during 
which, under certain circumstances, a retirement plan may be 
amended retroactively in order to comply with the tax 
qualification requirements.\165\ In general, plan amendments to 
reflect changes in the law generally must be made by the time 
prescribed by law for filing the income tax return of the 
employer for the employer's taxable year in which the change in 
law occurs (including extensions). Discretionary amendments 
must be adopted by the end of the plan year.\166\ The Secretary 
may extend the date by which plan amendments need to be made.
---------------------------------------------------------------------------
    \165\Sec. 401(b).
    \166\Rev. Proc. 2016-37, 2016-29 I.R.B. 136, June 29, 2016.
---------------------------------------------------------------------------
    Section 201 of the SECURE Act\167\ provides that if an 
employer adopts a qualified retirement plan after the close of 
a taxable year but before the time prescribed by law for filing 
the return of tax 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.
---------------------------------------------------------------------------
    \167\Sec. 201 of Div. O. of the Further Consolidated Appropriations 
Act, 2020, Pub. L. No. 116-94, December 20, 2019.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Present law requires that discretionary plan amendments to 
an existing retirement plan must generally be adopted by the 
last day of the plan year in which the amendment is effective, 
but an employer may adopt a new retirement plan by the due date 
of the employer's tax return for the fiscal year in which the 
plan is effective. This rule precludes an employer from adding 
plan provisions to an existing plan that may be beneficial to 
participants after the end of the plan year but before the due 
date for the employer's tax return.
    The Committee believes that discretionary amendments to an 
existing plan that increase participants' benefits to a plan 
for the prior plan year should be permitted to be adopted up 
until the date that the employer's tax return is due to be 
filed.

                        EXPLANATION OF PROVISION

    Under the provision, if an employer amends a stock bonus, 
pension, profit-sharing, or annuity plan to increase benefits 
accrued under the plan effective as of any date during the 
immediately preceding plan year (other than increasing the 
amount of matching contributions),\168\ the amendment would not 
otherwise cause the plan to fail to meet any of the 
qualification requirements, and the amendment is adopted before 
the time prescribed by law for filing the return of the 
employer for the taxable year (including extensions) which 
includes the effective date described above which is a date 
during the immediately preceding plan year, the employer may 
elect to treat such amendment as having been adopted as of the 
last day of the plan year in which the amendment is effective.
---------------------------------------------------------------------------
    \168\As defined in subsection 401(m)(4)(A).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to amendments made in plan years 
beginning after the date of enactment.

   16. Retroactive first year elective deferrals for sole proprietors
           (sec. 116 of the bill and sec. 401(b) of the Code)


                              PRESENT LAW

    Present law provides a remedial amendment period during 
which, under certain circumstances, a retirement plan may be 
amended retroactively in order to comply with the tax 
qualification requirements.\169\ In general, plan amendments to 
reflect changes in the law generally must be made by the time 
prescribed by law for filing the income tax return of the 
employer for the employer's taxable year in which the change in 
law occurs (including extensions). The Secretary may extend the 
time by which plan amendments need to be made.
---------------------------------------------------------------------------
    \169\Sec. 401(b).
---------------------------------------------------------------------------
    Section 201 of the SECURE Act provides that if an employer 
adopts a qualified retirement plan after the close of a taxable 
year but before the time prescribed by law for filing the 
return of tax 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. 
That provision permits employers to establish and fund a 
qualified plan by the due date for filing the employer's return 
for the preceding plan year. However, that provision does not 
override rules requiring certain plan provisions to be in 
effect during a plan year, such as the provision for elective 
deferrals under a qualified cash or deferral arrangement 
(generally referred to as a ``401(k) plan'').\170\
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    \170\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Under section 401 of the SECURE Act, a section 401(k) plan 
of a sole proprietor can be funded with employer contributions 
as of the due date for the business's return, but the elective 
deferrals must be made as of December 31 of the prior year. 
However, an individual is deemed to have made a contribution to 
an individual retirement plan for a taxable year if it is 
contributed after the taxable year has ended but is made ``on 
account of'' that year and before the due date for filing the 
IRA owner's tax return for that year without extensions 
(generally, April 15).\171\
---------------------------------------------------------------------------
    \171\Sec. 219(f)(3). For taxpayers affected by a federally declared 
disaster, the IRS has the authority to postpone various tax deadlines 
for a period of up to one year. Sec. 7508A and ERISA sec. 518.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    An employer may establish a new 401(k) plan after the end 
of the taxable year, but before the due date for the employer's 
tax return and treat the plan as having been established on the 
last day of the taxable year. Such plans may be funded by 
employer contributions for which the employer may take a 
deduction, up to the employer's tax filing date.
    The Committee believes that such plans when sponsored by 
sole proprietors or single-member LLCs, should be able to 
receive employee contributions up to the date of the employer's 
tax return filing date, but only for the initial year in which 
the plan is established. Changing this timing rule may make it 
more likely that a business owner adopts a new 401(k) plan.

                        EXPLANATION OF PROVISION

    The provision provides that in the case of an individual 
who owns the entire interest in an unincorporated trade or 
business, and who is the only employee of such trade or 
business, any elective deferral\172\ under a qualified cash or 
deferred plan which is made by such individual before the time 
for filing the individual's return for the taxable year 
(determined without regard to any extensions) ending after or 
with the end of the plan's first plan year, shall be treated as 
having been made before the end of the plan's first plan year. 
This extension of time would only apply to the first plan year 
in which the 401(k) plan is established.
---------------------------------------------------------------------------
    \172\As defined in section 402(g)(3).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
the date of enactment.

      17. Treasury guidance on rollovers (sec. 117 of the bill and
                  secs. 402(c) and 408(d) of the Code)


                              PRESENT LAW

In general

    A distribution from an employer-sponsored retirement plan 
or individual retirement arrangement (``IRA'') is generally 
includible in income except for any portion attributable to 
after-tax contributions, which result in basis.\173\ Unless an 
exception applies, in the case of a distribution before age 
59\1/2\, any amount included in income is generally subject to 
an additional 10-percent tax, referred to as the ``early 
withdrawal'' tax.\174\
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    \173\Secs. 402(a), 403(b)(1), 408(d)(1), and 457(a)(1). Under 
sections 402A(d) and 408A(d), a qualified distribution from a 
designated Roth account under an employer-sponsored plan and from a 
Roth IRA is not includible in income.
    \174\Sec. 72(t). The early withdrawal tax does not apply to a 
section 457(b) plan.
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Rollovers from employer-sponsored retirement plans

    A distribution from a qualified retirement plan, section 
403(b) plan, or a governmental section 457(b) plan that is an 
eligible rollover distribution may be rolled over to another 
such plan or an IRA. The rollover generally can be achieved by 
direct rollover (direct payment from the distributing plan to 
the recipient plan) or by contributing the distribution to the 
eligible retirement plan within 60 days of receiving the 
distribution (``60-day rollover'').\175\ If the distribution 
from an employer-sponsored retirement plan consists of 
property, the rollover is accomplished by a transfer or 
contribution of the property to the recipient plan or IRA. 
Amounts that are rolled over are usually not included in gross 
income.\176\ Generally, any distribution of the balance to the 
credit of a participant is an eligible rollover distribution 
with exceptions, for example, for certain periodic payments, 
required minimum distributions, and hardship 
distributions.\177\
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    \175\Secs. 402(c), 402A(c)(3), 403(b)(8) and 457(e)(16). An 
exception to the 60-day rules applies to rollovers of qualified plan 
loan offset amounts. Sec. 402(c)(3)(C).
    \176\Distributions from qualified retirement plans, section 403(b) 
plans, and governmental section 457(b) plans may be rolled into a Roth 
IRA. Distributions from these plans that are rolled over into a Roth 
IRA and that are not distributions from a designated Roth account must 
be included in gross income.
    \177\Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)-1 identifies certain 
other payments that are not eligible for rollover, including, for 
example, certain corrective distributions, loans that are treated as 
deemed distributions under section 72(p), and dividends on employer 
securities as described in section 404(k). In addition, pursuant to 
section 402(c)(11), any distribution to a beneficiary of a deceased 
employee other than the participant's surviving spouse is only 
permitted to be rolled over to an IRA using a direct rollover; 60-day 
rollovers are not available to nonspouse beneficiaries.
---------------------------------------------------------------------------
            Direct transfer of eligible rollover distributions
    Qualified retirement plans, section 403(b) plans, and 
governmental section 457(b) plans are required to offer a 
direct rollover with respect to any eligible rollover 
distribution before paying the amount to the participant or 
beneficiary.\178\ If an eligible rollover distribution is not 
directly rolled over into an eligible retirement plan, the 
taxable portion of the distribution generally is subject to 
mandatory 20-percent income tax withholding.\179\ Participants 
who do not elect a direct rollover but who roll over eligible 
distributions within 60 days of receipt also defer tax on the 
rollover amounts; however, the 20 percent withheld will remain 
taxable unless the participant substitutes funds within the 60-
day period.
---------------------------------------------------------------------------
    \178\Sec. 401(a)(31).
    \179\Treas. Reg. sec. 1.402(c)-2, Q&A-1(b)(3).
---------------------------------------------------------------------------

Rollovers from IRAs

    Distributions from IRAs are permitted to be rolled over 
tax-free to another IRA or any other eligible retirement plan. 
The general 60-day rollover rule (discussed above) applies to 
IRA rollovers as well as rollovers from qualified retirement 
plans, section 403(b) annuities, and governmental section 
457(b) plans. There is no provision for direct rollovers from 
an IRA, but direct payment to another eligible retirement plan 
(via a trustee-to-trustee transfer) generally satisfies the 
requirements. Distributions from an inherited IRA (except in 
the case of an IRA acquired by the surviving spouse by reason 
of the IRA owner's death) and required minimum distributions 
are not permitted to be rolled over.\180\ The portion of any 
distribution from an IRA that is not includible in gross income 
is only permitted to be rolled over to another IRA. Generally, 
distributions from a traditional IRA may only be rolled over 
tax-free to another IRA and distributions from a Roth IRA may 
only be rolled over tax-free to another Roth IRA. However, a 
distribution from a traditional IRA may be rolled over to a 
Roth IRA as a Roth conversion with the required income 
inclusion.\181\
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    \180\A trustee-to-trustee transfer between IRAs is not treated as a 
distribution and rollover. Thus, nonspouse beneficiaries of IRAs can 
move funds to another inherited IRA established as a beneficiary of the 
decedent IRA owner. In contrast, a surviving spouse is permitted to 
roll over a distribution to his or her own IRA.
    \181\Sec. 408A(d)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    For middle- and moderate-income savers, the key to 
financial security in retirement is gradual saving throughout 
an entire career. This gradual saving is significantly enhanced 
if it is done in a tax-preferred retirement account by tax-free 
compounded earnings on that saving. The Committee recognizes 
the importance of rollovers in keeping funds in tax-preferred 
retirement accounts and preventing early distributions from 
those accounts. The Committee wishes to encourage the use of 
rollovers by making rollovers easier for administrators, 
trustees, and plan participants. Thus, the Committee believes 
it is appropriate to develop sample forms to facilitate 
rollovers.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary, no later than January 
1, 2025, to develop and release sample forms for (1) direct 
rollovers of eligible rollover distributions from employer-
sponsored retirement plans to another such plan or IRA, and (2) 
trustee-to-trustee transfers of amounts from an IRA to another 
IRA or retirement plan. The purpose of such forms is to 
simplify, standardize, and facilitate the completion of direct 
rollovers and trustee-to-trustee transfers. The sample forms 
must be written in a manner calculated to be understood by the 
average person, and must apply to both the distributing 
retirement plans or transferring IRAs and the receiving 
retirement plans or IRAs.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 18. Exemption for automatic portability transactions (sec. 118 of the 
                    bill and sec. 4975 of the Code)


                              PRESENT LAW

Distributions and rollovers

    A distribution from an employer-sponsored retirement plan 
is generally includible in income except for any portion 
attributable to after-tax contributions, which result in 
basis.\182\ Unless an exception applies, in the case of a 
distribution before age 59\1/2\ from a qualified retirement 
plan or a section 403(b) plan, any amount included in income is 
subject to an additional 10-percent tax, referred to as the 
``early withdrawal'' tax.\183\
---------------------------------------------------------------------------
    \182\Secs. 402(a), 403(b)(1) and 457(a)(1). Under section 402A(d), 
a qualified distribution from a designated Roth account under an 
employer-sponsored plan is not includible in income.
    \183\Sec. 72(t).
---------------------------------------------------------------------------
            Rollovers
    A distribution from a qualified retirement plan, section 
403(b) plan, or a governmental section 457(b) plan that is an 
eligible rollover distribution may be rolled over to another 
such plan or an IRA. The rollover generally can be achieved by 
direct rollover (direct payment from the distributing plan to 
the recipient plan) or by contributing the distribution to the 
eligible retirement plan within 60 days of receiving the 
distribution (``60-day rollover'').\184\ If the distribution 
from an employer-sponsored retirement plan consists of 
property, the rollover is accomplished by a transfer or 
contribution of the property to the recipient plan or IRA. 
Amounts that are rolled over are usually not included in gross 
income.\185\ Generally, any distribution of the balance to the 
credit of a participant is an eligible rollover distribution 
with exceptions, for example, for certain periodic payments, 
required minimum distributions, and hardship 
distributions.\186\
---------------------------------------------------------------------------
    \184\Secs. 402(c), 402A(c)(3), 403(b)(8) and 457(e)(16). An 
exception to the 60-day rules applies to rollovers of qualified plan 
loan offset amounts. Sec. 402(c)(3)(C).
    \185\Distributions from qualified retirement plans, section 403(b) 
plans, and governmental section 457(b) plans may be rolled into a Roth 
IRA. Distributions from these plans that are rolled over into a Roth 
IRA and that are not distributions from a designated Roth account must 
be included in gross income.
    \186\Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)-1 identifies certain 
other payments that are not eligible for rollover, including, for 
example, certain corrective distributions, loans that are treated as 
deemed distributions under section 72(p), and dividends on employer 
securities as described in section 404(k). In addition, pursuant to 
section 402(c)(11), any distribution to a beneficiary of a deceased 
employee other than the participant's surviving spouse is only 
permitted to be rolled over to an IRA using a direct rollover; 60-day 
rollovers are not available to nonspouse beneficiaries.
---------------------------------------------------------------------------
            Direct transfer of eligible rollover distributions
    Qualified retirement plans, section 403(b) plans, and 
governmental section 457(b) plans are required to offer a 
direct rollover with respect to any eligible rollover 
distribution before paying the amount to the participant or 
beneficiary.\187\ If an eligible rollover distribution is not 
directly rolled over into an eligible retirement plan, the 
taxable portion of the distribution generally is subject to 
mandatory 20-percent income tax withholding.\188\ Participants 
who do not elect a direct rollover but who roll over eligible 
distributions within 60 days of receipt also defer tax on the 
rollover amounts; however, the 20 percent withheld will remain 
taxable unless the participant substitutes funds within the 60-
day period.
---------------------------------------------------------------------------
    \187\Sec. 401(a)(31).
    \188\Treas. Reg. sec. 1.402(c)-2, Q&A-1(b)(3).
---------------------------------------------------------------------------
    However, a mandatory distribution,\189\ where the present 
value of the nonforfeitable accrued benefit of the participant 
(as determined under section 411(a)(11)) is in excess of $1,000 
but does not exceed $5,000, must be directly rolled over to an 
IRA chosen by the plan administrator or the payor, unless a 
participant elects otherwise.
---------------------------------------------------------------------------
    \189\Under section 401(a)(3)(B)(i).
---------------------------------------------------------------------------

Prohibited transactions

            In general
    The Code and ERISA prohibit certain transactions 
(``prohibited transaction'') between a qualified retirement 
plan and a disqualified person (referred to as a ``party in 
interest'' under ERISA).\190\ The prohibited transaction rules 
under the Code apply also to IRAs, Archer MSAs, HSAs, and 
Coverdell ESAs.\191\
---------------------------------------------------------------------------
    \190\Sec. 4975; ERISA sec. 406. The prohibited transaction rules of 
the Code and ERISA are very similar; however, some differences exist 
between the two sets of rules. As mentioned above, ERISA generally does 
not apply to governmental plans or church plans. The prohibited 
transaction rules under the Code also generally do not apply to 
governmental plans or church plans. However, under section 503, the 
trust holding assets of a governmental or church plan may lose its tax-
exempt status in the case of a prohibited transaction listed in section 
503(b). Before the enactment of ERISA in 1974, section 503 applied to 
qualified retirement plans generally. In connection with the enactment 
of section 4975 by ERISA, section503 was amended to apply only to 
governmental and church plans.
    \191\These are included in the definition of ``plan'' under section 
4975(e)(1).
---------------------------------------------------------------------------
    Disqualified persons include a fiduciary of the plan; a 
person providing services to the plan; an employer with 
employees covered by the plan; an employee organization any of 
whose members are covered by the plan; certain owners, 
officers, directors, highly compensated employees, family 
members, and related entities.\192\ A fiduciary includes any 
person who (1) exercises any discretionary authority or 
discretionary control respecting management of the plan or 
exercises any authority or control respecting management or 
disposition of the plan's assets, (2) renders investment advice 
for a fee or other compensation, direct or indirect, with 
respect to any moneys or other property of the plan, or has any 
authority or responsibility to do so, or (3) has any 
discretionary authority or discretionary responsibility in the 
administration of the plan.\193\
---------------------------------------------------------------------------
    \192\Sec. 4975(e)(2). Party in interest is defined similarly under 
ERISA section 3(14) with respect to an employee benefit plan. Under 
ERISA, employee benefit plans, defined in ERISA section3(3), consist of 
two types: pension plans (that is, retirement plans), defined in ERISA 
section 3(2), and welfare plans, defined in ERISA section 3(1).
    \193\Sec. 4975(d)(3); ERISA sec. 3(21)(A). Under ERISA, fiduciary 
also includes any person designated under ERISA section 405(c)(1)(B) by 
a named fiduciary (that is, a fiduciary named in the plan document) to 
carry out fiduciary responsibilities.
---------------------------------------------------------------------------
    Prohibited transactions include the following transactions, 
whether direct or indirect, between a plan and a disqualified 
person:
    1. The sale or exchange or leasing of property,
    2. The lending of money or other extension of credit,
    3. The furnishing of goods, services, or facilities,
    4. The transfer to, or use by or for the benefit of, the 
income or assets of the plan,
    5. In the case of a fiduciary, an act dealing with the 
plan's income or assets in the fiduciary's own interest or for 
the fiduciary's own account, and
    6. The receipt by a fiduciary of any consideration for the 
fiduciary's own personal account from any party dealing with 
the plan in connection with a transaction involving the income 
or assets of the plan.\194\
---------------------------------------------------------------------------
    \194\Sec. 4975(c)(1)(A)-(F) and ERISA sec.406(a)(1)(A)-(D) and 
(b)(1) and (3). Under ERISA section 406(a)(1), a plan fiduciary is 
prohibited from causing the plan to engage in a transaction described 
in paragraphs(A)-(D). ERISA section 406(b)(2) also prohibits a plan 
fiduciary, in the fiduciary's individual capacity or any other 
capacity, from acting in any transaction involving the plan on behalf 
of a party (or representing a party) whose interests are adverse to the 
interests of the plan or the interests of plan participants or 
beneficiaries. ERISA section 406(a)(1)(E) and (a)(2) relate to 
limitations under ERISA section 407 on a plan's acquisition or holding 
of employer securities and real property.
---------------------------------------------------------------------------
            Exemptions from prohibited transaction treatment
    Certain transactions are statutorily exempt from prohibited 
transaction treatment, for example, certain loans to plan 
participants and arrangements with a disqualified person for 
legal, accounting or other services necessary for the 
establishment or operation of a plan if no more than reasonable 
compensation is paid for the services.\195\
---------------------------------------------------------------------------
    \195\Sec. 4975(d) and ERISA sec. 408. The Code and ERISA also 
provide for the grant of administrative exemptions, on either an 
individual or class basis, subject to a finding that the exemption is 
administratively feasible, in the interests of the plan and of its 
participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of the plan.
---------------------------------------------------------------------------
            Sanctions for violations
    Under the Code, if a prohibited transaction occurs, the 
disqualified person who participated in the transaction is 
generally subject to a two-tiered excise tax. The first tier 
tax is 15 percent of the amount involved in the transaction. 
The second tier tax, imposed if the prohibited transaction is 
not corrected within a certain period, is 100 percent of the 
amount involved. In the case of an IRA, HSA, Archer MSA or 
Coverdell ESA, the sanction for some prohibited transactions is 
the loss of tax favored status, rather than an excise tax. A 
private right of action is not available for a Code violation.
    Under ERISA, DOL may assess a civil penalty against a 
person who engages in a prohibited transaction, other than a 
transaction with a plan covered by the prohibited transaction 
rules of the Code.\196\ The penalty may not exceed five percent 
of the amount involved in the transaction for each year or part 
of a year that the prohibited transaction continues. If the 
prohibited transaction is not corrected within 90 days after 
notice from DOL, the penalty can be up to 100 percent of the 
amount involved in the transaction. A prohibited transaction by 
a fiduciary may also be the basis for an action for a breach of 
fiduciary responsibility by DOL, a plan participant or 
beneficiary, or another plan fiduciary.
---------------------------------------------------------------------------
    \196\ERISA sec. 502(i).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    When an employee terminates employment from an employer 
which sponsors a retirement plan, unless that employee rolls 
over any benefits earned under that employer's plan to a 
subsequent employer's plan, the employee is at risk of losing 
or forgetting about that hard earned benefit and may lose track 
of that benefit that should be available to that participant at 
the time of retirement. Automatic portability providers can 
facilitate transfers of a participant's benefits from one 
employer's plan to another employer's plan thereby reducing or 
eliminating that risk; however, to ensure that the prohibited 
transaction rules under the Code do not unnecessarily 
discourage sponsors of retirement plans from using such 
providers, the Committee believes that an exemption from those 
prohibited transaction rules should be provided as long as such 
exemption provides sufficient safeguards to protect the 
participant's interests.

                        EXPLANATION OF PROVISION

    The provision adds a new prohibited transaction exemption 
for any transaction which consists of the receipt of fees and 
compensation by an automatic portability provider in connection 
with an automatic portability transaction. An automatic 
portability provider is a person who executes automatic 
portability transactions.
    An automatic portability transaction is defined as a 
transfer of assets made from an individual retirement plan 
which is established on behalf of an individual and to which 
amounts were transferred as a result of a mandatory 
distribution\197\ (``the individual retirement plan'') to an 
employer-sponsored retirement plan\198\ (other than a defined 
benefit plan) in which such individual is an active participant 
(``the employer sponsored retirement plan''), and after such 
individual has been given advance notice of the transfer and 
has not affirmatively opted out of such transfer.
---------------------------------------------------------------------------
    \197\Under sec. 401(a)(31)(B)(i).
    \198\A sec. 401(a) plan, a sec. 403(a) or sec. 403(b) plan, or an 
eligible deferred compensation plan under sec. 457(b) maintained by an 
eligible employer defined in sec. 457(e)(1)(A), other than a defined 
benefit plan.
---------------------------------------------------------------------------
    The prohibited transaction exemption does not apply to an 
automatic portability transaction unless the following 
requirements are satisfied:
           The automatic portability provider must 
        acknowledge in writing, at such time and in such format 
        as the Secretary specifies, that the provider is a 
        fiduciary with respect to the individual retirement 
        plan;
           The fees and compensation received by the 
        automatic portability provider in connection with the 
        automatic portability transaction (including any 
        increases in such fees or compensation) must not exceed 
        reasonable compensation, and must be fully disclosed 
        and approved in writing in advance of the transaction 
        by a plan fiduciary of the employer-sponsored 
        retirement plan that is independent of the automatic 
        portability provider;
           The automatic portability provider must not 
        market or sell data relating to the individual 
        retirement plan nor may the automatic portability 
        provider use the data for any purpose other than the 
        administration of the transfers, without the express 
        consent of the independent plan fiduciary, after full 
        disclosure by the automatic portability provider of how 
        the data will be used;
           The automatic portability provider must 
        offer an automatic portability transaction on the same 
        terms to any employer sponsored retirement plan, 
        regardless of whether the provider provides other 
        services for such plan;
           At least 30 days in advance of an automatic 
        portability transaction, the automatic portability 
        provider must provide notice to the individual on whose 
        behalf the individual retirement plan is established 
        which includes:
                   A description of the automatic 
                portability transaction and the fees which will 
                be charged in connection with the transaction;
                   A description of the 
                individual's right to affirmatively elect not 
                to participate in the transaction, the 
                procedures for such an election, and a 
                telephone number at which the individual can 
                contact the automatic portability provider; and
                   Such other disclosures as the 
                Secretary may require by regulation;
           Not later than three business days after an 
        automatic portability transaction, the automatic 
        portability provider must provide notice to the 
        individual on whose behalf the individual retirement 
        plan was established of:
                   The actions taken by the 
                automatic portability provider with respect to 
                the individual's account;
                   All relevant information 
                regarding the location and amount of any 
                transferred assets;
                   A statement of fees charged 
                against the account by the automatic 
                portability provider or its affiliates in 
                connection with the transfer;
                   A telephone number at which the 
                individual can contact the automatic 
                portability provider; and
                   Such other disclosures as the 
                Secretary may require by regulation;
           The notices required under this prohibited 
        transaction exemption must be written in a manner 
        calculated to be understood by the average intended 
        recipient and must not include materially misleading 
        statements;
           After liquidating the assets of the 
        individual retirement plan to cash, an automatic 
        portability provider must transfer the account balance 
        of that plan as soon as practicable to the employer 
        sponsored retirement plan;
           For six years, an automatic portability 
        provider must maintain the records sufficient to 
        demonstrate that the requirements of this prohibited 
        transaction exemption are met; and
           An automatic portability provider must 
        conduct an annual audit of automatic portability 
        transactions occurring during the calendar year in 
        accordance with regulations promulgated by the 
        Secretary to demonstrate compliance with the 
        requirements of this prohibited transaction exemption 
        and must submit such audit annually to the Secretary, 
        in such form and manner as specified by the Secretary.
    The provision authorizes the Secretary to promulgate 
regulations that: (1) require the automatic portability 
provider to provide a notice to individuals on whose behalf an 
individual retirement plan is established in advance of the 
notices required under the prohibited transaction exemption; 
(2) restrict the receipt of third party compensation (other 
than a direct fee by an employer sponsoring a plan that is in 
lieu of a fee imposed on an individual retirement plan owner) 
by an automatic portability provider in connection with an 
automatic portability transaction; (3) prohibit exculpatory 
provisions in an automatic portability provider's contracts or 
communications with individuals disclaiming or limiting its 
liability in the event that an automatic portability 
transaction results in an improper transfer; and (4) require an 
automatic portability provider to take actions necessary to 
reasonably ensure that participant and beneficiary data is 
current and accurate, and that the appropriate participants and 
beneficiaries, in fact, receive all the required notices and 
disclosures until the assets are transferred to a new 
retirement plan account.
    The Secretary must issue interim final rules no later than 
July 1, 2023.

                             EFFECTIVE DATE

    The provision applies to transactions occurring after 
December 31, 2023.

  19. Application of section 415 limit for certain employees of rural 
  electric cooperatives (sec. 119 of the bill and sec. 415(b) of the 
                                 Code)


                              PRESENT LAW

Limitations on benefits provided under a qualified defined benefit plan

    Benefits that may be provided to a participant under a 
qualified defined benefit plan must not exceed certain 
specified limitations.\199\ Under a defined benefit plan, the 
maximum annual benefit payable to a participant at retirement 
cannot exceed the lesser of (1) 100 percent of the 
participant's average compensation for the participant's high 
three years, or (2) a specified dollar amount, indexed for 
inflation ($245,000 for 2022).\200\ Other restrictions apply 
under certain circumstances.\201\ The dollar amount limit is 
actuarially reduced if benefits begin before age 62, and 
actuarially increased if benefits being after age 65.\202\ 
These limits apply to amounts for or with respect to a 
limitation year, which is generally the calendar year unless 
the terms of the plan provide otherwise. \203\
---------------------------------------------------------------------------
    \199\Sec. 415(b); Treas. Reg. sec. 1.415(b)-1.
    \200\Sec. 415(b)(1).
    \201\Secs. 415(b)(4); 415(b)(5); 415(b)(7).
    \202\Secs. 415(b)(2)(C); 415(b)(2)(D).
    \203\Treas. Reg. sec. 1.415(j)-1.
---------------------------------------------------------------------------
    The 100-percent defined benefit compensation limitation 
does not apply to governmental plans, multiemployer plans and 
certain collectively bargained plans.\204\ In addition, the 
compensation limitation does not apply to a participant in a 
plan maintained by certain church organizations, who has never 
been a highly compensated employee.\205\ An employee is a 
``highly compensated employee'' for the year if the employee 
was: (i) a five-percent owner at any time during the plan year 
or the preceding plan year, or (ii) had compensation for the 
preceding year from the employer in excess of a specified 
dollar amount, indexed for inflation ($135,000 for 2022).\206\
---------------------------------------------------------------------------
    \204\Secs. 415(b)(7) and 415(b)(11).
    \205\Sec. 415(b)(11).
    \206\Sec. 414(q).
---------------------------------------------------------------------------
    For purposes of applying these limitations, in the case of 
a defined benefit plan, the term annual benefit means a benefit 
that is payable in the form of a straight life annuity. If a 
benefit is payable other than as an annual straight life 
annuity, then the benefit must be actuarially adjusted to an 
equivalent straight life annuity.\207\ The interest rate 
assumption for this adjustment is specified and cannot be less 
than the greater of five percent or the rate specified under 
the plan.\208\ If the benefit is payable in the form of a 
single sum distribution, then the benefit is adjusted using an 
interest rate that is not less than the greatest of: (i) 5.5 
percent, (ii) the rate that provides a benefit of not more than 
105 percent of the benefit that would be provided if the 
applicable interest rate\209\ were the interest rate 
assumption, or (iii) the rate specified under the plan.\210\
---------------------------------------------------------------------------
    \207\Sec. 415(b)(2)(B); Treas. Reg. sec. 1.415(b)-1(c).
    \208\Sec. 415(b)(2)(E)(i).
    \209\As defined in sec. 417(e)(3).
    \210\Sec. 415(b)(2)(E)(ii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that under present law certain 
defined benefit plan designs and other factors (such as longer 
working lives) may result in the limitation of benefits for 
non-highly compensated employees in a way that was never 
intended. For example, the benefit for a non-highly compensated 
employee with many years of service may be limited by the 100 
percent defined benefit compensation limitation whereas the 
benefit of a more highly paid employee with fewer years of 
service may not be so limited. In addition, if a participant 
elects a form of benefit other than a life annuity, the benefit 
limitation may be more pronounced due to the required 
adjustments under the benefit limitation rules.
    The Committee believes that including an exemption for 
certain non-highly compensated employees in a rural electric 
cooperative plan from the defined benefit plan compensation 
limitation helps to address these unintended inequities and 
follows similar existing exemptions.

                        EXPLANATION OF PROVISION

    The provision exempts an employee who is a participant in 
an eligible rural electric cooperative plan from the defined 
benefit plan compensation limitation, if the employee is a 
qualified non-highly compensated employee. An employee is a 
qualified non-highly compensated employee if the employee was 
not a highly compensated employee\211\ of an employer 
maintaining the plan for the earlier of the plan year in which 
the employee terminated employment, or in which distributions 
commence under the plan; or for any of the five plan years 
immediately preceding those plans years.
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    \211\Within the meaning of sec. 414(q).
---------------------------------------------------------------------------
    For purposes of this provision, a plan is generally treated 
as an eligible rural electric cooperative plan if it is 
maintained by more than one employer and at least 85 percent of 
the employers are certain rural cooperatives that are engaged 
primarily in providing electric service, or an organization 
which is a national association of those organizations.\212\
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    \212\Section 401(k)(7)(B) defines ``rural cooperative'' as any 
organization which is (i) engaged primarily in providing electric 
service on a mutual or cooperative basis, or engaged primarily in 
providing electric service to the public in its service area and which 
is exempt from tax or which is a State or local government (or an 
agency or instrumentality thereof), other than a municipality; (ii) a 
certain type of civic league or business league exempt from tax, 80 
percent of the members of which are described in (i); (iii) a certain 
type of cooperative telephone company; (iv) a certain type of mutual 
irrigation or ditch company, or 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) a national association of the 
organizations described above. This provision is generally limited to 
non-highly compensated employees of rural cooperatives that provide 
electric service within the meaning of secs. 401(k)(7)(B)(i) or (ii).
---------------------------------------------------------------------------
    This provision is a permissible change and an employer 
participating in an eligible rural electric cooperative plan 
may choose to keep the current limitation in its plan language. 
In addition, the Secretary is directed to prescribe rules to 
limit the application of this provision so that it does not 
result in increased benefits for highly compensated 
employees.\213\
---------------------------------------------------------------------------
    \213\For example, this provision is not intended to be used to 
provide large benefits to employees with low pay in order to avoid the 
impact of the nondiscrimination rules.
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                             EFFECTIVE DATE

    The provision is effective for limitation years ending 
after the date of enactment.

20. Insurance-dedicated exchange-traded funds (sec. 120 of the bill and 
                Treas. Reg. secs. 1.817-5(f)(2) and (3))


Income exclusion and deferred tax treatment for life insurance and 
        annuity contracts

    An exclusion from gross income is provided for amounts 
received under a life insurance contract paid by reason of the 
death of the insured.\214\ Further, no Federal income tax 
generally is imposed on a policyholder with respect to the 
earnings under a life insurance contract (``inside buildup''). 
Distributions from a life insurance contract (other than a 
modified endowment contract\215\) that are made prior to the 
death of the insured generally are includible in income only to 
the extent that the amounts distributed exceed the taxpayer's 
investment in the contract. Such distributions generally are 
treated first as a tax-free recovery of the investment in the 
contract, and then as income.\216\ Present law provides a 
definition of life insurance designed to limit the investment 
orientation of the contract.\217\
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    \214\Sec. 101(a).
    \215\Sec. 7702A. A modified endowment contract is generally a life 
insurance contract funded more rapidly than in seven level annual 
premiums. Distributions (including loans) from a modified endowment 
contract are generally treated as income first, then as a tax-free 
return of basis. Sec. 72(e)(10).
    \216\Sec. 72(e).
    \217\Sec. 7702.
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    No Federal income tax is generally imposed on a deferred 
annuity contract holder who is a natural person with respect to 
the earnings on the contract (inside buildup) in the absence of 
a distribution under the contract. Annuity distributions 
generally are treated as partially excludable return of basis 
and partially ordinary income under an ``exclusion ratio'' (the 
ratio of the investment in the contract to the expected return 
under the contract as of that date).\218\ Other distributions 
(which for this purpose include loans) are treated as income 
first, then as a tax-free return of basis.\219\ An additional 
10-percent tax is imposed on the income portion of 
distributions made before age 59\1/2\, and in certain other 
circumstances.\220\ An annuity contract must provide for 
certain required distributions if the holder dies before the 
entire interest in the contract has been distributed.\221\ No 
dollar limit is imposed on the amount that may be paid into an 
annuity contract (that is not a pension plan contract) for 
Federal income tax purposes.
---------------------------------------------------------------------------
    \218\Sec. 72(b).
    \219\Sec. 72(e).
    \220\Sec. 72(q).
    \221\Sec. 72(s).
---------------------------------------------------------------------------

Variable contracts

    A variable contract is generally an annuity or life 
insurance contract whose death benefit, payout, or premium 
amounts are based on the return on and market value of 
underlying assets. For tax purposes, a variable contract is 
defined by statute.\222\ Under the statutory criteria, all or 
part of the amounts received for the contract (premiums) must 
be allocated to a segregated asset account of the insurer. The 
contract must provide for the payment of annuities, must be a 
life insurance contract,\223\ or must fund insurance on retired 
lives.\224\ The contract must reflect the investment return and 
the market value of the segregated asset account, or in the 
case of a life insurance contract, the amount of the death 
benefit or period of coverage must be adjusted on the basis of 
the investment return and the market value of the segregated 
asset account. The segregated asset accounts for variable 
contracts generally are invested in a variety of investment 
funds.
---------------------------------------------------------------------------
    \222\Sec. 817(d).
    \223\As defined for Federal tax purposes in section 7702.
    \224\As described in section 807(c)(6) (governing life insurer 
reserve deductions).
---------------------------------------------------------------------------

Diversification requirements

    The investment assets held in the segregated asset account 
for a variable contract must be adequately diversified.\225\ If 
the assets are not adequately diversified, the variable 
contract is not treated as an annuity or life insurance 
contract.\226\ As a result, otherwise tax-deferred or excluded 
income on the contract is treated as ordinary income received 
or accrued by the contract holder during the taxable year.\227\
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    \225\Sec. 817(h).
    \226\The investor control doctrine can also apply in some fact 
situations. This two-pronged doctrine generally treats a contract as 
not a life insurance contract or not an annuity contract if the 
contract holder has significant incidents of ownership with respect to 
the investments in the insurer segregated asset account, or if 
segregated asset account assets are publicly available for purchase 
(i.e, not exclusively available through purchase of the variable 
contract). See Rev. Rul. 81-225, 1981-2 C.B. 12, as modified by Rev. 
Proc. 99-44 and as clarified and amplified by Rev. Rul. 2007-7; 
Christofferson v. U.S., 749 F.2d 513 (8th Cir. 1984); Webber v. 
Commissioner, 144 T. C. 324 (2015).
    \227\Secs. 72 and 7702, and Treas. Reg. sec. 1.817-5(a).
---------------------------------------------------------------------------
    When the diversification requirement for variable contracts 
was added in 1984, the Conference Report stated, ``[i]n 
authorizing Treasury to prescribe diversification standards, 
the conferees intend that standards be designed to deny annuity 
or life insurance treatment for investments that are publicly 
available to investors and investments that are made, in 
effect, at the direction of the investor.''\228\
---------------------------------------------------------------------------
    \228\H.R. Conf. Rep. No. 861, 98th Cong., 2d Sess. (1984), page 
1055. Similarly, the Blue Book for the 1984 Act states that the 
diversification requirements were enacted ``to discourage the use of 
tax-preferred variable annuities and variable life insurance primarily 
as investment vehicles. The Congress believed that a limitation on a 
customer's ability to select specific investments underlying a variable 
contract will help ensure that a customer's primary motivation in 
purchasing the contract is more likely to be the traditional economic 
protections provided by annuities and life insurance.'' Joint Committee 
on Taxation, General Explanation of the Revenue Provisions of the 
Deficit Reduction Act of 1984, Pub. L. No. 98-369, JCS-41-84, December 
31, 1984, page 607.
---------------------------------------------------------------------------
    The regulatory diversification requirements impose 
investment concentration limits based on percentages of the 
total value of the assets in the segregated asset account.\229\ 
A safe harbor is provided for a segregated asset account 
holding a regulated investment company (``RIC'' or mutual fund) 
that is at least as diversified as is required under the RIC 
rules of section 851(b)(4) and no more than 55 percent of the 
value of whose assets is in cash, cash items, government 
securities, and securities of other RICs.\230\
---------------------------------------------------------------------------
    \229\Treas. Reg. sec. 1.817-5(b).
    \230\Treas. Reg. sec. 1.817-5(b)(2).
---------------------------------------------------------------------------
    The diversification requirements provide a lookthrough rule 
for assets held through a RIC, real estate investment trust 
(``REIT''), partnership, or certain trusts such as a grantor 
trust. This lookthrough rule provides that the RIC, REIT, 
partnership or trust is not treated as a single investment of 
the segregated asset account, but rather, a pro rata portion of 
each of its assets is treated as an asset of the account.\231\
---------------------------------------------------------------------------
    \231\Treas. Reg. sec. 1.817(f)(1).
---------------------------------------------------------------------------
    However, the lookthrough rule imposes requirements.\232\ 
All the beneficial interests in the RIC, REIT, partnership, or 
trust generally must be held by a segregated asset account. 
Public access to the RIC, REIT, partnership, or trust must 
generally be available exclusively through the purchase of a 
variable contract. For example, if an investment fund's 
interests are held by a market maker or by a financial 
institution that, as a participant in a clearing agency, is 
permitted to purchase and redeem shares directly from the fund 
and sell them to third parties, then the fund does not satisfy 
this requirement of the lookthrough rule.
---------------------------------------------------------------------------
    \232\Treas. Reg. sec. 1.817(f)(2) and (3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    In order to treat ETFs similarly to mutual funds when they 
are held as investments of a segregated asset account of an 
insurance company with respect to variable insurance or annuity 
contracts, the Committee believes it is appropriate to require 
a narrow modification to the Treasury regulations that 
currently prevent the use of market makers to provide liquidity 
for ETF interests under the diversification requirements for 
such variable contracts.

                        EXPLANATION OF PROVISION

Diversification requirements

    The provision directs the Secretary to revise the 
regulations setting forth diversification requirements with 
respect to variable contracts under section 817(h) to 
facilitate the use of exchange-traded funds (``ETFs'') under 
variable contracts. The provision directs that the lookthrough 
rule requirements in the regulations be amended so that 
satisfaction of those requirements with respect to an ETF is 
not prevented by reason of beneficial interests in an 
investment fund being held by one or more authorized 
participants or market makers. The current regulations are to 
be amended no later than the date that is seven years after the 
date of enactment of the bill.
    Under the provision, an ETF means a RIC, partnership, or 
trust that is registered with the SEC as an open-end investment 
company or unit investment trust, and the shares of which can 
be purchased or redeemed directly from the fund only by an 
authorized participant, and the shares of which are traded 
throughout the day on a national stock exchange at market 
prices that may or may not be the same as the net asset value 
of the shares. An authorized participant means a financial 
institution that is a member or participant in a clearing 
agency registered under section 17A(b) of the Securities 
Exchange Act of 1934 that contracts with an ETF to permit the 
financial institution to purchase or redeem shares of the ETF 
and to sell the shares to third parties, provided that the 
financial institution is precluded from purchasing the shares 
for its own investment purposes and from selling the shares to 
persons that are not market makers. A market maker means a 
financial institution that is a registered broker or dealer 
under section 15(b) of the Securities Exchange Act of 1934 and 
that maintains liquidity for an ETF on a national stock 
exchange by always being ready to buy and sell shares, provided 
that the financial institution is precluded from buying or 
selling shares to or from persons who are not authorized 
participants or who are persons not permitted to buy or sell 
shares under the lookthrough rule in the regulations.

                             EFFECTIVE DATE

    The provision is effective for segregated asset account 
investments made on or after the date that is seven years after 
the date of enactment.

 21. Modification of age requirement for qualified ABLE programs (sec. 
               121 of the bill and sec. 529A of the Code)


                              PRESENT LAW

Qualified ABLE programs

            In general
    Section 529A\233\ provides for a tax-favored savings 
program intended to benefit disabled individuals, known as a 
qualified ABLE program.
---------------------------------------------------------------------------
    \233\Except where otherwise provided, all section references are to 
the Internal Revenue Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------
    A qualified ABLE program is a program established and 
maintained by a State or agency or instrumentality 
thereof.\234\ A qualified ABLE program must meet the following 
conditions: (1) under the provisions of the program, 
contributions may be made to an account (an ``ABLE account''), 
established for the purpose of meeting the qualified disability 
expenses of the designated beneficiary of the account;\235\ (2) 
the program must limit a designated beneficiary to one ABLE 
account;\236\ and (3) the program must meet the other 
requirements of section 529A.
---------------------------------------------------------------------------
    \234\Sec. 529A(b)(1).
    \235\Sec. 529A(b)(1)(A).
    \236\Sec. 529A(b)(1)(B).
---------------------------------------------------------------------------
            Designated beneficiaries and eligible individuals
    A designated beneficiary of an ABLE account is the owner of 
the ABLE account.\237\ A designated beneficiary must generally 
be an eligible individual at the time the ABLE account is 
established.\238\
---------------------------------------------------------------------------
    \237\Sec. 529A(e)(3).
    \238\Ibid.
---------------------------------------------------------------------------
    An ABLE account may be transferred to a successor 
designated beneficiary who is a member of same family as the 
original designated beneficiary.\239\ For this purpose, a 
member of the family includes the original designated 
beneficiary's brother, sister, stepbrother, or stepsister.\240\ 
In the case of such a transfer, the successor designated 
beneficiary must be an eligible individual at the time of 
transfer.\241\
---------------------------------------------------------------------------
    \239\Sec. 529A(c)(1)(C)(ii).
    \240\Sec. 152(d)(2)(B). For purposes of this definition, a rule 
similar to the adoption rule of section 152(f)(1)(B) applies.
    \241\Sec. 529A(c)(1)(C)(ii).
---------------------------------------------------------------------------
    An eligible individual for a taxable year is an individual 
who meets one of two requirements for the taxable year:\242\
---------------------------------------------------------------------------
    \242\Sec. 529A(e)(1).
---------------------------------------------------------------------------
          1. The individual is entitled to benefits based on 
        blindness or disability under Title II\243\ or Title 
        XVI\244\ of the Social Security Act, and such blindness 
        or disability occurred before the date on which the 
        individual attained age 26.\245\
---------------------------------------------------------------------------
    \243\42 U.S.C. secs. 401-433.
    \244\42 U.S.C. secs. 1381-1383f.
    \245\Sec. 529A(e)(1)(A).
---------------------------------------------------------------------------
          2. A disability certification with respect to such 
        individual is filed with the Secretary for such taxable 
        year.\246\
---------------------------------------------------------------------------
    \246\Sec. 529A(e)(1)(B). Disability certification is defined in 
section 529A(e)(2).
---------------------------------------------------------------------------
            Tax treatment and additional requirements
    A qualified ABLE program is generally exempt from income 
tax,\247\ but it may be subject to the taxes imposed on the 
unrelated business income of tax-exempt organizations.\248\
---------------------------------------------------------------------------
    \247\Sec. 529A(a).
    \248\See sec. 511.
---------------------------------------------------------------------------
    Contributions to an ABLE account must be made in cash\249\ 
and are not deductible for Federal income tax purposes. 
Aggregate contributions to an ABLE account for a taxable year 
are generally limited to the gift tax annual exclusion.\250\ 
For contributions made before January 1, 2026, there is an 
increase to the contribution limit for certain designated 
beneficiaries who are employees.\251\ Contributions are treated 
as a completed gift to the designated beneficiary which is not 
a future interest in property.\252\ Finally, a qualified ABLE 
program must provide adequate safeguards to ensure that ABLE 
account contributions do not exceed the limit imposed on 
accounts under the section 529 program of the State maintaining 
the qualified ABLE program.\253\
---------------------------------------------------------------------------
    \249\Sec. 529A(b)(2)(A).
    \250\See sec. 529A(b)(2)(B)(i). The amount of the exclusion is 
$16,000 for 2022. See sec. 2503(b); Rev. Proc. 2021-45, 2021-48 I.R.B. 
764, November 29, 2021. This limitation does not apply to rollover 
contributions from another ABLE account or changes to the designated 
beneficiary. Sec. 529A(b)(2)(B).
    \251\Sec. 529A(b)(2)(B)(ii), (b)(7).
    \252\Sec. 529A(c)(2)(A)(i). Contributions are not treated as 
qualified transfers under section 2503(e). Sec. 529(c)(2)(A)(ii).
    \253\Sec. 529A(b)(6).
---------------------------------------------------------------------------
    Excess contributions may be subject to a tax in an amount 
equal to 6 percent of the excess.\254\
---------------------------------------------------------------------------
    \254\Sec. 4973.
---------------------------------------------------------------------------
    For taxable years beginning before January 1, 2026, a 
designated beneficiary who makes contributions to the 
beneficiary's ABLE account may be eligible for the credit under 
section 25B, the ``saver's credit.''\255\
---------------------------------------------------------------------------
    \255\Sec. 25B(d)(1)(D).
---------------------------------------------------------------------------
    Distributions (including earnings) from an ABLE account are 
not includible in gross income if the distributions do not 
exceed the designated beneficiary's qualified disability 
expenses.\256\ Qualified disability expenses are any expenses 
related to the eligible individual's blindness or disability 
which are made for the benefit of an eligible individual who is 
the designated beneficiary.\257\ If distributions are not used 
to pay qualified disability expenses, then the portion of the 
distribution based on earnings must generally be included in 
gross income.\258\
---------------------------------------------------------------------------
    \256\Sec. 529A(c)(1)(B)(i).
    \257\Sec. 529A(e)(5). Enumerated qualified disability expenses 
include: education, housing, transportation, employment training and 
support, assistive technology and personal support services, health, 
prevention and wellness, financial management and administrative 
services, legal fees, expenses for oversight and monitoring, funeral 
and burial expenses, and other expenses, which are approved by the 
Secretary under regulations and consistent with the purposes of this 
section. Id.
    \258\Treas. Reg. sec. 1.529A-3. Amounts that are rolled over to 
another ABLE account within 60 days are not includible in gross income.
---------------------------------------------------------------------------
    Distributions includible in gross income are also generally 
subject to an additional 10 percent tax.\259\ Distributions 
from an ABLE account are not treated as a taxable gift.\260\
---------------------------------------------------------------------------
    \259\Sec. 529A(c)(3).
    \260\Sec. 529A(c)(2)(B).
---------------------------------------------------------------------------
    A qualified ABLE program must provide for separate 
accounting for each designated beneficiary.\261\ The program 
must provide that any designated beneficiary may, directly or 
indirectly, direct the investment of any contributions to the 
program, or earnings thereon, not more than two times in any 
calendar year.\262\ The program must not allow any interest in 
the program or any portion thereof to be used as security for a 
loan.\263\ Qualified ABLE programs are subject to reporting 
requirements.\264\
---------------------------------------------------------------------------
    \261\Sec. 529A(b)(3).
    \262\Sec. 529A(b)(4).
    \263\Sec. 529A(b)(5).
    \264\See sec. 529A(d).
---------------------------------------------------------------------------
    Qualified ABLE programs must provide adequate safeguards to 
prevent aggregate contributions on behalf of a designated 
beneficiary in excess of the limit established by the 
applicable State under the State's qualified tuition 
program.\265\
---------------------------------------------------------------------------
    \265\Sec. 529A(b)(6).
---------------------------------------------------------------------------

Treatment of ABLE accounts under Federal programs

    Amounts in an individual's ABLE account, contributions to 
the individual's ABLE account, and distributions from the 
individual's ABLE account for qualified disability expenses are 
disregarded for purposes of determining eligibility to receive 
Federal assistance or benefits, and for purposes of determining 
the amount of such assistance or benefits.\266\ However, in the 
case of the supplemental security income (``SSI'') 
program,\267\ a distribution for housing expenses, and amounts 
in the individual's ABLE account in excess of $100,000, are not 
disregarded.\268\
---------------------------------------------------------------------------
    \266\P.L. 113-295(a).
    \267\See Title XVI of the Social Security Act (the SSI program).
    \268\Ibid.
---------------------------------------------------------------------------
    In the case where an individual's ABLE account balance 
exceeds $100,000, such individual's SSI benefits shall not be 
terminated, but instead shall be suspended until such time as 
the individual's resources fall below $100,000.\269\ However, 
such suspension shall not apply for purposes of Medicaid 
eligibility.\270\
---------------------------------------------------------------------------
    \269\P.L. 113-295(b)(1).
    \270\P.L. 113-295(b)(2). See title XIX of the Social Security Act 
(the Medicare program).
---------------------------------------------------------------------------

Treatment of ABLE accounts in bankruptcy

    Property of a bankruptcy estate may not include certain 
amounts contributed to an ABLE account, if the designated 
beneficiary of such account was a child, stepchild, grandchild 
or stepgrandchild of the debtor during the taxable year in 
which funds were placed in the account.\271\ Such funds shall 
be excluded from the bankruptcy estate only to the extent that 
they were contributed to an ABLE account at least 365 days 
prior to the filing of the title 11 petition, are not pledged 
or promised to any entity in connection with any extension of 
credit, and are not excess contributions.\272\ In the case of 
funds contributed to an ABLE account that are contributed not 
earlier than 720 days (and not later than 365 days) prior to 
the filing of the petition, only up to $6,225 may be excluded.
---------------------------------------------------------------------------
    \271\11 U.S.C. sec. 541(b)(10).
    \272\As defined in section 4973(h).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the ABLE program is an 
important tool to provide funding for disability related 
expenses, and therefore it wishes to expand eligibility for the 
program.

                        EXPLANATION OF PROVISION

    The provision modifies the definition of eligible 
individual for purposes of a qualified ABLE program. Under the 
provision, an individual may be an eligible individual if 
entitled to benefits based on blindness or disability, and such 
blindness or disability occurred before the date on which the 
individual attains the age of 46 (increased from 26).

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2025.

 22. Assist savers in recovering unclaimed savings bonds (sec. 122 of 
                               the bill)


                              PRESENT LAW

    The U.S. government issues bonds that pay a fixed rate of 
interest every six months until they mature. The bonds are 
issued in a term of 20 years or 30 years. The owner of a bond 
may hold it until it matures or sell it before it matures. At 
maturity, the face amount of the bond is paid to the owner of 
the bond.

                           REASONS FOR CHANGE

    The Committee believes that the States may be useful in 
helping owners of forgotten savings bonds claim those bonds.

                        EXPLANATION OF PROVISION

    The provision amends Title 31 of the United States Code to 
require the Secretary of the Treasury (``Secretary'') to share 
certain information relating to the registered owners of 
matured and unredeemed savings bonds with the States to enable 
the States to locate the owners in accordance with the States' 
standards for recovery of abandoned property.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                           TITLE II--RETIREES

     1. Increase in age for required beginning date for mandatory 
  distributions (sec. 201 of the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

In general

    Employer-provided qualified retirement plans and IRAs are 
subject to required minimum distribution rules.\273\ Employer-
sponsored retirement plans are of two general types: defined 
benefit plans, under which benefits are determined under a plan 
formula and paid from general plan assets, rather than 
individual accounts; and defined contribution plans, under 
which benefits are based on a separate account for each 
participant, to which are allocated contributions, earnings and 
losses. A qualified retirement plan for this purpose means a 
tax-qualified plan described in section 401(a) (such as a 
defined benefit pension plan or a section 401(k) plan), an 
employee retirement annuity described in section 403(a), a tax-
sheltered annuity described in section 403(b), and a plan 
described in section 457(b) that is maintained by a 
governmental employer.\274\
---------------------------------------------------------------------------
    \273\Secs. 401(a)(9) and 408(a)(6). Roth IRAs, however, are not 
subject to minimum distribution rules during the owner's lifetime. The 
IRS recently published new proposed regulations under section 
401(a)(9). 87 FR 10504, Feb. 24, 2022 (corrected March 21, 2022). The 
amendments to Treas. Reg. Sec. Sec. 1.401(a)(9)-1 through 1.401(a)(9)-
9, are proposed to apply for purposes of determining RMDs for calendar 
years beginning on or after Jan. 1, 2022.
    \274\The required minimum distribution rules also apply to section 
457(b) plans maintained by tax-exempt employers other than governmental 
employers.
---------------------------------------------------------------------------
    In general, under the minimum distribution rules, 
distribution of minimum benefits must begin to an employee (or 
IRA owner) no later than a required beginning date and a 
minimum amount must be distributed each year (sometimes 
referred to as ``lifetime'' minimum distribution requirements). 
These lifetime requirements do not apply to a Roth IRA.\275\ 
Minimum distribution rules also apply to benefits payable with 
respect to an employee (or IRA owner) who has died (sometimes 
referred to as ``after-death'' minimum distribution 
requirements). The regulations provide a methodology for 
calculating the required minimum distribution from an 
individual account under a defined contribution plan or from an 
IRA.\276\ In the case of annuity payments under a defined 
benefit plan or an annuity contract, the regulations provide 
requirements that the stream of annuity payments must satisfy.
---------------------------------------------------------------------------
    \275\Sec. 408A(c)(4). Roth IRAs are, however, subject to the post-
death minimum distribution rules that apply to traditional IRAs. For 
Roth IRAs, the IRA owner is treated as having died before the 
individual's required beginning date.
    \276\Reflecting the directive in section 823 of the Pension 
Protection Act of 2006 (Pub. L. No. 109-280), pursuant to Treas. Reg. 
sec. 1.401(a)(9)-1, A-2(d), a governmental plan within the meaning of 
section 414(d) or a governmental eligible deferred compensation plan is 
treated as having complied with the statutory minimum distribution 
rules if the plan complies with a reasonable and good faith 
interpretation of those rules.
---------------------------------------------------------------------------
    Failure to make a required minimum distribution triggers a 
50-percent excise tax, payable by the individual or the 
individual's beneficiary. The tax is imposed during the taxable 
year that begins with or within the calendar year during which 
the distribution was required.\277\ The tax may be waived if 
the failure to distribute is reasonable error and reasonable 
steps are taken to remedy the violation.\278\
---------------------------------------------------------------------------
    \277\Sec. 4974(a).
    \278\Sec. 4974(d).
---------------------------------------------------------------------------

Required beginning date

    Required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual (employee or IRA owner) reaches age 72. 
Prior to January 1, 2020, the age after which required minimum 
distributions were required to begin was 70\1/2\.\279\ In the 
case of an employer-provided qualified retirement plan, the 
required minimum distribution date for an individual who is not 
a five-percent owner of the employer maintaining the plan may 
be delayed to April 1 of the year following the year in which 
the individual retires, if the plan provides for this later 
distribution date. For all subsequent years, including the year 
in which the individual was paid the first required minimum 
distribution by April 1, the individual must take the required 
minimum distribution by December 31.
---------------------------------------------------------------------------
    \279\Section 114 of the SECURE Act increased the age after which 
required minimum distributions must begin from 70 to 72, effective for 
distributions required to be made after December 31, 2019, with respect 
to individuals who attain age 70 after that date.
---------------------------------------------------------------------------

Lifetime rules

    While an employee (or IRA owner) is alive, distributions of 
the individual's interest are required to be made (in 
accordance with regulations) over the life of the employee (or 
IRA owner) or over the joint lives of the employee (or IRA 
owner) and a designated beneficiary (or over a period not 
extending beyond the life expectancy of such employee (or IRA 
owner) or the life expectancy of such employee (or IRA owner) 
and a designated beneficiary).\280\ For IRAs and defined 
contribution plans, the required minimum distribution for each 
year generally is determined by dividing the account balance as 
of the end of the prior year by the number of years in the 
distribution period.\281\ The distribution period is generally 
derived from the Uniform Lifetime Table.\282\ This table is 
based on the joint life expectancies of the individual and a 
hypothetical beneficiary 10 years younger than the individual. 
For an individual with a spouse as designated beneficiary who 
is more than 10 years younger, the joint life expectancy of the 
couple is used (because the couple's remaining joint life 
expectancy is longer than the length provided in the Uniform 
Lifetime Table). The distribution period for annuity payments 
under a defined benefit plan or annuity contract (to the extent 
not limited to the life of the employee (or IRA owner) or the 
joint lives of the employee (or IRA owner) and a designated 
beneficiary) is generally subject to the same limitations as 
apply to individual accounts.\283\
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    \280\Sec. 401(a)(9)(A).
    \281\Treas. Reg. sec. 1.401(a)(9)-5.
    \282\Treas. Reg. sec. 1.401(a)(9)-9.
    \283\Treas. Reg. sec. 1.401(a)(9)-6.
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After-death rules for defined contributions plans and IRAs

    In the case of a defined contribution plan or IRA, if an 
individual dies before the individual's entire interest is 
distributed, and the individual has a designated beneficiary, 
unless the designated beneficiary is an eligible designated 
beneficiary, the individual's entire account must be 
distributed within 10 years after the individual's death. This 
rule applies regardless of whether the individual dies before 
or after the individual's required beginning date. A designated 
beneficiary is an individual designated as a beneficiary under 
the plan or IRA.\284\
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    \284\Sec. 401(a)(9)(E)(i); Treas. Reg. sec. 1.401(a)(9)-4, Q&A-1. 
The individual need not be named as long as the individual is 
identifiable under the terms of the plan (or IRA). However, the fact 
that an interest under a plan or IRA passes to a certain individual 
under a will or otherwise under State law does not make that individual 
a designated beneficiary unless the individual is designated as a 
beneficiary under the plan or IRA.
---------------------------------------------------------------------------
    In the case of an eligible designated beneficiary, the 
remaining required minimum distributions are distributed over 
the life of the beneficiary (or over a period not extending 
beyond the life expectancy of such beneficiary). Such 
distributions generally must begin no later than December 31 of 
the calendar year immediately following the calendar year in 
which the individual dies. An eligible designated beneficiary 
is a designated beneficiary who is (1) the surviving spouse of 
the individual; (2) a child of the individual who has not 
reached majority; (3) disabled; (4) chronically ill; or (5) not 
more than 10 years younger than the individual.\285\ The 
required minimum distribution for each year is determined by 
dividing the account balance as of the end of the prior year by 
a distribution period, which is determined by reference to the 
beneficiary's life expectancy.\286\ Special rules apply in the 
case of trusts for disabled or chronically ill 
beneficiaries.\287\
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    \285\Sec. 401(a)(9)(E)(ii).
    \286\Treas. Reg. sec. 1.401(a)(9)-5, A-5.
    \287\Sec. 401(a)(9)(H)(iv).
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    In the case of an individual who does not have a designated 
beneficiary, if an individual dies on or after the individual's 
required beginning date, the distribution period for the 
remaining required minimum distributions is equal to the 
remaining years of the deceased individual's single life 
expectancy, using the age of the deceased individual in the 
year of death.\288\ If an individual dies before the required 
beginning date, the individual's entire account must be 
distributed no later than December 31 of the calendar year that 
includes the fifth anniversary of the individual's death.\289\
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    \288\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
    \289\Treas. Reg. sec. 1.401(a)(9)-3, Q&As 1, 2.
---------------------------------------------------------------------------

After-death rules for defined benefit plans

    In the case of a defined benefit plan, if an individual 
dies before the individual's entire interest is distributed, 
the minimum distribution rules vary depending on whether or not 
the individual dies before or after the required beginning 
date. If the individual dies after distributions have begun, 
the remaining interest must be distributed at least as rapidly 
as under the method of distribution prior to death.\290\ If the 
individual dies before distributions have begun, the entire 
account must be distributed within five years after the 
individual's death, unless any portion is payable to a 
designated beneficiary.\291\ If any portion is payable to a 
designated beneficiary, the remaining required minimum 
distributions are distributed over the life of the beneficiary 
(or over a period not extending beyond the life expectancy of 
such beneficiary). Such distributions generally must begin no 
later than December 31 of the calendar year immediately 
following the calendar year in which the individual dies.
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    \290\Sec. 401(a)(9)(B)(i).
    \291\Sec. 401(a)(9)(B)(ii), (iii).
---------------------------------------------------------------------------

Annuity distributions

    The regulations provide rules for the amount of annuity 
distributions from a defined benefit plan, or from an annuity 
purchased by the plan from an insurance company, that are paid 
over life (or a period not extending beyond life expectancy). 
Annuity distributions are generally required to be 
nonincreasing over time with certain exceptions, which include, 
for example, (i) increases to the extent of certain specified 
cost-of-living indices, (ii) a constant percentage increase 
(for a qualified defined benefit plan, the constant percentage 
cannot exceed five percent per year), (iii) certain 
accelerations of payments, and (iv) increases to reflect when 
an annuity is converted to a single life annuity after the 
death of the beneficiary under a joint and survivor annuity or 
after termination of the survivor annuity under a qualified 
domestic relations order.\292\ If distributions are in the form 
of a joint and survivor annuity and the survivor annuitant both 
is an individual other than the surviving spouse and is younger 
than the employee (or IRA owner), the survivor annuity benefit 
must be limited to a percentage of the life annuity benefit for 
the employee (or IRA owner). The survivor benefit as a 
percentage of the benefit of the primary annuitant is required 
to be smaller (but not required to be less than 52 percent) as 
the difference in the ages of the primary annuitant and the 
survivor annuitant becomes greater.
---------------------------------------------------------------------------
    \292\Treas. Reg. sec. 1.401(a)(9)-6, A-14.
---------------------------------------------------------------------------

Special rules for spouses

    If the designated beneficiary is the individual's spouse, 
commencement of distributions is permitted to be delayed until 
December 31 of the calendar year in which the deceased 
individual would have attained age 72. If the surviving spouse 
dies before distributions to such spouse begin, the after-death 
rules apply after the death of the spouse as though the spouse 
were the employee (or IRA owner).
    In the case of an IRA, if the beneficiary is the surviving 
spouse, the spouse is permitted to choose to calculate required 
minimum distributions both while the surviving spouse is alive 
and after death as though the surviving spouse is the IRA 
owner.\293\
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    \293\Treas. Reg. sec. 1.408-8, Q&A 5.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    When mandatory distributions from qualified retirement 
plans based on age were added to the Code in 1962,\294\ the 
life expectancy of Americans was shorter. In addition, 
increasing numbers of Americans are continuing to work past 
traditional retirement ages. For these reasons, the SECURE 
Act\295\ increased the age at which required minimum 
distributions generally must be made from age 70\1/2\ to age 
72. The Committee believes it is appropriate to further 
increase this age to more accurately reflect present-day 
circumstances.
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    \294\Sec. 2(2) of the Self-Employed Individuals Tax Retirement Act 
of 1962, Pub. L. No. 87-792.
    \295\Sec. 114 of the SECURE Act.
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                        EXPLANATION OF PROVISION

    The provision changes the age on which the required 
beginning date for required minimum distributions is based, 
from the calendar year in which the employee or IRA owner 
attains age 72 to the calendar year in which the employee or 
IRA owner attains age 75, for calendar years after 2031. If an 
individual has not attained the age that applies for a given 
calendar year, the individual is not treated as having attained 
the age at which required minimum distributions must begin for 
that year, regardless of whether the individual had attained 
the applicable age in a prior calendar year. Thus, for example, 
an individual who attains age 73 in 2032 is not required to 
take a required minimum distribution for that year, even though 
the individual might have been required to take a required 
minimum distribution for calendar year 2031, on account of 
having attained age 72 in 2031.

                             EFFECTIVE DATE

    The provision is effective for calendar years beginning 
after the date of enactment.

  2. Qualifying longevity annuity contracts (sec. 202 of the bill and 
                    Treas. Reg. sec. 1.401(a)(9)-6)


                              PRESENT LAW

Required minimum distributions

    Background on required minimum distributions under 
qualified retirement plans may be found in Title II, section 1 
of this document.

Qualifying longevity annuity contracts

    A qualifying longevity annuity contract (``QLAC'') is a 
deferred annuity contract that is purchased from an insurance 
company for an employee that is generally scheduled to commence 
payments at an advanced age (but no later than age 85)\296\ and 
which satisfies each of the following requirements:\297\
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    \296\Because under section 401(a)(9), minimum required 
distributions must generally begin no later than the April 1 of the 
year following the year in which the individual attains age 72, without 
these special rules, QLACs would violate the requirements of section 
401(a)(9). See the provision described in Title II, section 1 of this 
document, which proposes an increase in the age for the required 
beginning date for mandatory distributions.
    \297\Treas. Reg. sec. 401(a)(9)-6, Q&A-17.
---------------------------------------------------------------------------
    1. Premiums for the QLAC do not exceed the lesser of a 
dollar or percentage limitation. The dollar limitation is (1) 
$125,000 (as adjusted) ($145,000 for 2022) over (2) the sum of 
(a) the premiums previously paid with respect to the contract 
and (b) the premiums previously paid with respect to any other 
QLAC that is purchased for the employee under the plan, or any 
other plan of the employer.\298\ The percentage limitation is 
25 percent of the employer's account balance under the plan 
(including the value of any QLAC held under the plan for the 
employee) over the previously paid premiums with respect to the 
contract or with respect to any other QLAC that is purchased 
for the employee under the plan, or any other plan of the 
employer.
---------------------------------------------------------------------------
    \298\Including any other plan, annuity, or account described in 
sections 401(a), 403(a), 403(b), or 408, or an eligible governmental 
plan under section 457(b).
---------------------------------------------------------------------------
    2. The QLAC provides that distributions under the contract 
must commence not later than the first day of the month 
following the individual's attainment of age 85.
    3. The QLAC provides that once distributions begin under 
the contract, the distributions satisfy the minimum required 
distribution rules, except for the rule that annuity payments 
commence on or before the required beginning date.
    4. The contract does not make available any commutation 
benefit, cash surrender right, or other similar feature.
    5. No benefits are provided under the contract after the 
death of the employee other than those provided for in the 
regulations.
    6. When the contract is issued, the contract (or a rider or 
endorsement) states that it is intended to be a QLAC.
    7. The contract is not a variable contract, an indexed 
contract or a similar contract, except as provided in guidance.
    Recently, IRS and Treasury issued proposed regulations 
relating to required minimum distributions from qualified 
plans; section 403(b) annuity contracts, custodial accounts, 
and retirement income accounts; individual retirement accounts 
and annuities; and eligible deferred compensation plans\299\ to 
address the required minimum distribution requirements\300\ and 
to update the regulations to reflect the amendments made to 
such distributions by sections 114 and 401 of the SECURE Act. 
With respect to QLACs, the definition of a QLAC in the proposed 
regulations is the same as in the current regulations.\301\
---------------------------------------------------------------------------
    \299\Under section 457.
    \300\87 FR 10504, Feb. 24, 2022 (corrected March 21, 2022). The 
amendments to Treas. Reg. secs. 1.401(a)(9)-1 through 1.401(a)(9)-9, 
are proposed to apply for purposes of determining RMDs for calendar 
years beginning on or after Jan. 1, 2022. For the 2021 distribution 
calendar year, taxpayers must apply the existing regulations, but by 
taking into account a reasonable, good faith interpretation of the 
amendments made by sections 114 and 401 of the SECURE Act. Compliance 
with the proposed regulations satisfy that requirement.
    \301\See Prop. Treas. Reg. sec. 1.401(a)(9)-6(q).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    QLACs are intended to be an inexpensive way for individuals 
to hedge the risk of outliving their savings in defined 
contribution plans and IRAs. In 2014, final regulations were 
published relating to QLACs. However, the final regulations 
imposed certain limits on QLACs in order to comply with 
statutory requirements. These limits prevent QLACs from 
achieving their intended purpose in providing longevity 
protection by, for example, limiting the percentage of an 
individual's account that may be used to acquire such 
contracts.
    The Committee believes that repealing that 25 percent 
limitation, increasing and indexing the dollar limitation in 
such contracts, clarifying that free-look periods up to 90 days 
are permitted, and facilitating the sales of such contracts 
with spousal survival rights, will eliminate certain barriers 
to the purchase of QLACs.

                        EXPLANATION OF PROVISION

    Under the provision, no later than 18 months after the date 
of enactment, the Secretary (or the Secretary's delegate) is 
directed to amend the minimum required distribution regulation 
which applies to QLACs:
           To eliminate the requirement that premiums 
        for QLACs be limited to 25 percent (or any other 
        percentage) of an individual's account balance;
           To increase the dollar limitation on 
        premiums for QLACs from $125,000 to $200,000, and to 
        provide that, in the case of calendar years beginning 
        on or after January 1 of the second year following the 
        year of enactment of this Act, the $200,000 dollar 
        limitation will be adjusted at the same time and in the 
        same manner as the limits are adjusted under section 
        415(d), except that the base period will be the 
        calendar quarter beginning July 1 of the year of 
        enactment of this Act, and any increase to such dollar 
        limitation which is not a multiple of $10,000 will be 
        rounded to the next lowest multiple of $10,000;
           To provide that in the case of a QLAC 
        purchased with joint and survivor annuity benefits for 
        the individual and his or her spouse that were 
        permissible under the regulations at the time the 
        contract was originally purchased, a divorce occurring 
        after the original purchase and before the annuity 
        payments commence under the contract, does not affect 
        the permissibility of the joint and survivor annuity 
        benefits or other benefits under the contract, or 
        require any adjustment to the amount or duration of 
        benefits payable under the contract provided that any 
        qualified domestic relations order\302\ or in the case 
        of an arrangement not subject to the qualified domestic 
        relations order provisions in the Code or ERISA,\303\ 
        any divorce or separation instrument (1) provides that 
        the former spouse is entitled to the survivor benefits 
        under the contract, (2) does not modify the treatment 
        of the former spouse as beneficiary under the contract 
        who is entitled to the survivor benefits, or (3) does 
        not modify the treatment of the former spouse as the 
        measuring life for the survivor benefits under the 
        contract. For purposes of this provision, the term 
        ``divorce or separation instrument'' means (1) a decree 
        of divorce or separate maintenance or a written 
        instrument incident to such a decree, (2) a written 
        separation agreement, or (3) a decree (not described in 
        (1)) requiring a spouse to make payments for the 
        support or maintenance of the other spouse; and
---------------------------------------------------------------------------
    \302\ Within the meaning of section 414(p).
    \303\ Sec. 414(p) or sec. 206(d) of ERISA.
---------------------------------------------------------------------------
           To ensure that the regulation does not 
        preclude a contract from including a provision under 
        which an employee may rescind the purchase of the 
        contract within a period not exceeding 90 days from the 
        date of purchase (the ``short free look period'').

Regulatory Successor Provision

    Any reference to a regulation is treated as including a 
reference to any successor regulation.

                             EFFECTIVE DATE

    The provision is generally effective with respect to 
contracts purchased or received in an exchange on or after the 
date of enactment. The changes with respect to joint and 
survivor annuities and the short free look period are effective 
with respect to contracts purchased or received in an exchange 
on or after July 2, 2014.
    Prior to the date the Secretary issues final regulations, 
the Secretary shall administer and enforce the law in 
accordance with the effective dates above, and taxpayers may 
rely upon their reasonable good faith interpretations of the 
law prior to this provision becoming effective.

  3. Remove required minimum distribution barriers for life annuities 
         (sec. 203 of the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

Required minimum distributions

    Background on required minimum distributions under 
qualified retirement plans may be found in Title II, section 1 
of this document.
            Annuities
    A plan will not fail to satisfy the minimum required 
distribution rules merely because distributions are made from 
an annuity contract which is purchased with the employee's 
benefit by the plan from an insurance company.\304\ Prior to 
the date that an annuity contract under an individual account 
plan commences benefits under the contract, the interest of the 
employee or beneficiary under that contract is treated as an 
individual account for purposes of the required minimum 
distribution requirements.\305\ Once distributions are required 
to begin (on the required beginning date), payments under the 
annuity contract will satisfy the required minimum distribution 
rules if distributions of the employee's entire interest are 
paid in the form of periodic annuity payments for the 
employee's life (or the joint lives of the employee and 
beneficiary) or over a period certain as defined in the 
regulations.\306\
---------------------------------------------------------------------------
    \304\ Treas. Reg. sec. 1.401(a)(9)-6, A-4.
    \305\ Treas. Reg. sec. 1.401(a)(9)-6, A-12(a).
    \306\ Treas. Reg. sec. 1.401(a)(9)-6, A-1, -3 and -4. If the 
annuity contract is purchased after the required beginning date, the 
first payment must begin on or before the purchase date and the payment 
required must be made no later than the end of that required period.
---------------------------------------------------------------------------
    All annuity payments (whether paid over an employee's life, 
joint lives or a period certain) must be nonincreasing, or only 
increase in accordance with certain exceptions.\307\
---------------------------------------------------------------------------
    \307\ Treas. Reg. sec. 1.401(a)(9)-6, A-14(a). The exceptions 
include eligible cost of living increases, increased benefits resulting 
from a plan amendment, and lump sum distributions made to a beneficiary 
upon the death of the employee.
---------------------------------------------------------------------------
    There are additional increases permitted for annuity 
payments under annuity contracts purchased from insurance 
companies. If the total future payments expected to be made 
under the annuity contract (``future expected payments'') 
exceed the ``total value being annuitized,'' the payments under 
the annuity contract will not fail to satisfy the nonincreasing 
payment requirement merely because the payments (1) are 
increased by a constant percentage, applied not less frequently 
than annually; (2) provide for a final payment upon the death 
of the employee that does not exceed the excess of the total 
value being annuitized over the total of payments before the 
death of the employee; (3) are increased as a result of 
dividend payments or other payments that result from actuarial 
gains, but only if actuarial gain is measured no less 
frequently than annually and the resulting payments are either 
paid no later than the year following the year for which the 
actuarial experience is measured or paid in the same form as 
the payment of the annuity over the remaining period of the 
annuity; and (4) are increased for certain accelerations of 
payment.\308\ However, in operation, this actuarial test does 
not permit certain guarantees in life annuities such as certain 
guaranteed annual increases, return of premium death benefits, 
and period certain guarantees for participating annuities.
---------------------------------------------------------------------------
    \308\ Treas. Reg. sec. 1.401(a)(9)-6, A-14(c).
---------------------------------------------------------------------------
    Recently, IRS and Treasury issued proposed regulations 
relating to required minimum distributions from qualified 
plans; section 403(b) annuity contracts, custodial accounts, 
and retirement income accounts; individual retirement accounts 
and annuities; and eligible deferred compensation plans\309\ to 
address the required minimum distribution requirements\310\ and 
to update the regulations to reflect the amendments made to 
such distributions by sections 114 and 401 of the SECURE Act.
---------------------------------------------------------------------------
    \309\ Under section 457.
    \310\ 87 FR 10504, Feb. 24, 2022 (corrected March 21, 2022). The 
amendments to Treas. Reg. Sec. Sec. 1.401(a)(9)-1 through 1.401(a)(9)-
9, are proposed to apply for purposes of determining RMDs for calendar 
years beginning on or after Jan. 1, 2022. For the 2021 distribution 
calendar year, taxpayers must apply the existing regulations, but by 
taking into account a reasonable, good faith interpretation of the 
amendments made by Sections 114 and 401 of the SECURE Act. Compliance 
with the proposed regulations satisfy that requirement.
---------------------------------------------------------------------------
    Like the existing regulations, the proposed regulations 
generally provide that all payments under a defined benefit 
plan or annuity contract must be nonincreasing, subject to a 
number of exceptions. The existing regulations provide a number 
of exceptions under which payments from annuity contracts 
purchased from insurance companies may increase, and certain of 
these exceptions apply only if the total future expected 
payments under the contract exceed the total value being 
annuitized. The proposed regulations make a minor modification 
to the rules to clarify the calculation of the total future 
expected payments and the total value being annuitized. The 
proposed regulations also provide three additional exceptions 
to the nonincreasing payments requirement for annuities issued 
by insurance companies that apply without regard to a 
comparison of the total future expected payments and the total 
value being annuitized.\311\ First, the proposed regulations 
allow an annuity contract to provide a final payment upon the 
death of the employee that does not exceed the excess of total 
value being annuitized over the total of payments before the 
death of the employee. Second, the proposed regulations allow 
an annuity contract to offer a short-term acceleration of 
payments, under which up to one year of annuity payments are 
paid in advance of when those payments were scheduled to be 
made. The third exception allows an annuity contract to provide 
an acceleration of payments that is required to comply with the 
special rules for certain defined contribution plans.\312\
---------------------------------------------------------------------------
    \311\ Prop. Treas. Reg. sec. 1.401(a)(9)-6(o)(4).
    \312\ Under section 401(a)(9)(H).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The required minimum distribution rules contain an 
actuarial test, intended to limit tax deferral by precluding 
commercial annuities from providing payments that increase 
excessively over time. In operation, however, the test commonly 
prohibits many important guarantees and features of commercial 
annuities that provide only modest benefit increases that make 
these annuities attractive to individuals participating in 
defined contribution plans. For example, guaranteed annual 
increases of only one or two percent, return of premium death 
benefits, and period certain guarantees for participating 
annuities are commonly prohibited by this test. Without these 
types of guarantees, many individuals are unwilling to elect a 
life annuity under a defined contribution plan or IRA.
    Such annuities also provide individuals in defined 
contribution plans with protection against outliving their 
assets in retirement. The Committee believes that making it 
easier for commercial annuities to offer these types of 
benefits will encourage individuals participating in defined 
contribution plans to purchase such annuities.

                        EXPLANATION OF PROVISION

    The provision amends the minimum required distribution 
rules to permit commercial annuities\313\ that are issued in 
connection with any eligible retirement plan\314\ to provide 
one or more of the following types of payments on or after the 
annuity starting date:
---------------------------------------------------------------------------
    \313\ Within the meaning of section 3405(e)(6).
    \314\ Within the meaning of section 402(c)(8)(B), other than a 
defined benefit plan.
---------------------------------------------------------------------------
           Annuity payments that increase by a constant 
        percentage, applied not less frequently than annually, 
        at a rate that is less than five percent per year;
           A lump sum payment that results in a 
        shortening of the payment period with respect to an 
        annuity, or a full or partial commutation of the future 
        annuity payments, provided that such a lump sum is 
        determined using reasonable actuarial methods and 
        assumptions, determined in good faith by the issuer of 
        the contract;
           A lump sum payment that accelerates the 
        receipt of annuity payments that are scheduled to be 
        received within the ensuing 12 months, regardless of 
        whether such acceleration shortens the payment period 
        with respect to the annuity, reduces the dollar amount 
        of benefits to be paid under the contract, or results 
        in a suspension of annuity payments during the period 
        being accelerated;
           Dividends or similar distributions 
        determined in an actuarially reasonable manner; and
           Lump sum return of premium death benefits.

                             EFFECTIVE DATE

    The provision is effective as of the date of enactment.

4. Eliminating a penalty on partial annuitization (sec. 204 of the bill 
              and Treas. Reg. secs. 1.401(a)(9)-5 and -6)


                              PRESENT LAW

Required minimum distributions

    Background on required minimum distributions under 
qualified retirement plans may be found in Title II, section 1 
of this document. Proposed regulations relating to required 
minimum distributions from qualified plans were recently 
issued\315\ to update the regulations to reflect the amendments 
made to such distributions by the SECURE Act.\316\
---------------------------------------------------------------------------
    \315\87 FR 10504, Feb. 24, 2022 (corrected March 21, 2022). The 
amendments to Treas. Reg. Sec. Sec. 1.401(a)(9)-1 through 1.401(a)(9)-
9, are proposed to apply for purposes of determining RMDs for calendar 
years beginning on or after Jan. 1, 2022.
    \316\Sections 114 and 401.
---------------------------------------------------------------------------

Annuity distributions

    Additional background on annuity distributions from a 
qualified plan may be found in Title II, section 3 of this 
document.
    For IRAs and defined contribution plans, the required 
minimum distribution for each year generally is determined by 
dividing the account balance as of the end of the prior year by 
the number of years in the distribution period.\317\ A plan 
will not fail to satisfy the minimum required distribution 
rules merely because distributions are made from an annuity 
contract which is purchased with the employee's benefit by the 
plan from an insurance company.\318\ Prior to the date that an 
annuity contract under an individual account plan commences 
benefits under the contract, the interest of the employee or 
beneficiary under that contract is treated as an individual 
account for purposes of the required minimum distribution 
requirements.\319\
---------------------------------------------------------------------------
    \317\Treas. Reg. sec. 1.401(a)(9)-5.
    \318\Treas. Reg. sec. 1.401(a)(9)-6, A-4.
    \319\Treas. Reg. sec. 1.401(a)(9)-6, A-12(a).
---------------------------------------------------------------------------
    Once distributions are required to begin (on the required 
beginning date), payments under the annuity contract will 
satisfy the required minimum distribution rules if 
distributions of the employee's entire interest are paid in the 
form of periodic annuity payments for the employee's life (or 
the joint lives of the employee and beneficiary) or over a 
period certain as defined in the regulations.\320\ However, if 
a portion of the employee's account balance under a defined 
contribution plan is used to purchase an annuity contract 
(while another portion stays in the account), the remaining 
account under the plan must be distributed in accordance with 
the required minimum distribution rules for defined 
contribution plans, and the annuity payments under the annuity 
contract must satisfy the required minimum distribution rules 
applicable to defined benefit plans and annuity contracts.\321\ 
The proposed regulations generally retain this rule.\322\
---------------------------------------------------------------------------
    \320\Treas. Reg. sec. 1.401(a)(9)6, A-1,-3 and -4. If the annuity 
contract is purchased after the required beginning date, the first 
payment must begin on or before the purchase date and the payment 
required must be made no later the end of that required period.
    \321\Treas. Reg. sec. 1.401(a)(9)8, A-2(a). If a partial annuity is 
purchased, then the rules require the remaining account balance in the 
defined contribution plan to satisfy the required minimum distribution 
rules applicable to defined contribution plans. The annuity payments 
under the annuity contract must satisfy the rules applicable to defined 
benefit plans and annuity contracts.
    \322\Prop. Treas. Reg. sec. 1.401(a)(9)5. The proposed regulations 
specify that if an annuity is purchased that the plan will satisfy the 
required minimum distribution rules only if, in the year of purchase, 
distributions from the individual account satisfy the rules applicable 
to defined contribution plans, and for calendar years following the 
year of purchase, payments under the annuity contract are made in 
accordance with the rules applicable to defined benefit plans and 
annuity contracts. Payments under the annuity contract during the year 
in which the annuity contract is purchased are treated as distributions 
from the individual account for purposes of determining whether the 
distributions from the individual account satisfy the required minimum 
distribution rules in the calendar year of purchase.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Under present law, if an individual takes a portion of 
their account balance in the form of an annuity, the required 
distribution amount for the remainder of the account balance is 
not reduced by those partial annuity payments (even if the 
partial annuity payments exceed the amount that would have been 
required to be distributed from the account if the annuity 
contract had not been purchased). This could result in an 
individual having required minimum distributions from that 
account for a year that are more than if the individual had not 
purchased an annuity. The Committee therefore believes that 
partial annuity payments should be taken into account for 
purposes of determining the required minimum distributions from 
defined contribution plans, and other account based plans.

                        EXPLANATION OF PROVISION

    The provision directs the Secretary (or delegate) to amend 
the required minimum distribution rules for defined 
contribution plans so that partial annuity payments could be 
taken into account for purposes of satisfying the required 
distribution rules for those plans.
    Under the provision, if an employee's benefit is in the 
form of an individual account under a defined contribution 
plan, the plan may allow the employee to elect to have the 
required distribution amount from such account for a year be 
calculated as the excess of the total required amount for such 
year over the annuity amount for such year. The total required 
amount means the amount required to be distributed from a 
defined contribution plan under the rules applicable to such 
plans for a year determined by treating the account balance as 
of the last valuation date in the immediately preceding 
calendar year as including the value on that date of all 
annuity contracts that were purchased with a portion of the 
account and from which payments are made under the required 
distribution rules applicable to annuities. Annuity amount for 
the year means the total amount distributed in the year from 
all annuity contracts purchased from the individual account.
    The provision also directs the Secretary to issue 
conforming amendments for the distribution rules applicable to 
a tax-sheltered annuity plan (``section 403(b) plan''), an 
eligible deferred compensation plan of a State or local 
government employer (a ``governmental section 457(b) plan''), 
and an individual retirement arrangement (an ``IRA''). Under 
these amendments, any IRA or section 403(b) plan that an 
individual holds as the owner, or which an individual holds as 
a beneficiary of the same, are treated as one plan for purposes 
of determining the required distribution.

                             EFFECTIVE DATE

    The modifications and amendments required by this provision 
will be deemed to have been made (and laws will be applied as 
if the actions the Secretary is required to take had been 
taken) as of the date of enactment. Prior to the date the 
Secretary issues final regulations, taxpayers may rely upon 
their reasonable, good faith interpretations of the law.

   5. Reduction in excise tax on certain accumulations in qualified 
   retirement plans (sec. 205 of the bill and sec. 4974 of the Code)


                              PRESENT LAW

    Background on required minimum distributions under 
qualified retirement plans may be found in Title II, section 1 
of this document.
    The Code imposes an excise tax on an individual if the 
amount distributed to an individual during a taxable year is 
less than the required minimum distribution under the plan for 
that year.\323\ The excise tax is equal to 50 percent of the 
shortfall (that is, 50 percent of the amount by which the 
required minimum distribution exceeds the actual distribution). 
However, the Secretary may waive the tax if the individual 
establishes that the shortfall was due to reasonable error and 
reasonable steps are being taken to remedy the error.
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    \323\Sec. 4974.
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                           REASONS FOR CHANGE

    The Committee recognizes that in many cases, failures to 
take a required minimum distribution are inadvertent. The 
Committee thus wishes to reduce the overall excise tax that 
applies to such failures, in particular in the case of an 
individual who discovers such a failure and takes steps to 
correct it.

                        EXPLANATION OF PROVISION

    The provision reduces the excise tax that generally applies 
to the failure to take required minimum distributions from 50 
percent of the shortfall to 25 percent.
    In addition, the provision further reduces the excise tax 
to 10 percent in the case of an individual who receives a 
distribution during the correction window of the amount which 
resulted in the imposition of the excise tax, and who submits a 
return during the correction period reflecting the excise tax. 
The correction window is defined as the time period beginning 
on the date the excise tax is imposed with respect to the 
shortfall of distributions from a qualified retirement plan or 
eligible deferred compensation plan (as defined in section 
457(b)), and ending on the earliest of (1) the date of mailing 
a notice of deficiency\324\ with respect to the excise tax 
imposed under this section, (2) the date on which the excise 
tax imposed under this section is assessed, or (3) the last day 
of the second taxable year that begins after the end of the 
taxable year in which the excise tax is imposed.
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    \324\Pursuant to section 6212.
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                             EFFECTIVE DATE

    The provision applies to taxable years beginning after the 
date of enactment.

     6. Clarification of substantially equal periodic payment rule 
       (sec. 206 of the bill and secs. 72(t) and (q) of the Code)


                              PRESENT LAW

Recapture of the early withdrawal tax for substantially equal periodic 
        payments

            Distributions from a Qualified Retirement Plan
    Additional background on distributions from tax-favored 
retirement plans may be found in Title I, section 5 of this 
document.
    A distribution from a qualified retirement plan, a section 
403(b) plan, or an IRA received before age 59\1/2\ is subject 
to a 10-percent additional tax (referred to as the ``early 
withdrawal tax'') on the amount includible in income unless an 
exception applies.\325\ One exception to the early withdrawal 
tax is for distributions made as a series of substantially 
equal periodic payments (not less frequently than annually) 
that are made for the life or life expectancy of the employee 
or the joint lives or life expectancies of the employee and 
their designated beneficiary.\326\
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    \325\Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
    \326\Sec. 72(t)(2)(A)(iv).
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    However, if the series of payments is terminated or 
modified before the end of the 5-year period beginning on the 
date of the first payment, or before the employee attains age 
59\1/2\, then the entire series of distributions is subject to 
the 10-percent early withdrawal tax.\327\ In that case, the 10-
percent early withdrawal tax is imposed for the first taxable 
year in which the payments were modified and is the same amount 
as would have been imposed had the exception not applied (plus 
interest for the deferral period).\328\
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    \327\Sec. 72(t)(4) and sec. 72(t)(10). Modification due to death or 
disability, or by reason of distribution to a qualified public safety 
employee from a governmental plan is permitted without penalty.
    \328\Sec. 72(t)(4)(A)(ii).
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    Payments are considered to be substantially equal periodic 
payments for purposes of the exception to the 10-percent early 
withdrawal tax if they are made in accordance with one of three 
permissible calculation methods.\329\ An individual who begins 
distributions as a series of substantially equal periodic 
payments using one method can, in certain circumstances, make a 
one-time modification to the required minimum distribution 
method to determine the payment for the year of the change and 
all subsequent years without triggering the application of the 
10-percent early withdrawal tax.\330\ However, because all 
three calculation methods for substantially equal periodic 
payments are calculated using an account balance as of a 
specified valuation date, a modification is considered to have 
occurred (and the 10-percent early withdrawal tax would then 
apply) if, after that first valuation date, there is (1) any 
addition to the account balance other than gains or losses, (2) 
any transfer of a portion of the account balance to another 
retirement plan, or (3) a rollover of the amount received by 
the taxpayer to another account.\331\
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    \329\Notice 2022-6, 2022-5 I.R.B. 460. The three methods are based 
on the methods described in Rev. Proc. 2002-62, 2002-42 I.R.B. 710, and 
include the required minimum distribution method, the fixed 
amortization method, and the fixed annuitization method.
    \330\Notice 2022-6, 2022-5 I.R.B. 460. Once this one-time change in 
method is made, any further modification will result in application of 
the 10-percent early withdrawal tax.
    \331\Notice 2022-6, 2022-5 I.R.B. 460.
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            Distributions from Annuity Contracts
    Similarly, if a taxpayer receives any amount under a non-
qualified annuity contract, the taxpayer's income is increased 
by 10-percent of the amount received which is includible in 
gross income.\332\ There are also exceptions to this 10-percent 
additional tax, one of which is for a series of substantially 
equal periodic payments.\333\ The rules applying this exception 
are generally parallel to the rules described above, including 
the recapture of the 10-percent additional tax if the series of 
substantially equal periodic payments is subsequently 
modified.\334\ In addition, the same principles described with 
respect to distributions from a qualified retirement plan apply 
when determining whether a change in substantially equal 
periodic payments will be treated as a modification for 
purposes of the 10-percent additional tax.\335\
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    \332\Sec. 72(q)(1).
    \333\Sec. 72(q)(2)(D).
    \334\Sec. 72(q)(3).
    \335\Notice 2022-6, 2022-5 I.R.B. 460.
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            Tax-Reporting
    Information reporting on distributions from qualified plans 
and annuity contracts is required from certain persons, such as 
employers, plan administrators, trustees.\336\ Failure to 
comply with those reporting requirements can result in 
penalties.\337\ These penalties may be waived in certain 
circumstances, including with respect to any failure due to 
reasonable cause and not willful neglect.\338\
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    \336\Secs. 408(i); 6047(d).
    \337\Secs. 6721; 6722.
    \338\Sec. 6724.
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                           REASONS FOR CHANGE

    The Committee believes that certain transfers, rollovers or 
distributions should not be considered a modification of the 
substantially equal periodic payment rules that would trigger 
the application of the 10-percent early withdrawal tax. The 
Committee also believes that annuity payments that meet the 
required minimum distribution rules should be treated as 
substantially equal periodic payments for purposes of the 
exception to the 10-percent early withdrawal tax.

                        EXPLANATION OF PROVISION

    If a series of equal periodic payments are being made from 
a qualified retirement plan then, under the provision, the 
transfer or a rollover from such qualified retirement plan of 
all or a portion of the taxpayer's benefit under the plan that 
is made to a subsequent qualified plan is not considered a 
modification for purposes of the 10-percent early withdrawal 
tax provided that the transfer or rollover results in 
distributions that satisfy the series of substantially equal 
period payment exception. Compliance with this exception is 
determined based on the combined distributions from both plans 
as if the payments had been made only from the transferor plan. 
Qualified retirement plan for this purpose includes section 
403(b) plans and IRAs. Similar relief is available following 
the tax-free exchange of all or a portion of a non-qualified 
annuity contract for another contract.
    The provision also adds a safe harbor for annuity payments 
specifying that periodic payments do not fail to be treated as 
substantially equal for purposes of the exception to the 10-
percent early withdrawal tax merely because they are amounts 
received as an annuity. Such payments are deemed substantially 
equal if they are payable over the time periods set forth in 
the exception to the 10-percent early withdrawal tax for 
substantially equal periodic payments and satisfy the required 
minimum distribution requirements applicable to annuity 
payments.
    The provision also provides relief from the penalties 
associated with the applicable reporting requirements for 
distributions by permitting reliance on a certification from 
the taxpayer that the transfer or rollover meets the 
requirements needed for purposes of the exception to the 10-
percent additional tax, absent knowledge to the contrary.

                             EFFECTIVE DATE

    The amendments made by this provision will apply to 
transfers, rollovers, exchanges, and distributions (as 
applicable) occurring on or after the date of enactment.

 7. Recovery of retirement plan overpayments (sec. 207 of the bill and 
                     secs. 402 and 414 of the Code)


                              PRESENT LAW

Employee Plans Compliance Resolution System

    A retirement plan that is intended to be a tax-qualified 
plan provides retirement benefits on a tax-favored basis if the 
plan satisfies all of the qualification requirements under the 
Code.\339\ Similarly, an annuity that is intended to be a tax-
sheltered annuity provides retirement benefits on a tax-favored 
basis if the program satisfies all of the requirements under 
the Code applicable to section 403(b) plans. Failure to satisfy 
all of the applicable requirements may disqualify a plan or 
annuity for the intended tax-favored treatment.
---------------------------------------------------------------------------
    \339\Sec. 401(a).
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    The IRS has established the Employee Plans Compliance 
Resolution System (``EPCRS''), which is a comprehensive system 
of correction programs for sponsors of retirement plans and 
annuities that are intended, but have failed, to satisfy the 
applicable requirements under the Code.\340\ EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
    \340\The requirements under sections 401(a), 403(a), or 403(b), as 
applicable. Rev. Proc. 2021-30, 2021-30, I.R.B. 2021-31.
---------------------------------------------------------------------------
    The IRS designed EPCRS to (1) encourage operational and 
formal compliance, (2) promote voluntary and timely correction 
of compliance failures, (3) provide sanctions for compliance 
failures identified on audit that are reasonable in light of 
the nature, extent, and severity of the violation, (4) provide 
consistent and uniform administration of the correction 
programs, and (5) permit employers to rely on the availability 
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
    The basic elements of the programs that comprise EPCRS are 
self-correction, voluntary correction with IRS approval, and 
correction on audit. The Self-Correction Program (``SCP'') 
generally permits a plan sponsor that has established practices 
and procedures (formal or informal) reasonably designed to 
promote and facilitate overall compliance in form and operation 
with applicable Code requirements to correct certain 
insignificant failures at any time (including during an audit), 
and certain significant failures within a three-year period, 
without payment of any fee or sanction. The Voluntary 
Correction Program (``VCP'') permits an employer, at any time 
before an audit, to pay a limited fee and receive IRS approval 
of a correction. For a failure that is discovered on audit and 
corrected, the Audit Closing Agreement Program (``Audit CAP'') 
provides for a sanction that bears a reasonable relationship to 
the nature, extent, and severity of the failure and that takes 
into account the extent to which correction occurred before 
audit.
    SCP, VCP and Audit CAP are not available to correct 
failures relating to the diversion or misuses of plan 
assets.\341\ With respect to the SCP program, in the event that 
the plan or the plan sponsor has been a party to an abusive tax 
avoidance transaction, SCP is not available to correct any 
operational failure that is directly or indirectly related to 
the abusive tax avoidance transaction.\342\
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    \341\Sec. 4.11 of Rev. Proc. 2021-30.
    \342\Sec. 4.12 of Rev. Proc. 2021-30.
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            SEP and SIMPLE Plans
    SCP and VCP\343\ under EPCRS are available to a SEP or 
SIMPLE plan.\344\ SCP is only available to such a plan to 
correct insignificant operational failures,\345\ and only if 
the SEP or SIMPLE plan is established and maintained on a 
document approved by the IRS.
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    \343\Sec. 6.11 of Rev. Proc. 2021-30.
    \344\Secs. 1.01 and 1.02 of Rev. Proc. 2021-30. A SEP is a plan 
intended to satisfy the requirements of Code section 408(k); a SIMPLE 
plan is a plan intended to satisfy the requirements of Code section 
408(p). Secs. 5.06 and 5.07 of Rev. Proc. 2021-30.
    \345\Sec. 4.01(c) of Rev. Proc. 2021-30.
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            Section 457(b) plans
    EPCRS does not apply to section 457(b) plans. However, the 
IRS will accept submissions relating to section 457(b) plans on 
a provisional basis outside of EPCRS through standards that are 
similar to those that apply to VCP filings.\346\
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    \346\Sec. 4.09 of Rev. Proc. 2021-30.
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Recoupment of overpayments

    An overpayment is defined as a qualification failure due to 
a payment being made to a participant or beneficiary that 
exceeds the amount payable to such individual under the terms 
of the plan or that exceeds a limitation provided in the Code 
or regulations.\347\ Overpayments include both payments from a 
defined benefit plan and from a defined contribution plan 
(either not made from the individual's account under the plan 
or not permitted to be paid under the Code, the regulations, or 
the terms of the plan).
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    \347\Sec. 5.01(3)(c) and 5.02(4) of Rev. Proc. 2021-30.
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            Overpayments from defined benefit plans
    In general, subject to certain conditions, an overpayment 
from a defined benefit plan may be corrected by adopting a 
retroactive amendment to conform to the plan's operation, by 
the return of overpayment correction method, the adjustment of 
future payments correction method, the funding exception 
correction method, or the contribution correction method.\348\ 
Depending on the nature of the overpayment, other appropriate 
correction methods may be used. Any other correction method 
used must satisfy the EPCRS correction principles and other 
requirements set forth in the EPCRS guidance.\349\
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    \348\Sec. 6.06(3) and sec. 2.05 of Appendix B of Rev. Proc. 2021-
30. The funding exception correction method and the contribution credit 
correction method were added to EPCRS by Rev. Proc. 2021-30.
    \349\Sec. 6.02 of Rev. Proc. 2021-30.
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    Under the funding exception correction method, corrective 
payments are not required for certain underfunded defined 
benefit plans which are subject to certain benefit 
limitations,\350\ provided that the plan's certified or 
presumed adjusted funding target attainment percentage 
(``AFTAP'') that is applicable to the plan at the date of 
correction is equal to at least 100 percent (or, in the case of 
a multiemployer plan, the plan's most recent annual funding 
certification indicates that the plan is not in critical, 
critical and declining, or endangered status,\351\ determined 
at the date of correction). Future benefit payments to an 
overpayment recipient must be reduced to the correct benefit 
payment amount. No further corrective payments from an 
overpayment recipient or any other party are required or 
permitted and no further reductions to future benefit payments 
to an overpayment recipient, or any spouse or beneficiary of an 
overpayment recipient, are permitted.
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    \350\Under sec. 436.
    \351\As defined in sec. 432.
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    Under the contribution credit correction method, the amount 
of overpayments required to be repaid to the plan is the amount 
of the overpayments reduced (but not below zero) by: (A) the 
cumulative increase in the plan's minimum funding requirements 
attributable to the overpayments (including the increase 
attributable to the overstatement of liabilities, whether 
funded through cash contributions or through the use of a 
funding standard carryover balance, prefunding balance, or 
funding standard account credit balance), beginning with (1) 
the plan year for which the overpayments are taken into account 
for funding purposes, through (2) the end of the plan year 
preceding the plan year for which the corrected benefit payment 
amount is taken into account for funding purposes; and (B) 
certain additional contributions in excess of minimum funding 
requirements paid to the plan after the first of the 
overpayments was made. This reduction is referred to as a 
``contribution credit.'' Future benefit payments to an 
overpayment recipient must be reduced to the correct benefit 
payment amount. For purposes of EPCRS, if the amount of the 
overpayments is reduced to zero after the contribution credit 
is applied, no further corrective payments from any party are 
required, no further reductions to future benefit payments to 
an overpayment recipient, or any spouse or beneficiary of an 
overpayment recipient, are permitted, and no further corrective 
payments from an overpayment recipient, or any spouse or 
beneficiary of an overpayment recipient, are permitted. 
However, if a net overpayment remains after the application of 
the contribution credit, the plan sponsor or another party must 
take further action to reimburse the plan for the remainder of 
the overpayment.
            Overpayments from defined contribution plans
    An overpayment from a defined contribution plan or section 
403(b) plan is generally corrected by plan amendment to conform 
the plan to the plan's operation, subject to the requirements 
of EPCRS.\352\ If the overpayment is not corrected by plan 
amendment, the plan sponsor may correct the overpayment in 
accordance with the return of overpayment correction 
method.\353\ Depending on the nature of the overpayment, other 
appropriate correction methods may be used. An appropriate 
correction method may include using rules similar to those 
described in the EPCRS guidance, but having the employer or 
another person contribute the amount of the overpayment (with 
the appropriate interest) to the plan instead of seeking 
recoupment from an overpayment recipient. Any other correction 
method used must satisfy the correction principles\354\ and any 
other applicable EPCRS rules.
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    \352\See secs. 6.06(4) and 2.04 of Appendix B of Rev. Proc. 2021-
30.
    \353\Sec. 6.06(4)(c) of Rev. Proc. 2021-30.
    \354\As set forth in sec. 6.02 of Rev. Proc. 2021-30.
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                           REASONS FOR CHANGE

    On occasion, individuals may mistakenly receive more money 
than they are entitled to under a retirement plan. These errors 
may persist over a number of years before being discovered, 
creating issues when plan sponsors or other fiduciaries later 
seek to recover these overpayments (plus interest), which may 
be substantial, from unsuspecting retirees. Even small 
overpayment amounts may create a hardship for a retiree living 
on a fixed income.
    The Committee believes that allowing retirement plan 
sponsors or other fiduciaries the discretion to determine how 
to correct such inadvertent failures, for example, by making 
additional contributions to the plan rather than recouping such 
overpayments from the retiree, will alleviate undue burdens on 
unsuspecting retirees.

                     EXPLANATION OF PROVISION\355\
---------------------------------------------------------------------------

    \355\Modifications to Labor provisions are necessary to effectuate 
this provision.
---------------------------------------------------------------------------
    Under the provision, a plan will not fail to be treated as 
a qualified plan, section 403(a) annuity, section 403(b) tax 
sheltered annuity or a governmental plan\356\ (and will not 
fail to be treated as satisfying the requirements of section 
401 or 403) merely because (1) 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 (2) the plan sponsor amends 
the plan to increase past or future benefit payments to 
affected participants and beneficiaries in order to adjust for 
prior inadvertent benefit overpayments. Notwithstanding the 
foregoing, the plan may instead reduce future benefit payments 
to the correct amount provided for under the terms of the plan 
or seek recovery from the person or persons responsible for the 
overpayment. If an employer decides not to recover an 
overpayment, nothing in this provision relieves that employer 
of any obligation imposed upon it to make contributions to a 
plan to satisfy the minimum funding requirements\357\ or to 
prevent or restore an impermissible forfeiture.\358\ In 
addition, the plan must observe any salary, compensation or 
benefit limitations imposed upon it,\359\ and may enforce such 
limitations using any method approved by the Secretary for 
recouping benefits previously paid or allocations previously 
made in excess of such limitations.
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    \356\Under section 219(g)(5)(A)(i), (ii), (iii) or (iv).
    \357\Under sections 412 and 430.
    \358\In accordance with section 411.
    \359\Secs. 401(a)(17) and 415.
---------------------------------------------------------------------------
    The Secretary may issue regulations or other guidance of 
general applicability specifying how benefit overpayments and 
their recoupment or non-recoupment from a participant or 
beneficiary are to be taken into account for purposes of 
satisfying any requirement applicable to such a plan.
            Rollovers
    In the case of an inadvertent benefit overpayment from a 
plan which is transferred to an eligible retirement plan by or 
on behalf of a participant or beneficiary, (1) the portion of 
the overpayment with respect to which recoupment is not sought 
on behalf of the plan will 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 (2) the portion of such overpayment with respect to which 
recoupment is sought on behalf of the plan will be permitted to 
be returned to the plan, and in such case, will be treated as 
an eligible rollover distribution transferred to such plan by 
the participant or beneficiary who received the overpayment 
(and the plans making and receiving such transfer will be 
treated as permitting such transfer).

                             EFFECTIVE DATE

    The provision applies to plan years beginning after the 
date of enactment.
    Plans, fiduciaries, employers, and plan sponsors are 
entitled to rely on a reasonable good faith interpretation of 
then existing administrative guidance for inadvertent benefit 
overpayment recoupments and recoveries that commenced before 
the first day of the first plan year beginning after the date 
of enactment.

 8. Retirement Savings Lost and Found (sec. 208 of the bill and secs. 
   402, 408, 411, 6011, 6057, 6652 and new section 7901 of the Code)


                              PRESENT LAW

Pension Benefit Guaranty Corporation Missing Participants Program

    When a defined benefit pension plan (maintained by a single 
employer and subject to the plan termination insurance program 
under Title IV of ERISA) terminates under a standard 
termination, the plan administrator generally must purchase 
annuity contracts from a private insurer to provide the 
benefits to which participants are entitled and distribute the 
annuity contracts to the participants.
    If the plan administrator of a terminating single employer 
plan cannot locate a participant after a diligent search (has a 
``missing participant''), the plan administrator may satisfy 
the distribution requirement only by purchasing an annuity from 
an insurer or transferring the participant's designated benefit 
to the Pension Benefit Guaranty Corporation (``PBGC''). The 
PBGC holds the benefit of the missing participant as trustee 
until the PBGC locates the missing participant and distributes 
the benefit.\360\
---------------------------------------------------------------------------
    \360\Sec.4041(b)(3)(A); sec. 4050 of ERISA.
---------------------------------------------------------------------------
    Pursuant to the Pension Protection Act of 2006,\361\ the 
PBGC prescribed rules for terminating multiemployer plans 
similar to the missing participant rules applicable to 
terminating single employer plans subject to Title IV of ERISA. 
In addition, plan administrators of certain types of plans not 
otherwise subject to the PBGC termination insurance program are 
permitted, but not required, to elect to transfer missing 
participants' benefits to the PBGC upon plan termination. 
Specifically, the prescribed rules extend the missing 
participants program (in accordance with regulations) to 
defined contribution plans,\362\ defined benefit pension plans 
that have no more than 25 active participants and are 
maintained by professional service employers, and the portion 
of defined benefit pension plans that provide benefits based 
upon the separate accounts of participants and therefore are 
treated as defined contribution plans under ERISA.
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    \361\Pub. L. No. 109-280, August 17, 2006.
    \362\The Missing Participants program for Defined Contribution 
plans covers common types of defined contribution pension plans; 
specifically section 401(k) plans, profit sharing plans, money purchase 
plans, target benefit plans, employee stock ownership plans, stock 
bonus plans, and section 403(b)(7) plans subject to Title I of ERISA. 
Some examples of plans not covered are governmental plans, church 
plans, and plans that cannot pay benefits to PBGC in cash. See 29 
C.F.R. sec. 4050.201.
---------------------------------------------------------------------------
    On December 22, 2017, PBGC established the PBGC Defined 
Contribution Missing Participants Program (``Missing 
Participants Program'') to hold retirement benefits for missing 
participants and beneficiaries in most terminated defined 
contribution plans and to help those participants and 
beneficiaries find and receive those benefits.\363\
---------------------------------------------------------------------------
    \363\29 C.F.R. sec. 4050.201-207.1.
---------------------------------------------------------------------------

Department of Labor

    A fiduciary safe harbor\364\ may apply with respect to 
distributions from terminated individual account plans\365\ and 
abandoned plans\366\ on behalf of participants and 
beneficiaries who fail to make an election regarding a form of 
benefit distribution, including ``missing participants.'' The 
safe harbor generally requires that distributions be rolled 
over to an individual retirement account or annuity (IRA), 
although in limited circumstances fiduciaries may make 
distributions to certain bank accounts or to a state unclaimed 
property fund. If the conditions of the safe harbor are met, a 
fiduciary (including a Qualified Termination Administrator 
(``QTA'') in the case of an abandoned plan) is deemed to have 
satisfied the requirements of section 404(a) of ERISA with 
respect to distributing benefits, selecting a transferee 
entity, and investing funds in connection with the 
distribution.
---------------------------------------------------------------------------
    \364\29 C.F.R. sec. 2550.404a-3.
    \365\Sec. 3(34) of ERISA.
    \366\As described in 29 C.F.R. sec. 2578.1
---------------------------------------------------------------------------
    The DOL consulted with the PBGC during the PBGC's 
development of its Missing Participants Program. As noted in 
the preamble to the final rule adopting the Missing 
Participants Program, the DOL may revise its fiduciary safe 
harbor regulation so that transfers to the PBGC by terminating 
individual account plans would be eligible for relief under the 
safe harbor.
    On January 12, 2021, the DOL issued Field Assistance 
Bulletin 2021-01\367\ in which it announced that pending 
further guidance, the DOL will not pursue fiduciary violations 
against either responsible plan fiduciaries of terminating 
defined contribution plans or QTAs of abandoned plans\368\ in 
connection with the transfer of a missing or non-responsive 
participant's or beneficiary's account balance to the PBGC in 
accordance with the PBGC's missing participant regulations 
(rather than to an IRA, certain bank accounts, or to a state 
unclaimed property fund),\369\ if the plan fiduciary or QTA 
complies with the guidance in the Bulletin and has acted in 
accordance with a good faith, reasonable interpretation of the 
fiduciary rules under ERISA\370\ with respect to matters not 
specifically addressed in the guidance.
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    \367\Field Assistance Bulletin 2021-01 can be found at: https://
www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-
assistance-bulletins/2021-01.
    \368\As described in 29 C.F.R. sec. 2578.1.
    \369\As specified in 29 C.F.R. sec. 2550.404a-3.
    \370\Sec. 404 of ERISA.
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Mandatory rollovers

    If a qualified retirement plan participant ceases to be 
employed by the employer that maintains the plan, the plan may 
distribute the participant's nonforfeitable accrued benefit 
without the consent of the participant and, if applicable, the 
participant's spouse, if the present value of the benefit does 
not exceed $5,000. If such an involuntary distribution occurs 
and the participant subsequently returns to employment covered 
by the plan, then service taken into account in computing 
benefits payable under the plan after the return need not 
include service with respect to which a benefit was 
involuntarily distributed unless the employee repays the 
benefit.
    Generally, a participant may roll over an involuntary 
distribution from a qualified plan to an IRA or to another 
qualified plan. Before making a distribution that is eligible 
for rollover, a plan administrator must provide the participant 
with a written explanation of the ability to have the 
distribution rolled over directly to an IRA or another 
qualified plan and the related tax consequences.
    A direct rollover is the default option for involuntary 
distributions that exceed $1,000 and that are eligible rollover 
distributions from qualified retirement plans. The distribution 
must be rolled over automatically to a designated IRA, unless 
the participant affirmatively elects to have the distribution 
transferred to a different IRA or a qualified plan or to 
receive it directly. The written explanation provided by the 
plan administrator is required to explain that an automatic 
direct rollover will be made unless the participant elects 
otherwise. The plan administrator is also required to notify 
the participant in writing (as part of the general written 
explanation or separately) that the distribution may be 
transferred without cost to another IRA.
    Under the fiduciary rules of ERISA, in the case of an 
automatic direct rollover, the participant is treated as 
exercising control over the assets in the IRA upon the earlier 
of: (1) the rollover of any portion of the assets to another 
IRA, or (2) one year after the automatic rollover.

Lost and Found

    Under present law, there is not a ``Lost and Found'' 
database to collect information on benefits owed to missing, 
lost or non-responsive participants and beneficiaries in tax-
qualified retirement plans (other than terminated plans) and to 
assist such plan participants and beneficiaries in locating 
those benefits.

                           REASONS FOR CHANGE

    Every year, thousands of people approach retirement, but 
may be unaware of, or are unable to locate and recover, 
benefits that they have earned (frequently with employers from 
whom they have separated service) for a number of reasons, 
including because that employer moved, changed its name, or 
merged with a different company. Similarly, every year there 
are employers around the country ready to pay these benefits to 
such individuals, but they cannot locate those individuals.
    The Committee believes that the creation of a national, 
online, lost and found database dedicated to matching these 
individuals with their benefits would facilitate the recovery 
of such benefits by these individuals, along with a program 
that preserves unclaimed cash-outs of small account balances in 
employer retirement plans.

                     EXPLANATION OF PROVISION\371\
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    \371\Because this provision also impacts parallel labor provisions, 
references to those labor provisions would need to be revised before 
this provision could take effect.
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Establishment of the Lost and Found

    Under the provision, not later than three years after the 
date of enactment, the Secretary, in consultation with the 
Secretary of Labor, the Secretary of Commerce, and the Director 
of the PBGC, will establish an online searchable database to be 
managed by the Department of Treasury (``Treasury''),\372\ to 
be known as the Retirement Savings Lost and Found (the ``Lost 
and Found''), containing information on plans, subject to the 
vesting standards under the Code,\373\ as well as certain 
additional information related to the location of certain 
unclaimed vested benefits of missing, lost and non-responsive 
participants and beneficiaries in such plans.\374\ The Lost and 
Found database will contain information: (1) provided by plan 
administrators that are required to periodically report to the 
Office of the Lost and Found each plan year; (2) provided by 
plan administrators that transfer certain small benefits of 
non-responsive participants and beneficiaries to the Lost and 
Found; and (3) other relevant information obtained by Treasury.
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    \372\The Office of the Retirement Savings Lost and Found (the 
``Office of the Lost and Found'') will be established within the 
Department of Treasury to maintain the Retirement Savings Lost and 
Found.
    \373\Sec. 411.
    \374\Tax-qualified defined benefit and defined contribution plans 
that are subject to the vesting standards contained in Code section 
411.
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    The collection of this information in the Lost and Found 
will allow Treasury to assist participants and beneficiaries by 
providing contact information\375\ on record for the plan 
administrator of any plan in which the participant or 
beneficiary may have an unclaimed benefit sufficient to allow 
that participant or beneficiary to locate the individual's plan 
in order to recover any benefit owing to that individual under 
the plan. With respect to those plans which have transferred 
such benefits to Treasury, Treasury will also be able to pay 
those benefits to such participants and beneficiaries. Because 
Treasury would be provided additional and updated information 
from plan administrators through reporting requirements, the 
Treasury will also be able to make any necessary changes to the 
database reflecting updates to contact information on record 
for the plan administrator based on any changes to such plans 
including those arising from mergers or consolidations 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 plan administrator, transfers 
of such accounts to IRAs, purchase of annuities, or other 
causes.
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    \375\Such individuals will be provided only with the ability to 
view contact information for the plan administrator of any plan with 
respect to which the individual is or was a participant or beneficiary.
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            Safeguarding participant privacy and security
    In establishing the Lost and Found, the Secretary of 
Treasury, in consultation with the Secretary of Labor, the 
Secretary of Commerce, and the Director of the PBGC must take 
all necessary and proper precautions to ensure that 
individuals' plan information maintained by the Lost and Found 
is protected and that persons other than the individual cannot 
fraudulently claim the benefits to which any individual is 
entitled, and to allow any individual to opt out of inclusion 
in the Lost and Found at the election of the individual.
    Treasury is also provided regulatory authority, as 
permitted under present law, to provide guidance:
           To authorize Treasury to disclose to the 
        agencies jointly administering the database such return 
        information as is necessary to administer the Lost and 
        Found database but only to such employees whose 
        official duties with respect to the database require 
        such disclosure, and
           To authorize Treasury to disclose to plan 
        participants and beneficiaries the contact information 
        for the plan administrator of any plan with respect to 
        which the individual is or was a participant or 
        beneficiary.

Establishment and responsibilities of the Office of the Retirement 
        Savings Lost and Found

    Not later than two years after the date of the enactment of 
this Act, the Secretary must establish, within Treasury, an 
Office of the Retirement Savings Lost and Found (``Office of 
the Lost and Found'').
    The Office of the Lost and Found will (1) maintain the Lost 
and Found database; (2) facilitate the transfer of small 
benefits of non-responsive participants and beneficiaries\376\ 
to the Office of the Lost and Found by (a) collecting 
information, applicable fees, and benefits related to such 
individuals from the applicable plan and (b) investing such 
benefits; (3) search for and pay out benefits to those 
participants and beneficiaries for whom benefits have been 
transferred to the Office of the Lost and Found; (4) perform an 
annual audit of plan information contained in the Lost and 
Found; and (5) ensure that such information is current and 
accurate.
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    \376\In defined benefit and defined contribution plans subject to 
the vesting requirements of Code section 411.
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            Required transfer of small benefits of certain non-
                    responsive participants by plans to the Office of 
                    the Lost and Found
    Under the provision, the administrator of a plan that is 
not terminated\377\ must transfer a non-responsive 
participant's\378\ benefit to the Office of the Lost and 
Found\379\ if the nonforfeitable accrued benefit\380\ is no 
greater than $1,000.
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    \377\And to which section 401(a)(31)(B) of the Code applies.
    \378\For this provision, a non-responsive participant means a 
participant or beneficiary of a plan who is entitled to a benefit 
subject to a mandatory transfer under section 401(a)(31)(B)(iii) and 
for whom the plan has satisfied the conditions in section 
401(a)(31)(B)(iv).
    \379\Under sec. 401(a)(31)(B).
    \380\Under sec. 401(a)(31)(B).
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    Upon making a transfer to the Office of the Lost and Found 
of small benefits of non-responsive participants, the plan 
administrator must provide such information and certifications 
as the Office of the Lost and Found specifies including with 
respect to the transferred amount of the benefit and the 
identification of the non-responsive participant. In the event 
that, after such a transfer, the relevant non-responsive 
participant contacts the plan administrator or the plan 
administrator discovers information that may assist the Office 
of the Lost and Found in locating the non-responsive 
participant, the plan administrator must notify and provide 
such information to the Office of the Lost and Found as such 
Office specifies.
    A transfer of such benefits to the Office of the Lost and 
Found under this provision will be treated as a transfer to an 
individual retirement plan. Such benefits will be held in a 
fund\381\ established for the payment of such benefits which 
fund will also be credited with earnings on investments in the 
fund or on assets credited to the fund. Whenever Treasury 
determines that the moneys of any fund are in excess of current 
needs, it may request the investment of such amounts as it 
determines advisable by the Secretary in obligations issued or 
guaranteed by the United States.
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    \381\For amounts transferred to the Lost and Found.
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    Following a transfer of such benefits to the Office of the 
Lost and Found, the Office of the Lost and Found will 
periodically, and upon receiving information from the plan 
administrator as described above, conduct a search for the non-
responsive participant for whom the Office of the Lost and 
Found has received a transfer. Upon location of such a non-
responsive participant who claims benefits, the Office of the 
Lost and Found will pay the non-responsive participant the 
amount transferred to it in a single sum (plus an amount 
reflecting the return on the investment attributable to such 
amount). Treasury has the regulatory authority to prescribe 
regulations as are necessary to carry out the transfer of small 
benefits including rules relating to the amount payable to the 
Office of the Lost and Found by the plan administrator and the 
amount to be paid to the non-responsive participant or 
beneficiary by the Office of the Lost and Found when that 
individual is located.
            Annual reporting requirements
    Under the provision, within such period after the end of 
each plan year beginning after the second December 31 occurring 
after the date of enactment, as the Office of the Lost and 
Found may prescribe, the plan administrator of a plan to which 
the vesting standards of the Code apply\382\ will submit the 
following information, and such other information as the Office 
of the Lost and Found may require:\383\
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    \382\Sec. 411.
    \383\Because this reporting begins approximately two years after 
the date of enactment, unless the Office of the Lost and Found 
prescribes otherwise, this information will only be provided to the 
Office of the Lost and Found prospectively.
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           The name of the plan;
           The name and address of the plan 
        administrator;
           Any change in the name of the plan;
           Any change in the name or address of the 
        plan administrator;
           The name and taxpayer identifying number of 
        each participant or former participant in the plan:
                   Who, during the current plan 
                year or any previous plan year, was reported to 
                IRS\384\ as a separated participant with a 
                deferred vested benefit that had not been paid 
                as of the end of the previous plan year, and 
                with respect to whom such benefit was fully 
                paid during the plan year;
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    \384\Under sec. 6057.
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                   With respect to whom any amount 
                was distributed as a mandatory distribution 
                during the plan year; or
                   With respect to whom a deferred 
                annuity contract was distributed during the 
                plan year;
           The termination of the plan;
           The merger or consolidation of the plan with 
        any other plan or its division into two or more plans;
           In the case of a participant or former 
        participant whose benefit was distributed as a 
        mandatory distribution during the plan year, the name 
        and address of the designated trustee or issuer and the 
        account number of the individual retirement plan to 
        which the amount was distributed; and
           In the case of a participant or former 
        participant to whom a deferred annuity contract was 
        distributed during the plan year, the name and address 
        of the issuer of such annuity contract and the contract 
        or certificate number.
            Guidance
    The Office of the Lost and Found will prescribe such 
regulations as are necessary to carry out the purposes of this 
provision, including rules relating to the amount payable to 
the Office of the Lost and Found and the amount to be paid by 
the Office of the Lost and Found.

Mandatory transfers of rollover distributions and coordination with 
        distribution requirements

            Expansion of cap
    The provision increases the cap on mandatory distributions 
from $5,000 to $6,000.\385\
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    \385\Under section 401(a)(31)(B)(ii)(I).
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            Distribution of larger amounts only to IRAs, not to the 
                    Office of the Lost and Found
    Under the provision, the Office of the Lost and Found is 
not treated as a trustee eligible to receive mandatory 
distributions\386\ that are in excess of $1,000 but not in 
excess of $6,000. In other words, Treasury may only accept 
transfers of nonforfeitable accrued benefits in the amount of 
$1,000 or less.
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    \386\Sec. 401(a)(31)(B).
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            Mandatory distributions of lesser amounts for non-
                    responsive individuals to the Office of the Lost 
                    and Found
    Under the provision, in the case of a plan that provides 
for mandatory distributions of amounts of $6,000 or less, the 
trust of such plan will not be considered a qualified trust 
under the Code unless the plan provides that, if a participant 
in the plan separates from the service covered by the plan and 
the participant's nonforfeitable accrued benefit is not in 
excess of $1,000, the plan administrator must (either 
separately or as part of the written notice to recipients of 
distributions eligible for rollover treatment) either (1) 
notify the participant that the participant is entitled to such 
benefit, or (2) attempt to pay the benefit directly to the 
participant.
    If, after a plan administrator either notifies the 
participant of the entitlement to the benefit or attempts to 
pay the benefit directly to the participant, the participant 
does not:
           Within six months of the notification either 
        make an election to have the distribution paid directly 
        to a specified eligible retirement plan\387\ or elect 
        to receive a distribution of the benefit directly, or
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    \387\Sec. 402(c)(8)(B), except that a qualified trust is considered 
an eligible retirement plan only if it is a defined contribution plan 
that accepts rollovers.
---------------------------------------------------------------------------
           Accept any direct payment made within six 
        months of the attempted payment (in other words, does 
        not cash the check),
           Then the plan administrator must transfer 
        the amount of such benefit to the Office of the Lost 
        and Found.
    A transfer of such a distribution to the Office of the Lost 
and Found is treated as a transfer to an individual retirement 
plan, and the distribution of such amounts by the Office of the 
Lost and Found to a non-responsive participant who is 
subsequently located will be treated as a distribution from an 
individual retirement account.

Reporting for mandatory transfers

    The provision modifies the reporting requirements by plan 
administrators with respect to plans that are subject to the 
Code vesting standards,\388\ which include tax qualified 
defined benefit and defined contribution plans, as follows:
---------------------------------------------------------------------------
    \388\Sec. 411.
---------------------------------------------------------------------------
           By providing that plan administrators must 
        report\389\ the name and taxpayer identification number 
        of each participant in the plan who, during the plan 
        year immediately preceding such plan year separated 
        from the service covered by the plan.
---------------------------------------------------------------------------
    \389\Pursuant to sec. 6057.
---------------------------------------------------------------------------
           By requiring that the following information 
        must also be included:
                   The name and taxpayer 
                identifying number of each participant or 
                former participant in the plan:
                          b Who, during the current plan year 
                        or any previous plan year, was reported 
                        to IRS\390\ as a separated participant 
                        with a deferred vested benefit that had 
                        not been paid as of the end of the 
                        previous plan year, and with respect to 
                        whom such benefit was fully paid during 
                        the plan year;
---------------------------------------------------------------------------
    \390\Under sec. 6057.
---------------------------------------------------------------------------
                          b With respect to whom any amount was 
                        distributed as a mandatory distribution 
                        during the plan year; or
                          b With respect to whom a deferred 
                        annuity contract was distributed during 
                        the plan year;
           In the case of a participant or former 
        participant whose benefit was distributed as a 
        mandatory distribution during the plan year, the name 
        and address of the designated trustee or issuer and the 
        account number of the individual retirement plan to 
        which the amount was distributed; and
           In the case of a participant or former 
        participant to whom a deferred annuity contract was 
        distributed during the plan year, the name and address 
        of the issuer of such annuity contract and the contract 
        or certificate number.

Rules relating to direct trustee-to-trustee transfers

    Under the provision, additional reporting is required with 
respect to direct trustee-to-trustee transfers as follows:
           Notification of the Trustee: In the case of 
        a mandatory distribution under the Code,\391\ the plan 
        administrator must notify the designated trustee of the 
        account or issuer, or the plan administrator will be 
        subject to a penalty equal to $100 for each such 
        failure, up to a maximum for all such failures during 
        any calendar year not to exceed $50,000, unless it is 
        shown that the failure was due to reasonable cause and 
        not to willful neglect.\392\
---------------------------------------------------------------------------
    \391\Pursuant to section 401(a)(31)(B).
    \392\Sec. 6652(i).
    \393\Sec. 408(i).
---------------------------------------------------------------------------
           The reports required to be made to the 
        Secretary by the trustee of an IRA or the issuer of an 
        endowment contract\393\ are modified to require, in the 
        case of an IRA account, endowment contract or IRA 
        annuity to which a mandatory transfer\394\ is made 
        (including a transfer from the individual retirement 
        plan to which the original transfer was made to another 
        individual retirement plan), for the year of the 
        transfer and any year in which the information 
        previously reported changes that such report:
---------------------------------------------------------------------------
    \394\Under section 401(a)(31)(B).
---------------------------------------------------------------------------
    1. Identify the transfer as a required mandatory 
distribution; and
    2. Include the name, address, and taxpayer identifying 
number of the trustee or issuer of the individual retirement 
plan to which the amount is transferred.
    There is also a similar rule for Savings Incentive Match 
Plan for Employees (``SIMPLE'') plans where the benefit is 
transferred from a SIMPLE plan to another individual retirement 
plan. The report required for the year of the transfer and any 
year in which the information previously reported is changed 
must: (1) identify the transfer as a required mandatory 
distribution; and (2) include the name, address, and taxpayer 
identifying number of the trustee or issuer of the individual 
retirement plan to which the amount is transferred.
            Notification of participant upon separation of service
    The individual registration statement that needs to be 
provided to each separated participant\395\ by the plan 
administrator must include a notice of availability of, and the 
contact information for, the Office of the Lost and Found.
---------------------------------------------------------------------------
    \395\Pursuant to section 6057(e).
---------------------------------------------------------------------------
            Requirement of electronic filing
    Under the provision, reports required with respect to 
separated participants from retirement plans,\396\ information 
required with respect to certain plans of deferred 
compensation,\397\ and periodic reports of actuaries,\398\ as 
well as certain reports with respect to IRAs, (including 
endowment contracts),\399\ information returns at source,\400\ 
and information reports relating to certain trust and annuity 
plans,\401\ (to the extent each such return or report relates 
to the tax treatment of a distribution from a plan, account, 
contract, or annuity) must be filed on magnetic media, but only 
with respect to persons who are required to file at least 50 
returns during the calendar year which includes the first day 
of the plan year to which such returns or reports relate.
---------------------------------------------------------------------------
    \396\Sec. 6057.
    \397\Sec. 6058.
    \398\Sec. 6059.
    \399\Pursuant to section 408(i).
    \400\Sec. 6047.
    \401\Sec. 6041.
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                             EFFECTIVE DATE

    The effective date of the provision is generally on the 
date of enactment.
    The provisions related to the transfer of small benefits to 
the Office of the Lost and Found for certain non-responsive 
participants and the submission of information by plan 
administrators to the Office of the Lost and Found are 
effective with respect to plan years beginning after the second 
December 31 occurring after the date of the enactment.
    The provisions related to changes to the mandatory 
distribution rules are applicable to vested benefits with 
respect to participants who separate from service connected to 
the plan in plan years beginning after the second December 31 
occurring after the date of enactment.
    The provisions related to modified reporting requirements 
under the Code and to filing certain reports electronically are 
applicable to returns and reports relating to years beginning 
after the second December 31 occurring after the date of 
enactment.

9. Roth plan distribution rules (sec. 209 of the bill and sec. 402A(d) 
                              of the Code)


                              PRESENT LAW

Qualified Roth contribution programs

    An applicable retirement plan\402\ may include a qualified 
Roth contribution program that permits a participant to elect 
to have all or a portion of the participant's elective 
deferrals\403\ under the plan treated as designated Roth 
contributions.\404\ Designated Roth contributions are elective 
deferrals that the participant designates as not excludable 
from the participant's gross income.\405\ The plan is required 
to establish a separate account (a designated Roth account), 
and maintain separate recordkeeping, for a participant's 
designated Roth contributions (and earnings allocable 
thereto).\406\
---------------------------------------------------------------------------
    \402\As defined in section 402A(e)(1).
    \403\As defined in section 402A(e)(2).
    \404\Sec. 402A(a).
    \405\Sec. 402A(c). The amount of elective deferrals an employee may 
so designate is limited (sec. 402A(c)(2)).
    \406\Sec. 402A(b)(2).
---------------------------------------------------------------------------
    A qualified distribution from a participant's designated 
Roth account generally is not includible in the participant's 
gross income.\407\
---------------------------------------------------------------------------
    \407\Sec. 402A(d). Qualified distributions are defined in section 
402A(d)(2). In general, qualified distributions do not include 
distributions made within a five-year nonexclusion period and do not 
include distributions of certain excess deferrals or excess 
contributions, or income thereon. Rules are provided for the treatment 
of excess designated Roth contributions (sec. 402A(d)(3)) and rollovers 
(secs. 402A(c)(3) and (4)).
---------------------------------------------------------------------------

Roth IRA distributions

    There are two basic types of IRAs. In the case of 
traditional IRAs,\408\ contributions in excess of the 
deductible amount are not permitted,\409\ and distributions are 
includible in the gross income of the payee or 
distributee.\410\
---------------------------------------------------------------------------
    \408\Sec.408.
    \409\Sec. 219.
    \410\Sec. 408(d).
---------------------------------------------------------------------------
    In the case of Roth IRAs, only nondeductible (after-tax) 
contributions may be made.\411\ For a Roth IRA, if certain 
requirements are satisfied, distributions are not includible in 
gross income.\412\
---------------------------------------------------------------------------
    \411\Sec. 408A.
    \412\Sec. 408A(d).
---------------------------------------------------------------------------
            Exceptions to certain distribution requirements for Roth 
                    IRAs
    Distributions from a participant's designated Roth account 
under a qualified Roth contribution program are subject to pre-
death minimum distribution rules as well as incidental death 
benefit requirements.
    However, under an exception, the pre-death minimum 
distribution rules that generally apply to IRAs\413\ do not 
apply to Roth IRAs. In addition, the incidental death benefit 
rules do not apply to Roth IRAs.\414\
---------------------------------------------------------------------------
    \413\Secs. 408(a)(6) and (b)(3).
    \414\Secs. 408A(c)(4) and 401(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to extend to 
designated Roth accounts the exceptions that apply to Roth IRAs 
from the pre-death minimum distribution rules and from the 
incidental death benefit requirements.

                        EXPLANATION OF PROVISION

    The provision adds an exception in the case of a designated 
Roth account. Under the exception, the pre-death minimum 
distribution rules\415\ and the incidental death benefit 
requirements\416\ do not apply to a designated Roth account 
under a qualified Roth contribution program.
---------------------------------------------------------------------------
    \415\Secs. 401(a)(9)(A).
    \416\Sec. 401(a).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective generally for taxable years 
beginning after December 31, 2023.
    However, under a transition rule, the provision does not 
apply to distributions which are required with respect to years 
beginning before January 1, 2024, but are permitted to be paid 
on or after that date.

 10. One-time election for qualified charitable distribution to split-
    interest entity; increase in qualified charitable distribution 
    limitation (sec. 210 of the bill and sec. 408(d)(8) of the Code)


                              PRESENT LAW

In general

    If an amount withdrawn from a traditional individual 
retirement arrangement (``IRA'') or a Roth IRA is donated to a 
charitable organization, the rules relating to the tax 
treatment of withdrawals from IRAs apply to the amount 
withdrawn and the charitable contribution is subject to the 
normally applicable limitations on deductibility of such 
contributions. An exception applies in the case of a qualified 
charitable distribution.

Charitable contributions

    In computing taxable income, an individual taxpayer who 
itemizes deductions generally is allowed to deduct the amount 
of cash and up to the fair market value of property contributed 
to the following entities: (1) a charity described in section 
170(c)(2); (2) certain veterans' organizations, fraternal 
societies, and cemetery companies;\417\ and (3) a Federal, 
State, or local governmental entity, but only if the 
contribution is made for exclusively public purposes.\418\ The 
deduction also is allowed for purposes of calculating 
alternative minimum taxable income.
---------------------------------------------------------------------------
    \417\Secs. 170(c)(3)-(5).
    \418\Sec. 170(c)(1).
---------------------------------------------------------------------------
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\419\
---------------------------------------------------------------------------
    \419\Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A taxpayer who takes the standard deduction (i.e., who does 
not itemize deductions) generally may not take a separate 
deduction for charitable contributions.\420\
---------------------------------------------------------------------------
    \420\Sec. 170(a).
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate, among other things, that the payment 
exceeds the fair market value of the benefit received from the 
charity. To facilitate distinguishing charitable contributions 
from purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service provided) to the taxpayer in 
consideration for the contribution.\421\ In addition, present 
law requires that any charity that receives a contribution 
exceeding $75 made partly as a gift and partly as consideration 
for goods or services furnished by the charity (a ``quid pro 
quo'' contribution) is required to inform the contributor in 
writing of an estimate of the value of the goods or services 
furnished by the charity and that only the portion exceeding 
the value of the goods or services may be deductible as a 
charitable contribution.\422\
---------------------------------------------------------------------------
    \421\Sec. 170(f)(8). For any contribution of a cash, check, or 
other monetary gift, no deduction is allowed unless the donor maintains 
as a record of such contribution a bank record or written communication 
from the donee charity showing the name of the donee organization, the 
date of the contribution, and the amount of the contribution. Sec. 
170(f)(17).
    \422\Sec. 6115.
---------------------------------------------------------------------------
    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations generally may not exceed 50 percent of the 
taxpayer's contribution base, which is the taxpayer's adjusted 
gross income for a taxable year (disregarding any net operating 
loss carryback). To the extent a taxpayer has not exceeded the 
50-percent limitation, (1) contributions of capital gain 
property to public charities generally may be deducted up to 30 
percent of the taxpayer's contribution base, (2) contributions 
of cash to most private nonoperating foundations and certain 
other charitable organizations generally may be deducted up to 
30 percent of the taxpayer's contribution base, and (3) 
contributions of capital gain property to private foundations 
and certain other charitable organizations generally may be 
deducted up to 20 percent of the taxpayer's contribution base. 
For taxable years beginning after December 31, 2017, and before 
January 1, 2026, the 50-percent limit is increased to 60 
percent for contributions of cash.\423\
---------------------------------------------------------------------------
    \423\Sec. 170(b)(1)(G).
---------------------------------------------------------------------------
    Contributions by individuals in excess of the applicable 
limits generally may be carried over and deducted over the next 
five taxable years, subject to the relevant percentage 
limitations on the deduction in each of those years.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity (e.g., a remainder) while 
also either retaining an interest in that property (e.g., an 
income interest) or transferring an interest in that property 
to a noncharity for less than full and adequate 
consideration.\424\ Exceptions to this general rule are 
provided for, among other interests, remainder interests in 
charitable remainder trusts (discussed below), pooled income 
funds, and present interests in the form of a guaranteed 
annuity or a fixed percentage of the annual value of the 
property.\425\ For such interests, a charitable deduction is 
allowed to the extent of the present value of the interest 
designated for a charitable organization.
---------------------------------------------------------------------------
    \424\Secs. 170(f), 2055(e)(2), and 2522(c)(2).
    \425\Sec. 170(f)(2).
---------------------------------------------------------------------------

Charitable remainder trusts and charitable gift annuities

    Both charitable remainder trusts and charitable gift 
annuities are arrangements under which a taxpayer contributes 
assets to charity (directly or through a trust) but retains an 
interest. As part of these arrangements, a stream of payments 
is guaranteed to one or more noncharitable beneficiaries 
(possibly including the taxpayer) over a period of time, with 
the remaining interest passing to charity. The taxpayer 
generally claims a charitable deduction for the portion of the 
transfer attributable to the charitable interest.
            Charitable remainder trusts
    A charitable remainder annuity trust is a trust that is 
required to pay, at least annually, a fixed dollar amount of at 
least five percent of the initial value of the trust to a 
noncharity for the life of an individual or for a period of 20 
years or less, with the remainder passing to charity. A 
charitable remainder unitrust is a trust that generally is 
required to pay, at least annually, a fixed percentage of at 
least five percent of the fair market value of the trust's 
assets determined at least annually to a noncharity for the 
life of an individual or for a period of 20 years or less, with 
the remainder passing to charity.\426\
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    \426\Sec. 664(d). Charitable remainder annuity trusts and 
charitable remainder unitrusts are exempt from Federal income tax for a 
tax year unless the trust has any unrelated business taxable income for 
the year (including certain debt financed income). A charitable 
remainder trust that loses its exemption from income tax for a taxable 
year is taxed as a complex trust. As such, the trust is allowed a 
deduction in computing taxable income for amounts required to be 
distributed in a taxable year, not to exceed the amount of the trust's 
distributable net income for the year. Taxes imposed on the trust are 
required to be allocated to corpus. Treas. Reg. sec. 1.664-1(d)(2).
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    A trust does not qualify as a charitable remainder annuity 
trust if the annuity for a year is greater than 50 percent of 
the initial fair market value of the trust's assets. A trust 
does not qualify as a charitable remainder unitrust if the 
percentage of assets that are required to be distributed at 
least annually is less than five percent or greater than 50 
percent. A trust does not qualify as a charitable remainder 
annuity trust or a charitable remainder unitrust unless the 
present value of the remainder interest in the trust 
(determined at the time of the transfer to the trust under 
section 7520) is at least 10 percent of the value of the assets 
contributed to the trust.
    Distributions from a charitable remainder annuity trust or 
charitable remainder unitrust are treated in the following 
order as: (1) ordinary income to the extent of the trust's 
current and previously undistributed ordinary income for the 
trust's year in which the distribution occurred, (2) capital 
gains to the extent of the trust's current capital gain and 
previously undistributed capital gain for the trust's year in 
which the distribution occurred, (3) other income (e.g., tax-
exempt income) to the extent of the trust's current and 
previously undistributed other income for the trust's year in 
which the distribution occurred, and (4) corpus.\427\
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    \427\Sec. 664(b).
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    In general, distributions to the extent they are 
characterized as income are includible in the income of the 
beneficiary for the year that the annuity or unitrust amount is 
required to be distributed even though the annuity or unitrust 
amount is not distributed until after the close of the trust's 
taxable year.\428\
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    \428\Treas. Reg. sec. 1.664-1(d)(4).
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            Charitable gift annuities
    A charitable gift annuity is similar in concept to a 
charitable remainder annuity trust, except that, under a 
contract between the taxpayer and a charity, the assets are 
transferred to the charity (not to a separate trust) in 
exchange for the charity's promise to make fixed annuity 
payments for life to the donor or to the donor and one other 
person.
    Charitable gift annuities are not treated as commercial-
type insurance for purposes of section 501(m), under which an 
organization is not described in section 501(c)(3) if a 
substantial part of its activities consists of providing 
commercial-type insurance.\429\
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    \429\Sec. 501(m)(3)(E) and (5).
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IRA rules

    Within limits, individuals may make deductible and 
nondeductible contributions to a traditional IRA. Amounts in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal represents a return of 
nondeductible contributions). Certain individuals also may make 
nondeductible contributions to a Roth IRA (deductible 
contributions cannot be made to a Roth IRA). Qualified 
withdrawals from a Roth IRA are excludable from gross income. 
Withdrawals from a Roth IRA that are not qualified withdrawals 
are includible in gross income to the extent attributable to 
earnings. Includible amounts withdrawn from a traditional IRA 
or a Roth IRA before attainment of age 59\1/2\ are subject to 
an additional 10-percent early withdrawal tax unless an 
exception applies. Under present law, minimum distributions are 
required to be made from tax-favored retirement arrangements, 
including IRAs. Minimum required distributions from a 
traditional IRA must generally begin by April1 of the calendar 
year following the year in which the IRA owner attains age 
72.\430\
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    \430\Minimum distribution rules also apply in the case of 
distributions after the death of a traditional or Roth IRA owner.
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    If an individual has made nondeductible contributions to a 
traditional IRA, a portion of each distribution from an IRA is 
nontaxable until the total amount of nondeductible 
contributions has been received. In general, the amount of a 
distribution that is nontaxable is determined by multiplying 
the amount of the distribution by the ratio of the remaining 
nondeductible contributions to the account balance. In making 
the calculation, all traditional IRAs of an individual are 
treated as a single IRA, all distributions during any taxable 
year are treated as a single distribution, and the value of the 
contract, income on the contract, and investment in the 
contract are computed as of the close of the calendar year.
    In the case of a distribution from a Roth IRA that is not a 
qualified distribution, in determining the portion of the 
distribution attributable to earnings, contributions and 
distributions are deemed to be distributed in the following 
order: (1) regular Roth IRA contributions; (2) taxable 
conversion contributions;\431\ (3) nontaxable conversion 
contributions; and (4) earnings. In determining the amount of 
taxable distributions from a Roth IRA, all Roth IRA 
distributions in the same taxable year are treated as a single 
distribution, all regular Roth IRA contributions for a year are 
treated as a single contribution, and all conversion 
contributions during the year are treated as a single 
contribution.
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    \431\Conversion contributions refer to conversions of amounts in a 
traditional IRA to a Roth IRA.
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    Distributions from an IRA (other than a Roth IRA) are 
generally subject to withholding unless the individual elects 
not to have withholding apply.\432\ Elections not to have 
withholding apply are to be made in the time and manner 
prescribed by the Secretary.
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    \432\Sec. 3405.
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Qualified charitable distributions

    Otherwise-taxable IRA distributions from a traditional or 
Roth IRA are excluded from gross income to the extent they are 
qualified charitable distributions.\433\ The exclusion may not 
exceed $100,000 per taxpayer per taxable year.
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    \433\ Sec. 408(d)(8). The exclusion does not apply to distributions 
from employer-sponsored retirement plans, including SIMPLE IRAs and 
simplified employee pensions (``SEPs'').
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    An individual who receives a deduction for a contribution 
to a traditional IRA for years ending on or after age 70\1/2\ 
is not eligible to exclude such amount from income as a 
qualified charitable distribution. Thus, the amount of 
qualified charitable distributions otherwise excludable from an 
individual's gross income for a taxable year is reduced (but 
not below zero) by the excess of (i) the aggregate amount of 
deductions allowed to the taxpayer for contributions to a 
traditional IRA for taxable years ending on or after the 
individual attains age 70\1/2\, over (ii) the aggregate amount 
of reductions for all taxable years preceding the current year.
    Special rules apply in determining the amount of an IRA 
distribution that is otherwise taxable. The otherwise 
applicable rules regarding taxation of IRA distributions and 
the deduction of charitable contributions continue to apply to 
distributions from an IRA that are not qualified charitable 
distributions. A qualified charitable distribution is taken 
into account for purposes of the minimum distribution rules 
applicable to traditional IRAs to the same extent the 
distribution would have been taken into account under such 
rules had the distribution not been directly distributed under 
the qualified charitable distribution provision. An IRA does 
not fail to qualify as an IRA as a result of qualified 
charitable distributions being made from the IRA.
    A qualified charitable distribution is any distribution 
from an IRA directly by the IRA trustee to an organization 
described in section 170(b)(1)(A) (generally, public charities) 
other than a supporting organization (as described in section 
509(a)(3)) or a donor advised fund (as defined in section 
4966(d)(2)). Distributions are eligible for the exclusion only 
if made on or after the date the IRA owner attains age 70\1/2\ 
and only to the extent the distribution would be includible in 
gross income (without regard to this provision).
    The exclusion applies only if a charitable contribution 
deduction for the entire distribution otherwise would be 
allowable (under present law), determined without regard to the 
generally applicable percentage limitations. Thus, for example, 
if the deductible amount is reduced because of a benefit 
received in exchange, or if a deduction is not allowable 
because the donor did not obtain sufficient substantiation, the 
exclusion is not available with respect to any part of the IRA 
distribution.
    If the IRA owner has any IRA that includes nondeductible 
contributions, a special rule applies in determining the 
portion of a distribution that is includible in gross income 
(but for the qualified charitable distribution provision) and 
thus is eligible for qualified charitable distribution 
treatment. Under the special rule, the distribution is treated 
as consisting of income first, up to the aggregate amount that 
would be includible in gross income (but for the qualified 
charitable distribution provision) if the aggregate balance of 
all IRAs having the same owner were distributed during the same 
year. In determining the amount of subsequent IRA distributions 
includible in income, proper adjustments are to be made to 
reflect the amount treated as a qualified charitable 
distribution under the special rule.
    Distributions that are excluded from gross income by reason 
of the qualified charitable distribution provision are not 
taken into account in determining the deduction for charitable 
contributions under section 170.

                           REASONS FOR CHANGE

    The present-law qualified charitable distribution rules 
provide senior citizens with flexibility in making gifts to 
charity by treating certain charitable distributions from an 
IRA as required minimum distributions while excluding these 
distributions from gross income. The $100,000 annual exclusion 
limit, however, has not been increased since the provision 
first went into effect in 2006. The Committee believes it is 
important to index the annual exclusion limit for inflation to 
prevent future erosion of the qualified charitable distribution 
tax benefit. In addition, the Committee wishes to build on the 
success of the present-law rules by allowing additional 
flexibility for seniors in the form of a one-time election to 
make qualified charitable distributions to a split-interest 
entity, such as a charitable gift annuity or a charitable 
remainder trust.

                        EXPLANATION OF PROVISION

    First, the provision indexes the annual $100,000 exclusion 
limit for inflation for taxable years beginning after 2023.
    Second, the provision allows a taxpayer to elect for a 
taxable year to treat certain distributions from an IRA to a 
split-interest entity as if the contributions were made 
directly to a qualifying charity for purposes of the exclusion 
from gross income for qualified charitable distributions. Such 
an election may not have been in effect for a preceding taxable 
year; thus, the election may be made for only one taxable year 
during the taxpayer's lifetime. The aggregate amount of 
distributions of the taxpayer with respect to the election may 
not exceed $50,000 (indexed for inflation for taxable years 
beginning after 2023).
    A split-interest entity means: (1) a charitable remainder 
annuity trust (as defined in section 664(d)(1)); (2) a 
charitable remainder unitrust (as defined in section 
664(d)(2)); or (3) a charitable gift annuity (as defined in 
section 501(m)). In each case, the trust or arrangement must be 
funded exclusively by qualified charitable distributions. In 
the case of a charitable gift annuity, fixed payments of five 
percent or greater must commence not later than one year from 
the date of funding.
    In the case of a distribution from an IRA to a charitable 
remainder annuity trust or charitable remainder unitrust, the 
distribution qualifies for the one-time election only if a 
charitable deduction for the entire value of the charitable 
remainder interest would be allowable under section 170 
(determined without regard to this provision or the charitable 
deduction percentage limits under section 170(b)). In the case 
of a distribution to a charitable gift annuity, the 
distribution qualifies for the one-time election only if a 
charitable deduction in an amount equal to the amount of the 
distribution reduced by the value of the annuity\434\ would be 
allowable under section 170 (determined without regard to this 
provision or the charitable deduction percentage limits under 
section 170(b)).
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    \434\The annuity must be described in section 501(m)(5)(B), which 
provides that the annuity is described in section 514(c)(5), determined 
as if the amount paid in cash for the issuance of the annuity were 
property. Section 514(c)(5), in turn, describes when an obligation to 
pay an annuity is not treated as ``acquisition indebtedness'' for 
purposes of the section 514 debt-financed income rules. Under that 
section, the obligation to pay the annuity: (1) generally must be the 
sole consideration issued in exchange for property if, at the time of 
the exchange, the value of the annuity is less than 90 percent of the 
value of the property received in exchange; (2) is payable over the 
life of one individual or the lives of two individuals in being at such 
time; and (3) does not guarantee a minimum amount of payments or 
specify a maximum amount of payments and does not provide for any 
adjustment of the amount of the annuity payments by reference to the 
income received from the transferred property or any other property. 
Sec. 514(c)(5).
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    In addition, a distribution from an IRA to a split-interest 
entity qualifies for the one-time election only if: (1) no 
person holds an income interest in the split-interest entity 
other than the individual for whose benefit such account is 
maintained, the spouse of such individual, or both; and (2) the 
income interest in the split-interest entity is nonassignable.
    In the case of a charitable remainder annuity trust or a 
charitable remainder unitrust that is funded by qualified 
charitable distributions, distributions are treated as ordinary 
income in the hands of a beneficiary to whom an annuity or 
unitrust payment is made. A qualified charitable distribution 
made to fund a charitable gift annuity is not treated as an 
investment in the contract for purposes of section 72(c).

                             EFFECTIVE DATE

    The provision is effective for distributions made in 
taxable years beginning after the date of enactment.

 11. Exception to penalty on early distributions from qualified plans 
for individuals with a terminal illness (sec. 211 of the bill and sec. 
                           72(t) of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    Background on distributions from tax-favored retirement 
plans may be found in Title I, section 5 of this document.

                           REASON FOR CHANGE

    The Committee believes that terminally ill individuals 
should be able to access funds from retirement plans when 
needed, without being subject to the 10-percent early 
withdrawal tax that otherwise generally applies to early 
distributions from a retirement plan.

                        EXPLANATION OF PROVISION

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of a distribution made to an 
employee who is a terminally ill individual on or after the 
date on which such employee has been certified by a physician 
as having a terminal illness. For purposes of this provision, 
terminally ill individual means an individual who has been 
certified by a physician as having an illness or physical 
condition that can reasonably be expected to result in death in 
84 months or less after the date of the certification.\435\ An 
employee will not be considered terminally ill unless 
sufficient evidence is provided in a form and manner to be 
determined by the Secretary.
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    \435\This definition has the same meaning given such term under 
sec. 101(g)(4)(A) (pertaining to the treatment of certain accelerated 
death benefits) except that ``84 months'' is substituted for ``24 
months.''
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                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date of enactment.

 12. Surviving spouse election to be treated as employee (sec. 212 of 
                the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

    General background on the requirements related to required 
minimum distributions may be found in Title II, section 1 of 
this document.

                           REASONS FOR CHANGE

    Under present law, a surviving spouse receives a more 
favorable distribution period of his or her spouse's interest 
in a retirement plan if the surviving spouse rolls the amount 
to an IRA. The Committee wishes to remove this unnecessary step 
and ease the burden on surviving spouses by providing a similar 
distribution period under a retirement plan to that provided 
under an IRA.

                        EXPLANATION OF PROVISION

    In the case of an employee who dies before the distribution 
of required minimum distributions has begun under the plan, and 
who has designated a spouse as sole beneficiary, the provision 
permits the spouse to elect to be treated as the employee for 
purposes of determining the distribution period. The provision 
further directs the Secretary to amend the regulations to 
provide that the distribution period for the spouse in such 
case is determined using the Uniform Life Table.\436\ Thus, the 
provision allows a designated beneficiary who is a spouse to 
receive a similar distribution period for lifetime 
distributions under an employer-sponsored retirement plan as is 
permitted under present law in an IRA.
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    \436\Treas. Reg. sec. 1.401(a)(9)-5, Q&A 5(a), or any successor 
regulation.
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    The provision also permits the spouse to elect whether to 
apply the present-law rule that treats the spouse as the 
employee for purposes of determining the distribution period in 
cases where the spouse dies before distributions have begun.
    The provision provides for the elections to be made in such 
time and manner as prescribed by the Secretary. The election 
must include a timely notice to the plan administrator, and 
once made it may not be revoked except with the consent of the 
Secretary.

                             EFFECTIVE DATE

    The provision is effective for calendar years beginning 
after December 31, 2023.

      13. Long-term care contracts purchased with retirement plan 
    distributions (sec. 213 of the bill and new secs. 72(t)(2)(L), 
    401(a)(39), 403(a)(6), and 6050Z, and sec. 6724(d) of the Code)


                              PRESENT LAW

    Background on the distribution rules that apply to 
retirement plans, including the 10-percent early withdrawal 
tax, may be found in Title I, section 14 of this document.

Qualified long-term care insurance contracts

    Tax-favored treatment applies to premiums and benefits 
under a qualified long-term care insurance contract.\437\ The 
contract is treated as an accident and health insurance 
contract; thus, amounts received under the contract generally 
are excludable from income as amounts received for personal 
injuries or sickness.\438\
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    \437\Sec. 7702B(a).
    \438\In the case of per diem contracts, the excludable amount is 
subject to a per-day dollar cap. If payments under such contracts 
exceed the dollar cap, then the excess is excludable only to the extent 
of actual costs in excess of the dollar cap that are incurred for long-
term care services.
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    An employer-sponsored health plan that provides employees 
with coverage under a qualified long-term care insurance 
contract generally is treated in the same manner as employer-
provided health benefits. As a result, the employer's premium 
payments are generally excluded from income and wages,\439\ and 
benefits payable under the contract generally are excludable 
from the recipient's income. Long-term care insurance expenses 
of a self-employed individual are deductible under the self-
employed health insurance deduction.
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    \439\However, section 106(c) provides that gross income of an 
employee includes employer-provided coverage of qualified long-term 
care services to the extent such coverage is provided through a 
flexible spending or similar arrangement. Thus, the exclusion does not 
apply to qualified long-term care insurance provided under a cafeteria 
plan.
---------------------------------------------------------------------------
    In addition, premiums paid for a qualified long-term care 
insurance contract and unreimbursed expenses for qualified 
long-term care services are treated as medical expenses for 
purposes of the itemized deduction for medical care.\440\
---------------------------------------------------------------------------
    \440\Under section213(d)(10), premiums paid for long-term care 
coverage are deductible only to the extent that the premiums do not 
exceed a dollar cap measured by the insured's age at the end of the 
taxable year.
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    A qualified long-term care insurance contract is defined as 
any insurance contract that provides only coverage for 
qualified long-term care services and that meets additional 
requirements.\441\ Per diem-type and reimbursement-type 
contracts are permitted. Qualified long-term care services are 
necessary diagnostic, preventive, therapeutic, curing, 
treating, mitigating, and rehabilitative services, and 
maintenance or personal care services that are required by a 
chronically ill individual and that are provided pursuant to a 
plan of care prescribed by a licensed health care 
practitioner.\442\
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    \441\Sec. 7702B(b). For example, the contract is not permitted to 
provide for a cash surrender value or other money that can be paid, 
assigned or pledged as collateral for a loan, or borrowed (and any 
premium refunds must be applied as a reduction in future premiums or to 
increase future benefits).
    \442\Sec. 7702B(c)(1). A chronically ill individual is generally 
one who has been certified within the previous 12 months by a licensed 
health care practitioner as being unable to perform (without 
substantial assistance) at least two activities of daily living (ADLs) 
for at least 90 days due to a loss of functional capacity (or meeting 
other definitional requirements). Sec. 7702B(c)(2).
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                           REASONS FOR CHANGE

    The Committee is aware of a widespread lack of coverage of 
costly long-term care risks across a significant cohort of the 
domestic population. This provision seeks to address this 
coverage gap by providing an opportunity to purchase long-term 
care coverage with distributions (up to a dollar limitation) 
from a defined contribution plan. Plan participants may choose 
to use taxable distributions of such retirement savings, up to 
a dollar limitation, to pay for certified long-term care 
insurance. In addition, the otherwise applicable 10-percent 
early withdrawal tax does not apply to such distributions. 
Benefits provided by such insurance can offset the cost of care 
for an individual participant or spouse in need of long-term 
care services. A reporting requirement applies to ensure that 
the distributions from the defined contribution plan are 
applied for this intended purpose.

                        EXPLANATION OF PROVISION

Qualified long-term care distributions

    The provision provides that a defined contribution plan may 
allow qualified long-term care distributions. Qualified long-
term care distributions are those distributions made during a 
taxable year that do not exceed the lesser of $2,500,\443\ or 
the amount (generally, premiums) paid by the plan participant 
during the taxable year for certain insurance coverage. The 
distributions must be includible in income.\444\
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    \443\The $2,500 amount is indexed by the cost-of-living adjustment 
in section 1(f)(3) for taxable years beginning after December 31, 2024.
    \444\See new section 401(a)(39)(D), referring to section 402(1)(3).
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    This insurance coverage must be for the participant or the 
participant's spouse (or other family member of the participant 
as provided by the Secretary by regulation). This insurance 
coverage (referred to as certified long-term care insurance) is 
(1) a qualified long-term care insurance contract\445\ covering 
qualified long-term care services,\446\ (2) coverage of the 
risk that an insured individual would become a chronically ill 
individual,\447\ or (3) coverage of qualified long-term care 
services under a rider or other provision of a life insurance 
or annuity contract if the rider or provision is treated as a 
separate contract and meets specified consumer protection 
provisions.\448\
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    \445\Defined in section 7702B(b).
    \446\Defined in section 7702B(c).
    \447\This is a chronically ill individual within the meaning of 
section 101(g)(4)(B), under a rider or other provision of a life 
insurance contract which satisfies the requirements relating to 
chronically ill insureds in section 101(g)(3) (determined without 
regard to subparagraph (D) thereof, relating to periodic payments).
    \448\Qualified long-term care services are defined in section 
7702B(c). Whether a rider or other provision of a life insurance or 
annuity contract is treated as a separate contract is determined under 
section 7702B(e) and regulations thereunder. The consumer protection 
provisions are defined in section 7702B(g).
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    It is intended that only high-quality coverage meeting 
applicable definitions is eligible for the favorable treatment 
provided. Therefore, the provision requires that, to meet the 
definition of certified long-term care insurance, coverage must 
provide meaningful financial assistance in the event the 
insured needs home-based or nursing home care. Providing 
meaningful financial assistance means that benefits must be 
adjusted for inflation and consumer protections must be 
provided, including protection in the event the coverage is 
terminated.
    Qualified long-term care distributions are generally 
includible in income. However, the provision provides an 
exemption for such distributions from the 10-percent early 
withdrawal tax provided that applicable requirements are 
met.\449\ If the individual covered by the long-term care 
coverage to which the distribution relates is the spouse of the 
participant in the plan, this exclusion from the early 
withdrawal tax applies only if the participant and the 
participant's spouse file a joint return. A qualified long-term 
care distribution is not subject to mandatory withholding.\450\
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    \449\New sec. 72(t)(2)(L).
    \450\New sec. 72(t)(2)(L) and sec. 3405.
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Reporting requirements

            Long-term care premium statement
    For a distribution to be a qualified long-term care 
distribution from a plan, a long-term care premium statement 
must be filed with the plan.\451\ The statement is to be 
provided by the issuer of the coverage. This statement must 
provide the name and TIN of the issuer, provide a statement 
that the coverage is certified long-term care insurance, 
identify the participant as the owner of the coverage, identify 
the insured individual and their relationship to the 
participant, state the amount of premiums for the coverage for 
the calendar year, and provide such other information as is 
required by the Secretary. The long-term care premium statement 
can be accepted only if the issuer has completed a disclosure 
to the Secretary with respect to the product to which the long-
term care premium statement relates. The disclosure must 
identify the issuer and type of coverage, and provide such 
other information required by the Secretary which is included 
in the filing with respect to the product with the applicable 
State insurance regulatory authority.
---------------------------------------------------------------------------
    \451\New sec. 401(a)(39)(E).
---------------------------------------------------------------------------
            Reporting rules
    An issuer of certified long-term care insurance that 
provides a long-term care premium statement to any purchaser 
must make a return to the IRS no later than February 1 of the 
succeeding calendar year.\452\ On the return, the issuer is 
required to report the name and TIN of the issuer, provide a 
statement that the coverage is certified long-term care 
insurance, state the name of the owner of the coverage, 
identify the insured individual and their relationship to the 
owner, state the amount of premiums for the coverage for the 
calendar year, and provide such other information as is 
required by the Secretary.
---------------------------------------------------------------------------
    \452\New section 6050Z.
---------------------------------------------------------------------------
    In addition, the issuer must furnish a written statement to 
each individual whose name is required to be reported on the 
return. The written statement is to be furnished on or before 
January 31 of the year following the calendar year for which 
the return was required to be made.\453\ The written statement 
is to show the name and contact information of the issuer and 
the aggregate premiums and charges under the coverage for the 
calendar year.
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    \453\New section 6050Z(b). An individual to whom a written 
statement must be furnished may request the written statement at any 
time before the close of the calendar year, and the person required to 
furnish the return must comply with the request and also furnish a copy 
of the written statement to the Secretary.
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            Applicable penalties
    The filing of the return and the furnishing of the written 
statement are subject to penalties for failure to file correct 
information returns and to furnish correct payee 
statements.\454\
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    \454\The present-law penalties for failure to file correct 
information returns and to furnish correct payee statements apply with 
respect to new section 6050Z. See sections 6721 and 6722, as well as 
sections 6724(d)(1) and (2) as modified by the provision.
---------------------------------------------------------------------------

Information for consumers

    The provision also directs Treasury to maintain a website 
that provides information about long-term care insurance 
policies such as common policy features, factors to consider in 
selecting coverage levels, consumer protections, tax rules for 
premiums and benefits, rules applicable to certified long-term 
care insurance, and information about issuers of such products 
by State.

                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date that is three years after the date of enactment.

             TITLE III--PUBLIC SAFETY OFFICERS AND MILITARY

    1. Military spouse retirement plan eligibility credit for small 
     employers (sec. 301 of the bill and new sec. 45U of the Code)


                              PRESENT LAW

    Present law does not currently provide a credit 
specifically with respect to a military spouse who is eligible 
to participate during the taxable year in a defined 
contribution plan of a small employer.

                           REASONS FOR CHANGE

    The Committee believes that a tax credit for small 
employers who permit military spouses to participate in the 
employer's defined contribution plan and an enhanced credit for 
small employers who make contributions to the plan for military 
spouses will provide incentives for small employers to include 
military spouses in their pension plans. The Committee believes 
such inclusion will increase participation in employer-provided 
pension plans and improve financial readiness for retirement 
for military families.

                        EXPLANATION OF PROVISION

    The provision allows an eligible small employer to take a 
new nonrefundable income tax credit with respect to each 
individual who is married to a member of the uniformed services 
and self-certifies as such (referred to as a military spouse), 
who is an employee of the employer, who is eligible to 
participate in an eligible defined contribution plan of the 
employer during the taxable year, and who is a nonhighly 
compensated employee.\455\ The credit is determined to be the 
sum of $200 for each such employee plus the amount of the 
contributions made to all eligible defined contribution plans 
by the employer with respect to the employee up to a maximum of 
$300 for the taxable year for each such employee. The credit 
applies for up to three consecutive years beginning with the 
first taxable year in which the individual begins participating 
in the plan.
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    \455\A nonhighly compensated employee is an employee who is not a 
highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible small employer is an employer that, for the 
preceding year, had no more than 100 employees, each with 
compensation of $5,000 or more. Members of controlled groups 
and affiliated service groups are treated as a single employer 
for purposes of these requirements.\456\
---------------------------------------------------------------------------
    \456\Sec. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    An eligible defined contribution plan is a plan in which 
military spouses are eligible to participate within two months 
of beginning employment, and in which military spouses who are 
eligible to participate (1) are immediately eligible to receive 
employer contributions in amounts not less than that received 
by similarly situated nonmilitary spouses with two years of 
service, and (2) have an immediate, nonforfeitable right to the 
accrued benefits derived from employer contributions under the 
plan.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after the 
date of enactment.

 2. Distributions to firefighters (sec. 302 of the bill and sec. 72(t) 
                              of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan,\457\ a 
tax-sheltered annuity plan (a ``section 403(b) plan''), an 
eligible deferred compensation plan of a State or local 
government employer (a ``governmental section 457(b) plan''), 
or an IRA generally is included in income for the year 
distributed.\458\ These plans are referred to collectively as 
``eligible retirement plans.'' In addition, unless an exception 
applies, a distribution from a qualified retirement plan, a 
section 403(b) plan, or an IRA received before age 59\1/2\ is 
subject to a 10-percent additional tax (referred to as the 
``early withdrawal tax'') on the amount includible in 
income.\459\
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    \457\Qualified under section 401(a).
    \458\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \459\Sec. 72(t). Under present law, the 10-percent early withdrawal 
tax does not apply to distributions from a governmental section 457(b) 
plan.
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            Qualified public safety employees in governmental plans
    An exception to the early withdrawal tax applies if a 
distribution is made to an employee after separation from 
service after attainment of age 55.\460\ Under a special rule 
for distributions to qualified public safety employees in a 
governmental plan,\461\ this exception applies to distributions 
made after separation from service after attainment of age 50 
(``age 50 exception'').\462\ For this purpose, a qualified 
public safety employee means (1) any employee of a State or a 
political subdivision of a State who provides police 
protection, firefighting services, or emergency medical 
services for any area within the State or political 
subdivision's jurisdiction; or (2) any Federal law enforcement 
officer,\463\ any Federal customs and border protection 
officer,\464\ any Federal firefighter,\465\ any Federal 
employee who is an air traffic controller\466\ or nuclear 
materials courier,\467\ any member of the United States Capitol 
Police, any member of the Supreme Court Police, or any 
diplomatic security special agent of the Department of State.
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    \460\Sec. 72(t)(2)(A)(v).
    \461\As defined in section 414(d).
    \462\Sec. 72(t)(10).
    \463\As defined in 5 U.S.C. secs. 8331(20) or 8401(17).
    \464\As defined in 5 U.S.C. secs. 8331(31) or 8401(36).
    \465\As defined in 5 U.S.C. secs. 8331(21) or 8401(14).
    \466\As defined in 5 U.S.C. secs. 8331(30) or 8401(35).
    \467\As defined in 5 U.S.C. secs. 8331(27) or 8401(33).
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                           REASONS FOR CHANGE

    The Committee believes that private sector firefighters 
merit the same treatment as public sector firefighters, and 
thus wishes to extend the age 50 exception to private sector 
firefighters.

                        EXPLANATION OF PROVISION

    The provision amends the age 50 exception for qualified 
public safety employees in governmental plans so that the 
exception also apples to distributions from a qualified 
retirement plan or section 403(b) plan\468\ to an employee who 
provides firefighting services. Thus, the provision expands the 
age 50 exception to also apply to private-sector firefighters 
receiving distributions from a qualified retirement plan or 
section 403(b) plan.
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    \468\The provision applies to a distribution from a qualified 
retirement plan, an annuity plan described in section 403(a), or an 
annuity contract described in section 403(b). Sec. 402(c)(8)(B)(iii), 
(iv), and (vi).
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                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date of enactment.

 3. Exclusion of certain disability-related first responder retirement 
     payments (sec. 303 of the bill and new sec. 139C of the Code)


                              PRESENT LAW

    Qualified retirement plans (and other tax-favored employer-
sponsored retirement plans) are accorded special tax treatment 
and fall into two categories: defined benefit plans and defined 
contribution plans. A defined contribution plan is a type of 
qualified retirement plan whereby contributions, earnings, and 
losses are allocated to a separate account for each 
participant. Defined contribution plans may provide for 
nonelective contributions and matching contributions by 
employers and pre-tax (that is, contributions are either 
excluded from income or deductible) or after-tax contributions 
by employees.

Disability-related payments

    Amounts received under worker's compensation acts as 
compensation for personal injuries or sickness (``disability 
payments'') generally are excluded from the gross income of the 
recipients.\469\ The exclusion from gross income includes 
compensation for personal injuries or sickness received under a 
statute in the nature of a worker's compensation act, and also 
extends such exclusion to survivors of the affected worker. 
However, these exclusions generally do not apply to amounts 
received as a retirement pension or annuity (including 
retirement disability payments) to the extent that the amounts 
are determined by reference to the employee's age, length of 
service, or prior contributions. Such retirement payments, 
which may be distributed from a section 401(a) qualified 
retirement plan, a section 403(a) or (b) tax-sheltered annuity 
plan, or an eligible deferred compensation plan of a State or 
local government employer under section 457(b) (``retirement 
distributions''), generally are included in income for the year 
distributed.
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    \469\Sec. 104(a)(1).
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                           REASONS FOR CHANGE

    The Committee believes that certain retirement 
distributions paid to qualified first responders should be 
excluded from gross income to the extent such payments are 
related to the first responders' disability.

                        EXPLANATION OF PROVISION

    The provision provides an exclusion from gross income for 
certain disability-related retirement distributions paid to 
qualified first responders. An individual's gross income does 
not include qualified first responder retirement payments for 
any taxable year to the extent such payments do not exceed an 
annualized excludable disability amount. A qualified first 
responder retirement payment that is excluded from gross income 
is an amount received as a retirement pension or annuity that 
would otherwise be includible in gross income, is received in 
connection with the individual's qualified first responder 
service, and is paid from a qualified trust, annuity plan, 
governmental deferred compensation plan under section 457(b), 
or a section 403(b) plan.\470\ Also, for this purpose, 
qualified first responder service means services performed as a 
law enforcement officer, firefighter, paramedic, or emergency 
medical technician. The provision does not limit the exclusion 
from gross income to individuals who provide such services in a 
public capacity or to individuals who address only emergency 
situations.
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    \470\These plans are described in clauses (iii), (iv), (v), and 
(vi) of section 402(c)(8)(B), respectively.
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    The portion of the retirement distributions which is 
exempted from gross income is the ``annualized excludable 
disability amount.'' This is based on the determination of the 
excludable amount of disability payments (``service-connected 
excludable disability amount'') that the individual received 
during the 12-month period before the individual attained 
retirement age. A service-connected excludable disability 
amount means periodic payments which are not includible in the 
individual's gross income because they are amounts received 
under workmen's compensation acts as compensation for personal 
injuries or sickness,\471\ are received in connection with the 
individual's qualified first responder service, and terminate 
when the individual attains retirement age.
---------------------------------------------------------------------------
    \471\Sec. 104(a)(1).
---------------------------------------------------------------------------
    The provision also provides that for an individual who only 
receives service-connected excludable disability amounts for a 
portion of the year, the annualized excludable disability 
amount is determined by multiplying the service-connected 
excludable disability amounts by the ratio of 365 to the number 
of days in such period to which amounts were properly 
attributable.
    Unlike worker's compensation payments, the exclusion under 
the provision that is applicable to eligible first responders 
does not extend to surviving spouses or other survivors once 
the eligible individual is deceased.

                             EFFECTIVE DATE

    The provision is effective for amounts received with 
respect to taxable years beginning after the date of enactment.

4. Repeal of direct payment requirement on exclusion from gross income 
of distributions from governmental plans for health and long-term care 
   insurance (sec. 304 of the bill and sec. 402(l)(5)(A) of the Code)


                              PRESENT LAW

    Under present law, a distribution from a qualified 
retirement plan is generally includible in income.\472\ Under 
an exception to this general rule, certain pension 
distributions from an eligible retirement plan used to pay for 
qualified health insurance premiums are excludible from income, 
up to a maximum exclusion of $3,000 annually. An eligible 
retirement plan includes a governmental qualified retirement or 
annuity plan, a section 403(b) annuity, or a section 457 plan. 
The exclusion applies with respect to eligible retired public 
safety officers who make an election to have qualified health 
insurance premiums deducted from amounts distributed from an 
eligible retirement plan and paid directly to the insurer. An 
eligible retired public safety officer is an individual who, by 
reason of disability or attainment of normal retirement age, is 
separated from service as a public safety officer\473\ with the 
employer who maintains the eligible retirement plan from which 
pension distributions are made.
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    \472\Secs. 402(a), 403(a), 403(b), 408(d), and 457(a).
    \473\The term ``public safety officer'' has the same meaning as 
under section 1204(9)(A) of the Omnibus Crime Control and Safe Streets 
Act of 1986.
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    Qualified health insurance premiums include premiums for 
accident or health insurance or qualified long-term care 
insurance contracts covering the taxpayer, the taxpayer's 
spouse, and the taxpayer's dependents. The qualified health 
insurance premiums do not have to be for a plan sponsored by 
the employer; however, the exclusion does not apply to premiums 
paid by the employee and reimbursed with pension distributions. 
Amounts excluded from income under the provision are not taken 
into account in determining the itemized deduction for medical 
expenses under section 213 or the deduction for health 
insurance of self-employed individuals under section 162.
    The exclusion applies to a distribution only 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. For this purpose, all eligible retirement plans of an 
employer are treated as a single plan.\474\
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    \474\Sec. 402(l)(5).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the direct payment requirement 
of present law is not needed to ensure that a pension 
distribution from an eligible retirement plan is being used to 
pay for qualified health insurance premiums, provided that the 
recipient employee reports to the IRS that the amount of the 
distribution does not exceed the employee's payment for 
qualified health insurance premiums for that taxable year. 
Consequently, the Committee has decided to modify present law 
so that this exclusion from income for the distribution applies 
without regard to whether payment of the premiums is made 
directly to the provider of the contract by deduction from a 
distribution, or is made to the employee.

                        EXPLANATION OF PROVISION

    The provision provides that the exclusion for distributions 
used to pay for qualified health insurance premiums applies to 
a distribution without regard to whether 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, or is made to the employee.
    The provision requires reporting in the case of a payment 
made to the employee. The employee is required to include with 
the tax return of tax for the taxable year of the distribution 
an attestation that the distribution does not exceed the amount 
paid by the employee for qualified health insurance premiums 
for that taxable year.

                             EFFECTIVE DATE

    The provision applies to distributions made after the date 
of enactment.

  5. Modification of eligible age for exemption from early withdrawal 
       penalty (sec. 305 of the bill and sec. 72(t) of the Code)


                              PRESENT LAW

    Background on the early withdrawal tax and the rules that 
apply to qualified public safety employees may be found in 
Title III, section 2 of this document.

                           REASONS FOR CHANGE

    The Committee recognizes that certain qualified public 
safety employees retire after 25 years of service but before 
reaching age 50. The Committee wishes to afford such employees 
the same treatment with respect to the taxation of retirement 
plan distributions as is afforded to qualified public safety 
employees who separate from service after age 50.

                        EXPLANATION OF PROVISION

    The provision modifies the exception for distributions made 
to a qualified public safety employee after separation from 
service after age 50 to also apply if the employee separates 
after 25 years of service under the plan. Thus, a distribution 
from a governmental plan that is made to a qualified public 
safety employee after separation from service after attainment 
of age 50 or 25 years of service under the plan (whichever is 
earlier) is exempt from the early withdrawal tax.

                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date of enactment.

6. Exemption from early withdrawal penalty for certain State and local 
 government corrections employees (sec. 306 of the bill and sec. 72(t) 
                              of the Code)


                              PRESENT LAW

    Background on the early withdrawal tax and the rules that 
apply to qualified public safety employees may be found in 
Title III, section 2 of this document.
    For purposes of an exception to the early withdrawal tax, a 
qualified public safety employee means (1) any employee of a 
State or a political subdivision of a State who provides police 
protection, firefighting services, or emergency medical 
services for any area within the State or political 
subdivision's jurisdiction; or (2) any Federal law enforcement 
officer,\475\ any Federal customs and border protection 
officer,\476\ any Federal firefighter,\477\ any Federal 
employee who is an air traffic controller\478\ or nuclear 
materials courier,\479\ any member of the United States Capitol 
Police, any member of the Supreme Court Police, or any 
diplomatic security special agent of the Department of State.
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    \475\As defined in 5 U.S.C. secs. 8331(20) or 8401(17).
    \476\As defined in 5 U.S.C. secs. 8331(31) or 8401(36).
    \477\As defined in 5 U.S.C. secs. 8331(21) or 8401(14).
    \478\As defined in 5 U.S.C. secs. 8331(30) or 8401(35).
    \479\As defined in 5 U.S.C. secs. 8331(27) or 8401(33).
---------------------------------------------------------------------------
    A Federal law enforcement officer means an employee, the 
duties of whose position are primarily the investigation, 
apprehension, or detention of individuals suspected or 
convicted of offenses against the criminal laws of the United 
States, including an employee engaged in this activity who is 
transferred to a supervisory or administrative position. 
``Detention'' for this purpose includes the duties of (1) 
employees of the Bureau of Prisons and Federal Prison 
Industries, Incorporated; (2) employees of the Public Health 
Service assigned to the field service of the Bureau of Prisons 
or of the Federal Prison Industries, Incorporated; (3) 
employees in the field service at Army or Navy disciplinary 
barracks or at confinement and rehabilitation facilities 
operated by any of the armed forces; and (4) employees of the 
Department of Corrections of the District of Columbia, its 
industries and utilities; whose duties in connection with 
individuals in detention suspected or convicted of offenses 
against the criminal laws of the United States or of the 
District of Columbia or offenses against the punitive articles 
of the Uniformed Code of Military Justice require frequent 
direct contact with these individuals in their detention, 
direction, supervision, inspection, training, employment, care, 
transportation, or rehabilitation.

                           REASONS FOR CHANGE

    The Committee believes that State and local corrections 
officers and forensic security employees merit the same 
treatment as other State and local public safety employees, and 
thus wishes to extend the exemption from the early withdrawal 
tax that applies to separations from service after age 50 to 
include this group of workers.

                        EXPLANATION OF PROVISION

    The provision modifies the definition of qualified public 
safety employee to also include any employee of a State or 
political subdivision of a State who provides services as a 
corrections officer or as a forensic security employee 
providing for the care, custody, and control of forensic 
patients. Thus, a distribution from a governmental plan that is 
made to such a corrections officer or forensic security 
employee after separation from service after attainment of age 
50 is exempt from the early withdrawal tax.

                             EFFECTIVE DATE

    The provision is effective for distributions made after the 
date of enactment.

                   TITLE IV--NONPROFITS AND EDUCATORS

1. Enhancement of 403(b) plans (sec. 401 of the bill and sec. 403(b) of 
                               the Code)


                              PRESENT LAW

Tax-sheltered annuities (``section 403(b) plans'')

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provides tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans.

Contributions to 403(b) plans

    Employers may make nonelective or matching contributions to 
such plans on behalf of their employees, and the plan may 
provide for employees to make pre-tax elective deferrals, 
designated Roth contributions (held in designated Roth 
accounts)\480\ or other after-tax contributions.
---------------------------------------------------------------------------
    \480\Sec. 402A.
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            Annuity contracts
    Generally, section 403(b) plans provide for contributions 
toward the purchase of annuity contracts. The employee's rights 
under the annuity contract are nonforfeitable, except for a 
failure to pay future premiums.\481\ Amounts contributed by an 
employer for an annuity contract are excluded from the gross 
income of the employee for the taxable year if certain 
requirements are satisfied.
---------------------------------------------------------------------------
    \481\Sec. 403(b)(1)(C).
---------------------------------------------------------------------------
            Section 403(b) custodial accounts
    Alternatively, such contributions may be held in custodial 
accounts established for each employee if those accounts 
satisfy certain requirements.
    Contributions to a section 403(b) plan that are held in a 
custodial account are treated as contributions to an annuity 
contract\482\ if the assets are (1) held by a bank\483\ or 
another person who demonstrates, to the satisfaction of the 
Secretary, that the manner in which the assets will be held is 
consistent with the requirements for a qualified retirement 
plan\484\ and (2) invested only in regulated investment company 
stock.\485\
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    \482\Sec. 403(b)(7).
    \483\A ``bank'' is defined as any bank as defined in section 581, 
an insured credit union within the meaning of section 101, paragraph 
(6) or (7) of the Federal Credit Union Act, and a corporation which, 
under the laws of the State of its incorporation, is subject to 
supervision and examination by the Commissioner of Banking or other 
officer of such State in charge of the administration of the banking 
laws of such State. Sec. 408(n).
    \484\Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)-1. A custodial 
account that satisfies the requirements of section 401(f)(2) is treated 
as an organization described in section 401(a) solely for purposes of 
subchapter F of chapter 1 of Subtitle A (secs. 501-530) and subtitle F 
(pertaining to procedure and administration) with respect to amounts 
received by the account and with respect to any income from the 
investment of those amounts.
    \485\Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)-8(d)(2)(i).
---------------------------------------------------------------------------
    In addition, assets of a section 403(b) custodial account 
cannot be commingled in a group trust with any assets other 
than those of a regulated investment company.\486\ 
Contributions to a custodial account are not permitted to be 
distributed before the employee dies, attains age 59\1/2\, has 
a severance from employment, becomes disabled,\487\ or, in the 
case of elective deferrals, encounters financial hardship; or, 
with respect to lifetime income options, the date that is 90 
days prior to the date such lifetime income investment no 
longer is held as an investment option and is distributed in 
the form of a qualified distribution.\488\ Finally, a custodial 
account must contain a written statement that the assets held 
in a custodial account cannot be used for, or diverted to, 
purposes other than for the exclusive benefit of plan 
participants and their beneficiaries.\489\
---------------------------------------------------------------------------
    \486\Treas. Reg. sec. 1.403(b)-8(d)(2)(ii).
    \487\Within the meaning of section 72(m)(7).
    \488\In accordance with section 401(a)(38).
    \489\Treas. Reg. sec. 1.403(b)-8(d)(2)(iii).
---------------------------------------------------------------------------

Group trust

    Under the Code, a trust created or organized in the United 
States and forming a part of a stock bonus, pension, or profit-
sharing plan of an employer for the exclusive benefit of its 
employees or their beneficiaries constitutes a qualified trust 
if it provides that:
           Contributions made to the trust by the 
        applicable employer or employers, or both, are used for 
        the purpose of distributing the corpus and income of 
        the trust, in accordance with the terms of the plan, to 
        such employees or their beneficiaries;\490\
---------------------------------------------------------------------------
    \490\Sec. 401(a)(1).
---------------------------------------------------------------------------
           A trust described in section 401(a) is 
        exempt from income tax;\491\ and
---------------------------------------------------------------------------
    \491\Sec. 501(a).
---------------------------------------------------------------------------
           Under each trust instrument, it must be 
        impossible, at any time prior to the satisfaction of 
        all liabilities with respect to employees and their 
        beneficiaries under the plan and trust, for any part of 
        the corpus or income of the trust to be used for or 
        diverted to purposes other than for the exclusive 
        benefit of the employees or their beneficiaries.
    A group trust is an arrangement under which individual 
retirement plan trusts pool their assets in a group trust 
(usually created for the purpose of providing diversification 
of investments), where the trust is declared to be part of each 
participating retirement plan and the trust instruments 
creating both the participating and group trusts provide that 
amounts are transferred from one trust to the other at the 
direction of the trustee of the participating trust.\492\
---------------------------------------------------------------------------
    \492\See Rev. Rul. 81-100, 1981-1 C.B. 326, as modified by Rev. 
Rul. 2004-67, 2004-2 C.B. 28; Rev. Rul. 2008-40, 2008-2 C.B. 166; Rev. 
Rul. 2011-1, 2011-2 I.R.B. 251 which was modified by Notice 2012-6, 
2012-3 I.R.B. 293, January 17, 2012; and Rev. Rul. 2014-24, 2014-37 
I.R.B. 529.
---------------------------------------------------------------------------
    The tax status of the group trust is derived from the tax 
status of the entities participating in the group trust to the 
extent of the entities' equitable interests in such trust if 
the following requirements are satisfied:
           The group trust is itself adopted as a part 
        of each adopting group trust retiree benefit plan;
           The group trust instrument expressly limits 
        participation to pension, profit-sharing, and stock 
        bonus trusts or custodial accounts qualifying under 
        section 401(a) that are exempt under section 501(a); 
        individual retirement accounts that are exempt under 
        section 408(e); eligible governmental plan trusts or 
        custodial accounts under section 457(b) that are exempt 
        under section 457(g); custodial accounts under section 
        403(b)(7); retirement income accounts under section 
        403(b)(9); and section 401(a)(24) governmental plans;
           The group trust instrument expressly 
        prohibits any part of its corpus or income that 
        equitably belongs to any adopting group trust retiree 
        benefit plan from being used for, or diverted to, any 
        purpose other than for the exclusive benefit of the 
        participants and beneficiaries of the group trust 
        retiree benefit plan;
           Each group trust retiree benefit plan that 
        adopts the group trust is itself a trust, a custodial 
        account, or a similar entity that is tax-exempt under 
        section 408(e) or section 501(a) (or is treated as 
        exempt under section 501(a));
           Each group trust retiree benefit plan that 
        adopts the group trust expressly provides in its 
        governing document that it is impossible for any part 
        of the corpus or income of the group trust retiree 
        benefit plan to be used for, or diverted to, purposes 
        other than for the exclusive benefit of the plan 
        participants and their beneficiaries;
           The group trust instrument expressly limits 
        the assets that may be held by the group trust to 
        assets that are contributed by, or transferred from, a 
        group trust retiree benefit plan to the group trust 
        (and the earnings thereon), and the group trust 
        instrument expressly provides for separate accounting 
        to reflect the interest that each adopting group trust 
        retiree benefit plan has in the group trust, including 
        separate accounting for contributions to the group 
        trust from the adopting plan, disbursements made from 
        the adopting plan's account in the group trust, and 
        investment experience of the group trust allocable to 
        that account;
           The group trust instrument expressly 
        prohibits an assignment by an adopting group trust 
        retiree benefit plan of any part of its equity or 
        interest in the group trust; and
           The group trust is created or organized in 
        the United States and is maintained at all times as a 
        domestic trust in the United States.
    With respect to section 403(b)(7) custodial accounts, under 
IRS guidance, such an account fails to satisfy the requirements 
for a group trust if the assets of the account are invested 
other than in the stock of a regulated investment company, and 
any group trust in which the assets of a section 403(b)(7) 
custodial account is invested must comply with this 
restriction.\493\ As a result of this investment restriction, 
the assets of a custodial account under section 403(b)(7) 
generally will be commingled in a group trust that solely 
contains the assets of other section 403(b)(7) custodial 
accounts.
---------------------------------------------------------------------------
    \493\Rev. Rul. 2011-1, 2011-2 I.R.B. 251.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Under present law, group trusts permit certain retirement 
plans and IRAs to pool their assets for investment purposes if 
certain specified requirements are satisfied. These group 
trusts provide certain cost savings and broader investment 
options to such plans than might otherwise be available. 
Section 403(b) investments are generally limited to annuity 
contracts and mutual funds. This limitation restricts 403(b) 
plan participants who are generally employees of charities and 
public educational organizations from access to these group 
trusts.
    The Committee believes that section 403(b) custodial 
accounts would benefit from participating in a group trust.

                     EXPLANATION OF PROVISION\494\
---------------------------------------------------------------------------

    \494\In order to permit 403(b) plans to participate in a group 
trust, certain revisions to the securities laws will be required.
---------------------------------------------------------------------------
    The provision provides that contributions to a section 
403(b) plan that are held in a custodial account are treated as 
contributions to an annuity contract if the assets are to be 
held in that custodial account and invested in regulated 
investment company stock or a group trust intended to satisfy 
the requirements of current or future IRS guidance.\495\
---------------------------------------------------------------------------
    \495\See footnote 486 and the description of the guidance in the 
Present Law section of this provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is applicable to amounts invested after the 
date of enactment.

2. Hardship withdrawal rules for 403(b) plans (sec. 402 of the bill and 
                        sec. 403(b) of the Code)


                              PRESENT LAW

    Background on rules related to hardship distributions under 
a section 403(b) plan may be found in Title I, section 13 of 
this document.

                           REASONS FOR CHANGE

    The Committee believes that the rules that apply to the 
types of contributions that may be withdrawn upon hardship 
should be the same for section 401(k) plans and section 403(b) 
plans.

                        EXPLANATION OF PROVISION

    The provision conforms the hardship distribution rules for 
section 403(b) plans to those of section 401(k) plans. Thus, 
the provision provides that in addition to elective deferrals, 
a section 403(b) plan may distribute, on account of an 
employee's hardship, qualified nonelective contributions,\496\ 
qualified matching contributions,\497\ and earnings on any of 
these contributions (including on elective deferrals). In 
addition, the provision provides that a distribution does not 
fail to qualify as a hardship distribution solely because the 
employee does not take any available loan under the plan.
---------------------------------------------------------------------------
    \496\As defined in section 401(m)(4)(C).
    \497\As defined in section 401(k)(3)(D)(ii)(I).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
the date of enactment.

      3. Multiple employer 403(b) plans (sec. 403 of the bill and 
                secs. 403(b), 6057 and 6058 of the Code)


                              PRESENT LAW

Retirement savings under the Code and ERISA

    The Code provides tax-favored treatment for various types 
of retirement plans, including employer-sponsored plans and 
IRAs. Code provisions are generally within the jurisdiction of 
the Secretary, through his or her delegate, the IRS.
    The most common type of tax-favored employer-sponsored 
retirement plan is a qualified retirement plan,\498\ which may 
be a defined contribution plan or a defined benefit plan. Under 
a defined contribution plan, separate individual accounts are 
maintained for participants, to which accumulated 
contributions, earnings, and losses are allocated, and 
participants' benefits are based on the value of their 
accounts.\499\ Defined contribution plans commonly allow 
participants to direct the investment of their accounts, 
usually by choosing among investment options offered under the 
plan. Under a defined benefit plan, benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts.\500\ Besides qualified retirement 
plans, certain tax-exempt employers and public schools may 
maintain tax-deferred annuity plans.\501\
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    \498\Sec. 401(a). A qualified annuity plan under section 403(a) is 
similar to and subject to requirements similar to those applicable to 
qualified retirement plans.
    \499\Sec. 414(i). Defined contribution plans generally provide for 
contributions by employers and may include a qualified cash or deferred 
arrangement under a section 401(k)) plan, under which employees may 
elect to contribute to the plan.
    \500\Sec. 414(j).
    \501\Sec. 403(b). Private and governmental employers that are 
exempt from tax under section 501(c)(3), including tax-exempt private 
schools, may maintain tax-deferred annuity plans (discussed further 
below). State and local governmental employers may maintain another 
type of tax-favored retirement plan, an eligible deferred compensation 
plan under section 457(b).
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    An IRA is generally established by the individual for whom 
the IRA is maintained.\502\ However, in some cases, an employer 
may establish IRAs on behalf of employees and provide 
retirement contributions to the IRAs.\503\ In addition, IRA 
treatment may apply to accounts maintained for employees under 
a trust created by an employer (or an employee association) for 
the exclusive benefit of employees or their beneficiaries, 
provided that the trust complies with the relevant IRA 
requirements and separate accounting is maintained for the 
interest of each employee or beneficiary (referred to herein as 
an ``IRA trust'').\504\ In that case, the assets of the trust 
may be held in a common fund for the account of all individuals 
who have an interest in the trust.
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    \502\Sections 219, 408 and 408A provide rules for IRAs. Under 
section 408(a)(2) and (n), only certain entities are permitted to be 
the trustee of an IRA. The trustee of an IRA generally must be a bank, 
an insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \503\Simplified employee pension (``SEP'') plans under section 
408(k) and SIMPLE IRA plans under section 408(p) are employer-sponsored 
retirement plans funded using IRAs for employees.
    \504\Sec. 408(c).
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Tax-sheltered annuities (``section 403(b) plans'')

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities).
    Many of the rules that apply to section 403(b) plans are 
similar to the rules applicable to qualified retirement plans, 
including section 401(k) plans. Section 403(b) plans are 
generally subject to the minimum coverage and nondiscrimination 
rules that apply to qualified defined contribution plans. 
However, as in the case of a qualified retirement plan, a 
governmental section 403(b) plan is not subject to the 
nondiscrimination rules.

Contributions to section 403(b) plans

    Employers may make nonelective or matching contributions to 
such plans on behalf of their employees, and the plan may 
provide for employees to make pre-tax elective deferrals, 
designated Roth contributions (held in designated Roth 
accounts)\505\ or other after-tax contributions.
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    \505\Sec. 402A.
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            Annuity contracts
    Generally, section 403(b) plans provide for contributions 
toward the purchase of annuity contracts for providing 
retirement benefits for their employees. The employee's rights 
under the annuity contract are nonforfeitable, except for a 
failure to pay future premiums.\506\ Section 403(b) generally 
provides that amounts contributed by an employer for an annuity 
contract are excluded from the gross income of the employee for 
the taxable year if certain requirements are satisfied.
            403(b) custodial accounts
    Alternatively, such contributions may be held in custodial 
accounts established for each employee if those accounts 
satisfy certain requirements.
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    \506\Sec. 403(b)(1)(C).
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    Contributions to a section 403(b) plan that are held in a 
custodial account are treated as contributions to an annuity 
contract\507\ if the assets (1) are held by a bank\508\ or 
another person who demonstrates, to the satisfaction of the 
Secretary, that the manner in which the assets will be held is 
consistent with the requirements for a qualified retirement 
plan\509\ and (2) are invested only in regulated investment 
company stock.\510\
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    \507\Sec. 403(b)(7).
    \508\A ``bank'' is defined as any bank as defined in section 581, 
an insured credit union within the meaning of section 101, paragraph 
(6) or (7) of the Federal Credit Union Act, and a corporation which, 
under the laws of the State of its incorporation, is subject to 
supervision and examination by the Commissioner of Banking or other 
officer of such State in charge of the administration of the banking 
laws of such State. Sec. 408(n).
    \509\Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)-1. A custodial 
account that satisfies the requirements of section 401(f)(2) is treated 
as an organization described in section 401(a) solely for purposes of 
subchapter F of chapter 1 of subtitle A (secs. 501-530) and subtitle F 
(pertaining to procedure and administration) with respect to amounts 
received by the account and with respect to any income from the 
investment of those amounts.
    \510\Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)-8(d)(2)(i).
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            Retirement Income Accounts
    Assets of a section 403(b)) plan generally must be invested 
in annuity contracts or mutual funds.\511\ However, the 
restrictions on investments do not apply to a retirement income 
account, which is a type of 403(b) plan that is a defined 
contribution program established or maintained by a church, or 
a convention or association of churches, to provide benefits 
under the plan to employees of a religious, charitable or 
similar tax-exempt organization.\512\
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    \511\Sec. 403(b)(1)(A) and (7).
    \512\Sec. 403(b)(9)(B), referring to organizations exempt from tax 
under section 501(c)(3). For this purpose, a church or a convention or 
association of churches includes an organization described in section 
414(e)(3)(A), that is, an organization, 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, provided that the organization is controlled by, or 
associated with, a church or a convention or association of churches.
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    Certain rules prohibiting discrimination in favor of highly 
compensated employees, which apply to section 403(b) plans 
generally, do not apply to a plan maintained by a church or 
qualified church-controlled organization.\513\ For this 
purpose, church means a church, a convention or association of 
churches, or an elementary or secondary school that is 
controlled, operated, or principally supported by a church or 
by a convention or association of churches, and includes a 
qualified church-controlled organization. A qualified church-
controlled organization is any church-controlled tax-exempt 
organization other than an organization that (1) offers goods, 
services, or facilities for sale, other than on an incidental 
basis, to the general public, other than goods, services, or 
facilities that are sold at a nominal charge substantially less 
than the cost of providing the goods, services, or facilities, 
and (2) normally receives more than 25 percent of its support 
from either governmental sources, or receipts from admissions, 
sales of merchandise, performance of services, or furnishing of 
facilities, in activities that are not unrelated trades or 
businesses, or from both. Church-controlled organizations that 
are not qualified church-controlled organizations are generally 
referred to as ``nonqualified church-controlled 
organizations.''
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    \513\Sec. 403(b)(1)(D) and (12).
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Church plans

    A church plan is a plan established and maintained for 
employees (or their beneficiaries) by the church or by a 
convention or association of churches that is exempt from 
tax.\514\ Church plans include plans maintained by an 
organization, whether a corporation or otherwise, that has as 
its principal purpose or function the administration or funding 
of a plan or program for providing retirement or welfare 
benefits for the employees of the church or convention or 
association of churches.\515\
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    \514\Sec. 414(e). The plan is exempt from tax under section 501.
    \515\Sec. 414(e)(3)(A). With respect to certain provisions (e.g., 
the exemption for church plans from nondiscrimination rules applicable 
for tax-sheltered annuities), the more limited definition of church 
under the employment-tax rules applies (secs. 312l(w)(3)(A) and (B)).
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Multiple employer plans under the Code

            In general
    Qualified retirement plans, either defined contribution or 
defined benefit plans, are categorized as single employer plans 
or multiple employer plans (``MEPs''). A single employer plan 
is a plan maintained by one employer. For this purpose, 
businesses and organizations that are members of a controlled 
group of corporations, a group under common control, or an 
affiliated service group are treated as one employer (referred 
to as ``aggregation'').\516\
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    \516\Sec. 414(b), (c), (m) and (o).
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    A MEP generally is a single plan maintained by two or more 
unrelated employers (that is, employers that are not treated as 
a single employer under the aggregation rules).\517\ MEPs are 
commonly maintained by employers in the same industry and are 
used also by professional employer organizations (``PEOs'') to 
provide qualified retirement plan benefits to employees working 
for PEO clients.\518\
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    \517\Sec.413(c). Multiple employer status does not apply if the 
plan is a multiemployer plan. Multiemployer plans are different from 
single employer plans and MEPs. A multiemployer plan is defined under 
section 414(f) as a plan maintained pursuant to one or more collective 
bargaining agreements with two or more unrelated employers and to which 
the employers are required to contribute under the collective 
bargaining agreement(s). Multiemployer plans are also known as Taft-
Hartley plans.
    \518\Rev. Proc.2003-86, 2003-2 C.B. 1211, and Rev. Proc. 2002-21, 
2002-1 C.B. 911, address the application of the MEP rules to qualified 
defined contribution plans maintained by PEOs.
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    There is no specific provision in the Code that provides 
for section 403(b) plans maintained by more than one 
employer.\519\
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    \519\Section 413(c) provides rules governing MEPs subject to 
sections 401(a), 410(a) and 411, in other words tax-qualified 
retirement plans, but does not apply those rules to section 403(b) 
plans.
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            Application of Code requirements to MEPs
    Some requirements are applied to a MEP on a plan-wide 
basis.\520\ For example, all employees covered by the plan are 
treated as employees of all employers participating in the plan 
for purposes of the exclusive benefit rule. Similarly, an 
employee's service with all participating employers is taken 
into account in applying the minimum participation and vesting 
requirements. In applying the limits on contributions and 
benefits, compensation, contributions, and benefits 
attributable to all employers are taken into account.\521\ 
Other requirements are applied separately, including the 
minimum coverage requirements, nondiscrimination requirements 
(both the general requirements and the special tests for 
section 401(k) plans), and the top-heavy rules.\522\
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    \520\Sec. 413(c).
    \521\Treas. Reg. sec.1.415(a)-1(e).
    \522\Treas. Reg. secs.1.413-2(a)(3)(ii)-(iii) and 1.416-1, G-2.
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            ``One bad apple'' rule
    The qualified status of the plan as a whole is determined 
with respect to all employers maintaining the plan, and the 
failure by one employer (or by the plan itself) to satisfy an 
applicable qualification requirement may result in 
disqualification of the plan with respect to all employers 
(sometimes referred to as the ``one bad apple'' rule).\523\
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    \523\Treas. Reg. sec. 1.413-2(a)(3)(iv).
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    The SECURE Act provided relief from the ``one bad apple'' 
rule under the Code for certain MEPs.\524\ MEPs that satisfy 
certain requirements (referred to herein as a ``covered MEP'') 
may avoid the consequences of the ``one bad apple rule.'' A 
``covered MEP'' is a multiple employer qualified defined 
contribution plan\525\ or a plan that consists of IRAs 
(referred to herein as an ``IRA plan''), including under an IRA 
trust,\526\ that either (1) is maintained by employers which 
have a common interest other than having adopted the plan, or 
(2) in the case of a plan not described in (1), has a pooled 
plan provider (referred to herein as a ``pooled provider 
plan''),\527\ and which meets certain other requirements as 
described below.
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    \524\Sec. 101. With respect to plans described under section 
413(e)(1)(A), other than providing relief from the ``one bad apple'' 
rule if certain requirements are met and adding certain reporting 
requirements, the provision generally did not change present law and 
related guidance applicable to such MEPs under the Code or ERISA.
    \525\To which section 413(c) applies.
    \526\In applying the exclusive benefit requirement under section 
408(c) to an IRA plan with an IRA trust covering employees of unrelated 
employers, all employees covered by the plan are treated as employees 
of all employers participating in the plan.
    \527\Sec. 413(e)(1).
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    Relief from the ``one bad apple'' rule does not apply to a 
plan unless the terms of the plan provide that, in the case of 
any employer in the plan failing to take required actions 
(referred to herein as a ``noncompliant employer''):
           Plan assets attributable to employees of the 
        noncompliant employer (or beneficiaries of such 
        employees) will be transferred to a plan maintained 
        only by that employer (or its successor), to a tax-
        favored retirement plan for each individual whose 
        account is transferred,\528\ or to any other 
        arrangement that the Secretary determines is 
        appropriate, unless the Secretary determines it is in 
        the best interests of the employees of the noncompliant 
        employer (and beneficiaries of such employees) to 
        retain the assets in the plan, and
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    \528\For this purpose, a tax-favored retirement plan means an 
eligible retirement plan as defined in section 402(c)(8)(B), that is, 
an IRA, a qualified retirement plan, a tax-deferred annuity plan under 
section 403(b), or an eligible deferred compensation plan of a State or 
local governmental employer under section 457(b).
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           The noncompliant employer (and not the plan 
        with respect to which the failure occurred or any other 
        employer in the plan) is, except to the extent provided 
        by the Secretary, liable for any plan liabilities 
        attributable to employees of the noncompliant employer 
        (or beneficiaries of such employees).
    In addition, in the case of a pooled provider plan, if the 
pooled plan provider does not perform substantially all the 
administrative duties required of the provider (as described 
below) for any plan year, the Secretary may provide that the 
determination as to whether the plan meets the Code 
requirements for tax-favored treatment will be made in the same 
manner as would be made without regard to the relief under the 
provision.

``Pooled'' MEPs under the Code

    As described above, the SECURE Act provided relief from the 
``one bad apple'' rule under the Code for certain MEPs. The 
SECURE Act also introduced the concept of a ``pooled'' MEP for 
purposes of the Code. Various requirements apply to a ``pooled 
provider plan'' under the Code.
            Pooled provider plan
    A ``pooled provider plan'' is a qualified defined 
contribution plan that is established or maintained for the 
purpose of providing benefits to the employees of a MEP 
administered by a ``pooled plan provider.'' A pooled provider 
plan does not include a plan maintained by employers that have 
a common interest other than having adopted the plan.
    In the case of a pooled provider plan, if the pooled plan 
provider does not perform substantially all the administrative 
duties required of the provider (as described below) for any 
plan year, the Secretary may provide that the determination as 
to whether the plan meets the Code requirements for tax-favored 
treatment will be made in the same manner as would be made 
without regard to the relief under the provision.
            Pooled plan provider
    A ``pooled plan provider'' with respect to a plan means a 
person that:
           Is designated by the terms of the plan as a 
        named fiduciary under ERISA,\529\ as the plan 
        administrator, and as the person responsible to perform 
        all administrative duties (including conducting proper 
        testing with respect to the plan and the employees of 
        each employer in the plan) that are reasonably 
        necessary to ensure that the plan meets the Code 
        requirements for tax-favored treatment and the 
        requirements of ERISA and to ensure that each employer 
        in the plan takes actions as the Secretary or the 
        pooled plan provider determines necessary for the plan 
        to meet Code and ERISA requirements, including 
        providing to the pooled plan provider any disclosures 
        or other information that the Secretary may require or 
        that the pooled plan provider otherwise determines are 
        necessary to administer the plan or to allow the plan 
        to meet Code and ERISA requirements,
---------------------------------------------------------------------------
    \529\Within the meaning of ERISA section 402(a)(2).
---------------------------------------------------------------------------
           Registers with the Secretary as a pooled 
        plan provider and provides any other information that 
        the Secretary may require, before beginning operations 
        as a pooled plan provider,
           Acknowledges in writing its status as a 
        named fiduciary under ERISA and as the plan 
        administrator, and
           Is responsible for ensuring that all persons 
        who handle plan assets or are plan fiduciaries are 
        bonded in accordance with ERISA requirements.
    The Secretary may perform audits, examinations, and 
investigations of pooled plan providers as may be necessary to 
enforce and carry out the purposes of the statute.
    In addition, in determining whether a person meets the 
requirements 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\530\ are treated as one person.
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    \530\Under subsection (b), (c), (m), or (o) of section 414.
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            Plan sponsor
    Except with respect to the administrative duties (as a 
named fiduciary, as the plan administrator, and as the person 
responsible for the performance of all administrative duties) 
for which the pooled plan provider is responsible as described 
above, each employer in a plan which has a pooled plan provider 
is treated as the plan sponsor with respect to the portion of 
the plan attributable to that employer's employees (or 
beneficiaries of such employees).
            Guidance
    The Secretary is directed to issue guidance (that the 
Secretary determines appropriate) (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, (2) that describes the 
procedures to be taken to terminate a plan that fails to meet 
the requirements to be a covered MEP, including the proper 
treatment of, and actions needed to be taken by, any employer 
in the plan and plan assets and liabilities attributable to 
employees of that employer (or beneficiaries of such 
employees), and (3) to identify appropriate cases in which 
corrective action will apply with respect to noncompliant 
employers.\531\ For purposes of (3), the Secretary is to take 
into account 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 the Code requirements for tax-favored 
treatment, has continued over a period of time that 
demonstrates a lack of commitment to compliance. An employer or 
pooled plan provider is not treated as failing to meet a 
requirement of guidance issued by the Secretary if, before the 
issuance of such guidance, the employer or pooled plan provider 
complies in good faith with a reasonable interpretation of the 
provisions to which the guidance relates.
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    \531\On March 28, 2022, the IRS issued proposed regulations with 
respect to multiple employer plans. 87 Fed. Reg. 17225. That document 
also withdrew proposed regulations under section 413(c) that were 
published on July 3, 2019, 84 Fed. Reg. 31777, prior to the enactment 
of the SECURE Act.
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    The Secretary is directed to publish model plan language 
that meets the Code and ERISA requirements and that may be 
adopted in order for the plan to be treated as a pooled 
employer plan under ERISA.
    The Secretary (or the Secretary's delegate) has the 
authority to provide for the proper treatment of a failure to 
meet any Code requirement with respect to any employer (and its 
employees) in a MEP.
            Form 5500 reporting
    Under the Code, an employer maintaining a qualified 
retirement plan generally is required to file an annual return 
containing information required under regulations with respect 
to the qualification, financial condition, and operation of the 
plan.\532\ This filing requirement is met by filing a completed 
Form 5500, Annual Return/Report of Employee Benefit Plan. Forms 
5500 are filed with DOL, and information from Forms 5500 is 
shared with the IRS.\533\
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    \532\Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under 
section 414(g) and ERISA section 3(16), plan administrator generally 
means the person specifically so designated by the terms of the plan 
document. In the absence of a designation, the plan administrator 
generally is (1) in the case of a plan maintained by a single employer, 
the employer, (2) in the case of a plan maintained by an employee 
organization, the employee organization, or (3) 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 that maintain the plan. Under ERISA, the party described in 
(1), (2), or (3) is referred to as the ``plan sponsor.''
    \533\Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA sections 104(a)(1) 
and 106(a).
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    In the case of a MEP (including a pooled employer plan), 
the Form 5500 filing must include a list of participating 
employers in the plan; a good faith estimate of the percentage 
of total contributions made by the participating employers 
during the plan year; and the aggregate account balances 
attributable to each employer in the plan (determined as the 
sum of the account balances of the employees of each employer 
(and the beneficiaries of such employees)); and with respect to 
a pooled employer plan, the identifying information for the 
person designated under the terms of the plan as the pooled 
plan provider. The Secretary of Labor may prescribe simplified 
reporting for a MEP that covers fewer than 1,000 participants, 
but only if no single employer in the plan has 100 or more 
participants covered by the plan.

                           REASONS FOR CHANGE

    Under present law, employers eligible to sponsor section 
401(a) tax-qualified defined contribution retirement plans may 
maintain a multiple employer plan if either (1) the employers 
have a common interest (other than having adopted the plan) or 
(2) have a pooled plan provider. Multiple employer plans afford 
an opportunity to small employers to band together to obtain 
more favorable retirement plan investment options and more 
efficient and less expensive management services. However, the 
ability of employers eligible to sponsor 403(b) arrangements to 
sponsor and maintain multiple employer plans is uncertain under 
the Code and ERISA.
    The Committee believes that employers eligible to maintain 
section 403(b) arrangements should have the same access to 
multiple employer plans as is provided to sponsors of section 
401(a) tax-qualified retirement plans.

                     EXPLANATION OF PROVISION\534\
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    \534\Modifications to Labor provisions are necessary to effectuate 
this provision.
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Section 403(b) MEPs under the Code

            In general
    The provision clarifies that a section 403(b) plan may be 
established and maintained as a MEP. Specifically, it provides 
that, except in the case of a church plan, section 403(b) 
annuity contracts and 403(b) custodial accounts\535\ do not 
fail to qualify as section 403(b) plans solely by reason of 
such contracts being purchased or accounts being established 
under a plan maintained by more than one employer.
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    \535\Sec. 403(b)(7) provides that amounts paid by a tax-exempt 
employer to a custodial account which satisfy the requirements of 
section 401(f)(2) are treated as amounts contributed by such employer 
for an annuity contract for its employee if the amounts are to be 
invested in regulated investment company stock to be held in that 
custodial account. Also see the provision in Title IV, section 1 of 
this document, that would permit section 403(b)(7) custodial accounts 
to invest in group trusts as well as in regulated investment company 
stock.
---------------------------------------------------------------------------
    For purposes of this provision, a section 403(b) plan 
includes such a plan sponsored by (1) tax-exempt entities 
(described in section 501(c)(3) which are exempt from tax under 
section 501(a)) and (2) public schools (including State 
colleges and universities).
            Relief from ``one bad apple'' rule
    Under the provision, as long as such a section 403(b) plan 
maintained by more than one employer satisfies rules similar to 
certain rules that apply to qualified retirement MEPs,\536\ the 
section 403(b) plan will not fail to be treated as such merely 
because one or more employers of employees covered by the plan 
fail to meet the requirements of section 403(b). The rules 
applicable to qualified retirement MEPs require that where one 
or more employers of employees covered by the MEP fails to meet 
the applicable qualification requirements:
---------------------------------------------------------------------------
    \536\Under section 413(e)(2).
---------------------------------------------------------------------------
           the assets of the plan attributable to 
        employees of such employer (or beneficiaries of such 
        employees) will be transferred to a plan maintained 
        only by such employer (or its successor), to an 
        eligible retirement plan\537\ for each individual whose 
        account is transferred, or to any other arrangement 
        that the Secretary determines is appropriate, unless 
        the Secretary determines it is in the best interests of 
        the employees of such employer (and the beneficiaries 
        of such employees) to retain the assets in the plan, 
        and
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    \537\As defined in section 402(c)(8)(B).
---------------------------------------------------------------------------
           such employer (and not the plan with respect 
        to which the failure occurred or any other employer in 
        such plan) will, except to the extent provided by the 
        Secretary, be liable for any liabilities with respect 
        to such plan attributable to employees of such employer 
        (or beneficiaries of such employees).
    In addition, in the case of a section 403(b) MEP maintained 
by tax-exempt entities, such a plan must also satisfy rules 
similar to either the commonality rule (being maintained by 
employers which have a common interest other than having 
adopted the plan)\538\ or having a pooled plan provider. This 
requirement does not apply to plans maintained by governmental 
employers.
---------------------------------------------------------------------------
    \538\Sec. 413(e)(1)(A).
---------------------------------------------------------------------------

                            DISCLOSURE RULES

            Special disclosure rules for tax-exempt employers joining a 
                    section 403(b) MEP
    As noted above, there is an exception from ERISA for 
certain tax-sheltered annuity programs established by tax-
exempt entities which consist of a program for the purchase of 
annuity contracts or the establishment of custodial accounts 
pursuant to salary reduction agreements or agreements to forego 
an increase in salary where the tax-exempt entity has very 
limited involvement in the program. However, if a tax-exempt 
employer who had participated in such a non-ERISA program 
decides to become a participating employer in a section 403(b) 
MEP, that employer will become subject to ERISA because of the 
fiduciary responsibilities imposed on each employer in a 
section 403(b) MEP.
    To ensure that such tax-exempt employers are aware of their 
ERISA fiduciary duties, the provision imposes additional 
disclosure to such employers. First, the provision directs the 
Secretary (or the Secretary's delegate) to modify the model 
plan language applicable to qualified retirement MEPs\539\ to 
include language which notifies participating tax-exempt 
employers that the plan is subject to ERISA and that each such 
employer is a plan sponsor with respect to its employees 
participating in the MEP, and, as such, has certain fiduciary 
duties with respect to the plan and the employees. Second, 
Treasury must undertake necessary education and outreach 
efforts to increase awareness to tax-exempt employers that MEPs 
are subject to ERISA, that such employers are plan sponsors 
with respect to their employees participating in the MEP and, 
as such, have certain fiduciary duties with respect to the plan 
and to its employees.
---------------------------------------------------------------------------
    \539\Sec. 413(e)(5).
---------------------------------------------------------------------------
            Other disclosures
    The provision also provides that the Secretary also publish 
model plan language similar to the model plan language 
published for qualified plan MEPs\540\ for section 403(b) MEPs 
sponsored by nongovernmental employers.
---------------------------------------------------------------------------
    \540\Under section 413(e)(5).
---------------------------------------------------------------------------

Reporting requirements for section 403(b) MEPs

    In the case of any annuity contract described in section 
403(b) that is a MEP, such plan is treated as a single plan for 
purposes of the reporting requirements under the Code relating 
to the annual registration statement and the annual return for 
certain plans.\541\ As a result, the plan can file a single 
Form 8955-SSA, Annual Registration Statement Identifying 
Separated Participants With Deferred Vested Benefits, and a 
single Form 5500, Annual Return/Report of Employee Benefit 
Plan, rather than having each participating employer in the 
section 403(b) MEP file their own form. These filing 
requirements only apply to tax-exempt employers because 
governmental employers are not subject to ERISA.
---------------------------------------------------------------------------
    \541\The reporting requirement relating to the annual registration 
statement is under section 6057, and the requirement relating to the 
annual return is under 6058. These requirements only apply in the case 
of a section 403(b) plan that is otherwise subject to such 
requirements.
---------------------------------------------------------------------------

Regulations

    The Secretary (or the Secretary's delegate) must prescribe 
such regulations as may be necessary to clarify the treatment 
of an employer departing a section 403(b) MEP in connection 
with such employer's failure to meet MEP requirements.\542\
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    \542\As described in section 403(b)(15).
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No inference with respect to church plans

    The provision provides that regarding any application of 
section 403(b) to an annuity contract purchased under a church 
plan,\543\ maintained by more than one employer, or to any 
application of rules similar to the rules that apply to 
qualified retirement MEPs\544\ to such a plan, no inference is 
to be made from the rules applicable to section 403(b) MEPs not 
applying to such plans.
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    \543\As defined in section 414(e).
    \544\Sec. 413(e).
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                             EFFECTIVE DATE

    The provision is generally applicable to plan years 
beginning after the date of enactment.
    Nothing in the amendments made by the general rule is to be 
construed as limiting the authority of the Secretary 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 such Code with respect to 
one employer (and its employees) in the case of a section 
403(b) MEP.\545\
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    \545\As described in section 403(b)(15).
---------------------------------------------------------------------------

                        TITLE V--DISASTER RELIEF

    1. Special rules for use of retirement funds in connection with 
 qualified federally declared disasters (sec. 501 of the bill and sec. 
                            72 of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a tax-qualified plan described in 
section 401(a) (a ``qualified retirement plan''), a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an 
individual retirement arrangement (an ``IRA'') generally is 
included in income for the year distributed.\546\ These plans 
are referred to collectively as ``eligible retirement 
plans.''\547\ In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\548\
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    \546\Secs. 401(a), 403(a), 403(b), 457(b) and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \547\Sec. 402(c)(8)(B). Eligible retirement plans also include 
annuity plans described in section 403(a).
    \548\Sec. 72(t). The 10-percent early withdrawal tax does not apply 
to distributions from a governmental section 457(b) plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The IRS has the authority to waive the 
60-day requirement if failure to waive the requirement would be 
against equity or good conscience, including cases of casualty, 
disaster, or other events beyond the reasonable control of the 
individual.\549\
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    \549\Rev. Proc. 2016-47, 2016-37 I.R.B. 346, provides for a self-
certification procedure (subject to verification on audit) that may be 
used by a taxpayer claiming eligibility for a waiver of the 60-day 
requirement with respect to a rollover into a plan or IRA in certain 
specified circumstances.
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    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted under certain types of plans in 
the case of financial hardship or an unforeseeable emergency.

Loans from tax-favored retirement plans

    Employer-sponsored retirement plans are permitted, but not 
required, to provide loans to participants. Unless the loan 
satisfies certain requirements in both form and operation, the 
amount of a retirement plan loan is a deemed distribution from 
the retirement plan. Among the requirements that the loan must 
satisfy are that (1) the loan amount must not exceed the lesser 
of 50 percent of the participant's account balance or $50,000 
(generally taking into account outstanding balances of previous 
loans), and (2) the loan's terms must provide for a repayment 
period of not more than five years (except for a loan 
specifically to purchase a home) and for level amortization of 
loan payments to be made not less frequently than 
quarterly.\550\ Thus, if an employee stops making payments on a 
loan before the loan is repaid, a deemed distribution of the 
outstanding loan balance generally occurs. A deemed 
distribution of an unpaid loan balance is generally taxed as 
though an actual distribution occurred, including being subject 
to a 10-percent early withdrawal tax, if applicable. A deemed 
distribution is not eligible for rollover to another eligible 
retirement plan. The rules generally do not limit the number of 
loans an employee may obtain from a plan except to the extent 
that any additional loan would cause the aggregate loan balance 
to exceed limitations.
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    \550\Sec. 72(p).
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Tax-favored retirement plan compliance

    Tax-favored retirement plans are generally required to be 
operated in accordance with the terms of the plan document, and 
amendments to reflect changes to the plan generally must be 
adopted within a limited period.

Disaster relief

    Congress has at times liberalized the plan distribution and 
loan provisions for individuals affected by certain natural 
disasters.\551\
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    \551\See, e.g., sec. 20102 of Pub. L. No. 115-123 (providing relief 
in response to 2017 California wildfires); sec. 502 of Pub. L. No. 115-
63 (providing relief in response to Hurricanes Harvey, Irma, and 
Maria); former sec. 1400Q (providing relief in response to Hurricanes 
Katrina, Rita, and Wilma); sec. 202 of Div. Q of Pub. L. No. 116-94; 
and secs. 301 and 302 of Div. EE of Pub. L. No. 116-260. For a more 
detailed description of the most recently enacted provision, see Joint 
Committee on Taxation, General Explanation of Certain Tax Legislation 
Enacted in the 116th Congress (JCS-1-22), March 8, 2022, pp. 243-247.
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    Congress has also provided relief from the plan 
distribution and loan provisions for individuals affected by 
COVID-19.\552\
---------------------------------------------------------------------------
    \552\See sec. 2202 of Pub. L. No. 116-136 (providing relief for 
``coronavirus-related distributions'').
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                           REASONS FOR CHANGE

    Each time a disaster occurs, taxpayers living or working in 
the affected areas may experience damage to their homes and 
personal property. As a result, they may need access to their 
financial resources to recover from the consequences of such 
events to repair such damage and to pay for immediate living 
expenses. The Committee believes that when a major Federal 
disaster is declared under the Stafford Act, affected taxpayers 
of qualified disasters should be able to take distributions or 
loans from their retirement accounts for such purposes.

                        EXPLANATION OF PROVISION

Distributions and recontributions

    The provision allows an exception to the 10-percent early 
withdrawal tax for a ``qualified disaster recovery 
distribution'' from a qualified retirement plan, a section 
403(b) plan, or an IRA.\553\ The provision also allows a 
taxpayer to include income attributable to a qualified disaster 
recovery distribution ratably over three years and to 
recontribute the amount of the distribution to an eligible 
retirement plan within three years.
---------------------------------------------------------------------------
    \553\This exception also applies to an annuity plan described in 
section 403(a). The 10-percent early withdrawal tax generally does not 
apply to section 457 plans. Sec. 72(t)(1).
---------------------------------------------------------------------------
    A ``qualified disaster recovery distribution'' is any 
distribution from a qualified retirement plan, section 403(b) 
plan, governmental section 457(b) plan, or an IRA, made on or 
after the first day of the incident period of a qualified 
disaster and before the date which is 180 days after the 
applicable date with respect to such disaster, to an individual 
whose principal place of abode at any time during the incident 
period is located in the qualified disaster area and who has 
sustained an economic loss by reason of such disaster.\554\
---------------------------------------------------------------------------
    \554\A qualified disaster recovery distribution is subject to 
income tax withholding unless the recipient elects otherwise. Mandatory 
20-percent withholding does not apply.
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    The ``applicable date'' means the latest of: (1) the date 
of enactment, (2) the first day of the incident period with 
respect to the qualified disaster, or (3) the date of the 
disaster declaration with respect to the qualified disaster.
    A ``qualified disaster'' means\555\ any disaster with 
respect to which a major disaster has been declared by the 
President under section 401 of the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act after December 27, 2020. A 
``qualified disaster area'' means, with respect to any 
qualified disaster, the area with respect to which the major 
disaster was declared under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act; however, the term does not 
include any area which is a qualified disaster area solely by 
reason of section 301 of the Taxpayer Certainty and Disaster 
Tax Relief Act of 2020. The term ``incident period'' means, 
with respect to any qualified disaster, the period specified by 
the Federal Emergency Management Agency as the period during 
which such disaster occurred.
---------------------------------------------------------------------------
    \555\With respect to this provision and sec. 72(t)(8).
---------------------------------------------------------------------------
    A plan is not treated as violating any Code requirement 
merely because it treats a distribution as a qualified disaster 
recovery distribution, provided that the aggregate amount of 
such distributions from plans maintained by the employer and 
members of the employer's controlled group or affiliated 
service group\556\ does not exceed $22,000 with respect to each 
qualified disaster. The total amount of distributions to an 
individual from all eligible retirement plans that may be 
treated as qualified disaster recovery distributions with 
respect to each qualified disaster is $22,000. Thus, a plan is 
not treated as violating any Code requirement merely because an 
individual might receive total distributions in excess of 
$22,000, taking into account distributions from plans of other 
employers or IRAs, or because an individual may have been 
affected by more than one qualified disaster.
---------------------------------------------------------------------------
    \556\As defined in secs. 414(b), (c), (m) and (o).
---------------------------------------------------------------------------
    Any amount required to be included in income as a result of 
a qualified disaster recovery distribution is included in 
income ratably over the three-year period beginning with the 
year of distribution unless the individual elects not to have 
ratable inclusion apply.\557\
---------------------------------------------------------------------------
    \557\And rules similar to the special rules of subparagraph (a) of 
section 408A(d)(3) will apply to qualified disaster recovery 
distributions.
---------------------------------------------------------------------------
    Any portion of a qualified disaster recovery distribution 
may, at any time during the three-year period beginning on the 
day after the date on which the distribution was received, be 
recontributed in one or more contributions to an eligible 
retirement plan to which a rollover can be made. Any amount 
recontributed within the three-year period is treated as a 
rollover and thus is not includible in income.
    For example, if an individual receives a qualified disaster 
recovery distribution in 2020, that amount is included in 
income, generally ratably over the year of the distribution and 
the following two years and is not subject to the 10-percent 
early withdrawal tax. If, in 2022, the amount of the qualified 
disaster recovery distribution is recontributed to an eligible 
retirement plan, the individual may file amended returns to 
claim a refund of the tax attributable to the amounts 
previously included in income. In addition, if, under the 
ratable inclusion provision, a portion of the distribution has 
not yet been included in income at the time of the 
contribution, the remaining amount is not includible in income.
    For purposes of satisfying the requirements to offer a 
participant the right to have a direct trustee to trustee 
transfer of an eligible rollover distribution,\558\ to provide 
a written explanation to a recipient of distributions eligible 
for rollover treatment,\559\ and satisfying withholding 
requirements,\560\ a qualified disaster recovery distribution 
will not be treated as an eligible rollover distribution.
---------------------------------------------------------------------------
    \558\Sec. 401(a)(31).
    \559\Sec. 402(f).
    \560\Sec. 3405.
---------------------------------------------------------------------------
    A qualified disaster recovery distribution will be treated 
as meeting the qualification requirements for distributions 
from section 401(k) plans, section 403(b) plans, and from 
eligible deferred compensation plans under section 457(b).\561\ 
In the case of a money purchase pension plan, a qualified 
disaster recovery distribution which is an in-service 
withdrawal will be treated as meeting the section 401(a) 
distribution requirements.
---------------------------------------------------------------------------
    \561\Secs. 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 
457(d)(1)(A).
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Recontributions of withdrawals for purchase of a home

    Any individual who received a qualified distribution during 
the period beginning on the date which is 180 days before the 
first day of the incident period of such qualified disaster and 
ending on the date which is 30 days after the last day of such 
incident period, which was a qualified first-time homebuyer 
distribution and was to be used to purchase or construct a 
principal residence in a qualified disaster area, but which was 
not so used on account of the qualified disaster with respect 
to such area, may, during the ``applicable period,'' make one 
or more contributions in an aggregate amount not to exceed the 
amount of such qualified distribution to an eligible retirement 
plan\562\ of which such individual is a beneficiary and to 
which a rollover contribution of such distribution could be 
made.\563\ The ``applicable period'' is, in the case of a 
principal residence in a qualified disaster area with respect 
to any qualified disaster, the period beginning on the first 
day of the incident period of such qualified disaster and 
ending on the date which is 180 days after the applicable date.
---------------------------------------------------------------------------
    \562\As defined in section 402(c)(8)(B).
    \563\Under sections 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as 
the case may be.
---------------------------------------------------------------------------

Loans

    The provision modifies the rules applicable to loans, 
providing that for a qualified individual, in order for the 
loan not to be treated as a distribution, the permitted maximum 
loan amount from a qualified employer plan\564\ during the 
applicable period is the lesser of the present value of the 
nonforfeitable accrued benefit of the employee under the plan 
or $100,000.\565\ For this purpose, ``qualified individual'' 
has the same meaning as persons eligible to receive qualified 
disaster recovery distributions and the definition of 
``applicable date'' is the same as that used for qualified 
disaster recovery distributions. The ``applicable period'' with 
respect to any disaster is the period beginning on the 
applicable date with respect to such disaster and ending on the 
date that is 180 days after such applicable date.
---------------------------------------------------------------------------
    \564\For this purpose, qualified employer plan is defined in 
section 72(p)(4).
    \565\See sec. 72(p)(2)(A).
---------------------------------------------------------------------------
    In the case of a qualified individual (with respect to any 
qualified disaster) with an outstanding loan from a qualified 
employer plan (on or after the applicable date of such 
qualified disaster), the provision delays by one year the due 
date for any repayment with respect to such loan, if the due 
date for any repayment otherwise would fall during the period 
beginning on the first day of the incident period of such 
qualified disaster and ending on the date which is 180 days 
after the last day of such incident period. Under the 
provision, any subsequent repayments are appropriately adjusted 
to reflect the delay in the earlier repayment due date and any 
interest accruing during that delay. The repayment delay is 
disregarded for purposes of the requirement that a loan be 
repaid within five years.

GAO Report

    The provision requires that the Comptroller General of the 
United States submit 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 on taxpayer utilization of the 
retirement disaster relief permitted by this provision and 
prior legislation, including a comparison of utilization by 
higher and lower income taxpayers, and whether the $22,000 
threshold on distributions provides adequate relief for 
taxpayers who suffer from a disaster.

                             EFFECTIVE DATE

    With respect to qualified disaster recovery distributions 
and recontributions of withdrawals for home purchases, the 
provision is applicable to distributions with respect to 
disasters the incident period for which begins on or after 30 
days after the date of enactment of the Taxpayer Certainty and 
Disaster Tax Relief Act, which is January 26, 2021.
    With respect to plan loans from qualified plans, the 
provision applies to loans made with respect to disasters the 
incident period for which begins on or after 30 days after the 
date of enactment of the Taxpayer Certainty and Disaster Tax 
Relief Act, which is January 26, 2021.

                        TITLE VI--EMPLOYER PLANS

     1. Credit for employers with respect to modified safe harbor 
    requirements (sec. 601 of the bill and new sec. 45V of the Code)


                              PRESENT LAW

Automatic enrollment

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement under which employees 
may elect to have plan contributions (``elective deferrals'') 
made rather than receive cash compensation (commonly called a 
``section 401(k) plan''). A SIMPLE IRA plan is an employer-
sponsored retirement plan funded with individual retirement 
arrangements (``IRAs'') that also allows employees to make 
elective deferrals.\566\ Additional background on SIMPLE IRA 
plans is in Title I, section 6 of this document.
---------------------------------------------------------------------------
    \566\Sec. 408(p).
---------------------------------------------------------------------------
    Section 401(k) plans and SIMPLE IRA plans may be designed 
so that the employee will receive cash compensation unless the 
employee affirmatively elects to make elective deferrals to the 
plan. Alternatively, a plan may provide that elective deferrals 
are made at a specified rate (when the employee becomes 
eligible to participate) unless the employee elects otherwise 
(i.e., affirmatively elects not to make contributions or to 
make contributions at a different rate). This alternative plan 
design is referred to as automatic enrollment. For background 
on automatic enrollment 401(k) safe harbor plans, see Title I, 
section 1 of this document.

                         SMALL EMPLOYER CREDIT

    For tax years beginning after December 31, 2019, a 
nonrefundable income tax credit is available for an eligible 
employer that establishes an eligible automatic contribution 
arrangement under a qualified employer plan, requiring the plan 
to include a cash or deferred arrangement under which 
participants are treated as having made an election to make 
elective contributions at a uniform percentage of 
compensation.\567\ Qualified employer plans include 401(a) 
plans, 403(a) plans, SIMPLE IRA plans and SEPs but exclude 
governmental plans and plans maintained by tax-exempt 
employers.
---------------------------------------------------------------------------
    \567\Sec. 45T.
---------------------------------------------------------------------------
    The credit is equal to $500 for any taxable year of an 
eligible employer that occurs during the period of three 
taxable years beginning with the first taxable year for which 
an eligible employer includes an eligible automatic 
contribution arrangement in a qualified employer plan that it 
sponsors. No taxable year is treated as occurring within the 
credit period unless the eligible automatic contribution 
arrangement is included in the plan for that year.
    An eligible employer is an employer that with respect to 
any year, had no more than 100 employees with compensation of 
at least $5,000 or more for the preceding year.\568\
---------------------------------------------------------------------------
    \568\An eligible employer who establishes and maintains a plan for 
one of more years, but who fails to be an eligible employer for any 
later year is treated as an eligible employer for the two years 
following the last year the employer was an eligible employer, unless 
the failure is due to any acquisition, disposition, or similar 
transaction involving an eligible employer.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that a tax credit for small 
employers who default enroll employees into certain elective 
deferral contributions and make certain mandatory employer 
contributions provides needed incentives for small employers to 
incorporate such features in their retirement plans. Employees 
who are default enrolled into retirement plans with automatic 
enrollment features tend to participate and contribute at 
higher rates, and the automatic enrollment designs that would 
be eligible for such a tax credit would require higher default 
contribution rates and higher employer matching rates than are 
otherwise required under present law rules governing such 
automatic enrollment designs. The Committee believes 
encouraging such heightened features will increase 
participation in employer-provided retirement plans and in turn 
improve financial readiness for retirement for employees.

                        EXPLANATION OF PROVISION

    A provision described in Title I, section 1 of this 
document establishes a new automatic enrollment safe harbor 
(``secure deferral arrangement'') in addition to the existing 
automatic enrollment 401(k) safe harbor plan. The secure 
deferral arrangement is required to satisfy certain 
requirements, including providing for certain minimum qualified 
percentages of elective deferrals and certain minimum matching 
contributions.
    Under the provision, a nonrefundable income tax credit is 
available to eligible small employers who maintain a secure 
deferral arrangement. The total amount of the credit is equal 
to the total of such employer's matching contributions under 
the secure deferral arrangement on behalf of employees who are 
not highly compensated employees.\569\ The credit is determined 
with respect to contributions made on behalf of any employee 
only during the first five years the employee participates in 
the secure deferral arrangement and not to exceed two percent 
of the compensation of such employee for the taxable year.
---------------------------------------------------------------------------
    \569\Sec. 414(q).
---------------------------------------------------------------------------
    For purposes of this credit, the definition of eligible 
employer parallels the definition that is used for the 
retirement auto-enrollment credit. Members of controlled 
groups, business under common control, and affiliated service 
groups are treated as a single employer for purposes of these 
requirements.\570\ All eligible employer plans of an employer 
are treated as a single plan.
---------------------------------------------------------------------------
    \570\Secs. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for any contribution with respect 
to which this credit is allowed. A taxpayer may elect to not 
have this credit apply for any taxable year.

                             EFFECTIVE DATE

    The provision is effective for taxable years which include 
any portion of a plan year beginning after December 31, 2023.

    2. Application of top-heavy rules to defined contribution plans 
covering excludible employees (sec. 602 of the bill and sec. 416 of the 
                                 Code)


                              PRESENT LAW

Top-heavy requirements

    Top-heavy requirements apply to limit the extent to which 
accumulated benefits or account balances under a qualified 
retirement plan can be concentrated with key employees.\571\ 
Whereas the general nondiscrimination requirements are designed 
to test annual contributions or benefits for highly compensated 
employees compared to those of non-highly compensated 
employees, the top-heavy rules test the portion of the total 
plan contributions or benefits that have accumulated for the 
benefit of key employees as a group. If a plan is top-heavy, 
minimum contributions or benefits must be provided for non-key 
employees and, in some cases, faster vesting is required. In 
general, for a defined contribution plan, this minimum 
contribution is three percent of the participant's 
compensation; however, such contribution is limited by the 
percentage at which contributions are made for the key employee 
with the highest percentage of contributions.
---------------------------------------------------------------------------
    \571\Secs. 401(a)(10)(B) and 416.
---------------------------------------------------------------------------
    For this purpose, a key employee is an officer with annual 
compensation greater than $200,000 (for 2022), a five-percent 
owner, or a one-percent owner with compensation in excess of 
$150,000. A defined benefit plan generally is top-heavy if the 
present value of cumulative accrued benefits for key employees 
exceeds 60 percent of the cumulative accrued benefits for all 
employees. A defined contribution plan is top-heavy if the 
aggregate of accounts for key employees exceeds 60 percent of 
the aggregate accounts for all employees. As a result, plans of 
large businesses with many employees are less likely to be top-
heavy than plans of smaller employers in which the owners 
participate.

Minimum coverage requirements

    As part of the general nondiscrimination requirements, a 
qualified retirement plan must satisfy the minimum coverage 
requirement.\572\ Under the minimum coverage requirement, the 
plan's coverage of employees must be nondiscriminatory. This is 
determined by calculating the plan's ratio percentage, that is, 
the ratio of the percentage of non-highly compensated employees 
(of all non-highly compensated employees in the workforce) 
covered under the plan over the percentage of highly 
compensated employees covered. If the plan's ratio percentage 
is 70 percent or greater, the plan satisfies the minimum 
coverage requirement. If the plan's ratio percentage is less 
than 70 percent, a multi-part test applies.\573\ In addition, 
the average benefit percentage test must be satisfied. Under 
the average benefit percentage test, the average rate of 
contributions or benefit accruals for all non-highly 
compensated employees in the workforce (taking into account all 
plans of the employer) must be at least 70 percent of the 
average contribution or accrual rate of all highly compensated 
employees.
---------------------------------------------------------------------------
    \572\Sec. 410(b).
    \573\The plan must cover a group (or classification) of employees 
that is reasonable and established under objective business criteria, 
such as hourly or salaried employees (referred to as a reasonable 
classification), and the plan's ratio percentage must be at or above a 
specific level specified in the regulations.
---------------------------------------------------------------------------
    The minimum coverage and general nondiscrimination 
requirements apply annually on the basis of the plan year. 
Employees who have not satisfied minimum age and service 
conditions under the plan, certain nonresident aliens, and 
employees covered by a collective bargaining agreement are 
generally disregarded.\574\ However, a plan that covers 
employees with less than a year of service or who are under age 
21 (``otherwise excludable employees'') must generally include 
those employees in any nondiscrimination test for the year but 
can test the plan for nondiscrimination in two parts: (1) by 
separately testing the portion of the plan covering otherwise 
excludable employees and treating all such employees as the 
only employees of the employer; and (2) then testing the rest 
of the plan taking into account the rest of the employees of 
the employer and excluding the otherwise excludable employees.
---------------------------------------------------------------------------
    \574\Qualified plans generally cannot delay an employee's 
participation in the plan beyond the later of completion of one year of 
service (i.e., a 12-month period with at least 1,000 hours of service) 
or attainment of age 21. Sec. 410(a)(1). A plan or portion of a plan 
covering collectively bargained employees is generally deemed to 
satisfy the nondiscrimination requirements.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to encourage employers to permit 
employees to participate in a retirement plan before the 
employees have met the minimum age and service requirements. 
Thus, the Committee believes it is appropriate to allow an 
employer to exclude such employees from the top-heavy minimum 
contribution requirement.

                        EXPLANATION OF PROVISION

    Under the provision, if a top-heavy defined contribution 
plan covers employees who do not meet the minimum age or 
service requirements under the Code, such employees may be 
excluded from consideration in determining whether any plan of 
the employer satisfies the top-heavy minimum contribution 
requirement.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after the 
date of enactment.

   3. Increase in credit limitation for small employer pension plan 
 startup costs of certain employers (sec. 603 of the bill and sec. 45E 
                              of the Code)


                              PRESENT LAW

    Present law provides a nonrefundable income tax credit 
equal to 50 percent of the qualified start-up costs paid or 
incurred during the taxable year by an eligible employer\575\ 
that adopts a new eligible employer plan,\576\ provided that 
the plan covers at least one nonhighly compensated 
employee.\577\ Qualified start-up costs are expenses connected 
with the establishment or administration of the plan and 
retirement-related education of employees with respect to the 
plan. The amount of the credit for any taxable year is limited 
to the greater of (1) $500 or (2) the lesser of (a) $250 
multiplied by the number of nonhighly compensated employees of 
the eligible employer who are eligible to participate in the 
plan or (b) $5,000. The credit applies for up to three 
consecutive taxable years beginning with the taxable year the 
plan is first effective, or, at the election of the employer, 
with the year preceding the first plan year.
---------------------------------------------------------------------------
    \575\An eligible employer has the meaning given such term by 
section 408(p)(2)(C)(i).
    \576\An eligible employer plan means a qualified employer plan 
within the meaning of section 4972(d) and includes a section 401(a) 
qualified retirement plan, a section 403 annuity, any simplified 
employee pension (``SEP'') within the meaning of section 408(k), and 
any simple retirement account (``SIMPLE'') within the meaning of 
section 408(p). An eligible employer plan does not include a plan 
maintained by a tax-exempt employer or a governmental plan, as defined 
in section 414(d).
    \577\A nonhighly compensated employee is an employee who is not a 
highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees, each with compensation of 
$5,000 or more.\578\ In addition, the employer must not have 
had a qualified employer plan covering substantially the same 
employees as the new plan with respect to which contributions 
were made or benefits were accrued during the three years 
preceding the first year for which the credit would apply. 
Members of controlled groups and affiliated service groups are 
treated as a single employer for purposes of these 
requirements.\579\ All eligible employer plans of an employer 
are treated as a single plan.
---------------------------------------------------------------------------
    \578\As defined in section 408(p)(2)(C)(i).
    \579\Sec. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified start-
up costs paid or incurred for the taxable year equal to the 
amount of the credit.

                           REASONS FOR CHANGE

    The Committee believes that providing a tax credit for 
small employers that adopt a retirement plan will incentivize 
such employers to provide their employees with access to these 
benefits. Small employers are less likely to offer a retirement 
plan to employees than large and medium-sized employers. The 
Committee believes improved access to employer-provided 
retirement plans in turn improves financial readiness for 
retirement for individuals.

                        EXPLANATION OF PROVISION

    The provision increases from 50 percent to 75 percent of 
qualified start-up costs, the amount of the nonrefundable 
income tax credit allowed to an eligible employer with no more 
than 25 employees who received at least $5,000 of compensation 
from the employer for the preceding year.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2023.

 4. Expansion of Employee Plans Compliance Resolution System (sec. 604 
                              of the bill)


                              PRESENT LAW

Employee Plans Compliance Resolution System

    A general description of the Employee Plans Compliance 
Resolution System (``EPCRS'') that this provision modifies may 
be found in Title II, section 7 of this document.
    The current EPCRS program does not provide corrections for 
individual IRAs although it does provide for certain 
corrections for SIMPLE plans and SEPs. SCP and VCP\580\ are 
available to a SEP or SIMPLE plan.\581\ SCP is only available 
to such a plan to correct insignificant operational 
failures,\582\ and only if the SEP or SIMPLE plan is 
established and maintained on a document approved by the IRS.
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    \580\Sec. 6.11 of Rev. Proc. 2021-30.
    \581\Sec. 1.03 of Rev. Proc. 2021-30. A SEP is a plan intended to 
satisfy the requirements of Code section 408(k); a SIMPLE plan is a 
plan intended to satisfy the requirements of Code section 408(p). Secs. 
5.06 and 5.07 of Rev. Proc. 2021-30.
    \582\Sec. 4.01(c) of Rev. Proc. 2021-30.
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Loans

    EPCRS is available for plan loans that do not comply with 
one or more Code requirements\583\ (for example, including, the 
amount of the loan must not exceed the lesser of 50 percent of 
the participant's account balance or $50,000\584\ (generally 
taking into account outstanding balances of previous loans)); 
the terms of the loan must provide for a repayment period of 
not more than five years\585\ and provide for level 
amortization of loan payments (with payments not less 
frequently than quarterly); and the terms of the loan must be 
legally enforceable) and are corrected through VCP or Audit 
CAP.
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    \583\Sec. 72(p)(2).
    \584\There are certain exceptions to these rules for loans, for 
example, individuals eligible to receive a coronavirus-related 
distribution under section 2202 of the Coronavirus Aid, Relief, and 
Economic Security Act, Pub. L. No. 116-136, March 27, 2020, may take a 
loan during a specified period of time equal to the lesser of the 
present value of the nonforfeitable accrued benefit of the employee 
under the plan or $100,000 and certain other rules apply to such loans. 
Special rules for loans also apply for certain individuals impacted by 
specified disasters, see, e.g., section 302 of Div. EE of the 
Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, December 
27, 2020.
    \585\Loans specifically for home purchases may be repaid over a 
longer period.
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    Unless correction is made, a deemed distribution\586\ in 
connection with a failure relating to a loan to a participant 
made from a plan must be reported\587\ with respect to the 
affected participant and any applicable income tax withholding 
amount that was required to be paid in connection with the 
failure must be paid by the employer. As part of VCP and Audit 
CAP, the deemed distribution may be reported with respect to 
the affected participant for the year of correction (instead of 
the year of the failure) if the plan sponsor requests such 
reporting relief. Where certain requirements in EPCRS are met, 
no reporting may be required but this relief applies only if 
the plan sponsor requests the relief and provides an 
explanation supporting the request.
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    \586\Under sec. 72(p)(1).
    \587\On IRS Form 1099-R.
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VFCP

    The DOL also has a correction program entitled the 
Voluntary Fiduciary Correction Program (``VFCP'')\588\ under 
ERISA designed to encourage the voluntary correction of 
fiduciary violations under Title I of ERISA. VFCP also provides 
for the correction of certain participant loan failures 
including situations where participant loans exceed the Code 
section 72(p) limitations in amount or duration.
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    \588\71 Fed. Reg. 20261, April 19, 2006.
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                           REASONS FOR CHANGE

    The Committee believes that because of the complexity of 
retirement plan administration, EPCRS needs to be expanded to 
(1) allow more types of inadvertent errors to be corrected 
through self-correction, rather than requiring the time and 
expense of submitting such corrections to the IRS through VCP; 
(2) apply to certain inadvertent IRA errors; and (3) direct the 
Secretary to provide additional safe harbors to correct certain 
eligible individual failures.

                        EXPLANATION OF PROVISION

In general

    The provision provides that, except as otherwise provided 
in guidance prescribed by the Secretary (or the Secretary's 
delegate), any eligible inadvertent failure to comply with the 
rules applicable to certain tax-qualified retirement plans\589\ 
may be self-corrected under EPCRS,\590\ except to the extent 
that such failure was identified by the Secretary prior to any 
actions which demonstrate a commitment to implement a self-
correction. As of the date of the enactment of this Act, EPCRS 
is deemed amended to provide that, the correction period\591\ 
for an eligible inadvertent failure, except as otherwise 
provided under the Code or in guidance prescribed by the 
Secretary, is indefinite and has no last day, other than with 
respect to failures identified by the Secretary prior to any 
self-correction.
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    \589\Under section 401(a), 403(a), 403(b), 408(p), or 408(k).
    \590\For purposes of this provision, references to corrections 
under EPCRS refers to those described under Rev. Proc. 2021-30 or any 
successor guidance.
    \591\Under sec. 9.02 of Rev. Proc. 2021-30 or any successor 
guidance.
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            Loan errors
    Under this provision in the case of an eligible inadvertent 
plan loan failure relating to a loan from a plan to a 
participant, such failure may be self-corrected according to 
the rules of EPCRS,\592\ including the provisions related to 
whether a deemed distribution must be reported on Form 1099-R, 
(rather than being corrected in VCP or Audit CAP).\593\
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    \592\According to the rules of section 6.07 of Rev. Proc. 2021-30 
(or any successor guidance).
    \593\Effectuation of this aspect of the provision requires a 
modification of Labor provisions.
---------------------------------------------------------------------------
            IRAs
    The provision also directs the Secretary to expand EPCRS to 
allow custodians of IRAs\594\ to address eligible inadvertent 
failures with respect to an IRA, including:
---------------------------------------------------------------------------
    \594\ As defined in section 7701(a)(37).
---------------------------------------------------------------------------
    (1) waivers of the excise tax\595\ that would otherwise 
apply to certain accumulations in an IRA where the amount 
distributed during a taxable year of a participant or 
beneficiary is less than the minimum required distribution for 
such taxable year; and (2) rules permitting a nonspouse 
beneficiary to return distributions to an inherited individual 
IRA\596\ where, due to an eligible inadvertent error by a 
service provider, the beneficiary had reason to believe that 
the distribution could be rolled over without inclusion in 
income of any part of the distributed amount.
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    \595\Sec. 4974.
    \596\ As described in section 408(d)(3)(C).
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            Guidance
    The Secretary is directed to issue guidance on correction 
methods that are required to be used to correct eligible 
inadvertent failures, including general principles of 
correction if a specific correction method is not specified by 
the Secretary.

Definition of eligible inadvertent failure

    An eligible inadvertent failure means a failure that occurs 
despite the existence of practices and procedures which either 
(1) satisfy the standards set forth in EPCRS;\597\ or (2) 
satisfy similar standards in the case of an individual 
retirement plan. However, an eligible inadvertent failure does 
not include any failure which is egregious, relates to the 
diversion or misuse of plan assets, or is directly or 
indirectly related to an abusive tax avoidance transaction.
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    \597\Sec. 4.04 of Rev. Proc. 2021-30 (or any successor guidance). 
Section 4.04 provides that the plan sponsor or plan administrator has 
established practices and procedures in place which are reasonably 
designed to promote and facilitate overall compliance in form and 
operation with applicable Code provisions and such practices and 
procedures have been in place and are routinely followed.
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Deadline to provide guidance

    Any guidance, or revision to any such guidance, required by 
this provision, shall be promulgated not later than the date 
which is two years after the date of the enactment of this Act.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

5. Application of credit for small employer pension plan start-up costs 
to employers which join an existing plan (sec. 605 of bill and sec. 45E 
                              of the Code)


                              PRESENT LAW

    Present law provides a nonrefundable income tax credit 
equal to 50 percent of the qualified start-up costs paid or 
incurred during the taxable year by an eligible employer\598\ 
that adopts a new eligible employer plan,\599\ provided that 
the plan covers at least one non-highly compensated 
employee.\600\ Qualified start-up costs are expenses connected 
with the establishment or administration of the plan and 
retirement-related education of employees with respect to the 
plan. The amount of the credit for any taxable year is limited 
to the greater of (1) $500 or (2) the lesser of (a) $250 
multiplied by the number of non-highly compensated employees of 
the eligible employer who are eligible to participate in the 
plan or (b) $5,000. The credit applies for up to three 
consecutive taxable years beginning with the taxable year the 
plan is first effective, or, at the election of the employer, 
with the year preceding the first plan year.
---------------------------------------------------------------------------
    \598\An eligible employer has the meaning given such term by 
section 408(p)(2)(C)(i).
    \599\An eligible employer plan means a qualified employer plan 
within the meaning of section 4972(d) and includes a section 401(a) 
qualified retirement plan, a section 403 annuity, any simplified 
employee pension (``SEP'') within the meaning of section 408(k), and 
any simple retirement account (``SIMPLE'') within the meaning of 
section 408(p). An eligible employer plan does not include a plan 
maintained by a tax-exempt employer or a governmental plan, as defined 
in section 414(d).
    \600\A non-highly compensated employee is an employee who is not a 
highly compensated employee as defined under section414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees, each with compensation of 
$5,000 or more.\601\ In addition, the employer must not have 
had a qualified employer plan covering substantially the same 
employees as the new plan with respect to which contributions 
were made or benefits were accrued during the three years 
preceding the first year for which the credit would apply. 
Members of controlled groups and affiliated service groups are 
treated as a single employer for purposes of these 
requirements.\602\ All eligible employer plans of an employer 
are treated as a single plan.
---------------------------------------------------------------------------
    \601\As defined in section 408(p)(2)(C).
    \602\Sec. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified start-
up costs paid or incurred for the taxable year equal to the 
amount of the credit.

                           REASONS FOR CHANGE

    The credit for small employer pension plan start-up costs 
serves to encourage small employers to provide retirement 
benefits to their employees. Small employers are less likely to 
offer a retirement plan to employees than large and medium-
sized employers. The Committee believes this credit should be 
available to small employers that join a pooled provider plan.

                        EXPLANATION OF PROVISION

    The provision clarifies that the first credit year is the 
taxable year which includes the date that the eligible employer 
plan to which such costs relate becomes effective with respect 
to the eligible employer.

                             EFFECTIVE DATE

    The provision applies to eligible employer plans which 
become effective with respect to the eligible employer after 
the date of enactment.

 6. Safe harbor for corrections of employee elective deferral failures 
                         (sec. 606 of the bill)


                              PRESENT LAW

    Background on automatic enrollment features in retirement 
plans may be found in Title I, section 1 of this document.
    A general description of the Employee Plans Compliance 
Resolution System that this provision modifies may be found in 
Title II, section 7 of this document.

Special safe harbor correction method for failures related to automatic 
        contribution features in a section 401(k) or 403(b) plan

            Employee elective deferral failures
    A safe harbor correction method is available for certain 
employee elective deferral failures associated with missed 
elective deferrals for eligible employees who are subject to an 
automatic contribution feature in a section 401(k) or 403(b) 
plan (including employees who made affirmative elections in 
lieu of automatic contributions but whose elections were not 
implemented correctly).\603\
---------------------------------------------------------------------------
    \603\Sec. 2.05(8) of Appendix A of Rev. Proc. 2021-30.
---------------------------------------------------------------------------
    An ``employee elective deferral failure''\604\ is a failure 
to implement elective deferrals correctly in a section 401(k) 
plan or 403(b) plan, including elective deferrals pursuant to 
an affirmative election or pursuant to an automatic 
contribution feature under such a plan, and a failure to afford 
an employee the opportunity to make an affirmative election 
because the employee was improperly excluded from the plan. 
Automatic contribution features include automatic enrollment 
and automatic escalation features that are affirmatively 
elected.\605\
---------------------------------------------------------------------------
    \604\Sec. 2.05(10) of Appendix A of Rev. Proc. 2021-30.
    \605\Sec. 2.05(10) of Appendix A of Rev. Proc. 2021-30.
---------------------------------------------------------------------------
    If the failure to implement an automatic contribution 
feature for an affected eligible employee or the failure to 
implement an affirmative election of an eligible employee who 
is otherwise subject to an automatic contribution feature does 
not extend beyond the end of the nine and one-half month period 
after the end of the plan year of the failure (which is 
generally the filing deadline of the Form 5500 series return, 
including automatic extensions), no qualified nonelective 
contribution (``QNEC'')\606\ for the missed elective deferrals 
is required, provided that the following conditions are 
satisfied:
---------------------------------------------------------------------------
    \606\A QNEC, as defined in Treas. Reg. sec. 1.401(k)-6 means 
``employer contributions, other than elective contributions or matching 
contributions, that, except as provided otherwise in Sec. 1.401(k)-1(c) 
and (d), satisfy the requirements of Sec. 1.401(k)-1(c) and (d) as 
though the contributions were elective contributions, without regard to 
whether the contributions are actually taken into account under the ADP 
test under Sec. 1.401(k)-2(a)(6) or the ACP test under Sec. 1.401(m)-
2(a)(6). Thus, the nonelective contributions must satisfy the 
nonforfeitability requirements of Sec. 1.401(k)-1(c) and be subject to 
the distribution limitations of Sec. 1.401(k)-1(d) when they are 
allocated to participants' accounts.''
---------------------------------------------------------------------------
          1. Correct deferrals begin no later than the earlier 
        of the first payment of compensation made on or after 
        the last day of the nine and one-half month period 
        after the end of the plan year in which the failure 
        first occurred for the affected eligible employee or, 
        if the plan sponsor was notified of the failure by the 
        affected eligible employee, the first payment of 
        compensation made on or after the end of the month 
        after the month of notification;
          2. Notice of the failure, that satisfies the content 
        requirements described below, is given to the affected 
        eligible employee not later than 45 days after the date 
        on which correct deferrals begin; and
          3. If the eligible employee would have been entitled 
        to additional matching contributions had the missed 
        deferrals been made, the plan sponsor makes a 
        corrective allocation (adjusted for earnings) on behalf 
        of the employee equal to the matching contributions 
        that would have been required under the terms of the 
        plan as if the missed deferrals had been contributed to 
        the plan in accordance with the timing requirements 
        under SCP for significant operational failures. This 
        correction method provides an alternative safe harbor 
        method for calculating earnings for Employee Elective 
        Deferral Failures under section 401(k) plans or 403(b) 
        plans.\607\
---------------------------------------------------------------------------
    \607\The plan may also use the earnings adjustment methods set 
forth in section 3 of Appendix B of Rev. Proc. 2021-30.
---------------------------------------------------------------------------
            Content of notice requirement
    The required notice must include the following information:
          1. General information relating to the failure, such 
        as the percentage of eligible compensation that should 
        have been deferred, and the approximate date that the 
        compensation should have begun to be deferred. The 
        general information need not include a statement of the 
        dollar amounts that should have been deferred;
          2. A statement that appropriate amounts have begun to 
        be deducted from compensation and contributed to the 
        plan (or that appropriate deductions and contributions 
        will begin shortly);
          3. A statement that corrective allocations relating 
        to missed matching contributions have been made (or 
        that corrective allocations will be made). Information 
        relating to the date and the amount of corrective 
        allocations need not be provided;
          4. An explanation that the affected participant may 
        increase his or her deferral percentage in order to 
        make up for the missed deferral opportunity, subject to 
        applicable limits for elective deferrals;\608\ and
---------------------------------------------------------------------------
    \608\Under sec. 402(g).
---------------------------------------------------------------------------
          5. The name of the plan and plan contact information 
        (including name, street address, email address, and 
        telephone number of a plan contact).
            Sunset of safe harbor correction method
    The safe harbor correction method is available for plans 
only with respect to failures that begin on or before December 
31, 2023.

                           REASONS FOR CHANGE

    Automatic enrollment and automatic escalation features in 
defined contribution plans enhance the opportunity for 
individuals to increase their retirement savings. However, 
inadvertent errors in the implementation and administration of 
such features may subject the plan sponsor to expensive 
corrections and the potential for significant penalties when 
inadvertent mistakes are made.
    The Committee believes that providing a grace period to 
correct, without penalty, reasonable errors in administering 
these features will encourage plan sponsors to include such 
features in their plans. Encouraging the adoption of such 
features is important because employees who are default 
enrolled into retirement plans tend to participate and 
contribute at a higher rate.

                        EXPLANATION OF PROVISION

    Under the provision, the Secretary shall modify the special 
safe harbor correction method contained in EPCRS guidance\609\ 
for failures related to automatic contribution features in a 
section 401(k) plan or a section 403(b) plan to (1) provide 
that such safe harbor correction method is not limited to 
failures that begin on or before December 31, 2023 and (2) to 
clarify that EPCRS correction methods for failures related to 
automatic contribution features that require notices to a 
participant can be satisfied without regard to whether the 
participant remains employed at the time corrections are made.
---------------------------------------------------------------------------
    \609\See sec. 2.05(8) of Appendix A to Rev. Proc. 2021-30.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to any errors with respect to which 
the date that is nine and one-half months after the end of the 
plan year during which the error occurred is after December 31, 
2023.

    7. Reform of family attribution rule (sec. 607 of the bill and 
                         sec. 414 of the Code)


                              PRESENT LAW

Nondiscrimination requirements

    A qualified retirement plan is prohibited from 
discriminating in favor of highly compensated employees, 
referred to as the nondiscrimination requirements. These 
requirements are intended to ensure that a qualified retirement 
plan provides meaningful benefits to an employer's rank-and-
file employees as well as highly compensated employees so that 
qualified retirement plans achieve the goal of retirement 
security for both lower-paid and higher-paid employees. The 
nondiscrimination requirements consist of a minimum coverage 
requirement and general nondiscrimination requirements.\610\ 
For purposes of these requirements, an employee generally is 
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or 
the preceding year, or (2) had compensation for the preceding 
year in excess of $135,000 (for 2022).\611\
---------------------------------------------------------------------------
    \610\Sections 401(a)(3) and 410(b) address the minimum coverage 
requirement; section 401(a)(4) describes the general nondiscrimination 
requirements, with related rules in section 401(a)(5). Detailed 
regulations implement the statutory requirements. Governmental plans 
are generally exempt from these requirements.
    \611\Sec. 414(q). At the election of the employer, employees who 
are highly compensated based on compensation may be limited to the top 
20 percent highest paid employees. A non-highly compensated employee is 
an employee other than a highly compensated employee.
---------------------------------------------------------------------------
    The minimum coverage and general nondiscrimination 
requirements apply annually on the basis of the plan year. In 
applying these requirements, as discussed below, employees of 
all members of a controlled group or affiliated service group 
are treated as employed by a single employer. Employees who 
have not satisfied minimum age and service conditions under the 
plan, certain nonresident aliens, and employees covered by a 
collective bargaining agreement are generally disregarded.\612\ 
However, a plan that covers employees with less than a year of 
service or who are under age 21 must generally include those 
employees in any nondiscrimination test for the year but can 
test the plan for nondiscrimination in two parts: (1) by 
separately testing the portion of the plan covering employees 
who have not completed a year of service or are under age 21 
and treating all of the employer's employees with less than a 
year of service or under age 21 as the only employees of the 
employer; and (2) then testing the rest of the plan taking into 
account the rest of the employees of the employer and excluding 
those employees. If a plan does not satisfy the 
nondiscrimination requirements on its own, it may in some 
circumstances be aggregated with another plan, and the two 
plans tested together as a single plan.
---------------------------------------------------------------------------
    \612\A plan or portion of a plan covering collectively bargained 
employees is generally deemed to satisfy the nondiscrimination 
requirements.
---------------------------------------------------------------------------

Aggregation rules for groups under common control

    In general, in applying the requirements for tax-favored 
treatment for retirement plans, employees of employers 
(including corporations and other entities) that are members of 
a group under common control are treated as employed by a 
single employer (referred to as aggregation rules).\613\ For 
example, in applying the nondiscrimination requirements, the 
employees of all the members of a group, and the benefits 
provided under plans maintained by any member of the group, are 
generally taken into account. In the case of taxable entities, 
common control is generally based on the percentage of equity 
ownership with a general threshold of 80 percent ownership. 
Other tests apply for entities that do not involve ownership. 
Employees of the members of an affiliated service group are 
similarly treated as employed by a single employer.\614\
---------------------------------------------------------------------------
    \613\Sec. 414(c) and the regulations thereunder provide for 
aggregation of groups under common control. Section 414(b), (m) and (o) 
also provide aggregation rules for a controlled group of corporations 
and affiliated service groups. Under section 414(t), the aggregation 
rules apply also for purposes of various benefits other than retirement 
benefits. In addition, other provisions incorporate the aggregation 
rules by reference, such as section 4980H, requiring certain employers 
to offer health coverage to full-time employees.
    \614\Sec. 414(m).
---------------------------------------------------------------------------

Family attribution rules

    The family attribution rules address the scenarios in which 
a person is treated as having an ownership interest in a 
business based upon a family relationship.\615\ For example, an 
individual is generally attributed the individual's spouse's 
ownership unless certain criteria are satisfied.\616\
---------------------------------------------------------------------------
    \615\Family attribution can address interests owned between spouses 
or among parents and children or grandparents and grandchildren.
    \616\Sec. 1563(e)(5). For example, if a husband and wife each owned 
25 percent of a business, generally both spouses would be treated as 
owning 50 percent of that business.
---------------------------------------------------------------------------
    One common exception to spousal attribution is for 
individuals who are legally separated under a divorce 
decree.\617\ Other exceptions include (1) spouses who do not 
directly own any stock in the business during the taxpayer 
year; (2) a spouse who is neither an employee or director nor 
participates in the management of the business at any time 
during the year; (3) where no more than 50 percent of the 
business' gross income derives from passive investments, and 
(4) where the stock is transferable (i.e., is not subject to 
restrictions) and in favor of the individual or his or her 
minor children (e.g., the business owner cannot be required to 
offer a right of first refusal to his or her spouse or their 
children before selling the business to a third party).
---------------------------------------------------------------------------
    \617\Sec. 1563(e).
---------------------------------------------------------------------------
    A parent is generally attributed the ownership of a minor 
child under the age of 21 and is attributed the ownership of an 
adult child, age 21 or older, if the parent owns more than 50 
percent of the business. A minor child is attributed the 
ownership of a parent while an adult child is attributed the 
ownership of a parent only if the adult child owns more than 50 
percent of the business. There is no exception to the 
application of the family attribution rules for a minor child 
of individuals who are separated or divorced. For example, 
ownership of a business may be attributed to a divorced spouse 
through his or her minor child to the extent the exceptions for 
marital attribution do not apply.
    The application of the family attribution rules is also 
impacted by the laws on familial property ownership in 
community property States.\618\ In such a State, spouses may be 
deemed to own half of the property acquired during a marriage, 
except under limited circumstances. Accordingly, spouses in 
community property states may fail to satisfy the criteria that 
a spouse does not directly own any stock in the business during 
the taxable year.
---------------------------------------------------------------------------
    \618\For a broader discussion of community property laws, see 
``Internal Revenue Manual--25.18.1 Basic Principles of Community 
Property Law'', available at https://www.irs.gov/irm/part25/irm_25-018-
001 (accessed June 15, 2022). Community property rules exists in nine 
states (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, 
Texas, Washington and Wisconsin) and two territories (Guam and Puerto 
Rico). Id.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that there should be an exception to 
the family attribution rules to account for community property 
states and situations where spouses who are divorced or 
separated may be combined in a controlled group due to the 
spouses' minor child. The present law attribution rules may 
discourage a family in which each spouse owns a business from 
adopting a retirement plan.

                        EXPLANATION OF PROVISION

    The provision adds special rules to address family 
attribution and to disregard community property laws for 
purposes of determining ownership of a business. For purposes 
of applying the attribution rules,\619\ community property laws 
are disregarded for purposes of determining ownership. In 
addition, in the case of stock of an individual that is not 
attributed to the individual's spouse under the spousal 
attribution rules\620\ (for example, due to the spouse's legal 
separation), such stock is not attributed to such spouse by 
reason of a minor child's ownership of an option to acquire 
such stock.\621\ And, except as provided by the Secretary, 
stock in different corporations that is attributed to a minor 
child from each parent,\622\ but that is not attributed to such 
parents as spouses,\623\ shall not by itself result in such 
corporations being members of the same controlled group. 
Similar rules apply in the case of affiliated service groups. 
Under the provision, if these modifications cause two or more 
entities to be a controlled group or an affiliated service 
group, or to no longer be in a controlled group or affiliated 
service group, such change is treated as a transaction to which 
the special minimum coverage rule for certain dispositions or 
acquisitions applies.\624\
---------------------------------------------------------------------------
    \619\Under section 318 (with respect to affiliated service groups) 
and section 1563 (with respect to controlled groups).
    \620\Sec. 1563(e)(5).
    \621\Ownership of the individual's stock is not attributed to the 
individual's spouse by reason of the combined application of sections 
1563(e)(1) and 1563(e)(6)(A).
    \622\Under section 1563(e)(6)(A).
    \623\Under section 1563(e)(5).
    \624\Sec. 410(b)(6)(C).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2023.

 8. Contribution limit for SIMPLE IRAs (sec. 608 of the bill and secs. 
                 401(k), 408(p) and 414(v) of the Code)


                              PRESENT LAW

    Background on SIMPLE plans may be found in Title I, section 
6 of this document.

                           REASONS FOR CHANGE

    In order to help participants in SIMPLE IRA and SIMPLE 
401(k) plans better prepare for retirement, the Committee 
believes that the contribution limit for such plans should be 
increased. The Committee also believes that employers who apply 
the increased contribution limit to participant contributions 
under the plan should generally (with an exception for small 
employers) be required to provide an increased employer 
contribution.

                        EXPLANATION OF PROVISION

    The provision increases the limit on the amount of elective 
deferrals that an employee may contribute to a SIMPLE IRA or 
SIMPLE 401(k) plan to $16,500 in the case of certain employers. 
This increased limit applies to: (1) an employer that had no 
more than 25 employees who received at least $5,000 of 
compensation from the employer for the preceding year, and (2) 
an employer that is eligible to elect to apply the higher 
limit, and so elects (``eligible electing employer'').\625\ In 
the case of a plan to which this increased limit applies, the 
plan may also permit catch-up contributions of up to $4,750. 
The $16,500 and $4,750 amounts will be adjusted for inflation 
for taxable years beginning after 2024.
---------------------------------------------------------------------------
    \625\In both cases the employer must be otherwise eligible to have 
a SIMPLE IRA plan. In the case of an employer described in (1), a two-
year grace period applies for subsequent years in which the employer 
has more than 25 employees who receive at least $5,000 in compensation. 
Under the grace period rule, the employer is treated as having 25 
employees who receive at least $5,000 in compensation for the 2 years 
following the last year the employer had not more than 25 such 
employees.
---------------------------------------------------------------------------
    In order to qualify as an eligible electing employer, the 
employer (and any member of the employer's controlled group) 
must not have established or maintained, during the three 
preceding taxable years, a qualified retirement plan, section 
403(a) annuity plan, or section 403(b) plan under which 
contributions were made, or benefits accrued, for substantially 
the same employees that are eligible to participate in the 
SIMPLE plan.
    In the case of an eligible electing employer that elects to 
apply the increased elective deferral limit, such employer must 
provide an increased matching or nonelective contribution under 
the plan. If a matching contribution is provided, it must 
generally be four percent of compensation (rather than three 
percent),\626\ and if a nonelective contribution is provided, 
it must be three percent of compensation (rather than two 
percent).
---------------------------------------------------------------------------
    \626\An employer is permitted to elect a lower matching 
contribution if certain requirements are met. Sec. 408(p)(2)(C)(2)(ii).
---------------------------------------------------------------------------
    The provision also requires the trustee or issuer of a 
SIMPLE plan to provide the Secretary a copy of the plan 
document at the time the arrangement is established (or, in the 
case of existing arrangements, no later than December 31, 
2024).
    The Secretary must, not later than December 31, 2024 and 
annually thereafter, 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, the following data (together with any 
recommendations that the Secretary deems appropriate): (1) the 
number of SIMPLE IRA and SIMPLE 401(k) plans that are 
maintained or established during a year; (2) the number of 
eligible participants for such plans for such year; (3) median 
contribution amounts; (4) the most common types of investments; 
and (5) the fee levels charged in connection with the 
maintenance of accounts under the plans. The provision requires 
such data to be collected separately for each type of plan. The 
Secretary may use such data as is otherwise available to the 
Secretary for publication and may use such approaches as are 
appropriate under the circumstances, including the use of 
voluntary surveys and collaboration on studies.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2023.

 9. Employers allowed to replace SIMPLE retirement accounts with safe 
   harbor 401(k) plans during a year (sec. 609 of the bill and secs. 
                 72(t), 401(k) and 408(p) of the Code)


                              PRESENT LAW

    Background on section 401(k) plans may be found in Title I, 
section 1 of this document. Background on SIMPLE IRA plans may 
be found in Title I, section 6 of this document.

                           REASONS FOR CHANGE

    The Committee wishes to make it easier for an employer with 
a SIMPLE IRA plan to replace it with a section 401(k) safe 
harbor plan. Thus, the Committee believes it is appropriate to 
permit the establishment of the section 401(k) safe harbor plan 
midyear, rather than requiring the employer to wait until the 
following plan year.

                        EXPLANATION OF PROVISION

    The provision permits an employer to elect (in such form 
and manner as the Secretary may provide) at any time during a 
year, to terminate a SIMPLE IRA plan and replace it with a 
section 401(k) safe harbor plan,\627\ provided certain 
requirements are met. First, the employer must establish and 
maintain the section 401(k) safe harbor plan as of the day 
after the termination date. In addition, the aggregate elective 
contributions of an employee under the terminated arrangement 
during its last plan year and under the section 401(k) safe 
harbor plan during its transition year\628\ may not exceed the 
sum of (1) the total elective contributions that the employee 
is eligible to contribute to the SIMPLE IRA plan for the last 
plan year, multiplied by a fraction equal to the number of days 
in such plan year divided by 365, and (2) the total elective 
deferrals that the employee is eligible to contribute to the 
section 401(k) safe harbor plan for the transition year, 
multiplied by a fraction equal to the number of days in such 
transition year divided by 365.\629\
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    \627\For this purpose, a ``section 401(k) safe harbor plan'' 
includes a SIMPLE 401(k) plan, a basic 401(k) safe harbor plan, an 
automatic enrollment 401(k) safe harbor plan, or a secure deferral 
arrangement (as added by this bill; see Title I, section 1 of this 
document). Secs. 401(k)(11), (12), (13), and (16) (as added by this 
bill).
    \628\Defined as the period beginning after the termination date and 
ending on the last day of the calendar year during which the 
termination occurs.
    \629\ In determining the total amount that may be contributed under 
either plan, catch up contributions are included. If this requirement 
is not satisfied, the terminating SIMPLE IRA plan is treated as 
violating the limit on elective contributions under section 
408(p)(2)(A)(ii), and the section 401(k) safe harbor plan is treated as 
violating the limit on elective deferrals under section 401(a)(30).
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    The provision also provides an exception to the rollover 
rules that apply to a distribution from a SIMPLE IRA for 
certain rollovers to a section 401(k) plan or 403(b) plan. 
Under the provision, if an employer terminates a SIMPLE IRA 
plan and establishes a section 401(k) plan or 403(b) plan, a 
payment by an individual of an amount distributed from the 
employer's SIMPLE IRA plan to the newly-established section 
401(k) or 403(b) plan will not fail to qualify as a rollover 
contribution merely because it is paid to such plan within two 
years of the first date of the individual's participation in 
the SIMPLE IRA plan.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2023.

 10. Starter 401(k) plans for employers with no retirement plan (sec. 
  610 of the bill and new secs. 401(k)(17) and 403(b)(17) of the Code)


                              PRESENT LAW

Section 401(k) plans

    A section 401(k) plan is a type of profit-sharing or stock 
bonus plan that contains a qualified cash or deferred 
arrangement. Background on section 401(k) plans may be found in 
Title I, section 1 of this document.

Tax-sheltered annuities (``section 403(b) plans'')

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provides tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans. For example, employer contributions 
(other than elective deferrals) and after-tax employee 
contributions made under a section 403(b) plan must satisfy 
nondiscrimination requirements in the same manner as a 
qualified plan.\630\
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    \630\Sec. 403(b)(12). These nondiscrimination requirements include 
rules relating to nondiscrimination in contributions, benefits, and 
coverage, a limitation on the amount of compensation that can be taken 
into account, and the average contribution percentage rules of section 
401(m).
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    Additional background on section 403(b) plans may be found 
in Title IV, section 1 of this document.

                           REASONS FOR CHANGE

    The Committee recognizes that one of the primary reasons 
many Americans reach retirement age with little or no savings 
is that too few workers are offered an opportunity to save for 
retirement through their employers. The Committee believes that 
easing the administrative burden and cost of providing 
retirement plans will encourage additional employers, 
particularly smaller employers, to offer these savings vehicles 
to their employees. The Committee also recognizes that 
autoenrollment effectively increases participation in 
retirement plans. For these reasons, the Committee believes it 
is appropriate to establish two new deferral-only plan designs 
with automatic enrollment features as a way to promote 
retirement savings.

                        EXPLANATION OF PROVISION

    The provision establishes two new plan designs: a new type 
of section 401(k) plan, a ``starter 401(k) deferral-only 
arrangement'' and a new type of 403(b) plan, a ``safe harbor 
403(b) plan.''
            Starter 401(k) deferral-only plans
    A ``starter 401(k) deferral-only arrangement'' is a cash or 
deferred arrangement maintained by an eligible employer that 
meets certain requirements relating to (1) automatic 
enrollment, (2) contributions, (3) eligibility, and (4) 
employee notices. It is treated as satisfying the actual 
deferral percentage test, or ``ADP'' nondiscrimination 
test.\631\
---------------------------------------------------------------------------
    \631\Sec. 401(k)(3)(A)(ii).
---------------------------------------------------------------------------
    Under the starter 401(k) deferral-only arrangement, each 
employee who is eligible to participate must be treated (unless 
the employee elects otherwise) as having elected to have the 
employer make elective contributions in an amount equal to the 
applicable qualified percentage of compensation. All employees 
of the employer must be eligible to participate in the 
arrangement other than those that do not meet the age and 
service requirements. Union employees and nonresident aliens 
with no earned income which constitutes income from sources 
within the United States may also be excluded.
    The qualified percentage is determined under the terms of 
the arrangement, but must not be less than three percent or 
more than 15 percent and must be applied uniformly. The 
election to make elective deferrals at the qualified percentage 
ceases to apply to an employee if the employee makes an 
affirmative election not to contribute or to contribute at a 
different level.
    Under the starter 401(k) deferral-only arrangement, the 
only contributions that may be permitted are elective 
contributions of employees eligible to participate. Thus, the 
employer may not make matching or nonelective contributions to 
the starter 401(k) deferral-only arrangement.
    An employer is eligible to offer a starter 401(k) deferral-
only arrangement if neither the employer nor a predecessor 
employer maintains another qualified plan for the year in which 
the determination is being made.\632\ There is a limited 
exception for an employer who maintains a plan in which the 
only participants are employees covered by a collective 
bargaining agreement. A transition rule would also apply in the 
case of an employer who may fail to meet this requirement due 
to an acquisition, disposition, or other similar transaction 
during a specified transition period.
---------------------------------------------------------------------------
    \632\For this purpose, a qualified plan is a plan, contract, 
pension, account, or trust described in sec. 219(g)(5).
---------------------------------------------------------------------------
    The aggregate amount of any employee's elective 
contributions for a calendar year may not exceed $6,000, 
adjusted for cost of living.\633\ Catch-up contributions are 
permitted (for an employee who attains age 50 by the end of the 
taxable year) up to $1,000, indexed for inflation.
---------------------------------------------------------------------------
    \633\Within the same manner as sec. 402(g)(4) (except that ``2022'' 
is substituted for ``2005'').
---------------------------------------------------------------------------
    The starter 401(k) deferral-only arrangement also must 
satisfy the notice requirement applicable to a matching 
contribution automatic enrollment section 401(k) safe harbor 
plan. Similar to section 401(k) safe harbor plans, starter 
401(k) deferral-only arrangements are not treated as top-heavy 
plans.\634\
---------------------------------------------------------------------------
    \634\ Top-heavy requirements apply under the Code to limit the 
extent to which accumulated benefits or account balances under a 
qualified retirement plan can be concentrated with key employees. Sec. 
416.
---------------------------------------------------------------------------
            Safe harbor deferral-only plan
    The provision also establishes a new type of 403(b) plan, a 
``safe harbor deferral-only plan.'' Similar conditions to those 
described with starter 401(k) deferral-only arrangements apply 
for purposes of a safe harbor deferral-only plan. That is, a 
safe harbor deferral-only plan must also satisfy certain 
requirements that generally parallel the requirements described 
above.
    All employees of the employer must be eligible to 
participate in a safe harbor deferral-only plan with certain 
limited exceptions.\635\ A safe harbor deferral-only plan is 
treated as satisfying the universal availability requirement 
applicable to 403(b) plans.
---------------------------------------------------------------------------
    \635\Sec. 403(b)(12)(A)(ii). Nonresident aliens, students, and 
employees who normally work less than 20 hours per week may be 
excluded.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2023.

  11. Credit for small employers that adopt an automatic portability 
      arrangement (sec. 611 of the bill and sec. 45U of the Code)


                              PRESENT LAW

    A general description of distributions and rollovers may be 
found in Title I, section 18 of this document.
    Currently, there are no special credits for small employers 
that adopt an automatic portability arrangement as part of a 
retirement plan maintained by the employer.

                           REASONS FOR CHANGE

    The use of an automatic portability arrangement by a 
retirement plan that is sponsored by a small employer 
encourages portability of retirement plan benefits that are 
earned by participants in retirement plans sponsored by 
employers from whom those participants have terminated 
employment and helps to ensure that those benefits will be 
available, and not lost, to such participants when they 
ultimately retire. The Committee believes that providing a tax 
credit to small employers who adopt an automatic portability 
arrangement will further incentivize small employers to make 
use of such arrangements to ensure that benefits earned by 
participants from prior employers are available to those 
participants when they retire, and are not lost to those 
participants.

                        EXPLANATION OF PROVISION

    The provision allows eligible small employers to take a new 
nonrefundable income tax credit in the amount of $500 in the 
first taxable year during which the eligible employer adopts an 
automatic portability arrangement as part of an eligible plan 
maintained by the employer (``the automatic portability 
arrangement credit''). An eligible small employer is an 
employer that, for the preceding year, had no more than 100 
employees, each with compensation of $5,000 or more. An 
eligible plan is a section 401(a) plan, a section 403(a) plan, 
a section 403(b) plan, a section 408(k) simplified employee 
pension (``SEP'') plan, or a section 408(p) SIMPLE plan.
    An automatic portability arrangement is an arrangement 
providing for automatic portability transactions. An automatic 
portability transaction means a transaction in which amounts 
distributed as a mandatory distribution\636\ from a plan to an 
individual retirement plan established on behalf of an 
individual are subsequently transferred to an eligible plan in 
which such individual is an active participant, after such 
individual has been given advance notice of the transfer and 
has not affirmatively opted out of such transfer.
---------------------------------------------------------------------------
    \636\Sec. 401(a)(31)(B)(i). A mandatory distribution, where the 
present value of the nonforfeitable accrued benefit of the participant 
(as determined under section 411(a)(11)) is in excess of $1,000 but 
does not exceed $5,000, must be directly rolled over to an IRA chosen 
by the plan administrator or the payor, unless a participant elects 
otherwise. See Title II, section 8 for a description of a provision 
that would increase that limit from $5,000 to $6,000.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after the 
date of enactment.

      12. Re-enrollment credit (sec. 612 of the bill and sec. 45X 
                              of the Code)


                              PRESENT LAW

Section 401(k) plans

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan'').\637\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $20,500 (for 
2022) or, if less, the employee's compensation.\638\ For an 
employee who attains age 50 by the end of the year, the dollar 
limit on elective deferrals is increased by $6,500 (for 2022) 
(called ``catch-up contributions'').\639\ The dollar limits for 
elective deferrals, including catch-up contributions, are 
indexed for inflation. An employee's elective deferrals must be 
fully vested (nonforfeitable to the employee).\640\ A section 
401(k) plan may also provide for employer matching and 
nonelective contributions, which may be subject to vesting 
conditions. A matching contribution is conditioned on the 
employee making elective deferrals,\641\ while a nonelective 
contribution is not conditioned on whether an employee has 
elected to make contributions to the plan.
---------------------------------------------------------------------------
    \637\ Elective deferrals are generally made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \638\Sec. 402(g).
    \639\Sec. 414(v).
    \640\Sec. 411(a).
    \641\Matching contributions may also be conditioned on the employee 
making Roth contributions or after-tax contributions.
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\642\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \642\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate when an employee becomes 
eligible to participate unless the employee elects otherwise 
(that is, affirmatively elects not to make contributions or to 
make contributions at a different rate). This plan design is 
referred to as automatic enrollment.
            Automatic enrollment safe harbor 401(k) plan design
    One safe harbor applies for a section 401(k) plan that 
includes automatic enrollment (``automatic enrollment 401(k) 
safe harbor plan'').\643\ An automatic enrollment section 
401(k) safe harbor plan must provide that, unless an employee 
elects otherwise, the employee is treated as electing to make 
elective deferrals at a default rate equal to a percentage of 
compensation as stated in the plan that is at least (1) three 
percent of compensation through the end of the first plan year 
that begins after the first deemed election applies to the 
participant, (2) four percent during the second plan year, (3) 
five percent during the third plan year, and (4) six percent 
during the fourth plan year and thereafter.\644\ An automatic 
enrollment section 401(k) safe harbor plan generally may 
provide for default rates higher than these minimum rates, but 
the default rate cannot exceed 15 percent for any year (10 
percent during the first year).
---------------------------------------------------------------------------
    \643\Sec. 401(k)(13).
    \644\Sec. 401(k)(13)(C)(iii). These automatic increases in default 
contribution rates are required for plans using the safe harbor. Rev. 
Rul. 2009-30, 2009-39 I.R.B. 391, provides guidance for including 
automatic increases in other plans using automatic enrollment, 
including under a plan that includes an eligible automatic contribution 
arrangement.
---------------------------------------------------------------------------
    The automatic enrollment section 401(k) safe harbor plan 
also must satisfy either (1) a matching contribution 
requirement, or (2) provide for a nonelective contribution. The 
matching contribution requirement under the matching 
contribution automatic enrollment 401(k) safe harbor plan is 
100 percent of elective contributions of the employee for 
contributions not in excess of one percent of compensation, and 
50 percent of elective contributions for contributions that 
exceed one percent of compensation but do not exceed six 
percent, for a total matching contribution of up to 3.5 percent 
of compensation. Alternatively, the plan can provide that the 
employer will make a nonelective contribution of three percent. 
For an automatic enrollment 401(k) safe harbor plan, the 
matching and nonelective contributions are required to become 
100 percent vested only after two years of service (rather than 
being required to be immediately vested when made).
            Safe harbor notice
    The matching contribution automatic enrollment section 
401(k) safe harbor plan is subject to a notice 
requirement.\645\ A written notice must be provided to each 
employee eligible to participate, within a reasonable period 
before each plan year and must describe the employee's rights 
and obligations under the arrangement. Such notice must be (1) 
sufficiently accurate and comprehensive to apprise the employee 
of such rights and obligations, and (2) written in a manner 
calculated to be understood by the average employee to whom the 
arrangement applies.
---------------------------------------------------------------------------
    \645\Secs. 401(k)(12)(A); 401(k)(13)(B).
---------------------------------------------------------------------------
    In the case of a matching contribution automatic enrollment 
section 401(k) safe harbor plan, the notice must also (1) 
explain 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), and (2) in the case of an arrangement under which 
the employee may elect among two or more investment options, 
explain how contributions made under the arrangement will be 
invested in the absence of any investment election by the 
employee. Additionally, the employee must have a reasonable 
period of time after receipt of the notice and before the first 
elective contribution is made to make either such election.

Small employer credit

    For tax years beginning after December 31, 2019, a 
nonrefundable income tax credit is available for an eligible 
employer that establishes an eligible automatic contribution 
arrangement under a qualified employer plan, requiring the plan 
to include a cash or deferred arrangement under which 
participants are treated as having made an election to make 
elective contributions at a uniform percentage of compensation 
until the participant specifically elects not to have such 
contributions made (or elects to have such contributions made 
at a different percentage).\646\ Qualified employer plans 
include 401(a) plans, 403(a) plans, SIMPLE IRA plans and SEPs 
but exclude governmental plans and plans maintained by tax-
exempt employers.
---------------------------------------------------------------------------
    \646\Sec. 45T.
---------------------------------------------------------------------------
    The credit is equal to $500 for any taxable year of an 
eligible employer that occurs during the period of three 
taxable years beginning with the first taxable year for which 
an eligible employer includes an eligible automatic 
contribution arrangement in a qualified employer plan that it 
sponsors. No taxable year is treated as occurring within the 
credit period unless the eligible automatic contribution 
arrangement is included in the plan for that year.
    An eligible employer is an employer that with respect to 
any year, had no more than 100 employees with compensation of 
at least $5,000 or more for the preceding year.\647\
---------------------------------------------------------------------------
    \647\An eligible employer who establishes and maintains a plan for 
one or more years, but who fails to be an eligible employer for any 
later year is treated as an eligible employer for the two years 
following the last year the employer was an eligible employer, unless 
the failure is due to any acquisition, disposition, or similar 
transaction involving an eligible employer.
---------------------------------------------------------------------------

Re-enrollment credit

    There is not currently a credit for re-enrollment.

                           REASONS FOR CHANGE

    Automatic enrollment encourages participants to participate 
in employer sponsored 401(k) plans by requiring participants to 
contribute a specified percentage of their compensation to the 
plan unless the participant specifically makes an election to 
opt out or to contribute at a different percentage of 
compensation. Unless a plan provides for reenrollment on a 
periodic basis (e.g., every few years), the participant's 
initial election will remain in effect.
    The Committee believes that providing a credit to small 
employers that include a re-enrollment provision in an eligible 
automatic contribution arrangement will incentivize such 
employers to establish and maintain such an arrangement. 
Encouraging the adoption of such features is important because 
employees who are default enrolled into retirement plans tend 
to participate and contribute at a higher rate.

                        EXPLANATION OF PROVISION

    Under the provision, a new nonrefundable income tax credit 
is available for an eligible employer that establishes an 
eligible automatic contribution arrangement under a qualified 
employer plan, requiring the plan to include a cash or deferred 
arrangement under which participants are treated as having made 
an election to make elective contributions at a uniform 
percentage of compensation until the participant specifically 
elects not to have such contributions made (or elects to have 
such contributions made at a different percentage) and which 
contains a re-enrollment provision. Qualified employer plans 
include 401(a) plans, 403(a) plans, SIMPLE IRA plans and SEPs 
but exclude governmental plans and plans maintained by tax-
exempt employers.
    A re-enrollment provision means a provision of an eligible 
automatic contribution arrangement under which each employee 
eligible to participate in the arrangement who is not 
contributing or is contributing less than the percentage 
applicable to an eligible employee in the first year of 
eligibility is treated as being in such first year of 
eligibility in each applicable year with respect to the 
employee. The election treated as having been made will cease 
to apply to the employee if the employee makes an affirmative 
election to either (1) not have such contributions made or (2) 
have elective contributions made at a different level, as 
specified in such affirmative election. An ``applicable year'' 
means, with respect to an employee, such employee's first plan 
year of eligibility under the arrangement, and all subsequent 
plan years of eligibility. However, following any applicable 
year of an employee (determined after the application of this 
sentence), the plan may elect to treat the next one or two plan 
years as not being applicable years with respect to such 
employee.
    The credit is equal to $500 for any taxable year of an 
eligible employer that occurs during the period of three 
taxable years beginning with the first taxable year for which 
an eligible employer includes a re-enrollment provision in an 
eligible automatic contribution arrangement in a qualified 
employer plan that it sponsors. No taxable year is treated as 
occurring within the credit period unless the re-enrollment 
provision is included in the plan for such year. The credit is 
zero for any other taxable year.
    An eligible employer is an employer that with respect to 
any year, had no more than 100 employees with compensation of 
at least $5,000 or more for the preceding year.\648\
---------------------------------------------------------------------------
    \648\ An eligible employer who establishes and maintains a plan for 
one or more years, but who fails to be an eligible employer for any 
later year is treated as an eligible employer for the two years 
following the last year the employer was an eligible employer, unless 
the failure is due to any acquisition, disposition, or similar 
transaction involving an eligible employer.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2023.

     13. Corrections of mortality tables (sec. 613 of the bill and 
                        sec. 430(h) of the Code)


                              PRESENT LAW

    Minimum funding standards apply to certain plans, generally 
including defined benefit plans.\649\
---------------------------------------------------------------------------
    \649\Sec. 412. Section 412(e) describes plans to which minimum 
funding standards apply.
---------------------------------------------------------------------------

Mortality tables prescribed by the Secretary and periodically revised

    Under legislation enacted in 2006,\650\ the Secretary is 
directed to prescribe by regulation the mortality tables to be 
used in determining present value or making any computation 
under the funding rules.\651\ Such tables are to be based on 
the actual experience of pension plans and projected trends in 
such experience. In prescribing tables, the Secretary is to 
take into account results of available independent studies of 
mortality of individuals covered by pension plans.
---------------------------------------------------------------------------
    \650\The Pension Protection Act of 2006, Pub. L. No. 109-280, sec. 
303.
    \651\Sec. 430(h)(3). Final regulations were issued in 2017 (82 Fed. 
Reg. 46388 (Oct 5, 2017)).
---------------------------------------------------------------------------
    The Secretary is required (at least every 10 years) to 
revise any table in effect to reflect the actual experience of 
pension plans and projected trends in such experience.\652\
---------------------------------------------------------------------------
    \652\Proposed regulations were issued in April, 2022, setting forth 
the methodology Treasury and IRS intend to use to update the generally 
applicable mortality tables for determining present value or making any 
computation under section 430 (87 Fed. Reg. 25161, April 28, 2022).
---------------------------------------------------------------------------
            Substitute mortality tables
    Separate mortality tables are required to be used with 
respect to disabled participants.\653\ The provision also 
provides for the use of a separate mortality table upon request 
of the plan sponsor and approval by the Secretary.\654\ A plan 
sponsor must submit a separate mortality table to the Secretary 
for approval at least seven months before the first day of the 
period for which the table is to be used. A mortality table 
submitted to the Secretary for approval is treated as in effect 
as of the first day of the period unless the Secretary, during 
the 180-day period beginning on the date of the submission, 
disapproves of the table and provides the reasons that the 
table fails to meet the applicable criteria. The 180-day period 
is to be extended upon mutual agreement of the Secretary and 
the plan sponsor.
---------------------------------------------------------------------------
    \653\Sec. 430(h)(3)(D).
    \654\Sec. 430(h)(3)(C).
---------------------------------------------------------------------------
            Lump-sum distributions
    In determining any present value or making any computation, 
the probability that future benefits will be paid in optional 
forms of benefit provided under the plan must be taken into 
account (including the probability of lump-sum distributions 
determined on the basis of the plan's experience and other 
related assumptions).\655\ The assumptions used to determine 
optional forms of benefit under a plan may differ from the 
assumptions used to determine present value for purposes of the 
funding rules under the provision. Differences in the present 
value of future benefit payments that result from the different 
assumptions used to determine optional forms of benefit under a 
plan must be taken into account in determining any present 
value or making any computation for purposes of the funding 
rules.
---------------------------------------------------------------------------
    \655\Sec. 430(h)(4).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Mortality rates have a significant impact on the present 
value of benefits provided under a defined benefit pension 
plan. The Committee believes that such plans should be 
permitted to use mortality improvement rates used by the Social 
Security Administration.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary (or the Secretary's 
delegate) to amend the regulation relating to ``Mortality 
Tables for Determining Present Value Under Defined Benefit 
Pension Plans'' (82 Fed. Reg. 46388 (October 5, 2017)). Under 
the amended regulations, for valuation dates occurring during 
or after 2022, mortality improvement rates will not assume 
future mortality improvements at any age which are greater than 
0.78 percent. The current regulation is to be amended no later 
than 18 months after the date of enactment of the bill.
    Further regulatory amendments are to be made to modify the 
0.78 percent figure as necessary to reflect material changes in 
the overall rate of improvement projected by the Social 
Security Administration.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.
    In addition, the provision provides that the required 
regulatory amendments shall be deemed to have been made as of 
the date of the enactment, and as of such date all applicable 
laws shall be applied in all respects as though the required 
actions of the Secretary (or the Secretary's delegate) had been 
taken.

14. Enhancing retiree health benefits in pension plans (sec. 614 of the 
                     bill and sec. 420 of the Code)


                              PRESENT LAW

    Subject to various conditions, a qualified transfer of 
excess pension assets of a defined benefit plan may be made to 
a retiree medical account or life insurance account within the 
plan to fund retiree health benefits and group term life 
insurance benefits (``applicable retiree benefits'').\656\ For 
this purpose, excess pension assets generally means the excess, 
if any, of the value of the plan's assets\657\ over 125 percent 
of the sum of the plan's funding target and target normal cost 
for the plan year.\658\ A qualified transfer does not result in 
plan disqualification, is not a prohibited transaction, and is 
not treated as a reversion. No deduction is allowed to the 
employer for (1) a qualified transfer, or (2) the payment of 
applicable retiree benefits out of transferred funds (and any 
income thereon).\659\
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    \656\Sec. 420. Qualified transfers of excess assets are generally 
made within single-employer defined benefit plans, but are permitted 
also within multiemployer plans.
    \657\For this purpose, the value of the plan's assets is the lesser 
of (1) the fair market value of the plan's assets (reduced by the 
prefunding balance and funding standard carryover balance determined 
under section 430(f)), or the value of plan assets determined under 
section 430(g)(3) after reduction under section 430(f). See sec. 
420(e)(2).
    \658\As determined under the section 430 funding rules for single-
employer plans.
    \659\Sec. 420(d).
---------------------------------------------------------------------------
    In order for the transfer to be qualified, accrued 
retirement benefits under the plan generally must be 100-
percent vested as if the plan terminated immediately before the 
transfer (or in the case of a participant who separated in the 
one-year period ending on the date of the transfer, immediately 
before the separation).\660\ In addition, at least 60 days 
before the date of a qualified transfer, the employer must 
notify the Secretary, the Secretary of Labor, employee 
representatives, and the plan administrator of the transfer, 
and the plan administrator must notify each plan participant 
and beneficiary of the transfer.\661\
---------------------------------------------------------------------------
    \660\Sec. 420(c)(2).
    \661\ Sec. 101(e) of ERISA.
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    In addition, during the five-year period beginning with the 
year in which a qualified transfer is made (``the cost 
maintenance period''), the employer must provide health 
benefits or life insurance benefits at a cost that is the 
highest of the applicable employer costs for each of the two 
tax years immediately preceding the tax year in which the 
qualified transfer occurred.\662\ The applicable employer cost 
means with respect to any taxable year, the amount determined 
by dividing the qualified current retiree liabilities of the 
employer for each taxable year (determined separately with 
respect to applicable health benefits and applicable life 
insurance benefits), by the number of individuals to whom 
coverage was provided during such taxable year for the benefits 
with respect to which the determination is being made.
---------------------------------------------------------------------------
    \662\Sec. 420(c)(3). A special rule applies to certain collectively 
bargained transfers under section 420(f)(2)(E)(i)(III).
---------------------------------------------------------------------------
    No more than one qualified transfer may be made in any 
taxable year. For this purpose, a transfer to a retiree medical 
account and a transfer to a retiree life insurance account in 
the same year are treated as one transfer. No qualified 
transfer may be made after December 31, 2025.

                           REASONS FOR CHANGE

    Permitting transfers of excess pension assets in an over-
funded qualified defined benefit retirement plan to a dedicated 
account to fund retiree health benefits and group term life 
insurance benefits provides an important benefit to 
participants and beneficiaries in such plans where certain 
conditions are satisfied.
    The Committee believes that extending the time during which 
such transfers are available and providing a special rule for 
certain de minimis transfers is appropriate as a means of 
encouraging retiree health and life insurance benefits.

                        EXPLANATION OF PROVISION

    Under the provision, the expiration date for qualified 
transfers is extended to December 31, 2032. Thus, qualified 
transfers are permitted through that date.
    The provision also includes a special rule for de minimis 
transfers. In the case of a transfer of an amount that is not 
more than 1.75 percent of the amount of pension assets of an 
applicable plan, the determination of excess plan assets is 
made by substituting ``110 percent'' for ``125 percent.''\663\ 
For purposes of this provision, a plan is an ``applicable 
plan'' if, as of any valuation date in each of the two plan 
years immediately preceding the plan year in which the transfer 
occurs, the amount of the excess plan assets exceeds 110 
percent of the sum of the funding target and target normal cost 
for each such plan year. In addition, with respect to a de 
minimis transfer, the cost maintenance period is seven years, 
rather than five years. This de minimis rule would not apply to 
collectively bargained plans.
---------------------------------------------------------------------------
    \663\In section 420(e)(2)(B).
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                             EFFECTIVE DATE

    The provision is applicable to transfers made after the 
date of enactment.

  15. Deferral of tax for certain sales of employer stock to employee 
 stock ownership plan sponsored by S corporation (sec. 615 of the bill 
                       and sec. 1042 of the Code)


                              PRESENT LAW

In general

    An employee stock ownership plan (``ESOP'') is a stock 
bonus plan that is designated as an ESOP and is designed to 
invest primarily in stock of the employer, referred to as 
``qualifying employer securities.''\664\ An ESOP can be 
maintained by either a Ccorporation or an S corporation.\665\ 
For purposes of ESOP investments, a ``qualifying employer 
security'' is generally defined as: (1) common stock of the 
employer or a member of the same controlled group that is 
readily tradable on an established securities market; (2) if 
there is no such readily tradable common stock, common stock of 
the employer (or member of the same controlled group) that has 
both voting power and dividend rights at least as great as any 
other class of common stock; or (3) noncallable preferred stock 
that is convertible into common stock described in (1) or (2) 
and that meets certain requirements.\666\ In some cases, an 
employer may design a class of preferred stock that meets these 
requirements and that is held only by the ESOP.
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    \664\Sec. 4975(e)(7). Participant accounts in other types of 
defined contribution plans can also be invested in employer stock.
    \665\A C corporation is so named because its tax treatment is 
governed by subchapter C of the Code. An S corporation is so named 
because its tax treatment is governed by subchapter S of the Code. An S 
corporation is a passthrough entity for income tax purposes. That is, 
income tax does not apply at the S corporation level. Rather, items of 
income, gain, or loss are taken into account for tax purposes by the S 
corporation shareholders on their own tax returns.
    \666\Sec. 409(l).
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    An ESOP can be an entire plan or it can be a portion of a 
defined contribution plan. An ESOP may provide for different 
types of contributions, including employer nonelective 
contributions and others. For example, an ESOP may include a 
section 401(k) feature that permits employees to make elective 
deferrals. ESOPs are subject to additional requirements that do 
not apply to other plans that hold employer stock. For example, 
voting rights must generally be passed through to ESOP 
participants and employees must generally have the right to 
receive benefits in the form of stock. Certain of these 
requirements differ depending on whether the employer 
securities held by the ESOP are readily tradable on an 
established securities market. A security is considered readily 
tradable on an established securities market if the security is 
traded on a national securities exchange that is registered 
under section six of the Securities Exchange Act of 1934 or the 
security is traded on a foreign national securities exchange 
that is officially recognized, sanctioned, or supervised by a 
governmental authority and the security is deemed by the 
Securities and Exchange Commission (``SEC'') as having a 
``ready market.''\667\
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    \667\Treas. Reg. sec. 1.401(a)(35)-1(f)(5)(ii). ``Ready market'' is 
defined with reference to 17 CFR Sec. 240.15c3-1. Under IRS guidance, 
this definition of readily tradable applies generally for purposes of 
the ESOP rules in the Code, including for purposes of sections 
401(a)(22), 401(a)(28)(C), 409(h)(1)(B), 409(l), and 1042(c)(1)(A). 
Notice 2011-19, 2011-11 I.R.B. 550, March 14, 2011.
---------------------------------------------------------------------------

Diversification requirements for ESOPs

    ESOPs are subject to a requirement that a participant who 
has attained age 55 and who has at least 10 years of 
participation in the plan must be permitted to diversify the 
investment of the participant's account in assets other than 
employer securities.\668\ The diversification requirement 
applies to a participant for six years, starting with the year 
in which the individual first meets the eligibility 
requirements (i.e., age 55 and 10 years of participation). The 
participant must be allowed to elect to diversify up to 25 
percent of the participant's account (50 percent in the sixth 
year), reduced by the portion of the account diversified in 
prior years.
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    \668\Sec. 401(a)(28). Under sec. 401(a)(35) and ERISA sec. 204(j), 
special diversification rules apply to ESOPs that hold publicly traded 
employer securities, which are employer securities that are readily 
tradable on an established securities market. However, such rules do 
not apply to an ESOP if (A) there are no contributions or earnings held 
in the ESOP that are subject to sections 401(k) or 401(m); and (B) the 
ESOP 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. Sec. 401(a)(35)(E). ESOPs that are 
not subject to section 401(a)(35) are subject to diversification rules 
under section 401(a)(28).
---------------------------------------------------------------------------
    The participant must be given 90 days after the end of each 
plan year in the election period to make the election to 
diversify. In the case of participants who elect to diversify, 
the plan satisfies the diversification requirement if: (1) the 
plan distributes the applicable amount to the participant 
within 90 days after the election period; (2) the plan offers 
at least three alternative investment options and, within 90 
days of the election period, invests the applicable amount in 
accordance with the participant's election; or (3) the 
applicable amount is transferred within 90 days of the election 
period to another qualified defined contribution plan of the 
employer providing investment options in accordance with 
(2).\669\
---------------------------------------------------------------------------
    \669\Notice 88-56, 1988-1 C.B. 540, Q&A-16.
---------------------------------------------------------------------------
    If employer securities are not readily tradable on an 
established securities market, valuations with respect to 
activities carried out by the plan must be by an independent 
appraiser.\670\ Valuations must be made in good faith and based 
on all relevant factors for determining the fair market value 
of securities.\671\ In the case of a transaction between a plan 
and a disqualified person, value must be determined as of the 
date of the transaction. An independent appraisal will not in 
itself be a good faith determination of value in the case of a 
transaction between a plan and a disqualified person. However, 
in other cases, an independent determination of fair market 
value based on at least an annual appraisal will be deemed to 
be a good faith determination of value.
---------------------------------------------------------------------------
    \670\Sec. 401(a)(28)(C). For purposes of this section, 
``independent appraiser'' means any appraiser meeting requirements 
similar to the requirements of the regulations prescribed under section 
170(a)(1).
    \671\26 CFR Sec. 54.4975-11.
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Right to demand employer securities and put option

    A participant who is entitled to a distribution from the 
plan has a right to demand that his benefits be distributed in 
the form of employer securities.\672\ If the employer 
securities are not readily tradable on an established market, a 
participant who is entitled to a distribution from the plan has 
a right to require that the employer repurchase employer 
securities under a fair valuation formula.\673\
---------------------------------------------------------------------------
    \672\Sec. 409(h)(1)(A).
    \673\Sec. 409(h)(1)(B).
---------------------------------------------------------------------------

Special ESOP rules

    Certain benefits are available to ESOPs that are not 
available to other types of qualified retirement plans that 
hold employer stock. Under an exception to the prohibited 
transaction rules, an employer maintaining an ESOP may lend 
money to the ESOP, or the employer may guarantee a loan made by 
a third-party lender to the ESOP, to finance the ESOP's 
purchase of employer securities.\674\ An ESOP that borrows 
funds to acquire employer securities is generally called a 
leveraged ESOP.
---------------------------------------------------------------------------
    \674\Sec.4975(d)(3). To qualify for the loan exemption, the loan 
must be primarily for the benefit of participants and beneficiaries of 
the plan, the interest on the loan must be at a reasonable rate, and 
any collateral given to a disqualified person by the plan must consist 
only of qualifying employer securities.
---------------------------------------------------------------------------
    In the case of an ESOP maintained by a C corporation, 
payments of principal on the ESOP loan are deductible to the 
extent permitted under the general deduction limits for 
contributions to qualified retirement plans (which generally 
limit the deduction for contribution to a defined contribution 
plan for a year to 25 percent of the participants' 
compensation), and interest payments are deductible without 
regard to the limitation.\675\ In addition, a C corporation may 
deduct dividends paid on employer stock held by an ESOP if the 
dividends are used to repay a loan, if they are distributed to 
plan participants, or if the plan gives participants the 
opportunity to elect either to receive the dividends or have 
them reinvested in employer stock under the ESOP and the 
dividends are reinvested at the participants' election.\676\ 
This deduction is also allowed without regard to the general 
deduction limits on contributions to qualified plans. Moreover, 
subject to certain requirements, a taxpayer may elect to defer 
the recognition of long-term capital gain on the sale of 
qualified securities to an ESOP maintained by a C 
corporation.\677\
---------------------------------------------------------------------------
    \675\Sec. 404(a)(9).
    \676\Sec. 404(k). If a dividend is paid with respect to stock 
allocated to a participant's account and is used to make a payment on 
an ESOP loan, the plan must allocate employer securities with a fair 
market value of not less than the amount of such dividend to the 
participant's account for the year in which such dividend would have 
been allocated to such participant. Distributions with respect to S 
corporation stock held in an ESOP may also be used to repay an ESOP 
loan under similar conditions, but the distribution is not deductible 
by the S corporation.
    \677\Sec. 1042.
---------------------------------------------------------------------------
    ESOPs maintained by S corporations are subject to special 
rules. Generally, if a tax-exempt entity, including a trust 
holding qualified retirement plan assets, holds S corporation 
stock, it is treated as holding an interest in an unrelated 
trade or business and is subject to unrelated business income 
tax (``UBIT'').\678\ However, an ESOP holding employer 
securities issued by an S corporation is exempt from UBIT.
---------------------------------------------------------------------------
    \678\Sec. 512(e). Section 511 imposes UBIT on a tax-exempt entity's 
income from an unrelated trade or business.
---------------------------------------------------------------------------
    In part to prevent interests in income attributable to 
employer stock of an S corporation held by an ESOP (and thus 
not subject to current taxation) from being concentrated in a 
small group of persons, a number of adverse tax consequences 
may apply if a ``nonallocation year'' occurs with respect to an 
ESOP maintained by an S corporation. If any ``disqualified 
person'' has an interest in the S corporation in the form of 
``synthetic equity''\679\ during a nonallocation year, an 
excise tax is imposed on the S corporation equal to 50 percent 
of the amount of such synthetic equity. If there are 
``prohibited allocations''\680\ for the benefit of disqualified 
persons during a nonallocation year, the amount of the 
prohibited allocations is treated as distributed to the 
disqualified persons; an excise tax equal to 50 percent of the 
amount of the prohibited allocation applies to the S 
corporation; the qualified plan ceases to be an ESOP; and there 
is a potential for disqualification of the plan.
---------------------------------------------------------------------------
    \679\Pursuant to Sec. 409(p)(5) and (6)(C), and Treas. Reg. sec. 
1.409(p)-1(f), ``synthetic equity'' is any stock option, warrant, 
restricted stock, deferred issuance stock right, or similar interest 
that gives the holder the right to acquire or receive stock of the S 
corporation in the future; a stock appreciation right, phantom stock 
unit, or similar right to a future cash payment based on the value of 
such stock or appreciation in such value; and rights to nonqualified 
deferred compensation (even though it is neither payable in, nor 
calculated by reference to, stock in the S corporation) and rights to 
acquire interests in certain related entities. A person can be a 
disqualified person, and a nonallocation year can occur based solely on 
interests in the S corporation in the form of synthetic equity, even if 
the person is not a participant in the ESOP. Synthetic equity is an 
interest in income attributable to employer stock held by an ESOP, and 
reduces the ESOP's economic ownership of the S corporation. It is 
possible in certain circumstances to grant options or warrants for S 
corporation stock (or other synthetic equity) to a single person that, 
when combined with the outstanding shares of the S corporation, are 
options for up to 49 percent of the S corporation stock without causing 
a nonallocation year.
    \680\Generally a ``prohibited allocation'' for the benefit of a 
disqualified person occurs during a nonallocation year to the extent 
that S corporation employer stock owned by the ESOP (and any assets 
attributable to such stock) is held for the benefit of a disqualified 
person during the nonallocation year (whether the stock is allocated to 
the person's account under the ESOP during the nonallocation year or an 
earlier year).
---------------------------------------------------------------------------
    A ``nonallocation year'' is a plan year of an ESOP 
maintained by an S corporation in which disqualified persons 
own (directly or indirectly) at least 50 percent of the S 
corporation shares. For this purpose, a person's interest in 
the S corporation in the form of synthetic equity is treated as 
ownership of S corporation shares and is taken into account, 
but only if taking it into account causes a plan year to be a 
nonallocation year or a person to be a disqualified 
person.\681\ Thus, both determinations are done with and 
without synthetic equity. ``Disqualified persons'' generally 
are persons who have at least a 10-percent interest (or who are 
a member of a family group having at least a 20-percent 
interest) in the portion of the S corporation shares held by 
the ESOP, either by having shares of S corporation employer 
stock allocated to the person's account under the ESOP (or 
being treated as having a portion of unallocated shares), or by 
having an interest in the S corporation in the form of 
synthetic equity.
---------------------------------------------------------------------------
    \681\An ESOP maintained by an S corporation may be able prevent a 
nonallocation year (or a prohibited allocation during a nonallocation 
year) by transferring S corporation employer stock allocated to the 
account of disqualified persons (or persons expected to become 
disqualified persons) to a separate portion of the qualified plan (or 
another qualified retirement plan of the S corporation) that is not 
designated as an ESOP and allocate it to the accounts of those persons 
under the separate portion (or other plan). In that case, the qualified 
retirement plan is subject to UBIT with respect to those transferred 
shares of S corporation stock.
---------------------------------------------------------------------------

Election to defer gain on sale to ESOP

    A taxpayer may elect to defer the recognition of long-term 
capital gain on the sale of qualified securities to an ESOP if 
certain requirements are met.\682\ Nonrecognition applies to 
the extent that the taxpayer reinvests the sale proceeds in 
qualified replacement property within a specified replacement 
period. Qualified securities (discussed below) are certain 
securities issued by a C corporation. Thus, this rule does not 
apply to the sale of S corporation stock.
---------------------------------------------------------------------------
    \682\Sec. 1042. Deferred recognition of gain may apply also to a 
sale of qualified securities to an eligible worker-owned cooperative. A 
sale of securities to an ESOP or eligible employee worker-owned 
cooperative by an underwriter in the ordinary course of the trade or 
business as an underwriter (whether or not guaranteed), or by a C 
corporation, is not eligible for nonrecognition treatment under section 
1042. Special rules apply in the case of a sale of stock of an 
agricultural or horticultural refiner or processor to an eligible 
farmers' cooperative.
---------------------------------------------------------------------------
    For a taxpayer to be eligible for nonrecognition treatment, 
(1) the qualified securities must be sold to an ESOP; (2) the 
ESOP or eligible employee worker-owned cooperative must own, 
immediately after the sale, at least 30 percent of each class 
of outstanding stock, or the total value of all outstanding 
stock of the corporation issuing the qualified securities; and 
(3) the taxpayer must provide certain information to the 
Secretary. In addition, the taxpayer's holding period with 
respect to the qualified securities must be at least three 
years at the time of the sale.
    The ESOP must preclude the allocation to certain 
individuals of assets attributable to the qualified securities 
received in the sale; an excise tax may apply in the case of a 
prohibited allocation.\683\ In addition, an excise tax may 
apply if the ESOP or eligible employee worker-owned cooperative 
disposes of the qualified securities within three years of the 
date of the sale.\684\
---------------------------------------------------------------------------
    \683\Secs. 409(n) and 4979A.
    \684\Sec. 4978.
---------------------------------------------------------------------------
            Qualified securities
    Qualified securities are qualifying employer securities (as 
defined for ESOP purposes) that (1) are issued by a domestic C 
corporation that, for at least one year before and immediately 
after the sale, has no readily tradable securities outstanding 
(and no member of the C Corporation's controlled group has 
readily tradable securities outstanding), and (2) have not been 
received by the seller as a distribution from a qualified plan 
or as a transfer pursuant to an option or similar right to 
acquire stock granted to an employee by an employer.
            Qualified replacement property
    Qualified replacement property consists of any 
security\685\ issued by a domestic operating corporation, which 
did not, for the corporation's taxable year preceding the 
taxable year in which the security was purchased by the 
taxpayer seeking nonrecognition treatment, have passive 
investment income\686\ exceeding 25 percent of the 
corporation's gross receipts for such preceding taxable year. 
In addition, securities of the domestic corporation that issued 
the qualified securities (and of any member of a controlled 
group of corporations with such corporation) are not qualified 
replacement property.
---------------------------------------------------------------------------
    \685\Security is defined for this purpose as under section 165(g), 
i.e., a share of stock in a corporation; a right to subscribe for, or 
to receive, a share of stock in a corporation; or a bond, debenture, 
note, or certificate, or other evidence of indebtedness, issued by a 
corporation or by a government or political subdivision thereof, with 
interest coupons or in registered form.
    \686\Passive investment income is defined for this purpose as under 
section 1362(d)(3)(D).
---------------------------------------------------------------------------
    The qualified replacement property must be purchased within 
a replacement period beginning on the date three months prior 
to the date the qualified securities are sold and ending twelve 
months after the date of the sale.
    The basis of the taxpayer in qualified replacement property 
acquired during the replacement period is reduced by an amount 
not greater than the amount of gain realized on the sale that 
was not recognized pursuant to the taxpayer's election. If more 
than one item of qualified replacement property is acquired, an 
allocation rule applies to determine the taxpayer's basis in 
each item. Under the allocation rule, the basis of each item 
designated as qualified replacement property is reduced by an 
amount determined by multiplying the total gain eligible for 
nonrecognition treatment by a fraction. The numerator of the 
fraction is the cost of the item of replacement property and 
the denominator is the total cost of all such items.
            Recapture of gain
    If a taxpayer disposes of any qualified replacement 
property, notwithstanding any other provision of the Code, gain 
(if any) must be recognized to the extent of the gain that was 
not recognized on the sale of stock to the ESOP or eligible 
employee worker-owned cooperative, subject to certain 
exceptions. Exceptions to recapture include transfers by gift 
or by reason of the death of the individual.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
nonrecognition of gain treatment that applies to qualifying 
sales of C corporation stock to an ESOP so that a portion of 
the sale of qualifying S corporation stock to an ESOP is also 
eligible for such treatment. This will encourage the owners of 
a business that is organized as an S corporation to form an 
ESOP for the benefit of the business' employees.

                        EXPLANATION OF PROVISION

    The provision amends the definition of qualified securities 
to remove the requirement that the securities be issued by a C 
corporation. Thus, subject to the present-law requirements 
applicable with respect to the sale of qualified securities to 
an ESOP, a taxpayer may elect to defer the recognition of long-
term capital gain on the sale of qualified securities of an S 
corporation to an ESOP. However, in the case of a sale of S 
corporation securities, the election to defer recognition of 
gain may not be made with respect to more than 10 percent of 
the amount realized on the sale. Such election must take into 
account the portion of adjusted basis that is properly 
allocable to the portion of the amount realized with respect to 
which the election is made.

                             EFFECTIVE DATE

    This provision applies to sales after December 31, 2027.

                           TITLE VII--NOTICES

 1. Review and report to Congress relating to reporting and disclosure 
                  requirements (sec. 701 of the bill)


                              PRESENT LAW

    Under the Code and ERISA, plans must satisfy requirements 
relating to reporting and disclosure of plan information. These 
requirements include information required to be reported to the 
IRS, the DOL, and the PBGC, as well as to participants and 
beneficiaries.\687\
---------------------------------------------------------------------------
    \687\In certain cases, plan information also must be provided to 
other interested parties such as unions (in the case of multiemployer 
plans).
---------------------------------------------------------------------------
    For example, plan administrators generally must file an 
annual return with the IRS, an annual report with the DOL, and 
certain information annually with the PBGC. Form 5500, which 
consists of a primary form and various schedules, includes the 
information required to be filed with all three agencies. The 
plan administrator satisfies the reporting requirement with 
respect to each agency by filing the Form 5500 with the DOL. 
Other information required to be reported to the IRS includes 
plan distributions, excise taxes imposed on the plan, and 
separated participants with deferred vested benefits.\688\ 
Defined benefit plans must report certain information to the 
PBGC, including information relating funding, terminations, and 
reportable events.
---------------------------------------------------------------------------
    \688\This information is reported on the Form 1099-R (plan 
distributions), Form 5330 (excise tax), and Form 8955-SSA (separated 
participants with deferred vested benefits).
---------------------------------------------------------------------------
    With respect to participants and beneficiaries, the 
reporting and disclosure requirements include the provision of 
a summary plan description, which describes the plan's 
eligibility requirements for participation and benefits, 
vesting provisions, procedures for claiming benefits under the 
plan, and other information.\689\ Plans must also furnish 
participants and beneficiaries with periodic benefit statements 
that indicate the total benefits accrued and the nonforfeitable 
benefits (or the earliest date on which benefits become 
nonforfeitable).\690\ Certain information is required to be 
provided upon certain events, such as termination of 
employment,\691\ plan termination,\692\ reduction in future 
benefit accruals,\693\ or a plan distribution that is eligible 
for rollover treatment.\694\ Certain requirements also apply 
depending on the type of plan. For example, section 401(k) 
plans and section 403(b) plans must advise employees of 
opportunities to make or change elective deferrals under the 
plan,\695\ and section 401(k) safe harbor plans and plans with 
automatic enrollment features have special notice 
requirements.\696\ Certain notices must be provided to 
participants and beneficiaries in individual account plans who 
are permitted to exercise control over account assets.\697\ In 
the case of defined benefit plans, notices relating to plan 
funding, such as an annual funding notice, must be furnished to 
participants and beneficiaries.\698\
---------------------------------------------------------------------------
    \689\ERISA sec. 102; 29 C.F.R. sec. 2520.102-2 and -3. Plans must 
also provide summaries of material modifications to the plan. ERISA 
sec. 102.
    \690\ERISA sec. 105.
    \691\ERISA sec. 209.
    \692\29 C.F.R. sec. 2550.404a-3 (relating to termination of 
individual account plans); ERISA sec. 4041(a)(2) (relating to 
termination of single-employer defined benefits plans). Single employer 
defined benefit plans also must report plan termination to the PBGC.
    \693\Sec. 4980F; ERISA sec. 204(h).
    \694\Sec. 402(f).
    \695\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii); Treas. Reg. sec. 
1.403(b)-5(b)(2). This requirement also applies to SIMPLE plans. Sec. 
408(p)(5)(C).
    \696\Sec. 401(k)(12)(D); sec. 401(k)(13)(E); sec. 414(w)(4).
    \697\ERISA sec. 404(c).
    \698\ERISA sec. 101. Certain notices related to plan funding also 
must be provided to the PBGC.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to consolidate, simplify, standardize, 
and improve the reporting and disclosure requirements 
applicable to retirement plans. Thus, the Committee believes 
that it is appropriate to gather information and 
recommendations on reporting and disclosure requirements from 
Treasury, the DOL, and the PBGC.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary, the Secretary of 
Labor, and the PBGC to review the reporting and disclosure 
requirements that apply to pension plans\699\ under Title I of 
ERISA and that apply to qualified retirement plans\700\ under 
the Code. Such review must take place as soon as practicable 
after the date of enactment, and, no later than two years after 
such date, after consultation with a balanced group of 
participant and employer representatives, the agencies must 
report on the effectiveness of the reporting and disclosure 
requirements and make certain recommendations, as described 
below, 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. The agencies must 
conduct appropriate surveys and data collection to obtain any 
needed information.
---------------------------------------------------------------------------
    \699\ERISA sec. 3(2).
    \700\For this purpose, qualified retirement plans include plans 
qualified under section 401(a), annuity plans described in section 
403(a), and section 403(b) plans. Sec. 4974(c)(1), (2), and (3).
---------------------------------------------------------------------------
    The report must include the following:
           Recommendations as may be appropriate 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; 
        and
           To assess the effectiveness of the 
        applicable reporting and disclosure requirements, 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, and retaining 
        disclosures.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 2. Report to Congress on section 402(f) notices (sec. 702 of the bill 
                      and sec. 402(f) of the Code)


                              PRESENT LAW

    Section 402(f) requires the plan administrator of any plan, 
before making an eligible rollover distribution, to provide a 
written explanation to the recipient, known as the 402(f) 
notice. The 402(f) notice must explain rules that may apply to 
the distribution, such as rules relating to a direct transfer 
to an eligible retirement plan, the possible application of tax 
withholding to certain distributions, rules for rollovers 
within 60 days, and other rules that could apply to the 
distribution.
    In Notice 2020-62,\701\ the IRS provides updated safe 
harbor explanations that generally may be used by plan 
administrators and payors to satisfy section 402(f).
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    \701\Notice 2020-62, 2020-35 I.R.B. 476 (Aug. 10, 2020), provides 
guidance regarding 402(f) notices and updates previous 402(f) notice 
guidance, Notice 2018-74, 2018-40 I.R.B. 529 (Sept. 24, 2018), to 
reflect intervening legislation.
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                           REASONS FOR CHANGE

    The Committee understands that notices regarding rollovers 
to distribution recipients by plan administrators may not be 
serving the purpose of effectively acquainting recipients with 
possible tax and other effects of the distribution and with the 
options available for distributions, such as a rollover. The 
Committee believes that the Comptroller General should report 
to relevant Committees of Congress on the effectiveness of the 
notices for recipients, with an eye to making the notices more 
informative and useful.

                        EXPLANATION OF PROVISION

    The provision requires that the Comptroller General of the 
United States submit 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 on the notices provided by retirement 
plan administrators to plan participants under section 402(f). 
The report is to analyze the effectiveness of such notices and 
make recommendations, as warranted by the findings, to 
facilitate better understanding by recipients of different 
distribution options and corresponding tax consequences, 
including spousal rights.
    The report is due not later than 18 months after the date 
of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  3. Eliminating unnecessary plan requirements related to unenrolled 
      participants (sec. 703 of the bill and sec. 414 of the Code)


                              PRESENT LAW

    Background on the reporting and disclosure requirements 
that apply to plans under the Code and ERISA may be found in 
Title VII, section 1 of this document.

                           REASONS FOR CHANGE

    Under present law, employees eligible to participate in a 
retirement plan are required to receive a broad array of 
notices that are intended to inform them of their various 
options and rights under the plan. In the case of eligible 
employees who have not elected to participate in the plan 
(``unenrolled participants''), many of these notices are 
unnecessary and increase plan costs. Thus, the Committee 
believes it is appropriate to cease to require defined 
contribution plans to provide many of these notices to 
unenrolled participants. However, to further encourage 
participation of unenrolled participants, such plans would 
still be required to send an annual reminder notice relating to 
the participant's eligibility to participate in the plan and 
any otherwise required document requested by the participant.

                        EXPLANATION OF PROVISION

    The provision generally exempts defined contribution plans 
from requirements under the Code\702\ to provide disclosures, 
notices, and other plan documents to unenrolled participants, 
provided that the unenrolled participant receives: (1) an 
annual reminder notice\703\ of the participant's eligibility to 
participate in the plan and any applicable election deadlines, 
and (2) any document the participant requests that the 
participant would be entitled to if not for this provision.
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    \702\Modifications to Labor provisions are necessary to effectuate 
this provision.
    \703\As defined in section 111(c) of ERISA.
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    The provision defines ``unenrolled participant'' as an 
employee who (1) is eligible to participate in a defined 
contribution plan; (2) has received the summary plan 
description and any other notices related to eligibility under 
the plan that are required to be furnished under the Code or 
ERISA in connection with the participant's initial eligibility 
to participate in the plan; (3) is not participating the plan; 
(4) does not have an account balance in the plan; and (5) 
satisfies such other criteria as the Secretary may determine is 
appropriate, as prescribed in guidance in consultation with the 
Secretary of Labor. For this purpose, any eligibility to 
participate in the plan following any period of ineligibility 
is treated as initial eligibility.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
the date of enactment.

                  TITLE VIII--TECHNICAL MODIFICATIONS

 1. Repayment of qualified birth or adoption distributions limited to 
       three years (sec. 801 of the bill and sec. 72 of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an IRA 
generally is included in income for the year distributed.\704\ 
These plans are referred to collectively as ``eligible 
retirement plans.'' In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\705\
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    \704\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \705\Sec. 72(t). Under present law, the 10-percent early withdrawal 
tax does not apply to distributions from a governmental section 457(b) 
plan.
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    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The IRS has the authority to waive the 
60-day requirement if failure to waive the requirement would be 
against equity or good conscience, including cases of casualty, 
disaster, or other events beyond the reasonable control of the 
individual.
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted in the case of financial hardship 
or an unforeseeable emergency.
            Distributions in the event of a qualified birth or adoption
    An exception to the 10-percent early withdrawal tax applies 
in the case of a qualified birth or adoption distribution from 
an applicable eligible retirement plan (as defined). In 
addition, qualified birth or adoption distributions may be 
recontributed to an individual's applicable eligible retirement 
plans, subject to certain requirements.
    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.\706\
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    \706\A qualified birth or adoption distribution is subject to 
income tax withholding unless the recipient elects otherwise. Mandatory 
20-percent withholding does not apply.
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    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible adoptee is 
finalized. An eligible adoptee means any individual (other than 
a child of the taxpayer's spouse) who has not attained age 18 
or is physically or mentally incapable of self-support. The 
name, age, and taxpayer identification number of the child or 
eligible adoptee to which any qualified birth or adoption 
distribution relates must be provided on the tax return of the 
individual taxpayer for the taxable year.
    The maximum aggregate amount which may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $5,000. The maximum 
aggregate amount applies on an individual basis. Therefore, 
each spouse separately may receive a maximum aggregate amount 
of $5,000 of qualified birth or adoption distributions (with 
respect to a birth or adoption) from applicable eligible 
retirement plans in which each spouse participates or holds 
accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided that the aggregate amount of such distributions to 
that individual from plans maintained by the employer and 
members of the employer's controlled group\707\ does not exceed 
$5,000. Under such circumstances an employer plan is not 
treated as violating any Code requirement merely because an 
individual might receive total distributions in excess of 
$5,000 as a result of distributions from plans of other 
employers or IRAs.
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    \707\The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------
            Recontributions to applicable eligible retirement plans
    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual which is 
an applicable eligible retirement plan to which a rollover can 
be made.

                           REASONS FOR CHANGE

    Under present law, distributions from retirement plans for 
the birth or adoption of a child may be recontributed to a 
retirement plan at any time after the distribution is received 
and are treated as rollovers to the plan. However, a taxpayer 
making such a recontribution more than three years after the 
distribution was received might be denied a refund for taxes 
paid on such distribution if such refund is claimed after the 
statute of limitations period for the return has been closed, 
which generally occurs after three years. Therefore, someone 
who took a birth or adoption distribution and recontributes 
such amount more than three years later might not be able to 
amend his or her return to request a refund for the taxes that 
were paid in the year of the withdrawal.
    The Committee believes that in order to avoid such a 
result, recontributions should be required to be made within 
three years of the date the distribution is received.

                        EXPLANATION OF PROVISION

    Under the provision, a recontribution of any portion of a 
qualified birth or adoption distribution, may, at any time 
during the three-year period beginning on the day after the 
date on which the distribution was received, be recontributed 
to an applicable eligible retirement plan to which a rollover 
can be made.

                             EFFECTIVE DATE

    The provision provides that the amendment made to this 
section takes effect as if included in the enactment of section 
113 of the SECURE Act.

2. Amendments relating to the Setting Every Community Up for Retirement 
Enhancement Act of 2019 (sec. 802 of the bill and secs. 401(k) and 4973 
                              of the Code)


                              PRESENT LAW

Election of safe harbor 401(k) status

    The SECURE Act eliminated the safe harbor notice 
requirement with respect to nonelective 401(k) safe harbor 
plans.\708\ Background on section 401(k) plans and 
nondiscrimination requirements may be found in Title I, section 
4 of this document.
---------------------------------------------------------------------------
    \708\Sec. 103 of the SECURE Act.
---------------------------------------------------------------------------

Long-term part-time workers

    The SECURE Act generally required section 401(k) plans to 
allow long-term part-time employees to make elective deferrals 
under the plan.\709\ Background on this provision may be found 
in Title I, section 3 of this document.
---------------------------------------------------------------------------
    \709\Sec. 112 of the SECURE Act.
---------------------------------------------------------------------------

Difficulty of care payments

    The SECURE Act also modified certain retirement 
contribution limits as they apply to ``difficulty of care'' 
payments.\710\ A difficulty of care payment is compensation for 
providing the additional care needed for certain qualified 
foster individuals.\711\ Such payments are excludable from 
gross income. Generally, the amount that may be contributed to 
an IRA is limited by the compensation that is includible in an 
individual's gross income for the taxable year.\712\ However, 
the SECURE Act modified the limit on nondeductible 
contributions to a traditional IRA to generally allow an 
individual to contribute a difficulty of care payment.\713\ 
Under the SECURE Act, if the deductible amount of IRA 
contributions in effect for a taxable year (which is tied to 
the amount of nondeductible contributions that may be made) 
exceeds the individual's compensation that is includible in 
gross income, the individual may elect to increase the limit on 
nondeductible contributions by the amount of the difficulty of 
care payment (or, if less, the excess of the deductible amount 
of IRA contributions over the individual's compensation for the 
year).
---------------------------------------------------------------------------
    \710\Sec. 116 of the SECURE Act.
    \711\Sec. 131(c).
    \712\Secs. 408(o)(2) and 408A(c)(2).
    \713\Sec. 408(o)(5).
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            Excise tax on excess IRA contributions
    To the extent that contributions to an IRA exceed the 
contribution limits, the individual is subject to an excise tax 
equal to six percent of the excess amount.\714\ This excise tax 
generally applies each year until the excess amount is 
distributed.
---------------------------------------------------------------------------
    \714\Secs. 4973(b) and (f).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to clarify certain provisions of the 
SECURE Act.

                     EXPLANATION OF PROVISION\715\
---------------------------------------------------------------------------

    \715\In addition to the clarifications described below, the 
provision fixes clerical errors in sections 72(t), 401(k), and 408.
---------------------------------------------------------------------------
    The provision clarifies that, similar to a traditional 
401(m) safe harbor plan, a 401(m) safe harbor plan with 
automatic enrollment must satisfy notice requirements, 
regardless of whether the plan includes safe harbor matching 
contributions or safe harbor nonelective contributions.\716\
---------------------------------------------------------------------------
    \716\The plan must satisfy the notice requirements under section 
401(k)(13)(E), regardless of whether it is an automatic enrollment 
401(k) safe harbor plan that provides a matching contribution in 
accordance with section 401(k)(13)(D)(i)(I) or a nonelective 
contribution in accordance with section 401(k)(13)(D)(i)(II).
---------------------------------------------------------------------------
    The provision also includes several clarifications of the 
rules relating to long-term part-time employees. First, it 
clarifies that in addition to excluding long-term part-time 
employees from nondiscrimination requirements that apply to 
safe harbor plans under section 401(k), an employer may also 
elect to exclude such employees from the nondiscrimination 
requirements that apply to safe harbor plans under section 
401(m).\717\ Second, the provision clarifies that the vesting 
rules apply to the plan, and not only to the cash or deferred 
arrangement.\718\ Third, the provision clarifies that an 
employee ceases to be considered a long-term part-time employee 
(and is instead considered to be a full-time employee) when the 
employee satisfies the age and service requirements that apply 
under a section 401(k) plan to full-time employees.\719\
---------------------------------------------------------------------------
    \717\The requirements that apply under sections 401(m)(11) and 
(12).
    \718\Sec. 401(k)(15)(B)(iii).
    \719\The requirements under section 401(k)(2)(D)(i). Thus, the 
provision clarifies that the applicable age and service requirements 
are the requirements of section 410(a)(1), determined without regard to 
subparagraph (B)(i) thereof.
---------------------------------------------------------------------------
    The provision also clarifies that the excise tax on excess 
contributions to an IRA generally does not apply to difficulty 
of care payments contributed to an IRA.\720\
---------------------------------------------------------------------------
    \720\The excise tax does not apply to any designated nondeductible 
contribution to an IRA that does not exceed the limit on nondeductible 
contributions by reason of the individual's election to increase such 
limit to account for the difficulty of care payment. Sec. 4973(b) (as 
amended by this provision).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The amendments made by the provision are effective as if 
included in the section of the SECURE Act to which the 
amendment relates.

  3. Modification of required minimum distribution rules for special 
   needs trusts (sec. 803 of the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

    General background on the requirements related to required 
minimum distributions may be found in Title II, section 1 of 
this document.

Required minimum distribution rules in case of multiple beneficiaries 
        and trusts

    Treasury regulations include special rules for determining 
an employee's (or IRA owner's) designated beneficiary for 
purposes of calculating the distribution period for required 
minimum distributions in the case of multiple designated 
beneficiaries or in the case of a beneficiary that is a trust.
    Generally, if an employee (or IRA owner) has more than one 
designated beneficiary, the designated beneficiary with the 
shortest life expectancy is the designated beneficiary for 
purposes of determining the distribution period.\721\ A 
designated beneficiary must be an individual.\722\ If a person 
other than an individual is designated as a beneficiary under 
the plan, the employee (or IRA owner) is generally treated as 
not having a designated beneficiary, even if there are other 
individuals who are designated as beneficiaries.\723\ However, 
a special rule applies to trusts.
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    \721\Treas. Reg. sec. 1.401(a)(9)-5, A-7. Exceptions apply in the 
case of certain successor beneficiaries. The IRS recently published new 
proposed regulations under section 401(a)(9). 87 FR 10504, Feb. 24, 
2022 (corrected March 21, 2022). The amendments to Treas. 
Reg.1.401(a)(9)-1 through 1.401(a)(9)-9, are proposed to apply for 
purposes of determining RMDs for calendar years beginning on or after 
Jan. 1, 2022.
    \722\Sec. 401(a)(9)(E)(i).
    \723\Treas. Reg. sec. 1.401(a)(9)-4, A-3.
---------------------------------------------------------------------------
    If a trust is named as an employee's (or IRA owner's) 
beneficiary, the beneficiaries of the trust (and not the trust 
itself) are treated as designated beneficiaries of the employee 
or IRA owner if the following requirements are met: (1) the 
trust is a valid trust under state law, or would be but for the 
fact that there is no corpus, (2) the trust is irrevocable or 
will, by its terms, become irrevocable upon the employee's (or 
IRA owner's) death, (3) the trust beneficiaries who are 
beneficiaries with respect to the trust's interest in the 
employee's (or IRA owner's) benefit are identifiable from the 
trust instrument,\724\ and (4) certain documentation 
requirements\725\ are met.\726\
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    \724\The beneficiary must be identifiable within the meaning of 
Treas. Reg. sec. 1.401(a)(9)-4, A-1.
    \725\The documentation described in Treas. Reg. sec. 1.401(a)(9)-4, 
A-6 must be provided to the plan administrator.
    \726\Treas. Reg. sec. 1.401(a)(9)-4, A-5.
---------------------------------------------------------------------------

Special rules for trusts benefiting disabled or chronically ill 
        individuals

    Special rules apply in the case of an applicable multi-
beneficiary trust. An applicable multi-beneficiary trust is a 
trust (1) that has more than one beneficiary, (2) all of the 
beneficiaries of which are treated as designated beneficiaries 
for purposes of determining the required minimum distribution 
period, and (3) at least one of the beneficiaries of which is 
an eligible designated beneficiary who is disabled or 
chronically ill.
    In the case of an applicable multi-beneficiary trust that 
under its terms is to be divided immediately upon the death of 
the employee (or IRA owner) into separate trusts for each 
beneficiary, the exception to the 10-year rule for eligible 
designated beneficiaries applies separately to any portion of 
the employee's (or IRA owner's) interest that is payable to a 
disabled or chronically ill eligible designated beneficiary. 
Thus, for example, if an applicable multi-beneficiary trust is 
to be divided immediately upon the death of the IRA owner into 
separate trusts for three beneficiaries, one of whom is a 
chronically ill eligible designated beneficiary, the exception 
to the 10-year rule will apply to the portion of the IRA 
owner's interest that is payable to the chronically ill 
eligible designated beneficiary's trust. The portion of the IRA 
owner's interest that is payable to the trusts for the other 
two beneficiaries must then be distributed in accordance with 
the 10-year rule.
    In the case of an applicable multi-beneficiary trust under 
the terms of which no individual other than a disabled or 
chronically ill eligible designated beneficiary has any right 
to the employee's (or IRA owner's) interest in the plan until 
the death of all such eligible designated beneficiaries with 
respect to the trust (``applicable remainder multi-beneficiary 
trust''), the exception to the 10-year rule applies to the 
distribution of the employee's (or IRA owner's) interest and 
any beneficiary who is not a disabled or chronically ill 
eligible designated beneficiary is treated as a beneficiary of 
the eligible designated beneficiary upon the death of such 
eligible designated beneficiary. Thus, the 10-year rule applies 
to any portion of the employee's (or IRA owner's) interest 
remaining after the death of the disabled or chronically ill 
eligible designated beneficiary (or beneficiaries).

                           REASONS FOR CHANGE

    The Committee wishes to permit an individual with a 
disabled or chronically-ill beneficiary for his or her 
retirement account to name a charity as a remainder beneficiary 
for such account without shortening the distribution period 
that applies to the disabled or chronically-ill beneficiary.

                        EXPLANATION OF PROVISION

    The provision modifies the rules that apply to an 
applicable remainder multi-beneficiary trust. Under the 
provision, a beneficiary of such trust that is a qualified 
charity\727\ is treated as a designated beneficiary for 
purposes of the requirements that apply to applicable multi-
beneficiary trusts.\728\ Thus, the trust will not fail to be 
treated as an applicable multi-beneficiary trust merely because 
one of the beneficiaries is a person other than an individual, 
provided that the beneficiary is a qualified charity. As a 
result, an applicable remainder multi-beneficiary trust is not 
precluded from having a qualified charity as a remainder 
beneficiary.
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    \727\An organization described in section 408(d)(8)(B)(i), which 
are the rules that apply to qualified charitable distributions. Section 
408(d)(8)(B)(i) applies to organizations described in section 
170(b)(1)(A) (generally, public charities), other than any organization 
described in section 509(a)(3) (supporting organizations) or any fund 
or account described in section 4966(d)(2) (donor advised funds).
    \728\Sec. 401(a)(9)(H)(v).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for calendar years beginning 
after the date of enactment.

                       TITLE IX--PLAN AMENDMENTS

    1. Provisions relating to plan amendments (sec. 901 of the bill)


                              PRESENT LAW

    Present law provides a remedial amendment period during 
which, under certain circumstances, a retirement plan may be 
amended retroactively in order to comply with tax qualification 
requirements.\729\ In general, plan amendments to reflect 
changes in the law must be made by the time prescribed by law 
for filing the income tax return of the employer for the 
employer's taxable year in which the change in law occurs 
(including extensions). The Secretary may extend the time by 
which plan amendments need to be made.
---------------------------------------------------------------------------
    \729\Sec. 401(b).
---------------------------------------------------------------------------
    The Code and ERISA provide that, in general, accrued 
benefits cannot be reduced by a plan amendment.\730\ This 
prohibition on the reduction of accrued benefits is commonly 
referred to as the ``anti-cut-back rule.''
---------------------------------------------------------------------------
    \730\Code sec. 411(d)(6); ERISA sec. 204(g).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that it may be difficult for plan 
sponsors to amend their plans in order to implement the 
provisions of this bill at the time such provisions become 
effective. The Committee therefore believes it is appropriate 
to offer relief to plans and allow for retroactive amendments.

                        EXPLANATION OF PROVISION

    The provision permits certain plan amendments made pursuant 
to the provisions of this Act, or regulations issued 
thereunder, to be retroactively effective. If a plan amendment 
meets the requirements of the provision, then the plan will be 
treated as being operated in accordance with its terms, and, to 
the extent provided by Secretary in guidance, the amendment 
will not violate the anti-cut-back rule. In order for this 
treatment to apply, the plan must be operated as if the plan 
amendment were in effect, and the amendment is required to be 
made on or before the last day of the first plan year beginning 
on or after January1, 2024 (or such later date as the Secretary 
may prescribe). However, if the plan is a governmental plan or 
a collectively-bargained plan,\731\ the amendment is required 
to be made on or before the last day of the first plan year 
beginning on or after January1, 2026 (or such later date as the 
Secretary may prescribe).
---------------------------------------------------------------------------
    \731\Defined for this purpose as a plan maintained by one or more 
collective bargaining agreements between employee representatives and 
one or more employers ratified before the date of enactment of this 
provision.
---------------------------------------------------------------------------
    If the amendment is required to be made to retain qualified 
status as a result of the changes in the law (or regulations), 
the amendment is required to be made retroactively effective as 
of the date on which the change became effective with respect 
to the plan and the plan is required to be operated in 
compliance until the amendment is made. Amendments that are not 
required to retain qualified status but that are made pursuant 
to the provisions of this Act (or applicable regulations) may 
be made retroactively effective as of the first day the 
amendment is effective.
    The provision also amends the deadlines for certain plan 
amendments made pursuant to the SECURE Act, the Coronavirus 
Aid, Relief, and Economic Security Act, and the Taxpayer 
Certainty and Disaster Relief Act to conform with the deadlines 
provided under this provision.\732\
---------------------------------------------------------------------------
    \732\The provision modifies the general deadlines for plan 
amendments under the SECURE Act, section 601, the deadlines for 
amendments relating to coronavirus-related distributions and the waiver 
of required minimum distributions under the Coronavirus Aid, Relief, 
and Economic Security Act, Pub. L. No. 116-136, sections 2202 and 2203, 
and the deadlines for amendments under the Taxpayer Certainty and 
Disaster Relief Act of 2020, section 302.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                TITLE X--TAX COURT RETIREMENT PROVISIONS

     1. Provisions relating to judges of the Tax Court (sec. 1001 
                              of the bill)


                              PRESENT LAW

In general

    The United States Tax Court (``Tax Court'') is established 
by Congress pursuant to Article I of the U.S. Constitution (an 
``Article I'' court). The salary of a Tax Court judge is the 
same salary as received by a U.S. District Court judge. Some 
employee benefits for Tax Court judges, including certain 
retirement and survivor benefit programs, correspond to 
benefits provided to U.S. District Court judges.

Retirement and survivors' benefits

    A Tax Court judge may be covered under the Federal 
Employees Retirement System (``FERS'') or, depending on when 
the judge began Federal employment, the Civil Service 
Retirement System (``CSRS''). FERS and CSRS provide annuity 
benefits to a retired employee and, in some cases, to survivors 
of a deceased employee. Employees covered by FERS are also 
covered by the Social Security program. Federal employees 
covered by FERS and CSRS generally may contribute to the Thrift 
Savings Plan (``TSP''). Most Federal employees covered by FERS 
(but not CSRS) are also eligible for agency contributions (that 
is, nonelective contributions and matching contributions). Like 
other Federal employees, a Tax Court judge is eligible to 
contribute to the Thrift Savings Plan. In contrast with other 
Federal employees who are covered by FERS, a Tax Court judge 
covered by FERS is not eligible for agency contributions.
    An active Tax Court judge may elect at any time to be 
covered by a ``retired pay'' program of the Tax Court rather 
than under another Federal retirement program, such as FERS or 
CSRS. A Tax Court judge may also elect to participate in a plan 
providing annuity benefits for the judge's surviving spouse and 
dependent children (the ``Tax Court survivors'' annuity 
plan''). Generally, benefits under the Tax Court survivors' 
annuity plan are payable only if the judge has performed at 
least five years of service and has made contributions to the 
plan for at least five years of service.
    The rules governing the retired pay plan for Tax Court 
judges and the Tax Court survivors' annuity plan provide for 
coordination between CSRS and the retired pay or survivors' 
annuity plan when a judge covered by CSRS elects into those 
plans. For example, if a judge covered by CSRS elects retired 
pay, the accumulated CSRS contributions previously made by the 
judge are refunded to the judge with interest. However, the 
rules do not address coordination with FERS.

Limit on outside earned income of a judge receiving retired pay

    Under the retired pay plan for Tax Court judges, retired 
judges generally receive retired pay equal to the salary of an 
active judge and must be available for recall to perform 
judicial duties as needed by the court for up to 90 days a year 
(unless the judge consents to a longer period). However, 
retired judges may elect to freeze the amount of their retired 
pay, and those who do so are not available for recall.
    Retired Tax Court judges on recall are subject to the 
limitations on outside earned income that apply to active 
Federal employees under the Ethics in Government Act of 1978. 
Retired Tax Court judges who elect to freeze the amount of 
their retired pay (thus making themselves unavailable for 
recall) are not subject to the limitations on outside earned 
income.

                           REASONS FOR CHANGE

    The Committee wishes to allow Tax Court judges the same TSP 
matching contributions as are allowed to other Article I judges 
and to magistrate and bankruptcy judges in Federal district 
courts. Similarly, the Committee wishes to conform the survivor 
annuity vesting period rules and the teaching compensation 
treatment (under the outside earned income limitations) 
applicable to judges and special trial judges of the Tax Court 
to the survivor annuity vesting period rules and teaching 
compensation treatment applicable to Federal district court 
judges.

                        EXPLANATION OF PROVISION

Thrift Savings Plan matching contributions

    The provision allows a Tax Court judge who is covered by 
FERS to receive agency contributions to the TSP, similar to 
other employees covered by FERS. If a judge covered by FERS 
elects retired pay, rather than FERS benefits, the judge's 
retired pay is offset by the amount of previous TSP 
distributions attributable to agency contributions (without 
regard to earnings on the agency contributions) made during 
years of service as a Tax Court judge while covered by FERS.

Retirement and survivors' benefits

    Under the provision, benefits under the survivors' annuity 
plan are payable if a Tax Court judge has performed at least 18 
months of service and made contributions for at least 18 months 
(rather than five years). In addition, benefits under the 
survivors' annuity plan are payable if a Tax Court judge is 
assassinated before the judge has performed 18 months of 
service and made contributions for 18 months. Assassination 
means a killing of a judge or special trial judge motivated by 
the judge's performance of his or her official duties. A 
determination of assassination is made by the chief judge of 
the Tax Court and is reviewable only by the Tax Court.
    The provision amends the rules governing the retired pay 
plan for Tax Court judges and the Tax Court survivors' annuity 
plan to provide for coordination between FERS and those plans 
when a judge covered by FERS elects into those plans, similar 
to coordination with CSRS under present law.

Limit on outside earned income of a judge receiving retired pay

    Under the provision, compensation earned by a retired Tax 
Court judge for teaching during a calendar year is not treated 
as outside earned income for purposes of limitations under the 
Ethics in Government Act of 1978, so long as the retired judge 
satisfies the recall duties described in section 7444(c) for 
the calendar year, as certified by the chief judge.

                             EFFECTIVE DATE

    The provisions are generally effective on the date of 
enactment. The provision relating to TSP contributions applies 
to basic pay earned while serving as a Tax Court judge on or 
after the date of enactment, and the provision relating to 
outside earned income of a judge receiving retired pay applies 
to any individual serving as a retired Tax Court judge on or 
after the date of enactment.

    2. Provisions relating to special trial judges of the Tax Court 
                        (sec. 1002 of the bill)


                              PRESENT LAW

    The chief judge of the Tax Court may appoint special trial 
judges to handle certain cases.
    Special trial judges serve for an indefinite term. Special 
trial judges receive a salary of 90 percent of the salary of a 
Tax Court judge. Special trial judges do not have authority to 
impose punishment in the case of contempt of the authority of 
the Tax Court.
    Special trial judges generally are covered by the benefit 
programs that apply to Federal executive branch employees, 
including CSRS or FERS (depending on when the judge began 
Federal employment). Special trial judges may contribute to 
TSP, and those covered by FERS are also eligible for agency 
contributions. Special trial judges covered by FERS are also 
covered by the Social Security program. Special trial judges 
may also elect to participate in the Tax Court survivors' 
annuity plan. An election into the Tax Court survivors' annuity 
plan must be made not later than six months after the later of 
the date the special trial judge takes office or the date the 
judge marries.
    Special trial judges are required to be covered by a leave 
program under which they earn annual and sick leave during 
their period of employment. At termination of employment, a 
lump sum payment is made to the special trial judge for unused 
annual leave, and unused sick leave is credited as additional 
service for certain purposes under CSRS or FERS.

                           REASONS FOR CHANGE

    The Committee believes that, given the similarities in 
roles, it is appropriate that special trial court judges of the 
Tax Court have similar retirement benefits and retirement 
recall rules as are applicable to regular judges of the Tax 
Court.

                        EXPLANATION OF PROVISION

Retirement plan for special trial judges

    The provision establishes a new retirement plan under which 
a special trial judge may elect to receive retired pay under 
rules similar to those applicable to the regular judges of the 
Tax Court. A special trial judge generally must meet certain 
requirements to be eligible for retired pay. In general, the 
trial judge must attain age 65 with 15 years of service or must 
receive certification of permanent disability. A special trial 
judge who retires based on the age and service requirement 
receives reduced retired pay if the judge's service is less 
than 15 years. A special trial judge who retires based on 
permanent disability receives reduced retired pay if the 
judge's service is less than 10 years. The election to receive 
retired pay may be made only while an individual is a special 
trial judge, except that in the case of an individual who fails 
to be reappointed as a special trial judge, it may be made 
within 60 days after the individual leaves office as a special 
trial judge.

Recall of retired special trial judges

    The provision requires that a special trial judge be 
available for recall to perform judicial duties as needed by 
the court for up to 90 days a year (unless the judge consents 
to a longer period) in the same manner as regular judges.

                             EFFECTIVE DATE

    The provision is effective on date of enactment.

                      TITLE XI--REVENUE PROVISIONS

1. SIMPLE and SEP Roth IRAs (sec. 1101 of the bill and secs. 408(k) and 
                          408(p) of the Code)


                              PRESENT LAW

    An IRA is generally established by an individual for whom 
the IRA is maintained.\733\ In some cases, an employer may 
establish IRAs on behalf of employees and provide retirement 
contributions to the IRAs. In addition, IRA treatment may apply 
to accounts maintained for employees under a trust created by 
an employer (or an employee association) for the exclusive 
benefit of employees or their beneficiaries, provided that the 
trust complies with the relevant IRA requirements and separate 
accounting is maintained for the interest of each employee or 
beneficiary.\734\ In that case, the assets of the trust may be 
held in a common fund for the account of all individuals who 
have an interest in the trust.
---------------------------------------------------------------------------
    \733\Secs. 219, 408, and 408A provide the rules for IRAs. Under 
section 408(a)(2) and (n), only certain entities are permitted to be 
the trustee of an IRA. The trustee of an IRA generally must be a bank, 
an insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \734\Sec. 408(c).
---------------------------------------------------------------------------
    There are two basic types of IRAs: traditional IRAs, to 
which deductible or nondeductible contributions can be made, 
and Roth IRAs, contributions to which are not deductible. The 
total contributions made to all IRAs for a year cannot exceed 
$6,000 (for 2022), plus an additional $1,000 (not indexed) in 
catch-up contributions for individuals age 50 or older. Certain 
individuals are not permitted to make deductible contributions 
to a traditional IRA or to make contributions to a Roth IRA, 
depending on their income.
    Distributions from traditional IRAs are generally 
includible in income, except to the extent a portion of the 
distribution is treated as a recovery of the individual's basis 
(if any). Qualified distributions from a Roth IRA are excluded 
from income;\735\ other distributions from a Roth IRA are 
includible in income to the extent of earnings. IRA 
distributions generally can be rolled over to another IRA or 
qualified retirement plan; however, a distribution from a Roth 
IRA generally can be rolled over only to another Roth IRA or a 
designated Roth account.
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    \735\A qualified distribution is a distribution that (1)is made 
after the five-taxable-year period beginning with the first taxable 
year for which the individual first made a contribution to a Roth IRA, 
and (2)is made after attainment of age 59=, on account of death or 
disability, or is made for first-time homebuyer expenses of up to 
$10,000. Sec. 408A(d)(2).
---------------------------------------------------------------------------
    Savings Incentive Match Plan for Employees (``SIMPLE'') 
plans and Simplified Employee Pension (``SEP'') plans are 
special types of employer-sponsored retirement plans to which 
the employer makes contributions to IRAs established for each 
of the employer's employees in accordance with the Code 
requirements for each type of plan.\736\ SIMPLE IRAs and SEPs 
may not be designated as Roth IRAs.\737\
---------------------------------------------------------------------------
    \736\Secs. 408(p), (k).
    \737\Sec. 408A(f)(1).
---------------------------------------------------------------------------
    For background on SIMPLE IRA plans, see Title I, section 6 
of this document.
            SEP IRA plans
    A Simplified Employee Pension (``SEP'') plan is a special 
type of employer-sponsored retirement plan whereby only the 
employer makes contributions to the plan.\738\ Unlike SIMPLE 
IRA plans, any size employer may establish a SEP plan. The 
amount of the contribution to the SEP IRA plan is the lesser of 
25 percent of the employee's compensation or the dollar limit 
applicable to contributions to a qualified defined contribution 
plan ($61,000 for 2022). A traditional IRA is set up for each 
eligible employee, and all contributions must be fully vested. 
Any employee must be eligible to participate in the SEP if the 
employee has (1) attained age 21, (2) performed services for 
the employer during at least three of the immediately preceding 
five years, and (3) received at least $650 (for 2022) in 
compensation from the employer for the year.\739\ Contributions 
to a SEP generally must bear a uniform relationship to 
compensation.
---------------------------------------------------------------------------
    \738\Sec. 408(k).
    \739\The annual compensation limit for SEPs is $290,000.
---------------------------------------------------------------------------
    Effective for taxable years beginning before January 1, 
1997, certain employers with no more than 25 employees could 
maintain a salary reduction SEP (``SARSEP'') under which 
employees could make elective deferrals. The SARSEP rules were 
generally repealed with the enactment of the SIMPLE plan rules. 
However, contributions may continue to be made to SARSEPs that 
were established before 1997. Salary reduction contributions to 
a SARSEP are subject to the same limit that applies to elective 
deferrals under a section 401(k) plan ($20,500 for 2022). An 
individual who has attained age 50 before the end of the 
taxable year may also make catch-up contributions to a SARSEP 
of up to $6,500 (for 2022).
            Roth Contributions
    Elective deferrals are generally made on a pre-tax basis. 
However, certain retirement plans, such as section 401(k), 
section 403(b), and governmental 457(b) plans, may include a 
qualified Roth contribution program under which elective 
deferrals are made on an after-tax basis (designated Roth 
contributions), and attributable distributions are excluded 
from income. The annual dollar limit on a participant's 
designated Roth contributions is the same as the limit on 
elective deferrals, reduced by the participant's elective 
deferrals that are not designated Roth contributions. 
Designated Roth contributions are generally treated the same as 
any other elective deferral for certain purposes, including the 
restrictions on distributions.

                           REASONS FOR CHANGE

    The Committee believes that participants in a SEP or SIMPLE 
IRA should be permitted to contribute under the plan on a Roth 
basis.

                        EXPLANATION OF PROVISION

    Under the provision, SEP and SIMPLE IRAs are permitted to 
be designated as Roth IRAs. Contributions (including employer 
contributions as well as elective deferrals) to a SEP or SIMPLE 
IRA that is a designated Roth IRA are not excludable from gross 
income, and qualified distributions from such Roth IRAs are 
excludable from gross income. With respect to SEP and SIMPLE 
IRAs, an individual retirement plan that is designated as a 
Roth IRA shall not be treated as a SEP or SIMPLE IRA unless the 
employee elects for the plan to be treated as such (at such 
time and in such manner as the Secretary may provide). In the 
case of any payment or distribution out of a SIMPLE IRA, with 
respect to which an election has been made and which is 
received during the two-year period beginning on the date the 
individual first participated in any salary reduction 
arrangement in a SIMPLE IRA maintained by the individual's 
employer,\740\ a ``qualified rollover distribution'' shall not 
include any payment or distribution paid into an account other 
than a SIMPLE IRA.
---------------------------------------------------------------------------
    \740\Sec. 72(t)(6).
---------------------------------------------------------------------------
    The contribution limit for Roth IRAs generally is increased 
by the contributions made on the individual's behalf to the 
SIMPLE IRA or SEP for the taxable year, subject to certain 
limits. In this case of a SIMPLE IRA, the Roth IRA contribution 
limit is increased only to the extent that the contributions 
made on the individual's behalf (1) do not exceed the sum of 
the limit on elective contributions to a SIMPLE IRA and the 
required employer contribution to such IRA,\741\ and (2) do not 
cause the individual's elective contributions to exceed the 
elective deferral limit.\742\ In the case of a SEP plan, the 
Roth IRA contribution limit is increased only to the extent 
that the contributions made on the individual's behalf do not 
exceed the annual contribution limit applicable to SEPs.\743\
---------------------------------------------------------------------------
    \741\Sec. 408(p)(2).
    \742\Sec. 402(g)(1) (taking into account any additional elective 
deferrals permitted as catch-up contributions under section 414(v)).
    \743\Sec. 408(j).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2023.

 2. Elective deferrals generally limited to regular contribution limit 
     (sec. 1102 of the bill and secs. 402, 411 and 457 of the Code)


                              PRESENT LAW

Defined contribution plan limits

    A defined contribution plan is a type of qualified 
retirement plan whereby contributions, earnings, and losses are 
allocated to a separate account for each participant. Defined 
contribution plans may provide for nonelective contributions 
and matching contributions by employers and pre-tax (that is, 
contributions are either excluded from income or deductible) or 
after-tax contributions by employees. Total contributions made 
to an employee's account for a year cannot exceed the lesser of 
$61,000 (for 2022) or the employee's compensation.\744\
---------------------------------------------------------------------------
    \744\Sec. 415(c).
---------------------------------------------------------------------------
    Under certain types of defined contribution plans, 
including section 401(k) plans, section 403(b) plans, or 
governmental section 457(b) plans, an employee may elect to 
have contributions (elective deferrals) made to the plan, 
rather than receive the same amount in cash. The maximum annual 
amount of elective deferrals that can be made by an employee 
for a year is $20,500 (for 2022) or, if less, the employee's 
compensation.\745\ Elective deferrals generally cannot be 
distributed from the plan before the employee's severance from 
employment, death, disability or attainment of age 59\1/2\ or 
in the case of hardship or plan termination.\746\
---------------------------------------------------------------------------
    \745\Secs. 402(g); 457(c). This limit applies to total elective 
deferrals under all of a participant's section 401(k) plans and section 
403(b) plans but applies separately to any governmental section 457(b) 
plan.
    \746\Secs. 401(k)(2)(B); 403(b)(7)(A)(i); 457(d)(1)(A).
---------------------------------------------------------------------------

Catch-up contributions

    Certain retirement plans may permit employees to make 
catch-up contributions, subject to certain limitations.\747\ 
Employees aged 50 or older (``eligible participants'') 
generally may make annual catch-up contributions to a section 
401(k), section 403(b), and governmental 457(b) plans, up to 
$6,500 in 2022 (indexed for inflation).\748\ If elective 
deferral and catch-up contributions are made to both a 
qualified defined contribution plan and a section 403(b) plan 
for the same employee, a single limit applies to the elective 
deferrals under both plans.\749\ Special contribution limits 
apply to certain employees under a section 403(b) plan 
maintained by a church. In addition, under a special catch-up 
rule, an increased elective deferral limit applies under a plan 
maintained by an educational organization, hospital, home 
health service agency, health and welfare service agency, 
church, or convention or association of churches in the case of 
employees who have completed 15 years of service.\750\ In this 
case, the limit is increased by the least of (1) $3,000, (2) 
$15,000, reduced by the employee's total elective deferrals in 
prior years, or (3) $5,000 times the employee's years of 
service, reduced by the employee's total elective deferrals in 
prior years.\751\
---------------------------------------------------------------------------
    \747\Sec. 414(v).
    \748\In order to be eligible to make catch-up contributions, the 
participant must also be ineligible to otherwise make additional 
elective deferrals under the plan, due to the limits that apply to such 
deferrals under the Code or under the plan. Sec. 414(v)(5)(B).
    \749\Treas. Reg. sec. 1.402(g)-1(b).
    \750\Treas. Reg. sec. 1.403(b)-4(c)(3).
    \751\ Because contributions to a defined contribution plan cannot 
exceed an employee's compensation, contributions for an employee are 
generally not permitted after termination of employment. However, under 
a special rule, a former employee may be deemed to receive compensation 
for up to five years after termination of employment for purposes of 
receiving employer nonelective contributions under a section 403(b) 
plan.
---------------------------------------------------------------------------
    The section 457(b) plan limits apply separately from the 
combined limit applicable to section 401(k) and 403(b) plan 
contributions, so that an employee covered by a governmental 
section 457(b) plan and a section 401(k) or 403(b) plan can 
contribute the full amount to each plan. In addition, under a 
special catch-up rule, for one or more of the participant's 
last three years before normal retirement age, the otherwise 
applicable limit is increased to the lesser of (1) two times 
the normal annual limit ($41,000 for 2022) or (2) the sum of 
the otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

Roth contributions

    Elective deferrals are generally made on a pre-tax basis. 
However, certain retirement plans, such as section 401(k), 
section 403(b), and governmental section 457(b) plans, may 
include a qualified Roth contribution program under which 
elective deferrals are made on an after-tax basis (designated 
Roth contributions), and qualified distributions from a 
designated Roth account are excluded from income.\752\ A 
qualified distribution is a distribution that (1) is made after 
the five-taxable-year period beginning with the first taxable 
year for which the individual first made the contribution, and 
(2) is made after attainment of age 59\1/2\, or on account of 
death or disability.\753\
---------------------------------------------------------------------------
    \752\Sec. 402A.
    \753\Sec. 402A(d)(2)(A).
---------------------------------------------------------------------------

Excess deferrals treated as catch-up contributions

    Under Treasury regulations, elective deferrals with respect 
to a catch-up eligible individual that exceed the applicable 
limits under the Code or the plan, or that would cause the plan 
to fail nondiscrimination testing,\754\ must be treated as a 
catch-up contribution to the extent the elective deferral does 
not exceed the limits applicable to catch-up 
contributions.\755\
---------------------------------------------------------------------------
    \754\The actual deferral percentage (ADP) test under section 
401(k)(3).
    \755\Treas. Reg. sec. 1.414(v)-1(c).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that higher-compensated participants 
should be required to make catch-up contributions on a Roth 
basis.

                        EXPLANATION OF PROVISION

    Under the provision, a section 401(a) qualified plan, 
section 403(b) plan, or governmental section 457(b) plan that 
permits an eligible participant to make catch-up contributions 
must require such catch-up contributions to be designated Roth 
contributions if the participant's wages for the prior year 
exceeded $100,000.\756\ In addition, if catch-up contributions 
are provided under a plan as designated Roth contributions for 
participants whose wages exceed $100,000, the plan must also 
permit catch-up contributions made by other eligible 
participants to be designated Roth contributions. The provision 
does not apply to a Savings Incentive Match Plan for Employees 
(``SIMPLE'') IRA or Simplified Employee Pension (``SEP'') plan.
---------------------------------------------------------------------------
    \756\For this purpose, wages means wages subject to FICA (the 
Federal Insurance Contributions Act) under section 3101.
---------------------------------------------------------------------------
    The provision further provides that the Secretary may 
provide by regulation that eligible participants may change 
their election to make catch-up contributions for a plan year 
if the participant's wages are determined to exceed $100,000 
after the initial election for the participant is made.
    In addition, the provision provides that excess elective 
deferrals that were made on a pre-tax basis may not be treated 
as catch-up contributions if, with respect to that participant, 
the catch-up contributions would be required to be designated 
Roth contributions.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2023.

      3. Optional treatment of employer matching and nonelective 
  contributions as Roth contributions (sec. 1103 of the bill and sec. 
                           402A of the Code)


                              PRESENT LAW

Defined contribution plan contributions

    Defined contribution plans may provide for nonelective 
contributions and matching contributions by employers and pre-
tax (that is, contributions are either excluded from income or 
deductible) or after-tax contributions by employees. Total 
contributions made to an employee's account for a year cannot 
exceed the lesser of $61,000 (for 2022) or the employee's 
compensation. The deduction for employer contributions to a 
defined contribution plan for a year is generally limited to 25 
percent of the participants' compensation. A participant must 
at all times be fully vested in his or her own contributions to 
a defined contribution plan and must vest in employer 
contributions under three-year cliff vesting or two-to-six-year 
graduated vesting.\757\
---------------------------------------------------------------------------
    \757\Under the automatic enrollment 401(k) safe harbor, the 
matching and nonelective contributions are allowed to become 100 
percent vested only after two years of service (rather than being 
required to be immediately vested when made).
---------------------------------------------------------------------------
    Defined contribution plans can be further categorized into 
different types, such as profit-sharing plans, stock bonus 
plans, or money purchase plans, and may include special 
features, such as a qualified cash or deferred arrangement 
(section 401(k)) or an employee stock ownership plan 
(``ESOP''). Under a common type of retirement arrangement, a 
section 401(k) plan, an employee may elect to have 
contributions (elective deferrals) made to the plan, rather 
than receive the same amount in cash. For 2022, elective 
deferrals of up to $20,500 may be made, plus, for employees 
aged 50 or older, up to $6,500 in catch-up contributions. 
Elective deferrals generally cannot be distributed from the 
plan before the employee's severance from employment, death, 
disability, or attainment of age 59\1/2\ or in the case of 
hardship or plan termination.
            Designated Roth contributions
    Elective deferrals are generally made on a pre-tax 
basis.\758\ However, certain defined contributions plans, such 
as a section 401(k), 403(b), or governmental 457(b) plan, may 
include a qualified Roth contribution program under which 
elective deferrals are made on an after-tax basis (designated 
Roth contributions), but certain distributions (``qualified 
distributions''), including earnings, are excluded from 
income.\759\ A qualified distribution is a distribution that 
(1) is made after the five-taxable-year period beginning with 
the first taxable year for which the individual first made the 
contribution, and (2) is made after attainment of age 59\1/2\, 
or on account of death or disability.
---------------------------------------------------------------------------
    \758\Section 401(k) plans may be designed so that elective 
deferrals are made only if the employee affirmatively elects them. 
However, a section 401(k) plan may provide for ``automatic 
enrollment,'' under which elective deferrals are made at a specified 
rate unless the employee affirmatively elects not to make contributions 
or to make contributions at a different rate. Various rules have been 
developed to provide favorable treatment for plans that provide for 
automatic enrollment, subject to certain notice requirements.
    \759\Sec. 402A.
---------------------------------------------------------------------------
            Employer Contributions
    Employers generally are not required to make contributions 
to a defined contribution plan, but many employers make 
matching contributions or nonelective contributions. Matching 
contributions are employer contributions that are made only if 
the employee makes contributions and can relate to pre-tax 
elective deferrals, designated Roth contributions, or other 
after-tax contributions. Matching contributions are generally 
based on a formula that is a percentage of the employee's 
contribution to the plan. Alternatively, matching contributions 
may be made by the employer to the plan that are a flat dollar 
amount up to a particular percentage of the employee's 
compensation.
    In contrast, nonelective contributions are made without 
regard to whether the employee makes pre-tax or after-tax 
contributions. Nonelective contributions by an employer are 
based on a fixed or discretionary formula that could take into 
account the participant's years of service or age. Nonelective 
contributions could also generally be a flat dollar amount to 
the plan for each eligible employee.
    If an employee makes elective deferrals that are designated 
Roth contributions to a defined contribution plan, the employer 
may not make matching or nonelective contributions on a Roth 
basis. The employer may only allocate contributions to match 
designated Roth contributions into a pre-tax account.

                           REASONS FOR CHANGE

    The Committee believes that employees should have the 
option to elect that matching contributions and nonelective 
contributions be made on a Roth basis.

                        EXPLANATION OF PROVISION

    Under the provision, a section 401(a) qualified plan, a 
section 403(b) plan, or a governmental 457(b) plan may permit 
an employee to designate matching contributions and nonelective 
contributions as designated Roth contributions. In order for 
this rule to apply, the employee must be fully vested in the 
matching or nonelective contribution under the plan. An 
employer matching contribution or nonelective contribution that 
is a designated Roth contribution shall not be excludable from 
gross income.

                             EFFECTIVE DATE

    The provision applies to contributions made after December 
31, 2022.

    4. Charitable conversation easements (sec. 1104 of the bill and 
               secs. 170(h), 6662, and 6664 of the Code)


                              PRESENT LAW

    Charitable contributions generally In general, a deduction 
is permitted for charitable contributions, subject to certain 
limitations that depend on the type of taxpayer, the property 
contributed, and the donee organization. The amount of 
deduction generally equals the fair market value of the 
contributed property on the date of the contribution. 
Charitable deductions are provided for income, estate, and gift 
tax purposes.\760\
---------------------------------------------------------------------------
    \760\Secs. 170, 2055, and 2522, respectively.
---------------------------------------------------------------------------

Qualified conservation contributions

    Except where allowed by the Code, a taxpayer may not take a 
charitable deduction for a contribution of a partial interest 
in property (the ``partial interest rule''). A qualified 
conservation contribution is one type of partial interest 
contribution for which a charitable deduction is allowed.\761\
---------------------------------------------------------------------------
    \761\Sec. 170(f)(3)(B)(iii) and 170(h).
---------------------------------------------------------------------------
    A qualified conservation contribution is a contribution of 
a qualified real property interest to a qualified organization 
exclusively for conservation purposes.\762\ A qualified real 
property interest is defined as: (1) the entire interest of the 
donor other than a qualified mineral interest; (2) a remainder 
interest; or (3) a restriction (granted in perpetuity) on the 
use that may be made of the real property.\763\ Qualified 
organizations include certain governmental units, public 
charities that meet certain public support tests, and certain 
supporting organizations.\764\ Conservation purposes include: 
(1) the preservation of land areas for outdoor recreation by, 
or for the education of, the general public; (2) the protection 
of a relatively natural habitat of fish, wildlife, or plants, 
or similar ecosystem; (3) the preservation of open space 
(including farmland and forest land) where such preservation 
will yield a significant public benefit and is either for the 
scenic enjoyment of the general public or pursuant to a clearly 
delineated Federal, State, or local governmental conservation 
policy; and (4) the preservation of an historically important 
land area or a certified historic structure.\765\
---------------------------------------------------------------------------
    \762\Sec. 170(h)(1).
    \763\Sec. 170(h)(2).
    \764\See sec. 170(h)(3).
    \765\Sec. 170(h)(4).
---------------------------------------------------------------------------
    The Treasury regulations provide rules relating to the 
valuation of a perpetual conservation easement for charitable 
deduction purposes. If there is a substantial record of sales 
of easements comparable to the donated easement, the fair 
market value of the easement is based on the sales prices of 
such comparable easements.\766\ If no such record exists, then 
the value of the donated easement is equal to the difference 
between the fair market value of the property it encumbers 
before the granting of the restriction and the fair market 
value of the encumbered property after the granting of the 
easement.\767\ Under this before-and-after method, the fair 
market value of the property before the granting of the 
easement must take into account not only the current use of the 
property but also an objective assessment of how immediate or 
remote the likelihood is that the property, absent the 
restriction, would in fact be developed, as well as any effect 
from zoning, conservation, or historic preservation laws that 
already restrict the property's potential highest and best 
use.\768\ Further, there may be instances where the grant of a 
conservation restriction may have no effect on, or may enhance 
(rather than reduce), the value of the encumbered 
property.\769\
---------------------------------------------------------------------------
    \766\Treas. Reg. sec. 1.170A-14(h)(3)(i).
    \767\Ibid.
    \768\Treas. Reg. sec. 1.170A-14(h)(3)(ii).
    \769\Ibid.
---------------------------------------------------------------------------
    Preferential rules apply in determining the amount of a 
taxpayer's deduction for a qualified conservation contribution. 
These rules generally allow an individual taxpayer making a 
qualified conservation contribution to offset a higher 
percentage of her contribution base,\770\ and a corporate 
taxpayer making such a contribution to offset a higher 
percentage of its taxable income, than taxpayers making 
charitable contributions of other types of property.\771\
---------------------------------------------------------------------------
    \770\An individual taxpayer's contribution base is her adjusted 
gross income computed without regard to any net operating loss 
carrybacks to the taxable year under section 162. Secs. 170(b)(1)(H).
    \771\Sec. 170(b)(1)(E), (b)(2)(B), and (b)(2)(C).
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IRS Notice 2017-10

    On December 23, 2016, the IRS issued Notice 2017-10, which 
designates certain conservation easement transactions as listed 
transactions that are subject to certain disclosure and list 
maintenance requirements.\772\ According to the Notice, ``[t]he 
Department of the Treasury . . . and the Internal Revenue 
Service . . . are aware that some promoters are syndicating 
conservation easement transactions that purport to give 
investors the opportunity to obtain charitable contribution 
deductions in amounts that significantly exceed the amount 
invested.'' The Notice generally provides that a transaction is 
a listed transaction under the Notice if an investor receives 
promotional materials that offer prospective investors in a 
pass-through entity the possibility of a charitable 
contribution deduction that equals or exceeds an amount that is 
two and one-half times the amount of the investor's investment. 
The investor purchases an interest in the pass-through entity 
that holds real property. The entity then contributes a 
conservation easement encumbering the property to a tax-exempt 
organization and allocates a charitable contribution deduction 
to the investor.
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    \772\Treas. Reg. secs. 1.6011-4 and 301.6111-3. See also sec. 
6501(c)(10) (special limitations period for assessment of tax related 
to a listed transaction that was not properly disclosed).
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Accuracy-related penalty (sec. 6662)

    An accuracy-related penalty under section 6662 applies to 
the portion of any underpayment that is attributable to (1) 
negligence, (2) any substantial understatement of income tax, 
(3) any substantial valuation misstatement, (4) any substantial 
overstatement of pension liabilities, (5) any substantial 
estate or gift tax valuation understatement, (6) any 
disallowance of claimed tax benefits by reason of a transaction 
lacking economic substance, (7) any undisclosed foreign 
financial asset understatement, (8) any inconsistent estate 
basis, or (9) any overstatement of the deduction provided in 
section 170(p). If the correct income tax liability exceeds 
that reported by the taxpayer by the greater of 10 percent of 
the correct tax or $5,000 (or, in the case of corporations, by 
the lesser of (a) 10 percent of the correct tax (or $10,000 if 
greater) or (b) $10 million), then a substantial understatement 
exists and a penalty may be imposed equal to 20 percent of the 
underpayment of tax attributable to the understatement.\773\
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    \773\Sec. 6662(d).
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    The section 6662 penalty generally is abated (even with 
respect to tax shelters\774\) in cases in which the taxpayer 
can demonstrate that there was ``reasonable cause'' for the 
underpayment and that the taxpayer acted in good faith and 
adequate disclosure is made.\775\ The relevant regulations 
provide that reasonable cause exists where the taxpayer 
``reasonably relies in good faith on [a professional] tax 
advisor's analysis of the pertinent facts and authorities 
[that] . . . unambiguously states that the tax advisor 
concludes that there is a greater than 50-percent likelihood 
that the tax treatment of the item will be upheld if 
challenged'' by the IRS.\776\ However, if the underpayment is 
attributable to a reportable transaction, the standard for 
reasonable cause is more stringent,\777\ and applies only if 
(1) the treatment of the item is supported by substantial 
authority, or (2) facts relevant to the tax treatment of the 
item were adequately disclosed and there was a reasonable basis 
for its tax treatment. The Secretary may prescribe a list of 
positions that the Secretary believes do not meet the 
requirements for substantial authority under this provision.
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    \774\A tax shelter is defined for this purpose as a partnership or 
other entity, an investment plan or arrangement, or any other plan or 
arrangement if a significant purpose of such partnership, other entity, 
plan, or arrangement is the avoidance or evasion of Federal income tax. 
Sec. 6662(d)(2)(C).
    \775\Secs. 6662(d)(2)(B) and 6664(c).
    \776\Treas. Reg. sec. 1.6662-4(g)(4)(i)(B). See also Treas. Reg. 
sec. 1.6664-4(c).
    \777\Secs. 6664(d).
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    With certain exceptions, section 6662 does not apply to any 
portion of an underpayment that is attributable to a reportable 
transaction understatement on which a penalty is imposed under 
section 6662A.\778\
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    \778\Sec. 6662(b) (flush language).
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    The 20-percent penalty is increased to 40 percent when 
there is a gross valuation misstatement involving a substantial 
valuation overstatement, a substantial overstatement of pension 
liabilities, a substantial estate or gift tax valuation 
understatement, or when a transaction lacking economic 
substance or a foreign financial asset is not properly 
disclosed.\779\ In the case of an overstatement of qualified 
charitable contributions, the 20-percent penalty is increased 
to 50 percent.\780\
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    \779\ Secs. 6662(h), (i), and (j).
    \780\Sec. 6662(l).
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Mandatory supervisory approval to assert penalty

    Assessment of an addition to tax or penalty under the Code 
is barred in the absence of prior supervisory approval. Such 
approval requires that the initial determination of the penalty 
or addition to tax be approved in writing by the immediate 
supervisor of the person asserting the penalty. The Code 
authorizes the Secretary to designate a higher-level official 
to provide the supervisory approval. Certain penalties are 
exempt from the requirement for supervisory approval, including 
those penalties ``automatically calculated through electronic 
means.''\781\ Because the IRS bears the burden of producing 
evidence to support assessment of a penalty in any court 
proceeding, the Commissioner must produce evidence of 
compliance with the supervisory approval requirement, even if 
the IRS does not bear the burden of proof.\782\
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    \781\Sec. 6751(b), generally. Other penalties exempt from the pre-
approval requirement are penalties under sections 6651 (failure to file 
or pay taxes), 6654 (failure to pay estimated individual taxes), 6655 
(failure to pay estimated corporate taxes), and section 6662(b)(9) 
(overstatement of the charitable deduction for nonitemizers provided in 
section 170(p)).
    \782\Graev v. Commissioner, 149 T.C. 485 (2017). Cf. Chai v. 
Commissioner, 851 F.3d 190 (2d Cir. 2017) (held that the Commissioner 
bears both the burden of production and burden of proof with respect to 
the penalty).
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                           REASONS FOR CHANGE

    The charitable deduction for the donation of a conservation 
easement is an important tool for protecting the environment 
and historic structures. But abusive tax shelters transactions 
put the conservation easement tax deduction at risk. In 2019 
and 2020, then-Chairman Grassley and Ranking Member Wyden 
conducted a bipartisan investigation of syndicated conservation 
easement transactions. The investigative report noted that 
``[t]he syndicated conservation-easement transactions examined 
in this report appear to be nothing more than retail tax 
shelters that let taxpayers buy tax deductions at the end of 
any given year, depending on how much income those taxpayers 
would like to shelter form the IRS, with no economic risk.'' 
The report further concluded that ``in light of the continued 
use of these abusive transactions despite the issuance of IRS 
Notice 2017-10, the Chairman and Ranking Member believe 
Congress, the IRS, and the Department of the Treasury should 
take further action to preserve the integrity of the 
conservation-easement tax deduction.'' During a March 17, 2022, 
Committee hearing on charitable giving trends, IRS Commissioner 
Charles Rettig testified that, notwithstanding aggressive IRS 
enforcement action, tax shelter promoters continue to 
orchestrate abusive syndicated conservation easement 
transactions, placing a strain on IRS enforcement resources. 
The Committee believes it is appropriate to take legislative 
action to protect the integrity of the conservation easement 
tax deduction for easement donations that have a legitimate 
conservation purpose.

                        EXPLANATION OF PROVISION

Certain contributions not treated as qualified conservation 
        contributions

    The provision provides that certain charitable 
contributions made by a partnership (whether directly or as a 
distributive share of a contribution of another partnership) in 
a conservation easement transaction will not be treated as 
qualified conservation contributions. The contribution will not 
be so treated if the amount of the contribution exceeds two and 
one-half times the sum of each partner's relevant basis in such 
partnership (the ``disallowance rule''). A partner's relevant 
basis is the portion of the partner's modified basis in the 
partnership\783\ that is allocable\784\ to the portion of the 
real property interest with respect to which the qualified 
conservation contribution is made.
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    \783\For this purpose, the partner's modified basis in the 
partnership means the partner's adjusted basis in the partnership as 
determined: (1) immediately before the contribution, (2) without regard 
to section 752 (relating to the treatment of certain liabilities), and 
(3) by the partnership after taking into acount the adjustments 
described in (1) and (2) and such other adjustments as the Secretary 
may provide.
    \784\The allocable portion is determined under rules similar to the 
rules of section 755 (rules for allocation of basis).
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    The disallowance rule does not apply to contributions made 
after a three-year holding period. The holding period is 
satisfied if such contribution is made at least three years 
after the latest of: (1) the last date on which the partnership 
that made the contribution acquired any portion of the real 
property with respect to which the contribution was made; (2) 
the last date on which any partner in the partnership that made 
the contribution acquired any interest in the partnership; and 
(3) if the interest in the partnership making the contribution 
is held through one or more partnerships, the last date on 
which any such partnership acquired any interest in any other 
such partnership and the last date on which any partner in any 
such partnership acquired any interest in such partnership. The 
provision also includes an exception for certain family 
partnerships.
    Except as provided by the Secretary, rules similar to the 
rules in the provision relating to qualified conservation 
contributions of partnerships apply to S corporations and other 
pass-through entities. The Secretary is directed to prescribe 
such regulations or other guidance as may be necessary or 
appropriate to carry out or prevent avoidance of the purposes 
of the provision, including requiring reporting related to 
tiered partnerships and modified basis of partners.
    The provision makes several changes to the application of 
section 6662 accuracy related penalties in conservation 
easement cases. First, the provision provides that the section 
6662 accuracy-related penalty applies to any underpayment of 
tax attributable to the disallowance of a deduction by reason 
of the new limitation on qualified conservation contributions 
in this provision. In addition, any such disallowance is 
treated as a gross valuation misstatement, which increases the 
amount of the accuracy-related penalty to from 20 percent to 40 
percent of the underpayment of tax. No defense based on 
reasonable cause otherwise available to an accuracy-related 
penalty under section 6664(c) is available for any such 
underpayment. Finally, the requirement for supervisory approval 
of the penalty assessment under section 6751(b) does not apply.
    The provision also addresses the applicable statute of 
limitations for assessment of tax or penalties related to 
syndicated conservation easement transactions. In the case of 
any disallowance of a deduction by reason of the provision, the 
transaction shall be treated as having been identified by the 
Secretary as a tax avoidance transaction within the meaning of 
section 6011 for purposes of the statute of limitations rule 
described in sections 6501(c)(10) and 6235(c)(6).

Notice of certain failures

    The provision allows certain taxpayers an opportunity to 
correct certain defects in a deed that grants an easement. 
Within 120 days of the date of enactment, the Secretary is 
required to publish safe harbor deed language for 
extinguishment clauses and boundary line adjustments. During 
the 90-day period beginning on the date of publication of such 
language, a donor may amend an easement deed to substitute the 
safe harbor language for the corresponding language in the 
original deed if (1) the amended deed is signed by the donor 
and donee and recorded within the 90-day period and (2) the 
amendment is treated as effective as of the date of recording 
of the original easement deed.
    This correction procedure is not available for a 
contribution: (1) that is part of a reportable transaction\785\ 
or is described in IRS Notice 2017-10; (2) which, by reason of 
the disallowance rule described above is not treated as a 
qualified conservation contribution; (3) if a charitable 
deduction for the contribution has been disallowed by the 
Secretary, and the donee is contesting such disallowance in a 
case which is docketed in a Federal court on a date before the 
date the amended deed is recorded by the donor; or (4) if a 
claimed charitable deduction resulted in an underpayment to 
which a penalty under section 6662 or 6663 applies, and either 
the penalty has been finally determined administratively or, if 
challenged in court, the judicial proceeding with respect to 
such penalty has been concluded by a decision or judgment which 
has become final.
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    \785\As defined in section 6707A(c)(1).
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                             EFFECTIVE DATE

    The provision is generally effective for contributions made 
after the date of enactment. No inference is intended as to (1) 
the appropriate treatment of contributions made in taxable 
years ending on or before such date or (2) any activity not 
described in the relevant portion of the provision. Thus, for 
example, the provision is not intended to change the treatment 
of, or create a safe harbor for, a contribution where the 
amount of the contribution that is claimed does not exceed two 
and one-half times the sum of each partner's relevant basis in 
such partnership; such transactions would continue to be 
governed by present-law principles.
    The portion of the provision that allows certain taxpayers 
to correct defects in a deed granting an easement is effective 
on the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. COMMITTEE ESTIMATES

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the Enhancing American Retirement Now Act, as 
reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2022-2032:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                B. BUDGET AUTHORITY AND TAX EXPENDITURES

Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the provisions of the bill relating to 
the Tax Court involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that certain provisions affect the levels of 
tax expenditures, as shown in the revenue table in Part A.

            C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The statement from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of Rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the Enhancing American Retirement Now Act, 
was ordered favorably reported on June 22, 2022, by a roll call 
vote of 28 ayes and 0 nays. The vote was as follows:
    Ayes: Wyden, Stabenow, Cantwell, Menendez (proxy), Carper, 
Cardin, Brown (proxy), Bennet, Casey, Warner, Whitehouse, 
Hassan, Cortez Masto, Warren, Crapo, Grassley, Cornyn, Thune, 
Burr, Portman, Toomey (proxy), Scott (proxy), Cassidy (proxy), 
Lankford, Daines, Young, Sasse, Barrasso.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. REGULATORY IMPACT

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    The bill includes various provisions relating to tax-
favored retirement savings including provisions designed to 
encourage employers (including incentivizing small employers) 
to adopt tax-favored retirement plans and arrangements, and to 
expand access to, and encourage greater participation by, 
employees in tax-favored retirement plans and arrangements 
including IRAs. The bill also implements certain portability 
and other mechanisms to assist employees in retaining and 
locating benefits earned throughout their careers ensuring 
accessibility to those benefits upon retirement; includes 
provisions designed to assist retirees in managing longevity 
risks and costs; modifies the Employee Plans Compliance 
Resolution Program (``EPCRS'') to provide more flexibility to 
plan sponsors in correcting certain inadvertent failures and 
overpayments to participants and beneficiaries, expands EPCRS 
to include certain IRA failures, and makes permanent the safe 
harbor for correction of employee elective deferral failures. 
The bill also includes provisions permitting participants to 
access their retirement funds in times of critical need, such 
as for federally declared disasters, terminal illness, domestic 
abuse, and certain emergency expenses. The bill further 
contains provisions relating to public safety workers and 
military personnel, as well as the compensation and benefits of 
judges and other employees of the U.S. Tax Court. Provisions 
facilitating tax compliance, including simplified reporting and 
disclosure requirements, penalties, and information-sharing are 
also included in the bill. The provisions of the bill are not 
expected to impose additional administrative requirements or 
regulatory burdens on individuals or businesses. The provisions 
of the bill do not impact personal privacy.

                     B. UNFUNDED MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill contain one unfunded Federal mandate that is 
imposed on the private sector, as well as one Federal 
intergovernmental mandate that is imposed on State, local, or 
tribal governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995: the requirement that 
catch-up contributions in a retirement plan (other than an IRA) 
be made on a Roth basis if the participant's wages for the 
prior year exceeded $100,000. The Committee has determined that 
the bill contains one additional unfunded Federal mandate that 
is imposed on the private sector: the limitation on deduction 
for qualified conservation contributions made by pass-through 
entities.

                       C. TAX COMPLEXITY ANALYSIS

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of Rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]