II
109th CONGRESS
1st Session
S. 219
IN THE SENATE OF THE UNITED STATES
January 31, 2005
Mr. Grassley (for himself and Mr. Baucus) introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to protect the retirement security of American workers by ensuring that pension assets are adequately diversified and by providing workers with adequate access to, and information about, their pension plans, and for other purposes.
Short title; table of contents
Short title
This Act may be cited as the
National Employee Savings and Trust
Equity Guarantee Act of 2005
.
Table of contents
Sec. 1. Short title; table of contents.
TITLE I—Provisions relating to investment of participants' accounts
Subtitle A—Diversification of pension plan assets
Sec. 101. Defined contribution plans required to provide employees with freedom to invest their plan assets.
Sec. 102. Notice of freedom to divest employer securities or real property.
Subtitle B—Information to assist pension plan participants
Sec. 111. Periodic pension benefit statements.
Sec. 112. Defined contribution plans required to provide adequate investment education to participants.
Sec. 113. Material information relating to investment in employer securities.
Sec. 114. Fiduciary rules for plan sponsors designating independent investment advisers.
Sec. 115. Treatment of qualified retirement planning services.
Subtitle C—Protection of pension plan participants
Sec. 121. Notice to participants or beneficiaries of blackout periods.
Sec. 122. Allowance of catchup payments.
TITLE II—Provisions relating to funding, deductions, and the Pension Benefit Guaranty Corporation
Subtitle A—Replacement of interest rate on 30-Year Treasury securities
Sec. 201. Replacement of 30-year Treasury rate for purposes of funding and PBGC premium rates.
Sec. 202. Replacement of 30-year Treasury rate for calculating lump-sum distributions.
Sec. 203. Section
415 limitation on defined benefit plans.Subtitle B—Provisions relating to pension plan funding and deductions
Sec. 211. Deduction limits for plan contributions.
Sec. 212. Benefit limitations for certain financially distressed plans.
Sec. 213. Updating deduction rules for combination of plans.
Subtitle C—Provisions relating to the Pension Benefit Guaranty Corporation
Sec. 221. PBGC premiums for new plans of small employers.
Sec. 222. Additional PBGC premium for new and small plans.
Sec. 223. Authorization for PBGC to pay interest on premium overpayment refunds.
Sec. 224. Substantial owner benefits in terminated plans.
Sec. 225. Acceleration of computation of benefits attributable to recoveries of employer liability.
Subtitle D—Studies
Sec. 231. Joint study on revitalizing defined benefit plans.
Sec. 232. Study on floor-offset ESOPs.
TITLE III—Improvements in portability and distribution rules
Sec. 301. Clarifications regarding purchase of permissive service credit.
Sec. 302. Allow rollover of after-tax amounts in annuity contracts.
Sec. 303. Clarification of minimum distribution rules.
Sec. 304. Waiver of 10 percent early withdrawal penalty tax on certain distributions of pension plans for public safety employees.
Sec. 305. Allow rollovers by nonspouse beneficiaries of certain retirement plan distributions.
Sec. 306. Faster vesting of employer nonelective contributions.
Sec. 307. Allow direct rollovers from retirement plans to Roth IRAs.
Sec. 308. Elimination of higher penalty on certain simple plan distributions.
Sec. 309. Simple plan portability.
Sec. 310. Eligibility for participation in retirement plans.
Sec. 311. Transfers to the PBGC.
Sec. 312. Missing participants.
TITLE IV—Administrative provisions
Sec. 401. Employee Plans Compliance Resolution System.
Sec. 402. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans.
Sec. 403. Notice and consent period regarding distributions.
Sec. 404. Reporting simplification.
Sec. 405. Voluntary early retirement incentive and employment retention plans maintained by local educational agencies and other entities.
Sec. 406. No reduction in unemployment compensation as a result of pension rollovers.
Sec. 407. Withholding on distributions from governmental Section
457 plans.Sec. 408. Provisions relating to plan amendments.
TITLE V—Provisions relating to spousal pension protection
Subtitle A—Study of spousal consent for distributions from defined contribution plans
Sec. 501. Joint study of application of spousal consent rules to defined contribution plans.
Subtitle B—Division Of pension benefits upon divorce
Sec. 511. Regulations on time and order of issuance of domestic relations orders.
Subtitle C—Railroad retirement
Sec. 521. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee.
Sec. 522. Extension of tier II railroad retirement benefits to surviving former spouses pursuant to divorce agreements.
Subtitle D—Modifications of joint and survivor annuity requirements
Sec. 531. Requirement for additional survivor annuity option.
TITLE VI—Tax Court pension and compensation
Sec. 600. Amendment of 1986 Code.
Sec. 601. Annuities for survivors of Tax Court judges who are assassinated.
Sec. 602. Cost-of-Living adjustments for Tax Court judicial survivor annuities.
Sec. 603. Life insurance coverage for Tax Court judges.
Sec. 604. Cost of life insurance coverage for Tax Court judges age 65 or over.
Sec. 605. Modification of timing of Lump-Sum Payment of judges’ accrued annual leave.
Sec. 606. Participation of Tax Court judges in the Thrift Savings Plan.
Sec. 607. Exemption of teaching compensation of retired judges from limitation on outside earned income.
Sec. 608. General provisions relating to Magistrate Judges of the Tax Court.
Sec. 609. Annuities to surviving spouses and dependent children of Magistrate Judges of the Tax Court.
Sec. 610. Retirement and annuity Program.
Sec. 611. Incumbent Magistrate Judges of the Tax Court.
Sec. 612. Provisions for recall.
Sec. 613. Effective date.
TITLE VII—Other provisions
Sec. 701. Transfer of excess pension assets to multiemployer health plan.
Sec. 702. Transfer of excess funds from black lung disability trusts to United Mine Workers of America Combined Benefit Fund.
Sec. 703. Treatment of death benefits from corporate-owned life insurance.
Provisions relating to investment of participants' accounts
Diversification of pension plan assets
Defined contribution plans required to provide employees with freedom to invest their plan assets
Amendments of Internal Revenue Code
Qualification requirement
Section 401(a) of the Internal Revenue Code of 1986 (relating to qualified pension, profit-sharing, and stock bonus plans) is amended by inserting after paragraph (34) the following new paragraph:
Diversification requirements for certain defined contribution plans
In general
A trust which is part of an applicable defined contribution plan shall not be treated as a qualified trust unless the plan meets the diversification requirements of subparagraphs (B), (C), and (D).
Employee contributions and elective deferrals invested in employer securities or real property
In the case of the portion of an applicable individual’s account attributable to employee contributions and elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this subparagraph if the applicable individual may elect to direct the plan to divest any such securities or real property and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
Employer contributions invested in employer securities or real property
In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this subparagraph if each applicable individual who—
is a participant who has completed at least 3 years of service, or
is a beneficiary of a participant described in clause (i) or of a deceased participant,
Investment options
In general
The requirements of this subparagraph are met if the plan offers not less than 3 investment options, other than employer securities or employer real property, to which an applicable individual may direct the proceeds from the divestment of employer securities or employer real property pursuant to this paragraph, each of which is diversified and has materially different risk and return characteristics.
Treatment of certain restrictions and conditions
Time for making investment choices
A plan shall not be treated as failing to meet the requirements of this subparagraph merely because the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly.
Certain restrictions and conditions not allowed
Except as provided in regulations, a plan shall not meet the requirements of this subparagraph if the plan imposes restrictions or conditions with respect to the investment of employer securities or employer real property which are not imposed on the investment of other assets of the plan. This subclause shall not apply to any restrictions or conditions imposed by reason of the application of securities laws.
Applicable defined contribution plan
For purposes of this paragraph—
In general
The term applicable defined contribution plan means any defined contribution plan which holds any publicly traded employer securities.
Exception for certain ESOPs
Such term does not include an employee stock ownership plan if—
there are no contributions to such plan (or earnings thereunder) which are held within such plan and are subject to subsection (k) or (m), and
such plan is a separate plan for purposes of section 414(l) with respect to any other defined benefit plan or defined contribution plan maintained by the same employer or employers.
Exception for one participant plans
Such term does not include a one-participant retirement plan.
One-participant retirement plan
For purposes of clause (iii), the term one-participant retirement plan means a retirement plan that—
on the first day of the plan year covered only one individual (or the individual and the individual’s spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or covered only one or more partners (or partners and their spouses) in the plan sponsor,
meets the minimum coverage requirements of section 410(b) without being combined with any other plan of the business that covers the employees of the business,
does not provide benefits to anyone except the individual (and the individual’s spouse) or the partners (and their spouses),
does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and
does not cover a business that uses the services of leased employees (within the meaning of section 414(n)).
partnerincludes a 2-percent shareholder (as defined in section 1372(b)) of an S corporation.
Certain plans treated as holding publicly traded employer securities
In general
Except as provided in regulations or in clause (ii), a plan holding employer securities which are not publicly traded employer securities shall be treated as holding publicly traded employer securities if any employer corporation, or any member of a controlled group of corporations which includes such employer corporation, has issued a class of stock which is a publicly traded employer security.
Exception for certain controlled groups with publicly traded securities
Clause (i) shall not apply to a plan if—
no employer corporation, or parent corporation of an employer corporation, has issued any publicly traded employer security, and
no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.
Definitions
For purposes of this subparagraph, the term—
controlled group of
corporations
has the meaning given such term by section 1563(a), except
that 50 percent
shall be substituted for 80
percent
each place it appears,
employer
corporation
means a corporation which is an employer maintaining the
plan, and
parent
corporation
has the meaning given such term by section 424(e).
Other definitions
For purposes of this paragraph—
Applicable individual
The term applicable individual means—
any participant in the plan, and
any beneficiary who has an account under the plan with respect to which the beneficiary is entitled to exercise the rights of a participant.
Elective deferral
The term elective deferral means an employer contribution described in section 402(g)(3)(A).
Employer security
The term employer security has the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974.
Employer real property
The term employer real property has the meaning given such term by section 407(d)(2) of the Employee Retirement Income Security Act of 1974.
Employee stock ownership plan
The term employee stock ownership plan has the meaning given such term by section 4975(e)(7).
Publicly traded employer securities
The term publicly traded employer securities means employer securities which are readily tradable on an established securities market.
Year of service
The term year of service has the meaning given such term by section 411(a)(5).
Transition rule for securities or real property attributable to employer contributions
Rules phased in over 3 years
In general
In the case of the portion of an account to which subparagraph (C) applies and which consists of employer securities or employer real property acquired in a plan year beginning before January 1, 2006, subparagraph (C) shall only apply to the applicable percentage of such securities or real property. This subparagraph shall be applied separately with respect to each class of securities and employer real property.
Exception for certain participants aged 55 or over
Subclause (I) shall not apply to an applicable individual who is a participant who has attained age 55 and completed at least 3 years of service before the first plan year beginning after December 31, 2005.
Applicable percentage
For purposes of clause (i), the applicable percentage shall be determined as follows:
| Plan year to which | The applicable |
| subparagraph (C) applies: | percentage is: |
| 1st | 33 |
| 2d | 66 |
| 3d and following | 100. |
.
Conforming amendments
Section 401(a)(28)(B) of such Code (relating to additional requirements relating to employee stock ownership plans) is amended by adding at the end the following new clause:
Exception
This subparagraph shall not apply to an applicable defined contribution plan (as defined in paragraph (35)(E)).
Section 409(h)(7) of such
Code is amended by inserting or subparagraph (B) or (C) of section
401(a)(35)
before the period at the end.
Section 4980(c)(3)(A) of such
Code is amended by striking if—
and all that follows and
inserting if the requirements of subparagraphs (B), (C), and (D) are
met.
Amendments of ERISA
Section 204 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:
Diversification requirements for certain individual account plans
In general
An applicable individual account plan shall meet the diversification requirements of paragraphs (2), (3), and (4).
Employee contributions and elective deferrals invested in employer securities or real property
In the case of the portion of an applicable individual’s account attributable to employee contributions and elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this paragraph if the applicable individual may elect to direct the plan to divest any such securities or real property and to reinvest an equivalent amount in other investment options meeting the requirements of paragraph (4).
Employer contributions invested in employer securities or real property
In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this paragraph if each applicable individual who—
is a participant who has completed at least 3 years of service, or
is a beneficiary of a participant described in subparagraph (A) or of a deceased participant,
Investment options
In general
The requirements of this paragraph are met if the plan offers not less than 3 investment options, other than employer securities or employer real property, to which an applicable individual may direct the proceeds from the divestment of employer securities or employer real property pursuant to this subsection, each of which is diversified and has materially different risk and return characteristics.
Treatment of certain restrictions and conditions
Time for making investment choices
A plan shall not be treated as failing to meet the requirements of this paragraph merely because the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly.
Certain restrictions and conditions not allowed
Except as provided in regulations, a plan shall not meet the requirements of this paragraph if the plan imposes restrictions or conditions with respect to the investment of employer securities or employer real property which are not imposed on the investment of other assets of the plan. This subparagraph shall not apply to any restrictions or conditions imposed by reason of the application of securities laws.
Applicable individual account plan
For purposes of this subsection—
In general
The term applicable individual account plan means any individual account plan (as defined in section 3(34)) which holds any publicly traded employer securities.
Exception for certain ESOPs
Such term does not include an employee stock ownership plan if—
there are no contributions to such plan (or earnings thereunder) which are held within such plan and are subject to subsection (k) or (m) of section 401 of the Internal Revenue Code of 1986, and
such plan is a separate plan (for purposes of section 414(l) of such Code) with respect to any other defined benefit plan or individual account plan maintained by the same employer or employers.
Exception for one participant plans
Such term shall not include a one-participant retirement plan (as defined in section 101(i)(8)(B)).
Certain plans treated as holding publicly traded employer securities
In general
Except as provided in regulations or in clause (ii), a plan holding employer securities which are not publicly traded employer securities shall be treated as holding publicly traded employer securities if any employer corporation, or any member of a controlled group of corporations which includes such employer corporation, has issued a class of stock which is a publicly traded employer security.
Exception for certain controlled groups with publicly traded securities
Clause (i) shall not apply to a plan if—
no employer corporation, or parent corporation of an employer corporation, has issued any publicly traded employer security, and
no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.
Definitions
For purposes of this subparagraph, the term—
controlled group of
corporations
has the meaning given such term by section 1563(a) of the
Internal Revenue Code of 1986, except that 50 percent
shall be
substituted for 80 percent
each place it appears,
employer
corporation
means a corporation which is an employer maintaining the
plan, and
parent
corporation
has the meaning given such term by section 424(e) of such
Code.
Other definitions
For purposes of this paragraph—
Applicable individual
The term applicable individual means—
any participant in the plan, and
any beneficiary who has an account under the plan with respect to which the beneficiary is entitled to exercise the rights of a participant.
Elective deferral
The term elective deferral means an employer contribution described in section 402(g)(3)(A) of the Internal Revenue Code of 1986.
Employer security
The term employer security has the meaning given such term by section 407(d)(1).
Employer real property
The term employer real property has the meaning given such term by section 407(d)(2).
Employee stock ownership plan
The term employee stock ownership plan has the meaning given such term by section 4975(e)(7) of such Code.
Publicly traded employer securities
The term publicly traded employer securities means employer securities which are readily tradable on an established securities market.
Year of service
The term year of service has the meaning given such term by section 203(b)(2).
Transition rule for securities or real property attributable to employer contributions
Rules phased in over 3 years
In general
In the case of the portion of an account to which paragraph (3) applies and which consists of employer securities or employer real property acquired in a plan year beginning before January 1, 2006, paragraph (3) shall only apply to the applicable percentage of such securities or real property. This subparagraph shall be applied separately with respect to each class of securities and employer real property.
Exception for certain participants aged 55 or over
Clause (i) shall not apply to an applicable individual who is a participant who has attained age 55 and completed at least 3 years of service before the first plan year beginning after December 31, 2005.
Applicable percentage
For purposes of subparagraph (A), the applicable percentage shall be determined as follows:
| Plan year to which | The applicable |
| paragraph (3) applies: | percentage is: |
| 1st | 33 |
| 2d | 66 |
| 3d and following | 100. |
.
Effective dates
In general
Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to plan years beginning after December 31, 2005.
Special rule for collectively bargained agreements
In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements between
employee representatives and 1 or more employers ratified on or before the date
of the enactment of this Act, paragraph (1) shall be applied to benefits
pursuant to, and individuals covered by, any such agreement by substituting for
December 31, 2005
the earlier of—
the later of—
December 31, 2006, or
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or
December 31, 2007.
Special rule for certain employer securities held in an esop
In general
In the case of employer securities to which this paragraph applies, the amendments made by this section shall apply to plan years beginning after the earlier of—
December 31, 2006, or
the first date on which the fair market value of such securities exceeds the guaranteed minimum value described in subparagraph (B)(ii).
Applicable securities
This paragraph shall apply to employer securities which are attributable to employer contributions other than elective deferrals, and which, on September 17, 2003—
consist of preferred stock, and
are within an employee stock ownership plan (as defined in section 4975(e)(7) of the Internal Revenue Code of 1986), the terms of which provide that the value of the securities cannot be less than the guaranteed minimum value specified by the plan on such date.
Coordination with transition rule
In applying section 401(a)(35)(H) of the Internal Revenue Code of 1986 and section 204(j)(7) of the Employee Retirement Income Security Act of 1974 (as added by this section) to employer securities to which this paragraph applies, the applicable percentage shall be determined without regard to this paragraph.
Notice of freedom to divest employer securities or real property
Amendments of Internal Revenue Code
Excise tax
Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:
Failure of certain defined contribution plans to provide notice of freedom to divest employer securities
Imposition of tax
There is hereby imposed a tax on the failure of a defined contribution plan to meet the requirements of subsection (e) with respect to any participant or beneficiary.
Amount of tax
In general
The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $100 for each day in the noncompliance period with respect to the failure.
Noncompliance period
For purposes of this section, the term noncompliance period means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the notice to which the failure relates is provided or the failure is otherwise corrected.
Limitations on amount of tax
Tax not to apply where failure not discovered and reasonable diligence exercised
No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that any person subject to liability for tax under subsection (d) did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (e).
Tax not to apply to failures corrected within 30 days
No tax shall be imposed by subsection (a) on any failure if—
any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and
such person provides the notice described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence should have known, that such failure existed.
Overall limitation for unintentional failures
In general
If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.
Taxable years in the case of certain controlled groups
For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.
Liability for tax
The following shall be liable for the tax imposed by subsection (a):
In the case of a plan not described in paragraph (2), the employer.
In the case of a multiemployer plan, the plan.
Notice of right to divest
Not later than 30 days before the first date on which an applicable individual of an applicable defined contribution plan is eligible to exercise the right under section 401(a)(35) to direct the proceeds from the divestment of employer securities or employer real property with respect to any type of contribution, the plan administrator shall provide to such individual a notice—
setting forth such right under such section, and
describing the importance of diversifying the investment of retirement account assets.
Definitions
Any term used in this section which is also used in section 401(a)(35) shall have the meaning given such term by section 401(a)(35).
Aggregation
Section 414(t) of such Code
is amended by striking or 4980B
and inserting 4980B, or
4980H
.
Clerical amendment
The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:
Sec. 4980H. Failure of certain defined contribution plans to provide notice of freedom to divest employer securities.
.
Amendments of ERISA
In general
Section 104 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection:
Notice of right to divest
Not later than 30 days before the first date on which an applicable individual of an applicable individual account plan is eligible to exercise the right under section 204(j) to direct the proceeds from the divestment of employer securities or employer real property with respect to any type of contribution, the administrator shall provide to such individual a notice—
setting forth such right under such section, and
describing the importance of diversifying the investment of retirement account assets.
Penalties
Section
502(c)(7) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1132(c)(7)) is amended by inserting or section
104(d)
after section 101(i)
.
Model notice
The Secretary of Labor shall, within 180 days after the date of the enactment of this subsection, prescribe a model notice for purposes of satisfying the requirements of the amendments made by this section.
Effective dates
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2005.
Transition rule
If notice under section 4980H(e) of the Internal Revenue Code of 1986 or section 104(d) of the Employee Retirement Income Security Act of 1974 (as added by this section) would otherwise be required to be provided before the 90th day after the date of the enactment of this Act, such notice shall not be required to be provided until such 90th day.
Information to assist pension plan participants
Periodic pension benefit statements
Amendments of Internal Revenue Code
Excise tax
Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans), as amended by this Act, is amended by adding at the end the following new section:
Failure of certain pension plans to provide required information
Imposition of tax
There is hereby imposed a tax on the failure of an applicable pension plan to meet the requirements of subsection (e) with respect to any participant or beneficiary.
Amount of tax
In general
The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $100 for each day in the noncompliance period with respect to the failure.
Noncompliance period
For purposes of this section, the term noncompliance period means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the statement to which the failure relates is provided or the failure is otherwise corrected.
Limitations on amount of tax
Tax not to apply where failure not discovered and reasonable diligence exercised
No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that any person subject to liability for tax under subsection (d) did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (e).
Tax not to apply to failures corrected within 30 days
No tax shall be imposed by subsection (a) on any failure if—
any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and
such person provides the statement described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence should have known, that such failure existed.
Overall limitation for unintentional failures
In general
If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.
Taxable years in the case of certain controlled groups
For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.
Liability for tax
The following shall be liable for the tax imposed by subsection (a):
In the case of a plan not described in paragraph (2) or (3), the employer.
In the case of a multiemployer plan, the plan.
In the case of an arrangement described in subsection (e)(4), the person required to provide the statement under subsection (e).
Requirements to provide pension benefit statements
Requirements
Defined contribution plan
The administrator of an applicable pension plan which is a defined contribution plan shall furnish a pension benefit statement described in paragraph (2)—
at least once each calendar quarter to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the plan,
at least once each calendar year to a participant or beneficiary who has his or her own account under the plan but who does not have the right to direct the investment of assets in that account, and
upon written request to a plan beneficiary who is not a participant or beneficiary described in clause (i) or (ii), except that this subparagraph shall apply to only 1 request during any 12-month period.
Defined benefit plan
The administrator of an applicable pension plan which is a defined benefit plan shall furnish a pension benefit statement described in paragraph (2)—
at least once every 3 years to each participant who has a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is to be furnished, and
to a participant or beneficiary of the plan upon written request, except that this clause shall apply to only 1 request during any 12-month period.
Statements
In general
A pension benefit statement furnished under paragraph (1)—
shall indicate, on the basis of the latest available information—
the total benefits accrued, and
the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable,
shall include an explanation of any permitted disparity under section 401(l) or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i),
shall be written in a manner calculated to be understood by the average plan participant, and
may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary.
Additional information
In the case of a defined contribution plan, any pension benefit statement under clause (i) or (ii) of paragraph (1)(A) shall include—
the value of each investment to which assets in the individual account have been allocated, determined as of the most recent valuation date under the plan, including the value of any assets held in the form of employer securities or employer real property, without regard to whether such securities or real property were contributed by the plan sponsor or acquired at the direction of the plan or of the participant or beneficiary, and
in the case of a pension benefit statement under paragraph (1)(A)(i)—
an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment, and
a notice that investments in any individual account may not be adequately diversified if the value of any investment in the account exceeds 20 percent of the fair market value of all investments in the account.
Alternative notice
The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary of Labor, the plan—
updates the information described in such paragraph which is provided in the pension benefit statement, or
provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits.
Defined benefit plans
Alternative notice
In the case of a defined benefit plan, the requirements of paragraph (1)(B)(i) shall be treated as met with respect to a participant if at least once each year the administrator provides to the participant notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. Such notice may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant.
Years in which no benefits accrue
The Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b)) under the plan need not be taken into account in determining the 3-year period under paragraph (1)(B)(i).
Special rule for certain annuities
In the case of an annuity contract or custodial account described in section 403(b) which is not a plan established or maintained by the employer, the pension benefit statement under this subsection shall be furnished by the issuer of the contract, the custodian of the account, or such other person as is specified by the Secretary.
Definitions and special rules
For purposes of this section—
Applicable pension plan
The term applicable pension plan means a plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A) other than a one-participant retirement plan (as defined in section 401(a)(35)(E)(iv)).
Exception for government and church plans
This section shall not apply to any governmental or church plan. For purposes of this paragraph, the terms governmental plan and church plan have the meanings given such terms by section 414.
Aggregation
Section 414(t) of such Code,
as amended by this Act, is amended by striking or 4980H
and
inserting 4980H, or 4980I
.
Clerical amendment
The table of sections for chapter 43 of such Code, as amended by this Act, is amended by adding at the end the following new item:
Sec. 4980I. Failure of certain pension plans to provide required information.
.
Amendments of ERISA
In general
Section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended to read as follows:
Requirements to provide pension benefit statements
Requirements
Individual account plan
The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement—
at least once each calendar quarter to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the plan,
at least once each calendar year to a participant or beneficiary who has his or her own account under the plan but does not have the right to direct the investment of assets in that account, and
upon written request to a plan beneficiary not described in clause (i) or (ii).
Defined benefit plan
The administrator of a defined benefit plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement—
at least once every 3 years to each participant with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is to be furnished, and
to a participant or beneficiary of the plan upon written request.
Statements
In general
A pension benefit statement under paragraph (1)—
shall indicate, on the basis of the latest available information—
the total benefits accrued, and
the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable,
shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986 or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i),
shall be written in a manner calculated to be understood by the average plan participant, and
may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary.
Additional information
In the case of an individual account plan, any pension benefit statement under clause (i) or (ii) of paragraph (1)(A) shall include—
the value of each investment to which assets in the individual account have been allocated, determined as of the most recent valuation date under the plan, including the value of any assets held in the form of employer securities or employer real property, without regard to whether such securities or real property were contributed by the plan sponsor or acquired at the direction of the plan or of the participant or beneficiary, and
in the case of a pension benefit statement under paragraph (1)(A)(i)—
an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment, and
a notice that investments in any individual account may not be adequately diversified if the value of any investment in the account exceeds 20 percent of the fair market value of all investments in the account.
Alternative notice
The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan—
updates the information described in such paragraph which is provided in the pension benefit statement, or
provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits.
Defined benefit plans
Alternative notice
In the case of a defined benefit plan, the requirements of paragraph (1)(B)(i) shall be treated as met with respect to a participant if at least once each year the administrator provides to the participant notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. Such notice may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant.
Years in which no benefits accrue
The Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b) of the Internal Revenue Code of 1986) under the plan need not be taken into account in determining the 3-year period under paragraph (1)(B)(i).
Conforming amendments
Section 105 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025) is amended by striking subsection (d).
Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended to read as follows:
Limitation on number of statements
In no case shall a participant or beneficiary of a plan be entitled to more than 1 statement described in subparagraph (A)(iii) or (B)(ii) of subsection (a)(1), whichever is applicable, in any 12-month period.
Section 502(c)(1) of such Act
(29 U.S.C.
1132(c)(1)) is amended by striking or section
101(f)
and inserting section 101(f), or section
105(a)
.
Model statements
The Secretary of Labor shall, within 180 days after the date of the enactment of this section, develop 1 or more model benefit statements that are written in a manner calculated to be understood by the average plan participant and that may be used by plan administrators in complying with the requirements of section 4980I of the Internal Revenue Code of 1986 and section 105 of the Employee Retirement Income Security Act of 1974.
Effective date
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2006.
Special rule for collectively bargained agreements
In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements between
employee representatives and 1 or more employers ratified on or before the date
of the enactment of this Act, paragraph (1) shall be applied to benefits
pursuant to, and individuals covered by, any such agreement by substituting for
December 31, 2006
the earlier of—
the later of—
December 31, 2007, or
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or
December 31, 2008.
Defined contribution plans required to provide adequate investment education to participants
Excise tax on failure of certain defined contribution plans to provide adequate investment information
In general
Section 4980I(e)(1)(A) of the Internal Revenue Code of 1986, as added by section 111, is amended by adding at the end the following new flush sentence:
In addition to the pension benefit statement, the administrator shall furnish at least once each year to each participant or beneficiary who has the right to direct the investment of assets in his or her account the model form relating to basic investment guidelines as provided in paragraph (5).
Basic investment guidelines
Section 4980I(e) of such Code, as so added, is amended by adding at the end the following new paragraph:
Basic investment guidelines
In general
The Secretary shall, in consultation with the Secretary of Labor, develop and make available to defined contribution plans for distribution under paragraph (1)(A) a model form containing basic guidelines for investing for retirement. Except as otherwise provided by the Secretary, such guidelines shall include—
information on the benefits of diversification,
information on the essential differences, in terms of risk and return, of pension plan investments, including stocks, bonds, mutual funds, and money market investments,
information on how an individual’s pension plan investment allocations may differ depending on the individual’s age and years to retirement and on other factors determined by the Secretary,
sources of information where individuals may learn more about pension rights, individual investing, and investment advice, and
such other information related to individual investing as the Secretary determines appropriate.
Calculation information
The model form under subparagraph (A) shall include addresses for Internet sites, and a worksheet, which a participant or beneficiary may use to calculate—
the retirement age value of the participant’s or beneficiary’s nonforfeitable pension benefits under the plan (expressed as an annuity amount and determined by reference to varied historical annual rates of return and annuity interest rates), and
other important amounts relating to retirement savings, including the amount which a participant or beneficiary would be required to save annually to provide a retirement income equal to various percentages of their current salary (adjusted for expected growth prior to retirement).
Public comment
The Secretary shall provide at least 90 days for public comment before publishing final notice of the model form.
Rules relating to form and statement
The model form under subparagraph (A)—
shall be written in a manner calculated to be understood by the average plan participant, and
may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to participants and beneficiaries.
Conforming amendments
Section 4980I of such Code is amended—
by adding at the end of subsection (c)(3) the following new subparagraph:
Separate application
This paragraph shall be applied separately to failures to meet the requirements of subsection (e)(1)(A) to provide pension benefit statements and failures to meet the requirements of subsection (e)(1)(A) to provide model forms containing basic investment guidelines.
;
by inserting or model
form
after statement
in subsection (d)(3); and
by inserting or model
form containing basic investment guidelines
after
statement
in subsection (e)(4).
Adequate investment education
In general
Section 104 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024), as amended by section 102, is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
Basic investment guidelines
In general
The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish at least once each year to each participant or beneficiary who has the right to direct the investment of assets in his or her account the model form relating to basic investment guidelines which is described in paragraph (2).
Model form
In general
The Secretary of the Treasury, in consultation with the Secretary, shall develop and make available to individual account plans for distribution under paragraph (1) a model form containing basic guidelines for investing for retirement. Except as otherwise provided by the Secretary of the Treasury, such guidelines shall include—
information on the benefits of diversification,
information on the essential differences, in terms of risk and return, of pension plan investments, including stocks, bonds, mutual funds, and money market investments,
information on how an individual’s pension plan investment allocations may differ depending on the individual’s age and years to retirement and on other factors determined by the Secretary of the Treasury,
sources of information where individuals may learn more about pension rights, individual investing, and investment advice, and
such other information related to individual investing as the Secretary of the Treasury determines appropriate.
Calculation information
The model form under subparagraph (A) shall include addresses for Internet sites, and a worksheet, which a participant or beneficiary may use to calculate—
the retirement age value of the participant’s or beneficiary’s nonforfeitable pension benefits under the plan (expressed as an annuity amount and determined by reference to varied historical annual rates of return and annuity interest rates), and
other important amounts relating to retirement savings, including the amount which a participant or beneficiary would be required to save annually to provide a retirement income equal to various percentages of their current salary (adjusted for expected growth prior to retirement).
Rules relating to form and statement
The model form under paragraph (2)—
shall be written in a manner calculated to be understood by the average plan participant, and
may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to participants and beneficiaries.
Enforcement
Section 502(c)(7) of such Act
(29 U.S.C.
1132(c)(7)), as amended by section 102, is amended by striking
section 104(d)
and inserting subsection (d) or (e) of
section 104
.
Effective date
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2006.
Special rule for collectively bargained agreements
In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements between
employee representatives and 1 or more employers ratified on or before the date
of the enactment of this Act, paragraph (1) shall be applied to benefits
pursuant to, and individuals covered by, any such agreement by substituting for
December 31, 2006
the earlier of—
the later of—
December 31, 2007, or
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or
December 31, 2008.
Material information relating to investment in employer securities
Amendments of Internal Revenue Code
In general
Section 4980H(e) of the Internal Revenue Code of 1986, as added by section 102, is amended—
by striking (e)
Notice of Right To
Divest.—Not
and inserting:
Notice requirements
Notice of right to divest
Not
,
by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B) and adjusting all margins accordingly, and
by adding at the end the following new paragraph:
Material information
In general
The administrator of a defined contribution plan (other than a one-participant retirement plan) shall provide to each participant and beneficiary who has the right to direct the investment of assets in his or her account in employer securities with all reports, proxy statements, and other communications regarding investment of such assets in employer securities to the extent that such reports, statements, and communications are required to be provided by the plan sponsor to investors in connection with such an investment under applicable securities laws. Such reports, statements, and communications may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to participants and beneficiaries.
Plan sponsor
If any information required to be provided under paragraph (1) is maintained by the plan sponsor, the plan sponsor shall transmit such information to the plan administrator.
Conforming amendments
Section 4980H(c)(3) of such Code, as so added, is amended by adding at the end the following new subparagraph:
Separate application
This paragraph shall be applied separately for failures to meet the requirements of subsection (e)(1) and failures to meet the requirements of subsection (e)(2).
The heading for section 4980H
of such Code, as so added, is amended by striking notice of freedom to divest employer
securities
and inserting information regarding investment in employer
securities
.
The item relating to section
4980H in the table of sections for chapter 43 of such Code, as so added, is
amended by striking notice of freedom to divest employer
securities
and inserting information regarding investment in
employer securities
.
Amendments of ERISA
In general
Section 104 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024) as amended by sections 102 and 112, is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
Providing of material information
In general
The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall provide to each participant and beneficiary who has the right to direct the investment of assets in his or her account in employer securities with all reports, proxy statements, and other communications regarding investment of such assets in employer securities to the extent that such reports, statements, and communications are required to be provided by the plan sponsor to investors in connection with such an investment under applicable securities laws. Such reports, statements, and communications may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to participants and beneficiaries.
Plan sponsor
If any information required to be provided under paragraph (1) is maintained by the plan sponsor, the plan sponsor shall transmit such information to the plan administrator.
Enforcement
Section 502 of such Act (29 U.S.C. 1132) is amended—
in subsection (a)(6), by
striking (6), or (7)
and inserting (6), (7), or
(8)
;
by redesignating paragraph (8) of subsection (c) as paragraph (9); and
by inserting after paragraph (7) of subsection (c) the following new paragraph:
The Secretary may assess a civil penalty against any person of up to $1,000 a day from the date of the person’s failure or refusal to comply with the requirements of section 104(f) until such failure or refusal is corrected.
Effective date
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2005.
Special rule for collectively bargained agreements
In the case of a plan
maintained pursuant to 1 or more collective bargaining agreements between
employee representatives and 1 or more employers ratified on or before the date
of the enactment of this Act, paragraph (1) shall be applied to benefits
pursuant to, and individuals covered by, any such agreement by substituting for
December 31, 2005
the earlier of—
the later of—
December 31, 2006, or
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or
December 31, 2007.
Fiduciary rules for plan sponsors designating independent investment advisers
In general
Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end the following new subsection:
Independent investment adviser
In general
In the case of an individual account plan which permits a plan participant or beneficiary to direct the investment of the assets in his or her account, if a plan sponsor or other person who is a fiduciary designates and monitors a qualified investment adviser pursuant to the requirements of paragraph (3), such fiduciary—
shall be deemed to have satisfied the requirements under this section for the prudent designation and periodic review of an investment adviser with whom the plan sponsor or other person who is a fiduciary enters into an arrangement for the provision of advice referred to in section 3(21)(A)(ii),
shall not be liable under this section for any loss, or by reason of any breach, with respect to the provision of investment advice given by such adviser to any plan participant or beneficiary, and
shall not be liable for any co-fiduciary liability under subsections (a)(2) and (b) of section 405 with respect to the provision of investment advice given by such adviser to any plan participant or beneficiary.
Qualified investment adviser
In general
For purposes of this subsection, the term qualified investment adviser means, with respect to a plan, a person—
who is a fiduciary of the plan by reason of the provision of investment advice by such person to a plan participant or beneficiary;
who—
is registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.),
is registered as an investment adviser under the laws of the State in which such adviser maintains the principal office and place of business of such adviser, but only if such State laws are consistent with section 203A of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3a),
is a bank or similar financial institution referred to in section 408(b)(4),
is an insurance company qualified to do business under the laws of a State, or
is any other comparably qualified entity which satisfies such criteria as the Secretary determines appropriate, consistent with the purposes of this subsection, and
who meets the requirements of subparagraph (B).
Adviser requirements
The requirements of this subparagraph are met if every individual employed (or otherwise compensated) by a person described in subparagraph (A)(ii) who provides investment advice on behalf of such person to any plan participant or beneficiary is—
an individual described in subclause (I) of subparagraph (A)(ii),
an individual described in subclause (II) of subparagraph (A)(ii), but only if such State has an examination requirement to qualify for registration,
registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
a registered representative as described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(17)), or
any other comparably qualified individual who satisfies such criteria as the Secretary determines appropriate, consistent with the purposes of this subsection.
Verification requirements
The requirements of this paragraph are met if—
the plan sponsor or other person who is a fiduciary in designating a qualified investment adviser receives at the time of the designation, and annually thereafter, a written verification from the qualified investment adviser that the investment adviser—
is and remains a qualified investment adviser,
acknowledges that the investment adviser is a fiduciary with respect to the plan and is solely responsible for its investment advice,
has reviewed the plan documents (including investment options) and has determined that its relationship with the plan and the investment advice provided to any plan participant or beneficiary, including any fees or other compensation it will receive, will not constitute a violation of section 406,
will, in providing investment advice to any participant or beneficiary, consider any employer securities or employer real property allocated to his or her account, and
has the necessary insurance coverage (as determined by the Secretary) for any claim by any plan participant or beneficiary,
the plan sponsor or other person who is a fiduciary in designating a qualified investment adviser reviews the documents described in paragraph (4) provided by such adviser and determines that there is no material reason not to enter into an arrangement for the provision of advice by such qualified investment adviser, and
the plan sponsor or other person who is a fiduciary in designating a qualified investment adviser, within 30 days of having information brought to its attention that the investment adviser is no longer qualified or that a substantial number of plan participants or beneficiaries have raised concerns about the services being provided by the investment adviser—
investigates such information and concerns, and
determines that there is no material reason not to continue the designation of the adviser as a qualified investment adviser.
Documentation
A qualified investment adviser shall provide the following documents to the plan sponsor or other person who is a fiduciary in designating the adviser:
The contract with the plan sponsor or other person who is a fiduciary for the services to be provided by the investment adviser to the plan participants and beneficiaries.
A disclosure as to any fees or other compensation that will be received by the investment adviser for the provision of such investment advice and as to any fees and other compensation that will be received as a result of a participant’s investment election.
The Uniform Application for Investment Adviser Registration as filed with the Securities and Exchange Commission or a substantially similar disclosure application as determined by and filed with the Secretary.
Treatment as fiduciary
Any qualified investment adviser that acknowledges it is a fiduciary pursuant to paragraph (3)(A)(ii) shall be deemed a fiduciary under this part with respect to the provision of investment advice to a plan participant or beneficiary.
Fiduciary liability
Section 404(c)(1)(B) of such
Act is amended by inserting (other than a qualified investment
adviser)
after fiduciary
.
Effective date
The amendments made by this section shall apply with respect to investment advisers designated after the date of the enactment of this Act.
Treatment of qualified retirement planning services
In general
Subsection (m) of section 132 of the Internal Revenue Code of 1986 (defining qualified retirement services) is amended by adding at the end the following new paragraph:
No constructive receipt
In general
No amount shall be included in the gross income of any employee solely because the employee may choose between any qualified retirement planning services provided by an eligible investment advisor and compensation which would otherwise be includible in the gross income of such employee. The preceding sentence shall apply to highly compensated employees only if the choice described in such sentence is available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer’s qualified employer plan.
Limitation
The maximum amount which may be excluded under subparagraph (A) with respect to any employee for any taxable year shall not exceed $1,000.
Eligible investment adviser
For purposes of this paragraph, the term eligible investment adviser means, with respect to a plan, a person—
who—
is registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.),
is registered as an investment adviser under the laws of the State in which such adviser maintains the principal office and place of business of such adviser, but only if such State laws are consistent with section 203A of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3a),
is a bank or similar financial institution referred to in section 408(b)(4),
is an insurance company qualified to do business under the laws of a State, or
is any other comparably qualified entity which satisfies such criteria as the Secretary determines appropriate, consistent with the purposes of this subsection, and
who meets the requirements of subparagraph (D).
Adviser requirements
The requirements of this subparagraph are met if every individual employed (or otherwise compensated) by a person described in subparagraph (C)(i) who provides investment advice on behalf of such person to any plan participant or beneficiary is—
an individual described in subclause (I) of subparagraph (C)(i),
an individual described in subclause (II) of subparagraph (C)(i), but only if such State has an examination requirement to qualify for registration,
registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
a registered representative as described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or section 202(a)(17) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(17)), or
any other comparably qualified individual who satisfies such criteria as the Secretary determines appropriate, consistent with the purposes of this paragraph.
Termination
This paragraph shall not apply to taxable years beginning after December 31, 2010.
Conforming amendments
Section 403(b)(3)(B) of such
Code is amended by inserting 132(m)(4),
after
132(f)(4),
.
Section 414(s)(2) of such
Code is amended by inserting 132(m)(4),
after
132(f)(4),
.
Section 415(c)(3)(D)(ii) of
such Code is amended by inserting 132(m)(4),
after
132(f)(4),
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2005.
Protection of pension plan participants
Notice to participants or beneficiaries of blackout periods
Amendments of Internal Revenue Code
Excise tax
In general
Chapter 43 of the Internal Revenue Code of 1986 (relating to qualified pension, etc., plans), as amended by this Act, is amended by adding at the end the following new section:
Failure of certain defined contribution plans to provide notice of blackout periods
Imposition of tax
There is hereby imposed a tax on the failure of any defined contribution plan to which this section applies to meet the requirements of subsection (e) with respect to any participant or beneficiary.
Amount of tax
In general
The amount of the tax imposed by subsection (a) on any failure with respect to any participant or beneficiary shall be $100 for each day in the noncompliance period with respect to the failure.
Noncompliance period
For purposes of this section, the term noncompliance period means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the notice to which the failure relates is provided or the failure is otherwise corrected.
Limitations on amount of tax
Tax not to apply where failure not discovered and reasonable diligence exercised
No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that any person subject to liability for tax under subsection (d) did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (e).
Tax not to apply to failures corrected as soon as reasonably practicable
No tax shall be imposed by subsection (a) on any failure if—
any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and
such person provides the notice described in subsection (e) as soon as reasonably practicable after the first date such person knew, or exercising reasonable diligence should have known, that such failure existed.
Overall limitation for unintentional failures
In general
If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.
Taxable years in the case of certain controlled groups
For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
Waiver by Secretary
In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.
Liability for tax
The following shall be liable for the tax imposed by subsection (a):
In the case of a plan not described in paragraph (2) or (3), the employer.
In the case of a multiemployer plan, the plan.
In the case of an arrangement described in subsection (e)(1)(B), the person required to provide the notice under subsection (e).
Notice of blackout periods to participant or beneficiary under defined contribution plan
In general
Duties of plan administrator
In advance of the commencement of any blackout period with respect to a defined contribution plan, the plan administrator shall notify the plan participants and beneficiaries who are affected by such action in accordance with this subsection.
Special rule for certain annuities
In the case of an annuity contract or custodial account described in section 403(b) which is not a plan established or maintained by the employer, the notice shall be furnished by the issuer of the contract, the custodian of the account, or such other person as is specified by the Secretary.
Notice requirements
In general
The notices described in paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall include—
the reasons for the blackout period,
an identification of the investments and other rights affected,
the expected beginning date and length of the blackout period,
in the case of investments affected, a statement that the participant or beneficiary should evaluate the appropriateness of their current investment decisions in light of their inability to direct or diversify assets credited to their accounts during the blackout period, and
such other matters as the Secretary of Labor may require by regulation.
Notice to participants and beneficiaries
Except as otherwise provided in this subsection, notices described in paragraph (1) shall be furnished to all participants and beneficiaries under the plan to whom the blackout period applies at least 30 days in advance of the blackout period.
Exception to 30-day notice requirement
In any case in which—
a deferral of the blackout period would violate the requirements of subparagraph (A) or (B) of section 404(a)(1) of the Employee Retirement Income Security Act of 1974, and a fiduciary of the plan reasonably so determines in writing, or
the inability to provide the 30-day advance notice is due to events that were unforeseeable or circumstances beyond the reasonable control of the plan administrator, and a fiduciary of the plan reasonably so determines in writing,
Written notice
The notice required to be provided under this subsection shall be in writing, except that such notice may be in electronic or other form to the extent that such form is reasonably accessible to the recipient.
Notice to issuers of employer securities subject to blackout period
In the case of any blackout period in connection with a defined contribution plan, the plan administrator shall provide timely notice of such blackout period to the issuer of any employer securities subject to such blackout period.
Exception for blackout periods with limited applicability
In any case in which the blackout period applies only to 1 or more participants or beneficiaries in connection with a merger, acquisition, divestiture, or similar transaction involving the plan or plan sponsor and occurs solely in connection with becoming or ceasing to be a participant or beneficiary under the plan by reason of such merger, acquisition, divestiture, or transaction, the requirement of this subsection that the notice be provided to all participants and beneficiaries shall be treated as met if the notice required under paragraph (1) is provided to such participants or beneficiaries to whom the blackout period applies as soon as reasonably practicable.
Changes in length of blackout period
If, following the furnishing of the notice pursuant to this subsection, there is a change in the beginning date or length of the blackout period (specified in such notice pursuant to paragraph (2)(A)(iii)), the administrator shall provide affected participants and beneficiaries notice of the change as soon as reasonably practicable. In relation to the extended blackout period, such notice shall meet the requirements of paragraph (2)(D) and shall specify any material change in the matters referred to in clauses (i) through (v) of paragraph (2)(A).
Regulatory exceptions
The Secretary of Labor may provide by regulation for additional exceptions to the requirements of this subsection which the Secretary of Labor determines are in the interests of participants and beneficiaries.
Guidance and model notices
The Secretary of Labor shall issue guidance and model notices which meet the requirements of this subsection.
Blackout period
For purposes of this subsection—
In general
The term blackout period means, in connection with a defined contribution plan, any period for which any ability of participants or beneficiaries under the plan, which is otherwise available under such plan, to direct or diversify assets credited to their accounts, to obtain loans from the plan, or to obtain distributions from the plan is temporarily suspended, limited, or restricted, if such suspension, limitation, or restriction is for any period of more than 3 consecutive business days.
Exclusions
The term blackout period does not include a suspension, limitation, or restriction—
which occurs by reason of the application of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934),
which is a change to the plan which provides for a regularly scheduled suspension, limitation, or restriction which is disclosed to participants or beneficiaries through any summary of material modifications, any materials describing specific investment alternatives under the plan, or any changes thereto, or
which applies only to 1 or more individuals, each of whom is the participant, an alternate payee (as defined in section 414(p)(8)), or any other beneficiary pursuant to a qualified domestic relations order (as defined in section 414(p)(1)(A)).
Defined contribution plan to which Section applies
In general
Except as provided in this paragraph, this section applies to any defined contribution plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A).
Exception for one-participant retirement plan
This section shall not apply to a one-participant retirement plan (as defined in section 401(a)(35)(E)(iv)).
Exception for governmental and church plans
This section shall not apply to governmental and church plans. For purposes of this subparagraph, the terms governmental plan and church plan have the meanings given such terms by section 414.
Aggregation
Section 414(t) of such Code,
as amended by this Act, is amended by striking or 4980I
and
inserting 4980I, or 4980J
.
Clerical amendment
The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:
Sec. 4980J. Failure of applicable defined contribution plan to provide notice of blackout periods.
.
Effective date
The amendments made by this subsection shall apply to failures after the date of the enactment of this Act.
Amendments of ERISA
In general
Section 101(i) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021(i)) is amended—
by striking the terms
of
in paragraph (7)(A),
by striking clause (i) of paragraph (8)(B) and inserting:
on the first day of the plan year—
covered only one individual (or the individual and the individual’s spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or
covered only one or more partners (or partners and their spouses) in the plan sponsor,
,
by striking
employer
and employer’s
in paragraph (8)(B)(iii)
and inserting individual
and individual’s
,
respectively,
by striking leases
employees
in paragraph (8)(B)(v) and inserting uses the services
of leased employees (within the meaning of section 414(n) of the Internal
Revenue Code of 1986)
, and
by adding at the end of paragraph (8)(B) the following flush sentence:
For purposes of this paragraph, an individual shall be treated as a partner if the individual is so treated under section 401(a)(35)(E)(iv) of the Internal Revenue Code of 1986.
Effective date
The amendments made by this subsection shall take effect as if included in the provisions of section 306 of Public Law 107–204 (116 Stat. 745 et seq.).
Allowance of catchup payments
In general
Section 219(b)(5) of the Internal Revenue Code of 1986 (relating to deductible amount) is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph:
Catchup contributions for certain individuals
In general
In the case of an eligible individual who elects to make a qualified retirement contribution in addition to the deductible amount determined under subparagraph (A)—
the deductible amount for any taxable year shall be increased by an amount equal to 3 times the applicable amount determined under subparagraph (B) for such taxable year, and
subparagraph (B) shall not apply.
Eligible individual
For purposes of this subparagraph, the term eligible individual means, with respect to any taxable year, any individual who was a qualified participant in a qualified cash or deferred arrangement (as defined in section 401(k)) of an employer described in clause (ii) under which the employer matched at least 50 percent of the employee’s contributions to such arrangement with stock of such employer.
Employer described
An employer is described in this clause if, in any taxable year preceding the taxable year described in clause (ii)—
such employer (or any controlling corporation of such employer) was a debtor in a case under title 11 of the United States Code, or similar Federal or State law, and
such employer (or any other person) was subject to an indictment or conviction resulting from business transactions related to such case.
Qualified participant
For purposes of clause (ii), the term qualified participant means any eligible individual who was a participant in the cash or deferred arrangement described in clause (i) on the date that is 6 months before the filing of the case described in clause (iii).
Termination
This subparagraph shall not apply to taxable years beginning after December 31, 2009.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2004.
Provisions relating to funding, deductions, and the Pension Benefit Guaranty Corporation
Replacement of interest rate on 30-Year Treasury securities
Replacement of 30-Year Treasury rate for purposes of funding and PBGC premium rates
Amendments of Internal Revenue Code
In general
Section 412(b)(5)(B) of the Internal Revenue Code of 1986 is amended to read as follows:
Determination of current liability
Notwithstanding subsection (c)(3), a plan’s current liability (including for purposes of determining a plan’s required contribution under subsection (l)) for any plan year shall be determined—
in the case of plan years beginning in 2006, by using an interest rate determined in accordance with the rules prescribed under subsection (o)(1),
in the case of plan years beginning in 2007, 2008, 2009, or 2010, by using the phase-in yield curve method (as defined in subsection (o)(3)), and
in the case of plan years beginning after 2010, by using the yield curve method (as defined in subsection (o)(2)).
Rules relating to current liability determinations
Section 412 of such Code is amended by adding at the end the following new subsection:
Rules relating to current liability determinations
For purposes of subsection (b)(5)(B)—
Rules relating to interest rates for 2006
Determination of rate
In general
If any rate of interest used under the plan to determine cost is not within the permissible range, the plan shall establish a new rate of interest within the permissible range.
Permissible range
For purposes of clause (i), the term permissible range means a rate of interest which is not more than, and not more than 10 percent below, the weighted average of conservative long-term corporate bond rates during the 4-year period ending on the last day before the beginning of the plan year.
Conservative long-term corporate bond rates
The Secretary shall, by regulation, prescribe a method for periodically determining conservative long-term corporate bond rates for purposes of this paragraph. Such rates shall reflect rates of interest on amounts invested in high-quality, long-term corporate bonds and shall be based on the use of 1 or more indices, as determined from time to time by the Secretary.
Yield curve method
For purposes of this subsection, the yield curve method is a method under which current liability is determined—
by using interest rates drawn from a yield curve which is prescribed by the Secretary and which reflects high-quality corporate bonds, and
by matching the timing of the expected benefit payments under the plan to the interest rates on such yield curve.
Phase-In yield curve method
In general
The current liability under the phase-in yield curve method shall be equal to the sum of—
the applicable percentage of current liability determined under the yield curve method described in paragraph (2), and
the product of the current liability determined by using the interest rate rules described in paragraph (1) and a percentage equal to 100 percent minus the applicable percentage.
Applicable percentage
For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
| In the case of years | The applicable |
| beginning in— | percentage is— |
| 2007 | 20 |
| 2008 | 40 |
| 2009 | 60 |
| 2010 | 80. |
Simplified methods
Establishment by Secretary
The Secretary shall prescribe 1 or more simplified methods under which current liability can be determined by substituting any such method for the yield curve method for purposes of paragraphs (2) and (3).
Use of simplified method
A plan (other than a multiemployer plan) may use a simplified method established under subparagraph (A) if, on each day during the preceding plan year, the plan had no more than 100 participants. The aggregation rule under subsection (l)(6)(C) shall apply for purposes of this subparagraph.
Additional funding requirements
Section 412(l)(7)(C)(i) of such Code is amended to read as follows:
Current liability
Current liability under this subsection for any plan year shall be determined under the rules or method provided under subsection (b)(5) for the plan year.
Amendments of ERISA
In general
Section 302(b)(5)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)(5)(B)) is amended to read as follows:
Determination of current liability
Notwithstanding subsection (c)(3), a plan’s current liability (including for purposes of determining a plan’s required contribution under subsection (d)) for any plan year shall be determined—
in the case of plan years beginning in 2006, by using an interest rate determined in accordance with the rules prescribed under subsection (h)(1),
in the case of plan years beginning in 2007, 2008, 2009, or 2010, by using the phase-in yield curve method (as defined in subsection (h)(3)), and
in the case of plan years beginning after 2010, by using the yield curve method (as defined in subsection (h)(2)).
Rules relating to current liability determinations
Section 302 of such Act (29 U.S.C. 1082) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:
Rules relating to current liability determinations
For purposes of subsection (b)(5)(B)—
Rules relating to interest rates for 2006
Determination of rate
In general
If any rate of interest used under the plan to determine cost is not within the permissible range, the plan shall establish a new rate of interest within the permissible range.
Permissible range
For purposes of clause (i), the term permissible range means a rate of interest which is not more than, and not more than 10 percent below, the weighted average of conservative long-term corporate bond rates during the 4-year period ending on the last day before the beginning of the plan year.
Conservative long-term corporate bond rates
The Secretary of the Treasury shall, by regulation, prescribe a method for periodically determining conservative long-term corporate bond rates for purposes of this paragraph. Such rates shall reflect rates of interest on amounts invested in high-quality, long-term corporate bonds and shall be based on the use of 1 or more indices, as determined from time to time by the Secretary of the Treasury.
Yield curve method
For purposes of this subsection, the yield curve method is a method under which current liability is determined—
by using interest rates drawn from a yield curve which is prescribed by the Secretary of the Treasury and which reflects high-quality corporate bonds, and
by matching the timing of the expected benefit payments under the plan to the interest rates on such yield curve.
Phase-In yield curve method
In general
The current liability under the phase-in yield curve method shall be equal to the sum of—
the applicable percentage of current liability determined under the yield curve method described in paragraph (2), and
the product of the current liability determined by using the interest rate rules described in paragraph (1) and a percentage equal to 100 percent minus the applicable percentage.
Applicable percentage
For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
| In the case of years | The applicable |
| beginning in— | percentage is— |
| 2007 | 20 |
| 2008 | 40 |
| 2009 | 60 |
| 2010 | 80. |
Simplified methods
Establishment by Secretary
The Secretary of the Treasury shall prescribe 1 or more simplified methods under which current liability can be determined by substituting any such method for the yield curve method for purposes of paragraphs (2) and (3).
Use of simplified method
A plan (other than a multiemployer plan) may use a simplified method established under subparagraph (A) if, on each day during the preceding plan year, the plan had no more than 100 participants. The aggregation rule under subsection (d)(6)(C) shall apply for purposes of this subparagraph.
Additional funding requirements
Section 302(d)(7)(C)(i) of such Act (29 U.S.C. 1082(d)(7)(C)(i)) is amended to read as follows:
Current liability
Current liability under this subsection for any plan year shall be determined under the rules or method provided under subsection (b)(5) for the plan year.
PBGC premium rates
In general
Section 4006(a)(3)(E)(iii)(II) of such Act (29 U.S.C. 1306(a)(3)(E)(iii)(II)) is amended to read as follows:
For purposes of determining unfunded current liability under subclause (I), current liability for any plan year shall be determined under the rules or method provided under section 302(b)(5) for the plan year, except that for purposes of plan years beginning in 2006, the interest rate used shall be the conservative long-term corporate bond rate for the month preceding the month in which the plan year begins. For purposes of the preceding sentence, a plan may, in lieu of the yield curve method, use a simplified method under section 302(h)(4) in applying paragraph (2) or (3) of section 302(h).
Conforming amendments
Section 4006(a)(3)(E)(iii) of such Act (29 U.S.C. 1306(a)(3)(E)(iii)) is amended by striking subclauses (III), (IV), and (V).
Conforming changes regarding quarterly contributions
Amendment of Internal Revenue Code
Section 412(m)(1)(B) of the
Internal Revenue Code of 1986 (relating to quarterly contributions) is amended
by striking (including adjustments under subsection
(b)(5)(B))
.
Amendment of ERISA
Section
302(e)(1)(B) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1082(e)(1)(B)) is amended by striking (including
adjustments under subsection (b)(5)(B))
.
Effective dates
In general
Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to plan years beginning after December 31, 2004
Lookback rules
For purposes of applying subsections (d)(9)(B) and (e)(1) of section 302 of the Employee Retirement Income Security Act of 1974 and subsections (l)(9)(B) and (m)(1) of section 412 of the Internal Revenue Code of 1986 to plan years beginning after December 31, 2004, the amendments made by this section may be applied as if such amendments had been in effect for all prior plan years. The Secretary of the Treasury may prescribe simplified assumptions which may be used in applying the amendments made by this section to such prior plan years.
Replacement of 30-Year Treasury rate for calculating lump-sum distributions
Amendments of Internal Revenue Code
Section 417(e)(3)(A) of the Internal Revenue Code of 1986 (relating to determination of present value) is amended—
by striking and the
applicable interest rate.
in clause (i) and inserting
and by using—
the phase-in yield curve method in the case of plan years beginning in 2007, 2008, 2009, or 2010, and
the yield curve method for years beginning after 2010.
, and
by striking subclause (II) of clause (ii) and inserting:
Yield curve methods
The terms yield curve
method and phase-in yield curve method have the meanings
given such terms by paragraphs (2) and (3) of section 412(o), respectively,
except that each such paragraph shall be applied by substituting present
value
for current liability
and in applying paragraph
(3)(A)(ii) of section 412(o), the annual rate of interest on 30-year Treasury
securities shall be substituted for the interest rate under section 412(o)(1).
A plan may, in lieu of the yield curve method, use a simplified method under
section 412(o)(4) for purposes of applying such paragraphs.
Amendments of ERISA
Section 205(g)(3)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1055(g)(3)) is amended—
by striking and the
applicable interest rate.
in clause (i) and inserting
and by using—
the phase-in yield curve method in the case of plan years beginning in 2007, 2008, 2009, or 2010, and
the yield curve method for years beginning after 2010.
, and
by striking subclause (II) of clause (ii) and inserting:
Yield curve methods
The terms yield curve
method and phase-in yield curve method have the meanings
given such terms by paragraphs (2) and (3) of section 302(h), respectively,
except that each such paragraph shall be applied by substituting present
value
for current liability
and in applying paragraph
(3)(A)(ii) of section 302(h), the annual rate of interest on 30-year Treasury
securities shall be substituted for the interest rate under section 302(h)(1).
A plan may, in lieu of the yield curve method, use a simplified method under
section 302(h)(4) for purposes of applying such paragraphs.
Effective dates
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2006.
Special rule for certain optional benefits
If—
for the last plan year of a plan beginning in 2003, the plan provides that the applicable interest rate under section 417(e)(3) of the Internal Revenue Code of 1986 and section 205(g)(3) of Employee Retirement Income Security Act of 1974 shall be used for purposes of determining the amount of a benefit (other than the accrued benefit) to which such sections 417(e)(3) and 205(g)(3) do not apply, and
such plan is amended to provide that a rate other than the applicable interest rate shall be used for such purposes and the first plan year for which such amendment is effective begins no later than January 1, 2007,
Section 415 limitation on defined benefit plans
In general
Section 415(b)(2)(E)(ii) of the Internal Revenue Code of 1986 (relating to limitation on certain assumptions) is amended to read as follows:
For purposes of adjusting
any benefit under subparagraph (B) for any form of benefit subject to section
417(e)(3), 5.5 percent
shall be substituted for 5
percent
in clause (i).
Effective date
The amendment made by this section shall apply to years beginning after December 31, 2005.
Provisions relating to pension plan funding and deductions
Deduction limits for plan contributions
In general
Clause (i) of section
404(a)(1)(D) of the Internal Revenue Code of 1986 (relating to special rule in
case of certain plans) is amended by striking section 412(l)
and
inserting section 412(l)(8)(A), except that section 412(l)(8)(A) shall
be applied for purposes of this clause by substituting
130 percent of
current liability
for the current liability
in clause
(i).
Conforming amendment
Section 404(a)(1) of the Internal Revenue Code of 1986 is amended by striking subparagraph (F).
Effective date
The amendments made by this section shall apply to years beginning after December 31, 2005.
Benefit limitations for certain financially distressed plans
Internal Revenue Code of 1986
Section 401(a) of the Internal Revenue Code of 1986 (relating to qualified pension, profit-sharing, and stock bonus plans), as amended by this Act, is amended by adding after paragraph (35) the following new paragraph:
Benefit limitations for certain financially distressed plans
In general
Notwithstanding any other provision of this part, if a defined benefit plan to which the requirements of section 412(l) apply is a financially distressed plan for any plan year, a trust forming part of the plan shall not be treated as a qualified trust under this section unless—
no amendment to the plan takes effect during the plan year if such amendment increases liabilities of the plan by reason of increases in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable,
notwithstanding any other provision of the plan—
the accrued benefit, any death or disability benefit, and any social security supplement described in the last sentence of section 411(a)(9) of each participant are frozen at the amount of such benefit or supplement as of the end of the preceding plan year, determined without regard to any plan amendment adopted during the preceding plan year which increased any such benefit or supplement and determined after the application of this subclause, and
all other benefits provided under the plan are eliminated,
no payments described in paragraph (32)(B) are made to any participant or beneficiary whose annuity starting date occurs during the plan year.
Special rules if funding increases to at least 50 percent
If a plan is a financially distressed plan for any plan year but the funded current liability percentage as of the beginning of the preceding plan year is at least 50 percent—
an amendment described in subparagraph (A)(i) may take effect but only if the funded current liability percentage as of the end of the plan year is projected (taking into the account the effect of the amendment) to be at least 50 percent, and
the requirements of subparagraph (A)(ii) shall not apply with respect to the plan year or any preceding plan year.
Special rules
For purposes of this paragraph—
Impermissible amendments
If a plan adopts an amendment in violation of subparagraph (A)(i) or (B)(i), the provisions of the plan shall be applied without regard to the amendment.
Collectively bargained plans
In the case of a plan maintained pursuant to a collective bargaining agreement between employee representatives and the employer and in effect before the beginning of the first plan year of any continuous period of 1 or more plan years for which a plan is a financially distressed plan, this paragraph shall not be applied to benefits pursuant to, and individuals covered by, such agreement for plan years beginning before the date on which such collective bargaining agreement terminates (determined without regard to any extension thereof).
Financially distressed plan
For purposes of this paragraph—
In general
A plan shall be treated as a financially distressed plan for any plan year if—
the plan sponsor during any 2 of the 5 plan years immediately preceding such plan year has an outstanding debt instrument which is rated speculative grade or lower by 1 or more nationally recognized statistical rating organizations for corporate bonds, and
the funded current liability percentage of the plan as of the beginning of the plan year preceding such plan year is less than 50 percent.
Financial status must improve for at least 5 years
In general
Notwithstanding clause (i), if a plan is treated under clause (i) as a financially distressed plan for 1 or more plan years, the plan shall continue to be treated as a financially distressed plan for subsequent plan years beginning before the first plan year after the close of the first period described in subclause (II).
5-year period
A period described in this subparagraph is a 5-consecutive-plan year period if during each of the 5 plan years in the period the plan sponsor did not have an outstanding debt obligation described in clause (i)(I) or during each of such 5 plan years the plan was not described in clause (i)(II).
Funded current liability percentage
For purposes of this paragraph, the term funded current liability percentage has the meaning given such term by section 412(l)(8)(B), except that the current liability used in computing such percentage shall be determined by only taking into account vested benefits and by using the interest rate described in section 4006(a)(3)(E)(iii)(II) of the Employee Retirement Income Security Act of 1974 and the fair market value of the plan assets.
Employee Retirement Income Security Act of 1974
In general
Section 206 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1056) is amended by adding at the end the following new subsection:
Benefit limitations for certain financially distressed plans
In general
Notwithstanding any other provision of this part, if a defined benefit plan to which the requirements of section 302(d) apply is a financially distressed plan for any plan year—
no amendment to the plan shall take effect during the plan year if such amendment increases liabilities of the plan by reason of increases in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable,
notwithstanding any other provision of the plan—
the accrued benefit, any death or disability benefit, and any social security supplement described in the last sentence of section 3(22) of each participant shall be frozen at the amount of such benefit or supplement as of the end of the preceding plan year, determined without regard to any plan amendment adopted during the preceding plan year which increased any such benefit or supplement and determined after the application of this clause, and
all other benefits provided under the plan shall be eliminated,
the plan may not make any payments described in section 206(e)(2) to any participant or beneficiary whose annuity starting date occurs during the plan year.
Special rules if funding increases to at least 50 percent
If a plan is a financially distressed plan for any plan year but the funded current liability percentage as of the beginning of the preceding plan year is at least 50 percent—
an amendment described in paragraph (1)(A) may take effect but only if the funded current liability percentage as of the end of the plan year is projected (taking into the account the effect of the amendment) to be at least 50 percent, and
the requirements of paragraph (1)(B) shall not apply with respect to the plan year or any preceding plan year.
Special rules
For purposes of this subsection—
Impermissible amendments
If a plan adopts an amendment in violation of paragraph (1)(A) or (2)(A), the provisions of the plan shall be applied without regard to the amendment.
Collectively bargained plans
In the case of a plan maintained pursuant to a collective bargaining agreement between employee representatives and the employer and in effect before the beginning of the first plan year of any continuous period of 1 or more plan years for which a plan is a financially distressed plan, this paragraph shall not be applied to benefits pursuant to, and individuals covered by, such agreement for plan years beginning before the date on which such collective bargaining agreement terminates (determined without regard to any extension thereof).
Notice requirements
In general
The plan administrator of a plan which is a financially distressed plan for any year shall, at least 45 days before the beginning of the plan year, notify each plan participant or beneficiary, each labor organization representing such participants or beneficiaries, and the Pension Benefit Guaranty Corporation that—
the plan is treated as a financially distressed plan for purposes of this subsection and the reasons why it is so treated, and
the restrictions applicable to the plan under this subsection for the plan year.
Form and manner
Any notice under subparagraph (A)—
shall be provided in a form and manner prescribed by the Secretary of the Treasury,
shall be written in a manner so as to be understood by the average plan participant, and
may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to persons to whom the notice is required to be provided.
Financially distressed plan
For purposes of this subsection—
In general
A plan shall be treated as a financially distressed plan for any plan year if—
the plan sponsor during any 2 of the 5 plan years immediately preceding such plan year has an outstanding debt instrument which is rated speculative grade or lower by 1 or more nationally recognized statistical rating organizations for corporate bonds, and
the funded current liability percentage of the plan as of the beginning of the plan year preceding such plan year is less than 50 percent.
Financial status must improve for at least 5 years
In general
Notwithstanding subparagraph (A), if a plan is treated under subparagraph (A) as a financially distressed plan for 1 or more plan years, the plan shall continue to be treated as a financially distressed plan for subsequent plan years beginning before the first plan year after the close of the first period described in clause (ii).
5-year period
A period described in this clause is any 5-consecutive-plan year period if during each of the 5 plan years in the period the plan sponsor did not have an outstanding debt instrument described in subparagraph (A)(i) or during each of such 5 plan years the plan was not described in subparagraph (A)(ii).
Funded current liability percentage
For purposes of this subsection the term funded current liability percentage has the meaning given such term by section 302(d)(8)(B), except that the current liability used in computing such percentage shall be determined by only taking into account vested benefits and by using the interest rate described in section 4006(a)(3)(E)(iii)(II) and the fair market value of the plan assets.
Enforcement
Section 502(c)(3) of such Act
(29 U.S.C.
1132(c)(3)) is amended by inserting 206(g)(4) or
before 302(d)(12)(E)
.
Effective dates
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2006.
Rules
The Secretary of the Treasury shall, not later than December 31, 2005, publish such rules as are necessary to carry out the amendments made by this section.
Collective bargaining agreements
In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified by the date of the enactment of this Act, the amendments made by this section shall not apply to employees covered by any such agreement for plan years beginning before the later of—
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of enactment); or
January 1, 2007.
Updating deduction rules for combination of plans
In general
Subparagraph (C) of section 404(a)(7) of the Internal Revenue Code of 1986 (relating to limitation on deductions where combination of defined contribution plan and defined benefit plan) is amended by adding after clause (ii) the following new clause:
Limitation
In the case of employer contributions to 1 or more defined contribution plans, this paragraph shall only apply to the extent that such contributions exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans. For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions to the extent attributable to employer contributions to such plans in such preceding taxable years.
Conforming amendment
Subparagraph (A) of section 4972(c)(6) of such Code (relating to nondeductible contributions) is amended to read as follows:
so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the amount of contributions described in section 401(m)(4)(A), or
.
Effective date
The amendments made by this section shall apply to contributions for taxable years beginning after December 31, 2004.
Provisions relating to the Pension Benefit Guaranty Corporation
PBGC premiums for new plans of small employers
In general
Subparagraph (A) of section 4006(a)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended—
in clause (i), by inserting
other than a new single-employer plan (as defined in subparagraph (F))
maintained by a small employer (as so defined),
after
single-employer plan,
,
in clause (iii), by striking
the period at the end and inserting , and
, and
by adding at the end the following new clause:
in the case of a new single-employer plan (as defined in subparagraph (F)) maintained by a small employer (as so defined) for the plan year, $5 for each individual who is a participant in such plan during the plan year.
Definition of new Single-Employer plan
Section 4006(a)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is amended by adding at the end the following new subparagraph:
For purposes of this paragraph, a single-employer plan maintained by a contributing sponsor shall be treated as a new single-employer plan for each of its first 5 plan years if, during the 36-month period ending on the date of the adoption of such plan, the sponsor or any member of such sponsor’s controlled group (or any predecessor of either) did not establish or maintain a plan to which this title applies with respect to which benefits were accrued for substantially the same employees as are in the new single-employer plan.
For purposes of this paragraph, the term small employer means an employer which on the first day of any plan year has, in aggregation with all members of the controlled group of such employer, 100 or fewer employees.
In the case of a plan maintained by two or more contributing sponsors that are not part of the same controlled group, the employees of all contributing sponsors and controlled groups of such sponsors shall be aggregated for purposes of determining whether any contributing sponsor is a small employer.
Effective date
The amendments made by this section shall apply to plans first effective after December 31, 2005.
Additional PBGC premium for new and small plans
New plans
Subparagraph (E) of section 4006(a)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by adding at the end the following new clause:
In the case of a new defined benefit plan, the amount determined under clause (ii) for any plan year shall be an amount equal to the product of the amount determined under clause (ii) and the applicable percentage. For purposes of this clause, the term applicable percentage means—
0 percent, for the first plan year.
20 percent, for the second plan year.
40 percent, for the third plan year.
60 percent, for the fourth plan year.
80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in section 3(35)) maintained by a contributing sponsor shall be treated as a new defined benefit plan for each of its first 5 plan years if, during the 36-month period ending on the date of the adoption of the plan, the sponsor and each member of any controlled group including the sponsor (or any predecessor of either) did not establish or maintain a plan to which this title applies with respect to which benefits were accrued for substantially the same employees as are in the new plan.
Small plans
Paragraph (3) of section 4006(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), as amended by section 221(b), is amended—
by striking
The
in subparagraph (E)(i) and inserting Except as
provided in subparagraph (G), the
, and
by inserting after subparagraph (F) the following new subparagraph:
In the case of an employer who has 25 or fewer employees on the first day of the plan year, the additional premium determined under subparagraph (E) for each participant shall not exceed $5 multiplied by the number of participants in the plan as of the close of the preceding plan year.
For purposes of clause (i), whether an employer has 25 or fewer employees on the first day of the plan year is determined by taking into consideration all of the employees of all members of the contributing sponsor’s controlled group. In the case of a plan maintained by two or more contributing sponsors, the employees of all contributing sponsors and their controlled groups shall be aggregated for purposes of determining whether the 25-or-fewer-employees limitation has been satisfied.
Effective dates
Subsection (a)
The amendments made by subsection (a) shall apply to plans first effective after December 31, 2005.
Subsection (b)
The amendments made by subsection (b) shall apply to plan years beginning after December 31, 2005.
Authorization for PBGC to pay interest on premium overpayment refunds
In general
Section 4007(b) of the Employment Retirement Income Security Act of 1974 (29 U.S.C. 1307(b)) is amended—
by striking
(b)
and inserting (b)(1)
, and
by inserting at the end the following new paragraph:
The corporation is authorized to pay, subject to regulations prescribed by the corporation, interest on the amount of any overpayment of premium refunded to a designated payor. Interest under this paragraph shall be calculated at the same rate and in the same manner as interest is calculated for underpayments under paragraph (1).
Effective date
The amendments made by subsection (a) shall apply to interest accruing for periods beginning not earlier than the date of the enactment of this Act.
Substantial owner benefits in terminated plans
Modification of Phase-In of guarantee
Section 4022(b)(5) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1322(b)(5)) is amended to read as follows:
For purposes of this paragraph, the term majority owner means an individual who, at any time during the 60-month period ending on the date the determination is being made—
owns the entire interest in an unincorporated trade or business,
in the case of a partnership, is a partner who owns, directly or indirectly, 50 percent or more of either the capital interest or the profits interest in such partnership, or
in the case of a corporation, owns, directly or indirectly, 50 percent or more in value of either the voting stock of that corporation or all the stock of that corporation.
In the case of a participant who is a majority owner, the amount of benefits guaranteed under this section shall equal the product of—
a fraction (not to exceed 1) the numerator of which is the number of years from the later of the effective date or the adoption date of the plan to the termination date, and the denominator of which is 10, and
the amount of benefits that would be guaranteed under this section if the participant were not a majority owner.
Modification of allocation of assets
Section
4044(a)(4)(B) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1344(a)(4)(B)) is amended by striking section
4022(b)(5)
and inserting section 4022(b)(5)(B)
.
Section 4044(b) of such Act (29 U.S.C. 1344(b)) is amended—
by striking
(5)
in paragraph (2) and inserting (4), (5),
,
and
by redesignating paragraphs (3) through (6) as paragraphs (4) through (7), respectively, and by inserting after paragraph (2) the following new paragraph:
If assets available for allocation under paragraph (4) of subsection (a) are insufficient to satisfy in full the benefits of all individuals who are described in that paragraph, the assets shall be allocated first to benefits described in subparagraph (A) of that paragraph. Any remaining assets shall then be allocated to benefits described in subparagraph (B) of that paragraph. If assets allocated to such subparagraph (B) are insufficient to satisfy in full the benefits described in that subparagraph, the assets shall be allocated pro rata among individuals on the basis of the present value (as of the termination date) of their respective benefits described in that subparagraph.
Conforming amendments
Section 4021 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1321) is amended—
in subsection (b)(9), by
striking as defined in section 4022(b)(6)
, and
by adding at the end the following new subsection:
For purposes of subsection (b)(9), the term substantial owner means an individual who, at any time during the 60-month period ending on the date the determination is being made—
owns the entire interest in an unincorporated trade or business,
in the case of a partnership, is a partner who owns, directly or indirectly, more than 10 percent of either the capital interest or the profits interest in such partnership, or
in the case of a corporation, owns, directly or indirectly, more than 10 percent in value of either the voting stock of that corporation or all the stock of that corporation.
Section 4043(c)(7) of such
Act (29 U.S.C.
1343(c)(7)) is amended by striking section
4022(b)(6)
and inserting section 4021(d)
.
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to plan terminations—
under section 4041(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1341(c)) with respect to which notices of intent to terminate are provided under section 4041(a)(2) of such Act (29 U.S.C. 1341(a)(2)) after December 31, 2005, and
under section 4042 of such Act (29 U.S.C. 1342) with respect to which proceedings are instituted by the corporation after such date.
Conforming amendments
The amendments made by subsection (c) shall take effect on January 1, 2006.
Acceleration of computation of benefits attributable to recoveries of employer liability
Modification of average recovery percentage of outstanding amount of benefit liabilities payable by Corporation to participants and beneficiaries
Section 4022(c)(3)(B)(ii) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1322(c)(3)(B)(ii)) is amended to read as follows:
notices of intent to terminate were provided (or in the case of a termination by the corporation, a notice of determination under section 4042 was issued) during the 5-Federal fiscal year period ending with the third fiscal year preceding the fiscal year in which occurs the date of the notice of intent to terminate (or the notice of determination under section 4042) with respect to the plan termination for which the recovery ratio is being determined.
Valuation of Section 4062(c) liability for determining amounts payable by Corporation to participants and beneficiaries
Section 4044 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1362) is amended by adding at the end the following new subsection:
Valuation of Section 4062(c) liability for determining amounts payable by Corporation to participants and beneficiaries
In general
In the case of a terminated plan, the value of the recovery of liability under section 4062(c) allocable as a plan asset under this section for purposes of determining the amount of benefits payable by the corporation shall be determined by multiplying—
the amount of liability under section 4062(c) as of the termination date of the plan, by
the applicable section 4062(c) recovery ratio.
Section 4062(c) recovery ratio
For purposes of this subsection—
In general
Except as provided in subparagraph (C), the term section 4062(c) recovery ratio means the average, determined with respect to prior plan terminations described in subparagraph (B), of the ratio which—
the value of the recovery under section 4062(c) determined by the corporation in connection with any such prior termination, bears to
the amount of liability under section 4062(c) with respect to such plans as of the termination date in connection with any such prior termination.
Prior terminations
A plan termination described in this subparagraph is a termination with respect to which—
the value of recoveries under section 4062(c) have been determined by the corporation, and
notices of intent to terminate were provided (or in the case of a termination by the corporation, a notice of determination under section 4042 was issued) during the 5-Federal fiscal year period ending with the third fiscal year preceding the fiscal year in which occurs the date of the notice of intent to terminate (or the notice of determination under section 4042) with respect to the plan termination for which the recovery ratio is being determined.
Exception
In the case of a terminated plan with respect to which the outstanding amount of benefit liabilities exceeds $20,000,000, the term section 4062(c) recovery ratio means, with respect to the termination of such plan, the ratio of—
the value of the recoveries on behalf of the plan under section 4062(c), to
the amount of the liability owed under section 4062(c) as of the date of plan termination to the trustee appointed under section 4042 (b) or (c).
Subsection not to apply
This subsection shall not apply with respect to the determination of—
whether the amount of outstanding benefit liabilities exceeds $20,000,000, or
the amount of any liability under section 4062 to the corporation or the trustee appointed under section 4042 (b) or (c).
Determinations
Determinations under this subsection shall be made by the corporation. Such determinations shall be binding unless shown by clear and convincing evidence to be unreasonable.
Effective date
The amendments made by this section shall apply for any termination for which notices of intent to terminate are provided (or in the case of a termination by the corporation, a notice of determination under section 4042 is issued) on or after the date which is 30 days after the date of enactment of this section.
Studies
Joint study on revitalizing defined benefit plans
Study
As soon as practicable after the date of the enactment of this Act, the Secretary of the Treasury, the Secretary of Labor, and the Executive Director of the Pension Benefit Guaranty Corporation shall jointly undertake a study on ways to revitalize interest in defined benefit plans among employers. In conducting such study, the Secretaries and the Executive Director shall consider—
ways to encourage the establishment of defined benefit plans by small- and mid-sized employers,
ways to encourage the continued maintenance of defined benefit plans by larger employers, and
legislative proposals to accomplish the objectives described in paragraphs (1) and (2).
Report
Not later than 2 years after the date of the enactment of this Act, the Secretaries and the Executive Director shall report the results of the study, together with any recommendations for legislative changes, to the Committees on Ways and Means and Education and the Workforce of the House of Representatives and the Committees on Finance and Health, Education, Labor, and Pensions of the Senate.
Study on floor-offset ESOPs
Study
As soon as practicable after the date of the enactment of this Act, the Secretary of the Treasury and the Pension Benefit Guaranty Corporation shall undertake a study to determine the number of floor-offset employee stock ownership plans still in existence and the extent to which such plans pose a risk to plan participants or beneficiaries and to the Corporation. Such study shall consider legislative proposals to address such risks.
Report
Not later than 1 year after the date of the enactment of this Act, the Secretary and the Corporation shall report the results of the study, together with any recommendations for legislative changes, to the Committees on Ways and Means and Education and the Workforce of the House of Representatives and the Committees on Finance and Health, Education, Labor, and Pensions of the Senate.
Improvements in portability and distribution rules
Clarifications regarding purchase of permissive service credit
In general
Section 415(n) of the Internal Revenue Code of 1986 (relating to special rules for the purchase of permissive service credit) is amended—
by striking an
employee
in paragraph (1) and inserting a participant
,
and
by adding at the end of paragraph (3)(A) the following new flush sentence:
Such term may include service credit for periods for which there is no performance of service, and notwithstanding clause (ii), may include service credited in order to provide an increased benefit for service credit which a participant is receiving under the plan.
Special rules for Trustee-to-Trustee transfers
Section 415(n)(3) of such Code is amended by adding at the end the following new subparagraph:
Special rules for Trustee-to-Trustee transfers
In the case of a trustee-to-trustee transfer to which section 403(b)(13)(A) or 457(e)(17)(A) applies (without regard to whether the transfer is made between plans maintained by the same employer)—
the limitations of subparagraph (B) shall not apply in determining whether the transfer is for the purchase of permissive service credit, and
the distribution rules applicable under this title to the defined benefit governmental plan to which any amounts are so transferred shall apply to such amounts and any benefits attributable to such amounts.
Nonqualified service
Section 415(n)(3) of such Code is amended—
by striking permissive
service credit attributable to nonqualified service
each place it
appears in subparagraph (B) and inserting nonqualified service
credit
,
by striking so much of subparagraph (C) as precedes clause (i) and inserting:
Nonqualified service credit
For purposes of subparagraph (B), the term nonqualified service credit means permissive service credit other than that allowed with respect to—
, and
by striking elementary
or secondary education (through grade 12), as determined under State
law
and inserting elementary or secondary education (through
grade 12), or a comparable level of education, as determined under the
applicable law of the jurisdiction in which the service was
performed
.
Effective dates
In general
The amendments made by subsections (a) and (c) shall take effect as if included in the amendments made by section 1526 of the Taxpayer Relief Act of 1997.
Subsection (b)
The amendments made by subsection (b) shall take effect as if included in the amendments made by section 647 of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Allow rollover of after-tax amounts in annuity contracts
In general
Subparagraph (A) of section 402(c)(2) (maximum amount which may be rolled over) is amended—
by striking which is
part of a plan which is a defined contribution plan and which agrees to
separately account
and inserting or to an annuity contract
described in section 403(b) and such trust or contract provides for separate
accounting
; and
by inserting (and
earnings thereon)
after so transferred
.
Effective date
The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.
Clarification of minimum distribution rules
The Secretary of the Treasury shall issue regulations under which a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986) shall, for all years to which section 401(a)(9) of such Code applies to such plan, be treated as having complied with such section 401(a)(9) if such plan complies with a reasonable good faith interpretation of such section 401(a)(9).
Waiver of 10 percent early withdrawal penalty tax on certain distributions of pension plans for public safety employees
In general
Section 72(t) of the Internal Revenue Code of 1986 (relating to subsection not to apply to certain distributions) is amended by adding at the end the following new paragraph:
Distributions to qualified public safety employees in governmental plans
In general
In the case of a
distribution to a qualified public safety employee from a governmental plan
(within the meaning of section 414(d)) which is a defined benefit plan,
paragraph (2)(A)(v) shall be applied by substituting age 50
for
age 55
.
Qualified public safety employee
For purposes of this paragraph, the term qualified public safety employee means any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision.
Effective date
The amendment made by this section shall apply to distributions after the date of the enactment of this Act.
Allow rollovers by nonspouse beneficiaries of certain retirement plan distributions
In general
Qualified plans
Section 402(c) of the Internal Revenue Code of 1986 (relating to rollovers from exempt trusts) is amended by adding at the end the following new paragraph:
Distributions to inherited individual retirement plan of nonspouse beneficiary
In general
If, with respect to any portion of a distribution from an eligible retirement plan of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee—
the transfer shall be treated as an eligible rollover distribution for purposes of this subsection,
the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)) for purposes of this title, and
section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan.
Certain trusts treated as beneficiaries
For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a designated beneficiary.
Section 403(a) plans
Subparagraph (B) of section
403(a)(4) of such Code (relating to rollover amounts) is amended by striking
and (9)
and inserting , (9), and (11)
.
Section 403(b) plans
Subparagraph (B) of section
403(b)(8) of such Code (relating to rollover amounts) is amended by striking
and (9)
and inserting , (9), and (11)
.
Section 457 plans
Subparagraph (B) of section
457(e)(16) of such Code (relating to rollover amounts) is amended by striking
and (9)
and inserting , (9), and (11)
.
Effective date
The amendments made by this section shall apply to distributions after December 31, 2005.
Faster vesting of employer nonelective contributions
Amendments to the Internal Revenue Code of 1986
In general
Paragraph (2) of section 411(a) of the Internal Revenue Code of 1986 (relating to employer contributions) is amended to read as follows:
Employer contributions
Defined benefit plans
In general
In the case of a defined benefit plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
5-year vesting
A plan satisfies the requirements of this clause if an employee who has completed at least 5 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from employer contributions.
3 to 7 year vesting
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee’s accrued benefit derived from employer contributions determined under the following table:
| The nonforfeitable | |
| Years of service: | percentage is: |
| 3 | 20 |
| 4 | 40 |
| 5 | 60 |
| 6 | 80 |
| 7 or more | 100. |
Defined contribution plans
In general
In the case of a defined contribution plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
3-year vesting
A plan satisfies the requirements of this clause if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from employer contributions.
2 to 6 year vesting
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee’s accrued benefit derived from employer contributions determined under the following table:
| The nonforfeitable | |
| Years of service: | percentage is: |
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 80 |
| 6 or more | 100. |
.
Conforming amendment
Section 411(a) of such Code (relating to general rule for minimum vesting standards) is amended by striking paragraph (12).
Amendments to the Employee Retirement Income Security Act of 1974
In general
Paragraph (2) of section 203(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)(2)) is amended to read as follows:
In the case of a defined benefit plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
A plan satisfies the requirements of this clause if an employee who has completed at least 5 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from employer contributions.
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee’s accrued benefit derived from employer contributions determined under the following table:
| The nonforfeitable | |
| Years of service: | percentage is: |
| 3 | 20 |
| 4 | 40 |
| 5 | 60 |
| 6 | 80 |
| 7 or more | 100. |
In the case of an individual account plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).
A plan satisfies the requirements of this clause if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from employer contributions.
A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee’s accrued benefit derived from employer contributions determined under the following table:
| The nonforfeitable | |
| Years of service: | percentage is: |
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 80 |
| 6 or more | 100. |
.
Conforming amendment
Section 203(a) of such Act is amended by striking paragraph (4).
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to contributions for plan years beginning after December 31, 2005.
Collective bargaining agreements
In the case of a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified before the date of the enactment of this Act, the amendments made by this section shall not apply to contributions on behalf of employees covered by any such agreement for plan years beginning before the earlier of—
the later of—
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of the enactment); or
January 1, 2006; or
January 1, 2008.
Service required
With respect to any plan, the amendments made by this section shall not apply to any employee before the date that such employee has 1 hour of service under such plan in any plan year to which the amendments made by this section apply.
Allow direct rollovers from retirement plans to Roth IRAs
In general
Subsection (e) of section 408A of the Internal Revenue Code of 1986 (defining qualified rollover contribution) is amended to read as follows:
Qualified rollover contribution
For purposes of this section, the term qualified rollover contribution means a rollover contribution—
to a Roth IRA from another such account,
from an eligible retirement plan, but only if—
in the case of an individual retirement plan, such rollover contribution meets the requirements of section 408(d)(3), and
in the case of any eligible retirement plan (as defined in section 402(c)(8)(B) other than clauses (i) and (ii) thereof), such rollover contribution meets the requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable.
Conforming amendments
Section 408A(c)(3)(B) of such Code is amended—
in the text by striking
individual retirement plan
and inserting an eligible
retirement plan (as defined by section 402(c)(8)(B))
, and
in the heading by striking
IRA
and inserting eligible retirement
plan
.
Section 408A(d)(3) of such Code is amended—
in subparagraph (A), by
striking section 408(d)(3)
inserting sections 402(c),
403(b)(8), 408(d)(3), and 457(e)(16)
,
in subparagraph (B), by
striking individual retirement plan
and inserting
eligible retirement plan (as defined by section
402(c)(8)(B))
,
in subparagraph (D), by
inserting or 6047
after 408(i)
,
in subparagraph (D), by
striking or both
and inserting persons subject to section
6047(d)(1), or all of the foregoing persons
, and
in the heading, by striking
IRA
and inserting eligible retirement
plan
.
Effective date
The amendments made by this section shall apply to distributions after December 31, 2005.
Elimination of higher penalty on certain simple plan distributions
In general
Subsection (t) of section 72 of the Internal Revenue Code of 1986 (relating to 10-percent additional tax on early distributions from qualified retirement plans), as amended by section 304, is amended by striking paragraph (6) and redesignating paragraphs (7), (8), (9), and (10) as paragraphs (6), (7), (8), and (9), respectively.
Conforming amendments
Section 72(t)(2)(E) of such
Code is amended by striking paragraph (7)
and inserting
paragraph (6)
.
Section 72(t)(2)(F) of such
Code is amended by striking paragraph (8)
and inserting
paragraph (7)
.
Section 408(d)(3)(G) of such
Code is amended by striking applies
and inserting applied
on the day before the date of the enactment of the National Employee Savings
and Trust Equity Guarantee Act of 2005)
.
Section 457(a)(2) of such
Code is amended by striking section 72(t)(9)
and inserting
section 72(t)(8)
.
Effective date
The amendments made by this section shall apply to years beginning after December 31, 2005.
Simple plan portability
Repeal of limitation
Paragraph (3) of section 408(d) of the Internal Revenue Code of 1986 (relating to rollover contributions), as amended by this Act, is amended by striking subparagraph (G) and redesignating subparagraphs (H) and (I) as subparagraphs (G) and (H), respectively.
Effective date
The amendment made by this section shall apply to years beginning after December 31, 2005.
Eligibility for participation in retirement plans
An individual shall not be precluded from participating in an eligible deferred compensation plan by reason of having received a distribution under section 457(e)(9) of the Internal Revenue Code of 1986, as in effect prior to the enactment of the Small Business Job Protection Act of 1996.
Transfers to the PBGC
Mandatory distributions to PBGC
Clause (i) of section
401(a)(31)(B) of the Internal Revenue Code of 1986 (relating to general rule
for certain mandatory distributions) is amended by inserting to the
Pension Benefit Guaranty Corporation in accordance with
section
4050(e) of the Employee
Retirement Income Security Act of 1974 or
after such
transfer
.
Tax treatment of distributions
Subparagraph (B) of section 401(a)(31) of such Code is amended by adding at the end the following new clause:
Income tax treatment of transfers to PBGC
For purposes of determining the income tax treatment relating to transfers to the Pension Benefit Guaranty Corporation under clause (i)—
the transfer of amounts to the Pension Benefit Guaranty Corporation pursuant to clause (i) shall be treated as a transfer to an individual retirement plan under such clause, and
the distribution of such amounts from the Pension Benefit Guaranty Corporation shall be treated as a distribution from an individual retirement plan.
Missing participants and beneficiaries
Section 4050 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1350), as amended by section 312, is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
Involuntary cashouts
Payment by the Corporation
If benefits under a plan described in paragraph (3) were transferred to the corporation under section 401(a)(31)(B) of the Internal Revenue Code of 1986, the corporation shall, upon application filed by the participant or beneficiary with the corporation in such form and manner as may be prescribed in regulations of the corporation, pay to the participant or beneficiary the amount transferred (or the appropriate survivor benefit) either—
in a single sum (plus interest), or
in such other form as is specified in regulations of the corporation.
Information to the Corporation
To the extent provided in regulations, the plan administrator of a plan described in paragraph (3) shall, upon a transfer of benefits to the corporation under section 401(a)(31)(B) of such Code, provide the corporation information with respect to benefits of the participant or beneficiary so transferred.
Plans described
A plan is described in this paragraph if the plan is a pension plan (within the meaning of section 3(2))—
which provides for mandatory distributions under section 401(a)(31)(B) of the Internal Revenue Code of 1986, and
which is not a plan described in paragraphs (2) through (11) of section 4021(b).
Certain provisions not to apply
Subsections (a)(1) and (a)(3) shall not apply to a plan described in paragraph (3).
Effective dates
Internal Revenue Code provisions
The amendments made by subsections (a) and (b) shall take effect as if included in the amendments made by section 657 of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Employee Retirement Income Security Act of 1974 provisions
The amendments made by subsection (c) shall apply to distributions made after final regulations implementing subsection (e) of section 4050 of the Employee Retirement Income Security Act of 1974 (as added by subsection (c)) are prescribed.
Regulations
The Pension Benefit Guaranty Corporation shall issue regulations necessary to carry out the amendments made by subsection (c) not later than December 31, 2006.
Missing participants
In general
Section 4050 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsections:
Multiemployer plans
The corporation shall prescribe rules similar to the rules in subsection (a) for multiemployer plans covered by this title that terminate under section 4041A.
Plans not otherwise subject to title
Transfer to Corporation
The plan administrator of a plan described in paragraph (4) may elect to transfer a missing participant’s benefits to the corporation upon termination of the plan.
Information to the Corporation
To the extent provided in regulations, the plan administrator of a plan described in paragraph (4) shall, upon termination of the plan, provide the corporation information with respect to benefits of a missing participant if the plan transfers such benefits—
to the corporation, or
to an entity other than the corporation or a plan described in paragraph (4)(B)(ii).
Payment by the Corporation
If benefits of a missing participant were transferred to the corporation under paragraph (1), the corporation shall, upon location of the participant or beneficiary, pay to the participant or beneficiary the amount transferred (or the appropriate survivor benefit) either—
in a single sum (plus interest), or
in such other form as is specified in regulations of the corporation.
Plans described
A plan is described in this paragraph if—
the plan is a pension plan (within the meaning of section 3(2))—
to which the provisions of this section do not apply (without regard to this subsection), and
which is not a plan described in paragraphs (2) through (11) of section 4021(b), and
at the time the assets are to be distributed upon termination, the plan—
has missing participants, and
has not provided for the transfer of assets to pay the benefits of all missing participants to another pension plan (within the meaning of section 3(2)).
Certain provisions not to apply
Subsections (a)(1) and (a)(3) shall not apply to a plan described in paragraph (4).
Conforming amendments
Section 206(f) of such Act (29 U.S.C. 1056(f)) is amended—
by striking title
IV
and inserting section 4050
; and
by striking the plan
shall provide that,
.
Effective date
The amendments made by this section shall apply to distributions made after final regulations implementing subsections (c) and (d) of section 4050 of the Employee Retirement Income Security Act of 1974 (as added by subsection (a)), respectively, are prescribed.
Administrative provisions
Employee Plans Compliance Resolution System
In general
The Secretary of the Treasury shall have full authority to establish and implement the Employee Plans Compliance Resolution System (or any successor program) and any other employee plans correction policies, including the authority to waive income, excise, or other taxes to ensure that any tax, penalty, or sanction is not excessive and bears a reasonable relationship to the nature, extent, and severity of the failure.
Improvements
The Secretary of the Treasury shall continue to update and improve the Employee Plans Compliance Resolution System (or any successor program), giving special attention to—
increasing the awareness and knowledge of small employers concerning the availability and use of the program;
taking into account special concerns and circumstances that small employers face with respect to compliance and correction of compliance failures;
extending the duration of the self-correction period under the Self-Correction Program for significant compliance failures;
expanding the availability to correct insignificant compliance failures under the Self-Correction Program during audit; and
assuring that any tax, penalty, or sanction that is imposed by reason of a compliance failure is not excessive and bears a reasonable relationship to the nature, extent, and severity of the failure.
Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans
In general
The following provisions are
each amended by striking maintained by a State or local government or
political subdivision thereof (or agency or instrumentality
thereof)
:
Section 401(a)(5)(G) of the Internal Revenue Code of 1986.
Section 401(a)(26)(H) of such Code.
Section 401(k)(3)(G) of such Code.
Section 1505(d)(2) of the Taxpayer Relief Act of 1997.
Conforming amendments
The heading for section
401(a)(5)(G) of such Code is amended to read as follows: Governmental
plans.—
.
The heading for section
401(a)(26)(H) of such Code is amended to read as follows:
Exception for
governmental plans.—
.
Section 401(k)(3)(G) of such
Code is amended by inserting Governmental plans.—
after
(G)
.
Effective date
The amendments made by this section shall apply to plan years beginning after December 31, 2005.
Notice and consent period regarding distributions
Expansion of period
Amendment of Internal Revenue Code
In general
Section 417(a)(6)(A) of the
Internal Revenue Code of 1986 is amended by striking 90-day
and
inserting 180-day
.
Modification of regulations
The Secretary of the Treasury
shall modify the regulations under sections 402(f), 411(a)(11), and 417 of the
Internal Revenue Code of 1986 by substituting 180 days
for
90 days
each place it appears in Treasury Regulations sections
1.402(f)–1, 1.411(a)–11(c), and 1.417(e)–1(b).
Amendment of ERISA
In general
Section
205(c)(7)(A) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1055(c)(7)(A)) is amended by striking 90-day
and
inserting 180-day
.
Modification of regulations
The Secretary of the Treasury
shall modify the regulations under part 2 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974 relating to sections 203(e) and 205 of such Act by substituting
180 days
for 90 days
each place it
appears.
Effective date
The amendments and modifications made or required by this subsection shall apply to years beginning after December 31, 2005.
Notification of right to defer
In general
The Secretary of the Treasury shall modify the regulations under section 411(a)(11) of the Internal Revenue Code of 1986 and under section 205 of the Employee Retirement Income Security Act of 1974 to provide that the description of a participant’s right, if any, to defer receipt of a distribution shall also describe the consequences of failing to defer such receipt.
Effective date
In general
The modifications required by paragraph (1) shall apply to years beginning after December 31, 2005.
Reasonable notice
A plan shall not be treated as failing to meet the requirements of section 411(a)(11) of such Code or section 205 of such Act with respect to any description of consequences described in paragraph (1) made within 90 days after the Secretary of the Treasury issues the modifications required by paragraph (1) if the plan administrator makes a reasonable attempt to comply with such requirements.
Reporting simplification
Simplified annual filing requirement for owners and their spouses
In general
The Secretary of the Treasury and the Secretary of Labor shall modify the requirements for filing annual returns with respect to one-participant retirement plans to ensure that such plans with assets of $250,000 or less as of the close of the plan year need not file a return for that year.
One-participant retirement plan defined
For purposes of this subsection, the term one-participant retirement plan means a retirement plan with respect to which the following requirements are met:
on the first day of the plan year—
the plan covered only one individual (or the individual and the individual’s spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or
the plan covered only one or more partners (or partners and their spouses) in the plan sponsor;
the plan meets the minimum coverage requirements of section 410(b) of the Internal Revenue Code of 1986 without being combined with any other plan of the business that covers the employees of the business;
the plan does not provide benefits to anyone except the individual (and the individual’s spouse) or the partners (and their spouses);
the plan does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control; and
the plan does not cover a business that uses the services of leased employees (within the meaning of section 414(n) of such Code).
partnerincludes a 2-percent shareholder (as defined in section 1372(b) of such Code) of an S corporation.
Other definitions
Terms used in paragraph (2) which are also used in section 414 of the Internal Revenue Code of 1986 shall have the respective meanings given such terms by such section.
Effective date
The provisions of this subsection shall apply to plan years beginning on or after January 1, 2006.
Simplified annual filing requirement for plans with fewer than 25 employees
In the case of plan years beginning after December 31, 2006, the Secretary of the Treasury and the Secretary of Labor shall provide for the filing of a simplified annual return for any retirement plan which covers less than 25 employees on the first day of a plan year and which meets the requirements described in subparagraphs (B), (D), and (E) of subsection (a)(2).
Voluntary early retirement incentive and employment retention plans maintained by local educational agencies and other entities
Voluntary early retirement incentive plans
Treatment as plan providing severance pay
Section 457(e)(11) of the Internal Revenue Code of 1986 (relating to certain plans excluded) is amended by adding at the end the following new subparagraph:
Certain voluntary early retirement incentive plans
In general
If an applicable voluntary early retirement incentive plan—
makes payments or supplements as an early retirement benefit, a retirement-type subsidy, or a benefit described in the last sentence of section 411(a)(9), and
such payments or supplements are made in coordination with a defined benefit plan which is described in section 401(a) and includes a trust exempt from tax under section 501(a) and which is maintained by an eligible employer described in paragraph (1)(A) or by an education association described in clause (ii)(II),
Applicable voluntary early retirement incentive plan
For purposes of this subparagraph, the term applicable voluntary early retirement incentive plan means a voluntary early retirement incentive plan maintained by—
a local educational agency (as defined in section 9101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 7801)), or
an education association which principally represents employees of 1 or more agencies described in subclause (I) and which is described in section 501(c) (5) or (6) and exempt from tax under section 501(a).
Age Discrimination in Employment Act
Section 4(l)(1) of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 623(l)(1)) is amended—
by inserting
(A)
after (1)
,
by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively,
by redesignating clauses (i) and (ii) of subparagraph (B) (as in effect before the amendments made by subparagraph (B)) as subclauses (I) and (II), respectively, and
by adding at the end the following:
A voluntary early retirement incentive plan that—
is maintained by—
a local educational agency (as defined in section 9101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 7801), or
an education association which principally represents employees of 1 or more agencies described in subclause (I) and which is described in section 501(c) (5) or (6) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code, and
makes payments or supplements described in subclauses (I) and (II) of subparagraph (A)(ii) in coordination with a defined benefit plan (as so defined) maintained by an eligible employer described in section 457(e)(1)(A) of such Code or by an education association described in clause (i)(II),
Employment retention plans
In general
Section 457(f)(2) of the
Internal Revenue Code of 1986 (relating to exceptions) is amended by striking
and
at the end of subparagraph (D), by striking the period at
the end of subparagraph (E) and inserting , and
, and by adding
at the end the following:
that portion of any applicable employment retention plan described in paragraph (4) with respect to any participant.
Definitions and rules relating to employment retention plans
Section 457(f) of such Code is amended by adding at the end the following new paragraph:
Employment retention plans
For purposes of paragraph (2)(F)—
In general
The portion of an applicable employment retention plan described in this paragraph with respect to any participant is that portion of the plan which provides benefits payable to the participant not in excess of twice the applicable dollar limit determined under subsection (e)(15).
Other rules
Limitation
Paragraph (2)(F) shall only apply to the portion of the plan described in subparagraph (A) for years preceding the year in which such portion is paid or otherwise made available to the participant.
Treatment
A plan shall not be treated for purposes of this title as providing for the deferral of compensation for any year with respect to the portion of the plan described in subparagraph (A).
Applicable employment retention plan
The term applicable employment retention plan means an employment retention plan maintained by—
a local educational agency (as defined in section 9101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 7801), or
an education association which principally represents employees of 1 or more agencies described in clause (i) and which is described in section 501(c) (5) or (6) and exempt from taxation under section 501(a).
Employment retention plan
The term employment retention plan means a plan to pay, upon termination of employment, compensation to an employee of a local educational agency or education association described in subparagraph (C) for purposes of—
retaining the services of the employee, or
rewarding such employee for the employee’s service with 1 or more such agencies or associations.
Coordination with ERISA
Section
3(2)(B) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1002(2)(B)) is amended by adding at the end the following:
An applicable voluntary early retirement incentive plan (as defined in
section 457(e)(11)(D)(ii) of the Internal Revenue Code of 1986) making payments
or supplements described in section 457(e)(11)(D)(i) of such Code, and an
applicable employment retention plan (as defined in section 457(f)(4)(C) of
such Code) making payments of benefits described in section 457(f)(4)(A) of
such Code, shall, for purposes of this title, be treated as a welfare plan (and
not a pension plan) with respect to such payments and
supplements.
Effective dates
In general
The amendments made by this Act shall take effect on the date of the enactment of this Act.
Tax amendments
The amendments made by subsections (a)(1) and (b) shall apply to taxable years ending after the date of the enactment of this Act.
ERISA amendments
The amendment made by subsection (c) shall apply to plan years ending after the date of the enactment of this Act.
Construction
Nothing in the amendments made by this section shall alter or affect the construction of the Internal Revenue Code of 1986, the Employee Retirement Income Security Act of 1974, or the Age Discrimination in Employment Act of 1967 as applied to any plan, arrangement, or conduct to which such amendments do not apply.
No reduction in unemployment compensation as a result of pension rollovers
In general
Section 3304(a) of the Internal Revenue Code of 1986 (relating to requirements for State unemployment laws) is amended by adding at the end the following new flush sentence:
Compensation shall not be reduced under paragraph (15) for any pension, retirement or retired pay, annuity, or similar payment which is not includible in gross income of the individual for the taxable year in which paid because it was part of a rollover distribution.
Effective date
The amendment made by this section shall apply to weeks beginning on or after the date of the enactment of this Act.
Withholding on distributions from governmental Section 457 plans
In general
Section 641(f) of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by adding at the end the following new paragraph:
Transition rule for certain governmental plans
In the case of distributions from an eligible deferred compensation plan of an employer described in section 457(e)(1)(A) of the Internal Revenue Code of 1986 which are made after December 31, 2001, and which are part of a series of distributions which—
began before January 1, 2002, and
are payable for 10 years or less, the Internal Revenue Code of 1986 may be applied to such distributions without regard to the amendments made by subsection (a)(1)(D).
Effective date
The amendment made by subsection (a) shall take effect as if included in the provisions of section 641 of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Provisions relating to plan amendments
In general
If this section applies to any plan or contract amendment—
such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subsection (b)(2)(A), and
except as provided by the Secretary of the Treasury, such plan shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 by reason of such amendment.
Amendments to which Section applies
In general
This section shall apply to any amendment to any plan or annuity contract which is made—
pursuant to any amendment made by this Act or the Economic Growth and Tax Relief Reconciliation Act of 2001, or pursuant to any regulation issued by the Secretary of the Treasury or the Secretary of Labor under such Acts, and
on or before the last day of the first plan year beginning on or after January 1, 2007, or such later date as the Secretary of the Treasury may prescribe.
Conditions
This section shall not apply to any amendment unless—
during the period—
beginning on the date the legislative or regulatory amendment described in paragraph (1)(A) takes effect (or in the case of a plan or contract amendment not required by such legislative or regulatory amendment, the effective date specified by the plan), and
ending on the date described in paragraph (1)(B) (or, if earlier, the date the plan or contract amendment is adopted),
such plan or contract amendment applies retroactively for such period.
Provisions relating to spousal pension protection
Study of spousal consent for distributions from defined contribution plans
Joint study of application of spousal consent rules to defined contribution plans
Study
The Secretary of Labor and the Secretary of the Treasury shall jointly conduct a study of the feasibility and desirability of extending the application of the requirements of section 205 of the Employee Retirement Income Security Act of 1974 and sections 401(a)(11) and 417 of the Internal Revenue Code of 1986 (relating to spousal consent requirements) to defined contribution plans to which such requirements do not apply. Such study shall include consideration of—
any modifications of such requirements that are necessary to apply such requirements to such plans, and
the feasibility of providing notice and spousal consent in 1 or more electronic forms that are capable of authentication.
Report
Not later than 2 years after the date of the enactment of this Act, the Secretaries shall report the results of the study, together with any recommendations for legislative changes, to the Committees on Ways and Means and Education and the Workforce of the House of Representatives and the Committees on Finance and Health, Education, Labor, and Pensions of the Senate.
Division Of pension benefits upon divorce
Regulations on time and order of issuance of domestic relations orders
Not later than 1 year after the date of the enactment of this Act, the Secretary of Labor shall issue regulations under section 206(d)(3) of the Employee Retirement Security Act of 1974 and section 414(p) of the Internal Revenue Code of 1986 which clarify that—
a domestic relations order otherwise meeting the requirements to be a qualified domestic relations order, including the requirements of section 206(d)(3)(D) of such Act and section 414(p)(3) of such Code, shall not fail to be treated as a qualified domestic relations order solely because—
the order is issued after, or revises, another domestic relations order or qualified domestic relations order; or
of the time at which it is issued; and
any order described in paragraph (1) shall be subject to the same requirements and protections which apply to qualified domestic relations orders, including the provisions of section 206(d)(3)(H) of such Act and section 414(p)(7) of such Code.
Railroad retirement
Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee
In general
Section 2 of the Railroad Retirement Act of 1974 (45 U.S.C. 231a) is amended—
in subsection (c)(4)(i), by
striking (A) is entitled to an annuity under subsection (a)(1) and
(B)
; and
in subsection (e)(5), by
striking or divorced wife
the second place it appears.
Effective date
The amendments made by this section shall take effect 1 year after the date of the enactment of this Act.
Extension of tier II railroad retirement benefits to surviving former spouses pursuant to divorce agreements
In general
Section 5 of the Railroad Retirement Act of 1974 (45 U.S.C. 231d) is amended by adding at the end the following:
Notwithstanding any other provision of law, the payment of any portion of an annuity computed under section 3(b) to a surviving former spouse in accordance with a court decree of divorce, annulment, or legal separation or the terms of any court-approved property settlement incident to any such court decree shall not be terminated upon the death of the individual who performed the service with respect to which such annuity is so computed unless such termination is otherwise required by the terms of such court decree.
Effective date
The amendment made by this section shall take effect 1 year after the date of the enactment of this Act.
Modifications of joint and survivor annuity requirements
Requirement for additional survivor annuity option
Amendments to Internal Revenue Code
Election of survivor annuity
Section 417(a)(1)(A) of the Internal Revenue Code of 1986 is amended—
in clause (i), by striking
, and
and inserting a comma;
by redesignating clause (ii) as clause (iii); and
by inserting after clause (i) the following:
if the participant elects a waiver under clause (i), may elect the qualified optional survivor annuity at any time during the applicable election period, and
.
Definition
Section 417 of such Code is amended by adding at the end the following:
Definition of qualified optional survivor annuity
In general
For purposes of this section, the term qualified optional survivor annuity means an annuity—
for the life of the participant with a survivor annuity for the life of the spouse which is equal to the applicable percentage of the amount of the annuity which is payable during the joint lives of the participant and the spouse, and
which is the actuarial equivalent of a single annuity for the life of the participant.
Applicable percentage
In general
For purposes of paragraph (1), if the survivor annuity percentage—
is less than 75 percent, the applicable percentage is 75 percent, and
is greater than or equal to 75 percent, the applicable percentage is 50 percent.
Survivor annuity percentage
For purposes of subparagraph (A), the term survivor annuity percentage means the percentage which the survivor annuity under the plan’s qualified joint and survivor annuity bears to the annuity payable during the joint lives of the participant and the spouse.
Notice
Section 417(a)(3)(A)(i) of
such Code is amended by inserting and of the qualified optional survivor
annuity
after annuity
.
Amendments to ERISA
Election of survivor annuity
Section 205(c)(1)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1055(c)(1)(A)) is amended—
in clause (i), by striking
, and
and inserting a comma;
by redesignating clause (ii) as clause (iii); and
by inserting after clause (i) the following:
if the participant elects a waiver under clause (i), may elect the qualified optional survivor annuity at any time during the applicable election period, and
.
Definition
Section 205(d) of such Act (29 U.S.C. 1055(d)) is amended—
by inserting
(1)
after (d)
;
by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively; and
by adding at the end the following:
For purposes of this section, the term qualified optional survivor annuity means an annuity—
for the life of the participant with a survivor annuity for the life of the spouse which is equal to the applicable percentage of the amount of the annuity which is payable during the joint lives of the participant and the spouse, and
which is the actuarial equivalent of a single annuity for the life of the participant.
For purposes of subparagraph (A), if the survivor annuity percentage—
is less than 75 percent, the applicable percentage is 75 percent, and
is greater than or equal to 75 percent, the applicable percentage is 50 percent.
For purposes of clause (i), the term survivor annuity percentage means the percentage which the survivor annuity under the plan’s qualified joint and survivor annuity bears to the annuity payable during the joint lives of the participant and the spouse.
Notice
Section 205(c)(3)(A)(i) of
such Act (29 U.S.C.
1055(c)(3)(A)(i)) is amended by inserting and of the
qualified optional survivor annuity
after
annuity
.
Effective dates
In general
The amendments made by this section shall apply to plan years beginning after December 31, 2005.
Special rule for collectively bargained plans
In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified on or before the date of the enactment of this Act, the amendments made by this section shall apply to the first plan year beginning on or after the earlier of—
the later of—
January 1, 2006, or
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after the date of enactment of this Act), or
January 1, 2007.
Tax Court pension and compensation
Amendment of 1986 Code
Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
Annuities for survivors of Tax Court judges who are assassinated
Eligibility in case of death by assassination
Subsection (h) of section 7448 (relating to annuities to surviving spouses and dependent children of judges) is amended to read as follows:
Entitlement to annuity
In general
Annuity to surviving spouse
If a judge described in paragraph (2) is survived by a surviving spouse but not by a dependent child, there shall be paid to such surviving spouse an annuity beginning with the day of the death of the judge or following the surviving spouse’s attainment of the age of 50 years, whichever is the later, in an amount computed as provided in subsection (m).
Annuity to child
If such a judge is survived by a surviving spouse and a dependent child or children, there shall be paid to such surviving spouse an immediate annuity in an amount computed as provided in subsection (m), and there shall also be paid to or on behalf of each such child an immediate annuity equal to the lesser of—
10 percent of the average annual salary of such judge (determined in accordance with subsection (m)), or
20 percent of such average annual salary, divided by the number of such children.
Annuity to surviving dependent children
If such a judge leaves no surviving spouse but leaves a surviving dependent child or children, there shall be paid to or on behalf of each such child an immediate annuity equal to the lesser of—
20 percent of the average annual salary of such judge (determined in accordance with subsection (m)), or
40 percent of such average annual salary, divided by the number of such children.
Covered judges
Paragraph (1) applies to any judge electing under subsection (b)—
who dies while a judge after having rendered at least 5 years of civilian service computed as prescribed in subsection (n), for the last 5 years of which the salary deductions provided for by subsection (c)(1) or the deposits required by subsection (d) have actually been made or the salary deductions required by the civil service retirement laws have actually been made, or
who dies by assassination after having rendered less than 5 years of civilian service computed as prescribed in subsection (n) if, for the period of such service, the salary deductions provided for by subsection (c)(1) or the deposits required by subsection (d) have actually been made.
Termination of annuity
In the case of a surviving spouse
The annuity payable to a surviving spouse under this subsection shall be terminable upon such surviving spouse’s death or such surviving spouse’s remarriage before attaining age 55.
In the case of a child
The annuity payable to a child under this subsection shall be terminable upon (i) the child attaining the age of 18 years, (ii) the child’s marriage, or (iii) the child’s death, whichever first occurs, except that if such child is incapable of self-support by reason of mental or physical disability the child’s annuity shall be terminable only upon death, marriage, or recovery from such disability.
In the case of a dependent child after death of surviving spouse
In case of the death of a surviving spouse of a judge leaving a dependent child or children of the judge surviving such spouse, the annuity of such child or children shall be recomputed and paid as provided in paragraph (1)(C).
Recomputation
In any case in which the annuity of a dependent child is terminated under this subsection, the annuities of any remaining dependent child or children, based upon the service of the same judge, shall be recomputed and paid as though the child whose annuity was so terminated had not survived such judge.
Special rule for assassinated judges
In the case of a survivor or survivors of a judge described in paragraph (2)(B), there shall be deducted from the annuities otherwise payable under this section an amount equal to—
the amount of salary deductions provided for by subsection (c)(1) that would have been made if such deductions had been made for 5 years of civilian service computed as prescribed in subsection (n) before the judge’s death, reduced by
the amount of such salary deductions that were actually made before the date of the judge’s death.
Definition of assassination
Section 7448(a) (relating to definitions) is amended by adding at the end the following new paragraph:
The terms assassinated and assassination mean the killing of a judge that is motivated by the performance by that judge of his or her official duties.
Determination of assassination
Subsection (i) of section 7448 is amended—
by striking the subsection heading and inserting the following:
Determinations by chief judge
Dependency and disability
,
by moving the text 2 ems to the right, and
by adding at the end the following new paragraph:
Assassination
The chief judge shall determine whether the killing of a judge was an assassination, subject to review only by the Tax Court. The head of any Federal agency that investigates the killing of a judge shall provide information to the chief judge that would assist the chief judge in making such a determination.
Computation of annuities
Subsection (m) of section 7448 is amended—
by striking the subsection heading and inserting the following:
Computation of annuities
In general
,
by moving the text 2 ems to the right, and
by adding at the end the following new paragraph:
Assassinated judges
In the case of a judge who is assassinated and who has served less than 3 years, the annuity of the surviving spouse of such judge shall be based upon the average annual salary received by such judge for judicial service.
Other benefits
Section 7448 is amended by adding at the end the following:
Other benefits
In the case of a judge who is assassinated, an annuity shall be paid under this section notwithstanding a survivor’s eligibility for or receipt of benefits under chapter 81 of title 5, United States Code, except that the annuity for which a surviving spouse is eligible under this section shall be reduced to the extent that the total benefits paid under this section and chapter 81 of that title for any year would exceed the current salary for that year of the office of the judge.
Cost-of-Living adjustments for Tax Court judicial survivor annuities
In general
Subsection (s) of section 7448 (relating to annuities to surviving spouses and dependent children of judges) is amended to read as follows:
Increases in survivor annuities
Each time that an increase is made under section 8340(b) of title 5, United States Code, in annuities payable under subchapter III of chapter 83 of that title, each annuity payable from the survivors annuity fund under this section shall be increased at the same time by the same percentage by which annuities are increased under such section 8340(b).
Effective date
The amendment made by this section shall apply with respect to increases made under section 8340(b) of title 5, United States Code, in annuities payable under subchapter III of chapter 83 of that title, taking effect after the date of the enactment of this Act.
Life insurance coverage for Tax Court judges
In general
Section 7447 (relating to retirement of judges) is amended by adding at the end the following new subsection:
Life insurance coverage
For purposes of chapter 87 of title 5, United States Code (relating to life insurance), any individual who is serving as a judge of the Tax Court or who is retired under this section is deemed to be an employee who is continuing in active employment.
Effective date
The amendment made by this section shall apply to any individual serving as a judge of the United States Tax Court or to any retired judge of the United States Tax Court on the date of the enactment of this Act.
Cost of life insurance coverage for Tax Court judges age 65 or over
Section 7472 (relating to
expenditures) is amended by inserting after the first sentence the following
new sentence: Notwithstanding any other provision of law, the Tax Court
is authorized to pay on behalf of its judges, age 65 or over, any increase in
the cost of Federal Employees’ Group Life Insurance imposed after April 24,
1999, including any expenses generated by such payments, as authorized by the
chief judge in a manner consistent with such payments authorized by the
Judicial Conference of the United States pursuant to section 604(a)(5) of title
28, United States Code.
Modification of timing of Lump-Sum Payment of judges’ accrued annual leave
In general
Section 7443 (relating to membership of the Tax Court) is amended by adding at the end the following new subsection:
Lump-Sum Payment of judges’ accrued annual leave
Notwithstanding the provisions of sections 5551 and 6301 of title 5, United States Code, when an individual subject to the leave system provided in chapter 63 of that title is appointed by the President to be a judge of the Tax Court, the individual shall be entitled to receive, upon appointment to the Tax Court, a lump-sum payment from the Tax Court of the accumulated and accrued current annual leave standing to the individual’s credit as certified by the agency from which the individual resigned.
Effective date
The amendment made by this section shall apply to any judge of the United States Tax Court who has an outstanding leave balance on the date of the enactment of this Act and to any individual appointed by the President to serve as a judge of the United States Tax Court after such date.
Participation of Tax Court judges in the Thrift Savings Plan
In general
Section 7447 (relating to retirement of judges), as amended by this Act, is amended by adding at the end the following new subsection:
Thrift Savings Plan
Election to contribute
In general
A judge of the Tax Court may elect to contribute to the Thrift Savings Fund established by section 8437 of title 5, United States Code.
Period of election
An election may be made under this paragraph only during a period provided under section 8432(b) of title 5, United States Code, for individuals subject to chapter 84 of such title.
Applicability of title 5 provisions
Except as otherwise provided in this subsection, the provisions of subchapters III and VII of chapter 84 of title 5, United States Code, shall apply with respect to a judge who makes an election under paragraph (1).
Special rules
Amount contributed
The amount contributed by a judge to the Thrift Savings Fund in any pay period shall not exceed the maximum percentage of such judge’s basic pay for such period as allowable under section 8440f of title 5, United States Code. Basic pay does not include any retired pay paid pursuant to this section.
Contributions for benefit of judge
No contributions may be made for the benefit of a judge under section 8432(c) of title 5, United States Code.
Applicability of Section 8433(b) of title 5 whether or not judge retires
Section 8433(b) of title 5, United States Code, applies with respect to a judge who makes an election under paragraph (1) and who either—
retires under subsection (b), or
ceases to serve as a judge of the Tax Court but does not retire under subsection (b).
Applicability of Section 8351(b)(5) of title 5
The provisions of section 8351(b)(5) of title 5, United States Code, shall apply with respect to a judge who makes an election under paragraph (1).
Exception
Notwithstanding subparagraph (C), if any judge retires under this section, or resigns without having met the age and service requirements set forth under subsection (b)(2), and such judge’s nonforfeitable account balance is less than an amount that the Executive Director of the Office of Personnel Management prescribes by regulation, the Executive Director shall pay the nonforfeitable account balance to the participant in a single payment.
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act, except that United States Tax Court judges may only begin to participate in the Thrift Savings Plan at the next open season beginning after such date.
Exemption of teaching compensation of retired judges from limitation on outside earned income
In general
Section 7447 (relating to retirement of judges), as amended by this Act, is amended by adding at the end the following new subsection:
Teaching compensation of retired judges
For purposes of the limitation under section 501(a) of the Ethics in Government Act of 1978 (5 U.S.C. App.), any compensation for teaching approved under section 502(a)(5) of such Act shall not be treated as outside earned income when received by a judge of the Tax Court who has retired under subsection (b) for teaching performed during any calendar year for which such a judge has met the requirements of subsection (c), as certified by the chief judge of the Tax Court.
Effective date
The amendment made by this section shall apply to any individual serving as a retired judge of the United States Tax Court on or after the date of the enactment of this Act.
General provisions relating to Magistrate Judges of the Tax Court
Title OF special trial judge changed to magistrate judge of the Tax Court
The heading of section 7443A is amended to read as follows:
Magistrate Judges of the Tax Court
Appointment, tenure, and removal
Subsection (a) of section 7443A is amended to read as follows:
Appointment, tenure, and removal
Appointment
The chief judge may, from time to time, appoint and reappoint magistrate judges of the Tax Court for a term of 8 years. The magistrate judges of the Tax Court shall proceed under such rules as may be promulgated by the Tax Court.
Removal
Removal of a magistrate judge of the Tax Court during the term for which he or she is appointed shall be only for incompetency, misconduct, neglect of duty, or physical or mental disability, but the office of a magistrate judge of the Tax Court shall be terminated if the judges of the Tax Court determine that the services performed by the magistrate judge of the Tax Court are no longer needed. Removal shall not occur unless a majority of all the judges of the Tax Court concur in the order of removal. Before any order of removal shall be entered, a full specification of the charges shall be furnished to the magistrate judge of the Tax Court, and he or she shall be accorded by the judges of the Tax Court an opportunity to be heard on the charges.
Salary
Section 7443A(d) (relating to
salary) is amended by striking 90
and inserting
92
.
Exemption from Federal leave provisions
Section 7443A is amended by adding at the end the following new subsection:
Exemption from Federal leave provisions
In general
A magistrate judge of the Tax Court appointed under this section shall be exempt from the provisions of subchapter I of chapter 63 of title 5, United States Code.
Treatment of unused leave
After service as magistrate judge
If an individual who is exempted under paragraph (1) from the subchapter referred to in such paragraph was previously subject to such subchapter and, without a break in service, again becomes subject to such subchapter on completion of the individual’s service as a magistrate judge, the unused annual leave and sick leave standing to the individual’s credit when such individual was exempted from this subchapter is deemed to have remained to the individual’s credit.
Computation of annuity
In computing an annuity under section 8339 of title 5, United States Code, the total service of an individual specified in subparagraph (A) who retires on an immediate annuity or dies leaving a survivor or survivors entitled to an annuity includes, without regard to the limitations imposed by subsection (f) of such section 8339, the days of unused sick leave standing to the individual’s credit when such individual was exempted from subchapter I of chapter 63 of title 5, United States Code, except that these days will not be counted in determining average pay or annuity eligibility.
Lump sum payment
Any accumulated and current accrued annual leave or vacation balances credited to a magistrate judge as of the date of the enactment of this subsection shall be paid in a lump sum at the time of separation from service pursuant to the provisions and restrictions set forth in section 5551 of title 5, United States Code, and related provisions referred to in such section.
Conforming amendments
The heading of subsection (b)
of section 7443A is amended by striking Special Trial Judges
and inserting Magistrate Judges of the Tax Court
.
Section 7443A(b) is amended
by striking special trial judges of the court
and inserting
magistrate judges of the Tax Court
.
Subsections (c) and (d) of
section 7443A are amended by striking special trial judge
and
inserting magistrate judge of the Tax Court
each place it
appears.
Section 7443A(e) is amended
by striking special trial judges
and inserting magistrate
judges of the Tax Court
.
Section 7456(a) is amended by
striking special trial judge
each place it appears and inserting
magistrate judge
.
Subsection (c) of section 7471 is amended—
by striking the subsection
heading and inserting Magistrate Judges of the Tax Court.—
,
and
by striking special
trial judges
and inserting magistrate judges
.
Annuities to surviving spouses and dependent children of Magistrate Judges of the Tax Court
Definitions
Section 7448(a) (relating to definitions), as amended by this Act, is amended by redesignating paragraphs (5), (6), (7), and (8) as paragraphs (7), (8), (9), and (10), respectively, and by inserting after paragraph (4) the following new paragraphs:
The term magistrate judge means a judicial officer appointed pursuant to section 7443A, including any individual receiving an annuity under section 7443B, or chapters 83 or 84, as the case may be, of title 5, United States Code, whether or not performing judicial duties under section 7443C.
The term magistrate judge’s salary means the salary of a magistrate judge received under section 7443A(d), any amount received as an annuity under section 7443B, or chapters 83 or 84, as the case may be, of title 5, United States Code, and compensation received under section 7443C.
Election
Subsection (b) of section 7448 (relating to annuities to surviving spouses and dependent children of judges) is amended—
by striking the subsection heading and inserting the following:
Election
Judges
,
by moving the text 2 ems to the right, and
by adding at the end the following new paragraph:
Magistrate judges
Any magistrate judge may by written election filed with the chief judge bring himself or herself within the purview of this section. Such election shall be filed not later than the later of 6 months after—
6 months after the date of the enactment of this paragraph,
the date the judge takes office, or
the date the judge marries.
Conforming amendments
The heading of section 7448
is amended by inserting and
magistrate judges
after judges
.
The item relating to section
7448 in the table of sections for part I of subchapter C of chapter 76 is
amended by inserting and magistrate judges
after
judges
.
Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n), and (u) of section 7448, as amended by this Act, are each amended—
by inserting or
magistrate judge
after judge
each place it appears other
than in the phrase chief judge
, and
by inserting or
magistrate judge’s
after judge’s
each place it
appears.
Section 7448(c) is amended—
in paragraph (1), by striking
Tax Court judges
and inserting Tax Court judicial
officers
,
in paragraph (2)—
in subparagraph (A), by
inserting and section 7443A(d)
after (a)(4)
,
and
in subparagraph (B), by
striking subsection (a)(4)
and inserting subsections
(a)(4) and (a)(6)
.
Section 7448(g) is amended by
inserting or section 7443B
after section 7447
each place it appears, and by inserting or an annuity
after
retired pay
.
Section 7448(j)(1) is amended—
in subparagraph (A), by
striking service or retired
and inserting service,
retired
, and by inserting , or receiving any annuity under
section 7443B or chapters 83 or 84 of title 5, United States Code,
after section 7447
, and
in the last sentence, by
striking subsections (a) (6) and (7)
and inserting
paragraphs (8) and (9) of subsection (a)
.
Section 7448(m)(1), as amended by this Act, is amended—
by inserting or any
annuity under section 7443B or chapters 83 or 84 of title 5, United States
Code
after 7447(d)
, and
by inserting “or 7443B(m)(1)(B) after “7447(f)(4)”.
Section 7448(n) is amended by
inserting his years of service pursuant to any appointment under section
7443A,
after of the Tax Court,
.
Section 3121(b)(5)(E) is
amended by inserting or magistrate judge
before of the
United States Tax Court
.
Section
210(a)(5)(E) of the Social
Security Act is amended by inserting or magistrate
judge
before of the United States Tax Court
.
Retirement and annuity Program
Retirement and annuity Program
Part I of subchapter C of chapter 76 is amended by inserting after section 7443A the following new section:
Retirement for Magistrate Judges of the Tax Court
Retirement based on years of service
A magistrate judge of the Tax Court to whom this section applies and who retires from office after attaining the age of 65 years and serving at least 14 years, whether continuously or otherwise, as such magistrate judge shall, subject to subsection (f), be entitled to receive, during the remainder of the magistrate judge’s lifetime, an annuity equal to the salary being received at the time the magistrate judge leaves office.
Retirement upon failure of reappointment
A magistrate judge of the Tax Court to whom this section applies who is not reappointed following the expiration of the term of office of such magistrate judge and who retires upon the completion of the term shall, subject to subsection (f), be entitled to receive, upon attaining the age of 65 years and during the remainder of such magistrate judge’s lifetime, an annuity equal to that portion of the salary being received at the time the magistrate judge leaves office which the aggregate number of years of service, not to exceed 14, bears to 14, if—
such magistrate judge has served at least 1 full term as a magistrate judge, and
not earlier than 9 months before the date on which the term of office of such magistrate judge expires, and not later than 6 months before such date, such magistrate judge notified the chief judge of the Tax Court in writing that such magistrate judge was willing to accept reappointment to the position in which such magistrate judge was serving.
Service of at least 8 years
A magistrate judge of the Tax Court to whom this section applies and who retires after serving at least 8 years, whether continuously or otherwise, as such a magistrate judge shall, subject to subsection (f), be entitled to receive, upon attaining the age of 65 years and during the remainder of the magistrate judge’s lifetime, an annuity equal to that portion of the salary being received at the time the magistrate judge leaves office which the aggregate number of years of service, not to exceed 14, bears to 14. Such annuity shall be reduced by 1/6 of 1 percent for each full month such magistrate judge was under the age of 65 at the time the magistrate judge left office, except that such reduction shall not exceed 20 percent.
Retirement for disability
A magistrate judge of the Tax Court to whom this section applies, who has served at least 5 years, whether continuously or otherwise, as such a magistrate judge and who retires or is removed from office upon the sole ground of mental or physical disability shall, subject to subsection (f), be entitled to receive, during the remainder of the magistrate judge’s lifetime, an annuity equal to 40 percent of the salary being received at the time of retirement or removal or, in the case of a magistrate judge who has served for at least 10 years, an amount equal to that proportion of the salary being received at the time of retirement or removal which the aggregate number of years of service, not to exceed 14, bears to 14.
Cost-of-Living adjustments
A magistrate judge of the Tax Court who is entitled to an annuity under this section is also entitled to a cost-of-living adjustment in such annuity, calculated and payable in the same manner as adjustments under section 8340(b) of title 5, United States Code, except that any such annuity, as increased under this subsection, may not exceed the salary then payable for the position from which the magistrate judge retired or was removed.
Election; annuity in lieu of other annuities
In general
A magistrate judge of the Tax Court shall be entitled to an annuity under this section if the magistrate judge elects an annuity under this section by notifying the chief judge of the Tax Court not later than the later of—
5 years after the magistrate judge of the Tax Court begins judicial service, or
5 years after the date of the enactment of this subsection.
Annuity in lieu of other annuity
A magistrate judge who elects to receive an annuity under this section shall not be entitled to receive—
any annuity to which such magistrate judge would otherwise have been entitled under subchapter III of chapter 83, or under chapter 84 (except for subchapters III and VII), of title 5, United States Code, for service performed as a magistrate or otherwise,
an annuity or salary in senior status or retirement under section 371 or 372 of title 28, United States Code,
retired pay under section 7447, or
retired pay under section 7296 of title 38, United States Code.
Coordination with title 5
A magistrate judge of the Tax Court who elects to receive an annuity under this section—
shall not be subject to deductions and contributions otherwise required by section 8334(a) of title 5, United States Code,
shall be excluded from the operation of chapter 84 (other than subchapters III and VII) of such title 5, and
is entitled to a lump-sum credit under section 8342(a) or 8424 of such title 5, as the case may be.
Calculation of service
For purposes of calculating an annuity under this section—
service as a magistrate judge of the Tax Court to whom this section applies may be credited, and
each month of service shall be credited as 1/12 of a year, and the fractional part of any month shall not be credited.
Covered positions and service
This section applies to any magistrate judge of the Tax Court or special trial judge of the Tax Court appointed under this subchapter, but only with respect to service as such a magistrate judge or special trial judge after a date not earlier than 91/2 years before the date of the enactment of this subsection.
Payments pursuant to court order
In general
Payments under this section which would otherwise be made to a magistrate judge of the Tax Court based upon his or her service shall be paid (in whole or in part) by the chief judge of the Tax Court to another person if and to the extent expressly provided for in the terms of any court decree of divorce, annulment, or legal separation, or the terms of any court order or court-approved property settlement agreement incident to any court decree of divorce, annulment, or legal separation. Any payment under this paragraph to a person bars recovery by any other person.
Requirements for payment
Paragraph (1) shall apply only to payments made by the chief judge of the Tax Court after the date of receipt by the chief judge of written notice of such decree, order, or agreement, and such additional information as the chief judge may prescribe.
Court defined
For purposes of this subsection, the term court means any court of any State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the Virgin Islands, and any Indian tribal court or courts of Indian offense.
Deductions, contributions, and deposits
Deductions
Beginning with the next pay period after the chief judge of the Tax Court receives a notice under subsection (f) that a magistrate judge of the Tax Court has elected an annuity under this section, the chief judge shall deduct and withhold 1 percent of the salary of such magistrate judge. Amounts shall be so deducted and withheld in a manner determined by the chief judge. Amounts deducted and withheld under this subsection shall be deposited in the Treasury of the United States to the credit of the Tax Court Judicial Officers’ Retirement Fund. Deductions under this subsection from the salary of a magistrate judge shall terminate upon the retirement of the magistrate judge or upon completion of 14 years of service for which contributions under this section have been made, whether continuously or otherwise, as calculated under subsection (g), whichever occurs first.
Consent to deductions; discharge of claims
Each magistrate judge of the Tax Court who makes an election under subsection (f) shall be deemed to consent and agree to the deductions from salary which are made under paragraph (1). Payment of such salary less such deductions (and any deductions made under section 7448) is a full and complete discharge and acquittance of all claims and demands for all services rendered by such magistrate judge during the period covered by such payment, except the right to those benefits to which the magistrate judge is entitled under this section (and section 7448).
Deposits for prior service
Each magistrate judge of the Tax Court who makes an election under subsection (f) may deposit, for service performed before such election for which contributions may be made under this section, an amount equal to 1 percent of the salary received for that service. Credit for any period covered by that service may not be allowed for purposes of an annuity under this section until a deposit under this subsection has been made for that period.
Individual retirement records
The amounts deducted and withheld under subsection (j), and the amounts deposited under subsection (k), shall be credited to individual accounts in the name of each magistrate judge of the Tax Court from whom such amounts are received, for credit to the Tax Court Judicial Officers’ Retirement Fund.
Annuities affected in certain cases
1-year forfeiture for failure to perform judicial duties
Subject to paragraph (3), any magistrate judge of the Tax Court who retires under this section and who fails to perform judicial duties required of such individual by section 7443C shall forfeit all rights to an annuity under this section for a 1-year period which begins on the 1st day on which such individual fails to perform such duties.
Permanent forfeiture of retired pay where certain non-government services performed
Subject to paragraph (3), any magistrate judge of the Tax Court who retires under this section and who thereafter performs (or supervises or directs the performance of) legal or accounting services in the field of Federal taxation for the individual’s client, the individual’s employer, or any of such employer’s clients, shall forfeit all rights to an annuity under this section for all periods beginning on or after the first day on which the individual performs (or supervises or directs the performance of) such services. The preceding sentence shall not apply to any civil office or employment under the Government of the United States.
Forfeitures not to apply where individual elects to freeze amount of annuity
In general
If a magistrate judge of the Tax Court makes an election under this paragraph—
paragraphs (1) and (2) (and section 7443C) shall not apply to such magistrate judge beginning on the date such election takes effect, and
the annuity payable under this section to such magistrate judge, for periods beginning on or after the date such election takes effect, shall be equal to the annuity to which such magistrate judge is entitled on the day before such effective date.
Election requirements
An election under subparagraph (A)—
may be made by a magistrate judge of the Tax Court eligible for retirement under this section, and
shall be filed with the chief judge of the Tax Court.
Effective date of election
Any election under subparagraph (A) shall take effect on the first day of the first month following the month in which the election is made.
Accepting other employment
Any magistrate judge of the Tax Court who retires under this section and thereafter accepts compensation for civil office or employment under the United States Government (other than for the performance of functions as a magistrate judge of the Tax Court under section 7443C) shall forfeit all rights to an annuity under this section for the period for which such compensation is received. For purposes of this paragraph, the term compensation includes retired pay or salary received in retired status.
Lump-Sum payments
Eligibility
In general
Subject to paragraph (2), an individual who serves as a magistrate judge of the Tax Court and—
who leaves office and is not reappointed as a magistrate judge of the Tax Court for at least 31 consecutive days,
who files an application with the chief judge of the Tax Court for payment of a lump-sum credit,
is not serving as a magistrate judge of the Tax Court at the time of filing of the application, and
will not become eligible to receive an annuity under this section within 31 days after filing the application,
Payment to survivors
Lump-sum benefits
authorized by subparagraphs (C), (D), and (E) of this paragraph shall be paid
to the person or persons surviving the magistrate judge of the Tax Court and
alive on the date title to the payment arises, in the order of precedence set
forth in subsection (o) of section 376 of title 28, United States Code, and in
accordance with the last 2 sentences of paragraph (1) of that subsection. For
purposes of the preceding sentence, the term judicial official as
used in subsection (o) of such section 376 shall be deemed to mean
magistrate judge of the Tax Court
and the terms
Administrative Office of the United States Courts and
Director of the Administrative Office of the United States Courts
shall be deemed to mean chief judge of the Tax Court
.
Payment upon death of judge before receipt of annuity
If a magistrate judge of the Tax Court dies before receiving an annuity under this section, the lump-sum credit shall be paid.
Payment of annuity remainder
If all annuity rights under this section based on the service of a deceased magistrate judge of the Tax Court terminate before the total annuity paid equals the lump-sum credit, the difference shall be paid.
Payment upon death of judge during receipt of annuity
If a magistrate judge of the Tax Court who is receiving an annuity under this section dies, any accrued annuity benefits remaining unpaid shall be paid.
Payment upon termination
Any accrued annuity benefits remaining unpaid on the termination, except by death, of the annuity of a magistrate judge of the Tax Court shall be paid to that individual.
Payment upon accepting other employment
Subject to paragraph (2), a magistrate judge of the Tax Court who forfeits rights to an annuity under subsection (m)(4) before the total annuity paid equals the lump-sum credit shall be entitled to be paid the difference if the magistrate judge of the Tax Court files an application with the chief judge of the Tax Court for payment of that difference. A payment under this subparagraph voids all rights to an annuity on which the payment is based.
Spouses and former spouses
In general
Payment of the lump-sum credit under paragraph (1)(A) or a payment under paragraph (1)(G)—
may be made only if any current spouse and any former spouse of the magistrate judge of the Tax Court are notified of the magistrate judge’s application, and
shall be subject to the terms of a court decree of divorce, annulment, or legal separation, or any court or court approved property settlement agreement incident to such decree, if—
the decree, order, or agreement expressly relates to any portion of the lump-sum credit or other payment involved, and
payment of the lump-sum credit or other payment would extinguish entitlement of the magistrate judge’s spouse or former spouse to any portion of an annuity under subsection (i).
Notification
Notification of a spouse or former spouse under this paragraph shall be made in accordance with such procedures as the chief judge of the Tax Court shall prescribe. The chief judge may provide under such procedures that subparagraph (A)(i) may be waived with respect to a spouse or former spouse if the magistrate judge establishes to the satisfaction of the chief judge that the whereabouts of such spouse or former spouse cannot be determined.
Resolution of 2 or more orders
The chief judge shall prescribe procedures under which this paragraph shall be applied in any case in which the chief judge receives 2 or more orders or decrees described in subparagraph (A).
Definition
For purposes of this subsection, the term lump-sum credit means the unrefunded amount consisting of—
retirement deductions made under this section from the salary of a magistrate judge of the Tax Court,
amounts deposited under subsection (k) by a magistrate judge of the Tax Court covering earlier service, and
interest on the deductions and deposits which, for any calendar year, shall be equal to the overall average yield to the Tax Court Judicial Officers’ Retirement Fund during the preceding fiscal year from all obligations purchased by the Secretary during such fiscal year under subsection (o); but does not include interest—
if the service covered thereby aggregates 1 year or less, or
for the fractional part of a month in the total service.
Tax Court judicial officers’ retirement Fund
Establishment
There is established in the Treasury a fund which shall be known as the ‘Tax Court Judicial Officers’ Retirement Fund’. Amounts in the Fund are authorized to be appropriated for the payment of annuities, refunds, and other payments under this section.
Investment of Fund
The Secretary shall invest, in interest bearing securities of the United States, such currently available portions of the Tax Court Judicial Officers’ Retirement Fund as are not immediately required for payments from the Fund. The income derived from these investments constitutes a part of the Fund.
Unfunded liability
In general
There are authorized to be appropriated to the Tax Court Judicial Officers’ Retirement Fund amounts required to reduce to zero the unfunded liability of the Fund.
Unfunded liability
For purposes of subparagraph (A), the term unfunded liability means the estimated excess, determined on an annual basis in accordance with the provisions of section 9503 of title 31, United States Code, of the present value of all benefits payable from the Tax Court Judicial Officers’ Retirement Fund over the sum of—
the present value of deductions to be withheld under this section from the future basic pay of magistrate judges of the Tax Court, plus
the balance in the Fund as of the date the unfunded liability is determined.
Participation in Thrift Savings Plan
Election to contribute
In general
A magistrate judge of the Tax Court who elects to receive an annuity under this section or under section 611 of the National Employee Savings and Trust Equity Guarantee Act of 2005 may elect to contribute an amount of such individual’s basic pay to the Thrift Savings Fund established by section 8437 of title 5, United States Code.
Period of election
An election may be made under this paragraph only during a period provided under section 8432(b) of title 5, United States Code, for individuals subject to chapter 84 of such title.
Applicability of title 5 provisions
Except as otherwise provided in this subsection, the provisions of subchapters III and VII of chapter 84 of title 5, United States Code, shall apply with respect to a magistrate judge who makes an election under paragraph (1).
Special rules
Amount contributed
The amount contributed by a magistrate judge to the Thrift Savings Fund in any pay period shall not exceed the maximum percentage of such judge’s basic pay for such pay period as allowable under section 8440f of title 5, United States Code.
Contributions for benefit of judge
No contributions may be made for the benefit of a magistrate judge under section 8432(c) of title 5, United States Code.
Applicability of Section 8433(b) of title 5
Section 8433(b) of title 5, United States Code, applies with respect to a magistrate judge who makes an election under paragraph (1) and—
who retires entitled to an immediate annuity under this section (including a disability annuity under subsection (d) of this section) or section 611 of the National Employee Savings and Trust Equity Guarantee Act of 2005,
who retires before attaining age 65 but is entitled, upon attaining age 65, to an annuity under this section or section 611 of the National Employee Savings and Trust Equity Guarantee Act of 2005, or
who retires before becoming entitled to an immediate annuity, or an annuity upon attaining age 65, under this section or section 611 of the National Employee Savings and Trust Equity Guarantee Act of 2005.
Separation from service
With respect to a magistrate judge to whom this subsection applies, retirement under this section or section 611 of the National Employee Savings and Trust Equity Guarantee Act of 2005 is a separation from service for purposes of subchapters III and VII of chapter 84 of title 5, United States Code.
Definitions
For purposes of this subsection, the terms retirement and retire include removal from office under section 7443A(a)(2) on the sole ground of mental or physical disability.
Offset
In the case of a magistrate judge who receives a distribution from the Thrift Savings Fund and who later receives an annuity under this section, that annuity shall be offset by an amount equal to the amount which represents the Government’s contribution to that person’s Thrift Savings Account, without regard to earnings attributable to that amount. Where such an offset would exceed 50 percent of the annuity to be received in the first year, the offset may be divided equally over the first 2 years in which that person receives the annuity.
Exception
Notwithstanding clauses (i) and (ii) of paragraph (3)(C), if any magistrate judge retires under circumstances making such magistrate judge eligible to make an election under subsection (b) of section 8433 of title 5, United States Code, and such magistrate judge’s nonforfeitable account balance is less than an amount that the Executive Director of the Office of Personnel Management prescribes by regulation, the Executive Director shall pay the nonforfeitable account balance to the participant in a single payment.
Conforming amendment
The table of sections for part I of subchapter C of chapter 76 is amended by inserting after the item relating to section 7443A the following new item:
Sec. 7443B. Retirement for magistrate judges of the Tax Court.
.
Incumbent Magistrate Judges of the Tax Court
Retirement annuity under title 5 and Section 7443B of the Internal Revenue Code of 1986
A magistrate judge of the United States Tax Court in active service on the date of the enactment of this Act shall, subject to subsection (b), be entitled, in lieu of the annuity otherwise provided under the amendments made by this title, to—
an annuity under subchapter III of chapter 83, or under chapter 84 (except for subchapters III and VII), of title 5, United States Code, as the case may be, for creditable service before the date on which service would begin to be credited for purposes of paragraph (2), and
an annuity calculated under subsection (b) or (c) and subsection (g) of section 7443B of the Internal Revenue Code of 1986, as added by this Act, for any service as a magistrate judge of the United States Tax Court or special trial judge of the United States Tax Court but only with respect to service as such a magistrate judge or special trial judge after a date not earlier than 91/2 years prior to the date of the enactment of this Act (as specified in the election pursuant to subsection (b)) for which deductions and deposits are made under subsections (j) and (k) of such section 7443B, as applicable, without regard to the minimum number of years of service as such a magistrate judge of the United States Tax Court, except that—
in the case of a magistrate judge who retired with less than 8 years of service, the annuity under subsection (c) of such section 7443B shall be equal to that proportion of the salary being received at the time the magistrate judge leaves office which the years of service bears to 14, subject to a reduction in accordance with subsection (c) of such section 7443B if the magistrate judge is under age 65 at the time he or she leaves office, and
the aggregate amount of the annuity initially payable on retirement under this subsection may not exceed the rate of pay for the magistrate judge which is in effect on the day before the retirement becomes effective.
Filing of notice of election
A magistrate judge of the United States Tax Court shall be entitled to an annuity under this section only if the magistrate judge files a notice of that election with the chief judge of the United States Tax Court specifying the date on which service would begin to be credited under section 7443B of the Internal Revenue Code of 1986, as added by this Act, in lieu of chapter 83 or chapter 84 of title 5, United States Code. Such notice shall be filed in accordance with such procedures as the chief judge of the United States Tax Court shall prescribe.
Lump-Sum credit under title 5
A magistrate judge of the United States Tax Court who makes an election under subsection (b) shall be entitled to a lump-sum credit under section 8342 or 8424 of title 5, United States Code, as the case may be, for any service which is covered under section 7443B of the Internal Revenue Code of 1986, as added by this Act, pursuant to that election, and with respect to which any contributions were made by the magistrate judge under the applicable provisions of title 5, United States Code.
Recall
With respect to any magistrate judge of the United States Tax Court receiving an annuity under this section who is recalled to serve under section 7443C of the Internal Revenue Code of 1986, as added by this Act—
the amount of compensation which such recalled magistrate judge receives under such section 7443C shall be calculated on the basis of the annuity received under this section, and
such recalled magistrate judge of the United States Tax Court may serve as a reemployed annuitant to the extent otherwise permitted under title 5, United States Code.
Provisions for recall
In general
Part I of subchapter C of chapter 76, as amended by this Act, is amended by inserting after section 7443B the following new section:
Recall of Magistrate Judges of the Tax Court
Recalling of retired magistrate judges
Any individual who has retired pursuant to section 7443B or the applicable provisions of title 5, United States Code, upon reaching the age and service requirements established therein, may at or after retirement be called upon by the chief judge of the Tax Court to perform such judicial duties with the Tax Court as may be requested of such individual for any period or periods specified by the chief judge; except that in the case of any such individual—
the aggregate of such periods in any 1 calendar year shall not (without such individual’s consent) exceed 90 calendar days, and
such individual shall be relieved of performing such duties during any period in which illness or disability precludes the performance of such duties.
Compensation
For the year in which a period of recall occurs, the magistrate judge shall receive, in addition to the annuity provided under the provisions of section 7443B or under the applicable provisions of title 5, United States Code, an amount equal to the difference between that annuity and the current salary of the office to which the magistrate judge is recalled. The annuity of the magistrate judge who completes that period of service, who is not recalled in a subsequent year, and who retired under section 7443B, shall be equal to the salary in effect at the end of the year in which the period of recall occurred for the office from which such individual retired.
Rulemaking authority
The provisions of this section may be implemented under such rules as may be promulgated by the Tax Court.
Conforming amendment
The table of sections for part I of subchapter C of chapter 76, as amended by this Act, is amended by inserting after the item relating to section 7443B the following new item:
Sec. 7443C. Recall of magistrate judges of the Tax Court.
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Effective date
Except as otherwise provided, the amendments made by this title shall take effect on the date of the enactment of this Act.
Other provisions
Transfer of excess pension assets to multiemployer health plan
In general
Section 420(e) of the Internal Revenue Code of 1986 (relating to definitions and special rules) is amended by adding at the end the following new paragraph:
Application to multiemployer plan
In the case of any plan to which section 404(c) applies (or any successor plan primarily covering employees in the building and construction industry)—
the prohibition under subsection (a) on the application of this section to a multiemployer plan shall not apply, and
this section shall be applied to any such plan—
by treating any reference in this section to an employer as a reference to all employers maintaining the plan (or, if appropriate, the plan sponsor), and
in accordance with such modifications of this section (and the provisions of this title and the Employee Retirement Income Security Act of 1974 relating to this section) as the Secretary determines appropriate to reflect the fact the plan is not maintained by a single employer.
Amendments of ERISA
Section
101(e)(3) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1021(e)(3)) is amended by striking American Jobs
Creation Act of 2004
and inserting National Employee Savings and
Trust Equity Guarantee Act of 2005
.
Section 403(c)(1) of such Act
(29 U.S.C.
1103(c)(1)) is amended by striking American Jobs
Creation Act of 2004
and inserting National Employee Savings and
Trust Equity Guarantee Act of 2005
.
Section 408(b)(13) of such
Act (29
U.S.C. 1108(b)(13)) is amended by striking American Jobs
Creation Act of 2004
and inserting National Employee Savings and
Trust Equity Guarantee Act of 2005
.
Effective date
The amendment made by this section shall apply to transfers made in taxable years beginning after December 31, 2004.
Transfer of excess funds from black lung disability trusts to United Mine Workers of America Combined Benefit Fund
In general
So much of section 501(c)(21)(C) of the Internal Revenue Code of 1986 (relating to black lung disability trusts) as precedes the last sentence is amended to read as follows:
Payments described in subparagraph (A)(i)(IV) may be made from such trust during a taxable year only to the extent that the aggregate amount of such payments during such taxable year does not exceed the excess (if any), as of the close of the preceding taxable year, of—
the fair market value of the assets of the trust, over
110 percent of the present value of the liability described in subparagraph (A)(i)(I) of such person.
Transfer
Section 9705 of such Code (relating to transfer) is amended by adding at the end the following new subsection:
Transfer from black lung disability trusts
In general
The Secretary shall transfer each fiscal year to the Fund from the general fund of the Treasury an amount which the Secretary estimates to be the additional amounts received in the Treasury for that fiscal year by reason of the amendment made by section 804(a) of the National Employee Savings and Trust Equity Guarantee Act of 2005. The Secretary shall adjust the amount transferred for any year to the extent necessary to correct errors in any estimate for any prior year.
Use of funds
Any amount transferred to the Combined Fund under paragraph (1) shall be used to proportionately reduce the unassigned beneficiary premium under section 9704(a)(3) of each assigned operator for the plan year in which transferred.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2002.
Treatment of death benefits from corporate-owned life insurance
In general
Section 101 of the Internal Revenue Code of 1986 (relating to certain death benefits) is amended by adding at the end the following new subsection:
Treatment of certain Employer-Owned life insurance contracts
General rule
In the case of an employer-owned life insurance contract, the amount excluded from gross income of an applicable policyholder by reason of paragraph (1) of subsection (a) shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract.
Exceptions
In the case of an employer-owned life insurance contract with respect to which the notice and consent requirements of paragraph (4) are met, paragraph (1) shall not apply to any of the following:
Exceptions based on insured’s status
Any amount received by reason of the death of an insured who, with respect to an applicable policyholder—
was an employee at any time during the 12-month period before the insured’s death, or
is, at the time the contract is issued—
a director,
a highly compensated employee within the meaning of section 414(q) (without regard to paragraph (1)(B)(ii) thereof), or
a highly compensated
individual within the meaning of section 105(h)(5), except that 35
percent
shall be substituted for 25 percent
in
subparagraph (C) thereof.
Exception for amounts paid to insured’s heirs
Any amount received by reason of the death of an insured to the extent—
the amount is paid to a member of the family (within the meaning of section 267(c)(4)) of the insured, any individual who is the designated beneficiary of the insured under the contract (other than the applicable policyholder), a trust established for the benefit of any such member of the family or designated beneficiary, or the estate of the insured, or
the amount is used to purchase an equity (or capital or profits) interest in the applicable policyholder from any person described in clause (i).
Employer-Owned life insurance contract
In general
For purposes of this subsection, the term employer-owned life insurance contract means a life insurance contract which—
is owned by a person engaged in a trade or business and under which such person (or a related person described in subparagraph (B)(ii)) is directly or indirectly a beneficiary under the contract, and
covers the life of an insured who is an employee with respect to the trade or business of the applicable policyholder on the date the contract is issued.
Applicable policyholder
For purposes of this subsection—
In general
The term applicable policyholder means, with respect to any employer-owned life insurance contract, the person described in subparagraph (A)(i) which owns the contract.
Related persons
The term applicable policyholder includes any person which—
bears a relationship to the person described in clause (i) which is specified in section 267(b) or 707(b)(1), or
is engaged in trades or businesses with such person which are under common control (within the meaning of subsection (a) or (b) of section 52).
Notice and consent requirements
The notice and consent requirements of this paragraph are met if, before the issuance of the contract, the employee—
is notified in writing that the applicable policyholder intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract was issued,
provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and
is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee.
Definitions
For purposes of this subsection—
Employee
The term employee includes an officer, director, and highly compensated employee (within the meaning of section 414(q)).
Insured
The term insured means, with respect to an employer-owned life insurance contract, an individual covered by the contract who is a United States citizen or resident. In the case of a contract covering the joint lives of 2 individuals, references to an insured include both of the individuals.
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Reporting requirements
Subpart A of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 (relating to information concerning persons subject to special provisions) is amended by inserting after section 6039H the following new section:
Returns and records with respect to Employer-Owned life insurance contracts
In general
Every applicable policyholder owning 1 or more employer-owned life insurance contracts issued after the date of the enactment of this section shall file a return (at such time and in such manner as the Secretary shall by regulations prescribe) showing for each year such contracts are owned—
the number of employees of the applicable policyholder at the end of the year,
the number of such employees insured under such contracts at the end of the year,
the total amount of insurance in force at the end of the year under such contracts,
the name, address, and taxpayer identification number of the applicable policyholder and the type of business in which the policyholder is engaged, and
that the applicable policyholder has a valid consent for each insured employee (or, if all such consents are not obtained, the number of insured employees for whom such consent was not obtained).
Recordkeeping requirement
Each applicable policyholder owning 1 or more employer-owned life insurance contracts during any year shall keep such records as may be necessary for purposes of determining whether the requirements of this section and section 101(j) are met.
Definitions
Any term used in this section which is used in section 101(j) shall have the same meaning given such term by section 101(j).
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Conforming amendments
Paragraph (1) of section
101(a) of the Internal Revenue Code of 1986 is amended by striking and
subsection (f)
and inserting subsection (f), and subsection
(j)
.
The table of sections for subpart A of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6039H the following new item:
Sec. 6039I. Returns and records with respect to employer-owned life insurance contracts.
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Effective date
The amendments made by this section shall apply to life insurance contracts issued after the date of the enactment of this Act, except for a contract issued after such date pursuant to an exchange described in section 1035 of the Internal Revenue Code of 1986 for a contract issued on or prior to that date. For purposes of the preceding sentence, any material increase in the death benefit or other material change shall cause the contract to be treated as a new contract except that, in the case of a master contract (within the meaning of section 264(f)(4)(E) of such Code), the addition of covered lives shall be treated as a new contract only with respect to such additional covered lives.