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Trust Examination Manual
ECONOMIC
GROWTH and TAX RELIEF RECONCILIATION ACT of 2001
(Sections Made Permanent
by Section 811 of the Pension Protection Act of 2006)
TITLE VI—Pension
and Individual Retirement Arrangement Provisions
Subtitle
A—Individual Retirement Accounts
Sec.
601. Modification of IRA contribution limits.
Sec.
602. Deemed IRAs under employer plans.
Subtitle
B—Expanding Coverage
Sec.
611. Increase in benefit and contribution limits.
Sec.
612. Plan loans for subchapter S owners, partners, and sole proprietors.
Sec.
613. Modification of top-heavy rules.
Sec.
614. Elective deferrals not taken into account for purposes of deduction limits.
Sec.
615. Repeal of coordination requirements for deferred compensation plans of State
and local governments and tax-exempt organizations.
Sec. 616. Deduction
limits.
Sec. 617. Option
to treat elective deferrals as after-tax Roth contributions.
Sec. 618. Nonrefundable
credit to certain individuals for elective deferrals and IRA contributions.
Sec. 619. Credit
for pension plan startup costs of small employers.
Sec. 620. Elimination
of user fee for requests to IRS regarding pension plans.
Sec. 621. Treatment
of nonresident aliens engaged in international transportation services.
Subtitle
C—Enhancing Fairness for Women
Sec.
631. Catch-up contributions for individuals age 50 or over.
Sec.
632. Equitable treatment for contributions of employees to defined contribution plans.
Sec.
633. Faster vesting of certain employer matching contributions.
Sec. 634. Modification
to minimum distribution rules.
Sec. 635. Clarification
of tax treatment of division of section 457 plan benefits upon divorce.
Sec. 636. Provisions
relating to hardship distributions.
Sec. 637. Waiver
of tax on nondeductible contributions for domestic or similar workers.
Subtitle
D—Increasing Portability for Participants
Sec.
641. Rollovers allowed among various types of plans.
Sec.
642. Rollovers of IRAs into workplace retirement plans.
Sec.
643. Rollovers of after-tax contributions.
Sec.
644. Hardship exception to 60-day rule.
Sec.
645. Treatment of forms of distribution.
Sec.
646. Rationalization of restrictions on distributions.
Sec.
647. Purchase of service credit in governmental defined benefit plans.
Sec.
648. Employers may disregard rollovers for purposes of cash-out amounts.
Sec.
649. Minimum distribution and inclusion requirements for section 457 plans.
Subtitle
E—Strengthening Pension Security and Enforcement
PART I—GENERAL
PROVISIONS
Sec.
651. Repeal of 160 percent of current liability funding limit.
Sec.
652. Maximum contribution deduction rules modified and applied to all defined benefit
plans.
Sec.
653. Excise tax relief for sound pension funding.
Sec. 654. Treatment
of multi-employer plans under section 415.
Sec. 655. Protection
of investment of employee contributions to 401(k) plans.
Sec. 656. Prohibited
allocations of stock in S corporation ESOP.
Sec. 657. Automatic
rollovers of certain mandatory distributions.
Sec. 658. Clarification
of treatment of contributions to multi-employer plan.
PART II—TREATMENT
OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS
Sec.
659. Excise tax on failure to provide notice by defined benefit plans significantly
reducing future benefit accruals.
Subtitle
F—Reducing Regulatory Burdens
Sec.
661. Modification of timing of plan valuations.
Sec.
662. ESOP dividends may be reinvested without loss of dividend deduction.
Sec.
663. Repeal of transition rule relating to certain highly compensated employees.
Sec.
664. Employees of tax-exempt entities.
Sec. 665. Clarification
of treatment of employer-provided retirement advice.
Sec. 666. Repeal
of the multiple use test.
Subtitle
A—Individual Retirement Accounts
Sec.
601. Modification Of IRA Contribution Limits.
(a) INCREASE IN CONTRIBUTION LIMIT.—
(1) IN GENERAL.—Paragraph (1)(A) of section
219(b) (relating to maximum amount of deduction) is amended by striking ‘‘$2,000’’ and inserting ‘‘the deductible amount’’.
(2) DEDUCTIBLE AMOUNT.—Section 219(b)
is amended by adding at the end the following new paragraph:
‘‘ (5) DEDUCTIBLE AMOUNT.—For
purposes of paragraph (1)(A)—
‘‘ (A) IN GENERAL.—The
deductible amount shall be
determined in accordance with the following table:
‘‘ For taxable years The deductible beginning in:
amount is:
2002 through 2004 .....................................................................
$3,000
2005 through 2007 .....................................................................
$4,000
2008 and thereafter ....................................................................
$5,000.
‘‘ (B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR
OLDER.—
‘‘ (i) IN GENERAL.—In
the case of an individual who has attained the age of 50 before the close of
the taxable year, the deductible amount for such taxable year shall be increased
by the applicable amount.
‘‘ (ii) APPLICABLE AMOUNT.—For
purposes of clause (i), the applicable amount shall be the amount determined
in accordance with the following table:
‘‘ For taxable years The applicable beginning in:
amount is:
2002 through 2005 .......................................................................
$500
2006 and thereafter ...................................................................
$1,000.
‘‘ (C) COST-OF-LIVING ADJUSTMENT.—
‘‘ (i) IN GENERAL.—In
the case of any taxable year beginning in a calendar year after 2008, the $5,000
amount under subparagraph (A) shall be increased by an amount equal to—
‘‘ (I) such dollar amount, multiplied by
‘‘ (II) the cost-of-living adjustment determined under
section 1(f )(3) for the calendar year in which
the taxable year begins, determined by substituting ‘calendar
year 2007’ for ‘calendar year 1992’ in subparagraph (B) thereof.
‘‘ (ii) ROUNDING RULES.—If
any amount after adjustment under clause (i) is not a multiple of $500, such
amount shall be rounded to the next lower multiple of $500.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in
excess of $2,000 on behalf of any individual’’ and inserting ‘‘on behalf of any individual in excess of the amount in effect for such taxable
year under section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’ and
inserting ‘‘the dollar amount in effect under section 219(b)(1)(A)’’.
(3) Section 408(b) is amended by striking ‘‘$2,000’’ in
the matter following paragraph (4) and inserting ‘‘the dollar amount in effect under section 219(b)(1)(A)’’.
(4) Section 408( j) is amended by striking ‘‘$2,000’’.
(5) Section 408(p)(8) is amended by striking ‘‘$2,000’’ and
inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2001.
Sec.
602. Deemed IRAs Under Employer Plans.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating subsection (q) as subsection
(r) and by inserting after subsection (p) the following new subsection:
‘‘ (q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.—
‘‘ (1) GENERAL RULE.—If—
‘‘ (A) a qualified employer plan elects to allow employees
to make voluntary employee contributions to a separate account or annuity established
under the plan, and
‘‘ (B) under the terms of the qualified employer plan,
such account or annuity meets the applicable requirements of this section or
section 408A for an individual retirement account or annuity, then such account
or annuity shall be treated for purposes of this title in the same manner as
an individual retirement
plan and not as a qualified employer plan (and contributions to such account
or annuity as contributions to an individual retirement plan and not to the
qualified employer plan). For purposes of subparagraph (B), the requirements
of subsection (a)(5) shall not apply.
‘‘ (2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For
purposes of this title, a qualified employer plan shall not fail to meet any
requirement of this title solely by reason of establishing and maintaining a
program described in paragraph (1).
‘‘ (3) DEFINITIONS.—For
purposes of this subsection—
‘‘ (A) QUALIFIED EMPLOYER PLAN.—The
term ‘qualified employer plan’ has the meaning given such term by section 72(p)(4); except such term shall
not include a government plan which is not a qualified plan unless the plan is
an eligible deferred compensation plan (as defined in section 457(b)).
‘‘ (B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The
term ‘voluntary employee contribution’ means any contribution (other than a mandatory contribution within the meaning
of section 411(c)(2)(C))—
‘‘ (i) which is made by an individual as an employee
under a qualified employer plan which allows employees to elect to make contributions
described in paragraph (1), and ‘‘(ii) with respect to which the individual has designated the contribution as
a contribution to which this subsection applies.’’.
(b) AMENDMENT OF ERISA.—
(1) IN GENERAL.—Section 4 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the end
the following new subsection:
‘‘ (c) If a pension plan allows an employee to elect
to make voluntary employee contributions to accounts and annuities as provided
in section 408(q) of the Internal Revenue Code of 1986, such accounts and annuities
(and contributions thereto) shall not be treated as part of such plan (or as
a separate pension plan) for purposes of any provision of this title other than
section 403(c), 404, or 405 (relating to exclusive benefit, and fiduciary and
cofiduciary responsibilities).’’.
(2) CONFORMING AMENDMENT.—Section
4(a) of such Act (29 U.S.C. 1003(a)) is amended by inserting ‘‘or (c)’’ after ‘‘subsection (b)’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to plan years beginning after December 31, 2002.
Subtitle
B—Expanding Coverage
Sec.
611. Increase In Benefit And Contribution Limits.
(a) DEFINED BENEFIT PLANS.—
(1) DOLLAR LIMIT.—
(A) Subparagraph (A) of section 415(b)(1) (relating to limitation for defined
benefit plans) is amended by striking ‘‘$90,000’’ and
inserting ‘‘$160,000’’.
(B) Subparagraphs (C) and (D) of section 415(b)(2) are each amended in the
headings and the text, by striking ‘‘$90,000’’ and
inserting ‘‘$160,000’’,
(C) Paragraph (7) of section 415(b) (relating to benefits under certain collectively
bargained plans) is amended by striking ‘‘the
greater of $68,212 or one-half the amount otherwise applicable for such year
under paragraph (1)(A) for ‘$90,000’ ’’ and inserting ‘‘one-half the amount otherwise applicable for such year under paragraph (1)(A)
for ‘$160,000’ ’’.
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62.—
Subparagraph (C) of section 415(b)(2) is amended by striking ‘‘the
social security retirement age’’ each place it appears in the heading and text and inserting ‘‘age 62’’ and by striking the second sentence.
(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65.—
Subparagraph (D) of section 415(b)(2) is amended by striking ‘‘the
social security retirement age’’ each place it appears in the heading and text and inserting ‘‘age 65’’.
(4) COST-OF-LIVING ADJUSTMENTS.—Subsection
(d) of section 415 (related to cost-of-living adjustments) is amended—
(A) by striking ‘‘$90,000’’ in
paragraph (1)(A) and inserting ‘‘$160,000’’; and
(B) in paragraph (3)(A)— (i) by striking ‘‘$90,000’’ in
the heading and inserting ‘‘$160,000’’; and (ii) by striking ‘‘October 1, 1986’’ and inserting ‘‘July 1, 2001’’.
(5) CONFORMING AMENDMENTS.—
(A) Section 415(b)(2) is amended by striking subparagraph (F).
(B) Section 415(b)(9) is amended to read as follows:
‘‘ (9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—
‘‘ (A) IN GENERAL.—Except
as provided in subparagraph (B), in the case of any participant who is a commercial
airline pilot, if, as of the time of the participant’s retirement, regulations prescribed by the Federal Aviation Administration require
an individual to separate from service as a commercial airline pilot after attaining
any age occurring on or after age 60 and before age 62, paragraph (2)(C) shall
be applied by substituting such age for age 62.
‘‘ (B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE
AGE 60.—If a participant described in subparagraph (A) separates from service before
age 60, the rules of paragraph (2)(C) shall apply.’’.
(C) Section 415(b)(10)(C)(i) is amended by striking ‘‘applied
without regard to paragraph (2)(F)’’.
(b) DEFINED CONTRIBUTION PLANS.—
(1) DOLLAR LIMIT.—Subparagraph (A) of section
415(c)(1) (relating to limitation for defined contribution plans) is amended
by striking ‘‘$30,000’’ and inserting ‘‘$40,000’’.
(2) COST-OF-LIVING ADJUSTMENTS.—Subsection
(d) of section 415 (related to cost-of-living adjustments) is amended—
(A) by striking ‘‘$30,000’’ in
paragraph (1)(C) and inserting ‘‘$40,000’’; and
(B) in paragraph (3)(D)— (i) by striking ‘‘$30,000’’ in
the heading and inserting ‘‘$40,000’’; and (ii) by striking ‘‘October 1, 1993’’ and inserting ‘‘July 1, 2001’’.
(c) QUALIFIED TRUSTS.—
(1) COMPENSATION LIMIT.—Sections 401(a)(17),
404(l), 408(k), and 505(b)(7) are each amended by striking ‘‘$150,000’’ each place it appears and inserting ‘‘$200,000’’.
(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUSTMENT.—
Subparagraph (B) of section 401(a)(17) is amended—
(A) by striking ‘‘October 1, 1993’’ and
inserting ‘‘July 1, 2001’’; and
(B) by striking ‘‘$10,000’’ both
places it appears and inserting ‘‘$5,000’’.
(d) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Paragraph (1) of section 402(g)
(relating to limitation on exclusion for elective deferrals) is amended to
read as follows:
‘‘ (1) IN GENERAL.—
‘‘ (A) LIMITATION.—Notwithstanding
subsections (e)(3) and (h)(1)(B), the elective deferrals of any individual for
any taxable year shall be included in such individual’s gross income to the extent the amount of such deferrals for the taxable year
exceeds the applicable dollar amount.
‘‘ (B) APPLICABLE DOLLAR AMOUNT.—For
purposes of subparagraph (A), the applicable dollar amount shall be the amount
determined in accordance with the following table:
‘‘ For taxable years The applicable beginning in dollar
amount:
calendar year:
2002 .............................................................................................
$11,000
2003 .............................................................................................
$12,000
2004 .............................................................................................
$13,000
2005 .............................................................................................
$14,000
2006 or thereafter ...........................................................................
$15,000.’’.
(2) COST-OF-LIVING ADJUSTMENT.—Paragraph
(5) of section 402(g) is amended to read as follows:
‘‘ (5) COST-OF-LIVING ADJUSTMENT.—In
the case of taxable years beginning after December 31, 2006, the Secretary shall
adjust the $15,000 amount under paragraph (1)(B) at the same time and in the
same manner as under section 415(d), except that the base period shall be the
calendar quarter beginning July 1, 2005, and any increase under this paragraph
which is not a multiple of $500 shall be rounded to the next lowest multiple
of $500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation on exclusion for elective deferrals),
as amended by paragraphs (1) and (2), is further amended by striking paragraph
(4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs
(4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is amended by striking ‘‘402(g)(8)(A)(iii)’’ and
inserting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is amended by striking ‘‘(other
than paragraph (4) thereof )’’.
(e) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.—
(1) IN GENERAL.—Section 457 (relating to deferred
compensation plans of State and local governments and tax-exempt organizations)
is amended—
(A) in subsections (b)(2)(A) and (c)(1) by striking ‘‘$7,500’’ each
place it appears and inserting ‘‘the applicable dollar amount’’; and
(B) in subsection (b)(3)(A) by striking ‘‘$15,000’’ and
inserting ‘‘twice the dollar amount in effect under subsection (b)(2)(A)’’.
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—
Paragraph (15) of section 457(e) is amended to read as follows:
‘‘ (15) APPLICABLE DOLLAR AMOUNT.—
‘‘ (A) IN GENERAL.—The
applicable dollar amount shall be the amount determined in accordance with the
following table:
‘‘ For taxable years The applicable beginning in dollar
amount:
calendar year:
2002 .............................................................................................
$11,000
2003 .............................................................................................
$12,000
2004 .............................................................................................
$13,000
2005 .............................................................................................
$14,000
2006 or thereafter ...........................................................................
$15,000.
‘‘ (B) COST-OF-LIVING ADJUSTMENTS.—In
the case of taxable years beginning after December 31, 2006, the Secretary shall
adjust the $15,000 amount under subparagraph (A) at the same time and in the
same manner as under section 415(d), except that the base period shall be the
calendar quarter beginning July 1, 2005, and any increase under this paragraph
which is not a multiple of $500 shall be rounded to the next lowest multiple
of $500.’’.
(f ) SIMPLE RETIREMENT ACCOUNTS.—
(1) LIMITATION.—Clause (ii) of section 408(p)(2)(A)
(relating to general rule for qualified salary reduction arrangement) is amended
by striking ‘‘$6,000’’ and inserting ‘‘the applicable dollar amount’’.
(2) APPLICABLE DOLLAR AMOUNT.—Subparagraph
(E) of 408(p)(2) is amended to read as follows:
‘‘ (E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT.—
‘‘ (i) IN GENERAL.—For
purposes of subparagraph (A)(ii), the applicable dollar amount shall be the amount
determined in accordance with the following table:
‘‘ For years The applicable beginning in dollar amount:
calendar year:
2002 ......................................................................................
$7,000
2003 ......................................................................................
$8,000
2004 ......................................................................................
$9,000
2005 or thereafter ..................................................................
$10,000.
‘‘ (ii) COST-OF-LIVING ADJUSTMENT.—In
the case of a year beginning after December 31, 2005, the Secretary shall adjust
the $10,000 amount under clause (i) at the same time and in the same manner as
under section 415(d), except that the base period taken into account shall be
the calendar quarter beginning July 1, 2004, and any increase under this subparagraph
which is not a multiple of $500 shall be rounded to the next lower multiple of
$500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Subclause (I) of section 401(k)(11)(B)(i) is amended by striking ‘‘$6,000’’ and
inserting ‘‘the amount in effect under section 408(p)(2)(A)(ii)’’.
(B) Section 401(k)(11) is amended by striking subparagraph (E).
(g) CERTAIN COMPENSATION LIMITS.—
(1) IN GENERAL.—Subparagraph (A) of section
401(c)(2) (defining earned income) is amended by adding at the end thereof
the following new sentence: ‘‘For purposes of this part only (other than sections 419 and 419A), this subparagraph
shall be applied as if the term ‘trade or business’ for purposes of section 1402 included service described in section 1402(c)(6).’’.
(2) SIMPLE RETIREMENT ACCOUNTS.—Clause
(ii) of section 408(p)(6)(A) (defining self-employed) is amended by adding
at the end the following new sentence: ‘‘The preceding sentence shall be applied as if the term ‘trade or business’ for purposes of section 1402 included service described in section 1402(c)(6).’’.
(h) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS AND DEFINED CONTRIBUTION
PLANS.—Paragraph
(4) of section 415(d) is amended to read as follows:
‘‘ (4) ROUNDING.—
‘‘ (A) $160,000 AMOUNT.—Any
increase under subparagraph (A) of paragraph (1) which is not a multiple of
$5,000 shall be rounded to the next lowest multiple of $5,000.
‘‘ (B) $40,000 AMOUNT.—Any
increase under subparagraph (C) of paragraph (1) which is not a multiple of
$1,000 shall be rounded to the next lowest multiple of $1,000.’’.
(i) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this
section shall apply to years beginning after December 31, 2001.
(2) DEFINED BENEFIT PLANS.—The amendments
made by subsection (a) shall apply to years ending after December 31, 2001.
Sec.
612. Plan Loans For Subchapter S Owners, Partners, And Sole Proprietors.
(a) IN GENERAL.—Subparagraph (B) of section
4975(f )(6) (relating to exemptions not to apply to certain transactions) is
amended by adding at the end the following new clause:
‘‘ (iii) LOAN EXCEPTION.—For
purposes of subparagraph (A)(i), the term ‘owner-employee’ shall only include a person described in subclause (II) or (III) of clause (i).’’.
(b) AMENDMENT OF ERISA.—Section 408(d)(2)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2))
is amended by adding at the end the following new subparagraph:
‘‘ (C) For purposes of paragraph (1)(A), the term ‘owner
employee’ shall only include a person described in clause (ii) or (iii) of subparagraph
(A).’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December 31, 2001.
Sec.
613. Modification Of Top-Heavy Rules.
(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE.—
(1) IN GENERAL.—Section 416(i)(1)(A) (defining
key employee) is amended—
(A) by striking ‘‘or any of the
4 preceding plan years’’ in the matter preceding clause (i);
(B) by striking clause (i) and inserting the following: ‘‘(i)
an officer of the employer having an annual compensation greater than $130,000,’’;
(C) by striking clause (ii) and redesignating clauses (iii) and (iv) as clauses
(ii) and (iii), respectively; and
(D) by striking the second sentence in the matter following clause (iii), as
redesignated by subparagraph (C), and by inserting the following: ‘‘in
the case of plan years beginning after December 31, 2002, the $130,000 amount
in clause (i) shall be adjusted at the same time and in the same manner as
under section 415(d), except that the base period shall be the calendar quarter
beginning July 1, 2001, and any increase under this sentence which is not a
multiple of $5,000 shall be rounded to the next lower multiple of $5,000.’’.
(2) CONFORMING AMENDMENT.—Section
416(i)(1)(B)(iii) is amended by striking ‘‘and subparagraph (A)(ii)’’.
(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS.—Section
416(c)(2)(A) (relating to defined contribution plans) is amended by adding
at the end the following: ‘‘Employer matching contributions (as defined in section 401(m)(4)(A)) shall be
taken into account for purposes of this subparagraph (and any reduction under
this sentence shall not be taken into account in determining whether section
401(k)(4)(A) applies).’’.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT.—
(1) IN GENERAL.—Paragraph (3) of section 416(g)
is amended to read as follows:
‘‘ (3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION
DATE TAKEN INTO ACCOUNT.—
‘‘ (A) IN GENERAL.—For
purposes of determining—
‘‘ (i) the present value of the cumulative accrued
benefit for any employee, or ‘‘(ii) the amount of the account of any employee, such present value or amount
shall be increased by the aggregate distributions made with respect to such employee
under the plan during the 1-year period ending on the determination date. The
preceding sentence shall also apply to distributions under a terminated plan
which if it had not been terminated would have been required to be included in
an aggregation group.
‘‘ (B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION.—
In the case of any distribution made for a reason other than separation from
service, death, or disability, subparagraph (A) shall be applied by substituting ‘5-year
period’ for ‘1-year period’.’’.
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Subparagraph
(E) of section 416(g)(4) is amended—
(A) by striking ‘‘LAST 5 YEARS’’ in
the heading and inserting ‘‘LAST YEAR BEFORE DETERMINATION DATE’’; and
(B) by striking ‘‘5-year period’’ and
inserting ‘‘1-year period’’.
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph
(4) of section 416(g) (relating to other special rules for top-heavy plans)
is amended by adding at the end the following new subparagraph:
‘‘ (H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE
METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS.—
The term ‘top-heavy plan’ shall
not include a plan which consists solely of—
‘‘ (i) a cash or deferred arrangement which meets
the requirements of section 401(k)(12), and‘‘ (ii) matching contributions with respect to which the requirements of section
401(m)(11) are met. If, but for this subparagraph, a plan would be treated as
a top-heavy plan because it is a member of an aggregation group which is a top-heavy
group, contributions under the plan may be taken into account in determining
whether any other plan in the group meets the requirements of subsection (c)(2).’’.
(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIREMENT.—
Subparagraph (C) of section 416(c)(1) (relating to defined benefit plans) is
amended—
(A) by striking ‘‘clause (ii)’’ in
clause (i) and inserting ‘‘clause (ii) or (iii)’’; and
(B) by adding at the end the following:
‘‘ (iii) EXCEPTION FOR FROZEN PLAN.—For
purposes of determining an employee’s years of service with the employer, any service with the employer shall be
disregarded to the extent that such service occurs during a plan year when the
plan benefits (within the meaning of section 410(b)) no key employee or former
key employee.’’.
(f ) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after December 31, 2001.
Sec.
614. Elective Deferrals Not Taken Into Account For Purposes Of Deduction Limits.
(a) IN GENERAL.—Section 404 (relating to deduction
for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred payment plan) is amended
by adding at the end the following new subsection:
‘‘ (n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR
PURPOSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in section 402(g)(3)) shall not be subject to
any limitation contained in paragraph (3), (7), or (9) of subsection (a), and
such elective deferrals shall not be taken into account in applying any such
limitation to any other contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December 31, 2001.
Sec.
615. Repeal Of Coordination Requirements For Deferred Compensation Plans Of State
And Local Governments And Tax-Exempt Organizations.
(a) IN GENERAL.—Subsection (c) of section 457
(relating to deferred compensation plans of State and local governments and
tax-exempt organizations), as amended by section 611, is amended to read as
follows:
‘‘ (c) LIMITATION.—The
maximum amount of the compensation of any one individual which may be deferred
under subsection (a) during any taxable year shall not exceed the amount in effect
under subsection (b)(2)(A) (as modified by any adjustment provided under subsection
(b)(3)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after December 31, 2001.
Sec.
616. Deduction Limits.
(a) MODIFICATION OF LIMITS.—
(1) STOCK BONUS AND PROFIT SHARING TRUSTS.—
(A) IN GENERAL.—Subclause (I) of section 404(a)(3)(A)(i)
(relating to stock bonus and profit sharing trusts) is amended by striking ‘‘15 percent’’ and inserting ‘‘25 percent’’.
(B) CONFORMING AMENDMENT.—Subparagraph
(C) of section 404(h)(1) is amended by striking ‘‘15 percent’’ each place it appears and inserting ‘‘25 percent’’.
(2) DEFINED CONTRIBUTION PLANS.—
(A) IN GENERAL.—Clause (v) of section 404(a)(3)(A)
(relating to stock bonus and profit sharing trusts) is amended to read as follows:
‘‘ (v) DEFINED CONTRIBUTION PLANS SUBJECT TO THE FUNDING
STANDARDS.—Except as provided by the Secretary, a defined contribution plan which is subject
to the funding standards of section 412 shall be treated in the same manner as
a stock bonus or profit-sharing plan for purposes of this subparagraph.’’.
(B) CONFORMING AMENDMENTS.—
(i) Section 404(a)(1)(A) is amended by inserting ‘‘(other
than a trust to which paragraph (3) applies)’’ after ‘‘pension trust’’.
(ii) Section 404(h)(2) is amended by striking ‘‘stock
bonus or profit-sharing trust’’ and inserting ‘‘trust subject to subsection (a)(3)(A)’’.
(iii) The heading of section 404(h)(2) is amended by striking ‘‘STOCK
BONUS AND PROFIT-SHARING TRUST’’ and inserting ‘‘CERTAIN TRUSTS’’.
(b) COMPENSATION.—
(1) IN GENERAL.—Section 404(a) (relating to
general rule) is amended by adding at the end the following:
‘‘ (12) DEFINITION OF COMPENSATION.—For
purposes of paragraphs (3), (7), (8), and (9), the term ‘compensation’ shall include amounts treated as ‘participant’s compensation’ under subparagraph (C) or (D) of section 415(c)(3).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 404(a)(3) is amended by striking the last sentence
thereof.
(B) Clause (i) of section 4972(c)(6)(B) is amended by striking ‘‘(within
the meaning of section 404(a))’’ and inserting ‘‘(within the meaning of section 404(a) and as adjusted under section 404(a)(12))’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after December 31, 2001.
Sec.
617. Option To Treat Elective Deferrals As After-Tax Roth Contributions.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to deferred compensation, etc.) is amended by inserting
after section 402 the following new section:
‘‘ SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS
AS ROTH CONTRIBUTIONS.
‘‘ (a) GENERAL RULE.—If
an applicable retirement plan includes a qualified Roth contribution program—
‘‘ (1) any designated Roth contribution made by an
employee pursuant to the program shall be treated as an elective deferral for
purposes of this chapter, except that such contribution shall not be excludable
from gross income, and
‘‘ (2) such plan (and any arrangement which is part
of such plan) shall not be treated as failing to meet any requirement of this
chapter solely by reason of including such program.
‘‘ (b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—For
purposes of this section—
‘‘ (1) IN GENERAL.—The
term ‘qualified Roth contribution program’ means a program under which an employee may elect to make designated Roth contributions
in lieu of all or a portion of elective deferrals the employee is otherwise eligible
to make under the applicable retirement plan.
‘‘ (2) SEPARATE ACCOUNTING REQUIRED.—A
program shall not be treated as a qualified Roth contribution program unless
the applicable retirement plan—
‘‘ (A) establishes separate accounts (‘designated
Roth accounts’) for the designated Roth contributions of each employee and any earnings properly
allocable to the contributions, and
‘‘ (B) maintains separate recordkeeping with respect
to each account.
‘‘ (c) DEFINITIONS AND RULES RELATING TO DESIGNATED
ROTH CONTRIBUTIONS.—For purposes of this section—
‘‘ (1) DESIGNATED ROTH CONTRIBUTION.—The
term ‘designated Roth contribution’ means any elective deferral which—
‘‘ (A) is excludable from gross income of an employee
without regard to this section, and
‘‘ (B) the employee designates (at such time and in
such manner as the Secretary may prescribe) as not being so excludable.
‘‘ (2) DESIGNATION LIMITS.—The
amount of elective deferrals which an employee may designate under paragraph
(1) shall not exceed the excess (if any) of—
‘‘ (A) the maximum amount of elective deferrals excludable
from gross income of the employee for the taxable
year (without regard to this section), over ‘‘(B)
the aggregate amount of elective deferrals of the employee for the taxable
year which the employee does not designate under paragraph (1).
‘‘ (3) ROLLOVER CONTRIBUTIONS.—
‘‘ (A) IN GENERAL.—A
rollover contribution of any payment or distribution from a designated Roth account
which is otherwise allowable under this chapter may be made only if the contribution
is to—
‘‘ (i) another designated Roth account of the individual
from whose account the payment or distribution
was made, or
‘‘ (ii) a Roth IRA of such individual.
‘‘ (B) COORDINATION WITH LIMIT.—Any
rollover contribution to a designated Roth account under subparagraph (A) shall
not be taken into account for purposes of paragraph (1).
‘‘ (d) DISTRIBUTION RULES.—For
purposes of this title—
‘‘ (1) EXCLUSION.—Any
qualified distribution from a designated Roth account shall not be includible
in gross income.
‘‘ (2) QUALIFIED DISTRIBUTION.—For
purposes of this subsection—
‘‘ (A) IN GENERAL.—The
term ‘qualified distribution’ has the meaning given such term by section 408A(d)(2)(A) (without regard to
clause (iv) thereof ).
‘‘ (B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—
A payment or distribution from a designated Roth account shall not be treated
as a qualified distribution if such payment or distribution is made within
the 5-taxable-year period beginning with the earlier of—
‘‘ (i) the first taxable year for which the individual
made a designated Roth contribution to any designated Roth account established
for such individual under the same applicable retirement plan, or
‘‘ (ii) if a rollover contribution was made to such
designated Roth account from a designated Roth account previously established
for such individual under another applicable retirement plan, the first taxable
year for which the individual made a designated Roth contribution to such previously
established account.
‘‘ (C) DISTRIBUTIONS OF EXCESS DEFERRALS AND CONTRIBUTIONS
AND EARNINGS THEREON.—The term ‘qualified
distribution’ shall not include any distribution of any excess deferral under section 402(g)(2)
or any excess contribution under section 401(k)(8), and any income on the excess
deferral or contribution.
‘‘ (3) TREATMENT OF DISTRIBUTIONS OF CERTAIN EXCESS
DEFERRALS.—Notwithstanding section 72, if any excess deferral under section 402(g)(2) attributable
to a designated Roth contribution is not distributed on or before the 1st April
15 following the close of the taxable year in which such excess deferral is made,
the amount of such excess deferral shall—
‘‘ (A) not be treated as investment in the contract,
and
‘‘ (B) be included in gross income for the taxable
year in which such excess is distributed.
‘‘ (4) AGGREGATION RULES.—Section
72 shall be applied separately with respect to distributions and payments from
a designated Roth account and other distributions and payments from the plan.
‘‘ (e) OTHER DEFINITIONS.—For
purposes of this section—
‘‘ (1) APPLICABLE RETIREMENT PLAN.—The
term ‘applicable retirement plan’ means—
‘‘ (A) an employees’ trust
described in section 401(a) which is exempt from tax under section 501(a), and
‘‘ (B) a plan under which amounts are contributed
by an individual’s employer for an annuity contract described in section 403(b).
‘‘ (2) ELECTIVE DEFERRAL.—The
term ‘elective deferral’ means any elective deferral described in subparagraph (A) or (C) of section
402(g)(3).’’.
(b) EXCESS DEFERRALS.—Section 402(g) (relating
to limitation on exclusion for elective deferrals) is amended—
(1) by adding at the end of paragraph (1)(A) (as added by section 201(c)(1))
the following new sentence: ‘‘The
preceding sentence shall not apply the portion of such excess as does not exceed
the designated Roth contributions of the individual for the taxable year.’’; and
(2) by inserting ‘‘(or would
be included but for the last sentence thereof )’’ after ‘‘paragraph (1)’’ in paragraph (2)(A).
(c) ROLLOVERS.—Subparagraph (B) of section 402(c)(8)
is amended by adding at the end the following:
‘‘ If any portion of an eligible rollover distribution
is attributable to payments or distributions from a designated Roth account (as
defined in section 402A), an eligible retirement plan with respect to such portion
shall include only another designated Roth account and a Roth IRA.’’.
(d) REPORTING REQUIREMENTS.—
(1) W–2 INFORMATION.—Section
6051(a)(8) is amended by inserting ‘‘, including the amount of designated Roth contributions (as defined in section
402A)’’ before the comma at the end.
(2) INFORMATION.—Section 6047 is amended by
redesignating subsection (f ) as subsection (g) and by inserting after subsection
(e) the following new subsection:
‘‘ (f ) DESIGNATED ROTH CONTRIBUTIONS.—The
Secretary shall require the plan administrator of each applicable retirement
plan (as defined in section 402A) to make such returns and reports regarding
designated Roth contributions (as defined in section 402A) to the Secretary,
participants and beneficiaries of the plan, and such other persons as the Secretary
may prescribe.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 408A(e) is amended by adding after the first sentence the following
new sentence: ‘‘Such
term includes a rollover contribution described in section 402A(c)(3)(A).’’.
(2) The table of sections for subpart A of part I of subchapter D of chapter
1 is amended by inserting after the item relating to section 402 the following
new item: ‘‘Sec.
402A. Optional treatment of elective deferrals as Roth contributions.’’.
(f ) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2005.
Sec.
618. Nonrefundable Credit To Certain Individuals For Elective Deferrals And IRA Contributions.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting
after section 25A the following new section:
‘‘ SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS
BY CERTAIN INDIVIDUALS.
‘‘ (a) ALLOWANCE OF CREDIT.—In
the case of an eligible individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year an amount equal to the
applicable percentage of so much of the qualified retirement savings contributions
of the eligible individual for the taxable year as do not exceed $2,000.
‘‘ (b) APPLICABLE PERCENTAGE.—For
purposes of this section, the applicable percentage is the percentage determined
in accordance with the following table:
………………………………………Adjusted
Gross Income
.....Joint return…………Head
of a household……..All other cases………..Applicable percentage
Over…….….Not over……Over……...Not
over……...Over…....….Not over
………….. ..$30,000…………..….…$22,500….......…………….$15,000…..…..50
$30,000……$32,500…..$22,500…...$24,375……..$15,000…....$16,250…..…..20
$32,500……$50,000…..$24,375…...$37,500……..$16,250…….$25,000……...10
$50,000……….…..…….$37,500……………….......$25,000…………………..…..0
‘‘ (c) ELIGIBLE INDIVIDUAL.—For
purposes of this section—
‘‘ (1) IN GENERAL.—The
term ‘eligible individual’ means any individual if such individual has attained the age of 18 as of the
close of the taxable year.
‘‘ (2) DEPENDENTS AND FULL-TIME STUDENTS NOT ELIGIBLE.—
The term ‘eligible individual’ shall
not include—
‘‘ (A) any individual with respect to whom a deduction
under section 151 is allowed to another taxpayer for a taxable year beginning
in the calendar year in which such individual’s taxable year begins, and ‘‘(B) any individual who is a student (as defined in section 151(c)(4)).
‘‘ (d) QUALIFIED RETIREMENT SAVINGS CONTRIBUTIONS.—For
purposes of this section—
‘‘ (1) IN GENERAL.—The
term ‘qualified retirement savings contributions’ means, with respect to any taxable year, the sum of—
‘‘ (A) the amount of the qualified retirement contributions
(as defined in section 219(e)) made by the eligible individual,
‘‘ (B) the amount of— ‘‘(i)
any elective deferrals (as defined in section 402(g)(3)) of such individual,
and ‘‘(ii) any elective deferral of compensation by such individual under an eligible
deferred compensation plan (as defined in section 457(b)) of an eligible employer
described in section 457(e)(1)(A), and ‘‘(C) the amount of voluntary employee contributions by such individual to any
qualified retirement plan (as defined in section 4974(c)).
‘‘ (2) REDUCTION FOR CERTAIN DISTRIBUTIONS.—
‘‘ (A) IN GENERAL.—The
qualified retirement savings contributions determined under paragraph (1) shall
be reduced (but not below zero) by the sum of— ‘‘(i) any distribution from a qualified retirement plan (as defined in section
4974(c)), or from an eligible deferred compensation plan (as defined in section
457(b)), received by the individual during the testing period which is includible
in gross income, and ‘‘(ii) any distribution from a Roth IRA or a Roth account received by the individual
during the testing period which is not a qualified rollover contribution (as
defined in section 408A(e)) to a Roth IRA or a rollover under section 402(c)(8)(B)
to a Roth account.
‘‘ (B) TESTING PERIOD.—For
purposes of subparagraph (A), the testing period, with respect to a taxable year,
is the period which includes—
‘‘ (i) such taxable year, ‘‘(ii)
the 2 preceding taxable years, and ‘‘(iii) the period after such taxable year and before the due date (including extensions)
for filing the return of tax for such taxable year.
‘‘ (C) EXCEPTED DISTRIBUTIONS.—There
shall not be taken into account under subparagraph (A)—
‘‘ (i) any distribution referred to in section 72(p),
401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
‘‘ (ii) any distribution to which section 408A(d)(3)
applies.
‘‘ (D) TREATMENT OF DISTRIBUTIONS RECEIVED BY
SPOUSE OF INDIVIDUAL.—For purposes of
determining distributions received by an individual under subparagraph (A)
for any taxable year, any distribution received by the spouse of such individual
shall be treated as received by such individual if such individual and spouse
file a joint return for such taxable year and for the taxable year during which
the spouse receives the distribution.
‘‘ (e) ADJUSTED GROSS INCOME.—For
purposes of this section, adjusted gross income shall be determined without regard
to sections 911, 931, and 933.
‘‘ (f ) INVESTMENT IN THE CONTRACT.—Notwithstanding
any other provision of law, a qualified retirement savings contribution shall
not fail to be included in determining the investment in the contract for purposes
of section 72 by reason of the credit under this section.
‘‘ (g) TERMINATION.—This
section shall not apply to taxable years beginning after December 31, 2006.’’.
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND ALTERNATIVE MINIMUM TAX.—
(1) IN GENERAL.—Section 25B, as added by subsection
(a), is amended by inserting after subsection (f ) the following new subsection:
‘‘ (g) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for the taxable year shall not exceed the
excess of—
‘‘ (1) the sum of the regular tax liability (as defined
in section 26(b)) plus the tax imposed by section 55, over
‘‘ (2) the sum of the credits allowable under this
subpart (other than this section and section 23) and section 27 for the taxable
year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 24(b)(3)(B), as amended by sections 201(b) and 203(d), is amended
by striking ‘‘section
23’’ and inserting ‘‘sections 23 and 25B’’.
(B) Section 25(e)(1)(C), as amended by section 201(b), is amended by inserting ‘‘25B,’’ after ‘‘24,’’.
(C) Section 26(a)(1), as amended by sections 201(b) and 203, is amended by
striking ‘‘and
24’’ and inserting‘‘ , 24, and 25B’’.
(D) Section 904(h), as amended by sections 201(b) and 203, is amended by striking ‘‘and
24’’ and inserting ‘‘, 24, and 25B’’.
(E) Section 1400C(d), as amended by sections 201(b) and 203, is amended by
striking ‘‘and
24’’ and inserting ‘‘, 24, and 25B’’.
(c) CONFORMING AMENDMENT.—The table
of sections for subpart A of part IV of subchapter A of chapter 1, as amended
by section 432, is amended by inserting after the item relating to section
25A the following new item:‘‘ Sec. 25B. Elective deferrals and IRA contributions by certain individuals.’’.
(d) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2001.
Sec.
619. Credit For Pension Plan Startup Costs Of Small Employers.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business related credits) is amended by adding
at the end the following new section:
‘‘ SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
‘‘ (a) GENERAL RULE.—For
purposes of section 38, in the case of an eligible employer, the small employer
pension plan startup cost credit determined under this section for any taxable
year is an amount equal to 50 percent of the qualified startup costs paid or
incurred by the taxpayer during the taxable year.
‘‘ (b) DOLLAR LIMITATION.—The
amount of the credit determined under this section for any taxable year shall
not exceed—
‘‘ (1) $500 for the first credit year and each of
the 2 taxable years immediately following the first credit year, and
‘‘ (2) zero for any other taxable year.
‘‘ (c) ELIGIBLE EMPLOYER.—For
purposes of this section—
‘‘ (1) IN GENERAL.—The
term ‘eligible employer’ has the meaning given such term by section 408(p)(2)(C)(i).
‘‘ (2) REQUIREMENT FOR NEW QUALIFIED EMPLOYER PLANS.—
Such term shall not include an employer if, during the 3-taxable year period
immediately preceding the 1st taxable year for which the credit under this
section is otherwise allowable for a qualified employer plan of the employer,
the employer or any member of any controlled group including the employer (or
any predecessor of either) established or maintained a qualified employer plan
with respect to which contributions were made, or benefits were accrued, for
substantially the same employees as are in the qualified employer plan.
‘‘ (d) OTHER DEFINITIONS.—For
purposes of this section—
‘‘ (1) QUALIFIED STARTUP COSTS.—
‘‘ (A) IN GENERAL.—The
term ‘qualified startup costs’ means any ordinary and necessary expenses of an eligible employer which are
paid or incurred in connection with—
‘‘ (i) the establishment or administration of an eligible
employer plan, or
‘‘ (ii) the retirement-related education of employees
with respect to such plan.
‘‘ (B) PLAN MUST HAVE AT LEAST 1 PARTICIPANT.—Such
term shall not include any expense in connection with a plan that does not have
at least 1 employee eligible to participate who is not a highly compensated employee.
‘‘ (2) ELIGIBLE EMPLOYER PLAN.—The
term ‘eligible employer plan’ means a qualified employer plan within the meaning of section 4972(d).
‘‘ (3) FIRST CREDIT YEAR.—The
term ‘first credit year’ means—
‘‘ (A) the taxable year which includes the date that
the eligible employer plan to which such costs relate
becomes effective, or
‘‘ (B) at the election of the eligible employer, the
taxable year preceding the taxable year referred to in subparagraph (A).
‘‘ (e) SPECIAL RULES.—For
purposes of this section—
‘‘ (1) AGGREGATION RULES.—All
persons treated as a single employer under subsection (a) or (b) of section 52,
or subsection (n) or (o) of section 414, shall be treated as one person. All
eligible employer plans shall be treated as 1 eligible employer plan.
‘‘ (2) DISALLOWANCE OF DEDUCTION.—No
deduction shall be allowed for that portion of the qualified startup costs paid
or incurred for the taxable year which is equal to the credit determined under
subsection (a).
‘‘ (3) ELECTION NOT TO CLAIM CREDIT.—This
section shall not apply to a taxpayer for any taxable year if such taxpayer elects
to have this section not apply for such taxable year.’’.
(b) CREDIT ALLOWED AS PART OF GENERAL BUSINESS CREDIT.—
Section 38(b) (defining current year business credit) is amended by striking ‘‘plus’’ at
the end of paragraph (12), by striking the period at the end of paragraph (13)
and inserting ‘‘, plus’’, and by adding at the end the following new paragraph: ‘‘(14) in the case of an eligible employer (as defined in section 45E(c)), the
small employer pension plan startup cost credit determined under section 45E(a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 39(d) is amended by adding at the end the following new paragraph:
‘‘ (10) NO CARRYBACK OF SMALL EMPLOYER PENSION PLAN
STARTUP COST CREDIT BEFORE JANUARY 1, 2002.—No portion of the unused business credit for any taxable year which is attributable
to the small employer pension plan startup cost credit determined under section
45E may be carried back to a taxable year beginning before January 1, 2002.’’.
(2) Subsection (c) of section 196 is amended by striking ‘‘and’’ at
the end of paragraph (8), by striking the period at the end of paragraph (9)
and inserting ‘‘, and’’, and by adding at the end the following new paragraph:‘‘ (10) the small employer pension plan startup cost credit determined under section
45E(a).’’.
(3) The table of sections for subpart D of part IV of subchapter A of chapter
1 is amended by adding at the end the following new item:‘‘ Sec.
45E. Small employer pension plan startup costs.’’.
(d) EFFECTIVE DATE.—The amendments made
by this section shall apply to costs paid or incurred in taxable years beginning
after December 31, 2001, with respect to qualified employer plans established
after such date.
Sec.
620. Elimination Of User Fee For Requests To IRS Regarding Pension Plans.
(a) ELIMINATION OF CERTAIN USER FEES.—The
Secretary of the Treasury or the Secretary’s delegate shall not require payment of user fees under the program established
under section 10511 of the Revenue Act of 1987 for requests to the Internal
Revenue Service for determination letters with respect to the qualified status
of a pension benefit plan maintained solely by one or more eligible employers
or any trust which is part of the plan. The preceding sentence shall not apply
to any request—
(1) made after the later of—
(A) the fifth plan year the pension benefit plan is in existence; or
(B) the end of any remedial amendment period with respect to the plan beginning
within the first 5 plan years; or
(2) made by the sponsor of any prototype or similar plan which the sponsor
intends to market to participating employers.
(b) PENSION BENEFIT PLAN.—For purposes
of this section, the term ‘‘pension benefit plan’’ means a pension, profit-sharing, stock bonus, annuity, or employee stock ownership
plan.
(c) ELIGIBLE EMPLOYER.—For purposes of
this section, the term ‘‘eligible employer’’ means an eligible employer (as defined in section 408(p)(2)(C)(i)(I) of the
Internal Revenue Code of 1986) which has at least one employee who is not a
highly compensated employee (as defined in section 414(q)) and is participating
in the plan. The determination of whether an employer is an eligible employer
under this section shall be made as of the date of the request described in
subsection (a).
(d) DETERMINATION OF AVERAGE FEES CHARGED.—For
purposes of any determination of average fees charged, any request to which
subsection (a) applies shall not be taken into account.
(e) EFFECTIVE DATE.—The provisions of this
section shall apply with respect to requests made after December 31, 2001.
Sec.
621. Treatment Of Nonresident Aliens Engaged In International Transportation Services.
(a) EXCLUSION FROM INCOME SOURCING RULES.—The
second sentence of section 861(a)(3) (relating to gross income from sources
within the United States) is amended by striking ‘‘except for purposes of sections 79 and 105 and subchapter D,’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to remuneration for services performed in plan years
beginning after December 31, 2001.
Subtitle
C—Enhancing Fairness for Women
Sec.
631. Catch-Up Contributions For Individuals Age 50 Or Over.
(a) IN GENERAL.—Section 414 (relating to definitions
and special rules) is amended by adding at the end the following new subsection:
‘‘ (v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE
50 OR OVER.—
‘‘ (1) IN GENERAL.—An
applicable employer plan shall not be treated as failing to meet any requirement
of this title solely because the plan permits an eligible participant to make
additional elective deferrals in any plan year.
‘‘ (2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—
‘‘ (A) IN GENERAL.—A
plan shall not permit additional elective deferrals under paragraph (1) for any
year in an amount greater than the lesser of—
‘‘ (i) the applicable dollar amount, or
‘‘ (ii) the excess (if any) of— ‘‘(I)
the participant’s compensation (as defined in section 415(c)(3)) for the year, over ‘‘(II) any other elective deferrals of the participant for such year which are
made without regard
to this subsection.
‘‘ (B) APPLICABLE DOLLAR AMOUNT.—For
purposes of this paragraph—
‘‘ (i) In the case of an applicable employer plan
other than a plan described in section 401(k)(11) or 408(p), the applicable dollar
amount shall be determined in accordance with the following table:
‘‘ For taxable years beginning in: The applicable
dollar amount is:
2002 ...................................................................................................
$1,000
2003 ...................................................................................................
$2,000
2004 ...................................................................................................
$3,000
2005 ...................................................................................................
$4,000
2006 and thereafter ..........................................................................
$5,000.
‘‘ (ii) In the case of an applicable employer plan
described in section 401(k)(11) or 408(p), the applicable dollar amount shall
be determined in accordance with the following table:
‘‘ For taxable years beginning in: The applicable
dollar amount is:
2002 ...................................................................................................
$500
2003 ...................................................................................................
$1,000
2004 ...................................................................................................
$1,500
2005 ...................................................................................................
$2,000
2006 and thereafter ..........................................................................
$2,500.
‘‘ (C) COST-OF-LIVING ADJUSTMENT.—In
the case of a year beginning after December 31, 2006, the Secretary shall adjust
annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph
(B)(ii) for increases in the cost-of-living at the same time and in the same
manner as adjustments under section 415(d); except that the base period taken
into account shall be the calendar quarter beginning July 1, 2005, and any increase
under this subparagraph which is not a multiple of $500 shall be rounded to the
next lower multiple of $500.’’.
‘‘ (3) TREATMENT OF CONTRIBUTIONS.—In
the case of any contribution to a plan under paragraph (1)—
‘‘ (A) such contribution shall not, with respect to
the year in which the contribution is made—
‘‘ (i) be subject to any otherwise applicable limitation
contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408(k), 408(p),
415, or 457, or ‘‘(ii) be taken into account in applying such limitations to other contributions
or benefits under such plan or any other such plan, and
‘‘ (B) except as provided in paragraph (4), such plan
shall not be treated as failing to meet the requirements
of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 403(b)(12),
408(k), 408(p), 408B, 410(b), or 416 by reason of the making of (or the right
to make) such contribution.
‘‘ (4) APPLICATION OF NONDISCRIMINATION RULES.—
‘‘ (A) IN GENERAL.—An
applicable employer plan shall be treated as failing to meet the nondiscrimination
requirements under section 401(a)(4) with respect to benefits, rights, and features
unless the plan allows all eligible participants to make the same election with
respect to the additional elective deferrals under this subsection.
‘‘ (B) AGGREGATION.—For
purposes of subparagraph (A), all plans maintained by employers who are treated
as a single employer under subsection (b), (c), (m), or (o) of section 414 shall
be treated as 1 plan.
‘‘ (5) ELIGIBLE PARTICIPANT.—For
purposes of this subsection, the term ‘eligible participant’ means, with respect to any plan year, a participant in a plan—
‘‘ (A) who has attained the age of 50 before the close
of the plan year, and
‘‘ (B) with respect to whom no other elective deferrals
may (without regard to this subsection) be made to the plan for the plan year
by reason of the application of any limitation or other restriction described
in paragraph
(3) or comparable limitation or restriction contained in the terms of the plan.
‘‘ (6) OTHER DEFINITIONS AND RULES.—For
purposes of this subsection—
‘‘ (A) APPLICABLE EMPLOYER PLAN.—The
term ‘applicable employer plan’ means—
‘‘ (i) an employees’ trust
described in section 401(a) which is exempt from tax under section 501(a),
‘‘ (ii) a plan under which amounts are contributed
by an individual’s employer for an annuity contract described in section 403(b), ‘‘(iii) an eligible deferred compensation plan under section 457 of an eligible
employer described in section 457(e)(1)(A), and ‘‘(iv) an arrangement meeting the requirements of section 408 (k) or (p).
‘‘ (B) ELECTIVE DEFERRAL.—The
term ‘elective deferral’ has the meaning given such term by subsection (u)(2)(C).
‘‘ (C) EXCEPTION FOR SECTION 457 PLANS.—This
subsection shall not apply to an applicable employer plan described in subparagraph
(A)(iii) for any year to which section 457(b)(3) applies.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions in taxable years beginning after
December 31, 2001.
Sec.
632. Equitable Treatment For Contributions Of Employees To Defined Contribution Plans.
(a) EQUITABLE TREATMENT.—
(1) IN GENERAL.—Subparagraph (B) of section
415(c)(1) (relating to limitation for defined contribution plans) is amended
by striking ‘‘25 percent’’ and inserting ‘‘100 percent’’.
(2) APPLICATION TO SECTION 403(b).—Section
403(b) is amended—
(A) by striking ‘‘the exclusion
allowance for such taxable year’’ in paragraph (1) and inserting ‘‘the applicable limit under section 415’’,
(B) by striking paragraph (2), and
(C) by inserting ‘‘or any amount
received by a former employee after the fifth taxable year following the taxable
year in which such employee was terminated’’ before the period at the end of the second sentence of paragraph (3).
(3) CONFORMING AMENDMENTS.—
(A) Subsection (f ) of section 72 is amended by striking ‘‘section
403(b)(2)(D)(iii))’’ and inserting ‘‘section 403(b)(2)(D)(iii), as in effect before the enactment of the Economic
Growth and Tax Relief Reconciliation Act of 2001’’.
(B) Section 404(a)(10)(B) is amended by striking ‘‘,
the exclusion allowance under section 403(b)(2),’’.
(C) Section 415(a)(2) is amended by striking ‘‘,
and the amount of the contribution for such portion shall reduce the exclusion
allowance as provided in section 403(b)(2)’’.
(D) Section 415(c)(3) is amended by adding at the end the following new subparagraph:‘‘ (E)
ANNUITY CONTRACTS.—In the case of an annuity contract described in section 403(b), the term ‘participant’s compensation’ means the participant’s includible compensation determined under section 403(b)(3).’’.
(E) Section 415(c) is amended by striking paragraph (4).
(F) Section 415(c)(7) is amended to read as follows: ‘‘(7)
CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED AS EXCEEDING LIMIT.—
‘‘ (A) IN GENERAL.—Notwithstanding
any other provision of this subsection, at the election of a participant who
is an employee of a church or a convention or association of churches, including
an organization described in section 414(e)(3)(B)(ii), contributions and other
additions for an annuity contract or retirement income account described in section
403(b) with respect to such participant, when expressed as an annual addition
to such participant’s account, shall be treated as not exceeding the limitation of paragraph (1)
if such annual addition is not in excess of $10,000.
‘‘ (B) $40,000 AGGREGATE LIMITATION.—The
total amount of additions with respect to any participant which may be taken
into account for purposes of this subparagraph for all years may not exceed $40,000.
‘‘ (C) ANNUAL ADDITION.—For
purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2).’’.
(G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 611(c)(3))
is amended by inserting before the period at the end the following: ‘‘(as
in effect before the enactment of the Economic Growth and Tax Relief Reconciliation
Act of 2001’’.
(H) Section 664(g) is amended—
(i) in paragraph (3)(E) by striking ‘‘limitations
under section 415(c)’’ and inserting ‘‘applicable limitation under paragraph (7)’’, and
(ii) by adding at the end the following new paragraph:
‘‘ (7) APPLICABLE LIMITATION.—
‘‘ (A) IN GENERAL.—For
purposes of paragraph (3)(E), the applicable limitation under this paragraph
with respect to a participant is an amount equal to the lesser of—‘‘(i) $30,000, or ‘‘(ii) 25 percent of the participant’s compensation (as defined in section 415(c)(3)).
‘‘ (B) COST-OF-LIVING ADJUSTMENT.—The
Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i)
at the same time and in the same manner as under section 415(d), except that
the base period shall be the calendar quarter beginning October 1, 1993, and
any increase under this subparagraph which is not a multiple of $5,000 shall
be rounded to the next lowest multiple of $5,000.’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning after December 31, 2001.
(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—
(1) IN GENERAL.—Subsection (k) of section 415
is amended by adding at the end the following new paragraph:
‘‘ (4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For
purposes of this section, any annuity contract described in section 403(b) for
the benefit of a participant shall be treated as a defined contribution plan
maintained by each employer with respect to which the participant has the control
required under subsection (b) or (c) of section 414 (as modified by subsection
(h)). For purposes of this section, any contribution by an employer to a simplified
employee pension plan for an individual for a taxable year shall be treated as
an employer contribution to a defined contribution plan for such individual for
such year.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendment made by paragraph
(1) shall apply to limitation years beginning after December 31, 1999.
(B) EXCLUSION ALLOWANCE.—Effective
for limitation years beginning in 2000, in the case of any annuity contract
described in section 403(b) of the Internal Revenue Code of 1986, the amount
of the contribution disqualified by reason of section 415(g) of such Code shall
reduce the exclusion allowance as provided in section 403(b)(2) of such Code.
(3) ELECTION TO MODIFY SECTION 403(b) EXCLUSION ALLOWANCE TO CONFORM TO SECTION
415 MODIFICATION.—In
the case of taxable years beginning after December 31, 1999, and before January
1, 2002, a plan may disregard the requirement in the regulations regarding
the exclusion allowance under section 403(b)(2) of the Internal Revenue Code
of 1986 that contributions to a defined benefit pension plan be treated as
previously excluded amounts for purposes of the exclusion allowance.
(c) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.—
(1) IN GENERAL.—Subparagraph (B) of section
457(b)(2) (relating to salary limitation on eligible deferred compensation
plans) is amended by striking ‘‘331/3 percent’’ and inserting ‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after December 31, 2001.
Sec.
633. Faster Vesting Of Certain Employer Matching Contributions.
(a) IN GENERAL.—Section 411(a) (relating to
minimum vesting standards) is amended—
(1) in paragraph (2), by striking ‘‘A
plan’’ and inserting ‘‘Except as provided in paragraph (12), a plan’’; and
(2) by adding at the end the following: ‘‘(12)
FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In the case of matching contributions (as defined in section 401(m)(4)(A)), paragraph
(2) shall be applied—‘‘ (A) by substituting ‘3 years’ for ‘5 years’ in subparagraph (A), and ‘‘(B) by substituting the following table for the table contained in subparagraph
(B):
The nonforfeitable ‘‘Years
of service: .........................................percentage is:
2 ...................................................................................................
20
3 ...................................................................................................
40
4 ...................................................................................................
60
5 ...................................................................................................
80
6 ...................................................................................................
100.’’.
(b) AMENDMENT OF ERISA.—Section 203(a)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a))
is amended—
(1) in paragraph (2), by striking ‘‘A
plan’’ and inserting ‘‘Except as provided in paragraph (4), a plan’’, and
(2) by adding at the end the following:
‘‘ (4) In the case of matching contributions (as defined
in section 401(m)(4)(A) of the Internal Revenue Code of 1986), paragraph (2)
shall be applied—
‘‘ (A) by substituting ‘3
years’ for ‘5 years’ in subparagraph (A), and ‘‘(B) by substituting the following table for the table contained in subparagraph
(B):
The nonforfeitable‘‘Years of
service: ..........................................percentage is:
2 ...................................................................................................
20
3 ...................................................................................................
40
4 ...................................................................................................
60
5 ...................................................................................................
80
6 ...................................................................................................
100.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph
(2), the amendments made by this section shall apply to contributions for plan
years beginning after December 31, 2001.
(2) COLLECTIVE BARGAINING AGREEMENTS.—In
the case of a plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more employers ratified
by the date of the enactment of this Act, the amendments made by this section
shall not apply to contributions
on behalf of employees covered by any such agreement for plan years beginning
before the earlier of—
(A) the later of—
(i) the date on which the last of such collective bargaining agreements terminates
(determined without regard to any extension thereof on or after such date of
the enactment); or (ii) January 1, 2002; or
(B) January 1, 2006.
(3) SERVICE REQUIRED.—With respect to
any plan, the amendments made by this section shall not apply to any employee
before the date that such employee has 1 hour of service under such plan in
any plan year to which the amendments made by this section apply.
Sec.
634. Modification To Minimum Distribution Rules.
The Secretary of the Treasury shall modify the life expectancy tables under
the regulations relating to minimum distribution requirements under sections
401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the Internal
Revenue Code to reflect current life expectancy.
Sec.
635. Clarification Of Tax Treatment Of Division Of Section 457 Plan Benefits Upon
Divorce.
(a) IN GENERAL.—Section 414(p)(11) (relating
to application of rules to governmental and church plans) is amended—
(1) by inserting ‘‘or an eligible
deferred compensation plan (within the meaning of section 457(b))’’ after ‘‘subsection (e))’’; and
(2) in the heading, by striking ‘‘GOVERNMENTAL
AND CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER PLANS’’.
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—Paragraph
(10) of section 414(p) is amended by striking ‘‘and section 409(d)’’ and inserting ‘‘section 409(d), and section 457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN.— Subsection
(p) of section 414 is amended by redesignating paragraph (12) as paragraph
(13) and inserting after paragraph (11) the following new paragraph:
‘‘ (12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457
PLAN.—If a distribution or payment from an eligible deferred compensation plan described
in section 457(b) is made pursuant to a qualified domestic relations order, rules
similar to the rules of section 402(e)(1)(A) shall apply to such distribution
or payment.’’.
(d) EFFECTIVE DATE.—The amendment made by
this section shall apply to transfers, distributions, and payments made after
December 31, 2001.
Sec.
636. Provisions Relating To Hardship Distributions.
(a) SAFE HARBOR RELIEF.—
(1) IN GENERAL.—The Secretary of the Treasury
shall revise the regulations relating to hardship distributions under section
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide that the
period an employee is prohibited from making elective and employee contributions
in order for a distribution to be deemed necessary to satisfy financial need
shall be equal to 6 months.
(2) EFFECTIVE DATE.—The revised regulations
under this subsection shall apply to years beginning after December 31, 2001.
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELIGIBLE ROLLOVER DISTRIBUTIONS.—
(1) MODIFICATION OF DEFINITION OF ELIGIBLE ROLLOVER.—
Subparagraph (C) of section 402(c)(4) (relating to eligible rollover distribution)
is amended to read as follows:‘‘ (C)
any distribution which is made upon hardship of the employee.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to distributions made after December 31, 2001.
Sec.
637. Waiver Of Tax On Nondeductible Contributions For Domestic Or Similar Workers.
(a) IN GENERAL.—Section 4972(c)(6) (relating
to exceptions to nondeductible contributions), as amended by section 616, is
amended by striking ‘‘and’’ at the end of subparagraph (A), by striking the period and inserting ‘‘, or’’ at the end of subparagraph (B), and by inserting after subparagraph (B) the
following new
subparagraph: ‘‘(C) so much of the
contributions to a simple retirement account (within the meaning of section
408(p)) or a simple plan (within the meaning of section 401(k)(11)) which are
not deductible when contributed solely because such contributions are not made
in connection with a trade or business of the employer.’’.
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Section
4972(c)(6), as amended by subsection (a), is amended by adding at the end the
following new sentence: ‘‘Subparagraph (C) shall not apply to contributions made on behalf of the employer
or a member of the employer’s family (as defined in section 447(e)(1)).’’.
(c) NO INFERENCE.—Nothing in the amendments
made by this section shall be construed to infer the proper treatment of nondeductible
contributions under the laws in effect before such amendments.
(d) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2001.
Subtitle
D—Increasing Portability for Participants
Sec.
641. Rollovers Allowed Among Various Types Of Plans.
(a) ROLLOVERS FROM AND TO SECTION 457 PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
(A) IN GENERAL.—Section 457(e) (relating to
other definitions and special rules) is amended by adding at the end the following:
‘‘ (16) ROLLOVER AMOUNTS.—
‘‘ (A) GENERAL RULE.—In
the case of an eligible deferred compensation plan established and maintained
by an employer described in subsection (e)(1)(A), if— ‘‘(i) any portion of the balance to the credit of an employee in such plan is paid
to such employee in an eligible rollover distribution (within the meaning
of section 402(c)(4)), ‘‘(ii)
the employee transfers any portion of the property such employee receives in
such distribution to an eligible retirement plan described in section 402(c)(8)(B),
and ‘‘(iii) in the case of a distribution of property other than money, the amount
so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible
in gross income for the taxable year in which paid.
‘‘ (B) CERTAIN RULES MADE APPLICABLE.—The
rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f
) shall apply for purposes of subparagraph (A).
‘‘ (C) REPORTING.—Rollovers
under this paragraph shall be reported to the Secretary in the same manner as
rollovers from qualified retirement plans (as defined in section 4974(c)).’’.
(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO ROLLOVER AMOUNTS.—Section
457(b)(2) (defining eligible deferred compensation plan) is amended by inserting ‘‘(other than rollover amounts)’’ after ‘‘taxable year’’.
(C) DIRECT ROLLOVER.—Paragraph (1) of section
457(d) is amended by striking ‘‘and’’ at the end of subparagraph (A), by striking the period at the end of subparagraph
(B) and inserting ‘‘, and’’, and by inserting after subparagraph (B) the following: ‘‘(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A),
the plan meets requirements similar to the requirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer in accordance
with section 401(a)(31) shall not be includible in gross income for the taxable
year of transfer.’’.
(D) WITHHOLDING.—
(i) Paragraph (12) of section 3401(a) is amended by adding at the end the following:‘‘ (E)
under or to an eligible deferred compensation plan which, at the time of such
payment, is a plan described in section 457(b) which is maintained by an eligible
employer described in section 457(e)(1)(A), or’’.
(ii) Paragraph (3) of section 3405(c) is amended to read as follows: ‘‘(3)
ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of this subsection, the term ‘eligible rollover distribution’ has the meaning given such term by section 402(f )(2)(A).’’.
(iii) LIABILITY FOR WITHHOLDING.—Subparagraph
(B) of section 3405(d)(2) is amended by striking ‘‘or’’ at the end of clause (ii), by striking the period at the end of clause (iii)
and inserting ‘‘, or’’, and by adding at the end the following: ‘‘(iv) section 457(b) and which is maintained by an eligible employer described
in section 457(e)(1)(A).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) IN GENERAL.—Section 402(c)(8)(B) (defining
eligible retirement plan) is amended by striking ‘‘and’’ at the end of clause (iii), by striking the period at the end of clause (iv)
and inserting ‘‘, and’’, and by inserting after clause (iv) the following new clause: ‘‘(v) an eligible deferred compensation plan described in section 457(b) which
is maintained by an eligible employer described in section 457(e)(1)(A).’’.
(B) SEPARATE ACCOUNTING.—Section 402(c)
is amended by adding at the end the following new paragraph:‘‘ (10) SEPARATE ACCOUNTING.—Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately
account for amounts rolled into such plan from eligible retirement plans not
described in such clause, the plan described in such clause may not accept
transfers or rollovers from such retirement
plans.’’.
(C) 10 PERCENT ADDITIONAL TAX.—Subsection
(t) of section 72 (relating to 10-percent additional tax on early distributions
from qualified retirement plans) is amended by adding at the end the following
new paragraph:‘‘ (9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.—
For purposes of this subsection, a distribution from an eligible deferred compensation
plan (as defined in section 457(b)) of an eligible employer described in section
457(e)(1)(A) shall be treated as a distribution from a qualified retirement
plan described in 4974(c)(1) to the extent that such distribution is attributable
to an amount transferred to an eligible deferred compensation plan from a qualified
retirement plan (as defined in section 4974(c)).’’.
(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS.—
(1) ROLLOVERS FROM SECTION 403(b) PLANS.—Section
403(b)(8)(A)(ii) (relating to rollover amounts) is amended by striking ‘‘such distribution’’ and all that follows and inserting ‘‘such distribution to an eligible retirement plan described in section 402(c)(8)(B),
and’’.
(2) ROLLOVERS TO SECTION 403(b) PLANS.—Section
402(c)(8)(B) (defining eligible retirement plan), as amended by subsection
(a), is amended by striking ‘‘and’’ at the end of clause (iv), by striking the period at the end of clause (v) and
inserting ‘‘, and’’, and by inserting after clause (v) the following new clause:‘‘ (vi) an annuity contract described in section 403(b).’’.
(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS.—
Paragraph (1) of section 402(f ) (relating to written explanation to recipients
of distributions eligible for rollover treatment) is amended by striking ‘‘and’’ at
the end of subparagraph (C), by striking the period at the end of subparagraph
(D) and inserting ‘‘, and’’, and by adding at the end the following new subparagraph:
‘‘ (E) of the provisions under which distributions
from the eligible retirement plan receiving the distribution may be subject to
restrictions and tax consequences which are different from those applicable to
distributions from the plan making such distribution.’’.
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9)
(relating to rollover where spouse receives distribution after death of employee)
is amended by striking ‘‘; except that’’ and all that follows up to the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.
(2) Section 219(d)(2) is amended by striking ‘‘or
408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended by striking ‘‘and
403(a)(4)’’ and inserting ‘‘, 403(a)(4), 403(b)(8), and 457(e)(16)’’.
(4) Subparagraph (A) of section 402(f )(2) is amended by striking ‘‘or
paragraph (4) of section 403(a)’’ and inserting ‘‘, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or
subparagraph (A) of section 457(e)(16)’’.
(5) Paragraph (1) of section 402(f ) is amended by striking ‘‘from
an eligible retirement plan’’.
(6) Subparagraphs (A) and (B) of section 402(f )(1) are amended by striking ‘‘another
eligible retirement plan’’ and inserting ‘‘an eligible retirement plan’’.
(7) Subparagraph (B) of section 403(b)(8) is amended to read as follows:‘‘ (B)
CERTAIN RULES MADE APPLICABLE.—The rules of paragraphs (2) through (7) and (9) of section 402(c) and section
402(f ) shall apply for purposes of subparagraph (A), except that section 402(f
) shall be applied to the payor in lieu of the plan administrator.’’.
(8) Section 408(a)(1) is amended by striking ‘‘or
403(b)(8),’’ and inserting ‘‘403(b)(8), or 457(e)(16)’’.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘408(d)(3), and 457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by striking ‘‘or
408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.
(f ) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after December 31, 2001.
(2) REASONABLE NOTICE.—No penalty shall
be imposed on a plan for the failure to provide the information required by
the amendment made by subsection (c) with respect to any distribution made
before the date that is 90 days after the date on which the Secretary of the
Treasury issues a safe harbor rollover notice after the date of the enactment
of this Act, if the administrator of such plan makes a reasonable attempt to
comply with such requirement.
(3) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal
Revenue Code of 1986) on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is permitted solely by reason
of any amendment made by this section.
Sec.
642. Rollovers Of IRAs Into Workplace Retirement Plans.
(a) IN GENERAL.—Subparagraph (A) of section
408(d)(3) (relating to rollover amounts) is amended by adding ‘‘or’’ at the end of clause (i), by striking clauses (ii) and (iii), and by adding
at the end the following:‘‘ (ii) the entire amount received (including money and any other property) is
paid into an eligible retirement
plan for the benefit of such individual not later than the 60th day after the
date on which the payment or distribution is received, except that the maximum
amount which may be paid into such plan may not exceed the portion of the amount
received which is includible in gross income (determined without regard to
this paragraph).For purposes of clause (ii), the term ‘eligible
retirement plan’ means an eligible retirement plan described in clause (iii), (iv), (v), or (vi)
of section 402(c)(8)(B).’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 403(b) is amended by striking ‘‘section
408(d)(3)(A)(iii)’’ and inserting ‘‘section 408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is amended by striking ‘‘(i),
(ii), or (iii)’’ and inserting ‘‘(i) or (ii)’’.
(3) Subparagraph (G) of section 408(d)(3) is amended to read as follows:‘‘ (G)
SIMPLE RETIREMENT ACCOUNTS.—In the case of any payment or distribution out of a simple retirement account
(as defined in subsection (p)) to which section 72(t)(6) applies, this paragraph
shall not apply unless such payment or distribution is paid into another simple
retirement account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after December 31, 2001.
(2) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax
Reform Act of 1986 shall not apply to any distribution from an eligible retirement
plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal
Revenue Code of 1986) on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is permitted solely by reason
of the amendments made by this section.
Sec.
643. Rollovers Of After-Tax Contributions.
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph
(2) of section 402(c) (relating to maximum amount which may be rolled over)
is amended by adding at the end the following: ‘‘The preceding sentence shall not apply to such distribution to the extent—‘‘ (A) such portion is transferred in a direct trustee-to-trustee transfer to a
qualified trust which is part of a plan which is a defined contribution plan
and which agrees to separately account for amounts so transferred, including
separately accounting for the portion of such distribution which is includible
in gross income and the portion of such distribution which is not so includible,
or‘‘ (B) such portion is transferred to an eligible retirement plan described in
clause (i) or (ii) of paragraph (8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.—
Subparagraph (B) of section 401(a)(31) (relating to limitation) is amended
by adding at the end the following: ‘‘The
preceding sentence shall not apply to such distribution if the plan to which
such distribution is transferred— ‘‘(i) agrees to separately account for amounts so transferred, including separately
accounting for the portion of such distribution which is includible in gross
income and the portion of such distribution which is not so includible, or ‘‘(ii) is an eligible retirement plan described in clause (i) or (ii) of section
402(c)(8)(B).’’.
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—Paragraph
(3) of section 408(d) (relating to special rules for applying section 72) is
amended by inserting at the end the following:
‘‘ (H) APPLICATION OF SECTION 72.—
‘‘ (i) IN GENERAL.—If—‘‘(I)
a distribution is made from an individual retirement plan, and ‘‘(II) a rollover contribution is made to an eligible retirement plan described
in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part
of such distribution, then, notwithstanding paragraph (2), the rules of clause
(ii) shall apply for purposes of applying section 72.
‘‘ (ii) APPLICABLE RULES.—In
the case of a distribution described in clause (i)—‘‘(I) section 72 shall be applied separately to such distribution, ‘‘(II) notwithstanding the pro rata allocation of income on, and investment in,
the contract to distributions under section 72, the portion of such distribution
rolled over to an eligible retirement plan described in clause (i) shall be treated
as from income on the contract (to the extent of the aggregate income on the
contract from all individual retirement plans of the distributee), and
‘‘ (III) appropriate adjustments shall be made in
applying section 72 to other distributions in such taxable year and subsequent
taxable years.’’.
(d) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions made after December 31, 2001.
Sec.
644. Hardship Exception To 60-Day Rule.
(a) EXEMPT TRUSTS.—Paragraph (3) of section
402(c) (relating to transfer must be made within 60 days of receipt) is amended
to read as follows:
‘‘ (3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.—
‘‘ (A) IN GENERAL.—Except
as provided in subparagraph (B), paragraph (1) shall not apply to any transfer
of a distribution made after the 60th day following the day on which the distributee
received the property distributed.
‘‘ (B) HARDSHIP EXCEPTION.—The
Secretary may waive the 60-day requirement under subparagraph (A) where the failure
to waive such requirement would be against equity or good conscience, including
casualty, disaster, or other events beyond the reasonable control of the individual
subject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating
to rollover contributions), as amended by section 643, is amended by adding
after subparagraph (H) the following new subparagraph:
‘‘ (I) WAIVER OF 60-DAY REQUIREMENT.—The
Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where
the failure to waive such requirement would be against equity or good conscience,
including casualty, disaster, or other events beyond the reasonable control of
the individual subject to such requirement.’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after December 31, 2001.
Sec.
645. Treatment Of Forms Of Distribution.
(a) PLAN TRANSFERS.—
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph
(6) of section 411(d) (relating to accrued benefit not to be decreased by amendment)
is amended by adding at the end the following:
‘‘ (D) PLAN TRANSFERS.—
‘‘ (i) IN GENERAL.—A
defined contribution plan (in this subparagraph referred to as the ‘transferee plan’) shall not be treated as failing to meet the requirements of this subsection
merely because the transferee plan does not provide some or all of the forms
of distribution previously available under another defined contribution plan
(in this subparagraph referred to as the ‘transferor plan’) to the extent that—‘‘(I) the forms of distribution previously available under the transferor plan
applied to the account of a participant or beneficiary under the transferor plan
that was transferred from the transferor plan to the transferee plan pursuant
to a direct transfer rather than pursuant to a distribution from the transferor
plan, ‘‘(II) the terms of both the transferor plan and the transferee plan authorize
the transfer described in subclause (I), ‘‘(III) the transfer described in subclause (I) was made pursuant to a voluntary
election by the participant or beneficiary whose account was transferred to the
transferee plan, ‘‘(IV) the election described in subclause (III) was made after the participant
or beneficiary received a notice describing the consequences of making the election,
and ‘‘(V) the transferee plan allows the participant or beneficiary described in subclause
(III) to receive any distribution to which the participant or beneficiary is
entitled under the transferee plan in the form of a single sum distribution.
‘‘ (ii) SPECIAL RULE FOR MERGERS, ETC.—Clause
(i) shall apply to plan mergers and other transactions having the effect of a
direct transfer, including consolidations of benefits attributable to different
employers within a multiple employer plan.
‘‘ (E) ELIMINATION OF FORM OF DISTRIBUTION.—Except
to the extent provided in regulations, a defined contribution plan shall not
be treated as failing to meet the requirements of this section merely because
of the elimination of a form of distribution previously available thereunder.
This subparagraph shall not apply to the elimination of a form of distribution
with respect to any participant unless—‘‘ (i) a single sum payment is available to such participant at the same time or
times as the form of distribution being eliminated, and ‘‘(ii) such single sum payment is based on the same or greater portion of the participant’s account as the form of distribution being eliminated.’’.
(2) AMENDMENT OF ERISA.—Section 204(g)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g))
is amended by adding at the end the following: ‘‘(4)(A) A defined contribution plan (in this subparagraph referred to as the ‘transferee plan’) shall not be treated as failing to meet the requirements of this subsection
merely because the transferee plan does not provide some or all of the forms
of distribution previously available under another defined contribution plan
(in this subparagraph referred to as the ‘transferor plan’) to the extent that—
‘‘ (i) the forms of distribution previously available
under the transferor plan applied to the account of a participant or beneficiary
under the transferor plan that was transferred from the transferor plan to the
transferee plan pursuant to a direct transfer rather than pursuant to a distribution
from the transferor plan;
‘‘ (ii) the terms of both the transferor plan and
the transferee plan authorize the transfer described in clause (i);
‘‘ (iii) the transfer described in clause (i) was
made pursuant to a voluntary election by the participant or beneficiary whose
account was transferred to the transferee plan;
‘‘ (iv) the election described in clause (iii) was
made after the participant or beneficiary received a notice describing the consequences
of making the election; and
‘‘ (v) the transferee plan allows the participant
or beneficiary described in clause (iii) to receive any distribution to which
the participant or beneficiary is entitled under the transferee plan in the form
of a single sum distribution.
‘‘ (B) Subparagraph (A) shall apply to plan mergers
and other transactions having the effect of a direct transfer, including consolidations
of benefits attributable to different employers within a multiple employer plan. ‘‘(5) Except to the extent provided in regulations promulgated by the Secretary
of the Treasury, a defined contribution plan shall not be treated as failing
to meet the requirements of this subsection merely because of the elimination
of a form of distribution previously available thereunder. This paragraph shall
not apply to the elimination of a form of distribution with respect to any participant
unless—‘‘ (A) a single sum payment is available to such participant at the same time or
times as the form of distribution being eliminated; and ‘‘(B) such single sum payment is based on the same or greater portion of the participant’s account as the form of distribution being eliminated.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning after December 31, 2001.
(b) REGULATIONS.—
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph
(6)(B) of section 411(d) (relating to accrued benefit not to be decreased by
amendment) is amended by inserting after the second sentence the following: ‘‘The Secretary shall by regulations provide that this subparagraph shall not apply
to any
plan amendment which reduces or eliminates benefits or subsidies which create
significant burdens or complexities for the plan and plan participants, unless
such amendment adversely affects the rights of any participant in a more than
de minimis manner.’’.
(2) AMENDMENT OF ERISA.—Section 204(g)(2)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2))
is amended by inserting after the second sentence the following: ‘‘The Secretary of the Treasury shall by regulations provide that this paragraph
shall not apply to any plan amendment which reduces or eliminates benefits
or subsidies which create significant burdens or complexities for the plan
and plan participants, unless such amendment adversely affects the rights of
any participant in a more than de minimis manner.’’.
(3) SECRETARY DIRECTED.—Not later than
December 31, 2003, the Secretary of the Treasury is directed to issue regulations
under section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g)
of the Employee Retirement Income Security Act of 1974, including the regulations
required by the amendment made by this subsection. Such regulations shall apply
to plan years beginning after December 31, 2003, or such earlier date as is
specified by the Secretary of the Treasury.
Sec.
646. Rationalization Of Restrictions On Distributions.
(a) MODIFICATION OF SAME DESK EXCEPTION.—
(1) SECTION 401(k).—
(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash or deferred arrangements)
is amended by striking ‘‘separation
from service’’ and inserting ‘‘severance from employment’’.
(B) Subparagraph (A) of section 401(k)(10) (relating to distributions upon
termination of plan or disposition of assets or subsidiary) is amended to read
as follows: ‘‘(A)
IN GENERAL.—An event described in this subparagraph is the termination of the plan without
establishment or maintenance of another defined contribution plan (other than
an employee stock ownership plan as defined in section 4975(e)(7)).’’.
(C) Section 401(k)(10) is amended— (i)
in subparagraph (B)— (I) by striking ‘‘An event’’ in clause (i) and inserting ‘‘A termination’’; and (II) by striking ‘‘the event’’ in clause (i) and inserting ‘‘the termination’’; (ii) by striking subparagraph (C); and (iii) by striking ‘‘OR DISPOSITION OF ASSETS OR SUBSIDIARY’’ in the heading.
(2) SECTION 403(b).—
(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are each amended by
striking ‘‘separates
from service’’ and inserting ‘‘has a severance from employment’’.
(B) The heading for paragraph (11) of section 403(b) is amended by striking ‘‘SEPARATION
FROM SERVICE’’ and inserting ‘‘SEVERANCE FROM EMPLOYMENT’’.
(3) SECTION 457.—Clause (ii) of section 457(d)(1)(A)
is amended by striking ‘‘is separated from service’’ and inserting ‘‘has a severance from employment’’.
(b) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after December 31, 2001.
Sec.
647. Purchase Of Service Credit In Governmental Defined Benefit Plans.
(a) SECTION 403(b) PLANS.—Subsection
(b) of section 403 is amended by adding at the end the following new paragraph: ‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT.—No amount shall be includible in gross income by reason of a direct trustee-to-trustee
transfer to a defined benefit governmental plan (as defined in section 414(d))
if such transfer is— ‘‘(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A))
under such plan, or ‘‘(B) a repayment to which section 415 does not apply by reason of subsection (k)(3)
thereof.’’.
(b) SECTION 457 PLANS.—Subsection (e)
of section 457, as amended by section 641, is amended by adding after paragraph
(16) the following new paragraph: ‘‘(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT.—No amount shall be includible in gross income by reason of a direct trustee-to-trustee
transfer to a defined benefit governmental plan (as defined in section 414(d))
if such transfer is— ‘‘(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A))
under such plan, or ‘‘(B) a repayment to which section 415 does not apply by reason of subsection (k)(3)
thereof.’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to trustee-to-trustee transfers after December
31, 2001.
Sec.
648. Employers May Disregard Rollovers For Purposes Of Cash-Out Amounts.
(a) QUALIFIED PLANS.—
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Section
411(a)(11) (relating to restrictions on certain mandatory distributions) is
amended by adding at the end the following: ‘‘(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS.— A plan shall not fail to meet the requirements of this paragraph if, under the
terms of the plan, the present value of the nonforfeitable accrued benefit
is determined without regard to that portion of such benefit which is attributable
to rollover contributions (and earnings allocable thereto). For purposes of
this subparagraph, the term ‘rollover contributions’ means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16).’’.
(2) AMENDMENT OF ERISA.—Section 203(e)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c))
is amended by adding at the end the following: ‘‘(4) A plan shall not fail to meet the requirements of this subsection if, under
the terms of the plan, the present value of the nonforfeitable accrued benefit
is determined without regard to that portion of such benefit which is attributable
to rollover contributions (and earnings allocable thereto). For purposes of
this subparagraph, the term ‘rollover contributions’ means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code of 1986.’’.
(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—Clause
(i) of section 457(e)(9)(A) is amended by striking ‘‘such amount’’ and inserting ‘‘the portion of such amount which is not attributable to rollover contributions
(as defined in section 411(a)(11)(D))’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after December 31, 2001.
Sec.
649. Minimum Distribution And Inclusion Requirements For Section 457 Plans.
(a) MINIMUM DISTRIBUTION REQUIREMENTS.—Paragraph
(2) of section 457(d) (relating to distribution requirements) is amended to
read as follows:
‘‘ (2) MINIMUM DISTRIBUTION REQUIREMENTS.—A
plan meets the minimum distribution requirements of this paragraph if such plan
meets the requirements of section 401(a)(9).’’.
(b) INCLUSION IN GROSS INCOME.—
(1) YEAR OF INCLUSION.—Subsection (a)
of section 457 (relating to year of inclusion in gross income) is amended to
read as follows:
‘‘ (a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘ (1) IN GENERAL.—Any
amount of compensation deferred under an eligible deferred compensation plan,
and any income attributable to the amounts so deferred, shall be includible in
gross income only for the taxable year in which such compensation or other income—
‘‘ (A) is paid to the participant or other beneficiary,
in the case of a plan of an eligible employer described in subsection (e)(1)(A),
and ‘‘(B) is paid or otherwise made available to the participant or other beneficiary,
in the case of a plan of an eligible employer described in subsection (e)(1)(B).
‘‘ (2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—To
the extent provided in section 72(t)(9), section 72(t) shall apply to any amount
includible in gross income under this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) So much of paragraph (9) of section 457(e) as precedes subparagraph (A)
is amended to read as follows: ‘‘(9)
BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT TREATED AS MADE AVAILABLE BY
REASON OF CERTAIN ELECTIONS, ETC.—In the case of an eligible deferred compensation plan of an employer described
in subsection (e)(1)(B)—’’.
(B) Section 457(d) is amended by adding at the end the following new paragraph:
‘‘ (3) SPECIAL RULE FOR GOVERNMENT PLAN.—An
eligible deferred compensation plan of an employer described in subsection (e)(1)(A)
shall not be treated as failing to meet the requirements of this subsection solely
by reason of making a distribution described in subsection (e)(9)(A).’’.
(c) EFFECTIVE DATE.—The amendments made
by subsections (a) and (b) shall apply to distributions after December 31,
2001.
Subtitle
E—Strengthening Pension Security and Enforcement
Part
I—General Provisions
Sec.
651. Repeal Of 160 Percent Of Current Liability Funding Limit.
(a) AMENDMENTS TO INTERNAL REVENUE CODE.—Section
412(c)(7) (relating to full-funding limitation) is amended—
(1) by striking ‘‘the applicable
percentage’’ in subparagraph (A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’; and
(2) by amending subparagraph (F) to read as follows: ‘‘(F)
APPLICABLE PERCENTAGE.—For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined
in accordance with the following table:
‘‘ In the case of any plan year ..................................................The
applicable
beginning in— .........................................................................percentage
is—
2002 .............................................................................................
165
2003 .............................................................................................
170.’’.
(b) AMENDMENT OF ERISA.—Section 302(c)(7)
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7))
is amended—
(1) by striking ‘‘the applicable
percentage’’ in subparagraph (A)(i)(I) and inserting ‘‘in the case of plan years beginning before January 1, 2004, the applicable percentage’’, and (2) by amending subparagraph (F) to read as follows:
‘‘ (F) APPLICABLE PERCENTAGE.—For
purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined
in accordance with the following table:
‘‘ In the case of any plan year ..................................................The
applicable
beginning in calendar year— .....................................................percentage
is—
2002 .............................................................................................
165
2003 .............................................................................................
170.’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to plan years beginning after December 31, 2001.
Sec.
652. Maximum Contribution Deduction Rules Modified And Applied To All Defined Benefit
Plans.
(a) IN GENERAL.—Subparagraph (D) of section
404(a)(1) (relating to special rule in case of certain plans) is amended to
read as follows:
‘‘ (D) SPECIAL RULE IN CASE OF CERTAIN PLANS.—
‘‘ (i) IN GENERAL.—In
the case of any defined benefit plan, except as provided in regulations, the
maximum amount deductible under the limitations of this paragraph shall not be
less than the unfunded current liability determined under section 412(l).
‘‘ (ii) PLANS WITH 100 OR LESS PARTICIPANTS.—For
purposes of this subparagraph, in the case of a plan which has 100 or less participants
for the plan year, unfunded current liability shall not include the liability
attributable to benefit increases for highly compensated employees (as defined
in section 414(q))
resulting from a plan amendment which is made or becomes effective, whichever
is later, within the last 2 years.
‘‘ (iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS.—
For purposes of determining the number of plan participants, all defined benefit
plans maintained by the same employer (or any member of such employer’s
controlled group (within the meaning of section 412(l)(8)(C))) shall be treated
as one plan, but only employees of such member or employer shall be
taken into account.
‘‘ (iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE EMPLOYERS.—In
the case of a plan which, subject to section 4041 of the Employee Retirement
Income Security Act of 1974, terminates during the plan year, clause (i) shall
be applied by substituting for unfunded current liability the amount required
to make the plan sufficient for benefit liabilities (within the meaning of section
4041(d) of such Act).’’.
(b) CONFORMING AMENDMENT.—Paragraph
(6) of section 4972(c), as amended by sections 616 and 637, is amended—
(1) by striking subparagraph (A) and redesignating subparagraphs (B) and (C)
as subparagraphs (A) and (B), respectively,
(2) by striking the first sentence following subparagraph (B) (as so redesignated),
(3) by striking ‘‘subparagraph
(B)’’ in the next to last sentence and inserting ‘‘subparagraph (A)’’, and
(4) by striking ‘‘Subparagraph
(C)’’ in the last sentence and inserting ‘‘Subparagraph (B)’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to plan years beginning after December 31, 2001.
Sec.
653. Excise Tax Relief For Sound Pension Funding.
(a) IN GENERAL.—Subsection (c) of section 4972
(relating to nondeductible contributions) is amended by adding at the end the
following new paragraph:
‘‘ (7) DEFINED BENEFIT PLAN EXCEPTION.—In
determining the amount of nondeductible contributions for any taxable year, an
employer may elect for such year not to take into account any contributions to
a defined benefit plan except to the extent that such contributions exceed the
full-funding limitation (as defined in section 412(c)(7), determined without
regard to subparagraph (A)(i)(I) thereof ). For purposes of this paragraph, the
deductible limits under section 404(a)(7) shall first be applied to amounts contributed
to defined contribution plans and then to amounts described in this paragraph.
If an employer makes an election under this paragraph for a taxable year, paragraph
(6) shall not apply to such employer for such taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December 31, 2001.
Sec.
654. Treatment Of Multi-employer Plans Under Section 415.
(a) COMPENSATION LIMIT.—
(1) IN GENERAL.—Paragraph (11) of section 415(b)
(relating to limitation for defined benefit plans) is amended to read as follows:
‘‘ (11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND
MULTIEMPLOYER PLANS.—In the case of a governmental plan (as defined in section 414(d)) or a multi-employer
plan (as defined in section 414(f )), subparagraph (B) of paragraph (1) shall
not apply.’’.
(2) CONFORMING AMENDMENT.—Section
415(b)(7) (relating to benefits under certain collectively bargained plans)
is amended by inserting ‘‘(other than a multi-employer plan)’’ after ‘‘defined benefit plan’’ in the matter preceding subparagraph (A).
(b) COMBINING AND AGGREGATION OF PLANS.—
(1) COMBINING OF PLANS.—Subsection (f
) of section 415 (relating to combining of plans) is amended by adding at the
end the following:
‘‘ (3) EXCEPTION FOR MULTIEMPLOYER PLANS.—Notwithstanding
paragraph (1) and subsection (g), a multi-employer plan (as defined in section
414(f)) shall not be combined or aggregated—
‘‘ (A) with any other plan which is not a multi-employer
plan for purposes of applying subsection (b)(1)(B) to such other plan, or
‘‘ (B) with any other multi-employer plan for purposes
of applying the limitations established in this section.’’.
(2) CONFORMING AMENDMENT FOR AGGREGATION OF PLANS.—Subsection
(g) of section 415 (relating to aggregation of plans) is amended by striking ‘‘The Secretary’’ and inserting ‘‘Except as provided in subsection (f )(3), the Secretary’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after December 31, 2001.
Sec.
655. Protection Of Investment Of Employee Contributions To 401(K) Plans.
(a) IN GENERAL.—Section 1524(b) of the Taxpayer
Relief Act of 1997 is amended to read as follows:
‘‘ (b) EFFECTIVE DATE.—
‘‘ (1) IN GENERAL.—Except
as provided in paragraph (2), the amendments made by this section shall apply
to elective deferrals for plan years beginning after December 31, 1998.
‘‘ (2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROPERTY.—
The amendments made by this section shall not apply to any elective deferral
which is invested in assets consisting of qualifying employer securities, qualifying
employer real property, or both, if such assets were acquired before January
1, 1999.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply as if included in the provision of the Taxpayer Relief
Act of 1997 to which it relates.
Sec.
656. Prohibited Allocations Of Stock In S Corporation ESOP.
(a) IN GENERAL.—Section 409 (relating to qualifications
for tax credit employee stock ownership plans) is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o) the
following new subsection:
‘‘ (p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN
S CORPORATION.—
‘‘ (1) IN GENERAL.—An
employee stock ownership plan holding employer securities consisting of stock
in an S corporation shall provide that no portion of the assets of the plan attributable
to (or allocable in lieu of ) such employer securities may, during a nonallocation
year, accrue (or be allocated directly or indirectly under any plan of the employer
meeting the requirements of section 401(a)) for the benefit of any disqualified
person.
‘‘ (2) FAILURE TO MEET REQUIREMENTS.—
‘‘ (A) IN GENERAL.—If
a plan fails to meet the requirements of paragraph (1), the plan shall be treated
as having distributed to any disqualified person the amount allocated to the
account of such person in violation of paragraph (1) at the time of such allocation.
‘‘ (B) CROSS REFERENCE.—
‘‘ For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section 4979A.
‘‘ (3) NONALLOCATION YEAR.—For
purposes of this subsection—
‘‘ (A) IN GENERAL.—The
term ‘nonallocation year’ means any plan year of an employee stock ownership plan if, at any time during
such plan year— ‘‘(i) such plan holds employer securities consisting of stock in an S corporation,
and ‘‘(ii) disqualified persons own at least 50 percent of the number of shares of
stock in the S corporation.
‘‘ (B) ATTRIBUTION RULES.—For
purposes of subparagraph (A)—
‘‘ (i) IN GENERAL.—The
rules of section 318(a) shall apply for purposes of determining ownership, except
that— ‘‘(I) in applying paragraph (1) thereof, the members of an individual’s family shall include members of the family described in paragraph (4)(D), and ‘‘(II) paragraph (4) thereof shall not apply.
‘‘ (ii) DEEMED-OWNED SHARES.—Notwithstanding
the employee trust exception in section 318(a)(2)(B)(i), an individual shall
be treated as owning deemed-owned shares of the individual. Solely for purposes
of applying paragraph (5), this subparagraph shall be applied after the attribution
rules of paragraph (5) have been applied.
‘‘ (4) DISQUALIFIED PERSON.—For
purposes of this subsection—
‘‘ (A) IN GENERAL.—The
term ‘disqualified person’ means any person if— ‘‘(i) the aggregate number of deemed-owned shares of such person and the members
of such person’s family is at least 20 percent of the number of deemed-owned shares of stock
in the S corporation, or ‘‘(ii) in the case of a person not described in clause (i), the number of deemed-owned
shares of such person is at least 10 percent of the number of deemed-owned shares
of stock in such corporation.
‘‘ (B) TREATMENT OF FAMILY MEMBERS.—In
the case of a disqualified person described in subparagraph (A)(i), any member
of such person’s family with deemed-owned shares shall be treated as a disqualified person if
not otherwise treated as a disqualified person under subparagraph (A).
‘‘ (C) DEEMED-OWNED SHARES.—
‘‘ (i) IN GENERAL.—The
term ‘deemed-owned shares’ means, with respect to any person— ‘‘(I) the stock in the S corporation constituting employer securities of an employee
stock ownership plan which is allocated to such person under the plan, and ‘‘(II) such person’s share of the stock in such corporation which is held by such plan but which
is not allocated under the plan to participants.
‘‘ (ii) PERSON’S SHARE OF
UNALLOCATED STOCK.—
For purposes of clause (i)(II), a person’s
share of unallocated S corporation stock held by such plan is the amount of
the unallocated stock which would be allocated to such person if the unallocated
stock were allocated to all participants in the same proportions as the most
recent stock allocation under the plan.
‘‘ (D) MEMBER OF FAMILY.—For
purposes of this paragraph, the term ‘member of the family’ means, with respect to any individual— ‘‘(i) the spouse of the individual, ‘‘(ii) an ancestor or lineal descendant of the individual or the individual’s spouse, ‘‘(iii) a brother or sister of the individual or the individual’s spouse and any lineal descendant of the brother or sister, and ‘‘(iv) the spouse of any individual described in clause (ii) or (iii). A spouse
of an individual who is legally separated from such individual under a decree
of divorce or separate maintenance shall not be treated as such individual’s spouse for purposes of this subparagraph.
‘‘ (5) TREATMENT OF SYNTHETIC EQUITY.—For
purposes of paragraphs (3) and (4), in the case of a person who owns synthetic
equity in the S corporation, except to the extent provided in regulations, the
shares of stock in such corporation on which such synthetic equity is based shall
be treated as outstanding stock in such corporation and deemed-owned shares of
such person if such treatment of synthetic equity of 1 or more such persons results
in— ‘‘(A) the treatment of any person as a disqualified person, or ‘‘(B) the treatment of any year as a nonallocation year. For purposes of this paragraph,
synthetic equity shall be treated as owned by a person in the same manner as
stock is treated as owned by a person under the rules of paragraphs (2) and (3)
of section 318(a). If, without regard to this paragraph, a person is treated
as a disqualified person or a year is treated as a nonallocation year, this paragraph
shall not be construed
to result in the person or year not being so treated.
‘‘ (6) DEFINITIONS.—For
purposes of this subsection—
‘‘ (A) EMPLOYEE STOCK OWNERSHIP PLAN.—The
term ‘employee stock ownership plan’ has the meaning given such term by section 4975(e)(7).
‘‘ (B) EMPLOYER SECURITIES.—The
term ‘employer security’ has the meaning given such term by section 409(l).
‘‘ (C) SYNTHETIC EQUITY.—The
term ‘synthetic equity’ means any stock option, warrant, restricted stock, deferred issuance stock right,
or similar interest or right that gives the holder the right to acquire or receive
stock of the S corporation in the future. Except to the extent provided in regulations,
synthetic equity also includes a stock appreciation right, phantom stock unit,
or similar right to a future cash payment based on the value of such stock or
appreciation in such value.
‘‘ (7) REGULATIONS AND GUIDANCE.—
‘‘ (A) IN GENERAL.—The
Secretary shall prescribe such regulations as may be necessary to carry out the
purposes of this subsection.
‘‘ (B) AVOIDANCE OR EVASION.—The
Secretary may, by regulation or other guidance of general applicability, provide
that a nonallocation year occurs in any case in which the principal purpose of
the ownership structure of an S corporation constitutes an avoidance or evasion
of this subsection.’’.
(b) COORDINATION WITH SECTION 4975(e)(7).—The
last sentence of section 4975(e)(7) (defining employee stock ownership plan)
is amended by inserting ‘‘, section 409(p),’’ after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION OF TAX.—Subsection (a)
of section 4979A (relating to tax on certain prohibited allocations of employer
securities) is amended—
(A) by striking ‘‘or’’ at
the end of paragraph (1), and (B) by striking all that follows paragraph (2)
and inserting the following: ‘‘(3) there is any allocation of employer securities which violates the provisions
of section 409(p), or a nonallocation year described in subsection (e)(2)(C)
with respect to an employee stock ownership plan, or ‘‘(4) any synthetic equity is owned by a disqualified person in any nonallocation
year, there is hereby imposed a tax on such allocation or ownership equal to
50 percent of the amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (defining liability
for tax) is amended to read as follows:
‘‘ (c) LIABILITY FOR TAX.—The
tax imposed by this section shall be paid—‘‘ (1) in the case of an allocation referred to in paragraph (1) or (2) of subsection
(a), by— ‘‘(A) the employer sponsoring such plan, or ‘‘(B) the eligible worker-owned cooperative, which made the written statement described
in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), and‘‘ (2) in the case of an allocation or ownership referred to in paragraph (3) or
(4) of subsection (a), by the S corporation the stock in which was so allocated
or owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (relating
to definitions) is amended to read as follows:
‘‘ (e) DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—‘‘ (1) DEFINITIONS.—Except as provided in paragraph (2), terms used in this section have the same
respective meanings as when used in sections 409 and 4978.‘‘ (2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON OF PARAGRAPH (3) OR (4)
OF SUBSECTION (a).—
‘‘ (A) PROHIBITED ALLOCATIONS.—The
amount involved with respect to any tax imposed by reason of subsection (a)(3)
is the amount allocated to the account of any person in violation of section
409(p)(1).
‘‘ (B) SYNTHETIC EQUITY.—The
amount involved with respect to any tax imposed by reason of subsection (a)(4)
is the value of the shares on which the synthetic equity is based.
‘‘ (C) SPECIAL RULE DURING FIRST NONALLOCATION YEAR.—For
purposes of subparagraph (A), the amount involved for the first nonallocation
year of any employee stock ownership plan shall be determined by taking into
account the total value of all the deemed-owned shares of all disqualified persons
with respect to such plan.
‘‘ (D) STATUTE OF LIMITATIONS.—The
statutory period for the assessment of any tax imposed by this section by reason
of paragraph (3) or (4) of subsection (a) shall not expire before the date which
is 3 years from the later of—‘‘ (i) the allocation or ownership referred to in such paragraph giving rise to
such tax, or ‘‘(ii) the date on which the Secretary is notified of such allocation or ownership.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this
section shall apply to plan years beginning after December 31, 2004.
(2) EXCEPTION FOR CERTAIN PLANS.—In
the case of any— (A) employee stock ownership plan established after March 14, 2001, or (B) employee
stock ownership plan established on or before such date if employer securities
held by the plan consist of stock in a corporation with respect to which an
election under section 1362(a) of the Internal Revenue Code of 1986 is not
in effect on such date, the amendments made by this section shall apply to
plan years ending after March 14, 2001.
Sec.
657. Automatic Rollovers Of Certain Mandatory Distributions.
(a) DIRECT TRANSFERS OF MANDATORY DISTRIBUTIONS.—
(1) IN GENERAL.—Section 401(a)(31) (relating
to optional direct transfer of eligible rollover distributions), as amended
by section 643, is amended by redesignating subparagraphs (B), (C), and (D)
as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph
(A) the following new subparagraph:
‘‘ (B) CERTAIN MANDATORY DISTRIBUTIONS.—
‘‘ (i) IN GENERAL.—In
case of a trust which is part of an eligible plan, such trust shall not constitute
a qualified trust under this section unless the plan of which such trust is a
part provides that if— ‘‘(I) a distribution described in clause (ii) in excess of $1,000 is made, and ‘‘(II) the distributee does not make an election under subparagraph (A) and does
not elect to receive the distribution directly, the plan administrator shall
make such transfer to an individual retirement plan of a designated trustee or
issuer and shall notify the distributee in writing (either separately or as part
of the notice under section 402(f )) that the distribution may be transferred
to another individual retirement plan.
‘‘ (ii) ELIGIBLE PLAN.—For
purposes of clause (i), the term ‘eligible plan’ means a plan which provides that any nonforfeitable accrued benefit for which
the present value (as determined under section 411(a)(11)) does not exceed $5,000
shall be immediately distributed to the participant.’’.
(2) CONFORMING AMENDMENTS.—
(A) The heading of section 401(a)(31) is amended by striking ‘‘OPTIONAL
DIRECT’’ and inserting ‘‘DIRECT’’.
(B) Section 401(a)(31)(C), as redesignated by paragraph (1), is amended by
striking ‘‘Subparagraph
(A)’’ and inserting ‘‘Subparagraphs (A) and (B)’’.
(b) NOTICE REQUIREMENT.—Subparagraph
(A) of section 402(f )(1) is amended by inserting before the comma at the end
the following: ‘‘and that the automatic distribution by direct transfer applies to certain distributions
in accordance with section 401(a)(31)(B)’’.
(c) FIDUCIARY RULES.—
(1) IN GENERAL.—Section 404(c) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding
at the end the following new paragraph: ‘‘(3) In the case of a pension plan which makes a transfer to an individual retirement
account or annuity of a designated trustee or issuer under section 401(a)(31)(B)
of the Internal Revenue Code of 1986, the participant or beneficiary shall,
for purposes of paragraph (1), be treated as exercising control over the assets
in the account or annuity upon— ‘‘(A) the earlier of the earlier of— ‘‘(i) a rollover of all or a portion of the amount to another individual retirement
account or annuity; or ‘‘(ii) one year after the transfer is made; or ‘‘(B) if the transfer is made in a manner consistent with guidance provided by
the Secretary.’’.
(2) REGULATIONS.—
(A) AUTOMATIC ROLLOVER SAFE HARBOR.—Not
later than 3 years after the date of enactment of this Act, the Secretary of
Labor shall prescribe regulations providing for safe harbors under which the
designation of an institution and investment of funds in accordance with section
401(a)(31)(B) of the Internal Revenue Code of 1986 is deemed to satisfy the
fiduciary requirements of section 404(a) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104(a)).
(B) USE OF LOW-COST INDIVIDUAL RETIREMENT PLANS.—
The Secretary of the Treasury and the Secretary of Labor may provide, and shall
give consideration to providing, special relief with respect to the use of
low-cost individual retirement plans for purposes of transfers under section
401(a)(31)(B) of the Internal Revenue Code of 1986 and for other uses that
promote the preservation of assets for retirement income purposes.
(d) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions made after final regulations implementing
subsection (c)(2)(A) are prescribed.
Sec.
658. Clarification Of Treatment Of Contributions To Multi-employer Plan.
(a) NOT CONSIDERED METHOD OF ACCOUNTING.—For
purposes of section 446 of the Internal Revenue Code of 1986, a determination
under section 404(a)(6) of such Code regarding the taxable year with respect
to which a contribution to a multi-employer pension plan is deemed made shall
not be treated as a method of accounting of the taxpayer. No deduction shall
be allowed for any taxable year for any contribution to a multi-employer pension
plan with respect to which a deduction was previously allowed.
(b) REGULATIONS.—The Secretary of the Treasury
shall promulgate such regulations as necessary to clarify that a taxpayer shall
not be allowed an aggregate amount of deductions for contributions to a multi-employer
pension plan which exceeds the amount of such contributions made or deemed
made under section 404(a)(6) of the Internal Revenue Code of 1986 to such plan.
(c) EFFECTIVE DATE.—Subsection (a), and
any regulations promulgated under subsection (b), shall be effective for years
ending after the date of the enactment of this Act.
PART
II—TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS
Sec.
659. Excise Tax On Failure To Provide Notice By Defined Benefit Plans Significantly
Reducing Future Benefit Accruals.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—
(1) IN GENERAL.—Chapter 43 (relating to qualified
pension, etc., plans) is amended by adding at the end the following new section:
‘‘ SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING
BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.
‘‘ (a) IMPOSITION OF TAX.—There
is hereby imposed a tax on the failure of any applicable pension plan to meet
the requirements of subsection (e) with respect to any applicable individual.
‘‘ (b) AMOUNT OF TAX.—
‘‘ (1) IN GENERAL.—The
amount of the tax imposed by subsection (a) on any failure with respect to any
applicable individual shall be $100 for each day in the noncompliance period
with respect to such failure.
‘‘ (2) NONCOMPLIANCE PERIOD.—For
purposes of this section, the term ‘noncompliance period’ means, with respect to any failure, the period beginning on the date the failure
first occurs and ending on the date the notice to which the failure relates is
provided or the failure is otherwise corrected.
‘‘ (c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘ (1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED
AND REASONABLE DILIGENCE EXERCISED.—No tax shall be imposed by subsection (a) on any failure during any period for
which it is established to the satisfaction of the Secretary that any person
subject to liability for the tax under subsection
(d) did not know that the failure existed and exercised reasonable diligence
to meet the requirements of subsection (e).
‘‘ (2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN
30 DAYS.—No tax shall be imposed by subsection (a) on any failure if— ‘‘(A) any person subject to liability for the tax under subsection (d) exercised
reasonable diligence to meet the requirements of subsection (e), and ‘‘(B) such person provides the notice described in subsection (e) during the 30-day
period beginning on the first date such person knew, or exercising reasonable
diligence would have known, that such failure existed.
‘‘ (3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—
‘‘ (A) IN GENERAL.—If
the person subject to liability for tax under subsection (d) exercised reasonable
diligence to meet the requirements of subsection (e), the tax imposed by subsection
(a) for failures during the taxable year of the employer (or, in the case of
a multi-employer plan, the taxable year of the trust forming part of the plan)
shall not exceed $500,000. For purposes of the preceding sentence, all multi-employer
plans of which the same trust forms a part shall be treated as 1 plan.
‘‘ (B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED
GROUPS.—For purposes of this paragraph, if all persons who are treated as a single employer
for purposes of this section do not have the same taxable year, the taxable years
taken into account shall be determined under principles similar to the principles
of section 1561.
‘‘ (4) WAIVER BY SECRETARY.—In
the case of a failure which is due to reasonable cause and not to willful neglect,
the Secretary may waive part or all of the tax imposed by subsection (a) to the
extent that the payment of such tax would be excessive or otherwise inequitable
relative to the failure involved.
‘‘ (d) LIABILITY FOR TAX.—The
following shall be liable for the tax imposed by subsection (a):
‘‘ (1) In the case of a plan other than a multi-employer
plan, the employer. ‘‘(2) In the case of a multi-employer plan, the plan.
‘‘ (e) NOTICE REQUIREMENTS FOR PLANS SIGNIFICANTLY
REDUCING BENEFIT ACCRUALS.—
‘‘ (1) IN GENERAL.—If
an applicable pension plan is amended to provide for a significant reduction
in the rate of future benefit accrual, the plan administrator shall provide written
notice to each applicable individual (and to each employee organization representing
applicable individuals).
‘‘ (2) NOTICE.—The notice
required by paragraph (1) shall be written in a manner calculated to be understood
by the average plan participant and shall provide sufficient information (as
determined in accordance with regulations prescribed by the Secretary) to allow
applicable individuals to understand
the effect of the plan amendment. The Secretary may provide a simplified form
of notice for, or exempt from any notice requirement, a plan—
‘‘ (A) which has fewer than 100 participants who have
accrued a benefit under the plan, or ‘‘(B) which offers participants the option to choose between the new benefit formula
and the old benefit formula.
‘‘ (3) TIMING OF NOTICE.—Except
as provided in regulations, the notice required by paragraph (1) shall be provided
within a reasonable time before the effective date of the plan amendment.
‘‘ (4) DESIGNEES.—Any
notice under paragraph (1) may be provided to a person designated, in writing,
by the person to which it would otherwise be provided.
‘‘ (5) NOTICE BEFORE ADOPTION OF AMENDMENT.—A
plan shall not be treated as failing to meet the requirements of paragraph (1)
merely because notice is provided before the adoption of the plan amendment if
no material modification of the amendment occurs before the amendment is adopted.
‘‘ (f ) DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘ (1) APPLICABLE INDIVIDUAL.—The
term ‘applicable individual’ means, with respect to any plan amendment—‘‘(A) each participant in the plan, and ‘‘(B) any beneficiary who is an alternate payee (within the meaning of section
414(p)(8)) under an applicable qualified domestic relations order (within the
meaning of section 414(p)(1)(A)), whose rate of future benefit accrual under
the plan may reasonably be expected to be significantly reduced by such plan
amendment.
‘‘ (2) APPLICABLE PENSION PLAN.—The
term ‘applicable pension plan’ means—
‘‘ (A) any defined benefit plan, or ‘‘(B)
an individual account plan which is subject to the funding standards of section
412. Such term shall not include a governmental plan (within the meaning of section
414(d)) or a church plan (within the meaning of section 414(e)) with respect
to which the election provided by section 410(d) has not been made.
‘‘ (3) EARLY RETIREMENT.—A
plan amendment which eliminates or significantly reduces any early retirement
benefit or retirement-type subsidy (within the meaning of section 411(d)(6)(B)(i))
shall be treated as having the effect of significantly reducing the rate of future
benefit accrual.
‘‘ (g) NEW TECHNOLOGIES.—The
Secretary may by regulations allow any notice under subsection (e) to be provided
by using new technologies.’’.
(2) CLERICAL AMENDMENT.—The table of
sections for chapter 43 is amended by adding at the end the following new item:
‘‘ Sec. 4980F. Failure of applicable plans reducing
benefit accruals to satisfy notice requirements.’’.
(b) AMENDMENT OF ERISA.—Subsection (h)
of section 204 of the Employee Retirement Income Security Act of 1974 (29 U.S.C.
1054) is amended to read as follows:
‘‘ (h)(1) An applicable pension plan may not be amended
so as to provide for a significant reduction in the rate of future benefit accrual
unless the plan administrator provides the notice described in paragraph (2)
to each applicable individual (and to each employee organization representing
applicable individuals).
‘‘ (2) The notice required by paragraph (1) shall
be written in a manner calculated to be understood by the average plan participant
and shall provide sufficient information (as determined in accordance with regulations
prescribed by the Secretary of the Treasury) to allow applicable individuals
to understand the effect of the plan amendment. The Secretary of the Treasury
may provide a simplified form of notice for, or exempt from any notice requirement,
a plan—‘‘(A) which has fewer than 100 participants who have accrued a benefit under the
plan, or ‘‘(B) which offers participants the option to choose between the new benefit formula
and the old benefit formula.
‘‘ (3) Except as provided in regulations prescribed
by the Secretary of the Treasury, the notice required by paragraph (1) shall
be provided within a reasonable time before the effective date of the plan amendment. ‘‘(4) Any notice under paragraph (1) may be provided to a person designated, in
writing, by the person to which it would otherwise be provided.
‘‘ (5) A plan shall not be treated as failing to meet
the requirements of paragraph (1) merely because notice is provided before the
adoption of the plan amendment if no material modification of the amendment occurs
before the amendment is adopted.
‘‘ (6)(A) In the case of any egregious failure to
meet any requirement of this subsection with respect to any plan amendment, the
provisions of the applicable pension plan shall be applied as if such plan amendment
entitled all applicable individuals to the greater of—‘‘(i) the benefits to which they would have been entitled
without regard to such amendment, or ‘‘(ii)
the benefits under the plan with regard to such amendment.
‘‘ (B) For purposes of subparagraph (A), there is
an egregious failure to meet the requirements of this subsection if such failure
is within the control of the plan sponsor and is—‘‘ (i) an intentional failure (including any failure to promptly provide the required
notice or information after the plan administrator discovers an unintentional
failure to meet the requirements of this subsection),‘‘ (ii) a failure to provide most of the individuals with most of the information
they are entitled to receive under this subsection, or‘‘ (iii) a failure which is determined to be egregious under regulations prescribed
by the Secretary of the Treasury.
‘‘ (7) The Secretary of the Treasury may by regulations
allow any notice under this subsection to be provided by using new technologies.
‘‘ (8) For purposes of this subsection—
‘‘ (A) The term ‘applicable
individual’ means, with respect to any plan amendment—‘‘ (i) each participant in the plan; and‘‘ (ii) any beneficiary who is an alternate payee (within the meaning of section
206(d)(3)(K)) under an applicable qualified domestic relations order (within
the meaning of section 206(d)(3)(B)(i)), whose rate of future benefit accrual
under the plan may reasonably be expected to be significantly reduced by such
plan amendment.
‘‘ (B) The term ‘applicable
pension plan’ means—‘‘ (i) any defined benefit plan; or‘‘ (ii) an individual account plan which is subject to the funding standards of
section 412 of the Internal Revenue Code of 1986.
‘‘ (9) For purposes of this subsection, a plan amendment
which eliminates or significantly reduces any early retirement benefit or retirement-type
subsidy (within the meaning of subsection (g)(2)(A)) shall be treated as having
the effect of significantly reducing the rate of future benefit accrual.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this
section shall apply to plan amendments taking effect on or after the date of
the enactment of this Act.
(2) TRANSITION.—Until such time as the Secretary
of the Treasury issues regulations under sections 4980F(e)(2) and (3) of the
Internal Revenue Code of 1986, and section 204(h) of the Employee Retirement
Income Security Act of 1974, as added by the amendments made by this section,
a plan shall be treated as meeting the requirements of such sections if it
makes a good faith effort to comply with such requirements.
(3) SPECIAL NOTICE RULE.—
(A) IN GENERAL.—The period for providing any
notice required by the amendments made by this section shall not end before
the date which is 3 months after the date of the enactment of this Act.
(B) REASONABLE NOTICE.—The amendments
made by this section shall not apply to any plan amendment taking effect on
or after the date of the enactment of this Act if, before April 25, 2001, notice
was provided to participants and beneficiaries adversely affected by the plan
amendment (or their representatives) which was reasonably expected to notify
them of the nature and effective date of the
plan amendment.
Subtitle
F—Reducing Regulatory Burdens
Sec.
661. Modification Of Timing Of Plan Valuations.
(a) IN GENERAL.—Paragraph (9) of section 412(c)
(relating to annual valuation) is amended to read as follows:
‘‘ (9) ANNUAL VALUATION.—
‘‘ (A) IN GENERAL.—For
purposes of this section, a determination of experience gains and losses and
a valuation of the plan’s liability shall be made not less frequently than once every year, except that
such determination shall be made more frequently to the extent required in particular
cases under regulations prescribed by the Secretary.
‘‘ (B) VALUATION DATE.—
‘‘ (i) CURRENT YEAR.—Except
as provided in clause (ii), the valuation referred to in subparagraph (A) shall
be made as of a date within the plan year to which the valuation refers or within
one month prior to the beginning of such year.
‘‘ (ii) USE OF PRIOR YEAR VALUATION.—The
valuation referred to in subparagraph (A) may be made as of a date within the
plan year prior to the year to which the valuation refers if, as of such date,
the value of the assets of the plan are not less than 125 percent of the plan’s current liability (as defined in
paragraph (7)(B)).
‘‘ (iii) ADJUSTMENTS.—Information
under clause (ii) shall, in accordance with regulations, be actuarially adjusted
to reflect significant differences in participants.’’.
(b) AMENDMENT OF ERISA.—Paragraph (9)
of section 302(c) of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1053(c)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’,
and
(2) by adding at the end the following:
‘‘ (B)(i) Except as provided in clause (ii), the valuation
referred to in subparagraph (A) shall be made as of a date within the plan year
to which the valuation refers or within one month prior to the beginning of such
year.‘‘ (ii) The valuation referred to in subparagraph (A) may be made as of a date
within the plan year prior to the year to which the valuation refers if, as of
such date, the value of the assets of the plan are not less than 125 percent
of the plan’s current liability (as defined in paragraph (7)(B)).‘‘ (iii) Information under clause (ii) shall, in accordance with regulations, be
actuarially adjusted to reflect significant differences in participants.’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to plan years beginning after December 31, 2001.
Sec.
662. ESOP Dividends May Be Reinvested Without Loss Of Dividend Deduction.
(a) IN GENERAL.—Section 404(k)(2)(A) (defining
applicable dividends) is amended by striking ‘‘or’’ at the end of clause (ii), by redesignating clause (iii) as clause (iv), and
by inserting after clause (ii) the following new clause: ‘‘(iii) is, at the election of such participants or their beneficiaries— ‘‘(I) payable as provided in clause (i) or (ii), or ‘‘(II) paid to the plan and reinvested in qualifying employer securities, or’’.
(b) STANDARDS FOR DISALLOWANCE.—Section
404(k)(5)(A) (relating to disallowance of deduction) is amended by inserting ‘‘avoidance or’’ before ‘‘evasion’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years beginning after December 31, 2001.
Sec.
663. Repeal Of Transition Rule Relating To Certain Highly Compensated Employees.
(a) IN GENERAL.—Paragraph (4) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by subsection
(a) shall apply to plan years beginning after December 31, 2001.
Sec.
664. Employees Of Tax-Exempt Entities.
(a) IN GENERAL.—The Secretary of the Treasury
shall modify Treasury Regulations section 1.410(b)–6(g) to provide that employees of an organization described in section 403(b)(1)(A)(i)
of the Internal Revenue Code of 1986 who are eligible to make contributions
under section 403(b) of such Code pursuant to a salary reduction agreement
may be treated as excludable with respect to a plan under section 401(k) or
(m) of such Code that is provided under the same general arrangement as a plan
under such section 401(k), if— (1) no employee of an organization described in section 403(b)(1)(A)(i) of such
Code is eligible to participate in such section 401(k) plan or section 401(m)
plan; and (2) 95 percent of the employees who are not employees of an organization
described in section 403(b)(1)(A)(i) of such Code are eligible to participate
in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification required
by subsection (a) shall apply as of the same date set forth in section 1426(b)
of the Small Business Job Protection Act of 1996.
Sec.
665. Clarification Of Treatment Of Employer-Provided Retirement Advice.
(a) IN GENERAL.—Subsection (a) of section 132
(relating to exclusion from gross income) is amended by striking ‘‘or’’ at the end of paragraph (5), by striking the period at the end of paragraph
(6) and inserting ‘‘, or’’, and by adding at the end the following new paragraph:
‘‘ (7) qualified retirement planning services.’’.
(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED.—Section
132 is amended by redesignating subsection (m) as subsection (n) and by inserting
after subsection (l) the following:
‘‘ (m) QUALIFIED RETIREMENT PLANNING SERVICES.—
‘‘ (1) IN GENERAL.—For
purposes of this section, the term ‘qualified retirement planning services’ means any retirement planning advice or information provided to an employee
and his spouse by an employer maintaining a qualified employer plan.
‘‘ (2) NONDISCRIMINATION RULE.—Subsection
(a)(7) shall apply in the case of highly compensated employees only if such services
are available on substantially the same terms to each member of the group of
employees normally provided education and information regarding the employer’s qualified employer plan.
‘‘ (3) QUALIFIED EMPLOYER PLAN.—For
purposes of this subsection, the term ‘qualified employer plan’ means a plan, contract, pension, or account described in section 219(g)(5).’’.
(c) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after December 31, 2001.
Sec.
666. Repeal Of The Multiple Use Test.
(a) IN GENERAL.—Paragraph (9) of section 401(m)
is amended to read as follows:
‘‘ (9) REGULATIONS.—The
Secretary shall prescribe such regulations as may be necessary to carry out the
purposes of this subsection and subsection (k), including regulations permitting
appropriate aggregation of plans and contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December 31, 2001.
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