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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.

Last Updated 04/02/2008

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