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109th Congress                                            Rept. 109-232
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================
 
                     PENSION PROTECTION ACT OF 2005

                                _______
                                

December 6, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2830]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2830) to amend the Employee Retirement Income 
Security Act of 1974 and the Internal Revenue Code of 1986 to 
reform the pension funding rules, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
  The amendment is as follows:

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Pension Protection 
Act of 2005''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title and table of contents.

 TITLE I--REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT 
                             PENSION PLANS

 Subtitle A--Amendments to Employee Retirement Income Security Act of 
                                  1974

Sec. 101. Minimum funding standards.
Sec. 102. Funding rules for single-employer defined benefit pension 
plans.
Sec. 103. Benefit limitations under single-employer plans.
Sec. 104. Technical and conforming amendments.

        Subtitle B--Amendments to Internal Revenue Code of 1986

Sec. 111. Minimum funding standards.
Sec. 112. Funding rules for single-employer defined benefit pension 
plans.
Sec. 113. Benefit limitations under single-employer plans.
Sec. 114. Technical and conforming amendments.

                      Subtitle C--Other provisions

Sec. 121. Modification of transition rule to pension funding 
requirements.
Sec. 122. Treatment of nonqualified deferred compensation plans when 
employer defined benefit plan in at-risk status.

    TITLE II--FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS

 Subtitle A--Amendments to Employee Retirement Income Security Act of 
                                  1974

Sec. 201. Funding rules for multiemployer defined benefit plans.
Sec. 202. Additional funding rules for multiemployer plans in 
endangered or critical status.
Sec. 203. Measures to forestall insolvency of multiemployer plans.
Sec. 204. Withdrawal liability reforms.
Sec. 205. Removal of restrictions with respect to procedures applicable 
to disputes involving withdrawal liability.

        Subtitle B--Amendments to Internal Revenue Code of 1986

Sec. 211. Funding rules for multiemployer defined benefit plans.
Sec. 212. Additional funding rules for multiemployer plans in 
endangered or critical status.
Sec. 213. Measures to forestall insolvency of multiemployer plans.

                      TITLE III--OTHER PROVISIONS

Sec. 301. Interest rate for 2006 funding requirements.
Sec. 302. Interest rate assumption for determination of lump sum 
distributions.
Sec. 303. Interest rate assumption for applying benefit limitations to 
lump sum distributions.
Sec. 304. Distributions during working retirement.
Sec. 305. Other amendments relating to prohibited transactions.
Sec. 306. Correction period for certain transactions involving 
securities and commodities.
Sec. 307. Government Accountability Office pension funding report.

          TITLE IV--IMPROVEMENTS IN PBGC GUARANTEE PROVISIONS

Sec. 401. Increases in PBGC premiums.

                          TITLE V--DISCLOSURE

Sec. 501. Defined benefit plan funding notices.
Sec. 502. Additional disclosure requirements.
Sec. 503. Section 4010 filings with the PBGC.

                      TITLE VI--INVESTMENT ADVICE

Sec. 601. Amendments to Employee Retirement Income Security Act of 1974 
providing prohibited transaction exemption for provision of investment 
advice.
Sec. 602. Amendments to Internal Revenue Code of 1986 providing 
prohibited transaction exemption for provision of investment advice.

                  TITLE VII--BENEFIT ACCRUAL STANDARDS

Sec. 701. Improvements in benefit accrual standards.

                   TITLE VIII--DEDUCTION LIMITATIONS

Sec. 801. Increase in deduction limits.
Sec. 802. Updating deduction rules for combination of plans.

 TITLE IX--ENHANCED RETIREMENTS SAVINGS AND DEFINED CONTRIBUTION PLANS

Sec. 901. Pensions and individual retirement arrangement provisions of 
Economic Growth and Tax Relief Reconciliation Act of 2001 made 
permanent.
Sec. 902. Saver's credit.
Sec. 903. Increasing participation through automatic contribution 
arrangements.
Sec. 904. Penalty-free withdrawals from retirement plans for 
individuals called to active duty for at least 179 days.
Sec. 905. Waiver of 10 percent early withdrawal penalty tax on certain 
distributions of pension plans for public safety employees.
Sec. 906. Combat zone compensation taken into account for purposes of 
determining limitation and deductibility of contributions to individual 
retirement plans.
Sec. 907. Direct payment of tax refunds to individual retirement plans.
Sec. 908. IRA eligibility for the disabled.
Sec. 909. Allow rollovers by nonspouse beneficiaries of certain 
retirement plan distributions.

        TITLE X--PROVISIONS TO ENHANCE HEALTH CARE AFFORDABILITY

Sec. 1001. Treatment of annuity and life insurance contracts with a 
long-term care insurance feature.
Sec. 1002. Disposition of unused health benefits in cafeteria plans and 
flexible spending arrangements.
Sec. 1003. Distributions from governmental retirement plans for health 
and long-term care insurance for public safety officers.

 TITLE I--REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT 
                             PENSION PLANS

 Subtitle A--Amendments to Employee Retirement Income Security Act of 
                                  1974

SEC. 101. MINIMUM FUNDING STANDARDS.

  [See section 101 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 102. FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION 
                    PLANS.

  [See section 102 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 103. BENEFIT LIMITATIONS UNDER SINGLE-EMPLOYER PLANS.

  [See section 103 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 104. TECHNICAL AND CONFORMING AMENDMENTS.

  [See section 104 of the bill as reported by the Committee on 
Education and the Workforce.]

        Subtitle B--Amendments to Internal Revenue Code of 1986

SEC. 111. MINIMUM FUNDING STANDARDS.

  (a) New Minimum Funding Standards.--Section 412 of the Internal 
Revenue Code of 1986 (relating to minimum funding standards) is amended 
to read as follows:

``SEC. 412. MINIMUM FUNDING STANDARDS.

  ``(a) Requirement to Meet Minimum Funding Standard.--
          ``(1) In general.--A plan to which this section applies shall 
        satisfy the minimum funding standard applicable to the plan for 
        any plan year.
          ``(2) Minimum funding standard.--For purposes of paragraph 
        (1), a plan shall be treated as satisfying the minimum funding 
        standard for a plan year if--
                  ``(A) in the case of a defined benefit plan which is 
                not a multiemployer plan, the employer makes 
                contributions to or under the plan for the plan year 
                which, in the aggregate, are not less than the minimum 
                required contribution determined under section 430 for 
                the plan for the plan year,
                  ``(B) in the case of a money purchase plan which is 
                not a multiemployer plan, the employer makes 
                contributions to or under the plan for the plan year 
                which are required under the terms of the plan, and
                  ``(C) in the case of a multiemployer plan, the 
                employers make contributions to or under the plan for 
                any plan year which, in the aggregate, are sufficient 
                to ensure that the plan does not have an accumulated 
                funding deficiency under section 431 as of the end of 
                the plan year.
  ``(b) Liability for Contributions.--
          ``(1) In general.--Except as provided in paragraph (2), the 
        amount of any contribution required by this section (including 
        any required installments under paragraphs (3) and (4) of 
        section 430(j)) shall be paid by the employer responsible for 
        making contributions to or under the plan.
          ``(2) Joint and several liability where employer member of 
        controlled group.--In the case of a defined benefit plan which 
        is not a multiemployer plan, if the employer referred to in 
        paragraph (1) is a member of a controlled group, each member of 
        such group shall be jointly and severally liable for payment of 
        such contributions.
  ``(c) Variance From Minimum Funding Standards.--
          ``(1) Waiver in case of business hardship.--
                  ``(A) In general.--If--
                          ``(i) an employer is (or in the case of a 
                        multiemployer plan, 10 percent or more of the 
                        number of employers contributing to or under 
                        the plan is) unable to satisfy the minimum 
                        funding standard for a plan year without 
                        temporary substantial business hardship 
                        (substantial business hardship in the case of a 
                        multiemployer plan), and
                          ``(ii) application of the standard would be 
                        adverse to the interests of plan participants 
                        in the aggregate,
                the Secretary may, subject to subparagraph (C), waive 
                the requirements of subsection (a) for such year with 
                respect to all or any portion of the minimum funding 
                standard. The Secretary shall not waive the minimum 
                funding standard with respect to a plan for more than 3 
                of any 15 (5 of any 15 in the case of a multiemployer 
                plan) consecutive plan years.
                  ``(B) Effects of waiver.--If a waiver is granted 
                under subparagraph (A) for any plan year--
                          ``(i) in the case of a defined benefit plan 
                        which is not a multiemployer plan, the minimum 
                        required contribution under section 430 for the 
                        plan year shall be reduced by the amount of the 
                        waived funding deficiency and such amount shall 
                        be amortized as required under section 430(e), 
                        and
                          ``(ii) in the case of a multiemployer plan, 
                        the funding standard account shall be credited 
                        under section 431(b)(3)(C) with the amount of 
                        the waived funding deficiency and such amount 
                        shall be amortized as required under section 
                        431(b)(2)(C).
                  ``(C) Waiver of amortized portion not allowed.--The 
                Secretary may not waive under subparagraph (A) any 
                portion of the minimum funding standard under 
                subsection (a) for a plan year which is attributable to 
                any waived funding deficiency for any preceding plan 
                year.
          ``(2) Determination of business hardship.--For purposes of 
        this subsection, the factors taken into account in determining 
        temporary substantial business hardship (substantial business 
        hardship in the case of a multiemployer plan) shall include 
        (but shall not be limited to) whether or not--
                  ``(A) the employer is operating at an economic loss,
                  ``(B) there is substantial unemployment or 
                underemployment in the trade or business and in the 
                industry concerned,
                  ``(C) the sales and profits of the industry concerned 
                are depressed or declining, and
                  ``(D) it is reasonable to expect that the plan will 
                be continued only if the waiver is granted.
          ``(3) Waived funding deficiency.--For purposes of this 
        section and part III of this subchapter, the term `waived 
        funding deficiency' means the portion of the minimum funding 
        standard under subsection (a) (determined without regard to the 
        waiver) for a plan year waived by the Secretary and not 
        satisfied by employer contributions.
          ``(4) Security for waivers for single-employer plans, 
        consultations.--
                  ``(A) Security may be required.--
                          ``(i) In general.--Except as provided in 
                        subparagraph (C), the Secretary may require an 
                        employer maintaining a defined benefit plan 
                        which is not a multiemployer plan to provide 
                        security to such plan as a condition for 
                        granting or modifying a waiver under paragraph 
                        (1).
                          ``(ii)  Special rules.--Any security provided 
                        under clause (i) may be perfected and enforced 
                        only by the Pension Benefit Guaranty 
                        Corporation, or at the direction of the 
                        Corporation, by a contributing sponsor (within 
                        the meaning of section 4001(a)(13) of the 
                        Employee Retirement Income Security Act of 
                        1974), or a member of such sponsor's controlled 
                        group (within the meaning of section 
                        4001(a)(14) of such Act).
                  ``(B) Consultation with the pension benefit guaranty 
                corporation.--Except as provided in subparagraph (C), 
                the Secretary shall, before granting or modifying a 
                waiver under this subsection with respect to a plan 
                described in subparagraph (A)(i)--
                          ``(i) provide the Pension Benefit Guaranty 
                        Corporation with--
                                  ``(I) notice of the completed 
                                application for any waiver or 
                                modification, and
                                  ``(II) an opportunity to comment on 
                                such application within 30 days after 
                                receipt of such notice, and
                          ``(ii) consider--
                                  ``(I) any comments of the Corporation 
                                under clause (i)(II), and
                                  ``(II) any views of any employee 
                                organization (within the meaning of 
                                section 3(4) of the Employee Retirement 
                                Income Security Act of 1974) 
                                representing participants in the plan 
                                which are submitted in writing to the 
                                Secretary in connection with such 
                                application.
                Information provided to the Corporation under this 
                subparagraph shall be considered tax return information 
                and subject to the safeguarding and reporting 
                requirements of section 6103(p).
                  ``(C) Exception for certain waivers.--
                          ``(i) In general.--The preceding provisions 
                        of this paragraph shall not apply to any plan 
                        with respect to which the sum of--
                                  ``(I) the aggregate unpaid minimum 
                                required contribution (within the 
                                meaning of section 4971(c)(4)) for the 
                                plan year and all preceding plan years, 
                                and
                                  ``(II) the present value of all 
                                waiver amortization installments 
                                determined for the plan year and 
                                succeeding plan years under section 
                                430(e)(2),
                        is less than $1,000,000.
                          ``(ii) Treatment of waivers for which 
                        applications are pending.--The amount described 
                        in clause (i)(I) shall include any increase in 
                        such amount which would result if all 
                        applications for waivers of the minimum funding 
                        standard under this subsection which are 
                        pending with respect to such plan were denied.
          ``(5) Special rules for single-employer plans.--
                  ``(A) Application must be submitted before date 2\1/
                2\ months after close of year.--In the case of a 
                defined benefit plan which is not a multiemployer plan, 
                no waiver may be granted under this subsection with 
                respect to any plan for any plan year unless an 
                application therefor is submitted to the Secretary not 
                later than the 15th day of the 3rd month beginning 
                after the close of such plan year.
                  ``(B) Special rule if employer is member of 
                controlled group.--In the case of a defined benefit 
                plan which is not a multiemployer plan, if an employer 
                is a member of a controlled group, the temporary 
                substantial business hardship requirements of paragraph 
                (1) shall be treated as met only if such requirements 
                are met--
                          ``(i) with respect to such employer, and
                          ``(ii) with respect to the controlled group 
                        of which such employer is a member (determined 
                        by treating all members of such group as a 
                        single employer).
                The Secretary may provide that an analysis of a trade 
                or business or industry of a member need not be 
                conducted if the Secretary determines such analysis is 
                not necessary because the taking into account of such 
                member would not significantly affect the determination 
                under this paragraph.
          ``(6) Advance notice.--
                  ``(A) In general.--The Secretary shall, before 
                granting a waiver under this subsection, require each 
                applicant to provide evidence satisfactory to the 
                Secretary that the applicant has provided notice of the 
                filing of the application for such waiver to to each 
                affected party (as defined in section 4001(a)(21) of 
                the Employee Retirement Income Security Act of 1974). 
                Such notice shall include a description of the extent 
                to which the plan is funded for benefits which are 
                guaranteed under title IV and for benefit liabilities.
                  ``(B) Consideration of relevant information.--The 
                Secretary shall consider any relevant information 
                provided by a person to whom notice was given under 
                subparagraph (A).
          ``(7) Restriction on plan amendments.--
                  ``(A) In general.--No amendment of a plan which 
                increases the liabilities of the plan by reason of any 
                increase in benefits, any change in the accrual of 
                benefits, or any change in the rate at which benefits 
                become nonforfeitable under the plan shall be adopted 
                if a waiver under this subsection or an extension of 
                time under section 431(d) is in effect with respect to 
                the plan, or if a plan amendment described in 
                subsection (d)(2) has been made at any time in the 
                preceding 12 months (24 months in the case of a 
                multiemployer plan). If a plan is amended in violation 
                of the preceding sentence, any such waiver, or 
                extension of time, shall not apply to any plan year 
                ending on or after the date on which such amendment is 
                adopted.
                  ``(B) Exception.--Paragraph (1) shall not apply to 
                any plan amendment which--
                          ``(i) the Secretary determines to be 
                        reasonable and which provides for only de 
                        minimis increases in the liabilities of the 
                        plan,
                          ``(ii) only repeals an amendment described in 
                        subsection (d)(2), or
                          ``(iii) is required as a condition of 
                        qualification under part I of subchapter D, of 
                        chapter 1.
  ``(d) Miscellaneous Rules.--
          ``(1) Change in method or year.--If the funding method, the 
        valuation date, or a plan year for a plan is changed, the 
        change shall take effect only if approved by the Secretary.
          ``(2) Certain retroactive plan amendments.--For purposes of 
        this section, any amendment applying to a plan year which--
                  ``(A) is adopted after the close of such plan year 
                but no later than 2\1/2\ months after the close of the 
                plan year (or, in the case of a multiemployer plan, no 
                later than 2 years after the close of such plan year),
                  ``(B) does not reduce the accrued benefit of any 
                participant determined as of the beginning of the first 
                plan year to which the amendment applies, and
                  ``(C) does not reduce the accrued benefit of any 
                participant determined as of the time of adoption 
                except to the extent required by the circumstances,
        shall, at the election of the plan administrator, be deemed to 
        have been made on the first day of such plan year. No amendment 
        described in this paragraph which reduces the accrued benefits 
        of any participant shall take effect unless the plan 
        administrator files a notice with the Secretary notifying him 
        of such amendment and the Secretary has approved such 
        amendment, or within 90 days after the date on which such 
        notice was filed, failed to disapprove such amendment. No 
        amendment described in this subsection shall be approved by the 
        Secretary unless the Secretary determines that such amendment 
        is necessary because of a substantial business hardship (as 
        determined under subsection (c)(2)) and that a waiver under 
        subsection (c) (or, in the case of a multiemployer plan, any 
        extension of the amortization period under section 431(d)) is 
        unavailable or inadequate.
          ``(3) Controlled group.--For purposes of this section, the 
        term `controlled group' means any group treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414.
  ``(e) Plans to Which Section Applies.--
          ``(1) In general.--Except as provided in paragraph (2), this 
        section applies to a plan if, for any plan year beginning after 
        December 31, 2006--
                  ``(A) such plan included a trust which qualified (or 
                was determined by the Secretary to have qualified) 
                under section 401(a), or
                  ``(B) such plan satisfied (or was determined by the 
                Secretary to have satisfied) the requirements of 
                section 403(a).
          ``(2) Exceptions.--This section shall not apply to--
                  ``(A) any profit-sharing or stock bonus plan,
                  ``(B) any insurance contract plan described in 
                paragraph (3),
                  ``(C) any governmental plan (within the meaning of 
                section 414(d)),
                  ``(D) any church plan (within the meaning of section 
                414(e)) with respect to which the election provided by 
                section 410(d) has not been made,
                  ``(E) any plan which has not, at any time after 
                September 2, 1974, provided for employer contributions, 
                or
                  ``(F) any plan established and maintained by a 
                society, order, or association described in section 
                501(c)(8) or (9), if no part of the contributions to or 
                under such plan are made by employers of participants 
                in such plan.
        No plan described in subparagraph (C), (D), or (F) shall be 
        treated as a qualified plan for purposes of section 401(a) 
        unless such plan meets the requirements of section 401(a)(7) as 
        in effect on September 1, 1974.
          ``(3) Certain insurance contract plans.--A plan is described 
        in this paragraph if--
                  ``(A) the plan is funded exclusively by the purchase 
                of individual insurance contracts,
                  ``(B) such contracts provide for level annual premium 
                payments to be paid extending not later than the 
                retirement age for each individual participating in the 
                plan, and commencing with the date the individual 
                became a participant in the plan (or, in the case of an 
                increase in benefits, commencing at the time such 
                increase becomes effective),
                  ``(C) benefits provided by the plan are equal to the 
                benefits provided under each contract at normal 
                retirement age under the plan and are guaranteed by an 
                insurance carrier (licensed under the laws of a State 
                to do business with the plan) to the extent premiums 
                have been paid,
                  ``(D) premiums payable for the plan year, and all 
                prior plan years, under such contracts have been paid 
                before lapse or there is reinstatement of the policy,
                  ``(E) no rights under such contracts have been 
                subject to a security interest at any time during the 
                plan year, and
                  ``(F) no policy loans are outstanding at any time 
                during the plan year.
        A plan funded exclusively by the purchase of group insurance 
        contracts which is determined under regulations prescribed by 
        the Secretary to have the same characteristics as contracts 
        described in the preceding sentence shall be treated as a plan 
        described in this paragraph.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2006.

SEC. 112. FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION 
                    PLANS.

  (a) In General.--Subchapter D of chapter 1 of the Internal Revenue 
Code of 1986 (relating to deferred compensation, etc.) is amended by 
adding at the end the following new part:

   ``PART III--MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED 
                         BENEFIT PENSION PLANS

``SEC. 430. MINIMUM FUNDING STANDARDS FOR SINGLE-EMPLOYER DEFINED 
                    BENEFIT PENSION PLANS.

  ``(a) Minimum Required Contribution.--For purposes of this section 
and section 412(a)(2)(A), except as provided in subsection (f), the 
term `minimum required contribution' means, with respect to any plan 
year of a defined benefit plan which is not a multiemployer plan--
          ``(1) in any case in which the value of plan assets of the 
        plan (as reduced under subsection (f)(4)(B)) is less than the 
        funding target of the plan for the plan year, the sum of--
                  ``(A) the target normal cost of the plan for the plan 
                year,
                  ``(B) the shortfall amortization charge (if any) for 
                the plan for the plan year determined under subsection 
                (c), and
                  ``(C) the waiver amortization charge (if any) for the 
                plan for the plan year as determined under subsection 
                (e);
          ``(2) in any case in which the value of plan assets of the 
        plan (as reduced under subsection (f)(4)(B)) exceeds the 
        funding target of the plan for the plan year, the target normal 
        cost of the plan for the plan year reduced by such excess; or
          ``(3) in any other case, the target normal cost of the plan 
        for the plan year.
  ``(b) Target Normal Cost.--For purposes of this section, except as 
provided in subsection (i)(2) with respect to plans in at-risk status, 
the term `target normal cost' means, for any plan year, the present 
value of all benefits which are expected to accrue or to be earned 
under the plan during the plan year. For purposes of this subsection, 
if any benefit attributable to services performed in a preceding plan 
year is increased by reason of any increase in compensation during the 
current plan year, the increase in such benefit shall be treated as 
having accrued during the current plan year.
  ``(c) Shortfall Amortization Charge.--
          ``(1) In general.--For purposes of this section, the 
        shortfall amortization charge for a plan for any plan year is 
        the aggregate total of the shortfall amortization installments 
        for such plan year with respect to the shortfall amortization 
        bases for such plan year and each of the 6 preceding plan 
        years.
          ``(2) Shortfall amortization installment.--The plan sponsor 
        shall determine, with respect to the shortfall amortization 
        base of the plan for any plan year, the amounts necessary to 
        amortize such shortfall amortization base, in level annual 
        installments over a period of 7 plan years beginning with such 
        plan year. For purposes of paragraph (1), the annual 
        installment of such amortization for each plan year in such 7-
        plan-year period is the shortfall amortization installment for 
        such plan year with respect to such shortfall amortization 
        base. In determining any shortfall amortization installment 
        under this paragraph, the plan sponsor shall use the segment 
        rates determined under subparagraph (C) of subsection (h)(2), 
        applied under rules similar to the rules of subparagraph (B) of 
        subsection (h)(2).
          ``(3) Shortfall amortization base.--For purposes of this 
        section, the shortfall amortization base of a plan for a plan 
        year is the excess (if any) of--
                  ``(A) the funding shortfall of such plan for such 
                plan year, over
                  ``(B) the sum of--
                          ``(i) the present value (determined using the 
                        segment rates determined under subparagraph (C) 
                        of subsection (h)(2), applied under rules 
                        similar to the rules of subparagraph (B) of 
                        subsection (h)(2)) of the aggregate total of 
                        the shortfall amortization installments, for 
                        such plan year and the 5 succeeding plan years, 
                        which have been determined with respect to the 
                        shortfall amortization bases of the plan for 
                        each of the 6 plan years preceding such plan 
                        year, and
                          ``(ii) the present value (as so determined) 
                        of the aggregate total of the waiver 
                        amortization installments for such plan year 
                        and the 5 succeeding plan years, which have 
                        been determined with respect to the waiver 
                        amortization bases of the plan for each of the 
                        5 plan years preceding such plan year.
                In any case in which the value of plan assets of the 
                plan (as reduced under subsection (f)(4)(A)) is equal 
                to or greater than the funding target of the plan for 
                the plan year, the shortfall amortization base of the 
                plan for such plan year shall be zero.
          ``(4) Funding shortfall.--
                  ``(A) In general.--For purposes of this section, 
                except as provided in subparagraph (B), the funding 
                shortfall of a plan for any plan year is the excess (if 
                any) of--
                          ``(i) the funding target of the plan for the 
                        plan year, over
                          ``(ii) the value of plan assets of the plan 
                        (as reduced under subsection (f)(4)(B)) for the 
                        plan year which are held by the plan on the 
                        valuation date.
                  ``(B) Transition rule.--
                          ``(i) In general.--For purposes of paragraph 
                        (3), in the case of a non-deficit reduction 
                        plan, subparagraph (A) shall be applied to plan 
                        years beginning after 2006 and before 2011 by 
                        substituting for the amount described in 
                        subparagraph (A)(i) the applicable percentage 
                        of the funding target of the plan for the plan 
                        year determined under the following table:



                                                                The
                                                             applicable
 ``In the case of a plan year beginning in calendar year:    percentage
                                                                 is:
 
2007......................................................    92 percent
2008......................................................    94 percent
2009......................................................    96 percent
2010......................................................   98 percent.

                          ``(ii) Non-deficit reduction plan.--For 
                        purposes of clause (i), the term `non-deficit 
                        reduction plan' means any plan--
                                  ``(I) to which section 412 (as in 
                                effect on the day before the date of 
                                the enactment of the Pension Protection 
                                Act of 2005) applied for the plan year 
                                beginning in 2006, and
                                  ``(II) to which subsection (l) of 
                                such section (as so in effect) did not 
                                apply for such plan year.
          ``(5) Early deemed amortization upon attainment of funding 
        target.--In any case in which the funding shortfall of a plan 
        for a plan year is zero, for purposes of determining the 
        shortfall amortization charge for such plan year and succeeding 
        plan years, the shortfall amortization bases for all preceding 
        plan years (and all shortfall amortization installments 
        determined with respect to such bases) shall be reduced to 
        zero.
  ``(d) Rules Relating to Funding Target.--For purposes of this 
section--
          ``(1) Funding target.--Except as provided in subsection 
        (i)(1) with respect to plans in at-risk status, the funding 
        target of a plan for a plan year is the present value of all 
        liabilities to participants and their beneficiaries under the 
        plan for the plan year.
          ``(2) Funding target attainment percentage.--The `funding 
        target attainment percentage' of a plan for a plan year is the 
        ratio (expressed as a percentage) which--
                  ``(A) the value of plan assets for the plan year (as 
                reduced under subsection (f)(4)(B)), bears to
                  ``(B) the funding target of the plan for the plan 
                year (determined without regard to subsection (i)(1)).
  ``(e) Waiver Amortization Charge.--
          ``(1) Determination of waiver amortization charge.--The 
        waiver amortization charge (if any) for a plan for any plan 
        year is the aggregate total of the waiver amortization 
        installments for such plan year with respect to the waiver 
        amortization bases for each of the 5 preceding plan years.
          ``(2) Waiver amortization installment.--The plan sponsor 
        shall determine, with respect to the waiver amortization base 
        of the plan for any plan year, the amounts necessary to 
        amortize such waiver amortization base, in level annual 
        installments over a period of 5 plan years beginning with the 
        succeeding plan year. For purposes of paragraph (1), the annual 
        installment of such amortization for each plan year in such 5-
        plan year period is the waiver amortization installment for 
        such plan year with respect to such waiver amortization base.
          ``(3) Interest rate.--In determining any waiver amortization 
        installment under this subsection, the plan sponsor shall use 
        the segment rates determined under subparagraph (C) of 
        subsection (h)(2), applied under rules similar to the rules of 
        subparagraph (B) of subsection (h)(2).
          ``(4) Waiver amortization base.--The waiver amortization base 
        of a plan for a plan year is the amount of the waived funding 
        deficiency (if any) for such plan year under section 412(c).
          ``(5) Early deemed amortization upon attainment of funding 
        target.--In any case in which the funding shortfall of a plan 
        for a plan year is zero, for purposes of determining the waiver 
        amortization charge for such plan year and succeeding plan 
        years, the waiver amortization base for all preceding plan 
        years shall be reduced to zero.
  ``(f) Reduction of Minimum Required Contribution by Pre-Funding 
Balance and Funding Standard Carryover Balance.--
          ``(1) Election to maintain balances.--
                  ``(A) Pre-funding balance.--The plan sponsor of a 
                defined benefit plan which is not a multiemployer plan 
                may elect to maintain a pre-funding balance.
                  ``(B) Funding standard carryover balance.--
                          ``(i) In general.--In the case of a defined 
                        benefit plan (other than a multiemployer plan) 
                        described in clause (ii), the plan sponsor may 
                        elect to maintain a funding standard carryover 
                        balance, until such balance is reduced to zero.
                          ``(ii) Plans maintaining funding standard 
                        account in 2006.--A plan is described in this 
                        clause if the plan--
                                  ``(I) was in effect for a plan year 
                                beginning in 2006, and
                                  ``(II) had a positive balance in the 
                                funding standard account under section 
                                412(b) as in effect for such plan year 
                                and determined as of the end of such 
                                plan year.
          ``(2) Application of balances.--A pre-funding balance and a 
        funding standard carryover balance maintained pursuant to this 
        paragraph--
                  ``(A) shall be available for crediting against the 
                minimum required contribution, pursuant to an election 
                under paragraph (3),
                  ``(B) shall be applied as a reduction in the amount 
                treated as the value of plan assets for purposes of 
                this section, to the extent provided in paragraph (4), 
                and
                  ``(C) may be reduced at any time, pursuant to an 
                election under paragraph (5).
          ``(3) Election to apply balances against minimum required 
        contribution.--
                  ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), in the case of any plan year 
                in which the plan sponsor elects to credit against the 
                minimum required contribution for the current plan year 
                all or a portion of the pre-funding balance or the 
                funding standard carryover balance for the current plan 
                year (not in excess of such minimum required 
                contribution), the minimum required contribution for 
                the plan year shall be reduced by the amount so 
                credited by the plan sponsor. For purposes of the 
                preceding sentence, the minimum required contribution 
                shall be determined after taking into account any 
                waiver under section 412(c).
                  ``(B) Coordination with funding standard carryover 
                balance.--To the extent that any plan has a funding 
                standard carryover balance greater than zero, no amount 
                of the pre-funding balance of such plan may be credited 
                under this paragraph in reducing the minimum required 
                contribution.
                  ``(C) Limitation for underfunded plans.--The 
                preceding provisions of this paragraph shall not apply 
                for any plan year if the ratio (expressed as a 
                percentage) which--
                          ``(i) the value of plan assets for the 
                        preceding plan year (as reduced under paragraph 
                        (4)(C)), bears to
                          ``(ii) the funding target of the plan for the 
                        preceding plan year (determined without regard 
                        to subsection (i)(1)),
                is less than 80 percent.
          ``(4) Effect of balances on amounts treated as value of plan 
        assets.--In the case of any plan maintaining a pre-funding 
        balance or a funding standard carryover balance pursuant to 
        this subsection, the amount treated as the value of plan assets 
        shall be deemed to be such amount, reduced as provided in the 
        following subparagraphs:
                  ``(A) Applicability of shortfall amortization base.--
                For purposes of subsection (c)(3), the value of plan 
                assets is deemed to be such amount, reduced by the 
                amount of the pre-funding balance, but only if an 
                election under paragraph (2) applying any portion of 
                the pre-funding balance in reducing the minimum 
                required contribution is in effect for the plan year.
                  ``(B) Determination of excess assets, funding 
                shortfall, and funding target attainment percentage.--
                For purposes of subsections (a), (c)(4)(A)(ii), and 
                (d)(2)(A), the value of plan assets is deemed to be 
                such amount, reduced by the amount of the pre-funding 
                balance and the funding standard carryover balance.
                  ``(C) Availability of balances in plan year for 
                crediting against minimum required contribution.--For 
                purposes of paragraph (3)(C)(i) of this subsection, the 
                value of plan assets is deemed to be such amount, 
                reduced by the amount of the pre-funding balance.
          ``(5) Election to reduce balance prior to determinations of 
        value of plan assets and crediting against minimum required 
        contribution.--
                  ``(A) In general.--The plan sponsor may elect to 
                reduce by any amount the balance of the pre-funding 
                balance and the funding standard carryover balance for 
                any plan year (but not below zero). Such reduction 
                shall be effective prior to any determination of the 
                value of plan assets for such plan year under this 
                section and application of the balance in reducing the 
                minimum required contribution for such plan for such 
                plan year pursuant to an election under paragraph (2).
                  ``(B) Coordination between pre-funding balance and 
                funding standard carryover balance.--To the extent that 
                any plan has a funding standard carryover balance 
                greater than zero, no election may be made under 
                subparagraph (A) with respect to the pre-funding 
                balance.
          ``(6) Pre-funding balance.--
                  ``(A) In general.--A pre-funding balance maintained 
                by a plan shall consist of a beginning balance of zero, 
                increased and decreased to the extent provided in 
                subparagraphs (B) and (C), and adjusted further as 
                provided in paragraph (8).
                  ``(B) Increases.--As of the valuation date for each 
                plan year beginning after 2007, the pre-funding balance 
                of a plan shall be increased by the amount elected by 
                the plan sponsor for the plan year. Such amount shall 
                not exceed the excess (if any) of--
                          ``(i) the aggregate total of employer 
                        contributions to the plan for the preceding 
                        plan year, over
                          ``(ii) the minimum required contribution for 
                        such preceding plan year (increased by interest 
                        on any portion of such minimum required 
                        contribution remaining unpaid as of the 
                        valuation date for the current plan year, at 
                        the effective interest rate for the plan for 
                        the preceding plan year, for the period 
                        beginning with the first day of such preceding 
                        plan year and ending on the date that payment 
                        of such portion is made).
                  ``(C) Decreases.--As of the valuation date for each 
                plan year after 2007, the pre-funding balance of a plan 
                shall be decreased (but not below zero) by the sum of--
                          ``(i) the amount of such balance credited 
                        under paragraph (2) (if any) in reducing the 
                        minimum required contribution of the plan for 
                        the preceding plan year, and
                          ``(ii) any reduction in such balance elected 
                        under paragraph (5).
          ``(7) Funding standard carryover balance.--
                  ``(A) In general.--A funding standard carryover 
                balance maintained by a plan shall consist of a 
                beginning balance determined under subparagraph (B), 
                decreased to the extent provided in subparagraph (C), 
                and adjusted further as provided in paragraph (8).
                  ``(B) Beginning balance.--The beginning balance of 
                the funding standard carryover balance shall be the 
                positive balance described in paragraph (1)(B)(ii)(II).
                  ``(C) Decreases.--As of the valuation date for each 
                plan year after 2007, the funding standard carryover 
                balance of a plan shall be decreased (but not below 
                zero) by the sum of--
                          ``(i) the amount of such balance credited 
                        under paragraph (2) (if any) in reducing the 
                        minimum required contribution of the plan for 
                        the preceding plan year, and
                          ``(ii) any reduction in such balance elected 
                        under paragraph (5).
          ``(8) Adjustments to balances.--In determining the pre-
        funding balance or the funding standard carryover balance of a 
        plan as of the valuation date (before applying any increase or 
        decrease under paragraph (6) or (7)), the plan sponsor shall, 
        in accordance with regulations which shall be prescribed by the 
        Secretary, adjust such balance so as to reflect the rate of net 
        gain or loss (determined, notwithstanding subsection (g)(3), on 
        the basis of fair market value) experienced by all plan assets 
        for the period beginning with the valuation date for the 
        preceding plan year and ending with the date preceding the 
        valuation date for the current plan year, properly taking into 
        account, in accordance with such regulations, all 
        contributions, distributions, and other plan payments made 
        during such period.
          ``(9) Elections.--Elections under this subsection shall be 
        made at such times, and in such form and manner, as shall be 
        prescribed in regulations of the Secretary.
  ``(g) Valuation of Plan Assets and Liabilities.--
          ``(1) Timing of determinations.--Except as otherwise provided 
        under this subsection, all determinations under this section 
        for a plan year shall be made as of the valuation date of the 
        plan for such plan year.
          ``(2) Valuation date.--For purposes of this section--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the valuation date of a plan for any plan year 
                shall be the first day of the plan year.
                  ``(B) Exception for small plans.--If, on each day 
                during the preceding plan year, a plan had 500 or fewer 
                participants, the plan may designate any day during the 
                plan year as its valuation date for such plan year and 
                succeeding plan years. For purposes of this 
                subparagraph, all defined benefit plans (other than 
                multiemployer plans) maintained by the same employer 
                (or any member of such employer's controlled group) 
                shall be treated as 1 plan, but only participants with 
                respect to such employer or member shall be taken into 
                account.
                  ``(C) Application of certain rules in determination 
                of plan size.--For purposes of this paragraph--
                          ``(i) Plans not in existence in preceding 
                        year.--In the case of the first plan year of 
                        any plan, subparagraph (B) shall apply to such 
                        plan by taking into account the number of 
                        participants that the plan is reasonably 
                        expected to have on days during such first plan 
                        year.
                          ``(ii) Predecessors.--Any reference in 
                        subparagraph (B) to an employer shall include a 
                        reference to any predecessor of such employer.
          ``(3) Authorization of use of actuarial value.--For purposes 
        of this section, the value of plan assets shall be determined 
        on the basis of any reasonable actuarial method of valuation 
        which takes into account fair market value and which is 
        permitted under regulations prescribed by the Secretary, except 
        that--
                  ``(A) any such method providing for averaging of fair 
                market values may not provide for averaging of such 
                values over more than the 3 most recent plan years 
                (including the current plan year), and
                  ``(B) any such method may not result in a 
                determination of the value of plan assets which, at any 
                time, is lower than 90 percent or greater than 110 
                percent of the fair market value of such assets at such 
                time.
          ``(4) Accounting for contribution receipts.--For purposes of 
        this section--
                  ``(A) Contributions for prior plan years taken into 
                account.--For purposes of determining the value of plan 
                assets for any current plan year, in any case in which 
                a contribution properly allocable to amounts owed for a 
                preceding plan year is made on or after the valuation 
                date of the plan for such current plan year, such 
                contribution shall be taken into account, except that 
                any such contribution made during any such current plan 
                year beginning after 2007 shall be taken into account 
                only in an amount equal to its present value 
                (determined using the effective rate of interest for 
                the plan for the preceding plan year) as of the 
                valuation date of the plan for such current plan year.
                  ``(B) Contributions for current plan year 
                disregarded.--For purposes of determining the value of 
                plan assets for any current plan year, contributions 
                which are properly allocable to amounts owed for such 
                plan year shall not be taken into account, and, in the 
                case of any such contribution made before the valuation 
                date of the plan for such plan year, such value of plan 
                assets shall be reduced for interest on such amount 
                determined using the effective rate of interest of the 
                plan for the current plan year for the period beginning 
                when such payment was made and ending on the valuation 
                date of the plan.
          ``(5) Accounting for plan liabilities.--For purposes of this 
        section--
                  ``(A) Liabilities taken into account for current plan 
                year.--In determining the value of liabilities under a 
                plan for a plan year, liabilities shall be taken into 
                account to the extent attributable to benefits 
                (including any early retirement or similar benefit) 
                accrued or earned as of the beginning of the plan year.
                  ``(B) Accruals during current plan year 
                disregarded.--For purposes of subparagraph (A), 
                benefits accrued or earned during such plan year shall 
                not be taken into account, irrespective of whether the 
                valuation date of the plan for such plan year is later 
                than the first day of such plan year.
  ``(h) Actuarial Assumptions and Methods.--
          ``(1) In general.--Subject to this subsection, the 
        determination of any present value or other computation under 
        this section shall be made on the basis of actuarial 
        assumptions and methods--
                  ``(A) each of which is reasonable (taking into 
                account the experience of the plan and reasonable 
                expectations), and
                  ``(B) which, in combination, offer the actuary's best 
                estimate of anticipated experience under the plan.
          ``(2) Interest rates.--
                  ``(A) Effective interest rate.--For purposes of this 
                section, the term `effective interest rate' means, with 
                respect to any plan for any plan year, the single rate 
                of interest which, if used to determine the present 
                value of the plan's liabilities referred to in 
                subsection (d)(1), would result in an amount equal to 
                the funding target of the plan for such plan year.
                  ``(B) Interest rates for determining funding 
                target.--For purposes of determining the funding target 
                of a plan for any plan year, the interest rate used in 
                determining the present value of the liabilities of the 
                plan shall be--
                          ``(i) in the case of liabilities reasonably 
                        determined to be payable during the 5-year 
                        period beginning on the first day of the plan 
                        year, the first segment rate with respect to 
                        the applicable month,
                          ``(ii) in the case of liabilities reasonably 
                        determined to be payable during the 15-year 
                        period beginning at the end of the period 
                        described in clause (i), the second segment 
                        rate with respect to the applicable month, and
                          ``(iii) in the case of liabilities reasonably 
                        determined to be payable after the period 
                        described in clause (ii), the third segment 
                        rate with respect to the applicable month.
                  ``(C) Segment rates.--For purposes of this 
                paragraph--
                          ``(i) First segment rate.--The term `first 
                        segment rate' means, with respect to any month, 
                        the single rate of interest which shall be 
                        determined by the Secretary for such month on 
                        the basis of the corporate bond yield curve for 
                        such month, taking into account only that 
                        portion of such yield curve which is based on 
                        bonds maturing during the 5-year period 
                        commencing with such month.
                          ``(ii) Second segment rate.--The term `second 
                        segment rate' means, with respect to any month, 
                        the single rate of interest which shall be 
                        determined by the Secretary for such month on 
                        the basis of the corporate bond yield curve for 
                        such month, taking into account only that 
                        portion of such yield curve which is based on 
                        bonds maturing during the 15-year period 
                        beginning at the end of the period described in 
                        clause (i).
                          ``(iii) Third segment rate.--The term `third 
                        segment rate' means, with respect to any month, 
                        the single rate of interest which shall be 
                        determined by the Secretary for such month on 
                        the basis of the corporate bond yield curve for 
                        such month, taking into account only that 
                        portion of such yield curve which is based on 
                        bonds maturing during periods beginning after 
                        the period described in clause (ii).
                  ``(D) Corporate bond yield curve.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `corporate bond 
                        yield curve' means, with respect to any month, 
                        a yield curve which is prescribed by the 
                        Secretary for such month and which reflects a 
                        3-year weighted average of yields on investment 
                        grade corporate bonds with varying maturities.
                          ``(ii) 3-year weighted average.--The term `3-
                        year weighted average' means an average 
                        determined by using a methodology under which 
                        the most recent year is weighted 50 percent, 
                        the year preceding such year is weighted 35 
                        percent, and the second year preceding such 
                        year is weighted 15 percent.
                  ``(E) Applicable month.--For purposes of this 
                paragraph, the term `applicable month' means, with 
                respect to any plan for any plan year, the month which 
                includes the valuation date of such plan for such plan 
                year or, at the election of the plan sponsor, any of 
                the 4 months which precede such month. Any election 
                made under this subparagraph shall apply to the plan 
                year for which the election is made and all succeeding 
                plan years, unless the election is revoked with the 
                consent of the Secretary.
                  ``(F) Publication requirements.--The Secretary shall 
                publish for each month the corporate bond yield curve 
                (and the corporate bond yield curve reflecting the 
                modification described in section 417(e)(3)(A)(iv)(I)) 
                for such month and each of the rates determined under 
                subparagraph (B) for such month. The Secretary shall 
                also publish a description of the methodology used to 
                determine such yield curve and such rates which is 
                sufficiently detailed to enable plans to make 
                reasonable projections regarding the yield curve and 
                such rates for future months based on the plan's 
                projection of future interest rates.
                  ``(G) Transition rule.--
                          ``(i) In general.--Notwithstanding the 
                        preceding provisions of this paragraph, for 
                        plan years beginning in 2007 or 2008, the 
                        first, second, or third segment rate for a plan 
                        with respect to any month shall be equal to the 
                        sum of--
                                  ``(I) the product of such rate for 
                                such month determined without regard to 
                                this subparagraph, multiplied by the 
                                applicable percentage, and
                                  ``(II) the product of the rate 
                                determined under the rules of section 
                                412(b)(5)(B)(ii)(II) (as in effect for 
                                plan years beginning in 2006), 
                                multiplied by a percentage equal to 100 
                                percent minus the applicable 
                                percentage.
                          ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage is 
                        33\1/3\ percent for plan years beginning in 
                        2007 and 66\2/3\ percent for plan years 
                        beginning in 2008.
                          ``(iii) New plans ineligible.--Clause (i) 
                        shall not apply to any plan if the first plan 
                        year of the plan begins after December 31, 
                        2006.
          ``(3) Mortality table.--
                  ``(A) In general.--Except as provided in subparagraph 
                (C), the mortality table used in determining any 
                present value or making any computation under this 
                section shall be the RP-2000 Combined Mortality Table, 
                using Scale AA, as published by the Society of 
                Actuaries, as in effect on the date of the enactment of 
                the Pension Protection Act of 2005 and as revised from 
                time to time under subparagraph (B).
                  ``(B) Periodic revision.--The Secretary shall (at 
                least every 10 years) make revisions in any table in 
                effect under subparagraph (A) to reflect the actual 
                experience of pension plans and projected trends in 
                such experience.
                  ``(C) Substitute mortality table.--
                          ``(i) In general.--Upon request by the plan 
                        sponsor and approval by the Secretary for a 
                        period not to exceed 10 years, a mortality 
                        table which meets the requirements of clause 
                        (ii) shall be used in determining any present 
                        value or making any computation under this 
                        section. A mortality table described in this 
                        clause shall cease to be in effect if the plan 
                        actuary determines at any time that such table 
                        does not meet the requirements of subclauses 
                        (I) and (II) of clause (ii).
                          ``(ii) Requirements.--A mortality table meets 
                        the requirements of this clause if the 
                        Secretary determines that--
                                  ``(I) such table reflects the actual 
                                experience of the pension plan and 
                                projected trends in such experience, 
                                and
                                  ``(II) such table is significantly 
                                different from the table described in 
                                subparagraph (A).
                          ``(iii) Deadline for disposition of 
                        application.--Any mortality table submitted to 
                        the Secretary for approval under this 
                        subparagraph shall be treated as in effect for 
                        the succeeding plan year unless the Secretary, 
                        during the 180-day period beginning on the date 
                        of such submission, disapproves of such table 
                        and provides the reasons that such table fails 
                        to meet the requirements of clause (ii).
                  ``(D) Transition rule.--Under regulations of the 
                Secretary, any difference in assumptions as set forth 
                in the mortality table specified in subparagraph (A) 
                and assumptions as set forth in the mortality table 
                described in section 412(l)(7)(C)(ii) (as in effect for 
                plan years beginning in 2006) shall be phased in 
                ratably over the first period of 5 plan years beginning 
                in or after 2007 so as to be fully effective for the 
                fifth plan year. The preceding sentence shall not apply 
                to any plan if the first plan year of the plan begins 
                after December 31, 2006.
          ``(4) Probability of benefit payments in the form of lump 
        sums or other optional forms.--For purposes of determining any 
        present value or making any computation under this section, 
        there shall be taken into account--
                  ``(A) the probability that future benefit payments 
                under the plan will be made in the form of optional 
                forms of benefits provided under the plan (including 
                lump sum distributions, determined on the basis of the 
                plan's experience and other related assumptions), and
                  ``(B) any difference in the present value of such 
                future benefit payments resulting from the use of 
                actuarial assumptions, in determining benefit payments 
                in any such optional form of benefits, which are 
                different from those specified in this subsection.
          ``(5) Approval of large changes in actuarial assumptions.--
                  ``(A) In general.--No actuarial assumption used to 
                determine the funding target for a plan to which this 
                paragraph applies may be changed without the approval 
                of the Secretary.
                  ``(B) Plans to which paragraph applies.--This 
                paragraph shall apply to a plan only if--
                          ``(i) the plan is a defined benefit plan 
                        (other than a multiemployer plan) to which 
                        title IV of the Employee Retirement Income 
                        Security Act of 1974 applies,
                          ``(ii) the aggregate unfunded vested benefits 
                        as of the close of the preceding plan year (as 
                        determined under section 4006(a)(3)(E)(iii) of 
                        the Employee Retirement Income Security Act of 
                        1974) of such plan and all other plans 
                        maintained by the contributing sponsors (as 
                        defined in section 4001(a)(13) of such Act) and 
                        members of such sponsors' controlled groups (as 
                        defined in section 4001(a)(14) of such Act) 
                        which are covered by title IV (disregarding 
                        plans with no unfunded vested benefits) exceed 
                        $50,000,000, and
                          ``(iii) the change in assumptions (determined 
                        after taking into account any changes in 
                        interest rate and mortality table) results in a 
                        decrease in the funding shortfall of the plan 
                        for the current plan year that exceeds 
                        $50,000,000, or that exceeds $5,000,000 and 
                        that is 5 percent or more of the funding target 
                        of the plan before such change.
  ``(i) Special Rules for At-Risk Plans.--
          ``(1) Funding target for plans in at-risk status.--
                  ``(A) In general.--In any case in which a plan is in 
                at-risk status for a plan year, the funding target of 
                the plan for the plan year is the sum of--
                          ``(i) the present value of all liabilities to 
                        participants and their beneficiaries under the 
                        plan for the plan year, as determined by using, 
                        in addition to the actuarial assumptions 
                        described in subsection (g), the supplemental 
                        actuarial assumptions described in subparagraph 
                        (B), plus
                          ``(ii) a loading factor determined under 
                        subparagraph (C).
                  ``(B) Supplemental actuarial assumptions.--The 
                actuarial assumptions used in determining the valuation 
                of the funding target shall include, in addition to the 
                actuarial assumptions described in subsection (h), an 
                assumption that all participants will elect benefits at 
                such times and in such forms as will result in the 
                highest present value of liabilities under subparagraph 
                (A)(i).
                  ``(C) Loading factor.--The loading factor applied 
                with respect to a plan under this paragraph for any 
                plan year is the sum of--
                          ``(i) $700, times the number of participants 
                        in the plan, plus
                          ``(ii) 4 percent of the funding target 
                        (determined without regard to this paragraph) 
                        of the plan for the plan year.
          ``(2) Target normal cost of at-risk plans.--In any case in 
        which a plan is in at-risk status for a plan year, the target 
        normal cost of the plan for such plan year shall be the sum 
        of--
                  ``(A) the present value of all benefits which are 
                expected to accrue or be earned under the plan during 
                the plan year, determined under the actuarial 
                assumptions used under paragraph (1), plus
                  ``(B) the loading factor under paragraph (1)(C), 
                excluding the portion of the loading factor described 
                in paragraph (1)(C)(i).
          ``(3) Determination of at-risk status.--For purposes of this 
        subsection, a plan is in `at-risk status' for a plan year if 
        the funding target attainment percentage of the plan for the 
        preceding plan year was less than 60 percent.
          ``(4) Transition between applicable funding targets and 
        between applicable target normal costs.--
                  ``(A) In general.--In any case in which a plan which 
                is in at-risk status for a plan year has been in such 
                status for a consecutive period of fewer than 5 plan 
                years, the applicable amount of the funding target and 
                of the target normal cost shall be, in lieu of the 
                amount determined without regard to this paragraph, the 
                sum of--
                          ``(i) the amount determined under this 
                        section without regard to this subsection, plus
                          ``(ii) the transition percentage for such 
                        plan year of the excess of the amount 
                        determined under this subsection (without 
                        regard to this paragraph) over the amount 
                        determined under this section without regard to 
                        this subsection.
                  ``(B) Transition percentage.--For purposes of this 
                paragraph, the `transition percentage' for a plan year 
                is the product derived by multiplying--
                          ``(i) 20 percent, by
                          ``(ii) the number of plan years during the 
                        period described in subparagraph (A).
  ``(j) Payment of Minimum Required Contributions.--
          ``(1) In general.--For purposes of this section, the due date 
        for any payment of any minimum required contribution for any 
        plan year shall be 8\1/2\ months after the close of the plan 
        year.
          ``(2) Interest.--Any payment required under paragraph (1) for 
        a plan year that is made on a date other than the valuation 
        date for such plan year shall be adjusted for interest accruing 
        for the period between the valuation date and the payment date, 
        at the effective rate of interest for the plan for such plan 
        year.
          ``(3) Accelerated quarterly contribution schedule for 
        underfunded plans.--
                  ``(A) Interest penalty for failure to meet 
                accelerated quarterly payment schedule.--In any case in 
                which the plan has a funding shortfall for the 
                preceding plan year, if the required installment is not 
                paid in full, then the minimum required contribution 
                for the plan year (as increased under paragraph (2)) 
                shall be further increased by an amount equal to the 
                interest on the amount of the underpayment for the 
                period of the underpayment, using an interest rate 
                equal to the excess of--
                          ``(i) 175 percent of the Federal mid-term 
                        rate (as in effect under section 1274 for the 
                        1st month of such plan year), over
                          ``(ii) the effective rate of interest for the 
                        plan for the plan year.
                  ``(B) Amount of underpayment, period of 
                underpayment.--For purposes of subparagraph (A)--
                          ``(i) Amount.--The amount of the underpayment 
                        shall be the excess of--
                                  ``(I) the required installment, over
                                  ``(II) the amount (if any) of the 
                                installment contributed to or under the 
                                plan on or before the due date for the 
                                installment.
                          ``(ii) Period of underpayment.--The period 
                        for which any interest is charged under this 
                        paragraph with respect to any portion of the 
                        underpayment shall run from the due date for 
                        the installment to the date on which such 
                        portion is contributed to or under the plan.
                          ``(iii) Order of crediting contributions.--
                        For purposes of clause (i)(II), contributions 
                        shall be credited against unpaid required 
                        installments in the order in which such 
                        installments are required to be paid.
                  ``(C) Number of required installments; due dates.--
                For purposes of this paragraph--
                          ``(i) Payable in 4 installments.--There shall 
                        be 4 required installments for each plan year.
                          ``(ii) Time for payment of installments.--The 
                        due dates for required installments are set 
                        forth in the following table:





``In the case of the following      The due date is:
 required installment:
  1st.............................  April 15
  2nd.............................  July 15
  3rd.............................  October 15
  4th.............................  January 15 of the following year

                  ``(D) Amount of required installment.--For purposes 
                of this paragraph--
                          ``(i) In general.--The amount of any required 
                        installment shall be 25 percent of the required 
                        annual payment.
                          ``(ii) Required annual payment.--For purposes 
                        of clause (i), the term `required annual 
                        payment' means the lesser of--
                                  ``(I) 90 percent of the minimum 
                                required contribution (without regard 
                                to any waiver under section 412(c)) to 
                                the plan for the plan year under this 
                                section, or
                                  ``(II) in the case of a plan year 
                                beginning after 2007, 100 percent of 
                                the minimum required contribution 
                                (without regard to any waiver under 
                                section 412(c)) to the plan for the 
                                preceding plan year.
                        Subclause (II) shall not apply if the preceding 
                        plan year referred to in such clause was not a 
                        year of 12 months.
                  ``(E) Fiscal years and short years.--
                          ``(i) Fiscal years.--In applying this 
                        paragraph to a plan year beginning on any date 
                        other than January 1, there shall be 
                        substituted for the months specified in this 
                        paragraph, the months which correspond thereto.
                          ``(ii) Short plan year.--This subparagraph 
                        shall be applied to plan years of less than 12 
                        months in accordance with regulations 
                        prescribed by the Secretary.
          ``(4) Liquidity requirement in connection with quarterly 
        contributions.--
                  ``(A) In general.--A plan to which this paragraph 
                applies shall be treated as failing to pay the full 
                amount of any required installment under paragraph (3) 
                to the extent that the value of the liquid assets paid 
                in such installment is less than the liquidity 
                shortfall (whether or not such liquidity shortfall 
                exceeds the amount of such installment required to be 
                paid but for this paragraph).
                  ``(B) Plans to which paragraph applies.--This 
                paragraph shall apply to a plan (other than a plan that 
                would be described in subsection (f)(2)(B) if `100' 
                were substituted for `500' therein) which--
                          ``(i) is required to pay installments under 
                        paragraph (3) for a plan year, and
                          ``(ii) has a liquidity shortfall for any 
                        quarter during such plan year.
                  ``(C) Period of underpayment.--For purposes of 
                paragraph (3)(A), any portion of an installment that is 
                treated as not paid under subparagraph (A) shall 
                continue to be treated as unpaid until the close of the 
                quarter in which the due date for such installment 
                occurs.
                  ``(D) Limitation on increase.--If the amount of any 
                required installment is increased by reason of 
                subparagraph (A), in no event shall such increase 
                exceed the amount which, when added to prior 
                installments for the plan year, is necessary to 
                increase the funding target attainment percentage of 
                the plan for the plan year (taking into account the 
                expected increase in funding target due to benefits 
                accruing or earned during the plan year) to 100 
                percent.
                  ``(E) Definitions.--For purposes of this 
                subparagraph:
                          ``(i) Liquidity shortfall.--The term 
                        `liquidity shortfall' means, with respect to 
                        any required installment, an amount equal to 
                        the excess (as of the last day of the quarter 
                        for which such installment is made) of--
                                  ``(I) the base amount with respect to 
                                such quarter, over
                                  ``(II) the value (as of such last 
                                day) of the plan's liquid assets.
                          ``(ii) Base amount.--
                                  ``(I) In general.--The term `base 
                                amount' means, with respect to any 
                                quarter, an amount equal to 3 times the 
                                sum of the adjusted disbursements from 
                                the plan for the 12 months ending on 
                                the last day of such quarter.
                                  ``(II) Special rule.--If the amount 
                                determined under subclause (I) exceeds 
                                an amount equal to 2 times the sum of 
                                the adjusted disbursements from the 
                                plan for the 36 months ending on the 
                                last day of the quarter and an enrolled 
                                actuary certifies to the satisfaction 
                                of the Secretary that such excess is 
                                the result of nonrecurring 
                                circumstances, the base amount with 
                                respect to such quarter shall be 
                                determined without regard to amounts 
                                related to those nonrecurring 
                                circumstances.
                          ``(iii) Disbursements from the plan.--The 
                        term `disbursements from the plan' means all 
                        disbursements from the trust, including 
                        purchases of annuities, payments of single sums 
                        and other benefits, and administrative 
                        expenses.
                          ``(iv) Adjusted disbursements.--The term 
                        `adjusted disbursements' means disbursements 
                        from the plan reduced by the product of--
                                  ``(I) the plan's funding target 
                                attainment percentage for the plan 
                                year, and
                                  ``(II) the sum of the purchases of 
                                annuities, payments of single sums, and 
                                such other disbursements as the 
                                Secretary shall provide in regulations.
                          ``(v) Liquid assets.--The term `liquid 
                        assets' means cash, marketable securities, and 
                        such other assets as specified by the Secretary 
                        in regulations.
                          ``(vi) Quarter.--The term `quarter' means, 
                        with respect to any required installment, the 
                        3-month period preceding the month in which the 
                        due date for such installment occurs.
                  ``(F) Regulations.--The Secretary may prescribe such 
                regulations as are necessary to carry out this 
                paragraph.
  ``(k) Imposition of Lien Where Failure To Make Required 
Contributions.--
          ``(1) In general.--In the case of a plan to which this 
        subsection applies, if--
                  ``(A) any person fails to make a contribution payment 
                required by section 412 and this section before the due 
                date for such payment, and
                  ``(B) the unpaid balance of such payment (including 
                interest), when added to the aggregate unpaid balance 
                of all preceding such payments for which payment was 
                not made before the due date (including interest), 
                exceeds $1,000,000,
        then there shall be a lien in favor of the plan in the amount 
        determined under paragraph (3) upon all property and rights to 
        property, whether real or personal, belonging to such person 
        and any other person who is a member of the same controlled 
        group of which such person is a member.
          ``(2) Plans to which subsection applies.--This subsection 
        shall apply to a defined benefit plan (other than a 
        multiemployer plan) for any plan year for which the funding 
        target attainment percentage (as defined in subsection (d)(2)) 
        of such plan is less than 100 percent. This subsection shall 
        not apply to any plan to which section 4021 of the Employee 
        Retirement Income Security Act of 1974 does not apply (as such 
        section is in effect on the date of the enactment of the 
        Pension Protection Act of 2005).
          ``(3) Amount of lien.--For purposes of paragraph (1), the 
        amount of the lien shall be equal to the aggregate unpaid 
        balance of contribution payments required under this section 
        and section 412 for which payment has not been made before the 
        due date.
          ``(4) Notice of failure; lien.--
                  ``(A) Notice of failure.--A person committing a 
                failure described in paragraph (1) shall notify the 
                Pension Benefit Guaranty Corporation of such failure 
                within 10 days of the due date for the required 
                contribution payment.
                  ``(B) Period of lien.--The lien imposed by paragraph 
                (1) shall arise on the due date for the required 
                contribution payment and shall continue until the last 
                day of the first plan year in which the plan ceases to 
                be described in paragraph (1)(B). Such lien shall 
                continue to run without regard to whether such plan 
                continues to be described in paragraph (2) during the 
                period referred to in the preceding sentence.
                  ``(C) Certain rules to apply.--Any amount with 
                respect to which a lien is imposed under paragraph (1) 
                shall be treated as taxes due and owing the United 
                States and rules similar to the rules of subsections 
                (c), (d), and (e) of section 4068 of the Employee 
                Retirement Income Security Act of 1974 shall apply with 
                respect to a lien imposed by subsection (a) and the 
                amount with respect to such lien.
          ``(5) Enforcement.--Any lien created under paragraph (1) may 
        be perfected and enforced only by the Pension Benefit Guaranty 
        Corporation, or at the direction of the Pension Benefit 
        Guaranty Corporation, by the contributing sponsor (or any 
        member of the controlled group of the contributing sponsor).
          ``(6) Definitions.--For purposes of this subsection--
                  ``(A) Contribution payment.--The term `contribution 
                payment' means, in connection with a plan, a 
                contribution payment required to be made to the plan, 
                including any required installment under paragraphs (3) 
                and (4) of subsection (i).
                  ``(B) Due date; required installment.--The terms `due 
                date' and `required installment' have the meanings 
                given such terms by subsection (j), except that in the 
                case of a payment other than a required installment, 
                the due date shall be the date such payment is required 
                to be made under section 430.
                  ``(C) Controlled group.--The term `controlled group' 
                means any group treated as a single employer under 
                subsections (b), (c), (m), and (o) of section 414.
  ``(l) Qualified Transfers to Health Benefit Accounts.--In the case of 
a qualified transfer (as defined in section 420), any assets so 
transferred shall not, for purposes of this section, be treated as 
assets in the plan.''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to plan years beginning after December 31, 2006.

SEC. 113. BENEFIT LIMITATIONS UNDER SINGLE-EMPLOYER PLANS.

  (a) Prohibition of Shutdown Benefits and Other Unpredictable 
Contingent Event Benefits Under Single-Employer Plans.--
          (1) In general.--Part III of subchapter D of chapter 1 of the 
        Internal Revenue Code of 1986 (relating to deferred 
        compensation, etc.) is amended--
                  (A) by striking the heading and inserting the 
                following:

  ``PART III--RULES RELATING TO MINIMUM FUNDING STANDARDS AND BENEFIT 
                              LIMITATIONS

``Subpart A. Minimum funding standards for pension plans.
``Subpart B. Benefit limitations under single-employer plans.

        ``Subpart A--Minimum Funding Standards for Pension Plans

``Sec. 430. Minimum funding standards for single-employer defined 
benefit pension plans.'', and

                  (B) by adding at the end the following new subpart:

      ``Subpart B--Benefit Limitations Under Single-employer Plans

``Sec. 436. Prohibition of shutdown benefits and other unpredictable 
contingent event benefits under single-employer plans.

``SEC. 436. PROHIBITION OF SHUTDOWN BENEFITS AND OTHER UNPREDICTABLE 
                    CONTINGENT EVENT BENEFITS UNDER SINGLE-EMPLOYER 
                    PLANS.

  ``(a) In General.--No pension plan which is defined benefit plan 
(other than a multiemployer plan) may provide benefits to which 
participants are entitled solely by reason of the occurrence of--
          ``(1) a plant shutdown, or
          ``(2) any other unpredictable contingent event.
  ``(b) Unpredictable Contingent Event.--For purposes of this 
subsection, the term `unpredictable contingent event' means an event 
other than--
          ``(1) attainment of any age, performance of any service, 
        receipt or derivation of any compensation, or the occurrence of 
        death or disability, or
          ``(2) an event which is reasonably and reliably predictable 
        (as determined by the Secretary).''.
          (2) Clerical amendment.--The table of parts for suchapter D 
        of chapter 1 of the Internal Revenue Code of 1986 is amended by 
        adding at the end the following new item:

  ``Part III_Rules Relating to Minimum Funding Standards and Benefit 
                             Limitations''.

  (b) Other Limits on Benefits and Benefit Accruals.--
          (1) In general.--Subpart B of part III of subchapter D of 
        chapter 1 of such Code is amended by adding at the end the 
        following:

``SEC. 437. FUNDING-BASED LIMITS ON BENEFITS AND BENEFIT ACCRUALS UNDER 
                    SINGLE-EMPLOYER PLANS.

  ``(a) Limitations on Plan Amendments Increasing Liability for 
Benefits.--
          ``(1) In general.--No amendment to a defined benefit plan 
        (other than a multiemployer plan) which has the effect of 
        increasing liabilities of the plan by reason of increases in 
        benefits, establishment of new benefits, changing the rate of 
        benefit accrual, or changing the rate at which benefits become 
        nonforfeitable to the plan may take effect during any plan year 
        if the funding target attainment percentage as of the valuation 
        date of the plan for such plan year is--
                  ``(A) less than 80 percent, or
                  ``(B) would be less than 80 percent taking into 
                account such amendment.
        For purposes of this subparagraph, any increase in benefits 
        under the plan by reason of an increase in the benefit rate 
        provided under the plan or on the basis of an increase in 
        compensation shall be treated as effected by plan amendment.
          ``(2) Exemption.--Paragraph (1) shall cease to apply with 
        respect to any plan year, effective as of the first date of the 
        plan year (or if later, the effective date of the amendment), 
        upon payment by the plan sponsor of a contribution (in addition 
        to any minimum required contribution under section 430) equal 
        to--
                  ``(A) in the case of paragraph (1)(A), the amount of 
                the increase in the funding target of the plan (under 
                section 430) for the plan year attributable to the 
                amendment, and
                  ``(B) in the case of paragraph (1)(B), the amount 
                sufficient to result in a funding target attainment 
                percentage of 80 percent.
  ``(b) Funding-Based Limitation on Certain Forms of Distribution.--
          ``(1) In general.--A defined benefit plan (other than a 
        multiemployer plan) shall provide that, in any case in which 
        the plan's funding target attainment percentage as of the 
        valuation date of the plan for a plan year is less than 80 
        percent, the plan may not after such date pay any payment 
        described in section 401(a)(32)(B).
          ``(2) Exception.--Paragraph (1) shall not apply to any plan 
        for any plan year if the terms of such plan (as in effect for 
        the period beginning on June 29, 2005, and ending with such 
        plan year) provide for no benefit accruals with respect to any 
        participant during such period.
  ``(c) Limitations on Benefit Accruals for Plans With Severe Funding 
Shortfalls.--A defined benefit plan (other than a multiemployer plan) 
shall provide that, in any case in which the plan's funding target 
attainment percentage as of the valuation date of the plan for a plan 
year is less than 60 percent, all future benefit accruals under the 
plan shall cease as of such date.
  ``(d) New Plans.--Subsections (a) and (c) shall not apply to a plan 
for the first 5 plan years of the plan. For purposes of this 
subsection, the reference in this subsection to a plan shall include a 
reference to any predecessor plan.
  ``(e) Presumed Underfunding for Purposes of Benefit Limitations Based 
on Prior Year's Funding Status.--
          ``(1) Presumption of continued underfunding.--In any case in 
        which a benefit limitation under subsection (a), (b), or (c) 
        has been applied to a plan with respect to the plan year 
        preceding the current plan year, the funding target attainment 
        percentage of the plan as of the valuation date of the plan for 
        the current plan year shall be presumed to be equal to the 
        funding target attainment percentage of the plan as of the 
        valuation date of the plan for the preceding plan year until 
        the enrolled actuary of the plan certifies the actual funding 
        target attainment percentage of the plan as of the valuation 
        date of the plan for the current plan year.
          ``(2) Presumption of underfunding after 10th month.--In any 
        case in which no such certification is made with respect to the 
        plan before the first day of the 10th month of the current plan 
        year, for purposes of subsections (a), (b), and (c), the plan's 
        funding target attainment percentage shall be conclusively 
        presumed to be less than 60 percent as of the first day of such 
        10th month, and such day shall be deemed, for purposes of such 
        subsections, to be the valuation date of the plan for the 
        current plan year.
          ``(3) Presumption of underfunding after 4th month for nearly 
        underfunded plans.--In any case in which--
                  ``(A) a benefit limitation under subsection (a), (b), 
                or (c) did not apply to a plan with respect to the plan 
                year preceding the current plan year, but the funding 
                target attainment percentage of the plan for such 
                preceding plan year was not more than 10 percentage 
                points greater than the percentage which would have 
                caused such subsection to apply to the plan with 
                respect to such preceding plan year, and
                  ``(B) as of the first day of the 4th month of the 
                current plan year, the enrolled actuary of the plan has 
                not certified the actual funding target attainment 
                percentage of the plan as of the valuation date of the 
                plan for the current plan year,
        until the enrolled actuary so certifies, such first day shall 
        be deemed, for purposes of such subsection, to be the valuation 
        date of the plan for the current plan year and the funding 
        target attainment percentage of the plan as of such first day 
        shall, for purposes of such subsection, be presumed to be equal 
        to 10 percentage points less than the funding target attainment 
        percentage of the plan as of the valuation date of the plan for 
        such preceding plan year.
  ``(f) Restoration by Plan Amendment of Benefits or Benefit Accrual.--
In any case in which a prohibition under subsection (b) of the payment 
of lump sum distributions or benefits in any other accelerated form or 
a cessation of benefit accruals under subsection (c) is applied to a 
plan with respect to any plan year and such prohibition or cessation, 
as the case may be, ceases to apply to any subsequent plan year, the 
plan may provide for the resumption of such benefit payment or such 
benefit accrual only by means of the adoption of a plan amendment after 
the valuation date of the plan for such subsequent plan year. The 
preceding sentence shall not apply to a prohibition or cessation 
required by reason of subsection (e).
  ``(g) Funding Target Attainment Percentage.--
          ``(1) In general.--For purposes of this section, the term 
        `funding target attainment percentage' means, with respect to 
        any plan for any plan year, the ratio (expressed as a 
        percentage) which--
                  ``(A) the value of plan assets for the plan year (as 
                determined under section 430(g)) reduced by the pre-
                funding balance and the funding standard carryover 
                balance (within the meaning of section 430(f)), bears 
                to
                  ``(B) the funding target of the plan for the plan 
                year (as determined under section 430(d)(1), but 
                without regard to section 430(i)(1)).
          ``(2) Application to plans which are fully funded without 
        regard to reductions for funding balances.--In the case of a 
        plan for any plan year, if the funding target attainment 
        percentage is 100 percent or more (determined without regard to 
        this paragraph and without regard to the reduction under 
        paragraph (1)(A) for the pre-funding balance and the funding 
        standard carryover balance), paragraph (1) shall be applied 
        without regard to such reduction.''.
          (2) Clerical amendment.--The table of sections for such 
        subpart is amended by adding at the end the following new item:

``Sec. 437. Funding-based limits on benefits and benefit accruals under 
single-employer plans.''.

  (c) Special Rule for Plan Amendments.--A plan shall not fail to meet 
the requirements of section 411(d)(6) of the Internal Revenue Code of 
1986 or section 204(g) of the Employee Retirement Income Security Act 
of 1974 solely by reason of the adoption by the plan of an amendment 
necessary to meet the requirements of the amendments made by this 
section.
  (d) Effective Date.--
          (1) Shutdown benefits.--Except as provided in paragraph (3), 
        the amendments made by subsection (a) shall apply with respect 
        to plant shutdowns, or other unpredictable contingent events, 
        occurring after December 31, 2006.
          (2) Other benefits.--Except as provided in paragraph (3), the 
        amendments made by subsection (b) shall apply with respect to 
        plan years beginning after December 31, 2006.
          (3) Collective bargaining exception.--In the case of a plan 
        maintained pursuant to 1 or more collective bargaining 
        agreements between employee representatives and 1 or more 
        employers ratified before the date of the enactment of this 
        Act, the amendments made by this subsection shall not apply to 
        plan years beginning before the earlier of--
                  (A) the later of--
                          (i) the date on which the last collective 
                        bargaining agreement relating to the plan 
                        terminates (determined without regard to any 
                        extension thereof agreed to after the date of 
                        the enactment of this Act), or
                          (ii) the first day of the first plan year to 
                        which the amendments made by this subsection 
                        would (but for this subparagraph) apply, or
                  (B) January 1, 2009.
        For purposes of clause (i), any plan amendment made pursuant to 
        a collective bargaining agreement relating to the plan which 
        amends the plan solely to conform to any requirement added by 
        this subsection shall not be treated as a termination of such 
        collective bargaining agreement.
  (e) Special Rule for 2007.--For purposes of applying subsection (e) 
of section 437 of such Code (as added by this section) to current plan 
years (within the meaning of such subsection) beginning in 2007, the 
modified funded current liability percentage of the plan for the 
preceding year shall be substituted for the funding target attainment 
percentage of the plan for the preceding year. For purposes of the 
preceding sentence, the term ``modified funded current liability 
percentage'' means the funded current liability percentage (as defined 
in section 412(l)(8) of such Code), reduced as described in 
subparagraph (E) thereof in the case of a plan with a funded current 
liability percentage (as so defined and before such reduction) which is 
less than 100 percent.

SEC. 114. TECHNICAL AND CONFORMING AMENDMENTS.

  (a) Amendments Related to Qualification Requirements.--
          (1) Section 401(a)(29) of the Internal Revenue Code of 1986 
        is amended to read as follows:
          ``(29) Benefit limitations on plans in at-risk status.--In 
        the case of a defined benefit plan (other than a multiemployer 
        plan) to which the requirements of section 412 apply, the trust 
        of which the plan is a part shall not constitute a qualified 
        trust under this subsection unless the plan meets the 
        requirements of sections 436 and 437.''.
          (2) Section 401(a)(32) of such Code is amended--
                  (A) in subparagraph (A), by striking ``412(m)(5)'' 
                each place it appears and inserting ``430(j)(4)'', and
                  (B) in subparagraph (C), by striking ``section 412(m) 
                by reason of paragraph (5)(A) thereof'' and inserting 
                ``section 430(j)(3) by reason of section 
                430(j)(4)(A)''.
          (3) Section 401(a)(33) of such Code is amended--
                  (A) in subparagraph (B)(i), by striking ``funded 
                current liability percentage (as defined in section 
                412(l)(8))'' and inserting ``funding target attainment 
                percentage (as defined in section 430(d)(2))'',
                  (B) in subparagraph (B)(iii), by striking 
                ``subsection 412(c)(8)'' and inserting ``section 
                412(d)(2)'', and
                  (C) in subparagraph (D), by striking ``section 
                412(c)(11) (without regard to subparagraph (B) 
                thereof)'' and inserting ``section 412(b) (without 
                regard to paragraph (2) thereof)''.
  (b) Vesting Rules.--Section 411 of such Code is amended--
          (1) by striking ``section 412(c)(8)'' in subsection (a)(3)(C) 
        and inserting ``section 412(d)(2)'',
          (2) in subsection (b)(1)(F)--
                  (A) by striking ``paragraphs (2) and (3) of section 
                412(i)'' in clause (ii) and inserting ``subparagraphs 
                (B) and (C) of section 412(e)(3)'', and
                  (B) by striking ``paragraphs (4), (5), and (6) of 
                section 412(i)'' and inserting ``subparagraphs (D), 
                (E), and (F) of section 412(e)(3)'', and
          (3) by striking ``section 412(c)(8)'' in subsection (d)(6)(A) 
        and inserting ``section 412(d)(2)''.
  (c) Mergers and Consolidations of Plans.--Subclause (I) of section 
414(l)(2)(B)(i) of such Code is amended to read as follows:
                                  ``(I) the amount determined under 
                                section 431(c)(6)(A)(i) in the case of 
                                a multiemployer plan (and the sum of 
                                the target liability amount and target 
                                normal cost determined under section 
                                430 in the case of any other plan), 
                                over''.
  (d) Transfer of Excess Pension Assets to Retiree Health Accounts.--
          (1) Section 420(e)(2) of such Code is amended to read as 
        follows:
          ``(2) Excess pension assets.--The term `excess pension 
        assets' means the excess (if any) of--
                  ``(A) the lesser of--
                          ``(i) the fair market value of the plan's 
                        assets (reduced by the pre-funding balance and 
                        the funding standard carryover balance, as 
                        determined under section 430(f)), or
                          ``(ii) the value of plan assets as determined 
                        under section 430(g)(3) (reduced by the pre-
                        funding balance and the funding standard 
                        carryover balance, as determined under section 
                        430(f)), over
                  ``(B) 125 percent of the sum of the target liability 
                amount and the target normal cost determined under 
                section 430 for such plan year.''.
          (2) Section 420(e)(4) of such Code is amended to read as 
        follows:
          ``(4) Coordination with section 430.--In the case of a 
        qualified transfer, any assets so transferred shall not, for 
        purposes of this section, be treated as assets in the plan.''.
  (e) Excise Taxes.--
          (1) In general.--Subsections (a) and (b) of section 4971 of 
        such Code are amended to read as follows:
  ``(a) Initial Tax.--If at any time during any taxable year an 
employer maintains a plan to which section 412 applies, there is hereby 
imposed for the taxable year a tax equal to--
          ``(1) in the case of a defined benefit plan which is not a 
        multiemployer plan, 10 percent of the aggregate unpaid minimum 
        required contributions for all plan years remaining unpaid as 
        of the end of any plan year ending with or within the taxable 
        year, and
          ``(2) in the case of a multiemployer plan, 5 percent of the 
        accumulated funding deficiency determined under section 431 as 
        of the end of any plan year ending with or within the taxable 
        year.
  ``(b) Additional Tax.--If--
          ``(1) a tax is imposed under subsection (a)(1) on any unpaid 
        required minimum contribution and such amount remains unpaid as 
        of the close of the taxable period, or
          ``(2) a tax is imposed under subsection (a)(2) on any 
        accumulated funding deficiency and the accumulated funding 
        deficiency is not corrected within the taxable period,
there is hereby imposed a tax equal to 100 percent of the unpaid 
minimum required contribution or accumulated funding deficiency, 
whichever is applicable, to the extent not so paid or corrected.''.
          (2) Section 4971(c) of such Code is amended--
                  (A) by striking ``the last two sentences of section 
                412(a)'' in paragraph (1) and inserting ``section 
                431'', and
                  (B) by adding at the end the following new paragraph:
          ``(4) Unpaid minimum required contribution.--
                  ``(A) In general.--The term `unpaid minimum required 
                contribution' means, with respect to any plan year, any 
                minimum required contribution under section 430 for the 
                plan year which is not paid on or before the due date 
                (as determined under section 430(j)(1)) for the plan 
                year.
                  ``(B) Ordering rule.--Any payment to or under a plan 
                for any plan year shall be allocated first to unpaid 
                minimum required contributions for all preceding plan 
                years in the order in which such contributions became 
                due and then to the minimum required contribution under 
                section 430 for the plan year.''.
          (3) Section 4971(e)(1) of such Code is amended by striking 
        ``section 412(b)(3)(A)'' and inserting ``section 412(a)(2)''.
          (4) Section 4971(f)(1) of such Code is amended--
                  (A) by striking ``section 412(m)(5)'' and inserting 
                ``section 430(j)(4)'', and
                  (B) by striking ``section 412(m)'' and inserting 
                ``section 430(j)(3)''.
          (5) Section 4972(c)(7) of such Code is amended by striking 
        ``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)'' and 
        inserting ``except, in the case of a multiemployer plan, to the 
        extent that such contributions exceed the full-funding 
        limitation (as defined in section 431(c)(6))''.
  (f) Reporting Requirements.--Section 6059(b) of such Code is 
amended--
          (1) by striking ``the accumulated funding deficiency (as 
        defined in section 412(a))'' in paragraph (2) and inserting 
        ``the minimum required contribution determined under section 
        430, or the accumulated funding deficiency determined under 
        section 431,'', and
          (2) by striking paragraph (3)(B) and inserting:
                  ``(B) the requirements for reasonable actuarial 
                assumptions under section 430(h)(1) or 431(c)(3), 
                whichever are applicable, have been complied with,''.
  (g) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2006.

                      Subtitle C--Other Provisions

SEC. 121. MODIFICATION OF TRANSITION RULE TO PENSION FUNDING 
                    REQUIREMENTS.

  (a) In General.--In the case of a plan that--
          (1) was not required to pay a variable rate premium for the 
        plan year beginning in 1996,
          (2) has not, in any plan year beginning after 1995, merged 
        with another plan (other than a plan sponsored by an employer 
        that was in 1996 within the controlled group of the plan 
        sponsor); and
          (3) is sponsored by a company that is engaged primarily in 
        the interurban or interstate passenger bus service,
the rules described in subsection (b) shall apply for any plan year 
beginning after December 31, 2006.
  (b) Modified Rules.--The rules described in this subsection are as 
follows:
          (1) For purposes of section 430(j)(3) of the Internal Revenue 
        Code of 1986 and section 303(j)(3) of the Employee Retirement 
        Income Security Act of 1974, the plan shall be treated as not 
        having a funding shortfall for any plan year.
          (2) For purposes of--
                  (A) determining unfunded vested benefits under 
                section 4006(a)(3)(E)(iii) of such Act, and
                  (B) determining any present value or making any 
                computation under section 412 of such Code or section 
                302 of such Act,
        the mortality table shall be the mortality table used by the 
        plan.
          (3) Notwithstanding section 430(f)(4)(B) of such Code and 
        section 303(f)(4)(B) of such Act, for purposes of section 
        430(c)(4)(A)(ii) of such Code and section 303(c)(4)(A)(ii) of 
        such Act, the value of plan assets is deemed to be such amount, 
        reduced by the amount of the pre-funding balance if, pursuant 
        to a binding written agreement with the Pension Benefit 
        Guaranty Corporation entered into before January 1, 2007, the 
        funding standard carryover balance is not available to reduce 
        the minimum required contribution for the plan year.
          (4) Section 430(c)(4)(B) of such Code and section 
        303(c)(4)(B) of such Act (relating to phase-in of funding 
        target for determination of funding shortfall) shall each be 
        applied by substituting ``2012'' for ``2011'' therein and by 
        substituting for the table therein the following:



                                                                 The
                                                             applicable
  In the case of a plan year beginning in calendar year:     percentage
                                                                 is:

2007......................................................    90 percent
2008......................................................    92 percent
2009......................................................    94 percent
2010......................................................    96 percent
2011......................................................   98 percent.

  (c) Definitions.--Any term used in this section which is also used in 
section 430 of such Code or section 303 of such Act shall have the 
meaning provided such term in such section. If the same term has a 
different meaning in such Code and such Act, such term shall, for 
purposes of this section, have the meaning provided by such Code when 
applied with respect to such Code and the meaning provided by such Act 
when applied with respect to such Act.
  (d) Special Rule for 2006.--
          (1)  in general.--Section 769(c)(3) of the Retirement 
        Protection Act of 1994, as added by section 201 of the Pension 
        Funding Equity Act of 2004, is amended by striking ``and 2005'' 
        and inserting ``, 2005, and 2006''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to plan years beginning after December 31, 2005.
  (e) Conforming Amendment.--
          (1) Section 769 of the Retirement Protection Act of 1994 is 
        amended by striking subsection (c).
          (2) The amendment made by paragraph (1) shall take effect on 
        December 31, 2006, and shall apply to plan years beginning 
        after such date.

SEC. 122. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS WHEN 
                    EMPLOYER DEFINED BENEFIT PLAN IN AT-RISK STATUS.

  (a) In General.--Subsection (b) of section 409A of the Internal 
Revenue Code of 1986 (providing rules relating to funding) is amended 
by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), 
respectively, and by inserting after paragraph (2) the following new 
paragraph:
          ``(3) Employer's defined benefit plan in at-risk status.--
        If--
                  ``(A) during any period in which a defined benefit 
                plan to which section 412 applies is in an at-risk 
                status (as defined in section 430(i)(3)), assets are 
                set aside (directly or indirectly) in a trust (or other 
                arrangement determined by the Secretary), or 
                transferred to such a trust or other arrangement, for 
                purposes of paying deferred compensation under a 
                nonqualified deferred compensation plan of the employer 
                maintaining the defined benefit plan, or
                  ``(B) a nonqualified deferred compensation plan of 
                the employer provides that assets will become 
                restricted to the provision of benefits under the plan 
                in connection with such at-risk status (or other 
                similar financial measure determined by the Secretary) 
                of the defined benefit plan, or assets are so 
                restricted,
        such assets shall for purposes of section 83 be treated as 
        property transferred in connection with the performance of 
        services whether or not such assets are available to satisfy 
        claims of general creditors. Subparagraph (A) shall not apply 
        with respect to any assets which are so set aside before the 
        defined benefit plan is in at-risk status.''.
  (b) Conforming Amendments.--Paragraphs (4) and (5) of section 409A(b) 
of such Code, as redesignated by subsection (a) of this subsection, are 
each amended by striking ``paragraph (1) or (2)'' each place it appears 
and inserting ``paragraph (1), (2), or (3)''.
  (c)  Effective Date.--The amendments made by this section shall apply 
to transfers or reservations of assets after December 31, 2005.
  (d) Special Rule for 2006.--For purposes of determining if a plan is 
in at-risk status (within the meaning of section 409A of such Code, as 
added by this section) for any plan year beginning in 2006, such 
section shall be applied by substituting the plan's modified funded 
current liability percentage for the plan's funding target attainment 
percentage. For purposes of the preceding sentence, the term ``modified 
funded current liability percentage'' means the funded current 
liability percentage (as defined in section 412(l)(8) of such Code), 
reduced as described in subparagraph (E) thereof.

    TITLE II--FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS

 Subtitle A--Amendments to Employee Retirement Income Security Act of 
                                  1974

SEC. 201. FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS.

  [See section 201 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 202. ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN 
                    ENDANGERED OR CRITICAL STATUS.

  [See section 202 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 203. MEASURES TO FORESTALL INSOLVENCY OF MULTIEMPLOYER PLANS.

  [See section 203 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 204. WITHDRAWAL LIABILITY REFORMS.

  [See section 204 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 205. REMOVAL OF RESTRICTIONS WITH RESPECT TO PROCEDURES APPLICABLE 
                    TO DISPUTES INVOLVING WITHDRAWAL LIABILITY.

  [See section 205 of the bill as reported by the Committee on 
Education and the Workforce.]

        Subtitle B--Amendments to Internal Revenue Code of 1986

SEC. 211. FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS.

  (a) In General.--Subpart A of part III of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 (added by section 112 of this Act) 
is amended by adding at the end the following new section:

``SEC. 431. MINIMUM FUNDING STANDARDS FOR MULTIEMPLOYER PLANS.

  ``(a) In General.--For purposes of section 412, the accumulated 
funding deficiency of a multiemployer plan for any plan year is--
          ``(1) except as provided in paragraph (2), the amount, 
        determined as of the end of the plan year, equal to the excess 
        (if any) of the total charges to the funding standard account 
        of the plan for all plan years (beginning with the first plan 
        year for which section 412 applies to the plan) over the total 
        credits to such account for such years, and
          ``(2) if the multiemployer plan is in reorganization for any 
        plan year, the accumulated funding deficiency of the plan 
        determined under section 418B.
  ``(b) Funding Standard Account.--
          ``(1) Account required.--Each multiemployer plan to which 
        section 412 applies shall establish and maintain a funding 
        standard account. Such account shall be credited and charged 
        solely as provided in this section.
          ``(2) Charges to account.--For a plan year, the funding 
        standard account shall be charged with the sum of--
                  ``(A) the normal cost of the plan for the plan year,
                  ``(B) the amounts necessary to amortize in equal 
                annual installments (until fully amortized)--
                          ``(i) in the case of a plan in existence on 
                        January 1, 1974, the unfunded past service 
                        liability under the plan on the first day of 
                        the first plan year to which section 412 
                        applies, over a period of 40 plan years,
                          ``(ii) in the case of a plan which comes into 
                        existence after January 1, 1974, the unfunded 
                        past service liability under the plan on the 
                        first day of the first plan year to which 
                        section 412 applies, over a period of 15 plan 
                        years,
                          ``(iii) separately, with respect to each plan 
                        year, the net increase (if any) in unfunded 
                        past service liability under the plan arising 
                        from plan amendments adopted in such year, over 
                        a period of 15 plan years,
                          ``(iv) separately, with respect to each plan 
                        year, the net experience loss (if any) under 
                        the plan, over a period of 15 plan years, and
                          ``(v) separately, with respect to each plan 
                        year, the net loss (if any) resulting from 
                        changes in actuarial assumptions used under the 
                        plan, over a period of 15 plan years,
                  ``(C) the amount necessary to amortize each waived 
                funding deficiency (within the meaning of section 
                412(c)(3)) for each prior plan year in equal annual 
                installments (until fully amortized) over a period of 
                15 plan years,
                  ``(D) the amount necessary to amortize in equal 
                annual installments (until fully amortized) over a 
                period of 5 plan years any amount credited to the 
                funding standard account under section 412(b)(3)(D) (as 
                in effect on the day before the date of the enactment 
                of the Pension Protection Act of 2005), and
                  ``(E) the amount necessary to amortize in equal 
                annual installments (until fully amortized) over a 
                period of 20 years the contributions which would be 
                required to be made under the plan but for the 
                provisions of section 412(c)(7)(A)(i)(I) (as in effect 
                on the day before the date of the enactment of the 
                Pension Protection Act of 2005).
          ``(3) Credits to account.--For a plan year, the funding 
        standard account shall be credited with the sum of--
                  ``(A) the amount considered contributed by the 
                employer to or under the plan for the plan year,
                  ``(B) the amount necessary to amortize in equal 
                annual installments (until fully amortized)--
                          ``(i) separately, with respect to each plan 
                        year, the net decrease (if any) in unfunded 
                        past service liability under the plan arising 
                        from plan amendments adopted in such year, over 
                        a period of 15 plan years,
                          ``(ii) separately, with respect to each plan 
                        year, the net experience gain (if any) under 
                        the plan, over a period of 15 plan years, and
                          ``(iii) separately, with respect to each plan 
                        year, the net gain (if any) resulting from 
                        changes in actuarial assumptions used under the 
                        plan, over a period of 15 plan years,
                  ``(C) the amount of the waived funding deficiency 
                (within the meaning of section 412(c)(3)) for the plan 
                year, and
                  ``(D) in the case of a plan year for which the 
                accumulated funding deficiency is determined under the 
                funding standard account if such plan year follows a 
                plan year for which such deficiency was determined 
                under the alternative minimum funding standard under 
                section 412(g) (as in effect on the day before the date 
                of the enactment of the Pension Protection Act of 
                2005), the excess (if any) of any debit balance in the 
                funding standard account (determined without regard to 
                this subparagraph) over any debit balance in the 
                alternative minimum funding standard account.
          ``(4) Special rule for amounts first amortized to plan years 
        before 2007.--In the case of any amount amortized under section 
        412(b) (as in effect on the day before the date of the 
        enactment of the Pension Protection Act of 2005) over any 
        period beginning with a plan year beginning before 2007, in 
        lieu of the amortization described in paragraphs (2)(B) and 
        (3)(B), such amount shall continue to be amortized under such 
        section as so in effect.
          ``(5) Combining and offsetting amounts to be amortized.--
        Under regulations prescribed by the Secretary, amounts required 
        to be amortized under paragraph (2) or paragraph (3), as the 
        case may be--
                  ``(A) may be combined into one amount under such 
                paragraph to be amortized over a period determined on 
                the basis of the remaining amortization period for all 
                items entering into such combined amount, and
                  ``(B) may be offset against amounts required to be 
                amortized under the other such paragraph, with the 
                resulting amount to be amortized over a period 
                determined on the basis of the remaining amortization 
                periods for all items entering into whichever of the 
                two amounts being offset is the greater.
          ``(6) Interest.--Except as provided in subsection (c)(9), the 
        funding standard account (and items therein) shall be charged 
        or credited (as determined under regulations prescribed by the 
        Secretary) with interest at the appropriate rate consistent 
        with the rate or rates of interest used under the plan to 
        determine costs.
          ``(7) Certain amortization charges and credits.--In the case 
        of a plan which, immediately before the date of the enactment 
        of the Multiemployer Pension Plan Amendments Act of 1980, was a 
        multiemployer plan (within the meaning of section 414(f) as in 
        effect immediately before such date)--
                  ``(A) any amount described in paragraph (2)(B)(ii), 
                (2)(B)(iii), or (3)(B)(i) of this subsection which 
                arose in a plan year beginning before such date shall 
                be amortized in equal annual installments (until fully 
                amortized) over 40 plan years, beginning with the plan 
                year in which the amount arose,
                  ``(B) any amount described in paragraph (2)(B)(iv) or 
                (3)(B)(ii) of this subsection which arose in a plan 
                year beginning before such date shall be amortized in 
                equal annual installments (until fully amortized) over 
                20 plan years, beginning with the plan year in which 
                the amount arose,
                  ``(C) any change in past service liability which 
                arises during the period of 3 plan years beginning on 
                or after such date, and results from a plan amendment 
                adopted before such date, shall be amortized in equal 
                annual installments (until fully amortized) over 40 
                plan years, beginning with the plan year in which the 
                change arises, and
                  ``(D) any change in past service liability which 
                arises during the period of 2 plan years beginning on 
                or after such date, and results from the changing of a 
                group of participants from one benefit level to another 
                benefit level under a schedule of plan benefits which--
                          ``(i) was adopted before such date, and
                          ``(ii) was effective for any plan participant 
                        before the beginning of the first plan year 
                        beginning on or after such date,
                shall be amortized in equal annual installments (until 
                fully amortized) over 40 plan years, beginning with the 
                plan year in which the change arises.
          ``(8) Special rules relating to charges and credits to 
        funding standard account.--For purposes of this section--
                  ``(A) Withdrawal liability.--Any amount received by a 
                multiemployer plan in payment of all or part of an 
                employer's withdrawal liability under part 1 of 
                subtitle E of title IV of the Employee Retirement 
                Income Security Act of 1974 shall be considered an 
                amount contributed by the employer to or under the 
                plan. The Secretary may prescribe by regulation 
                additional charges and credits to a multiemployer 
                plan's funding standard account to the extent necessary 
                to prevent withdrawal liability payments from being 
                unduly reflected as advance funding for plan 
                liabilities.
                  ``(B) Adjustments when a multiemployer plan leaves 
                reorganization.--If a multiemployer plan is not in 
                reorganization in the plan year but was in 
                reorganization in the immediately preceding plan year, 
                any balance in the funding standard account at the 
                close of such immediately preceding plan year--
                          ``(i) shall be eliminated by an offsetting 
                        credit or charge (as the case may be), but
                          ``(ii) shall be taken into account in 
                        subsequent plan years by being amortized in 
                        equal annual installments (until fully 
                        amortized) over 30 plan years.
                The preceding sentence shall not apply to the extent of 
                any accumulated funding deficiency under section 
                418B(a) as of the end of the last plan year that the 
                plan was in reorganization.
                  ``(C) Plan payments to supplemental program or 
                withdrawal liability payment fund.--Any amount paid by 
                a plan during a plan year to the Pension Benefit 
                Guaranty Corporation pursuant to section 4222 of the 
                Employee Retirement Income Security Act of 1974 or to a 
                fund exempt under section 501(c)(22) pursuant to 
                section 4223 of such Act shall reduce the amount of 
                contributions considered received by the plan for the 
                plan year.
                  ``(D) Interim withdrawal liability payments.--Any 
                amount paid by an employer pending a final 
                determination of the employer's withdrawal liability 
                under part 1 of subtitle E of title IV of such Act and 
                subsequently refunded to the employer by the plan shall 
                be charged to the funding standard account in 
                accordance with regulations prescribed by the 
                Secretary.
                  ``(E) Election for deferral of charge for portion of 
                net experience loss.--If an election is in effect under 
                section 412(b)(7)(F) (as in effect on the day before 
                the date of the enactment of the Pension Protection Act 
                of 2005) for any plan year, the funding standard 
                account shall be charged in the plan year to which the 
                portion of the net experience loss deferred by such 
                election was deferred with the amount so deferred (and 
                paragraph (2)(B)(iv) shall not apply to the amount so 
                charged).
                  ``(F) Financial assistance.--Any amount of any 
                financial assistance from the Pension Benefit Guaranty 
                Corporation to any plan, and any repayment of such 
                amount, shall be taken into account under this section 
                and section 412 in such manner as is determined by the 
                Secretary.
                  ``(G) Short-term benefits.--To the extent that any 
                plan amendment increases the unfunded past service 
                liability under the plan by reason of an increase in 
                benefits which are payable under the plan during a 
                period that does not exceed 14 years, paragraph 
                (2)(B)(iii) shall be applied separately with respect to 
                such increase in unfunded past service liability by 
                substituting the number of years of the period during 
                which such benefits are payable for `15'.
  ``(c) Additional Rules.--
          ``(1) Determinations to be made under funding method.--For 
        purposes of this section, normal costs, accrued liability, past 
        service liabilities, and experience gains and losses shall be 
        determined under the funding method used to determine costs 
        under the plan.
          ``(2) Valuation of assets.--
                  ``(A) In general.--For purposes of this section, the 
                value of the plan's assets shall be determined on the 
                basis of any reasonable actuarial method of valuation 
                which takes into account fair market value and which is 
                permitted under regulations prescribed by the 
                Secretary.
                  ``(B) Election with respect to bonds.--The value of a 
                bond or other evidence of indebtedness which is not in 
                default as to principal or interest may, at the 
                election of the plan administrator, be determined on an 
                amortized basis running from initial cost at purchase 
                to par value at maturity or earliest call date. Any 
                election under this subparagraph shall be made at such 
                time and in such manner as the Secretary shall by 
                regulations provide, shall apply to all such evidences 
                of indebtedness, and may be revoked only with the 
                consent of the Secretary.
          ``(3) Actuarial assumptions must be reasonable.--For purposes 
        of this section, all costs, liabilities, rates of interest, and 
        other factors under the plan shall be determined on the basis 
        of actuarial assumptions and methods--
                  ``(A) each of which is reasonable (taking into 
                account the experience of the plan and reasonable 
                expectations), and
                  ``(B) which, in combination, offer the actuary's best 
                estimate of anticipated experience under the plan.
          ``(4) Treatment of certain changes as experience gain or 
        loss.--For purposes of this section, if--
                  ``(A) a change in benefits under the Social Security 
                Act or in other retirement benefits created under 
                Federal or State law, or
                  ``(B) a change in the definition of the term `wages' 
                under section 3121, or a change in the amount of such 
                wages taken into account under regulations prescribed 
                for purposes of section 401(a)(5),
        results in an increase or decrease in accrued liability under a 
        plan, such increase or decrease shall be treated as an 
        experience loss or gain.
          ``(5) Full funding.--If, as of the close of a plan year, a 
        plan would (without regard to this paragraph) have an 
        accumulated funding deficiency in excess of the full funding 
        limitation--
                  ``(A) the funding standard account shall be credited 
                with the amount of such excess, and
                  ``(B) all amounts described in subparagraphs (B), 
                (C), and (D) of subsection (b)(2) and subparagraph (B) 
                of subsection (b)(3) which are required to be amortized 
                shall be considered fully amortized for purposes of 
                such subparagraphs.
          ``(6) Full-funding limitation.--
                  ``(A) In general.--For purposes of paragraph (5), the 
                term `full-funding limitation' means the excess (if 
                any) of--
                          ``(i) the accrued liability (including normal 
                        cost) under the plan (determined under the 
                        entry age normal funding method if such accrued 
                        liability cannot be directly calculated under 
                        the funding method used for the plan), over
                          ``(ii) the lesser of--
                                  ``(I) the fair market value of the 
                                plan's assets, or
                                  ``(II) the value of such assets 
                                determined under paragraph (2).
                  ``(B) Minimum amount.--
                          ``(i) In general.--In no event shall the 
                        full-funding limitation determined under 
                        subparagraph (A) be less than the excess (if 
                        any) of--
                                  ``(I) 90 percent of the current 
                                liability of the plan (including the 
                                expected increase in current liability 
                                due to benefits accruing during the 
                                plan year), over
                                  ``(II) the value of the plan's assets 
                                determined under paragraph (2).
                          ``(ii) Assets.--For purposes of clause (i), 
                        assets shall not be reduced by any credit 
                        balance in the funding standard account.
                  ``(C) Full funding limitation.--For purposes of this 
                paragraph, unless otherwise provided by the plan, the 
                accrued liability under a multiemployer plan shall not 
                include benefits which are not nonforfeitable under the 
                plan after the termination of the plan (taking into 
                consideration section 411(d)(3)).
                  ``(D) Current liability.--For purposes of this 
                paragraph--
                          ``(i) In general.--The term `current 
                        liability' means all liabilities to employees 
                        and their beneficiaries under the plan.
                          ``(ii) Treatment of unpredictable contingent 
                        event benefits.--For purposes of clause (i), 
                        any benefit contingent on an event other than--
                                  ``(I) age, service, compensation, 
                                death, or disability, or
                                  ``(II) an event which is reasonably 
                                and reliably predictable (as determined 
                                by the Secretary),
                        shall not be taken into account until the event 
                        on which the benefit is contingent occurs.
                          ``(iii) Interest rate used.--The rate of 
                        interest used to determine current liability 
                        under this paragraph shall be the rate of 
                        interest determined under subparagraph (E).
                          ``(iv) Mortality tables.--
                                  ``(I) Commissioners' standard 
                                table.--In the case of plan years 
                                beginning before the first plan year to 
                                which the first tables prescribed under 
                                subclause (II) apply, the mortality 
                                table used in determining current 
                                liability under this paragraph shall be 
                                the table prescribed by the Secretary 
                                which is based on the prevailing 
                                commissioners' standard table 
                                (described in section 807(d)(5)(A)) 
                                used to determine reserves for group 
                                annuity contracts issued on January 1, 
                                1993.
                                  ``(II) Secretarial authority.--The 
                                Secretary may by regulation prescribe 
                                for plan years beginning after December 
                                31, 1999, mortality tables to be used 
                                in determining current liability under 
                                this subsection. Such tables shall be 
                                based upon the actual experience of 
                                pension plans and projected trends in 
                                such experience. In prescribing such 
                                tables, the Secretary shall take into 
                                account results of available 
                                independent studies of mortality of 
                                individuals covered by pension plans.
                          ``(v) Separate mortality tables for the 
                        disabled.--Notwithstanding clause (iv)--
                                  ``(I) In general.--In the case of 
                                plan years beginning after December 31, 
                                1995, the Secretary shall establish 
                                mortality tables which may be used (in 
                                lieu of the tables under clause (iv)) 
                                to determine current liability under 
                                this subsection for individuals who are 
                                entitled to benefits under the plan on 
                                account of disability. The Secretary 
                                shall establish separate tables for 
                                individuals whose disabilities occur in 
                                plan years beginning before January 1, 
                                1995, and for individuals whose 
                                disabilities occur in plan years 
                                beginning on or after such date.
                                  ``(II) Special rule for disabilities 
                                occurring after 1994.--In the case of 
                                disabilities occurring in plan years 
                                beginning after December 31, 1994, the 
                                tables under subclause (I) shall apply 
                                only with respect to individuals 
                                described in such subclause who are 
                                disabled within the meaning of title II 
                                of the Social Security Act and the 
                                regulations thereunder.
                          ``(vi) Periodic review.--The Secretary shall 
                        periodically (at least every 5 years) review 
                        any tables in effect under this subparagraph 
                        and shall, to the extent the Secretary 
                        determines necessary, by regulation update the 
                        tables to reflect the actual experience of 
                        pension plans and projected trends in such 
                        experience.
                  ``(E) Required change of interest rate.--For purposes 
                of determining a plan's current liability for purposes 
                of this paragraph--
                          ``(i) In general.--If any rate of interest 
                        used under the plan under subsection (b)(6) to 
                        determine cost is not within the permissible 
                        range, the plan shall establish a new rate of 
                        interest within the permissible range.
                          ``(ii) Permissible range.--For purposes of 
                        this subparagraph--
                                  ``(I) In general.--Except as provided 
                                in subclause (II), the term 
                                `permissible range' means a rate of 
                                interest which is not more than 5 
                                percent above, and not more than 10 
                                percent below, the weighted average of 
                                the rates of interest on 30-year 
                                Treasury securities during the 4-year 
                                period ending on the last day before 
                                the beginning of the plan year.
                                  ``(II) Secretarial authority.--If the 
                                Secretary finds that the lowest rate of 
                                interest permissible under subclause 
                                (I) is unreasonably high, the Secretary 
                                may prescribe a lower rate of interest, 
                                except that such rate may not be less 
                                than 80 percent of the average rate 
                                determined under such subclause.
                          ``(iii) Assumptions.--Notwithstanding 
                        paragraph (3)(A), the interest rate used under 
                        the plan shall be--
                                  ``(I) determined without taking into 
                                account the experience of the plan and 
                                reasonable expectations, but
                                  ``(II) consistent with the 
                                assumptions which reflect the purchase 
                                rates which would be used by insurance 
                                companies to satisfy the liabilities 
                                under the plan.
          ``(7) 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 100 percent of the 
                        plan's current liability (as defined in 
                        paragraph (6)(D) without regard to clause (iv) 
                        thereof).
                          ``(iii) Adjustments.--Information under 
                        clause (ii) shall, in accordance with 
                        regulations, be actuarially adjusted to reflect 
                        significant differences in participants.
                          ``(iv) Limitation.--A change in funding 
                        method to use a prior year valuation, as 
                        provided in clause (ii), may not be made unless 
                        as of the valuation date within the prior plan 
                        year, the value of the assets of the plan are 
                        not less than 125 percent of the plan's current 
                        liability (as defined in paragraph (6)(D) 
                        without regard to clause (iv) thereof).
          ``(8) Time when certain contributions deemed made.--For 
        purposes of this section, any contributions for a plan year 
        made by an employer after the last day of such plan year, but 
        not later than two and one-half months after such day, shall be 
        deemed to have been made on such last day. For purposes of this 
        subparagraph, such two and one-half month period may be 
        extended for not more than six months under regulations 
        prescribed by the Secretary.
          ``(9) Interest rule for waivers and extensions.--The interest 
        rate applicable for any plan year for purposes of computing the 
        amortization charge described in subsection (b)(2)(C) and in 
        connection with an extension granted under subsection (d) shall 
        be the greater of--
                  ``(A) 150 percent of the Federal mid-term rate (as in 
                effect under section 1274 for the 1st month of such 
                plan year), or
                  ``(B) the rate of interest used under the plan for 
                determining costs.
  ``(d) Extension of Amortization Periods for Multiemployer Plans.--In 
the case of a multiemployer plan--
          ``(1) Extension.--The period of years required to amortize 
        any unfunded liability (described in any clause of subsection 
        (b)(2)(B)) of any multiemployer plan shall be extended by the 
        Secretary for a period of time (not in excess of 5 years) if 
        the Secretary determines that--
                  ``(A) absent the extension, the plan would have an 
                accumulated funding deficiency in any of the next 10 
                plan years,
                  ``(B) the plan sponsor has adopted a plan to improve 
                the plan's funding status, and
                  ``(C) taking into account the extension, the plan is 
                projected to have sufficient assets to timely pay its 
                expected benefit liabilities and other anticipated 
                expenditures
          ``(2) Additional extension.--The period of years required to 
        amortize any unfunded liability (described in any clause of 
        subsection (b)(2)(B)) of any multiemployer plan may be extended 
        (in addition to any extension under paragraph (1)) by the 
        Secretary for a period of time (not in excess of 5 years) if 
        the Secretary determines that such extension would carry out 
        the purposes of the Employee Retirement Income Security Act of 
        1974 and would provide adequate protection for participants 
        under the plan and their beneficiaries and if the Secretary 
        determines that the failure to permit such extension would--
                  ``(A) result in--
                          ``(i) a substantial risk to the voluntary 
                        continuation of the plan, or
                          ``(ii) a substantial curtailment of pension 
                        benefit levels or employee compensation, and
                  ``(B) be adverse to the interests of plan 
                participants in the aggregate.
          ``(3) Advance notice.--
                  ``(A) In general.--The Secretary shall, before 
                granting an extension under this section, require each 
                applicant to provide evidence satisfactory to the 
                Secretary that the applicant has provided notice of the 
                filing of the application for such extension to each 
                affected party (as defined in section 4001(a)(21) of 
                the Employee Retirement Income Security Act of 1974) 
                with respect to the affected plan. Such notice shall 
                include a description of the extent to which the plan 
                is funded for benefits which are guaranteed under title 
                IV of such Act and for benefit liabilities.
                  ``(B) Consideration of relevant information.--The 
                Secretary shall consider any relevant information 
                provided by a person to whom notice was given under 
                paragraph (1).''.
  (b) Conforming Amendments.--
          (1) Section 418(b)(2) of such Code is amended--
                  (A) by striking ``section 412(b)(2)'' in subparagraph 
                (A) and inserting ``section 431(b)(2)'', and
                  (B) by striking ``section 412(b)(3)(B)'' in 
                subparagraph (B) and inserting ``section 
                431(b)(3)(B)''.
          (2) Section 418B of such Code is amended--
                  (A) by striking ``section 412(b)(2)(A) or (B)'' in 
                subsection (d)(1)(B) and inserting ``section 
                431(b)(2)(A) or (B)'',
                  (B) by striking ``section 412(c)(8)'' in subsection 
                (e) and inserting ``section 412(d)(2)'', and
                  (C) by striking ``section 412(c)(3)'' in subsection 
                (g) and inserting ``section 431(c)(3)''.
          (3) Section 418D(a)(2) of such Code is amended--
                  (A) by striking ``section 412(c)(8)'' and inserting 
                ``section 412(d)(2)'', and
                  (B) by striking ``section 412(c)(10)'' and inserting 
                ``section 431(c)(8)''.
  (c) Clerical Amendment.--The table of sections for subpart A of part 
III of subchapter D of chapter 1 of such Code is amended by adding 
after the item relating to section 430 the following new item:

``Sec. 431. Minimum funding standards for multiemployer plans.''.

  (d) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2006.

SEC. 212. ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN 
                    ENDANGERED OR CRITICAL STATUS.

  (a) In General.--Subpart A of part III of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 431 the following new section:

``SEC. 432. ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN 
                    ENDANGERED STATUS OR CRITICAL STATUS.

  ``(a) Annual Certification by Plan Actuary.--
          ``(1) In general.--During the 90-day period beginning on 
        first day of each plan year of a multiemployer plan, the plan 
        actuary shall certify to the Secretary whether or not the plan 
        is in endangered status for such plan year and whether or not 
        the plan is in critical status for such plan year.
          ``(2) Actuarial projections of assets and liabilities.--
                  ``(A) In general.--In making the determinations under 
                paragraph (1), the plan actuary shall make projections 
                under subsections (b)(2) and (c)(2) for the current and 
                succeeding plan years, using reasonable actuarial 
                assumptions and methods, of the current value of the 
                assets of the plan and the present value of all 
                liabilities to participants and beneficiaries under the 
                plan for the current plan year as of the beginning of 
                such year, as based on the actuarial statement prepared 
                for the preceding plan year under section 103(d) of the 
                Employee Retirement Income Security Act of 1974.
                  ``(B) Determinations of future contributions.--Any 
                such actuarial projection of plan assets shall assume--
                          ``(i) reasonably anticipated employer and 
                        employee contributions for the current and 
                        succeeding plan years, assuming that the terms 
                        of the one or more collective bargaining 
                        agreements pursuant to which the plan is 
                        maintained for the current plan year continue 
                        in effect for succeeding plan years, or
                          ``(ii) that employer and employee 
                        contributions for the most recent plan year 
                        will continue indefinitely, but only if the 
                        plan actuary determines there have been no 
                        significant demographic changes that would make 
                        continued application of such terms 
                        unreasonable.
          ``(3) Presumed status in absence of timely actuarial 
        certification.--If certification under this subsection is not 
        made before the end of the 90-day period specified in paragraph 
        (1), the plan shall be presumed to be in critical status for 
        such plan year until such time as the plan actuary makes a 
        contrary certification.
          ``(4) Notice.--In any case in which a multiemployer plan is 
        certified to be in endangered status under paragraph (1) or 
        enters into critical status, the plan sponsor shall, not later 
        than 30 days after the date of the certification or entry, 
        provide notification of the endangered or critical status to 
        the participants and beneficiaries, the bargaining parties, the 
        Pension Benefit Guaranty Corporation, the Secretary of the 
        Treasury, and the Secretary of Labor.
  ``(b) Funding Rules for Multiemployer Plans in Endangered Status.--
          ``(1) In general.--In any case in which a multiemployer plan 
        is in endangered status for a plan year and no funding 
        improvement plan under this subsection with respect to such 
        multiemployer plan is in effect for the plan year, the plan 
        sponsor shall, in accordance with this subsection, amend the 
        multiemployer plan to include a funding improvement plan upon 
        approval thereof by the bargaining parties under this 
        subsection. The amendment shall be adopted not later than 240 
        days after the date on which the plan is certified to be in 
        endangered status under subsection (a)(1).
          ``(2) Endangered status.--A multiemployer plan is in 
        endangered status for a plan year if, as determined by the plan 
        actuary under subsection (a)--
                  ``(A) the plan's funded percentage for such plan year 
                is less than 80 percent, or
                  ``(B) the plan has an accumulated funding deficiency 
                for such plan year under section 431 or is projected to 
                have such an accumulated funding deficiency for any of 
                the 6 succeeding plan years, taking into account any 
                extension of amortization periods under section 431(d).
          ``(3) Funding improvement plan.--
                  ``(A) Benchmarks.--A funding improvement plan shall 
                consist of amendments to the plan formulated to 
                provide, under reasonable actuarial assumptions, for 
                the attainment, during the funding improvement period 
                under the funding improvement plan, of the following 
                benchmarks:
                          ``(i) Increase in funded percentage.--An 
                        increase in the plan's funded percentage such 
                        that--
                                  ``(I) the difference between 100 
                                percent and the plan's funded 
                                percentage for the last year of the 
                                funding improvement period, is not more 
                                than
                                  ``(II) \2/3\ of the difference 
                                between 100 percent and the plan's 
                                funded percentage for the first year of 
                                the funding improvement period.
                          ``(ii) Avoidance of accumulated funding 
                        deficiencies.--No accumulated funding 
                        deficiency for any plan year during the funding 
                        improvement period (taking into account any 
                        extension of amortization periods under section 
                        431(d)).
                  ``(B) Funding improvement period.--The funding 
                improvement period for any funding improvement plan 
                adopted pursuant to this subsection is the 10-year 
                period beginning on the earlier of--
                          ``(i) the second anniversary of the date of 
                        the adoption of the funding improvement plan, 
                        or
                          ``(ii) the first day of the first plan year 
                        of the multiemployer plan following the plan 
                        year in which occurs the first date after the 
                        day of the certification as of which collective 
                        bargaining agreements covering on the day of 
                        such certification at least 75 percent of 
                        active participants in such multiemployer plan 
                        have expired.
                  ``(C) Special rules for certain seriously underfunded 
                plans.--
                          ``(i) In the case of a plan in which the 
                        funded percentage of a plan for the plan year 
                        is 70 percent or less, subparagraph (A)(i)(II) 
                        shall be applied by substituting `\4/5\' for 
                        `\2/3\' and subparagraph (B) shall be applied 
                        by substituting `the 15-year period' for `the 
                        10-year period'.
                          ``(ii) In the case of a plan in which the 
                        funded percentage of a plan for the plan year 
                        is more than 70 percent but less than 80 
                        percent, and--
                                  ``(I) the plan actuary certifies 
                                within 30 days after certification 
                                under subsection (a)(1) that the plan 
                                is not able to attain the increase 
                                described in subparagraph (A)(i) over 
                                the period described in subparagraph 
                                (B), and
                                  ``(II) the plan year is prior to the 
                                day described in subparagraph (B)(ii),
                        subparagraph (A)(i)(II) shall be applied by 
                        substituting `\4/5\' for `\2/3\' and 
                        subparagraph (B) shall be applied by 
                        substituting `the 15-year period' for `the 10-
                        year period'.
                          ``(iii) For any plan year following the year 
                        described in clause (ii)(II), subparagraph 
                        (A)(i)(II) and subparagraph (B) shall apply, 
                        except that for each plan year ending after 
                        such date for which the plan actuary certifies 
                        (at the time of the annual certification under 
                        subsection (a)(1) for such plan year) that the 
                        plan is not able to attain the increase 
                        described in subparagraph (A)(i) over the 
                        period described in subparagraph (B), 
                        subparagraph (B) shall be applied by 
                        substituting `the 15-year period' for `the 10-
                        year period'.
                  ``(D) Reporting.--A summary of any funding 
                improvement plan or modification thereto adopted during 
                any plan year, together with annual updates regarding 
                the funding ratio of the plan, shall be included in the 
                annual report for such plan year under section 104(a) 
                of the Employee Retirement Income Security Act of 1974 
                and in the summary annual report described in section 
                104(b)(3) of such Act.
          ``(4) Development of funding improvement plan.--
                  ``(A) Actions by plan sponsor pending approval.--
                Pending the approval of a funding improvement plan 
                under this paragraph, the plan sponsor shall take all 
                reasonable actions, consistent with the terms of the 
                plan and applicable law, necessary to ensure--
                          ``(i) an increase in the plan's funded 
                        percentage, and
                          ``(ii) postponement of an accumulated funding 
                        deficiency for at least 1 additional plan year.
                Such actions include applications for extensions of 
                amortization periods under section 431(d), use of the 
                shortfall funding method in making funding standard 
                account computations, amendments to the plan's benefit 
                structure, reductions in future benefit accruals, and 
                other reasonable actions consistent with the terms of 
                the plan and applicable law.
                  ``(B) Recommendations by plan sponsor.--
                          ``(i) In general.--During the period of 90 
                        days following the date on which a 
                        multiemployer plan is certified to be in 
                        endangered status, the plan sponsor shall 
                        develop and provide to the bargaining parties 
                        alternative proposals for revised benefit 
                        structures, contribution structures, or both, 
                        which, if adopted as amendments to the plan, 
                        may be reasonably expected to meet the 
                        benchmarks described in paragraph (3)(A). Such 
                        proposals shall include--
                                  ``(I) at least one proposal for 
                                reductions in the amount of future 
                                benefit accruals necessary to achieve 
                                the benchmarks, assuming no amendments 
                                increasing contributions under the plan 
                                (other than amendments increasing 
                                contributions necessary to achieve the 
                                benchmarks after amendments have 
                                reduced future benefit accruals to the 
                                maximum extent permitted by law), and
                                  ``(II) at least one proposal for 
                                increases in contributions under the 
                                plan necessary to achieve the 
                                benchmarks, assuming no amendments 
                                reducing future benefit accruals under 
                                the plan.
                          ``(ii) Requests by bargaining parties.--Upon 
                        the request of any bargaining party who--
                                  ``(I) employs at least 5 percent of 
                                the active participants, or
                                  ``(II) represents as an employee 
                                organization, for purposes of 
                                collective bargaining, at least 5 
                                percent of the active participants,
                        the plan sponsor shall provide all such parties 
                        information as to other combinations of 
                        increases in contributions and reductions in 
                        future benefit accruals which would result in 
                        achieving the benchmarks.
                          ``(iii) Other information.--The plan sponsor 
                        may, as it deems appropriate, prepare and 
                        provide the bargaining parties with additional 
                        information relating to contribution structures 
                        or benefit structures or other information 
                        relevant to the funding improvement plan.
          ``(5) Maintenance of contributions pending approval of 
        funding improvement plan.--Pending approval of a funding 
        improvement plan by the bargaining parties with respect to a 
        multiemployer plan, the multiemployer plan may not be amended 
        so as to provide--
                  ``(A) a reduction in the level of contributions for 
                participants who are not in pay status,
                  ``(B) a suspension of contributions with respect to 
                any period of service, or
                  ``(C) any new direct or indirect exclusion of younger 
                or newly hired employees from plan participation.
          ``(6) Benefit restrictions pending approval of funding 
        improvement plan.--Pending approval of a funding improvement 
        plan by the bargaining parties with respect to a multiemployer 
        plan--
                  ``(A) Restrictions on lump sum and similar 
                distributions.--In any case in which the present value 
                of a participant's accrued benefit under the plan 
                exceeds $5,000, such benefit may not be distributed as 
                an immediate distribution or in any other accelerated 
                form.
                  ``(B) Prohibition on benefit increases.--
                          ``(i) In general.--No amendment of the plan 
                        which increases the liabilities of the plan by 
                        reason of any increase in benefits, any change 
                        in the accrual of benefits, or any change in 
                        the rate at which benefits become 
                        nonforfeitable under the plan may be adopted.
                          ``(ii) Exception.--Clause (i) shall not apply 
                        to any plan amendment which is required as a 
                        condition of qualification under part I of 
                        subchapter D of chapter 1 of subtitle A.
          ``(7) Default critical status if no funding improvement plan 
        adopted.--If no plan amendment adopting a funding improvement 
        plan has been adopted by the end of the 240-day period referred 
        to in subsection (b)(1), the plan enters into critical status 
        as of the first day of the succeeding plan year.
          ``(8) Restrictions upon approval of funding improvement 
        plan.--Upon adoption of a funding improvement plan with respect 
        to a multiemployer plan, the plan may not be amended--
                  ``(A) so as to be inconsistent with the funding 
                improvement plan, or
                  ``(B) so as to increase future benefit accruals, 
                unless the plan actuary certifies in advance that, 
                after taking into account the proposed increase, the 
                plan is reasonably expected to meet the the benchmarks 
                described in paragraph (3)(A).
  ``(c) Funding Rules for Multiemployer Plans in Critical Status.--
          ``(1) In general.--In any case in which a multiemployer plan 
        is in critical status for a plan year as described in paragraph 
        (2) (or otherwise enters into critical status under this 
        section) and no rehabilitation plan under this subsection with 
        respect to such multiemployer plan is in effect for the plan 
        year, the plan sponsor shall, in accordance with this 
        subsection, amend the multiemployer plan to include a 
        rehabilitation plan under this subsection. The amendment shall 
        be adopted not later than 240 days after the date on which the 
        plan enters into critical status.
          ``(2) Critical status.--A multiemployer plan is in critical 
        status for a plan year if--
                  ``(A) the plan is in endangered status for the 
                preceding plan year and the requirements of subsection 
                (b)(1) were not met with respect to the plan for such 
                preceding plan year, or
                  ``(B) as determined by the plan actuary under 
                subsection (a), the plan is described in paragraph (3).
          ``(3) Criticality description.--For purposes of paragraph 
        (2)(B), a plan is described in this paragraph if the plan is 
        described in at least one of the following subparagraphs:
                  ``(A) A plan is described in this subparagraph if, as 
                of the beginning of the current plan year--
                          ``(i) the funded percentage of the plan is 
                        less than 65 percent, and
                          ``(ii) the sum of--
                                  ``(I) the market value of plan 
                                assets, plus
                                  ``(II) the present value of the 
                                reasonably anticipated employer and 
                                employee contributions for the current 
                                plan year and each of the 6 succeeding 
                                plan years, assuming that the terms of 
                                the one or more collective bargaining 
                                agreements pursuant to which the plan 
                                is maintained for the current plan year 
                                continue in effect for succeeding plan 
                                years,
                        is less than the present value of all 
                        nonforfeitable benefits for all participants 
                        and beneficiaries projected to be payable under 
                        the plan during the current plan year and each 
                        of the 6 succeeding plan years (plus 
                        administrative expenses for such plan years).
                  ``(B) A plan is described in this subparagraph if, as 
                of the beginning of the current plan year, the sum of--
                          ``(i) the market value of plan assets, plus
                          ``(ii) the present value of the reasonably 
                        anticipated employer and employee contributions 
                        for the current plan year and each of the 4 
                        succeeding plan years, assuming that the terms 
                        of the one or more collective bargaining 
                        agreements pursuant to which the plan is 
                        maintained for the current plan year remain in 
                        effect for succeeding plan years,
                is less than the present value of all nonforfeitable 
                benefits for all participants and beneficiaries 
                projected to be payable under the plan during the 
                current plan year and each of the 4 succeeding plan 
                years (plus administrative expenses for such plan 
                years).
                  ``(C) A plan is described in this subparagraph if--
                          ``(i) as of the beginning of the current plan 
                        year, the funded percentage of the plan is less 
                        than 65 percent, and
                          ``(ii) the plan has an accumulated funding 
                        deficiency for the current plan year or is 
                        projected to have an accumulated funding 
                        deficiency for any of the 4 succeeding plan 
                        years, not taking into account any extension of 
                        amortization periods under section 431(d).
                  ``(D) A plan is described in this subparagraph if--
                          ``(i)(I) the plan's normal cost for the 
                        current plan year, plus interest (determined at 
                        the rate used for determining cost under the 
                        plan) for the current plan year on the amount 
                        of unfunded benefit liabilities under the plan 
                        as of the last date of the preceding plan year, 
                        exceeds
                          ``(II) the present value, as of the beginning 
                        of the current plan year, of the reasonably 
                        anticipated employer and employee contributions 
                        for the current plan year,
                          ``(ii) the present value, as of the beginning 
                        of the current plan year, of nonforfeitable 
                        benefits of inactive participants is greater 
                        than the present value, as of the beginning of 
                        the current plan year, of nonforfeitable 
                        benefits of active participants, and
                          ``(iii) the plan is projected to have an 
                        accumulated funding deficiency for the current 
                        plan year or any of the 4 succeeding plan 
                        years, not taking into account any extension of 
                        amortization periods under section 431(d).
                  ``(E) A plan is described in this subparagraph if--
                          ``(i) the funded percentage of the plan is 
                        greater than 65 percent for the current plan 
                        year, and
                          ``(ii) the plan is projected to have an 
                        accumulated funding deficiency during any of 
                        the succeeding 3 plan years, not taking into 
                        account any extension of amortization periods 
                        under section 431(d).
          ``(4) Rehabilitation plan.--
                  ``(A) In general.--A rehabilitation plan shall 
                consist of--
                          ``(i) amendments to the plan providing (under 
                        reasonable actuarial assumptions) for measures, 
                        agreed to by the bargaining parties, to 
                        increase contributions, reduce plan 
                        expenditures (including plan mergers and 
                        consolidations), or reduce future benefit 
                        accruals, or to take any combination of such 
                        actions, determined necessary to cause the plan 
                        to cease, during the rehabilitation period, to 
                        be in critical status, or
                          ``(ii) reasonable measures to forestall 
                        possible insolvency (within the meaning of 
                        section 418E) if the plan sponsor determines 
                        that, upon exhaustion of all reasonable 
                        measures, the plan would not cease during the 
                        rehabilitation period to be in critical status.
                  ``(B) Rehabilitation period.--The rehabilitation 
                period for any rehabilitation plan adopted pursuant to 
                this subsection is the 10-year period beginning on the 
                earlier of--
                          ``(i) the second anniversary of the date of 
                        the adoption of the rehabilitation plan, or
                          ``(ii) the first day of the first plan year 
                        of the multiemployer plan following the plan 
                        year in which occurs the first date, after the 
                        date of the plan's entry into critical status, 
                        as of which collective bargaining agreements 
                        covering at least 75 percent of active 
                        participants in such multiemployer plan 
                        (determined as of such date of entry) have 
                        expired.
                  ``(C) Reporting.--A summary of any rehabilitation 
                plan or modification thereto adopted during any plan 
                year, together with annual updates regarding the 
                funding ratio of the plan, shall be included in the 
                annual report for such plan year under section 104(a) 
                of the Employee Retirement Income Security Act of 1974 
                and in the summary annual report described in section 
                104(b)(3).
          ``(5) Development of rehabilitation plan.--
                  ``(A) Proposals by plan sponsor.--
                          ``(i) In general.--Within 90 days after the 
                        date of entry into critical status (or the date 
                        as of which the requirements of subsection 
                        (b)(1) are not met with respect to the plan), 
                        the plan sponsor shall propose to all 
                        bargaining parties a range of alternative 
                        schedules of increases in contributions and 
                        reductions in future benefit accruals that 
                        would serve to carry out a rehabilitation plan 
                        under this subsection.
                          ``(ii) Proposal assuming no contribution 
                        increases.--Such proposals shall include, as 
                        one of the proposed schedules, a schedule of 
                        those reductions in future benefit accruals 
                        that would be necessary to cause the plan to 
                        cease to be in critical status if there were no 
                        further increases in rates of contribution to 
                        the plan.
                          ``(iii) Proposal where contributions are 
                        necessary.--If the plan sponsor determines that 
                        the plan will not cease to be in critical 
                        status during the rehabilitation period unless 
                        the plan is amended to provide for an increase 
                        in contributions, the plan sponsor's proposals 
                        shall include a schedule of those increases in 
                        contribution rates that would be necessary to 
                        cause the plan to cease to be in critical 
                        status if future benefit accruals were reduced 
                        to the maximum extent permitted by law.
                  ``(B) Requests for additional schedules.--Upon the 
                request of any bargaining party who--
                          ``(i) employs at least 5 percent of the 
                        active participants, or
                          ``(ii) represents as an employee 
                        organization, for purposes of collective 
                        bargaining, at least 5 percent of active 
                        participants,
                the plan sponsor shall include among the proposed 
                schedules such schedules of increases in contributions 
                and reductions in future benefit accruals as may be 
                specified by the bargaining parties.
                  ``(C) Subsequent amendments.--Upon the adoption of a 
                schedule of increases in contributions or reductions in 
                future benefit accruals as part of the rehabilitation 
                plan, the plan sponsor may amend the plan thereafter to 
                update the schedule to adjust for any experience of the 
                plan contrary to past actuarial assumptions, except 
                that such an amendment may be made not more than once 
                in any 3-year period.
                  ``(D) Allocation of reductions in future benefit 
                accruals.--Any schedule containing reductions in future 
                benefit accruals forming a part of a rehabilitation 
                plan shall be applicable with respect to any group of 
                active participants who are employed by any bargaining 
                party (as an employer obligated to contribute under the 
                plan) in proportion to the extent to which increases in 
                contributions under such schedule apply to such 
                bargaining party.
                  ``(E) Limitation on reduction in rates of future 
                accruals.--Any schedule proposed under this paragraph 
                shall not reduce the rate of future accruals below the 
                lower of--
                          ``(i) a monthly benefit equal to 1 percent of 
                        the contributions required to be made with 
                        respect to a participant or the equivalent 
                        standard accrual rate for a participant or 
                        group of participants under the collective 
                        bargaining agreements in effect as of the first 
                        day of the plan year in which the plan enters 
                        critical status, or
                          ``(ii) if lower, the accrual rate under the 
                        plan on such date.
                The equivalent standard accrual rate shall be 
                determined by the trustees based on the standard or 
                average contribution base units that they determine to 
                be representative for active participants and such 
                other factors as they determine to be relevant.
          ``(6) Maintenance of contributions and restrictions on 
        benefits pending adoption of rehabilitation plan.--The rules of 
        paragraphs (5) and (6) of subsection (b) shall apply for 
        purposes of this subsection by substituting the term 
        `rehabilitation plan' for `funding improvement plan'.
          ``(7) Restrictions upon approval of rehabilitation plan.--
        Upon adoption of a rehabilitation plan with respect to a 
        multiemployer plan, the plan may not be amended--
                  ``(A) so as to be inconsistent with the 
                rehabilitation plan, or
                  ``(B) so as to increase future benefit accruals, 
                unless the plan actuary certifies in advance that, 
                after taking into account the proposed increase, the 
                plan is reasonably expected to cease to be in critical 
                status.
          ``(8) Implementation of default schedule upon failure to 
        adopt rehabilitation plan.--If the plan is not amended by the 
        end of the 240-day period after entry into critical status to 
        include a rehabilitation plan, the plan sponsor shall amend the 
        plan to implement the schedule required by paragraph 
        (5)(A)(ii).
          ``(9) Deemed withdrawal.--Upon the failure of any employer 
        who has an obligation to contribute under the plan to make 
        contributions in compliance with the schedule adopted under 
        paragraph (4) as part of the rehabilitation plan, the failure 
        of the employer may, at the discretion of the plan sponsor, be 
        treated as a withdrawal by the employer from the plan under 
        section 4203 of the Employee Retirement Income Security Act of 
        1974 or a partial withdrawal by the employer under section 4205 
        of such Act.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Bargaining party.--The term `bargaining party' means, 
        in connection with a multiemployer plan--
                  ``(A) an employer who has an obligation to contribute 
                under the plan, and
                  ``(B) an employee organization which, for purposes of 
                collective bargaining, represents plan participants 
                employed by such an employer.
          ``(2) Funded percentage.--The term `funded percentage' means 
        the percentage expressed as a ratio of which--
                  ``(A) the numerator of which is the value of the 
                plan's assets, as determined under section 431(c)(2), 
                and
                  ``(B) the denominator of which is the accrued 
                liability of the plan.
          ``(3) Accumulated funding deficiency.--The term `accumulated 
        funding deficiency' has the meaning provided such term in 
        section 431(a).
          ``(4) Active participant.--The term `active participant' 
        means, in connection with a multiemployer plan, a participant 
        who is in covered service under the plan.
          ``(5) Inactive participant.--The term `inactive participant' 
        means, in connection with a multiemployer plan, a participant 
        who--
                  ``(A) is not in covered service under the plan, and
                  ``(B) is in pay status under the plan or has a 
                nonforfeitable right to benefits under the plan.
          ``(6) Pay status.--A person is in `pay status' under a 
        multiemployer plan if--
                  ``(A) at any time during the current plan year, such 
                person is a participant or beneficiary under the plan 
                and is paid an early, late, normal, or disability 
                retirement benefit under the plan (or a death benefit 
                under the plan related to a retirement benefit), or
                  ``(B) to the extent provided in regulations of the 
                Secretary, such person is entitled to such a benefit 
                under the plan.
          ``(7) Obligation to contribute.--The term `obligation to 
        contribute' has the meaning provided such term under section 
        4212(a) of the Employee Retirement Income Security Act of 1974.
          ``(8) Entry into critical status.--A plan shall be treated as 
        entering into critical status as of the date that such plan is 
        certified to be in critical status under subsection (a)(1), is 
        presumed to be in critical status under subsection (a)(3), or 
        enters into critical status under subsection (b)(7).''.
  (b) Clerical Amendment.--The table of sections for subpart A of part 
III of subchapter D of chapter 1 of such Code is amended by adding at 
the end the following new item:

``Sec. 432. Additional funding rules for multiemployer plans in 
endangered status or critical status.''.

  (c) Effective Date.--The amendment made by this section shall apply 
with respect to plan years beginning after December 31, 2005.
  (d) Special Rule for 2006.--In the case of any plan year beginning in 
2006, any reference in section 432 of the Internal Revenue Code of 1986 
(as added by this section) to section 431 of such Code (as added by 
this Act) shall be treated as a reference to the corresponding 
provision of such Code as in effect for plan years beginning in such 
year.

SEC. 213. MEASURES TO FORESTALL INSOLVENCY OF MULTIEMPLOYER PLANS.

  (a) Advance Determination of Impending Insolvency Over 5 Years.--
Section 418E(d)(1) of the Internal Revenue Code of 1986 is amended--
          (1) by striking ``3 plan years'' the second place it appears 
        and inserting ``5 plan years'', and
          (2) by adding at the end the following new sentence: ``If the 
        plan sponsor makes such a determination that the plan will be 
        insolvent in any of the next 5 plan years, the plan sponsor 
        shall make the comparison under this paragraph at least 
        annually until the plan sponsor makes a determination that the 
        plan will not be insolvent in any of the next 5 plan years.''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to determinations made in plan years beginning after 
December 31, 2005.

                      TITLE III--OTHER PROVISIONS

SEC. 301. INTEREST RATE FOR 2006 FUNDING REQUIREMENTS.

  (a) In General.--Subclause (II) of section 412(b)(5)(B)(ii) of the 
Internal Revenue Code of 1986 is amended--
          (1) by striking ``January 1, 2006'' and inserting ``January 
        1, 2007'', and
          (2) by striking ``and 2005'' in the heading and inserting ``, 
        2005, and 2006''.
  (b) Current Liability.--Subclause (IV) of section 412(l)(7)(C)(i) of 
such Code is amended--
          (1) by striking ``or 2005'' and inserting ``, 2005, or 
        2006'', and
          (2) by striking ``and 2005'' in the heading and inserting ``, 
        2005, and 2006''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2005.

SEC. 302. INTEREST RATE ASSUMPTION FOR DETERMINATION OF LUMP SUM 
                    DISTRIBUTIONS.

  (a) Amendments to Employee Retirement Income Security Act of 1974.--
[See section 301(a) of the bill as reported by the Committee on 
Education and the Workforce.]
  (b) Amendments to Internal Revenue Code of 1986.--Section 
417(e)(3)(A) of the Internal Revenue Code of 1986 is amended by 
striking clause (ii) and inserting the following:
                          ``(ii) For purposes of clause (i), the term 
                        `applicable mortality table' means a mortality 
                        table, modified as appropriate by the 
                        Secretary, based on the mortality table 
                        specified for the plan year under section 
                        430(h)(3).
                          ``(iii) For purposes of clause (i), the term 
                        `applicable interest rate' means the adjusted 
                        first, second, and third segment rates applied 
                        under rules similar to the rules of section 
                        430(h)(2)(C) for the month before the date of 
                        the distribution or such other time as the 
                        Secretary may by regulations prescribe.
                          ``(iv) For purposes of clause (iii), the 
                        adjusted first, second, and third segment rates 
                        are the first, second, and third segment rates 
                        which would be determined under section 
                        430(h)(2)(C) if--
                                  ``(I) section 430(h)(2)(D)(i) were 
                                applied by substituting `the yields' 
                                for `a 3-year weighted average of 
                                yields',
                                  ``(II) section 430(h)(2)(G)(i)(II) 
                                were applied by substituting `section 
                                417(e)(3)(A)(ii)(II)' for `section 
                                412(b)(5)(B)(ii)(II)', and
                                  ``(III) the applicable percentage 
                                under section 430(h)(2)(G) were 
                                determined in accordance with the 
                                following table:




``In the case of plan years         The applicable percentage is:
 beginning in:
  2007............................  20 percent
  2008............................  40 percent
  2009............................  60 percent
  2010............................  80 percent.''.

  (c) Special Rule for Plan Amendments.--A plan shall not fail to meet 
the requirements of section 411(d)(6) of the Internal Revenue Code of 
1986 or section 204(g) of the Employee Retirement Income Security Act 
of 1974 solely by reason of the adoption by the plan of an amendment 
necessary to meet the requirements of the amendments made by this 
section.
  (d) Effective Date.--The amendments made by this section shall apply 
with respect to plan years beginning after December 31, 2006.

SEC. 303. INTEREST RATE ASSUMPTION FOR APPLYING BENEFIT LIMITATIONS TO 
                    LUMP SUM DISTRIBUTIONS.

  (a) In General.--Clause (ii) of section 415(b)(2)(E) of the Internal 
Revenue Code of 1986 is amended to read as follows:
                          ``(ii) For purposes of adjusting any benefit 
                        under subparagraph (B) for any form of benefit 
                        subject to section 417(e)(3), the interest rate 
                        assumption shall not be less than the greater 
                        of--
                                  ``(I) 5.5 percent,
                                  ``(II) the rate that provides a 
                                benefit of not more than 105 percent of 
                                the benefit that would be provided if 
                                the applicable interest rate (as 
                                defined in section 417(e)(3)) were the 
                                interest rate assumption, or
                                  ``(III) the rate specified under the 
                                plan.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to distributions made in years beginning after December 31, 2005.

SEC. 304. DISTRIBUTIONS DURING WORKING RETIREMENT.

  (a) Amendment to the Employee Retirement Income Security Act of 
1974.--[See section 303(a) of the bill as reported by the Committee on 
Education and the Workforce.]
  (b) Amendment to the Internal Revenue Code of 1986.--Subsection (a) 
of section 401 of the Internal Revenue Code of 1986 is amended by 
inserting after paragraph (34) the following new paragraph:
          ``(35) Distributions during working retirement.--A trust 
        forming part of a pension plan shall not be treated as failing 
        to constitute a qualified trust under this section solely 
        because a distribution is made from such trust to an employee 
        who has attained age 62 and who is not separated from 
        employment at the time of such distribution.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions in plan years beginning after December 31, 2005.

SEC. 305. OTHER AMENDMENTS RELATING TO PROHIBITED TRANSACTIONS.

  [See section 304 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 306. CORRECTION PERIOD FOR CERTAIN TRANSACTIONS INVOLVING 
                    SECURITIES AND COMMODITIES.

  [See section 305 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 307. GOVERNMENT ACCOUNTABILITY OFFICE PENSION FUNDING REPORT.

  [See section 306 of the bill as reported by the Committee on 
Education and the Workforce.]

          TITLE IV--IMPROVEMENTS IN PBGC GUARANTEE PROVISIONS

SEC. 401. INCREASES IN PBGC PREMIUMS.

  (a) Flat-Rate Premiums.--Section 4006(a)(3) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is 
amended--
          (1) by striking clause (i) of subparagraph (A) and inserting 
        the following:
          ``(i) in the case of a single-employer plan, an amount equal 
        to--
                  ``(I) for plan years beginning after December 31, 
                1990, and before January 1, 2006, $19, or
                  ``(II) for plan years beginning after December 31, 
                2005, the amount determined under subparagraph (F),
        plus the additional premium (if any) determined under 
        subparagraph (E) for each individual who is a participant in 
        such plan during the plan year;''; and
          (2) by adding at the end the following new subparagraph:
  ``(F)(i) Except as otherwise provided in this subparagraph, for 
purposes of determining the annual premium rate payable to the 
corporation by a single-employer plan for basic benefits guaranteed 
under this title, the amount determined under this subparagraph is the 
greater of $30 or the adjusted amount determined under clause (ii).
  ``(ii) For plan years beginning after 2006, the adjusted amount 
determined under this clause is the product derived by multiplying $30 
by the ratio of--
          ``(I) the national average wage index (as defined in section 
        209(k)(1) of the Social Security Act) for the first of the 2 
        calendar years preceding the calendar year in which the plan 
        year begins, to
          ``(II) the national average wage index (as so defined) for 
        2004,
with such product, if not a multiple of $1, being rounded to the next 
higher multiple of $1 where such product is a multiple of $0.50 but not 
of $1, and to the nearest multiple of $1 in any other case.
  ``(iii) For purposes of determining the annual premium rate payable 
to the corporation by a single-employer plan for basic benefits 
guaranteed under this title for any plan year beginning after 2005 and 
before 2010--
          ``(I) except as provided in subclause (II), the premium 
        amount referred to in subparagraph (A)(i)(II) for any such plan 
        year is the amount set forth in connection with such plan year 
        in the following table:




``If the plan year begins in:       The amount is:
  2006............................  $21.20
  2007............................  $23.40
  2008............................  $25.60
  2009............................  $27.80; or

          ``(II) if the plan's funding target attainment percentage for 
        the plan year preceding the current plan year was less than 80 
        percent, the premium amount referred to in subparagraph 
        (A)(i)(II) for such current plan year is the amount set forth 
        in connection with such current plan year in the following 
        table:




``If the plan year begins in:       The amount is:
  2006............................  $22.67
  2007............................  $26.33
  2008 or 2009....................  the amount provided under clause
                                     (i).

  ``(iv) For purposes of this subparagraph, the term `funding target 
attainment percentage' has the meaning provided such term in section 
303(d)(2).''.
  (b) Premium Rate for Certain Terminated Single-Employer Plans.--
Subsection (a) of section 4006 of such Act (29 U.S.C. 1306) is amended 
by adding at the end the following:
  ``(7) Premium Rate for Certain Terminated Single-Employer Plans.--
          ``(A) In general.--If there is a termination of a single-
        employer plan under clause (ii) or (iii) of section 
        4041(c)(2)(B) or section 4042, there shall be payable to the 
        corporation, with respect to each applicable 12-month period, a 
        premium at a rate equal to $1,250 multiplied by the number of 
        individuals who were participants in the plan immediately 
        before the termination date. Such premium shall be in addition 
        to any other premium under this section.
          ``(B) Special rule for plans terminated in bankruptcy 
        reorganization.--If the plan is terminated under 
        4041(c)(2)(B)(ii) or under section 4042 and, as of the 
        termination date, a person who is (as of such date) a 
        contributing sponsor of the plan or a member of such sponsor's 
        controlled group has filed or has had filed against such person 
        a petition seeking reorganization in a case under title 11 of 
        the United States Code, or under any similar law of a State or 
        a political subdivision of a State (or a case described in 
        section 4041(c)(2)(B)(i) filed by or against such person has 
        been converted, as of such date, to such a case in which 
        reorganization is sought), subparagraph (A) shall not apply to 
        such plan until the date of the discharge of such person in 
        such case.
          ``(C) Applicable 12-month period.--For purposes of 
        subparagraph (A)--
                  ``(i) In general.--The term `applicable 12-month 
                period' means--
                          ``(I) the 12-month period beginning with the 
                        first month following the month in which the 
                        termination date occurs, and
                          ``(II) each of the first two 12-month periods 
                        immediately following the period described in 
                        subclause (I).
                  ``(ii) Plans terminated in bankruptcy 
                reorganization.--In any case in which the requirements 
                of subparagraph (B) are met in connection with the 
                termination of the plan with respect to 1 or more 
                persons described in such subparagraph, the 12-month 
                period described in clause (i)(I) shall be the 12-month 
                period beginning with the first month following the 
                month which includes the earliest date as of which each 
                such person is discharged in the case described in such 
                clause in connection with such person.
          ``(D) Coordination with section 4007.--
                  ``(i) Notwithstanding section 4007--
                          ``(I) premiums under this paragraph shall be 
                        due within 30 days after the beginning of any 
                        applicable 12-month period, and
                          ``(II) the designated payor shall be the 
                        person who is the contributing sponsor as of 
                        immediately before the termination date.
                  ``(ii) The fifth sentence of section 4007(a) shall 
                not apply in connection with premiums determined under 
                this paragraph.''.
  (c) Risk-Based Premiums.--
          (1) Extension through 2006.--Section 4006(a)(3)(E)(iii)(V) of 
        such Act is amended by striking ``January 1, 2006'' and 
        inserting ``January 1, 2007''.
          (2) Conforming amendments related to funding rules for 
        single-employer plans.--Section 4006(a)(3)(E) of such Act is 
        amended by striking clauses (iii) and (iv) and inserting the 
        following:
                  ``(iii)(I) For purposes of clause (ii), except as 
                provided in subclause (II), the term `unfunded vested 
                benefits' means, for a plan year, the amount which 
                would be the plan's funding shortfall (as defined in 
                section 303(c)(4)), if the value of plan assets of the 
                plan were equal to the fair market value of such assets 
                and only vested benefits were taken into account.
                  ``(II) The interest rate used in valuing vested 
                benefits for purposes of subclause (I) shall be equal 
                to the first, second, or third segment rate which would 
                be determined under section 303(h)(2)(C) if section 
                303(h)(2)(D)(i) were applied by substituting `the 
                yields' for `the 3-year weighted average of yields', as 
                applicable under rules similar to the rules under 
                section 303(h)(2)(B).''.
  (d) Effective Dates.--
          (1) In general.--The amendments made by subsection (a) and 
        (c)(1) shall apply to plan years beginning after December 31, 
        2005.
          (2) Premium rate for certain terminated single-employer 
        plans.--The amendment made by subsection (b) shall apply with 
        respect to cases commenced under title 11, United States Code, 
        or under any similar law of a State or political subdivision of 
        a State after October 26, 2005.
          (3) Conforming amendments related to funding rules for 
        single-employer plans.--The amendments made by subsection 
        (c)(2) shall take effect on December 31, 2006, and shall apply 
        to plan years beginning after such date.

                          TITLE V--DISCLOSURE

SEC. 501. DEFINED BENEFIT PLAN FUNDING NOTICES.

  [See section 501 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 502. ADDITIONAL DISCLOSURE REQUIREMENTS.

  [See section 502 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 503. SECTION 4010 FILINGS WITH THE PBGC.

  (a) Change in Criteria for Persons Required to Provide Information to 
PBGC.--Section 4010(b) of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1310(b)) is amended by striking paragraph (1), by 
redesignating paragraphs (2) and (3) as paragraphs (3) and (4), 
respectively, and by inserting before paragraph (3) (as so 
redesignated) the following new paragraphs:
          ``(1) the aggregate funding target attainment percentage of 
        the plan (as defined in subsection (d)(2)) is less than 60 
        percent;
          ``(2)(A) the aggregate funding target attainment percentage 
        of the plan (as defined in subsection (d)(2)) is less than 75 
        percent, and
          ``(B) the plan sponsor is in an industry with respect to 
        which the corporation determines that there is substantial 
        unemployment or underemployment and the sales and profits are 
        depressed or declining;''.
  (b) Notice to Participants and Beneficiaries.--Section 4010 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1310) is 
amended by adding at the end the following new subsection:
  ``(d) Notice to Participants and Beneficiaries.--
          ``(1) In general.--Not later than 90 days after the 
        submission by any person to the corporation of information or 
        documentary material with respect to any plan pursuant to 
        subsection (a), such person shall provide notice of such 
        submission to each participant and beneficiary under the plan 
        (and under all plans maintained by members of the controlled 
        group of each contributing sponsor of the plan). Such notice 
        shall also set forth--
                  ``(A) the number of single-employer plans covered by 
                this title which are in at-risk status and are 
                maintained by contributing sponsors of such plan (and 
                by members of their controlled groups) with respect to 
                which the funding target attainment percentage for the 
                preceding plan year of each plan is less than 60 
                percent;
                  ``(B) the value of the assets of each of the plans 
                described in subparagraph (A) for the plan year, the 
                funding target for each of such plans for the plan 
                year, and the funding target attainment percentage of 
                each of such plans for the plan year; and
                  ``(C) taking into account all single-employer plans 
                maintained by the contributing sponsor and the members 
                of its controlled group as of the end of such plan 
                year--
                          ``(i) the aggregate total of the values of 
                        plan assets of such plans as of the end of such 
                        plan year,
                          ``(ii) the aggregate total of the funding 
                        targets of such plans, as of the end of such 
                        plan year, taking into account only benefits to 
                        which participants and beneficiaries have a 
                        nonforfeitable right, and
                          ``(iii) the aggregate funding targets 
                        attainment percentage with respect to the 
                        contributing sponsor for the preceding plan 
                        year.
          ``(2) Definitions.--For purposes of this subsection--
                  ``(A) Value of plan assets.--The term `value of plan 
                assets' means the value of plan assets, as determined 
                under section 303(g)(3).
                  ``(B) Funding target.--The term `funding target' has 
                the meaning provided under section 303(d)(1).
                  ``(C) Funding target attainment percentage.--The term 
                `funding target attainment percentage' has the meaning 
                provided in section 303(d)(2).
                  ``(D) Aggregate funding targets attainment 
                percentage.--The term `aggregate funding targets 
                attainment percentage' with respect to a contributing 
                sponsor for a plan year is the percentage, taking into 
                account all plans maintained by the contributing 
                sponsor and the members of its controlled group as of 
                the end of such plan year, which
                          ``(i) the aggregate total of the values of 
                        plan assets, as of the end of such plan year, 
                        of such plans, is of
                          ``(ii) the aggregate total of the funding 
                        targets of such plans, as of the end of such 
                        plan year, taking into account only benefits to 
                        which participants and beneficiaries have a 
                        nonforfeitable right.
                  ``(E) At-risk status.--The term `at-risk status' has 
                the meaning provided in section 303(i)(3).
          ``(3) Compliance.--
                  ``(A) In general.--Any notice required to be provided 
                under paragraph (1) may be provided in written, 
                electronic, or other appropriate form to the extent 
                such form is reasonably accessible to individuals to 
                whom the information is required to be provided.
                  ``(B) Limitations.--In no case shall a participant or 
                beneficiary be entitled under this subsection to 
                receive more than one notice described in paragraph (1) 
                during any one 12-month period. The person required to 
                provide such notice may make a reasonable charge to 
                cover copying, mailing, and other costs of furnishing 
                such notice pursuant to paragraph (1). The corporation 
                may by regulations prescribe the maximum amount which 
                will constitute a reasonable charge under the preceding 
                sentence.
          ``(4) Notice to congress.--Concurrent with the provision of 
        any notice under paragraph (1), such person shall provide such 
        notice to the Committee on Education and the Workforce and the 
        Committee on Ways and Means of the House of Representatives and 
        the Committee on Health, Education, Labor, and Pensions and the 
        Committee on Finance of the Senate, which shall be treated as 
        materials provided in executive session.''.
  (c) Effective Date.--The amendment made by this section shall apply 
with respect to plan years beginning after December 31, 2006.

                      TITLE VI--INVESTMENT ADVICE

SEC. 601. AMENDMENTS TO EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 
                    PROVIDING PROHIBITED TRANSACTION EXEMPTION FOR 
                    PROVISION OF INVESTMENT ADVICE.

  [See section 601 of the bill as reported by the Committee on 
Education and the Workforce.]

SEC. 602. AMENDMENTS TO INTERNAL REVENUE CODE OF 1986 PROVIDING 
                    PROHIBITED TRANSACTION EXEMPTION FOR PROVISION OF 
                    INVESTMENT ADVICE.

  (a) Exemption From Prohibited Transactions.--Subsection (d) of 
section 4975 of the Internal Revenue Code of 1986 (relating to 
exemptions from tax on prohibited transactions) is amended--
          (1) in paragraph (15), by striking ``or'' at the end;
          (2) in paragraph (16), by striking the period at the end and 
        inserting ``; or''; and
          (3) by adding at the end the following new paragraph:
          ``(17) any transaction described in subsection (f)(8)(A) in 
        connection with the provision of investment advice described in 
        subsection (e)(3)(B)(i), in any case in which--
                  ``(A) the investment of assets of the plan is subject 
                to the direction of plan participants or beneficiaries,
                  ``(B) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a fiduciary 
                adviser in connection with any sale, acquisition, or 
                holding of a security or other property for purposes of 
                investment of plan assets, and
                  ``(C) the requirements of subsection (f)(8)(B) are 
                met in connection with the provision of the advice.''.
  (b) Allowed Transactions and Requirements.--Subsection (f) of such 
section 4975 (relating to other definitions and special rules) is 
amended by adding at the end the following new paragraph:
          ``(8) Provisions relating to investment advice provided by 
        fiduciary advisers.--
                  ``(A) Transactions allowable in connection with 
                investment advice provided by fiduciary advisers.--The 
                transactions referred to in subsection (d)(17), in 
                connection with the provision of investment advice by a 
                fiduciary adviser, are the following:
                          ``(i) the provision of the advice to the 
                        plan, participant, or beneficiary;
                          ``(ii) the sale, acquisition, or holding of a 
                        security or other property (including any 
                        lending of money or other extension of credit 
                        associated with the sale, acquisition, or 
                        holding of a security or other property) 
                        pursuant to the advice; and
                          ``(iii) the direct or indirect receipt of 
                        fees or other compensation by the fiduciary 
                        adviser or an affiliate thereof (or any 
                        employee, agent, or registered representative 
                        of the fiduciary adviser or affiliate) in 
                        connection with the provision of the advice or 
                        in connection with a sale, acquisition, or 
                        holding of a security or other property 
                        pursuant to the advice.
                  ``(B) Requirements relating to provision of 
                investment advice by fiduciary advisers.--The 
                requirements of this subparagraph (referred to in 
                subsection (d)(17)(C)) are met in connection with the 
                provision of investment advice referred to in 
                subsection (e)(3)(B), provided to a plan or a 
                participant or beneficiary of a plan by a fiduciary 
                adviser with respect to the plan in connection with any 
                sale, acquisition, or holding of a security or other 
                property for purposes of investment of amounts held by 
                the plan, if--
                          ``(i) in the case of the initial provision of 
                        the advice with regard to the security or other 
                        property by the fiduciary adviser to the plan, 
                        participant, or beneficiary, the fiduciary 
                        adviser provides to the recipient of the 
                        advice, at a time reasonably contemporaneous 
                        with the initial provision of the advice, a 
                        written notification (which may consist of 
                        notification by means of electronic 
                        communication)--
                                  ``(I) of all fees or other 
                                compensation relating to the advice 
                                that the fiduciary adviser or any 
                                affiliate thereof is to receive 
                                (including compensation provided by any 
                                third party) in connection with the 
                                provision of the advice or in 
                                connection with the sale, acquisition, 
                                or holding of the security or other 
                                property,
                                  ``(II) of any material affiliation or 
                                contractual relationship of the 
                                fiduciary adviser or affiliates thereof 
                                in the security or other property,
                                  ``(III) of any limitation placed on 
                                the scope of the investment advice to 
                                be provided by the fiduciary adviser 
                                with respect to any such sale, 
                                acquisition, or holding of a security 
                                or other property,
                                  ``(IV) of the types of services 
                                provided by the fiduciary adviser in 
                                connection with the provision of 
                                investment advice by the fiduciary 
                                adviser,
                                  ``(V) that the adviser is acting as a 
                                fiduciary of the plan in connection 
                                with the provision of the advice, and
                                  ``(VI) that a recipient of the advice 
                                may separately arrange for the 
                                provision of advice by another adviser, 
                                that could have no material affiliation 
                                with and receive no fees or other 
                                compensation in connection with the 
                                security or other property,
                          ``(ii) the fiduciary adviser provides 
                        appropriate disclosure, in connection with the 
                        sale, acquisition, or holding of the security 
                        or other property, in accordance with all 
                        applicable securities laws,
                          ``(iii) the sale, acquisition, or holding 
                        occurs solely at the direction of the recipient 
                        of the advice,
                          ``(iv) the compensation received by the 
                        fiduciary adviser and affiliates thereof in 
                        connection with the sale, acquisition, or 
                        holding of the security or other property is 
                        reasonable, and
                          ``(v) the terms of the sale, acquisition, or 
                        holding of the security or other property are 
                        at least as favorable to the plan as an arm's 
                        length transaction would be.
                  ``(C) Standards for presentation of information.--The 
                notification required to be provided to participants 
                and beneficiaries under subparagraph (B)(i) shall be 
                written in a clear and conspicuous manner and in a 
                manner calculated to be understood by the average plan 
                participant and shall be sufficiently accurate and 
                comprehensive to reasonably apprise such participants 
                and beneficiaries of the information required to be 
                provided in the notification.
                  ``(D) Exemption conditioned on making required 
                information available annually, on request, and in the 
                event of material change.--The requirements of 
                subparagraph (B)(i) shall be deemed not to have been 
                met in connection with the initial or any subsequent 
                provision of advice described in subparagraph (B) to 
                the plan, participant, or beneficiary if, at any time 
                during the provision of advisory services to the plan, 
                participant, or beneficiary, the fiduciary adviser 
                fails to maintain the information described in 
                subclauses (I) through (IV) of subparagraph (B)(i) in 
                currently accurate form and in the manner required by 
                subparagraph (C), or fails--
                          ``(i) to provide, without charge, such 
                        currently accurate information to the recipient 
                        of the advice no less than annually,
                          ``(ii) to make such currently accurate 
                        information available, upon request and without 
                        charge, to the recipient of the advice, or
                          ``(iii) in the event of a material change to 
                        the information described in subclauses (I) 
                        through (IV) of subparagraph (B)(i), to 
                        provide, without charge, such currently 
                        accurate information to the recipient of the 
                        advice at a time reasonably contemporaneous to 
                        the material change in information.
                  ``(E) Maintenance for 6 years of evidence of 
                compliance.--A fiduciary adviser referred to in 
                subparagraph (B) who has provided advice referred to in 
                such subparagraph shall, for a period of not less than 
                6 years after the provision of the advice, maintain any 
                records necessary for determining whether the 
                requirements of the preceding provisions of this 
                paragraph and of subsection (d)(17) have been met. A 
                transaction prohibited under subsection (c)(1) shall 
                not be considered to have occurred solely because the 
                records are lost or destroyed prior to the end of the 
                6-year period due to circumstances beyond the control 
                of the fiduciary adviser.
                  ``(F) Exemption for plan sponsor and certain other 
                fiduciaries.--A plan sponsor or other person who is a 
                fiduciary (other than a fiduciary adviser) shall not be 
                treated as failing to meet the requirements of this 
                section solely by reason of the provision of investment 
                advice referred to in subsection (e)(3)(B) (or solely 
                by reason of contracting for or otherwise arranging for 
                the provision of the advice), if--
                          ``(i) the advice is provided by a fiduciary 
                        adviser pursuant to an arrangement between the 
                        plan sponsor or other fiduciary and the 
                        fiduciary adviser for the provision by the 
                        fiduciary adviser of investment advice referred 
                        to in such section,
                          ``(ii) the terms of the arrangement require 
                        compliance by the fiduciary adviser with the 
                        requirements of this paragraph,
                          ``(iii) the terms of the arrangement include 
                        a written acknowledgment by the fiduciary 
                        adviser that the fiduciary adviser is a 
                        fiduciary of the plan with respect to the 
                        provision of the advice, and
                          ``(iv) the requirements of part 4 of subtitle 
                        B of title I of the Employee Retirement Income 
                        Security Act of 1974 are met in connection with 
                        the provision of such advice.
                  ``(G) Definitions.--For purposes of this paragraph 
                and subsection (d)(17)--
                          ``(i) Fiduciary adviser.--The term `fiduciary 
                        adviser' means, with respect to a plan, a 
                        person who is a fiduciary of the plan by reason 
                        of the provision of investment advice by the 
                        person to the plan or to a participant or 
                        beneficiary and who is--
                                  ``(I) registered as an investment 
                                adviser under the Investment Advisers 
                                Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                                or under the laws of the State in which 
                                the fiduciary maintains its principal 
                                office and place of business,
                                  ``(II) a bank or similar financial 
                                institution referred to in subsection 
                                (d)(4) or a savings association (as 
                                defined in section 3(b)(1) of the 
                                Federal Deposit Insurance Act (12 
                                U.S.C. 1813(b)(1))), but only if the 
                                advice is provided through a trust 
                                department of the bank or similar 
                                financial institution or savings 
                                association which is subject to 
                                periodic examination and review by 
                                Federal or State banking authorities,
                                  ``(III) an insurance company 
                                qualified to do business under the laws 
                                of a State,
                                  ``(IV) a person registered as a 
                                broker or dealer under the Securities 
                                Exchange Act of 1934 (15 U.S.C. 78a et 
                                seq.),
                                  ``(V) an affiliate of a person 
                                described in any of subclauses (I) 
                                through (IV), or
                                  ``(VI) an employee, agent, or 
                                registered representative of a person 
                                described in any of subclauses (I) 
                                through (V) who satisfies the 
                                requirements of applicable insurance, 
                                banking, and securities laws relating 
                                to the provision of the advice.
                          ``(ii) Affiliate.--The term `affiliate' of 
                        another entity means an affiliated person of 
                        the entity (as defined in section 2(a)(3) of 
                        the Investment Company Act of 1940 (15 U.S.C. 
                        80a-2(a)(3))).
                          ``(iii) Registered representative.--The term 
                        `registered representative' of another entity 
                        means a person described in section 3(a)(18) of 
                        the Securities Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity for the 
                        broker or dealer referred to in such section) 
                        or a person described in section 202(a)(17) of 
                        the Investment Advisers Act of 1940 (15 U.S.C. 
                        80b-2(a)(17)) (substituting the entity for the 
                        investment adviser referred to in such 
                        section).''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to advice referred to in section 4975(c)(3)(B) of the 
Internal Revenue Code of 1986 provided on or after January 1, 2006.

                  TITLE VII--BENEFIT ACCRUAL STANDARDS

SEC. 701. IMPROVEMENTS IN BENEFIT ACCRUAL STANDARDS.

  (a) Amendments to the Employee Retirement Income Security Act of 
1974.--[See section 701(a) of the bill as reported by the Committee on 
Education and the Workforce.]
  (b) Amendments to the Internal Revenue Code of 1986.--
          (1) Rules relating to reduction in accrued benefits because 
        of attainment of any age.--Subparagraph (H) of section 
        411(b)(1) of the Internal Revenue Code of 1986 is amended by 
        adding at the end the following new clauses:
                          ``(vi) Comparison to similarly situated 
                        younger individual.--
                                  ``(I) In general.--A plan shall not 
                                be treated as failing to meet the 
                                requirements of clause (i) if a 
                                participant's entire accrued benefit, 
                                as determined as of any date under the 
                                formula for determining benefits as set 
                                forth in the text of the plan 
                                documents, would be equal to or greater 
                                than that of any similarly situated, 
                                younger individual.
                                  ``(II) Similarly situated.--For 
                                purposes of this clause, an individual 
                                is similarly situated to a participant 
                                if such individual is identical to such 
                                participant in every respect (including 
                                period of service, compensation, 
                                position, date of hire, work history, 
                                and any other respect) except for age.
                                  ``(III) Disregard of subsidized early 
                                retirement benefits.--In determining 
                                the entire accrued benefit for purposes 
                                of this clause, the subsidized portion 
                                of any early retirement benefit 
                                (including any early retirement subsidy 
                                that is fully or partially included or 
                                reflected in an employee's opening 
                                balance or other transition benefits) 
                                shall be disregarded.
                          ``(vii) Interest on hypothetical accounts.--A 
                        plan under which the accrued benefit payable 
                        under the plan upon distribution (or any 
                        portion thereof) is expressed as the balance of 
                        a hypothetical account maintained for the 
                        participant shall not be treated as failing to 
                        meet the requirements of clause (i) solely 
                        because interest accruing on such balance is 
                        taken into account.
                          ``(viii) Certain offsets permitted.--A plan 
                        shall not be treated as failing to meet the 
                        requirements of this subparagraph solely 
                        because the plan provides allowable offsets 
                        against those benefits under the plan which are 
                        attributable to employer contributions, based 
                        on benefits which are provided under title II 
                        of the Social Security Act, the Railroad 
                        Retirement Act of 1974, another plan described 
                        in section 401(a)maintained by the same 
                        employer, or under any retirement program for 
                        officers or employees of the Federal Government 
                        or of the government of any State or political 
                        subdivision thereof. For purposes of this 
                        clause, allowable offsets based on such 
                        benefits consist of offsets equal to all or 
                        part of the actual benefit payment amounts, 
                        reasonable projections or estimations of such 
                        benefit payment amounts, or actuarial 
                        equivalents of such actual benefit payment 
                        amounts, projections, or estimations 
                        (determined on the basis of reasonable 
                        actuarial assumptions).
                          ``(ix) Permitted disparities in plan 
                        contributions or benefits.--A plan shall not be 
                        treated as failing to meet the requirements of 
                        this subparagraph solely because the plan 
                        provides a disparity in contributions or 
                        benefits with respect to which the requirements 
                        of section 401(l) are met.
                          ``(x) Pre-retirement indexing permitted.--
                                  ``(I) In general.--A plan shall not 
                                be treated as failing to meet the 
                                requirements of this subparagraph 
                                solely because the plan provides for 
                                pre-retirement indexing of accrued 
                                benefits under the plan.
                                  ``(II) Pre-retirement indexing.--For 
                                purposes of this clause, the term `pre-
                                retirement indexing' means, in 
                                connection with an accrued benefit, the 
                                periodic adjustment of the accrued 
                                benefit by means of the application of 
                                a recognized index or methodology so as 
                                to protect the economic value of the 
                                benefit against inflation prior to 
                                distribution.''.
          (2) Determinations of accrued benefit as balance of benefit 
        account.--Subsection (a) of section 411 of such Code is amended 
        by adding at the end the following new paragraph:
          ``(13) Determinations of accrued benefit as balance of 
        benefit account.--
                  ``(A) In general.--A defined benefit plan under which 
                the accrued benefit payable under the plan upon 
                distribution (or any portion thereof) is expressed as 
                the balance of a hypothetical account maintained for 
                the participant shall not be treated as failing to meet 
                the requirements of subsection (a)(2) and section 
                417(e) solely because of the amount actually made 
                available for such distribution under the terms of the 
                plan, in any case in which the applicable interest rate 
                that would be used under the terms of the plan to 
                project the amount of the participant's account balance 
                to normal retirement age is not greater than a market 
                rate of return.
                  ``(B) Regulations.--The Secretary may provide by 
                regulation for rules governing the calculation of a 
                market rate of return for purposes of subparagraph (A) 
                and for permissible methods of crediting interest to 
                the account (including variable interest rates) 
                resulting in effective rates of return meeting the 
                requirements of subparagraph (A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to periods beginning on or after June 29, 2005.

                   TITLE VIII--DEDUCTION LIMITATIONS

SEC. 801. INCREASE IN DEDUCTION LIMITS.

  (a) Increase in Deduction Limit for Single-Employer Plans.--Section 
404 of the Internal Revenue Code of 1986 (relating to deduction for 
contributions of an employer to an employees' trust or annuity plan and 
compensation under a deferred payment plan) is amended--
          (1) in subsection (a)(1)(A), by inserting ``in the case of a 
        defined benefit plan other than a multiemployer plan, in an 
        amount determined under subsection (o), and in the case of any 
        other plan'' after ``section 501(a),'', and
          (2) by inserting at the end the following new subsection:
  ``(o) Deduction Limit for Single-Employer Plans.--For purposes of 
subsection (a)(1)(A)--
          ``(1) In general.--In the case of a defined benefit plan to 
        which subsection (a)(1)(A) applies (other than a multiemployer 
        plan), the amount determined under this subsection for any 
        taxable year shall be equal to the amount determined under 
        paragraph (2) with respect to each plan year ending with or 
        within the taxable year.
          ``(2) Determination of amount.--The amount determined under 
        this paragraph for any plan year shall be equal to the excess 
        (if any) of--
                  ``(A) the greater of--
                          ``(i) the sum of--
                                  ``(I) 150 percent of the funding 
                                target applicable to the plan for such 
                                plan year, determined under section 
                                430, plus
                                  ``(II) the target normal cost 
                                applicable to the plan for such plan 
                                year, determined under section 430(b), 
                                or
                          ``(ii) in the case of a plan that is not in 
                        an at-risk status (as determined under 430(i)), 
                        the sum of--
                                  ``(I) the funding target which would 
                                be applicable to the plan for such plan 
                                year if such plan were in an at-risk 
                                status, determined under section 430(d) 
                                (with regard to section 430(i)), plus
                                  ``(II) the target normal cost which 
                                would be applicable to the plan for 
                                such plan year if such plan were in an 
                                at-risk status, determined under 
                                section 430(d) (with regard to section 
                                430(i)), over
                  ``(B) the value of the plan assets (determined under 
                section 430(g)).
          ``(3) Special rule for terminating plans.--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, 
        the amount determined under paragraph (2) shall not be less 
        than the amount required to make the plan sufficient for 
        benefit liabilities (within the meaning of section 4041(d) of 
        such Act).
          ``(4) Definitions.--Any term used in this subsection which is 
        also used in section 430 shall have the same meaning given such 
        term by section 430.''.
  (b) Increase in Deduction Limit for Multiemployer Plans.--Section 
404(a)(1)(D) of such Code is amended to read as follows:
                  ``(D) Minimum deduction for multiemployer plans.--In 
                the case of a defined benefit plan which is a 
                multiemployer plan, except as provided in regulations, 
                the maximum amount deductible under the limitations of 
                this paragraph shall not be less than the excess (if 
                any) of--
                          ``(i) 140 percent of the current liability of 
                        the plan determined under section 431(c)(6)(D), 
                        over
                          ``(ii) the value of the plan's assets 
                        determined under section 431(c)(2).''.
  (c) Technical and Conforming Amendments.--
          (1) The last sentence of section 404(a)(1)(A) of such Code is 
        amended by striking ``section 412'' each place it appears and 
        inserting ``section 431''.
          (2) Section 404(a)(1)(B) of such Code is amended--
                  (A) by striking ``In the case of a plan'' and 
                inserting ``In the case of a multiemployer plan'',
                  (B) by striking ``section 412(c)(7)'' each place it 
                appears and inserting ``section 431(c)(6)'',
                  (C) by striking ``section 412(c)(7)(B)'' and 
                inserting ``section 431(c)(6)(D)'',
                  (D) by striking ``section 412(c)(7)(A)'' and 
                inserting ``section 431(c)(6)(A)'', and
                  (E) by striking ``section 412'' and inserting 
                ``section 431''.
          (3) Section 404(a)(1) of such Code is amended by striking 
        subparagraph (F).
          (4) Section 404(a)(7) of such Code is amended--
                  (A) in subparagraph (A)(ii), by striking ``for the 
                plan year'' and all that follows and inserting ``which 
                are multiemployer plans for the plan year which ends 
                with or within such taxable year (or for any prior plan 
                year) and the maximum amount of employer contributions 
                allowable under subsection (o) with respect to any such 
                defined benefit plans which are not multiemployer plans 
                for the plan year.'',
                  (B) by striking ``section 412(l)'' in the last 
                sentence of subparagraph (A) and inserting ``paragraph 
                (1)(D)(ii)'', and
                  (C) by striking subparagraph (D) and inserting:
                  ``(D) Insurance contract plans.--For purposes of this 
                paragraph, a plan described in section 412(e)(3) shall 
                be treated as a defined benefit plan.''.
          (5) Section 404A(g)(3)(A) of such Code is amended by striking 
        ``paragraphs (3) and (7) of section 412(c)'' and inserting 
        ``sections 430(h)(1) and 431(c)(3) and (6)''.
  (d) Effective Date.--The amendments made by this section shall apply 
to contributions for taxable years beginning after December 31, 2006.

SEC. 802. UPDATING DEDUCTION RULES FOR COMBINATION OF PLANS.

  (a) In General.--Subparagraph (C) of section 404(a)(7) of the 
Internal Revenue Code of 1986 (relating to limitation on deductions 
where combination of defined contribution plan and defined benefit 
plan) is amended by adding after clause (ii) the following new clause:
                          ``(iii) Limitation.--In the case of employer 
                        contributions to 1 or more defined contribution 
                        plans, this paragraph shall only apply to the 
                        extent that such contributions exceed 6 percent 
                        of the compensation otherwise paid or accrued 
                        during the taxable year to the beneficiaries 
                        under such plans. For purposes of this clause, 
                        amounts carried over from preceding taxable 
                        years under subparagraph (B) shall be treated 
                        as employer contributions to 1 or more defined 
                        contributions to the extent attributable to 
                        employer contributions to such plans in such 
                        preceding taxable years.''.
  (b) Conforming Amendments.--Subparagraph (A) of section 4972(c)(6) of 
such Code (relating to nondeductible contributions) is amended to read 
as follows:
                  ``(A) so much of the contributions to 1 or more 
                defined contribution plans which are not deductible 
                when contributed solely because of section 404(a)(7) as 
                does not exceed the amount of contributions described 
                in section 401(m)(4)(A), or''.
  (c) Effective Date.--The amendments made by this section shall apply 
to contributions for taxable years beginning after December 31, 2006.

 TITLE IX--ENHANCED RETIREMENTS SAVINGS AND DEFINED CONTRIBUTION PLANS

SEC. 901. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF 
                    ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT 
                    OF 2001 MADE PERMANENT.

  Title IX of the Economic Growth and Tax Relief Reconciliation Act of 
2001 shall not apply to the provisions of, and amendments made by, 
subtitles (A) through (F) of title VI of such Act (relating to pension 
and individual retirement arrangement provisions).

SEC. 902. SAVER'S CREDIT.

  (a) Permanency.--Section 25B of the Internal Revenue Code of 1986 
(relating to elective deferrals and IRA contributions by certain 
individuals) is amended by striking subsection (h).
  (b) Voluntary Deposit Into Qualified Account.--
          (1) Section 25B of such Code, as amended by subsection (a), 
        is further amended by adding at the end the following new 
        subsection:
  ``(h) Voluntary Deposit Into Qualified Account.--
          ``(1) In general.--So much of any overpayment under section 
        6401(b) as does not exceed the amount allowed as a tax credit 
        under subsection (a) shall, at the election of the taxpayer, be 
        paid on behalf of the individual taxpayer to an applicable 
        retirement plan designated by the individual, except that in 
        the case of a joint return, each spouse shall be entitled to 
        designate an applicable retirement plan with respect to 
        payments attributable to such spouse.
          ``(2) Applicable retirement plan.--For purposes of this 
        subsection, the term `applicable retirement plan' means any 
        eligible retirement plan (as defined in section 402(c)(8)(B)) 
        that elects to accept deposits under this subsection.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 2006.

SEC. 903. INCREASING PARTICIPATION THROUGH AUTOMATIC CONTRIBUTION 
                    ARRANGEMENTS.

  (a) In General.--Section 401(k) of the Internal Revenue Code of 1986 
(relating to cash or deferred arrangement) is amended by adding at the 
end the following new paragraph:
          ``(13) Alternative method for automatic contribution 
        arrangements to meet nondiscrimination requirements.--
                  ``(A) In general.--A qualified automatic contribution 
                arrangement shall be treated as meeting the 
                requirements of paragraph (3)(A)(ii).
                  ``(B) Qualified automatic contribution arrangement.--
                For purposes of this paragraph, the term `qualified 
                automatic contribution arrangement' means any cash or 
                deferred arrangement which meets the requirements of 
                subparagraphs (C) through (F).
                  ``(C) Automatic deferral.--
                          ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        each employee eligible to participate in the 
                        arrangement is treated as having elected to 
                        have the employer make elective contributions 
                        in an amount equal to a qualified percentage of 
                        compensation.
                          ``(ii) Election out.--The election treated as 
                        having been made under clause (i) shall cease 
                        to apply with respect to any employee if such 
                        employee makes an affirmative election--
                                  ``(I) to not have such contributions 
                                made, or
                                  ``(II) to make elective contributions 
                                at a level specified in such 
                                affirmative election.
                          ``(iii) Qualified percentage.--For purposes 
                        of this subparagraph, the term `qualified 
                        percentage' means, with respect to any 
                        employee, any percentage determined under the 
                        arrangement if such percentage is applied 
                        uniformly, does not exceed 10 percent, and is 
                        at least--
                                  ``(I) 3 percent during the period 
                                ending on the last day of the first 
                                plan year which begins after the date 
                                on which the first elective 
                                contribution described in clause (i) is 
                                made with respect to such employee,
                                  ``(II) 4 percent during the first 
                                plan year following the plan year 
                                described in subclause (I),
                                  ``(III) 5 percent during the second 
                                plan year following the plan year 
                                described in subclause (I), and
                                  ``(IV) 6 percent during any 
                                subsequent plan year.
                          ``(iv) Automatic deferral for current 
                        employees not required.--Clause (i) shall be 
                        applied without taking into account any 
                        employee who was eligible to participate in the 
                        arrangement (or a predecessor arrangement) 
                        immediately before the date on which such 
                        arrangement becomes a qualified automatic 
                        contribution arrangement (determined after 
                        application of this clause).
                  ``(D) Participation.--
                          ``(i) In general.--An arrangement meets the 
                        requirements of this subparagraph for any year 
                        if, during the plan year or the preceding plan 
                        year, elective contributions are made on behalf 
                        of at least 70 percent of the employees 
                        eligible to participate in the arrangement 
                        other than--
                                  ``(I) highly compensated employees, 
                                and
                                  ``(II) at the election of the plan 
                                administrator, employees described in 
                                subparagraph (C)(iv).
                          ``(ii) First plan year.--An arrangement 
                        (other than a successor arrangement) shall be 
                        treated as meeting the requirements of this 
                        subparagraph with respect to the first plan 
                        year with respect to which such arrangement is 
                        a qualified automatic contribution arrangement 
                        (determined without regard to this 
                        subparagraph).
                  ``(E) Matching or nonelective contributions.--
                          ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        the employer--
                                  ``(I) makes matching contributions on 
                                behalf of each employee who is not a 
                                highly compensated employee in an 
                                amount equal to 50 percent of the 
                                elective contributions of the employee 
                                to the extent such elective 
                                contributions do not exceed 6 percent 
                                of compensation, or
                                  ``(II) is required, without regard to 
                                whether the employee makes an elective 
                                contribution or employee contribution, 
                                to make a contribution to a defined 
                                contribution plan on behalf of each 
                                employee who is not a highly 
                                compensated employee and who is 
                                eligible to participate in the 
                                arrangement in an amount equal to at 
                                least 2 percent of the employee's 
                                compensation.
                          ``(ii) Application of rules for matching 
                        contributions.--The rules of clauses (ii) and 
                        (iii) of paragraph (12)(B) shall apply for 
                        purposes of clause (i)(I).
                          ``(iii) Withdrawal and vesting 
                        restrictions.--An arrangement shall not be 
                        treated as meeting the requirements of clause 
                        (i) unless, with respect to employer 
                        contributions (including matching 
                        contributions) taken into account in 
                        determining whether the requirements of clause 
                        (i) are met--
                                  ``(I) any employee who has completed 
                                at least 2 years of service (within the 
                                meaning of section 411(a)) has a 
                                nonforfeitable right to 100 percent of 
                                the employee's accrued benefit derived 
                                from such employer contributions, and
                                  ``(II) the requirements of 
                                subparagraph (B) of paragraph (2) are 
                                met with respect to all such employer 
                                contributions.
                          ``(iv) Application of certain other rules.--
                        The rules of subparagraphs (E)(ii) and (F) of 
                        paragraph (12) shall apply for purposes of 
                        subclauses (I) and (II) of clause (i).
                  ``(F) Notice requirements.--
                          ``(i) In general.--The requirements of this 
                        subparagraph are met if, within a reasonable 
                        period before each plan year, each employee 
                        eligible to participate in the arrangement for 
                        such year receives written notice of the 
                        employee's rights and obligations under the 
                        arrangement which--
                                  ``(I) is sufficiently accurate and 
                                comprehensive to apprise the employee 
                                of such rights and obligations, and
                                  ``(II) is written in a manner 
                                calculated to be understood by the 
                                average employee to whom the 
                                arrangement applies.
                          ``(ii) Timing and content requirements.--A 
                        notice shall not be treated as meeting the 
                        requirements of clause (i) with respect to an 
                        employee unless--
                                  ``(I) the notice explains the 
                                employee's right under the arrangement 
                                to elect not to have elective 
                                contributions made on the employee's 
                                behalf (or to elect to have such 
                                contributions made at a different 
                                percentage),
                                  ``(II) in the case of an arrangement 
                                under which the employee may elect 
                                among 2 or more investment options, the 
                                notice explains how contributions made 
                                under the arrangement will be invested 
                                in the absence of any investment 
                                election by the employee, and
                                  ``(III) the employee has a reasonable 
                                period of time after receipt of the 
                                notice described in subclauses (I) and 
                                (II) and before the first elective 
                                contribution is made to make either 
                                such election.''.
  (b) Matching Contributions.--Section 401(m) of such Code (relating to 
nondiscrimination test for matching contributions and employee 
contributions) is amended by redesignating paragraph (12) as paragraph 
(13) and by inserting after paragraph (11) the following new paragraph:
          ``(12) Alternative method for automatic contribution 
        arrangements.--A defined contribution plan shall be treated as 
        meeting the requirements of paragraph (2) with respect to 
        matching contributions if the plan--
                  ``(A) is a qualified automatic contribution 
                arrangement (as defined in subsection (k)(13)), and
                  ``(B) meets the requirements of paragraph (11)(B).''.
  (c) Exclusion From Definition of Top-Heavy Plans.--
          (1) Elective contribution rule.--Clause (i) of section 
        416(g)(4)(H) of such Code is amended by inserting ``or 
        401(k)(13)'' after ``section 401(k)(12)''.
          (2) Matching contribution rule.--Clause (ii) of section 
        416(g)(4)(H) of such Code is amended by inserting ``or 
        401(m)(12)'' after ``section 401(m)(11)''.
  (d) Corrective Distributions.--
          (1) In general.--Section 414 of the Internal Revenue Code of 
        1986 (relating to definitions and special rules) is amended by 
        adding at the end the following new subsection:
  ``(w) Automatic Contribution Arrangements.--
          ``(1) In general.--No tax shall be imposed under section 
        72(t) on a distribution from an applicable employer plan to the 
        employee with respect to whom such contribution relates if such 
        distribution does not exceed the erroneous automatic 
        contribution amount and is made not later than the 1st April 15 
        following the close of the taxable year in which such 
        contribution was made.
          ``(2) Erroneous automatic contribution amount.--For purposes 
        of this subsection--
                  ``(A) In general.--The term `erroneous automatic 
                contribution amount' means the lesser of--
                          ``(i) the amount of automatic contributions 
                        made during the applicable period which the 
                        employee elects in a notice to the plan 
                        administrator to treat as an erroneous 
                        automatic contribution amount for purposes of 
                        this subsection, or
                          ``(ii) $500.
                  ``(B) Automatic contribution.--The term `automatic 
                contribution' means contributions which, under the 
                terms of the plan--
                          ``(i) the employee can elect to be made as 
                        contributions under the plan on behalf of the 
                        employee, or to the employee directly in cash, 
                        and
                          ``(ii) which are made on behalf of the 
                        employee under the plan pursuant to a plan 
                        provision treating the employee as having 
                        elected to have the employer make such 
                        contributions on behalf of the employee until 
                        the employee affirmatively elects not to have 
                        such contribution made or affirmatively elects 
                        to make contributions as a specified level.
          ``(3) Applicable employer plan.--For purposes of this 
        subsection, the term `applicable employer plan'means--
                  ``(A) an employees' trust described in section 401(a) 
                which is exempt from tax under section 501(a), and
                  ``(B) a plan under which amounts are contributed by 
                an individual's employer for an annuity contract 
                described in section 403(b).
          ``(4) Applicable period.--For purposes of this subsection, 
        the term `applicable period' means, with respect to any 
        employee, the three month period that begins on the first date 
        that an automatic contribution described in paragraph (2)(B) is 
        made with respect to such employee.''.
          (2) Vesting conforming amendments.--
                  (A) Section 411(a)(3)(G) of such Code is amended by 
                inserting ``an erroneous automatic contribution under 
                section 414(w),'' after ``402(g)(2)(A),''.
                  (B) The heading of section 411(a)(3)(G) of such Code 
                is amended by inserting ``or erroneous automatic 
                contribution'' before the period.
                  (C) Section 401(k)(8)(E) of such Code is amended by 
                inserting ``an erroneous automatic contribution under 
                section 414(w),'' after ``402(g)(2)(A),''.
                  (D) The heading of section 401(k)(8)(E) of such Code 
                is amended by inserting ``or erroneous automatic 
                contribution'' before the period.
  (e) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2005.

SEC. 904. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR 
                    INDIVIDUALS CALLED TO ACTIVE DUTY FOR AT LEAST 179 
                    DAYS.

  (a) In General.--Paragraph (2) of section 72(t) of the Internal 
Revenue Code of 1986 (relating to 10-percent additional tax on early 
distributions from qualified retirement plans) is amended by adding at 
the end the following new subparagraph:
                  ``(G) Distributions from retirement plans to 
                individuals called to active duty.--
                          ``(i) In general.--Any qualified reservist 
                        distribution.
                          ``(ii) Amount distributed may be repaid.--Any 
                        individual who receives a qualified reservist 
                        distribution may, at any time during the 2-year 
                        period beginning on the day after the end of 
                        the active duty period, make one or more 
                        contributions to an individual retirement plan 
                        of such individual in an aggregate amount not 
                        to exceed the amount of such distribution. The 
                        dollar limitations otherwise applicable to 
                        contributions to individual retirement plans 
                        shall not apply to any contribution made 
                        pursuant to the preceding sentence. No 
                        deduction shall be allowed for any contribution 
                        pursuant to this clause.
                          ``(iii) Qualified reservist distribution.--
                        For purposes of this subparagraph, the term 
                        `qualified reservist distribution' means any 
                        distribution to an individual if--
                                  ``(I) such distribution is from an 
                                individual retirement plan, or from 
                                amounts attributable to employer 
                                contributions made pursuant to elective 
                                deferrals described in subparagraph (A) 
                                or (C) of section 402(g)(3) or section 
                                501(c)(18)(D)(iii),
                                  ``(II) such individual was (by reason 
                                of being a member of a reserve 
                                component (as defined in section 101 of 
                                title 37, United States Code)), ordered 
                                or called to active duty for a period 
                                in excess of 179 days or for an 
                                indefinite period, and
                                  ``(III) such distribution is made 
                                during the period beginning on the date 
                                of such order or call and ending at the 
                                close of the active duty period.
                          ``(iv) Application of subparagraph.--This 
                        subparagraph applies to individuals ordered or 
                        called to active duty after September 11, 2001, 
                        and before September 12, 2007. In no event 
                        shall the 2-year period referred to in clause 
                        (ii) end before the date which is 2-years after 
                        the date of the enactment of this 
                        subparagraph.''.
  (b) Conforming Amendments.--
          (1) Section 401(k)(2)(B)(i) of such Code is amended by 
        striking ``or'' at the end of subclause (III), by striking 
        ``and'' at the end of subclause (IV) and inserting ``or'', and 
        by inserting after subclause (IV) the following new subclause:
                                  ``(V) in the case of a qualified 
                                reservist distribution (as defined in 
                                section 72(t)(2)(G)(iii)), the date on 
                                which a period referred to in subclause 
                                (III) of such section begins, and''.
          (2) Section 403(b)(7)(A)(ii) of such Code is amended by 
        inserting ``(unless such amount is a distribution to which 
        section 72(t)(2)(G) applies)'' after ``distributee''.
          (3) Section 403(b)(11) of such Code is amended by striking 
        ``or'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, or'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                  ``(C) for distributions to which section 72(t)(2)(G) 
                applies.''.
  (c) Effective Date; Waiver of Limitations.--
          (1) Effective date.--The amendment made by this section shall 
        apply to distributions after September 11, 2001.
          (2) Waiver of limitations.--If refund or credit of any 
        overpayment of tax resulting from the amendments made by this 
        section is prevented at any time before the close of the 1-year 
        period beginning on the date of the enactment of this Act by 
        the operation of any law or rule of law (including res 
        judicata), such refund or credit may nevertheless be made or 
        allowed if claim therefor is filed before the close of such 
        period.

SEC. 905. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON CERTAIN 
                    DISTRIBUTIONS OF PENSION PLANS FOR PUBLIC SAFETY 
                    EMPLOYEES.

  (a) In General.--Section 72(t)(2) of the Internal Revenue Code of 
1986 (relating to subsection not to apply to certain distributions), as 
amended by section 904, is amended by adding at the end the following 
new subsection:
                  ``(H) DROP distributions to qualified public safety 
                employees in governmental plans.--
                          ``(i) In general.--Distributions to an 
                        individual who is a qualified public safety 
                        employee from a governmental plan within the 
                        meaning of section 414(d) to the extent such 
                        distributions are attributable to a DROP 
                        benefit.
                          ``(ii) Definitions.--For purposes of this 
                        subparagraph--
                                  ``(I) DROP benefit.--The term `DROP 
                                benefit' means a feature of a 
                                governmental plan which is a defined 
                                benefit plan and under which an 
                                employee elects to receive credits to 
                                an account (including a notional 
                                account) in the plan which are not in 
                                excess of the plan benefits (payable in 
                                the form of an annuity) that would have 
                                been provided if the employee had 
                                retired under the plan at a specified 
                                earlier retirement date and which are 
                                in lieu of increases in the employee's 
                                accrued pension benefit based on years 
                                of service after the effective date of 
                                the DROP election.
                                  ``(II) Qualified public safety 
                                employee.--The term `qualified public 
                                safety employee' means any employee of 
                                any police department or fire 
                                department organized and operated by a 
                                State or political subdivision of a 
                                State if the employee provides police 
                                protection, firefighting services, or 
                                emergency medical services for any area 
                                within the jurisdiction of such State 
                                or political subdivision and if the 
                                employee was eligible to retire on or 
                                before the date of such election and 
                                receive immediate retirement 
                                benefits.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions after the date of the enactment of this Act.

SEC. 906. COMBAT ZONE COMPENSATION TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DETERMINING LIMITATION AND DEDUCTIBILITY OF 
                    CONTRIBUTIONS TO INDIVIDUAL RETIREMENT PLANS.

  (a) In General.--Subsection (f) of section 219 of the Internal 
Revenue Code of 1986 is amended by redesignating paragraph (7) as 
paragraph (8) and by inserting after paragraph (6) the following new 
paragraph:
          ``(7) Special rule for compensation earned by members of the 
        armed forces for service in a combat zone.--For purposes of 
        subsections (b)(1)(B) and (c), the amount of compensation 
        includible in an individual's gross income shall be determined 
        without regard to section 112.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2005.

SEC. 907. DIRECT PAYMENT OF TAX REFUNDS TO INDIVIDUAL RETIREMENT PLANS.

  (a) In General.--The Secretary of the Treasury (or the Secretary's 
delegate) shall make available a form (or modify existing forms) for 
use by individuals to direct that a portion of any refund of 
overpayment of tax imposed by chapter 1 of the Internal Revenue Code of 
1986 be paid directly to an individual retirement plan (as defined in 
section 7701(a)(37) of such Code) of such individual.
  (b) Effective Date.--The form required by subsection (a) shall be 
made available for taxable years beginning after December 31, 2006.

SEC. 908. IRA ELIGIBILITY FOR THE DISABLED.

  (a) In General.--Subsection (f) of section 219 of the Internal 
Revenue Code of 1986 (relating to other definitions and special rules), 
as amended by this Act, is further amended by redesignating paragraph 
(8) as paragraph (9) and by inserting after paragraph (7) the following 
new paragraph:
          ``(8) Special rule for certain disabled individuals.--In the 
        case of an individual--
                  ``(A) who is disabled (within the meaning of section 
                72(m)(7)), and
                  ``(B) who has not attained the applicable age (as 
                defined in section 401(a)(9)(H)) before the close of 
                the taxable year,
        subparagraph (B) of subsection (b)(1) shall not apply.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2005.

SEC. 909. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CERTAIN 
                    RETIREMENT PLAN DISTRIBUTIONS.

  (a) In General.--
          (1) Qualified plans.--Section 402(c) of the Internal Revenue 
        Code of 1986 (relating to rollovers from exempt trusts) is 
        amended by adding at the end the following new paragraph:
          ``(11) Distributions to inherited individual retirement plan 
        of nonspouse beneficiary.--
                  ``(A) In general.--If, with respect to any portion of 
                a distribution from an eligible retirement plan of a 
                deceased employee, a direct trustee-to-trustee transfer 
                is made to an individual retirement plan described in 
                clause (i) or (ii) of paragraph (8)(B) established for 
                the purposes of receiving the distribution on behalf of 
                an individual who is a designated beneficiary (as 
                defined by section 401(a)(9)(E)) of the employee and 
                who is not the surviving spouse of the employee--
                          ``(i) the transfer shall be treated as an 
                        eligible rollover distribution for purposes of 
                        this subsection,
                          ``(ii) the individual retirement plan shall 
                        be treated as an inherited individual 
                        retirement account or individual retirement 
                        annuity (within the meaning of section 
                        408(d)(3)(C)) for purposes of this title, and
                          ``(iii) section 401(a)(9)(B) (other than 
                        clause (iv) thereof) shall apply to such plan.
                  ``(B) Certain trusts treated as beneficiaries.--For 
                purposes of this paragraph, to the extent provided in 
                rules prescribed by the Secretary, a trust maintained 
                for the benefit of one or more designated beneficiaries 
                shall be treated in the same manner as a trust 
                designated beneficiary.''.
          (2) Section 403(a) plans.--Subparagraph (B) of section 
        403(a)(4) of such Code (relating to rollover amounts) is 
        amended by inserting ``and (11)'' after ``(7)''.
          (3) Section 403(b) plans.--Subparagraph (B) of section 
        403(b)(8) of such Code (relating to rollover amounts) is 
        amended by striking ``and (9)'' and inserting ``, (9), and 
        (11)''.
          (4) Section 457 plans.--Subparagraph (B) of section 
        457(e)(16) of such Code (relating to rollover amounts) is 
        amended by striking ``and (9)'' and inserting ``, (9), and 
        (11)''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions after December 31, 2005.

        TITLE X--PROVISIONS TO ENHANCE HEALTH CARE AFFORDABILITY

SEC. 1001. TREATMENT OF ANNUITY AND LIFE INSURANCE CONTRACTS WITH A 
                    LONG-TERM CARE INSURANCE FEATURE.

  (a) Exclusion From Gross Income.--Subsection (e) of section 72 of the 
Internal Revenue Code of 1986 (relating to amounts not received as 
annuities) is amended by redesignating paragraph (11) as paragraph (12) 
and by inserting after paragraph (10) the following new paragraph:
          ``(11) Special rules for certain combination contracts 
        providing long-term care insurance.--Notwithstanding paragraphs 
        (2), (5)(C), and (10), in the case of any charge against the 
        cash value of an annuity contract or the cash surrender value 
        of a life insurance contract made as payment for coverage under 
        a qualified long-term care insurance contract which is part of 
        or a rider on such annuity or life insurance contract--
                  ``(A) the investment in the contract shall be reduced 
                (but not below zero) by such charge, and
                  ``(B) such charge shall not be includible in gross 
                income.''.
  (b) Tax-Free Exchanges Among Certain Insurance Policies.--
          (1) Annuity contracts can include qualified long-term care 
        insurance riders.--Paragraph (2) of section 1035(b) of such 
        Code is amended by adding at the end the following new 
        sentence: ``For purposes of the preceding sentence, a contract 
        shall not fail to be treated as an annuity contract solely 
        because a qualified long-term care insurance contract is a part 
        of or a rider on such contract.''.
          (2) Life insurance contracts can include qualified long-term 
        care insurance riders.--Paragraph (3) of section 1035(b) of 
        such Code is amended by adding at the end the following new 
        sentence: ``For purposes of the preceding sentence, a contract 
        shall not fail to be treated as a life insurance contract 
        solely because a qualified long-term care insurance contract is 
        a part of or a rider on such contract.''.
          (3) Expansion of tax-free exchanges of life insurance, 
        endowment, and annuity contracts for long-term care 
        contracts.--Subsection (a) of section 1035 of such Code 
        (relating to certain exchanges of insurance policies) is 
        amended--
                  (A) in paragraph (1) by striking ``contract;'' and 
                inserting ``contract or for a qualified long-term care 
                insurance contract;'',
                  (B) in paragraph (2) by striking ``contract;'' and 
                inserting ``contract, or (C) for a qualified long-term 
                care insurance contract;'', and
                  (C) in paragraph (3) by striking ``contract.'' and 
                inserting ``contract or for a qualified long-term care 
                insurance contract.''.
          (4) Tax-free exchanges of qualified long-term care insurance 
        contract.--Subsection (a) of section 1035 of such Code 
        (relating to certain exchanges of insurance policies) is 
        amended by striking ``or'' at the end of paragraph (2), by 
        striking the period at the end of paragraph (3) and inserting 
        ``; or'', and by inserting after paragraph (3) the following 
        new paragraph:
          ``(4) a qualified long-term care insurance contract for a 
        qualified long-term care insurance contract.''.
  (c) Treatment of Coverage Provided as Part of a Life Insurance or 
Annuity Contract.--Subsection (e) of section 7702B of such Code 
(relating to treatment of qualified long-term care insurance) is 
amended to read as follows:
  ``(e) Treatment of Coverage Provided as Part of a Life Insurance or 
Annuity Contract.--
          ``(1) Coverage treated as contract.--Except as otherwise 
        provided in regulations prescribed by the Secretary, in the 
        case of any long-term care insurance coverage (whether or not 
        qualified) provided by a rider on or as part of a life 
        insurance contract or an annuity contract, this title shall 
        apply as if the portion of the contract providing such coverage 
        is a separate contract.
          ``(2) Denial of deduction under section 213.--No deduction 
        shall be allowed under section 213(a) for any payment made for 
        coverage under a qualified long-term care insurance contract if 
        such payment is made as a charge against the cash value of an 
        annuity contract or the cash surrender value of a life 
        insurance contract.
          ``(3) Application of section 7702.--Section 7702(c)(2) 
        (relating to the guideline premium limitation) shall be applied 
        by increasing the guideline premium limitation with respect to 
        the life insurance contract, as of any date--
                  ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for coverage under the qualified long-
                term care insurance contract made to that date under 
                the life insurance contract, less
                  ``(B) any such charges the imposition of which 
                reduces the premiums paid for the life insurance 
                contract (within the meaning of section 7702(f)(1)).
          ``(4) Portion defined.--For purposes of this subsection, the 
        term `portion' means only the terms and benefits under a life 
        insurance contract or annuity contract that are in addition to 
        the terms and benefits under the contract without regard to 
        long-term care insurance coverage.
          ``(5) Annuity contracts to which paragraph (1) does not 
        apply.--For purposes of this subsection, none of the following 
        shall be treated as an annuity contract:
                  ``(A) A trust described in section 401(a) which is 
                exempt from tax under section 501(a).
                  ``(B) A contract--
                          ``(i) purchased by a trust described in 
                        subparagraph (A),
                          ``(ii) purchased as part of a plan described 
                        in section 403(a),
                          ``(iii) described in section 403(b),
                          ``(iv) provided for employees of a life 
                        insurance company under a plan described in 
                        section 818(a)(3), or
                          ``(v) from an individual retirement account 
                        or an individual retirement annuity.
                  ``(C) A contract purchased by an employer for the 
                benefit of the employee (or the employee's spouse).
        Any dividend described in section 404(k) which is received by a 
        participant or beneficiary shall, for purposes of this 
        paragraph, be treated as paid under a separate contract to 
        which subparagraph (B)(i) applies.''.
  (d) Information Reporting.--
          (1) Subpart B of part III of subchapter A of chapter 61 of 
        such Code (relating to information concerning transactions with 
        other persons) is amended by adding at the end the following 
        new section:

``SEC. 6050U. CHARGES OR PAYMENTS FOR QUALIFIED LONG-TERM CARE 
                    INSURANCE CONTRACTS UNDER COMBINED ARRANGEMENTS.

  ``(a) Requirement of Reporting.--Any person who makes a charge 
against the cash value of an annuity contract, or the cash surrender 
value of a life insurance contract, which is excludible from gross 
income under section 72(e)(11) shall make a return, according to the 
forms or regulations prescribed by the Secretary, setting forth--
          ``(1) the amount of the aggregate of such charges against 
        each such contract for the calendar year,
          ``(2) the amount of the reduction in the investment in each 
        such contract by reason of such charges, and
          ``(3) the name, address, and TIN of the individual who is the 
        holder of each such contract.
  ``(b) Statements to Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
          ``(1) the name, address, and phone number of the information 
        contact of the person making the payments, and
          ``(2) the information required to be shown on the return with 
        respect to such individual.
The written statement required under the preceding sentence shall be 
furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was required to be made.''.
          (2) Clerical amendment.--The table of sections for subpart B 
        of part III of subchapter A of such chapter 61 of such Code is 
        amended by adding at the end the following new item:

``Sec. 6050U. Charges or payments for qualified long-term care 
insurance contracts under combined arrangements.''.

  (e) Treatment of Policy Acquisition Expenses.--Subsection (e) of 
section 848 of such Code (relating to classification of contracts) is 
amended by adding at the end the following new paragraph:
          ``(6) Treatment of certain qualified long-term care insurance 
        contract arrangements.--An annuity or life insurance contract 
        which includes a qualified long-term care insurance contract as 
        a part of or a rider on such annuity or life insurance contract 
        shall be treated as a specified insurance contract not 
        described in subparagraph (A) or (B) of subsection (c)(1).''.
  (f) Treatment as Qualified Additional Benefit.--Subparagraph (A) of 
section 7702(f)(5) of such Code (relating to qualified additional 
benefits) is amended by striking ``or'' at the end of clause (iv), by 
redesignating clause (v) as clause (vi), and by inserting after clause 
(iv) the following new clause:
                          ``(v) qualified long-term care insurance 
                        contract which is a part of or a rider on the 
                        contract, or''.
  (g) Effective Dates.--
          (1) In general.--Except as provided by paragraph (2), the 
        amendments made by this section shall apply to contracts issued 
        before, on, or after December 31, 2006, but only with respect 
        to periods beginning after such date.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply with respect to exchanges occurring after December 
        31, 2006.

SEC. 1002. DISPOSITION OF UNUSED HEALTH BENEFITS IN CAFETERIA PLANS AND 
                    FLEXIBLE SPENDING ARRANGEMENTS.

  (a) In General.--Section 125 of the Internal Revenue Code of 1986 
(relating to cafeteria plans) is amended by redesignating subsections 
(h) and (i) as subsections (i) and (j), respectively, and by inserting 
after subsection (g) the following:
  ``(h) Contributions of Certain Unused Health Benefits.--
          ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a cafeteria 
        plan solely because qualified benefits under such plan include 
        a health flexible spending arrangement under which not more 
        than $500 of unused health benefits may be--
                  ``(A) carried forward to the succeeding plan year of 
                such health flexible spending arrangement, or
                  ``(B) to the extent permitted by section 106(d), 
                contributed by the employer to a health savings account 
                (as defined in section 223(d)) maintained for the 
                benefit of the employee.
          ``(2) Health flexible spending arrangement.--For purposes of 
        this subsection, the term `health flexible spending 
        arrangement' means a flexible spending arrangement (as defined 
        in section 106(c)) that is a qualified benefit and only permits 
        reimbursement for expenses for medical care (as defined in 
        section 213(d)(1), without regard to subparagraphs (C) and (D) 
        thereof).
          ``(3) Unused health benefits.--For purposes of this 
        subsection, with respect to an employee, the term `unused 
        health benefits' means the excess of--
                  ``(A) the maximum amount of reimbursement allowable 
                to the employee for a plan year under a health flexible 
                spending arrangement, over
                  ``(B) the actual amount of reimbursement for such 
                year under such arrangement.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 1003. DISTRIBUTIONS FROM GOVERNMENTAL RETIREMENT PLANS FOR HEALTH 
                    AND LONG-TERM CARE INSURANCE FOR PUBLIC SAFETY 
                    OFFICERS.

  (a) In General.--Section 402 of the Internal Revenue Code of 1986 
(relating to taxability of beneficiary of employees' trust) is amended 
by adding at the end the following new subsection:
  ``(l) Distributions From Governmental Plans for Health and Long-Term 
Care Insurance.--
          ``(1) In general.--In the case of an employee who is an 
        eligible retired public safety officer who makes the election 
        described in paragraph (6) with respect to any taxable year of 
        such employee, gross income of such employee for such taxable 
        year does not include any distribution from an eligible 
        retirement plan to the extent that the aggregate amount of such 
        distributions does not exceed the amount paid by such employee 
        for qualified health insurance premiums of the employee, his 
        spouse, or dependents (as defined in section 152) for such 
        taxable year.
          ``(2) Limitation.--The amount which may be excluded from 
        gross income for the taxable year by reason of paragraph (1) 
        shall not exceed $5,000.
          ``(3) Distributions must otherwise be includible.--
                  ``(A) In general.--An amount shall be treated as a 
                distribution for purposes of paragraph (1) only to the 
                extent that such amount would be includible in gross 
                income without regard to paragraph (1).
                  ``(B) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which an 
                amount is treated as a distribution for purposes of 
                subparagraph (A), the aggregate amounts distributed 
                from an eligible retirement plan in a taxable year (up 
                to the amount excluded under paragraph (1)) shall be 
                treated as includible in gross income (without regard 
                to subparagraph (A)) to the extent that such amount 
                does not exceed the aggregate amount which would have 
                been so includible if all amounts distributed from all 
                eligible retirement plans were treated as 1 contract 
                for purposes of determining the inclusion of such 
                distribution under section 72. Proper adjustments shall 
                be made in applying section 72 to other distributions 
                in such taxable year and subsequent taxable years.
          ``(4) Definitions.--For purposes of this subsection--
                  ``(A) Eligible retirement plan.--For purposes of 
                paragraph (1), the term `eligible retirement plan' 
                means a governmental plan (within the meaning of 
                section 414(d)) which is described in clause (iii), 
                (iv), (v), or (vi) of subsection (c)(8)(B).
                  ``(B) Eligible retired public safety officer.--The 
                term `eligible retired public safety officer' means an 
                individual who, by reason of disability or attainment 
                of normal retirement age, is separated from service as 
                a public safety officer with the employer who maintains 
                the eligible retirement plan from which distributions 
                subject to paragraph (1) are made.
                  ``(C) Public safety officer.--The term `public safety 
                officer' shall have the same meaning given such term by 
                section 1204(8)(A) of the Omnibus Crime Control and 
                Safe Streets Act of 1968 (42 U.S.C. 3796b(8)(A)).
                  ``(D) Qualified health insurance premiums.--The term 
                `qualified health insurance premiums' means premiums 
                for coverage for the eligible retired public safety 
                officer, his spouse, and dependents, by an accident or 
                health insurance plan or qualified long-term care 
                insurance contract (as defined in section 7702B(b)).
          ``(5) Special rules.--For purposes of this subsection--
                  ``(A) Direct payment to insurer required.--Paragraph 
                (1) shall only apply to a distribution if payment of 
                the premiums is made directly to the provider of the 
                accident or health insurance plan or qualified long-
                term care insurance contract by deduction from a 
                distribution from the eligible retirement plan.
                  ``(B) Related plans treated as 1.--All eligible 
                retirement plans of an employer shall be treated as a 
                single plan.
          ``(6) Election described.--
                  ``(A) In general.--For purposes of paragraph (1), an 
                election is described in this paragraph if the election 
                is made by an employee after separation from service 
                with respect to amounts not distributed from an 
                eligible retirement plan to have amounts from such plan 
                distributed in order to pay for qualified health 
                insurance premiums.
                  ``(B) Special rule.--A plan shall not be treated as 
                violating the requirements of section 401, or as 
                engaging in a prohibited transaction for purposes of 
                section 503(b), merely because it provides for an 
                election with respect to amounts that are otherwise 
                distributable under the plan or merely because of a 
                distribution made pursuant to an election described in 
                subparagraph (A).
          ``(7) Coordination with medical expense deduction.--The 
        amounts excluded from gross income under paragraph (1) shall 
        not be taken into account under section 213.
          ``(8) Coordination with deduction for health insurance costs 
        of self-employed individuals.--The amounts excluded from gross 
        income under paragraph (1) shall not be taken into account 
        under section 162(l).''.
  (b) Conforming Amendments.--
          (1) Section 403(a) of such Code (relating to taxability of 
        beneficiary under a qualified annuity plan) is amended by 
        inserting after paragraph (1) the following new paragraph:
          ``(2) Special rule for health and long-term care insurance.--
        To the extent provided in section 402(l), paragraph (1) shall 
        not apply to the amount distributed under the contract which is 
        otherwise includible in gross income under this subsection.''.
          (2) Section 403(b) of such Code (relating to taxability of 
        beneficiary under annuity purchased by section 501(c)(3) 
        organization or public school) is amended by inserting after 
        paragraph (1) the following new paragraph:
          ``(2) Special rule for health and long-term care insurance.--
        To the extent provided in section 402(l), paragraph (1) shall 
        not apply to the amount distributed under the contract which is 
        otherwise includible in gross income under this subsection.''.
          (3) Section 457(a) of such Code (relating to year of 
        inclusion in gross income) is amended by adding at the end the 
        following new paragraph:
          ``(3) Special rule for health and long-term care insurance.--
        In the case of a plan of an eligible employer described in 
        subsection (e)(1)(A), to the extent provided in section 402(l), 
        paragraph (1) shall not apply to amounts otherwise includible 
        in gross income under this subsection.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions in taxable years beginning after December 31, 2005.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................58
          A. Purpose and Summary.................................    58
          B. Background and Need for Legislation.................    63
          C. Legislative History.................................    63
 II. Explanation of the Bill.........................................64
     Title I: Reform of Funding Rules for Single-Employer Defined 
     Benefit Pension Plans...........................................64
          A. Minimum Funding Standards for Single-Employer 
              Defined Benefit Pension Plans (secs. 111, 112, 114 
              and 301 of the bill and sec. 412 and new sec. 430 
              of the Code).......................................    64
          B. Benefit Limitations Under Single-Employer Defined 
              Benefit Pension Plans..............................    83
              1. Prohibition on shutdown benefits and other 
                  unpredictable contingent event benefits (sec. 
                  113(a) of the bill and new sec. 436 of the 
                  Code)..........................................    83
              2. Funding-based limits on benefits and benefit 
                  accruals (sec. 113(b) of the bill and new sec. 
                  437 of the Code)...............................    85
          C. Modification of Transition Rule to Pension Funding 
              Requirements for Interstate Bus Company (sec. 121 
              of the bill).......................................    89
          D. Treatment of Nonqualified Deferred Compensation Plan 
              when Employer's Defined Benefit Plan is in At-Risk 
              Status (sec. 122 of the bill and sec. 409A of the 
              Code)..............................................    92
     Title II: Funding Rules for Multiemployer Defined Benefit Plans.94
          A. Funding Rules for Multiemployer Defined Benefit 
              Plans (sec. 211 of the bill and new sec. 431 of the 
              Code)..............................................    95
          B. Additional Funding Rules for Multiemployer Plans in 
              Endangered or Critical Status (sec. 212 of the bill 
              and new sec. 432 of the Code)......................    99
          C. Measures to Forestall Insolvency of Multiemployer 
              Plans (sec. 302 of the bill and sec. 418E of the 
              Code)..............................................   106
     Title III: Other Provisions....................................107
          A. Interest Rate Assumption for Determination of Lump-
              Sum Distributions (sec. 302(b) of the bill and sec. 
              417 of the Code)...................................   107
          B. Interest Rate Assumption for Applying Benefit 
              Limitations to Lump-Sum Distributions (sec. 303 of 
              the bill and sec. 415 of the Code).................   109
          C. Distributions During Working Retirement (sec. 304(b) 
              of the bill and new sec. 401(a)(35) of the Code)...   110
     Title IV: Improvements in PBGC Guarantee Provisions (sec. 401 of 
     the bill and sec. 4006 of ERISA)...............................111
     Title V: Disclosure--Section 4010 Filings With the PBGC (sec. 503 
     of the bill and sec. 4010 of ERISA)............................116
     Title VI: Prohibited Transaction Exemption for the Provision of 
     Investment Advice (sec. 602 of the bill and sec. 4975 of the Co118
     Title VII: Benefit Accrual Standards (sec. 701(b) of the bill and 
     secs. 411 and 417 of the Code).................................121
     Title VIII: Deduction Limitations..............................129
          A. Increase in Deduction Limits (sec. 801 of the bill 
              and sec. 404 of the Code)..........................   129
          B. Updating Deduction Rules for Combination of Plans 
              (sec. 802 of the bill and secs. 404(a)(7) and 4972 
              of the Code).......................................   131
     Title IX: Enhanced Retirement Savings and Defined Contribution 
     Plans..........................................................132
          A. Permanency of EGTRRA Pension and IRA Provisions 
              (sec. 901 of the bill).............................   132
          B. Saver's Credit Made Permanent (sec. 902 of the bill 
              and sec. 25B of the Code)..........................   135
          C. Increasing Participation Through Automatic 
              Enrollment Arrangements (sec. 903 of the bill and 
              secs. 401(k), 401(m), 414(w), and 416 of the Code).   136
          D. Treatment of Distributions to Guardsmen Called to 
              Active Duty (sec. 904 of the bill and secs. 72(t), 
              401(k), 403(b) of the bill)........................   141
          E. Inapplicability of 10-Percent Additional Tax on 
              Early Distributions of Pension Plans of Public 
              Safety Employees (sec. 905 of the bill and sec. 
              72(t) of the Code).................................   142
          F. Combat Zone Compensation Taken into Account for 
              Purposes of IRA Contributions (sec. 906 of the bill 
              and sec. 219 of the Code)..........................   143
          G. Direct Deposit of Tax Refunds in an IRA (sec. 907 of 
              the bill)..........................................   144
          H. IRA Eligibility for the Disabled (sec. 908 of the 
              bill and sec. 219 of the Code).....................   145
          I. Rollovers by Nonspouse Beneficiaries (sec. 909 of 
              the bill and secs. 402, 403(a)(4), 403(b)(8), and 
              457(e)(16) of the Code)............................   146
     Title X: Provisions to Enhance Health Care Affordability.......148
          A. Tax Treatment of Combined Annuity or Life Insurance 
              Contracts with a Long-Term Care Insurance Feature 
              (sec. 1001 of the bill and secs. 72. 1035, and 
              7702B and new sec. 6050U of the Code)..............   148
          B. Disposition of Unused Health Benefits in Flexible 
              Spending Arrangements (sec. 1002 of the bill and 
              sec. 125 of the Code)..............................   153
          C. Permit Tax-Free Distributions from Governmental 
              Retirement Plans for Premiums for Health and Long-
              Term Care Insurance for Public Safety Officers 
              (sec. 1003 of the bill and sec. 402 of the Code)...   156
III. Votes of the Committee.........................................157
 IV. Budget Effects of the Bill.....................................158
          A. Committee Estimate of Budgetary Effects.............   158
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................   161
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   161
          D. Macroeconomic Impact Analysis.......................   176
  V. Other Matters to be Discussed Under the Rules of the House.....176
          A. Committee Oversight Findings and Recommendations....   176
          B. Statement of General Performance Goals and 
              Objectives.........................................   176
          C. Constitutional Authority Statement..................   176
          D. Information Relating to Unfunded Mandates...........   176
          E. Applicability of House Rule XXI 5(b)................   176
          F. Tax Complexity Analysis.............................   177
 VI. Changes in Existing Law Made by the Bill, as Reported..........177
VII. Dissenting Views...............................................303

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                PURPOSE

    The bill, H.R. 2830, as amended, includes provisions for: 
(1) reform of funding rules for single-employer defined benefit 
pension plans (Title I); (2) funding rules for multiemployer 
defined benefit plans (Title II); (3) other provisions relating 
to pensions (Title III); (4) improvements in PBGC guarantee 
provisions (Title IV); (5) disclosure of pension plan 
information (Title V); (6) investment advice (Title VI); (7) 
benefit accrual standards (Title VII); (8) deduction 
limitations (Title VIII); (9) enhanced retirement savings and 
defined contribution plans (Title IX) ; and (10) provisions to 
enhance health care affordability (Title X).

                                SUMMARY

I. Reform of funding rules for single-employer plans

    Funding rules for single-employer plans.--For plan years 
beginning in 2006, the bill applies the law as in effect for 
2005, including the use of an interest rate based on long-term 
corporate bond rates to measure pension liabilities. For plan 
years beginning after 2006, the bill replaces the present-law 
two-tiered funding rules for single-employer plans with a 
single set of rules. Under the new rules, employers must 
generally contribute: (1) the amount needed to amortize 
unfunded liabilities attributable to previously earned benefits 
(the plan's ``funding shortfall'') over seven years, plus (2) 
the amount needed to fund benefits earned in the current year 
(the plan's ``normal cost''). For this purpose, liabilities are 
measured using a modified interest rate yield curve based on a 
three-year weighted average of corporate bond rates. The 
modified yield consists of three ``segment'' rates based on the 
time when benefits are expected to be paid from the plan 
(within five years, between six and 20 years, and after 20 
years). The bill also specifies a general mortality table to be 
used in valuing liabilities and permits the use of a plan-
specific mortality table in certain cases. Special assumptions 
must be used in measuring liabilities of ``at-risk'' plans 
(i.e., plans that are less than 60-percent funded). Several 
phase-in rules apply in measuring liabilities and determining a 
plan's funding shortfall. The bill also modifies the rules 
relating to the use of credit balances, so that credit balances 
are adjusted to reflect gains and losses on plan assets, credit 
balances can be used to reduce required contributions only if a 
plan is at least 80-percent funded, and, subject to certain 
exceptions, the value of plan assets is reduced by any credit 
balances in determining required contributions and a plan's 
funded status.
    Benefit limitations under single-employer plans.--Under the 
bill, a single-employer defined benefit pension plan may not 
provide benefits payable solely as a result of a plant shutdown 
or other unpredictable contingent event. In addition, benefit 
increases generally are not permitted if a plan is less than 
80-percent funded unless the liability attributable to such 
increases is currently funded, lump-sums and other accelerated 
forms of distribution may not be made if a plan is less than 
80-precent funded, and benefit accruals must be frozen if a 
plan is less than 60-percent funded. These provisions are 
generally effective after December 31, 2006, with a delayed 
effective date for plans maintained pursuant to collective 
bargaining agreements.
    Modification of transition rule to pension funding 
requirements.--The bill extends to 2006 special rules for 
determining required contributions and variable rate premiums 
in the case of a single-employer plan sponsored by a company 
engaged primarily in interurban or interstate passenger bus 
service and meeting certain other requirements and modifies the 
special rules for years after 2006 when the new single-employer 
funding rules become effective.
    Treatment of nonqualified deferred compensation plan when 
employer defined benefit plan is in at-risk status.--Effective 
after December 31, 2005, if a defined benefit pension plan is 
in at-risk status (i.e., the plan is less than 60-percent 
funded), certain arrangements involving nonqualified deferred 
compensation are treated as property transferred in connection 
with the performance of services, resulting in current income 
inclusion and, in some cases, interest and a 20-percent 
additional tax. This treatment applies if assets are set aside 
(directly or indirectly) in a trust or other arrangement as 
determined by the Secretary of the Treasury, or transferred to 
such a trust or other arrangement, for purposes of paying 
nonqualified deferred compensation when the defined benefit 
pension plan is in at-risk status. The rule does not apply in 
the case of assets that are set aside before the defined 
benefit pension plan is in at-risk statute. The treatment also 
applies if a nonqualified deferred compensation plan provides 
that assets will be restricted to the provision of benefits 
under the plan in connection with the at-risk status (or other 
similar financial measure determined by the Secretary of 
Treasury) of any defined benefit pension plan of the employer 
or assets are so restricted.

II. Funding rules for multiemployer defined benefit plans

    General funding rules for multiemployer plans.--Under the 
bill, for plan years beginning after December 31, 2006, in the 
case of multiemployer plans, the amortization periods 
attributable to past service liabilities and gains or losses 
from changes in actuarial assumptions are 15 years, rather than 
30 years. The bill also modifies the rules relating to 
extensions of amortization periods and the interest rate 
applicable in the case of a funding waiver or amortization 
extension.
    Additional funding rules for multiemployer plans in 
endangered or critical status.--The bill provides (1) criteria 
for identifying underfunded multiemployer plans that pose the 
risk of a funding deficiency or insolvency, and (2) procedures 
for developing a plan to improve funding status, effective for 
plan years beginning after December 31, 2005.
    Measures to forestall insolvency of multiemployer plans.--
The bill increases the likelihood of anticipating future 
insolvencies by requiring multiemployer plans in reorganization 
status to make projections of possible insolvency over a longer 
period, effective for plan years beginning after December 31, 
2005.

III. Other provisions

    Interest rate for 2006 funding requirements.--In the case 
of single-employer plans, the bill applies an interest rate 
based on long-term corporate bonds for purposes of determining 
current liability for plan years beginning in 2006.
    Interest rate assumption for determination of lump-sum 
distributions.--Under the bill, the minimum present value of 
certain forms of benefit, such as lump sums, is determined 
using threesegment rates, based on a yield curve of interest 
rates on investment-grade corporate bonds, and a specified mortality 
table. The changes to the statutory assumptions are phased in over five 
years beginning in 2007.
    Interest rate assumption for applying benefit limitations 
to lump-sum distributions.--Under the bill, effective for 
distributions in years beginning after December 31, 2005, the 
interest rate used in applying the limits on benefits to 
certain forms of distributions, such as lump sums, is not less 
than the greatest of (1) 5.5 percent, (2) the rate that 
provides a benefit of not more than 105 percent of the benefit 
that would be provided using the statutory rate in determining 
minimum present value, and (3) the rate specified under the 
plan.
    Distributions during working retirement.--Effective for 
distributions in plan years beginning after December 31, 2005, 
a pension plan does not fail to be a qualified retirement plan 
solely because in-service distributions are made to 
participants who have attained age 62.

IV. Improvements in PBGC guarantee provisions

    Beginning in 2006, the bill phases in (depending on a 
plan's funded status) an increase in PBGC single-employer flat-
rate premiums to $30 per participant per year as adjusted after 
2006 to reflect increases in average wages as defined under the 
Social Security Act. The bill applies a new premium of $1,250 
per participant for three years after termination of a single-
employer plan in a distress termination (other than in 
liquidation proceedings) or an involuntary termination. In the 
case of termination due to a reorganization in bankruptcy, the 
liability for the premium does not arise (and the three-year 
period does not begin) until the employer is discharged from 
the bankruptcy proceeding. The bill applies an interest rate 
based on long-term corporate bonds in determining variable rate 
premiums for 2006 and conforms the rules for variable rate 
premiums to the new funding rules for years after 2006, 
including repeal of the full funding limit exception to 
variable rate premiums.

V. Disclosure

    Effective for plan years beginning after December 31, 2006, 
the bill changes the standard for required reporting of 
financial information to the PBGC under section 4010 of ERISA, 
so that reporting is required if plans are less than 60-percent 
funded. In addition, if section 4010 reporting is required, 
notice and information about funded status must be provided to 
participants, beneficiaries, and Congressional committees with 
jurisdiction over pension plan funding.

VI. Investment advice

    The bill provides prohibited transaction exemptions for the 
provision of investment advice to a plan and plan participants 
with respect to the investment of plan assets, as well as fees 
for such advice and investments made pursuant to such advice, 
provided certain requirements are met, including disclosure of 
specific information.

VII. Benefit accrual standards

    The bill makes various changes in the application of the 
rules prohibiting age discrimination as applied to defined 
benefit pension plans, including hybrid plans. The bill allows 
hybrid plans to determine minimum lump sums as the balance of 
participants' hypothetical accounts, provided that the rate of 
interest provided for under the plan is not greater than a 
market rate of interest. The provision is effective for periods 
beginning on or after June 29, 2005.

VIII. Deduction limits

    Increase in deduction limits.--Effective in 2006, the bill 
allows employers to make deductible contributions (1) to 
single-employer plans in an amount based on 150 percent of the 
plan's funding target and (2) to multiemployer plans in an 
amount based on 140 percent of the plan's current liability.
    Updating rules for combination of plans.--Effective 2006, 
in applying the combined limit on deductible contributions to 
defined benefit and defined contribution plans, only 
contributions to defined contribution plans exceeding six 
percent of compensation are taken into account.

IX. Enhanced retirement savings and defined contribution plans

    Pension and individual retirement arrangement provisions of 
the Economic Growth and Tax Relief Reconciliation Act of 2001 
made permanent.--Under the bill, the EGTRRA sunset for years 
beginning after December 31, 2010, does not apply to the 
pension and IRA provisions of EGTRRA. Thus, these provisions 
are made permanent.
    Saver's credit made permanent.--The bill makes the saver's 
credit permanent and provides for the direct deposit of the 
credit to an IRA or plan that accepts such amounts.
    Increasing participation through automatic enrollment 
contribution arrangements.--The bill provides nondiscrimination 
safe harbors for elective deferrals and matching contributions 
made under a qualified automatic contribution arrangement, 
which is an arrangement that provides that participants are 
treated as having elected to make elective deferrals at certain 
scheduled rates (unless they elect otherwise). The provision is 
effective for plan years beginning after December 31, 2005.
    Penalty-free withdrawals from retirement plans for 
individuals called to active duty for at least 179 days.--The 
bill provides an exception to the 10-percent early withdrawal 
tax for distributions from an IRA or attributable to elective 
deferrals in the case of a reservist called to active duty on 
or after September 11, 2001, and before September 12, 2007, for 
at least 180 days or an indefinite period. Such amounts may be 
recontributed to an IRA within two years of the end of active 
duty. The statute of limitations for claiming a refund with 
respect to such a distribution is extended to one year after 
the date of enactment of the provision.
    Waiver of 10-percent early withdrawal penalty tax on 
certain distributions of pension plans for public safety 
employees.--Effective for distributions after the date of 
enactment, the 10-percent early withdrawal tax does not apply 
to certain benefits under a deferred retirement option plan 
(``DROP'') feature of a governmental defined benefit pension 
plan to qualified public safety employees.
    Combat zone compensation taken into account for purposes of 
determining limitation and deductibility of contributions to 
individual retirement plans.--Effective for years beginning 
after December 31, 2005, compensation as defined for IRA 
purposes includes combat pay that is excludible from gross 
income.
    Direct payment of tax refunds to retirement plans.--The 
Secretary of the Treasury is directed to develop forms under 
which all or a portion of taxpayer refunds for taxable years 
beginning after December 31, 2006, can be deposited directly 
into IRAs.
    IRA eligibility for the disabled.--Effective for years 
beginning after December 31, 2005, the bill allows IRA 
contributions to be made by disabled individuals who have no 
compensation.
    Rollovers by nonspouse beneficiaries.--The bill allows a 
nonspouse beneficiary who inherits an interest in an employer-
sponsored retirement plan to roll the interest over to an IRA, 
effective for distributions after December 31, 2005. The bill 
does not change the application of the minimum distribution 
rules for nonspouse beneficiaries.

X. Provisions to enhance health care affordability

    Treatment of annuity and life insurance contracts with a 
long-term care insurance feature.--The bill provides rules for 
long-term care insurance coverage provided by a rider on or as 
part of an annuity contract and modifies the rules for long-
term care insurance coverage provided by a rider on or as part 
of a life insurance contract. The provision is generally 
effective after December 31, 2006.
    Disposition of unused health benefits in cafeteria plans 
and flexible spending arrangements.--Effective for years 
beginning after December 31, 2005, the bill allows up to $500 
in unused health benefits under a health flexible spending 
account to be carried over to the next year or, in the case of 
an employee eligible for contributions to a health savings 
account (``HSA''), contributed to an HSA.
    Distributions from governmental retirement plans for health 
and long-term care insurance for public safety officers.--
Effective for years beginning after December 31, 2005, the bill 
provides an exclusion of up to $5,000 for amounts distributed 
from an employer-sponsored governmental retirement plan in 
order to pay accident or health or long-term care insurance 
premiums for retired public safety officers.

                 B. Background and Need for Legislation

    The private pension system plays a critical role in the 
retirement income security of American workers. Currently, 
outdated funding rules have threatened the financial security 
of many pension plans and have allowed some employers to 
dramatically underfund their promised obligations to their 
employees. Among other changes, the bill makes modifications to 
the pension funding rules which will help companies solidify 
their pension promises and give their employees the financial 
security for which they have worked.
    The bill also contains provisions that will increase the 
tax-favored savings opportunities for Americans. For example, 
the bill makes permanent the retirement savings provisions that 
were part of the Economic Growth and Tax Relief Reconciliation 
Act of 2001.
    The bill also takes steps to make health care, including 
long-term care, more affordable.

                         C. Legislative History


Background

    H.R. 2830 was introduced on June 9, 2005, and was referred 
to the Committee on Education and the Workforce and in addition 
to the Committee on Ways and Means, for a period to be 
determined by the Speaker, in each case for consideration of 
such provisions as fall within the jurisdiction of the 
committee concerned.
    The Committee on Education and the Workforce marked up the 
bill on June 29, 2005, and order the bill, as amended, 
favorably reported. See H.R. Rpt. 109-232, Part I, for the bill 
as reported by the Committee on Education and the Workforce.

Committee action

    The Committee on Ways and Means marked up the bill on 
November 9, 2005, and ordered the bill, as amended, favorably 
reported.

Committee hearings

    Matters addressed by the bill have been the subject of 
Committee review in the current as well as preceding 
Congresses.
    The following full Committee and Subcommittee hearings 
related to matters in the bill have been held during the 109th 
Congress.
     Hearing on funding rules for multiemployer defined 
benefit plans in H.R. 2830, the ``Pension Protection Act of 
2005'' (June 28, 2005, Subcommittee on Select Revenue Measures)
     Hearing on retirement policy challenges and 
opportunities of our aging society (May 19, 2005, Full 
Committee)
     Hearing on long-term care (April 19, 2005, 
Subcommittee on Health)
     Hearing on the President's proposal for single-
employer pension funding reform (March 8, 2005, Subcommittee on 
Select Revenue Measures)
    The following full Committee and Subcommittee hearings 
related to matters in the bill were held during the 108th 
Congress:
     Joint hearing on examining pension security and 
defined benefit plans, the Bush Administration's proposal to 
replace the 30-year Treasury rate (July 15, 2003; Subcommittee 
on Select Revenue Measures).
     Challenges facing pension plan funding (April 30, 
2003; Subcommittee on Select Revenue Measures).
     Hearing on the President's fiscal year 2004 budget 
(February 5, 2003, Full Committee).
     Hearing on the President's fiscal year 2004 budget 
(February 4, 2003, Full committee).

Previous consideration of legislation

    A number of provisions in the bill as reported have 
previously passed the House, including the provisions relating 
to investment advice, treating combat pay as compensation for 
purposes of the IRA rules, providing for qualified reservist 
distributions, and allowing the rollover of unused amounts in a 
flexible spending arrangement.

                      II. EXPLANATION OF THE BILL


 TITLE I: REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT 
                             PENSION PLANS


   A. Minimum Funding Standards for Single-Employer Defined Benefit 
                             Pension Plans


(Secs. 111, 112, 114 and 301 of the bill and sec. 412 and new sec. 430 
        of the Code)

                              PRESENT LAW

                               In general

    Single-employer defined benefit pension plans are subject 
to minimum funding requirements under the Employee Retirement 
Income Security Act of 1974 (``ERISA'') and the Internal 
Revenue Code (the ``Code'').\1\ The amount of contributions 
required for a plan year under the minimum funding rules is 
generally the amount needed to fund benefits earned during that 
year plus that year's portion of other liabilities that are 
amortized over a period of years, such as benefits resulting 
from a grant of past service credit. The amount of required 
annual contributions is determined under one of a number of 
acceptable actuarial cost methods. Additional contributions are 
required under the deficit reduction contribution rules in the 
case of certain underfunded plans. No contribution is required 
under the minimum funding rules in excess of the full funding 
limit (described below).
---------------------------------------------------------------------------
    \1\ Code sec. 412; ERISA secs. 301-308. The minimum funding rules 
also apply to multiemployer plans, but the rules for multiemployer 
plans differ in various respects from the rules applicable to single-
employer plans. The rules for multiemployer plans are discussed in Part 
II of this document. The minimum funding rules do not apply to 
governmental plans or to church plans, except church plans with respect 
to which an election has been made to have various ERISA and Code 
requirements, including the funding requirements, apply to the plan. In 
addition, special rules apply to certain plans funded exclusively by 
the purchase of individual insurance contracts (referred to as 
``insurance contract'' plans).
---------------------------------------------------------------------------

General minimum funding rules

            Funding standard account
    As an administrative aid in the application of the funding 
requirements, a defined benefit pension plan is required to 
maintain a special account called a ``funding standard 
account'' to which specified charges and credits are made for 
each plan year, including a charge for normal cost and credits 
for contributions to the plan. Other charges or credits may 
apply as a result of decreases or increases in past service 
liability as a result of plan amendments, experience gains or 
losses, gains or losses resulting from a change in actuarial 
assumptions, or a waiver of minimum required contributions.
    In determining plan funding under an actuarial cost method, 
a plan's actuary generally makes certain assumptions regarding 
the future experience of a plan. These assumptions typically 
involve rates of interest, mortality, disability, salary 
increases, and other factors affecting the value of assets and 
liabilities. If the plan's actual unfunded liabilities are less 
than those anticipated by the actuary on the basis of these 
assumptions, then the excess is an experience gain. If the 
actual unfunded liabilities are greater than those anticipated, 
then the difference is an experience loss. Experience gains and 
losses for a year are generally amortized as credits or charges 
to the funding standard account over five years.
    If the actuarial assumptions used for funding a plan are 
revised and, under the new assumptions, the accrued liability 
of a plan is less than the accrued liability computed under the 
previous assumptions, the decrease is a gain from changes in 
actuarial assumptions. If the new assumptions result in an 
increase in the accrued liability, the plan has a loss from 
changes in actuarial assumptions. The accrued liability of a 
plan is the actuarial present value of projected pension 
benefits under the plan that will not be funded by future 
contributions to meet normal cost or future employee 
contributions. The gain or loss for a year from changes in 
actuarial assumptions is amortized as credits or charges to the 
funding standard account over ten years.
    If minimum required contributions are waived (as discussed 
below), the waived amount (referred to as a ``waived funding 
deficiency'') is credited to the funding standard account. The 
waived funding deficiency is then amortized over a period of 
five years, beginning with the year following the year in which 
the waiver is granted. Each year, the funding standard account 
is charged with the amortization amount for that year unless 
the plan becomes fully funded.
    If, as of the close of a plan year, the funding standard 
account reflects credits at least equal to charges, the plan is 
generally treated as meeting the minimum funding standard for 
the year. If, as of the close of the plan year, charges to the 
funding standard account exceed credits to the account, then 
the excess is referred to as an ``accumulated funding 
deficiency.'' Thus, as a general rule, the minimum contribution 
for a plan year is determined as the amount by which the 
charges to the funding standard account would exceed credits to 
the account if no contribution were made to the plan. For 
example, if the balance of charges to the funding standard 
account of a plan for a year would be $200,000 without any 
contributions, then a minimum contribution equal to that amount 
would be required to meet the minimum funding standard for the 
year to prevent an accumulated funding deficiency.
            Credit balances
    If credits to the funding standard account exceed charges, 
a ``credit balance'' results. A credit balance results, for 
example, if contributions in excess of minimum required 
contributions are made. Similarly, a credit balance may result 
from large net experience gains. The amount of the credit 
balance, increased with interest at the rate used under the 
plan to determine costs, can be used to reduce future required 
contributions.
            Funding methods and general concepts
    A defined benefit pension plan is required to use an 
acceptable actuarial cost method to determine the elements 
included in its funding standard account for a year. Generally, 
an actuarial cost method breaks up the cost of benefits under 
the plan into annual charges consistingof two elements for each 
plan year. These elements are referred to as: (1) normal cost; and (2) 
supplemental cost.
    The plan's normal cost for a plan year generally represents 
the cost of future benefits allocated to the year by the 
funding method used by the plan for current employees and, 
under some funding methods, for separated employees. 
Specifically, it is the amount actuarially determined that 
would be required as a contribution by the employer for the 
plan year in order to maintain the plan if the plan had been in 
effect from the beginning of service of the included employees 
and if the costs for prior years had been paid, and all 
assumptions as to interest, mortality, time of payment, etc., 
had been fulfilled. The normal cost will be funded by future 
contributions to the plan: (1) in level dollar amounts; (2) as 
a uniform percentage of payroll; (3) as a uniform amount per 
unit of service (e.g., $1 per hour); or (4) on the basis of the 
actuarial present values of benefits considered accruing in 
particular plan years.
    The supplemental cost for a plan year is the cost of future 
benefits that would not be met by future normal costs, future 
employee contributions, or plan assets. The most common 
supplemental cost is that attributable to past service 
liability, which represents the cost of future benefits under 
the plan: (1) on the date the plan is first effective; or (2) 
on the date a plan amendment increasing plan benefits is first 
effective. Other supplemental costs may be attributable to net 
experience losses, changes in actuarial assumptions, and 
amounts necessary to make up funding deficiencies for which a 
waiver was obtained. Supplemental costs must be amortized 
(i.e., recognized for funding purposes) over a specified number 
of years, depending on the source. For example, the cost 
attributable to a past service liability is generally amortized 
over 30 years.
    Normal costs and supplemental costs under a plan are 
computed on the basis of an actuarial valuation of the assets 
and liabilities of a plan. An actuarial valuation is generally 
required annually and is made as of a date within the plan year 
or within one month before the beginning of the plan year. 
However, a valuation date within the preceding plan year may be 
used if, as of that date, the value of the plan's assets is at 
least 100 percent of the plan's current liability (i.e., the 
present value of benefit liabilities under the plan, as 
described below).
    For funding purposes, the actuarial value of plan assets 
may be used, rather than fair market value. The actuarial value 
of plan assets is the value determined under a reasonable 
actuarial valuation method that takes into account fair market 
value and is permitted under Treasury regulations. Any 
actuarial valuation method used must result in a value of plan 
assets that is not less than 80 percent of the fair market 
value of the assets and not more than 120 percent of the fair 
market value. In addition, if the valuation method uses average 
value of the plan assets, values may be used for a stated 
period not to exceed the five most recent plan years, including 
the current year.
    In applying the funding rules, all costs, liabilities, 
interest rates, and other factors are required to be determined 
on the basis of actuarial assumptions and methods, each of 
which is reasonable (taking into account the experience of the 
plan and reasonable expectations), or which, in the aggregate, 
result in a total plan contribution equivalent to a 
contribution that would be obtained if each assumption and 
method were reasonable. In addition, the assumptions are 
required to offer the actuary's best estimate of anticipated 
experience under the plan.\2\
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    \2\ Under present law, certain changes in actuarial assumptions 
that decrease the liabilities of an underfunded single-employer plan 
must be approved by the Secretary of the Treasury.
---------------------------------------------------------------------------

Additional contributions for underfunded plans

            In general
    Under special funding rules (referred to as the ``deficit 
reduction contribution'' rules),\3\ an additional charge to a 
plan's funding standard account is generally required for a 
plan year if the plan's funded current liability percentage for 
the plan year is less than 90 percent.\4\ A plan's ``funded 
current liability percentage'' is generally the actuarial value 
of plan assets as a percentage of the plan's current 
liability.\5\ In general, a plan's current liability means all 
liabilities to employees and their beneficiaries under the 
plan, determined on a present-value basis.
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    \3\ The deficit reduction contribution rules apply to single-
employer plans, other than single-employer plans with no more than 100 
participants on any day in the preceding plan year. Single-employer 
plans with more than 100 but not more than 150 participants are 
generally subject to lower contribution requirements under these rules.
    \4\ Under an alternative test, a plan is not subject to the deficit 
reduction contribution rules for a plan year if (1) the plan's funded 
current liability percentage for the plan year is at least 80 percent, 
and (2) the plan's funded current liability percentage was at least 90 
percent for each of the two immediately preceding plan years or each of 
the second and third immediately preceding plan years.
    \5\ In determining a plan's funded current liability percentage for 
a plan year, the value of the plan's assets is generally reduced by the 
amount of any credit balance under the plan's funding standard account. 
However, this reduction does not apply in determining the plan's funded 
current liability percentage for purposes of whether an additional 
charge is required under the deficit reduction contribution rules.
---------------------------------------------------------------------------
    The amount of the additional charge required under the 
deficit reduction contribution rules is the sum of two amounts: 
(1) the excess, if any, of (a) the deficit reduction 
contribution (as described below), over (b) the contribution 
required under the normal funding rules; and (2) the amount (if 
any) required with respect to unpredictable contingent event 
benefits. The amount of the additional charge cannot exceed the 
amount needed to increase the plan's funded current liability 
percentage to 100 percent (taking into account any expected 
increase in current liability due to benefits accruing during 
the plan year).
    The deficit reduction contribution is the sum of (1) the 
``unfunded old liability amount,'' (2) the ``unfunded new 
liability amount,'' and (3) the expected increase in current 
liability due to benefits accruing during the plan year.\6\ The 
``unfunded old liability amount'' is the amount needed to 
amortize certain unfunded liabilities under 1987 and 1994 
transition rules. The ``unfunded new liability amount'' is the 
applicable percentage of the plan's unfunded new liability. 
Unfunded new liability generally means the unfunded current 
liability of the plan (i.e., the amount by which the plan's 
current liability exceeds the actuarial value of plan assets), 
but determined without regard to certain liabilities (such as 
the plan's unfunded old liability and unpredictable contingent 
event benefits). The applicable percentage is generally 30 
percent, but decreases by .40 of one percentage point for each 
percentage point by which the plan's funded current liability 
percentage exceeds 60 percent. For example, if a plan's funded 
current liability percentage is 85 percent (i.e., it exceeds 60 
percent by 25 percentage points), the applicable percentage is 
20 percent (30 percent minus 10 percentage points (25 
multiplied by .4)).\7\
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    \6\ If the Secretary of the Treasury prescribes a new mortality 
table to be used in determining current liability, as described below, 
the deficit reduction contribution may include an additional amount.
    \7\ In making these computations, the value of the plan's assets is 
reduced by the amount of any credit balance under the plan's funding 
standard account.
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    A plan may provide for unpredictable contingent event 
benefits, which are benefits that depend on contingencies that 
are not reliably and reasonably predictable, such as facility 
shutdowns or reductions in workforce. The value of any 
unpredictable contingent event benefit is not considered in 
determining additional contributions until the event has 
occurred. The event on which an unpredictable contingent event 
benefit is contingent is generally not considered to have 
occurred until all events on which the benefit is contingent 
have occurred.
            Required interest rate and mortality table
    Specific interest rate and mortality assumptions must be 
used in determining a plan's current liability for purposes of 
the special funding rule. For plans years beginning before 
January 1, 2004, the interest rate used to determine a plan's 
current liability must be within a permissible range of the 
weighted average \8\ of the interest rates on 30-year Treasury 
securities for the four-year period ending on the last day 
before the plan year begins. The permissible range is generally 
from 90 percent to 105 percent (120 percent for plan years 
beginning in 2002 or 2003).\9\ The interest rate used under the 
plan generally must be consistent with the assumptions which 
reflect the purchase rates which would be used by insurance 
companies to satisfy the liabilities under the plan.\10\
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    \8\ The weighting used for this purpose is 40 percent, 30 percent, 
20 percent and 10 percent, starting with the most recent year in the 
four-year period. Notice 88-73, 1988-2 C.B. 383.
    \9\ If the Secretary of the Treasury determines that the lowest 
permissible interest rate in this range is unreasonably high, the 
Secretary may prescribe a lower rate, but not less than 80 percent of 
the weighted average of the 30-year Treasury rate.
    \10\ Code sec. 412(b)(5)(B)(iii)(II); ERISA sec. 
302(b)(5)(B)(iii)(II). Under Notice 90-11, 1990-1 C.B. 319, the 
interest rates in the permissible range are deemed to be consistent 
with the assumptions reflecting the purchase rates that would be used 
by insurance companies to satisfy the liabilities under the plan.
---------------------------------------------------------------------------
    Under the Pension Funding Equity Act of 2004 (``PFEA 
2004''),\11\ a special interest rate applies in determining 
current liability for plan years beginning in 2004 or 2005.\12\ 
For these years, the interest rate used must be within a 
permissible range of the weighted average of the rates of 
interest on amounts invested conservatively in long-term 
investment-grade corporate bonds during the four-year period 
ending on the last day before the plan year begins. The 
permissible range for these years is from 90 percent to 100 
percent. The interest rate is to be determined by the Secretary 
of the Treasury on the basis of two or more indices that are 
selected periodically by the Secretary and are in the top three 
quality levels available.
---------------------------------------------------------------------------
    \11\ Pub. L. No. 108-218 (2004).
    \12\ In addition, under PFEA 2004, if certain requirements are met, 
reduced contributions under the deficit reduction contribution rules 
apply for plan years beginning after December 27, 2003, and before 
December 28, 2005, in the case of plans maintained by commercial 
passenger airlines, employers primarily engaged in the production or 
manufacture of a steel mill product or in the processing of iron ore 
pellets, or a certain labor organization.
---------------------------------------------------------------------------
    The Secretary of the Treasury is required to prescribe 
mortality tables and to periodically review (at least every 
five years) and update such tables to reflect the actuarial 
experience of pension plans and projected trends in such 
experience.\13\ The Secretary of the Treasury has required the 
use of the 1983 Group Annuity Mortality Table.\14\
---------------------------------------------------------------------------
    \13\ Code sec. 412(l)(7)(C)(ii); ERISA sec. 302(d)(7)(C)(ii).
    \14\ Rev. Rul. 95-28, 1995-1 C.B. 74. The IRS and the Treasury 
Department have announced that they are undertaking a review of the 
applicable mortality table and have requested comments on related 
issues, such as how mortality trends should be reflected. Notice 2003-
62, 2003-38 I.R.B. 576; Announcement 2000-7, 2000-1 C.B. 586.
---------------------------------------------------------------------------

Other rules

            Full funding limitation
    No contributions are required under the minimum funding 
rules in excess of the full funding limitation. The full 
funding limitation is the excess, if any, of (1) the accrued 
liability under the plan (including normal cost), over (2) the 
lesser of (a) the market value of plan assets or (b) the 
actuarial value of plan assets.\15\ However, the full funding 
limitation may not be less than the excess, if any, of 90 
percent of the plan's current liability (including the current 
liability normal cost) over the actuarial value of plan assets. 
In general, current liability is all liabilities to plan 
participants and beneficiaries accrued to date, whereas the 
accrued liability under the full funding limitation may be 
based on projected future benefits, including future salary 
increases.
---------------------------------------------------------------------------
    \15\ For plan years beginning before 2004, the full funding 
limitation was generally defined as the excess, if any, of (1) the 
lesser of (a) the accrued liability under the plan (including normal 
cost) or (b) a percentage (170 percent for 2003) of the plan's current 
liability (including the current liability normal cost), over (2) the 
lesser of (a) the market value of plan assets or (b) the actuarial 
value of plan assets, but in no case less than the excess, if any, of 
90 percent of the plan's current liability over the actuarial value of 
plan assets. Under the Economic Growth and Tax Relief Reconciliation 
Act of 2001 (``EGTRRA''), the full funding limitation based on 170 
percent of current liability is repealed for plan years beginning in 
2004 and thereafter. The provisions of EGTRRA generally do not apply 
for years beginning after December 31, 2010.
---------------------------------------------------------------------------

                      Timing of plan contributions

    In general, plan contributions required to satisfy the 
funding rules must be made within 8\1/2\ months after the end 
of the plan year. If the contribution is made by such due date, 
the contribution is treated as if it were made on the last day 
of the plan year.
    In the case of a plan with a funded current liability 
percentage of less than 100 percent for the preceding plan 
year, estimated contributions for the current plan year must be 
made in quarterly installments during the current plan 
year.\16\ The amount of each required installment is 25 percent 
of the lesser of (1) 90 percent of the amount required to be 
contributed for the current plan year or (2) 100 percent of the 
amount required to be contributed for the preceding plan 
year.\17\
---------------------------------------------------------------------------
    \16\ Code sec. 412(m); ERISA sec. 302(e).
    \17\ If quarterly contributions are required with respect to a 
plan, the amount of a quarterly installment must also be sufficient to 
cover any shortfall in the plan's liquid assets (a ``liquidity 
shortfall'').
---------------------------------------------------------------------------
            Funding waivers
    Within limits, the Secretary of the Treasury is permitted 
to waive all or a portion of the contributions required under 
the minimum funding standard for a plan year (a ``waived 
funding deficiency'').\18\ A waiver may be granted if the 
employer (or employers) responsible for the contribution could 
not make the required contribution without temporary 
substantial business hardship and if requiring the contribution 
would be adverse to the interests of plan participants in the 
aggregate. Generally, no more than three waivers may be granted 
within any period of 15 consecutive plan years.
---------------------------------------------------------------------------
    \18\ Code sec. 412(d); ERISA sec. 303. Under similar rules, the 
amortization period applicable to an unfunded past service liability or 
loss may also be extended.
---------------------------------------------------------------------------
    The IRS is authorized to require security to be granted as 
a condition of granting a waiver of the minimum funding 
standard if the sum of the plan's accumulated funding 
deficiency and the balance of any outstanding waived funding 
deficiencies exceeds $1 million.
            Failure to make required contributions
    An employer is generally subject to an excise tax if it 
fails to make minimum required contributions and fails to 
obtain a waiver from the IRS.\19\ The excise tax is 10 percent 
of the amount of the funding deficiency. In addition, a tax of 
100 percent may be imposed if the funding deficiency is not 
corrected within a certain period.
---------------------------------------------------------------------------
    \19\ Code sec. 4971. An excise tax applies also if a quarterly 
installment is less than the amount required to cover the plan's 
liquidity shortfall.
---------------------------------------------------------------------------
    If the total of the contributions the employer fails to 
make (plus interest) exceeds $1 million and the plan's funded 
current liability percentage is less than 100 percent, a lien 
arises in favor of the plan with respect to all property of the 
employer and the members of the employer's controlled group. 
The amount of the lien is the total amount of the missed 
contributions (plus interest).

                           REASONS FOR CHANGE

    The Committee believes that the defined benefit pension 
system must be strengthened in order to ensure a protected and 
reliable retirement system. Employees need greater pension 
security in order to prepare for retirement. Employers must 
have the ability to accurately measure and predict pension plan 
liabilities and their funding obligations in order to properly 
determine their capital allocations and expenditures for 
business planning purposes.
    The Committee believes that the current defined benefit 
pension system does not contain appropriate funding rules to 
ensure that pension plans are properly funded. The Committee 
believes that comprehensive funding rule changes are needed in 
order to address the systematic pension underfunding crisis 
that continues to threaten the financial security of millions 
of participants. In addition, the present-law single-employer 
defined benefit plan funding rules, including the existence of 
a dual set of rules, are overly complex.
    It is the view of the Committee that present-law pension 
funding rules permit underfunded plans to make up funding 
shortfalls over too long a period of time, putting workers at 
risk of having their plans terminate without adequate funding. 
The Committee believes that present-law funding rules should be 
modified to ensure that employers are required to make 
sufficient and consistent contributions to ensure that plans 
ultimately meet a 100 percent funding target.
    The Committee believes that liabilities should be measured 
more precisely than required under present law. The Committee 
believes that the comprehensive pension reforms must include 
permanent interest rate reforms that generally reflect the 
timing of when liabilities are to be paid out. The Committee 
believes that the general matching of discount rates of 
differing maturities to pension obligations is the most 
accurate and practical way to measure the cost of meeting 
pension obligations and that a yield curve concept should be 
used. The Committee understands that use of a yield curve to 
measure other types of financial liabilities, such as car 
loans, mortgages, and certificates of deposit, is a common and 
prudent business practice.
    The Committee believes that accuracy in measuring pension 
liabilities and providing plan sponsors the ability to predict 
and budget for pension contributions are both important 
considerations. The Committee believes that the present-law 
rules do not appropriately balance these concerns, and that 
slightly reducing the smoothing periods under present law would 
improve accuracy while maintaining predictability. Thus, the 
Committee bill incorporates smoothing techniques in applying 
the modified yield curve and in determining asset 
values.However, the bill also generally reduces by one year the period 
over which smoothing is permitted.
    The Committee also believes that the mortality table 
required to be used under present law in calculating plan 
liabilities is outdated and may cause certain plans to appear 
to be better funded with fewer liabilities. Thus, the Committee 
believes that it is appropriate to update the mortality table 
required to be used and to allow the use of plan-specific 
mortality tables upon approval of Secretary of the Treasury.
    The present-law rules relating to credit balances have been 
identified as contributing to plan underfunding. Under present 
law, a credit balance is increased each year based on an 
assumed rate of interest, even if plan assets have failed to 
earn that rate of return or suffered losses. In addition, 
credit balances can be used to offset required contributions, 
even in the case of a seriously underfunded plan, thus slowing 
plan funding. Indeed, as benefits continue to accrue, using 
credit balances to offset required contributions causes funded 
status to deteriorate further. The PBGC has noted that in some 
large plan terminations, the use of credit balances allowed a 
``funding holiday'' for several years before plan termination, 
at which time the plans were significantly underfunded. Because 
credit balances were perceived as having such a harmful effect 
on funding, the Administration proposal would have eliminated 
the credit balances accumulated under present law, as well as 
prohibited new balances from accumulating. The bill does not 
adopt the strict approach of the Administration proposal. 
Rather, the bill both preserves the ability to use present-law 
balances, as well as permits new balances to accumulate. 
However, use of new balances is more limited to counteract some 
of the harmful effects associated with credit balances under 
present law.
    The Committee is also concerned about seriously underfunded 
plans as such plans present a risk to employees, as well as to 
the PBGC insurance program and to other PBGC premium payors. If 
the PBGC does not remain solvent, there may be increased 
pressures for guaranteed benefits to be paid from general 
revenues, thus imposing additional burdens on American 
taxpayers generally. The Committee believes that it is 
appropriate to require underfunded plans to use certain 
additional assumptions and loading factors in determining their 
funding obligations.

                        EXPLANATION OF PROVISION

Interest rate required for plan years beginning in 2006

    For plan years beginning after December 31, 2005, and 
before January 1, 2007, the provision applies the present-law 
funding rules, with an extension of the interest rate 
applicable in determining current liability for plan years 
beginning in 2004 and 2005. Thus, in determining current 
liability for funding purposes for plan years beginning in 
2006, the interest rate used must be within the permissible 
range (90 to 100 percent) of the weighted average of the rates 
of interest on amounts invested conservatively in long-term 
investment-grade corporate bonds during the four-year period 
ending on the last day before the plan year begins.

Funding rules for plan years beginning after 2006--in general

    For plan years beginning after December 31, 2006, in the 
case of single-employer defined benefit plans, the provision 
repeals the present-law funding rules (including the 
requirement that a funding standard account be maintained) and 
provides a new set of rules for determining minimum required 
contributions.\20\ Under the provision, the minimum required 
contribution to a single-employer defined benefit pension plan 
for a plan year generally depends on a comparison of the value 
of the plan's assets with the plan's funding target and target 
normal cost. As described in more detail below, under the 
provision, credit balances generated under present law are 
carried over (into the ``funding standard carryover balance'') 
and generally may be used in certain circumstances to reduce 
otherwise required minimum contributions. In addition, as 
described more fully below, contributions in excess of the 
minimum contributions required under the provision generally 
are credited to a prefunding balance that may be used in 
certain circumstances to reduce otherwise required minimum 
contributions. To facilitate the use of such balances to reduce 
minimum required contributions, while avoiding use of such 
balances for more than one purpose, in some circumstances the 
value of plan assets is reduced by the prefunding balance and/
or the funding standard carryover balance.
---------------------------------------------------------------------------
    \20\ The provision does not change the funding rules applicable to 
insurance contract plans. Proposed changes to the funding rules for 
multiemployer plans are discussed in Part II below. Governmental plans 
and church plans continue to be exempt from the funding rules to the 
extent provided under present law.
---------------------------------------------------------------------------
    The minimum required contribution for a plan year, based on 
the value of plan assets (reduced by any prefunding balance and 
funding standard carryover balance) compared to the funding 
target, is shown in the following table:

------------------------------------------------------------------------
                                               The minimum required
                  If:                            contribution is:
------------------------------------------------------------------------
the value of plan assets (reduced by     the sum of: (1) target normal
 any prefunding balance and funding       cost; (2) any shortfall
 standard carryover balance) is less      amortization charge; and (3)
 than the funding target.                 any waiver amortization
                                          charge.
the value of plan assets (reduced by     the target normal cost, reduced
 any prefunding balance and funding       by the excess of (1) the value
 standard carryover balance) exceeds      of plan assets (reduced by any
 the funding target.                      prefunding balance and funding
                                          standard carryover balance),
                                          over (2) the funding target.
the value of plan assets (reduced by     the target normal cost.
 any prefunding balance and funding
 standard carryover balance) equals the
 funding target.
------------------------------------------------------------------------

    Under the provision, a plan's funding target is the present 
value of all liabilities under the plan attributable to 
benefits accrued or earned as of the beginning of the plan 
year. A plan's target normal cost for a plan year is the 
present value of benefits expected to accrue or be earned 
during the plan year. A shortfall amortization charge is the 
amount required to amortize a funding shortfall. In general, a 
plan has a funding shortfall for a plan year if the plan's 
fundingtarget for the year exceeds the value of the plan's 
assets (reduced by any prefunding balance and funding standard 
carryover balance). A waiver amortization charge is the amount required 
to amortize a waiver funding deficiency.
    The provision specifies the interest rates and mortality 
table that must be used in determining a plan's target normal 
cost and funding target, as well as certain other actuarial 
assumptions, including special assumptions if the value of a 
plan's assets (reduced by any prefunding and funding standard 
carryover balances) for the preceding year was less than 60 
percent of the plan's funding target (an ``at-risk'' plan).

Target normal cost

    Under the provision, the minimum required contribution for 
a plan year generally includes the plan's target normal cost 
for the plan year. A plan's target normal cost is the present 
value of all benefits expected to accrue or be earned under the 
plan during the plan year (the ``current'' year). For this 
purpose, an increase in any benefit attributable to services 
performed in a preceding year by reason of a compensation 
increase during the current year is treated as having accrued 
during the current year.
    If the value of a plan's assets (reduced by any funding 
standard carryover balance and prefunding balance) exceeds the 
plan's funding target for a plan year, for purposes of 
determining the minimum required contribution for the plan 
year, normal cost is reduced by the excess.

Funding target and shortfall amortization charges

            In general
    If the value of a plan's assets (reduced by any prefunding 
balance if the employer elects to use the prefunding balance to 
reduce required contributions for the year) is less than the 
plan's funding target for a plan year, the minimum required 
contribution is increased by a shortfall amortization charge. 
As discussed more fully below, the shortfall amortization 
charge is the aggregate of the annual installments for the plan 
year with respect to any shortfall amortization bases for the 
plan year and the six preceding plan years.
            Funding target
    A plan's funding target for a plan year is the present 
value of all liabilities to participants and their 
beneficiaries under the plan for the plan year. For this 
purpose, liabilities are taken into account to the extent 
attributable to benefits (including any early retirement or 
similar benefits) accrued or earned as of the beginning of the 
plan year. Benefits accruing in the plan year are not taken 
into account, irrespective of whether the valuation date for 
the plan year is later than the first day of the plan year.\21\
---------------------------------------------------------------------------
    \21\ Benefits accruing during the plan year are taken into account 
in determining normal cost for the plan year.
---------------------------------------------------------------------------
            Shortfall amortization charge
    The shortfall amortization charge for a plan year is the 
aggregate of the shortfall amortization installments for the 
plan year with respect to any shortfall amortization bases for 
that plan year and the six preceding plan years. The shortfall 
amortization installments with respect to a shortfall 
amortization base for a plan year are annual installments 
determined as the amount needed to amortize the shortfall 
amortization base in level annual installments over the seven-
year period beginning with the plan year. The shortfall 
amortization installments for a plan year are determined using 
the appropriate segment interest rates for the plan year 
(discussed below).
    A shortfall amortization base is determined for a plan year 
based on the plan's funding shortfall for the plan year, that 
is, the amount by which the plan's funding target for the year 
exceeds the value of the plan's assets (reduced by any funding 
standard carryover balance and prefunding balance). The 
shortfall amortization base is the excess of (1) the funding 
shortfall, over (2) the present value of (a) the aggregate 
shortfall amortization installments for the plan year and the 
five succeeding plan years that have been determined with 
respect to any shortfall amortization bases for each of the six 
preceding plan years and (b) the aggregate waiver amortization 
installments (discussed below) for the plan year and the four 
succeeding plan years that have been determined with respect to 
any waived funding deficiency for each of the five preceding 
plan years. Under a special rule, a shortfall amortization base 
does not have to be established for a year if the value of a 
plan's assets (reduced by any prefunding balance, but only if 
the employer elects to use the prefunding balance to reduce 
required contributions for the year) is at least equal to the 
plan's funding target for a plan year.
    A transition rule applies with respect to certain plans in 
determining a shortfall amortization base for a plan year 
beginning after 2006 and before 2011. The transition rule 
applies to a plan that is subject to the present-law funding 
rules for the 2006 plan year, but is not subject to the 
present-law deficit reduction contribution rules for that year 
(either because of the plan's funded status or because the plan 
covers no more than 100 participants). Under the transition 
rule, for purposes of determining a shortfall amortization base 
for a plan year, the plan's funding shortfall is calculated by 
reference to the applicable percentage of the plan's funding 
target as shown in the following table:

------------------------------------------------------------------------
                                                            Applicable
       Calendar year in which  plan year begins:          percentage of
                                                         funding target:
------------------------------------------------------------------------
2007...................................................              92
2008...................................................              94
2009...................................................              96
2010...................................................              98
------------------------------------------------------------------------

            Early deemed amortization of funding shortfalls for 
                    preceding years
    If a plan's funding shortfall for a plan year is zero 
(i.e., the value of the plan's assets, reduced by any funding 
standard carryover balance and prefunding balance, is at least 
equal to the plan's funding target for the year), any shortfall 
amortization bases for preceding plan years are eliminated. In 
that case, for purposes of determining any shortfall 
amortization charges for that year and succeeding years, the 
shortfall amortization base for preceding years is zero.

Waiver amortization charges

    The provision retains the present-law rules under which the 
Secretary of the Treasury may waive all or a portion of the 
contributions required under the minimum funding standard for a 
plan year (referred to as a ``waived funding deficiency'').\22\ 
If a plan has a waived funding deficiency for a plan year or 
any of the four preceding plan years, the minimum required 
contribution for the plan year is increased by the waiver 
amortization charge for the plan year.
---------------------------------------------------------------------------
    \22\ In the case of single-employee plans, the provision repeals 
the present-law rules under which the amortization period applicable to 
an unfunded past service liability or loss may be extended.
---------------------------------------------------------------------------
    The waiver amortization charge for a plan year is the 
aggregate of the waiver amortization installments for the plan 
year with respect to any waiver amortization bases for the five 
preceding plan years. The waiver amortization installments with 
respect to a waiver amortization base for a plan year are 
annual installments determined as the amount needed to amortize 
the waiver amortization base in level annual installments over 
the five-year period beginning with the following plan year. 
The waiver amortization installments for a plan year are 
determined using the appropriate segment interest rates for the 
plan year (discussed below). The waiver amortization base for a 
plan year is the amount of the waived funding deficiency (if 
any) for the plan year.
    If a plan's funding shortfall for a plan year is zero 
(i.e., the value of the plan's assets, reduced by any funding 
standard carryover balance and prefunding balance, is at least 
equal to the plan's funding target for the year), any waiver 
amortization bases for preceding plan years are eliminated. In 
that case, for purposes of determining any waiver amortization 
charges for that year and succeeding years, the waiver 
amortization base for preceding years is zero.

Actuarial assumptions used in determining a plan's target normal cost 
        and funding target

            Interest rates
    The provision specifies the interest rates that must be 
used in determining a plan's target normal cost and funding 
target. Under the provision, present value is determined using 
three interest rates (``segment'' rates), each of which applies 
to benefit payments expected to be made from the plan during a 
certain period. The first segment rate applies to payments 
expected to be made during the five-year period beginning on 
the first day of the plan year; the second segment rate applies 
to payments expected to be made during the 15-year period 
following the initial five-year period; and the third segment 
rate applies to payments expected to be made after the end of 
the 15-year period. Each segment rate is a single interest rate 
determined monthly by the Secretary of the Treasury on the 
basis of a corporate bond yield curve, taking into account only 
the portion of the yield curve based on corporate bonds 
maturing during the particular segment rate period.
    The corporate bond yield curve used for this purpose is to 
be prescribed on a monthly basis by the Secretary of the 
Treasury, reflecting a three-year weighted average of yields on 
investment grade corporate bonds with varying maturities. The 
three-year weighted average is an average determined using a 
methodology under which the most recent year is weighted 50 
percent, the preceding year is weighted 35 percent, and the 
second preceding year is weighted 15 percent.
    The Secretary of the Treasury is directed to publish each 
month the corporate bond yield curve and each of the segment 
rates for the month. In addition, such Secretary is directed to 
publish a description of the methodology used to determine the 
yield curve and segment rates, which is sufficiently detailed 
to enable plans to make reasonable projections regarding the 
yield curve and segment rates for future months, based on a 
plan's projection of future interest rates.
    Under the provision, the present value of liabilities under 
a plan is determined using the segment rates for the 
``applicable month'' for the plan year. The applicable month is 
the month that includes the plan's valuation date for the plan 
year, or, at the election of the plan sponsor, any of the four 
months preceding the month that includes the valuation date. An 
election of a preceding month applies to the plan year for 
which it is made and all succeeding plan years unless revoked 
with the consent of the Secretary of the Treasury.
    The provision provides a transition rule for plan years 
beginning in 2007 and 2008.\23\ Under this rule, for plan years 
beginning in 2007, the first, second, or third segment rate 
with respect to any month is the sum of: (1) the product of the 
segment rate otherwise determined for the month, multiplied by 
33\1/3\ percent; and (2) the product of the applicable long-
term corporate bond rate,\24\ multiplied by 66\2/3\ percent. 
For plan years beginning in 2008, the first, second, or third 
segment rate with respect to any month is the sum of: (1) the 
product of the segment rate otherwise determined for the month, 
multiplied by 66\2/3\ percent; and (2) the product of 
applicable long-term corporate bond rate multiplied by 33\1/3\ 
percent.
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    \23\ The transition rule does not apply to a plan if its first plan 
year begins after December 31, 2006.
    \24\ The applicable long-term corporate bond rate is a rate that is 
from 90 to 100 percent of the weighted average of the rates of interest 
on amounts invested conservatively in long-term investment-grade 
corporate bonds during the four-year period ending on the last day 
before the plan year begins as determined by the Secretary under the 
method in effect for 2006.
---------------------------------------------------------------------------
    Under the provision, certain amounts are determined using 
the plan's ``effective interest rate'' for a plan year. The 
effective interest rate with respect to a plan for a plan year 
is the single rate of interest which, if used to determine the 
present value of the liabilities taken into account in 
determining the plan's funding target for the year, would 
result in an amount equal to the plan's funding target (as 
determined using the first, second, and third segment rates).
            Mortality table
    The provision specifies the mortality table that must be 
used in determining present value or making any other 
computations. In general, the mortality table used must be the 
RP-2000 Combined Mortality Table, using Scale AA, as published 
by the Society of Actuaries, as in effect on the date of the 
enactment of the provision. Under Treasury regulations, any 
difference in present value resulting from the different 
assumptions under the required mortality table and the table 
used in determining current liability for plan years beginning 
in 2006 is to be phased in ratably over the first five plan 
years beginning in or after 2007, so as to be fully effective 
for the fifth plan year.\25\
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    \25\  The transition rule does not apply to a plan if its first 
plan year begins after December 31, 2006.
---------------------------------------------------------------------------
    The Secretary of the Treasury is directed to make revisions 
at least every 10 years in any tables in effect under the 
provision to reflect the actual experience of pension plans and 
projected trends in such experience.
    The provision also provides for the use of a different 
mortality table with respect to a plan, as requested by the 
plan sponsor and approved by the Secretary of Treasury. In 
order for the table to be used, the Secretary must determine 
that the table (1) reflects the actual experience of the 
pension plan and projected trends in such experience and (2) is 
significantly different from the table otherwise required to be 
used. Such a table may generally be used for up to 10 years. 
However, the table shall no longer apply if the plan's actuary 
determines that the table no longer meets the applicable 
criteria. A mortality table submitted to the Secretary for 
approval under the provision is treated as in effect for the 
succeeding plan year unless the Secretary, within the 180-day 
period beginning on the date of the submission, disapproves of 
the table and provides the reasons that the table fails to meet 
the applicable criteria.
            Other assumptions
    Under the provision, in determining any present value or 
making any computation, the probability that future benefits 
will be paid in optional forms of benefit provided under the 
plan must be taken into account (including the probability of 
lump-sum distributions determined on the basis of the plan's 
experience and other related assumptions). In addition, there 
must be taken into account any difference in the present value 
of future benefit payments resulting fromthe use of actuarial 
assumptions, in determining benefit payments in any such optional form 
of benefit, that are different from those specified under the 
provision.
    The provision generally does not require other specified 
assumptions to be used in determining the plan's target normal 
cost and funding target except in the case of at-risk plans 
(discussed below). However, similar to present law, the 
determination of present value or other computation must be 
made on the basis of actuarial assumptions and methods, each of 
which is reasonable (taking into account the experience of the 
plan and reasonable expectations), and which, in combination, 
offer the actuary's best estimate of anticipated experience 
under the plan.\26\
---------------------------------------------------------------------------
    \26\  The provision retains the present-law rule under which 
certain changes in actuarial assumptions that decrease the liabilities 
of an underfunded single-employer plan must be approved by the 
Secretary of the Treasury.
---------------------------------------------------------------------------

Special assumptions for at-risk plans

    The provision applies special rules in determining the 
funding target and normal cost of a plan in at-risk status. A 
plan is in at-risk status for a plan year if the plan's funding 
target attainment percentage for the preceding year was less 
than 60 percent. A plan's funding target attainment percentage 
for a plan year is the ratio, expressed as a percentage, that 
the value of the plan's assets (reduced by any funding standard 
carryover balance and prefunding balance) bears to the plan's 
funding target for the year. For this purpose, the plan's 
funding target is determined using the actuarial assumptions 
for plans that are not at-risk.
    The funding target of a plan in at-risk status for a plan 
year is generally the sum of: (1) the present value of all 
liabilities to participants and beneficiaries under the plan 
for the plan year, determined using (in addition to the 
normally required assumptions) an assumption that all 
participants will elect benefits at the times and in the forms 
that will result in the highest present value of liabilities, 
plus (2) a loading factor. The loading factor is the sum of (1) 
$700 times the number of participants in the plan, plus (2) 
four percent of the funding target determined without regard to 
the loading factor.\27\
---------------------------------------------------------------------------
    \27\ This loading factor is intended to reflect the cost of 
purchasing group annuity contracts in the case of termination of the 
plan.
---------------------------------------------------------------------------
    The target normal cost of a plan in at-risk status for a 
plan year is generally the sum of: (1) the present value of 
benefits expected to accrue or be earned under the plan during 
the plan year, determined using (in addition to the normally 
required assumptions) an assumption that all participants will 
elect benefits at the times and in the forms that will result 
in the highest present value, plus (2) a loading factor. The 
loading factor is four percent of the target normal cost 
determined without regard to the loading factor.\28\
---------------------------------------------------------------------------
    \28\  Target normal cost for a plan in at-risk status does not 
include a loading factor of $700 per plan participant.
---------------------------------------------------------------------------
    If a plan has been in at-risk status for fewer than five 
consecutive plan years, the amount of a plan's funding target 
for a plan year is the sum of: (1) the amount of the funding 
target determined without regard to the at-risk rules, plus (2) 
the transition percentage for the plan year of the excess of 
the amount of the funding target determined under the at-risk 
rules over the amount determined without regard to the at-risk 
rules. Similarly, if a plan has been in at-risk status for 
fewer than five consecutive plan years, the amount of a plan's 
target normal cost for a plan year is the sum of: (1) the 
amount of the target normal cost determined without regard to 
the at-risk rules, plus (2) the transition percentage for the 
plan year of the excess of the amount of the target normal cost 
determined under the at-risk rules over the amount determined 
without regard to the at-risk rules. The transition percentage 
is the product of 20 percent times the number of consecutive 
plan years for which the plan has been in at-risk status.

Funding standard carryover balance or prefunding balance

            In general
    The bill preserves credit balances that have accumulated 
under present law (referred to as ``funding standard carryover 
balances''). In addition, for plan years beginning after 2005, 
new credit balances (referred to as ``prefunding balances'') 
result if an employer makes contributions greater than those 
required under the new funding rules. In general, under the 
bill, employers may choose whether to count funding standard 
carryover balances and prefunding balances in determining the 
value of plan assets or to use the balances to reduce required 
contributions, but not both. In this regard, the bill provides 
more favorable rules with respect to the use of funding 
standard carryover balances.
    Under the bill, if the value of a plan's assets (reduced by 
any prefunding balance) is at least 80 percent of the plan's 
funding target (determined without regard to the at-risk rules) 
for the preceding plan year, the plan sponsor may elect to 
credit all or a portion of the funding standard carryover 
balance or prefunding balance against the minimum required 
contribution for the current plan year (determined after any 
funding waiver), thus reducing the amount that must be 
contributed for the current year.
    The value of plan assets is generally reduced by any 
prefunding balance or funding standard carryover balance for 
purposes of determining minimum required contributions. 
However, the plan sponsor may elect to reduce the prefunding 
balance or funding standard carryover balance, so that the 
value of plan assets is not required to be reduced by that 
amount in determining the minimum required contribution for the 
plan year. Any reduction of the prefunding balance or funding 
standard carryover balance applies before determining the 
balance that is available for crediting against minimum 
required contributions for the plan year.
            Funding standard carryover balance
    In the case of a single-employer plan that is in effect for 
a plan year beginning in 2006 and, as of the end of the 2006 
plan year, has a positive balance in the funding standard 
account maintained under the funding rules as in effect for 
2006, the plan sponsor may elect to maintain a funding standard 
carryover balance. The funding standard carryover balance 
consists of a beginning balance in the amount of the positive 
balance in the funding standard account as of the end of the 
2006 plan year, has a positive balance in the funding standard 
account maintained under the funding rules as in effect for 
2006, the plan sponsor may elect to maintain a funding standard 
carryover balance. The funding standard carryover balance 
consists of a beginning balance in the amount of the positive 
balance in the funding standard account as of theend of the 
2006 plan year, decreased (as described below) and adjusted to reflect 
the rate of net gain or loss on plan assets.
    For subsequent years (i.e., as of the valuation date for 
each plan year beginning after 2007), the funding standard 
carryover balance of a plan is decreased (but not below zero) 
by the sum of: (1) any amount credited to reduce the minimum 
required contribution for the preceding plan year, plus (2) any 
amount elected by the plan sponsor as a reduction in the 
funding standard carryover balance (thus reducing the amount by 
which the value of plan assets must be reduced in determining 
minimum required contributions).
            Prefunding balance
    The plan sponsor may elect to maintain a prefunding 
balance, which consists of a beginning balance of zero, 
increased and decreased (as described below) and adjusted to 
reflect the rate of net gain or loss on plan assets.
    For subsequent years (i.e., as of the valuation date for 
each plan year beginning after 2007 (the ``current'' plan 
year)), the prefunding balance of a plan is increased by the 
amount elected by the plan sponsor, not to exceed: (1) the 
excess (if any) of the aggregate total employer contributions 
for the preceding plan year, over (2) the minimum required 
contribution for the preceding plan year. For this purpose, the 
minimum required contribution for the preceding plan year is 
increased by interest, at the plan's effective rate for the 
preceding plan year, on any portion of the required 
contribution remaining unpaid as of the valuation date for the 
current plan year, for the period beginning with the first day 
of the preceding plan year and ending on the date that the 
unpaid portion of the contribution is made.
    As of the valuation date for each plan year beginning after 
2007, the prefunding balance of a plan is decreased (but not 
below zero) by the sum of: (1) any amount credited to reduce 
the minimum required contribution for the preceding plan year, 
plus (2) any amount elected by the plan sponsor as a reduction 
in the prefunding balance (thus reducing the amount by which 
the value of plan assets must be reduced in determining minimum 
required contributions). As discussed above, if the prefunding 
balance is used to reduce a minimum required contribution, the 
value of plan assets must be reduced by the prefunding balance 
in determining whether a shortfall amortization base must be 
established for the plan year (i.e., whether the value of plan 
assets for a plan year is less than the plan's funding target 
for the plan year). Thus, the prefunding balance may not be 
included in the value of plan assets in order to avoid a 
shortfall amortization base for a plan year and also used to 
reduce the minimum required contribution for the same year.
            Other rules
    In determining the prefunding balance or funding standard 
carryover balance as of the valuation date for a plan year 
(before applying any increase or decrease as described above), 
the plan sponsor must adjust the balance in accordance with 
regulations prescribed by the Secretary of the Treasury, to 
reflect the rate of net gain or loss on plan assets. The rate 
of net gain or loss is determined on the basis of the fair 
market value of the plan assets and the gain or loss 
experienced by all plan assets for the period beginning with 
the valuation date for the preceding plan year and ending with 
the date preceding the valuation date for the current plan 
year, properly taking into account, in accordance with 
regulations, all contributions, distributions, and other plan 
payments made during the period.
    To the extent that a plan has a funding standard carryover 
balance of more than zero for a plan year, none of the plan's 
prefunding balance may be credited to reduce a minimum required 
contribution, nor may an election be made to reduce the 
prefunding balance for purposes of determining the value of 
plan assets. Thus, the funding standard carryover balance must 
be used for these purposes before the prefunding balance may be 
used.
    Any election relating to the prefunding balance and funding 
standard carryover balance is to be made in such form and 
manner as the Secretary of the Treasury prescribes.

Other rules and definitions

            Valuation date
    Under the provision, all determinations made with respect 
to minimum required contributions for a plan year (such as the 
value of plan assets and liabilities) must be made as of the 
plan's valuation date for the plan year. In general, the 
valuation date for a plan year must be the first day of the 
plan year. However, any day in the plan year may be designated 
as the plan's valuation date if, on each day during the 
preceding plan year, the plan had 500 or fewer 
participants.\29\ For this purpose, all defined benefit pension 
plans (other than multiemployer plans) maintained by the same 
employer (or a predecessor employer), or by any member of such 
employer's controlled group, are treated as a single plan, but 
only participants with respect to such employer or controlled 
group member are taken into account.
---------------------------------------------------------------------------
    \29\ In the case of a plan's first plan year, the ability to use a 
valuation date other than the first day of the plan year is determined 
by taking into account the number of participants the plan is 
reasonably expected to have on each day during that first plan year.
---------------------------------------------------------------------------
            Value of plan assets
    The provision allows the value of plan assets to be 
determined on the basis of any reasonable actuarial valuation 
method as under present law, with certain modifications. Any 
actuarial valuation method used may not result in a 
determination of the value of plan assets that at any time is 
less than 90 percent or more than 110 percent of the fair 
market value of the assets at that time. In addition, a 
valuation method may not provide for averaging of fair market 
values over more than the three most recent plan years 
(including the current year).
    If a required contribution for a preceding plan year is 
made after the valuation date for the current year, the 
contribution is taken into account in determining the value of 
plan assets for the current plan year. For plan years beginning 
after 2007, the contribution is taken into account in the 
amount of its present value as of the valuation date for the 
current plan year, determined using the plan's effective rate 
of interest for the preceding plan year. In addition, any 
required contribution for the current plan year is not taken 
into account in determining the value of planassets. If a 
required contribution for the current plan year is made before the 
valuation date, the value of plan assets is reduced for interest on the 
contribution for the period from the time of contribution to the 
valuation date, determined using the plan's effective rate of interest 
for the current plan year.
            Timing rules for contributions
    As under present law, the due date for the payment of a 
minimum required contribution for a plan year is 8\1/2\ months 
after the end of the plan year. Any payment made on a date 
other than the valuation date for the plan year must be 
adjusted for interest at the plan's effective rate of interest 
for the plan year for the period between the valuation date and 
the payment date. Similar to present-law rules, quarterly 
contributions must be made during a plan year if the plan had a 
funding shortfall for the preceding plan year (that is, if the 
value of the plan's assets, reduced by the funding standard 
carryover balance and prefunding balance, was less than the 
plan's funding target for the preceding plan year).\30\
---------------------------------------------------------------------------
    \30\ The provision also retains the present-law rules under which 
the amount of any quarterly installment must be sufficient to cover any 
liquidity shortfall.
---------------------------------------------------------------------------
            Excise tax on failure to make minimum required 
                    contributions
    The provision retains the present-law rules under which an 
employer is generally subject to an excise tax if it fails to 
make minimum required contributions and fails to obtain a 
waiver from the IRS.\31\ The excise tax is 10 percent of the 
aggregate unpaid minimum required contributions for all plan 
years remaining unpaid as of the end of any plan year. In 
addition, a tax of 100 percent may be imposed if any unpaid 
minimum required contributions remain unpaid after a certain 
period.
---------------------------------------------------------------------------
    \31\ The provision retains the present-law rules under which a lien 
in favor of the plan with respect to property of the employer (and 
members of the employer's controlled group) arises in certain 
circumstances in which the employer fails to make required 
contributions.
---------------------------------------------------------------------------
            Conforming changes
    The provision makes various technical and conforming 
changes to reflect the new funding requirements.

                             EFFECTIVE DATE

    The extension of the present-law interest rate is effective 
for plan years beginning after December 31, 2005, and before 
January 1, 2007. The modifications to the single-employer plan 
funding rules are generally effective for plan years beginning 
after December 31, 2006.

 B. Benefit Limitations Under Single-Employer Defined Benefit Pension 
                                 Plans


1. Prohibition on shutdown benefits and other unpredictable contingent 
        event benefits (sec. 113(a) of the bill and new sec. 436 of the 
        Code)

                              PRESENT LAW

    A plan may provide for unpredictable contingent event 
benefits, which are benefits that depend on contingencies other 
than age, service, compensation, death or disability or that 
are not reliably and reasonably predictable as determined by 
the Secretary. Some of these benefits are commonly referred to 
as ``plant shutdown'' benefits. Under present law, 
unpredictable contingent event benefits generally are not taken 
into account for funding purposes until the event has occurred.
    Defined benefit pension plans are not permitted to provide 
``layoff'' benefits (i.e., severance benefits).\32\ However, 
defined benefit pension plans may provide subsidized early 
retirement benefits, including early retirement window 
benefits.\33\
---------------------------------------------------------------------------
    \32\ Treas. Reg. sec. 1.401-1(b)(1)(i).
    \33\ See, e.g., Treas. Reg. secs. 1.401(a)(4)-3(f)(4) and 1.411(a)-
7(c).
---------------------------------------------------------------------------
    An amendment of a qualified retirement plan may not 
decrease the accrued benefit of a plan participant.\34\ This 
restriction is sometimes referred to as the ``anticutback'' 
rule and applies to benefits that have already accrued. In 
general, an amendment may reduce the amount of future benefit 
accruals, provided that, in the case of a significant reduction 
in the rate of future benefit accrual, certain notice 
requirements are met.
---------------------------------------------------------------------------
    \34\ Code sec. 411(d)(6); ERISA sec. 204(g).
---------------------------------------------------------------------------
    For purposes of the anticutback rule, an amendment is also 
treated as reducing an accrued benefit if, with respect to 
benefits accrued before the amendment is adopted, the amendment 
has the effect of either (1) eliminating or reducing an early 
retirement benefit or a retirement-type subsidy, or (2) except 
as provided by Treasury regulations, eliminating an optional 
form of benefit.

                           REASONS FOR CHANGE

    The Committee believes that plant shutdown benefits and 
other unpredictable contingent event benefits should not be 
provided through qualified plans. Such benefits are more in the 
nature of severance benefits rather than retirement benefits 
because these benefits are inherently unpredictable and, 
therefore, difficult to prefund. Such benefits also represent a 
springing liability for the plan. For example, a plan provision 
could be in effect for many years that provides for payment of 
benefits upon an unpredictable contingent event. Because of the 
unpredictable nature of such a benefit, it is not funded in 
advance. However, if the event occurs, plan liabilities may be 
significantly increased as a result. Actual experience of the 
PBGC indicates that the occurrence of an event triggering such 
benefits can dramatically increase the level of underfunding in 
a plan and increase the likelihood of a plan terminating with 
insufficient assets. The Committee bill does not prohibit the 
payment of plant shutdown or other benefits, but rather seeks 
to enhance the security of pension benefits by ensuring that 
pension plan assets will not be diverted for nonretirement 
purposes.

                        EXPLANATION OF PROVISION

    Under the provision, a single-employer defined benefit 
pension plan may not provide benefits to which participants are 
entitled solely by reason of the occurrence of: (1) a plant 
shutdown; or (2) any other unpredictable contingent event. For 
this purpose, the term unpredictable contingent event means an 
event other than: (1) attainment of any age, performance of any 
service, receipt or derivation of any compensation, or the 
occurrence of death or disability; or (2) an event which is 
reasonably and reliably predictable (as determined by the 
Secretary of the Treasury). The provision does not prohibit an 
employer from providing plant shutdown benefits, but rather 
prohibits them from being funded with pension plan assets.
    Under the provision, a plan does not fail to meet the 
requirements of the anti-cutback rule solely by reason of the 
adoption of a plan amendment necessary to meet the requirements 
of the provision.

                             EFFECTIVE DATE

    The provision generally applies with respect to plant 
shutdowns, or other unpredictable contingent events, occurring 
after December 31, 2006.
    In the case of a plan maintained pursuant to one or more 
collective bargaining agreements between employee 
representatives and one or more employers ratified before the 
date of enactment of the provision, the provision does not 
apply to plan years beginning before the earlier of: (1) the 
later of (a) the date on which the last collective bargaining 
agreement relating to the plan terminates (determined without 
regard to any extension thereof agreed to after the date of 
enactment), or (b) the first day of the first plan year to 
which the provision would otherwise apply; or (2) January 1, 
2009. For this purpose, any plan amendment made pursuant to a 
collective bargaining agreement relating to the plan that 
amends the plan solely to conform to any requirement under the 
provision is not to be treated as a termination of the 
collective bargaining agreement.

2. Funding-based limits on benefits and benefit accruals (sec. 113(b) 
        of the bill and new sec. 437 of the Code)

                              PRESENT LAW

In general

    Under present law, various restrictions may apply to 
benefit increases and distributions from a defined benefit 
pension plan, depending on the funding status of the plan.

Limitation on certain benefit increases while funding waivers in effect

    Within limits, the IRS is permitted to waive all or a 
portion of the contributions required under the minimum funding 
standard for a plan year.\35\ A waiver may be granted if the 
employer responsible for the contribution could not make the 
required contribution without temporary substantial business 
hardship for the employer (and members of the employer's 
controlled group) and if requiring the contribution would be 
adverse to the interests of plan participants in the aggregate.
---------------------------------------------------------------------------
    \35\ Code sec. 412(d); ERISA sec. 303.
---------------------------------------------------------------------------
    If a funding waiver is in effect for a plan, subject to 
certain exceptions, no plan amendment may be adopted that 
increases the liabilities of the plan by reason of any increase 
in benefits, any change in the accrual of benefits, or any 
change in the rate at which benefits vest under the plan.\36\
---------------------------------------------------------------------------
    \36\ Code sec. 412(f); ERISA sec. 304(b)(1).
---------------------------------------------------------------------------

Security for certain plan amendments

    In the case of a single-employer defined benefit pension 
plan, if a plan amendment increasing current liability is 
adopted and the plan's funded current liability percentage is 
less than 60 percent (taking into account the effect of the 
amendment, but disregarding any unamortized unfunded old 
liability), the employer and members of the employer's 
controlled group must provide security in favor of the 
plan.\37\ The amount of security required is the excess of: (1) 
the lesser of (a) the amount by which the plan's assets are 
less than 60 percent of current liability, taking into account 
the benefit increase, or (b) the amount of the benefit increase 
and prior benefit increases after December 22, 1987, over (2) 
$10 million. The amendment is not effective until the security 
is provided.
---------------------------------------------------------------------------
    \37\ Code sec. 401(a)(29); ERISA sec. 307.
---------------------------------------------------------------------------
    The security must be in the form of a bond, cash, certain 
U.S. government obligations, or such other form as is 
satisfactory to the Secretary of the Treasury and the parties 
involved. The security is released after the funded liability 
of the plan reaches 60 percent.

Prohibition on benefit increases during bankruptcy

    Subject to certain exceptions, if an employer maintaining a 
single-employer defined benefit pension plan is involved in 
bankruptcy proceedings, no plan amendment may be adopted that 
increases the liabilities of the plan by reason of any increase 
in benefits, any change in the accrual of benefits, or any 
change in the rate at which benefits vest under the plan.\38\
---------------------------------------------------------------------------
    \38\ Code sec. 401(a)(33); ERISA sec. 204(i).
---------------------------------------------------------------------------

Restrictions on benefit payments due to liquidity shortfalls

    In the case of a single-employer plan with a funded current 
liability percentage of less than 100 percent for the preceding 
plan year, estimated contributions for the current plan year 
must be made in quarterly installments during the current plan 
year. If quarterly contributions are required with respect to a 
plan, the amount of a quarterly installment must also be 
sufficient to cover any shortfall in the plan's liquid assets 
(a ``liquidity shortfall''). In general, a plan has a liquidity 
shortfall for a quarter if the plan's liquid assets (such as 
cash and marketable securities) are less than a certain amount 
(generally determined by reference to disbursements from the 
plan in the preceding 12 months).
    If a quarterly installment is less than the amount required 
to cover the plan's liquidity shortfall, limits apply to the 
benefits that can be paid from a plan during the period of 
underpayment. During that period, the plan may not make any 
prohibited payment, defined as: (1) any payment in excess of 
the monthly amount paid under a single life annuity (plus any 
social security supplement provided under the plan) in the case 
of a participant or beneficiary whose annuity starting date 
occurs during the period; (2) any payment for the purchase of 
an irrevocable commitment from an insurer to pay benefits 
(e.g., an annuity contract); or (3) any other payment specified 
by the Secretary of the Treasury by regulations.\39\
---------------------------------------------------------------------------
    \39\ Code sec. 401(a)(32); ERISA sec. 206(e).
---------------------------------------------------------------------------

Prohibition on reductions in accrued benefits

    An amendment of a qualified retirement plan may not 
decrease the accrued benefit of a plan participant.\40\ This 
restriction is sometimes referred to as the ``anticutback'' 
rule and applies to benefits that have already accrued. In 
general, an amendment may reduce the amount of future benefit 
accruals, provided that, in the case of a significant reduction 
in the rate of future benefit accrual, certain notice 
requirements are met.
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    \40\ Code sec. 411(d)(6); ERISA sec. 204(g).
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    For purposes of the anticutback rule, an amendment is also 
treated as reducing an accrued benefit if, with respect to 
benefits accrued before the amendment is adopted, the amendment 
has the effect of either (1) eliminating or reducing an early 
retirement benefit or a retirement-type subsidy, or (2) except 
as provided by Treasury regulations, eliminating an optional 
form of benefit.

                           REASONS FOR CHANGE

    Under present law, sponsors of underfunded pension plans 
can continue to provide for additional accruals and, in some 
cases, may make benefit increases, pushing the cost of paying 
for such benefits off into the future. The Committee believes 
that plan sponsors should not be able to continue to increase 
benefits when a plan is underfunded. Companies should be more 
responsible with respect to pension benefits and should not 
continue to promise increased benefits when current promises 
are unfulfilled. The practice perpetuates systematic 
underfunding and is a moral hazard which threatens the 
retirement security of the participants and beneficiaries as 
well as the future of the defined benefit pension system. Lump 
sums andother accelerated distributions from a severely 
underfunded plan allow certain participants to receive the full value 
of their benefits while depleting plan assets for those who remain in 
the plan. The Committee believes that appropriate restrictions should 
apply to underfunded plans to protect workers in the plan and to reduce 
the risk that underfunding will increase.

                        EXPLANATION OF PROVISION

In general

    Under the provision, in the case of an underfunded single-
employer defined benefit pension plan, limitations may apply 
with respect to: (1) plan amendments increasing benefit 
liabilities; (2) certain forms of distribution; and (3) benefit 
accruals.

Limitations on plans less than 80-percent funded

            Limitations on plan amendments increasing benefit 
                    liabilities
    Certain plan amendments may not take effect during a plan 
year if the plan's funding target attainment percentage for the 
plan year: (1) is less than 80 percent; or (2) would be less 
than 80 percent taking into account the amendment.\41\ In such 
a case, no amendment may take effect if it has the effect of 
increasing the liabilities of the plan by reason of any 
increase in benefits, the establishment of new benefits, any 
change in the rate of benefit accrual, or any change in the 
rate at which benefits vest under the plan. For this purpose, 
any increase in benefits by reason of an increase in the 
benefit rate provided under the plan or on the basis of an 
increase in compensation is treated as effected by a plan 
amendment.
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    \41\ Under the provision, the present-law rules limiting benefit 
increases while an employer is in bankruptcy continue to apply.
---------------------------------------------------------------------------
    The limitation ceases to apply with respect to any plan 
year, effective as of the first day of the plan year (or, if 
later, the effective date of the amendment), if the plan 
sponsor makes a contribution (in addition to any minimum 
required contribution for the plan year), equal to: (1) if the 
plan's funding target attainment percentage is less than 80 
percent, the amount of the increase in the plan's funding 
target for the plan year attributable to the amendment; or (2) 
if the plan's funding target attainment percentage would be 
less than 80 percent taking into account the amendment, the 
amount sufficient to result in a funding target attainment 
percentage of 80 percent. In addition, the limitation does not 
apply to a plan for the first five years the plan (or a 
predecessor plan) is in effect.
            Limitation on certain forms of distribution
    A plan must provide that, if the plan's funding target 
attainment percentage is less than 80 percent for a plan year, 
the plan will not make any prohibited payments after the 
valuation date for the plan year. For this purpose, prohibited 
payment is defined as under the present-law rule restricting 
distributions during a period of a liquidity shortfall: (1) any 
payment in excess of the monthly amount paid under a single 
life annuity (plus any social security supplement provided 
under the plan) in the case of a participant or beneficiary 
whose annuity starting date occurs during the period; (2) any 
payment for the purchase of an irrevocable commitment from an 
insurer to pay benefits (e.g., an annuity contract); or (3) any 
other payment specified by the Secretary of the Treasury by 
regulations. However, the restriction on distributions does not 
apply to a plan for any plan year if the terms of the plan (as 
in effect for the period beginning on June 29, 2005, and ending 
with the plan year) provide for no benefit accruals with 
respect to any participant during the period.

Additional limitation on benefit accruals for plans less than 60-
        percent funded

    A plan must provide that, if the plan's funding target 
attainment percentage is less than 60 percent for a plan year, 
all future benefit accruals under the plan must cease as of the 
valuation date for the plan year. However, this limitation does 
not apply to a plan for the first five years the plan (or a 
predecessor plan) is in effect.

Funding target attainment percentage

    The term ``funding target attainment percentage'' means the 
ratio, expressed as a percentage, that the value of the plan's 
assets (reduced by the plan's funding standard carryover 
balance and prefunding balance) bears to the plan's funding 
target for the year (i.e., the present value of liabilities 
under the plan).\42\ For this purpose, the plan's funding 
target is determined using the actuarial assumptions for plans 
that are not at-risk. However, under a special rule, if a 
plan's funding target attainment percentage is at least 100 
percent, determined by not reducing the value of the plan's 
assets by the plan's funding standard carryover balance and 
prefunding balance, such reductions do not apply for this 
purpose.
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    \42\ Funding target attainment percentage is defined for this 
purpose as under the provision relating to minimum funding rules for 
single-employer plans.
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Determining funding levels

    Under the provision, certain presumptions apply in 
determining whether limitations apply with respect to a plan, 
subject to certification of the plan's funding target 
attainment percentage by the plan's enrolled actuary. If a plan 
was subject to a limitation for the preceding year, the plan's 
funding target attainment percentage for the current year is 
presumed to be the same as the preceding year until the plan 
actuary certifies the plan's actual funding target attainment 
percentage for the current year. If (1) a plan was not subject 
to a limitation for the preceding year, but its funding target 
attainment percentage for the preceding year was not more than 
10 percentage points greater than the threshold for a 
limitation, and (2) as of the first day of the fourth month of 
the current plan year, the plan actuary has not certified the 
plan's actual funding target attainment percentage for the 
current year, the plan's funding target attainment percentage 
is presumed to be reduced by 10 percentage points as of that 
day and that day is deemed to be the plan's valuation date for 
purposes of applying the benefit limitation. As a result, the 
limitation applies as of that date until the actuary certifies 
the plan's actual funding target attainment percentage. In any 
other case, if the plan actuary has not certified the plan's 
actual funding target attainment percentage by the first day of 
the tenth month of the current plan year, for purposes of the 
limitations, the plan's funding target attainment percentage is 
conclusively presumed to be less than 60 percent as of that day 
and that day is deemed to be the valuation date for the current 
plan year.
    A special rule applies in applying the presumption rules in 
2007. Under the special rule, the plan's ``modified current 
liability percentage'' for 2006 is substituted for the plan's 
funding target attainment percentage for the preceding plan 
year. Modified funding current liability percentage is the 
plan's funded current liability percentage for 2006, determined 
by reducing the value of the plan's assets by any credit 
balance if the plan's funded current liability percentage 
(before such a reduction) is less than 100 percent.

Anticutback relief

    Under the provision, a plan does not fail to meet the 
requirements of the anti-cutback rule solely by reason of the 
adoption of a plan amendment necessary to meet the requirements 
of the provision.

Restoration of benefits

    If a limitation on distributions or accruals applies with 
respect to a plan year (other than because of a presumption as 
to the plan's funding target attainment percentage) and the 
limitation ceases to apply for a subsequent year, the plan may 
provide for the resumption of such distributions or accruals 
only by means of the adoption of a plan amendment after the 
valuation date for the subsequent plan year.

                             EFFECTIVE DATE

    The provision generally applies with respect to plan years 
beginning after December 31, 2006.
    In the case of a plan maintained pursuant to one or more 
collective bargaining agreements between employee 
representatives and one or more employers ratified before the 
date of enactment of the provision, the provision does not 
apply to plan years beginning before the earlier of: (1) the 
later of (a) the date on which the last collective bargaining 
agreement relating to the plan terminates (determined without 
regard to any extension thereof agreed to after the date of 
enactment), or (b) the first day of the first plan year to 
which the provision would otherwise apply; or (2) January 1, 
2009. For this purpose, any plan amendment made pursuant to a 
collective bargaining agreement relating to the plan that 
amends the plan solely to conform to any requirement under the 
provision is not to be treated as a termination of the 
collective bargaining agreement.

C. Modification of Transition Rule to Pension Funding Requirements for 
                         Interstate Bus Company


(Sec. 121 of the bill)

                              PRESENT LAW

    Defined benefit pension plans are required to meet certain 
minimum funding rules. In some cases, additional contributions 
are required if a single-employer defined benefit pension plan 
is underfunded. Additional contributions generally are not 
required in the case of a plan with a funded current liability 
percentage of at least 90 percent. A plan's funded current 
liability percentage is the value of plan assets as a 
percentage of current liability. In general, a plan's current 
liability means all liabilities to employees and their 
beneficiaries under the plan. In the case of a plan with a 
funded current liability percentage of less than 100 percent 
for the preceding plan year, estimated contributions for the 
current plan year must be made in quarterly installments during 
the current plan year.
    The PBGC insures benefits under most single-employer 
defined benefit pension plans in the event the plan is 
terminated with insufficient assets to pay for plan benefits. 
The PBGC is funded in part by a flat-rate premium per plan 
participant, and a variable rate premium based on the amount of 
unfunded vested benefits under the plan. A specified interest 
rate and a specified mortality table apply in determining 
unfunded vested benefits for this purpose.
    A special rule modifies the minimum funding requirements in 
the case of certain plans. The special rule applies in the case 
of plans that (1) were not required to pay a variable rate PBGC 
premium for the plan year beginning in 1996, (2) do not, in 
plan years beginning after 1995 and before 2009, merge with 
another plan (other than a plan sponsored by an employer that 
was a member of the controlled group of the employer in 1996), 
and (3) are sponsored by a company that is engaged primarily in 
interurban or interstate passenger bus service.
    The special rule generally treats a plan to which it 
applies as having a funded current liability percentage of at 
least 90 percent for plan years beginning after 1996 and before 
2004 if for such plan year the funded current liability 
percentage is at least 85 percent. If the funded current 
liability of the plan is less than 85 percent for any plan year 
beginning after 1996 and before 2004, the relief from the 
minimum funding requirements generally applies only if certain 
specified contributions are made.
    For plan years beginning in 2004 and 2005, the funded 
current liability percentage of the plan is treated as at least 
90 percent for purposes of determining the amount of required 
contributions (100 percent for purposes of determining whether 
quarterly contributions are required). As a result, for these 
years, additional contributions and quarterly contributions are 
not required with respect to the plan. In addition, for these 
years, the mortality table used under the plan is used in 
determining the amount of unfunded vested benefits under the 
plan for purposes of calculating PBGC variable rate premiums.
    For plan years beginning after 2005 and before 2010, the 
funded current liability percentage generally will be deemed to 
be at least 90 percent if the actual funded current liability 
percentage is at least at certain specified levels. The relief 
from the minimum funding requirements generally applies for a 
plan year beginning in 2006, 2007, or 2008 only if 
contributions to the plan for the plan year equal at least the 
expected increase in current liability due to benefits accruing 
during the plan year.

                           REASONS FOR CHANGE

    The present-law funding rules for plans maintained by 
certain interstate bus companies were enacted because the 
Congress determined that the generally applicable funding rules 
required greater contributions for such plans than were 
warranted given the special characteristics of such plans. In 
particular, these plans are closed to new participants and have 
demonstrated mortality significantly greater than that 
predicted under mortality tables that the plans would otherwise 
be required to use for minimum funding purposes. The Committee 
believes that it is appropriate to extend to 2006 the special 
rule that applies to such plans for 2004 and 2005 and, for 
years after 2006, to modify the special rule to reflect the 
changes made in the minimum funding rules.

                        EXPLANATION OF PROVISION

    The provision revises the special rule for a plan that is 
sponsored by a company engaged primarily in interurban or 
interstate passenger bus service and that meets the other 
requirements for the special rule under present law. The 
provision extends the application of the special rule for plan 
years beginning in 2004 and 2005 to plan years beginning in 
2006. The provision also provides several special rules 
relating to determining minimum required contributions and 
unfunded vested benefits for plan years beginning after 2006 
when the new funding rules for single-employer plans apply.
    Under the provision, for the plan year beginning in 2006, a 
plan's funded current liability percentage of a plan is treated 
as at least 90 percent for purposes of determining the amount 
of required contributions (100 percent for purposes of 
determining whether quarterly contributions are required). As a 
result, for the 2006 plan year, additional contributions and 
quarterly contributions are not required with respect to the 
plan. In addition, the mortality table used under the plan is 
used in determining the amount of unfunded vested benefits 
under the plan for purposes of calculating PBGC variable rate 
premiums.
    Under the provision, for plan years beginning after 2006, 
the mortality table used under the plan is used in determining: 
(1) any present value or making any computation under the 
minimum funding rules applicable to the plan; and (2) the 
amount of unfunded vested benefits under the plan for purposes 
of calculating PBGC variable rate premiums. Under a special 
phase-in, for purposes of determining the plan's funding 
shortfall for plan years beginning after 2006 and before 2012, 
the applicable percentage of the plan's funding shortfall is 
the following: 90 percent for 2007, 92 percent for 2008, 94 
percent for 2009, 96 percent for 2010, and 98 percent for 
2011.\43\ In addition, in determining minimum required 
contributions for plan years beginning after 2006, the value of 
plan assets is reduced only by the plan's prefunding balance 
(i.e., not by the plan's funding standard carryover balance) 
if, pursuant to a written agreement with the PBGC entered into 
before January 1, 2007, the funding standard carryover balance 
is not available to reduce the minimum required contribution 
for the plan year. Moreover, for purposes of the quarterly 
contributions requirement, the plan is treated as not having a 
funding shortfall for any plan year. As a result, quarterly 
contributions are not required with respect to the plan.
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    \43\ The term ``funding shortfall'' is defined under the provision 
relating to minimum funding rules for single-employer plans and means: 
(1) the excess (if any) of the plan's funding target for the plan year 
(i.e., the present value of liabilities under the plan), over (2) the 
value of the plan's assets, reduced by any prefunding and funding 
standard carryover balances.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2005.

D. Treatment of Nonqualified Deferred Compensation Plan When Employer's 
               Defined Benefit Plan is in At-Risk Status


(Sec. 122 of the bill and sec. 409A of the Code)

                              PRESENT LAW

    Amounts deferred under a nonqualified deferred compensation 
plan for all taxable years are currently includible in gross 
income to the extent not subject to a substantial risk of 
forfeiture and not previously included in gross income, unless 
certain requirements are satisfied.\44\ For example, 
distributions from a nonqualified deferred compensation plan 
may be allowed only upon certain times and events. Rules also 
apply for the timing of elections. If the requirements are not 
satisfied, in addition to current income inclusion, interest at 
the underpayment rate plus one percentage point is imposed on 
the underpayments that would have occurred had the compensation 
been includible in income when first deferred, or if later, 
when not subject to a substantial risk of forfeiture. The 
amount required to be included in income is also subject to a 
20-percent additional tax.
---------------------------------------------------------------------------
    \44\ Code sec. 409A.
---------------------------------------------------------------------------
    In the case of assets set aside in a trust (or other 
arrangement) for purposes of paying nonqualified deferred 
compensation, such assets are treated as property transferred 
in connection with the performance of services under Code 
section 83 at the time set aside if such assets (or trust or 
other arrangement) are located outside of the United States or 
at the time transferred if such assets (or trust or other 
arrangement) are subsequently transferred outside of the United 
States. A transfer of property in connection with the 
performance of services under Code section 83 also occurs with 
respect to compensation deferred under a nonqualified deferred 
compensation plan if the plan provides that upon a change in 
the employer's financial health, assets will be restricted to 
the payment of nonqualified deferred compensation.

                           REASONS FOR CHANGE

    The Committee believes that it is inappropriate for 
companies with qualified defined benefit pension plans to set 
aside assets for nonqualified deferred compensation plans 
covering executives while the qualified plan is not adequately 
funded. If the qualified pension plan that benefits rank-and-
file workers is underfunded, employer resources should be used 
to improve the funding status of the qualified pension plan 
before setting assets aside to provide for nonqualified 
deferred compensation arrangements of executives.
    While rank-and-file employees have little control over a 
company's decision to fund its pension plans, executives often 
have control in determining how nonqualified deferred 
compensation plans will be operated. In addition, executives 
who are covered by a nonqualified deferred compensation plan 
may also be instrumental in deciding how much to contribute to 
the defined benefit pension plan, thus determining the funded 
status of the pension plan.
    The Committee believes that nonqualified deferred 
compensation plans covering executives should not be funded 
unless the employer's qualified pension plan is adequately 
funded.

                        EXPLANATION OF PROVISION

    Under the provision, if during any period in which a 
defined benefit pension plan of an employer is in at-risk 
status,\45\ assets are set aside (directly or indirectly) in a 
trust (or other arrangement as determined by the Secretary of 
the Treasury), or transferred to such a trust or other 
arrangement, for purposes of paying deferred compensation, such 
transferred assets are treated as property transferred in 
connection with the performance of services (whether or not 
such assets are available to satisfy the claims of general 
creditors) under Code section 83. The rule does not apply in 
the case of assets that are set aside before the defined 
benefit pension plan is in at-risk status.
---------------------------------------------------------------------------
    \45\ At-risk status is defined as under the provision relating to 
funding rules for single-employer defined benefit pension plans and 
applies if a plan's funding target attainment percentage for the 
preceding year was less than 60 percent.
---------------------------------------------------------------------------
    If a nonqualified deferred compensation plan of an employer 
provides that assets will be restricted to the provision of 
benefits under the plan in connection with the at-risk status 
(or other similar financial measure determined by the Secretary 
of Treasury) of any defined benefit pension plan of the 
employer, or assets are so restricted, such assets are treated 
as property transferred in connection with the performance of 
services (whether or not such assets are available to satisfy 
the claims of general creditors) under Code section 83.
    Any subsequent increases in the value of, or any earnings 
with respect to, transferred or restricted assets are treated 
as additional transfers of property. Interest at the 
underpayment rate plus one percentage point is imposed on the 
underpayments that would have occurred had the amounts been 
includible in income for the taxable year in which first 
deferred or, if later, the first taxable year not subject to a 
substantial risk of forfeiture. The amount required to be 
included in income is also subject to an additional 20-percent 
tax.
    For years before 2007, the provision applies if the 
modified funded current liability percentage of the defined 
benefit pension plan for the preceding plan year is less than 
60 percent. The modified funded current liability percentage is 
the funded current liability percentage reduced by any credit 
balance.

                             EFFECTIVE DATE

    The provision is effective for transfers or other 
reservations of assets after December 31, 2005.

    TITLE II: FUNDING RULES FOR MULTIEMPLOYER DEFINED BENEFIT PLANS


        A. Funding Rules for Multiemployer Defined Benefit Plans


(Sec. 211 of the bill and new sec. 431 of the Code)

                              PRESENT LAW

Multiemployer plans

    A multiemployer plan is a plan to which more than one 
unrelated employer contributes, which is established pursuant 
to one or more collective bargaining agreements, and which 
meets such other requirements as specified by the Secretary of 
Labor. Multiemployer plans are governed by a board of trustees 
consisting of an equal number of employer and employee 
representatives. In general, the level of contributions to a 
multiemployer plan is specified in the applicable collective 
bargaining agreements, and the level of plan benefits is 
established by the plan trustees.
    Defined benefit multiemployer plans are subject to the same 
general minimum funding rules as single-employer plans, except 
that different rules apply in some cases. For example, 
different amortization periods apply for some costs in the case 
of multiemployer plans. In addition, the deficit reduction 
contribution rules do not apply to multiemployer plans.

Funding standard account

    As an administrative aid in the application of the funding 
requirements, a defined benefit pension plan is required to 
maintain a special account called a ``funding standard 
account'' to which specified charges and credits are made for 
each plan year, including a charge for normal cost and credits 
for contributions to the plan. Other credits or charges or 
credits may apply as a result of decreases or increases in past 
service liability as a result of plan amendments or experience 
gains or losses, gains or losses resulting from a change in 
actuarial assumptions, or a waiver of minimum required 
contributions.
    If, as of the close of the plan year, charges to the 
funding standard account exceed credits to the account, then 
the excess is referred to as an ``accumulated funding 
deficiency.'' For example, if the balance of charges to the 
funding standard account of a plan for a year would be $200,000 
without any contributions, then a minimum contribution equal to 
that amount would be required to meet the minimum funding 
standard for the year to prevent an accumulated funding 
deficiency. If credits to the funding standard account exceed 
charges, a ``credit balance'' results. The amount of the credit 
balance, increased with interest, can be used to reduce future 
required contributions.

Funding methods and general concepts

            In general
    A defined benefit pension plan is required to use an 
acceptable actuarial cost method to determine the elements 
included in its funding standard account for a year. Generally, 
an actuarial cost method breaks up the cost of benefits under 
the plan into annual charges consisting of two elements for 
each plan year. These elements are referred to as: (1) normal 
cost; and (2) supplemental cost.
            Normal cost
    The plan's normal cost for a plan year generally represents 
the cost of future benefits allocated to the year by the 
funding method used by the plan for current employees and, 
under some funding methods, for separated employees. 
Specifically, it is the amount actuarially determined that 
would be required as a contribution by the employer for the 
plan year in order to maintain the plan if the plan had been in 
effect from the beginning of service of the included employees 
and if the costs for prior years had been paid, and all 
assumptions as to interest, mortality, time of payment, etc., 
had been fulfilled.
            Supplemental cost
    The supplemental cost for a plan year is the cost of future 
benefits that would not be met by future normal costs, future 
employee contributions, or plan assets. The most common 
supplemental cost is that attributable to past service 
liability, which represents the cost of future benefits under 
the plan: (1) on the date the plan is first effective; or (2) 
on the date a plan amendment increasing plan benefits is first 
effective. Other supplemental costs may be attributable to net 
experience losses, changes in actuarial assumptions, and 
amounts necessary to make up funding deficiencies for which a 
waiver was obtained. Supplemental costs must be amortized 
(i.e., recognized for funding purposes) over a specified number 
of years, depending on the source.
            Valuation of assets
    For funding purposes, the actuarial value of plan assets 
may be used, rather than fair market value. The actuarial value 
of plan assets is the value determined under a reasonable 
actuarial valuation method that takes into account fair market 
value and is permitted under Treasury regulations. Any 
actuarial valuation method used must result in a value of plan 
assets that is not less than 80 percent of the fair market 
value of the assets and not more than 120 percent of the fair 
market value. In addition, if the valuation method uses average 
value of the plan assets, values may be used for a stated 
period not to exceed the five most recent plan years, including 
the current year.
            Reasonableness of assumptions
    In applying the funding rules, all costs, liabilities, 
interest rates, and other factors are required to be determined 
on the basis of actuarial assumptions and methods, each of 
which is reasonable (taking into account the experience of the 
plan and reasonable expectations), or which, in the aggregate, 
result in a total plan contribution equivalent to a 
contribution that would be obtained if each assumption and 
method were reasonable. In addition, the assumptions are 
required to offer the actuary's best estimate of anticipated 
experience under the plan.

Charges and credits to the funding standard account

            In general
    Under the minimum funding standard, the portion of the cost 
of a plan that is required to be paid for a particular year 
depends upon the nature of the cost. For example, the normal 
cost for a year is generally required to be funded currently. 
Other costs are spread (or amortized) over a period of years. 
In the case of a multiemployer plan, past service liability is 
amortized over 40 or 30 years depending on how the liability 
arose, experience gains and losses are amortized over 15 years, 
gains and losses from changes in actuarial assumptions are 
amortized over 30 years, and waived funding deficiencies are 
amortized over 15 years.
            Normal cost
    Each plan year, a plan's funding standard account is 
charged with the normal cost assigned to that year under the 
particular acceptable actuarial cost method adopted by the 
plan. The charge for normal cost will require an offsetting 
credit in the funding standard account. Usually, an employer 
contribution is required to create the credit. For example, if 
the normal cost for a plan year is $150,000, the funding 
standard account would be charged with that amount for the 
year. Assuming that there are no other credits in the account 
to offset the charge for normal cost, an employer contribution 
of $150,000 will be required for the year to avoid an 
accumulated funding deficiency.
            Past service liability
    There are three separate charges to the funding standard 
account one or more of which may apply to a multiemployer plan 
as the result of past service liabilities. In the case of a 
plan in existence on January 1, 1974, past service liability 
under the plan on the first day on which the plan was first 
subject to ERISA is amortized over 40 years. In the case of a 
plan which was not in existence on January 1, 1974, past 
service liability under the plan on the first day on which the 
plan was first subject to ERISA is amortized over 30 years. 
Past service liability due to plan amendments is amortized over 
30 years.
            Experience gains and losses
    In determining plan funding under an actuarial cost method, 
a plan's actuary generally makes certain assumptions regarding 
the future experience of a plan. These assumptions typically 
involve rates of interest, mortality, disability, salary 
increases, and other factors affecting the value of assets and 
liabilities. The actuarial assumptions are required to be 
reasonable, as discussed below. If the plan's actual unfunded 
liabilities are less than those anticipated by the actuary on 
the basis of these assumptions, then the excess is an 
experience gain. If the actual unfunded liabilities are greater 
than those anticipated, then the difference is an experience 
loss. In the case of a multiemployer plan, experience gains and 
losses for a year are generally amortized over a 15-year 
period, resulting in credits or charges to the funding standard 
account.
            Gains and losses from changes in assumptions
    If the actuarial assumptions used for funding a plan are 
revised and, under the new assumptions, the accrued liability 
of a plan is less than the accrued liability computed under the 
previous assumptions, the decrease is a gain from changes in 
actuarial assumptions. If the new assumptions result in an 
increase in the accrued liability, the plan has a loss from 
changes in actuarial assumptions. The accrued liability of a 
plan is the actuarial present value of projected pension 
benefits under the plan that will not be funded by future 
contributions to meet normal cost or future employee 
contributions. In the case of a multiemployer plan, the gain or 
loss for a year from changes in actuarial assumptions is 
amortized over a period of 30 years, resulting in credits or 
charges to the funding standard account.

Funding waivers and amortization of waived funding deficiencies

    Within limits, the Secretary of the Treasury is permitted 
to waive all or a portion of the contributions required under 
the minimum funding standard for the year (a ``waived funding 
deficiency''). In the case of a multiemployer plan, a waiver 
may be granted if 10 percent or more of the number of employers 
contributing to the plan could not make the required 
contribution without temporary substantial business hardship 
and if requiring the contribution would be adverse to the 
interests of plan participants in the aggregate. The minimum 
funding requirements may not be waived with respect to a 
multiemployer plan for more five out of any 15 consecutive 
years.
    If a funding deficiency is waived, the waived amount is 
credited to the funding standard account. In the case of a 
multiemployer plan, the waived amount is then amortized over a 
period of 15 years, beginning with the year following the year 
in which the waiver is granted. Each year, the funding standard 
account is charged with the amortization amount for that year 
unless the plan becomes fully funded. In the case of a 
multiemployer plan, the interest rate used for purposes of 
determining the amortization on the waived amount is the rate 
determined under section 6621(b) of the Internal Revenue Code 
(relating to the Federal short-term rate).

Extension of amortization periods

    Amortization periods may be extended for up to 10 years by 
the Secretary of the Treasury if the Secretary finds that the 
extension would carry out the purposes of ERISA and would 
provide adequate protection for participants under the plan and 
if such Secretary determines that the failure to permit such an 
extension would (1) result in a substantial risk to the 
voluntary continuation of the plan or a substantial curtailment 
of pension benefit levels or employee compensation, and (2) be 
adverse to the interests of plan participants in the aggregate. 
The interest rate with respect to extensions of amortization 
periods is the same as that used with respect to waived funding 
deficiencies.

Alternative funding standard account

    As an alternative to applying the rules described above, a 
plan which uses the entry age normal cost method may satisfy an 
alternative minimum funding standard. Under the alternative, 
the minimum required contribution for the year is generally 
based on the amount necessary to bring the plan's assets up to 
the present value of accrued benefits, determine using the 
actuarial assumptions that apply when a plan terminates. The 
alternative standard has been rarely used.

                           REASONS FOR CHANGE

    The Committee believes that in order for multiemployer 
plans to continue to provide valuable pension benefits to union 
workers, the multiemployer pension system must be self-
sustaining for the long term. The Committee believes that 
certain modifications to the multiemployer plan funding rules 
are appropriate in order to help ensure the long-term solvency 
of the multiemployer plan pension system. The Committee 
believes that it is appropriate to streamline all amortization 
periods to a maximum of 15 years. The Committee also believes 
that the rules governing amortization extensions for 
multiemployer plans should be modified.

                        EXPLANATION OF PROVISION

    The provision modifies the amortization periods applicable 
to multiemployer plans so that the amortization period for most 
charges is 15 years. Under the provision, in the case of a plan 
which was not in existence on January 1, 1974, past service 
liability under the plan on the first day on which the plan is 
first subject to ERISA is amortized over 15 years (rather than 
30); past service liability due to plan amendments is amortized 
over 15 years (rather than 30); and experience gains and losses 
resulting from a change in actuarial assumptions are amortized 
over 15 years (rather than 30). As under present law, 
experience gains and losses and waived funding deficiencies are 
amortized over 15 years. The new amortization periods do not 
apply to amounts being amortized under present-law amortization 
periods, that is, no recalculation of amortization schedules 
already in effect is required under the provision. The 
provision eliminates the alternative funding standard account.
    The provision provides that in applying the funding rules, 
all costs, liabilities, interest rates, and other factors are 
required to be determined on the basis of actuarial assumptions 
and methods, each of which is reasonable (taking into account 
the experience of the plan and reasonable expectations). In 
addition, as under present law, the assumptions are required to 
offer the actuary's best estimate of anticipated experience 
under the plan.
    The provision provides that, upon application to the 
Secretary of the Treasury, the Secretary is to grant an 
extension of the amortization period with respect to any 
unfunded past service liability, investment loss, or experience 
loss if the Secretary determines that (1) absent the extension, 
the plan would have an accumulated funding deficiency in any of 
the next ten plan years, (2) the plan sponsor has adopted a 
plan to improve the plan's funding status, and (3) taking into 
account the extension, the plan is projected to have sufficient 
assets to timely pay its expected benefit liabilities and other 
anticipated expenditures. The extension may not exceed five 
years.
    The Secretary of the Treasury may also grant an additional 
extension of such amortization periods for an additional five 
years. The standards for determining whether such an extension 
may be granted are the same as under present law.
    As under present law, these extensions do not apply unless 
the applicant demonstrates to the satisfaction of the Treasury 
Secretary that notice of the application has been provided to 
each affected party (as defined in ERISA section 4001(a)(21)).
    The provision modifies the interest rate applicable to 
waived funding deficiencies and extensions of amortization 
periods so that it is the greater of (1) 150 percent of the 
Federal mid-term rate, or (2) the rate of interest used under 
the plan in determining costs.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2006.

 B. Additional Funding Rules for Multiemployer Plans in Endangered or 
                            Critical Status 


(Sec. 212 of the bill and new sec. 432 of the Code)

                              PRESENT LAW

    Multiemployer defined benefit plans are subject to minimum 
funding rules similar to those applicable to single-employer 
plans.\46\ Certain modifications to the single-employer plan 
funding rules apply to multiemployer plans that experience 
financial difficulties, referred to as ``reorganization 
status.'' A plan is in reorganization status for a year if the 
contribution needed to balance the charges and credits to its 
funding standard account exceeds its ``vested benefits 
charge.'' \47\ The plan's vested benefits charge is generally 
the amount needed to amortize, in equal annual installments, 
unfunded vested benefits under the plan over: (1) 10 years in 
the case of obligations attributable to participants in pay 
status; and (2) 25 years in the case of obligations 
attributable to other participants. A plan in reorganization 
status is eligible for a special funding credit. In addition, a 
cap on year-to-year contribution increases and other relief is 
available to employers that continue to contribute to the plan.
---------------------------------------------------------------------------
    \46\ See section II.A. for a discussion of the minimum funding 
rules for multiemployer defined benefit plans.
    \47\ ERISA sec. 4241.
---------------------------------------------------------------------------
    Subject to certain requirements, a multiemployer plan in 
reorganization status may also be amended to reduce or 
eliminate accrued benefits in excess of the amount of benefits 
guaranteed by the PBGC.\48\ In order for accrued benefits to be 
reduced, at least six months before the beginning of the plan 
year in which the amendment is adopted, notice must be given 
that the plan is in reorganization status and that, if 
contributions to the plan are not increased, accrued benefits 
will be reduced or an excise tax will be imposed on employers 
obligated to contribute to the plan. The notice must be 
provided to plan participants and beneficiaries, any employer 
who has an obligation to contribute to the plan, and any 
employee organization representing employees in the plan.
---------------------------------------------------------------------------
    \48\ ERISA sec. 4244A.
---------------------------------------------------------------------------
    In the case of multiemployer plans, the PBGC insures plan 
insolvency, rather than plan termination. A plan is insolvent 
when its available resources are not sufficient to pay the plan 
benefits for the plan year in question, or when the sponsor of 
a plan in reorganization reasonably determines, taking into 
account the plan's recent and anticipated financial experience, 
that the plan's available resources will not be sufficient to 
pay benefits that come due in the next plan year.\49\ An 
insolvent plan is required to reduce benefits to the level that 
can be covered by the plan's assets. However, benefits cannot 
be reduced below the level guaranteed by the PBGC.\50\ If a 
multiemployer plan is insolvent, the PBGC guarantee is provided 
in the form of loans to the plan trustees. If the plan recovers 
from insolvency status, loans from the PBGC can be repaid. 
Plans in reorganization status are required to compare assets 
and liabilities to determine if the plan will become insolvent 
in the future.
---------------------------------------------------------------------------
    \49\ ERISA sec. 4245.
    \50\ The limit of benefits that the PBGC guarantees under a 
multiemployer plan is the sum of 100 percent of the first $11 of 
monthly benefits and 75 percent of the next $33 of monthly benefits for 
each year of service. ERISA sec. 4022A(c).
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                           REASONS FOR CHANGE

    The Committee believes that the multiemployer pension plan 
funding and benefit structures need to be reformed, including 
the addition of quantifiable measures of improvement and 
adjustments to the benefit structures for severely underfunded 
plans in order to maintain the health of the plans that are in 
existence. The Committee recognizes that adjustments to 
contribution and benefit levels of multiemployer pension plans 
may be difficult to achieve because contribution and benefit 
levels are set through the collective bargaining process. Thus, 
the multiemployer pension plan system would benefit if 
benchmarks were put in place to identify endangered plans so 
that steps to improve the funded status of such plans can be 
taken before such plans become severely underfunded. Similarly, 
severely underfunded plans should be identified and required to 
take steps to improve their funded status. The Committee 
believes that a structure should be established for identifying 
troubled multiemployer pension plans by providing appropriate 
triggers for determining when plans are underfunded as well as 
quantifiable benchmarks for measuring a plan's funding 
improvement.

                        EXPLANATION OF PROVISION

In general

    The provision provides additional funding rules for 
multiemployer defined benefit plans that are in endangered or 
critical status. The present-law reorganization and insolvency 
rules continue to apply.
    Within 90 days after the first day of the plan year, the 
plan actuary must certify to the Secretary of the Treasury 
whether or not the plan is in endangered or critical status for 
the plan year. If the certification is not made within this 
period, the plan is presumed to be in critical status until the 
plan actuary makes a contrary certification. In making the 
determination whether a plan is in endangered or critical 
status, the plan actuary must make projections for the current 
and succeeding plan years, using reasonable actuarial 
assumptions and methods, of the current value of plan assets 
and the present value of liabilities under the plan for the 
current year as of the beginning of the year, based on the 
actuarial statement for the preceding plan year. Any actuarial 
projection of plan assets must assume (1) reasonably 
anticipated employer and employee contributions for the current 
and succeeding plan years, assuming that the terms of one or 
more collective bargaining agreements pursuant to which the 
plan is maintained for the current plan year continue in effect 
for the succeeding plan years, or (2) that employer andemployee 
contributions for the most recent plan year will continue indefinitely, 
but only if the plan actuary determines that there have been no 
significant demographic changes that would make continued application 
of such terms unreasonable.
    If a plan is certified to be in endangered status or enters 
into critical status, notice must be provided within 30 days 
after the date of certification or entry to the participants 
and beneficiaries, the bargaining parties, the PBGC, the 
Secretary of the Treasury and the Secretary of Labor.

Endangered status

    A multiemployer plan is in endangered status if the plan's 
funded percentage for the plan year is less than 80 percent, or 
the plan has an accumulated funding deficiency for the plan 
year or is projected to have an accumulated funding deficiency 
in any of the six succeeding plan years (taking into account 
amortization extensions). A plan's funded percentage is the 
percentage of plan assets over accrued liability of the plan.
    Within 240 days after a plan is certified as endangered (if 
no funding improvement plan is in effect for the plan year), 
the plan sponsor must amend the multiemployer plan to include a 
funding improvement plan approved by the bargaining parties. 
The funding improvement plan must provide that during the 
funding improvement period, the plan will have a certain 
required increase in the funded percentage and no accumulated 
funding deficiency for any plan year during the funding 
improvement period, taking into account amortization extensions 
(the ``benchmarks'').
    The provision requires that the plan's funded percentage 
increase such that the difference between 100 percent and the 
plan's funded percentage for the last year of the funding 
improvement plan is not more than two-thirds of the difference 
between 100 percent and the plan's funded percentage for the 
first year of the funding improvement plan. Thus, the 
difference between 100 percent and the plan's funded percentage 
must be reduced by at least one-third during the funding 
improvement period. The funding improvement period is the 10-
year period beginning on the earlier of (1) the second 
anniversary of the date of adoption of the funding improvement 
plan, or (2) the first day of the first plan year following the 
year (after certification of endangered status) in which the 
collective bargaining agreements covering at least 75 percent 
of active participants have expired.
    In the case in which the funded percentage of a plan is 70 
percent or less, the provision requires that the plan's funded 
percentage increase such that the difference between 100 
percent and the plan's funded percentage for the last year of 
the funding improvement plan is not more than four-fifths of 
the difference between 100 percent and the plan's funded 
percentage for the first year of the funding improvement plan. 
Thus, the difference between 100 percent and the plan's funded 
percentage must be reduced by at least one-fifth during the 
funding improvement period. In addition, a 15-year funding 
improvement period is used. If the plan year is prior to the 
first day of the first plan year following the plan year in 
which occurs the first date (after the day of the 
certification) as of which collective bargaining agreements 
covering at least 75 percent of active participants in the 
multiemployer plan have expired, the same requirements apply in 
the case of a plan in which the funded percentage is more than 
70 percent, but less than 80 percent, if the plan actuary 
certifies within 30 days after certification of endangered 
status that the plan is not able to attain the funding 
percentage increase otherwise required by the provision (i.e., 
the difference between 100 percent and the plan's funded 
percentage must be reduced by at least one-third during the 
funding improvement period) over the funding improvement 
period. For subsequent years for such plans, if the plan 
actuary certifies that the plan is not able to attain the 
increase generally required under the provision, a 15-year 
funding improvement period is used.
    Within 90 days after a plan is certified as endangered, the 
plan sponsor must provide to the bargaining parties alternative 
provisions for revised benefit structures, contribution 
structures, or both, which if adopted as amendments to the plan 
may be reasonably expected to meet the benchmark requirements 
for the funding improvement plan. The provisions must include 
(1) at least one provision for reductions in the amount of 
future benefit accruals necessary to achieve the benchmarks, 
assuming no amendments increasing contributions under the plan 
(other than amendments increasing contributions necessary to 
achieve the benchmarks after amendments have reduced future 
benefit accruals to the maximum extent permitted by law) and 
(2) at least one provision for increases in contributions 
necessary to achieve the benchmarks assuming no amendments 
reducing future benefit accruals under the plan. Upon request 
of any bargaining party who employs at least five percent of 
the active participants, or represents as an employee 
organization at least five percent of the active participants, 
the plan sponsor must provide information on other combinations 
of increases in contributions and reductions in future benefit 
accruals which would result in achieving the benchmarks. The 
plan sponsor may provide additional information as it deems 
appropriate.
    Pending approval of the funding improvement plan, the plan 
sponsor must take all reasonable actions (consistent with the 
terms of the plan and present law) necessary to ensure an 
increase in the plan's funded percentage and a postponement of 
an accumulated funding deficiency for at least one additional 
plan year. These actions include applications for extensions of 
amortization periods, use of the shortfall funding method in 
making funding standard account computations, amendments to the 
plan's benefit structure, reductions in future benefit 
accruals, and other reasonable actions.
    In addition, pending approval of a funding improvement 
plan, the plan may not be amended to provide (1) a reduction in 
the level of contributions for participants who are not in pay 
status; (2) a suspension of contributions with respect to any 
period of service; or (3) any new or indirect exclusion of 
younger or newly hired employees from plan participation. 
Pending approval of a funding improvement plan, restrictions 
apply on lump sum and other similar distributions. If the 
present value of participant's accrued benefit exceeds $5,000, 
the benefit may not be distributed as an immediate distribution 
or in any other accelerated form. In addition, except in the 
case of amendments required as a condition of qualification 
under the Internal Revenue Code, no amendment may be adopted 
which increases liabilities of the plan by reason of any 
increase in benefits, any change in accrual of benefits, or any 
change in the rate at which benefits become nonforfeitable.
    If no plan is adopted by the end of the 240-day period 
after a plan is certified as endangered, the plan enters into 
critical status as of the first day of the succeeding plan 
year. Notice must be provided to participants and 
beneficiaries, the bargaining parties, the PBGC, theSecretary 
of Treasury and the Secretary of Labor within 30 days after the plan 
enters critical status.
    A summary of any funding improvement plan and any 
modifications, together with annual updates regarding the 
funding ratio of the plan, must be included in the plan's 
annual report and summary annual report.
    Upon adoption of a funding improvement plan, the plan may 
not be amended to be inconsistent with the funding improvement 
plan, or to increase future benefit accruals, unless the plan 
actuary certifies in advance that, after taking into account 
the proposed increase, the plan is reasonably expected to meet 
the benchmarks.

Critical status

    There are several ways that a multiemployer plan can be in 
critical status for a plan year. A multiemployer plan is in 
critical status for a plan year if:
          1. As of the beginning of the current plan year, the 
        funded percentage of the plan is less than 65 percent 
        and the sum of (A) the market value of plan assets, 
        plus (B) the present value of reasonably anticipated 
        employer and employee contributions for the current 
        plan year and each of the six succeeding plan years 
        (assuming that the terms of the collective bargaining 
        agreements continue in effect) is less than the present 
        value of all nonforfeitable benefits for all 
        participants and beneficiaries projected to be payable 
        under the plan during the plan year and each of the six 
        succeeding plan years (plus administrative expenses),
          2. As of the beginning of the current plan year, the 
        sum of (A) the market value of plan assets, plus (B) 
        the present value of the reasonably anticipated 
        employer and employee contributions for the current 
        plan year and each of the four succeeding plan years 
        (assuming that the terms of the collective bargaining 
        agreements continue in effect) is less than the present 
        value of all nonforfeitable benefits for all 
        participants and beneficiaries projected to be payable 
        under the plan during the current plan year and each of 
        the four succeeding plan years (plus administrative 
        expenses),
          3. As of the beginning of the current plan year, the 
        funded percentage of the plan is less than 65 percent 
        and the plan has an accumulated funding deficiency for 
        the current plan year or is projected to have an 
        accumulated funding deficiency for any of the four 
        succeeding plan years (not taking into account 
        amortization period extensions),
          4. (A) The plan's normal cost for the current plan 
        year, plus interest for the current plan year on the 
        amount of unfunded benefit liabilities under the plan 
        as of the last day of the preceding year, exceeds the 
        present value (as of the beginning of the plan year) of 
        the reasonably anticipated employer and employee 
        contributions for the current plan year, (B) the 
        present value (as of the beginning of the plan year) of 
        nonforfeitable benefits of inactive participants is 
        greater than the present value (as of the beginning of 
        the current plan year) of nonforfeitable benefits of 
        active participants, and (C) the plan is projected to 
        have an accumulated funding deficiency for the current 
        plan year or any of the four succeeding plan years (not 
        taking into account amortization period extensions), or
          5. (A) The funded percentage of the plan is greater 
        than 65 percent for the current plan year and (B) the 
        plan is projected to have an accumulated funding 
        deficiency during any of the succeeding three plan 
        years (not taking into account amortization period 
        extensions).
    As previously discussed, a plan is in critical status if 
the plan is in endangered status for the preceding plan year 
and the requirements applicable to endangered plans were not 
met with respect to the plan. A plan is also in critical status 
if the annual certification as to whether a plan is in 
endangered or critical status is not made.
    If a plan is in critical status for a plan year (and no 
rehabilitation plan is currently in effect for the plan year), 
the plan must be amended within 240 days after the plan enters 
critical status to include a rehabilitation plan. A plan is 
treated as entering into critical status as of the date that 
the plan is certified to be in critical status, is presumed to 
be in critical status because no certification is made, or 
enters into critical status because the requirements of 
endangered status are not satisfied.
    A rehabilitation plan must consist of (1) amendments to the 
plan providing for measures, agreed to by the bargaining 
parties, to increase contributions, reduce plan expenditures, 
or reduce future benefit accruals, or to take any combination 
of such actions, determined necessary to cause the plan to 
cease to be in critical status during the rehabilitation 
period, or (2) reasonable measures to forestall possible 
insolvency if the plan sponsor determines that upon exhaustion 
of all reasonable measures, the plan would not cease to be in 
critical status during the rehabilitation period.
    The rehabilitation period is the 10-year period beginning 
on the earlier of (1) the second anniversary of the date of 
adoption of the rehabilitation plan or (2) the first day of the 
first plan year following the year (after entry into critical 
status) in which the collective bargaining agreements covering 
at least 75 percent of active participants have expired.
    Within 90 days after the date of entry into critical status 
the plan sponsor must propose to all bargaining parties a range 
of alternative schedules of increases in contributions and 
reductions in future benefit accruals that would carry out a 
rehabilitation plan. One schedule must show the reductions in 
future benefit accruals that would be necessary to cause the 
plan to cease to be in critical status if there were no further 
increases in rates of contribution to the plan. If the plan 
sponsor determines that the plan will not cease to be in 
critical status during the rehabilitation period unless the 
plan is amended to provide for an increase in contributions, 
one schedule must show the increases in contribution rates that 
would be necessary to cause the plan to cease to be in critical 
status if future benefit accruals were reduced to the maximum 
extent permitted by law. Upon request of any bargaining party 
who employs at least five percent of the active participants, 
or represents as an employee organization for purposes of 
collective bargaining at least five percent of the 
participants, the plan sponsor must include among the proposed 
schedules such schedules of increases in contributions and 
reductions in future benefit accruals as may be specified by 
the bargaining parties.
    Any schedule including reductions in future benefit 
accruals forming part of a rehabilitation plan is applicable 
with respect to any group of active participants who are 
employed by any bargaining party in proportion to the extent to 
which increases in contributions under the schedule apply to 
such bargaining party. Any proposed schedule cannot reduce the 
rate of future accruals below the lower of (1) a monthly 
benefit equal to one percent of the contributions required to 
be made with respect to a participant or the equivalent 
standard accrual rate for a participant or group of 
participants under the collective bargaining agreements in 
effect as of the first day of the plan year in which the plan 
enters critical status, or (2) the accrual rate under the plan. 
The equivalent standard accrual rate is determined by the 
trustees based on the standard or average contribution base 
units that they determine to be representative for active 
participants and such other factors they determine to be 
relevant.
    Pending approval of a rehabilitation plan, the plan may not 
be amended to provide (1) a reduction in the level of 
contributions for participants who are not in pay status; (2) a 
suspension of contributions with respect to any period of 
service; or (3) any new or indirect exclusion of younger or 
newly hired employees from plan participation. Pending approval 
of a funding improvement plan, restrictions apply on lump sum 
and other similar distributions. If the present value of 
participant's accrued benefit exceeds $5,000, the benefit may 
not be distributed as an immediate distribution or in any other 
accelerated form. In addition, pending approval of a 
rehabilitation plan, except in the case of amendments required 
as a condition of qualification under the Internal Revenue 
Code, no amendment may be adopted which increases liabilities 
of the plan by reason of any increase in benefits, any change 
in accrual of benefits, or any change in the rate at which 
benefits become nonforfeitable.
    Upon adoption of a rehabilitation plan, the plan may not be 
amended to be inconsistent with the rehabilitation plan or to 
increase future benefit accruals, unless the plan actuary 
certifies in advance, that after taking into account the 
proposed increase, the plan is reasonably expected to cease to 
be in critical status.
    Upon the adoption of a schedule of increases in 
contributions or reduction in future benefit accruals as part 
of a rehabilitation plan, the plan sponsor may, no more than 
once in any three-year period, amend the plan to update the 
schedule to adjust for any experience of the plan contrary to 
past actuarial assumptions. A summary of the rehabilitation 
plan and any modifications, together with annual updates 
regarding the funding ratio of the plan, must be included in 
the annual report and summary annual report for the plan year.
    The failure of an employer to make contributions in 
compliance with the rehabilitation schedule may, at the 
discretion of the plan sponsor, be treated as a complete or 
partial withdrawal from the plan.
    If the rehabilitation plan is not adopted within the 240-
day period after entry into critical status, the plan must be 
amended to implement the schedule proposed by the plan sponsor 
that shows the reductions in future benefit accruals that would 
be necessary to cause the plan to cease to be in critical 
status if there were no further increases in rates of 
contributions to the plan.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2005.

       C. Measures To Forestall Insolvency of Multiemployer Plans


(Sec. 302 of the bill and sec. 418E of the Code)

                              PRESENT LAW

    In the case of multiemployer plans, the PBGC insures plan 
insolvency, rather than plan termination. A plan is insolvent 
when its available resources are not sufficient to pay the plan 
benefits for the plan year in question, or when the sponsor of 
a plan in reorganization reasonably determines, taking into 
account the plan's recent and anticipated financial experience, 
that the plan's available resources will not be sufficient to 
pay benefits that come due in the next plan year.
    In order to anticipate future insolvencies, at the end of 
the first plan year in which a plan is in reorganization and at 
least every three plans year thereafter, the plan sponsor must 
compare the value of plan assets for the plan year with the 
total amount of benefit payments made under the plan for the 
plan year.\51\ Unless the plan sponsor determines that the 
value of plan assets exceeds three times the total amount of 
benefit payments, the plan sponsor must determine whether the 
plan will be insolvent for any of the next three plan years.
---------------------------------------------------------------------------
    \51\ Code sec. 418E(d)(1); ERISA sec. 4245(d)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that future insolvencies can be 
better anticipated if plan sponsors of plans in reorganization 
status are required to make future projections of insolvency 
for a longer time period.

                        EXPLANATION OF PROVISION

    The provision modifies the requirements for anticipating 
future insolvencies of plans in reorganization status. Under 
the provision, unless the plan sponsor determines that the 
value of plan assets exceeds three times the total amount of 
benefit payments, the plan sponsor must determine whether the 
plan will be insolvent for any of the next five plan years, 
rather than three plan years as under present law. If the plan 
sponsor makes a determination that the plan will be insolvent 
for any of the next five plan years, the plan sponsor must make 
the comparison of plan assets and benefit payments under the 
plan at least annually until the plan sponsor makes a 
determination that the plan will not be insolvent in any of the 
next five plan years.

                             EFFECTIVE DATE

    The provision is effective with respect to determinations 
made in plan years beginning after December 31, 2005.

                      TITLE III: OTHER PROVISIONS


A. Interest Rate Assumption for Determination of Lump-Sum Distributions


(Sec. 302(b) of the bill and sec. 417 of the Code)

                              PRESENT LAW

    Accrued benefits under a defined benefit pension plan 
generally must be paid in the form of an annuity for the life 
of the participant unless the participant consents to a 
distribution in another form. Defined benefit pension plans 
generally provide that a participant may choose among other 
forms of benefit offered under the plan, such as a lump-sum 
distribution. These optional forms of benefit generally must be 
actuarially equivalent to the life annuity benefit payable to 
the participant.
    A defined benefit pension plan must specify the actuarial 
assumptions that will be used in determining optional forms of 
benefit under the plan in a manner that precludes employer 
discretion in the assumptions to be used. For example, a plan 
may specify that a variable interest rate will be used in 
determining actuarial equivalent forms of benefit, but may not 
give the employer discretion to choose the interest rate.
    Statutory assumptions must be used in determining the 
minimum value of certain optional forms of benefit, such as a 
lump sum.\52\ That is, the lump sum payable under the plan may 
not be less than the amount of the lump sum that is actuarially 
equivalent to the life annuity payable to the participant, 
determined using the statutory assumptions. The statutory 
assumptions consist of an applicable mortality table (as 
published by the IRS) and an applicable interest rate.
---------------------------------------------------------------------------
    \52\ Code sec. 417(e)(3); ERISA sec. 205(g)(3).
---------------------------------------------------------------------------
    The applicable interest rate is the annual interest rate on 
30-year Treasury securities, determined as of the time that is 
permitted under regulations. The regulations provide various 
options for determining the interest rate to be used under the 
plan, such as the period for which the interest rate will 
remain constant (``stability period'') and the use of 
averaging.

                           REASONS FOR CHANGE

    The Committee believes that the rate used to determine the 
amount of lump-sum distributions should be consistent with the 
rate used to measure plan liabilities for funding purposes. 
This is consistent with the rules under prior law (before the 
adoption of temporary interest rate provisions for funding 
purposes) which used a rate based on 30-year Treasury 
securities both for calculating lump sums and funding purposes. 
A consistent rate will enable plans to better fund for 
liabilities associated with lump-sum distributions. In 
addition, using an artificially low interest rate in 
calculating lump sums will result in inflated lump sums which 
are not the actuarial equivalent of a lifetime annuity. This 
makes lump sums more attractive than an annuity, thereby 
encouraging more employees to take lump-sum distributions. This 
may reduce retirement income security by discouraging 
annuitization. This also leads to a drain on pension plan 
assets, which can undermine the retirement income security of 
other plan participants. Use of an accurate interest rate will 
result in proper measurement of lump sums and will better 
enable employers to fund for such benefits. The Committee also 
believes that the accuracy of measuring lump-sum benefits will 
be improved by the use of a more current mortality table.
    The Committee recognizes that an immediate change in the 
interest rate used to calculate lump-sum benefits will in some 
cases reduce the amount of these benefits, which may cause 
participants to terminate employment in order to avoid any 
possible reduction. The Committee believes that a deferred 
effective date followed by a phase-in period of the yield-curve 
rates will mitigate any potential effect on participants and 
will provide participants with time to evaluate the impact of 
the change in interest rates on their benefits.

                        EXPLANATION OF PROVISION

    The provision changes the mortality table and interest rate 
used to calculate the minimum value of lump sums payable from a 
defined benefit pension plan.
    The mortality table that must be used for calculating lump 
sums is based on the mortality table required for minimum 
funding purposes (i.e., the RP-2000 Combined Mortality Table, 
using Scale AA, as published by the Society of Actuaries, as in 
effect on the date of enactment of the bill and revised from 
time to time) modified as appropriate by the Secretary of the 
Treasury. It is intended that the Secretary will prescribe 
gender-neutral tables for use in determining minimum lump sums.
    The provision provides that minimum lump-sum values are to 
be calculated using the adjusted first, second, and third 
segment rates as applied under the funding rules, with certain 
modifications, for the month before the date of distribution or 
such other time as the Secretary of the Treasury may prescribe 
by regulation. The adjusted first, second, and third segment 
rates are derived from a corporate bond yield curve prescribed 
by the Secretary of the Treasury for such month which reflects 
the yields on investment grade corporate bonds with varying 
maturities (rather than a three-year weighted average, as under 
the minimum funding rules). Thus, the interest rate that 
applies depends upon how many years in the future a 
participant's annuity payment will be made. Typically, a higher 
interest rate applies for payments made further out in the 
future.
    A transition rule applies for distributions in 2007 through 
2010. For distributions in 2007 through 2010, lump-sum values 
are determined as the weighted average of two values: (1) the 
value of the lump sum determined under the methodology under 
present law (the ``old'' methodology); and (2) the value of the 
lump sum determined using the methodology applicable for 2007 
and thereafter (the ``new'' methodology). For distributions in 
2007, the weighting factor is 80 percent for the lump-sum value 
determined under the old methodology and 20 percent for the 
lump-sum determined under the new methodology. For 
distributions in 2008, the weighting factor is 60 percent for 
the lump-sum value determined under the old methodology and 40 
percent for the lump-sum determined under the new methodology. 
For distributions in 2009, the weighting factor is 40 percent 
for the lump-sum value determined under the old methodology and 
60 percent for the lump-sum determined under the new 
methodology. For distributions in 2010, the weighting factor is 
20 percent for the lump-sum value determined under the old 
methodology and 80 percent for the lump-sum determined under 
the new methodology.
    The provision also provides that a plan amendment requiring 
the use of the prescribed table and interest rate will not 
result in a violation of the rule that accrued benefits may not 
be decreased by plan amendment.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2006.

 B. Interest Rate Assumption for Applying Benefit Limitations to Lump-
                           Sum Distributions


(Sec. 303 of the bill and sec. 415 of the Code)

                              PRESENT LAW

    Annual benefits payable under a defined benefit pension 
plan generally may not exceed the lesser of (1) 100 percent of 
average compensation, or (2) $170,000 (for 2005).\53\ The 
dollar limit generally applies to a benefit payable in the form 
of a straight life annuity. If the benefit is not in the form 
of a straight life annuity (e.g., a lump sum), the benefit 
generally is adjusted to an equivalent straight life annuity. 
For purposes of adjusting a benefit in a form that is subject 
to the minimum value rules, such as a lump-sum benefit, the 
interest rate used generally must be not less than the greater 
of: (1) the rate applicable in determining minimum lump sums, 
i.e., the interest rate on 30-year Treasury securities; or (2) 
the interest rate specified in the plan. In the case of plan 
years beginning in 2004 or 2005, the interest rate used must be 
not less than the greater of: (1) 5.5 percent; or (2) the 
interest rate specified in the plan.
---------------------------------------------------------------------------
    \53\ Code sec. 415(b).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    As noted above, the Committee believes that lump-sum 
distributions should generally be determined using interest 
rates based on a corporate bond yield curve. However, the 
Committee recognizes that some plans use a fixed rate of 
interest in determining lump-sum benefits rather than the 
variable rate that is required under the minimum present value 
rules (provided that the resulting lump sum cannot be less than 
the minimum present value) and that use of a fixed rate rather 
than a variable rate can make the value of benefits more 
predictable for employees and also make employers' required 
contributions more predictable. The Committee believes that it 
should be permissible to use a fixed rate in applying the 
benefit limits to lump sums, provided that the resulting 
benefit is not significantly greater than the benefit that 
would result using interest rates based on a corporate bond 
yield curve.

                        EXPLANATION OF PROVISION

    Under the provision, for purposes of adjusting a benefit in 
a form that is subject to the minimum value rules, such as a 
lump-sum benefit, the interest rate used generally must be not 
less than the greater of: (1) 5.5 percent; (2) the rate that 
provides a benefit of not more than 105 percent of the benefit 
that would be provided if the rate applicable in determining 
minimum lump sums were used; or (3) the interest rate specified 
in the plan.

                             EFFECTIVE DATE

    The provision is effective for distributions made in years 
beginning after December 31, 2005.

               C. Distributions During Working Retirement


(Sec. 304(b) of the bill and new sec. 401(a)(35) of the Code)

                              PRESENT LAW

    For purposes of the qualification requirements applicable 
to pension plans, stock bonus plans, and profit-sharing plans, 
a pension plan is a plan established and maintained primarily 
to provide systematically for the payment of definitely 
determinable benefits to employees over a period of years, 
usually life, after retirement.\54\ A pension plan (i.e., a 
defined benefit plan or money purchase pension plan) may not 
provide for distributions before the attainment of normal 
retirement age (commonly age 65) to participants who have not 
separated from employment.\55\
---------------------------------------------------------------------------
    \54\ Treas. Reg. sec. 1.401-1(b)(1)(i).
    \55\ See, e.g., Rev. Rul. 74-254.
---------------------------------------------------------------------------
    Under proposed regulations, in the case of a phased 
retirement program, a pension plan is permitted to pay a 
portion of a participant's benefits before attainment of normal 
retirement age.\56\ A phased retirement program is a program 
under which employees who are at least age 59\1/2\ and are 
eligible for retirement may reduce (by at least 20 percent) the 
number of hours they customarily work and receive a pro rata 
portion of their retirement benefits, based on the reduction in 
their work schedule.
---------------------------------------------------------------------------
    \56\ Prop. Treas. Reg. secs. 1.401(a)-1(b)(1)(iv) and 1.401(a)-3.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that allowing in-service 
distributions from a pension plan can lead to the premature 
depletion of retirement savings. The Committee also understands 
that retirement income security can be enhanced if employees 
who are eligible for early retirement continue working. The 
Committee is concerned that the present-law rule prohibiting 
in-service distributions from a pension plan before normal 
retirement age may cause employees who would otherwise continue 
working to retire in order to start receiving benefits. The 
Committee believes that greater flexibility should be provided 
so that pension plans may begin paying benefits to employees 
who have reached age 62 and are continuing to work for the 
employer.

                        EXPLANATION OF PROVISION

    Under the provision, a pension plan does not fail to be a 
qualified retirement plan merely because it provides for 
distributions to a participant who has attained age 62 and has 
not separated from employment at the time of the distribution.

                             EFFECTIVE DATE

    The provision is effective for distributions in plan years 
beginning after December 31, 2005.

          TITLE IV: IMPROVEMENTS IN PBGC GUARANTEE PROVISIONS


(Sec. 401 of the bill and sec. 4006 of ERISA)

                              PRESENT LAW

The PBGC

    The minimum funding requirements permit an employer to fund 
defined benefit plan benefits over a period of time. Thus, it 
is possible that a plan may be terminated at a time when plan 
assets are not sufficient to provide all benefits accrued by 
employees under the plan. In order to protect plan participants 
from losing retirement benefits in such circumstances, the 
Pension Benefit Guaranty Corporation (``PBGC''), a corporation 
within the Department of Labor, was created in 1974 under ERISA 
to provide an insurance program for benefits under most defined 
benefit plans maintained by private employers.

Termination of single-employer defined benefit plans

    An employer may voluntarily terminate a single-employer 
plan only in a standard termination or a distress termination. 
The PBGC may also involuntarily terminate a plan (that is, the 
termination is not voluntary on the part of the employer).
    A standard termination is permitted only if plan assets are 
sufficient to cover benefit liabilities. If assets in a defined 
benefit plan are not sufficient to cover benefit liabilities, 
the employer may not terminate the plan unless the employer 
(and members of the employer's controlled group) meets one of 
four criteria of financial distress.\57\
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    \57\ The four criteria for a distress termination are: (1) the 
contributing sponsor, and every member of the controlled group of which 
the sponsor is a member, is being liquidated in bankruptcy or any 
similar Federal law or other similar State insolvency proceedings; (2) 
the contributing sponsor and every member of the sponsor's controlled 
group is being reorganized in bankruptcy or similar State proceeding; 
(3) the PBGC determines that termination is necessary to allow the 
employer to pay its debts when due; or (4) the PBGC determines that 
termination is necessary to avoid unreasonably burdensome pension costs 
caused solely by a decline in the employer's work force.
---------------------------------------------------------------------------
    The PBGC may institute proceedings to terminate a plan if 
it determines that the plan in question has not met the minimum 
funding standards, will be unable to pay benefits when due, has 
a substantial owner who has received a distribution greater 
than $10,000 (other than by reason of death) while the plan has 
unfunded nonforfeitable benefits, or may reasonably be expected 
to increase PBGC's long-run loss unreasonably. The PBGC must 
institute proceedings to terminate a plan if the plan is unable 
to pay benefits that are currently due.

Guaranteed benefits

    When an underfunded plan terminates, the amount of benefits 
that the PBGC will pay depends on legal limits, asset 
allocation, and recovery on the PBGC's employer liability 
claim. The PBGC guarantee applies to ``basic benefits.'' Basic 
benefits generally are benefits accrued before a plan 
terminates, including (1) benefits at normal retirement age; 
(2) most early retirement benefits; (3) disability benefits for 
disabilities that occurred before the plan was terminated; and 
(4) certain benefits for survivors of plan participants. 
Generally only that part of the retirement benefit that is 
payable in monthly installments (rather than, for example, 
lump-sum benefits payable to encourage early retirement) is 
guaranteed.\58\
---------------------------------------------------------------------------
    \58\ ERISA sec. 4022(b) and (c).
---------------------------------------------------------------------------
    Retirement benefits that begin before normal retirement age 
are guaranteed, provided they meet the other conditions of 
guarantee (such as that before the date the plan terminates, 
the participant had satisfied the conditions of the plan 
necessary to establish the right to receive the benefit other 
than application for the benefit). Contingent benefits (for 
example, subsidized early retirement benefits) are guaranteed 
only if the triggering event occurs before plan termination.
    For plans terminating in 2005, the maximum guaranteed 
benefit for an individual retiring at age 65 is $3,698.86 per 
month or $44,386.32 per year.\59\ The dollar limit is indexed 
annually for wage inflation. The guaranteed amount is reduced 
for benefits starting before age 65.
---------------------------------------------------------------------------
    \59\ The PBGC generally pays the greater of the guaranteed benefit 
amount and the amount that was covered by plan assets when it 
terminated. Thus, depending on the amount of assets in the terminating 
plan, participants may receive more than the amount guaranteed by PBGC.
    Special rules limit the guaranteed benefits of individuals who are 
substantial owners covered by a plan whose benefits have not been 
increased by reason of any plan amendment. A substantial owner 
generally is an individual who: (1) owns the entire interest in an 
unincorporated trade or business; (2) in the case of a partnership, is 
a partner who owns, directly or indirectly, more than 10 percent of 
either the capital interest or the profits interest in the partnership; 
(3) in the case of a corporation, owns, directly or indirectly, more 
than 10 percent in value of either the voting stock of the corporation 
or all the stock of the corporation; or (4) at any time within the 
preceding 60 months was a substantial owner under the plan. ERISA sec. 
4022(b)(5).
---------------------------------------------------------------------------
    In the case of a plan or a plan amendment that has been in 
effect for less than five years before a plan termination, the 
amount guaranteed is phased in by 20 percent a year.\60\
---------------------------------------------------------------------------
    \60\ The phase in does not apply if the benefit is less than $20 
per month.
---------------------------------------------------------------------------

PBGC premiums

            In general
    The PBGC is funded by assets in terminated plans, amounts 
recovered from employers who terminate underfunded plans, 
premiums paid with respect to covered plans, and investment 
earnings. All covered single-employer plans are required to pay 
a flat per-participant premium and underfunded plans are 
subject to an additional variable rate premium based on the 
level of underfunding. The amount of both the flat rate premium 
and the variable rate premium are set by statute; the premiums 
are not indexed for inflation.
            Flat rate premiums
    The annual flat rate per participant premium is $19 per 
participant.
            Variable rate premiums
    The variable rate premium is equal to $9 per $1,000 of 
unfunded vested benefits. ``Unfunded vested benefits'' is the 
amount which would be the unfunded current liability (as 
defined under the minimum funding rules) if only vested 
benefits were taken into account and if benefits were valued at 
the variable premium interest rate. No variable rate premium is 
imposed for a year if contributions to the plan for the prior 
year were at least equal to the full funding limit for that 
year.
    In determining the amount of unfunded vested benefits, the 
interest rate used is generally 85 percent of the interest rate 
on 30 year Treasury securities for the month preceding the 
month in which the plan year begins (100 percent of the 
interest rate on 30 year Treasury securities for plan years 
beginning in 2002 and 2003). Under the Pension Funding Equity 
Act of 2004, in determining the amount of unfunded vested 
benefits for plan years beginning after December 31, 2003, and 
before January 1, 2006, the interest rate used is 85 percent of 
the annual rate of interest determined by the Secretary of the 
Treasury on amounts invested conservatively in long term 
investment-grade corporate bonds for the month preceding the 
month in which the plan year begins.

                           REASONS FOR CHANGE

    Modifications to the PBGC premium structure, in conjunction 
with the provisions of the bill relating to defined benefit 
pension plan funding, will provide for increased retirement 
income security. The current flat-rate premium has not been 
modified since 1991 and has not kept pace with increases in 
wages, which are typically reflected in pension benefits. Thus, 
the Committee bill increases the PBGC flat-rate premium to 
reflect past increases in wages and provides for automatic 
increases in the future to reflect wage increases.
    Changes to the variable rate premium are also appropriate 
to better reflect the risk that underfunded plans present to 
the pension insurance system. Under present law, employers of 
some underfunded plans may avoid paying the variable rate 
premium if the plan is at the full funding limitation, even 
though the plan poses a greater risk than better funded plans. 
This possibility is eliminated under the bill. In addition, the 
Committee bill modifies the base for the premium to conform to 
the funding targets under the funding provisions of the bill.
    The Committee has noted that there is increasing use of 
bankruptcy reorganizations as a means of eliminating an 
employer's liability for pension benefits and shifting that 
liability to the PBGC pension insurance system. The Committee 
believes employers that terminate their plans on an underfunded 
basis (other than in bankruptcy liquidation proceedings) should 
continue to bear some financial responsibility for pension 
benefits following reorganization. Thus, the Committee bill 
requires additional premiums specifically related to such plan 
terminations. The Committee also believes that further action 
in this area is needed and that the bankruptcy laws should be 
reformed to prevent employers from shedding pension liabilities 
and shifting them to others.

                        EXPLANATION OF PROVISION

Flat rate premiums

    Beginning in 2006, the provision phases in an increase of 
the flat rate premium to $30 as adjusted for years after 2006 
based on increases in average wages as defined under the Social 
Security Act.\61\ The rate of the phase-in depends on the 
funded status of the plan. In general, the flat rate premium 
for a single-employer plan is determined under the following 
table:
---------------------------------------------------------------------------
    \61\ In general, if the premium amount as indexed is not a multiple 
of $1, the amount is rounded to the nearest $1; if the amount is a 
multiple of $.50, the amount is rounded to the next highest dollar 
amount.

------------------------------------------------------------------------
        If the plan year begins in:           The flat rate premium is:
------------------------------------------------------------------------
2006......................................  $21.20
2007......................................  $23.40
2008......................................  $25.60
2009......................................  $27.80
2010 and thereafter.......................  $30, as adjusted starting in
                                             2007 for increases in
                                             average wages
------------------------------------------------------------------------

    A faster phase-in schedule applies to plans with funding 
below a certain level. If the funding target percentage of a 
plan for the preceding plan year was less than 80 percent, then 
the flat rate premium is determined under the following table:

------------------------------------------------------------------------
        If the plan year begins in:           The flat rate premium is:
------------------------------------------------------------------------
2006......................................  $22.67
2007......................................  $26.33
2008 and thereafter.......................  $30, as adjusted starting in
                                             2007 for increases in
                                             average wages
------------------------------------------------------------------------

    Under the provision, the same flat rate premium will apply 
to all plans, regardless of funding status, in 2010 and 
thereafter.

Variable rate premium

    For 2006, the provision extends the present-law rule under 
which, in determining the amount of unfunded vested benefits 
for variable rate premium purposes, the interest rate used is 
85 percent of the annual rate of interest determined by the 
Secretary of the Treasury on amounts invested conservatively in 
long term investment-grade corporate bonds for the month 
preceding the month in which the plan year begins.
    Beginning in 2007, the determination of unfunded vested 
benefits for purposes of the variable rate premium is modified 
to conform to the funding rules of the provision. Thus, under 
the provision, unfunded vested benefits are equal to the amount 
which would be the plan's funding shortfall for the year \62\ 
if plan assets were valued at fair market value and only vested 
benefits were taken into account.\63\ In valuing unfunded 
vested benefits the interest rate is the first, second, and 
third segment rates which would be determined under the funding 
rules of the provision, if the segment rates were based on the 
yields of corporate bond rates, rather than a three-year 
average of such rates. Under the bill, deductible contributions 
are no longer limited by the full funding limit; thus, the rule 
providing that no variable rate premium is required if 
contributions for the prior plan year were at least equal to 
the full funding limit no longer applies under the provision.
---------------------------------------------------------------------------
    \62\ The assumptions used are the same as under the minimum funding 
rules. Thus, for a plan in at-risk status, the at-risk assumptions are 
used.
    \63\ For this purpose, the fair market value of plan assets is not 
reduced by the plan's prefunding balance and funding standard carryover 
balance.
---------------------------------------------------------------------------

Premium for certain terminating plans

    The provision imposes a per-participant premium of $1,250 
for each applicable 12-month period following certain plan 
terminations (called the ``termination premium''). The 
termination premium applies if the plan is terminated by the 
PBGC or in a distress termination by reason of (1) 
reorganization in bankruptcy (or similar State proceeding), (2) 
the inability of the employer to pay its debts when due, or (3) 
a determination that termination is necessary to avoid 
unreasonably burdensome pension costs caused solely by a 
decline in the employer's work force.
    The applicable 12-month period is generally the 12-month 
period beginning with the month after the date in which the 
termination occurs and the next two 12-month periods. In the 
case of a termination due to reorganization, the liability for 
the termination premium does not arise until the employer is 
discharged from the reorganization proceeding (and the first 
12-month period does not start until such discharge).

                             EFFECTIVE DATE

    The provision relating to flat-rate premiums is effective 
for plan years beginning after December 31, 2005. The extension 
of the present-law interest rate for purposes of calculating 
the variable rate premium is effective for plan years beginning 
in 2006. The modifications to the variable rate premiums to 
conform to the new funding rules of the provision are effective 
for plan years beginning after December 31, 2006. The provision 
relating to termination premiums is effective for 
reorganization proceedings begun after October 26, 2005.

        TITLE V: DISCLOSURE--SECTION 4010 FILINGS WITH THE PBGC


(Sec. 503 of the bill and sec. 4010 of ERISA)

                              PRESENT LAW

    Present law provides that, in certain circumstances, the 
contributing sponsor of a single-employer plan covered by the 
PBGC (and members of the contributing sponsor's controlled 
group) must provide certain information to the PBGC. This 
information (referred to as ``section 4010 information'') 
includes financial information with respect to the contributing 
sponsor (and controlled group members) and actuarial 
information with respect to single-employer plans maintained by 
the sponsor (and controlled group members).\64\ This reporting 
is required if: (1) the aggregate unfunded vested benefits 
(determined using the interest rate used in determining 
variable-rate premiums) as of the end of the preceding plan 
year under all plans maintained by members of the controlled 
group exceed $50 million (disregarding plans with no unfunded 
vested benefits); (2) the conditions for imposition of a lien 
(i.e., required contributions totaling more than $1 million 
have not been made) have occurred with respect to an 
underfunded plan maintained by a member of the controlled 
group; or (3) minimum funding waivers in excess of $1 million 
have been granted with respect to a plan maintained by any 
member of the controlled group and any portion of the waived 
amount is still outstanding. Information provided to the PBGC 
in accordance with these requirements is not available to the 
public.
---------------------------------------------------------------------------
    \64\ ERISA sec. 4010.
---------------------------------------------------------------------------
    The PBGC may assess a penalty for a failure to provide the 
required information in the amount of up to $1,000 a day for 
each day the failure continues.\65\
---------------------------------------------------------------------------
    \65\ ERISA sec. 4071.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Workers and other plan participants need more accurate and 
timely information regarding their pension plans. Thus, the 
Committee believes that section 4010 reporting should be 
required by reason of the funding percentage of plans, rather 
than the amount of unfunded benefits. In addition, additional 
information about underfunded plans, particularly those in at-
risk status, should be provided to participants and 
beneficiaries, as well as to the Congressional committees with 
jurisdiction over pension plans.

                        EXPLANATION OF PROVISION

    The provision revises the circumstances in which reporting 
of section 4010 information is required. Specifically, instead 
of requiring reporting if the aggregate unfunded vested 
benefits as of the end of the preceding plan year under all 
plans maintained by members of the controlled group exceed $50 
million, the provision requires reporting if: (1) the aggregate 
funding targets attainment percentage with respect to a 
controlled group for the preceding plan year is less than 60 
percent; or (2) the aggregate funding targets attainment 
percentage with respect to a controlled group for the preceding 
plan year is less than 75 percent and the plan sponsor is in 
anindustry with respect to which the PBGC determines that there is 
substantial unemployment or underemployment and the sales and profits 
are depressed or declining. The aggregate funding targets attainment 
percentage with respect to a controlled group for a plan year is the 
percentage, determined by taking into account all plans maintained by 
the members of the controlled group as of the end of the plan year, 
which: (1) the aggregate total of the values of plan assets, as of the 
end of the plan year, is of (2) the aggregate total of the funding 
targets of the plans, as of the end of the plan year, taking into 
account only vested benefits.
    Under the provision, any person submitting to the PBGC 
section 4010 information with respect to a plan must provide 
notice thereof within 90 days to participants and beneficiaries 
under the plan (and under all plans maintained by members of 
the controlled group of each contributing sponsor of the plan). 
The notice must set forth: (1) the number of single-employer 
plans insured by the PBGC that are in at-risk status and 
maintained by contributing sponsors of the plan (and by members 
of their controlled groups) with respect to which the funding 
target attainment percentage for the preceding plan year is 
less than 60 percent; (2) the value of the assets of each plan 
for the plan year, the funding target for the plan year, and 
the funding target attainment percentage of each plan for the 
plan year and (3) taking into account all single-employer plans 
maintained by the contributing sponsor and the members of its 
controlled group, the aggregate total values of the assets of 
the plans as of the end of the plan year, the aggregate total 
of the funding targets of the plans (taking into account only 
vested benefits), and the aggregate funding targets attainment 
percentage (as defined above) with respect to the contributing 
sponsor for the preceding plan year.
    For purposes of the notice requirement, a plan is in ``at-
risk status'' for a plan year if the plan's funding target 
attainment percentage for the preceding year was less than 60 
percent. A plan's ``funding target attainment percentage'' 
means the ratio, expressed as a percentage, that the value of 
the plan's assets (reduced by any funding standard carryover 
balance and prefunding balance) bears to the plan's funding 
target for the year (determined without regard to the special 
assumptions that apply to at-risk plans). A plan's funding 
target for a plan year is the present value of the liabilities 
to participants and beneficiaries under the plan.
    Any notice required to be provided under the provision may 
be provided in written, electronic, or other appropriate form 
to the extent such form is reasonably available to the persons 
to whom the information is required to be provided. A person is 
not entitled to receive more than one notice during any 12-
month period. The person required to provide the notice may 
make a reasonable charge to cover copying, mailing, and other 
costs of furnishing the notice, subject to a maximum amount 
that may be prescribed by the PBGC.
    Concurrent with the provision of notice as required under 
the provision, notice must also be provided to the House 
Committees on Education and the Workforce and Ways and Means 
and the Senate Committees on Health, Education, Labor, and 
Pensions and Finance, which shall be treated as materials 
provided in executive session.
    The present-law authority of the PBGC to impose a penalty 
for failure to provide section 4010 information applies to a 
failure to provide the notice required under the provision.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
2006.

    TITLE VI: PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF 
                           INVESTMENT ADVICE


(Sec. 602 of the bill and sec. 4975 of the Code)

                              PRESENT LAW

    ERISA and the Code prohibit certain transactions between an 
employer-sponsored retirement plan and a disqualified 
person.\66\ Disqualified persons include a fiduciary of the 
plan, a person providing services to the plan, and an employer 
with employees covered by the plan. For this purpose, a 
fiduciary includes any person who (1) exercises any authority 
or control respecting management or disposition of the plan's 
assets, (2) renders investment advice for a fee or other 
compensation with respect to any plan moneys or property, or 
has the authority or responsibility to do so, or (3) has any 
discretionary authority or responsibility in the administration 
of the plan.
---------------------------------------------------------------------------
    \66\ Code sec. 4975; ERISA sec. 406. Under ERISA, the prohibited 
transaction rules apply to employer-sponsored retirement plans and 
welfare benefit plans. Under the Code, the prohibited transaction rules 
apply to qualified retirement plans and qualified retirement annuities, 
as well as individual retirement accounts and annuities, Archer MSAs, 
health savings accounts, and Coverdell education savings accounts. The 
prohibited transaction rules under ERISA and the Code generally do not 
apply to governmental plans or church plans.
---------------------------------------------------------------------------
    Prohibited transactions include (1) the sale, exchange or 
leasing of property, (2) the lending of money or other 
extension of credit, (3) the furnishing of goods, services or 
facilities, (4) the transfer to, or use by or for the benefit 
of, the income or assets of the plan, (5) in the case of a 
fiduciary, any act that deals with the plan's income or assets 
for the fiduciary's own interest or account, and (6) the 
receipt by a fiduciary of any consideration for the fiduciary's 
own personal account from any party dealing with the plan in 
connection with a transaction involving the income or assets of 
the plan. However, certain transactions are exempt from 
prohibited transaction treatment, for example, certain loans to 
plan participants.
    Under ERISA, the Secretary of Labor may assess a civil 
penalty against a person who engages in a prohibited 
transaction, other than a transaction with a plan covered by 
the prohibited transaction rules of the Code. The penalty may 
not exceed five percent of the amount involved in the 
transaction for each year or part of a year that the prohibited 
transaction continues. If the prohibited transaction is not 
corrected within 90 days after notice from the Secretary of 
Labor, the penalty may be up to 100 percent of the amount 
involved in the transaction. Under the Code, if a prohibited 
transaction occurs, the disqualified person who participates in 
the transaction is subject to a two-tier excise tax. The first 
level tax is 15 percent of the amount involved in the 
transaction. The second level tax is imposed if the prohibited 
transaction is not corrected within a certain period and is 100 
percent of the amount involved.

                           REASONS FOR CHANGE

    The Committee believes that retirement savings can be 
enhanced by the provision of investment advice both to plan 
fiduciaries who are responsible for the investment of plan 
assets,or for choosing the investment options offered under a 
plan, and to individuals who are responsible for directing the 
investment of their accounts. The Committee wishes to facilitate the 
provision of investment advice by providing exemptions from the 
prohibited transaction rules (subject to certain safeguards) for the 
provision of investment advice, fees received for such advice, and 
investments made pursuant to such advice.

                        EXPLANATION OF PROVISION

    The provision adds a new category of prohibited transaction 
exemptions in connection with the provision of investment 
advice with respect to plan assets for a fee if: (1) the 
investment of plan assets is subject to the direction of plan 
participants or beneficiaries; (2) the advice is provided to 
the plan or a participant or beneficiary by a fiduciary adviser 
in connection with a sale, acquisition or holding of a security 
or other property (an ``investment transaction'') for purposes 
of investment of plan assets; and (3) certain other 
requirements are met. Under the provision, the following are 
exempt from prohibited transaction treatment: (1) the provision 
of investment advice to the plan, participant or beneficiary; 
(2) an investment transaction (including any lending of money 
or other extension of credit associated with the investment 
transaction) pursuant to the advice; and (3) the direct or 
indirect receipt of fees or other compensation by a fiduciary 
adviser or an affiliate thereof (or any employee, agent or 
registered representative of the fiduciary adviser or an 
affiliate) in connection with the provision of the advice or an 
investment transaction pursuant to the advice.
    Under the provision, certain requirements must be met in 
order for the exemption to apply. When initially providing 
advice about a security or other property, the fiduciary 
adviser must provide to the recipient of the advice, on a 
reasonably contemporaneous basis, written notification of 
specified information (discussed below) as well as any 
disclosure required in connection with the investment 
transaction under any applicable securities laws. In addition, 
the investment transaction must occur solely at the direction 
of the recipient of the advice; the compensation received by 
the adviser and its affiliates in connection with the 
investment transaction must be reasonable; and the terms of the 
investment transaction must be at least as favorable as an 
arm's length transaction would be.
    The written notification required to be provided by the 
fiduciary adviser must include information about the following: 
(1) all fees or compensation to be received by the adviser or 
any affiliate (including from a third party) in connection with 
the advice or the investment transaction; (2) any material 
affiliation or contractual relationship of the adviser or its 
affiliates in the security or other property involved in the 
investment transaction; (3) any limitation to be placed on the 
scope of the investment advice to be provided by the fiduciary 
adviser with respect to an investment transaction; (4) the 
types of services provided by the adviser in connection with 
the provision of investment advice; (5) the adviser's status as 
a fiduciary of the plan in connection with the provision of the 
advice; and (6) the ability of the recipient of the advice 
separately to arrange for the provision of advice by another 
adviser that could have no material affiliation with and 
receive no fees or other compensation in connection with the 
security or other property. In addition, in connection with the 
initial advice or subsequent advice, the required information 
must be maintained in currently accurate form and must be 
provided to a recipient of investment advice (without charge) 
at least annually and also when requested by the recipient of 
the advice or when there is a material change in the 
information. In the event of a material change in the 
information, currently accurate information must be provided to 
the recipient at a time reasonably contemporaneous to the 
change.
    The written notification can be provided electronically. 
Any notification (or currently accurate information) must be 
written in a clear and conspicuous manner, calculated to be 
understood by the average plan participant, and be sufficiently 
accurate and comprehensive so as to reasonably apprise 
participants and beneficiaries of the required information. The 
Secretary of Labor is directed to issue a model form for the 
disclosure of fees and other compensation as required by the 
provision.
    The fiduciary adviser must maintain for at least six years 
any records necessary for determining whether the requirements 
for the prohibited transaction exemption were met. A prohibited 
transaction will not be considered to have occurred solely 
because records were lost or destroyed before the end of six 
years due to circumstances beyond the adviser's control.
    For purposes of the provision, ``fiduciary adviser'' is 
defined as a person who is a fiduciary of the plan by reason of 
the provision of investment advice to the plan, a participant 
or beneficiary and who is also: (1) registered as an investment 
adviser under the Investment Advisers Act of 1940 or under 
State laws; (2) a bank, a similar financial institution 
supervised by the United States or a State, or a savings 
association (as defined under the Federal Deposit Insurance 
Act), but only if the advice is provided through a trust 
department that is subject to periodic examination and review 
by Federal or State banking authorities; (3) an insurance 
company qualified to do business under State law; (4) 
registered as a broker or dealer under the Securities Exchange 
Act of 1934; (5) an affiliate of any of the preceding; or (6) 
an employee, agent or registered representative of any of the 
preceding who satisfies the requirements of applicable 
insurance, banking and securities laws relating to the 
provision of advice. ``Affiliate'' means an affiliated person 
as defined under section 2(a)(3) of the Investment Company Act 
of 1940. ``Registered representative'' means a person described 
in section 3(a)(18) of the Securities Exchange Act of 1934 or a 
person described in section 202(a)(17) of the Investment 
Advisers Act of 1940.
    Subject to certain requirements, the employer or other 
person who is a plan fiduciary, other than a fiduciary adviser, 
is not treated as failing to meet the prohibited transaction 
requirements (or the fiduciary requirements of ERISA), solely 
by reason of the provision of investment advice as permitted 
under the provision or of contracting for or otherwise 
arranging for the provision of the advice. This rule applies 
if: (1) the advice is provided under an arrangement between the 
employer or plan fiduciary and the fiduciary adviser for the 
provision of investment advice by the fiduciary adviser as 
permitted under the provision; (2) the terms of the arrangement 
require compliance by the fiduciary adviser with the 
requirements of the provision; and (3) the terms of the 
arrangement include a written acknowledgement by the fiduciary 
adviser that the fiduciary adviser is a plan fiduciary with 
respect to the provision of the advice. The fiduciary 
responsibility requirements of ERISA must also be met in 
connection with the provision of investment advice.
    The provision does not exempt the employer or a plan 
fiduciary from fiduciary responsibility under ERISA for the 
prudent selection and periodic review of a fiduciary adviser 
with whom the employer or plan fiduciary has arranged for the 
provision of investment advice. The employer or plan fiduciary 
does not have the duty to monitor the specific investment 
advice given by a fiduciary adviser.
    The provision also provides that nothing in the fiduciary 
responsibility provisions of ERISA is to be construed to 
preclude the use of plan assets to pay for reasonable expenses 
in providing investment advice.

                             EFFECTIVE DATE

    The provision is effective with respect to investment 
advice provided on or after January 1, 2006.

                  TITLE VII: BENEFIT ACCRUAL STANDARDS


(Sec. 701(b) of the bill and secs. 411 and 417 of the Code)

                              PRESENT LAW

Prohibition on age discrimination

            In general
    A prohibition on age discrimination applies to benefit 
accruals under a defined benefit pension plan.\67\ 
Specifically, an employee's benefit accrual may not cease, and 
the rate of an employee's benefit accrual may not be reduced, 
because of the attainment of any age. However, this prohibition 
is not violated solely because the plan imposes (without regard 
to age) a limit on the amount of benefits that the plan 
provides or a limit on the number of years of service or years 
of participation that are taken into account for purposes of 
determining benefit accrual under the plan. Moreover, for 
purposes of this requirement, the subsidized portion of any 
early retirement benefit may be disregarded in determining 
benefit accruals.
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    \67\ Code sec. 411(b)(1)(H); ERISA sec. 204(b)(1)(H).
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    In December 2002, the IRS issued proposed regulations that 
dealt with the application of the age discrimination rules.\68\ 
The proposed regulations included rules for applying the age 
discrimination rules with respect to accrued benefits, optional 
forms of benefit, ancillary benefits, and other rights and 
features provided under a plan. Under the proposed regulations, 
for purposes of applying the prohibition on age discrimination 
to defined benefit pension plans, an employee's rate of benefit 
accrual for a year is generally the increase in the employee's 
accrued normal retirement benefit (i.e., the benefit payable at 
normal retirement age) for the plan year. In the preamble to 
the proposed regulations, the IRS requested comments on other 
approaches to determining the rate of benefit accrual, such as 
allowing accrual rates to be averaged over multiple years (for 
example, to accommodate plans that provide a higher rate of 
accrual in earlier years) or, in the case of a plan that 
applies an offset, determining accrual rates before application 
of the offset. As discussed below, in June 2004, the IRS 
announced the withdrawal of the proposed regulations.
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    \68\ 67 Fed. Reg. 76123.
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            Cash balance and other hybrid plans
    Certain types of defined benefit pension plans, such as 
cash balance plans and pension equity plans, are referred to as 
``hybrid'' plans because they combine features of a defined 
benefit pension plan and a defined contribution plan.
    Under a cash balance plan, benefits are determined by 
reference to a hypothetical account balance. An employee's 
hypothetical account balance is determined by reference to 
hypothetical annual allocations to the account (``pay 
credits'') (e.g., a certain percentage of the employee's 
compensation for the year) and hypothetical earnings on the 
account (``interest credits''). Cash balance plans are 
generally designed so that, when a participant receives a pay 
credit for a year of service, the participant also receives the 
right to future interest on the pay credit, regardless of 
whether the participant continues employment (referred to as 
``front-loaded'' interest credits). That is, the participant's 
hypothetical account continues to be credited with interest 
after the participant stops working for the employer. As a 
result, if an employee terminates employment and defers 
distribution to a later date, interest credits will continue to 
be credited to that employee's hypothetical account.
    Another type of hybrid plan is a pension equity plan 
(sometimes referred to as a ``PEP''). Under a pension equity 
plan, benefits are generally described as a percentage of final 
average pay, with the percentage determined on the basis of 
points received for each year of service, which are often 
weighted for older or longer service employees. Pension equity 
plans commonly provide interest credits for the period between 
a participant's termination of employment and commencement of 
benefits.
    Because of the front-loaded nature of accruals under cash 
balance plans, there is a longer time for interest credits to 
accrue on a pay credit to the account of a younger employee. 
Thus, a pay credit received at a younger age may provide a 
larger annuity benefit at normal retirement age than the same 
pay credit received at an older age. A similar effect may occur 
with respect to other types of hybrid plan designs, including 
pension equity plans.
    Prior to the decision in the case of Cooper v. IBM Personal 
Pension Plan,\69\ described below, discussions regarding hybrid 
plans typically did not question the ability of the basic 
hybrid plan design to satisfy the age discrimination rules. IRS 
consideration of cash balance plans began in the early 
1990s.\70\ At that time, the focus was on the question of 
whether such plans satisfied the nondiscrimination requirements 
under section 401(a)(4), which requires that benefits or 
contributions not discriminate in favor of highly compensated 
employees. Treasury regulations issued in 1991 under section 
401(a)(4) provided a safe harbor for cash balance plans that 
provide frontloaded interest credits and meet certain other 
requirements. In connection with the issuance of these 
regulations, Treasury spoke to the cash balance age 
discrimination issue. The preamble to the final regulations 
stated ``[t]he fact that interest adjustments through normal 
retirement age are accrued in the year of the related 
hypothetical allocation will not cause a cash balance plan to 
fail to satisfy the requirements of section 411(b)(1)(H), 
relating to age-based reductions in the rate at which benefits 
accrue under a plan.'' \71\ Many interpreted this language as 
Treasury's position that cash balance plan designs do not 
violate the prohibitions on age discrimination. The IRS has not 
to date asserted that hybrid plan formulas result in per se 
violations of age discrimination requirements. The December 
2002 proposed regulations, noted above, provided that an 
employee's rate of benefit accrual for a year is generally the 
increase in the employee's accrued normal retirement benefit 
(i.e., the benefit payable at normal retirement age) for the 
plan year. However, the proposed regulations provided a special 
rule under which an employee's rate of benefit accrual under a 
cash balance plan meeting certain requirements (an ``eligible'' 
cash balance plan) was based on the rate of pay credit provided 
under the plan. Thus, under the proposed regulations, an 
eligible cash balance plan would not violate the prohibition on 
age discrimination solely because pay credits for younger 
employees earn interest credits for a longer period.
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    \69\ 274 F. Supp. 2d 1010 (S.D. I11. 2003).
    \70\ Statement of Stuart L. Brown, Chief Counsel Internal Revenue 
Service, before the Senate Committee on Health, Education, Labor, and 
Pensions (Sept. 21, 1999).
    \71\ 56 Fed. Reg. 47528 (Sept. 19, 1991).
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    Section 205 of the Consolidated Appropriations Act, 2004 
(the ``2004 Appropriations Act''), enacted January 24, 2004, 
provides that none of the funds made available in the 2004 
Appropriations Act may be used by the Secretary of the 
Treasury, or his designee, to issue any rule or regulation 
implementing the 2002 proposed Treasury age discrimination 
regulations or any regulation reaching similar results.\72\ The 
2004 Appropriations Act also required the Secretary of the 
Treasury within 180 days of enactment to present to Congress a 
legislative proposal for providing transition relief for older 
and longer-service participants affected by conversions of 
their employers' traditional pension plans to cash balance 
plans. The Treasury Department complied with this requirement 
by including in the President's budget for fiscal year 2005 a 
proposal relating to cash balance and other hybrid plans that 
specifically addresses conversions to such plans, the 
application of the age discrimination rules to such plans, and 
the determination of minimum lump sums under such plans.\73\ In 
June 2004, the IRS announced the withdrawal of the proposed age 
discrimination regulations, including the special rules for 
eligible cash balance plans.\74\ According to the Announcement, 
``[t]his will provide Congress an opportunity to * * * address 
cash balance and other hybrid plan issues through 
legislation.''
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    \72\ Pub. L. No. 108-199 (2004).
    \73\ A similar proposal was also contained in the President's 
budget proposal for fiscal year 2006.
    \74\ IRS Announcement 2004-57, 2004-27 I.R.B. 15.
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    The application of the age discrimination rules to hybrid 
plans has been the subject of litigation. This issue was first 
addressed in Eaton v. Onan Corporation.\75\ In that case, the 
court considered how the rate of an employee's benefit accrual 
is determined for purposes of the age discrimination rules and 
concluded that the statute does not require the rate of benefit 
accrual to be measured solely by the value of a participant's 
annuity payable at normal retirement age. The court found that, 
in the case of a cash balance plan, the rate of benefit accrual 
should be defined as the change in the employee's cash balance 
account from one year to the next. The court held that a cash 
balance plan does not violate the prohibition on reducing the 
rate of benefit accrual because of age. This analysis has also 
been applied in two other cases, Tootle v. ARINC Inc.,\76\ and 
Register v. PNC Financial Services Group, Inc.,\77\ in which 
the courts found the Eaton v. Onan Corporation decision 
persuasive, rather than the Cooper v. IBM Personal Pension Plan 
decision.\78\
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    \75\ 117 F. Supp. 2d 812 (S.D. Ind. 2000).
    \76\ 222 F.R.D. 88 (D. Md. 2004).
    \77\ No. 04-CV-6097, 2005 WL 3120268 (E.D. Pa. Nov. 21, 2005).
    \78\ In Campbell v. BankBoston, 327 F.3d 1 (1st Cir. 2003), the 
plaintiff argued for the first time only on appeal that the cash 
balance plan at issue violated the age discrimination rules. The court 
therefore held that the issue had been waived and did not resolve the 
issue. However, the court briefly described the various arguments 
involved and the disagreement as to how rate of benefit accrual should 
be determined.
---------------------------------------------------------------------------
    Only in Cooper v. IBM Personal Pension Plan has a court 
required the age discrimination requirements to be applied to a 
cash balance plan on the basis of the benefit payable in the 
form of an annuity commencing at normal retirement age, which 
was age 65 under the plan.\79\ For this purpose, the court 
required interest credits to be projected and valued as an age 
65 annuity. The court noted that, in terms of an age 65 
annuity, interest credits will always be more valuable for a 
younger employee than for an older employee. Thus, the court 
concluded that an employee's rate of benefit accrual declines 
as the employee gets older, in violation of the age 
discrimination rules. Although Eaton v. Onan Corporation had 
been decided in 2000, the court did not discuss the analysis in 
that case.
---------------------------------------------------------------------------
    \79\ The court also considered an age discrimination issue with 
respect to previous years during which the plan was designed as a 
pension equity plan and, for that purpose, also applied the age 
discrimination requirements on the basis of the annuity payable at age 
65.
---------------------------------------------------------------------------

Calculating minimum lump-sum distributions under hybrid plans

    Defined benefit pension plans, including cash balance plans 
and other hybrid plans, are required to provide benefits in the 
form of a life annuity commencing at a participant's normal 
retirement age. If the plan permits benefits to be paid in 
certain other forms, such as a lump sum, minimum present value 
rules apply, under which the alternative form of benefit cannot 
be less than the present value of the life annuity payable at 
normal retirement age, determined using certain statutorily 
prescribed interest and mortality assumptions.\80\
---------------------------------------------------------------------------
    \80\ Code sec. 417(e); ERISA sec. 205(g)(3). For years before 1995, 
these provisions required the use of an interest rate based on interest 
rates determined by the PBGC. For years after 1994, these provisions 
require the use of an interest rate based on interest rates on 30-year 
Treasury securities and a mortality table specified by the IRS.
---------------------------------------------------------------------------
    Most cash balance plans are designed to permit a lump-sum 
distribution of a participant's hypothetical account balance 
upon termination of employment. This raises an issue as to 
whether a distribution of a participant's hypothetical account 
balance satisfies the minimum present value rules. In 1996, the 
IRS issued proposed guidance (Notice 96-8) on the application 
of the minimum present value rules to lump-sum distributions 
under cash balance plans and requested public comments in 
anticipation of proposed regulations incorporating the proposed 
guidance.\81\
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    \81\ Notice 96-8, 1996-1996-1 C.B. 359. The Notice provides that 
regulations will be effective prospectively and, for plan years before 
regulations are effective, allows lump-sum distributions from cash 
balance plans that provide front-loaded interest credits to be based on 
a reasonable, good-faith interpretation of the minimum present value 
rules, taking into account preexisting guidance. The Notice further 
provides that plans that comply with the guidance in the Notice are 
deemed to be applying a reasonable, good-faith interpretation.
---------------------------------------------------------------------------
    Under the proposed guidance, a lump-sum distribution from a 
cash balance plan cannot be less than the present value of the 
benefit payable at normal retirement age, determined using the 
statutory interest and mortality assumptions. For this purpose, 
a participant's normal retirement benefit under a cash balance 
plan is generally determined by projecting the participant's 
hypothetical account balance to normal retirement age by 
crediting to the account future interest credits at the plan 
rate, the right to which has already accrued, and converting 
the projected account balance to an actuarially equivalent life 
annuity payable at normal retirement age, using the interest 
and mortality assumptions specified in the plan. The proposed 
guidance also included rules under which cash balance plans can 
provide lump-sum distributions in the amount of participants' 
hypothetical account balances if the rate at which interest 
credits are provided under the plan is not greater (or is 
assumed not to be greater) than the statutory interest rate.
    Under the approach in the proposed guidance, a difference 
in the rate of interest credits provided under the plan, which 
is used to project the account balance forward to normal 
retirement age, and the statutory rate used to determine the 
lump-sum value (i.e., present value) of the accrued benefit can 
cause a discrepancy between the value of the minimum lump-sum 
and the employee's hypothetical account balance. This effect is 
sometimes referred to as ``whipsaw.'' In particular, if the 
plan's interest crediting rate is higher than the statutory 
interest rate, then the resulting lump-sum amount will 
generally be greater than the hypothetical account balance.
    Several courts, but not all, have applied an approach 
similar to the approach in the proposed guidance in cases 
involving the determination of lump sums under cash balance 
plans.\82\ Regulations addressing the application of the 
minimum present value rules to cash balance plans have not been 
issued.\83\
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    \82\ Berger v. Xerox Corp. Retirement Income Guarantee Plan, 338 
F.3d 755 (7th Cir. 2003); Esden v. Bank of Boston, 229 F.3d 154 (2d 
Cir. 2000), cert. dismissed, 531 U.S. 1061 (2001); Lyons v. Georgia 
Pacific Salaried Employees Retirement Plan, 221 F.3d 1235 (11th Cir. 
2000) (``Lyons II''), cert. denied, 532 U.S. 967 (2001); and West v. Ak 
Steel Corp. Retirement Accumulation Plan, 318 F. Supp.2d 579 (S.D. Ohio 
2004). In Lyons II, the court reversed a lower court holding in Lyons 
v. Georgia Pacific Salaried Employees Retirement Plan, 66 F. Supp.2d 
1328 (N.D. Ga. 1999) (``Lyone I''), relating to the application of the 
minimum present value rules in effect before 1995. The Lyons II court 
limited its analysis to the minimum present value rules in effect as of 
1993 when Mr. Lyons received his lump-sum distribution; however, the 
court indicated that a different result could apply under the law in 
effect after 1994. On remand, in Lyons v. Georgia Pacific Salaried 
Employees Retirement Plan, 196 F. Supp.2d 1260 (N.D. Ga. 2002) (``Lyons 
III''), the lower court determined that payment of the hypothetical 
account balance did not violate the minimum present value rules in 
effect for years after 1994.
    \83\ As mentioned above, the President's budgets for fiscal years 
2005 and 2006 include a proposal, relating to cash balance plans that 
specifically addresses the determination of minimum lump sums under 
such plans. The President's proposal would eliminate the whipsaw effect 
and allow the plan to pay the hypothetical account balance, if certain 
requirements are satisfied.
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                           REASONS FOR CHANGE

    The Committee understands that approximately 9 million 
American workers are currently covered under cash balance or 
other types of hybrid pension plans. The Committee believes 
that such plans play a valuable role in the future of the 
defined benefit pension plan system and providing retirement 
income security for employees. The Committee recognizes that 
because these plans combine the features of different types of 
plans, there may be questions as to how the defined benefit 
pension plan rules should be applied.\84\
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    \84\ The undesirable effects of the lack of clarity in the law on 
both employers and employees was noted by the staff of the Joint 
Committee on Taxation in its Report of Investigation of Enron 
Corporation and Related Entities Regarding Federal Tax and Compensation 
Issues, and Policy Recommendations (JCS-3-03), February 2003, at Vol. 
I, 19, 38, 487 conducted at the request of the Senate Committee on 
Finance. The staff of the Joint Committee on Taxation recommended that 
clear rules for hybrid plans should be provided.
---------------------------------------------------------------------------
    The Committee is aware that some conversions of traditional 
defined benefit plans to hybrid plans raised some concern. The 
Committee also notes, however, that the IRS did not challenge 
the basic hybrid plan design and that, until the decision in 
Cooper v. IBM Personal Pension Plan, the legality of the basic 
hybrid plan design was not called into question. The court in 
that case found that the plan discriminated on the basis of age 
because the hypothetical accounts of younger workers accrue 
interest over a longer period of time, resulting in higher 
account balances. In effect, the court's decision found that 
plans that reflect the time value of money are age 
discriminatory. This result could potentially call into 
question other types of plan designs under more traditional 
defined benefit plans. The Committee does not believe that a 
plan design is age discriminatory merely because the benefits 
reflect the time value of money. The Committee is aware that 
some employers have already responded to the uncertainty raised 
by this decision by freezing their hybrid plans whether or not 
their plan was converted from a traditional plan. Thus, the 
situation being faced by many employees is not whether they 
will have a traditional defined benefit plan or a hybrid plan, 
but whether they will be covered by any pension plan.
    With respect to the whipsaw issue, the Committee does not 
view the position taken by the IRS in Notice 96-8 to be a 
correct interpretation of present law. The Committee notes that 
this position has never been finalized in regulations and 
understands that the Treasury has been reviewing this position. 
The President's proposal would take an approach similar to that 
in the Committee bill. The Committee also notes that the 
approach taken in Notice 96-8 could harm plan participants. In 
response to the Notice, some employers have reduced the level 
of interest credits under their cash balance plans. In 
addition, the approach in the Notice provides a larger benefit 
for a participant who takes a distribution before normal 
retirement age. Thus, it penalizesemployees who wait for their 
benefits until retirement, which is a perverse result for a retirement 
plan.
    The Committee believes that the uncertainty that exists 
with respect to certain aspects of hybrid plans (as well as 
other defined benefit pension plan designs) should be resolved 
by clarifying that the law accommodates the nature and design 
of these plans. Thus, the Committee bill adopts age 
discrimination standards that may be applied to all defined 
benefit plans, including hybrid plans, and also resolves other 
issues, such as the calculation of lump-sum benefits.
    In adopting these rules, the Committee is aware that our 
private pension system is a voluntary system that must 
accommodate various concerns, including those of employers and 
employees. In order to maintain a viable private pension 
system, the Committee believes that employers should have the 
ability to make plan design changes on a prospective basis 
without undue restriction or mandates with respect to future 
benefit levels.
    The Committee bill applies on a prospective basis because 
certain issues addressed by the bill are the subject of on-
going litigation. However, the Committee views the provision as 
a clarification; the action of the Committee in clarifying the 
law should not cast any negative inference on the legality of 
hybrid plans.

                        EXPLANATION OF PROVISION

Age discrimination rules

    Under the provision, a plan is not treated as violating the 
prohibition on age discrimination if a participant's entire 
accrued benefit, as determined as of any date under the formula 
for determining benefits as set forth in the text of the plan 
documents, would be equal to or greater than that of any 
similarly situated, younger individual. For this purpose, an 
individual is similarly situated to a participant if the 
individual and the participant are (and always have been) 
identical in every respect (including period of service, 
compensation, position, date of hire, work history, and any 
other respect) except for age. In addition, in determining a 
participant's entire accrued benefit for this purpose, the 
subsidized portion of any early retirement benefit (including 
any early retirement subsidy that is fully or partially 
included or reflected in an employee's opening balance or other 
transition benefits) is disregarded. In some cases the value of 
an early retirement subsidy may be difficult to determine; it 
is therefore intended that a reasonable approximation of such 
value may be used for this purpose. The provision is intended 
to apply to hybrid plans, including pension equity plans.
    In addition, under the provision, plans do not violate the 
prohibition on age discrimination solely because of the 
following plan designs or features:
          1. A plan under which the accrued benefit payable 
        under the plan upon distribution (or any portion 
        thereof) is expressed as the balance of a hypothetical 
        account maintained for the participant is not treated 
        as violating the prohibition on age discrimination 
        solely because interest accruing on the account balance 
        is taken into account.
          2. A plan is not treated as violating the prohibition 
        on age discrimination solely because, under the plan, 
        benefits attributable to employer contributions may be 
        offset by: (1) Social Security or Railroad Retirement 
        benefits; (2) benefits under another qualified 
        retirement plan of the same employer; or (3) benefits 
        under a retirement program for officers or employees of 
        the Federal Government or a State or local government. 
        For this purpose, allowable offsets based on such 
        benefits may consist of offsets equal to all or part of 
        the actual benefit payment amounts, reasonable 
        projections or estimations of such benefit payment 
        amounts, or actuarial equivalents of such actual 
        benefit payment amounts, projections, or estimations 
        (determined on the basis of reasonable actuarial 
        assumptions). This provision is intended to codify the 
        holding in Lunn v. Montgomery Ward & Company, Inc., 166 
        F.3d 880 (7th Cir. 1999).
          3. A plan is not treated as violating the prohibition 
        on age discrimination solely because the plan provides 
        for disparity in contributions or benefits with respect 
        to which the permitted disparity requirements are met.
          4. A plan is not treated as violating the prohibition 
        on age discrimination solely because the plan provides 
        for pre-retirement indexing of accrued benefits under 
        the plan. For this purpose, the term ``pre-retirement 
        indexing'' means, in connection with an accrued 
        benefit, the periodic adjustment of the accrued benefit 
        by means of the application of a recognized index or 
        methodology so as to protect the economic value of the 
        benefit against inflation before distribution. It is 
        intended that indexing is permitted both before and 
        after benefit distributions begin and can protect the 
        economic value of the benefit in whole or in part. The 
        provision is not limited to the use of indices based on 
        inflation (such as the consumer price index); however, 
        it is the intent of the Committee to prohibit any pre-
        retirement indexing which results in a cumulative 
        negative adjustment in a participant's benefit.
    In providing rules for the application of the age 
discrimination requirements with respect to optional forms of 
benefit, ancillary benefits, and other rights and features 
provided under a plan, it is intended that the Secretary of 
Treasury has the authority to provide rules under which certain 
types of benefits, or other rights or features, do not violate 
the prohibition on age discrimination.

Calculating minimum lump-sum distributions under hybrid plans

    The provision provides a special rule for determining 
minimum lump-sum benefits under a defined benefit pension plan 
under which the accrued benefit payable upon distribution (or 
any portion thereof) is expressed as the balance of a 
hypothetical account maintained for the participant. Under the 
provision, such a plan is not treated as violating the minimum 
present value rules solely because of the amount actually made 
available for distribution under the terms of the plan, in any 
case in which the applicable interest rate that would be used 
under the terms of the plan to project the amount of the 
participant's account balance to normal retirement age is not 
greater than a market rate of return. The Secretary of the 
Treasury is given regulatory authority relating to: (1) the 
calculation of a market rate of return for this purpose; and 
(2) permissible methods of crediting interest to the account 
(including variable interest rates) resulting in effective 
rates of return not greater than a market rate of return.

                             EFFECTIVE DATE

    The provision is effective for periods beginning on or 
after June 29, 2005. The Committee does not intend that the 
provision be interpreted as creating a negative inference 
regarding the legality of hybrid plans under present law.

                   TITLE VIII: DEDUCTION LIMITATIONS


                    A. Increase in Deduction Limits


(Sec. 801 of the bill and sec. 404 of the Code)

    Employer contributions to qualified retirement plans are 
deductible subject to certain limits.\85\
---------------------------------------------------------------------------
    \85\ Code sec. 404.
---------------------------------------------------------------------------
    In the case of a defined benefit pension plan (including 
both single-employer and multiemployer plans), the employer 
generally may deduct the greater of: (1) the amount necessary 
to satisfy the minimum funding requirement of the plan for the 
year; or (2) the amount of the plan's normal cost for the year 
plus the amount necessary to amortize certain unfunded 
liabilities over 10 years, but limited to the full funding 
limitation for the year.\86\ The maximum amount otherwise 
deductible generally is not less than the plan's unfunded 
current liability.\87\ In the case of a single-employer plan 
covered by the PBGC insurance program that terminates during 
the year, the maximum deductible amount is generally not less 
than the amount needed to make the plan assets sufficient to 
fund benefit liabilities as defined for purposes of plan 
termination under the PBGC insurance program.
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    \86\ The full funding limitation is the excess, if any, of (1) the 
accrued liability of the plan (including normal cost), over (2) the 
lesser of (a) the market value of plan assets or (b) the actuarial 
value of plan assets. However, the full funding limit is not less than 
the excess, if any, of 90 percent of the plan's current liability 
(including the current liability normal cost) over the actuarial value 
of plan assets.
    \87\ In the case of a plan with 100 or fewer participants, unfunded 
current liability for this purpose does not include the liability 
attributable to benefit increases for highly compensated employees 
resulting from a plan amendment that is made or becomes effective, 
whichever is later, within the last two years.
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    In the case of a defined contribution plan, the employer 
generally may deduct contributions in an amount up to 25 
percent of compensation paid or accrued during the employer's 
taxable year.\88\
---------------------------------------------------------------------------
    \88\ An overall deduction limit, described below, applies in the 
event an employer maintains a defined benefit plan and a defined 
contribution plan covering at least one of the same employees.
---------------------------------------------------------------------------
    Subject to certain exceptions, an employer that makes 
nondeductible contributions to a plan is subject to an excise 
tax equal to 10 percent of the amount of the nondeductible 
contributions for the year.

                           REASONS FOR CHANGE

    The Committee believes that employers should have greater 
flexibility to make additional contributions, particularly in 
good economic times when extra resources are available to fund 
a plan. Such additional contributions enable employers to 
improve the funded status of their plans and reduce the chance 
that the employer will be required to make larger contributions 
during an economic downturn or that the plan will terminate 
with significant underfunding.
    In the case of multiemployer defined benefit pension plans, 
the present-law deduction limits may also create the potential 
that contributions required under collective bargaining 
agreements are not deductible by the employers obligated to 
make the contributions. In that case, employers' contribution 
obligations may be waived, or plan benefits (and thus plan 
liabilities) may be increased in order to assure that 
contributions are deductible. However, such measures may cause 
the plan's funded status to deteriorate, especially in a period 
of economic downturn. In the case of multiemployer plans, the 
deduction limit for contributions should be increased to reduce 
the possibility that contributions required under collective 
bargaining agreements are not deductible.

                        EXPLANATION OF PROVISION

    The provision modifies the maximum deductible amount in the 
case of both single-employer defined benefit pension plans and 
multiemployer defined benefit pension plans.
    In the case of a single-employer defined benefit pension 
plan, the maximum deductible amount is equal to the greater of:
          1. the excess (if any) of the sum of 150 percent of 
        the plan's funding target plus the plan's normal cost 
        for the plan year over the value of plan assets 
        (determined as under the minimum funding rules), and
          2. the excess (if any) of the sum of the plan's at-
        risk normal cost and at-risk funding target for the 
        plan year over the value of the plan assets (determined 
        as under the minimum funding rules). For this purpose, 
        the at-risk funding target and at-risk normal cost are 
        used regardless of whether the plan is in fact in at-
        risk status.
    In determining the maximum deductible amount, the value of 
plan assets is not reduced by any pre-funding balance or 
funding standard account carryover balance.
    The provision retains the present-law rule, that, in the 
case of a single-employer plan covered by the PBGC that 
terminates during the year, the maximum deductible amount is 
generally not less than the amount needed to make the plan 
assets sufficient to fund benefit liabilities as defined for 
purposes of the PBGC termination insurance program.
    In the case of a multiemployer defined benefit plan, the 
maximum amount deductible is not less than 140 percent of 
current liability over the value of plan assets.

                             EFFECTIVE DATE

    The provision is effective for contributions for taxable 
years beginning after December 31, 2006.

          B. Updating Deduction Rules for Combination of Plans


(Sec. 802 of the bill and secs. 404(a)(7) and 4972 of the Code)

                              PRESENT LAW

    Employer contributions to qualified retirement plans are 
deductible subject to certain limits.\89\ In general, the 
deduction limit depends on the kind of plan.\90\
---------------------------------------------------------------------------
    \89\ Code sec. 404.
    \90\ See the discussion under A., above, for a description of the 
deduction rules for defined benefit and defined contribution plans.
---------------------------------------------------------------------------
    If an employer sponsors one or more defined benefit pension 
plans and one or more defined contribution plans that cover at 
least one of the same employees, an overall deduction limit 
applies to the total contributions to all plans for a plan 
year. The overall deduction limit generally is the greater of 
(1) 25 percent of compensation, or (2) the amount necessary to 
meet the minimum funding requirements of the defined benefit 
plan for the year, but not less than the amount of the plan's 
unfunded current liability.
    Under EGTRRA, elective deferrals are not subject to the 
limits on deductions and are not taken into account in applying 
the limits to other employer contributions. The combined 
deduction limit of 25 percent of compensation for defined 
benefit and defined contribution plans does not apply if the 
only amounts contributed to the defined contribution plan are 
elective deferrals.\91\
---------------------------------------------------------------------------
    \91\ Under the general EGTRRA sunset, this rule expires for plan 
years beginning after 2010.
---------------------------------------------------------------------------
    Subject to certain exceptions, an employer that makes 
nondeductible contributions to a plan is subject to an excise 
tax equal to 10 percent of the amount of the nondeductible 
contributions for the year. Certain contributions to a defined 
contribution plan that are nondeductible solely because of the 
overall deduction limit are disregarded in determining the 
amount of nondeductible contributions for purposes of the 
excise tax. Contributions that are disregarded are the greater 
of (1) the amount of contributions not in excess of six percent 
of the compensation of the employees covered by the defined 
contribution plan, or (2) the amount of matching contributions.

                           REASONS FOR CHANGE

    The Committee understands that the overall limit on 
deductible contributions has the effect of reducing, or even 
eliminating, employers' ability to make deductible 
contributions to their defined contribution plans in years in 
which substantial contributions must be made to their defined 
benefit pension plans. As a result, employees may receive 
little or no contributions to their defined contribution plan 
accounts in such years. The Committee believes that the overall 
deduction limit should allow for defined contribution plan 
contributions up to certain levels without regard to 
contributions made to defined benefit pension plans.

                        EXPLANATION OF PROVISION

    Under the provision, the overall limit on employer 
deductions for contributions to combinations of defined benefit 
and defined contribution plans applies to contributions to one 
or more defined contribution plans only to the extent that such 
contributions exceed six percent of compensation otherwise paid 
or accrued during the taxable year to the beneficiaries under 
the plans. As under present law, for purposes of determining 
the excise tax on nondeductible contributions, matching 
contributions to a defined contribution plan that are 
nondeductible solely because of the overall deduction limit are 
disregarded.

                             EFFECTIVE DATE

    The provision is effective for contributions for taxable 
years beginning after December 31, 2006.

  TITLE IX: ENHANCED RETIREMENT SAVINGS AND DEFINED CONTRIBUTION PLANS


           A. Permanency of EGTRRA Pension and IRA Provisions


(Sec. 901 of the bill)

                              PRESENT LAW

In general

    The Economic Growth and Tax Relief Reconciliation Act of 
2001 (``EGTRRA'') made a number of changes to the Federal tax 
laws, including a variety of provisions relating to pensions 
and individual retirement arrangements (``IRAs''). However, in 
order to comply with reconciliation procedures under the 
Congressional Budget Act of 1974 (e.g., section 313 of the 
Budget Act, under which a point of order may be lodged in the 
Senate), EGTRRA included a ``sunset'' provision, pursuant to 
which the provisions of EGTRRA expire at the end of 2010. 
Specifically, EGTRRA's provisions do not apply for taxable, 
plan, or limitation years beginning after December 31, 2010, or 
to estates of decedents dying after, or gifts or generation-
skipping transfers made after, December 31, 2010. EGTRRA 
provides that, as of the effective date of the sunset, both the 
Internal Revenue Code and the Employee Retirement Income 
Security Act of 1974 (``ERISA'') will be applied as though 
EGTRRA had never been enacted.
    Certain provisions contained in EGTRRA expire before the 
general sunset date of 2010.\92\
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    \92\ The saver's credit (sec. 25B) expires at the end of 2006. 
Another provision of the bill makes the saver's credit permanent.
---------------------------------------------------------------------------

List of affected provisions

    Following is a list of the provisions affected by the 
general EGTRRA sunset.
            Individual retirement arrangements (``IRAs'')
           Increases in the IRA contribution limits, 
        including the ability to make catch-up contributions 
        (secs. 219, 408, and 408A of the Code and sec. 601 of 
        EGTRRA); and
           Rules relating to deemed IRAs under employer 
        plans (sec. 408(q) of the Code and sec. 602 of EGTRRA).
            Expanding coverage
           Increases in the limits on contributions, 
        benefits, and compensation under qualified retirement 
        plans, tax-sheltered annuities, and eligible deferred 
        compensation plans (secs. 401(a)(17), 402(g), 408(p), 
        414(v), 415, and 457 of the Code and sec. 611 of 
        EGTRRA);
           Application of prohibited transaction rules 
        to plan loans of S corporation owners, partners, and 
        sole proprietors (sec. 4975 of the Code and sec. 612 of 
        EGTRRA);
           Modification of the top-heavy rules (sec. 
        416 of the Code and sec. 613 of EGTRRA);
           Elective deferrals not taken into account 
        for purposes of deduction limits (sec. 404 of the Code 
        and sec. 614 of EGTRRA);
           Repeal of coordination requirements for 
        deferred compensation plans of state and local 
        governments and tax-exempt organizations (sec. 457 of 
        the Code and sec. 615 of EGTRRA);
           Modifications to deduction limits (sec. 404 
        of the Code and sec. 616 of EGTRRA);
           Option to treat elective deferrals as after-
        tax Roth contributions (sec. 402A of the Code and sec. 
        617 of EGTRRA);
           Credit for pension plan start-up costs (sec. 
        45E of the Code and sec. 619 of EGTRRA); and
           Certain nonresident aliens excluded in 
        applying minimum coverage requirements (secs. 410(b)(3) 
        and 861(a)(3) of the Code).
            Enhancing fairness
           Catch-up contributions for individuals age 
        50 and older (sec. 414 of the Code and sec. 631 of 
        EGTRRA);
           Equitable treatment for contributions of 
        employees to defined contribution plans (secs. 403(b), 
        415, and 457 of the Code and sec. 632 of EGTRRA);
           Faster vesting of employer matching 
        contributions (sec. 411 of the Code and sec. 633 of 
        EGTRRA);
           Modifications to minimum distribution rules 
        (sec. 401(a)(9) of the Code and sec. 634 of EGTRRA);
           Clarification of tax treatment of division 
        of section 457 plan benefits upon divorce (secs. 414(p) 
        and 457 of the Code and sec. 635 of EGTRRA);
           Provisions relating to hardship withdrawals 
        (secs. 401(k) and 402 of the Code and sec. 636 of 
        EGTRRA); and
           Waiver of tax on nondeductible contributions 
        for domestic and similar workers (sec. 4972(c)(6) of 
        the Code and sec. 637 of EGTRRA).
            Increasing portability
           Rollovers of retirement plan and IRA 
        distributions (secs. 401, 402, 403(b), 408, 457, and 
        3405 of the Code and secs. 641-644 of EGTRRA);
           Treatment of forms of distribution (sec. 
        411(d)(6) of the Code and sec. 645 of EGTRRA);
           Rationalization of restrictions on 
        distributions (secs. 401(k), 403(b), and 457 of the 
        Code and sec. 646 of EGTRRA):
           Purchase of service credit under 
        governmental pension plans (secs. 403(b) and 457 of the 
        Code and sec. 647 of EGTRRA):
           Employers may disregard rollovers for 
        purposes of cash-out rules (sec. 411(a)(11) of the Code 
        and sec. 648 of EGTRRA); and
           Minimum distribution and inclusion 
        requirements for section 457 plans (sec. 457 of the 
        Code and sec. 649 of EGTRRA).
            Strengthening pension security and enforcement
           Phase in repeal of 160 percent of current 
        liability funding limit; maximum deduction rules (secs. 
        404(a)(1), 412(c)(7), and 4972(c) of the Code and secs. 
        651-652 of EGTRRA);
           Excise tax relief for sound pension funding 
        (sec. 4972 of the Code and sec. 653 of EGTRRA);
           Modifications to section 415 limits for 
        multiemployer plans (sec. 415 of the Code and sec. 654 
        of EGTRRA);
           Investment of employee contributions in 
        401(k) plans (sec. 655 of EGTRRA);
           Prohibited allocations of stock in an S 
        corporation ESOP (secs. 409 and 4979A of the Code and 
        sec. 656 of EGTRRA);
           Automatic rollovers of certain mandatory 
        distributions (secs. 401(a)(31) and 402(f)(1) of the 
        Code and sec. 657 of EGTRRA);
           Clarification of treatment of contributions 
        to a multiemployer plan (sec. 446 of the Code and sec. 
        658 of EGTRRA); and
           Treatment of plan amendments reducing future 
        benefit accruals (sec. 4980F of the Code and sec. 659 
        of EGTRRA).
            Reducing regulatory burdens
           Modification of timing of plan valuations 
        (sec. 412 of the Code and sec. 661 of EGTRRA);
           ESOP dividends may be reinvested without 
        loss of dividend deduction (sec. 404 of the Code and 
        sec. 662 of EGTRRA);
           Repeal transition rule relating to certain 
        highly compensated employees (sec. 663 of EGTRRA);
           Treatment of employees of tax-exempt 
        entities for purposes of nondiscrimination rules (secs. 
        410, 401(k), and 401(m) of the Code and sec. 664 of 
        EGTRRA);
           Treatment of employer-provided retirement 
        advice (sec. 132 of the Code and sec. 665 of EGTRRA); 
        and
           Repeal of the multiple use test (sec. 401(m) 
        of the Code and sec. 666 of EGTRRA).

                           REASONS FOR CHANGE

    The Committee believes that the retirement savings 
incentives under EGTRRA play a vital role in encouraging 
retirement savings and expanding access to employer-sponsored 
retirement plans. Uncertainty as to the continued availability 
of these incentives may discourage some individuals and 
employers from making full use of them. The Committee wishes to 
remove this uncertainty and encourage improvement in retirement 
savings rates by making the EGTRRA provisions permanent.

                        EXPLANATION OF PROVISION

    The provision repeals the sunset provision of EGTRRA as 
applied to the provisions relating to pensions and IRAs.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                    B. Saver's Credit Made Permanent


(Sec. 902 of the bill and sec. 25B of the Code)

                              PRESENT LAW

    Present law provides a temporary nonrefundable tax credit 
for eligible taxpayers for qualified retirement savings 
contributions. The maximum annual contribution eligible for the 
credit is $2,000. The credit rate depends on the adjusted gross 
income (``AGI'') of the taxpayer. Joint returns with AGI of 
$50,000 or less, head of household returns of $37,500 or less, 
and single returns of $25,000 or less are eligible for the 
credit. The AGI limits applicable to single taxpayers apply to 
married taxpayers filing separate returns. The credit is in 
addition to any deduction or exclusion that would otherwise 
apply with respect to the contribution. The credit offsets 
minimum tax liability as well as regular tax liability. The 
credit is available to individuals who are 18 or older, other 
than individuals who are full-time students or claimed as a 
dependent on another taxpayer's return.
    The credit is available with respect to: (1) elective 
deferrals to a qualified cash or deferred arrangement (a 
``section 401(k) plan''), a tax-sheltered annuity (a ``section 
403(b)'' annuity), an eligible deferred compensation 
arrangement of a State or local government (a ``section 457 
plan''), a SIMPLE, or a simplified employee pension (``SEP''); 
(2) contributions to a traditional or Roth IRA; and (3) 
voluntary after-tax employee contributions to a tax-sheltered 
annuity or qualified retirement plan.
    The amount of any contribution eligible for the credit is 
reduced by distributions received by the taxpayer (or by the 
taxpayer's spouse if the taxpayer filed a joint return with the 
spouse) from any plan or IRA to which eligible contributions 
can be made during the taxable year for which the credit is 
claimed, the two taxable years prior to the year the credit is 
claimed, and during the period after the end of the taxable 
year for which the credit is claimed and prior to the due date 
for filing the taxpayer's return for the year. Distributions 
that are rolled over to another retirement plan do not affect 
the credit.
    The credit rates based on AGI are provided in Table 1, 
below.

                                    Table 1. CREDIT RATES FOR SAVER'S CREDIT
----------------------------------------------------------------------------------------------------------------
                                                                                                    Credit rate
              Joint filers                    Heads of households          All other filers          (percent)
----------------------------------------------------------------------------------------------------------------
$0-$30,000..............................  $0-$22,500................  $0-$15,000................              50
$30,001-$32,500.........................  $22,501-$24,375...........  $15,001-$16,250...........              20
$32,501-$50,000.........................  $24,376-$37,500...........  $16,251-$25,000...........              10
Over $50,000............................  Over $37,500..............  Over $25,000..............               0
----------------------------------------------------------------------------------------------------------------

    The credit does not apply to taxable years beginning after 
December 31, 2006.

                           REASONS FOR CHANGE

    Many low- and middle-income individuals have inadequate 
savings for retirement. The Committee believes that the saver's 
credit may provide an incentive for low- and middle-income 
individuals to save for retirement. The Committee believes that 
the credit should be made permanent to provide a consistent 
savings incentive. The Committee also believes that allowing 
direct deposit of the saver's credit may make it easier for 
some individuals to save.

                        EXPLANATION OF PROVISION

    The provision makes the saver's credit permanent.
    The provision also provides that an individual may direct 
that the amount of his or her saver's credit be directly 
deposited by the Federal government into an IRA, qualified 
retirement plan, section 403(b) annuity, or governmental 
section 457 plan designated by the individual (if the plan or 
other arrangement agrees to accept such direct deposits). The 
provision does not change the rules relating to the tax 
treatment of contributions to such plans or other arrangements.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 C. Increasing Participation Through Automatic Enrollment Arrangements


(Sec. 903 of the bill and secs. 401(k), 401(m), 414(w), and 416 of the 
        Code)

                              PRESENT LAW

Qualified cash or deferred arrangements--in general

    Under present law, most defined contribution plans may 
include a qualified cash or deferred arrangement (commonly 
referred to as a ``section 401(k)'' or ``401(k)'' plan),\93\ 
under which employees may elect to receive cash or to have 
contributions made to the plan by the employer on behalf of the 
employee in lieu of receiving cash. Contributions made to the 
plan at the election of the employee are referred to as 
``elective deferrals'' or ``elective contributions.'' \94\ A 
401(k) plan may be designed so that the employee will receive 
cash unless an affirmative election to make contributions is 
made. Alternatively, a plan may provide that elective 
contributions are made at a specified rate unless the employee 
elects otherwise (i.e., elects not to make contributions or to 
make contributions at a different rate). Arrangements that 
operate in this manner are sometimes referred to as ``automatic 
enrollment'' or ``negative election'' plans. In either case, 
the employee must have an effective opportunity to elect to 
receive cash in lieu of contributions.\95\
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    \93\ Legally, a section 401(k) plan is not a separate type of plan, 
but is a profit-sharing, stock bonus, or pre-ERISA money purchase plan 
that contains a qualified cash or deferred arrangement. The terms 
``section 401(k) plan'' and ``401(k) plan'' are used here for 
convenience.
    \94\ The maximum annual amount of elective deferrals that can be 
made by an individual is subject to a limit ($14,000 for 2005). An 
individual who has attained age 50 before the end of the taxable year 
may also make catch-up contributions to a section 401(k) plan, subject 
to a limit ($4,000 for 2005).
    \95\ Treasury regulations provide that whether an employee has an 
effective opportunity to receive cash is based on all the relevant 
facts and circumstances, including the adequacy of notice of the 
availability of the election, the period of time during which an 
election may be made, and any other conditions on elections. Treas. 
Reg. sec. 1.401(k)-1(e)(2).
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Nondiscrimination rules

    A special nondiscrimination test applies to elective 
deferrals under a section 401(k) plan, called the actual 
deferral percentage test or the ``ADP'' test. The ADP test 
compares the actual deferral percentages (``ADPs'') of the 
highly compensated employee group and the nonhighly compensated 
employee group. The ADP for each group generally is the average 
of the deferral percentages separately calculated for the 
employees in the group who are eligible to make elective 
deferrals for all or a portion of the relevant plan year. Each 
eligible employee's deferral percentage generally is the 
employee's elective deferrals for the year divided by the 
employee's compensation for the year.
    The plan generally satisfies the ADP test if the ADP of the 
highly compensated employee group for the current plan year is 
either (1) not more than 125 percent of the ADP of thenonhighly 
compensated employee group for the prior plan year, or (2) not more 
than 200 percent of the ADP of the nonhighly compensated employee group 
for the prior plan year and not more than two percentage points greater 
than the ADP of the nonhighly compensated employee group for the prior 
plan year.
    Under a safe harbor, a section 401(k) plan is deemed to 
satisfy the special nondiscrimination test if the plan 
satisfies one of two contribution requirements and satisfies a 
notice requirement (a ``safe harbor section 401(k) plan''). A 
plan satisfies the contribution requirement under the safe 
harbor rule if the employer either (1) satisfies a matching 
contribution requirement or (2) makes a nonelective 
contribution to a defined contribution plan of at least three 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the arrangement. A plan generally satisfies the matching 
contribution requirement if, under the arrangement: (1) the 
employer makes a matching contribution on behalf of each 
nonhighly compensated employee that is equal to (a) 100 percent 
of the employee's elective deferrals up to three percent of 
compensation and (b) 50 percent of the employee's elective 
deferrals from three to five percent of compensation; \96\ and 
(2) the rate of match with respect to any elective deferrals 
for highly compensated employees is not greater than the rate 
of match for nonhighly compensated employees.
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    \96\ In lieu of matching contributions at rates equal to the safe 
harbor rates, a plan may provide for an alternative match if (1) the 
rate of the matching contributions does not increase as an employee's 
rate of elective deferrals increases and (2) the amount of matching 
contributions at such rate of elective deferrals is at lest equal to 
the aggregate amount of contributions which would be made if rate of 
the matching contributions equaled the safe harbor rates.
---------------------------------------------------------------------------
    Employer matching contributions are also subject to a 
special nondiscrimination test, the ``ACP test,'' which 
compares the average actual contribution percentages (``ACPs'') 
of matching contributions for the highly compensated employee 
group and the nonhighly compensated employee group. The plan 
generally satisfies the ACP test if the ACP of the highly 
compensated employee group for the current plan year is either 
(1) not more than 125 percent of the ACP of the nonhighly 
compensated employee group for the prior plan year, or (2) not 
more than 200 percent of the ACP of the nonhighly compensated 
employee group for the prior plan year and not more than two 
percentage points greater than the ACP of the nonhighly 
compensated employee group for the prior plan year.
    A safe harbor section 401(k) plan that provides for 
matching contributions is deemed to satisfy the ACP test if, in 
addition to meeting the safe harbor contribution and notice 
requirements under section 401(k), (1) matching contributions 
are not provided with respect to elective deferrals in excess 
of six percent of compensation, (2) the rate of matching 
contribution does not increase as the rate of an employee's 
elective deferrals increases, and (3) the rate of matching 
contribution with respect to any rate of elective deferral of a 
highly compensated employee is no greater than the rate of 
matching contribution with respect to the same rate of deferral 
of a nonhighly compensated employee.

Top-heavy rules

    Special rules apply in the case of a top-heavy plan. In 
general, a defined contribution plan is a top-heavy plan if the 
accounts of key employees account for more than 60 percent of 
the aggregate value of accounts under the plan. If a plan is a 
top-heavy plan, then certain minimum vesting standards and 
minimum contribution requirements apply.
    A plan that consists solely of contributions that satisfy 
the safe harbor plan rules for elective and matching 
contributions is not considered a top-heavy plan.

Tax-sheltered annuities

    Tax-sheltered annuities (``section 403(b) annuities'') may 
provide for contributions on a salary reduction basis, similar 
to section 401(k) plans. Matching contributions under a section 
403(b) annuity are subject to the same nondiscrimination rules 
under section 401(m) as matching contributions under a section 
401(k) plan (sec. 403(b)(12)). Thus, for example, the safe 
harbor method of satisfying the section 401(m) rules for 
matching contributions under a 401(k) plan applies to section 
403(b) annuities.

                           REASONS FOR CHANGE

    Various studies indicate that an automatic enrollment 
feature can improve retirement savings rates, particularly for 
low- and middle-income participants. The Committee believes 
that providing nondiscrimination safe harbors for elective 
deferrals and matching contributions under plans that include 
an automatic enrollment feature, as well as allowing erroneous 
contributions to be distributed, will encourage employers to 
adopt such a feature.

                        EXPLANATION OF PROVISION

In general

    Under the provision, a 401(k) plan that contains an 
automatic enrollment feature that satisfies certain 
requirements (a ``qualified automatic enrollment feature'') is 
treated as meeting the ADP test with respect to elective 
deferrals and the ACP test with respect to matching 
contributions. In addition, a plan consisting solely of 
contributions made pursuant to a qualified automatic enrollment 
feature is not subject to the top-heavy rules.
    A qualified automatic enrollment feature must meet certain 
requirements with respect to: (1) automatic deferral; (2) 
participation; (3) matching or nonelective contributions; and 
(4) notice to employees.

Automatic deferral

    A qualified automatic enrollment feature must provide that, 
unless an employee elects otherwise, the employee is treated as 
making an election to make elective deferrals equal to a stated 
percentage of compensation not in excess of 10 percent and at 
least equal to: three percent of compensation for the first 
year the deemed election applies to the participant; four 
percent during the second year; five percent during the third 
year; and six percent during the fourth year and thereafter. 
The stated percentage must be applied uniformly to all eligible 
employees. Eligible employees mean all employees eligible to 
participate in the 401(k) plan, other than employees eligible 
to participate in the 401(k) plan immediately before the date 
on which the 401(k) plan (or a predecessor 401(k) plan) becomes 
a qualified automatic enrollment arrangement. Thus, for 
example, if an employer has a pre-existing 401(k) plan for 
which all employees are eligible, the automatic enrollment 
feature would be required to cover newly hired employees. The 
automatic enrollment feature may also cover existing employees.

Participation requirement

    An automatic enrollment feature satisfies the participation 
requirement for a year if, for the plan year or the immediately 
preceding plan year, elective deferrals are made on behalf of 
at least 70 percent of the employees eligible under the 
automatic enrollment arrangement other than highly compensated 
employees and employees who were eligible to participate in the 
401(k) plan immediately before the qualified automatic 
enrollment arrangement is effective. The participation 
requirement is deemed to be satisfied for the first year the 
qualified automatic enrollment feature is in effect.

Matching or nonelective contribution requirement

            Contributions
    An automatic enrollment feature satisfies the contribution 
requirement if the employer either (1) satisfies a matching 
contribution requirement or (2) makes a nonelective 
contribution to a defined contribution plan of at least two 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the automatic enrollment feature. A plan generally satisfies 
the matching contribution requirement if, under the 
arrangement: (1) the employer makes a matching contribution on 
behalf of each nonhighly compensated employee that is equal to 
50 percent of the employee's elective deferrals as do not 
exceed six percent of compensation \97\ and (2) the rate of 
match with respect to any elective deferrals for highly 
compensated employees is not greater than the rate of match for 
nonhighly compensated employees. The matching contributions may 
be made to the plan of which the automatic enrollment 
arrangement is a part or to another plan of the employer.
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    \97\ Similar to the rule under the present-law safe harbor, in lieu 
of matching contributions at a rate equal to the safe harbor rate, a 
plan may provide for an alternative match if (1) the rate of the 
matching contributions does not increase as an employee's rate of 
elective deferrals increases and (2) the aggregate amount of matching 
contributions at such rate of elective deferrals is at least equal to 
the aggregate amount of matching contributions which would be made if 
the rate of matching contributions equaled the safe harbor rates.
---------------------------------------------------------------------------
    A plan including an automatic enrollment feature that 
provides for matching contributions is deemed to satisfy the 
ACP test if, in addition to meeting the safe harbor 
contribution requirements applicable to the qualified automatic 
enrollment feature: (1) matching contributions are not provided 
with respect to elective deferrals in excess of six percent of 
compensation, (2) the rate of matching contribution does not 
increase as the rate of anemployee's elective deferrals 
increases, and (3) the rate of matching contribution with respect to 
any rate of elective deferral of a highly compensated employee is no 
greater than the rate of matching contribution with respect to the same 
rate of deferral of a nonhighly compensated employee.
            Vesting
    Any matching or other employer contributions taken into 
account in determining whether the requirements for a qualified 
automatic enrollment feature are satisfied must vest at least 
as rapidly as under two-year cliff vesting. That is, employees 
with at least two years of service must be 100 percent vested 
with respect to such contributions.
            Withdrawal restrictions
    Any matching or other employer contributions taken into 
account in determining whether the requirements for a qualified 
automatic enrollment feature are satisfied are subject to the 
withdrawal rules applicable to elective contributions.

Notice requirement

    Under the notice requirement, each employee covered by the 
arrangement must receive notice of the arrangement which is 
sufficiently accurate and comprehensive to apprise the employee 
of such rights and obligations and is written in a manner 
calculated to be understood by the average employee to whom the 
arrangement applies.\98\ The notice must explain: (1) the 
employee's right under the arrangement to elect not to have 
elective contributions made on the employee's behalf or to 
elect to have contributions made in a different amount; and (2) 
how contributions made under the automatic enrollment 
arrangement will be invested in the absence of any investment 
election by the employee. The employee must be given a 
reasonable period of time after receipt of the notice and 
before the first election contribution is to be made to make an 
election with respect to contributions and investments.
---------------------------------------------------------------------------
    \98\ Employees who are not required to be covered by the qualified 
automatic enrollment feature, i.e., employees previously covered under 
the 401(k) plan, are required to receive the notice if they are covered 
by the automatic enrollment feature.
---------------------------------------------------------------------------

Corrective distributions

    The provision includes rules under which erroneous 
automatic contributions may be distributed from the plan. It is 
intended that distributions of such amounts are generally 
treated as a payment of compensation, rather than as a 
contribution to and then a distribution from the plan. Thus, 
for example, the 10-percent early withdrawal tax does not apply 
to distributions of erroneous automatic contributions. In 
addition, it is intended that such contributions are not taken 
into account for purposes of applying the nondiscrimination 
rules, or the limit on elective deferrals. Similarly, it is 
intended that distributions of such contributions are not 
subject to the otherwise applicable withdrawal restrictions.

Application to tax-sheltered annuities

    The new safe harbor rules for automatic contribution plans 
apply with respect to matching contributions under a section 
403(b) annuity through the operation of section 403(b)(12).

                             EFFECTIVE DATE

    The provision is effective for years beginning after 
December 31, 2005.

    D. Treatment of Distributions to Guardsmen Called to Active Duty


(Sec. 904 of the bill and secs. 72(t), 401(k), 403(b) of the bill)

                              PRESENT LAW

    Under present law, a taxpayer who receives a distribution 
from a qualified retirement plan prior to age 59\1/2\, death, 
or disability generally is subject to a 10-percent early 
withdrawal tax on the amount includible in income, unless an 
exception to the tax applies. Among other exceptions, the early 
distribution tax does not apply to distributions made to an 
employee who separates from service after age 55, or to 
distributions that are part of a series of substantially equal 
periodic payments made for the life (or life expectancy) of the 
employee or the joint lives (or life expectancies) of the 
employee and his or her beneficiary.
    Certain amounts held in a 401(k) plan or in a 403(b) 
annuity may not be distributed before severance from 
employment, age 59\1/2\, death, disability, or financial 
hardship of the employee.

                           REASONS FOR CHANGE

    The Committee recognizes that members of reserve units who 
are called to active duty often face unique financial issues 
when the active duty is for an extended period of time. To help 
alleviate potential financial hardship due to extended active 
duty status, the Committee believes that reservists should be 
able to make needed withdrawals on their retirement savings. 
The Committee believes the 10-percent additional tax should not 
apply in these circumstances and reservists should have the 
opportunity to recontribute withdrawn amounts after they have 
completed their active duty service.

                        EXPLANATION OF PROVISION

    Under the provision, the 10-percent early withdrawal tax 
does not apply to a qualified reservist distribution. A 
qualified reservist distribution is a distribution (1) from an 
IRA or attributable to elective deferrals under a qualified 
cash or deferred arrangement (a ``section 401(k) plan'') or 
similar arrangement, (2) made to an individual who (by reason 
of being a member of a reserve component) was ordered or called 
to active duty for a period in excess of 179 days or for an 
indefinite period, and (3) that is made during the period 
beginning on the date of such order or call to duty and ending 
at the close of the active duty period. A 401(k) plan or tax-
sheltered annuity does not violate the distribution 
restrictions applicable to such plans by reason of making a 
qualified reservist distribution.
    An individual who receives a qualified reservist 
distribution may, at any time during the two-year period 
beginning on the day after the end of the active duty period, 
make one or more contributions to an IRA of such individual in 
an aggregate amount not to exceed the amount of such 
distribution. The dollar limitations otherwise applicable to 
contributions to IRAs do not apply to any contribution made 
pursuant to the provision. No deduction is allowed for any 
contribution made under the provision.
    This provision applies to individuals ordered or called to 
active duty after September 11, 2001, and before September 12, 
2007. The two-year period for making recontributions of 
qualified reservist distributions does not end before the date 
that is two years after the date of enactment.

                             EFFECTIVE DATE

    The provision applies to distributions after September 11, 
2001.
    If refund or credit of any overpayment of tax resulting 
from the provision would be prevented at any time before the 
close of the one-year period beginning on the date of the 
enactment by the operation of any law or rule of law (including 
res judicata), such refund or credit may nevertheless be made 
or allowed if claim therefor is filed before the close of such 
period.

E. Inapplicability of 10-Percent Additional Tax on Early Distributions 
              of Pension Plans of Public Safety Employees


(Sec. 905 of the bill and sec. 72(t) of the Code)

                              PRESENT LAW

    Under present law, a taxpayer who receives a distribution 
from a qualified retirement plan prior to age 59\1/2\, death, 
or disability generally is subject to a 10-percent early 
withdrawal tax on the amount includible in income, unless an 
exception to the tax applies. Among other exceptions, the early 
distribution tax does not apply to distributions made to an 
employee who separates from service after age 55, or to 
distributions that are part of a series of substantially equal 
periodic payments made for the life (or life expectancy) of the 
employee or the joint lives (or life expectancies) of the 
employee and his or her beneficiary.

                           REASONS FOR CHANGE

    The Committee recognizes that public safety employees often 
retire earlier than workers in other professions. The Committee 
believes that it is appropriate to allow public safety 
employees to receive certain pension plan benefits without the 
imposition of the early withdrawal tax even if the distribution 
is made prior to the attainment of age 55.

                        EXPLANATION OF PROVISION

    Under the provision, the 10-percent early withdrawal tax 
does not apply to distributions to a qualified safety employee 
from a governmental plan to the extent that such distributions 
are attributable to a deferred retirement option plan or 
``DROP'' benefit. A DROP benefit is a feature of a governmental 
defined benefit plan under which an employee elects to receive 
credits to an account (including a notional account) in the 
plan which are not in excess of the plan benefits that would 
have been provided if the employee had retired under the plan 
at a specified earlier retirement date and which are in lieu of 
increases in the employee's accrued pension benefit under such 
defined benefit plan based on years of service after the 
effective date of the DROP election. The waiver of the penalty 
is available only to amounts that would have been payable as an 
annuity from the defined benefit plan had the individual 
retired and taken the defined benefit plan benefit.
    A qualified public safety employee is an employee of any 
police department or fire department organized and operated by 
a State or political subdivision of a State if the employee 
provides police protection, firefighting services, or emergency 
medical services for any area within the jurisdiction of such 
State or political subdivision and would have been eligible to 
retire on or before the effective date of the DROP election and 
receive an immediate retirement benefit under the defined 
benefit plan.

                             EFFECTIVE DATE

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

  F. Combat Zone Compensation Taken into Account for Purposes of IRA 
                             Contributions


(Sec. 906 of the bill and sec. 219 of the Code)

                              PRESENT LAW

    There are two general types of individual retirement 
arrangements (``IRAs''): traditional IRAs and Roth IRAs. The 
total amount that an individual may contribute to one or more 
IRAs for a year is generally limited to the lesser of: (1) a 
dollar amount ($4,000 for 2005); and (2) the amount of the 
individual's compensation that is includible in gross income 
for the year. In the case of an individual who has attained age 
50 before the end of the year, the dollar amount is increased 
by an additional amount ($500 for 2005). In the case of a 
married couple, contributions can be made up to the dollar 
limit for each spouse if the combined compensation of the 
spouses that is includible in gross income is at least equal to 
the contributed amount. IRA contributions in excess of the 
applicable limit are generally subject to an excise tax of six 
percent per year until withdrawn.
    An individual may make contributions to a traditional IRA 
(up to the contribution limit) without regard to his or her 
adjusted gross income. An individual may deduct his or her 
contributions to a traditional IRA if neither the individual 
nor the individual's spouse is an active participant in an 
employer-sponsored retirement plan. If an individual or the 
individual's spouse is an active participant in an employer-
sponsored retirement plan, the deduction is phased out for 
taxpayers with adjusted gross income over certain levels.
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit). Contributions to a Roth IRA are not deductible.
    Present law provides an exclusion from gross income for 
combat pay received by members of the Armed Forces. Thus, 
combat pay is not includible compensation for purposes of 
applying the limit on IRA contributions.

                           REASONS FOR CHANGE

    For members of the military serving in a combat zone, the 
exclusion of combat pay from compensation for IRA purposes may 
have the effect of reducing or even eliminating their ability 
to make IRA contributions. The Committee believes that 
compensation earned while serving in a combat zone should be 
taken into account for IRA purposes so that military personnel 
are not denied the opportunity to save for retirement while 
serving in a combat zone.

                        EXPLANATION OF PROVISION

    Under the provision, for purposes of applying the limit on 
IRA contributions, an individual's gross income is determined 
without regard to the exclusion for combat pay. Thus, combat 
pay received by an individual is treated as includible 
compensation for purposes of determining the amount that the 
individual (and the individual's spouse) can contribute to an 
IRA.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2005.

               G. Direct Deposit of Tax Refunds in an IRA


(Sec. 907 of the bill)

                              PRESENT LAW

    Under current IRS procedures, a taxpayer may direct that 
his or her tax refund be deposited into a checking or savings 
account with a bank or other financial institution (such as a 
mutual fund, brokerage firm, or credit union) rather than 
having the refund sent to the taxpayer in the form of a check.

                           REASONS FOR CHANGE

    The Committee believes that taxpayers should be encouraged 
to use their tax refunds to enhance their retirement savings by 
being able to have such refunds deposited directly into an IRA 
in the same way they can be deposited directly to a checking or 
savings account under present law. This will provide further 
opportunities for retirement savings.

                        EXPLANATION OF PROVISION

    The Secretary is directed to develop forms under which all 
or a portion of a taxpayer's refund may be deposited in an IRA 
of the taxpayer (or the spouse of the taxpayer in the case of a 
joint return). The provision does not modify the rules relating 
to IRAs, including the rules relating to timing and 
deductibility of contributions.

                             EFFECTIVE DATE

    The form required by the provision is to be available for 
taxable years beginning after December 31, 2006.

                  H. IRA Eligibility for the Disabled


(Sec. 908 of the bill and sec. 219 of the Code)

                              PRESENT LAW

    There are two general types of individual retirement 
arrangements (``IRAs''): traditional IRAs and Roth IRAs. The 
total amount that an individual may contribute to one or more 
IRAs for a year is generally limited to the lesser of: (1) a 
dollar amount ($4,000 for 2005); and (2) the amount of the 
individual's compensation that is includible in gross income 
for the year. In the case of an individual who has attained age 
50 before the end of the year, the dollar amount is increased 
by an additional amount ($500 for 2005). In the case of a 
married couple, contributions can be made up to the dollar 
limit for each spouse if the combined compensation of the 
spouses that is includible in gross income is at least equal to 
the contributed amount. IRA contributions in excess of the 
applicable limit are generally subject to an excise tax of six 
percent per year until withdrawn.
    An individual may make contributions to a traditional IRA 
(up to the contribution limit) without regard to his or her 
adjusted gross income. An individual may deduct his or her 
contributions to a traditional IRA if neither the individual 
nor the individual's spouse is an active participant in an 
employer-sponsored retirement plan. If an individual or the 
individual's spouse is an active participant in an employer-
sponsored retirement plan, the deduction is phased out for 
taxpayers with adjusted gross income over certain levels.
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit). Contributions to a Roth IRA are not deductible.

                           REASONS FOR CHANGE

    The Committee believes that an individual who is disabled 
should be permitted to accumulate savings for his or her later 
years on a tax-favored basis, even though he or she is unable 
to earn compensation.

                        EXPLANATION OF PROVISION

    Under the provision, an individual who is disabled and who 
has not attained age 70\1/2\ before the end of the taxable year 
may make contributions to an IRA even if he or she has no 
compensation. For this purpose, an individual is considered 
disabled if he or she is unable to engage in any substantial 
gainful activity by reason of any medically determinable 
physical or mental impairment which can be expected to result 
in death or to be of long-continued and indefinite 
duration.\99\
---------------------------------------------------------------------------
    \99\ Sec. 72(m)(7). An individual is not considered to be disabled 
unless he or she furnishes proof of the existence of the disability in 
such form and manner as the Secretary may require.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2005.

                I. Rollovers by Nonspouse Beneficiaries


(Sec. 909 of the bill and secs. 402, 403(a)(4), 403(b)(8), and 
        457(e)(16) of the Code)

                              PRESENT LAW

Tax-free rollovers

    Under present law, a distribution from a qualified 
retirement plan, a tax-sheltered annuity (``section 403(b) 
annuity''), an eligible deferred compensation plan of a State 
or local government employer (a ``governmental section 457 
plan''), or an individual retirement arrangement (an ``IRA'') 
generally is included in income for the year distributed. 
However, eligible rollover distributions may be rolled over tax 
free within 60 days to another plan, annuity, or IRA.\100\
---------------------------------------------------------------------------
    \100\ The IRS has the authority to waive the 60-day requirement if 
failure to waive the requirement would be against equity or good 
conscience, including cases of casualty, disaster, or other events 
beyond the reasonable control of the individual. Sec. 402(c)(3)(B).
---------------------------------------------------------------------------
    In general, an eligible rollover distribution includes any 
distribution to the plan participant or IRA owner other than 
certain periodic distributions, minimum required distributions, 
and distributions made on account of hardship.\101\ 
Distributions to a participant from a qualified retirement 
plan, a tax-sheltered annuity, or a governmental section 457 
plan generally can be rolled over to any of such plans or an 
IRA.\102\ Similarly, distributions from an IRA to the IRA owner 
generally are permitted to be rolled over into a qualified 
retirement plan, a tax-sheltered annuity, a governmental 
section 457 plan, or another IRA.
---------------------------------------------------------------------------
    \101\ Sec. 402(c)(4). Certain other distributions also are not 
eligible rollover distributions, e.g., corrective distributions of 
elective deferrals in excess of the elective deferral limits and loans 
that are treated as deemed distributions.
    \102\ Some restrictions or special rules may apply to certain 
distributions. For example, after-tax amounts distributed from a plan 
can be rolled over only to a plan of the same type or to an IRA.
---------------------------------------------------------------------------
    Similar rollovers are permitted in the case of a 
distribution to the surviving spouse of the plan participant or 
IRA owner, but not to other persons.
    If an individual inherits an IRA from the individual's 
deceased spouse, the IRA may be treated as the IRA of the 
surviving spouse. This treatment does not apply to IRAs 
inherited from someone other than the deceased spouse. In such 
cases, the IRA is not treated as the IRA of the beneficiary. 
Thus, for example, the beneficiary may not make contributions 
to the IRA and cannot roll over any amounts out of the 
inherited IRA. Like the original IRA owner, no amount is 
generally included in income until distributions are made from 
the IRA. Distributions from the inherited IRA must be made 
under the rules that apply to distributions to beneficiaries, 
as described below.

Minimum distribution rules

    Minimum distribution rules apply to tax-favored retirement 
arrangements. In the case of distributions prior to the death 
of the participant, distributions generally must begin by the 
April 1 of the calendar year following the later of the 
calendar year in which the participant (1) attains age 70\1/2\ 
or (2) retires.\103\ The minimum distribution rules also apply 
to distributions following the death of the participant. If 
minimum distributions have begun prior to the participant's 
death, the remaining interest generally must be distributed at 
least as rapidly as under the minimum distribution method being 
used prior to the date of death. If the participant dies before 
minimum distributions have begun, then either (1) the entire 
remaining interest must be distributed within five years of the 
death, or (2) distributions must begin within one year of the 
death over the life (or life expectancy) of the designated 
beneficiary. A beneficiary who is the surviving spouse of the 
participant is not required to begin distributions until the 
date the deceased participant would have attained age 70\1/2\. 
Alternatively, if the surviving spouse makes a rollover from 
the plan into a plan or IRA of his or her own, minimum 
distributions generally would not need to begin until the 
surviving spouse attains age 70\1/2\.
---------------------------------------------------------------------------
    \103\ In the case of five-percent owners and distributions from an 
IRA, distributions must begin by the April 1 of the calendar year 
following the year in which the individual attains age 70\1/2\.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that, in practice, many plans 
provide that distributions to a beneficiary who is not the 
surviving spouse of the participant are paid out soon after the 
death of the participant in a lump sum, even though the minimum 
distribution rules would permit a longer payout period. The 
Committee understands that many beneficiaries would like to 
avoid the adverse tax consequences of an immediate lump sum, as 
well as take advantage of the opportunity to receive periodic 
payments for life or over the beneficiary's lifetime. The 
Committee wishes to provide beneficiaries with additional 
flexibility regarding timing of distributions, consistent with 
the minimum distribution rules applicable to nonspouse 
beneficiaries. To accomplish this result, the Committee bill 
allows nonspouse beneficiaries to rollover benefits received 
after the death of the participant to an IRA and to receive 
distributions in a manner consistent with the minimum 
distribution rules for nonspouse IRA beneficiaries.

                        EXPLANATION OF PROVISION

    The provision provides that benefits of a beneficiary other 
than a surviving spouse may be transferred directly to an IRA. 
The IRA is treated as an inherited IRA of the nonspouse 
beneficiary. Thus, for example, distributions from the 
inherited IRA are subject to the distribution rules applicable 
to beneficiaries. The provision applies to amounts payable to a 
beneficiary under a qualified retirement plan, governmental 
section 457 plan, or a tax-sheltered annuity. To the extent 
provided by the Secretary, the provision applies to benefits 
payable to a trust maintained for a designated beneficiary to 
the same extent it applies to the beneficiary.

                             EFFECTIVE DATE

    The provision is effective for distributions made after 
December 31, 2005.

        TITLE X: PROVISIONS TO ENHANCE HEALTH CARE AFFORDABILITY


A. Tax Treatment of Combined Annuity or Life Insurance Contracts With a 
                    Long-Term Care Insurance Feature


(Sec. 1001 of the bill and secs. 72. 1035, and 7702B and new sec. 6050U 
        of the Code)

                              PRESENT LAW

Annuity contracts

    In general, earnings and gains on amounts invested in a 
deferred annuity contract held by an individual are not subject 
to tax during the deferral period in the hands of the holder of 
the contract. When payout commences under a deferred annuity 
contract, the tax treatment of amounts distributed depends on 
whether the amount is received ``as an annuity'' (generally, as 
periodic payments under contract terms) or not.
    For amounts received as an annuity by an individual, an 
``exclusion ratio'' is provided for determining the taxable 
portion of each payment (sec. 72(b)). The portion of each 
payment that is attributable to recovery of the taxpayer's 
investment in the contract is not taxed. The taxable portion of 
each payment is ordinary income. The exclusion ratio is the 
ratio of the taxpayer's investment in the contract to the 
expected return under the contract, that is, the total of the 
payments expected to be received under the contract. The ratio 
is determined as of the taxpayer's annuity starting date. Once 
the taxpayer has recovered his or her investment in the 
contract, all further payments are included in income. If the 
taxpayer dies before the full investment in the contract is 
recovered, a deduction is allowed on the final return for the 
remaining investment in the contract (sec. 72(b)(3)).
    Amounts not received as an annuity generally are included 
as ordinary income if received on or after the annuity starting 
date. Amounts not received as an annuity are included in income 
to the extent allocable to income on the contract if received 
before the annuity starting date, i.e., as income first (sec. 
72(e)(2)). In general, loans under the annuity contract, 
partial withdrawals and partial surrenders are treated as 
amounts not received as an annuity and are subject to tax as 
income first (sec. 72(e)(4)). Exceptions are provided in some 
circumstances, such as for certain grandfathered contracts, 
certain life insurance and endowment contracts (other than 
modified endowment contracts), and contracts under qualified 
plans (sec. 72(e)(5)). Under these exceptions, the amount 
received is included in income, but only to the extent it 
exceeds the investment in the contract, i.e., as basis recovery 
first.

Long-term care insurance contracts

            Tax treatment
    Present law provides favorable tax treatment for qualified 
long-term care insurance contracts meeting the requirements of 
section 7702B.
    A qualified long-term care insurance contract is treated as 
an accident and health insurance contract (sec. 7702B(a)(1)). 
Amounts received under the contract generally are excludable 
from income as amounts received for personal injuries or 
sickness (sec. 104(a)(3)).The excludable amount is subject to a 
dollar cap of $175 per day or $63,875 annually (for 1997), as indexed, 
on per diem contracts only (sec. 7702B(d)). If payments under such 
contracts exceed the dollar cap, then the excess is excludable only to 
the extent of costs in excess of the dollar cap that are incurred for 
long-term care services. Amounts in excess of the dollar cap, with 
respect to which no actual costs were incurred for long-term care 
services, are fully includable in income without regard to the rules 
relating to return of basis under section 72.
    A plan of an employer providing coverage under a long-term 
care insurance contract generally is treated as an accident and 
health plan (benefits under which generally are excludable from 
the recipient's income under section 105).
    Premiums paid for a qualified long-term care insurance 
contract are deductible as medical expenses, subject to a 
dollar cap on the deductible amount of the premium per year 
based on the insured person's age at the end of the taxable 
year (sec. 213(d)(10)). Medical expenses generally are allowed 
as a deduction only to the extent they exceed 7.5 percent of 
adjusted gross income (sec. 213(a)).
    Unreimbursed expenses for qualified long-term care services 
provided to the taxpayer or the taxpayer's spouse or dependent 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (subject to the floor of 7.5 
percent of adjusted gross income). Amounts received under a 
qualified long-term care insurance contract (regardless of 
whether the contract reimburses expenses or pays benefits on a 
per diem or other periodic basis) are treated as reimbursement 
for expense actually incurred for medical care (sec. 
7702B(a)(2)).
            Definitions
    A qualified long-term care insurance contract is defined as 
any insurance contract that provides only coverage of qualified 
long-term care services, and that meets additional requirements 
(sec. 7702B(b)). The contract is not permitted to provide for a 
cash surrender value or other money that can be paid, assigned 
or pledged as collateral for a loan, or borrowed (and premium 
refunds are to be applied as a reduction in future premiums or 
to increase future benefits). Per diem-type and reimbursement-
type contracts are permitted.
    Qualified long-term care services are necessary diagnostic, 
preventive, therapeutic, curing treating, mitigating, and 
rehabilitative services, and maintenance or personal care 
services that are required by a chronically ill individual and 
that are provided pursuant to a plan of care prescribed by a 
licensed health care practitioner (sec. 7702B(c)(1)).
    A chronically ill individual is generally one who has been 
certified within the previous 12 months by a licensed health 
care practitioner as being unable to perform (without 
substantial assistance) at least 2 activities of daily (ADLs) 
for at least 90 days due to a loss of functional capacity (or 
meeting other definitional requirements) (sec. 7702B(c)(2)).
            Long-term care riders on life insurance contracts
    In the case of long-term care insurance coverage provided 
by a rider on or as part of a life insurance contract, the 
requirements applicable to long-term care insurance contracts 
apply as if the portion of the contract providing such coverage 
were a separate contract (sec. 7702B(e)). The term ``portion'' 
means only the terms and benefits that are in addition to the 
terms and benefits under the life insurance contract without 
regard to long-term care coverage. As a result, if the 
applicable requirements are met by the long-term care portion 
of the contract, amounts received under the contract as 
provided by the rider are treated in the same manner as long-
term care insurance benefits, whether or not the payment of 
such amounts causes a reduction in the contract's death benefit 
or cash surrender value.
    The guideline premium limitation applicable under section 
7702(c)(2) is increased by the sum of charges (but not premium 
payments) against the life insurance contract's cash surrender 
value, the imposition of which reduces premiums paid for the 
contract (within the meaning of sec. 7702(f)(1)).
    No medical expense deduction generally is allowed under 
section 213 for charges against the life insurance contract's 
cash surrender value, unless such charges are includible in 
income because the life insurance contract is treated as a 
``modified endowment contract'' under section 72(e)(10) and 
7702A (sec. 7702B(e)((3)).

Tax-free exchanges of insurance contracts

    Present law provides for the exchange of certain insurance 
contracts without recognition of gain or loss (sec. 1035). No 
gain or loss is recognized on the exchange of: (1) a life 
insurance contract for another life insurance contract or for 
an endowment or annuity contract; or (2) an endowment contract 
for another endowment contract (that provides for regular 
payments beginning no later than under the exchanged contract) 
or for an annuity contract; or (3) an annuity contract for an 
annuity contract. The basis of the contract received in the 
exchange generally is the same as the basis of the contract 
exchanged (sec. 1031(d)). Tax-free exchanges of long-term care 
insurance contracts are not permitted.

Capitalization of certain policy acquisition expenses of insurance 
        companies

    In the case of an insurance company, specified policy 
acquisition expenses for any taxable year are required to be 
capitalized, and are amortized generally over the 120-month 
period beginning with the first month in the second half of the 
taxable year (sec. 848). Specified policy acquisition expenses 
are determined as that portion of the insurance company's 
general deductions for the taxable year that does not exceed a 
specific percentage of the net premiums for the taxable year on 
each of three categories of insurance contracts. For annuity 
contracts, the percentage is 1.75; for group life insurance 
contracts, the percentage is 2.05; and for all other specified 
insurance contracts, the percentage is 7.7. With certain 
exceptions, a specified insurance contract is any life 
insurance, annuity, or noncancellable accident and health 
insurance contract or combination thereof.

                           REASONS FOR CHANGE

    The Committee believes that Americans should be encouraged 
to provide for their long-term care needs as they age. The 
Committee notes that Congress has already provided favorable 
tax treatment to qualified long-term care insurance contracts 
and benefits, in recognition of the value of long-term care 
insurance as a means to defray the escalating costs to the 
government of long-term care provided through Medicaid and 
Medicare. Nevertheless, the cost of long-termcare coverage, and 
the risk that the cost of such insurance will be lost if the purchaser 
does not need long-term care, among other factors, have hindered the 
widespread use of long-term care insurance to cover Americans' long-
term care needs. The Committee believes that providing certain 
additional tax incentives would help to foster the social policy of 
encouraging the use of long-term care insurance. The Committee believes 
that combination products (life insurance or annuity contracts combined 
with long-term care insurance contracts) may be attractive to 
individuals by providing more than one type of protection in one 
product. Such combination products may be more affordable for consumers 
because of cross-subsidization of risks within the contract. 
Specifically, in the case of combination contracts that provide long-
term care coverage as a rider to an annuity contract, permitting the 
cost of the long-term care coverage to be charged against the cash 
value of the annuity contract without being treated as a taxable 
distribution under the contract would foster this social policy goal. 
Thus, the bill provides tax incentives for annuity-long-term care 
combination contracts that are similar to those already provided to 
life insurance contracts with long-term care insurance riders in 
recognition of their efficiency in promoting this social policy. The 
Committee believes it is not appropriate to permit a medical expense 
deduction with respect to such charges, because the charges are not 
included in the contract holder's income (this is similar to the 
present-law rule). In addition, the Committee believes that the policy 
acquisition expenses of the insurance company should be subject to the 
present-law capitalization rule at the percentage applicable to long-
term care insurance contracts (the highest applicable percentage). The 
Committee also believes that reporting with respect to these types of 
contracts is essential to full compliance and effective tax law 
enforcement.

                        EXPLANATION OF PROVISION

    The provision provides for the tax rules applicable to 
long-term care insurance that is provided by a rider on or as 
part of an annuity contract, and modifies the tax rules 
applicable to long-term care insurance coverage provided by a 
rider on or as part of a life insurance contract.
    Under the provision, any charge against the cash value of 
an annuity contract or the cash surrender value of a life 
insurance contract made as payment for coverage under a 
qualified long-term care insurance contract that is part of or 
a rider on the annuity or life insurance contract is not 
includable in income. The investment in the contract is reduced 
(but not below zero) by the charge.
    The provision expands the rules for tax-free exchanges of 
certain insurance contracts. The provision provides that no 
gain or loss is recognized on the exchange of a life insurance 
contract, an endowment contract, an annuity contract, or a 
qualified long-term care insurance contract for a qualified 
long-term care insurance contract. The provision provides that 
a contract does not fail to be treated as an annuity contract, 
or as a life insurance contract, solely because a qualified 
long-term care insurance contract is a part of or a rider on 
such contract, for purposes of the rules for tax-free exchanges 
of certain life insurance contracts.
    The provision provides that, except as otherwise provided 
in regulations, for Federal tax purposes, in the case of a 
long-term care insurance contract (whether or not qualified) 
provided by a rider on or as part of a life insurance contract 
or an annuity contract, the portion of the contract providing 
long-term care insurance coverage is treated as a separate 
contract. The term ``portion'' means only the terms and 
benefits under a life insurance contract or annuity contract 
that are in addition to the terms and benefits under the 
contract without regard to long-term care coverage. As a 
result, if the applicable requirements are met by the long-term 
care portion of the contract, amounts received under the 
contract as provided by the rider are treated in the same 
manner as long-term care insurance benefits, whether or not the 
payment of such amounts causes a reduction in the life 
insurance contract's death benefit or cash surrender value or 
in the annuity contract's cash value.
    No deduction as a medical expense is allowed for any 
payment made for coverage under a qualified long-term care 
insurance contract if the payment is made as a charge against 
the cash value of an annuity contract or the cash surrender 
value of a life insurance contract.
    For purposes of the definition of a life insurance 
contract, the guideline premium limitation is increased by 
charges against the contract's cash surrender value for 
coverage under the qualified long-term care insurance contract 
(reduced by charges that reduce the premiums paid for the life 
insurance contract).
    The provision provides that certain retirement-related 
arrangements are not treated as annuity contracts, for purposes 
of the provision.
    The provision requires information reporting by any person 
who makes a charge against the cash value of an annuity 
contract, or the cash surrender value of a life insurance 
contract, that is excludible from gross income under the 
provision. The information required to be reported includes the 
amount of the aggregate of such charges against each such 
contract for the calendar year, the amount of the reduction in 
the investment in the contract by reason of the charges, and 
the name, address, and taxpayer identification number of the 
holder of the contract.
    The provision modifies the application of the rules 
relating to capitalization of policy acquisition expenses of 
insurance companies. In the case of an annuity or life 
insurance contract that includes a qualified long-term care 
insurance contract as a part of or rider on the annuity or life 
insurance contract, the specified policy acquisition expenses 
that must be capitalized is determined using 7.7 percent of the 
net premiums for the taxable year on such contracts.
    The provision increases the amount of pre-funding permitted 
by treating qualified long-term care insurance coverage under 
the rider as a qualified additional benefit, for purposes of 
the present-law definition of a life insurance contract.

                             EFFECTIVE DATE

    The provision is generally effective for contracts issued 
before, on, or after December 31, 2006, but only with respect 
to periods beginning after that date. The provision expanding 
the rules for tax-free exchanges of certain insurance contracts 
applies with respect to exchanges occurring after December 31, 
2006.

     B. Disposition of Unused Health Benefits in Flexible Spending 
                              Arrangements


(Sec. 1002 of the bill and sec. 125 of the Code)

                              PRESENT LAW

Flexible spending arrangements

    A flexible spending arrangement (``FSA'') is a 
reimbursement account or other arrangement under which an 
employee is reimbursed for medical expenses or other nontaxable 
employer-provided benefits, such as dependent care. Typically, 
FSAs are part of a cafeteria plan and may be funded through 
salary reduction. FSAs may also be provided by an employer 
outside of a cafeteria plan. FSAs are commonly used, for 
example, to reimburse employees for medical expenses not 
covered by insurance.
    There is no special exclusion for benefits provided under 
an FSA. Thus, benefits provided under an FSA are excludable 
from income only if there is a specific exclusion for the 
benefits in the Code (e.g., the exclusion for employer-provided 
health care (other than long-term care) or dependant care 
assistance coverage). If certain requirements are satisfied, 
contributions to a health FSA and all distributions to pay 
medical expenses are excludable from income and from wages for 
FICA tax purposes.
    FSAs that are part of a cafeteria plan must comply with the 
rules applicable to cafeteria plans generally. One of these 
rules is that a cafeteria plan may not offer deferred 
compensation except through a qualified cash or deferred 
arrangement.\104\ Under proposed Treasury regulations, a 
cafeteria plan is considered to permit the deferral of 
compensation if it includes a health FSA which reimburses 
participants for medical expenses incurred beyond the end of 
the plan year.\105\ Thus, amounts in an employee's account that 
are not used for medical expenses incurred before the end of a 
plan year must be forfeited. This rule is often referred to as 
the ``use it or lose it'' rule. The IRS recently issued 
guidance allowing a grace period immediately following the end 
of a plan year during which unused benefits or contributions 
remaining at the end of the plan year may be paid or reimbursed 
to plan participants for qualified benefit expenses incurred 
during a grace period.\106\ A plan may allow benefits not used 
during the plan year to be used to reimburse qualified expenses 
incurred during the period, not to exceed two and one-half 
months, immediately following the end of the plan year.
---------------------------------------------------------------------------
    \104\ Sec. 401(k).
    \105\ Prop. Treas. Reg. 1.125-2 Q&A-5;(a).
    \106\ Notice 2005-42.
---------------------------------------------------------------------------
    Proposed Treasury regulations contain additional 
requirements with which health FSAs must comply in order for 
the coverage and benefits provided under the FSA to be 
excludable from income.\107\ These rules apply with respect to 
a health FSA without regard to whether the health FSA is 
provided through a cafeteria plan (i.e., without regard to 
whether an employee has an election to take cash or benefits).
---------------------------------------------------------------------------
    \107\ Prop. Treas. Reg. 1.125-2 Q&A-7;(b).
---------------------------------------------------------------------------
    The proposed regulations define a health FSA as a benefit 
program that provides employees with coverage under which 
specified, incurred expenses may be reimbursed (subject to 
reimbursement maximums and any other reasonable conditions) and 
under which the maximum amount of reimbursement that is 
available to a participant for a period of coverage is not 
substantially in excess of the total premium (including both 
employee-paid and employer-paid portions of the premium) for 
such participant's coverage. A maximum amount of reimbursement 
is not substantially in excess of the total premium if the 
maximum amount is less than 500 percent of the premium.\108\
---------------------------------------------------------------------------
    \108\ Prop. Treas. Reg. 1.125-2 Q&A-7;(c).
---------------------------------------------------------------------------
    Under the proposed regulations, the employer-provided 
health coverage under the FSA and the reimbursements and other 
benefits received under the health FSA are excludable from an 
employee's income only if the health FSA satisfies certain 
additional requirements. According to the proposed regulations, 
health FSAs are required to: (1) Provide the maximum amount of 
reimbursement available under the FSA at all times during the 
period of coverage (properly reduced as of any particular time 
for prior reimbursements for the same period of coverage); (2) 
offer coverage for 12 months or, in the case of a short plan 
year, the entire short plan year; (3) only reimburse medical 
expenses which meet the definition of medical care under 
section 213(d); (4) reimburse medical expenses for which the 
participant provides a written statement from an independent 
third party stating the amount of the medical expense and that 
the medical expense has not been reimbursed or is not 
reimbursable under any other health plan; (5) reimburse medical 
expenses which are incurred during the participant's period of 
coverage; and (6) allocate experience gains with respect to a 
year of coverage among premium payers on a reasonable and 
uniform basis.\109\
---------------------------------------------------------------------------
    \109\ Prop. Treas. Reg. 1.125-2 Q&A-7;(b).
---------------------------------------------------------------------------

Health savings accounts

    Present law provides that individuals with a high 
deductible health plan (and no other health plan other than a 
plan that provides certain permitted coverage) may establish a 
health savings account (``HSA'').\110\ An HSA is a tax-exempt 
trust or custodial account. Subject to certain limitations, 
contributions to an HSA are deductible above-the-line if made 
by the individual and are excludable from income and wages if 
made by the employer (including contributions made through a 
cafeteria plan through salary reduction). Earnings on amounts 
in an HSA accumulate on a tax-free basis. Distributions from an 
HSA that are for qualified medical expenses are excludable from 
gross income. Distributions from an HSA that are not used for 
qualified medical expenses are includible in gross income and 
are subject to an additional tax of 10 percent, unless the 
distribution is made after death, disability, or the individual 
attains the age of Medicare eligibility (i.e., age 65). HSAs 
provide the opportunity to pay for current out-of-pocket 
medical expenses on a tax-favored basis, as well as the ability 
to save for future medical and nonmedical expenses.
---------------------------------------------------------------------------
    \110\ Sec. 223. Revenue Ruling 2004-45 provides guidance on the 
extent to which individuals may make contributions to an HSA when also 
covered by a health FSA or a health reimbursement arrangement.
---------------------------------------------------------------------------
    A high deductible health plan is a health plan that has a 
deductible that is at least $1,000 for self-only coverage or 
$2,000 for family coverage (for 2005) and that has an out-of-
pocket expense limit that is no more than $5,100 in the case of 
self-only coverage and $10,200 in the case of family coverage 
(for 2005).
    The maximum aggregate annual contribution that can be made 
to an HSA is the lesser of (1) 100 percent of the annual 
deductible under the high deductible health plan, or (2) for 
2005, $2,650 in the case of self-only coverage and $5,250 in 
the case of family coverage.\111\ The annual contribution 
limits are increased for individuals who have attained age 55 
by the end of the taxable year. In the case of policyholders 
and covered spouses who are age 55 or older, the HSA annual 
contribution limit is greater than the otherwise applicable 
limit by $600 in 2005, $700 in 2006, $800 in 2007, $900 in 
2008, and $1,000 in 2009 and thereafter.
---------------------------------------------------------------------------
    \111\ These amounts are the same as the maximum deductible amounts 
permitted under a high deductible plan for purposes of Archer medical 
savings accounts (``MSAs'').
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that individuals should not be 
required to forfeit all amounts reserved for health care 
expenses simply because the individual has inadequate expenses 
for that year, especially because it is difficult to accurately 
predict annual medical expenses. The Committee believes that 
the forfeiture rules cause individuals to make unnecessary 
medical expenditures at the end of the year to avoid forfeiting 
their balances.

                        EXPLANATION OF PROVISION

    The provision allows up to $500 of unused health benefits 
in an employee's health FSA to be carried forward to the 
employee's health FSA for the next plan year. An employee's 
unused health benefit is the excess of the maximum amount of 
reimbursement allowable to the employee over the actual amount 
of reimbursement made during the year.
    In the case of employees who are eligible individuals under 
the HSA rules (i.e., individuals who are covered under a high 
deductible health plan and no other health plan, other than 
certain permitted coverage) the provision also allows up to 
$500 of unused health benefits in an employee's health FSA to 
be contributed on the employee's behalf to an HSA maintained 
for the benefit of the employee. Amounts contributed to an HSA 
are treated as employer contributions for purposes of the HSA 
rules, including the limits on contributions. As in the case of 
other amounts contributed to an HSA through a cafeteria plan, 
such amounts are not subject to the requirement that, in the 
case of employer contributions, comparable contributions must 
be made on behalf of all employees.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2005.

C. Permit Tax-Free Distributions from Governmental Retirement Plans for 
  Premiums for Health and Long-Term Care Insurance for Public Safety 
                                Officers


(Sec. 1003 of the bill and sec. 402 of the Code)

                              PRESENT LAW

    Under present law, a distribution from a qualified 
retirement plan under section 401(a), a qualified annuity plan 
under section 403(a), a tax-sheltered annuity under section 
403(b) (a ``403(b) annuity''), an eligible deferred 
compensation plan maintained by a State or local government 
under section 457 (a ``governmental 457 plan''), or an 
individual retirement arrangement under section 408 (an 
``IRA'') generally is included in income for the year 
distributed (except to the extent the amount received 
constitutes a return of after-tax contributions or a qualified 
distribution from a Roth IRA).\112\ In addition, a distribution 
from a qualified retirement or annuity plan, a 403(b) annuity, 
or an IRA received before age 59-1/2, death, or disability 
generally is subject to a 10-percent early withdrawal tax on 
the amount includible in income, unless an exception 
applies.\113\
---------------------------------------------------------------------------
    \112\ Secs. 402(a), 403(a), 403(b), 408(d), and 457(a).
    \113\ Sec. 72(t).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that retired public safety officers 
should be allowed to use certain pension distributions to pay 
for qualified health insurance premiums on a tax-free basis. 
The Committee believes that such treatment is appropriate when 
premiums are deducted from amounts payable from a retirement 
plan and paid directly to the insurer.

                        EXPLANATION OF PROVISION

    The provision provides that certain pension distributions 
from an eligible retirement plan used to pay for qualified 
health insurance premiums are excludible from income. An 
eligible retirement plan includes a governmental qualified 
retirement or annuity plan, 403(b) annuity, or 457 plan. The 
exclusion applies with respect to eligible retired public 
safety officers who make an election to have qualified health 
insurance premiums deducted from amounts distributed from an 
eligible retirement plan and paid directly to the insurer. An 
eligible retired public safety officer is an individual who, by 
reason of disability or attainment of normal retirement age, is 
separated from service as a public safety officer \114\ with 
the employer who maintains the eligible retirement plan from 
which pension distributions are made.
---------------------------------------------------------------------------
    \114\ The term ``public safety officer'' has the same meaning as 
under section 1204(8)(A) of the Omnibus Crime Control and Safe Streets 
Act of 1986.
---------------------------------------------------------------------------
    Qualified health insurance premiums include premiums for 
accident or health insurance or qualified long-term care 
insurance contracts covering the taxpayer, the taxpayer's 
spouse, and the taxpayer's dependents. The qualified health 
insurance premiums do not have to be for a plan sponsored by 
the employer; however, the exclusion does not apply to premiums 
paid by the employee and reimbursed with pension distributions. 
The maximum amount that may be excluded in any year is $5,000. 
Amounts excluded from income under the provision are not taken 
into account in determining the itemized deduction for medical 
expenses under section 213 or the deduction for health 
insurance of self-employed individuals under section 162.

                             EFFECTIVE DATE

    The provision is effective for distributions made in 
taxable years beginning after December 31, 2005.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 2830, the ``Pension Protection Act of 
2005.''

                    MOTION TO REPORT RECOMMENDATIONS

    The Chairman's Amendment in the Nature of a Substitute, as 
amended, was ordered favorably reported by a rollcall vote of 
23 yeas to 17 nays (with a quorum being present). The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Weller.....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hulshof....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Lewis (KY).................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Foley......................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Brady......................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Reynolds...................        X   ........  .........  Mr. Emanuel......  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................        X   ........  .........
Mr. Linder.....................        X   ........  .........
Mr. Beauprez...................        X   ........  .........
Ms. Hart.......................        X   ........  .........
Mr. Chocola....................        X   ........  .........
Mr. Nunes......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the Chairman's Amendment in the Nature of a Substitute.
    A substitute amendment by Mr. McDermott was defeated by a 
rollcall vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hulshof....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Lewis (KY).................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Foley......................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Brady......................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Reynolds...................  ........        X   .........  Mr. Emanuel......        X   ........  .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
Mr. Linder.....................  ........        X   .........
Mr. Beauprez...................  ........        X   .........
Ms. Hart.......................  ........        X   .........
Mr. Chocola....................  ........        X   .........
Mr. Nunes......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 2830 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2006-2010:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               congressional Budget Office,
                                   Washington, DC, December 2, 2005
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2830, the Pension 
Protection Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Craig Meklir.
            Sincerely,
                                           Donald B. Marron
                               (For Douglas Holtz-Eakin, Director).
    Enclosure.

H.R. 2830--Pension Protection Act of 2005

    Summary: H.R. 2830 would make changes to the Employee 
Retirement Income Security Act of 1974 (ERISA) and the Internal 
Revenue Code (IRC) that would affect the operations of private 
pension plans. It would also do so mostly by changing the 
funding requirements for tax-qualified, defined-benefit pension 
plans and the premiums paid to the Pension Benefit Guaranty 
corporation (PBGC). It would also extend certain tax incentives 
for retirement savings and modify tax provisions related to 
spending for health care.
    The budgetary effects of the bill would result from:
           Increased income to the PBGC from premiums 
        paid by the sponsors of pension plans--totaling an 
        estimated $8.2 billion over the next 10 years.
           A loss of federal income tax revenue, 
        primarily because more rigorous funding rules would be 
        imposed on plans' sponsors; the Joint Committee on 
        Taxation (JCT) estimates that the changes in law 
        related to defined-benefit pension plans would reduce 
        federal revenues by $5.0 billion over the 2006-2015 
        period.
           Additional benefit payments--totaling an 
        estimated $0.5 billion over 10 years--that the PBGC 
        would have to make as a result of a number of changes 
        made by the bill.
           Tax provisions affecting retirement savings 
        and health care spending, which JCT estimates would 
        reduce federal revenues by $37.7 billion and $29.2 
        billion, respectively, over the 2006-2015 period.
    In combination, those effects would increase federal budget 
deficits over the 2006-2015 period by $64.1 billion, CBO 
estimates. The additional premium income would have another 
effect: it would increase the balances in the PBGC's on-budget 
revolving fund and therefore forestall the need for significant 
transfers to that revolving fund from the PBGC's nonbudgetary 
trust fund in order to pay insured benefits. Because those 
transfers are treated in the budget as offsetting collections 
(that is, offsets to outlays), smaller transfers would result 
in higher net outlays for PBGC's on-budget revolving fund. The 
improvement in the financial condition of that fund would 
eliminate the need for $7.4 billion in transfers to the fund 
from 2013 through 2015, CBO estimates, thereby increasing on-
budget outlays by that amount. Adding that effect to the other 
impacts of the bill, CBO projects that enacting H.R. 2830 would 
increase federal budget deficits by $71.5 billion over the 
2006-2015 period.
    Major provisions of H.R. 2830 would:
           Require sponsors of single-employer pension 
        plans to meet a funding target that is at least 100 
        percent of current liabilities;
           Specify that the discount rate used to 
        calculate the present value of current pension 
        liabilities be based on a segmented yield curve of 
        corporate bonds rather than the interest rate on 30-
        year Treasury bonds;
           Restrict the use of credit balances to 
        offset required pension contributions;
           Place limits on benefit accruals for 
        participants in certain underfunded plans;
           Increase the limits on the tax-deductible 
        contributions sponsors may make to plans;
           Increase the per-participant premium paid to 
        the PBGC for single-employer plans;
           Require sponsors of single-employer pension 
        plans that have undergone distress or involuntary 
        terminations to pay a termination premium for 3 years;
           Change the funding rules for multiemployer 
        pension plans;
           Enhance disclosure requirements for both 
        single-employer and multiemployer pension plans; and
           Address the legal status of so-called hybrid 
        defined-benefit pension plans.
           Permanently extend tax provisions relating 
        to pensions and individual retirement accounts 
        currently set to expire at the end of 2010;
           Permanently extend the saver's tax credit 
        for certain retirement savings accounts set to expire 
        at the end of 2006;
           Change the rules governing health flexible 
        spending accounts;
           Modify the rules about combinations of life 
        and long-term care insurance;
           Encourage firms to provide automatic 
        enrollment for their employees in defined-contribution 
        pension plans; and
           Allow tax-free distributions from retirement 
        plans for certain public safety officers if the funds 
        are used to pay premiums for health or long-term care 
        insurance.
    Not all of these policies would directly affect federal 
spending or revenues.
    Pursuant to section 407 of H. Con. Res. 95 (the Concurrent 
Resolution on the Budget, Fiscal Year 2006), CBO estimates that 
enacting H.R. 2830 would not cause an increase in direct 
spending greater than $5 billion in any of the 10-year periods 
between 2016 and 2055.
    CBO has reviewed the nontax portions of H.R. 2830 and 
determined that they contain no intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
impose no costs on state, local, or tribal governments. Those 
provisions would impose a number of mandates on sponsors and 
administrators of single-employer and multiemployer private 
pension plans. CBO estimates that the direct cost of those 
private-sector mandates, less the direct savings from those 
mandates, would exceed the annual threshold specified in UMRA 
($123 million in 2005, adjusted annually for inflation) in 2009 
and subsequent years.
    JCT has determined that the tax provisions of H.R. 2830 
contain no intergovernmental or private-sector mandates as 
defined in UMRA. CBO has reviewed the non-tax provisions of 
H.R. 2830 and determined that they contain no intergovernmental 
mandates as defined in UMRA and would impose no costs on state, 
local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2830 is shown in the following table. 
The costs of this legislation would fall within budget function 
600 (income security).

                                                    TABLE 1.--ESTIMATED BUDGETARY IMPACT OF H.R. 2830
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                               2006       2007       2008       2009       2010       2011       2012       2013       2014       2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Changes in Flat-Rate Premiums Paid to
 PBGC:
    Estimated Budget Authority............          0          0          0          0          0          0          0          0          0          0
    Estimated Outlays.....................        -79       -158       -240       -314       -552       -586       -655       -690       -759       -828
Changes in Variable Premiums Paid to PBGC:
    Estimated Budget Authority............          0          0          0          0          0          0          0          0          0          0
    Estimated Outlays.....................          0        -14       -186       -264       -274       -212        -90         50        219        341
Termination Premiums Paid to PBGC:
    Estimated Budget Authority............          0          0          0          0          0          0          0          0          0          0
    Estimated Outlays.....................        -36       -109       -220       -298       -343       -354       -364       -375       -386       -398
Changes in Net Benefits Payments:
    Estimated Budget Authority............          0          0          0          0          0          0          0          0          0          0
    Estimated Outlays.....................         -1          *          6         19         35         54         72         88        101        112
    Subtotal:
        Estimated Budget Authority........          0          0          0          0          0          0          0          0          0          0
        Estimated Outlays.................       -116       -281       -640       -857     -1,134     -1,097     -1,037       -927       -825       -773
Changes in Transfers from PBGC's
 Nonbudgetary Trust Fund:
    Estimated Budget Authority............          0          0          0          0          0          0          0          0          0          0
    Estimated Outlays.....................          0          0          0          0          0          0          0      1,068      3,092      3,222
    Total Changes in Direct Spending:
        Estimated Budget Authority........          0          0          0          0          0          0          0          0          0          0
        Estimated Outlays.................       -116       -281       -640       -857     -1,134     -1,097     -1,037        141      2,267      2,449

                                                                   CHANGES IN REVENUES

Changes to Funding Rules for Single-              823      2,698      1,884     -1,345     -2,460     -2,179     -1,790     -1,115       -805       -711
 Employer Plans...........................
Changes to Funding Rules for Multiemployer          *         -2         -8        -18        -28        -34        -40        -46        -52        -58
 Plans....................................
Changes in Benefit Accrual Standards......        -24         -9          1          6         -3         -8          6         25         29         13
Provisions Related to Retirement Savings..        -88       -741     -1,892     -1,970     -2,029     -4,003     -5,732     -6,400     -7,078     -7,719
Provisions Related to Health Care Spending       -867     -1,490     -1,879     -2,238     -2,594     -3,071     -3,595     -4,028     -4,472     -4,918
Other Provisions..........................          1          4         11         20         28         32         33         33         32         32
                                           -------------------------------------------------------------------------------------------------------------
    Total Changes in Revenues.............       -155        460     -1,883     -5,545     -7,086     -9,263    -11,118    -11,531    -12,346    -13,361

                                                     NET INCREASE OR DECREASE (-) IN BUDGET DEFICITS

Net of Transfers from PBGC's Nonbudgetary          39       -741      1,243      4,688      5,952      8,166     10,081     11,672     14,613     15,810
 Trust Fund...............................
Excluding Transfers from PBGC's                    39       -741      1,243      4,688      5,952      8,166     10,081     10,604     11,521     12,588
 Nonbudgetary Trust Fund..................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--PBGC--Pension Benefit Guaranty Corporation. * less than $500,000.
Sources: Congressional Budget Office and Joint Committee on Taxation.

    Basis of Estimate: H.R. 2830 contains changes to both ERISA 
and the Internal Revenue Code that would affect sponsors of 
defined-benefit pension plans. Under current law, the funding 
rules are exactly the same in both ERISA and IRC. In certain 
instances, however, changes made by the bill to the pension 
funding requirements of ERISA are inconsistent with changes 
made to the funding rules in the IRC. That occurs because the 
amendments to the IRC adopted by the Ways and Means Committee 
reflect some policy differences from the amendments to ERISA 
adopted by the Committee on Education and the Workforce. CBO's 
and JCT's budget estimates assume that, if H.R. 2830 is 
enacted, additional changes would be made to ERISA to make it 
consistent with those changes made to IRC by H.R. 2830. Those 
estimates also assume that H.R. 2830 and the corresponding 
changes to the ERISA will be enacted by December 2005.

Direct spending

    Increase in Flat-Rate Premium. Under current law, sponsors 
of single-employer pension plans insured by the PBGC are 
required to pay the agency a premium of $19 per participant. 
H.R. 2830 would increase the flat-rate premium to $30 per 
participant in 2006 and index it to wage growth starting in 
2007. However, no plans would pay the full increase 
immediately. The bill would phase in the rate increase 
differently depending on whether the ratio of a plan's assets 
to its liabilities (known as its funding ratio) is above or 
below 80 percent. For plans that have a funding ratio of 80 
percent or higher, the increased rate would be phased in over a 
five-year period; for plans with a funding ratio of less than 
80 percent, the rate increase would be phased in over a three-
year period. Both phase-in periods would begin in 2006 and the 
premium rate for all single-employer plans would be the same 
approximately--$35 per participant--by 2010.
    About 35 million people currently participate in tax-
qualified, single-employer pension plans. This figure includes 
active workers, former workers who are vested but have not 
started collecting retirement benefits, and annuitants. The 
number of participants in single-employer plans insured by the 
PBGC has remained nearly constant for the past decade, and CBO 
assumes it would remain steady for the next 10 years.
    The current premium of $19 per participant generates about 
$650 million in premium income annually for the PBGC. CBO 
estimates changes to the flat-rate premiums made by H.R. 2830 
would increase receipts by $1.3 billion over the 2006-2010 
period and $4.9 billion over the 2006-2015 period. The varying 
amounts of additional premiums from year to year reflect both 
the phase in of the rate increase and the rounding of the new 
rates to the nearest  dollar, as specified by the bill. Because 
the PBGC's premiums are recorded as offsetting, collections to 
a mandatory spending account increases in premium collections 
are reflected in the budget as decreases in direct spending.
    Variable Premiums. Under current law, sponsors of single-
employer plans with assets less than liabilities are generally 
required to pay a variable premium, which is based on the 
amount of underfunding in the plan. The variable premium rate 
is $9 per $1,000 of underfunding. The amount of income from 
this type of premium varies from year to year; in 2004 it 
generated approximately $800 million in receipts.
    H.R. 2830 would affect how much the PBGC collects from 
variable premiums because it would change the way plans' 
sponsors calculate the amount of underfunding. Starting in 
2006, current law will require plans to discount their current 
liabilities, in order to determine the amount of underfunding, 
using an interest rate that is the four-year moving average of 
the rate on 30-year Treasury bonds. Public Law 108-218, the 
Pension Funding Equity Act, changed how current liabilities of 
covered plans are discounted during plan-years 2004 and 2005. 
During those two years current liabilities axe discounted using 
an interest rate on high-grade corporate bonds, as determined 
by the Department of the Treasury. H.R. 2830 would extend the 
use of the corporate bond rate for plan-year 2006. Then, 
beginning with plan-year 2007, the bill would require plans to 
discount their pension obligations using a yield curve based on 
a three-year weighted average of yields on investment-grade 
corporate bonds. The yield curve, which would be determined by 
the Secretary of the Treasury would be divided into three 
segments: yields for bonds maturing in the five-year period 
following the first day of each new plan-year; yields for bonds 
maturing during the next 15-year period; and yields for bonds 
maturing after the initial 20-year period. These segments would 
be used to discount benefit payments expected to be made by 
plans during each of the three periods. The shift to the 
segmented yield curve would be phased in over three years.
    When compared to interest rates on 30-year Treasury bonds, 
the segmented yield curve (and the single. corporate bond rate) 
would result in lower discount rates for participants whose 
benefits will be paid in the near term, and higher discount 
rates for participants whose benefits will be paid in later 
years. Discount rates and the present value of pension 
liabilities have an inverse relationship: increasing the 
discount rate results in a lower valuation of liability, while 
lowering the discount rate produces a higher valuation of 
liability. Based on information provided by the PBGC, CBO 
estimates that the segmented yield curve would reduce the 
present value of liabilities among all underfunded plans by 
approximately 5 percent, thus reducing required future 
contributions by plans' sponsors.
    Other changes to the funding rules (which are discussed in 
more detail later) would increase contributions. CBO estimates 
that, under H.R. 2830 firms initially would have to 
contributeless to their plans, but later would have to contribute more 
than under current law. The change in contribution patterns would 
affect how many plans are underfunded and how much underfunding exists 
in those plans. This, in turn, would affect the PBGC's income from 
variable premiums. (The change in contributions would also have 
significant effects on federal revenues, as discussed later in this 
estimate.)
    H.R. 2830 would also have an effect on which plans are 
required to make a variable premium payment. Current law 
provides underfunded plans with ways to reduce or avoid 
variable premium payments. Plans that have reached a statutory 
``full funding limit'' are exempt from paying a variable 
premium, even though they may be substantially underfunded. 
H.R. 2830 would eliminate the full funding limit exemption and 
would require all plans that are underfunded to pay the 
variable premium on any underfunding.
    CBO estimates that enacting H.R. 2830 would increase 
receipts from variable premiums by $738 million over the 2007-
2010 period and by $430 million over the 2007-2015 period.\1\ 
As with flat-rate premiums, increases in receipts from variable 
premiums are reflected as decreases in direct spending.
---------------------------------------------------------------------------
    \1\ Because plans would be better funded on a current-liability 
basis in the long run, CBO expects that collections of variable 
premiums under H.R. 2830 would fall starting in 2013.
---------------------------------------------------------------------------
    Premiums for Certain Terminated Single-Employer Plans. The 
legislation would create a new premium for sponsors of plans 
that are terminated on an involuntary or distressed-termination 
basis. The required payments would be $1,250 per plan 
participant for three years after the termination. For sponsors 
whose plans were terminated while the program was being 
reorganized under chapter 11 of the bankruptcy code, the 
premium would be levied after the sponsor emerges from 
bankruptcy. The premium would not apply to firms that are 
liquidated by a bankruptcy court. CBO estimates that these new 
premiums would total about $1.0 billion over the 2006-2010 
period and $2.9 billion over the 2006-2015 period.
    Based on recent PBGC data on terminations, CBO estimates 
that underfunded plans with about 120,000 participants on 
average will be terminated in each of the next five years and 
the number of participants affected will be somewhat greater in 
subsequent years. We estimate that one-quarter of those 
terminations will involve liquidation bankruptcy filings. CBO 
assumes that firms will emerge from bankruptcy over several 
years following their filing date. The annual income from these 
payments would grow rapidly during the first few years as 
sponsors emerge from bankruptcy.
    PBGC's Disbursements. H.R. 2830 would affect both how much 
sponsors are required to contribute to their plans and how much 
benefits may increase under certain plans insured by the PBGC. 
Such changes would affect the amount of unfunded liabilities 
that the PBGC assumes in the event that a pension plan is 
terminated (i.e., claims) and thus the payments the agency 
makes to beneficiaries in terminated plans. CBO estimates that 
the policies contained in H.R. 2930 would increase benefit 
outlays by $59 million over the 2006-2010 period and by $486 
million over the 2006-2015 period.
    Several of the changes to the pension funding rules would 
have countervailing effects on the contributions plans' 
sponsors would be required to make over the next 10 years. 
Basing the discount rate for calculating the present value of 
liabilities on corporate bonds instead of Treasuries would 
cause the present value of current liabilities among 
underfunded plans to shrink by more than $50 billion in 2006, 
CBO estimates. This policy would have the effect of reducing 
required contributions by plans' sponsors.
    Other changes made by the bill would also have an effect on 
required contributions. Current funding rules require that 
sponsors of insured plans make contributions above that amount 
are required only if the actuarial value of a plan's assets is 
less than 90 percent of its current liabilities. These 
additional payments (referred to as ``deficit reduction 
contributions'') can be amortized over periods ranging from 
three to 30 years, depending on how the underfunding 
occurred.\2\ H.R. 2830 would require that, in addition to 
covering its normal costs, a sponsor must make additional 
contributions if assets are less than 100 percent of current 
liabilities (referred to as its ``funding target''). The bill 
generally would require the shortfall to be amortized over a 
period of seven years. These changes would have the effect of 
reducing required contributions for some plans (due to the 
seven-year amortization period) and increasing required 
contributions for others (because of the higher funding 
target).
---------------------------------------------------------------------------
    \2\ Under certain circumstances, plans can be between 80 percent 
and 90 percent funded before being required to make deficit reduction 
contributions.
---------------------------------------------------------------------------
    The bill also would limit the use of previously accumulated 
funding balances, which can be used to offset required 
contributions. Funding balances usually occur when a sponsor 
contributes more than the minimum required in a given year. 
Under current law, no matter how underfunded a plan is, its 
sponsor may use funding balances to reduce or eliminate 
required contributions. In addition, the value of funding 
balances is not adjusted for actual gains or losses on the 
assets in which they are invested. Instead, these balances are 
increased each year by the same rate of return assumed for 
other assets held by the plan. H.R. 2830 would allow only plans 
that have a funding ratio of 80 percent or higher to use 
funding balances to offset required pension contributions. In 
addition, the bill would require plansto adjust the value of 
any balances for net gains or losses on the plan's assets. These 
changes to the use of funding balances would generally have the effect 
of increasing required contributions.
    H.R. 2830 would also affect required contributions by: 
reducing the ``smoothie'' period used to calculate the 
actuarial value of assets and liabilities; updating the 
mortality table used to project future benefits; and adding a 
``loading factor'' to the funding target of plans that are less 
than 60 percent funded.
    In addition to changes in the funding rules, H.R. 2830 
would also restrict some benefit payments for certain 
underfunded plans. Specially, the bill would limit the ability 
of plans with a funding ratio of less than 80 percent to make 
lump-sum payments or to amend the plan to increase benefits. It 
also would effectively freeze normal benefit increases in plans 
with funding ratios of less than 60 percent. In addition, the 
bill would prohibit plans from paying benefits for 
unpredictable contingent events, such as shutdown benefits to 
workers in facilities that are closed. If enacted these 
policies would reduce liabilities, and therefore reduce benefit 
payments that the PBGC would be required to make for plans that 
are terminated in the future.
    Accounting for all the policy changes contained in H.R. 
2803, CBO estimates that the annual shortfall between assets 
and liabilities (on a present-value basis) among plans that the 
PBGC takes over during the 2006-2015 period would increase by 
several hundred million dollars. The larger shortfall would 
manifest itself in higher outlays for benefit payments by the 
PBGC, as those liabilities eventually come due, with a 
significant portion of those claims being paid well after 2015. 
The biggest reason for the increase in claims is the projected 
decrease in required contributions, as least during the first 
several years of the period, due to use of the corporate bond 
yield curve to discount current liabilities.\3\ This effect 
would be offset to some degree, especially during the second 
half of the budget window, by the higher funding target and 
limits on benefits accruals. Overall, however, CBO estimates 
that the bill would lead to an increase in underfunding among 
plans that would be terminated over the next decade, thus 
increasing outlays by the PBGC for pension benefits.
---------------------------------------------------------------------------
    \3\ The highest discount would be used to calculate plans' 
``current liabilities,'' which is used to determine funding 
requirements and any premium payments on underfunding. The bill would 
not, however, affect the discount rate used to calculate plans' 
``termination liability,'' which represents the present value of all 
future benefit payments owned by the PBGC upon termination of a plan.
---------------------------------------------------------------------------
    Transfers from PBGC's Trust Fund. The PBGC's assets are 
held in two separate funds: an on-budget revolving fund and a 
nonbudgetary trust fund.\4\ The on-budget fund receives premium 
payments and makes outlays for benefit payments and 
administrative costs. The nonbudgetary trust fund holds assets 
from terminated plans until those assets are liquidated, 
transferred to the on-budge revolving fund, and spent. 
Transfers from the nonbudgetary fund to the on-budget fund 
cover approximately half of all benefit payments and most of 
the PBGC's administrative costs. As with premiums, these 
transfers are offsetting collections to a mandatory account, 
and are reflected in the budget as offsets to outlays.
---------------------------------------------------------------------------
    \4\ The PBGC has several different on-budget revolving funds and 
two nonbudgetary trust funds. For simplicity in the budgetary 
presentation, CBO combines the various on-budget and nonbudgetary funds 
into just two funds.
---------------------------------------------------------------------------
    In CBO's current law projections, the combination of rising 
benefit payments and level premium income will cause the 
agency's on-budget fund to be completely exhausted in about 
2013. No precedent exists for how the PBGC would proceed if its 
on-budget fund is depleted. However, CBO assumes that the 
agency would cover its expenses by increasing the percentage of 
benefits and other expenses being paid through transfers from 
its nonbudgetary trust fund, thus increasing offsetting 
collections above what they would have been if the fund had 
remained solvent.
    CBO estimates the increases in premium receipts resulting 
from H.R. 2830 would cause the on-budget fund to remain solvent 
beyond 2015. Because the bill would improve the finances of the 
on-budget fund, the PBGC would not need to increase the amounts 
transferred from the nonbudgetary fund in order to help cover 
benefit payments and other expenses during most of the 10-year 
projection period. By allowing the on-budge fund to remain 
solvent through the next decade, the bill would reduce those 
transfers by $7.4 billion over the 2013-2015 period. Because 
this change would reduce an offset to mandatory spending, it 
would result in a net increase in such spending.

Revenues

    H.R. 2830 would alter existing tax law related to the 
treatment of pension plans, certain types of retirement 
savings, and health care spending. CBO and JCT estimate that 
enacting H.R. 2830 would reduce revenues by $14.2 billion over 
the 2006-2010 period and by $71.8 billion over the 2006-2015 
period (see Table 2).
    H.R. 2830 would affect federal revenues by:
           Altering funding rules for single-employer, 
        defined-benefit pension plans. By affecting the amount 
        of tax-deductible contributions firms make to their 
        pension plans, these changes would increase revenues by 
        $5.4 billion over the 2006-2008 period and then 
        decrease revenues by $10.4 billion over the 2009-2015 
        period. The change from increases to decreases in 
        revenues is due to the differing phase-in rates of the 
        stricter funding rules and the new discount rates. In 
        the short run, the higherdiscount rates would reduce 
contributions and increase revenues before the stricter funding rules 
come fully into effect. Over the longer term, however, the stricter 
funding rules would more than offset the effect of the higher discount 
rates, leading to overall revenue losses.
           Permanently extending provisions relating to 
        pensions and individual retirement accounts (IRAs) that 
        were enacted in the Economic Growth and Tax Relief 
        Reconciliation Act 2001 (EGTRRA). Those provisions, 
        which include increased annual contribution limits for 
        IRA's and qualified pension plans, are scheduled to 
        expire at the end of 2010. JCT estimates that the 
        permanent extensions would decrease revenues by $20.4 
        billion over the 2011-2015 period.

                                               TABLE 2.--ESTIMATED IMPACT OF H.R. 2830 ON FEDERAL REVENUES
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                               2006       2007       2008       2009       2010       2011       2012       2013       2014       2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Changing Funding Rules for Single-Employer        823      2,698      1,884     -1,345     -2,460     -2,179     -1,790     -1,115       -805       -711
 Plans....................................
Permanent Extension of Certain EGTRRA               0          0          0          0          0     -1,899     -3,581     -4,274     -4,977     -5,625
 Provisions...............................
Changing Flexible Spending Account Rules:
    On-Budget.............................       -474       -825     -1,012     -1,155     -1,238     -1,336     -1,407     -1,465     -1,530     -1,587
    Off-Budget............................       -207       -356       -429       -482       -510       -531       -551       -570       -585       -601
                                           -------------------------------------------------------------------------------------------------------------
        Subtotal..........................       -682     -1,181     -1,441     -1,637     -1,748     -1,867     -1,958     -2,035     -2,115     -2,188
Permanent Extension of the EGTRRA Saver's           0       -481     -1,428     -1,318     -1,238     -1,210     -1,181     -1,093     -1,009       -943
 Credit...................................
Changing Combined Insurance Rules.........          0        -63       -159       -284       -502       -833     -1,200     -1,523     -1,852     -2,188
Encouraging Automatic Enrollment..........        -50       -174       -358       -528       -655       -749       -818       -875       -927       -979
Tax-free Distributions for Public Safety         -185       -246       -279       -317       -344       -371       -437       -470       -505       -542
 Officers.................................
Other Provisions..........................        -61        -93       -102       -116       -139       -155       -153       -146       -156       -185
                                           -------------------------------------------------------------------------------------------------------------
    Total Changes in Revenue:
        On-Budget.........................         52        816     -1,454     -5,063     -6,576     -8,732    -10,567    -10,961    -11,761    -12,760
        Off-Budget........................       -207       -356       -429       -482       -510       -531       -551       -570       -585       -601
                                           -------------------------------------------------------------------------------------------------------------
            Total.........................       -155        460     -1,883     -5,545     -7,086     -9,263    -11,118    -11,531    -12,346    -13,361
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001. Revenue components may not sum to totals because of rounding.
Source: Joint Committee on Taxation.

           Changing the rules for health flexible 
        spending accounts (FSAs). Under current law, employees 
        may participate in tax-preferred FSAs, and any balance 
        remaining in the accounts at the end of the year 
        reverts to the employer. This legislation would allow 
        employees to carry to the next year up to $500 in 
        unused amounts in their FSAs. JCT estimates that this 
        carry over would reduce revenues by $6.7 billion over 
        the 2006-2010 period and by $16.9 billion over the 
        2006-2015 period. Of that decline, $4.8 billion over 
        the 2006-2015 period would be a reduction in receipts 
        from Social Security taxes.
           Permanently extending a credit for 
        contributions to certain retirement savings accounts. 
        This ``saver's credit'' was enacted in EGTRRA and is 
        set to expire at the end of 2006. The non-refundable 
        credit is available to taxpayers with incomes below 
        certain thresholds who make contributions to qualified 
        retirement plans, such as 401(k)s and IRAs. JCT 
        estimates that making this credit permanent would 
        reduce revenues by $4.5 billion over the 2006-2010 
        period and by $9.9 billion over the 2006-2015 period.
           Changing the rules about combinations of 
        life and long-term care insurance. Currently, long-term 
        care insurance benefits are tax free, but distributions 
        from annuities that are used to pay for such insurance 
        are not. The bill would allow annuities to include 
        riders for long-term care insurance policies, and 
        withdrawals from these new annuity combinations would 
        be tax-free if used for long-term care. It would also 
        modify the rules for policies containing both life 
        insurance and long-term care coverage. This provision, 
        JCT estimates, would decrease revenues by $1.0 billion 
        over the 2006-2010 period and by $8.6 billion over the 
        2006-2015 period.
           Making it easier for firms to offer 
        automatic enrollment. Currently employees must elect to 
        participate in defined-contribution pension plans. In 
        order to encourage employers to offer automatic 
        participation in such plans, this bill would create 
        safe harbors from nondiscrimination testing under 
        certain circumstances. As a result employees would make 
        more pre-tax contributions to those plans and employers 
        would make larger tax deductible matching 
        contributions. JCT estimates that this provision would 
        reduce revenues by $1.8 billion over the 2006-2010 
        period and by $6.1 billion over the 2006-2015 period.
           Allowing certain public safety officers to 
        withdraw limited amounts from governmental retirement 
        plans tax-free. Under current law, amounts withdrawn 
        from retirement plans are taxable if the contributions 
        were made on a pre-tax basis. This bill would allow 
        certain public safety officers to withdraw up to $5,000 
        per year tax-free if the amounts are used to pay 
        directly for premiums for health and long-term care 
insurance. JCT estimates that this provision would decrease revenues by 
$1.4 billion over the 2006-2010 period and by $3.7 billion over the 
2006-2015 period.
    Several other provisions would affect revenues. These 
include changing funding rules for multiemployer defined-
benefit plans, changing IRA eligibility for the disabled, 
allowing rollovers by non-spouse beneficiaries, allowing 
distributions during working retirement, changing benefit 
accrual standards, and altering distribution and contribution 
rules for guardsmen, public safety employees, and those 
receiving combat zone compensation. In sum, these provisions 
would reduce revenues by $510 million over the 2006-2010 period 
and by $1.3 billion over the 2006-2015 period, JCT estimates.
    Long-term effects on direct spending: Pursuant to section 
407 of H. Con. Res. 95 (the Concurrent Resolution on the 
Budget, Fiscal Year 2006), CBO estimates that enacting H.R. 
2830 would not cause an increase in direct spending greater 
than $5 billion in any of the 10-year periods between 2016 and 
2055. During the four decades following 2015, reductions in 
outlays due to higher premium receipts would be larger than 
increases in outlays resulting from changes to transfers from 
the nonbudgetary fund and additional benefit payments.
    Estimated impact on state, local, and tribal governments: 
CBO and JCT have reviewed the provisions of H.R. 2830 and 
determined they contain no intergovernmental mandates as 
defined in UMRA. State, local, and tribal governments are 
exempt from the provisions of ERISA that the bill would amend, 
and the remaining provisions of the bill contain no 
intergovernmental mandates and would not affect the budgets of 
state, local, or tribal governments.
    Estimated impact on the private sector: Some of the bill's 
changes to ERISA would impose mandates on sponsors and 
administrators of single-employer and multiemployer private-
pension plans. CBO estimates that the direct cost to affected 
entities of the mandates in the bill, less the direct savings 
resulting from those mandates, would exceed the annual 
threshold specified in UMRA ($123 million in 2005, adjusted 
annually for inflation) in 2009 and thereafter. Most of the 
cost would result from the increase in premiums paid to the 
PBGC. JCT has determined that the tax provisions in the bill 
contain no private-sector mandates.

Premiums

    The bill would increase the premiums that sponsors of 
single-employer plans are required to pay to the PBGC. CBO 
estimates that the additional premiums would total $3.1 billion 
over the 2006-2010 period.

Disclosures

    Title II would require multiemployer plans to provide 
certain information to participants and beneficiaries when a 
plan enters into ``endangered'' or ``critical'' status. Title V 
would require single-employer plans to provide certain 
information to participants and beneficiaries when one or more 
plans sponsored by the employer are in ``at risk'' status. Both 
single-employer and multiemployer plans would be required to 
provide annual funding notices to all participants and 
beneficiaries within 90 days of the end of the plan-year. CBO 
estimates that the direct cost of those new requirements would 
be less than $30 million annually.

Funding rules

    Title I would make several changes to the funding rules in 
ERISA for single-employer, defined-benefit pension plans. 
Changes in the discount rate plans are required to use to value 
future liabilities would decrease the contributions sponsors 
would be required to make to their pension plans. Several other 
changes in funding rules would increase the amount of annual 
contributions that they would be required to make. Title II 
would change the funding rules in ERISA for multiemployer 
defined-benefit pension plans such that some sponsors would be 
required to increase the amount of annual contributions that 
they make to their plans.
    The net effect of those changes would be to decrease the 
total amount of required pension contributions for sponsors of 
single-employer plans in the early years, and increase total 
required contributions in later years. The changes in funding 
rules would not change the liabilities that plans' sponsors 
have to current and future pension recipients, however. They 
would only affect the timing of the sponsors' contributions. 
Because we have little basis for estimating the costs or 
benefits to sponsors of changes in the amounts contributed to 
their pension plans (for example, the cost of borrowing 
additional funds or of using funds that would otherwise be 
available for other purposes), CBO cannot estimate the direct 
cost or savings from those provisions.

Lump-sum distributions

    Title III would change the rules in ERISA used for 
determining the amounts of lump-sum distributions to plans' 
participants. A segmented interest rate based on corporate bond 
yields and an updated mortality table would be phased in for 
use in such calculations. Although the updated mortality table 
would cause a short-term increase in the amount of 
distributions, the substitution of the segmented interest rate 
for the 30-year Treasury rate would decrease that cost in most 
cases. Taken together, CBO estimates that these changes would 
likely have the net effect of reducing plans' costs.
    Previous CBO estimate: On September 26, 2005, CBO 
transmitted a cost estimate for H.R. 2830, as ordered reported 
by the House Committee on Education and the Workforce on June 
30, 2005. The pension provisions of the two versions of the 
bill are similar in many ways, but there are several 
significant differences. Rather than beginning the shift to the 
segmented bond rate in plan-year 2006, as in the Education and 
Workforce version of the bill, the Ways and Means Committee's 
version would extend the single corporate bond rate for one 
more year and begin the transition to the segmented bond rate 
in 2007. The latter version also includes a new premium on 
sponsors of plans that terminate and are taken over by the 
PBGC. The Ways and Means bill also includes numerous tax 
provisions affecting retirement savings and health care 
spending that are not in the earlier version of the bill.
    The Education and the Workforce Committee's version of H.R. 
2830 would increase federal budget deficits by an estimated 
$6.5 billion over the 2006-2015 period. CBO and JCT estimate 
that this version of the bill would increase deficits by $71.5 
billion over the 10-year period.
    Estimate prepared by: Federal Spending: Craig Meklir. 
Federal Revenues: Emily Schlect. Impact on State, Local, and 
Tribal Governments: Leo Lex. Impact on the Private Sector: 
Peter Richmond.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis; G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the staff of Joint Committee on Taxation with respect 
to the provisions of the bill amending the Internal Revenue 
Code of 1986: the effects of the bill on economic activity are 
so small as to be incalculable within the context of a model of 
the aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning Americans' need for retirement 
security and the need for pension reforms that the Committee 
concluded that it is appropriate and timely to enact the 
provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises . . . ''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill do not contain Federal mandates on the private sector. 
The Committee has determined that the revenue provision of the 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments. With respect to the non-
revenue provisions of the bill, see the CBO letter in part 
IV.C., above.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

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

  Pursuant to the terms of the referral of the bill to the 
Committee, the Committee adopted an amendment striking those 
provisions which were referred to the Committee and inserting 
new text.
  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the provisions of the bill referred to the Committee, as 
reported, are shown as follows (existing law proposed to be 
omitted is enclosed in black brackets, new matter is printed in 
italic, existing law in which no change is proposed is shown in 
roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



SUBTITLE A--INCOME TAXES

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *



SEC 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
                    INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  [(h) Termination.--This section shall not apply to taxable 
years beginning after December 31, 2006.]
  (h) Voluntary Deposit Into Qualified Account.--
          (1) In general.--So much of any overpayment under 
        section 6401(b) as does not exceed the amount allowed 
        as a tax credit under subsection (a) shall, at the 
        election of the taxpayer, be paid on behalf of the 
        individual taxpayer to an applicable retirement plan 
        designated by the individual, except that in the case 
        of a joint return, each spouse shall be entitled to 
        designate an applicable retirement plan with respect to 
        payments attributable to such spouse.
          (2) Applicable retirement plan.--For purposes of this 
        subsection, the term ``applicable retirement plan'' 
        means any eligible retirement plan (as defined in 
        section 402(c)(8)(B)) that elects to accept deposits 
        under this subsection.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Amounts Not Received as Annuities.--
          (1) * * *

           *       *       *       *       *       *       *

          (11) Special rules for certain combination contracts 
        providing long-term care insurance.--Notwithstanding 
        paragraphs (2), (5)(C), and (10), in the case of any 
        charge against the cash value of an annuity contract or 
        the cash surrender value of a life insurance contract 
        made as payment for coverage under a qualified long-
        term care insurance contract which is part of or a 
        rider on such annuity or life insurance contract--
                  (A) the investment in the contract shall be 
                reduced (but not below zero) by such charge, 
                and
                  (B) such charge shall not be includible in 
                gross income.
          [(11)] (12) Anti-abuse rules.--
                  (A) * * *

           *       *       *       *       *       *       *

  (t) 10-Percent Additional Tax on Early Distributions From 
Qualified Retirement Plans.--
          (1) * * *
          (2) Subsection not to apply to certain 
        distributions.--Except as provided in paragraphs (3) 
        and (4), paragraph (1) shall not apply to any of the 
        following distributions:
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) Distributions from retirement plans to 
                individuals called to active duty.--
                          (i) In general.--Any qualified 
                        reservist distribution.
                          (ii) Amount distributed may be 
                        repaid.--Any individual who receives a 
                        qualified reservist distribution may, 
                        at any time during the 2-year period 
                        beginning on the day after the end of 
                        the active duty period, make one or 
                        more contributions to an individual 
                        retirement plan of such individual in 
                        an aggregate amount not to exceed the 
                        amount of such distribution. The dollar 
                        limitations otherwise applicable to 
                        contributions to individual retirement 
                        plans shall not apply to any 
                        contribution made pursuant to the 
                        preceding sentence. No deduction shall 
                        be allowed for any contribution 
                        pursuant to this clause.
                          (iii) Qualified reservist 
                        distribution.--For purposes of this 
                        subparagraph, the term ``qualified 
                        reservist distribution'' means any 
                        distribution to an individual if--
                                  (I) such distribution is from 
                                an individual retirement plan, 
                                or from amounts attributable to 
                                employer contributions made 
                                pursuant to elective deferrals 
                                described in subparagraph (A) 
                                or (C) of section 402(g)(3) or 
                                section 501(c)(18)(D)(iii),
                                  (II) such individual was (by 
                                reason of being a member of a 
                                reserve component (as defined 
                                in section 101 of title 37, 
                                United States Code)), ordered 
                                or called to active duty for a 
                                period in excess of 179 days or 
                                for an indefinite period, and
                                  (III) such distribution is 
                                made during the period 
                                beginning on the date of such 
                                order or call and ending at the 
                                close of the active duty 
                                period.
                          (iv) Application of subparagraph.--
                        This subparagraph applies to 
                        individuals ordered or called to active 
                        duty after September 11, 2001, and 
                        before September 12, 2007. In no event 
                        shall the 2-year period referred to in 
                        clause (ii) end before the date which 
                        is 2-years after the date of the 
                        enactment of this subparagraph.
                  (H) DROP distributions to qualified public 
                safety employees in governmental plans.--
                          (i) In general.--Distributions to an 
                        individual who is a qualified public 
                        safety employee from a governmental 
                        plan within the meaning of section 
                        414(d) to the extent such distributions 
                        are attributable to a DROP benefit.
                          (ii) Definitions.--For purposes of 
                        this subparagraph--
                                  (I) DROP benefit.--The term 
                                ``DROP benefit'' means a 
                                feature of a governmental plan 
                                which is a defined benefit plan 
                                and under which an employee 
                                elects to receive credits to an 
                                account (including a notional 
                                account) in the plan which are 
                                not in excess of the plan 
                                benefits (payable in the form 
                                of an annuity) that would have 
                                been provided if the employee 
                                had retired under the plan at a 
                                specified earlier retirement 
                                date and which are in lieu of 
                                increases in the employee's 
                                accrued pension benefit based 
                                on years of service after the 
                                effective date of the DROP 
                                election.
                                  (II) Qualified public safety 
                                employee.--The term ``qualified 
                                public safety employee'' means 
                                any employee of any police 
                                department or fire department 
                                organized and operated by a 
                                State or political subdivision 
                                of a State if the employee 
                                provides police protection, 
                                firefighting services, or 
                                emergency medical services for 
                                any area within the 
                                jurisdiction of such State or 
                                political subdivision and if 
                                the employee was eligible to 
                                retire on or before the date of 
                                such election and receive 
                                immediate retirement benefits.

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 125. CAFETERIA PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Contributions of Certain Unused Health Benefits.--
          (1) In general.--For purposes of this title, a plan 
        or other arrangement shall not fail to be treated as a 
        cafeteria plan solely because qualified benefits under 
        such plan include a health flexible spending 
        arrangement under which not more than $500 of unused 
        health benefits may be--
                  (A) carried forward to the succeeding plan 
                year of such health flexible spending 
                arrangement, or
                  (B) to the extent permitted by section 
                106(d), contributed by the employer to a health 
                savings account (as defined in section 223(d)) 
                maintained for the benefit of the employee.
          (2) Health flexible spending arrangement.--For 
        purposes of this subsection, the term ``health flexible 
        spending arrangement'' means a flexible spending 
        arrangement (as defined in section 106(c)) that is a 
        qualified benefit and only permits reimbursement for 
        expenses for medical care (as defined in section 
        213(d)(1), without regard to subparagraphs (C) and (D) 
        thereof).
          (3) Unused health benefits.--For purposes of this 
        subsection, with respect to an employee, the term 
        ``unused health benefits'' means the excess of--
                  (A) the maximum amount of reimbursement 
                allowable to the employee for a plan year under 
                a health flexible spending arrangement, over
                  (B) the actual amount of reimbursement for 
                such year under such arrangement.
  [(h)] (i) Cross Reference.--For reporting and recordkeeping 
requirements, see section 6039D.
  [(i)] (j) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this section.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Other Definitions and Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Special rule for compensation earned by members 
        of the armed forces for service in a combat zone.--For 
        purposes of subsections (b)(1)(B) and (c), the amount 
        of compensation includible in an individual's gross 
        income shall be determined without regard to section 
        112.
          (8) Special rule for certain disabled individuals.--
        In the case of an individual--
                  (A) who is disabled (within the meaning of 
                section 72(m)(7)), and
                  (B) who has not attained the applicable age 
                (as defined in section 401(a)(9)(H)) before the 
                close of the taxable year,
        subparagraph (B) of subsection (b)(1) shall not apply.
          [(7)] (9) Election not to deduct contributions.--For 
        election not to deduct contributions to individual 
        retirement plans, see section 408(o)(2)(B)(ii).

           *       *       *       *       *       *       *


               Subchapter D--Deferred Compensation, Etc.

         Part I_Pension, Profit-Sharing, Stock Bonus Plans, Etc.

     * * * * * * *

    Part III_Rules Relating to Minimum Funding Standards and Benefit 
Limitations

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

  (a) Requirements for Qualification.--A trust created or 
organized in the United States and forming part of a stock 
bonus, pension, or profit-sharing plan of an employer for the 
exclusive benefit of his employees or their beneficiaries shall 
constitute a qualified trust under this section--
          (1) * * *

           *       *       *       *       *       *       *

          [(29) Security required upon adoption of plan 
        amendment resulting in significant underfunding.--
                  [(A) In general.--If--
                          [(i) a defined benefit plan (other 
                        than a multiemployer plan) to which the 
                        requirements of section 412 apply 
                        adopts an amendment an effect of which 
                        is to increase current liability under 
                        the plan for a plan year, and
                          [(ii) the funded current liability 
                        percentage of the plan for the plan 
                        year in which the amendment takes 
                        effect is less than 60 percent, 
                        including the amount of the unfunded 
                        current liability under the plan 
                        attributable to the plan amendment,
                the trust of which such plan is a part shall 
                not constitute a qualified trust under this 
                subsection unless such amendment does not take 
                effect until the contributing sponsor (or any 
                member of the controlled group of the 
                contributing sponsor) provides security to the 
                plan.
                  [(B) Form of security.--The security required 
                under subparagraph (A) shall consist of--
                          [(i) a bond issued by a corporate 
                        surety company that is an acceptable 
                        surety for purposes of section 412 of 
                        the Employee Retirement Income Security 
                        Act of 1974,
                          [(ii) cash, or United States 
                        obligations which mature in 3 years or 
                        less, held in escrow by a bank or 
                        similar financial institution, or
                          [(iii) such other form of security as 
                        is satisfactory to the Secretary and 
                        the parties involved.
                  [(C) Amount of security.--The security shall 
                be in an amount equal to the excess of--
                          [(i) the lesser of--
                                  [(I) the amount of additional 
                                plan assets which would be 
                                necessary to increase the 
                                funded current liability 
                                percentage under the plan to 60 
                                percent, including the amount 
                                of the unfunded current 
                                liability under the plan 
                                attributable to the plan 
                                amendment, or
                                  [(II) the amount of the 
                                increase in current liability 
                                under the plan attributable to 
                                the plan amendment and any 
                                other plan amendments adopted 
                                after December 22, 1987, and 
                                before such plan amendment, 
                                over
                          [(ii) $10,000,000.
                  [(D) Release of security.--The security shall 
                be released (and any amounts thereunder shall 
                be refunded together with any interest accrued 
                thereon) at the end of the first plan year 
                which ends after the provision of the security 
                and for which the funded current liability 
                percentage under the plan is not less than 60 
                percent. The Secretary may prescribe 
                regulations for partial releases of the 
                security by reason of increases in the funded 
                current liability percentage.
                  [(E) Definitions.--For purposes of this 
                paragraph, the terms ``current liability'', 
                ``funded current liability percentage'', and 
                ``unfunded current liability'' shall have the 
                meanings given such terms by section 412(l), 
                except that in computing unfunded current 
                liability there shall not be taken into account 
                any unamortized portion of the unfunded old 
                liability amount as of the close of the plan 
                year.]
          (29) Benefit limitations on plans in at-risk 
        status.--In the case of a defined benefit plan (other 
        than a multiemployer plan) to which the requirements of 
        section 412 apply, the trust of which the plan is a 
        part shall not constitute a qualified trust under this 
        subsection unless the plan meets the requirements of 
        sections 436 and 437.

           *       *       *       *       *       *       *

          (32) Treatment of failure to make certain payments if 
        plan has liquidity shortfall.--
                  (A) In general.--A trust forming part of a 
                pension plan to which section [412(m)(5)] 
                430(j)(4) applies shall not be treated as 
                failing to constitute a qualified trust under 
                this section merely because such plan ceases to 
                make any payment described in subparagraph (B) 
                during any period that such plan has a 
                liquidity shortfall (as defined in section 
                [412(m)(5)] 430(j)(4)).

           *       *       *       *       *       *       *

                  (C) Period of shortfall.--For purposes of 
                this paragraph, a plan has a liquidity 
                shortfall during the period that there is an 
                underpayment of an installment under [section 
                412(m) by reason of paragraph (5)(A) thereof] 
                section 430(j)(3) by reason of section 
                430(j)(4)(A).
          (33) Prohibition on benefit increases while sponsor 
        is in bankruptcy.--
                  (A) * * *
                  (B) Exceptions.--This paragraph shall not 
                apply to any plan amendment if--
                          (i) the plan, were such amendment to 
                        take effect, would have a [funded 
                        current liability percentage (as 
                        defined in section 412(l)(8))] funding 
                        target attainment percentage (as 
                        defined in section 430(d)(2)) of 100 
                        percent or more,

           *       *       *       *       *       *       *

                          (iii) such amendment only repeals an 
                        amendment described in [subsection 
                        412(c)(8)] section 412(d)(2), or

           *       *       *       *       *       *       *

                  (D) Employer.--For purposes of this 
                paragraph, the term ``employer'' means the 
                employer referred to in [section 412(c)(11) 
                (without regard to subparagraph (B) thereof)] 
                section 412(b) (without regard to paragraph (2) 
                thereof).

           *       *       *       *       *       *       *

          (35) Distributions during working retirement.--A 
        trust forming part of a pension plan shall not be 
        treated as failing to constitute a qualified trust 
        under this section solely because a distribution is 
        made from such trust to an employee who has attained 
        age 62 and who is not separated from employment at the 
        time of such distribution.

           *       *       *       *       *       *       *

  (k) Cash or Deferred Arrangements.--
          (1) * * *
          (2) Qualified cash or deferred arrangement.--A 
        qualified cash or deferred arrangement is any 
        arrangement which is part of a profit-sharing or stock 
        bonus plan, a pre-ERISA money purchase plan, or a rural 
        cooperative plan which meets the requirements of 
        subsection (a)--
                  (A) * * *
                  (B) under which amounts held by the trust 
                which are attributable to employer 
                contributions made pursuant to the employee's 
                election--
                          (i) may not be distributable to 
                        participants or other beneficiaries 
                        earlier than--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) in the case of a 
                                profit-sharing or stock bonus 
                                plan, the attainment of age 
                                59\1/2\, [or]
                                  (IV) in the case of 
                                contributions to a profit-
                                sharing or stock bonus plan to 
                                which section 402(e)(3) 
                                applies, upon hardship of the 
                                employee, [and] or
                                  (V) in the case of a 
                                qualified reservist 
                                distribution (as defined in 
                                section 72(t)(2)(G)(iii)), the 
                                date on which a period referred 
                                to in subclause (III) of such 
                                section begins, and

           *       *       *       *       *       *       *

          (8) Arrangement not disqualified if excess 
        contributions distributed.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Treatment of matching contributions 
                forfeited by reason of excess deferral or 
                contribution or erroneous automatic 
                contribution.--For purposes of paragraph 
                (2)(C), a matching contribution (within the 
                meaning of subsection (m)) shall not be treated 
                as forfeitable merely because such contribution 
                is forfeitable if the contribution to which the 
                matching contribution relates is treated as an 
                excess contribution under subparagraph (B), an 
                excess deferral under section 402(g)(2)(A), an 
                erroneous automatic contribution under section 
                414(w), or an excess aggregate contribution 
                under section 401(m)(6)(B).

           *       *       *       *       *       *       *

          (13) Alternative method for automatic contribution 
        arrangements to meet nondiscrimination requirements.--
                  (A) In general.--A qualified automatic 
                contribution arrangement shall be treated as 
                meeting the requirements of paragraph 
                (3)(A)(ii).
                  (B) Qualified automatic contribution 
                arrangement.--For purposes of this paragraph, 
                the term ``qualified automatic contribution 
                arrangement'' means any cash or deferred 
                arrangement which meets the requirements of 
                subparagraphs (C) through (F).
                  (C) Automatic deferral.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, each employee eligible to 
                        participate in the arrangement is 
                        treated as having elected to have the 
                        employer make elective contributions in 
                        an amount equal to a qualified 
                        percentage of compensation.
                          (ii) Election out.--The election 
                        treated as having been made under 
                        clause (i) shall cease to apply with 
                        respect to any employee if such 
                        employee makes an affirmative 
                        election--
                                  (I) to not have such 
                                contributions made, or
                                  (II) to make elective 
                                contributions at a level 
                                specified in such affirmative 
                                election.
                          (iii) Qualified percentage.--For 
                        purposes of this subparagraph, the term 
                        ``qualified percentage'' means, with 
                        respect to any employee, any percentage 
                        determined under the arrangement if 
                        such percentage is applied uniformly, 
                        does not exceed 10 percent, and is at 
                        least--
                                  (I) 3 percent during the 
                                period ending on the last day 
                                of the first plan year which 
                                begins after the date on which 
                                the first elective contribution 
                                described in clause (i) is made 
                                with respect to such employee,
                                  (II) 4 percent during the 
                                first plan year following the 
                                plan year described in 
                                subclause (I),
                                  (III) 5 percent during the 
                                second plan year following the 
                                plan year described in 
                                subclause (I), and
                                  (IV) 6 percent during any 
                                subsequent plan year.
                          (iv) Automatic deferral for current 
                        employees not required.--Clause (i) 
                        shall be applied without taking into 
                        account any employee who was eligible 
                        to participate in the arrangement (or a 
                        predecessor arrangement) immediately 
                        before the date on which such 
                        arrangement becomes a qualified 
                        automatic contribution arrangement 
                        (determined after application of this 
                        clause).
                  (D) Participation.--
                          (i) In general.--An arrangement meets 
                        the requirements of this subparagraph 
                        for any year if, during the plan year 
                        or the preceding plan year, elective 
                        contributions are made on behalf of at 
                        least 70 percent of the employees 
                        eligible to participate in the 
                        arrangement other than--
                                  (I) highly compensated 
                                employees, and
                                  (II) at the election of the 
                                plan administrator, employees 
                                described in subparagraph 
                                (C)(iv).
                          (ii) First plan year.--An arrangement 
                        (other than a successor arrangement) 
                        shall be treated as meeting the 
                        requirements of this subparagraph with 
                        respect to the first plan year with 
                        respect to which such arrangement is a 
                        qualified automatic contribution 
                        arrangement (determined without regard 
                        to this subparagraph).
                  (E) Matching or nonelective contributions.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, the employer--
                                  (I) makes matching 
                                contributions on behalf of each 
                                employee who is not a highly 
                                compensated employee in an 
                                amount equal to 50 percent of 
                                the elective contributions of 
                                the employee to the extent such 
                                elective contributions do not 
                                exceed 6 percent of 
                                compensation, or
                                  (II) is required, without 
                                regard to whether the employee 
                                makes an elective contribution 
                                or employee contribution, to 
                                make a contribution to a 
                                defined contribution plan on 
                                behalf of each employee who is 
                                not a highly compensated 
                                employee and who is eligible to 
                                participate in the arrangement 
                                in an amount equal to at least 
                                2 percent of the employee's 
                                compensation.
                          (ii) Application of rules for 
                        matching contributions.--The rules of 
                        clauses (ii) and (iii) of paragraph 
                        (12)(B) shall apply for purposes of 
                        clause (i)(I).
                          (iii) Withdrawal and vesting 
                        restrictions.--An arrangement shall not 
                        be treated as meeting the requirements 
                        of clause (i) unless, with respect to 
                        employer contributions (including 
                        matching contributions) taken into 
                        account in determining whether the 
                        requirements of clause (i) are met--
                                  (I) any employee who has 
                                completed at least 2 years of 
                                service (within the meaning of 
                                section 411(a)) has a 
                                nonforfeitable right to 100 
                                percent of the employee's 
                                accrued benefit derived from 
                                such employer contributions, 
                                and
                                  (II) the requirements of 
                                subparagraph (B) of paragraph 
                                (2) are met with respect to all 
                                such employer contributions.
                          (iv) Application of certain other 
                        rules.--The rules of subparagraphs 
                        (E)(ii) and (F) of paragraph (12) shall 
                        apply for purposes of subclauses (I) 
                        and (II) of clause (i).
                  (F) Notice requirements.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, within a 
                        reasonable period before each plan 
                        year, each employee eligible to 
                        participate in the arrangement for such 
                        year receives written notice of the 
                        employee's rights and obligations under 
                        the arrangement which--
                                  (I) is sufficiently accurate 
                                and comprehensive to apprise 
                                the employee of such rights and 
                                obligations, and
                                  (II) is written in a manner 
                                calculated to be understood by 
                                the average employee to whom 
                                the arrangement applies.
                          (ii) Timing and content 
                        requirements.--A notice shall not be 
                        treated as meeting the requirements of 
                        clause (i) with respect to an employee 
                        unless--
                                  (I) the notice explains the 
                                employee's right under the 
                                arrangement to elect not to 
                                have elective contributions 
                                made on the employee's behalf 
                                (or to elect to have such 
                                contributions made at a 
                                different percentage),
                                  (II) in the case of an 
                                arrangement under which the 
                                employee may elect among 2 or 
                                more investment options, the 
                                notice explains how 
                                contributions made under the 
                                arrangement will be invested in 
                                the absence of any investment 
                                election by the employee, and
                                  (III) the employee has a 
                                reasonable period of time after 
                                receipt of the notice described 
                                in subclauses (I) and (II) and 
                                before the first elective 
                                contribution is made to make 
                                either such election.

           *       *       *       *       *       *       *

  (m) Nondiscrimination Test for Matching Contributions and 
Employee Contributions.--
          (1) * * *

           *       *       *       *       *       *       *

          (12) Alternative method for automatic contribution 
        arrangements.--A defined contribution plan shall be 
        treated as meeting the requirements of paragraph (2) 
        with respect to matching contributions if the plan--
                  (A) is a qualified automatic contribution 
                arrangement (as defined in subsection (k)(13)), 
                and
                  (B) meets the requirements of paragraph 
                (11)(B).
          [(12)] (13) Cross reference.--
          For excise tax on certain excess contributions, see section 
        4979.

           *       *       *       *       *       *       *


SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Rules Applicable to Rollovers from Exempt Trusts.--
          (1) * * *

           *       *       *       *       *       *       *

          (11) Distributions to inherited individual retirement 
        plan of nonspouse beneficiary.--
                  (A) In general.--If, with respect to any 
                portion of a distribution from an eligible 
                retirement plan of a deceased employee, a 
                direct trustee-to-trustee transfer is made to 
                an individual retirement plan described in 
                clause (i) or (ii) of paragraph (8)(B) 
                established for the purposes of receiving the 
                distribution on behalf of an individual who is 
                a designated beneficiary (as defined by section 
                401(a)(9)(E)) of the employee and who is not 
                the surviving spouse of the employee--
                          (i) the transfer shall be treated as 
                        an eligible rollover distribution for 
                        purposes of this subsection,
                          (ii) the individual retirement plan 
                        shall be treated as an inherited 
                        individual retirement account or 
                        individual retirement annuity (within 
                        the meaning of section 408(d)(3)(C)) 
                        for purposes of this title, and
                          (iii) section 401(a)(9)(B) (other 
                        than clause (iv) thereof) shall apply 
                        to such plan.
                  (B) Certain trusts treated as 
                beneficiaries.--For purposes of this paragraph, 
                to the extent provided in rules prescribed by 
                the Secretary, a trust maintained for the 
                benefit of one or more designated beneficiaries 
                shall be treated in the same manner as a trust 
                designated beneficiary.

           *       *       *       *       *       *       *

  (l) Distributions From Governmental Plans for Health and 
Long-Term Care Insurance.--
          (1) In general.--In the case of an employee who is an 
        eligible retired public safety officer who makes the 
        election described in paragraph (6) with respect to any 
        taxable year of such employee, gross income of such 
        employee for such taxable year does not include any 
        distribution from an eligible retirement plan to the 
        extent that the aggregate amount of such distributions 
        does not exceed the amount paid by such employee for 
        qualified health insurance premiums of the employee, 
        his spouse, or dependents (as defined in section 152) 
        for such taxable year.
          (2) Limitation.--The amount which may be excluded 
        from gross income for the taxable year by reason of 
        paragraph (1) shall not exceed $5,000.
          (3) Distributions must otherwise be includible.--
                  (A) In general.--An amount shall be treated 
                as a distribution for purposes of paragraph (1) 
                only to the extent that such amount would be 
                includible in gross income without regard to 
                paragraph (1).
                  (B) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which an amount is treated as a 
                distribution for purposes of subparagraph (A), 
                the aggregate amounts distributed from an 
                eligible retirement plan in a taxable year (up 
                to the amount excluded under paragraph (1)) 
                shall be treated as includible in gross income 
                (without regard to subparagraph (A)) to the 
                extent that such amount does not exceed the 
                aggregate amount which would have been so 
                includible if all amounts distributed from all 
                eligible retirement plans were treated as 1 
                contract for purposes of determining the 
                inclusion of such distribution under section 
                72. Proper adjustments shall be made in 
                applying section 72 to other distributions in 
                such taxable year and subsequent taxable years.
          (4) Definitions.--For purposes of this subsection--
                  (A) Eligible retirement plan.--For purposes 
                of paragraph (1), the term ``eligible 
                retirement plan'' means a governmental plan 
                (within the meaning of section 414(d)) which is 
                described in clause (iii), (iv), (v), or (vi) 
                of subsection (c)(8)(B).
                  (B) Eligible retired public safety officer.--
                The term ``eligible retired public safety 
                officer'' means an individual who, by reason of 
                disability or attainment of normal retirement 
                age, is separated from service as a public 
                safety officer with the employer who maintains 
                the eligible retirement plan from which 
                distributions subject to paragraph (1) are 
                made.
                  (C) Public safety officer.--The term ``public 
                safety officer'' shall have the same meaning 
                given such term by section 1204(8)(A) of the 
                Omnibus Crime Control and Safe Streets Act of 
                1968 (42 U.S.C. 3796b(8)(A)).
                  (D) Qualified health insurance premiums.--The 
                term ``qualified health insurance premiums'' 
                means premiums for coverage for the eligible 
                retired public safety officer, his spouse, and 
                dependents, by an accident or health insurance 
                plan or qualified long-term care insurance 
                contract (as defined in section 7702B(b)).
          (5) Special rules.--For purposes of this subsection--
                  (A) Direct payment to insurer required.--
                Paragraph (1) shall only apply to a 
                distribution if payment of the premiums is made 
                directly to the provider of the accident or 
                health insurance plan or qualified long-term 
                care insurance contract by deduction from a 
                distribution from the eligible retirement plan.
                  (B) Related plans treated as 1.--All eligible 
                retirement plans of an employer shall be 
                treated as a single plan.
          (6) Election described.--
                  (A) In general.--For purposes of paragraph 
                (1), an election is described in this paragraph 
                if the election is made by an employee after 
                separation from service with respect to amounts 
                not distributed from an eligible retirement 
                plan to have amounts from such plan distributed 
                in order to pay for qualified health insurance 
                premiums.
                  (B) Special rule.--A plan shall not be 
                treated as violating the requirements of 
                section 401, or as engaging in a prohibited 
                transaction for purposes of section 503(b), 
                merely because it provides for an election with 
                respect to amounts that are otherwise 
                distributable under the plan or merely because 
                of a distribution made pursuant to an election 
                described in subparagraph (A).
          (7) Coordination with medical expense deduction.--The 
        amounts excluded from gross income under paragraph (1) 
        shall not be taken into account under section 213.
          (8) Coordination with deduction for health insurance 
        costs of self-employed individuals.--The amounts 
        excluded from gross income under paragraph (1) shall 
        not be taken into account under section 162(l).

           *       *       *       *       *       *       *


SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) Taxability of Beneficiary Under a Qualified Annuity 
Plan.--
          (1) * * *
          (2) Special rule for health and long-term care 
        insurance.--To the extent provided in section 402(l), 
        paragraph (1) shall not apply to the amount distributed 
        under the contract which is otherwise includible in 
        gross income under this subsection.

           *       *       *       *       *       *       *

          (4) Rollover amounts.--
                  (A) * * *
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) and (11) and (9) 
                of section 402(c) and section 402(f) shall 
                apply for purposes of subparagraph (A).

           *       *       *       *       *       *       *

  (b) Taxability of Beneficiary Under Annuity Purchased by 
Section 501(c)(3) Organization or Public School.--
          (1) * * *
          (2) Special rule for health and long-term care 
        insurance.--To the extent provided in section 402(l), 
        paragraph (1) shall not apply to the amount distributed 
        under the contract which is otherwise includible in 
        gross income under this subsection.

           *       *       *       *       *       *       *

          (7) Custodial accounts for regulated investment 
        company stock.--
                  (A) Amounts paid treated as contributions.--
                For purposes of this title, amounts paid by an 
                employer described in paragraph (1)(A) to a 
                custodial account which satisfies the 
                requirements of section 401(f)(2) shall be 
                treated as amounts contributed by him for an 
                annuity contract for his employee if--
                          (i) * * *
                          (ii) under the custodial account no 
                        such amounts may be paid or made 
                        available to any distributee (unless 
                        such amount is a distribution to which 
                        section 72(t)(2)(G) applies) before the 
                        employee dies, attains age 59\1/2\, has 
                        a severance from employment, becomes 
                        disabled (within the meaning of section 
                        72(m)(7)), or in the case of 
                        contributions made pursuant to a salary 
                        reduction agreement (within the meaning 
                        of section 3121(a)(5)(D), encounters 
                        financial hardship.

           *       *       *       *       *       *       *

          (8) Rollover amounts.--
                  (A) * * *
                  (B) Certain rules made applicable.--The rules 
                of paragraphs (2) through (7) [and (9)], (9), 
                and (11) of section 402(c) and section 402(f) 
                shall apply for purposes of subparagraph (A), 
                except that section 402(f) shall be applied to 
                the payor in lieu of the plan administrator.

           *       *       *       *       *       *       *

          (11) Requirement that distributions not begin before 
        age 59\1/2\, severance from employment, death, or 
        disability.--This subsection shall not apply to any 
        annuity contract unless under such contract 
        distributions attributable to contributions made 
        pursuant to a salary reduction agreement (within the 
        meaning of section 402(g)(3)(C)) may be paid only--
                  (A) when the employee attains age 59\1/2\, 
                has a severance from employment, dies, or 
                becomes disabled (within the meaning of section 
                72(m)(7)), [or]
                  (B) in the case of hardship[.], or
                  (C) for distributions to which section 
                72(t)(2)(G) applies.
        Such contract may not provide for the distribution of 
        any income attributable to such contributions in the 
        case of hardship.

           *       *       *       *       *       *       *


SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES' 
                    TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A 
                    DEFERRED-PAYMENT PLAN.

  (a) General Rule.--If contributions are paid by an employer 
to or under a stock bonus, pension, profit-sharing, or annuity 
plan, or if compensation is paid or accrued on account of any 
employee under a plan deferring the receipt of such 
compensation, such contributions or compensation shall not be 
deductible under this chapter; but, if they would otherwise be 
deductible, they shall be deductible under this section, 
subject, however, to the following limitations as to the 
amounts deductible in any year:
          (1) Pension trusts.--
                  (A) In general.--In the taxable year when 
                paid, if the contributions are paid into a 
                pension trust (other than a trust to which 
                paragraph (3) applies), and if such taxable 
                year ends within or with a taxable year of the 
                trust for which the trust is exempt under 
                section 501(a), in the case of a defined 
                benefit plan other than a multiemployer plan, 
                in an amount determined under subsection (o), 
                and in the case of any other plan in an amount 
                determined as follows:
                          (i) * * *

           *       *       *       *       *       *       *

                In determining the amount deductible in such 
                year under the foregoing limitations the 
                funding method and the actuarial assumptions 
                used shall be those used for such year under 
                [section 412] section 431, and the maximum 
                amount deductible for such year shall be an 
                amount equal to the full funding limitation for 
                such year determined under [section 412] 
                section 431.
                  (B) Special rule in case of certain 
                amendments.--[In the case of a plan] In the 
                case of a multiemployer plan which the 
                Secretary of Labor finds to be collectively 
                bargained which makes an election under this 
                subparagraph (in such manner and at such time 
                as may be provided under regulations prescribed 
                by the Secretary), if the full funding 
                limitation determined under [section 412(c)(7)] 
                section 431(c)(6) for such year is zero, if as 
                a result of any plan amendment applying to such 
                plan year, the amount determined under [section 
                412(c)(7)(B)] section 431(c)(6)(D) exceeds the 
                amount determined under [section 412(c)(7)(A)] 
                section 431(c)(6)(A), and if the funding method 
                and the actuarial assumptions used are those 
                used for such year under [section 412] section 
                431, the maximum amount deductible in such year 
                under the limitations of this paragraph shall 
                be an amount equal to the lesser of--
                          (i) the full funding limitation for 
                        such year determined by applying 
                        [section 412(c)(7)] section 431(c)(6) 
                        but increasing the amount referred to 
                        in subparagraph (A) thereof by the 
                        decrease in the present value of all 
                        unamortized liabilities resulting from 
                        such amendment, or

           *       *       *       *       *       *       *

                  [(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) Special rule for terminating 
                        plans.--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).]
                  (D) Minimum deduction for multiemployer 
                plans.--In the case of a defined benefit plan 
                which is a multiemployer plan, except as 
                provided in regulations, the maximum amount 
                deductible under the limitations of this 
                paragraph shall not be less than the excess (if 
                any) of--
                          (i) 140 percent of the current 
                        liability of the plan determined under 
                        section 431(c)(6)(D), over
                          (ii) the value of the plan's assets 
                        determined under section 431(c)(2).

           *       *       *       *       *       *       *

                  [(F) Election to disregard modified interest 
                rate.--An employer may elect to disregard 
                subsections (b)(5)(B)(ii)(II) and 
                (l)(7)(C)(i)(IV) of section 412 solely for 
                purposes of determining the interest rate used 
                in calculating the maximum amount of the 
                deduction allowable under this paragraph.]

           *       *       *       *       *       *       *

          (7) Limitation on deductions where combination of 
        defined contribution plan and defined benefit plan.--
                  (A) In general.--If amounts are deductible 
                under the foregoing paragraphs of this 
                subsection (other than paragraph (5)) in 
                connection with 1 or more defined contribution 
                plans and 1 or more defined benefit plans or in 
                connection with trusts or plans described in 2 
                or more of such paragraphs, the total amount 
                deductible in a taxable year under such plans 
                shall not exceed the greater of--
                          (i) * * *
                          (ii) the amount of contributions made 
                        to or under the defined benefit plans 
                        to the extent such contributions do not 
                        exceed the amount of employer 
                        contributions necessary to satisfy the 
                        minimum funding standard provided by 
                        section 412 with respect to any such 
                        defined benefit plans [for the plan 
                        year which ends with or within such 
                        taxable year (or for any prior plan 
                        year).] which are multiemployer plans 
                        for the plan year which ends with or 
                        within such taxable year (or for any 
                        prior plan year) and the maximum amount 
                        of employer contributions allowable 
                        under subsection (o) with respect to 
                        any such defined benefit plans which 
                        are not multiemployer plans for the 
                        plan year.
                A defined contribution plan which is a pension 
                plan shall not be treated as failing to provide 
                definitely determinable benefits merely by 
                limiting employer contributions to amounts 
                deductible under this section. For purposes of 
                clause (ii), if paragraph (1)(D) applies to a 
                defined benefit plan for any plan year, the 
                amount necessary to satisfy the minimum funding 
                standard provided by section 412 with respect 
                to such plan for such plan year shall not be 
                less than the unfunded current liability of 
                such plan under [section 412(l)] paragraph 
                (1)(D)(ii).

           *       *       *       *       *       *       *

                  (C) Paragraph not to apply in certain 
                cases.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Limitation.--In the case of 
                        employer contributions to 1 or more 
                        defined contribution plans, this 
                        paragraph shall only apply to the 
                        extent that such contributions exceed 6 
                        percent of the compensation otherwise 
                        paid or accrued during the taxable year 
                        to the beneficiaries under such plans. 
                        For purposes of this clause, amounts 
                        carried over from preceding taxable 
                        years under subparagraph (B) shall be 
                        treated as employer contributions to 1 
                        or more defined contributions to the 
                        extent attributable to employer 
                        contributions to such plans in such 
                        preceding taxable years.
                  [(D) Section 412(i) plans.--For purposes of 
                this paragraph, any plan described in section 
                412(i) shall be treated as a defined benefit 
                plan.]
                  (D) Insurance contract plans.--For purposes 
                of this paragraph, a plan described in section 
                412(e)(3) shall be treated as a defined benefit 
                plan.

           *       *       *       *       *       *       *

  (o) Deduction Limit for Single-Employer Plans.--For purposes 
of subsection (a)(1)(A)--
          (1) In general.--In the case of a defined benefit 
        plan to which subsection (a)(1)(A) applies (other than 
        a multiemployer plan), the amount determined under this 
        subsection for any taxable year shall be equal to the 
        amount determined under paragraph (2) with respect to 
        each plan year ending with or within the taxable year.
          (2) Determination of amount.--The amount determined 
        under this paragraph for any plan year shall be equal 
        to the excess (if any) of--
                  (A) the greater of--
                          (i) the sum of--
                                  (I) 150 percent of the 
                                funding target applicable to 
                                the plan for such plan year, 
                                determined under section 430, 
                                plus
                                  (II) the target normal cost 
                                applicable to the plan for such 
                                plan year, determined under 
                                section 430(b), or
                          (ii) in the case of a plan that is 
                        not in an at-risk status (as determined 
                        under 430(i)), the sum of--
                                  (I) the funding target which 
                                would be applicable to the plan 
                                for such plan year if such plan 
                                were in an at-risk status, 
                                determined under section 430(d) 
                                (with regard to section 
                                430(i)), plus
                                  (II) the target normal cost 
                                which would be applicable to 
                                the plan for such plan year if 
                                such plan were in an at-risk 
                                status, determined under 
                                section 430(d) (with regard to 
                                section 430(i)), over
                  (B) the value of the plan assets (determined 
                under section 430(g)).
          (3) Special rule for terminating plans.--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, the amount determined 
        under paragraph (2) shall not be less than the amount 
        required to make the plan sufficient for benefit 
        liabilities (within the meaning of section 4041(d) of 
        such Act).
          (4) Definitions.--Any term used in this subsection 
        which is also used in section 430 shall have the same 
        meaning given such term by section 430.

SEC. 404A. DEDUCTION FOR CERTAIN FOREIGN DEFERRED COMPENSATION PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Other Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Actuarial assumptions must be reasonable; full 
        funding.--
                  (A) In general.--Except as provided in 
                subparagraph (B), principles similar to those 
                set forth in [paragraphs (3) and (7) of section 
                412(c)] sections 430(h)(1) and 431(c)(3) and 
                (6) shall apply for purposes of this section.

           *       *       *       *       *       *       *


SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
                    NONQUALIFIED DEFERRED COMPENSATION PLANS.

  (a) * * *
  (b) Rules Relating to Funding.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Employer's defined benefit plan in at-risk 
        status.--If--
                  (A) during any period in which a defined 
                benefit plan to which section 412 applies is in 
                an at-risk status (as defined in section 
                430(i)(3)), assets are set aside (directly or 
                indirectly) in a trust (or other arrangement 
                determined by the Secretary), or transferred to 
                such a trust or other arrangement, for purposes 
                of paying deferred compensation under a 
                nonqualified deferred compensation plan of the 
                employer maintaining the defined benefit plan, 
                or
                  (B) a nonqualified deferred compensation plan 
                of the employer provides that assets will 
                become restricted to the provision of benefits 
                under the plan in connection with such at-risk 
                status (or other similar financial measure 
                determined by the Secretary) of the defined 
                benefit plan, or assets are so restricted,
        such assets shall for purposes of section 83 be treated 
        as property transferred in connection with the 
        performance of services whether or not such assets are 
        available to satisfy claims of general creditors. 
        Subparagraph (A) shall not apply with respect to any 
        assets which are so set aside before the defined 
        benefit plan is in at-risk status.
          [(3)] (4) Income inclusion for offshore trusts and 
        employer's financial health.--For each taxable year 
        that assets treated as transferred under this 
        subsection remain set aside in a trust or other 
        arrangement subject to [paragraph (1) or (2)] paragraph 
        (1), (2), or (3), any increase in value in, or earnings 
        with respect to, such assets shall be treated as an 
        additional transfer of property under this subsection 
        (to the extent not previously included in income).
          [(4)] (5) Interest on tax liability payable with 
        respect to transferred property.--
                  (A) In general.--If amounts are required to 
                be included in gross income by reason of 
                [paragraph (1) or (2)] paragraph (1), (2), or 
                (3) for a taxable year, the tax imposed by this 
                chapter for such taxable year shall be 
                increased by the sum of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B) Interest.--For purposes of subparagraph 
                (A), the interest determined under this 
                subparagraph for any taxable year is the amount 
                of interest at the underpayment rate plus 1 
                percentage point on the underpayments that 
                would have occurred had the amounts so required 
                to be included in gross income by [paragraph 
                (1) or (2)] paragraph (1), (2), or (3) been 
                includible in gross income for the taxable year 
                in which first deferred or, if later, the first 
                taxable year in which such amounts are not 
                subject to a substantial risk of forfeiture.

           *       *       *       *       *       *       *


                        SUBPART B--SPECIAL RULES

SEC. 411. MINIMUM VESTING STANDARDS.

  (a) General Rule.--A trust shall not constitute a qualified 
trust under section 401(a) unless the plan of which such trust 
is a part provides that an employee's right to his normal 
retirement benefit is nonforfeitable upon the attainment of 
normal retirement age (as defined in paragraph (8)) and in 
addition satisfies the requirements of paragraphs (1), (2), and 
(11) of this subsection and the requirements of subsection 
(b)(3), and also satisfies, in the case of a defined benefit 
plan, the requirements of subsection (b)(1) and, in the case of 
a defined contribution plan, the requirements of subsection 
(b)(2).
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Certain permitted forfeitures, suspensions, 
        etc.--For purposes of this subsection--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (C) Effect of retroactive plan amendments.--A 
                right to an accrued benefit derived from 
                employer contributions shall not be treated as 
                forfeitable solely because plan amendments may 
                be given retroactive application as provided in 
                [section 412(c)(8)] section 412(d)(2).

           *       *       *       *       *       *       *

                  (G) Treatment of matching contributions 
                forfeited by reason of excess deferral or 
                contribution or erroneous automatic 
                contribution.--A matching contribution (within 
                the meaning of section 401(m)) shall not be 
                treated as forfeitable merely because such 
                contribution is forfeitable if the contribution 
                to which the matching contribution relates is 
                treated as an excess contribution under section 
                401(k)(8)(B), an excess deferral under section 
                402(g)(2)(A), an erroneous automatic 
                contribution under section 414(w), or an excess 
                aggregate contribution under section 
                401(m)(6)(B).

           *       *       *       *       *       *       *

          (13) Determinations of accrued benefit as balance of 
        benefit account.--
                  (A) In general.--A defined benefit plan under 
                which the accrued benefit payable under the 
                plan upon distribution (or any portion thereof) 
                is expressed as the balance of a hypothetical 
                account maintained for the participant shall 
                not be treated as failing to meet the 
                requirements of subsection (a)(2) and section 
                417(e) solely because of the amount actually 
                made available for such distribution under the 
                terms of the plan, in any case in which the 
                applicable interest rate that would be used 
                under the terms of the plan to project the 
                amount of the participant's account balance to 
                normal retirement age is not greater than a 
                market rate of return.
                  (B) Regulations.--The Secretary may provide 
                by regulation for rules governing the 
                calculation of a market rate of return for 
                purposes of subparagraph (A) and for 
                permissible methods of crediting interest to 
                the account (including variable interest rates) 
                resulting in effective rates of return meeting 
                the requirements of subparagraph (A).
  (b) Accrued Benefit Requirements.--
          (1) Defined benefit plans.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (F) Certain insured defined benefit plans.--
                Notwithstanding subparagraphs (A), (B), and 
                (C), a defined benefit plan satisfies the 
                requirements of this paragraph if such plan--
                          (i)  * * *
                          (ii) satisfies the requirements of 
                        [paragraphs (2) and (3) of section 
                        412(i)] subparagraphs (B) and (C) of 
                        section 412(e)(3) (relating to certain 
                        insurance contract plans), but only if 
                        an employee's accrued benefit as of any 
                        applicable date is not less than the 
                        cash surrender value his insurance 
                        contracts would have on such applicable 
                        date if the requirements of [paragraphs 
                        (4), (5), and (6) of section 412(i)] 
                        subparagraphs (D), (E), and (F) of 
                        section 412(e)(3) were satisfied.

           *       *       *       *       *       *       *

                  (H) Continued accrual beyond normal 
                retirement age.--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (vi) Comparison to similarly situated 
                        younger individual.--
                                  (I) In general.--A plan shall 
                                not be treated as failing to 
                                meet the requirements of clause 
                                (i) if a participant's entire 
                                accrued benefit, as determined 
                                as of any date under the 
                                formula for determining 
                                benefits as set forth in the 
                                text of the plan documents, 
                                would be equal to or greater 
                                than that of any similarly 
                                situated, younger individual.
                                  (II) Similarly situated.--For 
                                purposes of this clause, an 
                                individual is similarly 
                                situated to a participant if 
                                such individual is identical to 
                                such participant in every 
                                respect (including period of 
                                service, compensation, 
                                position, date of hire, work 
                                history, and any other respect) 
                                except for age.
                                  (III) Disregard of subsidized 
                                early retirement benefits.--In 
                                determining the entire accrued 
                                benefit for purposes of this 
                                clause, the subsidized portion 
                                of any early retirement benefit 
                                (including any early retirement 
                                subsidy that is fully or 
                                partially included or reflected 
                                in an employee's opening 
                                balance or other transition 
                                benefits) shall be disregarded.
                          (vii) Interest on hypothetical 
                        accounts.--A plan under which the 
                        accrued benefit payable under the plan 
                        upon distribution (or any portion 
                        thereof) is expressed as the balance of 
                        a hypothetical account maintained for 
                        the participant shall not be treated as 
                        failing to meet the requirements of 
                        clause (i) solely because interest 
                        accruing on such balance is taken into 
                        account.
                          (viii) Certain offsets permitted.--A 
                        plan shall not be treated as failing to 
                        meet the requirements of this 
                        subparagraph solely because the plan 
                        provides allowable offsets against 
                        those benefits under the plan which are 
                        attributable to employer contributions, 
                        based on benefits which are provided 
                        under title II of the Social Security 
                        Act, the Railroad Retirement Act of 
                        1974, another plan described in section 
                        401(a)maintained by the same employer, 
                        or under any retirement program for 
                        officers or employees of the Federal 
                        Government or of the government of any 
                        State or political subdivision thereof. 
                        For purposes of this clause, allowable 
                        offsets based on such benefits consist 
                        of offsets equal to all or part of the 
                        actual benefit payment amounts, 
                        reasonable projections or estimations 
                        of such benefit payment amounts, or 
                        actuarial equivalents of such actual 
                        benefit payment amounts, projections, 
                        or estimations (determined on the basis 
                        of reasonable actuarial assumptions).
                          (ix) Permitted disparities in plan 
                        contributions or benefits.--A plan 
                        shall not be treated as failing to meet 
                        the requirements of this subparagraph 
                        solely because the plan provides a 
                        disparity in contributions or benefits 
                        with respect to which the requirements 
                        of section 401(l) are met.
                          (x) Pre-retirement indexing 
                        permitted.--
                                  (I) In general.--A plan shall 
                                not be treated as failing to 
                                meet the requirements of this 
                                subparagraph solely because the 
                                plan provides for pre-
                                retirement indexing of accrued 
                                benefits under the plan.
                                  (II) Pre-retirement 
                                indexing.--For purposes of this 
                                clause, the term ``pre-
                                retirement indexing'' means, in 
                                connection with an accrued 
                                benefit, the periodic 
                                adjustment of the accrued 
                                benefit by means of the 
                                application of a recognized 
                                index or methodology so as to 
                                protect the economic value of 
                                the benefit against inflation 
                                prior to distribution.

           *       *       *       *       *       *       *

  (d) Special Rules.--
          (1)  * * *

           *       *       *       *       *       *       *

          (6) Accrued benefit not to be decreased by 
        amendment.--
                  (A) In general.--A plan shall be treated as 
                not satisfying the requirements of this section 
                if the accrued benefit of a participant is 
                decreased by an amendment of the plan, other 
                than an amendment described in [section 
                412(c)(8)] section 412(d)(2), or section 4281 
                of the Employee Retirement Income Security Act 
                of 1974.

           *       *       *       *       *       *       *


SEC. 412. MINIMUM FUNDING STANDARDS.

  (a)  * * *
  (b) Funding Standard Account.--
          (1)  * * *

           *       *       *       *       *       *       *

          (5) Interest.--
                  (A)  * * *
                  (B) Required change of interest rate.--For 
                purposes of determining a plan's current 
                liability and for purposes of determining a 
                plan's required contribution under section 
                412(l) for any plan year--
                          (i)  * * *
                          (ii) Permissible range.--For purposes 
                        of this subparagraph--
                                  (I)  * * *
                                  (II) Special rule for years 
                                2004 [and 2005], 2005, and 
                                2006.--In the case of plan 
                                years beginning after December 
                                31, 2003, and before [January 
                                1, 2006] January 1, 2007, the 
                                term ``permissible range'' 
                                means a rate of interest which 
                                is not above, and not more than 
                                10 percent below, the weighted 
                                average of the rates of 
                                interest on amounts invested 
                                conservatively in long-term 
                                investment grade corporate 
                                bonds during the 4-year period 
                                ending on the last day before 
                                the beginning of the plan year. 
                                Such rates shall be determined 
                                by the Secretary on the basis 
                                of 2 or more indices that are 
                                selected periodically by the 
                                Secretary and that are in the 
                                top 3 quality levels available. 
                                The Secretary shall make the 
                                permissible range, and the 
                                indices and methodology used to 
                                determine the average rate, 
                                publicly available.

           *       *       *       *       *       *       *

  (l) Additional Funding Requirements for Plans Which Are Not 
Multiemployer Plans.--
          (1)  * * *

           *       *       *       *       *       *       *

          (7) Current liability.--For purposes of this 
        subsection--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (C) Interest rate and mortality assumptions 
                used.--Effective for plan years beginning after 
                December 31, 1994--
                          (i) Interest rate.--
                                  (I)  * * *

           *       *       *       *       *       *       *

                                  (IV) Special rule for 2004 
                                [and 2005], 2005, and 2006.--
                                For plan years beginning in 
                                2004 [or 2005], 2005, or 2006, 
                                notwithstanding subclause (I), 
                                the rate of interest used to 
                                determine current liability 
                                under this subsection shall be 
                                the rate of interest under 
                                subsection (b)(5).

           *       *       *       *       *       *       *


  [Section 111(a) of H.R. 2830 amends section 412 to read as follows. 
 Subsection (b) provides that the amendment shall apply to plan years 
                  beginning after December 31, 2006.]

[SEC. 412. MINIMUM FUNDING STANDARDS.

  [(a) General Rule.--Except as provided in subsection (h), 
this section applies to a plan if, for any plan year beginning 
on or after the effective date of this section for such plan--
          [(1) such plan included a trust which qualified (or 
        was determined by the Secretary to have qualified) 
        under section 401(a), or
          [(2) such plan satisfied (or was determined by the 
        Secretary to have satisfied) the requirements of 
        section 403(a).
  A plan to which this section applies shall have satisfied the 
minimum funding standard for such plan for a plan year if as of 
the end of such plan year, the plan does not have an 
accumulated funding deficiency. For purposes of this section 
and section 4971, the term ``accumulated funding deficiency'' 
means for any plan the excess of the total charges to the 
funding standard account for all plan years (beginning with the 
first plan year to which this section applies) over the total 
credits to such account for such years or, if less, the excess 
of the total charges to the alternative minimum funding 
standard account for such plan years over the total credits to 
such account for such years. In any plan year in which a 
multiemployer plan is in reorganization, the accumulated 
funding deficiency of the plan shall be determined under 
section 418B.
  [(b) Funding Standard Account.--
          [(1) Account required.--Each plan to which this 
        section applies shall establish and maintain a funding 
        standard account. Such account shall be credited and 
        charged solely as provided in this section.
          [(2) Charges to account.--For a plan year, the 
        funding standard account shall be charged with the sum 
        of--
                  [(A) the normal cost of the plan for the plan 
                year,
                  [(B) the amounts necessary to amortize in 
                equal annual installments (until fully 
                amortized)--
                          [(i) in the case of a plan in 
                        existence on January 1, 1974, the 
                        unfunded past service liability under 
                        the plan on thefirst day of the first 
                        plan year to which this section 
                        applies, over a period of 40 plan 
                        years,
                          [(ii) in the case of a plan which 
                        comes into existence after January 1, 
                        1974, the unfunded past service 
                        liabilityunder the plan on the first 
                        day of the first plan year to which 
                        this section applies, over a period of 
                        30 plan years,
                          [(iii) separately, with respect to 
                        each plan year, the net increase (if 
                        any) in unfunded past service liability 
                        under theplan arising from plan 
                        amendments adopted in such year, over a 
                        period of 30 plan years,
                          [(iv) separately, with respect to 
                        each plan year, the net experience loss 
                        (if any) under the plan, over a period 
                        of 5 plan years (15 plan years in the 
                        case of a multiemployer plan), and
                          [(v) separately, with respect to each 
                        plan year, the net loss (if any) 
                        resulting from changes in actuarial 
                        assumptions used under the plan, over a 
                        period of 10 plan years (30 plan years 
                        in the case of a multiemployer plan),
                  [(C) the amount necessary to amortize each 
                waived funding deficiency (within the meaning 
                of subsection (d)(3)) for each prior plan year 
                in equal annual installments (until fully 
                amortized) over a period of 5 plan years (15 
                plan years in the case of a multiemployer 
                plan),
                  [(D) the amount necessary to amortize in 
                equal annual installments (until fully 
                amortized) over a period of 5 plan years any 
                amount credited to the funding standard account 
                under paragraph (3)(D), and
                  [(E) the amount necessary to amortize in 
                equal annual installments (until fully 
                amortized) over a period of 20 years the 
                contributions which would be required to be 
                made under the plan but for the provisions of 
                subsection (c)(7)(A)(i)(I).
For additional requirements in the case of plans other than 
multiemployer plans, see subsection (l).
          [(3) Credits to account.--For a plan year, the 
        funding standard account shall be credited with the sum 
        of--
                  [(A) the amount considered contributed by the 
                employer to or under the plan for the plan 
                year,
                  [(B) the amount necessary to amortize in 
                equal annual installments (until fully 
                amortized)--
                          [(i) separately, with respect to each 
                        plan year, the net decrease (if any) in 
                        unfunded past service liability under 
                        the plan arising from plan amendments 
                        adopted in such year, over a period of 
                        30 plan years,
                          [(ii) separately, with respect to 
                        each plan year, the net experience gain 
                        (if any) under the plan, over a period 
                        of 5 plan years (15 plan years in the 
                        case of a multiemployer plan), and
                          [(iii) separately, with respect to 
                        each plan year, the net gain (if any) 
                        resulting from changes in actuarial 
                        assumptions used under the plan, over a 
                        period of 10 plan years (30 plan years 
                        in the case of a multiemployer plan),
                  [(C) the amount of the waived funding 
                deficiency (within the meaning of subsection 
                (d)(3)) for the plan year, and
                  [(D) in the case of a plan year for which the 
                accumulated funding deficiency is determined 
                under the funding standard account if such plan 
                year follows a plan year for which such 
                deficiency was determined under the alternative 
                minimum funding standard, the excess (if any) 
                of any debit balance in the funding standard 
                account (determined without regard to this 
                subparagraph) over any debit balance in the 
                alternative minimum funding standard account.
          [(4) Combining and offsetting amounts to be 
        amortized.--Under regulations prescribed by the 
        Secretary, amounts required to be amortized under 
        paragraph (2) or paragraph (3), as the case may be--
                  [(A) may be combined into one amount under 
                such paragraph to be amortized over a period 
                determined on the basis of the remaining 
                amortization period for all items entering into 
                such combined amount, and
                  [(B) may be offset against amounts required 
                to be amortized under the other such paragraph, 
                with the resulting amount to be amortized over 
                a period determined on the basis of the 
                remaining amortization periods for all items 
                entering into whichever of the two amounts 
                being offset is the greater.
          [(5) Interest.--
                  [(A) In general.--The funding standard 
                account (and items therein) shall be charged or 
                credited (as determined under regulations 
                prescribed by the Secretary) with interest at 
                the appropriate rate consistent with the rate 
                or rates of interest used under the plan to 
                determine costs.
                  [(B) Required change of interest rate.--For 
                purposes of determining a plan's current 
                liability and for purposes of determining a 
                plan's required contribution under section 
                412(l) for any plan year--
                          [(i) In general.--If any rate of 
                        interest used under the plan to 
                        determine cost is not within the 
                        permissible range, the plan shall 
                        establish a new rate of interest within 
                        the permissible range.
                          [(ii) Permissible range.--For 
                        purposes of this subparagraph--
                                  [(I) In general.--Except as 
                                provided in subclause (II) or 
                                (III), the term ``permissible 
                                range'' means a rate of 
                                interest which is not more than 
                                10 percent above, and not more 
                                than 10 percent below, the 
                                weighted average of the rates 
                                of interest on 30-year Treasury 
                                securities during the 4-year 
                                period ending on the last day 
                                before the beginning of the 
                                plan year.
                                  [(II) Special rule for years 
                                2004 and 2005.--In the case of 
                                plan years beginning after 
                                December 31, 2003, and before 
                                January 1, 2006, the term 
                                ``permissible range'' means a 
                                rate of interest which is not 
                                above, and not more than 10 
                                percent below, the weighted 
                                average of the rates of 
                                interest on amounts invested 
                                conservatively in long-term 
                                investment grade corporate 
                                bonds during the 4-year period 
                                ending on the last day before 
                                the beginning of the plan year. 
                                Such rates shall be determined 
                                by the Secretary on the basis 
                                of 2 or more indices that are 
                                selected periodically by the 
                                Secretary and that are in the 
                                top 3 quality levels available. 
                                The Secretary shall make the 
                                permissible range, and the 
                                indices and methodology used to 
                                determine the average rate, 
                                publicly available.
                                  [(III) Secretarial 
                                authority.--If the Secretary 
                                finds that the lowest rate of 
                                interest permissible under 
                                subclause (I) or (II) is 
                                unreasonably high, the 
                                Secretary may prescribe a lower 
                                rate of interest, except that 
                                such rate may not be less than 
                                80 percent of the average rate 
                                determined under such 
                                subclause.
                          [(iii) Assumptions.--Notwithstanding 
                        subsection (c)(3)(A)(i), the interest 
                        rate used under the plan shall be--
                                  [(I) determined without 
                                taking into account the 
                                experience of the plan and 
                                reasonable expectations, but
                                  [(II) consistent with the 
                                assumptions which reflect the 
                                purchase rates which would be 
                                used by insurance companies to 
                                satisfy the liabilities under 
                                the plan.
          [(6) Certain amortization charges and credits.--In 
        the case of a plan which, immediately before the date 
        of the enactment of the Multiemployer Pension Plan 
        Amendments Act of 1980, was a multiemployer plan 
        (within the meaning of section 414(f) as in effect 
        immediately before such date)--
                  [(A) any amount described in paragraph 
                (2)(B)(ii), (2)(B)(iii), or (3)(B)(i) of this 
                subsection which arose in a plan year beginning 
                before such date shall be amortized in equal 
                annual installments (until fully amortized) 
                over 40 plan years, beginning with the plan 
                year in which the amount arose;
                  [(B) any amount described in paragraph 
                (2)(B)(iv) or (3)(B)(ii) of this subsection 
                which arose in a plan year beginning before 
                such date shall be amortized in equal annual 
                installments (until fully amortized) over 20 
                plan years, beginning with the plan year in 
                which the amount arose;
                  [(C) any change in past service liability 
                which arises during the period of 3 plan years 
                beginning on or after such date, and results 
                from a plan amendment adopted before such date, 
                shall be amortized in equal annual installments 
                (until fully amortized) over 40 plan years, 
                beginning with the plan year in which the 
                change arises; and
                  [(D) any change in past service liability 
                which arises during the period of 2 plan years 
                beginning on or after such date, and results 
                from the changing of a group of participants 
                from one benefit level to another benefit level 
                under a schedule of plan benefits which--
                          [(i) was adopted before such date, 
                        and
                          [(ii) was effective for any plan 
                        participant before the beginning of the 
                        first plan year beginning on or after 
                        such date, shall be amortized in equal 
                        annual installments (until fully 
                        amortized) over 40 plan years, 
                        beginning with the plan year in which 
                        the change arises.
          [(7) Special rules for multiemployer plans.--For 
        purposes of this section--
                  [(A) Withdrawal liability.--Any amount 
                received by a multiemployer plan in payment of 
                all or part of an employer's withdrawal 
                liability under part 1 of subtitle E of title 
                IV of the Employee Retirement Income Security 
                Act of 1974 shall be considered an amount 
                contributed by the employer to or under the 
                plan. The Secretary may prescribe by regulation 
                additional charges and credits to a 
                multiemployer plan's funding standard account 
                to the extent necessary to prevent withdrawal 
                liability payments from being unduly reflected 
                as advance funding for plan liabilities.
                  [(B) Adjustments when a multiemployer plan 
                leaves reorganization.--If a multiemployer plan 
                is not in reorganization in the plan year but 
                was in reorganization in the immediately 
                preceding plan year, any balance in the funding 
                standard account at the close of such 
                immediately preceding plan year--
                          [(i) shall be eliminated by an 
                        offsetting credit or charge (as the 
                        case may be), but
                          [(ii) shall be taken into account in 
                        subsequent plan years by being 
                        amortized in equal annual installments 
                        (until fully amortized) over 30 plan 
                        years.
                The preceding sentence shall not apply to the 
                extent of any accumulated funding deficiency 
                under section 418B(a) as of the end of the last 
                plan year that the plan was in reorganization.
                  [(C) Plan payments to supplemental program or 
                withdrawal liability payment fund.--Any amount 
                paid by a plan during a plan year to the 
                Pension Benefit Guaranty Corporation pursuant 
                to section 4222 of such Act or to a fund exempt 
                under section 501(c)(22) pursuant to section 
                4223 of such Act shall reduce the amount of 
                contributions considered received by the plan 
                for the plan year.
                  [(D) Interim withdrawal liability payments.--
                Any amount paid by an employer pending a final 
                determination of the employer's withdrawal 
                liability under part 1 of subtitle E of title 
                IV of such Act and subsequently refunded to the 
                employer by the plan shall be charged to the 
                funding standard account in accordance with 
                regulations prescribed by the Secretary.
                  [(E) For purposes of the full funding 
                limitation under subsection (c)(7), unless 
                otherwise provided by the plan, the accrued 
                liability under a multiemployer plan shall not 
                include benefits which are not nonforfeitable 
                under the plan after the termination of the 
                plan (taking into consideration section 
                411(d)(3)).
                  [(F) Election for deferral of charge for 
                portion of net experience loss.--
                          [(i) In general.--With respect to the 
                        net experience loss of an eligible 
                        multiemployer plan for the first plan 
                        year beginning after December 31, 2001, 
                        the plan sponsor may elect to defer up 
                        to 80 percent of the amount otherwise 
                        required to be charged under paragraph 
                        (2)(B)(iv) for any plan year beginning 
                        after June 30, 2003, and before July 1, 
                        2005, to any plan year selected by the 
                        plan from either of the 2 immediately 
                        succeeding plan years.
                          [(ii) Interest.--For the plan year to 
                        which a charge is deferred pursuant to 
                        an election under clause (i), the 
                        funding standard account shall be 
                        charged with interest on the deferred 
                        charge for the period of deferral at 
                        the rate determined under subsection 
                        (d) for multiemployer plans.
                          [(iii) Restrictions on benefit 
                        increase.--No amendment which increases 
                        the liabilities of the plan by reason 
                        of any increase in benefits, any change 
                        in the accrual of benefits, or any 
                        change in the rate at which benefits 
                        become nonforfeitable under the plan 
                        shall beadopted during any period for 
                        which a charge is deferred pursuant to 
                        an election under clause (i), unless--
                                  [(I) the plan's enrolled 
                                actuary certifies (in such form 
                                and manner prescribed by the 
                                Secretary) that the amendment 
                                provides for an increase in 
                                annual contributions which will 
                                exceed the increase in annual 
                                charges to the funding standard 
                                account attributable to such 
                                amendment, or
                                  [(II) the amendment is 
                                required by a collective 
                                bargaining agreement which is 
                                in effect on the date of 
                                enactment of this subparagraph.
                        If a plan is amended during any such 
                        plan year in violation of the preceding 
                        sentence, any election under this 
                        paragraph shall not apply to any such 
                        plan year ending on or after the date 
                        on which such amendment is adopted.
                          [(iv) Eligible multiemployer plan.--
                        For purposes of this subparagraph, the 
                        term ``eligible multiemployer plan'' 
                        means a multiemployer plan--
                                  [(I) which had a net 
                                investment loss for the first 
                                plan year beginning after 
                                December 31, 2001, of at least 
                                10 percent of the average fair 
                                market value of the plan assets 
                                during the plan year, and
                                  [(II) with respect to which 
                                the plan's enrolled actuary 
                                certifies (not taking into 
                                account the application of this 
                                subparagraph), on the basis of 
                                the actuarial assumptions used 
                                for the last plan year ending 
                                before the date of the 
                                enactment of this subparagraph, 
                                that the plan is projected to 
                                have an accumulated funding 
                                deficiency (within the meaning 
                                of subsection (a)) for any plan 
                                year beginning after June 30, 
                                2003, and before July 1, 2006.
                        For purposes of subclause (I), a plan's 
                        net investment loss shall be determined 
                        on the basis of the actual loss and not 
                        under any actuarial method used under 
                        subsection (c)(2).
                          [(v) Exception to treatment of 
                        eligible multiemployer plan.--In no 
                        event shall a plan be treated as an 
                        eligible multiemployer plan under 
                        clause (iv) if--
                                  [(I) for any taxable year 
                                beginning during the 10-year 
                                period preceding the first plan 
                                year for which an election is 
                                made under clause (i), any 
                                employer required to contribute 
                                to the plan failed to timely 
                                pay any excise tax imposed 
                                under section 4971 with respect 
                                to the plan,
                                  [(II) for any plan year 
                                beginning after June 30, 1993, 
                                and before the first plan year 
                                for which an election is made 
                                under clause (i), the average 
                                contribution required to be 
                                made by all employers to the 
                                plan does not exceed 10 cents 
                                per hour or no employer is 
                                required to make contributions 
                                to the plan, or
                                  [(III) with respect to any of 
                                the plan years beginning after 
                                June 30, 1993, and before the 
                                first plan year for which an 
                                election is made under clause 
                                (i), a waiver was granted under 
                                section 412(d) or section 303 
                                of the Employee Retirement 
                                Income Security Act of 1974 
                                with respect to the plan or an 
                                extension of an amortization 
                                period was granted under 
                                subsection (e) or section 304 
                                of such Act with respect to the 
                                plan.
                          [(vi) Election.--An election under 
                        this subparagraph shall be made at such 
                        time and in such manner as the 
                        Secretary may prescribe.
  [(c) Special Rules.--
          [(1) Determinations to be made under funding 
        method.--For purposes of this section, normal costs, 
        accrued liability, past service liabilities, and 
        experience gains and losses shall be determined under 
        the funding method used to determine costs under the 
        plan.
          [(2) Valuation of assets.--
                  [(A) In general.--For purposes of this 
                section, the value of the plan's assets shall 
                be determined on the basis of any reasonable 
                actuarial method of valuation which takes into 
                account fair market value and which is 
                permitted under regulations prescribed by the 
                Secretary.
                  [(B) Election with respect to bonds.--The 
                value of a bond or other evidence of 
                indebtedness which is not in default as to 
                principal or interest may, at the election of 
                the plan administrator, be determined on an 
                amortized basis running from initial cost at 
                purchase to par value at maturity or earliest 
                call date. Any election under this subparagraph 
                shall be made at such time and in such manner 
                as the Secretary shall by regulations provide, 
                shall apply to all such evidences of 
                indebtedness, and may be revoked only with the 
                consent of the Secretary. In the case of a plan 
                other than a multiemployer plan, this 
                subparagraph shall not apply, but the Secretary 
                may by regulations provide that the value of 
                any dedicated bond portfolio of such plan shall 
                be determined by using the interest rate under 
                subsection (b)(5).
          [(3) Actuarial assumptions must be reasonable.--For 
        purposes of this section, all costs, liabilities, rates 
        of interest, and other factors under the plan shall be 
        determined on the basis of actuarial assumptions and 
        methods--
                  [(A) in the case of--
                          [(i) a plan other than a 
                        multiemployer plan, each of which is 
                        reasonable (taking into account the 
                        experience of the plan and reasonable 
                        expectations) or which, in the 
                        aggregate, result in a total 
                        contribution equivalent to that which 
                        would be determined if each such 
                        assumption and method were reasonable, 
                        or
                          [(ii) a multiemployer plan, which, in 
                        the aggregate, are reasonable (taking 
                        into account the experiences of the 
                        plan and reasonable expectations), and
                  [(B) which, in combination, offer the 
                actuary's best estimate of anticipated 
                experience under the plan.
          [(4) Treatment of certain changes as experience gain 
        or loss.--For purposes of this section, if--
                  [(A) a change in benefits under the Social 
                Security Act or in other retirement benefits 
                created under Federal or State law, or
                  [(B) a change in the definition of the term 
                ``wages'' under section 3121, or a change in 
                the amount of such wages taken into account 
                under regulations prescribed for purposes of 
                section 401(a)(5), results in an increase or 
                decrease in accrued liability under a plan, 
                such increase or decrease shall be treated as 
                an experience loss or gain.
          [(5) Change in funding method or in plan year 
        requires approval.--
                  [(A) In general.--If the funding method for a 
                plan is changed, the new funding method shall 
                become the funding method used to determine 
                costs and liabilities under the plan only if 
                the change is approved by the Secretary. If the 
                plan year for a plan is changed, the new plan 
                year shall become the plan year for the plan 
                only if the change is approved by the 
                Secretary.
                  [(B) Approval required for certain changes in 
                assumptions by certain single-employer plans 
                subject to additional funding requirement.--
                          [(i) In general.--No actuarial 
                        assumption (other than the assumptions 
                        described in subsection (l)(7)(C)) used 
                        to determine thecurrent liability for a 
                        plan to which this subparagraph applies 
                        may be changed without the approval of 
                        the Secretary.
                          [(ii) Plans to which subparagraph 
                        applies.--This subparagraph shall apply 
                        to a plan only if--
                                  [(I) the plan is a defined 
                                benefit plan (other than a 
                                multiemployer plan) to which 
                                title IV of the Employee 
                                Retirement Income Security Act 
                                of 1974 applies;
                                  [(II) the aggregate unfunded 
                                vested benefits as of the close 
                                of the preceding plan year (as 
                                determined under section 
                                4006(a)(3)(E)(iii) of the 
                                Employee Retirement Income 
                                Security Act of 1974) of such 
                                plan and all other plans 
                                maintained by the contributing 
                                sponsors (as defined in section 
                                4001(a)(13) of such Act) and 
                                members of such sponsors' 
                                controlled groups (as defined 
                                in section 4001(a)(14) of such 
                                Act) which are covered by title 
                                IV of such Act (disregarding 
                                plans with no unfunded vested 
                                benefits) exceed $50,000,000; 
                                and
                                  [(III) the change in 
                                assumptions (determined after 
                                taking into account any changes 
                                in interest rate and mortality 
                                table) results in a decrease in 
                                the unfunded current liability 
                                of the plan for the current 
                                plan year that exceeds 
                                $50,000,000, or that exceeds 
                                $5,000,000 and that is 5 
                                percent or more of the current 
                                liability of the plan before 
                                such change.
          [(6) Full funding.--If, as of the close of a plan 
        year, a plan would (without regard to this paragraph) 
        have an accumulated funding deficiency (determined 
        without regard to the alternative minimum funding 
        standard account permitted under subsection (g)) in 
        excess of the full funding limitation--
                  [(A) the funding standard account shall be 
                credited with the amount of such excess, and
                  [(B) all amounts described in paragraphs 
                (2)(B), (C), and (D) and (3)(B) of subsection 
                (b) which are required to be amortized shall be 
                considered fully amortized for purposes of such 
                paragraphs.
          [(7) Full-funding limitation.--
                  [(A) In general.--For purposes of paragraph 
                (6), the term ``full-funding limitation'' means 
                the excess (if any) of--
                          [(i) the lesser of--
                                  [(I) in the case of plan 
                                years beginning before January 
                                1, 2004, the applicable 
                                percentage of current liability 
                                (including the expected 
                                increase in current liability 
                                due to benefits accruing during 
                                the plan year), or
                                  [(II) the accrued liability 
                                (including normal cost) under 
                                the plan (determined under the 
                                entry age normal funding method 
                                if such accrued liability 
                                cannot be directly calculated 
                                under the funding method used 
                                for the plan), over
                          [(ii) the lesser of--
                                  [(I) the fair market value of 
                                the plan's assets, or
                                  [(II) the value of such 
                                assets determined under 
                                paragraph (2).
                  [(B) Current liability.--For purposes of 
                subparagraph (D) and subclause (I) of 
                subparagraph (A)(i), the term ``current 
                liability'' has the meaning given such term by 
                subsection (l)(7) (without regard to 
                subparagraphs (C) and (D) thereof) and using 
                the rate of interest used under subsection 
                (b)(5)(B).
                  [(C) Special rule for paragraph (6)(B).--For 
                purposes of paragraph (6)(B), subparagraph 
                (A)(i) shall be applied without regard to 
                subclause (I) thereof.
                  [(D) Regulatory authority.--The Secretary may 
                by regulations provide--
                          [(i) for adjustments to the 
                        percentage contained in subparagraph 
                        (A)(i) to take into account the 
                        respective ages or lengths of service 
                        of the participants, and
                          [(ii) alternative methods based on 
                        factors other than current liability 
                        for the determination of the amount 
                        taken into account under subparagraph 
                        (A)(i).
                          [(iii) [Stricken]
                  [(E) Minimum amount.--
                          [(i) In general.--In no event shall 
                        the full-funding limitation determined 
                        under subparagraph (A) be less than the 
                        excess (if any) of--
                                  [(I) 90 percent of the 
                                current liability of the plan 
                                (including the expected 
                                increase in current liability 
                                due to benefits accruing during 
                                the plan year), over
                                  [(II) the value of the plan's 
                                assets determined under 
                                paragraph (2).
                          [(ii) Current liability: assets.--For 
                        purposes of clause (i)--
                                  [(I) the term ``current 
                                liability'' has the meaning 
                                given such term by subsection 
                                (l)(7) (without regard to 
                                subparagraph (D) thereof), and
                                  [(II) assets shall not be 
                                reduced by any credit balance 
                                in the funding standard 
                                account.
                  [(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                        The applicable  
          year beginning in:                              percentage is:

          2002.................................................... 165  
          2003....................................................170.  
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          [(8) Certain retroactive plan amendments.--For 
        purposes of this section, any amendment applying to a 
        plan year which--
                  [(A) is adopted after the close of such plan 
                year but no later than 2 and one-half months 
                after the close of the plan year (or, in the 
                case of a multiemployer plan, no later than 2 
                years after the close of such plan year),
                  [(B) does not reduce the accrued benefit of 
                any participant determined as of the beginning 
                of the first plan year to which the amendment 
                applies, and
                  [(C) does not reduce the accrued benefit of 
                any participant determined as of the time of 
                adoption except to the extent required by the 
                circumstances, shall, at the election of the 
                plan administrator, be deemed to have been made 
                on the first day of such plan year.
        No amendment described in this paragraph which reduces 
        the accrued benefits of any participant shall take 
        effect unless the plan administrator files a notice 
        with the Secretary of Labor notifying him of such 
        amendment and the Secretary of Labor has approved such 
        amendment, or within 90 days after the date on which 
        such notice was filed, failed to disapprove such 
        amendment. No amendment described in this subsection 
        shall be approved by the Secretary of Labor unless he 
        determines that such amendment is necessary because of 
        a substantial business hardship (as determined under 
        subsection (d)(2)) and that a waiver under subsection 
        (d)(1) is unavailable or inadequate.
          [(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 
                        100 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.
                          [(iv) Limitation.--A change in 
                        funding method to use a prior year 
                        valuation, as provided in clause (ii), 
                        may not be made unless as of the 
                        valuation date within the prior plan 
                        year, 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)).
          [(10) Time when certain contributions deemed made.--
        For purposes of this section--
                  [(A) Defined benefit plans other than 
                multiemployer plans.--In the case of a defined 
                benefit plan other than a multiemployer plan, 
                any contributions for a plan year made by an 
                employer during the period--
                          [(i) beginning on the day after the 
                        last day of such plan year, and
                          [(ii) ending on the day which is 8-1/
                        2 months after the close of the plan 
                        year, shall be deemed to have been made 
                        on such last day.
                  [(B) Other plans.--In the case of a plan not 
                described in subparagraph (A), any 
                contributions for a plan year made by an 
                employer after the last day of such plan year, 
                but not later than two and one-half months 
                after such day, shall be deemed to have been 
                made on such last day. For purposes of this 
                subparagraph, such two and one-half month 
                period may be extended for not more than six 
                months under regulations prescribed by the 
                Secretary.
          [(11) Liability for contributions.--
                  [(A) In general.--Except as provided in 
                subparagraph (B), the amount of any 
                contribution required by this section and any 
                required installments under subsection (m) 
                shall be paid by the employer responsible for 
                contributing to or under the plan the amount 
                described in subsection (b)(3)(A).
                  [(B) Joint and several liability where 
                employer member of controlled group.--
                          [(i) In general.--In the case of a 
                        plan other than a multiemployer plan, 
                        if the employer referred to in 
                        subparagraph (A) is a member of a 
                        controlled group, each member of such 
                        group shall be jointly and severally 
                        liable for payment of such contribution 
                        or required installment.
                          [(ii) Controlled group.--For purposes 
                        of clause (i), the term ``controlled 
                        group'' means any group treated as a 
                        single employer under subsection (b), 
                        (c), (m), or (o) of section 414.
          [(12) Anticipation of benefit increases effective in 
        the future.--In determining projected benefits, the 
        funding method of a collectively bargained plan 
        described in section 413(a) (other than a multiemployer 
        plan) shall anticipate benefit increases scheduled to 
        take effect during the term of the collective 
        bargaining agreement applicable to the plan.
  [(d) Variance From Minimum Funding Standard.--
          [(1) Waiver in case of business hardship.--If an 
        employer or in the case of a multiemployer plan, 10 
        percent or more of the number of employers contributing 
        to or under the plan, are unable to satisfy the minimum 
        funding standard for a plan year without temporary 
        substantial business hardship (substantial business 
        hardship in the case of a multiemployer plan) and if 
        application of the standard would be adverse to the 
        interests of plan participants in the aggregate, the 
        Secretary may waive the requirements of subsection (a) 
        for such year with respect to all or any portion of the 
        minimum funding standard other than the portion thereof 
        determined under subsection (b)(2)(C). The Secretary 
        shall not waive the minimum funding standard with 
        respect to a plan for more than 3 of any 15 (5 of any 
        15 in the case of a multiemployer plan) consecutive 
        plan years. The interest rate used for purposes of 
        computing the amortization charge described in 
        subsection (b)(2)(C) for any plan year shall be--
                  [(A) in the case of a plan other than a 
                multiemployer plan, the greater of (i) 150 
                percent of the Federal mid-term rate (as in 
                effect under section 1274 for the 1st month of 
                such plan year), or (ii) the rate of interest 
                used under the plan in determining costs, 
                (including adjustments under subsection 
                (b)(5)(B)), and
                  [(B) in the case of a multiemployer plan, the 
                rate determined under section 6621(b).
          [(2) Determination of business hardship.--For 
        purposes of this section, the factors taken into 
        account in determining temporary substantial business 
        hardship (substantial business hardship in the case of 
        a multiemployer plan) shall include (but shall not be 
        limited to) whether or not--
                  [(A) the employer is operating at an economic 
                loss,
                  [(B) there is substantial unemployment or 
                underemployment in the trade or business and in 
                the industry concerned,
                  [(C) the sales and profits of the industry 
                concerned are depressed or declining, and
                  [(D) it is reasonable to expect that the plan 
                will be continued only if the waiver is 
                granted.
          [(3) Waived funding deficiency.--For purposes of this 
        section, the term ``waived funding deficiency'' means 
        the portion of the minimum funding standard (determined 
        without regard to subsection (b)(3)(C)) for a plan year 
        waived by the Secretary and not satisfied by employer 
        contributions.
          [(4) Application must be submitted before date 2-1/2 
        months after close of year.--In the case of a plan 
        other than a multiemployer plan, no waiver may be 
        granted under this subsection with respect to any plan 
        for any plan year unless an application therefor is 
        submitted to the Secretary not later than the 15th day 
        of the 3rd month beginning after the close of such plan 
        year.
          [(5) Special rule if employer is member of controlled 
        group.--
                  [(A) In general.--In the case of a plan other 
                than a multiemployer plan, if an employer is a 
                member of a controlled group, the temporary 
                substantial business hardship requirements of 
                paragraph (1) shall be treated as met only if 
                such requirements are met--
                          [(i) with respect to such employer, 
                        and
                          [(ii) with respect to the controlled 
                        group of which such employer is a 
                        member (determined by treating all 
                        members of such group as a single 
                        employer).
                The Secretary may provide that an analysis of a 
                trade or business or industry of a member need 
                not be conducted if the Secretary determines 
                such analysis is not necessary because the 
                taking into account of such member would not 
                significantly affect the determination under 
                this subsection.
                  [(B) Controlled group.--For purposes of 
                subparagraph (A), the term ``controlled group'' 
                means any group treated as a single employer 
                under subsection (b), (c), (m), or (o) of 
                section 414.
  [(e) Extension of Amortization Periods.--The period of years 
required to amortize any unfunded liability (described in any 
clause of subsection (b)(2)(B)) of any plan may be extended by 
the Secretary of Labor for a period of time (not in excess of 
10 years) if he determines that such extension would carry out 
the purposes of the Employee Retirement Income Security Act of 
1974 and would provide adequate protection for participants 
under the plan and their beneficiaries and if he determines 
that the failure to permit such extension would--
          [(1) result in--
                  [(A) a substantial risk to the voluntary 
                continuation of the plan, or
                  [(B) a substantial curtailment of pension 
                benefit levels or employee compensation, and
          [(2) be adverse to the interests of plan participants 
        in the aggregate.
In the case of a plan other than a multiemployer plan, the 
interest rate applicable for any plan year under any 
arrangement entered into by the Secretary in connection with an 
extension granted under this subsection shall be the greater of 
(A) 150 percent of the Federal mid-term rate (as in effect 
under section 1274 for the 1st month of such plan year), or
                  [(B) the rate of interest used under the plan 
                in determining costs. In the case of a 
                multiemployer plan, such rate shall be the rate 
                determined under section 6621(b).
  [(f) Requirements Relating to Waivers and Extensions.--
          [(1) Benefits may not be increased during waiver or 
        extension period.--No amendment of the plan which 
        increases the liabilities of the plan by reason of any 
        increase in benefits, any change in the accrual of 
        benefits, or any change in the rate at which benefits 
        become nonforfeitable under the plan shall be adopted 
        if a waiver under subsection (d)(1) or an extension of 
        time under subsection (e) is in effect with respect to 
        the plan, or if a plan amendment described in 
        subsection (c)(8) has been made at any time in the 
        preceding 12 months (24 months for multiemployer 
        plans). If a plan is amended in violation of the 
        preceding sentence, any such waiver or extension of 
        time shall not apply to any plan year ending on or 
        after the date on which such amendment is adopted.
          [(2) Exception.--Paragraph (1) shall not apply to any 
        plan amendment which--
                  [(A) the Secretary of Labor determines to be 
                reasonable and which provides for only de 
                minimis increases in the liabilities of the 
                plan.
                  [(B) only repeals an amendment described in 
                subsection (c)(8), or
                  [(C) is required as a condition of 
                qualification under this part.
          [(3) Security for waivers and extensions; 
        consultations.--
                  [(A) Security may be required.--
                          [(i) In general.--Except as provided 
                        in subparagraph (C), the Secretary may 
                        require an employer maintaining a 
                        defined benefit plan which is a single-
                        employer plan (within the meaning of 
                        section 4001(a)(15) of the Employee 
                        Retirement Income Security Act of 1974) 
                        to provide security to such plan as a 
                        condition for granting or modifying a 
                        waiver under subsection (d) or an 
                        extension under subsection (e).
                          [(ii) Special rules.--Any security 
                        provided under clause (i) may be 
                        perfected and enforced only by the 
                        Pension Benefit Guaranty Corporation, 
                        or at the direction of the Corporation, 
                        by a contributing sponsor (within the 
                        meaning of section 4001(a)(13) of such 
                        Act), or a member of such sponsor's 
                        controlled group (within the meaning of 
                        section 4001(a)(14) of such Act).
                  [(B) Consultation with the pension benefit 
                guaranty corporation.--Except as provided in 
                subparagraph (C), the Secretary shall, before 
                granting or modifying a waiver under subsection 
                (d) or an extension under subsection (e) with 
                respect to a plan described in subparagraph 
                (A)(i)--
                          [(i) provide the Pension Benefit 
                        Guaranty Corporation with--
                                  [(I) notice of the completed 
                                application for any waiver, 
                                extension, or modification, and
                                  [(II) an opportunity to 
                                comment on such application 
                                within 30 days after receipt of 
                                such notice, and
                          [(ii) consider--
                                  [(I) any comments of the 
                                Corporation under clause 
                                (i)(II), and
                                  [(II) any views of any 
                                employee organization (within 
                                the meaning of section 3(4) of