Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?
   116th Congress  }                                  {  Rept. 116-65
   
   
                         HOUSE OF REPRESENTATIVES    
   1st Session     }                                  {  Part 1
_______________________________________________________________________

                                     

 
   SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT OF 2019

                               ----------                              

                              R E P O R T

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                      
                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 1994

      [Including cost estimate of the Congressional Budget Office]
      

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                  May 16, 2019.--Ordered to be printed


                               ----------                              


                   U.S. GOVERNMENT PUBLISHING OFFICE
36-385                      WASHINGTON : 2019



                            C O N T E N T S

                              ----------                              
                                                                   Page
 I. SUMMARY AND BACKGROUND...........................................29
        A. Purpose and Summary...................................    29
        B. Background and Need for Legislation...................    30
        C. Legislative History...................................    30
II. EXPLANATION OF THE BILL..........................................32
TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS.............    32
        A. Multiple Employer Plans and Pooled Employer Plans; 
          Reporting (sec. 101 of the bill, sec. 413 of the Code, 
          and secs. 3, 103, and 104 of ERISA)....................    32
        B. Increase in 10 Percent Cap for Automatic Enrollment 
          Safe Harbor After First Plan Year (sec. 102 of the bill 
          and sec. 401(k) of the Code)...........................    44
        C. Rules Relating to Election of Safe Harbor 401(k) 
          Status (sec. 103 of the bill and sec. 401(k) of the 
          Code)..................................................    46
        D. Increase in Credit Limitation for Small Employer 
          Pension Plan Startup Costs (sec. 104 of the bill and 
          sec. 45E of the Code)..................................    49
        E. Small Employer Automatic Enrollment Credit (sec. 105 
          of the bill and new sec. 45T of the Code)..............    50
        F. Certain Taxable Non-Tuition Fellowship and Stipend 
          Payments Treated as Compensation for IRA Purposes (sec. 
          106 of the bill and sec. 219 of the Code)..............    52
        G. Repeal of Maximum Age for Traditional IRA 
          Contributions (sec. 107 of the bill and sec. 219 of the 
          Code)..................................................    53
        Present Law..............................................    53
        H. Qualified Employer Plans Prohibited From Making Loans 
          Through Credit Cards and Other Similar Arrangements 
          (sec. 108 of the bill and sec. 72(p) of the Code)......    54
        I. Portability of Lifetime Income Options (sec. 109 of 
          the bill and secs. 401(a), 401(k), 403(b), and 457(d) 
          of the Code)...........................................    55
        J. Treatment of Custodial Accounts on Termination of 
          Section 403(b) Plans (sec. 110 of the bill and sec. 
          403(b) of the Code)....................................    58
        K. Clarification of Retirement Income Account Rules 
          Relating to Church-Controlled Organizations (sec. 111 
          of the bill and sec. 403(b)(9) of the Code)............    61
        L. Qualified Cash or Deferred Arrangements Must Allow 
          Long-Term Employees Working More than 500 But Less than 
          1,000 Hours Per Year to Participate (sec. 112 of the 
          bill and secs. 401(k) and 410 of the Code).............    62
        M. Penalty-Free Withdrawals from Retirement Plans for 
          Individuals in Case of Birth of Child or Adoption (sec. 
          113 of the bill and secs. 72(t), 401-403, 408, 457, and 
          3405 of the Code)......................................    69
        N. Increase in Age for Required Beginning Date for 
          Mandatory Distributions (sec. 114 of the bill and sec. 
          401(a)(9) of the Code).................................    71
        O. Election to Apply Alternative Minimum Funding 
          Standards to Certain Single Employer Community 
          Newspaper Plans (sec. 115 of the bill, sec. 430 of the 
          Code, and sec. 303 of ERISA)...........................    74
        P. Treating Excluded Difficulty of Care Payments as 
          Compensation for Determining Retirement Contribution 
          Limitations (sec. 116 of the bill and secs. 131, 408, 
          and 415 of the Code)...................................    78
TITLE II--ADMINISTRATIVE IMPROVEMENTS............................    80
        A. Plan Adopted by Filing Due Date for Year May be 
          Treated as in Effect as of Close of Year (sec. 201 of 
          the bill and sec. 401(b) of the Code)..................    80
        B. Combined Annual Report for Group of Plans (sec. 202 of 
          the bill, sec. 6058 of the Code, and sec. 104 of ERISA)    81
        C. Disclosure Regarding Lifetime Income (sec. 203 of the 
          bill and sec. 105 of ERISA)............................    82
        D. Fiduciary Safe Harbor for Selection of Lifetime Income 
          Provider (sec. 204 of the bill and sec. 404 of ERISA)..    84
        E. Modification of Nondiscrimination Rules to Protect 
          Older, Longer Service Participants (sec. 205 of the 
          bill and secs. 401(a)(4) and (26) of the Code).........    87
        F. Modification of PBGC Premiums for CSEC Plans (sec. 206 
          of the bill and sec. 4006 of ERISA)....................    97
TITLE III--OTHER BENEFITS........................................    99
        A. Benefits Provided to Volunteer Firefighters and 
          Emergency Medical Responders (sec. 301 of the bill and 
          sec. 139B of the Code).................................    99
        B. Expansion of Section 529 Plans (sec. 302 of the bill 
          and sec. 529 of the Code)..............................   100
TITLE IV--REVENUE PROVISIONS.....................................   104
        A. Modification of Required Minimum Distribution Rules 
          for Designated Beneficiaries (sec. 401 of the bill and 
          sec. 401(a)(9) of the Code)............................   104
        B. Increase in Penalty for Failure to File (sec. 402 of 
          the bill and sec. 6651(a) of the Code).................   112
        C. Increased Penalties for Failure to File Retirement 
          Plan Returns (sec. 403 of the bill and sec. 6652(d), 
          (e), and (h) of the Code)..............................   113
        D. Increase Information Sharing to Administer Excise 
          Taxes (sec. 404 of the bill and sec. 6103(o) of the 
          Code)..................................................   115
III.VOTES OF THE COMMITTEE..........................................117

IV. BUDGET EFFECTS OF THE BILL......................................117
        A. Committee Estimate of Budgetary Effects...............   117
        B. Statement Regarding New Budget Authority and Tax 
          Expenditures Budget Authority..........................   125
        C. Cost Estimate Prepared by the Congressional Budget 
          Office.................................................   125
 V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......131
        A. Committee Oversight Findings and Recommendations......   131
        B. Statement of General Performance Goals and Objectives.   132
        C. Information Relating to Unfunded Mandates.............   132
        D.Applicability of House Rule XXI 5(b)...................   132
        E. Tax Complexity Analysis...............................   132
        F. Congressional Earmarks, Limited Tax Benefits, and 
          Limited Tariff Benefits................................   136
        G. Duplication of Federal Programs.......................   136
                                                                       
        H. Hearings..............................................   136
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........136
        A. Changes in Existing Law Proposed by the Bill, as 
          Reported...............................................   136




116th Congress                                             Rept. 116-65
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

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




   SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT OF 2019

                                _______
                                

  May 16, 2019.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1994]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1994) to amend the Internal Revenue Code of 1986 to 
encourage retirement savings, 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, ETC.

  (a) Short Title.--This Act may be cited as the ``Setting Every 
Community Up for Retirement Enhancement Act of 2019''.
  (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title, etc.

          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS

Sec. 101. Multiple employer plans; pooled employer plans.
Sec. 102. Increase in 10 percent cap for automatic enrollment safe 
harbor after 1st plan year.
Sec. 103. Rules relating to election of safe harbor 401(k) status.
Sec. 104. Increase in credit limitation for small employer pension plan 
startup costs.
Sec. 105. Small employer automatic enrollment credit.
Sec. 106. Certain taxable non-tuition fellowship and stipend payments 
treated as compensation for IRA purposes.
Sec. 107. Repeal of maximum age for traditional IRA contributions.
Sec. 108. Qualified employer plans prohibited from making loans through 
credit cards and other similar arrangements.
Sec. 109. Portability of lifetime income options.
Sec. 110. Treatment of custodial accounts on termination of section 
403(b) plans.
Sec. 111. Clarification of retirement income account rules relating to 
church-controlled organizations.
Sec. 112. Qualified cash or deferred arrangements must allow long-term 
employees working more than 500 but less than 1,000 hours per year to 
participate.
Sec. 113. Penalty-free withdrawals from retirement plans for 
individuals in case of birth of child or adoption.
Sec. 114. Increase in age for required beginning date for mandatory 
distributions.
Sec. 115. Special rules for minimum funding standards for community 
newspaper plans.
Sec. 116. Treating excluded difficulty of care payments as compensation 
for determining retirement contribution limitations.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS

Sec. 201. Plan adopted by filing due date for year may be treated as in 
effect as of close of year.
Sec. 202. Combined annual report for group of plans.
Sec. 203. Disclosure regarding lifetime income.
Sec. 204. Fiduciary safe harbor for selection of lifetime income 
provider.
Sec. 205. Modification of nondiscrimination rules to protect older, 
longer service participants.
Sec. 206. Modification of PBGC premiums for CSEC plans.

                       TITLE III--OTHER BENEFITS

Sec. 301. Benefits provided to volunteer firefighters and emergency 
medical responders.
Sec. 302. Expansion of section 529 plans.

                      TITLE IV--REVENUE PROVISIONS

Sec. 401. Modification of required distribution rules for designated 
beneficiaries.
Sec. 402. Increase in penalty for failure to file.
Sec. 403. Increased penalties for failure to file retirement plan 
returns.
Sec. 404. Increase information sharing to administer excise taxes.

          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS

SEC. 101. MULTIPLE EMPLOYER PLANS; POOLED EMPLOYER PLANS.

  (a) Qualification Requirements.--
          (1) In general.--Section 413 of the Internal Revenue Code of 
        1986 is amended by adding at the end the following new 
        subsection:
  ``(e) Application of Qualification Requirements for Certain Multiple 
Employer Plans With Pooled Plan Providers.--
          ``(1) In general.--Except as provided in paragraph (2), if a 
        defined contribution plan to which subsection (c) applies--
                  ``(A) is maintained by employers which have a common 
                interest other than having adopted the plan, or
                  ``(B) in the case of a plan not described in 
                subparagraph (A), has a pooled plan provider,
        then the plan shall not be treated as failing to meet the 
        requirements under this title applicable to a plan described in 
        section 401(a) or to a plan that consists of individual 
        retirement accounts described in section 408 (including by 
        reason of subsection (c) thereof), whichever is applicable, 
        merely because one or more employers of employees covered by 
        the plan fail to take such actions as are required of such 
        employers for the plan to meet such requirements.
          ``(2) Limitations.--
                  ``(A) In general.--Paragraph (1) shall not apply to 
                any plan unless the terms of the plan provide that in 
                the case of any employer in the plan failing to take 
                the actions described in paragraph (1)--
                          ``(i) the assets of the plan attributable to 
                        employees of such employer (or beneficiaries of 
                        such employees) will be transferred to a plan 
                        maintained only by such employer (or its 
                        successor), to an eligible retirement plan as 
                        defined in section 402(c)(8)(B) for each 
                        individual whose account is transferred, or to 
                        any other arrangement that the Secretary 
                        determines is appropriate, unless the Secretary 
                        determines it is in the best interests of the 
                        employees of such employer (and the 
                        beneficiaries of such employees) to retain the 
                        assets in the plan, and
                          ``(ii) such employer (and not the plan with 
                        respect to which the failure occurred or any 
                        other employer in such plan) shall, except to 
                        the extent provided by the Secretary, be liable 
                        for any liabilities with respect to such plan 
                        attributable to employees of such employer (or 
                        beneficiaries of such employees).
                  ``(B) Failures by pooled plan providers.--If the 
                pooled plan provider of a plan described in paragraph 
                (1)(B) does not perform substantially all of the 
                administrative duties which are required of the 
                provider under paragraph (3)(A)(i) for any plan year, 
                the Secretary may provide that the determination as to 
                whether the plan meets the requirements under this 
                title applicable to a plan described in section 401(a) 
                or to a plan that consists of individual retirement 
                accounts described in section 408 (including by reason 
                of subsection (c) thereof), whichever is applicable, 
                shall be made in the same manner as would be made 
                without regard to paragraph (1).
          ``(3) Pooled plan provider.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `pooled plan provider' means, with respect to 
                any plan, a person who--
                          ``(i) is designated by the terms of the plan 
                        as a named fiduciary (within the meaning of 
                        section 402(a)(2) of the Employee Retirement 
                        Income Security Act of 1974), as the plan 
                        administrator, and as the person responsible to 
                        perform all administrative duties (including 
                        conducting proper testing with respect to the 
                        plan and the employees of each employer in the 
                        plan) which are reasonably necessary to ensure 
                        that--
                                  ``(I) the plan meets any requirement 
                                applicable under the Employee 
                                Retirement Income Security Act of 1974 
                                or this title to a plan described in 
                                section 401(a) or to a plan that 
                                consists of individual retirement 
                                accounts described in section 408 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable, and
                                  ``(II) each employer in the plan 
                                takes such actions as the Secretary or 
                                such person determines are necessary 
                                for the plan to meet the requirements 
                                described in subclause (I), including 
                                providing to such person any 
                                disclosures or other information which 
                                the Secretary may require or which such 
                                person otherwise determines are 
                                necessary to administer the plan or to 
                                allow the plan to meet such 
                                requirements,
                          ``(ii) registers as a pooled plan provider 
                        with the Secretary, and provides such other 
                        information to the Secretary as the Secretary 
                        may require, before beginning operations as a 
                        pooled plan provider,
                          ``(iii) acknowledges in writing that such 
                        person is a named fiduciary (within the meaning 
                        of section 402(a)(2) of the Employee Retirement 
                        Income Security Act of 1974), and the plan 
                        administrator, with respect to the plan, and
                          ``(iv) is responsible for ensuring that all 
                        persons who handle assets of, or who are 
                        fiduciaries of, the plan are bonded in 
                        accordance with section 412 of the Employee 
                        Retirement Income Security Act of 1974.
                  ``(B) Audits, examinations and investigations.--The 
                Secretary may perform audits, examinations, and 
                investigations of pooled plan providers as may be 
                necessary to enforce and carry out the purposes of this 
                subsection.
                  ``(C) Aggregation rules.--For purposes of this 
                paragraph, in determining whether a person meets the 
                requirements of this paragraph to be a pooled plan 
                provider with respect to any plan, all persons who 
                perform services for the plan and who are treated as a 
                single employer under subsection (b), (c), (m), or (o) 
                of section 414 shall be treated as one person.
                  ``(D) Treatment of employers as plan sponsors.--
                Except with respect to the administrative duties of the 
                pooled plan provider described in subparagraph (A)(i), 
                each employer in a plan which has a pooled plan 
                provider shall be treated as the plan sponsor with 
                respect to the portion of the plan attributable to 
                employees of such employer (or beneficiaries of such 
                employees).
          ``(4) Guidance.--
                  ``(A) In general.--The Secretary shall issue such 
                guidance as the Secretary determines appropriate to 
                carry out this subsection, including guidance--
                          ``(i) to identify the administrative duties 
                        and other actions required to be performed by a 
                        pooled plan provider under this subsection,
                          ``(ii) which describes the procedures to be 
                        taken to terminate a plan which fails to meet 
                        the requirements to be a plan described in 
                        paragraph (1), including the proper treatment 
                        of, and actions needed to be taken by, any 
                        employer in the plan and the assets and 
                        liabilities of the plan attributable to 
                        employees of such employer (or beneficiaries of 
                        such employees), and
                          ``(iii) identifying appropriate cases to 
                        which the rules of paragraph (2)(A) will apply 
                        to employers in the plan failing to take the 
                        actions described in paragraph (1).
                The Secretary shall take into account under clause 
                (iii) whether the failure of an employer or pooled plan 
                provider to provide any disclosures or other 
                information, or to take any other action, necessary to 
                administer a plan or to allow a plan to meet 
                requirements applicable to the plan under section 
                401(a) or 408, whichever is applicable, has continued 
                over a period of time that demonstrates a lack of 
                commitment to compliance.
                  ``(B) Good faith compliance with law before 
                guidance.--An employer or pooled plan provider shall 
                not be treated as failing to meet a requirement of 
                guidance issued by the Secretary under this paragraph 
                if, before the issuance of such guidance, the employer 
                or pooled plan provider complies in good faith with a 
                reasonable interpretation of the provisions of this 
                subsection to which such guidance relates.
          ``(5) Model plan.--The Secretary shall publish model plan 
        language which meets the requirements of this subsection and of 
        paragraphs (43) and (44) of section 3 of the Employee 
        Retirement Income Security Act of 1974 and which may be adopted 
        in order for a plan to be treated as a plan described in 
        paragraph (1)(B).''.
          (2) Conforming amendment.--Section 413(c)(2) of such Code is 
        amended by striking ``section 401(a)'' and inserting ``sections 
        401(a) and 408(c)''.
          (3) Technical amendment.--Section 408(c) of such Code is 
        amended by inserting after paragraph (2) the following new 
        paragraph:
          ``(3) There is a separate accounting for any interest of an 
        employee or member (or spouse of an employee or member) in a 
        Roth IRA.''.
  (b) No Common Interest Required for Pooled Employer Plans.--Section 
3(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1002(2)) is amended by adding at the end the following:
                  ``(C) A pooled employer plan shall be treated as--
                          ``(i) a single employee pension benefit plan 
                        or single pension plan; and
                          ``(ii) a plan to which section 210(a) 
                        applies.''.
  (c) Pooled Employer Plan and Provider Defined.--
          (1) In general.--Section 3 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002) is amended by adding at 
        the end the following:
          ``(43) Pooled employer plan.--
                  ``(A) In general.--The term `pooled employer plan' 
                means a plan--
                          ``(i) which is an individual account plan 
                        established or maintained for the purpose of 
                        providing benefits to the employees of 2 or 
                        more employers;
                          ``(ii) which is a plan described in section 
                        401(a) of the Internal Revenue Code of 1986 
                        which includes a trust exempt from tax under 
                        section 501(a) of such Code or a plan that 
                        consists of individual retirement accounts 
                        described in section 408 of such Code 
                        (including by reason of subsection (c) 
                        thereof); and
                          ``(iii) the terms of which meet the 
                        requirements of subparagraph (B).
                Such term shall not include a plan maintained by 
                employers which have a common interest other than 
                having adopted the plan.
                  ``(B) Requirements for plan terms.--The requirements 
                of this subparagraph are met with respect to any plan 
                if the terms of the plan--
                          ``(i) designate a pooled plan provider and 
                        provide that the pooled plan provider is a 
                        named fiduciary of the plan;
                          ``(ii) designate one or more trustees meeting 
                        the requirements of section 408(a)(2) of the 
                        Internal Revenue Code of 1986 (other than an 
                        employer in the plan) to be responsible for 
                        collecting contributions to, and holding the 
                        assets of, the plan and require such trustees 
                        to implement written contribution collection 
                        procedures that are reasonable, diligent, and 
                        systematic;
                          ``(iii) provide that each employer in the 
                        plan retains fiduciary responsibility for--
                                  ``(I) the selection and monitoring in 
                                accordance with section 404(a) of the 
                                person designated as the pooled plan 
                                provider and any other person who, in 
                                addition to the pooled plan provider, 
                                is designated as a named fiduciary of 
                                the plan; and
                                  ``(II) to the extent not otherwise 
                                delegated to another fiduciary by the 
                                pooled plan provider and subject to the 
                                provisions of section 404(c), the 
                                investment and management of the 
                                portion of the plan's assets 
                                attributable to the employees of the 
                                employer (or beneficiaries of such 
                                employees);
                          ``(iv) provide that employers in the plan, 
                        and participants and beneficiaries, are not 
                        subject to unreasonable restrictions, fees, or 
                        penalties with regard to ceasing participation, 
                        receipt of distributions, or otherwise 
                        transferring assets of the plan in accordance 
                        with section 208 or paragraph (44)(C)(i)(II);
                          ``(v) require--
                                  ``(I) the pooled plan provider to 
                                provide to employers in the plan any 
                                disclosures or other information which 
                                the Secretary may require, including 
                                any disclosures or other information to 
                                facilitate the selection or any 
                                monitoring of the pooled plan provider 
                                by employers in the plan; and
                                  ``(II) each employer in the plan to 
                                take such actions as the Secretary or 
                                the pooled plan provider determines are 
                                necessary to administer the plan or for 
                                the plan to meet any requirement 
                                applicable under this Act or the 
                                Internal Revenue Code of 1986 to a plan 
                                described in section 401(a) of such 
                                Code or to a plan that consists of 
                                individual retirement accounts 
                                described in section 408 of such Code 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable, 
                                including providing any disclosures or 
                                other information which the Secretary 
                                may require or which the pooled plan 
                                provider otherwise determines are 
                                necessary to administer the plan or to 
                                allow the plan to meet such 
                                requirements; and
                          ``(vi) provide that any disclosure or other 
                        information required to be provided under 
                        clause (v) may be provided in electronic form 
                        and will be designed to ensure only reasonable 
                        costs are imposed on pooled plan providers and 
                        employers in the plan.
                  ``(C) Exceptions.--The term `pooled employer plan' 
                does not include--
                          ``(i) a multiemployer plan; or
                          ``(ii) a plan established before the date of 
                        the enactment of the Setting Every Community Up 
                        for Retirement Enhancement Act of 2019 unless 
                        the plan administrator elects that the plan 
                        will be treated as a pooled employer plan and 
                        the plan meets the requirements of this title 
                        applicable to a pooled employer plan 
                        established on or after such date.
                  ``(D) Treatment of employers as plan sponsors.--
                Except with respect to the administrative duties of the 
                pooled plan provider described in paragraph (44)(A)(i), 
                each employer in a pooled employer plan shall be 
                treated as the plan sponsor with respect to the portion 
                of the plan attributable to employees of such employer 
                (or beneficiaries of such employees).
          ``(44) Pooled plan provider.--
                  ``(A) In general.--The term `pooled plan provider' 
                means a person who--
                          ``(i) is designated by the terms of a pooled 
                        employer plan as a named fiduciary, as the plan 
                        administrator, and as the person responsible 
                        for the performance of all administrative 
                        duties (including conducting proper testing 
                        with respect to the plan and the employees of 
                        each employer in the plan) which are reasonably 
                        necessary to ensure that--
                                  ``(I) the plan meets any requirement 
                                applicable under this Act or the 
                                Internal Revenue Code of 1986 to a plan 
                                described in section 401(a) of such 
                                Code or to a plan that consists of 
                                individual retirement accounts 
                                described in section 408 of such Code 
                                (including by reason of subsection (c) 
                                thereof), whichever is applicable; and
                                  ``(II) each employer in the plan 
                                takes such actions as the Secretary or 
                                pooled plan provider determines are 
                                necessary for the plan to meet the 
                                requirements described in subclause 
                                (I), including providing the 
                                disclosures and information described 
                                in paragraph (43)(B)(v)(II);
                          ``(ii) registers as a pooled plan provider 
                        with the Secretary, and provides to the 
                        Secretary such other information as the 
                        Secretary may require, before beginning 
                        operations as a pooled plan provider;
                          ``(iii) acknowledges in writing that such 
                        person is a named fiduciary, and the plan 
                        administrator, with respect to the pooled 
                        employer plan; and
                          ``(iv) is responsible for ensuring that all 
                        persons who handle assets of, or who are 
                        fiduciaries of, the pooled employer plan are 
                        bonded in accordance with section 412.
                  ``(B) Audits, examinations and investigations.--The 
                Secretary may perform audits, examinations, and 
                investigations of pooled plan providers as may be 
                necessary to enforce and carry out the purposes of this 
                paragraph and paragraph (43).
                  ``(C) Guidance.--The Secretary shall issue such 
                guidance as the Secretary determines appropriate to 
                carry out this paragraph and paragraph (43), including 
                guidance--
                          ``(i) to identify the administrative duties 
                        and other actions required to be performed by a 
                        pooled plan provider under either such 
                        paragraph; and
                          ``(ii) which requires in appropriate cases 
                        that if an employer in the plan fails to take 
                        the actions required under subparagraph 
                        (A)(i)(II)--
                                  ``(I) the assets of the plan 
                                attributable to employees of such 
                                employer (or beneficiaries of such 
                                employees) are transferred to a plan 
                                maintained only by such employer (or 
                                its successor), to an eligible 
                                retirement plan as defined in section 
                                402(c)(8)(B) of the Internal Revenue 
                                Code of 1986 for each individual whose 
                                account is transferred, or to any other 
                                arrangement that the Secretary 
                                determines is appropriate in such 
                                guidance; and
                                  ``(II) such employer (and not the 
                                plan with respect to which the failure 
                                occurred or any other employer in such 
                                plan) shall, except to the extent 
                                provided in such guidance, be liable 
                                for any liabilities with respect to 
                                such plan attributable to employees of 
                                such employer (or beneficiaries of such 
                                employees).
                        The Secretary shall take into account under 
                        clause (ii) whether the failure of an employer 
                        or pooled plan provider to provide any 
                        disclosures or other information, or to take 
                        any other action, necessary to administer a 
                        plan or to allow a plan to meet requirements 
                        described in subparagraph (A)(i)(II) has 
                        continued over a period of time that 
                        demonstrates a lack of commitment to 
                        compliance. The Secretary may waive the 
                        requirements of subclause (ii)(I) in 
                        appropriate circumstances if the Secretary 
                        determines it is in the best interests of the 
                        employees of the employer referred to in such 
                        clause (and the beneficiaries of such 
                        employees) to retain the assets in the plan 
                        with respect to which the employer's failure 
                        occurred.
                  ``(D) Good faith compliance with law before 
                guidance.--An employer or pooled plan provider shall 
                not be treated as failing to meet a requirement of 
                guidance issued by the Secretary under subparagraph (C) 
                if, before the issuance of such guidance, the employer 
                or pooled plan provider complies in good faith with a 
                reasonable interpretation of the provisions of this 
                paragraph, or paragraph (43), to which such guidance 
                relates.
                  ``(E) Aggregation rules.--For purposes of this 
                paragraph, in determining whether a person meets the 
                requirements of this paragraph to be a pooled plan 
                provider with respect to any plan, all persons who 
                perform services for the plan and who are treated as a 
                single employer under subsection (b), (c), (m), or (o) 
                of section 414 of the Internal Revenue Code of 1986 
                shall be treated as one person.''.
          (2) Bonding requirements for pooled employer plans.--The last 
        sentence of section 412(a) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1112(a)) is amended by 
        inserting ``or in the case of a pooled employer plan (as 
        defined in section 3(43))'' after ``section 407(d)(1))''.
          (3) Conforming and technical amendments.--Section 3 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002) is amended--
                  (A) in paragraph (16)(B)--
                          (i) by striking ``or'' at the end of clause 
                        (ii); and
                          (ii) by striking the period at the end and 
                        inserting ``, or (iv) in the case of a pooled 
                        employer plan, the pooled plan provider.''; and
                  (B) by striking the second paragraph (41).
  (d) Pooled Employer and Multiple Employer Plan Reporting.--
          (1) Additional information.--Section 103 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1023) is 
        amended--
                  (A) in subsection (a)(1)(B), by striking ``applicable 
                subsections (d), (e), and (f)'' and inserting 
                ``applicable subsections (d), (e), (f), and (g)''; and
                  (B) by amending subsection (g) to read as follows:
  ``(g) Additional Information With Respect to Pooled Employer and 
Multiple Employer Plans.--An annual report under this section for a 
plan year shall include--
          ``(1) with respect to any plan to which section 210(a) 
        applies (including a pooled employer plan), a list of employers 
        in the plan and a good faith estimate of the percentage of 
        total contributions made by such employers during the plan year 
        and the aggregate account balances attributable to each 
        employer in the plan (determined as the sum of the account 
        balances of the employees of such employer (and the 
        beneficiaries of such employees)); and
          ``(2) with respect to a pooled employer plan, the identifying 
        information for the person designated under the terms of the 
        plan as the pooled plan provider.''.
          (2) Simplified annual reports.--Section 104(a) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1024(a)) is amended by striking paragraph (2)(A) and inserting 
        the following:
  ``(2)(A) With respect to annual reports required to be filed with the 
Secretary under this part, the Secretary may by regulation prescribe 
simplified annual reports for any pension plan that--
          ``(i) covers fewer than 100 participants; or
          ``(ii) is a plan described in section 210(a) that covers 
        fewer than 1,000 participants, but only if no single employer 
        in the plan has 100 or more participants covered by the 
        plan.''.
  (e) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after December 31, 2020.
          (2) Rule of construction.--Nothing in the amendments made by 
        subsection (a) shall be construed as limiting the authority of 
        the Secretary of the Treasury or the Secretary's delegate 
        (determined without regard to such amendment) to provide for 
        the proper treatment of a failure to meet any requirement 
        applicable under the Internal Revenue Code of 1986 with respect 
        to one employer (and its employees) in a multiple employer 
        plan.

SEC. 102. INCREASE IN 10 PERCENT CAP FOR AUTOMATIC ENROLLMENT SAFE 
                    HARBOR AFTER 1ST PLAN YEAR.

  (a) In General.--Section 401(k)(13)(C)(iii) of the Internal Revenue 
Code of 1986 is amended by striking ``does not exceed 10 percent'' and 
inserting ``does not exceed 15 percent (10 percent during the period 
described in subclause (I))''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2019.

SEC. 103. RULES RELATING TO ELECTION OF SAFE HARBOR 401(K) STATUS.

  (a) Limitation of Annual Safe Harbor Notice to Matching Contribution 
Plans.--
          (1) In general.--Subparagraph (A) of section 401(k)(12) of 
        the Internal Revenue Code of 1986 is amended by striking ``if 
        such arrangement'' and all that follows and inserting ``if such 
        arrangement--
                          ``(i) meets the contribution requirements of 
                        subparagraph (B) and the notice requirements of 
                        subparagraph (D), or
                          ``(ii) meets the contribution requirements of 
                        subparagraph (C).''.
          (2) Automatic contribution arrangements.--Subparagraph (B) of 
        section 401(k)(13) of such Code is amended by striking 
        ``means'' and all that follows and inserting ``means a cash or 
        deferred arrangement--
                          ``(i) which is described in subparagraph 
                        (D)(i)(I) and meets the applicable requirements 
                        of subparagraphs (C) through (E), or
                          ``(ii) which is described in subparagraph 
                        (D)(i)(II) and meets the applicable 
                        requirements of subparagraphs (C) and (D).''.
  (b) Nonelective Contributions.--Section 401(k)(12) of the Internal 
Revenue Code of 1986 is amended by redesignating subparagraph (F) as 
subparagraph (G), and by inserting after subparagraph (E) the following 
new subparagraph:
                  ``(F) Timing of plan amendment for employer making 
                nonelective contributions.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a plan may be amended after the 
                        beginning of a plan year to provide that the 
                        requirements of subparagraph (C) shall apply to 
                        the arrangement for the plan year, but only if 
                        the amendment is adopted--
                                  ``(I) at any time before the 30th day 
                                before the close of the plan year, or
                                  ``(II) at any time before the last 
                                day under paragraph (8)(A) for 
                                distributing excess contributions for 
                                the plan year.
                          ``(ii) Exception where plan provided for 
                        matching contributions.--Clause (i) shall not 
                        apply to any plan year if the plan provided at 
                        any time during the plan year that the 
                        requirements of subparagraph (B) or paragraph 
                        (13)(D)(i)(I) applied to the plan year.
                          ``(iii) 4-percent contribution requirement.--
                        Clause (i)(II) shall not apply to an 
                        arrangement unless the amount of the 
                        contributions described in subparagraph (C) 
                        which the employer is required to make under 
                        the arrangement for the plan year with respect 
                        to any employee is an amount equal to at least 
                        4 percent of the employee's compensation.''.
  (c) Automatic Contribution Arrangements.--Section 401(k)(13) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following :
                  ``(F) Timing of plan amendment for employer making 
                nonelective contributions.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a plan may be amended after the 
                        beginning of a plan year to provide that the 
                        requirements of subparagraph (D)(i)(II) shall 
                        apply to the arrangement for the plan year, but 
                        only if the amendment is adopted--
                                  ``(I) at any time before the 30th day 
                                before the close of the plan year, or
                                  ``(II) at any time before the last 
                                day under paragraph (8)(A) for 
                                distributing excess contributions for 
                                the plan year.
                          ``(ii) Exception where plan provided for 
                        matching contributions.--Clause (i) shall not 
                        apply to any plan year if the plan provided at 
                        any time during the plan year that the 
                        requirements of subparagraph (D)(i)(I) or 
                        paragraph (12)(B) applied to the plan year.
                          ``(iii) 4-percent contribution requirement.--
                        Clause (i)(II) shall not apply to an 
                        arrangement unless the amount of the 
                        contributions described in subparagraph 
                        (D)(i)(II) which the employer is required to 
                        make under the arrangement for the plan year 
                        with respect to any employee is an amount equal 
                        to at least 4 percent of the employee's 
                        compensation.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2019.

SEC. 104. INCREASE IN CREDIT LIMITATION FOR SMALL EMPLOYER PENSION PLAN 
                    STARTUP COSTS.

  (a) In General.--Paragraph (1) of section 45E(b) of the Internal 
Revenue Code of 1986 is amended to read as follows:
          ``(1) for the first credit year and each of the 2 taxable 
        years immediately following the first credit year, the greater 
        of--
                  ``(A) $500, or
                  ``(B) the lesser of--
                          ``(i) $250 for each employee of the eligible 
                        employer who is not a highly compensated 
                        employee (as defined in section 414(q)) and who 
                        is eligible to participate in the eligible 
                        employer plan maintained by the eligible 
                        employer, or
                          ``(ii) $5,000, and''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2019.

SEC. 105. SMALL EMPLOYER AUTOMATIC ENROLLMENT CREDIT.

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

``SEC. 45T. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS 
                    PROVIDED BY SMALL EMPLOYERS.

  ``(a) In General.--For purposes of section 38, in the case of an 
eligible employer, the retirement auto-enrollment credit determined 
under this section for any taxable year is an amount equal to--
          ``(1) $500 for any taxable year occurring during the credit 
        period, and
          ``(2) zero for any other taxable year.
  ``(b) Credit Period.--For purposes of subsection (a)--
          ``(1) In general.--The credit period with respect to any 
        eligible employer is the 3-taxable-year period beginning with 
        the first taxable year for which the employer includes an 
        eligible automatic contribution arrangement (as defined in 
        section 414(w)(3)) in a qualified employer plan (as defined in 
        section 4972(d)) sponsored by the employer.
          ``(2) Maintenance of arrangement.--No taxable year with 
        respect to an employer shall be treated as occurring within the 
        credit period unless the arrangement described in paragraph (1) 
        is included in the plan for such year.
  ``(c) Eligible Employer.--For purposes of this section, the term 
`eligible employer' has the meaning given such term in section 
408(p)(2)(C)(i).''.
  (b) Credit To Be Part of General Business Credit.--Subsection (b) of 
section 38 of the Internal Revenue Code of 1986 is amended by striking 
``plus'' at the end of paragraph (31), by striking the period at the 
end of paragraph (32) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
          ``(33) in the case of an eligible employer (as defined in 
        section 45T(c)), the retirement auto-enrollment credit 
        determined under section 45T(a).''.
  (c) Clerical Amendment.--The table of sections for subpart D of part 
IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 45S the 
following new item:

``Sec. 45T. Auto-enrollment option for retirement savings options 
provided by small employers.''.

  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2019.

SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS 
                    TREATED AS COMPENSATION FOR IRA PURPOSES.

  (a) In General.--Paragraph (1) of section 219(f) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following: 
``The term `compensation' shall include any amount which is included in 
the individual's gross income and paid to the individual to aid the 
individual in the pursuit of graduate or postdoctoral study.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2019.

SEC. 107. REPEAL OF MAXIMUM AGE FOR TRADITIONAL IRA CONTRIBUTIONS.

  (a) In General.--Paragraph (1) of section 219(d) of the Internal 
Revenue Code of 1986 is repealed.
  (b) Conforming Amendment.--Subsection (c) of section 408A of the 
Internal Revenue Code of 1986 is amended by striking paragraph (4) and 
by redesignating paragraphs (5), (6), and (7) as paragraphs (4), (5), 
and (6), respectively.
  (c) Effective Date.--The amendments made by this section shall apply 
to contributions made for taxable years beginning after December 31, 
2019.

SEC. 108. QUALIFIED EMPLOYER PLANS PROHIBITED FROM MAKING LOANS THROUGH 
                    CREDIT CARDS AND OTHER SIMILAR ARRANGEMENTS.

  (a) In General.--Paragraph (2) of section 72(p) of the Internal 
Revenue Code of 1986 is amended by redesignating subparagraph (D) as 
subparagraph (E) and by inserting after subparagraph (C) the following 
new subparagraph:
                  ``(D) Prohibition of loans through credit cards and 
                other similar arrangements.--Subparagraph (A) shall not 
                apply to any loan which is made through the use of any 
                credit card or any other similar arrangement.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to loans made after the date of the enactment of this Act.

SEC. 109. PORTABILITY OF LIFETIME INCOME OPTIONS.

  (a) In General.--Subsection (a) of section 401 of the Internal 
Revenue Code of 1986 is amended by inserting after paragraph (37) the 
following new paragraph:
          ``(38) Portability of lifetime income.--
                  ``(A) In general.--Except as may be otherwise 
                provided by regulations, a trust forming part of a 
                defined contribution plan shall not be treated as 
                failing to constitute a qualified trust under this 
                section solely by reason of allowing--
                          ``(i) qualified distributions of a lifetime 
                        income investment, or
                          ``(ii) distributions of a lifetime income 
                        investment in the form of a qualified plan 
                        distribution annuity contract,
                on or after the date that is 90 days prior to the date 
                on which such lifetime income investment is no longer 
                authorized to be held as an investment option under the 
                plan.
                  ``(B) Definitions.--For purposes of this subsection--
                          ``(i) the term `qualified distribution' means 
                        a direct trustee-to-trustee transfer described 
                        in paragraph (31)(A) to an eligible retirement 
                        plan (as defined in section 402(c)(8)(B)),
                          ``(ii) the term `lifetime income investment' 
                        means an investment option which is designed to 
                        provide an employee with election rights--
                                  ``(I) which are not uniformly 
                                available with respect to other 
                                investment options under the plan, and
                                  ``(II) which are to a lifetime income 
                                feature available through a contract or 
                                other arrangement offered under the 
                                plan (or under another eligible 
                                retirement plan (as so defined), if 
                                paid by means of a direct trustee-to-
                                trustee transfer described in paragraph 
                                (31)(A) to such other eligible 
                                retirement plan),
                          ``(iii) the term `lifetime income feature' 
                        means--
                                  ``(I) a feature which guarantees a 
                                minimum level of income annually (or 
                                more frequently) for at least the 
                                remainder of the life of the employee 
                                or the joint lives of the employee and 
                                the employee's designated beneficiary, 
                                or
                                  ``(II) an annuity payable on behalf 
                                of the employee under which payments 
                                are made in substantially equal 
                                periodic payments (not less frequently 
                                than annually) over the life of the 
                                employee or the joint lives of the 
                                employee and the employee's designated 
                                beneficiary, and
                          ``(iv) the term `qualified plan distribution 
                        annuity contract' means an annuity contract 
                        purchased for a participant and distributed to 
                        the participant by a plan or contract described 
                        in subparagraph (B) of section 402(c)(8) 
                        (without regard to clauses (i) and (ii) 
                        thereof).''.
  (b) Cash or Deferred Arrangement.--
          (1) In general.--Clause (i) of section 401(k)(2)(B) of the 
        Internal Revenue Code of 1986 is amended by striking ``or'' at 
        the end of subclause (IV), by striking ``and'' at the end of 
        subclause (V) and inserting ``or'', and by adding at the end 
        the following new subclause:
                                  ``(VI) except as may be otherwise 
                                provided by regulations, with respect 
                                to amounts invested in a lifetime 
                                income investment (as defined in 
                                subsection (a)(38)(B)(ii)), the date 
                                that is 90 days prior to the date that 
                                such lifetime income investment may no 
                                longer be held as an investment option 
                                under the arrangement, and''.
          (2) Distribution requirement.--Subparagraph (B) of section 
        401(k)(2) of such Code, as amended by paragraph (1), is amended 
        by striking ``and'' at the end of clause (i), by striking the 
        semicolon at the end of clause (ii) and inserting ``, and'', 
        and by adding at the end the following new clause:
                          ``(iii) except as may be otherwise provided 
                        by regulations, in the case of amounts 
                        described in clause (i)(VI), will be 
                        distributed only in the form of a qualified 
                        distribution (as defined in subsection 
                        (a)(38)(B)(i)) or a qualified plan distribution 
                        annuity contract (as defined in subsection 
                        (a)(38)(B)(iv)),''.
  (c) Section 403(b) Plans.--
          (1) Annuity contracts.--Paragraph (11) of section 403(b) of 
        the Internal Revenue Code of 1986 is amended by striking ``or'' 
        at the end of subparagraph (B), by striking the period at the 
        end of subparagraph (C) and inserting ``, or'', and by 
        inserting after subparagraph (C) the following new 
        subparagraph:
                  ``(D) except as may be otherwise provided by 
                regulations, with respect to amounts invested in a 
                lifetime income investment (as defined in section 
                401(a)(38)(B)(ii))--
                          ``(i) on or after the date that is 90 days 
                        prior to the date that such lifetime income 
                        investment may no longer be held as an 
                        investment option under the contract, and
                          ``(ii) in the form of a qualified 
                        distribution (as defined in section 
                        401(a)(38)(B)(i)) or a qualified plan 
                        distribution annuity contract (as defined in 
                        section 401(a)(38)(B)(iv)).''.
          (2) Custodial accounts.--Subparagraph (A) of section 
        403(b)(7) of such Code is amended by striking ``if--'' and all 
        that follows and inserting ``if the amounts are to be invested 
        in regulated investment company stock to be held in that 
        custodial account, and under the custodial account--
                          ``(i) 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--
                                  ``(I) the employee dies,
                                  ``(II) the employee attains age 59\1/
                                2\,
                                  ``(III) the employee has a severance 
                                from employment,
                                  ``(IV) the employee becomes disabled 
                                (within the meaning of section 
                                72(m)(7)),
                                  ``(V) in the case of contributions 
                                made pursuant to a salary reduction 
                                agreement (within the meaning of 
                                section 3121(a)(5)(D)), the employee 
                                encounters financial hardship, or
                                  ``(VI) except as may be otherwise 
                                provided by regulations, with respect 
                                to amounts invested in a lifetime 
                                income investment (as defined in 
                                section 401(a)(38)(B)(ii)), the date 
                                that is 90 days prior to the date that 
                                such lifetime income investment may no 
                                longer be held as an investment option 
                                under the contract, and
                          ``(ii) in the case of amounts described in 
                        clause (i)(VI), such amounts will be 
                        distributed only in the form of a qualified 
                        distribution (as defined in section 
                        401(a)(38)(B)(i)) or a qualified plan 
                        distribution annuity contract (as defined in 
                        section 401(a)(38)(B)(iv)).''.
  (d) Eligible Deferred Compensation Plans.--
          (1) In general.--Subparagraph (A) of section 457(d)(1) of the 
        Internal Revenue Code of 1986 is amended by striking ``or'' at 
        the end of clause (ii), by inserting ``or'' at the end of 
        clause (iii), and by adding after clause (iii) the following:
                          ``(iv) except as may be otherwise provided by 
                        regulations, in the case of a plan maintained 
                        by an employer described in subsection 
                        (e)(1)(A), with respect to amounts invested in 
                        a lifetime income investment (as defined in 
                        section 401(a)(38)(B)(ii)), the date that is 90 
                        days prior to the date that such lifetime 
                        income investment may no longer be held as an 
                        investment option under the plan,''.
          (2) Distribution requirement.--Paragraph (1) of section 
        457(d) of such Code is amended by striking ``and'' at the end 
        of subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, and'', and by inserting 
        after subparagraph (C) the following new subparagraph:
                  ``(D) except as may be otherwise provided by 
                regulations, in the case of amounts described in 
                subparagraph (A)(iv), such amounts will be distributed 
                only in the form of a qualified distribution (as 
                defined in section 401(a)(38)(B)(i)) or a qualified 
                plan distribution annuity contract (as defined in 
                section 401(a)(38)(B)(iv)).''.
  (e) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2019.

SEC. 110. TREATMENT OF CUSTODIAL ACCOUNTS ON TERMINATION OF SECTION 
                    403(B) PLANS.

  Not later than six months after the date of enactment of this Act, 
the Secretary of the Treasury shall issue guidance to provide that, if 
an employer terminates the plan under which amounts are contributed to 
a custodial account under subparagraph (A) of section 403(b)(7), the 
plan administrator or custodian may distribute an individual custodial 
account in kind to a participant or beneficiary of the plan and the 
distributed custodial account shall be maintained by the custodian on a 
tax-deferred basis as a section 403(b)(7) custodial account, similar to 
the treatment of fully-paid individual annuity contracts under Revenue 
Ruling 2011-7, until amounts are actually paid to the participant or 
beneficiary. The guidance shall provide further (i) that the section 
403(b)(7) status of the distributed custodial account is generally 
maintained if the custodial account thereafter adheres to the 
requirements of section 403(b) that are in effect at the time of the 
distribution of the account and (ii) that a custodial account would not 
be considered distributed to the participant or beneficiary if the 
employer has any material retained rights under the account (but the 
employer would not be treated as retaining material rights simply 
because the custodial account was originally opened under a group 
contract). Such guidance shall be retroactively effective for taxable 
years beginning after December 31, 2008.

SEC. 111. CLARIFICATION OF RETIREMENT INCOME ACCOUNT RULES RELATING TO 
                    CHURCH-CONTROLLED ORGANIZATIONS.

  (a) In General.--Subparagraph (B) of section 403(b)(9) of the 
Internal Revenue Code of 1986 is amended by inserting ``(including an 
employee described in section 414(e)(3)(B))'' after ``employee 
described in paragraph (1)''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years beginning before, on, or after the date of the enactment of 
this Act.

SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW LONG-TERM 
                    EMPLOYEES WORKING MORE THAN 500 BUT LESS THAN 1,000 
                    HOURS PER YEAR TO PARTICIPATE.

  (a) Participation Requirement.--
          (1) In general.--Section 401(k)(2)(D) of the Internal Revenue 
        Code of 1986 is amended to read as follows:
                  ``(D) which does not require, as a condition of 
                participation in the arrangement, that an employee 
                complete a period of service with the employer (or 
                employers) maintaining the plan extending beyond the 
                close of the earlier of--
                          ``(i) the period permitted under section 
                        410(a)(1) (determined without regard to 
                        subparagraph (B)(i) thereof), or
                          ``(ii) subject to the provisions of paragraph 
                        (15), the first period of 3 consecutive 12-
                        month periods during each of which the employee 
                        has at least 500 hours of service.''.
          (2) Special rules.--Section 401(k) of such Code is amended by 
        adding at the end the following new paragraph:
          ``(15) Special rules for participation requirement for long-
        term, part-time workers.--For purposes of paragraph 
        (2)(D)(ii)--
                  ``(A) Age requirement must be met.--Paragraph 
                (2)(D)(ii) shall not apply to an employee unless the 
                employee has met the requirement of section 
                410(a)(1)(A)(i) by the close of the last of the 12-
                month periods described in such paragraph.
                  ``(B) Nondiscrimination and top-heavy rules not to 
                apply.--
                          ``(i) Nondiscrimination rules.--In the case 
                        of employees who are eligible to participate in 
                        the arrangement solely by reason of paragraph 
                        (2)(D)(ii)--
                                  ``(I) notwithstanding subsection 
                                (a)(4), an employer shall not be 
                                required to make nonelective or 
                                matching contributions on behalf of 
                                such employees even if such 
                                contributions are made on behalf of 
                                other employees eligible to participate 
                                in the arrangement, and
                                  ``(II) an employer may elect to 
                                exclude such employees from the 
                                application of subsection (a)(4), 
                                paragraphs (3), (12), and (13), 
                                subsection (m)(2), and section 410(b).
                          ``(ii) Top-heavy rules.--An employer may 
                        elect to exclude all employees who are eligible 
                        to participate in a plan maintained by the 
                        employer solely by reason of paragraph 
                        (2)(D)(ii) from the application of the vesting 
                        and benefit requirements under subsections (b) 
                        and (c) of section 416.
                          ``(iii) Vesting.--For purposes of determining 
                        whether an employee described in clause (i) has 
                        a nonforfeitable right to employer 
                        contributions (other than contributions 
                        described in paragraph (3)(D)(i)) under the 
                        arrangement, each 12-month period for which the 
                        employee has at least 500 hours of service 
                        shall be treated as a year of service.
                          ``(iv) Employees who become full-time 
                        employees.--This subparagraph shall cease to 
                        apply to any employee as of the first plan year 
                        beginning after the plan year in which the 
                        employee meets the requirements of section 
                        410(a)(1)(A)(ii) without regard to paragraph 
                        (2)(D)(ii).
                  ``(C) Exception for employees under collectively 
                bargained plans, etc.--Paragraph (2)(D)(ii) shall not 
                apply to employees described in section 410(b)(3).
                  ``(D) Special rules.--
                          ``(i) Time of participation.--The rules of 
                        section 410(a)(4) shall apply to an employee 
                        eligible to participate in an arrangement 
                        solely by reason of paragraph (2)(D)(ii).
                          ``(ii) 12-month periods.--12-month periods 
                        shall be determined in the same manner as under 
                        the last sentence of section 410(a)(3)(A).''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2020, except that, for 
purposes of section 401(k)(2)(D)(ii) of the Internal Revenue Code of 
1986 (as added by such amendments), 12-month periods beginning before 
January 1, 2021, shall not be taken into account.

SEC. 113. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR 
                    INDIVIDUALS IN CASE OF BIRTH OF CHILD OR ADOPTION.

  (a) In General.--Section 72(t)(2) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new subparagraph:
                  ``(H) Distributions from retirement plans in case of 
                birth of child or adoption.--
                          ``(i) In general.--Any qualified birth or 
                        adoption distribution.
                          ``(ii) Limitation.--The aggregate amount 
                        which may be treated as qualified birth or 
                        adoption distributions by any individual with 
                        respect to any birth or adoption shall not 
                        exceed $5,000.
                          ``(iii) Qualified birth or adoption 
                        distribution.--For purposes of this 
                        subparagraph--
                                  ``(I) In general.--The term 
                                `qualified birth or adoption 
                                distribution' means any distribution 
                                from an applicable eligible retirement 
                                plan to an individual if made during 
                                the 1-year period beginning on the date 
                                on which a child of the individual is 
                                born or on which the legal adoption by 
                                the individual of an eligible adoptee 
                                is finalized.
                                  ``(II) Eligible adoptee.--The term 
                                `eligible adoptee' means any individual 
                                (other than a child of the taxpayer's 
                                spouse) who has not attained age 18 or 
                                is physically or mentally incapable of 
                                self-support.
                          ``(iv) Treatment of plan distributions.--
                                  ``(I) In general.--If a distribution 
                                to an individual would (without regard 
                                to clause (ii)) be a qualified birth or 
                                adoption distribution, a plan shall not 
                                be treated as failing to meet any 
                                requirement of this title merely 
                                because the plan treats the 
                                distribution as a qualified birth or 
                                adoption distribution, unless the 
                                aggregate amount of such distributions 
                                from all plans maintained by the 
                                employer (and any member of any 
                                controlled group which includes the 
                                employer) to such individual exceeds 
                                $5,000.
                                  ``(II) Controlled group.--For 
                                purposes of subclause (I), the term 
                                `controlled group' means any group 
                                treated as a single employer under 
                                subsection (b), (c), (m), or (o) of 
                                section 414.
                          ``(v) Amount distributed may be repaid.--
                                  ``(I) In general.--Any individual who 
                                receives a qualified birth or adoption 
                                distribution may make one or more 
                                contributions in an aggregate amount 
                                not to exceed the amount of such 
                                distribution to an applicable eligible 
                                retirement plan of which such 
                                individual is a beneficiary and to 
                                which a rollover contribution of such 
                                distribution could be made under 
                                section 402(c), 403(a)(4), 403(b)(8), 
                                408(d)(3), or 457(e)(16), as the case 
                                may be.
                                  ``(II) Limitation on contributions to 
                                applicable eligible retirement plans 
                                other than iras.--The aggregate amount 
                                of contributions made by an individual 
                                under subclause (I) to any applicable 
                                eligible retirement plan which is not 
                                an individual retirement plan shall not 
                                exceed the aggregate amount of 
                                qualified birth or adoption 
                                distributions which are made from such 
                                plan to such individual. Subclause (I) 
                                shall not apply to contributions to any 
                                applicable eligible retirement plan 
                                which is not an individual retirement 
                                plan unless the individual is eligible 
                                to make contributions (other than those 
                                described in subclause (I)) to such 
                                applicable eligible retirement plan.
                                  ``(III) Treatment of repayments of 
                                distributions from applicable eligible 
                                retirement plans other than IRAs.--If a 
                                contribution is made under subclause 
                                (I) with respect to a qualified birth 
                                or adoption distribution from an 
                                applicable eligible retirement plan 
                                other than an individual retirement 
                                plan, then the taxpayer shall, to the 
                                extent of the amount of the 
                                contribution, be treated as having 
                                received such distribution in an 
                                eligible rollover distribution (as 
                                defined in section 402(c)(4)) and as 
                                having transferred the amount to the 
                                applicable eligible retirement plan in 
                                a direct trustee to trustee transfer 
                                within 60 days of the distribution.
                                  ``(IV) Treatment of repayments for 
                                distributions from iras.--If a 
                                contribution is made under subclause 
                                (I) with respect to a qualified birth 
                                or adoption distribution from an 
                                individual retirement plan, then, to 
                                the extent of the amount of the 
                                contribution, such distribution shall 
                                be treated as a distribution described 
                                in section 408(d)(3) and as having been 
                                transferred to the applicable eligible 
                                retirement plan in a direct trustee to 
                                trustee transfer within 60 days of the 
                                distribution.
                          ``(vi) Definition and special rules.--For 
                        purposes of this subparagraph--
                                  ``(I) Applicable eligible retirement 
                                plan.--The term `applicable eligible 
                                retirement plan' means an eligible 
                                retirement plan (as defined in section 
                                402(c)(8)(B)) other than a defined 
                                benefit plan.
                                  ``(II) Exemption of distributions 
                                from trustee to trustee transfer and 
                                withholding rules.--For purposes of 
                                sections 401(a)(31), 402(f), and 3405, 
                                a qualified birth or adoption 
                                distribution shall not be treated as an 
                                eligible rollover distribution.
                                  ``(III) Taxpayer must include tin.--A 
                                distribution shall not be treated as a 
                                qualified birth or adoption 
                                distribution with respect to any child 
                                or eligible adoptee unless the taxpayer 
                                includes the name, age, and TIN of such 
                                child or eligible adoptee on the 
                                taxpayer's return of tax for the 
                                taxable year.
                                  ``(IV) Distributions treated as 
                                meeting plan distribution 
                                requirements.--Any qualified birth or 
                                adoption distribution shall be treated 
                                as meeting the requirements of sections 
                                401(k)(2)(B)(i), 403(b)(7)(A)(ii), 
                                403(b)(11), and 457(d)(1)(A).''.
  (b) Effective Date.--The amendments made by this section shall apply 
to distributions made after December 31, 2019.

SEC. 114. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY 
                    DISTRIBUTIONS.

  (a) In General.--Section 401(a)(9)(C)(i)(I) of the Internal Revenue 
Code of 1986 is amended by striking ``age 70\1/2\'' and inserting ``age 
72''.
  (b) Spouse Beneficiaries; Special Rule for Owners.--Subparagraphs 
(B)(iv)(I) and (C)(ii)(I) of section 401(a)(9) of such Code are each 
amended by striking ``age 70\1/2\'' and inserting ``age 72''.
  (c) Conforming Amendments.--
          (1) The last sentence of section 408(b) of such Code is 
        amended by striking ``age 70\1/2\'' and inserting ``age 72''.
          (2) Section 457(d)(1)(A)(i) of such Code is amended by 
        striking ``age 70\1/2\'' and inserting ``age 72''.
  (d) Effective Date.--The amendments made by this section shall apply 
to distributions required to be made after December 31, 2019, with 
respect to individuals who attain age 70\1/2\ after such date.

SEC. 115. SPECIAL RULES FOR MINIMUM FUNDING STANDARDS FOR COMMUNITY 
                    NEWSPAPER PLANS.

  (a) Amendment to Internal Revenue Code of 1986.--Section 430 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new subsection:
  ``(m) Special Rules for Community Newspaper Plans.--
          ``(1) In general.--The plan sponsor of a community newspaper 
        plan under which no participant has had the participant's 
        accrued benefit increased (whether because of service or 
        compensation) after December 31, 2017, may elect to have the 
        alternative standards described in paragraph (3) apply to such 
        plan, and any plan sponsored by any member of the same 
        controlled group.
          ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as prescribed by the 
        Secretary. Such election, once made with respect to a plan 
        year, shall apply to all subsequent plan years unless revoked 
        with the consent of the Secretary.
          ``(3) Alternative minimum funding standards.--The alternative 
        standards described in this paragraph are the following:
                  ``(A) Interest rates.--
                          ``(i) In general.--Notwithstanding subsection 
                        (h)(2)(C) and except as provided in clause 
                        (ii), the first, second, and third segment 
                        rates in effect for any month for purposes of 
                        this section shall be 8 percent.
                          ``(ii) New benefit accruals.--Notwithstanding 
                        subsection (h)(2), for purposes of determining 
                        the funding target and normal cost of a plan 
                        for any plan year, the present value of any 
                        benefits accrued or earned under the plan for a 
                        plan year with respect to which an election 
                        under paragraph (1) is in effect shall be 
                        determined on the basis of the U.S. Treasury 
                        obligation yield curve for the day that is the 
                        valuation date of such plan for such plan year.
                          ``(iii) U.S. treasury obligation yield 
                        curve.--For purposes of this subsection, the 
                        term `U.S. Treasury obligation yield curve' 
                        means, with respect to any day, a yield curve 
                        which shall be prescribed by the Secretary for 
                        such day on interest-bearing obligations of the 
                        United States.
                  ``(B) Shortfall amortization base.--
                          ``(i) Previous shortfall amortization 
                        bases.--The shortfall amortization bases 
                        determined under subsection (c)(3) for all plan 
                        years preceding the first plan year to which 
                        the election under paragraph (1) applies (and 
                        all shortfall amortization installments 
                        determined with respect to such bases) shall be 
                        reduced to zero under rules similar to the 
                        rules of subsection (c)(6).
                          ``(ii) New shortfall amortization base.--
                        Notwithstanding subsection (c)(3), the 
                        shortfall amortization base for the first plan 
                        year to which the election under paragraph (1) 
                        applies shall be the funding shortfall of such 
                        plan for such plan year (determined using the 
                        interest rates as modified under subparagraph 
                        (A)).
                  ``(C) Determination of shortfall amortization 
                installments.--
                          ``(i) 30-year period.--Subparagraphs (A) and 
                        (B) of subsection (c)(2) shall be applied by 
                        substituting `30-plan-year' for `7-plan-year' 
                        each place it appears.
                          ``(ii) No special election.--The election 
                        under subparagraph (D) of subsection (c)(2) 
                        shall not apply to any plan year to which the 
                        election under paragraph (1) applies.
                  ``(D) Exemption from at-risk treatment.--Subsection 
                (i) shall not apply.
          ``(4) Community newspaper plan.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `community newspaper 
                plan' means a plan to which this section applies 
                maintained by an employer which, as of December 31, 
                2017--
                          ``(i) publishes and distributes daily, either 
                        electronically or in printed form, 1 or more 
                        community newspapers in a single State,
                          ``(ii) is not a company the stock of which is 
                        publicly traded (on a stock exchange or in an 
                        over-the-counter market), and is not 
                        controlled, directly or indirectly, by such a 
                        company,
                          ``(iii) is controlled, directly or 
                        indirectly--
                                  ``(I) by 1 or more persons residing 
                                primarily in the State in which the 
                                community newspaper is published,
                                  ``(II) for not less than 30 years by 
                                individuals who are members of the same 
                                family,
                                  ``(III) by a trust created or 
                                organized in the State in which the 
                                community newspaper is published, the 
                                sole trustees of which are persons 
                                described in subclause (I) or (II),
                                  ``(IV) by an entity which is 
                                described in section 501(c)(3) and 
                                exempt from taxation under section 
                                501(a), which is organized and operated 
                                in the State in which the community 
                                newspaper is published, and the primary 
                                purpose of which is to benefit 
                                communities in such State, or
                                  ``(V) by a combination of persons 
                                described in subclause (I), (III), or 
                                (IV), and
                          ``(iv) does not control, directly or 
                        indirectly, any newspaper in any other State.
                  ``(B) Community newspaper.--The term `community 
                newspaper' means a newspaper which primarily serves a 
                metropolitan statistical area, as determined by the 
                Office of Management and Budget, with a population of 
                not less than 100,000.
                  ``(C) Control.--A person shall be treated as 
                controlled by another person if such other person 
                possesses, directly or indirectly, the power to direct 
                or cause the direction and management of such person 
                (including the power to elect a majority of the members 
                of the board of directors of such person) through the 
                ownership of voting securities.
          ``(5) Controlled group.--For purposes of this subsection, the 
        term `controlled group' means all persons treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414 
        as of the date of the enactment of this subsection.''.
  (b) Amendment to Employee Retirement Income Security Act of 1974.--
Section 303 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1083) is amended by adding at the end the following new 
subsection:
  ``(m) Special Rules for Community Newspaper Plans.--
          ``(1) In general.--The plan sponsor of a community newspaper 
        plan under which no participant has had the participant's 
        accrued benefit increased (whether because of service or 
        compensation) after December 31, 2017, may elect to have the 
        alternative standards described in paragraph (3) apply to such 
        plan, and any plan sponsored by any member of the same 
        controlled group.
          ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as prescribed by the 
        Secretary of the Treasury. Such election, once made with 
        respect to a plan year, shall apply to all subsequent plan 
        years unless revoked with the consent of the Secretary of the 
        Treasury.
          ``(3) Alternative minimum funding standards.--The alternative 
        standards described in this paragraph are the following:
                  ``(A) Interest rates.--
                          ``(i) In general.--Notwithstanding subsection 
                        (h)(2)(C) and except as provided in clause 
                        (ii), the first, second, and third segment 
                        rates in effect for any month for purposes of 
                        this section shall be 8 percent.
                          ``(ii) New benefit accruals.--Notwithstanding 
                        subsection (h)(2), for purposes of determining 
                        the funding target and normal cost of a plan 
                        for any plan year, the present value of any 
                        benefits accrued or earned under the plan for a 
                        plan year with respect to which an election 
                        under paragraph (1) is in effect shall be 
                        determined on the basis of the U.S. Treasury 
                        obligation yield curve for the day that is the 
                        valuation date of such plan for such plan year.
                          ``(iii) U.S. treasury obligation yield 
                        curve.--For purposes of this subsection, the 
                        term `U.S. Treasury obligation yield curve' 
                        means, with respect to any day, a yield curve 
                        which shall be prescribed by the Secretary of 
                        the Treasury for such day on interest-bearing 
                        obligations of the United States.
                  ``(B) Shortfall amortization base.--
                          ``(i) Previous shortfall amortization 
                        bases.--The shortfall amortization bases 
                        determined under subsection (c)(3) for all plan 
                        years preceding the first plan year to which 
                        the election under paragraph (1) applies (and 
                        all shortfall amortization installments 
                        determined with respect to such bases) shall be 
                        reduced to zero under rules similar to the 
                        rules of subsection (c)(6).
                          ``(ii) New shortfall amortization base.--
                        Notwithstanding subsection (c)(3), the 
                        shortfall amortization base for the first plan 
                        year to which the election under paragraph (1) 
                        applies shall be the funding shortfall of such 
                        plan for such plan year (determined using the 
                        interest rates as modified under subparagraph 
                        (A)).
                  ``(C) Determination of shortfall amortization 
                installments.--
                          ``(i) 30-year period.--Subparagraphs (A) and 
                        (B) of subsection (c)(2) shall be applied by 
                        substituting `30-plan-year' for `7-plan-year' 
                        each place it appears.
                          ``(ii) No special election.--The election 
                        under subparagraph (D) of subsection (c)(2) 
                        shall not apply to any plan year to which the 
                        election under paragraph (1) applies.
                  ``(D) Exemption from at-risk treatment.--Subsection 
                (i) shall not apply.
          ``(4) Community newspaper plan.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `community newspaper 
                plan' means a plan to which this section applies 
                maintained by an employer which, as of December 31, 
                2017--
                          ``(i) publishes and distributes daily, either 
                        electronically or in printed form--
                                  ``(I) a community newspaper, or
                                  ``(II) 1 or more community newspapers 
                                in the same State,
                          ``(ii) is not a company the stock of which is 
                        publicly traded (on a stock exchange or in an 
                        over-the-counter market), and is not 
                        controlled, directly or indirectly, by such a 
                        company,
                          ``(iii) is controlled, directly or 
                        indirectly--
                                  ``(I) by 1 or more persons residing 
                                primarily in the State in which the 
                                community newspaper is published,
                                  ``(II) for not less than 30 years by 
                                individuals who are members of the same 
                                family,
                                  ``(III) by a trust created or 
                                organized in the State in which the 
                                community newspaper is published, the 
                                sole trustees of which are persons 
                                described in subclause (I) or (II),
                                  ``(IV) by an entity which is 
                                described in section 501(c)(3) of the 
                                Internal Revenue Code of 1986 and 
                                exempt from taxation under section 
                                501(a) of such Code, which is organized 
                                and operated in the State in which the 
                                community newspaper is published, and 
                                the primary purpose of which is to 
                                benefit communities in such State, or
                                  ``(V) by a combination of persons 
                                described in subclause (I), (III), or 
                                (IV), and
                          ``(iv) does not control, directly or 
                        indirectly, any newspaper in any other State.
                  ``(B) Community newspaper.--The term `community 
                newspaper' means a newspaper which primarily serves a 
                metropolitan statistical area, as determined by the 
                Office of Management and Budget, with a population of 
                not less than 100,000.
                  ``(C) Control.--A person shall be treated as 
                controlled by another person if such other person 
                possesses, directly or indirectly, the power to direct 
                or cause the direction and management of such person 
                (including the power to elect a majority of the members 
                of the board of directors of such person) through the 
                ownership of voting securities.
          ``(5) Controlled group.--For purposes of this subsection, the 
        term `controlled group' means all persons treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414 
        of the Internal Revenue Code of 1986 as of the date of the 
        enactment of this subsection.
          ``(6) Effect on premium rate calculation.--Notwithstanding 
        any other provision of law or any regulation issued by the 
        Pension Benefit Guaranty Corporation, in the case of a 
        community newspaper plan which elects the application of the 
        alternative standards described in paragraph (3), the 
        additional premium under section 4006(a)(3)(E) shall be 
        determined as if such election had not been made.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years ending after December 31, 2017.

SEC. 116. TREATING EXCLUDED DIFFICULTY OF CARE PAYMENTS AS COMPENSATION 
                    FOR DETERMINING RETIREMENT CONTRIBUTION 
                    LIMITATIONS.

  (a) Individual Retirement Accounts.--
          (1) In general.--Section 408(o) of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        paragraph:
          ``(5) Special rule for difficulty of care payments excluded 
        from gross income.--In the case of an individual who for a 
        taxable year excludes from gross income under section 131 a 
        qualified foster care payment which is a difficulty of care 
        payment, if--
                  ``(A) the deductible amount in effect for the taxable 
                year under subsection (b), exceeds
                  ``(B) the amount of compensation includible in the 
                individual's gross income for the taxable year,
        the individual may elect to increase the nondeductible limit 
        under paragraph (2) for the taxable year by an amount equal to 
        the lesser of such excess or the amount so excluded.''.
          (2) Effective date.--The amendments made by this subsection 
        shall apply to contributions after the date of the enactment of 
        this Act.
  (b) Defined Contribution Plans.--
          (1) In general.--Section 415(c) of such Code is amended by 
        adding at the end the following new paragraph:
          ``(8) Special rule for difficulty of care payments excluded 
        from gross income.--
                  ``(A) In general.--For purposes of paragraph (1)(B), 
                in the case of an individual who for a taxable year 
                excludes from gross income under section 131 a 
                qualified foster care payment which is a difficulty of 
                care payment, the participant's compensation, or earned 
                income, as the case may be, shall be increased by the 
                amount so excluded.
                  ``(B) Contributions allocable to difficulty of care 
                payments treated as after-tax.--Any contribution by the 
                participant which is allowable due to such increase--
                          ``(i) shall be treated for purposes of this 
                        title as investment in the contract, and
                          ``(ii) shall not cause a plan (and any 
                        arrangement which is part of such plan) to be 
                        treated as failing to meet any requirements of 
                        this chapter solely by reason of allowing any 
                        such contributions.''.
          (2) Effective date.--The amendment made by this subsection 
        shall apply to plan years beginning after December 31, 2015.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS

SEC. 201. PLAN ADOPTED BY FILING DUE DATE FOR YEAR MAY BE TREATED AS IN 
                    EFFECT AS OF CLOSE OF YEAR.

  (a) In General.--Subsection (b) of section 401 of the Internal 
Revenue Code of 1986 is amended--
          (1) by striking ``Retroactive Changes in Plan.--A stock 
        bonus'' and inserting ``Plan Amendments.--
          ``(1) Certain retroactive changes in plan.--A stock bonus''; 
        and
          (2) by adding at the end the following new paragraph:
          ``(2) Adoption of plan.--If an employer adopts a stock bonus, 
        pension, profit-sharing, or annuity plan after the close of a 
        taxable year but before the time prescribed by law for filing 
        the return of the employer for the taxable year (including 
        extensions thereof), the employer may elect to treat the plan 
        as having been adopted as of the last day of the taxable 
        year.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to plans adopted for taxable years beginning after December 31, 2019.

SEC. 202. COMBINED ANNUAL REPORT FOR GROUP OF PLANS.

  (a) In General.--The Secretary of the Treasury and the Secretary of 
Labor shall, in cooperation, modify the returns required under section 
6058 of the Internal Revenue Code of 1986 and the reports required by 
section 104 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1024) so that all members of a group of plans described in 
subsection (c) may file a single aggregated annual return or report 
satisfying the requirements of both such sections.
  (b) Administrative Requirements.--In developing the consolidated 
return or report under subsection (a), the Secretary of the Treasury 
and the Secretary of Labor may require such return or report to include 
any information regarding each plan in the group as such Secretaries 
determine is necessary or appropriate for the enforcement and 
administration of the Internal Revenue Code of 1986 and the Employee 
Retirement Income Security Act of 1974.
  (c) Plans Described.--A group of plans is described in this 
subsection if all plans in the group--
          (1) are individual account plans or defined contribution 
        plans (as defined in section 3(34) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(34)) or in section 
        414(i) of the Internal Revenue Code of 1986);
          (2) have--
                  (A) the same trustee (as described in section 403(a) 
                of such Act (29 U.S.C. 1103(a)));
                  (B) the same one or more named fiduciaries (as 
                described in section 402(a) of such Act (29 U.S.C. 
                1102(a)));
                  (C) the same administrator (as defined in section 
                3(16)(A) of such Act (29 U.S.C. 1002(16)(A))) and plan 
                administrator (as defined in section 414(g) of the 
                Internal Revenue Code of 1986); and
                  (D) plan years beginning on the same date; and
          (3) provide the same investments or investment options to 
        participants and beneficiaries.
A plan not subject to title I of the Employee Retirement Income 
Security Act of 1974 shall be treated as meeting the requirements of 
paragraph (2) as part of a group of plans if the same person that 
performs each of the functions described in such paragraph, as 
applicable, for all other plans in such group performs each of such 
functions for such plan.
  (d) Clarification Relating to Electronic Filing of Returns for 
Deferred Compensation Plans.--
          (1) In general.--Section 6011(e) of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        paragraph:
          ``(6) Application of numerical limitation to returns relating 
        to deferred compensation plans.--For purposes of applying the 
        numerical limitation under paragraph (2)(A) to any return 
        required under section 6058, information regarding each plan 
        for which information is provided on such return shall be 
        treated as a separate return.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to returns required to be filed with respect to 
        plan years beginning after December 31, 2019.
  (e) Effective Date.--The modification required by subsection (a) 
shall be implemented not later than January 1, 2022, and shall apply to 
returns and reports for plan years beginning after December 31, 2021.

SEC. 203. DISCLOSURE REGARDING LIFETIME INCOME.

  (a) In General.--Subparagraph (B) of section 105(a)(2) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)(2)) 
is amended--
          (1) in clause (i), by striking ``and'' at the end;
          (2) in clause (ii), by striking ``diversification.'' and 
        inserting ``diversification, and''; and
          (3) by inserting at the end the following:
                          ``(iii) the lifetime income disclosure 
                        described in subparagraph (D)(i).
                In the case of pension benefit statements described in 
                clause (i) of paragraph (1)(A), a lifetime income 
                disclosure under clause (iii) of this subparagraph 
                shall be required to be included in only one pension 
                benefit statement during any one 12-month period.''.
  (b) Lifetime Income.--Paragraph (2) of section 105(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended 
by adding at the end the following new subparagraph:
                  ``(D) Lifetime income disclosure.--
                          ``(i) In general.--
                                  ``(I) Disclosure.--A lifetime income 
                                disclosure shall set forth the lifetime 
                                income stream equivalent of the total 
                                benefits accrued with respect to the 
                                participant or beneficiary.
                                  ``(II) Lifetime income stream 
                                equivalent of the total benefits 
                                accrued.--For purposes of this 
                                subparagraph, the term `lifetime income 
                                stream equivalent of the total benefits 
                                accrued' means the amount of monthly 
                                payments the participant or beneficiary 
                                would receive if the total accrued 
                                benefits of such participant or 
                                beneficiary were used to provide 
                                lifetime income streams described in 
                                subclause (III), based on assumptions 
                                specified in rules prescribed by the 
                                Secretary.
                                  ``(III) Lifetime income streams.--The 
                                lifetime income streams described in 
                                this subclause are a qualified joint 
                                and survivor annuity (as defined in 
                                section 205(d)), based on assumptions 
                                specified in rules prescribed by the 
                                Secretary, including the assumption 
                                that the participant or beneficiary has 
                                a spouse of equal age, and a single 
                                life annuity. Such lifetime income 
                                streams may have a term certain or 
                                other features to the extent permitted 
                                under rules prescribed by the 
                                Secretary.
                          ``(ii) Model disclosure.--Not later than 1 
                        year after the date of the enactment of the 
                        Setting Every Community Up for Retirement 
                        Enhancement Act of 2019, the Secretary shall 
                        issue a model lifetime income disclosure, 
                        written in a manner so as to be understood by 
                        the average plan participant, which--
                                  ``(I) explains that the lifetime 
                                income stream equivalent is only 
                                provided as an illustration;
                                  ``(II) explains that the actual 
                                payments under the lifetime income 
                                stream described in clause (i)(III) 
                                which may be purchased with the total 
                                benefits accrued will depend on 
                                numerous factors and may vary 
                                substantially from the lifetime income 
                                stream equivalent in the disclosures;
                                  ``(III) explains the assumptions upon 
                                which the lifetime income stream 
                                equivalent was determined; and
                                  ``(IV) provides such other similar 
                                explanations as the Secretary considers 
                                appropriate.
                          ``(iii) Assumptions and rules.--Not later 
                        than 1 year after the date of the enactment of 
                        the Setting Every Community Up for Retirement 
                        Enhancement Act of 2019, the Secretary shall--
                                  ``(I) prescribe assumptions which 
                                administrators of individual account 
                                plans may use in converting total 
                                accrued benefits into lifetime income 
                                stream equivalents for purposes of this 
                                subparagraph; and
                                  ``(II) issue interim final rules 
                                under clause (i).
                        In prescribing assumptions under subclause (I), 
                        the Secretary may prescribe a single set of 
                        specific assumptions (in which case the 
                        Secretary may issue tables or factors which 
                        facilitate such conversions), or ranges of 
                        permissible assumptions. To the extent that an 
                        accrued benefit is or may be invested in a 
                        lifetime income stream described in clause 
                        (i)(III), the assumptions prescribed under 
                        subclause (I) shall, to the extent appropriate, 
                        permit administrators of individual account 
                        plans to use the amounts payable under such 
                        lifetime income stream as a lifetime income 
                        stream equivalent.
                          ``(iv) Limitation on liability.--No plan 
                        fiduciary, plan sponsor, or other person shall 
                        have any liability under this title solely by 
                        reason of the provision of lifetime income 
                        stream equivalents which are derived in 
                        accordance with the assumptions and rules 
                        described in clause (iii) and which include the 
                        explanations contained in the model lifetime 
                        income disclosure described in clause (ii). 
                        This clause shall apply without regard to 
                        whether the provision of such lifetime income 
                        stream equivalent is required by subparagraph 
                        (B)(iii).
                          ``(v) Effective date.--The requirement in 
                        subparagraph (B)(iii) shall apply to pension 
                        benefit statements furnished more than 12 
                        months after the latest of the issuance by the 
                        Secretary of--
                                  ``(I) interim final rules under 
                                clause (i);
                                  ``(II) the model disclosure under 
                                clause (ii); or
                                  ``(III) the assumptions under clause 
                                (iii).''.

SEC. 204. FIDUCIARY SAFE HARBOR FOR SELECTION OF LIFETIME INCOME 
                    PROVIDER.

  Section 404 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1104) is amended by adding at the end the following:
  ``(e) Safe Harbor for Annuity Selection.--
          ``(1) In general.--With respect to the selection of an 
        insurer for a guaranteed retirement income contract, the 
        requirements of subsection (a)(1)(B) will be deemed to be 
        satisfied if a fiduciary--
                  ``(A) engages in an objective, thorough, and 
                analytical search for the purpose of identifying 
                insurers from which to purchase such contracts;
                  ``(B) with respect to each insurer identified under 
                subparagraph (A)--
                          ``(i) considers the financial capability of 
                        such insurer to satisfy its obligations under 
                        the guaranteed retirement income contract; and
                          ``(ii) considers the cost (including fees and 
                        commissions) of the guaranteed retirement 
                        income contract offered by the insurer in 
                        relation to the benefits and product features 
                        of the contract and administrative services to 
                        be provided under such contract; and
                  ``(C) on the basis of such consideration, concludes 
                that--
                          ``(i) at the time of the selection, the 
                        insurer is financially capable of satisfying 
                        its obligations under the guaranteed retirement 
                        income contract; and
                          ``(ii) the relative cost of the selected 
                        guaranteed retirement income contract as 
                        described in subparagraph (B)(ii) is 
                        reasonable.
          ``(2) Financial capability of the insurer.--A fiduciary will 
        be deemed to satisfy the requirements of paragraphs (1)(B)(i) 
        and (1)(C)(i) if--
                  ``(A) the fiduciary obtains written representations 
                from the insurer that--
                          ``(i) the insurer is licensed to offer 
                        guaranteed retirement income contracts;
                          ``(ii) the insurer, at the time of selection 
                        and for each of the immediately preceding 7 
                        plan years--
                                  ``(I) operates under a certificate of 
                                authority from the insurance 
                                commissioner of its domiciliary State 
                                which has not been revoked or 
                                suspended;
                                  ``(II) has filed audited financial 
                                statements in accordance with the laws 
                                of its domiciliary State under 
                                applicable statutory accounting 
                                principles;
                                  ``(III) maintains (and has 
                                maintained) reserves which satisfies 
                                all the statutory requirements of all 
                                States where the insurer does business; 
                                and
                                  ``(IV) is not operating under an 
                                order of supervision, rehabilitation, 
                                or liquidation;
                          ``(iii) the insurer undergoes, at least every 
                        5 years, a financial examination (within the 
                        meaning of the law of its domiciliary State) by 
                        the insurance commissioner of the domiciliary 
                        State (or representative, designee, or other 
                        party approved by such commissioner); and
                          ``(iv) the insurer will notify the fiduciary 
                        of any change in circumstances occurring after 
                        the provision of the representations in clauses 
                        (i), (ii), and (iii) which would preclude the 
                        insurer from making such representations at the 
                        time of issuance of the guaranteed retirement 
                        income contract; and
                  ``(B) after receiving such representations and as of 
                the time of selection, the fiduciary has not received 
                any notice described in subparagraph (A)(iv) and is in 
                possession of no other information which would cause 
                the fiduciary to question the representations provided.
          ``(3) No requirement to select lowest cost.--Nothing in this 
        subsection shall be construed to require a fiduciary to select 
        the lowest cost contract. A fiduciary may consider the value of 
        a contract, including features and benefits of the contract and 
        attributes of the insurer (including, without limitation, the 
        insurer's financial strength) in conjunction with the cost of 
        the contract.
          ``(4) Time of selection.--
                  ``(A) In general.--For purposes of this subsection, 
                the time of selection is--
                          ``(i) the time that the insurer and the 
                        contract are selected for distribution of 
                        benefits to a specific participant or 
                        beneficiary; or
                          ``(ii) if the fiduciary periodically reviews 
                        the continuing appropriateness of the 
                        conclusion described in paragraph (1)(C) with 
                        respect to a selected insurer, taking into 
                        account the considerations described in such 
                        paragraph, the time that the insurer and the 
                        contract are selected to provide benefits at 
                        future dates to participants or beneficiaries 
                        under the plan.
                Nothing in the preceding sentence shall be construed to 
                require the fiduciary to review the appropriateness of 
                a selection after the purchase of a contract for a 
                participant or beneficiary.
                  ``(B) Periodic review.--A fiduciary will be deemed to 
                have conducted the periodic review described in 
                subparagraph (A)(ii) if the fiduciary obtains the 
                written representations described in clauses (i), (ii), 
                and (iii) of paragraph (2)(A) from the insurer on an 
                annual basis, unless the fiduciary receives any notice 
                described in paragraph (2)(A)(iv) or otherwise becomes 
                aware of facts that would cause the fiduciary to 
                question such representations.
          ``(5) Limited liability.--A fiduciary which satisfies the 
        requirements of this subsection shall not be liable following 
        the distribution of any benefit, or the investment by or on 
        behalf of a participant or beneficiary pursuant to the selected 
        guaranteed retirement income contract, for any losses that may 
        result to the participant or beneficiary due to an insurer's 
        inability to satisfy its financial obligations under the terms 
        of such contract.
          ``(6) Definitions.--For purposes of this subsection--
                  ``(A) Insurer.--The term `insurer' means an insurance 
                company, insurance service, or insurance organization, 
                including affiliates of such companies.
                  ``(B) Guaranteed retirement income contract.--The 
                term `guaranteed retirement income contract' means an 
                annuity contract for a fixed term or a contract (or 
                provision or feature thereof) which provides guaranteed 
                benefits annually (or more frequently) for at least the 
                remainder of the life of the participant or the joint 
                lives of the participant and the participant's 
                designated beneficiary as part of an individual account 
                plan.''.

SEC. 205. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT OLDER, 
                    LONGER SERVICE PARTICIPANTS.

  (a) In General.--Section 401 of the Internal Revenue Code of 1986 is 
amended--
          (1) by redesignating subsection (o) as subsection (p); and
          (2) by inserting after subsection (n) the following new 
        subsection:
  ``(o) Special Rules for Applying Nondiscrimination Rules to Protect 
Older, Longer Service and Grandfathered Participants .--
          ``(1) Testing of defined benefit plans with closed classes of 
        participants.--
                  ``(A) Benefits, rights, or features provided to 
                closed classes.--A defined benefit plan which provides 
                benefits, rights, or features to a closed class of 
                participants shall not fail to satisfy the requirements 
                of subsection (a)(4) by reason of the composition of 
                such closed class or the benefits, rights, or features 
                provided to such closed class, if--
                          ``(i) for the plan year as of which the class 
                        closes and the 2 succeeding plan years, such 
                        benefits, rights, and features satisfy the 
                        requirements of subsection (a)(4) (without 
                        regard to this subparagraph but taking into 
                        account the rules of subparagraph (I)),
                          ``(ii) after the date as of which the class 
                        was closed, any plan amendment which modifies 
                        the closed class or the benefits, rights, and 
                        features provided to such closed class does not 
                        discriminate significantly in favor of highly 
                        compensated employees, and
                          ``(iii) the class was closed before April 5, 
                        2017, or the plan is described in subparagraph 
                        (C).
                  ``(B) Aggregate testing with defined contribution 
                plans permitted on a benefits basis.--
                          ``(i) In general.--For purposes of 
                        determining compliance with subsection (a)(4) 
                        and section 410(b), a defined benefit plan 
                        described in clause (iii) may be aggregated and 
                        tested on a benefits basis with 1 or more 
                        defined contribution plans, including with the 
                        portion of 1 or more defined contribution plans 
                        which--
                                  ``(I) provides matching contributions 
                                (as defined in subsection (m)(4)(A)),
                                  ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                  ``(III) consists of an employee stock 
                                ownership plan (within the meaning of 
                                section 4975(e)(7)) or a tax credit 
                                employee stock ownership plan (within 
                                the meaning of section 409(a)).
                          ``(ii) Special rules for matching 
                        contributions.--For purposes of clause (i), if 
                        a defined benefit plan is aggregated with a 
                        portion of a defined contribution plan 
                        providing matching contributions--
                                  ``(I) such defined benefit plan must 
                                also be aggregated with any portion of 
                                such defined contribution plan which 
                                provides elective deferrals described 
                                in subparagraph (A) or (C) of section 
                                402(g)(3), and
                                  ``(II) such matching contributions 
                                shall be treated in the same manner as 
                                nonelective contributions, including 
                                for purposes of applying the rules of 
                                subsection (l).
                          ``(iii) Plans described.--A defined benefit 
                        plan is described in this clause if--
                                  ``(I) the plan provides benefits to a 
                                closed class of participants,
                                  ``(II) for the plan year as of which 
                                the class closes and the 2 succeeding 
                                plan years, the plan satisfies the 
                                requirements of section 410(b) and 
                                subsection (a)(4) (without regard to 
                                this subparagraph but taking into 
                                account the rules of subparagraph (I)),
                                  ``(III) after the date as of which 
                                the class was closed, any plan 
                                amendment which modifies the closed 
                                class or the benefits provided to such 
                                closed class does not discriminate 
                                significantly in favor of highly 
                                compensated employees, and
                                  ``(IV) the class was closed before 
                                April 5, 2017, or the plan is described 
                                in subparagraph (C).
                  ``(C) Plans described.--A plan is described in this 
                subparagraph if, taking into account any predecessor 
                plan--
                          ``(i) such plan has been in effect for at 
                        least 5 years as of the date the class is 
                        closed, and
                          ``(ii) during the 5-year period preceding the 
                        date the class is closed, there has not been a 
                        substantial increase in the coverage or value 
                        of the benefits, rights, or features described 
                        in subparagraph (A) or in the coverage or 
                        benefits under the plan described in 
                        subparagraph (B)(iii) (whichever is 
                        applicable).
                  ``(D) Determination of substantial increase for 
                benefits, rights, and features.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (A)(iii), a plan shall be treated as having had a 
                substantial increase in coverage or value of the 
                benefits, rights, or features described in subparagraph 
                (A) during the applicable 5-year period only if, during 
                such period--
                          ``(i) the number of participants covered by 
                        such benefits, rights, or features on the date 
                        such period ends is more than 50 percent 
                        greater than the number of such participants on 
                        the first day of the plan year in which such 
                        period began, or
                          ``(ii) such benefits, rights, and features 
                        have been modified by 1 or more plan amendments 
                        in such a way that, as of the date the class is 
                        closed, the value of such benefits, rights, and 
                        features to the closed class as a whole is 
                        substantially greater than the value as of the 
                        first day of such 5-year period, solely as a 
                        result of such amendments.
                  ``(E) Determination of substantial increase for 
                aggregate testing on benefits basis.--In applying 
                subparagraph (C)(ii) for purposes of subparagraph 
                (B)(iii)(IV), a plan shall be treated as having had a 
                substantial increase in coverage or benefits during the 
                applicable 5-year period only if, during such period--
                          ``(i) the number of participants benefitting 
                        under the plan on the date such period ends is 
                        more than 50 percent greater than the number of 
                        such participants on the first day of the plan 
                        year in which such period began, or
                          ``(ii) the average benefit provided to such 
                        participants on the date such period ends is 
                        more than 50 percent greater than the average 
                        benefit provided on the first day of the plan 
                        year in which such period began.
                  ``(F) Certain employees disregarded.--For purposes of 
                subparagraphs (D) and (E), any increase in coverage or 
                value or in coverage or benefits, whichever is 
                applicable, which is attributable to such coverage and 
                value or coverage and benefits provided to employees--
                          ``(i) who became participants as a result of 
                        a merger, acquisition, or similar event which 
                        occurred during the 7-year period preceding the 
                        date the class is closed, or
                          ``(ii) who became participants by reason of a 
                        merger of the plan with another plan which had 
                        been in effect for at least 5 years as of the 
                        date of the merger,
                shall be disregarded, except that clause (ii) shall 
                apply for purposes of subparagraph (D) only if, under 
                the merger, the benefits, rights, or features under 1 
                plan are conformed to the benefits, rights, or features 
                of the other plan prospectively.
                  ``(G) Rules relating to average benefit.--For 
                purposes of subparagraph (E)--
                          ``(i) the average benefit provided to 
                        participants under the plan will be treated as 
                        having remained the same between the 2 dates 
                        described in subparagraph (E)(ii) if the 
                        benefit formula applicable to such participants 
                        has not changed between such dates, and
                          ``(ii) if the benefit formula applicable to 1 
                        or more participants under the plan has changed 
                        between such 2 dates, then the average benefit 
                        under the plan shall be considered to have 
                        increased by more than 50 percent only if--
                                  ``(I) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                participants benefitting under the plan 
                                for the plan year in which the 5-year 
                                period described in subparagraph (E) 
                                ends, exceeds
                                  ``(II) the total amount determined 
                                under section 430(b)(1)(A)(i) for all 
                                such participants for such plan year, 
                                by using the benefit formula in effect 
                                for each such participant for the first 
                                plan year in such 5-year period,
                        by more than 50 percent. In the case of a CSEC 
                        plan (as defined in section 414(y)), the normal 
                        cost of the plan (as determined under section 
                        433(j)(1)(B)) shall be used in lieu of the 
                        amount determined under section 
                        430(b)(1)(A)(i).
                  ``(H) Treatment as single plan.--For purposes of 
                subparagraphs (E) and (G), a plan described in section 
                413(c) shall be treated as a single plan rather than as 
                separate plans maintained by each employer in the plan.
                  ``(I) Special rules.--For purposes of subparagraphs 
                (A)(i) and (B)(iii)(II), the following rules shall 
                apply:
                          ``(i) In applying section 410(b)(6)(C), the 
                        closing of the class of participants shall not 
                        be treated as a significant change in coverage 
                        under section 410(b)(6)(C)(i)(II).
                          ``(ii) 2 or more plans shall not fail to be 
                        eligible to be aggregated and treated as a 
                        single plan solely by reason of having 
                        different plan years.
                          ``(iii) Changes in the employee population 
                        shall be disregarded to the extent attributable 
                        to individuals who become employees or cease to 
                        be employees, after the date the class is 
                        closed, by reason of a merger, acquisition, 
                        divestiture, or similar event.
                          ``(iv) Aggregation and all other testing 
                        methodologies otherwise applicable under 
                        subsection (a)(4) and section 410(b) may be 
                        taken into account.
                The rule of clause (ii) shall also apply for purposes 
                of determining whether plans to which subparagraph 
                (B)(i) applies may be aggregated and treated as 1 plan 
                for purposes of determining whether such plans meet the 
                requirements of subsection (a)(4) and section 410(b).
                  ``(J) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined benefit plan 
                described in subparagraph (A) or (B)(iii) is spun off 
                to another employer and the spun-off plan continues to 
                satisfy the requirements of--
                          ``(i) subparagraph (A)(i) or (B)(iii)(II), 
                        whichever is applicable, if the original plan 
                        was still within the 3-year period described in 
                        such subparagraph at the time of the spin off, 
                        and
                          ``(ii) subparagraph (A)(ii) or (B)(iii)(III), 
                        whichever is applicable,
                the treatment under subparagraph (A) or (B) of the 
                spun-off plan shall continue with respect to such other 
                employer.
          ``(2) Testing of defined contribution plans.--
                  ``(A) Testing on a benefits basis.--A defined 
                contribution plan shall be permitted to be tested on a 
                benefits basis if--
                          ``(i) such defined contribution plan provides 
                        make-whole contributions to a closed class of 
                        participants whose accruals under a defined 
                        benefit plan have been reduced or eliminated,
                          ``(ii) for the plan year of the defined 
                        contribution plan as of which the class 
                        eligible to receive such make-whole 
                        contributions closes and the 2 succeeding plan 
                        years, such closed class of participants 
                        satisfies the requirements of section 
                        410(b)(2)(A)(i) (determined by applying the 
                        rules of paragraph (1)(I)),
                          ``(iii) after the date as of which the class 
                        was closed, any plan amendment to the defined 
                        contribution plan which modifies the closed 
                        class or the allocations, benefits, rights, and 
                        features provided to such closed class does not 
                        discriminate significantly in favor of highly 
                        compensated employees, and
                          ``(iv) the class was closed before April 5, 
                        2017, or the defined benefit plan under clause 
                        (i) is described in paragraph (1)(C) (as 
                        applied for purposes of paragraph 
                        (1)(B)(iii)(IV)).
                  ``(B) Aggregation with plans including matching 
                contributions.--
                          ``(i) In general.--With respect to 1 or more 
                        defined contribution plans described in 
                        subparagraph (A), for purposes of determining 
                        compliance with subsection (a)(4) and section 
                        410(b), the portion of such plans which 
                        provides make-whole contributions or other 
                        nonelective contributions may be aggregated and 
                        tested on a benefits basis with the portion of 
                        1 or more other defined contribution plans 
                        which--
                                  ``(I) provides matching contributions 
                                (as defined in subsection (m)(4)(A)),
                                  ``(II) provides annuity contracts 
                                described in section 403(b) which are 
                                purchased with matching contributions 
                                or nonelective contributions, or
                                  ``(III) consists of an employee stock 
                                ownership plan (within the meaning of 
                                section 4975(e)(7)) or a tax credit 
                                employee stock ownership plan (within 
                                the meaning of section 409(a)).
                          ``(ii) Special rules for matching 
                        contributions.--Rules similar to the rules of 
                        paragraph (1)(B)(ii) shall apply for purposes 
                        of clause (i).
                  ``(C) Special rules for testing defined contribution 
                plan features providing matching contributions to 
                certain older, longer service participants.--In the 
                case of a defined contribution plan which provides 
                benefits, rights, or features to a closed class of 
                participants whose accruals under a defined benefit 
                plan have been reduced or eliminated, the plan shall 
                not fail to satisfy the requirements of subsection 
                (a)(4) solely by reason of the composition of the 
                closed class or the benefits, rights, or features 
                provided to such closed class if the defined 
                contribution plan and defined benefit plan otherwise 
                meet the requirements of subparagraph (A) but for the 
                fact that the make-whole contributions under the 
                defined contribution plan are made in whole or in part 
                through matching contributions.
                  ``(D) Spun-off plans.--For purposes of this 
                paragraph, if a portion of a defined contribution plan 
                described in subparagraph (A) or (C) is spun off to 
                another employer, the treatment under subparagraph (A) 
                or (C) of the spun-off plan shall continue with respect 
                to the other employer if such plan continues to comply 
                with the requirements of clauses (ii) (if the original 
                plan was still within the 3-year period described in 
                such clause at the time of the spin off) and (iii) of 
                subparagraph (A), as determined for purposes of 
                subparagraph (A) or (C), whichever is applicable.
          ``(3) Definitions and special rule.--For purposes of this 
        subsection--
                  ``(A) Make-whole contributions.--Except as otherwise 
                provided in paragraph (2)(C), the term `make-whole 
                contributions' means nonelective allocations for each 
                employee in the class which are reasonably calculated, 
                in a consistent manner, to replace some or all of the 
                retirement benefits which the employee would have 
                received under the defined benefit plan and any other 
                plan or qualified cash or deferred arrangement under 
                subsection (k)(2) if no change had been made to such 
                defined benefit plan and such other plan or 
                arrangement. For purposes of the preceding sentence, 
                consistency shall not be required with respect to 
                employees who were subject to different benefit 
                formulas under the defined benefit plan.
                  ``(B) References to closed class of participants.--
                References to a closed class of participants and 
                similar references to a closed class shall include 
                arrangements under which 1 or more classes of 
                participants are closed, except that 1 or more classes 
                of participants closed on different dates shall not be 
                aggregated for purposes of determining the date any 
                such class was closed.
                  ``(C) Highly compensated employee.--The term `highly 
                compensated employee' has the meaning given such term 
                in section 414(q).''.
  (b) Participation Requirements.--Paragraph (26) of section 401(a) of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following new subparagraph:
                  ``(I) Protected participants.--
                          ``(i) In general.--A plan shall be deemed to 
                        satisfy the requirements of subparagraph (A) 
                        if--
                                  ``(I) the plan is amended--
                                          ``(aa) to cease all benefit 
                                        accruals, or
                                          ``(bb) to provide future 
                                        benefit accruals only to a 
                                        closed class of participants,
                                  ``(II) the plan satisfies 
                                subparagraph (A) (without regard to 
                                this subparagraph) as of the effective 
                                date of the amendment, and
                                  ``(III) the amendment was adopted 
                                before April 5, 2017, or the plan is 
                                described in clause (ii).
                          ``(ii) Plans described.--A plan is described 
                        in this clause if the plan would be described 
                        in subsection (o)(1)(C), as applied for 
                        purposes of subsection (o)(1)(B)(iii)(IV) and 
                        by treating the effective date of the amendment 
                        as the date the class was closed for purposes 
                        of subsection (o)(1)(C).
                          ``(iii) Special rules.--For purposes of 
                        clause (i)(II), in applying section 
                        410(b)(6)(C), the amendments described in 
                        clause (i) shall not be treated as a 
                        significant change in coverage under section 
                        410(b)(6)(C)(i)(II).
                          ``(iv) Spun-off plans.--For purposes of this 
                        subparagraph, if a portion of a plan described 
                        in clause (i) is spun off to another employer, 
                        the treatment under clause (i) of the spun-off 
                        plan shall continue with respect to the other 
                        employer.''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act, without regard to whether any 
        plan modifications referred to in such amendments are adopted 
        or effective before, on, or after such date of enactment.
          (2) Special rules.--
                  (A) Election of earlier application.--At the election 
                of the plan sponsor, the amendments made by this 
                section shall apply to plan years beginning after 
                December 31, 2013.
                  (B) Closed classes of participants.--For purposes of 
                paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) 
                of section 401(o) of the Internal Revenue Code of 1986 
                (as added by this section), a closed class of 
                participants shall be treated as being closed before 
                April 5, 2017, if the plan sponsor's intention to 
                create such closed class is reflected in formal written 
                documents and communicated to participants before such 
                date.
                  (C) Certain post-enactment plan amendments.--A plan 
                shall not be treated as failing to be eligible for the 
                application of section 401(o)(1)(A), 401(o)(1)(B)(iii), 
                or 401(a)(26) of such Code (as added by this section) 
                to such plan solely because in the case of--
                          (i) such section 401(o)(1)(A), the plan was 
                        amended before the date of the enactment of 
                        this Act to eliminate 1 or more benefits, 
                        rights, or features, and is further amended 
                        after such date of enactment to provide such 
                        previously eliminated benefits, rights, or 
                        features to a closed class of participants, or
                          (ii) such section 401(o)(1)(B)(iii) or 
                        section 401(a)(26), the plan was amended before 
                        the date of the enactment of this Act to cease 
                        all benefit accruals, and is further amended 
                        after such date of enactment to provide benefit 
                        accruals to a closed class of participants.
                Any such section shall only apply if the plan otherwise 
                meets the requirements of such section and in applying 
                such section, the date the class of participants is 
                closed shall be the effective date of the later 
                amendment.

SEC. 206. MODIFICATION OF PBGC PREMIUMS FOR CSEC PLANS.

  (a) Flat Rate Premium.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) 
is amended--
          (1) in clause (i), by striking ``plan,'' and inserting ``plan 
        other than a CSEC plan (as defined in section 210(f)(1))'';
          (2) in clause (v), by striking ``or'' at the end;
          (3) in clause (vi), by striking the period at the end and 
        inserting ``, or''; and
          (4) by adding at the end the following new clause:
                          ``(vii) in the case of a CSEC plan (as 
                        defined in section 210(f)(1)), for plan years 
                        beginning after December 31, 2018, for each 
                        individual who is a participant in such plan 
                        during the plan year an amount equal to the sum 
                        of--
                                  ``(I) the additional premium (if any) 
                                determined under subparagraph (E), and
                                  ``(II) $19.''.
  (b) Variable Rate Premium.--
          (1) Unfunded vested benefits.--
                  (A) In general.--Subparagraph (E) of section 
                4006(a)(3) of the Employee Retirement Income Security 
                Act of 1974 (29 U.S.C. 1306(a)(3)) is amended by adding 
                at the end the following new clause:
                  ``(v) For purposes of clause (ii), in the case of a 
                CSEC plan (as defined in section 210(f)(1)), the term 
                `unfunded vested benefits' means, for plan years 
                beginning after December 31, 2018, the excess (if any) 
                of--
                          ``(I) the funding liability of the plan as 
                        determined under section 306(j)(5)(C) for the 
                        plan year by only taking into account vested 
                        benefits, over
                          ``(II) the fair market value of plan assets 
                        for the plan year which are held by the plan on 
                        the valuation date.''.
                  (B) Conforming amendment.--Clause (iii) of section 
                4006(a)(3)(E) of such Act (29 U.S.C. 1306(a)(3)(E)) is 
                amended by striking ``For purposes'' and inserting 
                ``Except as provided in clause (v), for purposes''.
          (2) Applicable dollar amount.--
                  (A) In general.--Paragraph (8) of section 4006(a) of 
                such Act (29 U.S.C. 1306(a)) is amended by adding at 
                the end the following new subparagraph:
                  ``(E) CSEC plans.--In the case of a CSEC plan (as 
                defined in section 210(f)(1)), the applicable dollar 
                amount shall be $9.''.
                  (B) Conforming amendment.--Subparagraph (A) of 
                section 4006(a)(8) of such Act (29 U.S.C. 1306(a)(8)) 
                is amended by striking ``(B) and (C)'' and inserting 
                ``(B), (C), and (E)''.

                       TITLE III--OTHER BENEFITS

SEC. 301. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY 
                    MEDICAL RESPONDERS.

  (a) Increase in Dollar Limitation on Qualified Payments.--
Subparagraph (B) of section 139B(c)(2) of the Internal Revenue Code of 
1986 is amended by striking ``$30'' and inserting ``$50''.
  (b) Extension.--Section 139B(d) of the Internal Revenue Code of 1986 
is amended by striking ``beginning after December 31, 2010.'' and 
inserting ``beginning--
          ``(1) after December 31, 2010, and before January 1, 2020, or
          ``(2) after December 31, 2020.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2019.

SEC. 302. EXPANSION OF SECTION 529 PLANS.

  (a) Distributions for Certain Expenses Associated With Registered 
Apprenticeship Programs.--Section 529(c) of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new paragraph:
          ``(8) Treatment of certain expenses associated with 
        registered apprenticeship programs.--Any reference in this 
        subsection to the term `qualified higher education expense' 
        shall include a reference to expenses for fees, books, 
        supplies, and equipment required for the participation of a 
        designated beneficiary in an apprenticeship program registered 
        and certified with the Secretary of Labor under section 1 of 
        the National Apprenticeship Act (29 U.S.C. 50).''
  (b) Distributions for Certain Homeschooling Expenses.--Section 
529(c)(7) of such Code is amended by striking ``include a reference 
to'' and all that follows and inserting: ``include a reference to--
                  ``(A) expenses for tuition in connection with 
                enrollment or attendance of a designated beneficiary at 
                an elementary or secondary public, private, or 
                religious school, and
                  ``(B) expenses, with respect to a designated 
                beneficiary, for--
                          ``(i) curriculum and curricular materials,
                          ``(ii) books or other instructional 
                        materials,
                          ``(iii) online educational materials,
                          ``(iv) tuition for tutoring or educational 
                        classes outside of the home (but only if the 
                        tutor or class instructor is not related 
                        (within the meaning of section 152(d)(2)) to 
                        the student),
                          ``(v) dual enrollment in an institution of 
                        higher education, and
                          ``(vi) educational therapies for students 
                        with disabilities,
                in connection with a homeschool (whether treated as a 
                homeschool or a private school for purposes of 
                applicable State law).''.
  (c) Distributions for Qualified Education Loan Repayments.--
          (1) In general.--Section 529(c) of such Code, as amended by 
        subsection (a), is amended by adding at the end the following 
        new paragraph:
          ``(9) Treatment of qualified education loan repayments.--
                  ``(A) In general.--Any reference in this subsection 
                to the term `qualified higher education expense' shall 
                include a reference to amounts paid as principal or 
                interest on any qualified education loan (as defined in 
                section 221(d)) of the designated beneficiary or a 
                sibling of the designated beneficiary.
                  ``(B) Limitation.--The amount of distributions 
                treated as a qualified higher education expense under 
                this paragraph with respect to the loans of any 
                individual shall not exceed $10,000 (reduced by the 
                amount of distributions so treated for all prior 
                taxable years).
                  ``(C) Special rules for siblings of the designated 
                beneficiary.--
                          ``(i) Separate accounting.--For purposes of 
                        subparagraph (B) and subsection (d), amounts 
                        treated as a qualified higher education expense 
                        with respect to the loans of a sibling of the 
                        designated beneficiary shall be taken into 
                        account with respect to such sibling and not 
                        with respect to such designated beneficiary.
                          ``(ii) Sibling defined.--For purposes of this 
                        paragraph, the term `sibling' means an 
                        individual who bears a relationship to the 
                        designated beneficiary which is described in 
                        section 152(d)(2)(B).''.
          (2) Coordination with deduction for student loan interest.--
        Section 221(e)(1) of such Code is amended by adding at the end 
        the following: ``The deduction otherwise allowable under 
        subsection (a) (prior to the application of subsection (b)) to 
        the taxpayer for any taxable year shall be reduced (but not 
        below zero) by so much of the distributions treated as a 
        qualified higher education expense under section 529(c)(9) with 
        respect to loans of the taxpayer as would be includible in 
        gross income under section 529(c)(3)(A) for such taxable year 
        but for such treatment.''.
  (d) Distributions for Certain Elementary and Secondary School 
Expenses in Addition to Tuition.--Section 529(c)(7)(A) of such Code, as 
amended by subsection (b), is amended to read as follows:
                  ``(A) expenses described in section 530(b)(3)(A)(i) 
                in connection with enrollment or attendance of a 
                designated beneficiary at an elementary or secondary 
                public, private, or religious school, and''.
  (e) Effective Dates.--The amendments made by this section shall apply 
to distributions made after December 31, 2018.

                      TITLE IV--REVENUE PROVISIONS

SEC. 401. MODIFICATION OF REQUIRED DISTRIBUTION RULES FOR DESIGNATED 
                    BENEFICIARIES.

  (a) Modification of Rules Where Employee Dies Before Entire 
Distribution.--
          (1) In general.--Section 401(a)(9) of the Internal Revenue 
        Code of 1986 is amended by adding at the end the following new 
        subparagraph
                  ``(H) Special rules for certain defined contribution 
                plans.--In the case of a defined contribution plan, if 
                an employee dies before the distribution of the 
                employee's entire interest--
                          ``(i) In general.--Except in the case of a 
                        beneficiary who is not a designated 
                        beneficiary, subparagraph (B)(ii)--
                                  ``(I) shall be applied by 
                                substituting `10 years' for `5 years', 
                                and
                                  ``(II) shall apply whether or not 
                                distributions of the employee's 
                                interests have begun in accordance with 
                                subparagraph (A).
                          ``(ii) Exception only for eligible designated 
                        beneficiaries.--Subparagraph (B)(iii) shall 
                        apply only in the case of an eligible 
                        designated beneficiary.
                          ``(iii) Rules upon death of eligible 
                        designated beneficiary.--If an eligible 
                        designated beneficiary dies before the portion 
                        of the employee's interest to which this 
                        subparagraph applies is entirely distributed, 
                        the exception under clause (iii) shall not 
                        apply to any beneficiary of such eligible 
                        designated beneficiary and the remainder of 
                        such portion shall be distributed within 10 
                        years after the death of such eligible 
                        designated beneficiary.
                          ``(iv) Application to eligible retirement 
                        plans.--For purposes of applying the provisions 
                        of this subparagraph in determining the amounts 
                        required to be distributed pursuant to this 
                        paragraph, all eligible retirement plans (as 
                        defined in section 402(c)(8)(B)) other than a 
                        defined benefit plan shall be treated as a 
                        defined contribution plan.''.
          (2) Definition of eligible designated beneficiary.--Section 
        401(a)(9)(E) of such Code is amended to read as follows:
                  ``(E) Definitions and rules relating to designated 
                beneficiary.--For purposes of this paragraph--
                          ``(i) Designated beneficiary.--The term 
                        `designated beneficiary' means any individual 
                        designated as a beneficiary by the employee.
                          ``(ii) Eligible designated beneficiary.--The 
                        term `eligible designated beneficiary' means, 
                        with respect to any employee, any designated 
                        beneficiary who is--
                                  ``(I) the surviving spouse of the 
                                employee,
                                  ``(II) subject to clause (iii), a 
                                child of the employee who has not 
                                reached majority (within the meaning of 
                                subparagraph (F)),
                                  ``(III) disabled (within the meaning 
                                of section 72(m)(7)),
                                  ``(IV) a chronically ill individual 
                                (within the meaning of section 
                                7702B(c)(2), except that the 
                                requirements of subparagraph (A)(i) 
                                thereof shall only be treated as met if 
                                there is a certification that, as of 
                                such date, the period of inability 
                                described in such subparagraph with 
                                respect to the individual is an 
                                indefinite one which is reasonably 
                                expected to be lengthy in nature), or
                                  ``(V) an individual not described in 
                                any of the preceding subclauses who is 
                                not more than 10 years younger than the 
                                employee.
                          ``(iii) Special rule for children.--Subject 
                        to subparagraph (F), an individual described in 
                        clause (ii)(II) shall cease to be an eligible 
                        designated beneficiary as of the date the 
                        individual reaches majority and any remainder 
                        of the portion of the individual's interest to 
                        which subparagraph (H)(ii) applies shall be 
                        distributed within 10 years after such date.
                          ``(iv) Time for determination of eligible 
                        designated beneficiary.--The determination of 
                        whether a designated beneficiary is an eligible 
                        designated beneficiary shall be made as of the 
                        date of death of the employee.''.
          (3) Effective dates.--
                  (A) In general.--Except as provided in this paragraph 
                and paragraphs (4) and (5), the amendments made by this 
                subsection shall apply to distributions with respect to 
                employees who die after December 31, 2019.
                  (B) 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 
                enactment of this Act, the amendments made by this 
                subsection shall apply to distributions with respect to 
                employees who die in calendar years beginning after the 
                earlier of--
                          (i) the later of--
                                  (I) the date on which the last of 
                                such collective bargaining agreements 
                                terminates (determined without regard 
                                to any extension thereof agreed to on 
                                or after the date of the enactment of 
                                this Act), or
                                  (II) December 31, 2019, or
                          (ii) December 31, 2021.
                For purposes of clause (i)(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 section shall not be 
                treated as a termination of such collective bargaining 
                agreement.
                  (C) Governmental plans.--In the case of a 
                governmental plan (as defined in section 414(d) of the 
                Internal Revenue Code of 1986), subparagraph (A) shall 
                be applied by substituting ``December 31, 2021'' for 
                ``December 31, 2019''.
          (4) Exception for certain existing annuity contracts.--
                  (A) In general.--The amendments made by this 
                subsection shall not apply to a qualified annuity which 
                is a binding annuity contract in effect on the date of 
                enactment of this Act and at all times thereafter.
                  (B) Qualified annuity.--For purposes of this 
                paragraph, the term ``qualified annuity'' means, with 
                respect to an employee, an annuity--
                          (i) which is a commercial annuity (as defined 
                        in section 3405(e)(6) of the Internal Revenue 
                        Code of 1986);
                          (ii) under which the annuity payments are 
                        made over the life of the employee or over the 
                        joint lives of such employee and a designated 
                        beneficiary (or over a period not extending 
                        beyond the life expectancy of such employee or 
                        the joint life expectancy of such employee and 
                        a designated beneficiary) in accordance with 
                        the regulations described in section 
                        401(a)(9)(A)(ii) of such Code (as in effect 
                        before such amendments) and which meets the 
                        other requirements of section 401(a)(9) of such 
                        Code (as so in effect) with respect to such 
                        payments; and
                          (iii) with respect to which--
                                  (I) annuity payments to the employee 
                                have begun before the date of enactment 
                                of this Act, and the employee has made 
                                an irrevocable election before such 
                                date as to the method and amount of the 
                                annuity payments to the employee or any 
                                designated beneficiaries; or
                                  (II) if subclause (I) does not apply, 
                                the employee has made an irrevocable 
                                election before the date of enactment 
                                of this Act as to the method and amount 
                                of the annuity payments to the employee 
                                or any designated beneficiaries.
          (5) Exception for certain beneficiaries.--
                  (A) In general.--If an employee dies before the 
                effective date, then, in applying the amendments made 
                by this subsection to such employee's designated 
                beneficiary who dies after such date--
                          (i) such amendments shall apply to any 
                        beneficiary of such designated beneficiary; and
                          (ii) the designated beneficiary shall be 
                        treated as an eligible designated beneficiary 
                        for purposes of applying section 
                        401(a)(9)(H)(ii) of the Internal Revenue Code 
                        of 1986 (as in effect after such amendments).
                  (B) Effective date.--For purposes of this paragraph, 
                the term ``effective date'' means the first day of the 
                first calendar year to which the amendments made by 
                this subsection apply to a plan with respect to 
                employees dying on or after such date.
  (b) Provisions Relating to Plan Amendments.--
          (1) In general.--If this subsection applies to any plan 
        amendment--
                  (A) such plan shall be treated as being operated in 
                accordance with the terms of the plan during the period 
                described in paragraph (2)(B)(i); and
                  (B) except as provided by the Secretary of the 
                Treasury, such plan shall not fail to meet the 
                requirements of section 411(d)(6) of the Internal 
                Revenue Code of 1986 and section 204(g) of the Employee 
                Retirement Income Security Act of 1974 by reason of 
                such amendment.
          (2) Amendments to which subsection applies.--
                  (A) In general.--This subsection shall apply to any 
                amendment to any plan or which is made--
                          (i) pursuant to any amendment made by this 
                        section or pursuant to any regulation issued by 
                        the Secretary of the Treasury under this 
                        section or such amendments; and
                          (ii) on or before the last day of the first 
                        plan year beginning after December 31, 2021, or 
                        such later date as the Secretary of the 
                        Treasury may prescribe.
                In the case of a governmental or collectively bargained 
                plan to which subparagraph (B) or (C) of subsection 
                (a)(4) applies, clause (ii) shall be applied by 
                substituting the date which is 2 years after the date 
                otherwise applied under such clause.
                  (B) Conditions.--This subsection shall not apply to 
                any amendment unless--
                          (i) during the period--
                                  (I) beginning on the date the 
                                legislative or regulatory amendment 
                                described in paragraph (1)(A) takes 
                                effect (or in the case of a plan 
                                amendment not required by such 
                                legislative or regulatory amendment, 
                                the effective date specified by the 
                                plan); and
                                  (II) ending on the date described in 
                                subparagraph (A)(ii) (or, if earlier, 
                                the date the plan amendment is 
                                adopted),
                        the plan is operated as if such plan amendment 
                        were in effect; and
                          (ii) such plan amendment applies 
                        retroactively for such period.

SEC. 402. INCREASE IN PENALTY FOR FAILURE TO FILE.

  (a) In General.--The second sentence of subsection (a) of section 
6651 of the Internal Revenue Code of 1986 is amended by striking 
``$205'' and inserting ``$400''.
  (b) Inflation Adjustment.--Section 6651(j)(1) of such Code is amended 
by striking ``$205'' and inserting ``$400''.
  (b) Effective Date.--The amendments made by this section shall apply 
to returns the due date for which (including extensions) is after 
December 31, 2019.

SEC. 403. INCREASED PENALTIES FOR FAILURE TO FILE RETIREMENT PLAN 
                    RETURNS.

  (a) In General.--Subsection (e) of section 6652 of the Internal 
Revenue Code of 1986 is amended--
          (1) by striking ``$25'' and inserting ``$105''; and
          (2) by striking ``$15,000'' and inserting ``$50,000''.
  (b) Annual Registration Statement and Notification of Changes.--
Subsection (d) of section 6652 of the Internal Revenue Code of 1986 is 
amended--
          (1) by striking ``$1'' both places it appears in paragraphs 
        (1) and (2) and inserting ``$2'';
          (2) by striking ``$5,000'' in paragraph (1) and inserting 
        ``$10,000''; and
          (3) by striking ``$1,000'' in paragraph (2) and inserting 
        ``$5,000''.
  (c) Failure To Provide Notice.--Subsection (h) of section 6652 of the 
Internal Revenue Code of 1986 is amended--
          (1) by striking ``$10'' and inserting ``$100''; and
          (2) by striking ``$5,000'' and inserting ``$50,000''.
  (d) Effective Date.--The amendments made by this section shall apply 
to returns, statements, and notifications required to be filed, and 
notices required to be provided, after December 31, 2019.

SEC. 404. INCREASE INFORMATION SHARING TO ADMINISTER EXCISE TAXES.

  (a) In General.--Section 6103(o) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
          ``(3) Taxes imposed by section 4481.--Returns and return 
        information with respect to taxes imposed by section 4481 shall 
        be open to inspection by or disclosure to officers and 
        employees of United States Customs and Border Protection of the 
        Department of Homeland Security whose official duties require 
        such inspection or disclosure for purposes of administering 
        such section.''.
  (b) Conforming Amendments.--Paragraph (4) of section 6103(p) of the 
Internal Revenue Code of 1986 is amended by striking ``or (o)(1)(A)'' 
each place it appears and inserting ``, (o)(1)(A), or (o)(3)''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1994, the ``Setting Every Community Up for 
Retirement Enhancement Act of 2019'' (the ``SECURE Act''), as 
ordered reported by the Committee on Ways and Means on April 2, 
2019, amends the Internal Revenue Code of 1986 to encourage 
retirement savings, and for other purposes.

                 B. Background and Need for Legislation

    Employer-sponsored retirement plans and IRAs are valuable 
tools successfully used by millions of Americans to help save 
for retirement. The Committee believes that it should be easier 
for Americans to use these accounts to save. The Committee also 
believes that it should be easier for employers to offer 
retirement plans to their employees.
    H.R. 1994 addresses these issues by expanding opportunities 
for Americans to increase their savings and making 
administrative simplifications to the retirement system. 
Specifically, H.R. 1994:
           increases to 72 the age after which required 
        minimum distributions from certain retirement accounts 
        must begin;
           modifies requirements for multiple employer 
        plans to make it easier for small businesses to offer 
        such plans to their employees by allowing otherwise 
        completely unrelated employers to join in the same 
        plan;
           reduces Pension Benefit Guaranty Corporation 
        premiums for certain multiple employer defined benefit 
        plans of cooperatives and charities;
           allows penalty-free distributions from 
        qualified retirement plans and IRAs for births and 
        adoptions;
           makes it easier for long-term, part-time 
        employees to participate in elective deferrals;
           allows consolidated filings of Forms 5500 
        for similar plans;
           allows certain home healthcare workers to 
        contribute to a defined contribution plan or IRA;
           and makes certain other changes.

                         C. Legislative History


Background

    H.R. 1994 was introduced on March 29, 2019 and referred to 
the Committee on Ways and Means, and additionally to the 
Committee on Education and Labor.
    The legislation builds upon several different bills. One of 
those bills, H.R. 6757, was passed by the House in the 115th 
Congress. In addition, H.R. 1994 contains certain provisions 
similar to H.R. 1007, the Retirement Enhancement and Savings 
Act of 2019 (``RESA''), which was introduced on February 6, 
2019, and referred to the Committee on Ways and Means, and 
additionally to the Committee on Education and Labor. Similar 
bills have been introduced in previous sessions of Congress. In 
the 114th Congress, the Senate companion to RESA, S. 3471 was 
ordered favorably reported by the Finance Committee by a vote 
of 26 to 0 on September 21, 2016. In the 116th Congress, the 
Senate companion to RESA, S. 321, was introduced on February 4, 
2019, and referred to the Finance Committee. RESA would, among 
other things, make multiple employer plans (a ``MEP'' or 
``MEPs'') more attractive by eliminating outdated barriers to 
their use and by strengthening the standards for MEP service 
providers. RESA also provides relief of Pension Benefit 
Guaranty Corporation premiums to cooperative and small employer 
charity plans.
    Provisions of H.R. 982 are similarly incorporated into H.R. 
1994. Introduced on February 5, 2019, and referred to the 
Committee on Ways and Means, and additionally to the Committee 
on Education and the Workforce, H.R. 982 directs the Internal 
Revenue Service and the Department of Labor to effectuate the 
filing of a consolidated Form 5500 for similar plans. Employers 
file the Form 5500 series to satisfy annual reporting 
requirements under Title I and Title IV of the Employee 
Retirement Income Security Act and under the Internal Revenue 
Code.
    H.R. 1241, the Volunteer Responder Incentive Protection Act 
of 2019, is also largely incorporated into H.R. 1994. 
Introduced on February 14, 2019, and referred to the Committee 
on Ways and Means, H.R. 1241 would reinstate for one year the 
exclusions for qualified State or local tax benefits and 
qualified reimbursement payments provided to members of 
qualified volunteer emergency response organizations and would 
increase the exclusion for qualified reimbursement payments to 
$50 for each month during which a volunteer performs services.
    Additionally, H.R. 1994 includes H.R. 1874, introduced on 
March 26, 2019 and referred to the Committee on Ways and Means. 
The measure would require employers maintaining a 401(k) plan 
to have a dual eligibility requirement under which an employee 
must complete either a one year of service requirement (with 
the 1,000-hour rule) or three consecutive years of service 
where the employee completes at least 500 hours of service.
    H.R. 1994 also includes H.R. 1932, introduced on March 27, 
2019 and referred to the Committee on Ways and Means. The 
measure would also allow certain home healthcare workers to 
contribute to a defined contribution plan or IRA.

Committee hearings

    On February 6, 2019, the Committee on Ways and Means held a 
hearing on ``Improving Retirement Security for America's 
Workers.'' Witnesses included Nancy Altman, President, Social 
Security Works; Andrew Biggs, Resident Scholar, American 
Enterprise Institute; Roger J. Crandall, Chairman, President & 
CEO, MassMutual; Robin Diamonte, Corporate Vice President, 
Pension Investments, United Technologies; Luke Huffstutter, 
Owner, Annastasia Salon and Summit Salon Academy, Portland, OR; 
Cindy McDaniel, Co-director, Missouri-Kansas City Committee to 
Protect Pensions; and Diane Oakley Executive Director, National 
Institute on Retirement Security.
    The Ways and Means Committee also held relevant hearings in 
prior Congresses. In the 113th Congress, the Subcommittee on 
Select Revenue Measures of the Committee on Ways and Means held 
a hearing on ``Private Employer Defined Benefit Pension Plans'' 
on September 17, 2014. Witnesses included Deborah Tully, 
Director of Compensation and Benefits Finance and Accounting 
Analysis, Raytheon; R. Dale Hall, Managing Director of 
Research, Society of Actuaries; Scott Henderson, Vice President 
of Pension Investment and Strategy, The Kroger Co.; Jeremy 
Gold, FSA, MAAA, Jeremy Gold Pensions; and Diane Oakley, 
Executive Director, National Institute on Retirement Security.
    In the 114th Congress, the Subcommittee on Oversight of the 
Committee on Ways and Means held a hearing on the ``Department 
of Labor's Proposed Fiduciary Rule'' on September 17, 2014. 
Witnesses included Bradford Campbell, Counsel, Drinker Biddle & 
Reath LLP, Washington, D.C.; Paul Schott Stevens, President and 
CEO, Investment Company Institute, Washington, D.C.; Judy 
VanArsdale, LPL Financial Advisor, enRich Private Wealth 
Management, Kildeer, IL; Kenneth Specht, Financial Services 
Professional, Agent, New York Life Insurance Company, Kenosha, 
WI; Patricia Owen, President, FACES DaySpa, Hilton Head Island, 
SC; and Damon Silvers, Director of Policy and Special Counsel, 
AFL-CIO, Washington, D.C.
    In the 115th Congress, the Tax Policy Subcommittee of the 
Committee on Ways & Means held a hearing on ``How Tax Reform 
Will Simplify Our Broken Tax Code and Help Individuals and 
Families'' on July 18, 2017. Witnesses included the Honorable 
Bill Archer, Former Chairman, Committee on Ways and Means; 
Bernard F. McKay, Chairman of the Board of Directors, Council 
for Electronic Revenue Communication Advancement; Jania Stout, 
Practice Leader and Co-Founder, Fiduciary Plan Advisors at 
HighTower; and Eric Rodriguez, Vice President--Office of 
Research, Advocacy, and Legislation, UnidosUS.

Background

    H.R. 1994 was introduced on March 29, 2019, and was 
referred to the Committee on Ways and Means and the Committee 
on Education and Labor.

Committee action

    The Committee on Ways and Means marked up H.R. 1994, the 
``Setting Every Community Up for Retirement Enhancement Act of 
2019,'' on April 2, 2019, and ordered the bill, as amended, 
favorably reported (with a quorum being present).

                      II. EXPLANATION OF THE BILL


          TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS


 A. Multiple Employer Plans and Pooled Employer Plans; Reporting (sec. 
  101 of the bill, sec. 413 of the Code, and secs. 3, 103, and 104 of 
                                 ERISA)


                              PRESENT LAW

Retirement savings under the Code and ERISA

            Tax-favored arrangements
    The Internal Revenue Code (``Code'') provides two general 
vehicles for tax-favored retirement savings: employer-sponsored 
plans and individual retirement arrangements (``IRAs''). Code 
provisions are generally within the jurisdiction of the 
Secretary of the Treasury (``Secretary''), through his or her 
delegate, the Internal Revenue Service (``IRS'').
    The most common type of tax-favored employer-sponsored 
retirement plan is a qualified retirement plan,\1\ which may be 
a defined contribution plan or a defined benefit plan. Under a 
defined contribution plan, separate individual accounts are 
maintained for participants, to which accumulated 
contributions, earnings, and losses are allocated, and 
participants' benefits are based on the value of their 
accounts.\2\ Defined contribution plans commonly allow 
participants to direct the investment of their accounts, 
usually by choosing among investment options offered under the 
plan. Under a defined benefit plan, benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts.\3\ Besides qualified retirement 
plans, certain tax-exempt employers and public schools may 
maintain tax-deferred annuity plans.\4\
---------------------------------------------------------------------------
    \1\Sec. 401(a). A qualified annuity plan under section 403(a) is 
similar to and subject to requirements similar to those applicable to 
qualified retirement plans. Unless otherwise stated, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
    \2\Sec. 414(i). Defined contribution plans generally provide for 
contributions by employers and may include a qualified cash or deferred 
arrangement under a section 401(k) plan, under which employees may 
elect to contribute to the plan.
    \3\Sec. 414(j).
    \4\Sec. 403(b). Private and governmental employers that are exempt 
from tax under section 501(c)(3), including tax-exempt private schools, 
may maintain tax-deferred annuity plans. State and local governmental 
employers may maintain another type of tax-favored retirement plan, an 
eligible deferred compensation plan under section 457(b).
---------------------------------------------------------------------------
    An IRA is generally established by the individual for whom 
the IRA is maintained.\5\ However, in some cases, an employer 
may establish IRAs on behalf of employees and provide 
retirement contributions to the IRAs.\6\ In addition, IRA 
treatment may apply to accounts maintained for employees under 
a trust created by an employer (or an employee association) for 
the exclusive benefit of employees or their beneficiaries, 
provided that the trust complies with the relevant IRA 
requirements and separate accounting is maintained for the 
interest of each employee or beneficiary (referred to herein as 
an ``IRA trust'').\7\ In that case, the assets of the trust may 
be held in a common fund for the account of all individuals who 
have an interest in the trust.
---------------------------------------------------------------------------
    \5\Sections 219, 408 and 408A provide rules for IRAs. Under section 
408(a)(2) and (n), only certain entities are permitted to be the 
trustee of an IRA. The trustee of an IRA generally must be a bank, an 
insured credit union, or a corporation subject to supervision and 
examination by the Commissioner of Banking or other officer in charge 
of the administration of the banking laws of the State in which it is 
incorporated. Alternatively, an IRA trustee may be another person who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the person will administer the IRA will be consistent with the 
IRA requirements.
    \6\Simplified employee pension (``SEP'') plans under section 408(k) 
and SIMPLE IRA plans under section 408(p) are employer-sponsored 
retirement plans funded using IRAs for employees.
    \7\Sec. 408(c).
---------------------------------------------------------------------------
            ERISA
    Retirement plans of private employers, including qualified 
retirement plans and tax-deferred annuity plans, are generally 
subject to requirements under the Employee Retirement Income 
Security Act of 1974 (``ERISA'').\8\ A plan covering only 
business owners (or business owners and their spouses)--that 
is, it covers no other employees--is exempt from ERISA.\9\ 
Thus, a plan covering only self-employed individuals is exempt 
from ERISA. Tax-deferred annuity plans that provide solely for 
salary reduction contributions by employees may be exempt from 
ERISA.\10\ IRAs are generally exempt from ERISA.
---------------------------------------------------------------------------
    \8\ERISA applies to employee welfare benefit plans, such as health 
plans, of private employers, as well as to employer-sponsored 
retirement (or pension) plans. Employer-sponsored welfare and pension 
plans are both referred to under ERISA as employee benefit plans. Under 
ERISA sec. 4(b)(1) and (2), governmental plans and church plans are 
generally exempt from ERISA.
    \9\29 C.F.R. 2510.3-3(b)-(c).
    \10\29 C.F.R. 2510.3-2(f).
---------------------------------------------------------------------------
    The provisions of Title I of ERISA are under the 
jurisdiction of the Secretary of Labor.\11\ Many of the 
requirements under Title I of ERISA parallel Code requirements 
for qualified retirement plans. Under ERISA, in carrying out 
provisions relating to the same subject matter, the Secretary 
(of the Treasury) and the Secretary of Labor are required to 
consult with each other and develop rules, regulations, 
practices, and forms that, to the extent appropriate for 
efficient administration, are designed to reduce duplication of 
effort, duplication of reporting, conflicting or overlapping 
requirements, and the burden of compliance by plan 
administrators, employers, and participants and 
beneficiaries.\12\ In addition, interpretive jurisdiction over 
parallel Code and ERISA provisions relating to retirement plans 
is divided between the two Secretaries by Executive Order, 
referred to as the Reorganization Plan No. 4 of 1978.\13\
---------------------------------------------------------------------------
    \11\The provisions of Title I of ERISA are codified at 29 U.S.C. 
1001-734. Under Title IV of ERISA, defined benefit plans of private 
employers are generally covered by the Pension Benefit Guaranty 
Corporation's pension insurance program.
    \12\ERISA sec. 3004.
    \13\43 Fed. Reg. 47713 (October 17, 1978).
---------------------------------------------------------------------------

Multiple employer plans under the Code

            In general
    Qualified retirement plans, either defined contribution or 
defined benefit plans, are categorized as single employer plans 
or multiple employer plans. A single employer plan is a plan 
maintained by one employer. For this purpose, businesses and 
organizations that are members of a controlled group of 
corporations, a group under common control, or an affiliated 
service group are treated as one employer (referred to as 
``aggregation'').\14\
---------------------------------------------------------------------------
    \14\Secs. 414(b), (c), (m) and (o).
---------------------------------------------------------------------------
    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers (that is, 
employers that are not treated as a single employer under the 
aggregation rules).\15\ Multiple employer plans are commonly 
maintained by employers in the same industry and are used also 
by professional employer organizations (``PEOs'') to provide 
qualified retirement plan benefits to employees working for PEO 
clients.\16\
---------------------------------------------------------------------------
    \15\Sec. 413(c). Multiple employer status does not apply if the 
plan is a multiemployer plan. Multiemployer plans are different from 
single employer plans and multiple employer plans. A multiemployer plan 
is defined under section 414(f) as a plan maintained pursuant to one or 
more collective bargaining agreements with two or more unrelated 
employers and to which the employers are required to contribute under 
the collective bargaining agreement(s). Multiemployer plans are also 
known as Taft-Hartley plans.
    \16\Rev. Proc. 2003-86, 2003-2 C.B. 1211, and Rev. Proc. 2002-21, 
2002-1 C.B. 911, address the application of the multiple employer plan 
rules to qualified defined contribution plans maintained by PEOs.
---------------------------------------------------------------------------
            Application of Code requirements to multiple employer plans 
                    and EPCRS
    Some requirements are applied to a multiple employer plan 
on a plan-wide basis.\17\ For example, all employees covered by 
the plan are treated as employees of all employers 
participating in the plan for purposes of the exclusive benefit 
rule. Similarly, an employee's service with all participating 
employers is taken into account in applying the minimum 
participation and vesting requirements. In applying the limits 
on contributions and benefits, compensation, contributions, and 
benefits attributable to all employers are taken into 
account.\18\ Other requirements are applied separately, 
including the minimum coverage requirements, nondiscrimination 
requirements (both the general requirements and the special 
tests for section 401(k) plans), and the top-heavy rules.\19\ 
However, the qualified status of the plan as a whole is 
determined with respect to all employers maintaining the plan, 
and the failure by one employer (or by the plan itself) to 
satisfy an applicable qualification requirement may result in 
disqualification of the plan with respect to all employers 
(sometimes referred to as the ``one bad apple'' rule).\20\
---------------------------------------------------------------------------
    \17\Sec. 413(c).
    \18\Treas. Reg. sec. 1.415(a)-1(e).
    \19\Treas. Reg. secs. 1.413-2(a)(3)(ii)-(iii) and 1.416-1, G-2.
    \20\Treas. Reg. secs. 1.413-2(a)(3)(iv) and 1.416-1, G-2.
---------------------------------------------------------------------------
    Because of the complexity of the requirements for qualified 
retirement plans, errors in plan documents, as well as plan 
operation and administration, commonly occur. Under a strict 
application of these requirements, such an error would cause a 
plan to lose its tax-favored status, which would fall most 
heavily on plan participants because of the resulting current 
income inclusion of vested amounts under the plan. As a 
practical matter, therefore, the IRS rarely disqualifies a 
plan. Instead, the IRS has established the Employee Plans 
Compliance Resolution System (``EPCRS''), a formal program 
under which employers and other plan sponsors can correct 
compliance failures and continue to provide their employees 
with retirement benefits on a tax-favored basis.\21\
---------------------------------------------------------------------------
    \21\Rev. Proc. 2016-51, 2016-42 I.R.B. 465.
---------------------------------------------------------------------------
    EPCRS has three components, providing for self-correction, 
voluntary correction with IRS approval, and correction on 
audit. The Self-Correction Program (``SCP'') generally permits 
a plan sponsor that has established compliance practices and 
procedures to correct certain insignificant failures at any 
time (including during an audit), and certain significant 
failures generally within a two-year period, without payment of 
any fee or sanction. The Voluntary Correction Program (``VCP'') 
permits an employer, at any time before an audit, to pay a 
limited fee and receive IRS approval of a correction. For a 
failure that is discovered on audit and corrected, the Audit 
Closing Agreement Program (``Audit CAP'') provides for a 
sanction that bears a reasonable relationship to the nature, 
extent, and severity of the failure and that takes into account 
the extent to which correction occurred before audit.
    Multiple employer plans are eligible for EPCRS, and certain 
special procedures apply.\22\ A VCP request with respect to a 
multiple employer plan must be submitted to the IRS by the plan 
administrator, rather than an employer maintaining the plan, 
and must be made with respect to the entire plan, rather than a 
portion of the plan affecting any particular employer. In 
addition, if a failure applies to fewer than all of the 
employers under the plan, the plan administrator may choose to 
have a VCP compliance fee or audit CAP sanction calculated 
separately for each employer based on the participants 
attributable to that employer, rather than having the 
compliance fee calculated based on the participants of the 
entire plan. For example, the plan administrator may choose 
this option when the failure is attributable to the failure of 
an employer to provide the plan administrator with full and 
complete information.
---------------------------------------------------------------------------
    \22\Section 10.11 of Rev. Proc. 2016-51.
---------------------------------------------------------------------------

ERISA

            Fiduciary and bonding requirements
    Among other requirements, ERISA requires a plan to be 
established and maintained pursuant to a written instrument 
(that is, a plan document) that contains certain terms.\23\ The 
terms of the plan must provide for one or more named 
fiduciaries that jointly or severally have authority to control 
and manage the operation and administration of the plan.\24\ 
Among other required plan terms are a procedure for the 
allocation of responsibilities for the operation and 
administration of the plan and a procedure for amending the 
plan and for identifying the persons who have authority to 
amend the plan. Among other permitted terms, a plan may provide 
also that any person or group of persons may serve in more than 
one fiduciary capacity with respect to the plan (including 
service both as trustee and administrator) and that a person 
who is a named fiduciary with respect to the control or 
management of plan assets may appoint an investment manager or 
managers to manage plan assets.
---------------------------------------------------------------------------
    \23\ERISA sec. 402.
    \24\Fiduciary is defined in ERISA section 3(21), and named 
fiduciary is defined in ERISA section 402(a)(2).
---------------------------------------------------------------------------
    In general, a plan fiduciary is responsible for the 
investment of plan assets. However, ERISA section 404(c) 
provides a special rule in the case of a defined contribution 
plan that permits participants to direct the investment of 
their individual accounts.\25\ Under the special rule, if 
various requirements are met, a participant is not deemed to be 
a fiduciary by reason of directing the investment of the 
participant's account and no person who is otherwise a 
fiduciary is liable for any loss, or by reason of any breach, 
that results from the participant's investments. Defined 
contribution plans that provide for participant-directed 
investments commonly offer a set of investment options among 
which participants may choose. The selection of investment 
options to be offered under a plan is subject to ERISA 
fiduciary requirements.
---------------------------------------------------------------------------
    \25\ERISA sec. 404(c). Under ERISA, a defined contribution plan is 
also referred to as an individual account plan.
---------------------------------------------------------------------------
    Under ERISA, any plan fiduciary or person that handles plan 
assets is required to be bonded, generally for an amount not to 
exceed $500,000.\26\ In some cases, the maximum bond amount is 
$1 million, rather than $500,000.
---------------------------------------------------------------------------
    \26\ERISA sec. 412.
---------------------------------------------------------------------------
            Multiple employer plan status under ERISA
    Like the Code, ERISA contains rules for multiple employer 
retirement plans.\27\ However, a different concept of multiple 
employer plan applies under ERISA.
---------------------------------------------------------------------------
    \27\ERISA sec. 210(a).
---------------------------------------------------------------------------
    Under ERISA, an employee benefit plan (whether a pension 
plan or a welfare plan) must be sponsored by an employer, by an 
employee organization, or by both.\28\ The definition of 
employer is any person acting directly as an employer, or 
indirectly in the interest of an employer, in relation to an 
employee benefit plan, and includes a group or association of 
employers acting for an employer in such capacity.\29\
---------------------------------------------------------------------------
    \28\ERISA secs. 3(1) and (2).
    \29\ERISA sec. 3(5).
---------------------------------------------------------------------------
    These definitional provisions of ERISA are interpreted as 
permitting a multiple employer plan to be established or 
maintained by a cognizable, bona fide group or association of 
employers, acting in the interests of its employer members to 
provide benefits to their employees.\30\ This approach is based 
on the premise that the person or group that maintains the plan 
is tied to the employers and employees that participate in the 
plan by some common economic or representational interest or 
genuine organizational relationship unrelated to the provision 
of benefits. Based on the facts and circumstances, the 
employers that participate in the benefit program must, either 
directly or indirectly, exercise control over that program, 
both in form and in substance, in order to act as a bona fide 
employer group or association with respect to the program, or 
the plan is sponsored by one or more employers as defined in 
section 3(5) of ERISA.\31\ However, an employer association 
does not exist where several unrelated employers merely execute 
participation agreements or similar documents as a means to 
fund benefits, in the absence of any genuine organizational 
relationship between the employers. In that case, each 
participating employer establishes and maintains a separate 
employee benefit plan for the benefit of its own employees, 
rather than a multiple employer plan.
---------------------------------------------------------------------------
    \30\See, e.g., Department of Labor Advisory Opinions 2012-04A, 
2003-17A, 2001-04A, and 1994-07A, and other authorities cited therein.
    \31\See, e.g., Department of Labor Advisory Opinion 2017-02AC.
---------------------------------------------------------------------------

Form 5500 reporting

    Under the Code, an employer maintaining a qualified 
retirement plan generally is required to file an annual return 
containing information required under regulations with respect 
to the qualification, financial condition, and operation of the 
plan.\32\ ERISA requires the plan administrator of certain 
pension and welfare benefit plans to file annual reports 
disclosing certain information to the Department of Labor 
(``DOL'').\33\ These filing requirements are met by filing a 
completed Form 5500, Annual Return/Report of Employee Benefit 
Plan. Forms 5500 are filed with DOL, and information from Forms 
5500 is shared with the IRS.\34\ In the case of a multiple 
employer plan, the annual report must include a list of 
participating employers and a good faith estimate of the 
percentage of total contributions made by the participating 
employers during the plan year. Certain small plans, that is, 
plans covering fewer than 100 participants, are eligible for 
simplified reporting requirements, which are met by filing Form 
5500-SF, Short Form Annual Return/Report of Small Employee 
Benefit Plan.\35\
---------------------------------------------------------------------------
    \32\Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under 
section 414(g) and ERISA section 3(16), plan administrator generally 
means the person specifically so designated by the terms of the plan 
document. In the absence of a designation, the plan administrator 
generally is (1) in the case of a plan maintained by a single employer, 
the employer, (2) in the case of a plan maintained by an employee 
organization, the employee organization, or (3) in the case of a plan 
maintained by two or more employers or jointly by one or more employers 
and one or more employee organizations, the association, committee, 
joint board of trustees, or other similar group of representatives of 
the parties that maintain the plan. Under ERISA, the party described in 
(1), (2), or (3) is referred to as the ``plan sponsor.''
    \33\ERISA secs. 103 and 104. Under ERISA section 4065, the plan 
administrator of certain defined benefit plans must provide information 
to the PBGC.
    \34\Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA secs. 104(a)(1) 
and 106(a).
    \35\ERISA sec. 104(b).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    A single, multiple employer plan can provide economies of 
scale that result in lower administrative costs than apply to a 
group of separate plans covering the employees of different 
employers. However, concern that a violation by one or more 
employers participating in the multiple employer plan may 
jeopardize the tax-favored status of the plan, or create 
liability for other employers, may discourage use of multiple 
employer plans. The Committee believes employers in such a plan 
should not be subject to the risk that any inadvertent or 
unintentional violation of Code requirements by a noncompliant 
employer in the plan could result in negative tax consequences 
for the employers in the plan that are compliant or for such 
employers' participants. In addition, under ERISA, a plan 
covering employees of unrelated employers might not be eligible 
for multiple employer plan treatment. The Committee wishes to 
remove possible barriers to broader use of multiple employer 
plans, including by providing simplified Form 5500 reporting in 
appropriate cases. Requiring the service provider of a plan 
covering employees of unrelated employers to take on fiduciary 
responsibilities will further the protection of participants in 
such plans.
    In the case of any multiple employer plan that, in 
accordance with the Department of Labor's current 
interpretations of the definition of employer in section 3(5) 
of ERISA, is treated currently as a single employer plan under 
ERISA, the Committee does not intend to modify the existing 
definition and regulatory guidance thereunder, except insofar 
as specifically provided herein with respect to relief from 
disqualification (or other loss of tax-favored status) and 
simplified annual reports.

                        EXPLANATION OF PROVISION

In general

    The provision amends the Code rules relating to multiple 
employer plans to provide relief from the ``one bad apple'' 
rule for certain plans (referred to herein as ``covered 
multiple employer plans''). A covered multiple employer plan is 
a multiple employer qualified defined contribution plan\36\ or 
a plan that consists of IRAs (referred to herein as an ``IRA 
plan''), including under an IRA trust,\37\ that either (1) is 
maintained by employers which have a common interest other than 
having adopted the plan, or (2) in the case of a plan not 
described in (1), has a pooled plan provider (referred to 
herein as a ``pooled provider plan''), and which meets certain 
other requirements as described below.
---------------------------------------------------------------------------
    \36\To which section 413(c) applies.
    \37\Under the provision, in applying the exclusive benefit 
requirement under section 408(c) to an IRA plan with an IRA trust 
covering employees of unrelated employers, all employees covered by the 
plan are treated as employees of all employers participating in the 
plan.
---------------------------------------------------------------------------
    The provision outlines various requirements that apply to a 
pooled provider plan under the Code. It also outlines various 
requirements that apply under ERISA to a qualified defined 
contribution plan that is established or maintained for the 
purpose of providing benefits to the employees of two or more 
employers and that meets certain requirements to be a ``pooled 
employer plan,'' and provides that a pooled employer plan is 
treated for purposes of ERISA as a single plan that is a 
multiple employer plan.\38\
---------------------------------------------------------------------------
    \38\With respect to plans described under proposed section 
413(e)(1)(A), other than providing relief from the ``one-bad-apple'' 
rule if certain requirements are met and adding certain reporting 
requirements, the provision generally does not change present law and 
related guidance applicable to such multiple employer plans under the 
Code or ERISA.
---------------------------------------------------------------------------

Tax-favored status under the Code

            In general
    The provision provides relief from disqualification (or 
other loss of tax-favored status) of the entire plan merely 
because one or more participating employers fail to take 
actions required with respect to the plan (that is, relief from 
the ``one-bad-apple'' rule).
    Such relief under the provision does not apply to a plan 
unless the terms of the plan provide that, in the case of any 
employer in the plan failing to take required actions (referred 
to herein as a ``noncompliant employer''):
           plan assets attributable to employees of the 
        noncompliant employer (or beneficiaries of such 
        employees) will be transferred to a plan maintained 
        only by that employer (or its successor), to a tax-
        favored retirement plan for each individual whose 
        account is transferred,\39\ or to any other arrangement 
        that the Secretary determines is appropriate, unless 
        the Secretary determines it is in the best interests of 
        the employees of the noncompliant employer (and 
        beneficiaries of such employees) to retain the assets 
        in the plan, and
---------------------------------------------------------------------------
    \39\For this purpose, a tax-favored retirement plan means an 
eligible retirement plan as defined in section 402(c)(8)(B), that is, 
an IRA, a qualified retirement plan, a tax-deferred annuity plan under 
section 403(b), or an eligible deferred compensation plan of a State or 
local governmental employer under section 457(b).
---------------------------------------------------------------------------
           the noncompliant employer (and not the plan 
        with respect to which the failure occurred or any other 
        employer in the plan) is, except to the extent provided 
        by the Secretary, liable for any plan liabilities 
        attributable to employees of the noncompliant employer 
        (or beneficiaries of such employees).
    In addition, in the case of a pooled provider plan, if the 
pooled plan provider does not perform substantially all the 
administrative duties required of the provider (as described 
below) for any plan year, the Secretary may provide that the 
determination as to whether the plan meets the Code 
requirements for tax-favored treatment will be made in the same 
manner as would be made without regard to the relief under the 
provision.
            Pooled plan provider
    Under the provision, ``pooled plan provider'' with respect 
to a plan means a person that:
           is designated by the terms of the plan as a 
        named fiduciary under ERISA,\40\ as the plan 
        administrator, and as the person responsible to perform 
        all administrative duties (including conducting proper 
        testing with respect to the plan and the employees of 
        each employer in the plan) that are reasonably 
        necessary to ensure that the plan meets the Code 
        requirements for tax-favored treatment and the 
        requirements of ERISA and to ensure that each employer 
        in the plan takes actions as the Secretary or the 
        pooled plan provider determines necessary for the plan 
        to meet Code and ERISA requirements, including 
        providing to the pooled plan provider any disclosures 
        or other information that the Secretary may require or 
        that the pooled plan provider otherwise determines are 
        necessary to administer the plan or to allow the plan 
        to meet Code and ERISA requirements,
---------------------------------------------------------------------------
    \40\Within the meaning of ERISA section 402(a)(2).
---------------------------------------------------------------------------
           registers with the Secretary as a pooled 
        plan provider and provides any other information that 
        the Secretary may require, before beginning operations 
        as a pooled plan provider,
           acknowledges in writing its status as a 
        named fiduciary under ERISA and as the plan 
        administrator, and
           is responsible for ensuring that all persons 
        who handle plan assets or are plan fiduciaries are 
        bonded in accordance with ERISA requirements.
    The provision specifies that the Secretary may perform 
audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
    In addition, the provision provides that in determining 
whether a person meets the requirements to be a pooled plan 
provider with respect to any plan, all persons who perform 
services for the plan and who are treated as a single 
employer\41\ are treated as one person.
---------------------------------------------------------------------------
    \41\Under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------
            Plan sponsor
    The provision also provides that, except with respect to 
the administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a plan which has a pooled plan provider will be treated as 
the plan sponsor with respect to the portion of the plan 
attributable to that employer's employees (or beneficiaries of 
such employees).
            Guidance
    The provision directs the Secretary to issue guidance that 
the Secretary determines appropriate to carry out the 
provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, (2) that describes the 
procedures to be taken to terminate a plan that fails to meet 
the requirements to be a covered multiple employer plan, 
including the proper treatment of, and actions needed to be 
taken by, any employer in the plan and plan assets and 
liabilities attributable to employees of that employer (or 
beneficiaries of such employees), and (3) to identify 
appropriate cases in which corrective action will apply with 
respect to noncompliant employers. For purposes of (3), the 
Secretary is to take into account whether the failure of an 
employer or pooled plan provider to provide any disclosures or 
other information, or to take any other action, necessary to 
administer a plan or to allow a plan to meet the Code 
requirements for tax-favored treatment, has continued over a 
period of time that demonstrates a lack of commitment to 
compliance. An employer or pooled plan provider is not treated 
as failing to meet a requirement of guidance issued by the 
Secretary if, before the issuance of such guidance, the 
employer or pooled plan provider complies in good faith with a 
reasonable interpretation of the provisions to which the 
guidance relates.
    The provision also directs the Secretary to publish model 
plan language that meets the Code and ERISA requirements under 
the provision and that may be adopted in order to be treated as 
a pooled employer plan under ERISA.

Pooled employer plans under ERISA

            In general
    As described above, under the provision, a pooled employer 
plan is treated for purposes of ERISA as a single plan that is 
a multiple employer plan. A ``pooled employer plan'' is defined 
as a plan (1) that is an individual account plan established or 
maintained for the purpose of providing benefits to the 
employees of two or more employers, (2) that is a qualified 
retirement plan or an IRA plan, and (3) the terms of which meet 
the requirements described below. A pooled employer plan does 
not include a plan maintained by employers that have a common 
interest other than having adopted the plan.
    In order for a plan to be a pooled employer plan, the plan 
terms must:
           designate a pooled plan provider and provide 
        that the pooled plan provider is a named fiduciary of 
        the plan,
           designate one or more trustees (other than 
        an employer in the plan\42\ to be responsible for 
        collecting contributions to, and holding the assets of, 
        the plan, and require the trustees to implement written 
        contribution collection procedures that are reasonable, 
        diligent, and systematic,
---------------------------------------------------------------------------
    \42\Any trustee must meet the requirements under the Code to be an 
IRA trustee.
---------------------------------------------------------------------------
           provide that each employer in the plan 
        retains fiduciary responsibility for the selection and 
        monitoring, in accordance with ERISA fiduciary 
        requirements, of the person designated as the pooled 
        plan provider and any other person who is also 
        designated as a named fiduciary of the plan, and, to 
        the extent not otherwise delegated to another fiduciary 
        by the pooled plan provider (and subject to the ERISA 
        rules relating to self-directed investments), the 
        investment and management of the portion of the plan's 
        assets attributable to the employees of that employer 
        (or beneficiaries of such employees) in the plan,
           provide that employers in the plan, and 
        participants and beneficiaries, are not subject to 
        unreasonable restrictions, fees, or penalties with 
        regard to ceasing participation, receipt of 
        distributions, or otherwise transferring assets of the 
        plan in accordance with applicable rules for plan 
        mergers and transfers,
           require the pooled plan provider to provide 
        to employers in the plan any disclosures or other 
        information that the Secretary of Labor may require, 
        including any disclosures or other information to 
        facilitate the selection or any monitoring of the 
        pooled plan provider by employers in the plan, and 
        require each employer in the plan to take any actions 
        that the Secretary of Labor or pooled plan provider 
        determines are necessary to administer the plan or to 
        allow for the plan to meet the ERISA and Code 
        requirements applicable to the plan, including 
        providing any disclosures or other information that the 
        Secretary of Labor may require or that the pooled plan 
        provider otherwise determines are necessary to 
        administer the plan or to allow the plan to meet such 
        ERISA and Code requirements, and
           provide that any disclosure or other 
        information required to be provided as described above 
        may be provided in electronic form\43\ and will be 
        designed to ensure only reasonable costs are imposed on 
        pooled plan providers and employers in the plan.
---------------------------------------------------------------------------
    \43\The provision does not change existing law and guidance with 
respect to furnishing documents through electronic media to 
participants and beneficiaries.
---------------------------------------------------------------------------
    In the case of a fiduciary of a pooled employer plan or a 
person handling assets of a pooled employer plan, the maximum 
bond amount under ERISA is $1 million.
    The term ``pooled employer plan'' does not include a 
multiemployer plan. Such term also does not include a plan 
established before the date of enactment of the Setting Every 
Community Up for Retirement Enhancement Act of 2019 unless the 
plan administrator elects to have the plan treated as a pooled 
employer plan and the plan meets the ERISA requirements 
applicable to a pooled employer plan established on or after 
such date.
            Pooled plan provider
    The definition of pooled plan provider for ERISA purposes 
is generally similar to the definition under the Code portion 
of the provision, described above.\44\ The ERISA definition 
requires a person to register as a pooled plan provider with 
the Secretary of Labor and provide any other information that 
the Secretary of Labor may require before beginning operations 
as a pooled plan provider.
---------------------------------------------------------------------------
    \44\In determining whether a person meets the requirements to be a 
pooled plan provider with respect to a plan, all persons who perform 
services for the plan and who are treated as a single employer under 
subsection (b), (c), (m), or (o) of section 414 are treated as one 
person.
---------------------------------------------------------------------------
    The provision specifies that the Secretary of Labor may 
perform audits, examinations, and investigations of pooled plan 
providers as may be necessary to enforce and carry out the 
purposes of the provision.
            Plan sponsor
    The provision also provides that except with respect to the 
administrative duties (as a named fiduciary, as the plan 
administrator, and as the person responsible for the 
performance of all administrative duties) for which the pooled 
plan provider is responsible as described above, each employer 
in a pooled employer plan will be treated as the plan sponsor 
with respect to the portion of the plan attributable to that 
employer's employees (or beneficiaries of such employees).
            Guidance
    The provision directs the Secretary of Labor to issue 
guidance that such Secretary determines appropriate to carry 
out the provision, including guidance (1) to identify the 
administrative duties and other actions required to be 
performed by a pooled plan provider, and (2) that requires, in 
appropriate cases of a noncompliant employer, plan assets 
attributable to employees of the noncompliant employer (or 
beneficiaries of such employees) to be transferred to a plan 
maintained only by that employer (or its successor), to a tax-
favored retirement plan for each individual whose account is 
transferred, or to any other arrangement that the Secretary of 
Labor determines in the guidance is appropriate,\45\ and the 
noncompliant employer (and not the plan with respect to which 
the failure occurred or any other employer in the plan) to be 
liable for any plan liabilities attributable to employees of 
the noncompliant employer (or beneficiaries of such employees), 
except to the extent provided in the guidance. For purposes of 
(2), the Secretary of Labor is to take into account whether the 
failure of an employer or pooled plan provider to provide any 
disclosures or other information, or to take any other action, 
necessary to administer a plan or to allow a plan to meet the 
requirements of ERISA and the Code requirements for tax-favored 
treatment, has continued over a period of time that 
demonstrates a lack of commitment to compliance. An employer or 
pooled plan provider is not treated as failing to meet a 
requirement of guidance issued by the Secretary if, before the 
issuance of such guidance, the employer or pooled plan provider 
complies in good faith with a reasonable interpretation of the 
provisions to which the guidance relates.
---------------------------------------------------------------------------
    \45\The Secretary of Labor may waive the requirement to transfer 
assets to another plan or arrangement in appropriate circumstances if 
the Secretary of Labor determines it is in the best interests of the 
employees of the noncompliant employer (and the beneficiaries of such 
employees) to retain the assets in the pooled employer plan.
---------------------------------------------------------------------------

Form 5500 reporting

    Under the provision, the Form 5500 filing for a multiple 
employer plan (including a pooled employer plan) must include a 
list of the employers in the plan, a good faith estimate of the 
percentage of total contributions made by such employers during 
the plan year, and the aggregate account balances attributable 
to each employer in the plan (determined as the sum of the 
account balances of the employees of each employer (and the 
beneficiaries of such employees)); and with respect to a pooled 
employer plan, the identifying information for the person 
designated under the terms of the plan as the pooled plan 
provider. In addition, the provision adds, to the list of 
pension plans to which simplified reporting may be prescribed 
by the Secretary of Labor, a multiple employer plan that covers 
fewer than 1,000 participants, but only if no single employer 
in the plan has 100 or more participants covered by the plan.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2020, including reporting for purposes of Forms 
5500 for plan years beginning after December 31, 2020.
    Nothing in the Code amendments made by the provision is to 
be construed as limiting the authority of the Secretary (or the 
Secretary's delegate) to provide for the proper treatment of a 
failure to meet any Code requirement with respect to any 
employer (and its employees) in a multiple employer plan.

  B. Increase in 10 Percent Cap for Automatic Enrollment Safe Harbor 
  After First Plan Year (sec. 102 of the bill and sec. 401(k) of the 
                                 Code)


                              PRESENT LAW

Section 401(k) plans

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan'').\46\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $19,000 (for 
2019) or, if less, the employee's compensation.\47\ For an 
employee who attains age 50 by the end of the year, the dollar 
limit on elective deferrals is increased by $6,000 (for 2019) 
(called catch-up contributions).\48\ An employee's elective 
deferrals must be fully vested. A section 401(k) plan may also 
provide for employer matching and nonelective contributions.
---------------------------------------------------------------------------
    \46\Elective deferrals generally are made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \47\Sec. 402(g).
    \48\Sec. 414(v).
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\49\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \49\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate (referred to as a 
``default rate'') when an employee becomes eligible to 
participate unless the employee elects otherwise (that is, 
affirmatively elects not to make contributions or to make 
contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination test and automatic enrollment safe harbor

    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\50\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for 
nonhighly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for nonhighly compensated employees by more than 
certain specified amounts. If a plan fails to satisfy the ADP 
test for a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\51\
---------------------------------------------------------------------------
    \50\Sec. 401(k)(3).
    \51\Sec. 401(k)(8).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (a ``401(k) safe 
harbor plan''), as well as certain required rights and features 
and satisfies a notice requirement.\52\ One type of 401(k) safe 
harbor includes automatic enrollment.
---------------------------------------------------------------------------
    \52\Sec. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under 401(k) safe harbor plan may also 
satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
    An automatic enrollment safe harbor plan must provide that, 
unless an employee elects otherwise, the employee is treated as 
electing to make elective deferrals at a default rate equal to 
a percentage of compensation as stated in the plan and at least 
(1) three percent of compensation for the first year the deemed 
election applies to the participant, (2) four percent during 
the second year, (3) five percent during the third year, and 
(4) six percent during the fourth year and thereafter. Although 
an automatic enrollment safe harbor plan generally may provide 
for default rates higher than these minimum rates, the default 
rate cannot exceed 10 percent for any year.

                           REASONS FOR CHANGE

    The 10-percent cap on the default rate that may be used 
under an automatic enrollment safe harbor plan reflects a 
concern that too high a default rate may be in excess of what 
employees prefer, which may cause employees to elect out and 
not contribute at all, thus undercutting the purpose of the 
safe harbor. An initial default rate that is too high may have 
that effect. In addition, a high default rate for automatically 
enrolled employees, especially in the period they are first 
enrolled, may result in a relatively high reduction in take-
home pay. However, these effects likely are lessened with 
respect to automatic increases in default rates for years after 
default contributions have begun. In such a case, the cap may 
instead have the effect of limiting how much is contributed 
and, thus, also limiting retirement savings. The Committee 
therefore believes the cap should be increased to 15 percent 
for years after default contributions have begun.

                        EXPLANATION OF PROVISION

    Under the provision, the 10-percent limitation on the 
default rates under an automatic enrollment safe harbor plan is 
increased to 15 percent after the first year that an employee's 
deemed election applies.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2019.

C. Rules Relating to Election of Safe Harbor 401(k) Status (sec. 103 of 
                 the bill and sec. 401(k) of the Code)


                              PRESENT LAW

Section 401(k) plans

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement, under which employees 
may elect to have contributions made to the plan (referred to 
as ``elective deferrals'') rather than receive the same amount 
as current compensation (referred to as a ``section 401(k) 
plan'').\53\ The maximum annual amount of elective deferrals 
that can be made by an employee for a year is $19,000 (for 
2019) or, if less, the employee's compensation.\54\ For an 
employee who attains age 50 by the end of the year, the dollar 
limit on elective deferrals is increased by $6,000 (for 2019) 
(called catch-up contributions).\55\ An employee's elective 
deferrals must be fully vested. A section 401(k) plan may also 
provide for employer matching and nonelective contributions.
---------------------------------------------------------------------------
    \53\Elective deferrals generally are made on a pretax basis and 
distributions attributable to elective deferrals are includible in 
income. However, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as after-tax Roth contributions. Certain 
distributions from a designated Roth account are excluded from income, 
even though they include earnings not previously taxed.
    \54\Sec. 402(g).
    \55\Sec. 414(v).
---------------------------------------------------------------------------

Automatic enrollment

    A section 401(k) plan must provide each eligible employee 
with an effective opportunity to make or change an election to 
make elective deferrals at least once each plan year.\56\ 
Whether an employee has an effective opportunity is determined 
based on all the relevant facts and circumstances, including 
the adequacy of notice of the availability of the election, the 
period of time during which an election may be made, and any 
other conditions on elections.
---------------------------------------------------------------------------
    \56\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
    Section 401(k) plans are generally designed so that an 
employee will receive cash compensation unless the employee 
affirmatively elects to make elective deferrals to the section 
401(k) plan. Alternatively, a plan may provide that elective 
deferrals are made at a specified rate when an employee becomes 
eligible to participate unless the employee elects otherwise 
(that is, affirmatively elects not to make contributions or to 
make contributions at a different rate). This plan design is 
referred to as automatic enrollment.

Nondiscrimination test

            General rule and design-based safe harbors
    An annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to elective 
deferrals under a section 401(k) plan.\57\ The ADP test 
generally compares the average rate of deferral for highly 
compensated employees to the average rate of deferral for 
nonhighly compensated employees and requires that the average 
deferral rate for highly compensated employees not exceed the 
average rate for nonhighly compensated employees by more than 
certain specified amounts. If a plan fails to satisfy the ADP 
test for a plan year based on the deferral elections of highly 
compensated employees, the plan is permitted to distribute 
deferrals to highly compensated employees (``excess 
deferrals'') in a sufficient amount to correct the failure. The 
distribution of the excess deferrals must be made by the close 
of the following plan year.\58\
---------------------------------------------------------------------------
    \57\Sec. 401(k)(3).
    \58\Sec. 401(k)(8).
---------------------------------------------------------------------------
    The ADP test is deemed to be satisfied if a section 401(k) 
plan includes certain minimum matching or nonelective 
contributions under either of two plan designs (``401(k) safe 
harbor plan''), described below, as well as certain required 
rights and features and satisfies a notice requirement.\59\
---------------------------------------------------------------------------
    \59\Sec. 401(k)(12) and (13). If certain additional requirements 
are met, matching contributions under 401(k) safe harbor plan may also 
satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
            Safe harbor contributions
    Under one type of 401(k) safe harbor plan (``basic 401(k) 
safe harbor plan''), the plan either (1) satisfies a matching 
contribution requirement (``matching contribution basic 401(k) 
safe harbor plan'') or (2) provides for 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 plan (``nonelective basic 401(k) safe harbor plan''). 
The matching contribution requirement under the matching 
contribution basic 401(k) safe harbor requires a matching 
contribution equal to at least 100 percent of elective 
contributions of the employee for contributions not in excess 
of three percent of compensation, and 50 percent of elective 
contributions for contributions that exceed three percent of 
compensation but do not exceed five percent, for a total 
matching contribution of up to four percent of compensation. 
The required matching contributions and the three percent 
nonelective contribution under the basic 401(k) safe harbor 
must be immediately nonforfeitable (that is, 100 percent 
vested) when made.
    Another safe harbor applies for a section 401(k) plan that 
include automatic enrollment (``automatic enrollment 401(k) 
safe harbor''). Under an automatic enrollment 401(k) safe 
harbor, unless an employee elects otherwise, the employee is 
treated as electing to make elective deferrals equal to a 
percentage of compensation as stated in the plan, not in excess 
of 10 percent and at least (1) three percent of compensation 
for the first year the deemed election applies to the 
participant, (2) four percent during the second year, (3) five 
percent during the third year, and (4) six percent during the 
fourth year and thereafter.\60\ Under the automatic enrollment 
401(k) safe harbor, the matching contribution requirement is 
100 percent of elective contributions of the employee for 
contributions not in excess of one percent of compensation, and 
50 percent of elective contributions for contributions that 
exceed one percent of compensation but do not exceed six 
percent, for a total matching contribution of up to 3.5 percent 
of compensation (``matching contribution automatic enrollment 
401(k) safe harbor''). The rate of nonelective contribution 
under the automatic enrollment 401(k) safe harbor plan is three 
percent, as under the basic 401(k) safe harbor (``nonelective 
contribution automatic enrollment 401(k) safe harbor''). 
However, under the automatic enrollment 401(k) safe harbors, 
the matching and nonelective contributions are allowed to 
become 100 percent vested only after two years of service 
(rather than being required to be immediately vested when 
made).
---------------------------------------------------------------------------
    \60\These automatic increases in default contribution rates are 
required for plans using the safe harbor. Rev. Rul. 2009-30, 2009-39 
I.R.B. 391, provides guidance for including automatic increases in 
other plans using automatic enrollment, including under a plan that 
includes an eligible automatic contribution arrangement.
---------------------------------------------------------------------------
            Safe harbor notice
    The notice requirement for a 401(k) safe harbor plan is 
satisfied if each employee eligible to participate is given, 
within a reasonable period before any year, written notice of 
the employee's rights and obligations under the arrangement and 
the notice meets certain content and timing requirements 
(``safe harbor notice''). To meet the content requirements, a 
safe harbor notice must be sufficiently accurate and 
comprehensive to inform an employee of the employee's rights 
and obligations under the plan, and be written in a manner 
calculated to be understood by the average employee eligible to 
participate in the plan. A safe harbor notice must provide 
certain information, including the plan's safe harbor 
contributions, any other plan contributions, the type and 
amount of compensation that may be deferred under the plan, how 
to make cash or deferred elections, the plan's withdrawal and 
vesting provisions, and specified contact information. In 
addition, a safe harbor notice for an automatic enrollment 
401(k) safe harbor must describe certain additional information 
items, including the deemed deferral elections under the plan 
if the employee does not make an affirmative election and how 
contributions will be invested.

Delay in adopting nonelective 401(k) safe harbor

    Generally the plan provisions for the requirements that 
must be satisfied to be a 401(k) safe harbor plan must be 
adopted before the first day of the plan year and remain in 
effect for an entire 12-month plan year. However, in the case 
of a nonelective 401(k) safe harbor plan (but not the matching 
contribution 401(k) safe harbor), a plan may be amended after 
the first day of the plan year but no later than 30 days before 
the end of the plan year to adopt the safe harbor plan 
provisions including providing the 3 percent of compensation 
nonelective contribution. The plan must also provide a 
contingent and follow-up notice. The contingent notice must be 
provided before the beginning of the plan year and specify that 
the plan may be amended to include the safe harbor nonelective 
contribution and, if it is so amended, a follow-up notice will 
be provided. If the plan is amended, the follow-up notice must 
be provided no later than 30 days before the end of the plan 
year stating that the safe harbor nonelective contribution will 
be provided.

                           REASONS FOR CHANGE

    A nonelective contribution 401(k) safe harbor plan is 
beneficial to employees because it provides employer 
contributions regardless of whether employees make 
contributions. However, some aspects of the current procedural 
rules relating to adoption of the nonelective contribution 
401(k) safe harbor, intended to protect employees, may serve as 
a barrier. The Committee believes that more flexible rules, 
combined with employee protections, will better facilitate the 
adoption of nonelective contribution 401(k) safe harbor plans.

                        EXPLANATION OF PROVISION

In general

    The provision makes a number of changes to the rules for 
the nonelective contribution 401(k) safe harbor.

Elimination of notice requirement

    The provision eliminates the safe harbor notice requirement 
with respect to nonelective 401(k) safe harbor plans. However, 
the general rule under present law requiring a section 401(k) 
plan to provide each eligible employee with an effective 
opportunity to make or change an election to make elective 
deferrals at least once each plan year still applies. As 
described above, relevant factors used in determining if this 
requirement is satisfied include the adequacy of notice of the 
availability of the election and the period of time during 
which an election may be made.

Delay in adopting provisions for nonelective 401(k) safe harbor

    Under the provision, a plan can be amended to become a 
nonelective 401(k) safe harbor plan for a plan year (that is, 
amended to provide the required nonelective contributions and 
thereby satisfy the safe harbor requirements) at any time 
before the 30th day before the close of the plan year.
    Further, the provision allows a plan to be amended after 
the 30th day before the close of the plan year to become a 
nonelective contribution 401(k) safe harbor plan for the plan 
year if (1) the plan is amended to provide for a nonelective 
contribution of at least four percent of compensation (rather 
than at least three percent) for all eligible employees for 
that plan year and (2) the plan is amended no later than the 
last day for distributing excess contributions for the plan 
year (generally, by the close of following plan year).

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2019.

   D. Increase in Credit Limitation for Small Employer Pension Plan 
     Startup Costs (sec. 104 of the bill and sec. 45E of the Code)


                              PRESENT LAW

    A nonrefundable income tax credit is available for 
qualified startup costs of an eligible small employer that 
adopts a new qualified retirement plan, SIMPLE IRA plan, or SEP 
(referred to as an eligible employer plan), provided that the 
plan covers at least one nonhighly compensated employee.\61\ 
Qualified startup costs are expenses connected with the 
establishment or administration of the plan or retirement-
related education for employees with respect to the plan. The 
credit is the lesser of (1) a flat dollar amount of $500 per 
year or (2) 50 percent of the qualified startup costs. The 
credit applies for up to three years beginning with the year 
the plan is first effective, or, at the election of the 
employer, with the year preceding the first plan year.
---------------------------------------------------------------------------
    \61\A nonhighly compensated employee is an employee who is not a 
highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees, each with compensation of 
$5,000 or more. In addition, the employer must not have had a 
plan covering substantially the same employees as the new plan 
during the three years preceding the first year for which the 
credit would apply. Members of controlled groups and affiliated 
service groups are treated as a single employer for purposes of 
these requirements.\62\ All eligible employer plans of an 
employer are treated as a single plan.
---------------------------------------------------------------------------
    \62\Secs. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified 
startup costs paid or incurred for the taxable year equal to 
the amount of the credit.

                           REASONS FOR CHANGE

    Studies show that small employers are less likely to offer 
retirement plans than large employers. The credit for small 
employer pension plan startup costs is intended to encourage 
small employers to adopt plans. The Committee believes that 
increasing the amount of the credit will encourage more small 
employers to adopt plans.

                        EXPLANATION OF PROVISION

    The provision changes the calculation of the flat dollar 
amount limit on the credit. The flat dollar amount for a 
taxable year is the greater of (1) $500 or (2) the lesser of 
(a) $250 multiplied by the number of nonhighly compensated 
employees of the eligible employer who are eligible to 
participate in the plan or (b) $5,000. As under present law, 
the credit applies for up to three years.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2019.

E. Small Employer Automatic Enrollment Credit (sec. 105 of the bill and 
                       new sec. 45T of the Code)


                              PRESENT LAW

Small employer startup credit

    A nonrefundable income tax credit is available for 
qualified startup costs of an eligible small employer that 
adopts a new qualified retirement plan, SIMPLE IRA plan or SEP 
(referred to as an eligible employer plan), provided that the 
plan covers at least one nonhighly compensated employee.\63\ 
Qualified startup costs are expenses connected with the 
establishment or administration of the plan or retirement-
related education for employees with respect to the plan. The 
credit is the lesser of (1) a flat dollar amount of $500 per 
year or (2) 50 percent of the qualified startup costs. The 
credit applies for up to three years beginning with the year 
the plan is first effective, or, at the election of the 
employer, with the year preceding the first plan year.
---------------------------------------------------------------------------
    \63\Sec. 45E. A nonhighly compensated employee is an employee who 
is not a highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
    An eligible employer is an employer that, for the preceding 
year, had no more than 100 employees with compensation of 
$5,000 or more. In addition, the employer must not have had a 
plan covering substantially the same employees as the new plan 
during the three years preceding the first year for which the 
credit would apply. Members of controlled groups and affiliated 
service groups are treated as a single employer for purposes of 
these requirements.\64\ All eligible employer plans of an 
employer are treated as a single plan.
---------------------------------------------------------------------------
    \64\Secs. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
    No deduction is allowed for the portion of qualified 
startup costs paid or incurred for the taxable year equal to 
the amount of the credit.

Automatic enrollment

    A qualified defined contribution plan may include a 
qualified cash or deferred arrangement under which employees 
may elect to have plan contributions (``elective deferrals'') 
made rather than receive cash compensation (commonly called a 
``section 401(k) plan''). A SIMPLE IRA plan is an employer-
sponsored retirement plan funded with individual retirement 
arrangements (``IRAs'') that also allows employees to make 
elective deferrals.\65\ Section 401(k) plans and SIMPLE IRA 
plans may be designed so that the employee will receive cash 
compensation unless the employee affirmatively elects to make 
elective deferrals to the plan. Alternatively, a plan may 
provide that elective deferrals are made at a specified rate 
(when the employee becomes eligible to participate) unless the 
employee elects otherwise (i.e., affirmatively elects not to 
make contributions or to make contributions at a different 
rate). This alternative plan design is referred to as automatic 
enrollment.
---------------------------------------------------------------------------
    \65\Sec. 408(p).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Studies show that automatic enrollment increases employee 
participation in section 401(k) and SIMPLE IRA plans, resulting 
in higher retirement savings. The Committee believes that 
providing a credit to small employers may encourage more 
employers to use an automatic enrollment design.

                        EXPLANATION OF PROVISION

    Under the provision, an eligible employer is allowed a 
credit of $500 per year for up to three years for startup costs 
for new section 401(k) plans and SIMPLE IRA plans that include 
automatic enrollment, in addition to the plan startup credit 
allowed under present law. An eligible employer is also allowed 
a credit of $500 per year for up to three years if it converts 
an existing plan to an automatic enrollment design.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2019.

F. Certain Taxable Non-Tuition Fellowship and Stipend Payments Treated 
as Compensation for IRA Purposes (sec. 106 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.\66\ 
The total amount that an individual may contribute to one or 
more IRAs for a year is generally limited to the lesser of: (1) 
a dollar amount ($6,000 for 2019); and (2) the amount of the 
individual's compensation that is includible in gross income 
for the year.\67\ In the case of an individual who has attained 
age 50 by the end of the year, the dollar amount is increased 
by $1,000. 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.
---------------------------------------------------------------------------
    \66\Secs. 408 and 408A.
    \67\Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and 
(b)(2)(B) and 408A(c)(2). Under section 4973, IRA contributions in 
excess of the applicable limit are generally subject to an excise tax 
of six percent per year until withdrawn.
---------------------------------------------------------------------------
    An individual may 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.\68\
---------------------------------------------------------------------------
    \68\Sec. 219(g).
---------------------------------------------------------------------------
    Individuals with adjusted gross income below certain levels 
may make contributions to a Roth IRA (up to the contribution 
limit).\69\ Contributions to a Roth IRA are not deductible.
---------------------------------------------------------------------------
    \69\Sec. 408A(c)(3).
---------------------------------------------------------------------------
    As described above, an individual's IRA contributions 
generally cannot exceed the amount of his or her compensation 
that is includible in gross income. Subject to the rule for 
spouses, described above, an individual who has no includible 
compensation income generally is not eligible to make IRA 
contributions, even if the individual has other income that is 
includible in gross income.\70\
---------------------------------------------------------------------------
    \70\Under a special rule in section 219(f)(1), alimony that is 
includible in gross income under section 71 is treated as compensation 
for IRA contribution purposes.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Graduate and postdoctoral students often receive stipends 
and similar amounts that are not treated as compensation and 
thus cannot be the basis for IRA contributions. This delays the 
ability to accumulate tax-favored retirement savings, in some 
cases for a number of years. The Committee believes that 
treating such amounts that are includible in gross income as 
compensation for IRA contribution purposes will enable some 
graduate and postdoctoral students to begin saving for 
retirement.

                        EXPLANATION OF PROVISION

    Under the provision, an amount includible in an 
individual's income and paid to the individual to aid the 
individual in the pursuit of graduate or postdoctoral study or 
research (such as a fellowship, stipend, or similar amount) is 
treated as compensation for purposes of IRA contributions.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2019.

G. Repeal of Maximum Age for Traditional IRA Contributions (sec. 107 of 
                   the bill and sec. 219 of the Code)


                              PRESENT LAW

    An individual may make deductible contributions to a 
traditional IRA up to the IRA contribution limit if neither the 
individual nor the individual's spouse is an active participant 
in an employer-sponsored retirement plan.\71\ 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 (``AGI'') for the 
taxable year over certain indexed levels.\72\ To the extent an 
individual cannot or does not make deductible contributions to 
a traditional IRA, the individual may make nondeductible 
contributions to a traditional IRA (without regard to AGI 
limits). Alternatively, subject to AGI limits, an individual 
may make nondeductible contributions to a Roth IRA.\73\
---------------------------------------------------------------------------
    \71\Sec. 219.
    \72\Sec. 219(g).
    \73\Sec. 408(o). The annual contribution limit for IRAs is 
coordinated so that the maximum amount that can be contributed to all 
of an individual's IRAs (both traditional and Roth) for a taxable year 
is the lesser of a certain dollar amount ($6,000 for 2019) or the 
individual's compensation.
---------------------------------------------------------------------------
    An individual who has attained age 70\1/2\ by the close of 
a year is not permitted to make contributions to a traditional 
IRA.\74\ This restriction does not apply to contributions to a 
Roth IRA.\75\ In addition, employees over age 70\1/2\ are not 
precluded from contributing to employer-sponsored plans.
---------------------------------------------------------------------------
    \74\Sec. 219(d)(1).
    \75\Sec. 408A(c)(4).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    As Americans live longer, increasing numbers of Americans 
are continuing to work past traditional retirement ages. This 
provides such working individuals with current income, as well 
as the potential for additional retirement savings. An 
individual working past age 70\1/2\ may contribute to an 
employer-sponsored retirement plan, if available, or to a Roth 
IRA, but not to a traditional IRA. The Committee wishes to 
remove this impediment to retirement savings.

                        EXPLANATION OF PROVISION

    The provision repeals the prohibition on contributions to a 
traditional IRA by an individual who has attained age 70\1/2\.

                             EFFECTIVE DATE

    The provision applies to contributions made for taxable 
years beginning after December 31, 2019.

H. Qualified Employer Plans Prohibited From Making Loans Through Credit 
  Cards and Other Similar Arrangements (sec. 108 of the bill and sec. 
                           72(p) of the Code)


                              PRESENT LAW

    Employer-sponsored retirement plans may provide loans to 
participants. Unless the loan satisfies certain requirements in 
both form and operation, the amount of a retirement plan loan 
is a deemed distribution from the retirement plan. Among the 
requirements that the loan must satisfy are that the loan 
amount must not exceed the lesser of 50 percent of the 
participant's account balance or $50,000 (generally taking into 
account outstanding balances of previous loans), and the loan's 
terms must provide for a repayment period of not more than five 
years (except for a loan specifically to purchase a home) and 
for level amortization of loan payments to be made not less 
frequently than quarterly.\76\ Thus, if an employee stops 
making payments on a loan before the loan is repaid, a deemed 
distribution of the outstanding loan balance generally occurs. 
A deemed distribution of an unpaid loan balance generally is 
taxed as though an actual distribution occurred, including 
being subject to a 10-percent early distribution tax, if 
applicable. A deemed distribution is not eligible for rollover 
to another eligible retirement plan. Subject to the limit on 
the amount of loans, which precludes any additional loan that 
would cause the limit to be exceeded, the rules relating to 
loans do not limit the number of loans an employee may obtain 
from a plan. Some arrangements have developed under which an 
employee can access plan loans through the use of a credit card 
or similar mechanism.
---------------------------------------------------------------------------
    \76\Sec. 72(p).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The availability of plan loans may encourage employees to 
contribute to a retirement plan with the knowledge that funds 
may be accessed if needed. However, loans that are not repaid 
have the effect of depleting retirement savings. Easy access to 
plan loans through credit or debit cards and similar 
arrangements may lead to the use of retirement plan assets for 
routine or small purchases and, over time, result in an 
accumulated loan balance that an employee cannot repay. The 
Committee believes that appropriate limits should be placed on 
such arrangements.

                        EXPLANATION OF PROVISION

    Under the provision, a plan loan that is made through the 
use of a credit card or similar arrangement does not meet the 
requirements for loan treatment applicable to qualified 
retirement plans, and is therefore a deemed distribution.

                             EFFECTIVE DATE

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

  I. Portability of Lifetime Income Options (sec. 109 of the bill and 
         secs. 401(a), 401(k), 403(b), and 457(d) of the Code)


                              PRESENT LAW

Distribution restrictions for accounts under employer-sponsored plans

            Types of plans and contributions
    Tax-favored employer-sponsored retirement plans under which 
individual accounts are maintained for employees include 
qualified defined contribution plans, tax-deferred annuity 
plans (referred to as ``section 403(b)'' plans), and eligible 
deferred compensation plans of State and local government 
employers (referred to as ``governmental section 457(b)'' 
plans).\77\
---------------------------------------------------------------------------
    \77\Secs. 401(a), 403(a) and (b), and 457(b) and (e)(1)(A).
---------------------------------------------------------------------------
    Contributions to a qualified defined contribution plan or 
section 403(b) plan may include some or all of the following 
types of contributions:
           pretax elective deferrals (that is, pretax 
        contributions made at the election of an employee in 
        lieu of receiving cash compensation),
           after-tax designated Roth contributions 
        (that is, elective deferrals made on an after-tax basis 
        to a Roth account under the plan),
           after-tax employee contributions (other than 
        designated Roth contributions),
           pretax employer matching contributions (that 
        is, employer contributions made as a result of an 
        employee's elective deferrals, designated Roth 
        contributions, or after-tax contributions), and
           pretax employer nonelective contributions 
        (that is, employer contributions made without regard to 
        whether an employee makes elective deferrals, 
        designated Roth contributions, or after-tax 
        contributions).
    Contributions to a governmental section 457(b) plan 
generally consist of pretax elective deferrals and, if provided 
for under the plan, designated Roth contributions.
            Restrictions on in-service distributions
    The terms of an employer-sponsored retirement plan 
generally determine when distributions are permitted. However, 
in some cases, statutory restrictions on distributions may 
apply.
    Elective deferrals under a qualified defined contribution 
plan are subject to statutory restrictions on distribution 
before severance from employment, referred to as ``in-service'' 
distributions.\78\ In-service distributions of elective 
deferrals (and related earnings) generally are permitted only 
after attainment of age 59\1/2\ or termination of the plan. In-
service distributions of elective deferrals (but not related 
earnings) are also permitted in the case of hardship.\79\
---------------------------------------------------------------------------
    \78\Sec. 401(k)(2)(B). Similar restrictions apply to certain other 
contributions, such as employer matching or nonelective contributions 
required under the nondiscrimination safe harbors under section 401(k).
    \79\The Bipartisan Budget Act of 2018, Pub. L. No. 115-123 
(``BBA''), amends certain hardship distribution rules applicable to 
401(k) plans, effective for plan years beginning after December 31, 
2018. One such amendment under BBA section 41114 permits earnings on 
elective deferrals under a section 401(k) plan, as well as qualified 
nonelective contributions and qualified matching contributions (and 
attributable earnings), to be distributed on account of hardship.
---------------------------------------------------------------------------
    Other distribution restrictions may apply to contributions 
under certain types of qualified defined contribution plans. A 
profit-sharing plan generally may allow an in-service 
distribution of an amount contributed to the plan only after a 
fixed number of years (not less than two).\80\ A money purchase 
pension plan generally may not allow an in-service distribution 
before attainment of age 62 (or attainment of normal retirement 
age under the plan if earlier) or termination of the plan.\81\
---------------------------------------------------------------------------
    \80\Rev. Rul. 71-295, 1971-2 C.B. 184, and Treas. Reg. sec. 1.401-
1(b)(1)(ii). Similar rules apply to a stock bonus plan. Treas. Reg. 
sec. 1.401-1(b)(1)(iii).
    \81\Sec. 401(a)(36) and Treas. Reg. secs. 1.401-1(b)(1)(i) and 
1.401(a)-1(b).
---------------------------------------------------------------------------
    Elective deferrals under a section 403(b) plan are subject 
to in-service distribution restrictions similar to those 
applicable to elective deferrals under a qualified defined 
contribution plan, and, in some cases, other contributions to a 
section 403(b) plan are subject to similar restrictions.\82\ 
Deferrals under a governmental section 457(b) plan are subject 
to in-service distribution restrictions similar to those 
applicable to elective deferrals under a qualified defined 
contribution plan, except that in-service distributions under a 
governmental section 457(b) plan apply until age 70\1/2\ 
(rather than age 59\1/2\).\83\
---------------------------------------------------------------------------
    \82\Sec. 403(b)(7)(A)(ii) and (11).
    \83\Sec. 457(d)(1)(A).
---------------------------------------------------------------------------

Distributions and rollovers

    A distribution from an employer-sponsored retirement plan 
is generally includible in income except for any portion 
attributable to after-tax contributions, which result in 
basis.\84\ Unless an exception applies, in the case of a 
distribution before age 59\1/2\ from a qualified retirement 
plan or a section 403(b) plan, any amount included in income is 
subject to an additional 10-percent tax, referred to as the 
``early withdrawal'' tax.\85\
---------------------------------------------------------------------------
    \84\Secs. 402(a), 403(b)(1), and 457(a)(1). Under section 402A(d), 
a qualified distribution from a designated Roth account under an 
employer-sponsored plan is not includible in income.
    \85\Sec. 72(t).
---------------------------------------------------------------------------
    A distribution from an employer-sponsored retirement plan 
generally may be rolled over on a nontaxable basis to another 
such plan or to an individual retirement arrangement (``IRA''), 
either by a direct transfer to the recipient plan or IRA or by 
contributing the distribution to the recipient plan or IRA 
within 60 days of receiving the distribution.\86\ If the 
distribution from an employer-sponsored retirement plan 
consists of property, the rollover is accomplished by a 
transfer or contribution of the property to the recipient plan 
or IRA.
---------------------------------------------------------------------------
    \86\Secs. 402(c), 402A(c)(3), 403(b)(8), and 457(e)(16).
---------------------------------------------------------------------------

Investment of accounts under employer-sponsored plans

    Qualified defined contribution plans, section 403(b) plans, 
and governmental section 457(b) plans commonly allow employees 
to direct the manner in which their accounts are invested. 
Employees may be given a choice among specified lifetime 
investments, such as a choice of specified mutual funds, and, 
in some cases, may be able to direct the investment of their 
accounts in any product, instrument or investment offered in 
the market.
    The investment options under a particular employer-
sponsored retirement plan may change at times.\87\ Similarly, a 
plan that allows employees to direct the investment of their 
accounts in any product, instrument or investment offered in 
the market may be amended to limit the investments that can be 
held in the plan. In these cases, employees may be required to 
change the investments held within their accounts.
---------------------------------------------------------------------------
    \87\In the case of a plan subject to ERISA, a participant's 
exercise of control over the investment of the assets in his or her 
account by choosing among the investment options offered under the plan 
does not relieve a plan fiduciary from the duty to prudently select and 
monitor the investment options offered to participants. 29 C.F.R. sec. 
2550.404c-1(d)(2)(iv) (2010); Tibble v. Edison International, No. 13-
550, 135 S. Ct. 1823 (2015). The duty to monitor investment options may 
result in a change in the options offered.
---------------------------------------------------------------------------
    The terms of some investments impose a charge or fee when 
the investment is liquidated, particularly if the investment is 
liquidated within a particular period after acquisition. For 
example, a lifetime income product, such as an annuity 
contract, may impose a surrender charge if the investment is 
discontinued.
    If an employee has to liquidate an investment held in an 
employer-sponsored retirement plan because of a change in 
investment options or a limit on investments held in the plan, 
the employee may be subject to a charge or fee as described 
above. In addition, restrictions on in-service distributions 
may prevent the employee from preserving the investment through 
a rollover.

                           REASONS FOR CHANGE

    The terms of some investments impose a charge or fee when 
the investment is liquidated, particularly if the investment is 
liquidated within a particular period after acquisition. For 
example, a lifetime income product, such as an annuity 
contract, may impose a surrender charge if the investment is 
discontinued. If an employee has to liquidate an investment 
held in an employer-sponsored retirement plan, for example, 
because of a change in investment options or a limit on 
investments held in the plan, the employee may be subject to 
such a charge or fee. Restrictions on in-service distributions 
may prevent the employee from avoiding such a charge or fee, 
and also from preserving the investment, through a distribution 
or rollover of the existing investment. The Committee wishes to 
allow distributions and rollovers in such cases.

                        EXPLANATION OF PROVISION

    Under the provision, if a lifetime income investment is no 
longer authorized to be held as an investment option under a 
qualified defined contribution plan, section 403(b) plan, or 
governmental section 457(b) plan, except as otherwise provided 
in guidance, the plan does not fail to satisfy the Code 
requirements applicable to the plan solely by reason of 
allowing (1) qualified distributions of a lifetime income 
investment, or (2) distributions of a lifetime income 
investment in the form of a qualified plan distribution annuity 
contract. Such a distribution must be made within the 90-day 
period ending on the date when the lifetime income investment 
is no longer authorized to be held as an investment option 
under the plan.
    For purposes of the provision, a qualified distribution is 
a direct trustee-to-trustee transfer to another employer-
sponsored retirement plan or IRA.\88\ A lifetime income 
investment is an investment option designed to provide an 
employee with election rights (1) that are not uniformly 
available with respect to other investment options under the 
plan and (2) that are rights to a lifetime income feature 
available through a contract or other arrangement offered under 
the plan (or under another employer-sponsored retirement plan 
or IRA through a direct trustee-to-trustee transfer). A 
lifetime income feature is (1) a feature that guarantees a 
minimum level of income annually (or more frequently) for at 
least the remainder of the life of the employee or the joint 
lives of the employee and the employee's designated 
beneficiary, or (2) an annuity payable on behalf of the 
employee under which payments are made in substantially equal 
periodic payments (not less frequently than annually) over the 
life of the employee or the joint lives of the employee and the 
employee's designated beneficiary. Finally, a qualified plan 
distribution annuity contract is an annuity contract purchased 
for a participant and distributed to the participant by an 
employer-sponsored retirement plan or an employer-sponsored 
retirement plan contract.\89\
---------------------------------------------------------------------------
    \88\For this purpose, an employer-sponsored retirement plan or IRA 
means such a plan or IRA that is an eligible retirement plan under 
section 402(c)(8)(B).
    \89\For this purpose, an employer-sponsored retirement plan 
contract is an annuity contract distributed from an eligible retirement 
plan described in section 402(c)(8)(B) other than an IRA or individual 
retirement annuity.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2019.

  J. Treatment of Custodial Accounts on Termination of Section 403(b) 
        Plans (sec. 110 of the bill and sec. 403(b) of the Code)


                              PRESENT LAW

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

    Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified 
retirement plans. Section 403(b) plans may be maintained only 
by (1) charitable tax-exempt organizations, and (2) educational 
institutions of State or local governments (that is, public 
schools, including colleges and universities). Many of the 
rules that apply to section 403(b) plans are similar to the 
rules applicable to qualified retirement plans, including 
section 401(k) plans. Employers may make nonelective or 
matching contributions to such plans on behalf of their 
employees, and the plan may provide for employees to make 
pretax elective deferrals, designated Roth contributions (held 
in designated Roth accounts)\90\ or other after-tax 
contributions. Generally section 403(b) plans provide for 
contributions toward the purchase of annuity contracts or 
provide for contributions to be held in custodial accounts for 
each employee. In the case of contributions to custodial 
accounts under a section 403(b) plan, the amounts must be 
invested only in regulated investment company stock.\91\ 
Contributions to a custodial account are not permitted to be 
distributed before the employee dies, attains age 59\1/2\, has 
a severance from employment, or, in the case of elective 
deferrals, encounters financial hardship.
---------------------------------------------------------------------------
    \90\Sec. 402A.
    \91\Sec. 403(b)(7).
---------------------------------------------------------------------------
    A section 403(b) plan is permitted to contain provision for 
plan termination and that allow accumulated benefits to be 
distributed on termination.\92\ In order for a plan termination 
to be effectuated, however, all plan assets must be distributed 
to participants.
---------------------------------------------------------------------------
    \92\Treas. Reg. sec. 1.403(b)-10(a).
---------------------------------------------------------------------------

Rollovers

    A distribution from a section 403(b) plan that is an 
eligible rollover distribution may be rolled over to an 
eligible retirement plan (which include another 403(b) plan, a 
qualified retirement plan, and an IRA).\93\ The rollover 
generally can be achieved by direct rollover (direct payment 
from the distributing plan to the recipient plan) or by 
contributing the distribution to the eligible retirement plan 
within 60 days of receiving the distribution (``60-day 
rollover'').\94\
---------------------------------------------------------------------------
    \93\Sec. 403(b)(8). Similar rules apply to distributions from 
qualified retirement plans and governmental section 457(b) plans.
    \94\Under section 402(c)(11), any distribution to a beneficiary 
other than the participant's surviving spouse is only permitted to be 
rolled over to an IRA using a direct rollover; 60-day rollovers are not 
available to nonspouse beneficiaries.
---------------------------------------------------------------------------
    Amounts that are rolled over are usually not included in 
gross income. Generally, a distribution of any portion of the 
balance to the credit of a participant is an eligible rollover 
distribution with exceptions, for example, certain periodic 
payments, required minimum distributions, and hardship 
distributions.\95\
---------------------------------------------------------------------------
    \95\Sec. 402(c)(4). Treas. Reg. sec. 1.402(c)-1 identifies certain 
other payments that are not eligible for rollover, including, for 
example, certain corrective distributions, loans that are treated as 
deemed distributions under section 72(p), and dividends on employer 
securities as described in section 404(k).
---------------------------------------------------------------------------

Roth conversions

    Distributions from section 403(b) plans may be rolled into 
a Roth IRA.\96\ Distributions from these plans that are rolled 
over into a Roth IRA and that are not distributions from a 
designated Roth account must be included in gross income. 
Further, a section 403(b) plan that allows employees to make 
designated Roth contributions may also allow employees to elect 
to transfer amounts held in accounts that are not designated 
Roth accounts into designated Roth accounts, but the amount 
transferred must be included in income as though it were 
distributed.\97\
---------------------------------------------------------------------------
    \96\Sec. 408A(d)(3). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
    \97\Sec. 402A(d)(4). Similar rules apply to qualified retirement 
plans and governmental section 457(b) plans.
---------------------------------------------------------------------------

Approved nonbank trustees required for IRAs

    An IRA can be a trust, a custodial account, or an annuity 
contract. The Code requires that the trustee or custodian of an 
IRA be a bank (which is generally subject to Federal or State 
supervision) or an IRS-approved nonbank trustee, that an 
annuity contract be issued by an insurance company (which is 
subject to State supervision), and that an IRA trust or 
custodial account be created and organized in the United 
States.
    In order for a trustee or custodian that is not a bank to 
be an IRA trustee or custodian, the entity must apply to the 
IRS for approval. Treasury Regulations list a number of factors 
that are taken into account in approving an applicant to be a 
nonbank trustee.\98\ The applicant must demonstrate fiduciary 
ability (ability to act within accepted rules of fiduciary 
conduct including continuity and diversity of ownership), 
capacity to account (experience and competence with other 
activities normally associated with handling of retirement 
funds), and ability to satisfy other rules of fiduciary conduct 
which includes a net worth requirement. Because it is an 
objective requirement that may be difficult for some applicants 
to satisfy, the net worth requirement is the most significant 
of the requirements for nonbank trustees.
---------------------------------------------------------------------------
    \98\Treas. Reg. sec. 1.408-2(e).
---------------------------------------------------------------------------
    To be approved, the entity must have a net worth of at 
least $250,000 at the time of the application. There is a 
maintenance rule that varies depending on whether the trustee 
is an active trustee or a passive trustee and that includes 
minimum dollar amounts and minimum amounts as a percentage of 
assets held in fiduciary accounts. A special rule is provided 
for nonbank trustees that are members of the Security Investor 
Protection Corporation (``SIPC'').

                           REASONS FOR CHANGE

    In general, assets of section 403(b) plans can be invested 
only in annuity contracts or mutual funds. Unlike most 
qualified defined contribution plans, under which assets are 
held in a trust, historically, assets associated with section 
403(b) plans have often consisted of annuity contracts issued 
in the name of the particular participant or mutual funds held 
in a custodial account in the participant's name. In many 
cases, this prevents an employer from distributing these assets 
in order to effectuate a plan termination. The Committee wishes 
to provide a mechanism under which the plan termination may 
proceed while keeping assets that cannot otherwise be 
distributed in a tax-favored retirement savings vehicle.

                        EXPLANATION OF PROVISION

    Under the provision, the Secretary of the Treasury is 
directed to issue guidance within six months after the date of 
enactment to provide that, if an employer terminates a section 
403(b) plan under which amounts are contributed to custodial 
accounts, the plan administrator or custodian may distribute an 
individual custodial account in kind to a participant or 
beneficiary of the plan and the distributed custodial account 
must be maintained by the custodian on a tax-deferred basis as 
a section 403(b)(7) custodial account, similar to the treatment 
of fully-paid individual annuity contracts under Revenue Ruling 
2011-7,\99\ until amounts are actually paid to the participant 
or beneficiary. In addition, such guidance must provide that 
(1) the section 403(b)(7) status of the distributed custodial 
account is generally maintained if such account thereafter 
adheres to the requirements of section 403(b) in effect at the 
time of the account's distribution, and (2) a custodial account 
is not considered distributed to the participant or beneficiary 
if the employer has any material retained rights under the 
account (the employer, however, is not treated as retaining 
material rights simply because the custodial account was 
originally opened under a group contract).
---------------------------------------------------------------------------
    \99\2011-10 I.R.B. 534 (March 7, 2011).
---------------------------------------------------------------------------
    The provision directs such guidance to apply retroactively 
for taxable years beginning after December 31, 2008.

                             EFFECTIVE DATE

    The provision is effective upon date of enactment.

K. Clarification of Retirement Income Account Rules Relating to Church-
 Controlled Organizations (sec. 111 of the bill and sec. 403(b)(9) of 
                               the Code)


                              PRESENT LAW

    Assets of a tax-sheltered annuity plan (a ``section 
403(b)'' plan), generally must be invested in annuity contracts 
or mutual funds.\100\ However, the restrictions on investments 
do not apply to a retirement income account, which is a defined 
contribution program established or maintained by a church, or 
a convention or association of churches, to provide benefits 
under the plan to employees of a religious, charitable or 
similar tax-exempt organization.\101\
---------------------------------------------------------------------------
    \100\Sec. 403(b)(1)(A) and (7).
    \101\Sec. 403(b)(9)(B), referring to organizations exempt from tax 
under section 501(c)(3). For this purpose, a church or a convention or 
association of churches includes an organization described in section 
414(e)(3)(A), that is, an organization, the principal purpose or 
function of which is the administration or funding of a plan or program 
for the provision of retirement benefits or welfare benefits, or both, 
for the employees of a church or a convention or association of 
churches, provided that the organization is controlled by or associated 
with a church or a convention or association of churches.
---------------------------------------------------------------------------
    Certain rules prohibiting discrimination in favor of highly 
compensated employees, which apply to section 403(b) plans 
generally, do not apply to a plan maintained by a church or 
qualified church-controlled organization.\102\ For this 
purpose, church means a church, a convention or association of 
churches, or an elementary or secondary school that is 
controlled, operated, or principally supported by a church or 
by a convention or association of churches, and includes a 
qualified church-controlled organization. A qualified church-
controlled organization is any church-controlled tax-exempt 
organization other than an organization that (1) offers goods, 
services, or facilities for sale, other than on an incidental 
basis, to the general public, other than goods, services, or 
facilities that are sold at a nominal charge substantially less 
than the cost of providing the goods, services, or facilities, 
and (2) normally receives more than 25 percent of its support 
from either governmental sources, or receipts from admissions, 
sales of merchandise, performance of services, or furnishing of 
facilities, in activities that are not unrelated trades or 
businesses, or from both. Church-controlled organizations that 
are not qualified church-controlled organizations are generally 
referred to as ``nonqualified church-controlled 
organizations.''
---------------------------------------------------------------------------
    \102\Sec. 403(b)(1)(D) and (12).
---------------------------------------------------------------------------
    In recent years, a question has arisen as to whether 
employees of nonqualified church-controlled organizations may 
be covered under a section 403(b) plan that consists of a 
retirement income account.

                           REASONS FOR CHANGE

    The Committee wishes to clarify the individuals who may be 
covered by a retirement income account.

                        EXPLANATION OF PROVISION

    The provision clarifies that a retirement income account 
may cover a duly ordained, commissioned, or licensed minister 
of a church in the exercise of his ministry, regardless of the 
source of his compensation; an employee of an organization, 
whether a civil law corporation or otherwise, that is exempt 
from tax under section 501 and is controlled by or associated 
with a church or a convention or association of churches; and 
an employee who is included in a church plan under certain 
circumstances after separation from the service of a church, a 
convention or association of churches, or an organization 
described above.\103\
---------------------------------------------------------------------------
    \103\These individuals are described in section 414(e)(3)(B) and 
(E).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to years beginning before, on, or 
after the date of enactment.

    L. Qualified Cash or Deferred Arrangements Must Allow Long-Term 
 Employees Working More Than 500 But Less Than 1,000 Hours Per Year to 
Participate (sec. 112 of the bill and secs. 401(k) and 410 of the Code)


                              PRESENT LAW

Qualified retirement plans

    Qualified retirement plans are of two general types: 
defined benefit plans, under which benefits are determined 
under a plan formula and paid from general plan assets, rather 
than individual accounts; and defined contribution plans which 
include section 401(k) plans, under which benefits are based on 
a separate account for each participant, to which are allocated 
contributions, earnings and losses.
    A section 401(k) plan legally is not a separate type of 
plan, but is a profit-sharing or stock bonus plan\104\ that 
contains a qualified cash or deferred arrangement under which 
employees may make elective deferrals.\105\ Section 401(k) 
plans may be designed so that elective deferrals are made only 
if the employee affirmatively elects them. Alternatively, a 
section 401(k) plan may provide for ``automatic enrollment,'' 
under which elective deferrals are made at a specified rate 
(referred to as a ``default rate'') when an employee becomes 
eligible to participate unless the employee affirmatively 
elects not to make contributions or to make contributions at a 
different rate. Other special rules apply to such arrangements. 
The maximum annual amount of elective deferrals that can be 
made by an employee to a section 401(k) plan for a year is 
$19,000 (for 2019) plus $6,000 for employees age 50 or older 
(catch-up contribution amount) or, if less, the employee's 
compensation.\106\ Section 401(k) plans may provide for 
matching contributions, which are made on account of elective 
deferrals,\107\ and may provide for employer nonelective 
contributions.
---------------------------------------------------------------------------
    \104\Defined contribution plans include money purchase pension 
plans, profit-sharing plans, and stock bonus plans. Certain pre-ERISA 
money purchase plans and rural cooperative plans may also include a 
qualified cash or deferred arrangement. Except for certain 
grandfathered plans, a State or local governmental employer may not 
maintain a section 401(k) plan.
    \105\Elective deferrals are generally made on a pretax basis, 
excludable from the participant's gross income when contributed but 
includable with attributable earnings when distributed. However, under 
section 402A, a section 401(k) plan is permitted to include a 
``qualified Roth contribution program'' that permits a participant to 
elect to have all or a portion of the participant's elective deferrals 
under the plan treated as designated Roth contributions. Designated 
Roth contributions are not excludable from the participant's gross 
income when contributed, but qualified distributions of designated Roth 
contributions and attributable earnings are excluded from gross income 
(even though the earnings are not previously taxed). A qualified 
distribution is a distribution made after the end of a specified period 
(generally five years after the participant's first designated Roth 
contribution) and that is (1) made on or after the date on which the 
participant attains age 59\1/2\, (2) made to a beneficiary (or to the 
estate of the participant) on or after the death of the participant, or 
(3) attributable to the participant's being disabled.
    \106\Secs. 402(g) and 414(v).
    \107\Sec. 401(m). Matching contributions can also be made on 
account of after-tax employee contributions.
---------------------------------------------------------------------------

Participation requirement

    A qualified retirement plan generally can delay 
participation in the plan based on attainment of age or 
completion of years of service but not beyond the later of 
completion of one year of service (that is, a 12-month period 
with at least 1,000 hours of service) or attainment of age 
21.\108\ A plan also cannot exclude an employee from 
participation (on the basis of age) when that employee has 
attained a specified age.\109\ Employees can be excluded from 
plan participation on other bases, such as job classification, 
as long as the other basis is not an indirect age or service 
requirement. A plan can provide that an employee is not 
entitled to an allocation of employer nonelective or matching 
contributions for a plan year unless the employee completes 
either 1,000 hours of service during the plan year or is 
employed on the last day of the year even if the employee 
previously completed 1,000 hours of service in a prior year. 
However, once an employee has completed 1,000 hours of service 
during a plan year, an employee cannot be precluded from making 
elective deferrals based on a service requirement.\110\
---------------------------------------------------------------------------
    \108\Secs. 401(a)(3) and 410(a)(1). Parallel requirements generally 
apply to plans of private employers under section 202 of the Employee 
Retirement Income Security Act of 1974 (``ERISA). Governmental plans 
under section 414(d) and church plans under section 414(e) are 
generally exempt from these Code requirements and from ERISA.
    \109\Sec. 410(a)(2).
    \110\Sec. 401(k)(2)(D).
---------------------------------------------------------------------------

Vesting

    Qualified retirement plans are subject to requirements as 
to the period of service after which a participant's right to 
his or her accrued benefit must be nonforfeitable (that is, 
``vested'').\111\ Generally, a year of vesting service is only 
required to be credited if an employee completes 1,000 hours of 
service during the year.
---------------------------------------------------------------------------
    \111\Secs. 401(a)(7) and 411. Governmental plans and church plans 
are generally exempt from these Code requirements. Parallel 
requirements generally apply to plans of private employers under 
sections 203-204 of ERISA.
---------------------------------------------------------------------------
    In the case of a defined contribution plan, a participant's 
accrued benefit is the balance of his or her account under the 
plan. The portion of an employee's account balance attributable 
to employee after-tax contributions and elective deferrals must 
be nonforfeitable at all times.\112\ Generally, the portion of 
an employee's account balance attributable to nonelective or 
matching contributions must become nonforfeitable after the 
completion of a specified number of years of service in 
accordance with one of two minimum vesting schedules.\113\ 
Under the first vesting schedule, the participant's accrued 
benefit derived from employer contributions must become 100 
percent vested upon completion of no more than three years of 
service (often referred to as ``three year cliff vesting''). 
Under the second vesting schedule (referred to as ``graduated 
vesting''), the participant's accrued benefit derived from 
employer contributions must become vested ratably at least over 
the period from two to six years of service.
---------------------------------------------------------------------------
    \112\Secs. 411(a)(1) and 401(k)(2)(C). Certain nonelective 
contributions under a section 401(k) plan and employer matching 
contributions with respect to elective deferrals must also be 
nonforfeitable at all times.
    \113\Sec. 411(a)(2)(B). Section 411(a)(3) provides certain 
permitted forfeitures for accrued benefits that are otherwise 100 
percent vested, including, for example, forfeiture upon the 
participant's death or withdrawal of mandatory employee contributions 
and suspension of benefits upon reemployment.
---------------------------------------------------------------------------

Minimum coverage and nondiscrimination requirements

            In general
    A qualified retirement plan is prohibited from 
discriminating in favor of highly compensated employees, 
referred to as the nondiscrimination requirements. These 
requirements are intended to ensure that a qualified retirement 
plan provides meaningful benefits to an employer's rank-and-
file employees as well as highly compensated employees, so that 
qualified retirement plans achieve the goal of retirement 
security for both lower-paid and higher-paid employees. The 
nondiscrimination requirements consist of a minimum coverage 
requirement and general nondiscrimination requirements.\114\ 
For purposes of these requirements, an employee generally is 
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or 
the preceding year, or (2) had compensation for the preceding 
year in excess of $125,000 (for 2019).\115\
---------------------------------------------------------------------------
    \114\Sections 401(a)(3) and 410(b) deal with the minimum coverage 
requirement; section 401(a)(4) deals with the general nondiscrimination 
requirements, with related rules in section 401(a)(5). Detailed 
regulations implement the statutory requirements. Governmental plans 
are generally exempt from these requirements.
    \115\Sec. 414(q). At the election of the employer, employees who 
are highly compensated based on compensation may be limited to the top 
20 percent highest paid employees. A nonhighly compensated employee is 
an employee other than a highly compensated employee.
---------------------------------------------------------------------------
    The minimum coverage and general nondiscrimination 
requirements apply annually on the basis of the plan year. In 
applying these requirements, employees of all members of a 
controlled group or affiliated service group are treated as 
employed by a single employer. Employees who have not satisfied 
minimum age and service conditions under the plan, certain 
nonresident aliens, and employees covered by a collective 
bargaining agreement are generally disregarded.\116\ However, a 
plan that covers employees with less than a year of service or 
who are under age 21 must generally include those employees in 
any nondiscrimination test for the year but can test the plan 
for nondiscrimination in two parts: (1) by separately testing 
the portion of the plan covering employees who have not 
completed a year of service or are under age 21 and treating 
all of the employer's employees with less than a year of 
service or under age 21 as the only employees of the employer; 
and (2) then testing the rest of the plan taking into account 
the rest of the employees of the employer and excluding those 
employees. If a plan does not satisfy the nondiscrimination 
requirements on its own, it may in some circumstances be 
aggregated with another plan, and the two plans tested together 
as a single plan.
---------------------------------------------------------------------------
    \116\A plan or portion of a plan covering collectively bargained 
employees is generally deemed to satisfy the nondiscrimination 
requirements.
---------------------------------------------------------------------------
            Minimum coverage requirement
    Under the minimum coverage requirement, the plan's coverage 
of employees must be nondiscriminatory. This is determined by 
calculating the plan's ratio percentage, that is, the ratio of 
the percentage of nonhighly compensated employees (of all 
nonhighly compensated employees in the workforce) covered under 
the plan over the percentage of highly compensated employees 
covered. In the case of a section 401(k) plan, the right to 
make elective deferrals, the right to receive matching 
contributions, and the allocation of nonelective contributions 
are each tested separately for nondiscriminatory coverage as 
though provided under separate plans.
    If the plan's ratio percentage is 70 percent or greater, 
the plan satisfies the minimum coverage requirement. If the 
plan's ratio percentage is less than 70 percent, a multi-part 
test applies. First, the plan must cover a group (or 
``classification'') of employees that is reasonable and 
established under objective business criteria, such as hourly 
or salaried employees (referred to as a reasonable 
classification), and the plan's ratio percentage must be at or 
above a specific level specified in the regulations. In 
addition, the average benefit percentage test must be 
satisfied. Under the average benefit percentage test, the 
average rate of contributions or benefit accruals for all 
nonhighly compensated employees in the workforce (taking into 
account all plans of the employer) must be at least 70 percent 
of the average contribution or accrual rate of all highly 
compensated employees.
            General nondiscrimination requirements
                Nondiscrimination in the amount of contributions or 
                    benefits
    There are two general approaches to testing the amount of 
contributions or benefits under a qualified retirement 
plan:\117\ (1) design-based safe harbors under which the 
benefit formula under a defined benefit plan, or the formula 
for allocating employer nonelective contributions under a 
defined contribution plan to participants' accounts, satisfies 
certain uniformity standards; and (2) a mechanical general test 
under which the distribution of the rates of benefit among 
highly compensated and nonhighly compensated employees within a 
plan is tested for nondiscrimination by applying a modified 
version of the minimum coverage requirement.\118\ The safe 
harbors and general test may include cross-testing of 
equivalent accruals or allocations.\119\ A plan is not 
discriminatory merely because benefit accruals or allocations 
for highly compensated and nonhighly compensated employees are 
provided as a percentage of compensation (up to $280,000 for 
2019).\120\ Thus, the various testing approaches are generally 
applied to the amount of contributions or benefits provided as 
a percentage of compensation (expressed as allocation or 
accrual rates).
---------------------------------------------------------------------------
    \117\Treas. Reg. sec. 1.401(a)(4)-1. With respect to the amount of 
contributions, employee elective deferrals under a section 401(k) plan 
and employer matching contributions and after-tax employee 
contributions to a defined contribution plan are subject to special 
testing rules, rather than being included in applying the general 
nondiscrimination requirements. In addition, the amount of employer 
contributions to an ESOP is tested separately from other employer 
contributions. Rules applicable to benefits, rights and features and 
the timing of plan amendments are provided in Treas. Reg. secs. 1. 
401(a)(4)-4 and -5 respectively.
    \118\These approaches are explained in Treas. Reg. secs. 
1.401(a)(4)-2 and -3 and -8. Sections 401(a)(5)(C)-(D) and 401(l) and 
Treas. Reg. secs. 1.401(a)(4)-7 and 1.401(l)-1 through -6 provide rules 
under which nondiscrimination testing may take into account the 
employer-paid portion of social security taxes or benefits, referred to 
as permitted disparity.
    \119\Treas. Reg. sec. 1.401(a)(4)-8
    \120\Sec. 401(a)(5)(B).
---------------------------------------------------------------------------
                Special nondiscrimination tests for section 401(k) 
                    plans
    A special annual nondiscrimination test, called the actual 
deferral percentage test (the ``ADP'' test) applies to test the 
amount of elective deferrals under a section 401(k) plan.\121\ 
The ADP test generally compares the average rate of deferral 
for highly compensated employees to the average rate of 
deferral for nonhighly compensated employees. The ADP test 
allows the average deferral rate for highly compensated 
employees to exceed that for nonhighly compensated employees 
within limits: (1) the average deferral rate for highly 
compensated employees can be up to 125 percent of the average 
deferral rate for nonhighly compensated employees; or (2) the 
average deferral rate for highly compensated employees can be 
two percentage points greater than the average deferral rate 
for nonhighly compensated employees or, if less, twice the 
average deferral rate for nonhighly compensated employees. 
Employer matching contributions and after-tax employee 
contributions are subject to a similar special 
nondiscrimination test (the actual contribution percentage test 
or ``ACP test'') which compares the average rate of matching 
and after-tax contributions to the plan of the two groups.\122\
---------------------------------------------------------------------------
    \121\Sec. 401(k)(3).
    \122\Sec. 401(m)(2).
---------------------------------------------------------------------------
    If the ADP test is not satisfied, a mechanism is provided 
for the employer to make immediately vested additional 
contributions for nonhighly compensated employees (and certain 
other corrections) or to distribute deferrals of highly 
compensated employees to such employees, so that the ADP test 
is satisfied. Similar correction mechanisms apply for purposes 
of satisfying the ACP test.
    There are also designed-based safe harbor methods of 
satisfying the ADP and ACP tests. These safe harbors are based 
on the premise that, for a 401(k) plan with certain design 
features with respect to contributions (elective, matching, and 
nonelective) and enrollment (one of the safe harbors is 
combined with automatic enrollment), satisfaction of the 
minimum coverage requirement is a sufficient test of the amount 
of whether the amount elective deferrals and matching 
contributions are nondiscriminatory.\123\
---------------------------------------------------------------------------
    \123\The safe harbors that only require certain matching 
contributions potentially allow satisfaction of the nondiscrimination 
requirement with respect to elective and matching contributions under a 
401(k) plan for a year even though no contributions are ultimately 
provided to nonhighly compensated employees under the plan for the year 
due to a lack of voluntary participation.
---------------------------------------------------------------------------

Top heavy rules

    Top-heavy rules apply to limit the extent to which 
accumulated benefits or account balances under a qualified 
retirement plan can be concentrated with key employees.\124\ 
Whereas the general nondiscrimination requirements are designed 
to test annual contributions or benefits for highly compensated 
employees, compared to those of nonhighly compensated 
employees, the top-heavy rules test the portion of the total 
plan contributions or benefits that have accumulated for the 
benefit of key employees as a group. If a plan is top-heavy, 
minimum contributions or benefits are required for participants 
who are non-key employees, and, in some cases, faster vesting 
is required. Non-key employees who have become participants in 
a defined contribution plan, but who subsequently fail to 
complete 1,000 hours of service (or the equivalent) for an 
accrual computation period must receive the top-heavy defined 
contribution minimum.
---------------------------------------------------------------------------
    \124\Secs. 401(a)(10)(B) and 416. The nature of the top-heavy test 
is such that a plan of a large business with many employees is unlikely 
to be top-heavy. The top-heavy requirements are therefore viewed as 
primarily affecting plans of smaller employers in which the owners 
participate.
---------------------------------------------------------------------------
    For this purpose, a key employee is an officer with annual 
compensation greater than $180,000 (for 2019), a five-percent 
owner, or a one-percent owner with compensation in excess of 
$150,000. A defined benefit plan generally is top-heavy if the 
present value of cumulative accrued benefits for key employees 
exceeds 60 percent of the cumulative accrued benefits for all 
employees. A defined contribution plan is top-heavy if the 
aggregate of accounts for key employees exceeds 60 percent of 
the aggregate accounts for all employees.

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

    Tax-deferred annuity plans (referred to as section 403(b) 
plans) are generally similar to qualified defined contribution 
plans, but may be maintained only by (1) tax-exempt charitable 
organizations,\125\ and (2) educational institutions of State 
or local governments (that is, public schools, including 
colleges and universities).\126\ Section 403(b) plans may 
provide for employees to make elective deferrals (in pretax or 
designated Roth form), including catch-up contributions, or 
other after-tax employee contributions, and employers may make 
nonelective or matching contributions on behalf of employees. 
Contributions to a section 403(b) plan are generally subject to 
the same contribution limits applicable to qualified defined 
contribution plans, including the limits on elective deferrals.
---------------------------------------------------------------------------
    \125\These are organizations exempt from tax under section 
501(c)(3). Section 403(b) plans of private, tax-exempt employers may be 
subject to ERISA as well as the requirements of section 403(b).
    \126\Sec. 403(b).
---------------------------------------------------------------------------
    Contributions to a section 403(b) plan must be fully 
vested. The minimum coverage and general nondiscrimination 
requirements applicable to a qualified retirement plan 
generally apply to a section 403(b) plan and to employer 
matching and nonelective contributions and after-tax employee 
contributions to the plan.\127\ If a section 403(b) plan 
provides for elective deferrals, the plan is subject to a 
``universal availability'' requirement under which all 
employees must be given the opportunity to make deferrals of 
more than $200. In applying this requirement, nonresident 
aliens, students, and employees who normally work less than 20 
hours per week may be excluded.\128\
---------------------------------------------------------------------------
    \127\These requirements do not apply to a governmental section 
403(b) plan or a section 403(b) plan maintained by a church or a 
qualified church-controlled organization as defined in section 3121(w).
    \128\For this purpose, nonresident has the meaning in section 
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The 
universal availability requirement does not apply to a section 403(b) 
plan maintained by a church or a qualified church-controlled 
organization.
---------------------------------------------------------------------------
    An eligible deferred compensation plan of a governmental 
employer (referred to as a governmental section 457(b) plan) is 
generally similar to a qualified cash-or deferred arrangement 
under a section 401(k) plan in that it consists of elective 
deferrals, that is, contributions (in pretax or designated Roth 
form) made at the election of an employee, including catch-up 
contributions. Deferrals under a governmental section 457(b) 
plan are generally subject to the same limits as elective 
deferrals under a section 401(k) plan or a section 403(b) plan.

                           REASONS FOR CHANGE

    For long-term part-time workers who work for a number of 
years with the same employer but do not reach the 1,000 hours 
of service requirement to become eligible to participate in 
their employer's qualified retirement plans, present law can 
prevent, or limit, such employees' ability to save for 
retirement in an employer-sponsored plan. The Committee wishes 
to provide a means for such long-term part-time employees to 
save for retirement by providing eligibility to make elective 
deferrals in such plans if an employee has worked for at least 
500 hours per year with an employer for at least three 
consecutive years and has met certain other conditions.

                        EXPLANATION OF PROVISION

    The provision requires a section 401(k) plan to permit an 
employee to make elective deferrals if the employee has worked 
at least 500 hours per year with the employer for at least 
three consecutive years and has met the age requirement (age 
21) by the end of the three consecutive year period (for this 
provision, an employee is referred to as a ``long-term part-
time employee'' after having completed this period of service). 
Thus, a long-term part-time employee could not be excluded from 
the plan because the employee has not completed a year of 
service as defined under the participation requirements 
described above (a 12-month period with at least 1,000 hours of 
service). Once a long-term part-time employee meets the age and 
service requirements, such employee must be able to commence 
participation no later than the earlier of (1) the first day of 
the first plan year beginning after the date on which the 
employee satisfied the age and service requirements or (2) the 
date 6 months after the date on which the individual satisfied 
those requirements. Employers may, but are not required to, 
allow long-term part-time employees to participate in the 
design based safe harbors (including the automatic enrollment 
safe harbor). If an employer does permit a long-term part-time 
employee to participate in such an automatic enrollment 401(k) 
plan, that employee would have elective deferrals automatically 
made at the default rate unless the employee affirmatively 
elects not to make contributions or to make contributions at a 
different rate.
    The provision does not require a long-term part-time 
employee to be otherwise eligible to participate in the plan. 
Thus, the plan can continue to treat a long-term part-time 
employee as ineligible under the plan for employer nonelective 
and matching contributions based on not having completed a year 
of service. However, for a plan that does provide employer 
contributions for long-term part-time employees, the provision 
requires a plan to credit, for each year in which such an 
employee worked at least 500 hours, a year of service for 
purposes of vesting in any employer contributions.
    With respect to long-term part-time employees, employers 
would receive nondiscrimination testing relief (similar to the 
present-law rules for plans covering otherwise excludable 
employees), including permission to exclude these employees 
from top-heavy vesting and top-heavy benefit requirements. 
However, the relief from the nondiscrimination rules ceases to 
apply to any employee who becomes a full-time employee (as of 
the first plan year beginning after the plan year in which the 
employee completes a 12-month period with at least 1,000 hours 
of service).
    This provision does not apply to collectively bargained 
employees.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after 
December 31, 2020, except that for determining whether the 
three consecutive year period has been met, 12-month periods 
beginning before January 1, 2021 will not be taken into 
account.

 M. Penalty-Free Withdrawals From Retirement Plans for Individuals in 
  Case of Birth of Child or Adoption (sec. 113 of the bill and secs. 
            72(t), 401-403, 408, 457, and 3405 of the Code)


                              PRESENT LAW

Distributions from tax-favored retirement plans

    A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible 
deferred compensation plan of a State or local government 
employer (a ``governmental section 457(b) plan''), or an IRA 
generally is included in income for the year distributed.\129\ 
These plans are referred to collectively as ``eligible 
retirement plans.'' In addition, unless an exception applies, a 
distribution from a qualified retirement plan, a section 403(b) 
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal 
tax'') on the amount includible in income.\130\
---------------------------------------------------------------------------
    \129\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 
3405, distributions from these plans are generally subject to income 
tax withholding unless the recipient elects otherwise. In addition, 
certain distributions from a qualified retirement plan, a section 
403(b) plan, or a governmental section 457(b) plan are subject to 
mandatory income tax withholding at a 20-percent rate unless the 
distribution is rolled over.
    \130\Sec. 72(t). Under present law, the 10-percent early withdrawal 
tax does not apply to distributions from a governmental section 457(b) 
plan.
---------------------------------------------------------------------------
    In general, a distribution from an eligible retirement plan 
may be rolled over to another eligible retirement plan within 
60 days, in which case the amount rolled over generally is not 
includible in income. The IRS has the authority to waive the 
60-day requirement if failure to waive the requirement would be 
against equity or good conscience, including cases of casualty, 
disaster or other events beyond the reasonable control of the 
individual.
    The terms of a qualified retirement plan, section 403(b) 
plan, or governmental section 457(b) plan generally determine 
when distributions are permitted. However, in some cases, 
restrictions may apply to distributions before an employee's 
termination of employment, referred to as ``in-service'' 
distributions. Despite such restrictions, an in-service 
distribution may be permitted in the case of financial hardship 
or an unforeseeable emergency.

                           REASONS FOR CHANGE

    Births and adoptions are important life events that can 
come with significant financial costs for a family. The 
Committee believes that, in these situations, individuals 
should have access to portions of their retirement savings to 
help pay for these costs. The ability to access retirement 
savings on a penalty-free basis at the time of the birth of a 
child or adoption will provide such flexibility. As a result, 
the Committee believes this will encourage younger workers to 
save earlier for their retirement, whether through 
participation in an employer-sponsored plan or an IRA.

                        EXPLANATION OF PROVISION

In general

    Under the provision, an exception to the 10-percent early 
withdrawal tax applies in the case of a qualified birth or 
adoption distribution from an applicable eligible retirement 
plan (as defined). In addition, qualified birth or adoption 
distributions may be recontributed to an individual's 
applicable eligible retirement plans, subject to certain 
requirements.

Distributions from applicable eligible retirement plans

    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.\131\
---------------------------------------------------------------------------
    \131\A qualified birth or adoption distribution is subject to 
income tax withholding unless the recipient elects otherwise. Mandatory 
20-percent withholding does not apply.
---------------------------------------------------------------------------
    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible adoptee is 
finalized. An eligible adoptee means any individual (other than 
a child of the taxpayer's spouse) who has not attained age 18 
or is physically or mentally incapable of self-support. The 
provision requires the name, age, and taxpayer identification 
number of the child or eligible adoptee to which any qualified 
birth or adoption distribution relates to be provided on the 
tax return of the individual taxpayer for the taxable year.
    The maximum aggregate amount which may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $5,000. The maximum 
aggregate amount applies on an individual basis. Therefore, 
each spouse separately may receive a maximum aggregate amount 
of $5,000 of qualified birth or adoption distributions (with 
respect to a birth or adoption) from applicable eligible 
retirement plans in which each spouse participates or holds 
accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided that the aggregate amount of such distributions to 
that individual from plans maintained by the employer and 
members of the employer's controlled group\132\ does not exceed 
$5,000. Thus, under such circumstances an employer plan is not 
treated as violating any Code requirement merely because an 
individual might receive total distributions in excess of 
$5,000 as a result of distributions from plans of other 
employers or IRAs.
---------------------------------------------------------------------------
    \132\The term ``controlled group'' means any group treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------

Recontributions to applicable eligible retirement plans

    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual which is 
an applicable eligible retirement plan to which a rollover can 
be made.

                             EFFECTIVE DATE

    The provision applies to distributions made after December 
31, 2019.

     N. Increase in Age for Required Beginning Date for Mandatory 
  Distributions (sec. 114 of the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

Required minimum distributions

    Employer-provided qualified retirement plans, traditional 
IRAs, and individual retirement annuities are subject to 
required minimum distribution rules. A qualified retirement 
plan for this purpose means a tax-qualified plan described in 
section 401(a) (such as a defined benefit pension plan or a 
section 401(k) plan), employee retirement annuities described 
in section 403(a), tax-sheltered annuities described in section 
403(b), and a plan described in section 457(b) that is 
maintained by a governmental employer.\133\ An employer-
provided qualified retirement plan that is a defined 
contribution plan is a plan which provides (1) an individual 
account for each participant and (2) for benefits based on the 
amount contributed to the participant's account, and any 
income, expenses, gains, losses, and forfeitures of accounts of 
other participants which may be allocated to such participant's 
account.\134\
---------------------------------------------------------------------------
    \133\The required minimum distribution rules also apply to section 
457(b) plans maintained by tax-exempt employers other than governmental 
employers.
    \134\Sec. 414(i).
---------------------------------------------------------------------------
    Required minimum distributions generally must begin by 
April 1 of the calendar year following the calendar year in 
which the individual (employee or IRA owner) reaches age 70\1/
2\. However, in the case of an employer-provided qualified 
retirement plan, the required minimum distribution date for an 
individual who is not a 5-percent owner of the employer 
maintaining the plan may be delayed to April 1 of the year 
following the year in which the individual retires if the plan 
provides for this later distribution date. For all subsequent 
years, including the year in which the individual was paid the 
first required minimum distribution by April 1, the individual 
must take the required minimum distribution by December 31 of 
the year.
    For IRAs and defined contributions plans, the required 
minimum distribution for each year generally is determined by 
dividing the account balance as of the end of the prior year by 
a distribution period,\135\ generally a number in the uniform 
lifetime table.\136\ This table is based on joint life 
expectancies of the individual and a hypothetical beneficiary 
10 years younger than the individual. For an individual with a 
spouse as designated beneficiary who is more than 10 years 
younger (and thus the number of years in the couple's joint 
life expectancy is greater than the uniform life time table), 
the joint life expectancy of the couple is used. There are 
special rules in the case of annuity payments from an insurance 
contract.
---------------------------------------------------------------------------
    \135\Treas. Reg. sec. 1.401(a)(9)-5.
    \136\Treas. Reg. sec. 1.401(a)(9)-9.
---------------------------------------------------------------------------
    If an individual dies on or after the individual's required 
beginning date, the required minimum distribution is also 
determined by dividing the account balance as of the end of the 
prior year by a distribution period. The distribution period is 
equal to the remaining years of the beneficiary's life 
expectancy or, if there is no designated beneficiary, a 
distribution period equal to the remaining years of the 
deceased individual's single life expectancy, using the age of 
the deceased individual in the year of death.\137\
---------------------------------------------------------------------------
    \137\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
---------------------------------------------------------------------------
    In the case of an individual who dies before the 
individual's required beginning date, there are two methods for 
satisfying the after death required minimum distribution rules, 
the life expectancy rule or the five year rule. Under the life 
expectancy rule, annual required minimum distributions must 
begin no later than December 31 of the calendar year 
immediately following the calendar year in which the individual 
died. This rule is only available if the designated beneficiary 
is an individual (e.g., not the individual's estate or a 
charity). If the designated beneficiary is the individual's 
spouse, commencement of distributions can be delayed until 
December 31 of the calendar year in which the deceased 
individual would have attained age 70\1/2\. The required 
minimum distribution for each year is also determined by 
dividing the account balance as of the end of the prior year by 
a distribution period, which is determined by reference to the 
beneficiary's life expectancy.\138\ Under the five-year rule, 
the individual's entire account must be distributed no later 
than December 31 of the calendar year containing the fifth 
anniversary of the individual's death.\139\
---------------------------------------------------------------------------
    \138\Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
    \139\Treas. Reg. sec. 1.401(a)(9)-3, Q&As 1, 2.
---------------------------------------------------------------------------
    A special after-death rule applies for an IRA if the 
beneficiary of the IRA is the surviving spouse. The surviving 
spouse is permitted to choose to calculate required minimum 
distributions while the spouse is alive, and after the spouse's 
death, as though the spouse is the IRA owner, rather than a 
beneficiary.
    Roth IRAs are not subject to the minimum distribution rules 
during the IRA owner's lifetime. However, Roth IRAs are subject 
to the post-death minimum distribution rules that apply to 
traditional IRAs. For Roth IRAs, the IRA owner is treated as 
having died before the individual's required beginning date. 
Thus only the life expectancy rule and the five year rule 
apply.
    Failure to make a required minimum distribution triggers a 
50-percent excise tax, payable by the individual or the 
individual's beneficiary. The tax is imposed during the taxable 
year that begins with or within the calendar year during which 
the distribution was required.\140\ The tax may be waived if 
the distribution did not occur because of reasonable error and 
reasonable steps are taken to remedy the violation.\141\
---------------------------------------------------------------------------
    \140\Sec. 4974(a).
    \141\Sec. 4974(d).
---------------------------------------------------------------------------

Eligible rollover distributions

    With certain exceptions, distributions from an employer-
provided qualified retirement plan are eligible to be rolled 
over tax free into another employer-provided qualified 
retirement plan or an IRA. This can be achieved by contributing 
the amount of the distribution to the other plan or IRA within 
60 days of the distribution, or by a direct payment by the plan 
to the other plan or IRA (referred to as a ``direct 
rollover''). Distributions that are not eligible for rollover 
include (i) any distribution that is one of a series of 
periodic payments generally for a period of 10 years or more 
(or, if a shorter period, certain life expectancies) and (ii) 
any distribution to the extent that the distribution is a 
required minimum distribution.\142\
---------------------------------------------------------------------------
    \142\Sec. 402(c)(4). Distributions that are not eligible rollover 
distributions also include distributions made upon hardship of the 
employee and any qualified disaster relief distribution (within the 
meaning of section 72(t)(2)(G)).
---------------------------------------------------------------------------
    For any distribution that is eligible for rollover, an 
employer-provided tax-qualified retirement plan must offer the 
distributee the right to have the distribution made in a direct 
rollover\143\ and, before making the distribution, the plan 
administrator must provide the distributee with a written 
explanation of the direct rollover right and related tax 
consequences.\144\ If a distributee does not choose to have the 
distribution made in a direct rollover, the distribution is 
generally subject to mandatory 20-percent income tax 
withholding.\145\
---------------------------------------------------------------------------
    \143\Sec. 401(a)(31).
    \144\Sec. 402(f).
    \145\Sec. 3405(c). This mandatory withholding does not apply to a 
distributee that is a beneficiary other than a surviving spouse of an 
employee.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    When mandatory distributions from qualified retirement 
plans based on age were added to the Code in 1962,\146\ the 
life expectancy of Americans was shorter. In addition, 
increasing numbers of Americans are continuing to work past 
traditional retirement ages. The Committee believes it is 
appropriate to therefore increase the age by which required 
minimum distributions must be made to more accurately reflect 
present-day circumstances.
---------------------------------------------------------------------------
    \146\Sec. 2(2) of the Self-Employed Individuals Tax Retirement Act 
of 1962, Pub. Law. No. 87-792.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision changes the age on which the required 
beginning date for required minimum distributions is based, 
from the calendar year in which the employee or IRA owner 
attains 70\1/2\ years to the calendar year in which the 
employee or IRA owner attains 72 years. Under the provision, 
present law continues to apply to employees and IRA owners who 
attain age 70\1/2\ prior to January 1, 2020.
    In addition, the present law requirement to actuarially 
adjust an employee's accrued benefit for an employee who 
retires in a calendar year after the year the employee attains 
age 70\1/2\, to take into account the period after age 70\1/2\ 
in which the employee was not receiving any benefits under the 
plan, is not changed.

                             EFFECTIVE DATE

    The provision is effective for distributions required to be 
made after December 31, 2019, for employees and IRA owners who 
attain age 70\1/2\ after December 31, 2019.

 O. Election To Apply Alternative Minimum Funding Standards to Certain 
 Single Employer Community Newspaper Plans (sec. 115 of the bill, sec. 
                430 of the Code, and sec. 303 of ERISA)


                              PRESENT LAW

    The Internal Revenue Code of 1986 (``Code'') and the 
Employee Retirement Income Security Act of 1974 (``ERISA'') 
apply minimum funding requirements\147\ to defined benefit 
retirement plans maintained by private-sector employers for 
their employees (referred to as ``single employer'' plans), for 
purposes of which employers that are members of a controlled 
group are considered a single employer.
---------------------------------------------------------------------------
    \147\Special funding rules may apply to certain categories of 
single employer plans. For example, special rules apply to certain 
plans maintained by commercial passenger airlines, under section 402 of 
the Pension Protection Act of 2006 (``PPA''), Pub. L. No. 109-280. If 
an election is made by a commercial passenger airline described in 
section 402(a)(1) of PPA, then in determining the plan's minimum 
required contribution under section 430, the airline may use an 
interest rate of 8.85% to amortize the unfunded liability of the plan 
in equal installments over the remaining part of the 17-year 
amortization period. See Treas. Reg. sec. 1.430(a)-1(b)(4)(ii).
---------------------------------------------------------------------------
    Under these rules, a minimum contribution is required for a 
plan year if the value of the plan's assets is less than the 
plan's ``funding target,'' that is, the present value, 
determined actuarially, of all benefits earned as of the 
beginning of the year. If the value of plan assets is less than 
the plan's funding target, such that the plan has a funding 
shortfall, the shortfall is generally required to be funded by 
contributions, with interest, over seven years, taking into 
account the remaining installments attributable to shortfalls 
from preceding years. In addition, if participants earn 
additional benefits for the year,\148\ the required 
contribution must include the amount of the plan's ``target 
normal cost,'' that is, the present value, determined 
actuarially, of benefits expected to be earned for the year. In 
the case of a plan funded below a certain level, referred to as 
an ``at-risk'' plan, specified assumptions must be used in 
determining the plan's funding target and target normal 
cost.\149\
---------------------------------------------------------------------------
    \148\In some cases, a plan may be ``frozen'' as to service and/or 
compensation. When a plan is frozen with respect to both service and 
compensation, participants are entitled to previously earned benefits 
but do not accrue or earn additional benefits.
    \149\For an at-risk plan, the specified assumptions generally are 
as follows: All employees who are not otherwise assumed to retire as of 
the valuation date but who will be eligible to elect benefits during 
the plan year and the next 10 plan years must be assumed to retire at 
the earliest retirement date under the plan but not before the end of 
the plan year for which the ``at-risk funding target'' and ``at-risk 
normal cost'' are being determined. Also, all employees must be assumed 
to elect the retirement benefit available under the plan at the assumed 
retirement age (determined as above) that would result in the highest 
present value of benefits. The at-risk funding target is the present 
value of all benefits accrued or earned under the plan as of the 
beginning of the plan year using the actuarial assumptions set forth in 
the Code and regulations for single employer plans, with the addition 
of a loading factor which arises when the plan has been in at-risk 
status for at least two of the four preceding plan years. This loading 
factor is equal to the sum of (1) $700 multiplied by the number of 
participants in the plan and (2) four percent of the funding target 
(determined without regard to the definition of at-risk funding 
target). The at-risk normal cost for a plan year generally represents 
the excess of the sum of (1) the present value of all benefits which 
are expected to accrue or to be earned under the plan during the plan 
year using the at-risk assumptions described above plus (2) the amount 
of plan related expenses expected to be paid from plan assets during 
the plan year, over (3) the amount of mandatory employee contributions 
expected to be made during the plan year. In addition, where the plan 
has been in at-risk status for at least two of the four preceding plan 
years, a loading factor is added, which is equal to four percent of the 
target normal cost (the excess of the sum of (1) the present value of 
all benefits which are expected to accrue or to be earned under the 
plan during the plan year plus (2) the amount of plan-related expenses 
expected to be aid from plan assets during the plan year, over (3) the 
amount of mandatory employee contributions expected to be made during 
the plan year) with respect to the plan for the plan year.
---------------------------------------------------------------------------
    The minimum funding rules enacted in the Pension Protection 
Act of 2006 (``PPA'')\150\ specify the interest rates used to 
determine a plan's funding target and target normal cost for a 
year, consisting of three ``segment'' rates, each of which 
applies to benefit payments expected to be made from the plan 
during a certain period.\151\ The first segment rate applies to 
benefits reasonably determined to be payable during the five-
year period beginning on the first day of the year; the second 
segment rate applies to benefits reasonably determined to be 
payable during the 15-year period following the initial five-
year period; and the third segment rate applies to benefits 
reasonably determined to be payable at the end of the 15-year 
period. The first, second, and third segment rates are based on 
the corresponding portion of a corporate bond yield curve with 
certain adjustments.
---------------------------------------------------------------------------
    \150\Pub. L. No. 109-280.
    \151\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 reflects 
the average, for the 24-month period ending with the preceding month, 
of yields on investment grade corporate bonds with varying maturities 
and that are in the top three quality levels available. Solely for 
purposes of determining minimum required contributions, in lieu of the 
segment rates, an employer may elect to use interest rates on a yield 
curve based on the yields on investment grade corporate bonds for the 
month preceding the month in which the plan year begins (that is, 
without regard to the 24-month averaging described above) (``monthly 
yield curve''). If an election to use a monthly yield curve is made, it 
cannot be revoked without Internal Revenue Service approval.
---------------------------------------------------------------------------
    Under the Moving Ahead for Progress in the 21st Century 
Act,\152\ for plan years beginning after December 31, 2011, a 
segment rate determined under the PPA rules is adjusted if it 
falls outside a specified percentage range of the average 
segment rates for a preceding period. In particular, if a 
segment rate determined under the PPA rules is less than the 
applicable minimum percentage in the specified range, the 
segment rate is adjusted upward to match the minimum 
percentage. If a segment rate determined under the PPA rules is 
more than the applicable maximum percentage in the specified 
range, the segment rate is adjusted downward to match the 
maximum percentage.
---------------------------------------------------------------------------
    \152\Pub. L. No. 112-141. The Highway Transportation and Funding 
Act of 2014 (Pub. L. No. 113-159) made changes to the applicable 
minimum and maximum percentage ranges for determining whether a segment 
rate must be adjusted upward or downward, as well as the periods for 
determining such segment rates.
---------------------------------------------------------------------------
    The specified percentage range (that is, the range from the 
applicable minimum percentage to the applicable maximum 
percentage of average segment rates), as most recently modified 
in the Bipartisan Budget Act of 2015,\153\ for determining 
whether a segment rate must be adjusted upward or downward for 
a plan year is determined by reference to the calendar year in 
which the plan year begins as follows:
---------------------------------------------------------------------------
    \153\Pub. L. No. 114-74.
---------------------------------------------------------------------------
           90 percent to 110 percent for 2012 through 
        2020,
           85 percent to 115 percent for 2021,
           80 percent to 120 percent for 2022,
           75 percent to 125 percent for 2023, and
           70 percent to 130 percent for 2024 or later.
    For March 2019, the first, second, and third segment rates 
after adjustment are 2.86 percent, 4.00 percent, and 4.42 
percent, respectively.\154\
---------------------------------------------------------------------------
    \154\Notice 2019-29, 2019-19 I.R.B. These rates are determined and 
published monthly by the Internal Revenue Service by notice and on its 
website. See https://www.irs.gov/retirement-plans/minimum-present-
value-segment-rates.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that providing relief to sponsors of 
community newspaper pension plans with funding shortfalls will 
allow sponsors of such plans to maintain and meet plan 
obligations to covered employees. The Committee understands 
that the period over which a funding shortfall must be funded 
affects the amount of the required contribution for a year in 
that a shorter period results in a higher required contribution 
for the year and a longer period results in a lower required 
contribution. Similarly, the interest rates used to determine a 
plan's funding target and target normal cost affect the amount 
of required contributions in that lower interest rates result 
in a higher funding target and target normal cost and, 
therefore, higher required contributions. Alternatively, higher 
interest rates result in a lower funding target and target 
normal cost and, therefore, lower required contributions. 
Therefore, the relief provided under the provision extends the 
period over which contributions are required to be made to 
ameliorate funding shortfalls, and permits the use of a 
generally lower interest rate to determine the plan's funding 
target and target normal cost.

                        EXPLANATION OF PROVISION

    Under the provision, an employer maintaining a ``community 
newspaper plan'' (as defined below) under which no participant 
has had the participant's accrued benefit increased (whether 
because of service or compensation) after December 31, 2017, 
may elect to apply certain alternative funding rules to the 
plan and any other plan sponsored by any member of the 
controlled group (determined as of the date of enactment).\155\ 
An election under the provision to apply the alternative 
funding rules is to be made at such time and in such manner as 
prescribed by the Secretary of the Treasury, and once made with 
respect to a plan year, applies to all subsequent years unless 
revoked with the consent of the Secretary of the Treasury.
---------------------------------------------------------------------------
    \155\For this purpose, the controlled group means all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 as of the date of enactment.
---------------------------------------------------------------------------
    Under the alternative funding rules, an interest rate of 
eight percent is used to determine a plan's funding target and 
target normal cost, rather than the first, second, and third 
segment rates. However, if new benefits are accrued or earned 
under a plan for a plan year in which the election is in 
effect, the present value of such benefits must be determined 
on the basis of the U.S. Treasury obligation yield curve for 
the day that is the valuation date of such plan for such plan 
year. In addition, if the value of plan assets is less than the 
plan's funding target, such that the plan has a funding 
shortfall, the shortfall is required to be funded by 
contributions, with interest, over 30 years, rather than over 
seven years. The shortfall amortization bases determined\156\ 
for all plan years preceding the first plan year to which the 
election applies (and all related shortfall amortization 
installments) are reduced to zero. Further, the assumptions 
applicable to an ``at-risk'' plan do not apply.
---------------------------------------------------------------------------
    \156\Under section 430(c)(3).
---------------------------------------------------------------------------
    Under the provision, a ``community newspaper plan'' is a 
plan to which the new provision applies, which is maintained by 
an employer that, as of December 31, 2017:
           publishes and distributes daily, either 
        electronically or in printed form, one or more 
        community newspapers (as defined below) in a single 
        State,
           is not a company the stock of which is 
        publicly traded on a stock exchange or in an over-the-
        counter market, and is not controlled, directly or 
        indirectly, by such a company,
           is controlled, directly or indirectly (a) by 
        one or more persons residing primarily in the State in 
        which the community newspaper is published; (b) for at 
        least 30 years by individuals who are members of the 
        same family; (c) by a trust created or organized in the 
        State in which the community newspaper is published, 
        the sole trustees of which are persons described in (a) 
        or (b); (d) by an entity described in section 501(c)(3) 
        and exempt from tax under section 501(a) that is 
        organized and operated in the State in which the 
        community newspaper is published, and the primary 
        purpose of which is to benefit communities in the 
        State; or (e) by a combination of persons described in 
        (a), (c), or (d), and
           does not control, directly or indirectly, 
        any newspaper in any other State.
    A ``community newspaper'' means a newspaper that primarily 
serves a metropolitan statistical area, as determined by the 
Office of Management and Budget, with a population of not less 
than 100,000. For purposes of the provision, a person (the 
``first'' person) is treated as controlled by another person if 
the other person possesses, directly or indirectly, the power 
to direct or cause the direction and management of the first 
person (including the power to elect a majority of the members 
of the board of directors of the first person) through the 
ownership of voting securities.
    The provision makes the above-described amendments to both 
the Code and ERISA.\157\
---------------------------------------------------------------------------
    \157\The provision adds a new subsection (m) to section 430, and a 
new subsection (m) to section 303 of ERISA. However, the term community 
newspaper plan for ERISA purposes includes one that publishes and 
distributes daily, either electronically or in printed form, either a 
community newspaper or one or more community newspapers in the same 
State. Additionally, in the case of a plan to which the election has 
been made, the provision does not change the basis for calculating 
underfunding for purposes of Pension Benefit Guaranty Corporation 
variable rate premiums.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies the amendments to plan years ending 
after December 31, 2017.

 P. Treating Excluded Difficulty of Care Payments as Compensation for 
 Determining Retirement Contribution Limitations (Sec. 116 of the bill 
                and secs. 131, 408, and 415 of the Code)


                              PRESENT LAW

Difficulty of care payments

    Gross income does not include amounts received by a foster 
care provider during the taxable year as qualified foster care 
payments.\158\ Qualified foster care payments include any 
payment made pursuant to a foster care program of a State or 
political subdivision which is paid by (1) a State or political 
subdivision thereof or (2) a qualified foster care placement 
agency, and which is either (1) paid to the foster care 
provider for caring for a qualified foster individual in the 
foster care provider's home, or (2) a ``difficulty of care'' 
payment.\159\ A ``qualified foster individual'' is any 
individual who is living in a foster family home in which the 
individual was placed by either an agency of a State (or a 
political subdivision thereof) or a qualified foster care 
placement agency.\160\ A qualified foster care placement agency 
is any placement agency which is licensed or certified by a 
State (or political subdivision thereof) or an entity 
designated by a State (or political subdivision thereof).\161\
---------------------------------------------------------------------------
    \158\Sec. 131(a)
    \159\Sec. 131(b)(1).
    \160\Sec. 131(b)(2).
    \161\Sec. 131(b)(3).
---------------------------------------------------------------------------
    A ``difficulty of care'' payment is compensation for 
providing the additional care needed for certain qualified 
foster individuals. Such payments are provided when a qualified 
foster individual has a physical, mental or emotional 
disability for which the State has determined that (1) there is 
a need for additional compensation to care for the individual, 
(2) the care is provided in the home of the foster care 
provider, and (3) the payments are designated by the payor as 
compensation for such purpose.\162\ An applicant must request 
an assessment of need from the State agency administering the 
program and submit a medical evaluation which is reassessed 
every year.
---------------------------------------------------------------------------
    \162\Pursuant to section 131(c)(2), in the case of any foster home, 
difficulty of care payments for any period to which such payments 
relate are not excludable from gross income to the extent such payments 
are made for more than 10 qualified foster individuals who have not 
attained age 19 and five qualified foster individuals who have attained 
age 19.
---------------------------------------------------------------------------
    In the case of a tax-qualified defined contribution plan, 
such a plan will not satisfy the tax qualification requirements 
unless contributions made by a participant to the plan (as well 
as other additions such as employer contributions and 
forfeitures) do not exceed the lesser of (1) $40,000 or (2) 100 
percent of the participant's compensation.\163\ A participant's 
compensation is defined generally as the compensation of the 
participant from the employer for the year.\164\ A special rule 
applies for self-employed individuals providing that a 
participant's compensation is the participant's earned 
income.\165\ Similar rules apply for contributions made to an 
individual retirement account.\166\
---------------------------------------------------------------------------
    \163\Sec. 415(c)(1).
    \164\Sec. 415(c)(3)(A).
    \165\Sec. 415(c)(3)(B).
    \166\See secs. 219, 408, and 408A.
---------------------------------------------------------------------------
    Since ``difficulty of care'' payments are excluded from 
gross income, home healthcare workers receiving only such 
payments are unable to participate in tax-qualified retirement 
plans or individual retirement accounts because ``difficulty of 
care'' payments are not considered compensation or earnings 
upon which contributions to such plans or accounts may be made.

                           REASONS FOR CHANGE

    Contributions based on difficulty of care payments cannot 
be made to qualified retirement plans and individual retirement 
accounts. As a result home healthcare workers receiving such 
payments are unable to participate in qualified retirement 
plans or individual retirement accounts with respect to such 
remuneration. The Committee believes that home healthcare 
workers should be able to participate in qualified retirement 
plans and individual retirement accounts based on amounts 
received as difficulty of care payments.

                        EXPLANATION OF PROVISION

    The provision amends sections 415(c)(3) and 408(o) to 
increase the contribution limit to qualified retirement plans 
and individual retirement accounts to include ``difficulty of 
care'' payments.

                             EFFECTIVE DATE

    With respect to defined contribution plans, the provision 
applies to plan years beginning after December 31, 2015, and 
with respect to individual retirement accounts, the provision 
applies to contributions after the date of enactment.

                 TITLE II--ADMINISTRATIVE IMPROVEMENTS


A. Plan Adopted by Filing Due Date for Year May be Treated as in Effect 
 as of Close of Year (sec. 201 of the bill and sec. 401(b) of the Code)


                              PRESENT LAW

    In order for a qualified retirement plan to be treated as 
maintained for a taxable year, the plan must be adopted by the 
last day of the taxable year.\167\ However, the trust under the 
plan will not fail to be treated as in existence due to lack of 
corpus merely because it holds no assets on the last day of the 
taxable year.\168\ Contributions made by the due date (plus 
extensions) of the tax return for the employer maintaining the 
plan for a taxable year are treated as contributed on account 
of that taxable year.\169\ Thus a plan can be established on 
the last day of a taxable year even though the first 
contribution is not made until the due date of the employer's 
return of tax for the taxable year. Further, if the terms of a 
plan adopted during an employer's taxable year fail to satisfy 
the qualification requirements that apply to the plan for the 
year, the plan may also be amended retroactively by the due 
date (including extensions) of the employer's return, provided 
that the amendment is made retroactively effective.\170\ 
However, this provision does not allow a plan to be adopted 
after the end of a taxable year and made retroactively 
effective, for qualification purposes, for the taxable year 
prior to the taxable year in which the plan was adopted by the 
employer.\171\
---------------------------------------------------------------------------
    \167\Rev. Rul. 76-28, 1976-1 C.B. 106.
    \168\Rev. Rul. 81-114, 1981-1 C.B. 207.
    \169\Sec. 404(a)(6).
    \170\Sec. 401(b).
    \171\Treas. Reg. sec. 1.401(b)-1(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    An employer, particularly a small employer, might not know 
until after the end of a taxable year (the ``preceding year'') 
that its profits for the preceding year are sufficient to 
support the expenses and contributions associated with the 
establishment of a retirement plan. However, under present law, 
a plan established at that time can be effective only for the 
current year, not for the preceding year. The Committee 
believes that providing employers with more time to establish a 
retirement plan for their employees will facilitate more 
employers, especially small employers, establishing such plans, 
thus leading to more retirement savings by employees. 
Furthermore, the Committee believes that allowing a plan to be 
effective for the preceding year provides the opportunity for 
employees to receive contributions for that earlier year and 
begin to accumulate retirement savings.

                        EXPLANATION OF PROVISION

    Under the provision, if an employer adopts a qualified 
retirement plan after the close of a taxable year but before 
the time prescribed by law for filing the return of tax of the 
employer for the taxable year (including extensions thereof), 
the employer may elect to treat the plan as having been adopted 
as of the last day of the taxable year.
    The provision does not override rules requiring certain 
plan provisions to be in effect during a plan year, such as the 
provision for elective deferrals under a qualified cash or 
deferral arrangement (``generally referred to as a 401(k) 
plan'').\172\
---------------------------------------------------------------------------
    \172\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to plans adopted for taxable years 
beginning after December 31, 2019.

  B. Combined Annual Report for Group of Plans (sec. 202 of the bill, 
             sec. 6058 of the Code, and sec. 104 of ERISA)


                              PRESENT LAW

    Under the Code, an employer maintaining a qualified 
retirement plan generally is required to file an annual return 
containing information required under regulations with respect 
to the qualification, financial condition, and operation of the 
plan.\173\ ERISA requires the plan administrator of certain 
pension and welfare benefit plans to file annual reports 
disclosing certain information to the Department of Labor 
(``DOL'').\174\ These filing requirements are met by filing a 
completed Form 5500, Annual Return/Report of Employee Benefit 
Plan. Forms 5500 are filed with DOL, and information from Forms 
5500 is shared with the IRS.\175\ A separate Form 5500 is 
required for each plan.\176\
---------------------------------------------------------------------------
    \173\Sec. 6058. In addition, under section 6059, the plan 
administrator of a defined benefit plan subject to the minimum funding 
requirements is required to file an annual actuarial report. Under 
section 414(g) and ERISA section 3(16), plan administrator generally 
means the person specifically so designated by the terms of the plan 
document. In the absence of a designation, the plan administrator 
generally is (1) in the case of a plan maintained by a single employer, 
the employer, (2) in the case of a plan maintained by an employee 
organization, the employee organization, or (3) in the case of a plan 
maintained by two or more employers or jointly by one or more employers 
and one or more employee organizations, the association, committee, 
joint board of trustees, or other similar group of representatives of 
the parties that maintain the plan. Under ERISA, the party described in 
(1), (2) or (3) is referred to as the ``plan sponsor.''
    \174\ERISA secs. 103 and 104. Under ERISA section 4065, the plan 
administrator of certain defined benefit plans must provide information 
to the PBGC.
    \175\Information is shared also with the PBGC, as applicable. Form 
5500 filings are also publicly released in accordance with section 
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA secs. 104(a)(1) 
and 106(a).
    \176\Under section 6011(a) and (e), the IRS is required to provide 
standards for electronically filed returns, but may not require a 
person to file a return electronically unless the person is required to 
file at least 250 returns during the calendar year (``250 return 
threshold for electronic filing''). Under Treas. Reg. sec. 301.6058-2, 
Form 5500 for a plan year must be filed electronically if the filer is 
required to file at least 250 tax returns (including information 
returns) during the calendar year that includes the first day of the 
plan year.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Forms 5500 provide valuable information about plans to plan 
participants, administrative agencies, and the public, 
including researchers. However, the preparation of Form 5500 
also involves administrative costs that increase plan expenses. 
The Committee believes that, in the case of identical plans 
(that is, plans with the same plan year, trustee, administrator 
and investments) maintained by unrelated employers, permitting 
a single Form 5500, containing information specific to each 
plan, rather than requiring a separate Form 5500 for each plan 
as under present law, can reduce aggregate administrative 
costs, making it easier for small employers to sponsor a 
retirement plan and thus improving retirement savings.

                        EXPLANATION OF PROVISION

    The provision directs the IRS and DOL to work together to 
modify Form 5500 so that all members of a group of plans 
described below may file a single consolidated Form 5500. In 
developing the consolidated Form 5500, IRS and DOL may require 
it to include all information for each plan in the group as IRS 
and DOL determine is necessary or appropriate for the 
enforcement and administration of the Code and ERISA.\177\
---------------------------------------------------------------------------
    \177\Under the provision, for purposes of applying the 250 return 
threshold for electronic filing to Forms 5500 for plan years beginning 
after December 31, 2019, information regarding each plan for which 
information is provided on the Form 5500 is treated as a separate 
return.
---------------------------------------------------------------------------
    For purposes of the provision, a group of plans is eligible 
for a consolidated Form 5500 if all the plans in the group (1) 
are defined contribution plans, (2) have the same trustee, the 
same named fiduciary (or named fiduciaries) under ERISA, and 
the same administrator, (3) use the same plan year, and (4) 
provide the same investments or investment options to 
participants and beneficiaries. A plan not subject to ERISA may 
be included in the group if the same person that performs each 
of the previous functions, as applicable, for all the other 
plans in the group performs each of the functions for the plan 
not subject to ERISA.

                             EFFECTIVE DATE

    The consolidated Form 5500 is to be implemented not later 
than January 1, 2022, and shall be effective for returns and 
reports for plan years beginning after December 31, 2021.

C. Disclosure Regarding Lifetime Income (sec. 203 of the bill and sec. 
                             105 of ERISA)


                              PRESENT LAW

    ERISA requires the administrator of a defined contribution 
plan to provide benefit statements to participants.\178\ In the 
case of a participant who has the right to direct the 
investment of the assets in his or her account, a benefit 
statement must be provided at least quarterly. Benefit 
statements must be provided at least annually to other 
participants.
---------------------------------------------------------------------------
    \178\ERISA sec. 105. Benefits statements are required also with 
respect to defined benefit plans. A civil penalty may apply for a 
failure to provide a required benefit statement.
---------------------------------------------------------------------------
    Among other items, a benefit statement provided with 
respect to a defined contribution plan generally must include 
(1) the participant's total benefits accrued, that is, the 
participant's account balance, (2) the vested portion of the 
account balance or the earliest date on which the account 
balance will become vested, and (3) the value of each 
investment to which assets in the participant's account are 
allocated. A quarterly benefit statement provided to a 
participant who has the right to direct investments must 
provide additional information, including information relating 
to investment principles.
    In May 2013, the Department of Labor issued an advance 
notice of proposed rulemaking providing rules under which a 
benefit provided to a defined contribution plan participant 
would include an estimated lifetime income stream of payments 
based on the participant's account balance.\179\ However, 
information about lifetime income that might be provided by 
funds in a defined contribution plan is not currently required 
to be included in a benefit statement.
---------------------------------------------------------------------------
    \179\78 Fed. Reg. 26727 (May 8, 2013).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Defined contribution plans provide a valuable source of 
retirement savings, generally in the form of a participant's 
account balance. But generally, defined contribution plans do 
not offer benefits in the form of annuities or other 
distribution forms that provide lifetime income. In contrast, 
defined benefit plans are generally required to provide 
annuities to plan participants, although such plans may also 
allow plan participants to choose another form of benefit such 
as a lump sum. In addition, many plan participants do not 
understand how to correlate their account balance in a defined 
contribution plan with an annuity or other lifetime income 
form. The Committee wishes to require information on equivalent 
lifetime income to be included in benefit statements with 
respect to defined contribution plan accounts, in a manner that 
is both useful to participants and practicable for plan 
administrators.

                        EXPLANATION OF PROVISION

    The provision requires a benefit statement provided to a 
defined contribution plan participant to include a lifetime 
income disclosure as described in the provision. However, the 
lifetime income disclosure is required to be included in only 
one benefit statement during any 12-month period.
    A lifetime income disclosure is required to set forth the 
lifetime income stream equivalent of the participant's total 
account balance under the plan. The lifetime income stream 
equivalent to the account balance is the amount of monthly 
payments the participant would receive if the total account 
balance were used to provide lifetime income streams, based on 
assumptions specified in guidance prescribed by the Secretary 
of Labor (referred to as the ``Secretary'' in this 
explanation). The required lifetime income streams are (1) a 
qualified joint and survivor annuity for the participant and 
the participant's surviving spouse, based on assumptions 
specified in guidance, including the assumption that the 
participant has a spouse of equal age, and (2) a single life 
annuity. The lifetime income streams may have a term certain or 
other features to the extent permitted under guidance.
    The Secretary is directed to issue, not later than a year 
after the provision is enacted, a model lifetime income 
disclosure, written in a manner to be understood by the average 
plan participant. The model must include provisions to (1) 
explain that the lifetime income stream equivalent is only 
provided as an illustration, (2) explains that the actual 
payments under the lifetime income stream that may be purchased 
with the account balance will depend on numerous factors and 
may vary substantially from the lifetime income stream 
equivalent in the disclosure, (3) explain the assumptions on 
which the lifetime income stream equivalent is determined, and 
(4) provides other similar explanations as the Secretary 
considers appropriate.
    In addition, the Secretary is directed, not later than a 
year after the provision is enacted, (1) to prescribe 
assumptions that defined contribution plan administrators may 
use in converting account balances into lifetime income stream 
equivalents, and (2) issue interim final rules under the 
provision. In prescribing assumptions, the Secretary may 
prescribe a single set of specific assumptions (in which case 
the Secretary may issue tables or factors that facilitate 
conversions of account balances) or ranges of permissible 
assumptions. To the extent that an account balance is or may be 
invested in a lifetime income stream, the prescribed 
assumptions are to allow, to the extent appropriate, plan 
administrators to use the amounts payable under the lifetime 
income stream as a lifetime income stream equivalent.
    Under the provision, no plan fiduciary, plan sponsor, or 
other person has any liability under ERISA solely by reason of 
the provision of lifetime income stream equivalents that are 
derived in accordance with the assumptions and guidance under 
the provision and that include the explanations contained in 
model disclosure. This protection applies without regard to 
whether the lifetime income stream equivalent is required to be 
provided.

                             EFFECTIVE DATE

    The requirement to provide a lifetime income disclosure 
applies with respect to benefit statements provided more than 
12 months after the latest of the issuance by the Secretary of 
(1) interim final rules, (2) the model disclosure, or (3) 
prescribed assumptions.

  D. Fiduciary Safe Harbor for Selection of Lifetime Income Provider 
              (sec. 204 of the bill and sec. 404 of ERISA)


                              PRESENT LAW

    ERISA imposes certain standards of care with respect to the 
actions of a plan fiduciary. Specifically, a fiduciary is 
required to discharge its duties with respect to the plan 
solely in the interest of the participants and beneficiaries, 
for the exclusive purpose of providing benefits to participants 
and beneficiaries and defraying reasonable administration 
expenses of the plan, with the care, skill, prudence, and 
diligence under the circumstances then prevailing that a 
prudent man acting in a like capacity and familiar with 
relevant matters would use in the conduct of an enterprise of a 
like character and with like aims (the ``prudent man'' 
requirement), by diversifying plan investments so as to 
minimize the risk of large losses unless, under the 
circumstances, it is clearly prudent not to do so, and in 
accordance with plan documents and governing instruments 
insofar as the documents and instruments are consistent with 
ERISA.
    Department of Labor regulations provide a safe harbor for a 
fiduciary to satisfy the prudent man requirement in selecting 
an annuity provider and a contract for benefit distributions 
from a defined contribution plan.\180\
---------------------------------------------------------------------------
    \180\29 C.F.R. sec. 2550.404a-4.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Unlike defined benefit plans, defined contribution plans 
generally do not offer benefits in the form of annuities or 
other distribution forms that provide lifetime income, which, 
under a defined contribution plan, generally must be provided 
through a contract issued by an insurance company. In the case 
of a defined contribution plan subject to ERISA, the selection 
of a lifetime income provider (such as an insurance company) is 
a fiduciary act. Uncertainty about the applicable fiduciary 
standard may discourage plan sponsors and administrators from 
offering lifetime income benefit options under a defined 
contribution plan.

                        EXPLANATION OF PROVISION

    The provision specifies measures that a plan fiduciary may 
take with respect to the selection of an insurer for a 
guaranteed retirement income contract in order to assure that 
the fiduciary meets the prudent man requirement. The measures 
under the provision are an optional means by which a fiduciary 
will be considered to satisfy the prudent man requirement with 
respect to the selection of insurers for guaranteed retirement 
income contracts and do not establish minimum requirements or 
the exclusive means for satisfying the prudent man requirement. 
The provision applies to the selection of the insurance company 
for purposes of determining if the insurer is financially 
capable of satisfying its obligations under the guaranteed 
retirement income contract. The provision does not extend to 
the underlying insurance contract, and therefore the fiduciary 
must conduct a separate fiduciary analysis of the prudence and 
terms and conditions of the guaranteed retirement income 
contract based on present law and guidance.
    For purposes of the provision, an insurer is an insurance 
company, insurance service or insurance organization qualified 
to do business in a State and includes affiliates of those 
entities to the extent the affiliate is licensed to offer 
guaranteed retirement income contracts. A guaranteed retirement 
income contract is an annuity contract for a fixed term or a 
contract (or provision or feature thereof) designed to provide 
a participant guaranteed benefits annually (or more frequently) 
for at least the remainder of the life of the participant or 
joint lives of the participant and the participant's designated 
beneficiary as part of a defined contribution plan.
    With respect to the selection of an insurer for a 
guaranteed retirement income contract (as defined below), the 
prudent man requirement will be deemed met if a fiduciary:
           engages in an objective, thorough and 
        analytical search for the purpose of identifying 
        insurers from which to purchase guaranteed retirement 
        income contracts,
           with respect to each insurer identified 
        through the search, considers the financial capability 
        of the insurer to satisfy its obligations under the 
        guaranteed retirement income contract and considers the 
        cost (including fees and commissions) of the guaranteed 
        retirement income contract offered by the insurer in 
        relation to the benefits and product features of the 
        contract and administrative services to be provided 
        under the contract, and
           on the basis of the foregoing, concludes 
        that, at the time of the selection (as described 
        below), the insurer is financially capable of 
        satisfying its obligations under the guaranteed 
        retirement income contract and that the cost (including 
        fees and commissions) of the selected guaranteed 
        retirement income contract is reasonable in relation to 
        the benefits and product features of the contract and 
        the administrative services to be provided under the 
        contract.
    A fiduciary will be deemed to satisfy the requirements 
above with respect to the financial capability of the insurer 
if:
           the fiduciary obtains written 
        representations from the insurer that it is licensed to 
        offer guaranteed retirement income contracts; that the 
        insurer, at the time of selection and for each of the 
        immediately preceding seven years operates under a 
        certificate of authority from the Insurance 
        Commissioner of its domiciliary State that has not been 
        revoked or suspended, has filed audited financial 
        statements in accordance with the laws of its 
        domiciliary State under applicable statutory accounting 
        principles, maintains (and has maintained) reserves 
        that satisfy all the statutory requirements of all 
        States where the insurer does business, and is not 
        operating under an order of supervision, 
        rehabilitation, or liquidation; and that the insurer 
        undergoes, at least every five years, a financial 
        examination (within the meaning of the law of its 
        domiciliary State) by the Insurance Commissioner of the 
        domiciliary State (or representative, designee, or 
        other party approved thereby);
           in the case that, following the issuance of 
        the insurer representations described above, there is 
        any change that would preclude the insurer from making 
        the same representations at the time of issuance of the 
        guaranteed retirement income contract, the insurer is 
        required to notify the fiduciary, in advance of the 
        issuance of any guaranteed retirement income contract, 
        that the fiduciary can no longer rely on one or more of 
        the representations; and
           the fiduciary has not received such a 
        notification and has no other facts that would cause it 
        to question the insurer representations.
    The provision specifies that nothing in these requirements 
is to be construed to require a fiduciary to select the lowest 
cost contract. Accordingly, a fiduciary may consider the value, 
including features and benefits of the contract and attributes 
of the insurer in conjunction with the contract's cost. For 
this purpose, attributes of the insurer that may be considered 
include, without limitation, the issuer's financial strength.
    For purposes of the provision, the time of selection may be 
either the time that the insurer for the contract is selected 
for distribution of benefits to a specific participant or 
beneficiary or the time that the insurer for the contract is 
selected to provide benefits at future dates to participants or 
beneficiaries, provided that the selecting fiduciary 
periodically reviews the continuing appropriateness of its 
conclusions with respect to the insurer's financial capability 
and cost, taking into account the considerations described 
above.\181\ A fiduciary will be deemed to have conducted a 
periodic review of the financial capability of the insurer if 
the fiduciary obtains the written representations described 
above on an annual basis unless, in the interim, the fiduciary 
has received notification from the insurer that representations 
cannot be relied on or the fiduciary otherwise becomes aware of 
facts that would cause it to question the representations.
---------------------------------------------------------------------------
    \181\However, a fiduciary is not required to review the 
appropriateness of its conclusions following the purchase of any 
contract or contracts for specific participants or beneficiaries.
---------------------------------------------------------------------------
    A fiduciary that satisfies the requirements of the 
provision is not liable following the distribution of any 
benefit, or the investment by or on behalf of a participant or 
beneficiary pursuant to the selected guaranteed retirement 
income contract, for any losses that may result to the 
participant or beneficiary due to an insurer's inability to 
satisfy its financial obligations under the terms of the 
contract.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  E. Modification of Nondiscrimination Rules To Protect Older, Longer 
Service Participants (sec. 205 of the bill and secs. 401(a)(4) and (26) 
                              of the Code)


                              PRESENT LAW

In general

    Qualified retirement plans are subject to nondiscrimination 
requirements, under which the group of employees covered by a 
plan (``plan coverage'') and the contributions or benefits 
provided to employees, including benefits, rights, and features 
under the plan, must not discriminate in favor of highly 
compensated employees.\182\ The timing of plan amendments must 
also not have the effect of discriminating significantly in 
favor of highly compensated employees. In addition, in the case 
of a defined benefit plan, the plan must benefit at least the 
lesser of (1) 50 employees of the employer, or (2) the greater 
of (a) 40 percent of all employees of the employer or (b) two 
employees (or one employee if there is only one employee), 
referred to as the ``minimum participation'' requirements.\183\ 
These requirements are designed to help ensure that qualified 
retirement plans achieve the goal of retirement security for 
both lower and higher paid employees.
---------------------------------------------------------------------------
    \182\Secs. 401(a)(3)-(5) and 410(b). Detailed rules are provided in 
Treas. Reg. secs. 1.401(a)(4)-1 through 13 and secs. 1.410(b)-2 through 
10. In applying the nondiscrimination requirements, certain employees, 
such as those under age 21 or with less than a year of service, 
generally may be disregarded. In addition, employees of controlled 
groups and affiliated service groups under the aggregation rules of 
section 414(b), (c), (m) and (o) are treated as employed by a single 
employer.
    \183\Sec. 401(a)(26).
---------------------------------------------------------------------------
    For nondiscrimination purposes, an employee generally is 
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or 
the preceding year, or (2) had compensation for the preceding 
year in excess of $125,000 (for 2019).\184\ Employees who are 
not highly compensated are referred to as nonhighly compensated 
employees.
---------------------------------------------------------------------------
    \184\Section 414(q). At the election of the employer, employees who 
are highly compensated based on the amount of their compensation may be 
limited to employees who were among the top 20 percent of employees 
based on compensation.
---------------------------------------------------------------------------

Nondiscriminatory plan coverage

    Whether plan coverage of employees is nondiscriminatory is 
determined by calculating a plan's ratio percentage, that is, 
the ratio of the percentage of nonhighly compensated employees 
covered under the plan to the percentage of highly compensated 
employees covered. For this purpose, certain portions of a 
defined contribution plan are treated as separate plans to 
which the plan coverage requirements are applied separately, 
referred to as mandatory disaggregation. Specifically, the 
following, if provided under a plan, are treated as separate 
plans: the portion of a plan consisting of employee elective 
deferrals, the portion consisting of employer matching 
contributions, the portion consisting of employer nonelective 
contributions, and the portion consisting of an employee stock 
ownership plan (``ESOP'').\185\ Subject to mandatory 
disaggregation, different qualified retirement plans may 
otherwise be aggregated and tested together as a single plan, 
provided that they use the same plan year. The plan determined 
under these rules for plan coverage purposes generally is also 
treated as the plan for purposes of applying the other 
nondiscrimination requirements.
---------------------------------------------------------------------------
    \185\ Elective deferrals are contributions that an employee elects 
to have made to a defined contribution plan that includes a qualified 
cash or deferred arrangement (a section 401(k) plan) rather than 
receive the same amount as current compensation. Employer matching 
contributions are contributions made by an employer only if an employee 
makes elective deferrals or after-tax employee contributions. Employer 
nonelective contributions are contributions made by an employer 
regardless of whether an employee makes elective deferrals or after-tax 
employee contributions. Under section 4975(e)(7), an ESOP is a defined 
contribution plan, or portion of a defined contribution plan, that is 
designated as an ESOP and is designed to invest primarily in employer 
stock.
---------------------------------------------------------------------------
    A plan's coverage is nondiscriminatory if the ratio 
percentage, as determined above, is 70 percent or greater. If a 
plan's ratio percentage is less than 70 percent, a multi-part 
test applies, referred to as the average benefit test. First, 
the plan must meet a ``nondiscriminatory classification 
requirement,'' that is, it must cover a group of employees that 
is reasonable and established under objective business criteria 
and the plan's ratio percentage must be at or above a level 
specified in the regulations, which varies depending on the 
percentage of nonhighly compensated employees in the employer's 
workforce. In addition, the average benefit percentage test 
must be satisfied.
    Under the average benefit percentage test, in general, the 
average rate of employer-provided contributions or benefit 
accruals for all nonhighly compensated employees under all 
plans of the employer must be at least 70 percent of the 
average contribution or accrual rate of all highly compensated 
employees.\186\ In applying the average benefit percentage 
test, elective deferrals made by employees, as well as employer 
matching and nonelective contributions, are taken into account. 
Generally, all plans maintained by the employer are taken into 
account, including ESOPs, regardless of whether plans use the 
same plan year.
---------------------------------------------------------------------------
    \186\ Contribution and benefit rates are generally determined under 
the rules for nondiscriminatory contributions or benefit accruals, 
described below. These rules are generally based on benefit accruals 
under a defined benefit plan, other than accruals attributable to 
after-tax employee contributions, and contributions allocated to 
participants' accounts under a defined contribution plan, other than 
allocations attributable to after-tax employee contributions. (Under 
these rules, contributions allocated to participants' accounts are 
referred to as ``allocations,'' with the related rates referred to as 
``allocation rates,'' but ``contribution rates'' is used herein for 
convenience.) However, as discussed below, benefit accruals can be 
converted to actuarially equivalent contributions, and contributions 
can be converted to actuarially equivalent benefit accruals.
---------------------------------------------------------------------------
    Under a transition rule applicable in the case of the 
acquisition or disposition of a business, or portion of a 
business, or a similar transaction, a plan that satisfied the 
plan coverage requirements before the transaction is deemed to 
continue to satisfy them for a period after the 
transaction,\187\ provided coverage under the plan is not 
significantly changed during that period.\188\
---------------------------------------------------------------------------
    \187\It is for the period beginning on date of the transaction and 
ending on the last day of the first plan year beginning after the date 
of the transaction.
    \188\Sec. 410(b)(6)(C).
---------------------------------------------------------------------------

Nondiscriminatory contributions or benefit accruals

            In general
    There are three general approaches to testing the amount of 
benefits under qualified retirement plans: (1) design-based 
safe harbors under which the plan's contribution or benefit 
accrual formula satisfies certain uniformity standards, (2) a 
general test, described below, and (3) cross-testing of 
equivalent contributions or benefit accruals. Employee elective 
deferrals and employer matching contributions under defined 
contribution plans are subject to special testing rules and 
generally are not permitted to be taken into account in 
determining whether other contributions or benefits are 
nondiscriminatory.\189\
---------------------------------------------------------------------------
    \189\Secs. 401(k) and (m), the latter of which applies also to 
after-tax employee contributions under a defined contribution plan.
---------------------------------------------------------------------------
    The nondiscrimination rules allow contributions and benefit 
accruals to be provided to highly compensated and nonhighly 
compensated employees at the same percentage of 
compensation.\190\ Thus, the various testing approaches 
described below are generally applied to the amount of 
contributions or accruals provided as a percentage of 
compensation, referred to as a contribution rate or accrual 
rate. In addition, under the ``permitted disparity'' rules, in 
calculating an employee's contribution or accrual rate, credit 
may be given for the employer paid portion of Social Security 
taxes or benefits.\191\ The permitted disparity rules do not 
apply in testing whether elective deferrals, matching 
contributions, or ESOP contributions are nondiscriminatory.
---------------------------------------------------------------------------
    \190\For this purpose, under section 401(a)(17), annual 
compensation generally is limited to $280,000 per year (for 2019).
    \191\See sections 401(a)(5)(C) and (D) and 401(l) and Treas. Reg. 
section 1.401(a)(4)-7 and 1.401(l)-1 through -6 for rules for 
determining the amount of contributions or benefits that can be 
attributed to the employer-paid portion of Social Security taxes or 
benefits.
---------------------------------------------------------------------------
    The general test is generally satisfied by measuring the 
rate of contribution or benefit accrual for each highly 
compensated employee to determine if the group of employees 
with the same or higher rate (a ``rate'' group) is a 
nondiscriminatory group, using the nondiscriminatory plan 
coverage standards described above. For this purpose, if the 
ratio percentage of a rate group is less than 70 percent, a 
simplified standard applies, which includes disregarding the 
reasonable classification requirement, but requires 
satisfaction of the average benefit percentage test.
            Cross-testing
    Cross-testing involves the conversion of contributions 
under a defined contribution plan or benefit accruals under a 
defined benefit plan to actuarially equivalent accruals or 
contributions, with the resulting equivalencies tested under 
the general test. However, employee elective deferrals and 
employer matching contributions under defined contribution 
plans are not permitted to be taken into account for this 
purpose, and cross-testing of contributions under a defined 
contribution plan, or cross-testing of a defined contribution 
plan aggregated with a defined benefit plan, is permitted only 
if certain threshold requirements are satisfied.
    In order for a defined contribution plan to be tested on an 
equivalent benefit accrual basis, one of the following three 
threshold conditions must be met:
           The plan has broadly available allocation 
        rates, that is, each allocation rate under the plan is 
        available to a nondiscriminatory group of employees 
        (disregarding certain permitted additional 
        contributions provided to employees as a replacement 
        for benefits under a frozen defined benefit plan, as 
        discussed below);
           The plan provides allocations that meet 
        prescribed designs under which allocations gradually 
        increase with age or service or are expected to provide 
        a target level of annuity benefit; or
           The plan satisfies a minimum allocation 
        gateway, under which each nonhighly compensated 
        employee has an allocation rate of (a) at least one-
        third of the highest rate for any highly compensated 
        employee, or (b) if less, at least five percent.
    In order for an aggregated defined contribution and defined 
benefit plan to be tested on an aggregate equivalent benefit 
accrual basis, one of the following three threshold conditions 
must be met:
           The plan must be primarily defined benefit 
        in character, that is, for more than fifty percent of 
        the nonhighly compensated employees under the plan, 
        their accrual rate under the defined benefit plan 
        exceeds their equivalent accrual rate under the defined 
        contribution plan;
           The plan consists of broadly available 
        separate defined benefit and defined contribution 
        plans, that is, the defined benefit plan and the 
        defined contribution plan would separately satisfy 
        simplified versions of the minimum coverage and 
        nondiscriminatory amount requirements; or
           The plan satisfies a minimum aggregate 
        allocation gateway, under which each nonhighly 
        compensated employee has an aggregate allocation rate 
        (consisting of allocations under the defined 
        contribution plan and equivalent allocations under the 
        defined benefit plan) of (a) at least one-third of the 
        highest aggregate allocation rate for any nonhighly 
        compensated employee, or (b) if less, at least five 
        percent in the case of a highest nonhighly compensated 
        employee's rate up to 25 percent, increased by one 
        percentage point for each five-percentage-point 
        increment (or portion thereof) above 25 percent, 
        subject to a maximum of 7.5 percent.
            Benefits, rights, and features
    Each benefit, right, or feature offered under the plan 
generally must be available to a group of employees that has a 
ratio percentage that satisfies the minimum coverage 
requirements, including the reasonable classification 
requirement if applicable, except that the average benefit 
percentage test does not have to be met, even if the ratio 
percentage is less than 70 percent.

Multiple employer and section 403(b) plans

    A multiple employer plan generally is a single plan 
maintained by two or more unrelated employers, that is, 
employers that are not treated as a single employer under the 
aggregation rules for related entities.\192\ The plan coverage 
and other nondiscrimination requirements are applied separately 
to the portions of a multiple employer plan covering employees 
of different employers.\193\
---------------------------------------------------------------------------
    \192\Sec. 413(c). Multiple employer status does not apply if the 
plan is a multiemployer plan, defined under sec. 414(f) as a plan 
maintained pursuant to one or more collective bargaining agreements 
with two or more unrelated employers and to which the employers are 
required to contribute under the collective bargaining agreement(s). 
Multiemployer plans are also known as Taft-Hartley plans.
    \193\Treas. Reg. sec. 1.413-2(a)(3)(ii)-(iii).
---------------------------------------------------------------------------
    Certain tax-exempt charitable organizations may offer their 
employees a tax-deferred annuity plan (``section 403(b) 
plan'').\194\ The nondiscrimination requirements, other than 
the requirements applicable to elective deferrals, generally 
apply to section 403(b) plans of private tax-exempt 
organizations. For purposes of applying the nondiscrimination 
requirements to a section 403(b) plan, subject to mandatory 
disaggregation, a qualified retirement plan may be combined 
with the section 403(b) plan and treated as a single plan.\195\ 
However, a section 403(b) plan and qualified retirement plan 
may not be treated as a single plan for purposes of applying 
the nondiscrimination requirements to the qualified retirement 
plan.
---------------------------------------------------------------------------
    \194\Sec. 403(b). These plans are available to employers that are 
tax-exempt under section 501(c)(3), as well as to employers that are 
educational institutions of State or local governments.
    \195\Treas. Reg. sec. 1.410(b)-7(f).
---------------------------------------------------------------------------

Closed and frozen defined benefit plans

    A defined benefit plan may be amended to limit 
participation in the plan to individuals who are employees as 
of a certain date. That is, employees hired after that date are 
not eligible to participate in the plan. Such a plan is 
sometimes referred to as a ``closed'' defined benefit plan 
(that is, closed to new entrants). In such a case, it is common 
for the employer also to maintain a defined contribution plan 
and to provide employer matching or nonelective contributions 
only to employees not covered by the defined benefit plan or at 
a higher rate to such employees.
    Over time, the group of employees continuing to accrue 
benefits under the defined benefit plan may come to consist 
more heavily of highly compensated employees, for example, 
because of greater turnover among nonhighly compensated 
employees or because increasing compensation causes nonhighly 
compensated employees to become highly compensated. In that 
case, the defined benefit plan may have to be combined with the 
defined contribution plan and tested on a benefit accrual 
basis. However, under the regulations, if none of the threshold 
conditions is met, testing on a benefits basis may not be 
available. Notwithstanding the regulations, recent IRS guidance 
provides relief for a limited period, allowing certain closed 
defined benefit plans to be aggregated with a defined 
contribution plan and tested on an aggregate equivalent 
benefits basis without meeting any of the threshold 
conditions.\196\ When the group of employees continuing to 
accrue benefits under a closed defined benefit plan consists 
more heavily of highly compensated employees, the benefits, 
rights, and features provided under the plan may also fail the 
tests under the existing nondiscrimination rules.
---------------------------------------------------------------------------
    \196\Notice 2014-5, 2014-2 I.R.B. 276, December 13, 2013 extended 
by Notice 2015-28, 2015-14 I.R.B. 848, March 19, 2015, Notice 2016-57, 
2016-40 I.R.B. 432, September 19, 2016, and most recently by Notice 
2017-45, 2017-38 I.R.B. 232, August 31, 2017. Proposed regulations 
revising the nondiscrimination requirements for closed plans were also 
issued in 2016, subject to various conditions. 81 Fed. Reg. 4976 
(January 29, 2016).
---------------------------------------------------------------------------
    In some cases, if a defined benefit plan is amended to 
cease future accruals for all participants, referred to as a 
``frozen'' defined benefit plan, additional contributions to a 
defined contribution plan may be provided for participants, in 
particular for older participants, in order to make up in part 
for the loss of the benefits they expected to earn under the 
defined benefit plan (``make-whole'' contributions). As a 
practical matter, testing on a benefit accrual basis may be 
required in that case, but may not be available because the 
defined contribution plan does not meet any of the threshold 
conditions.

                           REASONS FOR CHANGE

    Some employers that sponsor defined benefit plans have 
closed such plans to new employees and offer new employees 
alternative retirement savings plans. Existing employees 
continue to earn benefits under the defined benefit plan, 
consistent with their expectations as to retirement income, 
which is particularly important for employees close to 
retirement. However, without greater flexibility in the 
nondiscrimination rules, employers may be forced to freeze 
their defined benefit plans, thus preventing employees from 
earning their expected benefits. When a defined benefit plan is 
frozen, make-whole contributions can offset some of the 
resulting benefit loss for employees. However, in that case, 
too, greater flexibility in the nondiscrimination rules is 
needed. The Committee wishes to provide such flexibility in 
order to protect benefits for older, longer-service employees.

                        EXPLANATION OF PROVISION

Closed or frozen defined benefit plans

            In general
    The provision provides nondiscrimination relief with 
respect to benefits, rights, and features for a closed class of 
participants (``closed class''),\197\ and with respect to 
benefit accruals for a closed class, under a defined benefit 
plan that meets the requirements described below (referred to 
herein as an ``applicable'' defined benefit plan). In addition, 
the provision treats a closed or frozen applicable defined 
benefit plan as meeting the minimum participation requirements 
if the plan met the requirements as of the effective date of 
the plan amendment by which the plan was closed or frozen.
---------------------------------------------------------------------------
    \197\References under the provision to a closed class of 
participants and similar references to a closed class include 
arrangements under which one or more classes of participants are 
closed, except that one or more classes of participants closed on 
different dates are not aggregated for purposes of determining the date 
any such class was closed.
---------------------------------------------------------------------------
    If a portion of an applicable defined benefit plan eligible 
for relief under the provision is spun off to another employer, 
and if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
below, the relevant relief for the spun-off plan will continue 
with respect to the other employer.
            Benefits, rights, or features for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits, rights, or features to a closed class 
does not fail the nondiscrimination requirements by reason of 
the composition of the closed class, or the benefits, rights, 
or features provided to the closed class, if (1) for the plan 
year as of which the class closes and the two succeeding plan 
years, the benefits, rights, and features satisfy the 
nondiscrimination requirements without regard to the relief 
under the provision, but taking into account the special 
testing rules described below,\198\ and (2) after the date as 
of which the class was closed, any plan amendment modifying the 
closed class or the benefits, rights, and features provided to 
the closed class does not discriminate significantly in favor 
of highly compensated employees.
---------------------------------------------------------------------------
    \198\Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    For purposes of requirement (1) above, the following 
special testing rules apply:
           In applying the plan coverage transition 
        rule for business acquisitions, dispositions, and 
        similar transactions, the closing of the class of 
        participants is not treated as a significant change in 
        coverage;
           Two or more plans do not fail to be eligible 
        to be a treated as a single plan solely by reason of 
        having different plan years;\199\ and
---------------------------------------------------------------------------
    \199\This rule applies also for purposes of applying the plan 
coverage and other nondiscrimination requirements to an applicable 
defined benefit plan and one or more defined contributions that, under 
the provision, may be treated as a single plan as described below.
---------------------------------------------------------------------------
           Changes in employee population are 
        disregarded to the extent attributable to individuals 
        who become employees or cease to be employees, after 
        the date the class is closed, by reason of a merger, 
        acquisition, divestiture, or similar event.
            Benefit accruals for a closed class
    Under the provision, an applicable defined benefit plan 
that provides benefits to a closed class may be aggregated, 
that is, treated as a single plan, and tested on a benefit 
accrual basis with one or more defined contribution plans 
(without having to satisfy the threshold conditions under 
present law) if (1) for the plan year as of which the class 
closes and the two succeeding plan years, the plan satisfies 
the plan coverage and nondiscrimination requirements without 
regard to the relief under the provision, but taking into 
account the special testing rules described above,\200\ and (2) 
after the date as of which the class was closed, any plan 
amendment modifying the closed class or the benefits provided 
to the closed class does not discriminate significantly in 
favor of highly compensated employees.
---------------------------------------------------------------------------
    \200\Other testing options available under present law are also 
available for this purpose.
---------------------------------------------------------------------------
    Under the provision, defined contribution plans that may be 
aggregated with an applicable defined benefit plan and treated 
as a single plan include the portion of one or more defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If an applicable defined benefit plan is 
aggregated with the portion of a defined contribution plan 
consisting of matching contributions, any portion of the 
defined contribution plan consisting of elective deferrals must 
also be aggregated. In addition, the matching contributions are 
treated in the same manner as nonelective contributions, 
including for purposes of permitted disparity.
            Applicable defined benefit plan
    An applicable defined benefit plan to which relief under 
the provision applies is a defined benefit plan under which the 
class was closed (or the plan frozen) before April 5, 2017, or 
that meets the following alternative conditions: (1) taking 
into account any predecessor plan, the plan has been in effect 
for at least five years as of the date the class is closed (or 
the plan is frozen) and (2) under the plan, during the five-
year period preceding that date, (a) for purposes of the relief 
provided with respect to benefits, rights, and features for a 
closed class, there has not been a substantial increase in the 
coverage or value of the benefits, rights, or features, or (b) 
for purposes of the relief provided with respect to benefit 
accruals for a closed class or the minimum participation 
requirements, there has not been a substantial increase in the 
coverage or benefits under the plan.
    For purposes of (2)(a) above, a plan is treated as having a 
substantial increase in coverage or value of benefits, rights, 
or features only if, during the applicable five-year period, 
either the number of participants covered by the benefits, 
rights, or features on the date the period ends is more than 50 
percent greater than the number on the first day of the plan 
year in which the period began, or the benefits, rights, and 
features have been modified by one or more plan amendments in 
such a way that, as of the date the class is closed, the value 
of the benefits, rights, and features to the closed class as a 
whole is substantially greater than the value as of the first 
day of the five-year period, solely as a result of the 
amendments.
    For purposes of (2)(b) above, a plan is treated as having 
had a substantial increase in coverage or benefits only if, 
during the applicable five-year period, either the number of 
participants benefiting under the plan on the date the period 
ends is more than 50 percent greater than the number of 
participants on the first day of the plan year in which the 
period began, or the average benefit provided to participants 
on the date the period ends is more than 50 percent greater 
than the average benefit provided on the first day of the plan 
year in which the period began. In applying this requirement, 
the average benefit provided to participants under the plan is 
treated as having remained the same between the two relevant 
dates if the benefit formula applicable to the participants has 
not changed between the dates and, if the benefit formula has 
changed, the average benefit under the plan is considered to 
have increased by more than 50 percent only if the target 
normal cost for all participants benefiting under the plan for 
the plan year in which the five-year period ends exceeds the 
target normal cost for all such participants for that plan year 
if determined using the benefit formula in effect for the 
participants for the first plan year in the five-year period by 
more than 50 percent.\201\ In applying these rules, a multiple 
employer plan is treated as a single plan, rather than as 
separate plans separately covering the employees of each 
participating employer.
---------------------------------------------------------------------------
    \201\Under the funding requirements applicable to defined benefit 
plans, target normal cost for a plan year (defined in section 
430(b)(1)(A)(i)) is generally the sum of the present value of the 
benefits expected to be earned under the plan during the plan year plus 
the amount of plan-related expenses to be paid from plan assets during 
the plan year. Under the provision, in applying this average benefit 
rule to certain defined benefit plans maintained by cooperative 
organizations and charities, referred to as CSEC plans (defined in 
section 414(y)), which are subject to different funding requirements, 
the CSEC plan's normal cost under section 433(j)(1)(B) is used instead 
of target normal cost.
---------------------------------------------------------------------------
    In applying these standards, any increase in coverage or 
value, or in coverage or benefits, whichever is applicable, is 
generally disregarded if it is attributable to coverage and 
value, or coverage and benefits, provided to employees who (1) 
became participants as a result of a merger, acquisition, or 
similar event that occurred during the 7-year period preceding 
the date the class was closed, or (2) became participants by 
reason of a merger of the plan with another plan that had been 
in effect for at least five years as of the date of the merger 
and, in the case of benefits, rights, or features for a closed 
class, under the merger, the benefits, rights, or features 
under one plan were conformed to the benefits, rights, or 
features under the other plan prospectively.

Make-whole contributions under a defined contribution plan

    Under the provision, a defined contribution plan is 
permitted to be tested on an equivalent benefit accrual basis 
(without having to satisfy the threshold conditions under 
present law) if the following requirements are met:
           The plan provides make-whole contributions 
        to a closed class of participants whose accruals under 
        a defined benefit plan have been reduced or ended 
        (``make-whole class'');
           For the plan year of the defined 
        contribution plan as of which the make-whole class 
        closes and the two succeeding plan years, the make-
        whole class satisfies the nondiscriminatory 
        classification requirement under the plan coverage 
        rules, taking into account the special testing rules 
        described above;
           After the date as of which the class was 
        closed, any amendment to the defined contribution plan 
        modifying the make-whole class or the allocations, 
        benefits, rights, and features provided to the make-
        whole class does not discriminate significantly in 
        favor of highly compensated employees; and
           Either the class was closed before April 5, 
        2017, or the defined benefit plan is an applicable 
        defined benefit plan under the alternative conditions 
        applicable for purposes of the relief provided with 
        respect to benefit accruals for a closed class.
    With respect to one or more defined contribution plans 
meeting the requirements above, in applying the plan coverage 
and nondiscrimination requirements, the portion of the plan 
providing make-whole or other nonelective contributions may 
also be aggregated and tested on an equivalent benefit accrual 
basis with the portion of one or more other defined 
contribution plans consisting of matching contributions, an 
ESOP, or matching or nonelective contributions under a section 
403(b) plan. If the plan is aggregated with the portion of a 
defined contribution plan consisting of matching contributions, 
any portion of the defined contribution plan consisting of 
elective deferrals must also be aggregated. In addition, the 
matching contributions are treated in the same manner as 
nonelective contributions, including for purposes of permitted 
disparity.
    Under the provision, ``make-whole contributions'' generally 
means nonelective contributions for each employee in the make-
whole class that are reasonably calculated, in a consistent 
manner, to replace some or all of the retirement benefits that 
the employee would have received under the defined benefit plan 
and any other plan or qualified cash or deferred arrangement 
under a section 401(k) plan if no change had been made to the 
defined benefit plan and other plan or arrangement.\202\ 
However, under a special rule, in the case of a defined 
contribution plan that provides benefits, rights, or features 
to a closed class of participants whose accruals under a 
defined benefit plan have been reduced or eliminated, the plan 
will not fail to satisfy the nondiscrimination requirements 
solely by reason of the composition of the closed class, or the 
benefits, rights, or features provided to the closed class, if 
the defined contribution plan and defined benefit plan 
otherwise meet the requirements described above but for the 
fact that the make-whole contributions under the defined 
contribution plan are made in whole or in part through matching 
contributions.
---------------------------------------------------------------------------
    \202\For this purpose, consistency is not required with respect to 
employees who were subject to different benefit formulas under the 
defined benefit plan.
---------------------------------------------------------------------------
    If a portion of a defined contribution plan eligible for 
relief under the provision is spun off to another employer, and 
if the spun-off plan continues to satisfy any ongoing 
requirements applicable for the relevant relief as described 
above, the relevant relief for the spun-off plan will continue 
with respect to the other employer.

                             EFFECTIVE DATE

    The provision is generally effective on the date of 
enactment, without regard to whether any plan modifications 
referred to in the provision are adopted or effective before, 
on, or after the date of enactment.
    However, at the election of a plan sponsor, the provision 
will apply to plan years beginning after December 31, 2013. For 
purposes of the provision, a closed class of participants under 
a defined benefit plan is treated as being closed before April 
5, 2017, if the plan sponsor's intention to create the closed 
class is reflected in formal written documents and communicated 
to participants before that date. In addition, a plan does not 
fail to be eligible for the relief under the provision solely 
because (1) in the case of benefits, rights, or features for a 
closed class under a defined benefit plan, the plan was amended 
before the date of enactment to eliminate one or more benefits, 
rights, or features and is further amended after the date of 
enactment to provide the previously eliminated benefits, 
rights, or features to a closed class of participants, or (2) 
in the case of benefit accruals for a closed class under a 
defined benefit plan or application of the minimum benefit 
requirements to a closed or frozen defined benefit plan, the 
plan was amended before the date of the enactment to cease all 
benefit accruals and is further amended after the date of 
enactment to provide benefit accruals to a closed class of 
participants. In either case, the relevant relief applies only 
if the plan otherwise meets the requirements for the relief, 
and, in applying the relevant relief, the date the class of 
participants is closed is the effective date of the later 
amendment.

 F. Modification of PBGC Premiums for CSEC Plans (sec. 206 of the bill 
                        and sec. 4006 of ERISA)


                              PRESENT LAW

    Qualified retirement plans, including defined benefit 
plans, are categorized as single employer plans or multiple 
employer plans.\203\ A single employer plan is a plan 
maintained by one employer.\204\ A multiple employer plan 
generally is a single plan maintained by two or more unrelated 
employers (that is, employers that are not treated as a single 
employer under the aggregation rules).\205\
---------------------------------------------------------------------------
    \203\A third type of plan is a multiemployer plan, defined under 
sec. 414(f) as a plan maintained pursuant to one or more collective 
bargaining agreements with two or more unrelated employers and to which 
the employers are required to contribute under the collective 
bargaining agreement(s). Multiemployer plans are also known as Taft-
Hartley plans. Multiemployer plans are subject to different minimum 
funding requirements from those applicable to single employer plans and 
multiple employer plans, as well as to different PBGC premium and 
benefit guarantee structures.
    \204\For this purpose, businesses and organizations that are 
members of a controlled group of corporations, a group under common 
control, or an affiliated service group are treated as one employer 
(referred to as ``aggregation''). Secs. 414(b), (c), (m) and (o).
    \205\Sec. 413(c). Multiple employer plan status does not apply if 
the plan is a multiemployer plan.
---------------------------------------------------------------------------
    Defined benefit plans maintained by private employers are 
generally subject to minimum funding requirements.\206\ 
Historically, single employer and multiple employer defined 
benefit plans have been subject to the same minimum funding 
requirements. However, when the funding requirements for single 
employer plans were substantially revised by the Pension 
Protection Act of 2006,\207\ effective 2008, a delayed 
effective date was provided for certain multiple employer plans 
in order to allow time for further congressional consideration 
of appropriate rules for these plans. Such consideration 
resulted in the enactment in 2014 of the Cooperative and Small 
Employer Charity Pension Flexibility Act (``CSEC Act''),\208\ 
which provides specific funding rules for certain multiple 
employer plans, referred to as CSEC plans.\209\
---------------------------------------------------------------------------
    \206\Secs. 412 and 430-433 and ERISA secs. 301-306. Unless a 
funding waiver is obtained, an employer may be subject to a two-tier 
excise tax under section 4971 if the funding requirements are not met.
    \207\Pub. L. No. 109-280.
    \208\Pub. L. No. 113-197.
    \209\As defined in section 414(y) and ERISA section 210(f), CSEC 
plans include defined benefit plans maintained by certain cooperative 
organizations, such as rural electric or telephone cooperatives, or by 
certain tax-exempt organizations.
---------------------------------------------------------------------------
    Private defined benefit plans are also covered by the 
Pension Benefit Guaranty Corporation (``PBGC'') insurance 
program, under which the PBGC guarantees the payment of certain 
plan benefits, and plans are required to pay annual premiums to 
the PBGC.\210\ Plan sponsors of single employer plans and 
multiemployer plans must participate in the PBGC insurance 
program. Single employer plans and multiple employer plans, 
including CSEC plans, are subject to the same PBGC premium 
requirements, consisting of flat-rate, per participant premiums 
and variable rate premiums, based on the unfunded vested 
benefits under the plan.\211\ For 2019, flat-rate premiums are 
$80 per participant, and variable rate premiums are $43 for 
each $1,000 of unfunded vested benefits, subject to a limit of 
$541 multiplied by the number of plan participants.\212\ For 
this purpose, unfunded vested benefits under a plan for a plan 
year is the excess (if any) of (1) the plan's funding target 
for the plan year, determined by taking into account only 
vested benefits and using specified interest rates\213\, over 
(2) the fair market value of plan assets.
---------------------------------------------------------------------------
    \210\Title IV of ERISA.
    \211\The same PBGC benefit guarantee structure also applies to 
single employer plans and multiple employer plans.
    \212\These premium rates have been increased several times by 
legislation since 2005 and are subject to automatic increases to 
reflect inflation (referred to as ``indexing'').
    \213\Corporate bond rates are used for PBGC liability measurement 
purposes. For funding purposes, single employer plans are required to 
use the 24-month average segment rates (before adjustment) determined 
under Section 430(h)(2), as amended by the ``Moving Ahead for Progress 
in the 21st Century Act'' (MAP-21), Pub. L. No. 112-141, the ``Highway 
and Transportation Funding Act of 2014'' (HATFA), Pub. L. No.113-159 
and the Bipartisan Budget Act of 2015 (BBA), Pub. L. No. 114-74. 
However, a plan sponsor is permitted to elect to use the monthly yield 
curve under section 430(h)(2)(D)(ii) in place of the segment rates. 
CSEC plans may use the third segment rate to determine current 
liability. Sec. 433(h)(3). CSEC plans were also able to elect (not 
later than the close of the first plan year of the plan beginning after 
December 31, 2013), not to be treated as a CSEC plan so that the same 
interest rates that apply to single employer plans would apply to CSEC 
plans.
---------------------------------------------------------------------------
    Under the funding rules applicable to single employer 
plans, a plan's funding target is the present value of all 
benefits accrued or earned under the plan as of the beginning 
of the plan year, determined using certain specified actuarial 
assumptions, including specified interest rates and mortality. 
A single employer plan's funding target is a factor taken into 
account in determining required contributions for the plan. 
Although a CSEC plan's funding target is used under present law 
to determine variable rate premiums, it does not apply in 
determining required contributions for a CSEC plan. Instead, a 
CSEC plan's funding liability applies, which is the present 
value of all benefits accrued or earned under the plan as of 
the beginning of the plan year, determined using reasonable 
actuarial assumptions chosen by the plan's actuary.

                           REASONS FOR CHANGE

    In 2014, Congress passed legislation resulting in different 
sets of funding rules for three types of pension plans: single 
employer plans, multiemployer plans, and CSEC plans. In line 
with this change, the Committee believes that the three types 
of pension plans also should have individualized rules for 
calculating PBGC premiums.

                        EXPLANATION OF PROVISION

    Under the provision, for CSEC plans, flat-rate premiums are 
$19 per participant, and variable rate premiums are $9 for each 
$1,000 of unfunded vested benefits.\214\ In addition, for 
purposes of determining a CSEC plan's variable rate premiums, 
unfunded vested benefits for a plan year is the excess (if any) 
of (1) the plan's funding liability, determined by taking into 
account only vested benefits, over (2) the fair market value of 
plan assets.
---------------------------------------------------------------------------
    \214\These are the premium rates that applied to single employer 
plans and multiple employer plans in 2005 and are not subject to 
indexing.
---------------------------------------------------------------------------
    The provision applies to such plans with plan years 
beginning after December 31, 2018.

                             EFFECTIVE DATE

    The provision is effective on date of enactment.

                       TITLE III--OTHER BENEFITS


 A. Benefits Provided to Volunteer Firefighters and Emergency Medical 
      Responders (sec. 301 of the bill and sec. 139B of the Code)


                              PRESENT LAW

Benefits for volunteer firefighters and emergency medical responders

    In general, a reduction in property tax by persons who 
volunteer their services as emergency responders under a State 
law program is includible in gross income.\215\ However, for 
taxable years beginning after December 31, 2007, and before 
January 1, 2011, an exclusion applied for any qualified State 
or local tax benefit and any qualified reimbursement payment 
provided to members of qualified volunteer emergency response 
organizations.\216\
---------------------------------------------------------------------------
    \215\ IRS Chief Counsel Advice 200302045 (December 3, 2002).
    \216\Sec. 139B. Under section 3121(a)(23), the exclusion applied 
also for purposes of taxes under the Federal Insurance Contributions 
Act (``FICA'').
---------------------------------------------------------------------------
    A qualified volunteer emergency response organization is a 
volunteer organization that is organized and operated to 
provide firefighting or emergency medical services for persons 
in a State or a political subdivision and is required (by 
written agreement) by the State or political subdivision to 
furnish firefighting or emergency medical services in the State 
or political subdivision.
    A qualified State or local tax benefit is any reduction or 
rebate of certain taxes provided by a State or local government 
on account of services performed by individuals as members of a 
qualified volunteer emergency response organization. These 
taxes are limited to State or local income taxes, State or 
local real property taxes, and State or local personal property 
taxes. A qualified reimbursement payment is a payment provided 
by a State or political subdivision thereof on account of 
reimbursement for expenses incurred in connection with the 
performance of services as a member of a qualified volunteer 
emergency response organization. The amount of excludible 
qualified reimbursement payments is limited to $30 for each 
month during which a volunteer performs services.

Itemized deductions

    Subject to certain limitations, individuals are allowed 
itemized deductions for (1) State and local income taxes, real 
property taxes, and personal property taxes, and (2) 
contributions to charitable organizations, including 
unreimbursed expenses incurred in performing volunteer services 
for such an organization.\217\
---------------------------------------------------------------------------
    \217\Secs. 164(a) and 170.
---------------------------------------------------------------------------
    The amount of State or local taxes taken into account in 
determining the deduction for taxes is reduced by the amount of 
any excludible qualified State or local tax benefit. Similarly, 
expenses paid or incurred by an individual in connection with 
the performance of services as a member of a qualified 
volunteer emergency response organization are taken into 
account for purposes of the charitable deduction only to the 
extent the expenses exceed the amount of any excludible 
qualified reimbursement payment.

                           REASONS FOR CHANGE

    Emergency response volunteers provide valuable services to 
their communities. In return, communities sometimes provide tax 
discounts or rebates and modest stipends to cover volunteer 
expenses. The Committee wishes to relieve the administrative 
and financial burden associated with applying Federal tax to 
these benefits by reinstating the exclusion for a limited 
period and increasing the exclusion for expense reimbursements.

                        EXPLANATION OF PROVISION

    The provision reinstates for one year the exclusions for 
qualified State or local tax benefits and qualified 
reimbursement payments provided to members of qualified 
volunteer emergency response organizations. The provision also 
increases the exclusion for qualified reimbursement payments to 
$50 for each month during which a volunteer performs services. 
Under the provision, the exclusions for qualified State or 
local tax benefits and qualified reimbursement payments do not 
apply for taxable years beginning after December 31, 2020.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2019. As described above, the exclusions do 
not apply for taxable years beginning after December 31, 2020. 
Thus, the exclusions apply only for taxable years beginning 
during 2020.

B. Expansion of Section 529 Plans (sec. 302 of the bill and sec. 529 of 
                               the Code)


                              PRESENT LAW

            In general
    A qualified tuition program (often referred to as a ``529 
plan'') is a program established and maintained by a State or 
agency or instrumentality thereof, or by one or more eligible 
educational institutions, which satisfies certain requirements 
and under which a person may purchase tuition credits or 
certificates on behalf of a designated beneficiary that entitle 
the beneficiary to the waiver or payment of qualified higher 
education expenses of the beneficiary (``prepaid tuition 
contract''). In the case of a program established and 
maintained by a State or agency or instrumentality thereof, a 
qualified tuition program also includes a program under which a 
person may make contributions to an account that is established 
for the purpose of satisfying the qualified higher education 
expenses of the designated beneficiary of the account, provided 
it satisfies certain specified requirements (``tuition savings 
account''). Section 529 provides specified income tax and 
transfer tax rules for the treatment of accounts and contracts 
established under qualified tuition programs.\218\ Under both 
types of qualified tuition programs, a contributor establishes 
an account for the benefit of a particular designated 
beneficiary to provide for that beneficiary's higher education 
expenses.
---------------------------------------------------------------------------
    \218\For purposes of this description, the term ``account'' is used 
interchangeably to refer to a prepaid tuition benefit contract or a 
tuition savings account established pursuant to a qualified tuition 
program.
---------------------------------------------------------------------------
    In general, prepaid tuition contracts and tuition savings 
accounts established under a qualified tuition program involve 
prepayments or contributions made by one or more individuals 
for the benefit of a designated beneficiary. Decisions with 
respect to the contract or account may be made by an individual 
who is not the designated beneficiary. Qualified tuition 
accounts or contracts generally require the designation of a 
person (generally referred to as an ``account owner'')\219\ 
whom the program administrator (oftentimes a third-party 
administrator retained by the State or by the educational 
institution that established the program) may look to for 
decisions, recordkeeping, and reporting with respect to the 
account established for a designated beneficiary. The person or 
persons who make the contributions to the account also need not 
be the same person who is regarded as the account owner for 
purposes of administering the account or the designated 
beneficiary. Under many qualified tuition programs, the account 
owner generally has control over the account or contract, 
including the ability to change designated beneficiaries and to 
withdraw funds at any time and for any purpose. Thus, in 
practice, qualified tuition accounts or contracts generally 
involve a contributor, a designated beneficiary, an account 
owner (all three of whom may be the same person or different 
people), and an administrator of the account or contract.
---------------------------------------------------------------------------
    \219\Section 529 refers to contributors and designated 
beneficiaries, but does not define or otherwise refer to the term 
``account owner,'' which is a commonly used term among qualified 
tuition programs.
---------------------------------------------------------------------------
            Qualified higher education expenses
    Distributions for the purpose of meeting the designated 
beneficiary's higher education expenses are generally not 
subject to tax. For purposes of receiving a distribution from a 
qualified tuition program that qualifies for this favorable tax 
treatment, the term qualified higher education expenses means 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of a designated beneficiary at an 
eligible educational institution, and expenses for special 
needs services in the case of a special needs beneficiary that 
are incurred in connection with such enrollment or attendance. 
Qualified higher education expenses generally also include room 
and board for students who are enrolled at least half-time. 
Qualified higher education expenses include the purchase of any 
computer technology or equipment, or Internet access or related 
services, if such technology or services are to be used 
primarily by the beneficiary during any of the years a 
beneficiary is enrolled at an eligible institution.
    For distributions made after December 31, 2017, a 
designated beneficiary may, on an annual basis, receive up to 
$10,000 in aggregate 529 distributions to be used in connection 
with expenses for tuition in connection with enrollment or 
attendance at an elementary or secondary public, private, or 
religious school. To the extent such distributions do not 
exceed $10,000, they are treated in the same manner as 
distributions for qualified higher education expenses.
            Contributions to qualified tuition programs
    Contributions to a qualified tuition program must be made 
in cash. Section 529 does not impose a specific dollar limit on 
the amount of contributions, account balances, or prepaid 
tuition benefits relating to a qualified tuition account or 
contract; however, the program is required to have adequate 
safeguards to prevent contributions in excess of amounts 
necessary to provide for the beneficiary's qualified higher 
education expenses. Contributions generally are treated as a 
completed gift that is subject to the gift tax but is eligible 
for the gift tax annual exclusion. Contributions are not tax 
deductible for Federal income tax purposes, although they may 
be deductible for State income tax purposes. Amounts in the 
account accumulate on a tax-free basis (i.e., income on 
accounts in the plan is not subject to current Federal income 
tax).
    A qualified tuition program may not permit any contributor 
to, or designated beneficiary under, the program to direct 
(directly or indirectly) the investment of any contributions 
(or earnings thereon) more than two times in any calendar year, 
and must provide separate accounting for each designated 
beneficiary. A qualified tuition program may not allow any 
interest in an account or contract (or any portion thereof) to 
be used as security for a loan.
            Deduction for interest on education loans
    Certain individuals who have paid interest on qualified 
education loans may claim an above-the-line deduction for such 
interest expenses, subject to a maximum annual deduction limit 
of $2,500.\220\ For 2019, the deduction is phased out ratably 
for taxpayers with modified AGI between $70,000 and $85,000 
($140,000 and $170,000 for married taxpayers filing a joint 
return). The income phaseout ranges are indexed for inflation.
---------------------------------------------------------------------------
    \220\Sec. 221.
---------------------------------------------------------------------------
    A qualified education loan generally is defined as any 
indebtedness incurred solely to pay for the costs of attendance 
(including room and board) of the taxpayer, the taxpayer's 
spouse, or any dependent of the taxpayer as of the time the 
indebtedness was incurred in attending on at least a half-time 
basis (1) eligible educational institutions, or (2) 
institutions conducting internship or residency programs 
leading to a degree or certificate from an institution of 
higher education, a hospital, or a health care facility 
conducting postgraduate training. The cost of attendance is 
reduced by any amount excluded from gross income under the 
exclusions for qualified scholarships and tuition reductions, 
employer-provided educational assistance, interest earned on 
education savings bonds, qualified tuition programs, and 
Coverdell education savings accounts, as well as the amount of 
certain other scholarships and similar payments.

                           REASONS FOR CHANGE

    The Committee believes that expanding 529 plans will help 
families save for educational expenses that meet each family's 
unique needs. By allowing tax-free distributions for 
apprenticeship expenses, homeschooling expenses, student loan 
repayments, and elementary and secondary expenses in addition 
to tuition, families can customize the use of their education 
savings to make education more affordable.

                        EXPLANATION OF PROVISION

    The provision makes four modifications to section 529 
plans.
    First, the provision allows tax-free treatment applicable 
to distributions for higher education expenses to apply to 
expenses for fees, books, supplies, and equipment required for 
the participation of a designated beneficiary in an 
apprenticeship program. The apprenticeship program must be 
registered and certified with the Secretary of Labor under 
section 1 of the National Apprenticeship Act.\221\
---------------------------------------------------------------------------
    \221\29 U.S.C. 50.
---------------------------------------------------------------------------
    Second, the provision allows tax-free treatment to apply to 
distributions made for certain expenses in connection with a 
homeschool. Under the provision, distributions for certain 
homeschool expenses are treated in the same manner as 
distributions for qualified higher education expenses, and like 
distributions for elementary and secondary school tuition, are 
also subject to an annual limit of $10,000 in aggregate 529 
distributions, per beneficiary.\222\ For these purposes, 
qualifying homeschool expenses are those expenses, with respect 
to a beneficiary, which are incurred in connection with a 
homeschool and are for: (i) curriculum and curricular 
materials; (ii) books or other instructional materials; (iii) 
online educational materials; (iv) tuition for tutoring or 
educational classes outside of the home if the tutor or 
instructor is unrelated to the student; (v) dual enrollment in 
an institution of higher education; and (vi) educational 
therapies for students with disabilities.
---------------------------------------------------------------------------
    \222\The $10,000 per beneficiary limit applies to the combined 
distributions used for either (i) elementary and secondary school 
tuition or (ii) homeschool expenses.
---------------------------------------------------------------------------
    Third, the provision allows tax-free treatment to apply to 
distributions of certain amounts used to make payments on 
principal or interest of a qualified education loan. No 
individual may receive more than $10,000 of such distributions, 
in aggregate, over the course of the individual's 
lifetime.\223\ To the extent that an individual receives in 
excess of $10,000 of such distributions, they are subject to 
the usual tax treatment of 529 distributions (i.e., the 
earnings are included in income and subject to a 10-percent 
penalty). The provision contains a special rule allowing such 
amounts to be distributed to a sibling of a designated 
beneficiary (i.e., a brother, sister, stepbrother, or 
stepsister). This rule allows a 529 account holder to make a 
student loan distribution to a sibling of the designated 
beneficiary without changing the designated beneficiary of the 
account. For purposes of the $10,000 lifetime limit on student 
loan distributions, a distribution to a sibling of a designated 
beneficiary is applied towards the sibling's lifetime limit, 
and not the designated beneficiary's lifetime limit. The 
deduction available for interest paid by the taxpayer during 
the taxable year on any qualified education loan is disallowed 
to the extent such interest was paid from a tax-free 
distribution from a 529 plan.
---------------------------------------------------------------------------
    \223\This limitation applies to such distributions from all 529 
accounts. Thus, an individual may not avoid the limitation by receiving 
separate $10,000 distributions from multiple 529 accounts.
---------------------------------------------------------------------------
    Fourth, the provision allows tax-free treatment to apply to 
distributions made for certain additional qualifying expenses 
on behalf of designated beneficiaries attending elementary or 
secondary school. Under the provision, in addition to tuition, 
tax-free treatment would apply to a distribution made for 
expenses for fees, academic tutoring, special needs services, 
books, supplies, and other equipment, incurred in connection 
with enrollment or attendance at such elementary or secondary 
school.

                             EFFECTIVE DATE

    The provision applies to distributions made after December 
31, 2018.

                      TITLE IV--REVENUE PROVISIONS


 A. Modification of Required Minimum Distribution Rules for Designated 
  Beneficiaries (sec. 401 of the bill and sec. 401(a)(9) of the Code)


                              PRESENT LAW

In general

    Minimum distribution rules apply to tax-favored employer-
sponsored retirement plans and IRAs.\224\ Employer-sponsored 
retirement plans are of two general types: defined benefit 
plans, under which benefits are determined under a plan formula 
and paid from general plan assets, rather than individual 
accounts; and defined contribution plans, under which benefits 
are based on a separate account for each participant, to which 
are allocated contributions, earnings and losses.
---------------------------------------------------------------------------
    \224\Secs. 401(a)(9), 403(b)(1), 408(a)(6), 408(b)(3), and 
457(d)(2). Tax-favored employer-sponsored retirement plans include 
qualified retirement plans and annuities under sections 401(a) and 
403(a), tax-deferred annuity plans under section 403(b), and 
governmental eligible deferred compensation plans under section 457(b). 
Minimum distribution requirements also apply to eligible deferred 
compensation plans under section 457(b) of tax-exempt employers.
---------------------------------------------------------------------------
    In general, under the minimum distribution rules, 
distribution of minimum benefits must begin to an employee (or 
IRA owner) no later than a required beginning date and a 
minimum amount must be distributed each year (sometimes 
referred to as ``lifetime'' minimum distribution requirements). 
These lifetime requirements do not apply to a Roth IRA.\225\ 
Minimum distribution rules also apply to benefits payable with 
respect to an employee (or IRA owner) who has died (sometimes 
referred to as ``after-death'' minimum distribution 
requirements). The regulations provide a methodology for 
calculating the required minimum distribution from an 
individual account under a defined contribution plan or from an 
IRA.\226\ In the case of annuity payments under a defined 
benefit plan or an annuity contract, the regulations provide 
requirements that the stream of annuity payments must satisfy.
---------------------------------------------------------------------------
    \225\Sec. 408A(c)(5).
    \226\Reflecting the directive in section 823 of the Pension 
Protection Act of 2006 (Pub. L. No. 109-280), pursuant to Treas. Reg. 
sec. 1.401(a)(9)-1, A-2(d), a governmental plan within the meaning of 
section 414(d) or a governmental eligible deferred compensation plan is 
treated as having complied with the statutory minimum distribution 
rules if the plan complies with a reasonable and good faith 
interpretation of those rules.
---------------------------------------------------------------------------
    Failure to comply with the minimum distribution requirement 
results in an excise tax imposed on the individual who was 
required to take the distributions equal to 50 percent of the 
required minimum amount not distributed for the year.\227\ The 
excise tax may be waived in certain cases. For employer-
sponsored retirement plans, satisfying the minimum distribution 
requirement under the plan terms and in operation is also a 
requirement for tax-favored treatment.
---------------------------------------------------------------------------
    \227\Sec. 4974.
---------------------------------------------------------------------------

Required beginning date

    For traditional IRAs, the required beginning date is April 
1 following the calendar year in which the employee (or IRA 
owner) attains age 70\1/2\. For employer-sponsored retirement 
plans, for an employee other than an employee who is a five-
percent owner in the year the employee attains age 70\1/2\, the 
required beginning date is April 1 after the later of the 
calendar year in which the employee attains age 70\1/2\ or 
retires. For an employee who is a five-percent owner under an 
employer-sponsored tax-favored retirement plan in the year the 
employee attains age 70\1/2\, the required beginning date is 
the same as for IRAs even if the employee continues to work 
past age 70\1/2\.

Lifetime rules

    While an employee (or IRA owner) is alive, distributions of 
the individual's interest are required to be made (in 
accordance with regulations) over the life or life expectancy 
of the employee (or IRA owner), or over the joint lives or 
joint life expectancy of the employee (or IRA owner) and a 
designated beneficiary.\228\ For defined contribution plans and 
IRAs, the required minimum distribution for each year is 
determined by dividing the account balance as of the end of the 
prior year by a distribution period which, while the employee 
(or IRA owner) is alive, is the factor for the employee (or IRA 
owner's) age from the uniform lifetime table included in the 
Treasury regulations.\229\ The distribution period for annuity 
payments under a defined benefit plan or annuity contract (to 
the extent not limited to the life of the employee (or IRA 
owner) or the joint lives of the employee (or IRA owner) and a 
designated beneficiary) is generally subject to the same 
limitations as apply to individual accounts.
---------------------------------------------------------------------------
    \228\Sec. 401(a)(9)(A).
    \229\Treas. Reg. sec. 1.401(a)(9)-5. This table is based on the 
joint life and last survivor expectancy of the individual and a 
hypothetical beneficiary 10 years younger. For an individual with a 
spouse as designated beneficiary who is more than 10 years younger (and 
thus the number of years in the couple's joint life and last survivor 
expectancy is greater than the uniform lifetime table), the joint life 
expectancy and last survivor expectancy of the couple (calculated using 
the table in the regulations) is used. For this purpose and other 
special rules that apply to the surviving spouse as beneficiary, a 
former spouse to whom all or a portion of an employee's benefit is 
payable pursuant to a qualified domestic relations order (within the 
meaning of section 414(p)) is treated as the spouse (including a 
surviving spouse) of the employee for purposes of section 401(a)(9).
---------------------------------------------------------------------------

After-death rules

            Payments over a distribution period
    The after-death minimum distributions rules vary depending 
on (i) whether an employee (or IRA owner) dies on or after the 
required beginning date or before the required beginning date, 
and (ii) whether there is a designated beneficiary for the 
benefit.\230\ Under the regulations, a designated beneficiary 
is an individual designated as a beneficiary under the plan or 
IRA.\231\ Similar to the lifetime rules, for defined 
contribution plans and IRAs (``individual accounts''), the 
required minimum distribution for each year after the death of 
the employee (or IRA owner) is generally determined by dividing 
the account balance as of the end of the prior year by a 
distribution period.
---------------------------------------------------------------------------
    \230\In the case of amounts for which the employee or IRA owner's 
surviving spouse is the beneficiary, the surviving spouse generally is 
permitted to do a tax-free rollover of such amounts into an IRA (or 
account of a tax-favored employer-sponsored plan of the spouse's 
employer) established in the surviving spouse's name as IRA owner or 
employee. The rules applicable to the rollover account, including the 
minimum distribution rules, are the same rules that apply to an IRA 
owner or employee. In the case of an IRA for which the spouse is sole 
beneficiary, this can be accomplished by simply renaming the IRA as an 
IRA held by the spouse as IRA owner rather than as a beneficiary.
    \231\Treas. Reg. sec. 1.401(a)(9)-4, A-1. The individual need not 
be named as long as the individual is identifiable under the terms of 
the plan (or IRA). There are special rules for multiple beneficiaries 
and for trusts named as beneficiary (where the beneficiaries of the 
trust are individuals). However, the fact that an interest under a plan 
or IRA passes to a certain individual under a will or otherwise under 
State law does not make that individual a designated beneficiary unless 
the individual is designated as a beneficiary under the plan or IRA.
---------------------------------------------------------------------------
    If an employee (or IRA owner) dies on or after the required 
beginning date, the basic statutory rule is that the remaining 
interest must be distributed at least as rapidly as under the 
method of distribution being used before death.\232\ Under the 
regulations, for individual accounts, this rule is also 
interpreted as requiring the minimum required distribution to 
be calculated using a distribution period. If there is no 
designated beneficiary, the distribution period is equal to the 
remaining years of the employee's (or IRA owner's) life, as of 
the year of death.\233\ If there is a designated beneficiary, 
the distribution period (if longer) is the beneficiary's life 
expectancy calculated using the life expectancy table in the 
regulations, determined in the year after the year of 
death.\234\
---------------------------------------------------------------------------
    \232\Sec. 401(a)(9)(B)(i).
    \233\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a)(2).
    \234\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a)(1).
---------------------------------------------------------------------------
    If an employee (or IRA owner) dies before the required 
beginning date and any portion of the benefit is payable to a 
designated beneficiary, the statutory rule is that 
distributions are generally required to begin within one year 
of the employee's (or IRA owner's) death (or such later date as 
prescribed in regulations) and are permitted to be paid (in 
accordance with regulations) over the life or life expectancy 
of the designated beneficiary. If the beneficiary of the 
employee (or IRA owner) is the individual's surviving spouse, 
distributions are not required to commence until the year in 
which the employee (or IRA owner) would have attained age 70\1/
2\. If the surviving spouse dies before the employee (or IRA 
owner) would have attained age 70\1/2\, the after-death rules 
apply after the death of the spouse as though the spouse were 
the employee (or IRA owner). Under the regulations, for 
individual accounts, the required minimum distribution for each 
year is determined using a distribution period and the period 
is measured by the designated beneficiary's life expectancy, 
calculated in the same manner as if the individual died on or 
after the required beginning date.\235\
---------------------------------------------------------------------------
    \235\Treas. Reg. sec. 1.401(a)(9)-5, A-5(b).
---------------------------------------------------------------------------
    In cases where distribution after death is based on life 
expectancy (either the remaining life expectancy of the 
employee (or IRA owner) or a designated beneficiary), the 
distribution period generally is fixed at the employee's (or 
IRA owner's) death and then reduced by one for each year that 
elapses after the year in which it is calculated. If the 
designated beneficiary dies during the distribution period, 
distributions continue to the subsequent beneficiaries over the 
remaining years in the distribution period.\236\
---------------------------------------------------------------------------
    \236\If the distribution period is based on the surviving spouse's 
life expectancy (whether the employee or IRA owner's death is before or 
after the required beginning date), the spouse's life expectancy 
generally is recalculated each year while the spouse is alive and then 
fixed the year after the spouse's death.
---------------------------------------------------------------------------
    The distribution period for annuity payments under a 
defined benefit plan or annuity contract (to the extent not 
limited to the life of a designated beneficiary) is generally 
subject to the same limitations as apply to individual 
accounts.
            Five-year rule
    If an employee (or IRA owner) dies before the required 
beginning date and there is no designated beneficiary, then the 
entire remaining interest of the employee (or IRA owner) must 
generally be distributed by the end of the fifth calendar year 
following the individual's death.\237\
---------------------------------------------------------------------------
    \237\Section 401(a)(9)(B)(ii) provides that the entire interest 
must be distributed within five years of the employee's death. Treas. 
Reg. sec. 1.401(a)(9)-3, A-2, provides that this requirement is 
satisfied if the entire interest is distributed by the end of the fifth 
calendar year following the employee's death. There are provisions in 
the regulations allowing a designated beneficiary to take advantage of 
the five-year rule. See Treas. Reg. secs. 1.401(a)(9)-4, A-4, and 
1.4974-2, A-7(b).
---------------------------------------------------------------------------

Defined benefit plans and annuity distributions

    The regulations provide rules for the amount of annuity 
distributions from a defined benefit plan, or from an annuity 
purchased by the plan from an insurance company, that are paid 
over life or life expectancy. Annuity distributions are 
generally required to be nonincreasing with certain exceptions, 
which include, for example, (i) increases to the extent of 
certain specified cost-of-living indices, (ii) a constant 
percentage increase (for a qualified defined benefit plan, the 
constant percentage cannot exceed five percent per year), (iii) 
certain accelerations of payments, and (iv) increases to 
reflect when an annuity is converted to a single life annuity 
after the death of the beneficiary under a joint and survivor 
annuity or after termination of the survivor annuity under a 
qualified domestic relations order.\238\ If distributions are 
in the form of a joint and survivor annuity and the survivor 
annuitant both is not the surviving spouse and is younger than 
the employee (or IRA owner), the survivor annuity benefit is 
limited to a percentage of the life annuity benefit for the 
employee (or IRA owner). The survivor benefit as a percentage 
of the benefit of the primary annuitant is required to be 
smaller (but not required to be less than 52 percent) as the 
difference in the ages of the primary annuitant and the 
survivor annuitant become greater.
---------------------------------------------------------------------------
    \238\Treas. Reg. sec. 1.401(a)(9)-6, A-14.
---------------------------------------------------------------------------

Plan amendment and anti-cut-back requirements

    Present law provides a remedial amendment period during 
which, under certain circumstances, a qualified retirement plan 
may be amended retroactively in order to comply with the 
qualification requirements.\239\ In general, plan amendments to 
reflect changes in the law generally must be made by the time 
prescribed by law for filing the income tax return of the 
employer for the employer's taxable year in which the change in 
law occurs. The Secretary may extend the time by which plan 
amendments need to be made.
---------------------------------------------------------------------------
    \239\Sec. 401(b).
---------------------------------------------------------------------------
    The Code and ERISA generally prohibit plan amendment that 
reduce accrued benefits, including amendments that eliminate or 
reduce optional forms of benefit with respect to benefits 
already accrued except to the extent prescribed in 
regulations.\240\ This prohibition on the reduction of accrued 
benefits is commonly referred to as the ``anti-cut-back rule.''
---------------------------------------------------------------------------
    \240\Sec. 411(d)(6) and ERISA sec. 204(g).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The tax subsidy for retirement savings is intended to 
encourage individuals and families to forgo some consumption 
during their working years in favor of savings to provide for 
consumption during retirement. Because of the uncertainty as to 
how much income will be needed during retirement, individuals 
may accumulate more than it turns out is actually needed during 
the individual's lifetime (and surviving spouse's lifetime, if 
applicable), leaving some amount to other surviving 
beneficiaries. Present law generally allows such other 
beneficiaries to withdraw inherited amounts from a tax-favored 
account or plan over the beneficiary's lifetime. The Committee 
believes that the tax subsidy for retirement savings should 
phase down after the lives of the individual and surviving 
spouse, except in the case of certain other beneficiaries.

                        EXPLANATION OF PROVISION

Change in after-death rules for defined contribution plans

    The provision changes the after-death required minimum 
distribution rules applicable to defined contribution plans, as 
defined, with respect to required minimum distributions to 
designated beneficiaries. A defined contribution plan for this 
purpose means an eligible retirement plan\241\ (qualified 
retirement plans, section 403(b) plans, governmental section 
457(b) plans, and IRAs) other than a defined benefit plan.
---------------------------------------------------------------------------
    \241\Sec. 402(c)(8)(B).
---------------------------------------------------------------------------

Ten-year after-death rule for defined contributions plans

            In general
    Under the provision, the five-year rule is expanded to 
become a 10-year period instead of five years (``10-year 
rule''), such that the 10-year rule is the general rule for 
distributions to designated beneficiaries after death 
(regardless of whether the employee (or IRA owner) dies before, 
on, or after the required beginning date) unless the designated 
beneficiary is an eligible beneficiary as defined in the 
provision. Thus, in the case of an ineligible beneficiary, 
distribution of the employee (or IRA owner's) entire benefit is 
required to be distributed by the end of the tenth calendar 
year following the year of the employee or IRA owner's death.
            Eligible beneficiaries
    For eligible beneficiaries, an exception to the 10-year 
rule (for death before the required beginning date under 
present law) applies whether or not the employee (or IRA owner) 
dies before, on, or after the required beginning date. The 
exception (similar to present law) generally allows 
distributions over life or life expectancy of an eligible 
beneficiary beginning in the year following the year of death. 
Eligible beneficiaries include any beneficiary who, as of the 
date of death, is the surviving spouse of the employee (or IRA 
owner),\242\ is disabled, is a chronically ill individual, is 
an individual who is not more than 10 years younger than the 
employee (or IRA owner), or is a child of the employee (or IRA 
owner) who has not reached the age of majority. In the case of 
a child who has not reached the age of majority, calculation of 
the minimum required distribution under this exception is only 
allowed through the year that the child reaches the age of 
majority.
---------------------------------------------------------------------------
    \242\As in the case of the present law special rule in section 
401(a)(9)(B)(iv) for surviving spouses, spouse is not defined in the 
provision. Under Treas. Reg. sec. 1.401(a)(9)-8, A-5, a spouse is the 
employee's spouse under applicable State law. In the case of a special 
rule for a surviving spouse, that determination is generally made based 
on the employee's marital status on the date of death. An exception is 
provided in Treas. Reg. sec. 1.401(a)(9)-6, A-6, under which a former 
spouse to whom all or a portion of the employee's benefits is payable 
pursuant to a qualified domestics relations order as defined in section 
414(p) is treated as the employee's spouse (including a surviving 
spouse). In the case of a qualified joint and survivor annuity under 
section 401(a)(11) and 417, the spouse is generally determined as of 
the annuity starting date.
---------------------------------------------------------------------------
    Further, under the provision, the 10-year rule also applies 
after the death of an eligible beneficiary or after a child 
reaches the age of majority. Thus, for example, if a disabled 
child of an employee (or IRA owner) is an eligible beneficiary 
of a parent who dies when the child is age 20 and the child 
dies at age 30, even though 52.1 years remain in measurement 
period,\243\ the disabled child's remaining beneficiary 
interest must be distributed by the end of the tenth year 
following the death of the disabled child. If a child is an 
eligible beneficiary based on having not reached the age of 
majority before the employee's (or IRA owner's) death, the 10-
year rule applies beginning with the earlier of the date of the 
child's death or the date that the child reaches the age of 
majority. The child's entire interest must be distributed by 
the end of the tenth year following that date.
---------------------------------------------------------------------------
    \243\The measurement period is the life expectancy of the child 
calculated for the child's age in the year after the employee's (or IRA 
owner's) death (age 21 (20 plus 1)).
---------------------------------------------------------------------------
    As under present law, if the surviving spouse is the 
beneficiary, a special rule allows the commencement of 
distribution to be delayed until end of the year that the 
employee (or IRA owner) would have attained age 70\1/2\. If the 
spouse dies before distributions were required to begin to the 
spouse, the surviving spouse is treated as the employee (or IRA 
owner) in determining the required distributions to 
beneficiaries of the surviving spouse.
            Definitions of disabled and chronically ill individual
    Under the provision, disabled means unable to engage in any 
substantial gainful activity by reason of any medically 
determinable physical or mental impairment which can be 
expected to end in death or to be for long-continued and 
indefinite duration.\244\ Further, under the definition, an 
individual is not considered to be disabled unless proof of the 
disability is furnished in such form and manner as the 
Secretary may require. Substantial gainful activity for this 
purpose is the activity, or a comparable activity, in which the 
individual customarily engaged prior to the arising of the 
disability (or prior to retirement if the individual was 
retired at the time the disability arose).\245\
---------------------------------------------------------------------------
    \244\The definition of disabled in section 72(m)(7) is incorporated 
by reference.
    \245\Treas. Reg. sec. 1.72-17(f). Under the regulations, in 
determining whether an individual is disabled, primary consideration is 
given to the nature and severity of the individual's impairment. 
However, consideration is also given to other factors such as the 
individual's education, training, and work experience. Whether an 
impairment in a particular case constitutes a disability is determined 
with reference to all the facts in the case.
---------------------------------------------------------------------------
    Under the provision, the definition of a chronically ill 
individual for purposes of qualified long-term care 
insurance\246\ is incorporated by reference with a 
modification. Under this definition, a chronically ill 
individual is any individual who (1) is unable to perform 
(without substantial assistance from another individual) at 
least two activities of daily living for an indefinite period 
(expected to be lengthy in nature)\247\ due to a loss of 
functional capacity, (2) has a level of disability similar (as 
determined under regulations prescribed by the Secretary in 
consultation with the Secretary of Health and Human Services) 
to the level of disability described above requiring assistance 
with daily living based on loss of functional capacity, or (3) 
requires substantial supervision to protect the individual from 
threats to health and safety due to severe cognitive 
impairment. The activities of daily living for which assistance 
is needed for purposes of determining loss of functional 
capacity are eating, toileting, transferring, bathing, 
dressing, and continence.
---------------------------------------------------------------------------
    \246\Sec. 7702B(c)(2).
    \247\Section 7702B(c) only requires this period to be at least 90 
days.
---------------------------------------------------------------------------
            Annuity payments under commercial annuities
    The provision applies to after-death required minimum 
distributions under defined contribution plans and IRAs, 
including annuity contracts purchased from insurance companies 
under defined contribution plans or IRAs.

                             EFFECTIVE DATE

General effective date

    In determining required minimum distributions after the 
death of an employee (or IRA owner), the provision is generally 
effective for required minimum distributions with respect to 
employees (or IRA owners) with a date of death after December 
31, 2019.

Delayed effective date for governmental and collectively bargained 
        plans

    In the case of a governmental plan (as defined in section 
414(d)), in determining required minimum distributions after 
the death of an employee, the provision applies to 
distributions with respect to employees who die after December 
31, 2021.
    In the case of a collectively bargained plan,\248\ in 
determining required minimum distributions after the death of 
an employee, the provision applies to distributions with 
respect to employees who die in calendar years beginning after 
the earlier of two dates. The first date is the later of (1) 
the date on which the last collective bargaining agreement 
ratified before date of enactment of the provision 
terminates,\249\ or (2) December 31, 2019. The second date is 
December 31, 2021.
---------------------------------------------------------------------------
    \248\A collectively bargained plan is a plan maintained pursuant to 
one or more collective bargaining agreements between employee 
representatives and one or more employers.
    \249\The date that the last agreement terminates is determined 
without regard to any extension thereof agreed to on or after the date 
of enactment of the provision. Further, any plan amendment made 
pursuant to a collective bargaining agreement relating to the plan that 
amends the plan solely to conform to any requirement added by the 
provision shall not be treated as a termination of the collective 
bargaining agreement.
---------------------------------------------------------------------------

10-year rule after the death of a beneficiary

    In the case of an employee (or IRA owner) who dies before 
the effective date (as described below) for the plan (or IRA), 
if the designated beneficiary of the employee (or IRA owner) 
dies on or after the effective date, the provision applies to 
any beneficiary of the designated beneficiary as though the 
designated beneficiary were an eligible beneficiary. Thus, the 
entire interest must be distributed by the end of the tenth 
calendar year after the death of the designated beneficiary. 
For this purpose, the effective date is the date of death of 
the employee (or IRA owner) used to determine when the 
provision applies to the plan (or IRA), for example, before 
January 1, 2020, under the general effective date.

Certain annuities grandfathered

    The modification to the after-death minimum distribution 
rules does not apply to a qualified annuity that is a binding 
annuity contract in effect on the date of enactment of the 
provision and at all times thereafter. A qualified annuity with 
respect to an individual is a commercial annuity,\250\ under 
which the annuity payments are made over the lives of the 
individual and a designated beneficiary (or over a period not 
extending beyond the life expectancy of the individual or the 
life expectancy of the individual and a designated beneficiary) 
in accordance with the required minimum distribution 
regulations for annuity payments as in effect before enactment 
of this provision. In addition to these requirements, annuity 
payments to the individual must begin before the date of 
enactment, and the individual must have made an irrevocable 
election before that date as to the method and amount of the 
annuity payments to the individual or any designated 
beneficiaries. Alternatively, if an annuity is not a qualified 
annuity solely based on annuity payments not having begun 
irrevocably before the date of enactment, an annuity can be a 
qualified annuity if the individual has made an irrevocable 
election before the date of enactment as to the method and 
amount of the annuity payments to the individual or any 
designated beneficiaries.
---------------------------------------------------------------------------
    \250\For this purpose, commercial annuity is defined in section 
3405(e)(6).
---------------------------------------------------------------------------

Plan amendments made pursuant to the provision

    A plan amendment made pursuant to the enacted provision (or 
regulations issued thereunder) may be retroactively effective 
and (except as provided by the Secretary) will not violate the 
anti-cut-back rule, if, in addition to meeting the other 
applicable requirements described below, the amendment is made 
on or before the last day of the first plan year beginning 
after December 31, 2021 (or in the case of a governmental or 
collectively bargained plan, December 31, 2023), or a later 
date prescribed by the Secretary. In addition, the plan will be 
treated as operated in accordance with plan terms during the 
period beginning with the date that the provision or 
regulations take effect (or the date specified by the plan if 
the amendment is not required by the provision or regulations) 
and ending on the last permissible date for the amendment (or, 
if earlier, the date the amendment is adopted).
    A plan amendment will not be considered to be pursuant to 
the provision (or applicable regulations) if it has an 
effective date before the effective date of the provision (or 
regulations) to which it relates. Similarly, the provision does 
not provide relief from the anti-cut-back rule for periods 
prior to the effective date of the relevant portion of the 
provision (or regulations) or the plan amendment. In order for 
an amendment to be retroactively effective and not violate the 
anti-cut-back rule, the plan amendment must apply retroactively 
for the period described in the preceding paragraph, and the 
plan must be operated in accordance with the amendment during 
that period.

 B. Increase in Penalty for Failure to File (sec. 402 of the bill and 
                       sec. 6651(a) of the Code)


                              PRESENT LAW

    The Federal tax system is one of ``self-assessment,'' i.e., 
taxpayers are required to declare their income, expenses, and 
ultimate tax due, while the IRS has the ability to propose 
subsequent changes. This voluntary system requires that 
taxpayers comply with deadlines and adhere to the filing 
requirements. While taxpayers may obtain extensions of time in 
which to file their returns, the Federal tax system consists of 
specific due dates of returns. In order to foster compliance in 
meeting these deadlines, Congress has enacted a penalty for the 
failure to timely file tax returns.\251\
---------------------------------------------------------------------------
    \251\See United States v. Boyle, 469 U.S. 241, 245 (1985).
---------------------------------------------------------------------------
    A taxpayer who fails to file a tax return on or before its 
due date is subject to a penalty equal to five percent of the 
net amount of tax due for each month that the return is not 
filed, up to a maximum of 25 percent of the net amount.\252\ If 
the failure to file a return is fraudulent, the taxpayer is 
subject to a penalty equal to 15 percent of the net amount of 
tax due for each month the return is not filed, up to a maximum 
of 75 percent of the net amount.\253\ The net amount of tax due 
is the amount of tax required to be shown on the return reduced 
by the amount of any part of the tax that is paid on or before 
the date prescribed for payment of the tax and by the amount of 
any credits against tax that may be claimed on the return.\254\ 
The penalty will not apply if it is shown that the failure to 
file was due to reasonable cause and not willful neglect.\255\
---------------------------------------------------------------------------
    \252\Sec. 6651(a)(1).
    \253\Sec. 6651(f).
    \254\Sec. 6651(b)(1).
    \255\Sec. 6651(a)(1).
---------------------------------------------------------------------------
    If a return is filed more than 60 days after its due date, 
and unless it is shown that such failure is due to reasonable 
cause, then the failure to file penalty may not be less than 
the lesser of $205\256\ or 100 percent of the amount required 
to be shown as tax on the return.\257\ If a penalty for failure 
to file and a penalty for failure to pay tax shown on a return 
both apply for the same month, the amount of the penalty for 
failure to file for such month is reduced by the amount of the 
penalty for failure to pay tax shown on a return.\258\ If a 
return is filed more than 60 days after its due date, then the 
penalty for failure to pay tax shown on a return may not reduce 
the penalty for failure to file below the lesser of $205 or 100 
percent of the amount required to be shown on the return.\259\
---------------------------------------------------------------------------
    \256\The $205 is adjusted for inflation.
    \257\Sec. 6651(a)(1) (flush language). For this minimum penalty to 
apply, the Tax Court has held, and the IRS acquiesced, that there must 
be an underpayment of tax. See Patronik-Holder v. Commissioner, 100 
T.C. 374 (1993) (citing the Conference Report to the Tax Equity and 
Fiscal Responsibility Act of 1982), AOD 1994-03, 1993-2 C.B. 1.
    \258\Sec. 6651(c)(1).
    \259\Ibid.
---------------------------------------------------------------------------
    The failure to file penalty applies to all returns required 
to be filed under subchapter A of Chapter 61 (relating to 
income tax returns of an individual, fiduciary of an estate or 
trust, or corporation; self-employment tax returns, and estate 
and gift tax returns), subchapter A of chapter 51 (relating to 
distilled spirits, wines, and beer), subchapter A of chapter 52 
(relating to tobacco, cigars, cigarettes, and cigarette papers 
and tubes), and subchapter A of chapter 53 (relating to machine 
guns and certain other firearms).\260\ The failure to file 
penalty is adjusted annually to account for inflation. The 
failure to file penalty does not apply to any failure to pay 
estimated tax required to be paid by sections 6654 or 
6655.\261\
---------------------------------------------------------------------------
    \260\Sec. 6651(a)(1).
    \261\Sec. 6651(e).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee notes that the penalties for failing to file 
tax returns have not been increased in several years. The 
Committee believes that increasing the penalties will encourage 
the filing of timely and accurate returns which, in turn, will 
improve overall tax administration.

                        EXPLANATION OF PROVISION

    Under the provision, if a return is filed more than 60 days 
after its due date, then the failure to file penalty may not be 
less than the lesser of $400 (adjusted for inflation) or 100 
percent of the amount required to be shown as tax on the 
return.

                             EFFECTIVE DATE

    The provision applies to returns with filing due dates 
(including extensions) after December 31, 2019.

  C. Increased Penalties for Failure To File Retirement Plan Returns 
   (sec. 403 of the bill and sec. 6652(d), (e), and (h) of the Code)


                              PRESENT LAW

Form 5500

    An employer that maintains a pension, annuity, stock bonus, 
profit-sharing or other funded deferred compensation plan (or 
the plan administrator of the plan) is required to file an 
annual return containing information required under regulations 
with respect to the qualification, financial condition, and 
operation of the plan.\262\ The plan administrator of a defined 
benefit plan subject to the minimum funding requirements\263\ 
is required to file an annual actuarial report.\264\ These 
filing requirements are met by filing an Annual Return/Report 
of Employee Benefit Plan, Form 5500 series, and providing the 
information as required on the form and related 
instructions.\265\ A failure to file Form 5500 generally 
results in a civil penalty of $25 for each day during which the 
failure continues, subject to a maximum penalty of 
$15,000.\266\ This penalty may be waived if it is shown that 
the failure is due to reasonable cause.
---------------------------------------------------------------------------
    \262\Sec. 6058.
    \263\Sec. 412. Most governmental plans (defined in section 414(d)) 
and church plans (defined in section 414(e)) are exempt from the 
minimum funding requirements.
    \264\Sec. 6059.
    \265\Treas. Reg. secs. 301.6058-1(a) and 301.6059-1.
    \266\Sec. 6652(e). The failure to file penalties in section 6652 
generally apply to certain information returns, including retirement 
plan returns. The failure to file penalties in section 6651(a)(1), 
discussed above in section 502 of the bill, generally apply to income, 
estate, gift, employment and self-employment, and certain excise tax 
returns.
---------------------------------------------------------------------------

Annual registration statement and notification of changes

    In the case of a plan subject to the vesting requirements 
under the Employee Retirement Income Security Act of 1974 
(``ERISA''), the plan administrator is required to file a 
registration statement with the IRS with respect to any plan 
participant who (1) separated from service during the year and 
(2) has a vested benefit under the plan, but who was not paid 
the benefit during the year (a ``deferred vested'' 
benefit).\267\ The registration statement must include the name 
of the plan, the name and address of the plan administrator, 
the name and taxpayer identification number of the separated 
participant, and the nature, amount, and form of the 
participant's deferred vested benefit. A failure to file a 
registration statement as required generally results in a civil 
penalty of $1 for each participant with respect to whom the 
failure applies, multiplied by the number of days during which 
the failure continues, subject to a maximum penalty of $5,000 
for a failure with respect to any plan year.\268\ This penalty 
may be waived if it is shown that the failure is due to 
reasonable cause.
---------------------------------------------------------------------------
    \267\Sec. 6057(a). Under section 6057(e) and ERISA section 105(c), 
similar information must be provided to the separated participant.
    \268\Sec. 6652(d)(1).
---------------------------------------------------------------------------
    A plan administrator is also required to notify the IRS if 
certain information in a registration changes, specifically, 
any change in the name of the plan or in the name or address of 
the plan administrator, the termination of the plan, or the 
merger or consolidation of the plan with any other plan or its 
division into two or more plans. A failure to file a required 
notification of change generally results in a penalty of $1 for 
each day during which the failure continues, subject to a 
maximum penalty of $1,000 for any failure.\269\ This penalty 
may be waived if it is shown that the failure is due to 
reasonable cause.
---------------------------------------------------------------------------
    \269\Sec. 6652(d)(2).
---------------------------------------------------------------------------

Withholding notices

    Withholding requirements apply to distributions from tax-
favored employer-sponsored retirement plans and IRAs, but, 
except in the case of certain distributions, payees may 
generally elect not to have withholding apply.\270\ A plan 
administrator or IRA custodian is required to provide payees 
with notices of the right to elect no withholding. A failure to 
provide a required notice generally results in a civil penalty 
of $10 for each failure, subject to a maximum penalty of $5,000 
for all failures during any calendar year.\271\ This penalty 
may be waived if it is shown that the failure is due to 
reasonable cause and not to willful neglect.
---------------------------------------------------------------------------
    \270\Sec. 3405.
    \271\Sec. 6652(h).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee notes that the penalties for failing to file 
certain retirement plan returns and statements or provide 
certain notices have not been increased in many years. The 
Committee believes the present law penalties are too low to 
discourage noncompliance. The Committee believes that 
increasing these penalties will encourage the filing of timely 
and accurate information returns and statements and the 
provision of required notices, which, in turn, will improve 
overall tax administration.

                        EXPLANATION OF PROVISION

Form 5500

    Under the provision, a failure to file Form 5500 generally 
results in a penalty of $105 for each day during which the 
failure continues, subject to a maximum but the total amount 
imposed under this subsection on any person for failure to file 
any return shall not exceed $50,000.

Annual registration statement and notification of changes

    Under the provision, a failure to file a registration 
statement as required generally results in a penalty of $2 for 
each participant with respect to whom the failure applies, 
multiplied by the number of days during which the failure 
continues, subject to a maximum penalty of $10,000 for a 
failure with respect to any plan year. A failure to file a 
required notification of change generally results in a penalty 
of $2 for each day during which the failure continues, subject 
to a maximum penalty of $5,000 for any failure.

Withholding notices

    Under the provision, a failure to provide a required 
withholding notice generally results in a penalty of $100 for 
each failure, subject to a maximum penalty of $50,000 for all 
failures during any calendar year.

                             EFFECTIVE DATE

    The provision is effective for returns, statements and 
notifications required to be filed, and withholding notices 
required to be provided, after December 31, 2019.

D. Increase Information Sharing To Administer Excise Taxes (sec. 404 of 
                 the bill and sec. 6103(o) of the Code)


                              PRESENT LAW

    Generally, tax returns and return information (``tax 
information'') are confidential and may not be disclosed unless 
authorized in the Code.\272\ Return information includes data 
received, collected or prepared by the Secretary with respect 
to the determination of the existence or possible existence of 
liability of any person under the Code for any tax, penalty, 
interest, fine, forfeiture, or other imposition or offense. 
Criminal penalties apply for the unauthorized inspection or 
disclosure of tax information. Willful unauthorized disclosure 
is a felony under section 7213 and the willful unauthorized 
inspection of tax information is a misdemeanor under section 
7213A. Taxpayers may also pursue a civil cause of action for 
disclosures and inspections not authorized by section 
6103.\273\
---------------------------------------------------------------------------
    \272\Sec. 6103(a).
    \273\Sec. 7431.
---------------------------------------------------------------------------
    Section 6103 provides exceptions to the general rule of 
confidentiality, detailing permissible disclosures. Under 
section 6103(h)(1), tax information is open to inspection by or 
disclosure to Treasury officers and employees whose official 
duties require the inspection or disclosure for tax 
administration purposes.
    The heavy vehicle use tax, an annual highway use tax, is 
imposed on the use of any highway motor vehicle that has a 
gross weight of 55,000 pounds or more.\274\ Proof of payment of 
the heavy vehicle use tax must be presented to customs 
officials upon entry into the United States of any highway 
motor vehicle subject to the tax and that has a base in a 
contiguous foreign country.\275\ If the operator of the vehicle 
is unable to present proof of payment of the tax with respect 
to the vehicle, entry into the United States may be 
denied.\276\
---------------------------------------------------------------------------
    \274\Sec. 4481(a).
    \275\Treas. Reg. 41.6001-3(a).
    \276\Treas. Reg. 41.6001-3(b).
---------------------------------------------------------------------------
    Prior to 2003, customs officials who had responsibility for 
enforcing and/or collecting excise taxes were employees of the 
U.S. Department of the Treasury (``Treasury''). Thus, prior to 
2003, section 6103(h)(1) allowed disclosure of tax information 
by the IRS to these customs officials in the performance of 
their duties. In 2003, U.S. Customs and Border Protection 
became an official agency of the U.S. Department of Homeland 
Security.\277\ At that time, customs officials were transferred 
from Treasury to the Department of Homeland Security.
---------------------------------------------------------------------------
    \277\The Homeland Security Act of 2002, Pub. L. No. 107-296 
(``Homeland Security Act''), enacted November 25, 2002 established the 
U.S. Department of Homeland Security. Several agencies were combined 
under this new department.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Allowing limited disclosures of tax information will 
facilitate tax administration and improve compliance with the 
heavy vehicle use tax by allowing customs officials to confirm 
payment or nonpayment of the tax.

                        EXPLANATION OF PROVISION

    The provision allows the IRS to share returns and return 
information with employees of U.S. Customs and Border 
Protection whose official duties require such inspection or 
disclosure for purposes of administering and collecting the 
heavy vehicle use tax.

                             EFFECTIVE DATE

    The provision is effective on date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 1994, ``Setting Every Community Up for 
Retirement Enhancement Act of 2019'' on April 2, 2019.
    The Chairman's amendment in the nature of a substitute was 
adopted by voice vote (with a quorum being present).
    The bill, H.R. 1994, was ordered favorably reported to the 
House of Representatives as amended by voice vote (with a 
quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 1994, as 
reported.
    The bill, as reported, is estimated to increase Federal 
fiscal year budget receipts by $9 million dollars for the 
period 2019 through 2029.

           ESTIMATED BUDGET EFFECTS OF H.R. 1994, THE ``SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT (`SECURE') ACT OF 2019,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                                          Fiscal Years 2019-2029--(Millions of Dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
             Provision                      Effective          2019      2020      2021      2022      2023      2024      2025      2026      2027      2028      2029     2019-24    2019-29
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
I. Expanding and Preserving
 Retirement Savings
    A. Multiple Employer Plans and   pyba 12/31/20.........     - - -       -29       -74      -161      -251      -342      -437      -511      -523      -541      -553      -857       -3,421
     Pooled Employer Plans; Report
     [1].
    B. Increase in 10-Percent Cap    pyba 12/31/19.........                                                        Negligible Revenue Effect
     for Automatic enrollment Safe
     Harbor After First Plan year.
    C. Rules Relating to Election    pyba 12/31/19.........                                                        Negligible Revenue Effect
     of Safe Harbor 401(k) Status.
    D. Increase in Credit            tyba 12/31/19.........     - - -        -1        -3        -3        -3        -3        -3        -3        -3        -3        -3       -13          -29
     Limitation for Small Employer
     Plan Start-Up Costs.
    E. Small Employer Automatic      tyba 12/31/19.........     - - -       [2]       [2]       [2]        -1        -1        -1        -1        -1        -1        -1        -2           -5
     Enrollment Credit.
    F. Certain Taxable Non-tuition   tyba 12/31/19.........     - - -       [2]       [2]       [2]       [2]       [2]       [2]       [2]        -1        -1        -1        -1           -3
     Fellowship and Stipend
     Payments Treated as
     Compensation for IRA Purpose.
    G. Repeal Maximum Age for        cmf tybe 12/31/19.....     - - -        -3        -5        -6        -7        -8        -9       -10       -11       -12       -12       -29          -83
     Traditional IRA Contributions.
    H. Qualified Employer Plans      ima DOE...............                                                        Negligible Revenue Effect
     Prohibited from Making Loans
     Through Credit Cards and Other
     Similar Arrangements.
    I. Portability of Lifetime       pyba 12/31/19.........                                                        Negligible Revenue Effect
     Income Options.
    J. Treatment of Custodial        [3]...................                                                        Negligible Revenue Effect
     Accounts on Termination of
     Section 403(b) Plans.
    K. Clarification of Retirement   ybbo/a DOE............                                                        Negligible Revenue Effect
     Income Account Rules Relating
     to Church-Controlled
     Organizations.
    L. Qualified Cash or Deferred    [5]...................     - - -       -30       -44       -51       -57       -64       -73       -92      -110      -119      -129      -246         -769
     Arrangements Must Allow Long-
     Term Employees Working More
     Than 500 but Less Than 1,000
     Hours Per Year to Participate
     [4].
    M. Penalty-Free Withdrawal and   dma 12/31/19..........     - - -        -8       -23       -44       -69      -100      -134      -181      -193      -204      -215      -244       -1,171
     Recontribution from Retirement
     Plans for Birth of Child or
     Adoption (distributions
     limited to $5,000 per
     individual) [6].
    N. Increase Age of Required      [7]...................     - - -      -737      -869      -885      -902      -877      -866      -953      -944      -903      -923    -4,269       -8,859
     Beginning Date for Required
     Minimum Distributions to 72.
    O. Special Rules for Minimum     pyea 12/31/17.........     - - -     - - -     - - -      [10]      [10]      [10]         1         2         2         2         2      [10]            9
     Funding Standards for
     Community Newspaper Plans
     [8][9].
    P. Treating Excluded Difficulty  pyba 12/21/15 & Ica        - - -       -10        -7       -10       -15       -20       -25       -31       -37       -43       -51       -62         -249
     of Care Payments as              DOE.
     Compensation for Determining
     Retirement Contribution
     Limitations.
    Total of Expanding and           ......................      [11]      -818    -1,025    -1,160    -1,305    -1,415    -1,547    -1,780    -1,821    -1,825    -1,886    -5,723      -14,580
     Preserving Retirement Savings.
II. Administrative Improvements
    A. Plan Adopted by Filing Due    paf tyba 12/31/19.....     - - -     - - -        -9       -10       -11       -12       -13       -14       -15       -15       -16       -41         -113
     Date for Year May Be Treated
     as in Effect as of Close of
     Year.
    B. Combined Annual Report for    rrtbfwrt pyba 12/31/19                                                       Negligible Revenue Effect
     Group of Plans.                  & ararf pyba 12/31/21.
    C. Disclosure Regarding          [13]..................                                                            No Budget Effect
     Lifetime Income [12].
    D. Fiduciary Safe Harbor for     DOE...................                                                            No Budget Effect
     Selection of Lifetime Income
     Provider [12].
    E. Modification of               DOE...................                                                       Negligible Revenue Effect
     Nondiscrimination Rules to
     Protect Older, Longer Service
     Participation.
    F. Modification of PBGC          [14]..................     - - -      -110      -114      -119      -124      -129      -134      -138      -144      -150      -156      -596       -1,318
     Premiums for Cooperative and
     Small Employer Charity
     (``CSEC'') Plans [8][12].
                                    ------------------------------------------------------------------------------------------------------------------------------------------------------------
      Total of Administrative        ......................      [11]      -110      -123      -129      -135      -141      -147      -152      -159      -165      -172      -637       -1,431
       Improvements.
III. Other Benefits
    A. Benefits for Volunteer        tyba 12/31/19.........     - - -       -24        -8     - - -     - - -     - - -     - - -     - - -     - - -     - - -     - - -       -32          -32
     Firefighters and Emergency
     Medical Responders (sunset 12/
     31/20) [15].
    B. Expansion of Section 529      dma 12/31/18..........     - - -        -5       -22       -25       -26       -26       -27       -27       -28       -29       -30      -104         -245
     plans.
                                    ------------------------------------------------------------------------------------------------------------------------------------------------------------
      Total of Other Benefits......  ......................     - - -       -29       -30       -25       -26       -26       -27       -27       -28       -29       -30      -136         -277
IV. Revenue Provisions
    A. Modification of Required      [16]..................     - - -       212       643     1,026     1,295     1,508     1,704     2,024     2,326     2,458     2,552     4,685       15,749
     Distribution Rules for
     Designated Beneficiaries.
    B. Increase in Penalty for       rwfddiea 12/31/19.....     - - -         6        25        25        26        27        28        29        30        30        31       109          257
     Failure to File.
    C. Increased Penalties for       [17]..................     - - -      [10]         7        14        14        15        15        15        16        16        16        50          128
     Failure to File Retirement
     Plan Returns.
    D. Increase Information Sharing  DOE...................         1         4         9        14        16        17        19        20        21        21        21        62          163
     to Administer Excise Taxes.
                                    ------------------------------------------------------------------------------------------------------------------------------------------------------------
      Total of Revenue Provisions..  ......................         1       222       684     1,079     1,351     1,567     1,766     2,088     2,393     2,525     2,620     4,906       16,297
        NET TOTAL..................  ......................         1      -735      -494      -235      -115       -15        45       129       385       506       532    -1,590            9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Joint Committee on Taxation
NOTE: Details may not add to totals due to rounding.
Legend for ``Effective'' column: ararf = annual returns and reports for, cmf = contributions made for, DOE = date of enactment, dma = distributions made after, Ica = IRA contributions after,
  lma = loans made after, paf = plans adopted for, pyba = plan years beginning after, pyea = plan years ending after, rrtbfwrt = returns required to be filed with respect to, rwfddiea =
  returns with filing due dates (including extensions) after, tyba = taxable years beginning after, ybbo/a = years beginning before, on, or after.


 
 
 
Footnotes for the Table:
\1\Estimate includes the following budget effects:.............         2019         2020         2021         2022         2023         2024         2025         2026         2027         2028         2029      2019-24      2019-29
                                                                ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Revenue Effect.......................................        - - -          -29          -74         -161         -251         -342         -437         -511         -523         -541         -553         -857       -3,421
        On-budget effects......................................        - - -          -26          -68         -148         -230         -315         -402         -469         -480         -497         -510         -787       -3,145
        Off-budget effects.....................................         \18\           -2           -6          -13          -20          -28          -35          -42          -42          -43          -43          -70         -276
\2\Loss of less than $500,000.
\3\Effective for date of enactment. Guidance must apply for
 taxable years beginning after December 31, 2008.
\4\Estimate includes the following budget effects:                      2019         2020         2021         2022         2023         2024         2025         2026         2027         2028         2029      2019-24      2019-29
                                                                ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Revenue Effect.......................................        - - -          -30          -44          -51          -57          -64          -73          -92         -110         -119         -129         -246         -769
        On-budget effects......................................        - - -          -27          -40          -46          -52          -59          -66          -84          -99         -108         -117         -224         -698
        Off-budget effects.....................................        - - -           -3           -4           -5           -5           -6           -7           -8          -11          -11          -12          -22          -71
\5\Generally effective for plan years beginning after December
 31, 2020, except that for purposes of section
 401(k)(2)(D)(ii), 12-month periods beginning before January 1,
 2021 shall not be taken into account.
\6\Estimate includes the following budget effects:.............         2019         2020         2021         2022         2023         2024         2025         2026         2027         2028         2029      2019-24      2019-29
                                                                ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Revenue Effect.......................................        - - -           -8          -23          -44          -69         -100         -134         -181         -193         -204         -215         -244       -1,171
        On-budget effects......................................        - - -           -8          -23          -42          -66          -96         -129         -174         -186         -197         -207         -234       -1,127
        Off-budget effects.....................................        - - -        - - -           -1           -2           -3           -4           -5           -7           -7           -7           -8          -10          -44
\7\Effective for distributions required to be made after
 December 31, 2019, for employee and IRA owners who attain age
 70\1/2\ after December 31, 2019.
\8\Estimate includes the following outlay effects:.............         2019         2020         2021         2022         2023         2024         2025         2026         2027         2028         2029      2019-24      2019-29
                                                                ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Modification of PBGC Premiums for Cooperative and Small            - - -          110          114          119          124          129          134          138          144          150          156          596        1,318
     Employer Charity (``CSEC'') Plans \12\....................
    Special rules for minimum funding standards for community          - - -        - - -        - - -         (19)         (19)         (19)         (19)            1            1            1            1         (19)            4
     newspaper plans\9\........................................
\9\Estimate provided by the Joint Committee on Taxation and the
 Congressional Budget Office.
\10\Gain of less than $500,000.
\11\Negligible revenue effect.
\12\Estimate provided by the Congressional Budget Office.
\13\Effective with respect to benefit statements provided more
 than 12 months after the latest of the issuance by the
 Secretary of Labor of (1) interim final rules, (2) the model
 disclosure, or (3) prescribed assumptions.
\14\Effective upon enactment, applies for plan years beginning
 after December 31, 2018.
\15\Estimate includes the following budget effects:............         2019         2020         2021         2022         2023         2024         2025         2026         2027         2028         2029      2019-24      2019-29
                                                                ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Revenue Effect.......................................        - - -          -24           -8        - - -        - - -        - - -        - - -        - - -        - - -        - - -        - - -          -32          -32
    On-budget effects..........................................        - - -          -15           -5        - - -        - - -        - - -        - - -        - - -        - - -        - - -        - - -          -20          -20
    Off-budget effects.........................................        - - -           -9           -3        - - -        - - -        - - -        - - -        - - -        - - -        - - -        - - -          -12          -12
\16\Generally effective for distributions with respect to
 employees who die after December 31, 2019; require
 distributions to be distributed within 10 years.
\17\Effective for returns, statements and notifications
 required to be filed, and withholding notices required to be
 provided, after December 31, 2019.
\18\Decrease in outlays of less than $500,000.
\19\Increase in outlays of less than $500,000.
 

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 no revenue-reducing tax provision 
involves a new tax expenditure.

      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, April 5, 2019.
Hon. Richard Neal,
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. 1994, the Setting 
Every Community Up for Retirement Enhancement Act of 2019.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
Burke.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    The bill would:
           Modify the required distribution rules for 
        beneficiaries of tax-favored employer-sponsored 
        retirement plans or traditional individual retirement 
        arrangements after the death of the employee or 
        account-holder, generally requiring full distribution 
        of those plans within 10 years.
           Increase to 72 the age after which required 
        minimum distributions from certain retirement accounts 
        must begin.
           Modify requirements for multiple-employer 
        and pooled-employer pension plans to make it easier for 
        businesses to maintain such plans.
           Reduce Pension Benefit Guaranty Corporation 
        premiums for certain multiple-employer plans of 
        cooperatives or charities.
           Allow penalty-free distributions from 
        qualified retirement plans for births and adoptions.
           Make it easier for long-term, part-time 
        employees to participate in elective deferrals.
           Increase penalties for failing to file 
        individual and retirement plan returns.
           Require administrators of pension and 
        benefit plans to disclose the plan's lifetime income 
        stream to beneficiaries.
    The Congressional Budget Act of 1974, as amended, 
stipulates that revenue estimates provided by the staff of the 
Joint Committee on Taxation (JCT) are the official estimates 
for all tax legislation considered by the Congress. CBO 
therefore incorporates such estimates into its cost estimates 
of the effects of legislation. Most of the estimates for the 
provisions of H.R. 1994 were provided by JCT.
    Bill summary: H.R. 1994 would amend the tax code to modify 
requirements for tax-favored savings accounts and employer-
provided retirement plans. The most significant provisions 
include changes to the rules governing multiple-employer and 
pooled-employer retirement plans; an increase in the age at 
which distributions must be taken from defined contribution 
retirement plans or traditional individual retirement 
arrangements (IRAs); and, after the death of an employee with a 
defined contribution retirement plan or traditional IRA 
account, establishing a 10-year timetable for full distribution 
of the plan or account to beneficiaries.
    Estimated Federal cost: The estimated budgetary effects of 
H.R. 1994 are shown in Table 1. The costs of the bill fall 
within budget function 600.
    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation (JCT) will be the 
official estimates for all tax legislation considered by the 
Congress. CBO therefore incorporates those estimates into its 
cost estimates of the effects of legislation. Most of the 
estimates for the provisions of H.R. 1994 were provided by 
JCT.\1\
---------------------------------------------------------------------------
    \1\For JCT's estimates of the provisions that include detail beyond 
the summary presented below, see Joint Committee on Taxation, Estimated 
Revenue Effects of the Chairman's Amendment in the Nature of a 
Substitute to the ``Setting Every Community Up For Retirement 
Enhancement (Secure) Act of 2019,'' JCX-14-19 (April 1, 2019), https://
go.usa.gov/xmxmH.

                                                                        TABLE 1--ESTIMATED BUDGETARY EFFECTS OF H.R. 1994
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       By fiscal year, millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2019       2020       2021       2022       2023       2024       2025       2026       2027       2028       2029    2019-2024  2019-2029
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Increases or Decreases (-) in Revenues
Title I. Expanding and Preserving Retirement               0       -818     -1,025     -1,160     -1,305     -1,415     -1,547     -1,781     -1,822     -1,826     -1,887     -5,723    -14,584
 Savings.........................................
Title II. Administrative Improvements............          0          0         -9        -10        -11        -12        -13        -14        -15        -15        -16        -41       -113
Title III. Other Benefits........................          0        -29        -30        -25        -26        -26        -27        -27        -28        -29        -30       -136       -277
Title IV. Revenue Provisions.....................          1        222        684      1,079      1,351      1,567      1,766      2,088      2,393      2,525      2,620      4,906     16,297
    Total Revenues...............................          1       -625       -380       -116          9        114        179        266        528        655        687       -994      1,323
        On-Budget................................          1       -611       -366        -96         37        152        226        323        588        716        750       -880      1,726
        Off-Budgeta..............................          0        -14        -14        -20        -28        -38        -47        -57        -60        -61        -63       -114       -403
 
                                                                          Increases or Decreases (-) in Direct Spending
 
Title I. Expanding and Preserving Retirement
 Savings
    Estimated Budget Authority...................          0          0          0          *          *          *          *         -1         -1         -1         -1          *         -4
    Estimated Outlays............................          0          0          0          *          *          *          *         -1         -1         -1         -1          *         -4
Title II. Administrative Improvements
    Estimated Budget Authority...................          0        110        114        119        124        129        134        138        144        150        156        596      1,318
    Estimated Outlays............................          0        110        114        119        124        129        134        138        144        150        156        596      1,318
Total Direct Spending
    Estimated Budget Authority...................          0        110        114        119        124        129        134        137        143        149        155        596      1,314
    Estimated Outlays............................          0        110        114        119        124        129        134        137        143        149        155        596      1,314
 
                                                    Net Increase or Decrease (-) in the Deficit From Changes in Direct Spending and Revenues
 
Effect on the Deficit............................         -1        735        494        235        115         15        -45       -129       -385       -506       -532      1,590         -9
    On-Budget Deficit............................         -1        721        480        215         87        -23        -92       -186       -445       -567       -595      1,476       -412
    Off-Budget Deficit...........................          0         14         14         20         28         38         47         57         60         61         63        114        403
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding; *= between -$500,000 and $500,000.
aOff-budget revenues result from changes in Social Security payroll tax receipts.

Revenues

    Title I. Expanding and Preserving Retirement Savings. H.R. 
1994 would change tax law relating to the treatment of 
retirement plans that JCT estimates would reduce revenues by 
$14.6 billion over the 2019 to 2029 period. Three provisions in 
this section would affect off-budget revenues, reducing them by 
$391 million, JCT estimates. The provisions in title I with the 
largest effects are:
           Increase the age after which required 
        minimum distributions must begin. After reaching the 
        age of 70 years and 6 months, a person with a defined 
        contribution retirement plan or traditional IRA must 
        begin withdrawing a given amount each year--the 
        required minimum distribution. H.R. 1994 would increase 
        the age that triggers required minimum distributions to 
        72 and would apply to employees and IRA account holders 
        who reach 70 years and 6 months after December 31, 
        2019. JCT estimates that the change would reduce 
        revenues by $8.9 billion over the 2019-2029 period.
           Modify requirements for multiple-employer 
        and pooled-employer plans. Under current law, employers 
        may join together to maintain a qualified retirement 
        plan if they share a nexus (for example, a common 
        industry) outside of the retirement benefit they 
        jointly provide. Additionally, if one participating 
        employer in a multiple-employer plan violates a 
        requirement, under the ``bad apple rule,'' the entire 
        plan can be disqualified. H.R. 1994 would allow 
        multiple employers without a nexus to jointly maintain 
        a qualified retirement plan, a pooled-employer plan, 
        and allow multiple-employer and pooled-employer plans 
        to maintain their qualified status as a whole if one 
        employer in the group failed to satisfy qualification 
        requirements. This provision would take effect in 
        calendar year 2021. JCT estimates that the change would 
        reduce revenues by $3.4 billion over the 2019-2029 
        period.
           Allow penalty-free retirement distributions 
        for births and adoptions. Distributions from qualified 
        retirement plans before the age of 59 years and 6 
        months generally face a 10 percent early-withdrawal 
        tax. H.R. 1994 would exempt distributions of up to 
        $5,000 from the 10 percent penalty in the case of a 
        birth or adoption, starting with distributions made in 
        calendar year 2020. JCT estimates that the change would 
        reduce revenues by $1.2 billion over the 2019-2029 
        period.
           Allow long-term, part-time employees to 
        participate in elective deferrals. A section 401(k) 
        retirement plan may require that employees reach 1,000 
        hours of service in a 12-month period before they are 
        allowed to participate. H.R. 1994 would change that 
        requirement to allow employees who have worked for the 
        employer at least 500 hours per year for at least three 
        consecutive years to contribute to those plans. It does 
        not require those employees to be eligible for 
        nonelective or matching contributions. This provision 
        would take effect in calendar year 2021, although for 
        determining whether the three-consecutive-year period 
        has been met, employment before January 1, 2021, would 
        not be taken into account. JCT estimates that the 
        change would reduce revenues by $769 million over the 
        2019-2029 period.
           Treat excluded difficulty-of-care payments 
        as compensation for determining retirement contribution 
        limitations. A difficulty-of-care payment is 
        compensation for providing additional care to a 
        qualified foster individual. Those payments are 
        excluded from gross income, and thus are not considered 
        compensation upon which contributions to defined 
        contribution plans or IRAs can be made. H.R. 1994 would 
        treat those payments as compensation for the purpose of 
        calculating contribution limits to defined contribution 
        plans and IRAs, effective for contributions after 
        December 31, 2015. JCT estimates that the change would 
        reduce revenues by $249 million over the 2019-2029 
        period.
    Title II. Administrative Improvements. H.R. 1994 would make 
several administrative changes affecting revenues, including 
permitting businesses that adopt a retirement plan before the 
due date of their tax return to treat the plan as adopted by 
the last day of the tax year. JCT estimates that the provisions 
would reduce revenues by $113 million over the 2019-2029 
period.
    H.R. 1994 also would make several administrative changes 
that have either no budgetary effects or negligible revenue 
effects. Those changes include a requirement that the annual 
benefit statements of defined contribution plans include a 
lifetime income disclosure, a calculation of the monthly income 
a participant's retirement savings could provide. That 
provision would take effect 12 months after the Secretary of 
Labor issued rules on calculating the lifetime income stream.
    Title III. Other Benefits. H.R. 1994 would expand allowable 
uses of college savings plans authorized under section 529 of 
the Internal Revenue Code for distributions made after December 
31, 2018. It also would allow a partial exclusion from gross 
income of state and local tax reductions received by volunteer 
firefighters and emergency medical responders for taxable years 
beginning in 2020, which would reduce off-budget revenue by $12 
million. In total, JCT estimates, those provisions would reduce 
revenues by $277 million over the 2019-2029 period.
    Title IV. Revenue Provisions. H.R. 1994 includes several 
provisions that JCT estimates would increase revenue by $16.3 
billion over the 2019-2029 period. Those provisions would:
           Modify the required-distribution rules for 
        designated beneficiaries. If a person with a defined 
        contribution retirement plan or traditional IRA dies, 
        the beneficiary of that plan or account must comply 
        with after-death minimum distribution requirements. The 
        period over which a full distribution of the plan must 
        be made varies on the basis of the age of the deceased 
        and certain characteristics of the beneficiary. H.R. 
        1994 would make full distribution within 10 calendar 
        years of the death of the plan holder the general rule, 
        with exceptions for surviving spouses and disabled or 
        child beneficiaries. That would apply to employees and 
        IRA account-holders who die after December 31, 2019. 
        JCT estimates that change would increase revenues by 
        $15.7 billion over the 2019-2029 period.
           Increase the penalty for failure to file 
        individual and retirement plan returns. The penalty for 
        failing to file an individual return is the lesser of a 
        flat dollar amount or 100 percent of the unpaid tax. 
        H.R. 1994 would increase the flat dollar amount from 
        $205 to $400. Employers maintaining qualified 
        retirement plans must file annual actuarial reports 
        with the Department of Labor, file annual registration 
        statements with the Internal Revenue Service (IRS), and 
        send annual notices to plan participants stating the 
        right to waive withholding. Penalties for failing to 
        file or provide notice are calculated as a dollar 
        amount per failure, up to a maximum amount. H.R. 1994 
        would increase both the per-failure penalty and the 
        maximum penalty. Those increased penalties would apply 
        to returns filed after December 31, 2019. JCT estimates 
        that those provisions would increase revenues by $385 
        million over the 2019-2029 period.
           Increase information sharing to administer 
        excise taxes. H.R. 1994 would allow the IRS to share 
        returns and return information with employees of U.S. 
        Customs and Border Protection, which administers the 
        heavy-vehicle use tax. This provision would be 
        effective on the date of enactment, and JCT estimates 
        that it would increase revenues by $163 million over 
        the 2019-2029 period.

Direct spending

    Title II of H.R. 1994 would reduce Pension Benefit Guaranty 
Corporation (PBGC) premiums for certain multiple-employer plans 
of cooperatives or charities. Those premiums are classified as 
offsetting receipts, so CBO estimates that implementing that 
provision would increase direct spending by $1.3 billion over 
the 2019-2029 period.
    Title I would allow the single-employer pension plans of 
some community newspapers to reduce contributions. That would 
increase taxable corporate income, thereby increasing federal 
revenues by $5 million over the 2019-2029 period. Underfunded 
single-employer pensions are required to pay variable-rate 
premiums to PBGC. With lower funding, the affected plans would 
pay more in variable-rate premiums, which are classified as 
offsetting receipts. As a result, direct spending would 
decrease by $4 million over the same period.

Uncertainty

    These budgetary estimates are uncertain because they rely 
on underlying projections and other estimates that are 
uncertain. Specifically, estimates for many of the provisions 
in this bill rely on projections of retirement plan 
contributions and participation, which are based on CBO's 
economic projections for the next decade under current law and 
on estimates of the way taxpayers would change their saving 
behavior in response to changes in retirement plan rules.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in Table 2. 
Only on-budget changes to outlays or revenues are subject to 
pay-as-you-go procedures.

                                            TABLE 2--CBO'S ESTIMATE OF PAY-AS-YOU-GO EFFECTS UNDER H.R. 1994
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, millions of dollars--
                                       -----------------------------------------------------------------------------------------------------------------
                                         2019    2020     2021    2022    2023   2024    2025     2026     2027     2028     2029   2019-2024  2019-2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Net Increase or Decrease (-) in the On-Budget Deficit
 
Statutory Pay-As-You-Go Effect........     -1      721      480     215     87     -23     -92     -186     -445     -567     -595     1,476       -412
Memorandum:
    Changes in Outlays................      0      110      114     119    124     129     134      137      143      149      155       596      1,314
    Changes in Revenues...............      1     -611     -366     -96     37     152     226      323      588      716      750      -880      1,726
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Increase in long-term deficits: CBO and JCT estimate that 
enacting H.R. 1994 would not increase on-budget deficits by 
more than $5 billion in any of the four consecutive 10-year 
periods beginning in 2030.
    Mandates: CBO and JCT have determined that H.R. 1994 would 
impose no intergovernmental mandates as defined in the Unfunded 
Mandates Reform Act (UMRA).
    CBO and JCT have determined that H.R. 1994 would impose two 
private-sector mandates as defined in UMRA. On the basis of 
information from JCT, CBO estimates that the aggregate direct 
cost of the mandates imposed by H.R. 1994 would exceed the 
annual private-sector threshold established in UMRA ($164 
million in 2019, adjusted annually for inflation).
    Specifically, the tax provisions of the bill impose a 
private-sector mandate by modifying the rules that require 
distribution of retirement plan assets to surviving 
beneficiaries upon the death of the plan holder.
    The nontax provisions of the bill would require 
administrators of pension and benefit plans to disclose the 
plan's lifetime income stream, as defined by the bill, in 
statements provided to beneficiaries. Because the mandate 
imposes a minor administrative burden, CBO estimates that the 
cost to comply would be small.
    Estimate prepared by: Federal Revenues: Staff of the Joint 
Committee on Taxation and Kathleen Burke; Federal Costs: Noah 
Meyerson; Mandates: Staff of the Joint Committee on Taxation 
and Andrew Laughlin.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; Sheila Dacey, Chief, Income Security and 
Education Cost Estimates Unit; Susan Willie, Chief, Mandates 
Unit; H. Samuel Papenfuss, Deputy Assistant Director for Budget 
Analysis; John McClelland, Assistant Director for Tax Analysis.

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


          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        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. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``It shall not be in 
order to consider a bill, joint resolution, amendment, or 
conference report carrying a retroactive Federal income tax 
rate increase.'' The Committee has carefully reviewed the bill 
and states that the bill does not involve any retroactive 
Federal income tax rate increases within the meaning of the 
rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code of 1986 
and has widespread applicability to individuals or small 
businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, for each such provision identified by 
the staff of the Joint Committee on Taxation, a summary 
description of the provision is provided below along with an 
estimate of the number and type of affected taxpayers, and a 
discussion regarding the relevant complexity and administrative 
issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each provision included in the complexity analysis.

Repeal of maximum age for traditional IRA contributions (sec. 107 of 
        the bill)

            Summary description of the provision
    The provision repeals the prohibition on contributions to a 
traditional IRA by an individual who has attained age 70\1/2\.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of taxpayers during the budget window.
            Discussion
    The provision may contribute to tax complexity by adding an 
additional tax-advantaged savings option for the impacted 
taxpayers who are still employees. Such taxpayers may be unsure 
whether they can continue to contribute to their employer plan 
and also contribute to a traditional IRA, and require 
communications and education on how the limits interact. 
Similarly, taxpayers who are self-employed and currently 
contributing to a Roth IRA would need to consider whether they 
should continue to contribute to the Roth IRA or instead a 
traditional IRA. Additionally, affected taxpayers may be unsure 
how the required minimum distribution rules interact with their 
ability to contribute to employer plans versus IRAs, including 
the interaction with section 114 of the bill (discussed below) 
which delays the age for required minimum distributions to age 
72 for those taxpayers who attain age 70\1/2\ after December 
31, 2019. The various rules that result in these items of 
complexity may cause taxpayers to seek professional tax advice, 
potentially raising the cost of tax compliance to individual 
taxpayers.
    The provision will require the IRS to create new forms and 
publications regarding this change. Additionally, both 
taxpayers and the IRS will need to monitor contributions, so as 
to ensure that taxpayer contributions do not exceed the limits 
that apply between IRA types and between IRAs and employer 
qualified plans. Disputes between taxpayers and the IRS may 
increase in the case of discrepancies between these records.

Penalty-Free Withdrawals from Retirement Plans for Individuals in Case 
        of Birth of Child or Adoption (sec. 113 of the bill)

            Summary description of the provision

Distributions from applicable eligible retirement plans

    A qualified birth or adoption distribution is a permissible 
distribution from an applicable eligible retirement plan which, 
for this purpose, encompasses eligible retirement plans other 
than defined benefit plans, including qualified retirement 
plans, section 403(b) plans, governmental section 457(b) plans, 
and IRAs.
    A qualified birth or adoption distribution is a 
distribution from an applicable eligible retirement plan to an 
individual if made during the one-year period beginning on the 
date on which a child of the individual is born or on which the 
legal adoption by the individual of an eligible adoptee is 
finalized. An eligible adoptee means any individual (other than 
a child of the taxpayer's spouse) who has not attained age 18 
or is physically or mentally incapable of self-support. The 
proposal requires the name, age, and taxpayer identification 
number of the child or eligible adoptee to which any qualified 
birth or adoption distribution relates to be provided on the 
tax return of the individual taxpayer for the taxable year.
    The maximum aggregate amount that may be treated as 
qualified birth or adoption distributions by any individual 
with respect to a birth or adoption is $5,000 (not indexed for 
inflation). The maximum aggregate amount applies on an 
individual basis. Therefore, each spouse separately may receive 
a maximum aggregate amount of $5,000 of qualified birth or 
adoption distributions (with respect to a birth or adoption) 
from applicable eligible retirement plans in which each spouse 
participates or holds accounts.
    An employer plan is not treated as violating any Code 
requirement merely because it treats a distribution (that would 
otherwise be a qualified birth or adoption distribution) to an 
individual as a qualified birth or adoption distribution, 
provided the aggregate amount of such distributions to that 
individual from plans maintained by the employer and members of 
the employer's controlled group does not exceed $5,000.

Recontributions to applicable eligible retirement plans

    Generally, any portion of a qualified birth or adoption 
distribution may, at any time after the date on which the 
distribution was received, be recontributed to an applicable 
eligible retirement plan to which a rollover can be made. Such 
a recontribution is treated as a rollover and thus is not 
includible in income. If an employer adds the ability for plan 
participants to receive qualified birth or adoption 
distributions from a plan, the plan must permit an employee who 
has received qualified birth or adoption distributions from 
that plan to recontribute only up to the amount that was 
distributed from that plan to that employee, provided the 
employee otherwise is eligible to make contributions (other 
than recontributions of qualified birth or adoption 
distributions) to that plan. Any portion of a qualified birth 
or adoption distribution from an individual's applicable 
eligible retirement plans (whether employer plans or IRAs) may 
be recontributed to an IRA held by such an individual that is 
an applicable eligible retirement plan to which a rollover can 
be made.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of taxpayers during the budget window and will continue 
to increase over time.
            Discussion
    The provision creates complexity for IRAs and employer 
plans that choose to allow qualified birth or adoption 
distributions. Specifically, plan administrators and IRA 
trustees will be required to monitor eligibility for qualified 
birth or adoption distributions, and employers will be required 
to obtain certifications and track such distributions and 
recontributions under the special rules that apply to employer 
plans. The ability to recontribute with no time limit over the 
lifetime of an individual, and not necessarily to the plan or 
IRA from which the related distribution was made, will require 
tracking of recontributions to ensure amounts so denominated do 
not exceed the aggregate lifetime qualified birth or adoption 
distributions from all plans of an individual. Tracking these 
amounts will require that plan administrators and IRA trustees, 
plan participants and IRA owners, and the IRS, keep accurate 
and detailed records of distributions and recontributions for 
an indefinite number of years.
    The provision will require the IRS to create or update its 
forms and publications to address qualified birth and adoption 
distributions. Additionally, both taxpayers and the IRS will 
need to monitor not just distributions resulting from this new 
rule, but in particular recontributions which have no time 
limit. Disputes between taxpayers and the IRS may increase in 
the case of discrepancies between these records.

Increase in Age for Required Beginning Date for Mandatory Distributions 
        (sec. 114 of the bill)

            Summary description of the provision
    The provision changes the age on which the required 
beginning date for required minimum distributions is based, 
from the calendar year in which the employee or IRA owner 
attains age 70\1/2\ to the calendar year in which the employee 
or IRA owner attains age 72. Under the provision, present law 
continues to apply to employees and IRA owners who attain age 
70\1/2\ prior to January 1, 2020. The provision does not change 
the present law requirement to actuarially adjust an employee's 
accrued benefit for an employee who retires in a calendar year 
after the year the employee attains age 70\1/2\, to take into 
account the period after age 70\1/2\ in which the employee was 
not receiving any benefits under the plan.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of taxpayers during the budget window.
            Discussion
    The provision may contribute to tax complexity by adding a 
new rule where age 72 applies with respect to required minimum 
distributions, while not changing the present law age 70\1/2\ 
rules for purposes of actuarial adjustments for taxpayers who 
continue to work and participate in their employers' defined 
benefit plans, as well as the ability to treat qualified plan 
distributions as tax-exempt qualified charitable distributions. 
Initially, there will also be bifurcation between those 
individuals who continue to be subject to the age 70\1/2\ rule 
for required minimum distributions and those who are subject to 
the new age 72 rule. Taxpayers may need communication and 
education to assist them in making decisions due to the changes 
in rules based on age 72 versus unchanged rules based on age 
70\1/2\. For example, an individual approaching age 70\1/2\ who 
participates in a defined contribution plan may make a 
different decision than an individual participating in a 
defined benefit plan who wishes to continue to have actuarial 
adjustments made. The interaction with section 107 of the bill 
(discussed above) which permits contributions beyond age 70\1/
2\ to a traditional IRA adds another layer of decision-making. 
Individuals who have IRA balances as well as employer plan 
balances would need to understand the different rules to make 
educated decisions regarding continued accruals (in defined 
benefit plans), continued contributions (in defined 
contribution plans and IRAs), and types of distributions 
(required minimum distributions, regular retirement 
distributions, and qualified charitable distributions) from 
such plans and accounts. This complexity may cause taxpayers to 
seek professional tax advice, potentially raising the cost of 
tax compliance to individual taxpayers.
    The provision will require the IRS to create new forms and 
publications regarding this new rule. Additionally, both 
taxpayers and the IRS will need to monitor required minimum 
distributions as well as claimed qualified charitable 
distributions based on the potential mismatch created by the 
age requirements. Disputes between taxpayers and the IRS may 
increase in the case of discrepancies between these records.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program, (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139, or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                              H. Hearings

    In compliance with Sec. 103(i) of H. Res. 6 (116th 
Congress) the following hearing was used to develop or consider 
H.R. 1994: Improving Retirement Security for America's Workers, 
held on February 6, 2019.

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


      A. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law proposed 
by the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):2

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and 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 D--BUSINESS RELATED CREDITS

           *       *       *       *       *       *       *



Sec. 38. General business credit.
     * * * * * * *
Sec. 45T. Auto-enrollment option for retirement savings options provided 
          by small employers.

SEC. 38. GENERAL BUSINESS CREDIT.

  (a) Allowance of credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of--
          (1) the business credit carryforwards carried to such 
        taxable year,
          (2) the amount of the current year business credit, 
        plus
          (3) the business credit carrybacks carried to such 
        taxable year.
  (b) Current year business credit.--For purposes of this 
subpart, the amount of the current year business credit is the 
sum of the following credits determined for the taxable year:
          (1) the investment credit determined under section 
        46,
          (2) the work opportunity credit determined under 
        section 51(a),
          (3) the alcohol fuels credit determined under section 
        40(a),
          (4) the research credit determined under section 
        41(a),
          (5) the low-income housing credit determined under 
        section 42(a),
          (6) the enhanced oil recovery credit under section 
        43(a),
          (7) in the case of an eligible small business (as 
        defined in section 44(b)), the disabled access credit 
        determined under section 44(a),
          (8) the renewable electricity production credit under 
        section 45(a),
          (9) the empowerment zone employment credit determined 
        under section 1396(a),
          (10) the Indian employment credit as determined under 
        section 45A(a),
          (11) the employer social security credit determined 
        under section 45B(a),
          (12) the orphan drug credit determined under section 
        45C(a),
          (13) the new markets tax credit determined under 
        section 45D(a),
          (14) in the case of an eligible employer (as defined 
        in section 45E(c)), the small employer pension plan 
        startup cost credit determined under section 45E(a),
          (15) the employer-provided child care credit 
        determined under section 45F(a),
          (16) the railroad track maintenance credit determined 
        under section 45G(a),
          (17) the biodiesel fuels credit determined under 
        section 40A(a),
          (18) the low sulfur diesel fuel production credit 
        determined under section 45H(a),
          (19) the marginal oil and gas well production credit 
        determined under section 45I(a),
          (20) the distilled spirits credit determined under 
        section 5011(a),
          (21) the advanced nuclear power facility production 
        credit determined under section 45J(a),
          (22) the nonconventional source production credit 
        determined under section 45K(a),
          (23) the new energy efficient home credit determined 
        under section 45L(a),
          (24) the portion of the alternative motor vehicle 
        credit to which section 30B(g)(1) applies,
          (25) the portion of the alternative fuel vehicle 
        refueling property credit to which section 30C(d)(1) 
        applies,
          (26) the mine rescue team training credit determined 
        under section 45N(a),
          (27) in the case of an eligible agricultural business 
        (as defined in section 45O(e)), the agricultural 
        chemicals security credit determined under section 
        45O(a),
          (28) the differential wage payment credit determined 
        under section 45P(a),
          (29) the carbon dioxide sequestration credit 
        determined under section 45Q(a),
          (30) the portion of the new qualified plug-in 
        electric drive motor vehicle credit to which section 
        30D(c)(1) applies,
          (31) the small employer health insurance credit 
        determined under section 45R, [plus]
          (32) in the case of an eligible employer (as defined 
        in section 45S(c)), the paid family and medical leave 
        credit determined under section 45S(a)[.], plus
          (33) in the case of an eligible employer (as defined 
        in section 45T(c)), the retirement auto-enrollment 
        credit determined under section 45T(a).
  (c) Limitation based on amount of tax.--
          (1) In general.--The credit allowed under subsection 
        (a) for any taxable year shall not exceed the excess 
        (if any) of the taxpayer's net income tax over the 
        greater of--
                  (A) the tentative minimum tax for the taxable 
                year, or
                  (B) 25 percent of so much of the taxpayer's 
                net regular tax liability as exceeds $25,000.
        For purposes of the preceding sentence, the term ``net 
        income tax'' means the sum of the regular tax liability 
        and the tax imposed by section 55, reduced by the 
        credits allowable under subparts A and B of this part, 
        and the term ``net regular tax liability'' means the 
        regular tax liability reduced by the sum of the credits 
        allowable under subparts A and B of this part.
          (2) Empowerment zone employment credit may offset 25 
        percent of minimum tax.--
                  (A) In general.--In the case of the 
                empowerment zone employment credit--
                          (i) this section and section 39 shall 
                        be applied separately with respect to 
                        such credit, and
                          (ii) for purposes of applying 
                        paragraph (1) to such credit--
                                  (I) 75 percent of the 
                                tentative minimum tax shall be 
                                substituted for the tentative 
                                minimum tax under subparagraph 
                                (A) thereof, and
                                  (II) the limitation under 
                                paragraph (1) (as modified by 
                                subclause (I)) shall be reduced 
                                by the credit allowed under 
                                subsection (a) for the taxable 
                                year (other than the 
                                empowerment zone employment 
                                credit and the specified 
                                credits).
                  (B) Empowerment zone employment credit.--For 
                purposes of this paragraph, the term 
                ``empowerment zone employment credit'' means 
                the portion of the credit under subsection (a) 
                which is attributable to the credit determined 
                under section 1396 (relating to empowerment 
                zone employment credit).
          (4) Special rules for specified credits.--
                  (A) In general.--In the case of specified 
                credits--
                          (i) this section and section 39 shall 
                        be applied separately with respect to 
                        such credits, and
                          (ii) in applying paragraph (1) to 
                        such credits--
                                  (I) the tentative minimum tax 
                                shall be treated as being zero, 
                                and
                                  (II) the limitation under 
                                paragraph (1) (as modified by 
                                subclause (I)) shall be reduced 
                                by the credit allowed under 
                                subsection (a) for the taxable 
                                year (other than the specified 
                                credits).
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                means--
                          (i) for taxable years beginning after 
                        December 31, 2004, the credit 
                        determined under section 40,
                          (ii) the credit determined under 
                        section 41 for the taxable year with 
                        respect to an eligible small business 
                        (as defined in paragraph (5)(A) after 
                        application of the rules of paragraph 
                        (5)(B)),
                          (iii) the credit determined under 
                        section 42 to the extent attributable 
                        to buildings placed in service after 
                        December 31, 2007,
                          (iv) the credit determined under 
                        section 45 to the extent that such 
                        credit is attributable to electricity 
                        or refined coal produced--
                                  (I) at a facility which is 
                                originally placed in service 
                                after the date of the enactment 
                                of this paragraph, and
                                  (II) during the 4-year period 
                                beginning on the date that such 
                                facility was originally placed 
                                in service,
                          (v) the credit determined under 
                        section 45 to the extent that such 
                        credit is attributable to section 
                        45(e)(10) (relating to Indian coal 
                        production facilities),
                          (vi) the credit determined under 
                        section 45B,
                          (vii) the credit determined under 
                        section 45G,
                          (viii) the credit determined under 
                        section 45R,
                          (ix) the credit determined under 
                        section 45S,
                          (x) the credit determined under 
                        section 46 to the extent that such 
                        credit is attributable to the energy 
                        credit determined under section 48,
                          (xi) the credit determined under 
                        section 46 to the extent that such 
                        credit is attributable to the 
                        rehabilitation credit under section 47, 
                        but only with respect to qualified 
                        rehabilitation expenditures properly 
                        taken into account for periods after 
                        December 31, 2007, and
                          (xii) the credit determined under 
                        section 51.
          (5) Rules related to eligible small businesses.--
                  (A) Eligible small business.--For purposes of 
                this subsection, the term ``eligible small 
                business'' means, with respect to any taxable 
                year--
                          (i) a corporation the stock of which 
                        is not publicly traded,
                          (ii) a partnership, or
                          (iii) a sole proprietorship,
                if the average annual gross receipts of such 
                corporation, partnership, or sole 
                proprietorship for the 3-taxable-year period 
                preceding such taxable year does not exceed 
                $50,000,000. For purposes of applying the test 
                under the preceding sentence, rules similar to 
                the rules of paragraphs (2) and (3) of section 
                448(c) shall apply.
                  (B) Treatment of partners and S corporation 
                shareholders.--For purposes of paragraph 
                (4)(B)(ii), any credit determined under section 
                41 with respect to a partnership or S 
                corporation shall not be treated as a specified 
                credit by any partner or shareholder unless 
                such partner or shareholder meets the gross 
                receipts test under subparagraph (A) for the 
                taxable year in which such credit is treated as 
                a current year business credit.
          (6) Special rules.--
                  (A) Married individuals.--In the case of a 
                husband or wife who files a separate return, 
                the amount specified under subparagraph (B) of 
                paragraph (1) shall be $12,500 in lieu of 
                $25,000. This subparagraph shall not apply if 
                the spouse of the taxpayer has no business 
                credit carryforward or carryback to, and has no 
                current year business credit for, the taxable 
                year of such spouse which ends within or with 
                the taxpayer's taxable year.
                  (B) Controlled groups.--In the case of a 
                controlled group, the $25,000 amount specified 
                under subparagraph (B) of paragraph (1) shall 
                be reduced for each component member of such 
                group by apportioning $25,000 among the 
                component members of such group in such manner 
                as the Secretary shall by regulations 
                prescribe. For purposes of the preceding 
                sentence, the term ``controlled group'' has the 
                meaning given to such term by section 1563(a).
                  (C) Limitations with respect to certain 
                persons.--In the case of a person described in 
                subparagraph (A) or (B) of section 46(e)(1) (as 
                in effect on the day before the date of the 
                enactment of the Revenue Reconciliation Act of 
                1990), the $25,000 amount specified under 
                subparagraph (B) of paragraph (1) shall equal 
                such person's ratable share (as determined 
                under section 46(e)(2) (as so in effect) of 
                such amount.
                  (D) Estates and trusts.--In the case of an 
                estate or trust, the $25,000 amount specified 
                under subparagraph (B) of paragraph (1) shall 
                be reduced to an amount which bears the same 
                ratio to $25,000 as the portion of the income 
                of the estate or trust which is not allocated 
                to beneficiaries bears to the total income of 
                the estate or trust.
                  (E) Corporations.--In the case of a 
                corporation, this subsection shall be applied 
                by treating the corporation as having a 
                tentative minimum tax of zero.
  (d) Ordering rules.--For purposes of any provision of this 
title where it is necessary to ascertain the extent to which 
the credits determined under any section referred to in 
subsection (b) are used in a taxable year or as a carryback or 
carryforward--
          (1) In general.--The order in which such credits are 
        used shall be determined on the basis of the order in 
        which they are listed in subsection (b) as of the close 
        of the taxable year in which the credit is used.
          (2) Components of investment credit.--The order in 
        which the credits listed in section 46 are used shall 
        be determined on the basis of the order in which such 
        credits are listed in section 46 as of the close of the 
        taxable year in which the credit is used.

           *       *       *       *       *       *       *


SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.

  (a) General rule.--For purposes of section 38, in the case of 
an eligible employer, the small employer pension plan startup 
cost credit determined under this section for any taxable year 
is an amount equal to 50 percent of the qualified startup costs 
paid or incurred by the taxpayer during the taxable year.
  (b) Dollar limitation.--The amount of the credit determined 
under this section for any taxable year shall not exceed--
          [(1) $500 for the first credit year and each of the 2 
        taxable years immediately following the first credit 
        year, and]
          (1) for the first credit year and each of the 2 
        taxable years immediately following the first credit 
        year, the greater of--
                  (A) $500, or
                  (B) the lesser of--
                          (i) $250 for each employee of the 
                        eligible employer who is not a highly 
                        compensated employee (as defined in 
                        section 414(q)) and who is eligible to 
                        participate in the eligible employer 
                        plan maintained by the eligible 
                        employer, or
                          (ii) $5,000, and
          (2) zero for any other taxable year.
  (c) Eligible employer.--For purposes of this section--
          (1) In general.--The term ``eligible employer'' has 
        the meaning given such term by section 408(p)(2)(C)(i).
          (2) Requirement for new qualified employer plans.--
        Such term shall not include an employer if, during the 
        3-taxable year period immediately preceding the 1st 
        taxable year for which the credit under this section is 
        otherwise allowable for a qualified employer plan of 
        the employer, the employer or any member of any 
        controlled group including the employer (or any 
        predecessor of either) established or maintained a 
        qualified employer plan with respect to which 
        contributions were made, or benefits were accrued, for 
        substantially the same employees as are in the 
        qualified employer plan.
  (d) Other definitions.--For purposes of this section--
          (1) Qualified startup costs.--
                  (A) In general.--The term ``qualified startup 
                costs'' means any ordinary and necessary 
                expenses of an eligible employer which are paid 
                or incurred in connection with--
                          (i) the establishment or 
                        administration of an eligible employer 
                        plan, or
                          (ii) the retirement-related education 
                        of employees with respect to such plan.
                  (B) Plan must have at least 1 participant.--
                Such term shall not include any expense in 
                connection with a plan that does not have at 
                least 1 employee eligible to participate who is 
                not a highly compensated employee.
          (2) Eligible employer plan.--The term ``eligible 
        employer plan'' means a qualified employer plan within 
        the meaning of section 4972(d).
          (3) First credit year.--The term ``first credit 
        year'' means--
                  (A) the taxable year which includes the date 
                that the eligible employer plan to which such 
                costs relate becomes effective, or
                  (B) at the election of the eligible employer, 
                the taxable year preceding the taxable year 
                referred to in subparagraph (A).
  (e) Special rules.--For purposes of this section--
          (1) Aggregation rules.--All persons treated as a 
        single employer under subsection (a) or (b) of section 
        52, or subsection (m) or (o) of section 414, shall be 
        treated as one person. All eligible employer plans 
        shall be treated as 1 eligible employer plan.
          (2) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of the qualified startup costs 
        paid or incurred for the taxable year which is equal to 
        the credit determined under subsection (a).
          (3) Election not to claim credit.--This section shall 
        not apply to a taxpayer for any taxable year if such 
        taxpayer elects to have this section not apply for such 
        taxable year.

           *       *       *       *       *       *       *


SEC. 45T. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS 
                    PROVIDED BY SMALL EMPLOYERS.

  (a) In General.--For purposes of section 38, in the case of 
an eligible employer, the retirement auto-enrollment credit 
determined under this section for any taxable year is an amount 
equal to--
          (1) $500 for any taxable year occurring during the 
        credit period, and
          (2) zero for any other taxable year.
  (b) Credit Period.--For purposes of subsection (a)--
          (1) In general.--The credit period with respect to 
        any eligible employer is the 3-taxable-year period 
        beginning with the first taxable year for which the 
        employer includes an eligible automatic contribution 
        arrangement (as defined in section 414(w)(3)) in a 
        qualified employer plan (as defined in section 4972(d)) 
        sponsored by the employer.
          (2) Maintenance of arrangement.--No taxable year with 
        respect to an employer shall be treated as occurring 
        within the credit period unless the arrangement 
        described in paragraph (1) is included in the plan for 
        such year.
  (c) Eligible Employer.--For purposes of this section, the 
term ``eligible employer'' has the meaning given such term in 
section 408(p)(2)(C)(i).

           *       *       *       *       *       *       *


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) General rules for annuities.--
          (1) Income inclusion.--Except as otherwise provided 
        in this chapter, gross income includes any amount 
        received as an annuity (whether for a period certain or 
        during one or more lives) under an annuity, endowment, 
        or life insurance contract.
          (2) Partial annuitization.--If any amount is received 
        as an annuity for a period of 10 years or more or 
        during one or more lives under any portion of an 
        annuity, endowment, or life insurance contract--
                  (A) such portion shall be treated as a 
                separate contract for purposes of this section,
                  (B) for purposes of applying subsections (b), 
                (c), and (e), the investment in the contract 
                shall be allocated pro rata between each 
                portion of the contract from which amounts are 
                received as an annuity and the portion of the 
                contract from which amounts are not received as 
                an annuity, and
                  (C) a separate annuity starting date under 
                subsection (c)(4) shall be determined with 
                respect to each portion of the contract from 
                which amounts are received as an annuity.
  (b) Exclusion ratio.--
          (1) In general.--Gross income does not include that 
        part of any amount received as an annuity under an 
        annuity, endowment, or life insurance contract which 
        bears the same ratio to such amount as the investment 
        in the contract (as of the annuity starting date) bears 
        to the expected return under the contract (as of such 
        date).
          (2) Exclusion limited to investment.--The portion of 
        any amount received as an annuity which is excluded 
        from gross income under paragraph (1) shall not exceed 
        the unrecovered investment in the contract immediately 
        before the receipt of such amount.
          (3) Deduction where annuity payments cease before 
        entire investment recovered.--
                  (A) In general.--If--
                          (i) after the annuity starting date, 
                        payments as an annuity under the 
                        contract cease by reason of the death 
                        of an annuitant, and
                          (ii) as of the date of such 
                        cessation, there is unrecovered 
                        investment in the contract,
                the amount of such unrecovered investment (in 
                excess of any amount specified in subsection 
                (e)(5) which was not included in gross income) 
                shall be allowed as a deduction to the 
                annuitant for his last taxable year.
                  (B) Payments to other persons.--In the case 
                of any contract which provides for payments 
                meeting the requirements of subparagraphs (B) 
                and (C) of subsection (c)(2), the deduction 
                under subparagraph (A) shall be allowed to the 
                person entitled to such payments for the 
                taxable year in which such payments are 
                received.
                  (C) Net operating loss deductions provided.--
                For purposes of section 172, a deduction 
                allowed under this paragraph shall be treated 
                as if it were attributable to a trade or 
                business of the taxpayer.
          (4) Unrecovered investment.--For purposes of this 
        subsection, the unrecovered investment in the contract 
        as of any date is--
                  (A) the investment in the contract 
                (determined without regard to subsection 
                (c)(2)) as of the annuity starting date, 
                reduced by
                  (B) the aggregate amount received under the 
                contract on or after such annuity starting date 
                and before the date as of which the 
                determination is being made, to the extent such 
                amount was excludable from gross income under 
                this subtitle.
  (c) Definitions.--
          (1) Investment in the contract.--For purposes of 
        subsection (b), the investment in the contract as of 
        the annuity starting date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (2) Adjustment in investment where there is refund 
        feature.--If--
                  (A) the expected return under the contract 
                depends in whole or in part on the life 
                expectancy of one or more individuals;
                  (B) the contract provides for payments to be 
                made to a beneficiary (or to the estate of an 
                annuitant) on or after the death of the 
                annuitant or annuitants; and
                  (C) such payments are in the nature of a 
                refund of the consideration paid,
        then the value (computed without discount for interest) 
        of such payments on the annuity starting date shall be 
        subtracted from the amount determined under paragraph 
        (1). Such value shall be computed in accordance with 
        actuarial tables prescribed by the Secretary. For 
        purposes of this paragraph and of subsection (e)(2)(A), 
        the term ``refund of the consideration paid'' includes 
        amounts payable after the death of an annuitant by 
        reason of a provision in the contract for a life 
        annuity with minimum period of payments certain, but 
        (if part of the consideration was contributed by an 
        employer) does not include that part of any payment to 
        a beneficiary (or to the estate of the annuitant) which 
        is not attributable to the consideration paid by the 
        employee for the contract as determined under paragraph 
        (1)(A).
          (3) Expected return.--For purposes of subsection (b), 
        the expected return under the contract shall be 
        determined as follows:
                  (A) Life expectancy.--If the expected return 
                under the contract, for the period on and after 
                the annuity starting date, depends in whole or 
                in part on the life expectancy of one or more 
                individuals, the expected return shall be 
                computed with reference to actuarial tables 
                prescribed by the Secretary.
                  (B) Installment payments.--If subparagraph 
                (A) does not apply, the expected return is the 
                aggregate of the amounts receivable under the 
                contract as an annuity.
          (4) Annuity starting date.--For purposes of this 
        section, the annuity starting date in the case of any 
        contract is the first day of the first period for which 
        an amount is received as an annuity under the contract.
  (d) Special rules for qualified employer retirement plans.--
          (1) Simplified method of taxing annuity payments.--
                  (A) In general.--In the case of any amount 
                received as an annuity under a qualified 
                employer retirement plan--
                          (i) subsection (b) shall not apply, 
                        and
                          (ii) the investment in the contract 
                        shall be recovered as provided in this 
                        paragraph.
                  (B) Method of recovering investment in 
                contract.--
                          (i) In general.--Gross income shall 
                        not include so much of any monthly 
                        annuity payment under a qualified 
                        employer retirement plan as does not 
                        exceed the amount obtained by 
                        dividing--
                                  (I) the investment in the 
                                contract (as of the annuity 
                                starting date), by
                                  (II) the number of 
                                anticipated payments determined 
                                under the table contained in 
                                clause (iii) (or, in the case 
                                of a contract to which 
                                subsection (c)(3)(B) applies, 
                                the number of monthly annuity 
                                payments under such contract).
                          (ii) Certain rules made applicable.--
                        Rules similar to the rules of 
                        paragraphs (2) and (3) of subsection 
                        (b) shall apply for purposes of this 
                        paragraph.
                          (iii) Number of anticipated 
                        payments.--If the annuity is payable 
                        over the life of a single individual, 
                        the number of anticipated payments 
                        shall be determined as follows:
                          (iv) Number of anticipated payments 
                        where more than one life.--If the 
                        annuity is payable over the lives of 
                        more than 1 individual, the number of 
                        anticipated payments shall be 
                        determined as follows:
                  (C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, 
                investment in the contract shall be determined 
                under subsection (c)(1) without regard to 
                subsection (c)(2).
                  (D) Special rule where lump sum paid in 
                connection with commencement of annuity 
                payments.--If, in connection with the 
                commencement of annuity payments under any 
                qualified employer retirement plan, the 
                taxpayer receives a lump-sum payment--
                          (i) such payment shall be taxable 
                        under subsection (e) as if received 
                        before the annuity starting date, and
                          (ii) the investment in the contract 
                        for purposes of this paragraph shall be 
                        determined as if such payment had been 
                        so received.
                  (E) Exception.--This paragraph shall not 
                apply in any case where the primary annuitant 
                has attained age 75 on the annuity starting 
                date unless there are fewer than 5 years of 
                guaranteed payments under the annuity.
                  (F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity 
                payments are not made on a monthly basis, 
                appropriate adjustments in the application of 
                this paragraph shall be made to take into 
                account the period on the basis of which such 
                payments are made.
                  (G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term 
                ``qualified employer retirement plan'' means 
                any plan or contract described in paragraph 
                (1), (2), or (3) of section 4974(c).
          (2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, 
        employee contributions (and any income allocable 
        thereto) under a defined contribution plan may be 
        treated as a separate contract.
  (e) Amounts not received as annuities.--
          (1) Application of subsection.--
                  (A) In general.--This subsection shall apply 
                to any amount which--
                          (i) is received under an annuity, 
                        endowment, or life insurance contract, 
                        and
                          (ii) is not received as an annuity,
                if no provision of this subtitle (other than 
                this subsection) applies with respect to such 
                amount.
                  (B) Dividends.--For purposes of this section, 
                any amount received which is in the nature of a 
                dividend or similar distribution shall be 
                treated as an amount not received as an 
                annuity.
          (2) General rule.--Any amount to which this 
        subsection applies--
                  (A) if received on or after the annuity 
                starting date, shall be included in gross 
                income, or
                  (B) if received before the annuity starting 
                date--
                          (i) shall be included in gross income 
                        to the extent allocable to income on 
                        the contract, and
                          (ii) shall not be included in gross 
                        income to the extent allocable to the 
                        investment in the contract.
          (3) Allocation of amounts to income and investment.--
        For purposes of paragraph (2)(B)--
                  (A) Allocation to income.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to income on the contract to the 
                extent that such amount does not exceed the 
                excess (if any) of--
                          (i) the cash value of the contract 
                        (determined without regard to any 
                        surrender charge) immediately before 
                        the amount is received, over
                          (ii) the investment in the contract 
                        at such time.
                  (B) Allocation to investment.--Any amount to 
                which this subsection applies shall be treated 
                as allocable to investment in the contract to 
                the extent that such amount is not allocated to 
                income under subparagraph (A).
          (4) Special rules for application of paragraph 
        (2)(B).--For purposes of paragraph (2)(B)--
                  (A) Loans treated as distributions.--If, 
                during any taxable year, an individual--
                          (i) receives (directly or indirectly) 
                        any amount as a loan under any contract 
                        to which this subsection applies, or
                          (ii) assigns or pledges (or agrees to 
                        assign or pledge) any portion of the 
                        value of any such contract,
                such amount or portion shall be treated as 
                received under the contract as an amount not 
                received as an annuity. The preceding sentence 
                shall not apply for purposes of determining 
                investment in the contract, except that the 
                investment in the contract shall be increased 
                by any amount included in gross income by 
                reason of the amount treated as received under 
                the preceding sentence.
                  (B) Treatment of policyholder dividends.--Any 
                amount described in paragraph (1)(B) shall not 
                be included in gross income under paragraph 
                (2)(B)(i) to the extent such amount is retained 
                by the insurer as a premium or other 
                consideration paid for the contract.
                  (C) Treatment of transfers without adequate 
                consideration.--
                          (i) In general.--If an individual who 
                        holds an annuity contract transfers it 
                        without full and adequate 
                        consideration, such individual shall be 
                        treated as receiving an amount equal to 
                        the excess of--
                                  (I) the cash surrender value 
                                of such contract at the time of 
                                transfer, over
                                  (II) the investment in such 
                                contract at such time,
                 under the contract as an amount not received 
                as an annuity.
                          (ii) Exception for certain transfers 
                        between spouses or former spouses.--
                        Clause (i) shall not apply to any 
                        transfer to which section 1041(a) 
                        (relating to transfers of property 
                        between spouses or incident to divorce) 
                        applies.
                          (iii) Adjustment to investment in 
                        contract of transferee.--If under 
                        clause (i) an amount is included in the 
                        gross income of the transferor of an 
                        annuity contract, the investment in the 
                        contract of the transferee in such 
                        contract shall be increased by the 
                        amount so included.
          (5) Retention of existing rules in certain cases.--
                  (A) In general.--In any case to which this 
                paragraph applies--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall not apply, and
                          (ii) if paragraph (2)(A) does not 
                        apply,
                the amount shall be included in gross income, 
                but only to the extent it exceeds the 
                investment in the contract.
                  (B) Existing contracts.--This paragraph shall 
                apply to contracts entered into before August 
                14, 1982. Any amount allocable to investment in 
                the contract after August 13, 1982, shall be 
                treated as from a contract entered into after 
                such date.
                  (C) Certain life insurance and endowment 
                contracts.--Except as provided in paragraph 
                (10) and except to the extent prescribed by the 
                Secretary by regulations, this paragraph shall 
                apply to any amount not received as an annuity 
                which is received under a life insurance or 
                endowment contract.
                  (D) Contracts under qualified plans.--Except 
                as provided in paragraph (8), this paragraph 
                shall apply to any amount received--
                          (i) from a trust described in section 
                        401(a) which is exempt from tax under 
                        section 501(a),
                          (ii) from a contract--
                                  (I) purchased by a trust 
                                described in clause (i),
                                  (II) purchased as part of a 
                                plan described in section 
                                403(a),
                                  (III) described in section 
                                403(b), or
                                  (IV) provided for employees 
                                of a life insurance company 
                                under a plan described in 
                                section 818(a)(3), or
                          (iii) from an individual retirement 
                        account or an individual retirement 
                        annuity.
                Any dividend described in section 404(k) which 
                is received by a participant or beneficiary 
                shall, for purposes of this subparagraph, be 
                treated as paid under a separate contract to 
                which clause (ii)(I) applies.
                  (E) Full refunds, surrenders, redemptions, 
                and maturities.--This paragraph shall apply 
                to--
                          (i) any amount received, whether in a 
                        single sum or otherwise, under a 
                        contract in full discharge of the 
                        obligation under the contract which is 
                        in the nature of a refund of the 
                        consideration paid for the contract, 
                        and
                          (ii) any amount received under a 
                        contract on its complete surrender, 
                        redemption, or maturity.
                In the case of any amount to which the 
                preceding sentence applies, the rule of 
                paragraph (2)(A) shall not apply.
          (6) Investment in the contract.--For purposes of this 
        subsection, the investment in the contract as of any 
        date is--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract before such 
                date, minus
                  (B) the aggregate amount received under the 
                contract before such date, to the extent that 
                such amount was excludable from gross income 
                under this subtitle or prior income tax laws.
          (8) Extension of paragraph (2)(b) to qualified 
        plans.--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, in the case of 
                any amount received before the annuity starting 
                date from a trust or contract described in 
                paragraph (5)(D), paragraph (2)(B) shall apply 
                to such amounts.
                  (B) Allocation of amount received.--For 
                purposes of paragraph (2)(B), the amount 
                allocated to the investment in the contract 
                shall be the portion of the amount described in 
                subparagraph (A) which bears the same ratio to 
                such amount as the investment in the contract 
                bears to the account balance. The determination 
                under the preceding sentence shall be made as 
                of the time of the distribution or at such 
                other time as the Secretary may prescribe.
                  (C) Treatment of forfeitable rights.--If an 
                employee does not have a nonforfeitable right 
                to any amount under any trust or contract to 
                which subparagraph (A) applies, such amount 
                shall not be treated as part of the account 
                balance.
                  (D) Investment in the contract before 1987.--
                In the case of a plan which on May 5, 1986, 
                permitted withdrawal of any employee 
                contributions before separation from service, 
                subparagraph (A) shall apply only to the extent 
                that amounts received before the annuity 
                starting date (when increased by amounts 
                previously received under the contract after 
                December 31, 1986) exceed the investment in the 
                contract as of December 31, 1986.
          (9) Extension of paragraph (2)(B) to qualified 
        tuition programs and Coverdell education savings 
        accounts.--Notwithstanding any other provision of this 
        subsection, paragraph (2)(B) shall apply to amounts 
        received under a qualified tuition program (as defined 
        in section 529(b)) or under a Coverdell education 
        savings account (as defined in section 530(b)). The 
        rule of paragraph (8)(B) shall apply for purposes of 
        this paragraph.
          (10) Treatment of modified endowment contracts.--
                  (A) In general.--Notwithstanding paragraph 
                (5)(C), in the case of any modified endowment 
                contract (as defined in section 7702A)--
                          (i) paragraphs (2)(B) and (4)(A) 
                        shall apply, and
                          (ii) in applying paragraph (4)(A), 
                        ``any person'' shall be substituted for 
                        ``an individual''.
                  (B) Treatment of certain burial contracts.--
                Notwithstanding subparagraph (A), paragraph 
                (4)(A) shall not apply to any assignment (or 
                pledge) of a modified endowment contract if 
                such assignment (or pledge) is solely to cover 
                the payment of expenses referred to in section 
                7702(e)(2)(C)(iii) and if the maximum death 
                benefit under such contract does not exceed 
                $25,000.
          (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.
          (12) Anti-abuse rules.--
                  (A) In general.--For purposes of determining 
                the amount includible in gross income under 
                this subsection--
                          (i) all modified endowment contracts 
                        issued by the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 modified 
                        endowment contract, and
                          (ii) all annuity contracts issued by 
                        the same company to the same 
                        policyholder during any calendar year 
                        shall be treated as 1 annuity contract.
                The preceding sentence shall not apply to any 
                contract described in paragraph (5)(D).
                  (B) Regulatory authority.--The Secretary may 
                by regulations prescribe such additional rules 
                as may be necessary or appropriate to prevent 
                avoidance of the purposes of this subsection 
                through serial purchases of contracts or 
                otherwise.
  (f) Special rules for computing employees' contributions.--In 
computing, for purposes of subsection (c)(1)(A), the aggregate 
amount of premiums or other consideration paid for the 
contract, and for purposes of subsection (e)(6), the aggregate 
premiums or other consideration paid, amounts contributed by 
the employer shall be included, but only to the extent that--
          (1) such amounts were includible in the gross income 
        of the employee under this subtitle or prior income tax 
        laws; or
          (2) if such amounts had been paid directly to the 
        employee at the time they were contributed, they would 
        not have been includible in the gross income of the 
        employee under the law applicable at the time of such 
        contribution.
Paragraph (2) shall not apply to amounts which were contributed 
by the employer after December 31, 1962, and which would not 
have been includible in the gross income of the employee by 
reason of the application of section 911 if such amounts had 
been paid directly to the employee at the time of contribution. 
The preceding sentence shall not apply to amounts which were 
contributed by the employer, as determined under regulations 
prescribed by the Secretary, to provide pension or annuity 
credits, to the extent such credits are attributable to 
services performed before January 1, 1963, and are provided 
pursuant to pension or annuity plan provisions in existence on 
March 12, 1962, and on that date applicable to such services, 
or to the extent such credits are attributable to services 
performed as a foreign missionary (within the meaning of 
section 403(b)(2)(D)(iii), as in effect before the enactment of 
the Economic Growth and Tax Relief Reconciliation Act of 2001).
  (g) Rules for transferee where transfer was for value.--Where 
any contract (or any interest therein) is transferred (by 
assignment or otherwise) for a valuable consideration, to the 
extent that the contract (or interest therein) does not, in the 
hands of the transferee, have a basis which is determined by 
reference to the basis in the hands of the transferor, then--
          (1) for purposes of this section, only the actual 
        value of such consideration, plus the amount of the 
        premiums and other consideration paid by the transferee 
        after the transfer, shall be taken into account in 
        computing the aggregate amount of the premiums or other 
        consideration paid for the contract;
          (2) for purposes of subsection (c)(1)(B), there shall 
        be taken into account only the aggregate amount 
        received under the contract by the transferee before 
        the annuity starting date, to the extent that such 
        amount was excludable from gross income under this 
        subtitle or prior income tax laws; and
          (3) the annuity starting date is the first day of the 
        first period for which the transferee received an 
        amount under the contract as an annuity.
For purposes of this subsection, the term ``transferee'' 
includes a beneficiary of, or the estate of, the transferee.
  (h) Option to receive annuity in lieu of lump sum.--If--
          (1) a contract provides for payment of a lump sum in 
        full discharge of an obligation under the contract, 
        subject to an option to receive an annuity in lieu of 
        such lump sum;
          (2) the option is exercised within 60 days after the 
        day on which such lump sum first became payable; and
          (3) part or all of such lump sum would (but for this 
        subsection) be includible in gross income by reason of 
        subsection (e)(1),
then, for purposes of this subtitle, no part of such lump sum 
shall be considered as includible in gross income at the time 
such lump sum first became payable.
  (j) Interest.--Notwithstanding any other provision of this 
section, if any amount is held under an agreement to pay 
interest thereon, the interest payments shall be included in 
gross income.
  (l) Face-amount certificates.--For purposes of this section, 
the term ``endowment contract'' includes a face-amount 
certificate, as defined in section 2(a)(15) of the Investment 
Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after 
December 31, 1954.
  (m) Special rules applicable to employee annuities and 
distributions under employee plans.--
          (2) Computation of consideration paid by the 
        employee.--In computing--
                  (A) the aggregate amount of premiums or other 
                consideration paid for the contract for 
                purposes of subsection (c)(1)(A) (relating to 
                the investment in the contract), and
                  (B) the aggregate premiums or other 
                consideration paid for purposes of subsection 
                (e)(6) (relating to certain amounts not 
                received as an annuity),
        any amount allowed as a deduction with respect to the 
        contract under section 404 which was paid while the 
        employee was an employee within the meaning of section 
        401(c)(1) shall be treated as consideration contributed 
        by the employer, and there shall not be taken into 
        account any portion of the premiums or other 
        consideration for the contract paid while the employee 
        was an owner-employee which is properly allocable (as 
        determined under regulations prescribed by the 
        Secretary) to the cost of life, accident, health, or 
        other insurance.
          (3) Life insurance contracts.--
                  (A) This paragraph shall apply to any life 
                insurance contract--
                          (i) purchased as a part of a plan 
                        described in section 403(a), or
                          (ii) purchased by a trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a) if the 
                        proceeds of such contract are payable 
                        directly or indirectly to a participant 
                        in such trust or to a beneficiary of 
                        such participant.
                  (B) Any contribution to a plan described in 
                subparagraph (A)(i) or a trust described in 
                subparagraph (A)(ii) which is allowed as a 
                deduction under section 404, and any income of 
                a trust described in subparagraph (A)(ii), 
                which is determined in accordance with 
                regulations prescribed by the Secretary to have 
                been applied to purchase the life insurance 
                protection under a contract described in 
                subparagraph (A), is includible in the gross 
                income of the participant for the taxable year 
                when so applied.
                  (C) In the case of the death of an individual 
                insured under a contract described in 
                subparagraph (A), an amount equal to the cash 
                surrender value of the contract immediately 
                before the death of the insured shall be 
                treated as a payment under such plan or a 
                distribution by such trust, and the excess of 
                the amount payable by reason of the death of 
                the insured over such cash surrender value 
                shall not be includible in gross income under 
                this section and shall be treated as provided 
                in section 101.
          (5) Penalties applicable to certain amounts received 
        by 5-percent owners.--
                  (A) This paragraph applies to amounts which 
                are received from a qualified trust described 
                in section 401(a) or under a plan described in 
                section 403(a) at any time by an individual who 
                is, or has been, a 5-percent owner, or by a 
                successor of such an individual, but only to 
                the extent such amounts are determined, under 
                regulations prescribed by the Secretary, to 
                exceed the benefits provided for such 
                individual under the plan formula.
                  (B) If a person receives an amount to which 
                this paragraph applies, his tax under this 
                chapter for the taxable year in which such 
                amount is received shall be increased by an 
                amount equal to 10 percent of the portion of 
                the amount so received which is includible in 
                his gross income for such taxable year.
                  (C) For purposes of this paragraph, the term 
                ``5-percent owner'' means any individual who, 
                at any time during the 5 plan years preceding 
                the plan year ending in the taxable year in 
                which the amount is received, is a 5-percent 
                owner (as defined in section 416(i)(1)(B)).
          (6) Owner-employee defined.--For purposes of this 
        subsection, the term ``owner-employee'' has the meaning 
        assigned to it by section 401(c)(3) and includes an 
        individual for whose benefit an individual retirement 
        account or annuity described in section 408(a) or (b) 
        is maintained. For purposes of the preceding sentence, 
        the term ``owner-employee'' shall include an employee 
        within the meaning of section 401(c)(1).
          (7) Meaning of disabled.--For purposes of this 
        section, an individual shall be considered to be 
        disabled if he 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. An individual shall not be 
        considered to be disabled unless he furnishes proof of 
        the existence thereof in such form and manner as the 
        Secretary may require.
          (10) Determination of investment in the contract in 
        the case of qualified domestic relations orders.--Under 
        regulations prescribed by the Secretary, in the case of 
        a distribution or payment made to an alternate payee 
        who is the spouse or former spouse of the participant 
        pursuant to a qualified domestic relations order (as 
        defined in section 414(p)), the investment in the 
        contract as of the date prescribed in such regulations 
        shall be allocated on a pro rata basis between the 
        present value of such distribution or payment and the 
        present value of all other benefits payable with 
        respect to the participant to which such order relates.
  (n) Annuities under retired serviceman's family protection 
plan or survivor benefit plan.--Subsection (b) shall not apply 
in the case of amounts received after December 31, 1965, as an 
annuity under chapter 73 of title 10 of the United States Code, 
but all such amounts shall be excluded from gross income until 
there has been so excluded (under section 122(b)(1) or this 
section, including amounts excluded before January 1, 1966) an 
amount equal to the consideration for the contract (as defined 
by section 122(b)(2)), plus any amount treated pursuant to 
section 101(b)(2)(D) (as in effect on the day before the date 
of the enactment of the Small Business Job Protection Act of 
1996) as additional consideration paid by the employee. 
Thereafter all amounts so received shall be included in gross 
income.
  (o) Special rules for distributions from qualified plans to 
which employee made deductible contributions.--
          (1) Treatment of contributions.--For purposes of this 
        section and sections 402 and 403, notwithstanding 
        section 414(h), any deductible employee contribution 
        made to a qualified employer plan or government plan 
        shall be treated as an amount contributed by the 
        employer which is not includible in the gross income of 
        the employee.
          (3) Amounts constructively received.--
                  (A) In general.--For purposes of this 
                subsection, rules similar to the rules provided 
                by subsection (p) (other than the exception 
                contained in paragraph (2) thereof) shall 
                apply.
                  (B) Purchase of life insurance.--To the 
                extent any amount of accumulated deductible 
                employee contributions of an employee are 
                applied to the purchase of life insurance 
                contracts, such amount shall be treated as 
                distributed to the employee in the year so 
                applied.
          (4) Special rule for treatment of rollover amounts.--
        For purposes of sections 402(c), 403(a)(4), 403(b)(8), 
        408(d)(3), and 457(e)(16), the Secretary shall 
        prescribe regulations providing for such allocations of 
        amounts attributable to accumulated deductible employee 
        contributions, and for such other rules, as may be 
        necessary to insure that such accumulated deductible 
        employee contributions do not become eligible for 
        additional tax benefits (or freed from limitations) 
        through the use of rollovers.
          (5) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Deductible employee contributions.--The 
                term ``deductible employee contributions'' 
                means any qualified voluntary employee 
                contribution (as defined in section 219(e)(2)) 
                made after December 31, 1981, in a taxable year 
                beginning after such date and made for a 
                taxable year beginning before January 1, 1987, 
                and allowable as a deduction under section 
                219(a) for such taxable year.
                  (B) Accumulated deductible employee 
                contributions.--The term ``accumulated 
                deductible employee contributions'' means the 
                deductible employee contributions--
                          (i) increased by the amount of income 
                        and gain allocable to such 
                        contributions, and
                          (ii) reduced by the sum of the amount 
                        of loss and expense allocable to such 
                        contributions and the amounts 
                        distributed with respect to the 
                        employee which are attributable to such 
                        contributions (or income or gain 
                        allocable to such contributions).
                  (C) Qualified employer plan.--The term 
                ``qualified employer plan'' has the meaning 
                given to such term by subsection (p)(3)(A)(i).
                  (D) Government plan.--The term ``government 
                plan'' has the meaning given such term by 
                subsection (p)(3)(B).
          (6) Ordering rules.--Unless the plan specifies 
        otherwise, any distribution from such plan shall not be 
        treated as being made from the accumulated deductible 
        employee contributions, until all other amounts to the 
        credit of the employee have been distributed.
  (p) Loans treated as distributions.--For purposes of this 
section--
          (1) Treatment as distributions.--
                  (A) Loans.--If during any taxable year a 
                participant or beneficiary receives (directly 
                or indirectly) any amount as a loan from a 
                qualified employer plan, such amount shall be 
                treated as having been received by such 
                individual as a distribution under such plan.
                  (B) Assignments or pledges.--If during any 
                taxable year a participant or beneficiary 
                assigns (or agrees to assign) or pledges (or 
                agrees to pledge) any portion of his interest 
                in a qualified employer plan, such portion 
                shall be treated as having been received by 
                such individual as a loan from such plan.
          (2) Exception for certain loans.--
                  (A) General rule.--Paragraph (1) shall not 
                apply to any loan to the extent that such loan 
                (when added to the outstanding balance of all 
                other loans from such plan whether made on, 
                before, or after August 13, 1982), does not 
                exceed the lesser of--
                          (i) $50,000, reduced by the excess 
                        (if any) of--
                                  (I) the highest outstanding 
                                balance of loans from the plan 
                                during the 1-year period ending 
                                on the day before the date on 
                                which such loan was made, over
                                  (II) the outstanding balance 
                                of loans from the plan on the 
                                date on which such loan was 
                                made, or
                          (ii) the greater of (I) one-half of 
                        the present value of the nonforfeitable 
                        accrued benefit of the employee under 
                        the plan, or (II) $10,000.
                For purposes of clause (ii), the present value 
                of the nonforfeitable accrued benefit shall be 
                determined without regard to any accumulated 
                deductible employee contributions (as defined 
                in subsection (o)(5)(B)).
                  (B) Requirement that loan be repayable within 
                5 years.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply to any loan unless such 
                        loan, by its terms, is required to be 
                        repaid within 5 years.
                          (ii) Exception for home loans.--
                        Clause (i) shall not apply to any loan 
                        used to acquire any dwelling unit which 
                        within a reasonable time is to be used 
                        (determined at the time the loan is 
                        made) as the principal residence of the 
                        participant.
                  (C) Requirement of level amortization.--
                Except as provided in regulations, this 
                paragraph shall not apply to any loan unless 
                substantially level amortization of such loan 
                (with payments not less frequently than 
                quarterly) is required over the term of the 
                loan.
                  (D) Prohibition of loans through credit cards 
                and other similar arrangements.--Subparagraph 
                (A) shall not apply to any loan which is made 
                through the use of any credit card or any other 
                similar arrangement.
                  [(D)] (E) Related employers and related 
                plans.--For purposes of this paragraph--
                          (i) the rules of subsections (b), 
                        (c), and (m) of section 414 shall 
                        apply, and
                          (ii) all plans of an employer 
                        (determined after the application of 
                        such subsections) shall be treated as 1 
                        plan.
          (3) Denial of interest deductions in certain cases.--
                  (A) In general.--No deduction otherwise 
                allowable under this chapter shall be allowed 
                under this chapter for any interest paid or 
                accrued on any loan to which paragraph (1) does 
                not apply by reason of paragraph (2) during the 
                period described in subparagraph (B).
                  (B) Period to which subparagraph (A) 
                applies.--For purposes of subparagraph (A), the 
                period described in this subparagraph is the 
                period--
                          (i) on or after the 1st day on which 
                        the individual to whom the loan is made 
                        is a key employee (as defined in 
                        section 416(i)), or
                          (ii) such loan is secured by amounts 
                        attributable to elective deferrals 
                        described in subparagraph (A) or (C) of 
                        section 402(g)(3).
          (4) Qualified employer plan, etc..--For purposes of 
        this subsection--
                  (A) Qualified employer plan.--
                          (i) In general.--The term ``qualified 
                        employer plan'' means--
                                  (I) a plan described in 
                                section 401(a) which includes a 
                                trust exempt from tax under 
                                section 501(a),
                                  (II) an annuity plan 
                                described in section 403(a), 
                                and
                                  (III) a plan under which 
                                amounts are contributed by an 
                                individual's employer for an 
                                annuity contract described in 
                                section 403(b).
                          (ii) Special rule.--The term 
                        ``qualified employer plan'' shall 
                        include any plan which was (or was 
                        determined to be) a qualified employer 
                        plan or a government plan.
                  (B) Government plan.--The term ``government 
                plan'' means any plan, whether or not 
                qualified, established and maintained for its 
                employees by the United States, by a State or 
                political subdivision thereof, or by an agency 
                or instrumentality of any of the foregoing.
          (5) Special rules for loans, etc., from certain 
        contracts.--For purposes of this subsection, any amount 
        received as a loan under a contract purchased under a 
        qualified employer plan (and any assignment or pledge 
        with respect to such a contract) shall be treated as a 
        loan under such employer plan.
  (q) 10-percent penalty for premature distributions from 
annuity contracts.--
          (1) Imposition of penalty.--If any taxpayer receives 
        any amount under an annuity contract, the taxpayer's 
        tax under this chapter for the taxable year in which 
        such amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph (1) shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 591/2,
                  (B) made on or after the death of the holder 
                (or, where the holder is not an individual, the 
                death of the primary annuitant (as defined in 
                subsection (s)(6)(B))),
                  (C) attributable to the taxpayer's becoming 
                disabled within the meaning of subsection 
                (m)(7),
                  (D) which is a part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his designated beneficiary,
                  (E) from a plan, contract, account, trust, or 
                annuity described in subsection (e)(5)(D),
                  (F) allocable to investment in the contract 
                before August 14, 1982, or
                  (G) under a qualified funding asset (within 
                the meaning of section 130(d), but without 
                regard to whether there is a qualified 
                assignment),
                  (H) to which subsection (t) applies (without 
                regard to paragraph (2) thereof),
                  (I) under an immediate annuity contract 
                (within the meaning of section 72(u)(4)), or
                  (J) which is purchased by an employer upon 
                the termination of a plan described in section 
                401(a) or 403(a) and which is held by the 
                employer until such time as the employee 
                separates from service.
          (3) Change in substantially equal payments.--If--
                  (A) paragraph (1) does not apply to a 
                distribution by reason of paragraph (2)(D), and
                  (B) the series of payments under such 
                paragraph are subsequently modified (other than 
                by reason of death or disability)--
                          (i) before the close of the 5-year 
                        period beginning on the date of the 
                        first payment and after the taxpayer 
                        attains age 591/2, or
                          (ii) before the taxpayer attains age 
                        591/2,
        the taxpayer's tax for the 1st taxable year in which 
        such modification occurs shall be increased by an 
        amount, determined under regulations, equal to the tax 
        which (but for paragraph (2)(D)) would have been 
        imposed, plus interest for the deferral period (within 
        the meaning of subsection (t)(4)(B)).
  (r) Certain railroad retirement benefits treated as received 
under employer plans.--
          (1) In general.--Notwithstanding any other provision 
        of law, any benefit provided under the Railroad 
        Retirement Act of 1974 (other than a tier 1 railroad 
        retirement benefit) shall be treated for purposes of 
        this title as a benefit provided under an employer plan 
        which meets the requirements of section 401(a).
          (2) Tier 2 taxes treated as contributions.--
                  (A) In general.--For purposes of paragraph 
                (1)--
                          (i) the tier 2 portion of the tax 
                        imposed by section 3201 (relating to 
                        tax on employees) shall be treated as 
                        an employee contribution,
                          (ii) the tier 2 portion of the tax 
                        imposed by section 3211 (relating to 
                        tax on employee representatives) shall 
                        be treated as an employee contribution, 
                        and
                          (iii) the tier 2 portion of the tax 
                        imposed by section 3221 (relating to 
                        tax on employers) shall be treated as 
                        an employer contribution.
                  (B) Tier 2 portion.--For purposes of 
                subparagraph (A)--
                          (i) After 1984.--With respect to 
                        compensation paid after 1984, the tier 
                        2 portion shall be the taxes imposed by 
                        sections 3201(b), 3211(b), and 3221(b).
                          (ii) After September 30, 1981, and 
                        before 1985.--With respect to 
                        compensation paid before 1985 for 
                        services rendered after September 30, 
                        1981, the tier 2 portion shall be--
                                  (I) so much of the tax 
                                imposed by section 3201 as is 
                                determined at the 2 percent 
                                rate, and
                                  (II) so much of the taxes 
                                imposed by sections 3211 and 
                                3221 as is determined at the 
                                11.75 percent rate.
                 With respect to compensation paid for services 
                rendered after December 31, 1983, and before 
                1985, subclause (I) shall be applied by 
                substituting ``2.75 percent'' for ``2 
                percent'', and subclause (II) shall be applied 
                by substituting ``12.75 percent'' for ``11.75 
                percent''.
                          (iii) Before October 1, 1981.--With 
                        respect to compensation paid for 
                        services rendered during any period 
                        before October 1, 1981, the tier 2 
                        portion shall be the excess (if any) 
                        of--
                                  (I) the tax imposed for such 
                                period by section 3201, 3211, 
                                or 3221, as the case may be 
                                (other than any tax imposed 
                                with respect to man-hours), 
                                over
                                  (II) the tax which would have 
                                been imposed by such section 
                                for such period had the rates 
                                of the comparable taxes imposed 
                                by chapter 21 for such period 
                                applied under such section.
                  (C) Contributions not allocable to 
                supplemental annuity or windfall benefits.--For 
                purposes of paragraph (1), no amount treated as 
                an employee contribution under this paragraph 
                shall be allocated to--
                          (i) any supplemental annuity paid 
                        under section 2(b) of the Railroad 
                        Retirement Act of 1974, or
                          (ii) any benefit paid under section 
                        3(h), 4(e), or 4(h) of such Act.
          (3) Tier 1 railroad retirement benefit.--For purposes 
        of paragraph (1), the term ``tier 1 railroad retirement 
        benefit'' has the meaning given such term by section 
        86(d)(4).
  (s) Required distributions where holder dies before entire 
interest is distributed.--
          (1) In general.--A contract shall not be treated as 
        an annuity contract for purposes of this title unless 
        it provides that--
                  (A) if any holder of such contract dies on or 
                after the annuity starting date and before the 
                entire interest in such contract has been 
                distributed, the remaining portion of such 
                interest will be distributed at least as 
                rapidly as under the method of distributions 
                being used as of the date of his death, and
                  (B) if any holder of such contract dies 
                before the annuity starting date, the entire 
                interest in such contract will be distributed 
                within 5 years after the death of such holder.
          (2) Exception for certain amounts payable over life 
        of beneficiary.--If--
                  (A) any portion of the holder's interest is 
                payable to (or for the benefit of) a designated 
                beneficiary,
                  (B) such portion will be distributed (in 
                accordance with regulations) over the life of 
                such designated beneficiary (or over a period 
                not extending beyond the life expectancy of 
                such beneficiary), and
                  (C) such distributions begin not later than 1 
                year after the date of the holder's death or 
                such later date as the Secretary may by 
                regulations prescribe,
        then for purposes of paragraph (1), the portion 
        referred to in subparagraph (A) shall be treated as 
        distributed on the day on which such distributions 
        begin.
          (3) Special rule where surviving spouse 
        beneficiary.--If the designated beneficiary referred to 
        in paragraph (2)(A) is the surviving spouse of the 
        holder of the contract, paragraphs (1) and (2) shall be 
        applied by treating such spouse as the holder of such 
        contract.
          (4) Designated beneficiary.--For purposes of this 
        subsection, the term ``designated beneficiary'' means 
        any individual designated a beneficiary by the holder 
        of the contract.
          (5) Exception for certain annuity contracts.--This 
        subsection shall not apply to any annuity contract--
                  (A) which is provided--
                          (i) under a plan described in section 
                        401(a) which includes a trust exempt 
                        from tax under section 501, or
                          (ii) under a plan described in 
                        section 403(a),
                  (B) which is described in section 403(b),
                  (C) which is an individual retirement annuity 
                or provided under an individual retirement 
                account or annuity, or
                  (D) which is a qualified funding asset (as 
                defined in section 130(d), but without regard 
                to whether there is a qualified assignment).
          (6) Special rule where holder is corporation or other 
        non-individual.--
                  (A) In general.--For purposes of this 
                subsection, if the holder of the contract is 
                not an individual, the primary annuitant shall 
                be treated as the holder of the contract.
                  (B) Primary annuitant.--For purposes of 
                subparagraph (A), the term ``primary 
                annuitant'' means the individual, the events in 
                the life of whom are of primary importance in 
                affecting the timing or amount of the payout 
                under the contract.
          (7) Treatment of changes in primary annuitant where 
        holder of contract is not an individual.--For purposes 
        of this subsection, in the case of a holder of an 
        annuity contract which is not an individual, if there 
        is a change in a primary annuitant (as defined in 
        paragraph (6)(B)), such change shall be treated as the 
        death of the holder.
  (t) 10-percent additional tax on early distributions from 
qualified retirement plans.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount from a qualified retirement plan 
        (as defined in section 4974(c)), the taxpayer's tax 
        under this chapter for the taxable year in which such 
        amount is received shall be increased by an amount 
        equal to 10 percent of the portion of such amount which 
        is includible in gross income.
          (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) In general.--Distributions which are--
                          (i) made on or after the date on 
                        which the employee attains age 591/2,
                          (ii) made to a beneficiary (or to the 
                        estate of the employee) on or after the 
                        death of the employee,
                          (iii) attributable to the employee's 
                        being disabled within the meaning of 
                        subsection (m)(7),
                          (iv) part of a series of 
                        substantially equal periodic payments 
                        (not less frequently than annually) 
                        made for the life (or life expectancy) 
                        of the employee or the joint lives (or 
                        joint life expectancies) of such 
                        employee and his designated 
                        beneficiary,
                          (v) made to an employee after 
                        separation from service after 
                        attainment of age 55,
                          (vi) dividends paid with respect to 
                        stock of a corporation which are 
                        described in section 404(k),
                          (vii) made on account of a levy under 
                        section 6331 on the qualified 
                        retirement plan, or
                          (viii) payments under a phased 
                        retirement annuity under section 
                        8366a(a)(5) or 8412a(a)(5) of title 5, 
                        United States Code, or a composite 
                        retirement annuity under section 
                        8366a(a)(1) or 8412a(a)(1) of such 
                        title.
                  (B) Medical expenses.--Distributions made to 
                the employee (other than distributions 
                described in subparagraph (A), (C), or (D)) to 
                the extent such distributions do not exceed the 
                amount allowable as a deduction under section 
                213 to the employee for amounts paid during the 
                taxable year for medical care (determined 
                without regard to whether the employee itemizes 
                deductions for such taxable year).
                  (C) Payments to alternate payees pursuant to 
                qualified domestic relations orders.--Any 
                distribution to an alternate payee pursuant to 
                a qualified domestic relations order (within 
                the meaning of section 414(p)(1)).
                  (D) Distributions to unemployed individuals 
                for health insurance premiums.--
                          (i) In general.--Distributions from 
                        an individual retirement plan to an 
                        individual after separation from 
                        employment--
                                  (I) if such individual has 
                                received unemployment 
                                compensation for 12 consecutive 
                                weeks under any Federal or 
                                State unemployment compensation 
                                law by reason of such 
                                separation,
                                  (II) if such distributions 
                                are made during any taxable 
                                year during which such 
                                unemployment compensation is 
                                paid or the succeeding taxable 
                                year, and
                                  (III) to the extent such 
                                distributions do not exceed the 
                                amount paid during the taxable 
                                year for insurance described in 
                                section 213(d)(1)(D) with 
                                respect to the individual and 
                                the individual's spouse and 
                                dependents (as defined in 
                                section 152, determined without 
                                regard to subsections (b)(1), 
                                (b)(2), and (d)(1)(B) thereof).
                          (ii) Distributions after 
                        reemployment.--Clause (i) shall not 
                        apply to any distribution made after 
                        the individual has been employed for at 
                        least 60 days after the separation from 
                        employment to which clause (i) applies.
                          (iii) Self-employed individuals.--To 
                        the extent provided in regulations, a 
                        self-employed individual shall be 
                        treated as meeting the requirements of 
                        clause (i)(I) if, under Federal or 
                        State law, the individual would have 
                        received unemployment compensation but 
                        for the fact the individual was self-
                        employed.
                  (E) Distributions from individual retirement 
                plans for higher education expenses.--
                Distributions to an individual from an 
                individual retirement plan to the extent such 
                distributions do not exceed the qualified 
                higher education expenses (as defined in 
                paragraph (7)) of the taxpayer for the taxable 
                year. Distributions shall not be taken into 
                account under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), or (D) or to the extent paragraph (1) 
                does not apply to such distributions by reason 
                of subparagraph (B).
                  (F) Distributions from certain plans for 
                first home purchases.--Distributions to an 
                individual from an individual retirement plan 
                which are qualified first-time homebuyer 
                distributions (as defined in paragraph (8)). 
                Distributions shall not be taken into account 
                under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), (D), or (E) or to the extent 
                paragraph (1) does not apply to such 
                distributions by reason of subparagraph (B).
                  (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. 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) Distributions from retirement plans in 
                case of birth of child or adoption.--
                          (i) In general.--Any qualified birth 
                        or adoption distribution.
                          (ii) Limitation.--The aggregate 
                        amount which may be treated as 
                        qualified birth or adoption 
                        distributions by any individual with 
                        respect to any birth or adoption shall 
                        not exceed $5,000.
                          (iii) Qualified birth or adoption 
                        distribution.--For purposes of this 
                        subparagraph--
                                  (I) In general.--The term 
                                ``qualified birth or adoption 
                                distribution'' means any 
                                distribution from an applicable 
                                eligible retirement plan to an 
                                individual if made during the 
                                1-year period beginning on the 
                                date on which a child of the 
                                individual is born or on which 
                                the legal adoption by the 
                                individual of an eligible 
                                adoptee is finalized.
                                  (II) Eligible adoptee.--The 
                                term ``eligible adoptee'' means 
                                any individual (other than a 
                                child of the taxpayer's spouse) 
                                who has not attained age 18 or 
                                is physically or mentally 
                                incapable of self-support.
                          (iv) Treatment of plan 
                        distributions.--
                                  (I) In general.--If a 
                                distribution to an individual 
                                would (without regard to clause 
                                (ii)) be a qualified birth or 
                                adoption distribution, a plan 
                                shall not be treated as failing 
                                to meet any requirement of this 
                                title merely because the plan 
                                treats the distribution as a 
                                qualified birth or adoption 
                                distribution, unless the 
                                aggregate amount of such 
                                distributions from all plans 
                                maintained by the employer (and 
                                any member of any controlled 
                                group which includes the 
                                employer) to such individual 
                                exceeds $5,000.
                                  (II) Controlled group.--For 
                                purposes of subclause (I), the 
                                term ``controlled group'' means 
                                any group treated as a single 
                                employer under subsection (b), 
                                (c), (m), or (o) of section 
                                414.
                          (v) Amount distributed may be 
                        repaid.--
                                  (I) In general.--Any 
                                individual who receives a 
                                qualified birth or adoption 
                                distribution may make one or 
                                more contributions in an 
                                aggregate amount not to exceed 
                                the amount of such distribution 
                                to an applicable eligible 
                                retirement plan of which such 
                                individual is a beneficiary and 
                                to which a rollover 
                                contribution of such 
                                distribution could be made 
                                under section 402(c), 
                                403(a)(4), 403(b)(8), 
                                408(d)(3), or 457(e)(16), as 
                                the case may be.
                                  (II) Limitation on 
                                contributions to applicable 
                                eligible retirement plans other 
                                than iras.--The aggregate 
                                amount of contributions made by 
                                an individual under subclause 
                                (I) to any applicable eligible 
                                retirement plan which is not an 
                                individual retirement plan 
                                shall not exceed the aggregate 
                                amount of qualified birth or 
                                adoption distributions which 
                                are made from such plan to such 
                                individual. Subclause (I) shall 
                                not apply to contributions to 
                                any applicable eligible 
                                retirement plan which is not an 
                                individual retirement plan 
                                unless the individual is 
                                eligible to make contributions 
                                (other than those described in 
                                subclause (I)) to such 
                                applicable eligible retirement 
                                plan.
                                  (III) Treatment of repayments 
                                of distributions from 
                                applicable eligible retirement 
                                plans other than iras.--If a 
                                contribution is made under 
                                subclause (I) with respect to a 
                                qualified birth or adoption 
                                distribution from an applicable 
                                eligible retirement plan other 
                                than an individual retirement 
                                plan, then the taxpayer shall, 
                                to the extent of the amount of 
                                the contribution, be treated as 
                                having received such 
                                distribution in an eligible 
                                rollover distribution (as 
                                defined in section 402(c)(4)) 
                                and as having transferred the 
                                amount to the applicable 
                                eligible retirement plan in a 
                                direct trustee to trustee 
                                transfer within 60 days of the 
                                distribution.
                                  (IV) Treatment of repayments 
                                for distributions from iras.--
                                If a contribution is made under 
                                subclause (I) with respect to a 
                                qualified birth or adoption 
                                distribution from an individual 
                                retirement plan, then, to the 
                                extent of the amount of the 
                                contribution, such distribution 
                                shall be treated as a 
                                distribution described in 
                                section 408(d)(3) and as having 
                                been transferred to the 
                                applicable eligible retirement 
                                plan in a direct trustee to 
                                trustee transfer within 60 days 
                                of the distribution.
                          (vi) Definition and special rules.--
                        For purposes of this subparagraph--
                                  (I) Applicable eligible 
                                retirement plan.--The term 
                                ``applicable eligible 
                                retirement plan'' means an 
                                eligible retirement plan (as 
                                defined in section 
                                402(c)(8)(B)) other than a 
                                defined benefit plan.
                                  (II) Exemption of 
                                distributions from trustee to 
                                trustee transfer and 
                                withholding rules.--For 
                                purposes of sections 
                                401(a)(31), 402(f), and 3405, a 
                                qualified birth or adoption 
                                distribution shall not be 
                                treated as an eligible rollover 
                                distribution.
                                  (III) Taxpayer must include 
                                tin.--A distribution shall not 
                                be treated as a qualified birth 
                                or adoption distribution with 
                                respect to any child or 
                                eligible adoptee unless the 
                                taxpayer includes the name, 
                                age, and TIN of such child or 
                                eligible adoptee on the 
                                taxpayer's return of tax for 
                                the taxable year.
                                  (IV) Distributions treated as 
                                meeting plan distribution 
                                requirements.--Any qualified 
                                birth or adoption distribution 
                                shall be treated as meeting the 
                                requirements of sections 
                                401(k)(2)(B)(i), 
                                403(b)(7)(A)(ii), 403(b)(11), 
                                and 457(d)(1)(A).
          (3) Limitations.--
                  (A) Certain exceptions not to apply to 
                individual retirement plans.--Subparagraphs 
                (A)(v) and (C) of paragraph (2) shall not apply 
                to distributions from an individual retirement 
                plan.
                  (B) Periodic payments under qualified plans 
                must begin after separation.--Paragraph 
                (2)(A)(iv) shall not apply to any amount paid 
                from a trust described in section 401(a) which 
                is exempt from tax under section 501(a) or from 
                a contract described in section 72(e)(5)(D)(ii) 
                unless the series of payments begins after the 
                employee separates from service.
          (4) Change in substantially equal payments.--
                  (A) In general.--If--
                          (i) paragraph (1) does not apply to a 
                        distribution by reason of paragraph 
                        (2)(A)(iv), and
                          (ii) the series of payments under 
                        such paragraph are subsequently 
                        modified (other than by reason of death 
                        or disability or a distribution to 
                        which paragraph (10) applies)--
                                  (I) before the close of the 
                                5-year period beginning with 
                                the date of the first payment 
                                and after the employee attains 
                                age 591/2, or
                                  (II) before the employee 
                                attains age 591/2,
                the taxpayer's tax for the 1st taxable year in 
                which such modification occurs shall be 
                increased by an amount, determined under 
                regulations, equal to the tax which (but for 
                paragraph (2)(A)(iv)) would have been imposed, 
                plus interest for the deferral period.
                  (B) Deferral period.--For purposes of this 
                paragraph, the term ``deferral period'' means 
                the period beginning with the taxable year in 
                which (without regard to paragraph (2)(A)(iv)) 
                the distribution would have been includible in 
                gross income and ending with the taxable year 
                in which the modification described in 
                subparagraph (A) occurs.
          (5) Employee.--For purposes of this subsection, the 
        term ``employee'' includes any participant, and in the 
        case of an individual retirement plan, the individual 
        for whose benefit such plan was established.
          (6) Special rules for simple retirement accounts.--In 
        the case of any amount received from a simple 
        retirement account (within the meaning of section 
        408(p)) during the 2-year period beginning on the date 
        such individual first participated in any qualified 
        salary reduction arrangement maintained by the 
        individual's employer under section 408(p)(2), 
        paragraph (1) shall be applied by substituting ``25 
        percent'' for ``10 percent''.
          (7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(E)--
                  (A) In general.--The term ``qualified higher 
                education expenses'' means qualified higher 
                education expenses (as defined in section 
                529(e)(3)) for education furnished to--
                          (i) the taxpayer,
                          (ii) the taxpayer's spouse, or
                          (iii) any child (as defined in 
                        section 152(f)(1)) or grandchild of the 
                        taxpayer or the taxpayer's spouse,
                at an eligible educational institution (as 
                defined in section 529(e)(5)).
                  (B) Coordination with other benefits.--The 
                amount of qualified higher education expenses 
                for any taxable year shall be reduced as 
                provided in section 25A(g)(2).
          (8) Qualified first-time homebuyer distributions.--
        For purposes of paragraph (2)(F)--
                  (A) In general.--The term ``qualified first-
                time homebuyer distribution'' means any payment 
                or distribution received by an individual to 
                the extent such payment or distribution is used 
                by the individual before the close of the 120th 
                day after the day on which such payment or 
                distribution is received to pay qualified 
                acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual, the spouse of such individual, or 
                any child, grandchild, or ancestor of such 
                individual or the individual's spouse.
                  (B) Lifetime dollar limitation.--The 
                aggregate amount of payments or distributions 
                received by an individual which may be treated 
                as qualified first-time homebuyer distributions 
                for any taxable year shall not exceed the 
                excess (if any) of--
                          (i) $10,000, over
                          (ii) the aggregate amounts treated as 
                        qualified first-time homebuyer 
                        distributions with respect to such 
                        individual for all prior taxable years.
                  (C) Qualified acquisition costs.--For 
                purposes of this paragraph, the term 
                ``qualified acquisition costs'' means the costs 
                of acquiring, constructing, or reconstructing a 
                residence. Such term includes any usual or 
                reasonable settlement, financing, or other 
                closing costs.
                  (D) First-time homebuyer; other 
                definitions.--For purposes of this paragraph--
                          (i) First-time homebuyer.--The term 
                        ``first-time homebuyer'' means any 
                        individual if--
                                  (I) such individual (and if 
                                married, such individual's 
                                spouse) had no present 
                                ownership interest in a 
                                principal residence during the 
                                2-year period ending on the 
                                date of acquisition of the 
                                principal residence to which 
                                this paragraph applies, and
                                  (II) subsection (h) or (k) of 
                                section 1034 (as in effect on 
                                the day before the date of the 
                                enactment of this paragraph) 
                                did not suspend the running of 
                                any period of time specified in 
                                section 1034 (as so in effect) 
                                with respect to such individual 
                                on the day before the date the 
                                distribution is applied 
                                pursuant to subparagraph (A).
                          (ii) Principal residence.--The term 
                        ``principal residence'' has the same 
                        meaning as when used in section 121.
                          (iii) Date of acquisition.--The term 
                        ``date of acquisition'' means the 
                        date--
                                  (I) on which a binding 
                                contract to acquire the 
                                principal residence to which 
                                subparagraph (A) applies is 
                                entered into, or
                                  (II) on which construction or 
                                reconstruction of such a 
                                principal residence is 
                                commenced.
                  (E) Special rule where delay in 
                acquisition.--If any distribution from any 
                individual retirement plan fails to meet the 
                requirements of subparagraph (A) solely by 
                reason of a delay or cancellation of the 
                purchase or construction of the residence, the 
                amount of the distribution may be contributed 
                to an individual retirement plan as provided in 
                section 408(d)(3)(A)(i) (determined by 
                substituting ``120th day'' for ``60th day'' in 
                such section), except that--
                          (i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                          (ii) such amount shall not be taken 
                        into account in determining whether 
                        section 408(d)(3)(B) applies to any 
                        other amount.
          (9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an eligible employer described in 
        section 457(e)(1)(A) shall be treated as a distribution 
        from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible 
        deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).
          (10) Distributions to qualified public safety 
        employees in governmental plans.--
                  (A) In general.--In the case of a 
                distribution to a qualified public safety 
                employee from a governmental plan (within the 
                meaning of section 414(d)), paragraph (2)(A)(v) 
                shall be applied by substituting ``age 50'' for 
                ``age 55''.
                  (B) Qualified public safety employee.--For 
                purposes of this paragraph, the term 
                ``qualified public safety employee'' means--
                          (i) any employee of a State or 
                        political subdivision of a State who 
                        provides police protection, 
                        firefighting services, or emergency 
                        medical services for any area within 
                        the jurisdiction of such State or 
                        political subdivision, or
                          (ii) any Federal law enforcement 
                        officer described in section 8331(20) 
                        or 8401(17) of title 5, United States 
                        Code, any Federal customs and border 
                        protection officer described in section 
                        8331(31) or 8401(36) of such title, any 
                        Federal firefighter described in 
                        section 8331(21) or 8401(14) of such 
                        title, any air traffic controller 
                        described in 8331(30) or 8401(35) of 
                        such title, any nuclear materials 
                        courier described in section 8331(27) 
                        or 8401(33) of such title, any member 
                        of the United States Capitol Police, 
                        any member of the Supreme Court Police, 
                        or any diplomatic security special 
                        agent of the Department of State.
  (u) Treatment of annuity contracts not held by natural 
persons.--
          (1) In general.--If any annuity contract is held by a 
        person who is not a natural person--
                  (A) such contract shall not be treated as an 
                annuity contract for purposes of this subtitle 
                (other than subchapter L), and
                  (B) the income on the contract for any 
                taxable year of the policyholder shall be 
                treated as ordinary income received or accrued 
                by the owner during such taxable year.
        For purposes of this paragraph, holding by a trust or 
        other entity as an agent for a natural person shall not 
        be taken into account.
          (2) Income on the contract.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``income on the contract'' means, 
                with respect to any taxable year of the 
                policyholder, the excess of--
                          (i) the sum of the net surrender 
                        value of the contract as of the close 
                        of the taxable year plus all 
                        distributions under the contract 
                        received during the taxable year or any 
                        prior taxable year, reduced by
                          (ii) the sum of the amount of net 
                        premiums under the contract for the 
                        taxable year and prior taxable years 
                        and amounts includible in gross income 
                        for prior taxable years with respect to 
                        such contract under this subsection.
                Where necessary to prevent the avoidance of 
                this subsection, the Secretary may substitute 
                ``fair market value of the contract'' for ``net 
                surrender value of the contract'' each place it 
                appears in the preceding sentence.
                  (B) Net premiums.--For purposes of this 
                paragraph, the term ``net premiums'' means the 
                amount of premiums paid under the contract 
                reduced by any policyholder dividends.
          (3) Exceptions.--This subsection shall not apply to 
        any annuity contract which--
                  (A) is acquired by the estate of a decedent 
                by reason of the death of the decedent,
                  (B) is held under a plan described in section 
                401(a) or 403(a), under a program described in 
                section 403(b), or under an individual 
                retirement plan,
                  (C) is a qualified funding asset (as defined 
                in section 130(d), but without regard to 
                whether there is a qualified assignment),
                  (D) is purchased by an employer upon the 
                termination of a plan described in section 
                401(a) or 403(a) and is held by the employer 
                until all amounts under such contract are 
                distributed to the employee for whom such 
                contract was purchased or the employee's 
                beneficiary, or
                  (E) is an immediate annuity.
          (4) Immediate annuity.--For purposes of this 
        subsection, the term ``immediate annuity'' means an 
        annuity--
                  (A) which is purchased with a single premium 
                or annuity consideration,
                  (B) the annuity starting date (as defined in 
                subsection (c)(4)) of which commences no later 
                than 1 year from the date of the purchase of 
                the annuity, and
                  (C) which provides for a series of 
                substantially equal periodic payments (to be 
                made not less frequently than annually) during 
                the annuity period.
  (v) 10-percent additional tax for taxable distributions from 
modified endowment contracts.--
          (1) Imposition of additional tax.--If any taxpayer 
        receives any amount under a modified endowment contract 
        (as defined in section 7702A), the taxpayer's tax under 
        this chapter for the taxable year in which such amount 
        is received shall be increased by an amount equal to 10 
        percent of the portion of such amount which is 
        includible in gross income.
          (2) Subsection not to apply to certain 
        distributions.--Paragraph (1) shall not apply to any 
        distribution--
                  (A) made on or after the date on which the 
                taxpayer attains age 591/2,
                  (B) which is attributable to the taxpayer's 
                becoming disabled (within the meaning of 
                subsection (m)(7)), or
                  (C) which is part of a series of 
                substantially equal periodic payments (not less 
                frequently than annually) made for the life (or 
                life expectancy) of the taxpayer or the joint 
                lives (or joint life expectancies) of such 
                taxpayer and his beneficiary.
  (w) Application of basis rules to nonresident aliens.--
          (1) In general.--Notwithstanding any other provision 
        of this section, for purposes of determining the 
        portion of any distribution which is includible in 
        gross income of a distributee who is a citizen or 
        resident of the United States, the investment in the 
        contract shall not include any applicable nontaxable 
        contributions or applicable nontaxable earnings.
          (2) Applicable nontaxable contribution.--For purposes 
        of this subsection, the term ``applicable nontaxable 
        contribution'' means any employer or employee 
        contribution--
                  (A) which was made with respect to 
                compensation--
                          (i) for labor or personal services 
                        performed by an employee who, at the 
                        time the labor or services were 
                        performed, was a nonresident alien for 
                        purposes of the laws of the United 
                        States in effect at such time, and
                          (ii) which is treated as from sources 
                        without the United States, and
                  (B) which was not subject to income tax (and 
                would have been subject to income tax if paid 
                as cash compensation when the services were 
                rendered) under the laws of the United States 
                or any foreign country.
          (3) Applicable nontaxable earnings.--For purposes of 
        this subsection, the term ``applicable nontaxable 
        earnings'' means earnings--
                  (A) which are paid or accrued with respect to 
                any employer or employee contribution which was 
                made with respect to compensation for labor or 
                personal services performed by an employee,
                  (B) with respect to which the employee was at 
                the time the earnings were paid or accrued a 
                nonresident alien for purposes of the laws of 
                the United States, and
                  (C) which were not subject to income tax 
                under the laws of the United States or any 
                foreign country.
          (4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the 
        provisions of this subsection, including regulations 
        treating contributions and earnings as not subject to 
        tax under the laws of any foreign country where 
        appropriate to carry out the purposes of this 
        subsection.
  (x) Cross reference.--For limitation on adjustments to basis 
of annuity contracts sold, see section 1021.

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 139B. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY 
                    MEDICAL RESPONDERS.

  (a) In general.--In the case of any member of a qualified 
volunteer emergency response organization, gross income shall 
not include--
          (1) any qualified State and local tax benefit, and
          (2) any qualified payment.
  (b) Denial of double benefits.--In the case of any member of 
a qualified volunteer emergency response organization--
          (1) the deduction under 164 shall be determined with 
        regard to any qualified State and local tax benefit, 
        and
          (2) expenses paid or incurred by the taxpayer in 
        connection with the performance of services as such a 
        member shall be taken into account under section 170 
        only to the extent such expenses exceed the amount of 
        any qualified payment excluded from gross income under 
        subsection (a).
  (c) Definitions.--For purposes of this section--
          (1) Qualified State and local tax benefit.--The term 
        ``qualified state and local tax benefit'' means any 
        reduction or rebate of a tax described in paragraph 
        (1), (2), or (3) of section 164(a) provided by a State 
        or political division thereof on account of services 
        performed as a member of a qualified volunteer 
        emergency response organization.
          (2) Qualified payment.--
                  (A) In general.--The term ``qualified 
                payment'' means any payment (whether 
                reimbursement or otherwise) provided by a State 
                or political division thereof on account of the 
                performance of services as a member of a 
                qualified volunteer emergency response 
                organization.
                  (B) Applicable dollar limitation.--The amount 
                determined under subparagraph (A) for any 
                taxable year shall not exceed [$30] $50 
                multiplied by the number of months during such 
                year that the taxpayer performs such services.
          (3) Qualified volunteer emergency response 
        organization.--The term ``qualified volunteer emergency 
        response organization'' means any volunteer 
        organization--
                  (A) which is organized and operated to 
                provide firefighting or emergency medical 
                services for persons in the State or political 
                subdivision, as the case may be, and
                  (B) which is required (by written agreement) 
                by the State or political subdivision to 
                furnish firefighting or emergency medical 
                services in such State or political 
                subdivision.
  (d) Termination.--This section shall not apply with respect 
to taxable years [beginning after December 31, 2010.] 
beginning--
          (1) after December 31, 2010, and before January 1, 
        2020, or 
          (2) after December 31, 2020. 

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) Allowance of deduction.--In the case of an individual, 
there shall be allowed as a deduction an amount equal to the 
qualified retirement contributions of the individual for the 
taxable year.
  (b) Maximum amount of deduction.--
          (1) In general.--The amount allowable as a deduction 
        under subsection (a) to any individual for any taxable 
        year shall not exceed the lesser of--
                  (A) the deductible amount, or
                  (B) an amount equal to the compensation 
                includible in the individual's gross income for 
                such taxable year.
          (2) Special rule for employer contributions under 
        simplified employee pensions.--This section shall not 
        apply with respect to an employer contribution to a 
        simplified employee pension.
          (3) Plans under section 501(c)(18).--Notwithstanding 
        paragraph (1), the amount allowable as a deduction 
        under subsection (a) with respect to any contributions 
        on behalf of an employee to a plan described in section 
        501(c)(18) shall not exceed the lesser of--
                  (A) $7,000, or
                  (B) an amount equal to 25 percent of the 
                compensation (as defined in section 415(c)(3)) 
                includible in the individual's gross income for 
                such taxable year.
          (4) Special rule for simple retirement accounts.--
        This section shall not apply with respect to any amount 
        contributed to a simple retirement account established 
        under section 408(p).
          (5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                  (A) In general.--The deductible amount is 
                $5,000.
                  (B) Catch-up contributions for individuals 50 
                or older.--
                          (i) In general.--In the case of an 
                        individual who has attained the age of 
                        50 before the close of the taxable 
                        year, the deductible amount for such 
                        taxable year shall be increased by the 
                        applicable amount.
                          (ii) Applicable amount.--For purposes 
                        of clause (i), the applicable amount is 
                        $1,000.
                  (C) Cost-of-living adjustment.--
                          (i) In general.--In the case of any 
                        taxable year beginning in a calendar 
                        year after 2008, the $5,000 amount 
                        under subparagraph (A) shall be 
                        increased by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting ``calendar year 
                                2007'' for ``calendar year 
                                2016'' in subparagraph (A)(ii) 
                                thereof.
                          (ii) Rounding rules.--If any amount 
                        after adjustment under clause (i) is 
                        not a multiple of $500, such amount 
                        shall be rounded to the next lower 
                        multiple of $500.
  (c) Kay Bailey Hutchison Spousal IRA.--
          (1) In general.--In the case of an individual to whom 
        this paragraph applies for the taxable year, the 
        limitation of paragraph (1) of subsection (b) shall be 
        equal to the lesser of--
                  (A) the dollar amount in effect under 
                subsection (b)(1)(A) for the taxable year, or
                  (B) the sum of--
                          (i) the compensation includible in 
                        such individual's gross income for the 
                        taxable year, plus
                          (ii) the compensation includible in 
                        the gross income of such individual's 
                        spouse for the taxable year reduced 
                        by--
                                  (I) the amount allowed as a 
                                deduction under subsection (a) 
                                to such spouse for such taxable 
                                year,
                                  (II) the amount of any 
                                designated nondeductible 
                                contribution (as defined in 
                                section 408(o)) on behalf of 
                                such spouse for such taxable 
                                year, and
                                  (III) the amount of any 
                                contribution on behalf of such 
                                spouse to a Roth IRA under 
                                section 408A for such taxable 
                                year.
          (2) Individuals to whom paragraph (1) applies.--
        Paragraph (1) shall apply to any individual if--
                  (A) such individual files a joint return for 
                the taxable year, and
                  (B) the amount of compensation (if any) 
                includible in such individual's gross income 
                for the taxable year is less than the 
                compensation includible in the gross income of 
                such individual's spouse for the taxable year.
  (d) Other limitations and restrictions.--
          [(1) Beneficiary must be under age 701/2.--No 
        deduction shall be allowed under this section with 
        respect to any qualified retirement contribution for 
        the benefit of an individual if such individual has 
        attained age 701/2 before the close of such 
        individual's taxable year for which the contribution 
        was made.]
          (2) Recontributed amounts.--No deduction shall be 
        allowed under this section with respect to a rollover 
        contribution described in section 402(c), 403(a)(4), 
        403(b)(8), 408(d)(3), or 457(e)(16).
          (3) Amounts contributed under endowment contract.--In 
        the case of an endowment contract described in section 
        408(b), no deduction shall be allowed under this 
        section for that portion of the amounts paid under the 
        contract for the taxable year which is properly 
        allocable, under regulations prescribed by the 
        Secretary, to the cost of life insurance.
          (4) Denial of deduction for amount contributed to 
        inherited annuities or accounts.--No deduction shall be 
        allowed under this section with respect to any amount 
        paid to an inherited individual retirement account or 
        individual retirement annuity (within the meaning of 
        section 408(d)(3)(C)(ii)).
  (e) Qualified retirement contribution.--For purposes of this 
section, the term ``qualified retirement contribution'' means--
          (1) any amount paid in cash for the taxable year by 
        or on behalf of an individual to an individual 
        retirement plan for such individual's benefit, and
          (2) any amount contributed on behalf of any 
        individual to a plan described in section 501(c)(18).
  (f) Other definitions and special rules.--
          (1)  Compensation.--For purposes of this section, the 
        term ``compensation'' includes earned income (as 
        defined in section 401(c)(2)). The term 
        ``compensation'' does not include any amount received 
        as a pension or annuity and does not include any amount 
        received as deferred compensation. The term 
        ``compensation'' shall include any amount includible in 
        the individual's gross income under section 71 with 
        respect to a divorce or separation instrument described 
        in subparagraph (A) of section 71(b)(2). For purposes 
        of this paragraph, section 401(c)(2) shall be applied 
        as if the term trade or business for purposes of 
        section 1402 included service described in subsection 
        (c)(6). The term ``compensation'' includes any 
        differential wage payment (as defined in section 
        3401(h)(2)). The term ``compensation'' shall include 
        any amount which is included in the individual's gross 
        income and paid to the individual to aid the individual 
        in the pursuit of graduate or postdoctoral study.
          (2) Married individuals.--The maximum deduction under 
        subsection (b) shall be computed separately for each 
        individual, and this section shall be applied without 
        regard to any community property laws.
          (3) Time when contributions deemed made.--For 
        purposes of this section, a taxpayer shall be deemed to 
        have made a contribution to an individual retirement 
        plan on the last day of the preceding taxable year if 
        the contribution is made on account of such taxable 
        year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not 
        including extensions thereof).
          (5) Employer payments.--For purposes of this title, 
        any amount paid by an employer to an individual 
        retirement plan shall be treated as payment of 
        compensation to the employee (other than a self-
        employed individual who is an employee within the 
        meaning of section 401(c)(1)) includible in his gross 
        income in the taxable year for which the amount was 
        contributed, whether or not a deduction for such 
        payment is allowable under this section to the 
        employee.
          (6) Excess contributions treated as contribution made 
        during subsequent year for which there is an unused 
        limitation.--
                  (A) In general.--If for the taxable year the 
                maximum amount allowable as a deduction under 
                this section for contributions to an individual 
                retirement plan exceeds the amount contributed, 
                then the taxpayer shall be treated as having 
                made an additional contribution for the taxable 
                year in an amount equal to the lesser of--
                          (i) the amount of such excess, or
                          (ii) the amount of the excess 
                        contributions for such taxable year 
                        (determined under section 4973(b)(2) 
                        without regard to subparagraph (C) 
                        thereof).
                  (B) Amount contributed.--For purposes of this 
                paragraph, the amount contributed--
                          (i) shall be determined without 
                        regard to this paragraph, and
                          (ii) shall not include any rollover 
                        contribution.
                  (C) Special rule where excess deduction was 
                allowed for closed year.--Proper reduction 
                shall be made in the amount allowable as a 
                deduction by reason of this paragraph for any 
                amount allowed as a deduction under this 
                section for a prior taxable year for which the 
                period for assessing deficiency has expired if 
                the amount so allowed exceeds the amount which 
                should have been allowed for such prior taxable 
                year.
          (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) Election not to deduct contributions.--For 
        election not to deduct contributions to individual 
        retirement plans, see section 408(o)(2)(B)(ii).
  (g) Limitation on deduction for active participants in 
certain pension plans.--
          (1) In general.--If (for any part of any plan year 
        ending with or within a taxable year) an individual or 
        the individual's spouse is an active participant, each 
        of the dollar limitations contained in subsections 
        (b)(1)(A) and (c)(1)(A) for such taxable year shall be 
        reduced (but not below zero) by the amount determined 
        under paragraph (2).
          (2) Amount of reduction.--
                  (A) In general.--The amount determined under 
                this paragraph with respect to any dollar 
                limitation shall be the amount which bears the 
                same ratio to such limitation as--
                          (i) the excess of--
                                  (I) the taxpayer's adjusted 
                                gross income for such taxable 
                                year, over
                                  (II) the applicable dollar 
                                amount, bears to
                          (ii) $10,000 ($20,000 in the case of 
                        a joint return).
                  (B) No reduction below $200 until complete 
                phase-out.--No dollar limitation shall be 
                reduced below $200 under paragraph (1) unless 
                (without regard to this subparagraph) such 
                limitation is reduced to zero.
                  (C) Rounding.--Any amount determined under 
                this paragraph which is not a multiple of $10 
                shall be rounded to the next lowest $10.
          (3) Adjusted gross income; applicable dollar 
        amount.--For purposes of this subsection--
                  (A) Adjusted gross income.--Adjusted gross 
                income of any taxpayer shall be determined--
                          (i) after application of sections 86 
                        and 469, and
                          (ii) without regard to sections 135, 
                        137, 221, 222, and 911 or the deduction 
                        allowable under this section.
                  (B) Applicable dollar amount.--The term 
                ``applicable dollar amount'' means the 
                following:
                          (i) In the case of a taxpayer filing 
                        a joint return, $80,000.
                          (ii) In the case of any other 
                        taxpayer (other than a married 
                        individual filing a separate return), 
                        $50,000.
                          (iii) In the case of a married 
                        individual filing a separate return, 
                        zero.
          (4) Special rule for married individuals filing 
        separately and living apart.--A husband and wife who--
                  (A) file separate returns for any taxable 
                year, and
                  (B) live apart at all times during such 
                taxable year,
        shall not be treated as married individuals for 
        purposes of this subsection.
          (5) Active participant.--For purposes of this 
        subsection, the term ``active participant'' means, with 
        respect to any plan year, an individual--
                  (A) who is an active participant in--
                          (i) a plan described in section 
                        401(a) which includes a trust exempt 
                        from tax under section 501(a),
                          (ii) an annuity plan described in 
                        section 403(a),
                          (iii) a plan established for its 
                        employees by the United States, by a 
                        State or political subdivision thereof, 
                        or by an agency or instrumentality of 
                        any of the foregoing,
                          (iv) an annuity contract described in 
                        section 403(b),
                          (v) a simplified employee pension 
                        (within the meaning of section 408(k)), 
                        or
                          (vi) any simple retirement account 
                        (within the meaning of section 408(p)), 
                        or
                  (B) who makes deductible contributions to a 
                trust described in section 501(c)(18).
        The determination of whether an individual is an active 
        participant shall be made without regard to whether or 
        not such individual's rights under a plan, trust, or 
        contract are nonforfeitable. An eligible deferred 
        compensation plan (within the meaning of section 
        457(b)) shall not be treated as a plan described in 
        subparagraph (A)(iii).
          (6) Certain individuals not treated as active 
        participants.--For purposes of this subsection, any 
        individual described in any of the following 
        subparagraphs shall not be treated as an active 
        participant for any taxable year solely because of any 
        participation so described:
                  (A) Members of reserve components.--
                Participation in a plan described in 
                subparagraph (A)(iii) of paragraph (5) by 
                reason of service as a member of a reserve 
                component of the Armed Forces (as defined in 
                section 10101 of title 10), unless such 
                individual has served in excess of 90 days on 
                active duty (other than active duty for 
                training) during the year.
                  (B) Volunteer firefighters.--A volunteer 
                firefighter--
                          (i) who is a participant in a plan 
                        described in subparagraph (A)(iii) of 
                        paragraph (5) based on his activity as 
                        a volunteer firefighter, and
                          (ii) whose accrued benefit as of the 
                        beginning of the taxable year is not 
                        more than an annual benefit of $1,800 
                        (when expressed as a single life 
                        annuity commencing at age 65).
          (7) Special rule for spouses who are not active 
        participants.--If this subsection applies to an 
        individual for any taxable year solely because their 
        spouse is an active participant, then, in applying this 
        subsection to the individual (but not their spouse)--
                  (A) the applicable dollar amount under 
                paragraph (3)(B)(i) shall be $150,000; and
                  (B) the amount applicable under paragraph 
                (2)(A)(ii) shall be $10,000.
          (8) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2006, each of 
        the dollar amounts in paragraphs (3)(B)(i), (3)(B)(ii), 
        and (7)(A) shall be be increased by an amount equal 
        to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 2005'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        Any increase determined under the preceding sentence 
        shall be rounded to the nearest multiple of $1,000.

           *       *       *       *       *       *       *


SEC. 221. INTEREST ON EDUCATION LOANS.

  (a) Allowance of deduction.--In the case of an individual, 
there shall be allowed as a deduction for the taxable year an 
amount equal to the interest paid by the taxpayer during the 
taxable year on any qualified education loan.
  (b) Maximum deduction.--
          (1) In general.--Except as provided in paragraph (2), 
        the deduction allowed by subsection (a) for the taxable 
        year shall not exceed $2,500.
          (2) Limitation based on modified adjusted gross 
        income.--
                  (A) In general.--The amount which would (but 
                for this paragraph) be allowable as a deduction 
                under this section shall be reduced (but not 
                below zero) by the amount determined under 
                subparagraph (B).
                  (B) Amount of reduction.--The amount 
                determined under this subparagraph is the 
                amount which bears the same ratio to the amount 
                which would be so taken into account as--
                          (i) the excess of--
                                  (I) the taxpayer's modified 
                                adjusted gross income for such 
                                taxable year, over
                                  (II) $50,000 ($100,000 in the 
                                case of a joint return), bears 
                                to
                          (ii) $15,000 ($30,000 in the case of 
                        a joint return).
                  (C) Modified adjusted gross income.--The term 
                ``modified adjusted gross income'' means 
                adjusted gross income determined--
                          (i) without regard to this section 
                        and sections 222, 911, 931, and 933, 
                        and
                          (ii) after application of sections 
                        86, 135, 137, 219, and 469.
  (c) Dependents not eligible for deduction.--No deduction 
shall be allowed by this section to an individual for the 
taxable year if a deduction under section 151 with respect to 
such individual is allowed to another taxpayer for the taxable 
year beginning in the calendar year in which such individual's 
taxable year begins.
  (d) Definitions.--For purposes of this section--
          (1) Qualified education loan.--The term ``qualified 
        education loan'' means any indebtedness incurred by the 
        taxpayer solely to pay qualified higher education 
        expenses--
                  (A) which are incurred on behalf of the 
                taxpayer, the taxpayer's spouse, or any 
                dependent of the taxpayer as of the time the 
                indebtedness was incurred,
                  (B) which are paid or incurred within a 
                reasonable period of time before or after the 
                indebtedness is incurred, and
                  (C) which are attributable to education 
                furnished during a period during which the 
                recipient was an eligible student.
        Such term includes indebtedness used to refinance 
        indebtedness which qualifies as a qualified education 
        loan. The term ``qualified education loan'' shall not 
        include any indebtedness owed to a person who is 
        related (within the meaning of section 267(b) or 
        707(b)(1)) to the taxpayer or to any person by reason 
        of a loan under any qualified employer plan (as defined 
        in section 72(p)(4)) or under any contract referred to 
        in section 72(p)(5).
          (2) Qualified higher education expenses.--The term 
        ``qualified higher education expenses'' means the cost 
        of attendance (as defined in section 472 of the Higher 
        Education Act of 1965, 20 U.S.C. 1087ll, as in effect 
        on the day before the date of the enactment of the 
        Taxpayer Relief Act of 1997) at an eligible educational 
        institution, reduced by the sum of--
                  (A) the amount excluded from gross income 
                under section 127, 135, 529, or 530 by reason 
                of such expenses, and
                  (B) the amount of any scholarship, allowance, 
                or payment described in section 25A(g)(2).
        For purposes of the preceding sentence, the term 
        ``eligible educational institution'' has the same 
        meaning given such term by section 25A(f)(2), except 
        that such term shall also include an institution 
        conducting an internship or residency program leading 
        to a degree or certificate awarded by an institution of 
        higher education, a hospital, or a health care facility 
        which offers postgraduate training.
          (3) Eligible student.--The term ``eligible student'' 
        has the meaning given such term by section 25A(b)(3).
          (4) Dependent.--The term ``dependent'' has the 
        meaning given such term by section 152 (determined 
        without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof).
  (e) Special rules.--
          (1) Denial of double benefit.--No deduction shall be 
        allowed under this section for any amount for which a 
        deduction is allowable under any other provision of 
        this chapter. The deduction otherwise allowable under 
        subsection (a) (prior to the application of subsection 
        (b)) to the taxpayer for any taxable year shall be 
        reduced (but not below zero) by so much of the 
        distributions treated as a qualified higher education 
        expense under section 529(c)(9) with respect to loans 
        of the taxpayer as would be includible in gross income 
        under section 529(c)(3)(A) for such taxable year but 
        for such treatment.
          (2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, 
        the deduction shall be allowed under subsection (a) 
        only if the taxpayer and the taxpayer's spouse file a 
        joint return for the taxable year.
          (3) Marital status.--Marital status shall be 
        determined in accordance with section 7703.
  (f) Inflation adjustments.--
          (1) In general.--In the case of a taxable year 
        beginning after 2002, the $50,000 and $100,000 amounts 
        in subsection (b)(2) shall each be increased by an 
        amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 2001'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
          (2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $5,000, such amount 
        shall be rounded to the next lowest multiple of $5,000.

           *       *       *       *       *       *       *


Subchapter D--DEFERRED COMPENSATION, ETC.

           *       *       *       *       *       *       *


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) if contributions are made to the trust by such 
        employer, or employees, or both, or by another employer 
        who is entitled to deduct his contributions under 
        section 404(a)(3)(B) (relating to deduction for 
        contributions to profit-sharing and stock bonus plans), 
        or by a charitable remainder trust pursuant to a 
        qualified gratuitous transfer (as defined in section 
        664(g)(1)), for the purpose of distributing to such 
        employees or their beneficiaries the corpus and income 
        of the fund accumulated by the trust in accordance with 
        such plan;
          (2) if under the trust instrument it is impossible, 
        at any time prior to the satisfaction of all 
        liabilities with respect to employees and their 
        beneficiaries under the trust, for any part of the 
        corpus or income to be (within the taxable year or 
        thereafter) used for, or diverted to, purposes other 
        than for the exclusive benefit of his employees or 
        their beneficiaries (but this paragraph shall not be 
        construed, in the case of a multiemployer plan, to 
        prohibit the return of a contribution within 6 months 
        after the plan administrator determines that the 
        contribution was made by a mistake of fact or law 
        (other than a mistake relating to whether the plan is 
        described in section 401(a) or the trust which is part 
        of such plan is exempt from taxation under section 
        501(a), or the return of any withdrawal liability 
        payment determined to be an overpayment within 6 months 
        of such determination));
          (3) if the plan of which such trust is a part 
        satisfies the requirements of section 410 (relating to 
        minimum participation standards); and
          (4) if the contributions or benefits provided under 
        the plan do not discriminate in favor of highly 
        compensated employees (within the meaning of section 
        414(q)). For purposes of this paragraph, there shall be 
        excluded from consideration employees described in 
        section 410(b)(3)(A) and (C).
          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) Salaried or clerical employees.--A 
                classification shall not be considered 
                discriminatory within the meaning of paragraph 
                (4) or section 410(b)(2)(A)(i) merely because 
                it is limited to salaried or clerical 
                employees.
                  (B) Contributions and benefits may bear 
                uniform relationship to compensation.--A plan 
                shall not be considered discriminatory within 
                the meaning of paragraph (4) merely because the 
                contributions or benefits of, or on behalf of, 
                the employees under the plan bear a uniform 
                relationship to the compensation (within the 
                meaning of section 414(s)) of such employees.
                  (C) Certain disparity permitted.--A plan 
                shall not be considered discriminatory within 
                the meaning of paragraph (4) merely because the 
                contributions or benefits of, or on behalf of, 
                the employees under the plan favor highly 
                compensated employees (as defined in section 
                414(q)) in the manner permitted under 
                subsection (l).
                  (D) Integrated defined benefit plan.--
                          (i) In general.--A defined benefit 
                        plan shall not be considered 
                        discriminatory within the meaning of 
                        paragraph (4) merely because the plan 
                        provides that the employer-derived 
                        accrued retirement benefit for any 
                        participant under the plan may not 
                        exceed the excess (if any) of--
                                  (I) the participant's final 
                                pay with the employer, over
                                  (II) the employer-derived 
                                retirement benefit created 
                                under Federal law attributable 
                                to service by the participant 
                                with the employer.
                 For purposes of this clause, the employer-
                derived retirement benefit created under 
                Federal law shall be treated as accruing 
                ratably over 35 years.
                          (ii) Final pay.--For purposes of this 
                        subparagraph, the participant's final 
                        pay is the compensation (as defined in 
                        section 414(q)(4)) paid to the 
                        participant by the employer for any 
                        year--
                                  (I) which ends during the 5-
                                year period ending with the 
                                year in which the participant 
                                separated from service for the 
                                employer, and
                                  (II) for which the 
                                participant's total 
                                compensation from the employer 
                                was highest.
                  (E) 2 or more plans treated as single plan.--
                For purposes of determining whether 2 or more 
                plans of an employer satisfy the requirements 
                of paragraph (4) when considered as a single 
                plan--
                          (i) Contributions.--If the amount of 
                        contributions on behalf of the 
                        employees allowed as a deduction under 
                        section 404 for the taxable year with 
                        respect to such plans, taken together, 
                        bears a uniform relationship to the 
                        compensation (within the meaning of 
                        section 414(s)) of such employees, the 
                        plans shall not be considered 
                        discriminatory merely because the 
                        rights of employees to, or derived 
                        from, the employer contributions under 
                        the separate plans do not become 
                        nonforfeitable at the same rate.
                          (ii) Benefits.--If the employees' 
                        rights to benefits under the separate 
                        plans do not become nonforfeitable at 
                        the same rate, but the levels of 
                        benefits provided by the separate plans 
                        satisfy the requirements of regulations 
                        prescribed by the Secretary to take 
                        account of the differences in such 
                        rates, the plans shall not be 
                        considered discriminatory merely 
                        because of the difference in such 
                        rates.
                  (F) Social security retirement age.--For 
                purposes of testing for discrimination under 
                paragraph (4)--
                          (i) the social security retirement 
                        age (as defined in section 415(b)(8)) 
                        shall be treated as a uniform 
                        retirement age, and
                          (ii) subsidized early retirement 
                        benefits and joint and survivor 
                        annuities shall not be treated as being 
                        unavailable to employees on the same 
                        terms merely because such benefits or 
                        annuities are based in whole or in part 
                        on an employee's social security 
                        retirement age (as so defined).
                  (G) Governmental plans.--Paragraphs (3) and 
                (4) shall not apply to a governmental plan 
                (within the meaning of section 414(d)).
          (6) A plan shall be considered as meeting the 
        requirements of paragraph (3) during the whole of any 
        taxable year of the plan if on one day in each quarter 
        it satisfied such requirements.
          (7) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part satisfies the requirements of section 411 
        (relating to minimum vesting standards).
          (8) A trust forming part of a defined benefit plan 
        shall not constitute a qualified trust under this 
        section unless the plan provides that forfeitures must 
        not be applied to increase the benefits any employee 
        would otherwise receive under the plan.
          (9) Required distributions.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this subsection unless 
                the plan provides that the entire interest of 
                each employee--
                          (i) will be distributed to such 
                        employee not later than the required 
                        beginning date, or
                          (ii) will be distributed, beginning 
                        not later than the required beginning 
                        date, in accordance with regulations, 
                        over the life of such employee or over 
                        the lives of such employee and a 
                        designated beneficiary (or over a 
                        period not extending beyond the life 
                        expectancy of such employee or the life 
                        expectancy of such employee and a 
                        designated beneficiary).
                  (B) Required distribution where employee dies 
                before entire interest is distributed.--
                          (i) Where distributions have begun 
                        under subparagraph (A)(ii).--A trust 
                        shall not constitute a qualified trust 
                        under this section unless the plan 
                        provides that if--
                                  (I) the distribution of the 
                                employee's interest has begun 
                                in accordance with subparagraph 
                                (A)(ii), and
                                  (II) the employee dies before 
                                his entire interest has been 
                                distributed to him,
                 the remaining portion of such interest will be 
                distributed at least as rapidly as under the 
                method of distributions being used under 
                subparagraph (A)(ii) as of the date of his 
                death.
                          (ii) 5-year rule for other cases.--A 
                        trust shall not constitute a qualified 
                        trust under this section unless the 
                        plan provides that, if an employee dies 
                        before the distribution of the 
                        employee's interest has begun in 
                        accordance with subparagraph (A)(ii), 
                        the entire interest of the employee 
                        will be distributed within 5 years 
                        after the death of such employee.
                          (iii) Exception to 5-year rule for 
                        certain amounts payable over life of 
                        beneficiary.--If--
                                  (I) any portion of the 
                                employee's interest is payable 
                                to (or for the benefit of) a 
                                designated beneficiary,
                                  (II) such portion will be 
                                distributed (in accordance with 
                                regulations) over the life of 
                                such designated beneficiary (or 
                                over a period not extending 
                                beyond the life expectancy of 
                                such beneficiary), and
                                  (III) such distributions 
                                begin not later than 1 year 
                                after the date of the 
                                employee's death or such later 
                                date as the Secretary may by 
                                regulations prescribe,
                 for purposes of clause (ii), the portion 
                referred to in subclause (I) shall be treated 
                as distributed on the date on which such 
                distributions begin.
                          (iv) Special rule for surviving 
                        spouse of employee.--If the designated 
                        beneficiary referred to in clause 
                        (iii)(I) is the surviving spouse of the 
                        employee--
                                  (I) the date on which the 
                                distributions are required to 
                                begin under clause (iii)(III) 
                                shall not be earlier than the 
                                date on which the employee 
                                would have attained age [701/2] 
                                72 , and
                                  (II) if the surviving spouse 
                                dies before the distributions 
                                to such spouse begin, this 
                                subparagraph shall be applied 
                                as if the surviving spouse were 
                                the employee.
                  (C) Required beginning date.--For purposes of 
                this paragraph--
                          (i) In general.--The term ``required 
                        beginning date'' means April 1 of the 
                        calendar year following the later of--
                                  (I) the calendar year in 
                                which the employee attains age 
                                [701/2] 72 , or
                                  (II) the calendar year in 
                                which the employee retires.
                          (ii) Exception.--Subclause (II) of 
                        clause (i) shall not apply--
                                  (I) except as provided in 
                                section 409(d), in the case of 
                                an employee who is a 5-percent 
                                owner (as defined in section 
                                416) with respect to the plan 
                                year ending in the calendar 
                                year in which the employee 
                                attains age [701/2] 72 , or
                                  (II) for purposes of section 
                                408(a)(6) or (b)(3).
                          (iii) Actuarial adjustment.--In the 
                        case of an employee to whom clause 
                        (i)(II) applies who retires in a 
                        calendar year after the calendar year 
                        in which the employee attains age 701/
                        2, the employee's accrued benefit shall 
                        be actuarially increased to take into 
                        account the period after age 701/2 in 
                        which the employee was not receiving 
                        any benefits under the plan.
                          (iv) Exception for governmental and 
                        church plans.--Clauses (ii) and (iii) 
                        shall not apply in the case of a 
                        governmental plan or church plan. For 
                        purposes of this clause, the term 
                        ``church plan'' means a plan maintained 
                        by a church for church employees, and 
                        the term ``church'' means any church 
                        (as defined in section 3121(w)(3)(A)) 
                        or qualified church-controlled 
                        organization (as defined in section 
                        3121(w)(3)(B)).
                  (D) Life expectancy.--For purposes of this 
                paragraph, the life expectancy of an employee 
                and the employee's spouse (other than in the 
                case of a life annuity) may be redetermined but 
                not more frequently than annually.
                  [(E) Designated beneficiary.--For purposes of 
                this paragraph, the term ``designated 
                beneficiary'' means any individual designated 
                as a beneficiary by the employee.]
                  (E) Definitions and rules relating to 
                designated beneficiary.--For purposes of this 
                paragraph--
                          (i) Designated beneficiary.--The term 
                        ``designated beneficiary'' means any 
                        individual designated as a beneficiary 
                        by the employee.
                          (ii) Eligible designated 
                        beneficiary.--The term ``eligible 
                        designated beneficiary'' means, with 
                        respect to any employee, any designated 
                        beneficiary who is--
                                  (I) the surviving spouse of 
                                the employee,
                                  (II) subject to clause (iii), 
                                a child of the employee who has 
                                not reached majority (within 
                                the meaning of subparagraph 
                                (F)),
                                  (III) disabled (within the 
                                meaning of section 72(m)(7)),
                                  (IV) a chronically ill 
                                individual (within the meaning 
                                of section 7702B(c)(2), except 
                                that the requirements of 
                                subparagraph (A)(i) thereof 
                                shall only be treated as met if 
                                there is a certification that, 
                                as of such date, the period of 
                                inability described in such 
                                subparagraph with respect to 
                                the individual is an indefinite 
                                one which is reasonably 
                                expected to be lengthy in 
                                nature), or
                                  (V) an individual not 
                                described in any of the 
                                preceding subclauses who is not 
                                more than 10 years younger than 
                                the employee.
                          (iii) Special rule for children.--
                        Subject to subparagraph (F), an 
                        individual described in clause (ii)(II) 
                        shall cease to be an eligible 
                        designated beneficiary as of the date 
                        the individual reaches majority and any 
                        remainder of the portion of the 
                        individual's interest to which 
                        subparagraph (H)(ii) applies shall be 
                        distributed within 10 years after such 
                        date.
                          (iv) Time for determination of 
                        eligible designated beneficiary.--The 
                        determination of whether a designated 
                        beneficiary is an eligible designated 
                        beneficiary shall be made as of the 
                        date of death of the employee.
                  (F) Treatment of payments to children.--Under 
                regulations prescribed by the Secretary, for 
                purposes of this paragraph, any amount paid to 
                a child shall be treated as if it had been paid 
                to the surviving spouse if such amount will 
                become payable to the surviving spouse upon 
                such child reaching majority (or other 
                designated event permitted under regulations).
                  (G) Treatment of incidental death benefit 
                distributions.--For purposes of this title, any 
                distribution required under the incidental 
                death benefit requirements of this subsection 
                shall be treated as a distribution required 
                under this paragraph.
                  (H) Special rules for certain defined 
                contribution plans.--In the case of a defined 
                contribution plan, if an employee dies before 
                the distribution of the employee's entire 
                interest--
                          (i) In general.--Except in the case 
                        of a beneficiary who is not a 
                        designated beneficiary, subparagraph 
                        (B)(ii)--
                                  (I) shall be applied by 
                                substituting ``10 years'' for 
                                ``5 years'', and
                                  (II) shall apply whether or 
                                not distributions of the 
                                employee's interests have begun 
                                in accordance with subparagraph 
                                (A).
                          (ii) Exception only for eligible 
                        designated beneficiaries.--Subparagraph 
                        (B)(iii) shall apply only in the case 
                        of an eligible designated beneficiary.
                          (iii) Rules upon death of eligible 
                        designated beneficiary.--If an eligible 
                        designated beneficiary dies before the 
                        portion of the employee's interest to 
                        which this subparagraph applies is 
                        entirely distributed, the exception 
                        under clause (iii) shall not apply to 
                        any beneficiary of such eligible 
                        designated beneficiary and the 
                        remainder of such portion shall be 
                        distributed within 10 years after the 
                        death of such eligible designated 
                        beneficiary.
                          (iv) Application to eligible 
                        retirement plans.--For purposes of 
                        applying the provisions of this 
                        subparagraph in determining the amounts 
                        required to be distributed pursuant to 
                        this paragraph, all eligible retirement 
                        plans (as defined in section 
                        402(c)(8)(B)) other than a defined 
                        benefit plan shall be treated as a 
                        defined contribution plan.
          (10) Other requirements.--
                  (A) Plans benefiting owner-employees.--In the 
                case of any plan which provides contributions 
                or benefits for employees some or all of whom 
                are owner-employees (as defined in subsection 
                (c)(3)), a trust forming part of such plan 
                shall constitute a qualified trust under this 
                section only if the requirements of subsection 
                (d) are also met.
                  (B) Top-heavy plans.--
                          (i) In general.--In the case of any 
                        top-heavy plan, a trust forming part of 
                        such plan shall constitute a qualified 
                        trust under this section only if the 
                        requirements of section 416 are met.
                          (ii) Plans which may become top-
                        heavy.--Except to the extent provided 
                        in regulations, a trust forming part of 
                        a plan (whether or not a top-heavy 
                        plan) shall constitute a qualified 
                        trust under this section only if such 
                        plan contains provisions--
                                  (I) which will take effect if 
                                such plan becomes a top-heavy 
                                plan, and
                                  (II) which meet the 
                                requirements of section 416.
                          (iii) Exemption for governmental 
                        plans.--This subparagraph shall not 
                        apply to any governmental plan.
          (11) Requirement of joint and survivor annuity and 
        preretirement survivor annuity.--
                  (A) In general.--In the case of any plan to 
                which this paragraph applies, except as 
                provided in section 417, a trust forming part 
                of such plan shall not constitute a qualified 
                trust under this section unless--
                          (i) in the case of a vested 
                        participant who does not die before the 
                        annuity starting date, the accrued 
                        benefit payable to such participant is 
                        provided in the form of a qualified 
                        joint and survivor annuity, and
                          (ii) in the case of a vested 
                        participant who dies before the annuity 
                        starting date and who has a surviving 
                        spouse, a qualified preretirement 
                        survivor annuity is provided to the 
                        surviving spouse of such participant.
                  (B) Plans to which paragraph applies.--This 
                paragraph shall apply to--
                          (i) any defined benefit plan,
                          (ii) any defined contribution plan 
                        which is subject to the funding 
                        standards of section 412, and
                          (iii) any participant under any other 
                        defined contribution plan unless--
                                  (I) such plan provides that 
                                the participant's 
                                nonforfeitable accrued benefit 
                                (reduced by any security 
                                interest held by the plan by 
                                reason of a loan outstanding to 
                                such participant) is payable in 
                                full, on the death of the 
                                participant, to the 
                                participant's surviving spouse 
                                (or, if there is no surviving 
                                spouse or the surviving spouse 
                                consents in the manner required 
                                under section 417(a)(2), to a 
                                designated beneficiary),
                                  (II) such participant does 
                                not elect a payment of benefits 
                                in the form of a life annuity, 
                                and
                                  (III) with respect to such 
                                participant, such plan is not a 
                                direct or indirect transferee 
                                (in a transfer after December 
                                31, 1984) of a plan which is 
                                described in clause (i) or (ii) 
                                or to which this clause applied 
                                with respect to the 
                                participant.
                Clause (iii)(III) shall apply only with respect 
                to the transferred assets (and income 
                therefrom) if the plan separately accounts for 
                such assets and any income therefrom.
                  (C) Exception for certain ESOP benefits.--
                          (i) In general.--In the case of--
                                  (I) a tax credit employee 
                                stock ownership plan (as 
                                defined in section 409(a)), or
                                  (II) an employee stock 
                                ownership plan (as defined in 
                                section 4975(e)(7)),
                 subparagraph (A) shall not apply to that 
                portion of the employee's accrued benefit to 
                which the requirements of section 409(h) apply.
                          (ii) Nonforfeitable benefit must be 
                        paid in full, etc.--In the case of any 
                        participant, clause (i) shall apply 
                        only if the requirements of subclauses 
                        (I), (II), and (III) of subparagraph 
                        (B)(iii) are met with respect to such 
                        participant.
                  (D) Special rule where participant and spouse 
                married less than 1 year.--A plan shall not be 
                treated as failing to meet the requirements of 
                subparagraphs (B)(iii) or (C) merely because 
                the plan provides that benefits will not be 
                payable to the surviving spouse of the 
                participant unless the participant and such 
                spouse had been married throughout the 1-year 
                period ending on the earlier of the 
                participant's annuity starting date or the date 
                of the participant's death.
                  (E) Exception for plans described in section 
                404(c).--This paragraph shall not apply to a 
                plan which the Secretary has determined is a 
                plan described in section 404(c) (or a 
                continuation thereof) in which participation is 
                substantially limited to individuals who, 
                before January 1, 1976, ceased employment 
                covered by the plan.
                  (F) Cross reference.--For--
                          (i) provisions under which 
                        participants may elect to waive the 
                        requirements of this paragraph, and
                          (ii) other definitions and special 
                        rules for purposes of this paragraph,
                see section 417.
          (12) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part provides that in the case of any merger or 
        consolidation with, or transfer of assets or 
        liabilities to, any other plan after September 2, 1974, 
        each participant in the plan would (if the plan then 
        terminated) receive a benefit immediately after the 
        merger, consolidation, or transfer which is equal to or 
        greater than the benefit he would have been entitled to 
        receive immediately before the merger, consolidation, 
        or transfer (if the plan had then terminated). The 
        preceding sentence does not apply to any multiemployer 
        plan with respect to any transaction to the extent that 
        participants either before or after the transaction are 
        covered under a multiemployer plan to which title IV of 
        the Employee Retirement Income Security Act of 1974 
        applies.
          (13) Assignment and alienation.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless the 
                plan of which such trust is a part provides 
                that benefits provided under the plan may not 
                be assigned or alienated. For purposes of the 
                preceding sentence, there shall not be taken 
                into account any voluntary and revocable 
                assignment of not to exceed 10 percent of any 
                benefit payment made by any participant who is 
                receiving benefits under the plan unless the 
                assignment or alienation is made for purposes 
                of defraying plan administration costs. For 
                purposes of this paragraph a loan made to a 
                participant or beneficiary shall not be treated 
                as an assignment or alienation if such loan is 
                secured by the participant's accrued 
                nonforfeitable benefit and is exempt from the 
                tax imposed by section 4975 (relating to tax on 
                prohibited transactions) by reason of section 
                4975(d)(1). This paragraph shall take effect on 
                January 1, 1976 and shall not apply to 
                assignments which were irrevocable on September 
                2, 1974.
                  (B) Special rules for domestic relations 
                orders.--Subparagraph (A) shall apply to the 
                creation, assignment, or recognition of a right 
                to any benefit payable with respect to a 
                participant pursuant to a domestic relations 
                order, except that subparagraph (A) shall not 
                apply if the order is determined to be a 
                qualified domestic relations order.
                  (C) Special rule for certain judgments and 
                settlements.--Subparagraph (A) shall not apply 
                to any offset of a participant's benefits 
                provided under a plan against an amount that 
                the participant is ordered or required to pay 
                to the plan if--
                          (i) the order or requirement to pay 
                        arises--
                                  (I) under a judgment of 
                                conviction for a crime 
                                involving such plan,
                                  (II) under a civil judgment 
                                (including a consent order or 
                                decree) entered by a court in 
                                an action brought in connection 
                                with a violation (or alleged 
                                violation) of part 4 of 
                                subtitle B of title I of the 
                                Employee Retirement Income 
                                Security Act of 1974, or
                                  (III) pursuant to a 
                                settlement agreement between 
                                the Secretary of Labor and the 
                                participant, or a settlement 
                                agreement between the Pension 
                                Benefit Guaranty Corporation 
                                and the participant, in 
                                connection with a violation (or 
                                alleged violation) of part 4 of 
                                such subtitle by a fiduciary or 
                                any other person,
                          (ii) the judgment, order, decree, or 
                        settlement agreement expressly provides 
                        for the offset of all or part of the 
                        amount ordered or required to be paid 
                        to the plan against the participant's 
                        benefits provided under the plan, and
                          (iii) in a case in which the survivor 
                        annuity requirements of section 
                        401(a)(11) apply with respect to 
                        distributions from the plan to the 
                        participant, if the participant has a 
                        spouse at the time at which the offset 
                        is to be made--
                                  (I) either such spouse has 
                                consented in writing to such 
                                offset and such consent is 
                                witnessed by a notary public or 
                                representative of the plan (or 
                                it is established to the 
                                satisfaction of a plan 
                                representative that such 
                                consent may not be obtained by 
                                reason of circumstances 
                                described in section 
                                417(a)(2)(B)), or an election 
                                to waive the right of the 
                                spouse to either a qualified 
                                joint and survivor annuity or a 
                                qualified preretirement 
                                survivor annuity is in effect 
                                in accordance with the 
                                requirements of section 417(a),
                                  (II) such spouse is ordered 
                                or required in such judgment, 
                                order, decree, or settlement to 
                                pay an amount to the plan in 
                                connection with a violation of 
                                part 4 of such subtitle, or
                                  (III) in such judgment, 
                                order, decree, or settlement, 
                                such spouse retains the right 
                                to receive the survivor annuity 
                                under a qualified joint and 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(i) and under a 
                                qualified preretirement 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(ii), determined 
                                in accordance with subparagraph 
                                (D).
                A plan shall not be treated as failing to meet 
                the requirements of this subsection, subsection 
                (k), section 403(b), or section 409(d) solely 
                by reason of an offset described in this 
                subparagraph.
                  (D) Survivor annuity.--
                          (i) In general.--The survivor annuity 
                        described in subparagraph (C)(iii)(III) 
                        shall be determined as if--
                                  (I) the participant 
                                terminated employment on the 
                                date of the offset,
                                  (II) there was no offset,
                                  (III) the plan permitted 
                                commencement of benefits only 
                                on or after normal retirement 
                                age,
                                  (IV) the plan provided only 
                                the minimum-required qualified 
                                joint and survivor annuity, and
                                  (V) the amount of the 
                                qualified preretirement 
                                survivor annuity under the plan 
                                is equal to the amount of the 
                                survivor annuity payable under 
                                the minimum-required qualified 
                                joint and survivor annuity.
                          (ii) Definition.--For purposes of 
                        this subparagraph, the term ``minimum-
                        required qualified joint and survivor 
                        annuity'' means the qualified joint and 
                        survivor annuity which is the actuarial 
                        equivalent of the participant's accrued 
                        benefit (within the meaning of section 
                        411(a)(7)) and under which the survivor 
                        annuity is 50 percent of the amount of 
                        the annuity which is payable during the 
                        joint lives of the participant and the 
                        spouse.
          (14) A trust shall not constitute a qualified trust 
        under this section unless the plan of which such trust 
        is a part provides that, unless the participant 
        otherwise elects, the payment of benefits under the 
        plan to the participant will begin not later than the 
        60th day after the latest of the close of the plan year 
        in which--
                  (A) the date on which the participant attains 
                the earlier of age 65 or the normal retirement 
                age specified under the plan,
                  (B) occurs the 10th anniversary of the year 
                in which the participant commenced 
                participation in the plan, or
                  (C) the participant terminates his service 
                with the employer.
        In the case of a plan which provides for the payment of 
        an early retirement benefit, a trust forming a part of 
        such plan shall not constitute a qualified trust under 
        this section unless a participant who satisfied the 
        service requirements for such early retirement benefit, 
        but separated from the service (with any nonforfeitable 
        right to an accrued benefit) before satisfying the age 
        requirement for such early retirement benefit, is 
        entitled upon satisfaction of such age requirement to 
        receive a benefit not less than the benefit to which he 
        would be entitled at the normal retirement age, 
        actuarially, reduced under regulations prescribed by 
        the Secretary.
          (15) A trust shall not constitute a qualified trust 
        under this section unless under the plan of which such 
        trust is a part--
                  (A) in the case of a participant or 
                beneficiary who is receiving benefits under 
                such plan, or
                  (B) in the case of a participant who is 
                separated from the service and who has 
                nonforfeitable rights to benefits,
        such benefits are not decreased by reason of any 
        increase in the benefit levels payable under title II 
        of the Social Security Act or any increase in the wage 
        base under such title II, if such increase takes place 
        after September 2, 1974, or (if later) the earlier of 
        the date of first receipt of such benefits or the date 
        of such separation, as the case may be.
          (16) A trust shall not constitute a qualified trust 
        under this section if the plan of which such trust is a 
        part provides for benefits or contributions which 
        exceed the limitations of section 415.
          (17) Compensation limit.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless, 
                under the plan of which such trust is a part, 
                the annual compensation of each employee taken 
                into account under the plan for any year does 
                not exceed $200,000.
                  (B) Cost-of-living adjustment.--The Secretary 
                shall adjust annually the $200,000 amount in 
                subparagraph (A) for increases in the cost-of-
                living at the same time and in the same manner 
                as adjustments under section 415(d); except 
                that the base period shall be the calendar 
                quarter beginning July 1, 2001, and any 
                increase which is not a multiple of $5,000 
                shall be rounded to the next lowest multiple of 
                $5,000.
          (20) A trust forming part of a pension plan shall not 
        be treated as failing to constitute a qualified trust 
        under this section merely because the pension plan of 
        which such trust is a part makes 1 or more 
        distributions within 1 taxable year to a distributee on 
        account of a termination of the plan of which the trust 
        is a part, or in the case of a profit-sharing or stock 
        bonus plan, a complete discontinuance of contributions 
        under such plan. This paragraph shall not apply to a 
        defined benefit plan unless the employer maintaining 
        such plan files a notice with the Pension Benefit 
        Guaranty Corporation (at the time and in the manner 
        prescribed by the Pension Benefit Guaranty Corporation) 
        notifying the Corporation of such payment or 
        distribution and the Corporation has approved such 
        payment or distribution or, within 90 days after the 
        date on which such notice was filed, has failed to 
        disapprove such payment or distribution. For purposes 
        of this paragraph, rules similar to the rules of 
        section 402(a)(6)(B) (as in effect before its repeal by 
        section 521 of the Unemployment Compensation Amendments 
        of 1992) shall apply.
          (22) If a defined contribution plan (other than a 
        profit-sharing plan)--
                  (A) is established by an employer whose stock 
                is not readily tradable on an established 
                market, and
                  (B) after acquiring securities of the 
                employer, more than 10 percent of the total 
                assets of the plan are securities of the 
                employer,
        any trust forming part of such plan shall not 
        constitute a qualified trust under this section unless 
        the plan meets the requirements of subsection (e) of 
        section 409. The requirements of subsection (e) of 
        section 409 shall not apply to any employees of an 
        employer who are participants in any defined 
        contribution plan established and maintained by such 
        employer if the stock of such employer is not readily 
        tradable on an established market and the trade or 
        business of such employer consists of publishing on a 
        regular basis a newspaper for general circulation. For 
        purposes of the preceding sentence, subsections (b), 
        (c), (m), and (o) of section 414 shall not apply except 
        for determining whether stock of the employer is not 
        readily tradable on an established market.
          (23) A stock bonus plan shall not be treated as 
        meeting the requirements of this section unless such 
        plan meets the requirements of subsections (h) and (o) 
        of section 409, except that in applying section 409(h) 
        for purposes of this paragraph, the term ``employer 
        securities'' shall include any securities of the 
        employer held by the plan.
          (24) Any group trust which otherwise meets the 
        requirements of this section shall not be treated as 
        not meeting such requirements on account of the 
        participation or inclusion in such trust of the moneys 
        of any plan or governmental unit described in section 
        818(a)(6).
          (25) Requirement that actuarial assumptions be 
        specified.--A defined benefit plan shall not be treated 
        as providing definitely determinable benefits unless, 
        whenever the amount of any benefit is to be determined 
        on the basis of actuarial assumptions, such assumptions 
        are specified in the plan in a way which precludes 
        employer discretion.
          (26) Additional participation requirements.--
                  (A) In general.--In the case of a trust which 
                is a part of a defined benefit plan, such trust 
                shall not constitute a qualified trust under 
                this subsection unless on each day of the plan 
                year such trust benefits at least the lesser 
                of--
                          (i) 50 employees of the employer, or
                          (ii) the greater of--
                                  (I) 40 percent of all 
                                employees of the employer, or
                                  (II) 2 employees (or if there 
                                is only 1 employee, such 
                                employee).
                  (B) Treatment of excludable employees.--
                          (i) In general.--A plan may exclude 
                        from consideration under this paragraph 
                        employees described in paragraphs (3) 
                        and (4)(A) of section 410(b).
                          (ii) Separate application for certain 
                        excludable employees.--If employees 
                        described in section 410(b)(4)(B) are 
                        covered under a plan which meets the 
                        requirements of subparagraph (A) 
                        separately with respect to such 
                        employees, such employees may be 
                        excluded from consideration in 
                        determining whether any plan of the 
                        employer meets such requirements if--
                                  (I) the benefits for such 
                                employees are provided under 
                                the same plan as benefits for 
                                other employees,
                                  (II) the benefits provided to 
                                such employees are not greater 
                                than comparable benefits 
                                provided to other employees 
                                under the plan, and
                                  (III) no highly compensated 
                                employee (within the meaning of 
                                section 414(q)) is included in 
                                the group of such employees for 
                                more than 1 year.
                  (C) Special rule for collective bargaining 
                units.--Except to the extent provided in 
                regulations, a plan covering only employees 
                described in section 410(b)(3)(A) may exclude 
                from consideration any employees who are not 
                included in the unit or units in which the 
                covered employees are included.
                  (D) Paragraph not to apply to multiemployer 
                plans.--Except to the extent provided in 
                regulations, this paragraph shall not apply to 
                employees in a multiemployer plan (within the 
                meaning of section 414(f)) who are covered by 
                collective bargaining agreements.
                  (E) Special rule for certain dispositions or 
                acquisitions.--Rules similar to the rules of 
                section 410(b)(6)(C) shall apply for purposes 
                of this paragraph.
                  (F) Separate lines of business.--At the 
                election of the employer and with the consent 
                of the Secretary, this paragraph may be applied 
                separately with respect to each separate line 
                of business of the employer. For purposes of 
                this paragraph, the term ``separate line of 
                business'' has the meaning given such term by 
                section 414(r) (without regard to paragraph 
                (2)(A) or (7) thereof).
                  (G) Exception for governmental plans.--This 
                paragraph shall not apply to a governmental 
                plan (within the meaning of section 414(d)).
                  (H) Regulations.--The Secretary may by 
                regulation provide that any separate benefit 
                structure, any separate trust, or any other 
                separate arrangement is to be treated as a 
                separate plan for purposes of applying this 
                paragraph.
                  (I) Protected participants.--
                          (i) In general.--A plan shall be 
                        deemed to satisfy the requirements of 
                        subparagraph (A) if--
                                  (I) the plan is amended--
                                          (aa) to cease all 
                                        benefit accruals, or
                                          (bb) to provide 
                                        future benefit accruals 
                                        only to a closed class 
                                        of participants,
                                  (II) the plan satisfies 
                                subparagraph (A) (without 
                                regard to this subparagraph) as 
                                of the effective date of the 
                                amendment, and
                                  (III) the amendment was 
                                adopted before April 5, 2017, 
                                or the plan is described in 
                                clause (ii).
                          (ii) Plans described.--A plan is 
                        described in this clause if the plan 
                        would be described in subsection 
                        (o)(1)(C), as applied for purposes of 
                        subsection (o)(1)(B)(iii)(IV) and by 
                        treating the effective date of the 
                        amendment as the date the class was 
                        closed for purposes of subsection 
                        (o)(1)(C).
                          (iii) Special rules.--For purposes of 
                        clause (i)(II), in applying section 
                        410(b)(6)(C), the amendments described 
                        in clause (i) shall not be treated as a 
                        significant change in coverage under 
                        section 410(b)(6)(C)(i)(II).
                          (iv) Spun-off plans.--For purposes of 
                        this subparagraph, if a portion of a 
                        plan described in clause (i) is spun 
                        off to another employer, the treatment 
                        under clause (i) of the spun-off plan 
                        shall continue with respect to the 
                        other employer.
          (27) Determinations as to profit-sharing plans.--
                  (A) Contributions need not be based on 
                profits.--The determination of whether the plan 
                under which any contributions are made is a 
                profit-sharing plan shall be made without 
                regard to current or accumulated profits of the 
                employer and without regard to whether the 
                employer is a tax-exempt organization.
                  (B) Plan must designate type.--In the case of 
                a plan which is intended to be a money purchase 
                pension plan or a profit-sharing plan, a trust 
                forming part of such plan shall not constitute 
                a qualified trust under this subsection unless 
                the plan designates such intent at such time 
                and in such manner as the Secretary may 
                prescribe.
          (28) Additional requirements relating to employee 
        stock ownership plans.--
                  (A) In general.--In the case of a trust which 
                is part of an employee stock ownership plan 
                (within the meaning of section 4975(e)(7)) or a 
                plan which meets the requirements of section 
                409(a), such trust shall not constitute a 
                qualified trust under this section unless such 
                plan meets the requirements of subparagraphs 
                (B) and (C).
                  (B) Diversification of investments.--
                          (i) In general.--A plan meets the 
                        requirements of this subparagraph if 
                        each qualified participant in the plan 
                        may elect within 90 days after the 
                        close of each plan year in the 
                        qualified election period to direct the 
                        plan as to the investment of at least 
                        25 percent of the participant's account 
                        in the plan (to the extent such portion 
                        exceeds the amount to which a prior 
                        election under this subparagraph 
                        applies). In the case of the election 
                        year in which the participant can make 
                        his last election, the preceding 
                        sentence shall be applied by 
                        substituting ``50 percent'' for ``25 
                        percent''.
                          (ii) Method of meeting 
                        requirements.--A plan shall be treated 
                        as meeting the requirements of clause 
                        (i) if--
                                  (I) the portion of the 
                                participant's account covered 
                                by the election under clause 
                                (i) is distributed within 90 
                                days after the period during 
                                which the election may be made, 
                                or
                                  (II) the plan offers at least 
                                3 investment options (not 
                                inconsistent with regulations 
                                prescribed by the Secretary) to 
                                each participant making an 
                                election under clause (i) and 
                                within 90 days after the period 
                                during which the election may 
                                be made, the plan invests the 
                                portion of the participant's 
                                account covered by the election 
                                in accordance with such 
                                election.
                          (iii) Qualified participant.--For 
                        purposes of this subparagraph, the term 
                        ``qualified participant'' means any 
                        employee who has completed at least 10 
                        years of participation under the plan 
                        and has attained age 55.
                          (iv) Qualified election period.--For 
                        purposes of this subparagraph, the term 
                        ``qualified election period'' means the 
                        6-plan-year period beginning with the 
                        later of--
                                  (I) the 1st plan year in 
                                which the individual first 
                                became a qualified participant, 
                                or
                                  (II) the 1st plan year 
                                beginning after December 31, 
                                1986.
                 For purposes of the preceding sentence, an 
                employer may elect to treat an individual first 
                becoming a qualified participant in the 1st 
                plan year beginning in 1987 as having become a 
                participant in the 1st plan year beginning in 
                1988.
                          (v) Exception.--This subparagraph 
                        shall not apply to an applicable 
                        defined contribution plan (as defined 
                        in paragraph (35)(E)).
                  (C) Use of independent appraiser.--A plan 
                meets the requirements of this subparagraph if 
                all valuations of employer securities which are 
                not readily tradable on an established 
                securities market with respect to activities 
                carried on by the plan are by an independent 
                appraiser. For purposes of the preceding 
                sentence, the term ``independent appraiser'' 
                means any appraiser meeting requirements 
                similar to the requirements of the regulations 
                prescribed under section 170(a)(1).
          (29) Benefit limitations.--In the case of a defined 
        benefit plan (other than a multiemployer plan or a CSEC 
        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 section 436.
          (30) Limitations on elective deferrals.--In the case 
        of a trust which is part of a plan under which elective 
        deferrals (within the meaning of section 402(g)(3)) may 
        be made with respect to any individual during a 
        calendar year, such trust shall not constitute a 
        qualified trust under this subsection unless the plan 
        provides that the amount of such deferrals under such 
        plan and all other plans, contracts, or arrangements of 
        an employer maintaining such plan may not exceed the 
        amount of the limitation in effect under section 
        402(g)(1)(A) for taxable years beginning in such 
        calendar year.
          (31) Direct transfer of eligible rollover 
        distributions.--
                  (A) In general.--A trust shall not constitute 
                a qualified trust under this section unless the 
                plan of which such trust is a part provides 
                that if the distributee of any eligible 
                rollover distribution--
                          (i) elects to have such distribution 
                        paid directly to an eligible retirement 
                        plan, and
                          (ii) specifies the eligible 
                        retirement plan to which such 
                        distribution is to be paid (in such 
                        form and at such time as the plan 
                        administrator may prescribe),
                such distribution shall be made in the form of 
                a direct trustee-to-trustee transfer to the 
                eligible retirement plan so specified.
                  (B) Certain mandatory distributions.--
                          (i) In general.--In case of a trust 
                        which is part of an eligible plan, such 
                        trust shall not constitute a qualified 
                        trust under this section unless the 
                        plan of which such trust is a part 
                        provides that if--
                                  (I) a distribution described 
                                in clause (ii) in excess of 
                                $1,000 is made, and
                                  (II) the distributee does not 
                                make an election under 
                                subparagraph (A) and does not 
                                elect to receive the 
                                distribution directly,
                 the plan administrator shall make such 
                transfer to an individual retirement plan of a 
                designated trustee or issuer and shall notify 
                the distributee in writing (either separately 
                or as part of the notice under section 402(f)) 
                that the distribution may be transferred to 
                another individual retirement plan.
                          (ii) Eligible plan.--For purposes of 
                        clause (i), the term ``eligible plan'' 
                        means a plan which provides that any 
                        nonforfeitable accrued benefit for 
                        which the present value (as determined 
                        under section 411(a)(11)) does not 
                        exceed $5,000 shall be immediately 
                        distributed to the participant.
                  (C) Limitation.--Subparagraphs (A) and (B) 
                shall apply only to the extent that the 
                eligible rollover distribution would be 
                includible in gross income if not transferred 
                as provided in subparagraph (A) (determined 
                without regard to sections 402(c), 403(a)(4), 
                403(b)(8), and 457(e)(16)). The preceding 
                sentence shall not apply to such distribution 
                if the plan to which such distribution is 
                transferred--
                          (i) is a qualified trust which is 
                        part of a plan which is a defined 
                        contribution plan and agrees to 
                        separately account for amounts so 
                        transferred, including separately 
                        accounting for the portion of such 
                        distribution which is includible in 
                        gross income and the portion of such 
                        distribution which is not so 
                        includible, or
                          (ii) is an eligible retirement plan 
                        described in clause (i) or (ii) of 
                        section 402(c)(8)(B).
                  (D) Eligible rollover distribution.--For 
                purposes of this paragraph, the term ``eligible 
                rollover distribution'' has the meaning given 
                such term by section 402(f)(2)(A).
                  (E) Eligible retirement plan.--For purposes 
                of this paragraph, the term ``eligible 
                retirement plan'' has the meaning given such 
                term by section 402(c)(8)(B), except that a 
                qualified trust shall be considered an eligible 
                retirement plan only if it is a defined 
                contribution plan, the terms of which permit 
                the acceptance of rollover distributions.
          (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 430(j)(4) or 
                433(f)(5) 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 
                430(j)(4) or 433(f)(5)).
                  (B) Payments described.--A payment is 
                described in this subparagraph if such payment 
                is--
                          (i) any payment, in excess of the 
                        monthly amount paid under a single life 
                        annuity (plus any social security 
                        supplements described in the last 
                        sentence of section 411(a)(9)), to a 
                        participant or beneficiary whose 
                        annuity starting date (as defined in 
                        section 417(f)(2)) occurs during the 
                        period referred to in subparagraph (A),
                          (ii) any payment for the purchase of 
                        an irrevocable commitment from an 
                        insurer to pay benefits, and
                          (iii) any other payment specified by 
                        the Secretary by regulations.
                  (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 
                430(j)(3) or 433(f) by reason of section 
                430(j)(4)(A) or 433(f)(5), respectively.
          (33) Prohibition on benefit increases while sponsor 
        is in bankruptcy.--
                  (A) In general.--A trust which is part of a 
                plan to which this paragraph applies shall not 
                constitute a qualified trust under this section 
                if an amendment to such plan is adopted while 
                the employer is a debtor in a case under title 
                11, United States Code, or similar Federal or 
                State law, if such amendment increases 
                liabilities of the plan by reason of--
                          (i) any increase in benefits,
                          (ii) any change in the accrual of 
                        benefits, or
                          (iii) any change in the rate at which 
                        benefits become nonforfeitable under 
                        the plan,
                with respect to employees of the debtor, and 
                such amendment is effective prior to the 
                effective date of such employer's plan of 
                reorganization.
                  (B) Exceptions.--This paragraph shall not 
                apply to any plan amendment if--
                          (i) the plan, were such amendment to 
                        take effect, would have a funding 
                        target attainment percentage (as 
                        defined in section 430(d)(2)) of 100 
                        percent or more,
                          (ii) the Secretary determines that 
                        such amendment is reasonable and 
                        provides for only de minimis increases 
                        in the liabilities of the plan with 
                        respect to employees of the debtor,
                          (iii) such amendment only repeals an 
                        amendment described in section 
                        412(d)(2), or
                          (iv) such amendment is required as a 
                        condition of qualification under this 
                        part.
                  (C) Plans to which this paragraph applies.--
                This paragraph shall apply only to plans (other 
                than multiemployer plans or CSEC plans) covered 
                under section 4021 of the Employee Retirement 
                Income Security Act of 1974.
                  (D) Employer.--For purposes of this 
                paragraph, the term ``employer'' means the 
                employer referred to in section 412(b)(1), 
                without regard to section 412(b)(2).
          (34) Benefits of missing participants on plan 
        termination.--In the case of a plan covered by title IV 
        of the Employee Retirement Income Security Act of 1974, 
        a trust forming part of such plan shall not be treated 
        as failing to constitute a qualified trust under this 
        section merely because the pension plan of which such 
        trust is a part, upon its termination, transfers 
        benefits of missing participants to the Pension Benefit 
        Guaranty Corporation in accordance with section 4050 of 
        such Act.
          (35) Diversification requirements for certain defined 
        contribution plans.--
                  (A) In general.--A trust which is part of an 
                applicable defined contribution plan shall not 
                be treated as a qualified trust unless the plan 
                meets the diversification requirements of 
                subparagraphs (B), (C), and (D).
                  (B) Employee contributions and elective 
                deferrals invested in employer securities.--In 
                the case of the portion of an applicable 
                individual's account attributable to employee 
                contributions and elective deferrals which is 
                invested in employer securities, a plan meets 
                the requirements of this subparagraph if the 
                applicable individual may elect to direct the 
                plan to divest any such securities and to 
                reinvest an equivalent amount in other 
                investment options meeting the requirements of 
                subparagraph (D).
                  (C) Employer contributions invested in 
                employer securities.--In the case of the 
                portion of the account attributable to employer 
                contributions other than elective deferrals 
                which is invested in employer securities, a 
                plan meets the requirements of this 
                subparagraph if each applicable individual 
                who--
                          (i) is a participant who has 
                        completed at least 3 years of service, 
                        or
                          (ii) is a beneficiary of a 
                        participant described in clause (i) or 
                        of a deceased participant,
                may elect to direct the plan to divest any such 
                securities and to reinvest an equivalent amount 
                in other investment options meeting the 
                requirements of subparagraph (D).
                  (D) Investment options.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if the plan 
                        offers not less than 3 investment 
                        options, other than employer 
                        securities, to which an applicable 
                        individual may direct the proceeds from 
                        the divestment of employer securities 
                        pursuant to this paragraph, each of 
                        which is diversified and has materially 
                        different risk and return 
                        characteristics.
                          (ii) Treatment of certain 
                        restrictions and conditions.--
                                  (I) Time for making 
                                investment choices.--A plan 
                                shall not be treated as failing 
                                to meet the requirements of 
                                this subparagraph merely 
                                because the plan limits the 
                                time for divestment and 
                                reinvestment to periodic, 
                                reasonable opportunities 
                                occurring no less frequently 
                                than quarterly.
                                  (II) Certain restrictions and 
                                conditions not allowed.--Except 
                                as provided in regulations, a 
                                plan shall not meet the 
                                requirements of this 
                                subparagraph if the plan 
                                imposes restrictions or 
                                conditions with respect to the 
                                investment of employer 
                                securities which are not 
                                imposed on the investment of 
                                other assets of the plan. This 
                                subclause shall not apply to 
                                any restrictions or conditions 
                                imposed by reason of the 
                                application of securities laws.
                  (E) Applicable defined contribution plan.--
                For purposes of this paragraph--
                          (i) In general.--The term 
                        ``applicable defined contribution 
                        plan'' means any defined contribution 
                        plan which holds any publicly traded 
                        employer securities.
                          (ii) Exception for certain esops.--
                        Such term does not include an employee 
                        stock ownership plan if--
                                  (I) there are no 
                                contributions to such plan (or 
                                earnings thereunder) which are 
                                held within such plan and are 
                                subject to subsection (k) or 
                                (m), and
                                  (II) such plan is a separate 
                                plan for purposes of section 
                                414(l) with respect to any 
                                other defined benefit plan or 
                                defined contribution plan 
                                maintained by the same employer 
                                or employers.
                          (iii) Exception for one participant 
                        plans.--Such term does not include a 
                        one-participant retirement plan.
                          (iv) One-participant retirement 
                        plan.--For purposes of clause (iii), 
                        the term ``one-participant retirement 
                        plan'' means a retirement plan that on 
                        the first day of the plan year--
                                  (I) covered only one 
                                individual (or the individual 
                                and the individual's spouse) 
                                and the individual (or the 
                                individual and the individual's 
                                spouse) owned 100 percent of 
                                the plan sponsor (whether or 
                                not incorporated), or
                                  (II) covered only one or more 
                                partners (or partners and their 
                                spouses) in the plan sponsor.
                  (F) Certain plans treated as holding publicly 
                traded employer securities.--
                          (i) In general.--Except as provided 
                        in regulations or in clause (ii), a 
                        plan holding employer securities which 
                        are not publicly traded employer 
                        securities shall be treated as holding 
                        publicly traded employer securities if 
                        any employer corporation, or any member 
                        of a controlled group of corporations 
                        which includes such employer 
                        corporation, has issued a class of 
                        stock which is a publicly traded 
                        employer security.
                          (ii) Exception for certain controlled 
                        groups with publicly traded 
                        securities.--Clause (i) shall not apply 
                        to a plan if--
                                  (I) no employer corporation, 
                                or parent corporation of an 
                                employer corporation, has 
                                issued any publicly traded 
                                employer security, and
                                  (II) no employer corporation, 
                                or parent corporation of an 
                                employer corporation, has 
                                issued any special class of 
                                stock which grants particular 
                                rights to, or bears particular 
                                risks for, the holder or issuer 
                                with respect to any corporation 
                                described in clause (i) which 
                                has issued any publicly traded 
                                employer security.
                          (iii) Definitions.--For purposes of 
                        this subparagraph, the term--
                                  (I) ``controlled group of 
                                corporations'' has the meaning 
                                given such term by section 
                                1563(a), except that ``50 
                                percent'' shall be substituted 
                                for ``80 percent'' each place 
                                it appears,
                                  (II) ``employer corporation'' 
                                means a corporation which is an 
                                employer maintaining the plan, 
                                and
                                  (III) ``parent corporation'' 
                                has the meaning given such term 
                                by section 424(e).
                  (G) Other definitions.--For purposes of this 
                paragraph--
                          (i) Applicable individual.--The term 
                        ``applicable individual'' means--
                                  (I) any participant in the 
                                plan, and
                                  (II) any beneficiary who has 
                                an account under the plan with 
                                respect to which the 
                                beneficiary is entitled to 
                                exercise the rights of a 
                                participant.
                          (ii) Elective deferral.--The term 
                        ``elective deferral'' means an employer 
                        contribution described in section 
                        402(g)(3)(A).
                          (iii) Employer security.--The term 
                        ``employer security'' has the meaning 
                        given such term by section 407(d)(1) of 
                        the Employee Retirement Income Security 
                        Act of 1974.
                          (iv) Employee stock ownership plan.--
                        The term ``employee stock ownership 
                        plan'' has the meaning given such term 
                        by section 4975(e)(7).
                          (v) Publicly traded employer 
                        securities.--The term ``publicly traded 
                        employer securities'' means employer 
                        securities which are readily tradable 
                        on an established securities market.
                          (vi) Year of service.--The term 
                        ``year of service'' has the meaning 
                        given such term by section 411(a)(5).
                  (H) Transition rule for securities 
                attributable to employer contributions.--
                          (i) Rules phased in over 3 years.--
                                  (I) In general.--In the case 
                                of the portion of an account to 
                                which subparagraph (C) applies 
                                and which consists of employer 
                                securities acquired in a plan 
                                year beginning before January 
                                1, 2007, subparagraph (C) shall 
                                only apply to the applicable 
                                percentage of such securities. 
                                This subparagraph shall be 
                                applied separately with respect 
                                to each class of securities.
                                  (II) Exception for certain 
                                participants aged 55 or over.--
                                Subclause (I) shall not apply 
                                to an applicable individual who 
                                is a participant who has 
                                attained age 55 and completed 
                                at least 3 years of service 
                                before the first plan year 
                                beginning after December 31, 
                                2005.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be determined as 
                        follows:
          (36) 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 the plan provides 
        that a distribution may be 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.
          (37) Death benefits under userra-qualified active 
        military service.--A trust shall not constitute a 
        qualified trust unless the plan provides that, in the 
        case of a participant who dies while performing 
        qualified military service (as defined in section 
        414(u)), the survivors of the participant are entitled 
        to any additional benefits (other than benefit accruals 
        relating to the period of qualified military service) 
        provided under the plan had the participant resumed and 
        then terminated employment on account of death.
          (38) Portability of lifetime income.--
                  (A) In general.--Except as may be otherwise 
                provided by regulations, a trust forming part 
                of a defined contribution plan shall not be 
                treated as failing to constitute a qualified 
                trust under this section solely by reason of 
                allowing--
                          (i) qualified distributions of a 
                        lifetime income investment, or
                          (ii) distributions of a lifetime 
                        income investment in the form of a 
                        qualified plan distribution annuity 
                        contract,
                on or after the date that is 90 days prior to 
                the date on which such lifetime income 
                investment is no longer authorized to be held 
                as an investment option under the plan.
                  (B) Definitions.--For purposes of this 
                subsection--
                          (i) the term ``qualified 
                        distribution'' means a direct trustee-
                        to-trustee transfer described in 
                        paragraph (31)(A) to an eligible 
                        retirement plan (as defined in section 
                        402(c)(8)(B)),
                          (ii) the term ``lifetime income 
                        investment'' means an investment option 
                        which is designed to provide an 
                        employee with election rights--
                                  (I) which are not uniformly 
                                available with respect to other 
                                investment options under the 
                                plan, and
                                  (II) which are to a lifetime 
                                income feature available 
                                through a contract or other 
                                arrangement offered under the 
                                plan (or under another eligible 
                                retirement plan (as so 
                                defined), if paid by means of a 
                                direct trustee-to-trustee 
                                transfer described in paragraph 
                                (31)(A) to such other eligible 
                                retirement plan),
                          (iii) the term ``lifetime income 
                        feature'' means--
                                  (I) a feature which 
                                guarantees a minimum level of 
                                income annually (or more 
                                frequently) for at least the 
                                remainder of the life of the 
                                employee or the joint lives of 
                                the employee and the employee's 
                                designated beneficiary, or
                                  (II) an annuity payable on 
                                behalf of the employee under 
                                which payments are made in 
                                substantially equal periodic 
                                payments (not less frequently 
                                than annually) over the life of 
                                the employee or the joint lives 
                                of the employee and the 
                                employee's designated 
                                beneficiary, and
                          (iv) the term ``qualified plan 
                        distribution annuity contract'' means 
                        an annuity contract purchased for a 
                        participant and distributed to the 
                        participant by a plan or contract 
                        described in subparagraph (B) of 
                        section 402(c)(8) (without regard to 
                        clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall 
apply only in the case of a plan to which section 411 (relating 
to minimum vesting standards) applies without regard to 
subsection (e)(2) of such section.
  (b) Certain [retroactive changes in plan.--] [A stock bonus] 
Plan Amendments._
          (1) Certain retroactive changes in plan._A stock 
        bonus , pension, profit-sharing, or annuity plan shall 
        be considered as satisfying the requirements of 
        subsection (a) for the period beginning with the date 
        on which it was put into effect, or for the period 
        beginning with the earlier of the date on which there 
        was adopted or put into effect any amendment which 
        caused the plan to fail to satisfy such requirements, 
        and ending with the time prescribed by law for filing 
        the return of the employer for his taxable year in 
        which such plan or amendment was adopted (including 
        extensions thereof) or such later time as the Secretary 
        may designate, if all provisions of the plan which are 
        necessary to satisfy such requirements are in effect by 
        the end of such period and have been made effective for 
        all purposes for the whole of such period.
          (2) Adoption of plan.--If an employer adopts a stock 
        bonus, pension, profit-sharing, or annuity plan after 
        the close of a taxable year but before the time 
        prescribed by law for filing the return of the employer 
        for the taxable year (including extensions thereof), 
        the employer may elect to treat the plan as having been 
        adopted as of the last day of the taxable year.
  (c) Definitions and rules relating to self-employed 
individuals and owner-employees.--For purposes of this 
section--
          (1) Self-employed individual treated as employee.--
                  (A) In general.--The term ``employee'' 
                includes, for any taxable year, an individual 
                who is a self-employed individual for such 
                taxable year.
                  (B) Self-employed individual.--The term 
                ``self-employed individual'' means, with 
                respect to any taxable year, an individual who 
                has earned income (as defined in paragraph (2)) 
                for such taxable year. To the extent provided 
                in regulations prescribed by the Secretary, 
                such term also includes, for any taxable year--
                          (i) an individual who would be a 
                        self-employed individual within the 
                        meaning of the preceding sentence but 
                        for the fact that the trade or business 
                        carried on by such individual did not 
                        have net profits for the taxable year, 
                        and
                          (ii) an individual who has been a 
                        self-employed individual within the 
                        meaning of the preceding sentence for 
                        any prior taxable year.
          (2) Earned income.--
                  (A) In general.--The term ``earned income'' 
                means the net earnings from self-employment (as 
                defined in section 1402(a)), but such net 
                earnings shall be determined--
                          (i) only with respect to a trade or 
                        business in which personal services of 
                        the taxpayer are a material income-
                        producing factor,
                          (ii) without regard to paragraphs (4) 
                        and (5) of section 1402(c),
                          (iii) in the case of any individual 
                        who is treated as an employee under 
                        subparagraph (A), (C), or (D) of 
                        section 3121(d)(3), without regard to 
                        section 1402(c)(2),
                          (iv) without regard to items which 
                        are not included in gross income for 
                        purposes of this chapter, and the 
                        deductions properly allocable to or 
                        chargeable against such items,
                          (v) with regard to the deductions 
                        allowed by section 404 to the taxpayer, 
                        and
                          (vi) with regard to the deduction 
                        allowed to the taxpayer by section 
                        164(f).
                For purposes of this subparagraph, section 
                1402, as in effect for a taxable year ending on 
                December 31, 1962, shall be treated as having 
                been in effect for all taxable years ending 
                before such date. For purposes of this part 
                only (other than sections 419 and 419A), this 
                subparagraph shall be applied as if the term 
                ``trade or business'' for purposes of section 
                1402 included service described in section 
                1402(c)(6).
                  (C) Income from disposition of certain 
                property.--For purposes of this section, the 
                term ``earned income'' includes gains (other 
                than any gain which is treated under any 
                provision of this chapter as gain from the sale 
                or exchange of a capital asset) and net 
                earnings derived from the sale or other 
                disposition of, the transfer of any interest 
                in, or the licensing of the use of property 
                (other than good will) by an individual whose 
                personal efforts created such property.
          (3) Owner-employee.--The term ``owner-employee'' 
        means an employee who--
                  (A) owns the entire interest in an 
                unincorporated trade or business, or
                  (B) in the case of a partnership, is a 
                partner who owns more than 10 percent of either 
                the capital interest or the profits interest in 
                such partnership.
        To the extent provided in regulations prescribed by the 
        Secretary, such term also means an individual who has 
        been an owner-employee within the meaning of the 
        preceding sentence.
          (4) Employer.--An individual who owns the entire 
        interest in an unincorporated trade or business shall 
        be treated as his own employer. A partnership shall be 
        treated as the employer of each partner who is an 
        employee within the meaning of paragraph (1).
          (5) Contributions on behalf of owner-employees.--The 
        term ``contribution on behalf of an owner-employee'' 
        includes, except as the context otherwise requires, a 
        contribution under a plan--
                  (A) by the employer for an owner-employee, 
                and
                  (B) by an owner-employee as an employee.
          (6) Special rule for certain fishermen.--For purposes 
        of this subsection, the term ``self-employed 
        individual'' includes an individual described in 
        section 3121(b)(20) (relating to certain fishermen).
  (d) Contribution limit on owner-employees.--A trust forming 
part of a pension or profit-sharing plan which provides 
contributions or benefits for employees some or all of whom are 
owner-employees shall constitute a qualified trust under this 
section only if, in addition to meeting the requirements of 
subsection (a), the plan provides that contributions on behalf 
of any owner-employee may be made only with respect to the 
earned income of such owner-employee which is derived from the 
trade or business with respect to which such plan is 
established.
  (f) Certain custodial accounts and contracts.--For purposes 
of this title, a custodial account, an annuity contract, or a 
contract (other than a life, health or accident, property, 
casualty, or liability insurance contract) issued by an 
insurance company qualified to do business in a State shall be 
treated as a qualified trust under this section if--
          (1) the custodial account or contract would, except 
        for the fact that it is not a trust, constitute a 
        qualified trust under this section, and
          (2) in the case of a custodial account the assets 
        thereof are held by a bank (as defined in section 
        408(n)) or another person who demonstrates, to the 
        satisfaction of the Secretary, that the manner in which 
        he will hold the assets will be consistent with the 
        requirements of this section.
For purposes of this title, in the case of a custodial account 
or contract treated as a qualified trust under this section by 
reason of this subsection, the person holding the assets of 
such account or holding such contract shall be treated as the 
trustee thereof.
  (g) Annuity defined.--For purposes of this section and 
sections 402, 403, and 404, the term ``annuity'' includes a 
face-amount certificate, as defined in section 2(a)(15) of the 
Investment Company Act of 1940 (15 U.S.C., sec. 80a-2); but 
does not include any contract or certificate issued after 
December 31, 1962, which is transferable, if any person other 
than the trustee of a trust described in section 401(a) which 
is exempt from tax under section 501(a) is the owner of such 
contract or certificate.
  (h) Medical, etc., benefits for retired employees and their 
spouses and dependents.--Under regulations prescribed by the 
Secretary, and subject to the provisions of section 420, a 
pension or annuity plan may provide for the payment of benefits 
for sickness, accident, hospitalization, and medical expenses 
of retired employees, their spouses and their dependents, but 
only if--
          (1) such benefits are subordinate to the retirement 
        benefits provided by the plan,
          (2) a separate account is established and maintained 
        for such benefits,
          (3) the employer's contributions to such separate 
        account are reasonable and ascertainable,
          (4) it is impossible, at any time prior to the 
        satisfaction of all liabilities under the plan to 
        provide such benefits, for any part of the corpus or 
        income of such separate account to be (within the 
        taxable year or thereafter) used for, or diverted to, 
        any purpose other than the providing of such benefits,
          (5) notwithstanding the provisions of subsection 
        (a)(2), upon the satisfaction of all liabilities under 
        the plan to provide such benefits, any amount remaining 
        in such separate account must, under the terms of the 
        plan, be returned to the employer, and
          (6) in the case of an employee who is a key employee, 
        a separate account is established and maintained for 
        such benefits payable to such employee (and his spouse 
        and dependents) and such benefits (to the extent 
        attributable to plan years beginning after March 31, 
        1984, for which the employee is a key employee) are 
        only payable to such employee (and his spouse and 
        dependents) from such separate account.
For purposes of paragraph (6), the term ``key employee'' means 
any employee, who at any time during the plan year or any 
preceding plan year during which contributions were made on 
behalf of such employee, is or was a key employee as defined in 
section 416(i). In no event shall the requirements of paragraph 
(1) be treated as met if the aggregate actual contributions for 
medical benefits, when added to actual contributions for life 
insurance protection under the plan, exceed 25 percent of the 
total actual contributions to the plan (other than 
contributions to fund past service credits) after the date on 
which the account is established. For purposes of this 
subsection, the term ``dependent'' shall include any individual 
who is a child (as defined in section 152(f)(1)) of a retired 
employee who as of the end of the calendar year has not 
attained age 27.
  (i) Certain union-negotiated pension plans.--In the case of a 
trust forming part of a pension plan which has been determined 
by the Secretary to constitute a qualified trust under 
subsection (a) and to be exempt from taxation under section 
501(a) for a period beginning after contributions were first 
made to or for such trust, if it is shown to the satisfaction 
of the Secretary that--
          (1) such trust was created pursuant to a collective 
        bargaining agreement between employee representatives 
        and one or more employers,
          (2) any disbursements of contributions, made to or 
        for such trust before the time as of which the 
        Secretary determined that the trust constituted a 
        qualified trust, substantially complied with the terms 
        of the trust, and the plan of which the trust is a 
        part, as subsequently qualified, and
          (3) before the time as of which the Secretary 
        determined that the trust constitutes a qualified 
        trust, the contributions to or for such trust were not 
        used in a manner which would jeopardize the interests 
        of its beneficiaries,
then such trust shall be considered as having constituted a 
qualified trust under subsection (a) and as having been exempt 
from taxation under section 501(a) for the period beginning on 
the date on which contributions were first made to or for such 
trust and ending on the date such trust first constituted 
(without regard to this subsection) a qualified trust under 
subsection (a).
  (k) Cash or deferred arrangements.--
          (1) General rule.--A profit-sharing or stock bonus 
        plan, a pre-ERISA money purchase plan, or a rural 
        cooperative plan shall not be considered as not 
        satisfying the requirements of subsection (a) merely 
        because the plan includes a qualified cash or deferred 
        arrangement.
          (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) under which a covered employee may elect 
                to have the employer make payments as 
                contributions to a trust under the plan on 
                behalf of the employee, or to the employee 
                directly in cash;
                  (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) severance from 
                                employment, death, or 
                                disability,
                                  (II) an event described in 
                                paragraph (10),
                                  (III) in the case of a 
                                profit-sharing or stock bonus 
                                plan, the attainment of age 
                                591/2,
                                  (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, [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]or
                                  (VI) except as may be 
                                otherwise provided by 
                                regulations, with respect to 
                                amounts invested in a lifetime 
                                income investment (as defined 
                                in subsection (a)(38)(B)(ii)), 
                                the date that is 90 days prior 
                                to the date that such lifetime 
                                income investment may no longer 
                                be held as an investment option 
                                under the arrangement, and
                          (ii) will not be distributable merely 
                        by reason of the completion of a stated 
                        period of participation or the lapse of 
                        a fixed number of years[;], and
                          (iii) except as may be otherwise 
                        provided by regulations, in the case of 
                        amounts described in clause (i)(VI), 
                        will be distributed only in the form of 
                        a qualified distribution (as defined in 
                        subsection (a)(38)(B)(i)) or a 
                        qualified plan distribution annuity 
                        contract (as defined in subsection 
                        (a)(38)(B)(iv)),
                  (C) which provides that an employee's right 
                to his accrued benefit derived from employer 
                contributions made to the trust pursuant to his 
                election is nonforfeitable, and
                  [(D) which does not require, as a condition 
                of participation in the arrangement, that an 
                employee complete a period of service with the 
                employer (or employers) maintaining the plan 
                extending beyond the period permitted under 
                section 410(a)(1) (determined without regard to 
                subparagraph (B)(i) thereof).]
                  (D) which does not require, as a condition of 
                participation in the arrangement, that an 
                employee complete a period of service with the 
                employer (or employers) maintaining the plan 
                extending beyond the close of the earlier of--
                          (i) the period permitted under 
                        section 410(a)(1) (determined without 
                        regard to subparagraph (B)(i) thereof), 
                        or
                          (ii) subject to the provisions of 
                        paragraph (15), the first period of 3 
                        consecutive 12-month periods during 
                        each of which the employee has at least 
                        500 hours of service.
          (3) Application of participation and discrimination 
        standards.--
                  (A) A cash or deferred arrangement shall not 
                be treated as a qualified cash or deferred 
                arrangement unless--
                          (i) those employees eligible to 
                        benefit under the arrangement satisfy 
                        the provisions of section 410(b)(1), 
                        and
                          (ii) the actual deferral percentage 
                        for eligible highly compensated 
                        employees (as defined in paragraph (5)) 
                        for the plan year bears a relationship 
                        to the actual deferral percentage for 
                        all other eligible employees for the 
                        preceding plan year which meets either 
                        of the following tests:
                                  (I) The actual deferral 
                                percentage for the group of 
                                eligible highly compensated 
                                employees is not more than the 
                                actual deferral percentage of 
                                all other eligible employees 
                                multiplied by 1.25.
                                  (II) The excess of the actual 
                                deferral percentage for the 
                                group of eligible highly 
                                compensated employees over that 
                                of all other eligible employees 
                                is not more than 2 percentage 
                                points, and the actual deferral 
                                percentage for the group of 
                                eligible highly compensated 
                                employees is not more than the 
                                actual deferral percentage of 
                                all other eligible employees 
                                multiplied by 2.
                 If 2 or more plans which include cash or 
                deferred arrangements are considered as 1 plan 
                for purposes of section 401(a)(4) or 410(b), 
                the cash or deferred arrangements included in 
                such plans shall be treated as 1 arrangement 
                for purposes of this subparagraph.
                If any highly compensated employee is a 
                participant under 2 or more cash or deferred 
                arrangements of the employer, for purposes of 
                determining the deferral percentage with 
                respect to such employee, all such cash or 
                deferred arrangements shall be treated as 1 
                cash or deferred arrangement. An arrangement 
                may apply clause (ii) by using the plan year 
                rather than the preceding plan year if the 
                employer so elects, except that if such an 
                election is made, it may not be changed except 
                as provided by the Secretary.
                  (B) For purposes of subparagraph (A), the 
                actual deferral percentage for a specified 
                group of employees for a plan year shall be the 
                average of the ratios (calculated separately 
                for each employee in such group) of--
                          (i) the amount of employer 
                        contributions actually paid over to the 
                        trust on behalf of each such employee 
                        for such plan year, to
                          (ii) the employee's compensation for 
                        such plan year.
                  (C) A cash or deferred arrangement shall be 
                treated as meeting the requirements of 
                subsection (a)(4) with respect to contributions 
                if the requirements of subparagraph (A)(ii) are 
                met.
                  (D) For purposes of subparagraph (B), the 
                employer contributions on behalf of any 
                employee--
                          (i) shall include any employer 
                        contributions made pursuant to the 
                        employee's election under paragraph 
                        (2), and
                          (ii) under such rules as the 
                        Secretary may prescribe, may, at the 
                        election of the employer, include--
                                  (I) matching contributions 
                                (as defined in 401(m)(4)(A)) 
                                which meet the requirements of 
                                paragraph (2)(B) and (C), and
                                  (II) qualified nonelective 
                                contributions (within the 
                                meaning of section 
                                401(m)(4)(C)).
                  (E) For purposes of this paragraph, in the 
                case of the first plan year of any plan (other 
                than a successor plan), the amount taken into 
                account as the actual deferral percentage of 
                nonhighly compensated employees for the 
                preceding plan year shall be--
                          (i) 3 percent, or
                          (ii) if the employer makes an 
                        election under this subclause, the 
                        actual deferral percentage of nonhighly 
                        compensated employees determined for 
                        such first plan year.
                  (F) Special rule for early participation.--If 
                an employer elects to apply section 
                410(b)(4)(B) in determining whether a cash or 
                deferred arrangement meets the requirements of 
                subparagraph (A)(i), the employer may, in 
                determining whether the arrangement meets the 
                requirements of subparagraph (A)(ii), exclude 
                from consideration all eligible employees 
                (other than highly compensated employees) who 
                have not met the minimum age and service 
                requirements of section 410(a)(1)(A).
                  (G) Governmental plan.--A governmental plan 
                (within the meaning of section 414(d)) shall be 
                treated as meeting the requirements of this 
                paragraph.
          (4) Other requirements.--
                  (A) Benefits (other than matching 
                contributions) must not be contingent on 
                election to defer.--A cash or deferred 
                arrangement of any employer shall not be 
                treated as a qualified cash or deferred 
                arrangement if any other benefit is conditioned 
                (directly or indirectly) on the employee 
                electing to have the employer make or not make 
                contributions under the arrangement in lieu of 
                receiving cash. The preceding sentence shall 
                not apply to any matching contribution (as 
                defined in section 401(m)) made by reason of 
                such an election.
                  (B) Eligibility of State and local 
                governments and tax-exempt organizations.--
                          (i) Tax-exempts eligible.--Except as 
                        provided in clause (ii), any 
                        organization exempt from tax under this 
                        subtitle may include a qualified cash 
                        or deferred arrangement as part of a 
                        plan maintained by it.
                          (ii) Governments ineligible.--A cash 
                        or deferred arrangement shall not be 
                        treated as a qualified cash or deferred 
                        arrangement if it is part of a plan 
                        maintained by a State or local 
                        government or political subdivision 
                        thereof, or any agency or 
                        instrumentality thereof. This clause 
                        shall not apply to a rural cooperative 
                        plan or to a plan of an employer 
                        described in clause (iii).
                          (iii) Treatment of Indian tribal 
                        governments.--An employer which is an 
                        Indian tribal government (as defined in 
                        section 7701(a)(40)), a subdivision of 
                        an Indian tribal government (determined 
                        in accordance with section 7871(d)), an 
                        agency or instrumentality of an Indian 
                        tribal government or subdivision 
                        thereof, or a corporation chartered 
                        under Federal, State, or tribal law 
                        which is owned in whole or in part by 
                        any of the foregoing may include a 
                        qualified cash or deferred arrangement 
                        as part of a plan maintained by the 
                        employer.
                  (C) Coordination with other plans.--Except as 
                provided in section 401(m), any employer 
                contribution made pursuant to an employee's 
                election under a qualified cash or deferred 
                arrangement shall not be taken into account for 
                purposes of determining whether any other plan 
                meets the requirements of section 401(a) or 
                410(b). This subparagraph shall not apply for 
                purposes of determining whether a plan meets 
                the average benefit requirement of section 
                410(b)(2)(A)(ii).
          (5) Highly compensated employee.--For purposes of 
        this subsection, the term ``highly compensated 
        employee'' has the meaning given such term by section 
        414(q).
          (6) Pre-ERISA money purchase plan.--For purposes of 
        this subsection, the term ``pre-ERISA money purchase 
        plan'' means a pension plan--
                  (A) which is a defined contribution plan (as 
                defined in section 414(i)),
                  (B) which was in existence on June 27, 1974, 
                and which, on such date, included a salary 
                reduction arrangement, and
                  (C) under which neither the employee 
                contributions nor the employer contributions 
                may exceed the levels provided for by the 
                contribution formula in effect under the plan 
                on such date.
          (7) Rural cooperative plan.--For purposes of this 
        subsection--
                  (A) In general.--The term ``rural cooperative 
                plan'' means any pension plan--
                          (i) which is a defined contribution 
                        plan (as defined in section 414(i)), 
                        and
                          (ii) which is established and 
                        maintained by a rural cooperative.
                  (B) Rural cooperative defined.--For purposes 
                of subparagraph (A), the term ``rural 
                cooperative'' means--
                          (i) any organization which--
                                  (I) is engaged primarily in 
                                providing electric service on a 
                                mutual or cooperative basis, or
                                  (II) is engaged primarily in 
                                providing electric service to 
                                the public in its area of 
                                service and which is exempt 
                                from tax under this subtitle or 
                                which is a State or local 
                                government (or an agency or 
                                instrumentality thereof), other 
                                than a municipality (or an 
                                agency or instrumentality 
                                thereof),
                          (ii) any organization described in 
                        paragraph (4) or (6) of section 501(c) 
                        and at least 80 percent of the members 
                        of which are organizations described in 
                        clause (i),
                          (iii) a cooperative telephone company 
                        described in section 501(c)(12),
                          (iv) any organization which--
                                  (I) is a mutual irrigation or 
                                ditch company described in 
                                section 501(c)(12) (without 
                                regard to the 85 percent 
                                requirement thereof), or
                                  (II) is a district organized 
                                under the laws of a State as a 
                                municipal corporation for the 
                                purpose of irrigation, water 
                                conservation, or drainage, and
                          (v) an organization which is a 
                        national association of organizations 
                        described in clause (i), (ii),, (iii), 
                        or (iv).
                  (C) Special rule for certain distributions.--
                A rural cooperative plan which includes a 
                qualified cash or deferred arrangement shall 
                not be treated as violating the requirements of 
                section 401(a) or of paragraph (2) merely by 
                reason of a hardship distribution or a 
                distribution to a participant after attainment 
                of age 591/2. For purposes of this section, the 
                term ``hardship distribution'' means a 
                distribution described in paragraph 
                (2)(B)(i)(IV) (without regard to the limitation 
                of its application to profit-sharing or stock 
                bonus plans).
          (8) Arrangement not disqualified if excess 
        contributions distributed.--
                  (A) In general.--A cash or deferred 
                arrangement shall not be treated as failing to 
                meet the requirements of clause (ii) of 
                paragraph (3)(A) for any plan year if, before 
                the close of the following plan year--
                          (i) the amount of the excess 
                        contributions for such plan year (and 
                        any income allocable to such 
                        contributions through the end of such 
                        year) is distributed, or
                          (ii) to the extent provided in 
                        regulations, the employee elects to 
                        treat the amount of the excess 
                        contributions as an amount distributed 
                        to the employee and then contributed by 
                        the employee to the plan.
                Any distribution of excess contributions (and 
                income) may be made without regard to any other 
                provision of law.
                  (B) Excess contributions.--For purposes of 
                subparagraph (A), the term ``excess 
                contributions'' means, with respect to any plan 
                year, the excess of--
                          (i) the aggregate amount of employer 
                        contributions actually paid over to the 
                        trust on behalf of highly compensated 
                        employees for such plan year, over
                          (ii) the maximum amount of such 
                        contributions permitted under the 
                        limitations of clause (ii) of paragraph 
                        (3)(A) (determined by reducing 
                        contributions made on behalf of highly 
                        compensated employees in order of the 
                        actual deferral percentages beginning 
                        with the highest of such percentages).
                  (C) Method of distributing excess 
                contributions.--Any distribution of the excess 
                contributions for any plan year shall be made 
                to highly compensated employees on the basis of 
                the amount of contributions by, or on behalf 
                of, each of such employees.
                  (D) Additional tax under section 72(t) not to 
                apply.--No tax shall be imposed under section 
                72(t) on any amount required to be distributed 
                under this paragraph.
                  (E) Treatment of matching contributions 
                forfeited by reason of excess deferral or 
                contribution or permissible withdrawal.--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), a permissible 
                withdrawal under section 414(w), or an excess 
                aggregate contribution under section 
                401(m)(6)(B).
                  (F) Cross reference.--For excise tax on 
                certain excess contributions, see section 4979.
          (9) Compensation.--For purposes of this subsection, 
        the term ``compensation'' has the meaning given such 
        term by section 414(s).
          (10) Distributions upon termination of plan.--
                  (A) In general.--An event described in this 
                subparagraph is the termination of the plan 
                without establishment or maintenance of another 
                defined contribution plan (other than an 
                employee stock ownership plan as defined in 
                section 4975(e)(7)).
                  (B) Distributions must be lump sum 
                distributions.--
                          (i) In general.--A termination shall 
                        not be treated as described in 
                        subparagraph (A) with respect to any 
                        employee unless the employee receives a 
                        lump sum distribution by reason of the 
                        termination.
                          (ii) Lump-sum distribution.--For 
                        purposes of this subparagraph, the term 
                        ``lump-sum distribution'' has the 
                        meaning given such term by section 
                        402(e)(4)(D) (without regard to 
                        subclauses (I), (II), (III), and (IV) 
                        of clause (i) thereof). Such term 
                        includes a distribution of an annuity 
                        contract from--
                                  (I) a trust which forms a 
                                part of a plan described in 
                                section 401(a) and which is 
                                exempt from tax under section 
                                501(a), or
                                  (II) an annuity plan 
                                described in section 403(a).
          (11) Adoption of simple plan to meet 
        nondiscrimination tests.--
                  (A) In general.--A cash or deferred 
                arrangement maintained by an eligible employer 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement 
                meets--
                          (i) the contribution requirements of 
                        subparagraph (B),
                          (ii) the exclusive plan requirements 
                        of subparagraph (C), and
                          (iii) the vesting requirements of 
                        section 408(p)(3).
                  (B) Contribution requirements.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement--
                                  (I) an employee may elect to 
                                have the employer make elective 
                                contributions for the year on 
                                behalf of the employee to a 
                                trust under the plan in an 
                                amount which is expressed as a 
                                percentage of compensation of 
                                the employee but which in no 
                                event exceeds the amount in 
                                effect under section 
                                408(p)(2)(A)(ii),
                                  (II) the employer is required 
                                to make a matching contribution 
                                to the trust for the year in an 
                                amount equal to so much of the 
                                amount the employee elects 
                                under subclause (I) as does not 
                                exceed 3 percent of 
                                compensation for the year, and
                                  (III) no other contributions 
                                may be made other than 
                                contributions described in 
                                subclause (I) or (II).
                          (ii) Employer may elect 2-percent 
                        nonelective contribution.--An employer 
                        shall be treated as meeting the 
                        requirements of clause (i)(II) for any 
                        year if, in lieu of the contributions 
                        described in such clause, the employer 
                        elects (pursuant to the terms of the 
                        arrangement) to make nonelective 
                        contributions of 2 percent of 
                        compensation for each employee who is 
                        eligible to participate in the 
                        arrangement and who has at least $5,000 
                        of compensation from the employer for 
                        the year. If an employer makes an 
                        election under this subparagraph for 
                        any year, the employer shall notify 
                        employees of such election within a 
                        reasonable period of time before the 
                        60th day before the beginning of such 
                        year.
                          (iii) Administrative requirements.--
                                  (I) In general.--Rules 
                                similar to the rules of 
                                subparagraphs (B) and (C) of 
                                section 408(p)(5) shall apply 
                                for purposes of this 
                                subparagraph.
                                  (II) Notice of election 
                                period.--The requirements of 
                                this subparagraph shall not be 
                                treated as met with respect to 
                                any year unless the employer 
                                notifies each employee eligible 
                                to participate, within a 
                                reasonable period of time 
                                before the 60th day before the 
                                beginning of such year (and, 
                                for the first year the employee 
                                is so eligible, the 60th day 
                                before the first day such 
                                employee is so eligible), of 
                                the rules similar to the rules 
                                of section 408(p)(5)(C) which 
                                apply by reason of subclause 
                                (I).
                  (C) Exclusive plan requirement.--The 
                requirements of this subparagraph are met for 
                any year to which this paragraph applies if no 
                contributions were made, or benefits were 
                accrued, for services during such year under 
                any qualified plan of the employer on behalf of 
                any employee eligible to participate in the 
                cash or deferred arrangement, other than 
                contributions described in subparagraph (B).
                  (D) Definitions and special rule.--
                          (i) Definitions.--For purposes of 
                        this paragraph, any term used in this 
                        paragraph which is also used in section 
                        408(p) shall have the meaning given 
                        such term by such section.
                          (ii) Coordination with top-heavy 
                        rules.--A plan meeting the requirements 
                        of this paragraph for any year shall 
                        not be treated as a top-heavy plan 
                        under section 416 for such year if such 
                        plan allows only contributions required 
                        under this paragraph.
          (12) Alternative methods of meeting nondiscrimination 
        requirements.--
                  (A) In general.--A cash or deferred 
                arrangement shall be treated as meeting the 
                requirements of paragraph (3)(A)(ii) [if such 
                arrangement--
                          [(i) meets the contribution 
                        requirements of subparagraph (B) or 
                        (C), and
                          [(ii) meets the notice requirements 
                        of subparagraph (D).] if such 
                        arrangement--
                          (i) meets the contribution 
                        requirements of subparagraph (B) and 
                        the notice requirements of subparagraph 
                        (D), or 
                          (ii) meets the contribution 
                        requirements of subparagraph (C). 
                  (B) Matching contributions.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if, under the 
                        arrangement, the employer makes 
                        matching contributions on behalf of 
                        each employee who is not a highly 
                        compensated employee in an amount equal 
                        to--
                                  (I) 100 percent of the 
                                elective contributions of the 
                                employee to the extent such 
                                elective contributions do not 
                                exceed 3 percent of the 
                                employee's compensation, and
                                  (II) 50 percent of the 
                                elective contributions of the 
                                employee to the extent that 
                                such elective contributions 
                                exceed 3 percent but do not 
                                exceed 5 percent of the 
                                employee's compensation.
                          (ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the rate of matching 
                        contribution with respect to any 
                        elective contribution of a highly 
                        compensated employee at any rate of 
                        elective contribution is greater than 
                        that with respect to an employee who is 
                        not a highly compensated employee.
                          (iii) Alternative plan designs.--If 
                        the rate of any matching contribution 
                        with respect to any rate of elective 
                        contribution is not equal to the 
                        percentage required under clause (i), 
                        an arrangement shall not be treated as 
                        failing to meet the requirements of 
                        clause (i) if--
                                  (I) the rate of an employer's 
                                matching contribution does not 
                                increase as an employee's rate 
                                of elective contributions 
                                increase, and
                                  (II) the aggregate amount of 
                                matching contributions at such 
                                rate of elective contribution 
                                is at least equal to the 
                                aggregate amount of matching 
                                contributions which would be 
                                made if matching contributions 
                                were made on the basis of the 
                                percentages described in clause 
                                (i).
                  (C) Nonelective contributions.--The 
                requirements of this subparagraph are met if, 
                under the arrangement, the employer 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 
                3 percent of the employee's compensation.
                  (D) Notice requirement.--An arrangement meets 
                the requirements of this paragraph if, under 
                the arrangement, each employee eligible to 
                participate is, within a reasonable period 
                before any year, given 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 eligible to 
                        participate.
                  (E) Other requirements.--
                          (i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not 
                        be treated as meeting the requirements 
                        of subparagraph (B) or (C) of this 
                        paragraph unless the requirements of 
                        subparagraphs (B) and (C) of paragraph 
                        (2) are met with respect to all 
                        employer contributions (including 
                        matching contributions) taken into 
                        account in determining whether the 
                        requirements of subparagraphs (B) and 
                        (C) of this paragraph are met.
                          (ii) Social security and similar 
                        contributions not taken into account.--
                        An arrangement shall not be treated as 
                        meeting the requirements of 
                        subparagraph (B) or (C) unless such 
                        requirements are met without regard to 
                        subsection (l), and, for purposes of 
                        subsection (l), emplo