Small Employer Defined Benefit Expansion Act - Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to set forth special rules for treating the combination in a single pension plan of: (1) a defined benefit plan (a traditional benefit plan, or else a cash-balance plan for which additional special rules are required); and (2) a defined contribution plan (an individual account plan which includes a cash or deferred arrangement).
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3899 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 3899
To amend the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code of 1986 to provide for the combination of defined
benefit plans and deferred compensation arrangements in a single plan,
and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 27, 2005
Mr. Andrews (for himself and Mr. Nussle) introduced the following bill;
which was referred to the Committee on Education and the Workforce, and
in addition to the Committee on Ways and Means, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee
concerned
_______________________________________________________________________
A BILL
To amend the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code of 1986 to provide for the combination of defined
benefit plans and deferred compensation arrangements in a single plan,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Employer Defined Benefit
Expansion Act''.
SEC. 2. TREATMENT OF ELIGIBLE COMBINED DEFINED BENEFIT PLANS AND
QUALIFIED CASH OR DEFERRED ARRANGEMENTS.
(a) Amendments of ERISA.--
(1) In general.--Section 210 of the Employee Retirement
Income Security Act of 1974 is amended by adding at the end the
following new subsection:
``(e) Special Rules for Eligible Combined Defined Benefit Plans and
Qualified Cash or Deferred Arrangements.--
``(1) General rule.--Except as provided in this subsection,
in the case of any defined benefit plan or applicable
individual account plan forming a part of an eligible combined
plan, the requirements of this Act shall be applied to such
defined benefit plan or applicable individual account plan in
the same manner as if such plan were not a part of the eligible
combined plan.
``(2) Eligible combined plan.--For purposes of this
subsection--
``(A) In general.--The term `eligible combined
plan' means an arrangement--
``(i) which consists of a defined benefit
plan and an applicable individual account plan,
``(ii) the assets of which are held in a
single trust forming part of the arrangement
and are clearly identified and allocated to the
defined benefit plan and the applicable
individual account plan to the extent necessary
for the separate application of this Act under
paragraph (1), and
``(iii) with respect to which the benefit,
contribution, vesting, and distribution
requirements of subparagraphs (B), (C), (D),
and (E) are met.
``(B) Benefit requirements.--
``(i) In general.--The benefit requirements
of this subparagraph are met with respect to
the defined benefit plan forming part of the
eligible combined plan if the accrued benefit
of each participant derived from employer
contributions, when expressed as an annual
retirement benefit, is not less than the
applicable percentage of the participant's
final average pay. For purposes of this clause,
final average pay shall be determined using the
period of consecutive years (not exceeding 5)
during which the participant had the greatest
aggregate compensation from the employer.
``(ii) Applicable percentage.--For purposes
of clause (i), the applicable percentage is the
lesser of--
``(I) 1 percent multiplied by the
number of years of service with the
employer, or
``(II) 20 percent.
``(iii) Special rule for cash balance
plans.--
``(I) In general.--If the defined
benefit plan under clause (i) is a cash
balance plan, the plan shall be treated
as meeting the requirements of clause
(i) with respect to any plan year if
the employer contribution to the
hypothetical account balance expressed
as a percentage of the participant's
compensation for the year is equal to
the percentage determined in accordance
with the following table:
``If the participant's age as of
the
beginning of the year is-- The percentage is--
30 or less.................................... 2
Over 30 but less than 40...................... 4
40 or over but less than 50................... 6
50 or over.................................... 8.
``(II) Cash balance plan defined.--
For purposes of subclause (I), a cash
balance plan is a defined benefit plan
that defines an employee's benefits by
reference to the employee's
hypothetical account. Such hypothetical
account is determined by reference,
first, to hypothetical contribution
allocations, and, second, to
hypothetical interest credits (on an
annual or more frequent basis). The
right to future interest credits are
determined without regard to future
service.
``(III) No predecessor defined
benefit plan.--Notwithstanding
subclause (I), the requirements of
clause (i) shall not be treated as met
if, during the 3-year period
immediately preceding the effective
date of a cash balance plan meeting the
requirements of subclause (I), the
employer (or any related employer,
within the meaning of subsection (b),
(c), (m), or (o) of section 414 of the
Internal Revenue Code of 1986),
maintained a defined benefit plan that
was not a cash balance plan and which
benefited any participant who is a
participant in the plan which meets the
requirements of subclause (I).
``(iv) Years of service.--For purposes of
this subparagraph, years of service shall be
determined under the rules of paragraphs (1),
(2), and (3) of section 203(b), except that the
plan may not disregard any year of service
because of a participant making, or failing to
make, any elective deferral with respect to the
qualified cash or deferred arrangement to which
subparagraph (C) applies.
``(C) Contribution requirements.--
``(i) In general.--The contribution
requirements of this subparagraph with respect
to any applicable individual account plan
forming part of an eligible combined plan are
met if--
``(I) the qualified cash or
deferred arrangement included in such
applicable individual account plan
constitutes an automatic contribution
arrangement, and
``(II) the employer makes matching
contributions on behalf of each
employee eligible to participate in the
arrangement in an amount equal to 50
percent of the elective contributions
of the employee to the extent such
elective contributions do not exceed 4
percent of compensation.
Rules similar to the rules of clauses (ii) and
(iii) of section 401(k)(12)(B) of the Internal
Revenue Code of 1986 shall apply of purposes of
this clause.
``(ii) Nonelective contributions.--An
applicable individual account plan shall not be
treated as failing to meet the requirements of
clause (i) because the employer makes
nonelective contributions under the plan but
such contributions shall not be taken into
account in determining whether the requirements
of clause (i)(II) are met.
``(D) Vesting requirements.--The vesting
requirements of this subparagraph are met if--
``(i) in the case of a defined benefit plan
forming part of an eligible combined plan, an
employee who has completed at least 3 years of
service has a nonforfeitable right to 100
percent of the employee's accrued benefit under
the plan derived from employer contributions,
and
``(ii) in the case of an applicable
individual account plan forming part of
eligible combined plan--
``(I) an employee has a
nonforfeitable right to any matching
contribution made under the qualified
cash or deferred arrangement included
in such plan by an employer with
respect to any elective contribution,
including matching contributions in
excess of the contributions required
under subparagraph (C)(i)(II), and
``(II) an employee who has
completed at least 3 years of service
has a nonforfeitable right to 100
percent of the employee's accrued
benefit derived under the arrangement
from nonelective contributions of the
employer.
For purposes of this subparagraph, the rules of
section 203 shall apply to the extent not
inconsistent with this subparagraph.
``(E) Spousal consent for distributions.--The
distribution requirements of this subparagraph are met
if, in the case of a married participant, no
distribution may be made from the plan without the
written consent of the spouse of such participant.
``(3) Uniform provision of benefits.--In the case of a
defined benefit plan or applicable individual account plan
forming part of an eligible combined plan, all benefits,
rights, and features must be provided uniformly to all
participants.
``(4) Automatic contribution arrangement.--For purposes of
this subsection--
``(A) In general.--A qualified cash or deferred
arrangement shall be treated as an automatic
contribution arrangement if the arrangement--
``(i) provides that each employee eligible
to participate in the arrangement is treated as
having elected to have the employer make
elective contributions in an amount equal to
the specified percentage of the employee's
compensation unless the employee specifically
elects not to have such contributions made or
to have such contributions made at a different
rate or amount, and
``(ii) meets the notice requirements under
subparagraph (B).
``(B) Notice requirements.--
``(i) In general.--The requirements of this
subparagraph are met if the requirements of
clauses (ii) and (iii) are met.
``(ii) Reasonable period to make
election.--The requirements of this clause are
met if each employee to whom subparagraph
(A)(i) applies--
``(I) receives a notice explaining
the employee's right under the
arrangement to elect not to have
elective contributions made on the
employee's behalf or to have the
contributions made at a different rate
or amount, and
``(II) has a reasonable period of
time after receipt of such notice and
before the first elective contribution
is made to make such election.
``(iii) Annual notice of rights and
obligations.--The requirements of this clause
are met if each employee eligible to
participate in the arrangement is, within a
reasonable period before any year, given notice
of the employee's rights and obligations under
the automatic contribution arrangement.
The requirements of clauses (i) and (ii) of section
401(k)(12)(D) of the Internal Revenue Code of 1986
shall be met with respect to the notices described in
clauses (ii) and (iii) of this subparagraph.
``(C) Specified percentage.--For purposes of this
paragraph--
``(i) In general.--The term `specified
percentage' means, with respect to any
employee--
``(I) 4 percent during the period
ending on the last day of the first
plan year which begins after the date
on which the first elective
contribution described in subparagraph
(A)(i) is made with respect to such
employee, and
``(II) in the case of any
subsequent plan year, the percentage
which applied for the previous plan
year increased by one percentage point.
``(ii) Maximum percentage.--Notwithstanding
clause (i)(II), the specified percentage shall
not exceed 10 percent.
``(5) Treatment as single plan for reporting purposes.--An
eligible combined plan shall be treated as a single plan for
purposes of section 103(b).
``(6) Applicable individual account plan.--For purposes of
this subsection--
``(A) In general.--The term `applicable individual
account plan' means an individual account plan which
includes a qualified cash or deferred arrangement.
``(B) Qualified cash or deferred arrangement.--The
term `qualified cash or deferred arrangement' has the
meaning given such term by section 401(k)(2) of the
Internal Revenue Code of 1986.''.
(2) Preemption of state law.--The amendments made by this
subsection supersede any provision of a statute, regulation, or
rule of a State or political subdivision of a State that would
otherwise require an employer to obtain an employee's consent
before making a deduction from the wages of such employee.
(3) Guidelines for meeting fiduciary requirements.--Section
404(a) of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1104(a)) is amended by adding at the end the
following new paragraph:
``(3)(A) The Secretary shall prescribe by regulation guidelines for
compliance with the requirements of the diversification requirement of
paragraph (1)(C) and the prudence requirement (to the extent that it
requires diversification) of paragraph (1)(B) in the case of automatic
enrollment plans. Such guidelines shall consist of criteria for meeting
a standard of well-balanced and highly diversified investment of plan
assets. Compliance with such guidelines shall be deemed compliance with
such requirements.
``(B) The criteria prescribed by the Secretary pursuant to
subparagraph (A) shall include at least the following:
``(i) sufficiently limited investment of plan assets in
securities issued by any single issuer (other than in
obligations issued by, or guaranteed as to both principal and
interest by, the Government of the United States);
``(ii) sufficient diversification of investment among and
within asset classes, which shall include at least sufficient
diversification measured as between stocks and bonds,
sufficient diversification measured as among varieties of stock
categorized by large capitalization, medium capitalization, and
small capitalization, and sufficient diversification measured
as between investment funds focused on growth and investment
funds focused on income; and
``(iii) adequate prospects for a reasonable rate of return
on the investment, together with adequate assurance against
loss of principal and minimization of fees and other associated
costs chargeable to participants.
``(C) For purposes of this paragraph, the term `automatic
enrollment plan' means any plan which includes an automatic
contribution arrangement (within the meaning of section 210(e)(3)).''.
(4) Reduced pbgc premiums for certain defined benefit plans
offered with cash or deferred arrangements.--
(A) Reduction in basic premium for new plans of
small employers.--Subparagraph (A) of section
4006(a)(3) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended--
(i) in clause (i), by inserting ``(except
as provided in clause (iv))'' after ``$19'' ;
(ii) in clause (iii), by striking the
period at the end and inserting ``, and''; and
(iii) by adding at the end the following
new clause:
``(iv) for plan years beginning after December 31, 2005, in
the case of a plan which is, for the plan year, a new cash-or-
deferred single-employer plan maintained by a small employer,
$5 for each individual who is a participant in such plan during
the plan year.''.
(B) Definitions.--Section 4006(a)(3) of such Act
(29 U.S.C. 1306(a)(3)) is amended by adding at the end
the following new subparagraph:
``(G)(i) For purposes of this paragraph, a single-employer plan
maintained by a contributing sponsor shall be treated as a new cash-or-
deferred single-employer plan for each of its first 5 plan years if--
``(I) during the 36-month period ending on the date of the
adoption of such plan, the sponsor or any member of such
sponsor's controlled group (or any predecessor of either) did
not establish or maintain a plan to which this title applies
with respect to which benefits were accrued for substantially
the same employees as are in the new single-employer plan, and
``(II) throughout the period beginning with the date of the
adoption of the plan and ending with the first date of such
plan year, the plan has formed a part of an eligible combined
plan (as defined in section 210(e)(2)(A)).
``(ii)(I) For purposes of this paragraph, the term `small employer'
for a plan year means an employer which on the first day of the plan
year has, in aggregation with all members of the controlled group of
such employer, 500 or fewer employees.
``(II) In the case of a plan maintained by two or more contributing
sponsors that are not part of the same controlled group, the employees
of all contributing sponsors and controlled groups of such sponsors
shall be aggregated for purposes of determining whether any
contributing sponsor is a small employer.''.
(b) Amendments of Internal Revenue Code.--
(1) In general.--Section 414 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsection:
``(w) Special Rules for Eligible Combined Defined Benefit Plans and
Qualified Cash or Deferred Arrangements.--
``(1) General rule.--Except as provided in this subsection,
in the case of any defined benefit plan or applicable defined
contribution plan forming a part of an eligible combined plan,
the requirements of this title shall be applied to such defined
benefit plan or applicable defined contribution plan in the
same manner as if such plan were not a part of the eligible
combined plan.
``(2) Eligible combined plan.--For purposes of this
subsection--
``(A) In general.--The term `eligible combined
plan' means a plan--
``(i) which consists of a defined benefit
plan and an applicable defined contribution
plan,
``(ii) the assets of which are held in a
single trust forming part of the plan and are
clearly identified and allocated to the defined
benefit plan and the applicable defined
contribution plan to the extent necessary for
the separate application of this title under
paragraph (1), and
``(iii) with respect to which the benefit,
contribution, vesting, and distribution
requirements of subparagraphs (B), (C), (D),
and (E) are met.
``(B) Benefit requirements.--
``(i) In general.--The benefit requirements
of this subparagraph are met with respect to
the defined benefit plan forming part of the
eligible combined plan if the accrued benefit
of each participant derived from employer
contributions, when expressed as an annual
retirement benefit, is not less than the
applicable percentage of the participant's
final average pay. For purposes of this clause,
final average pay shall be determined using the
period of consecutive years (not exceeding 5)
during which the participant had the greatest
aggregate compensation from the employer.
``(ii) Applicable percentage.--For purposes
of clause (i), the applicable percentage is the
lesser of--
``(I) 1 percent multiplied by the
number of years of service with the
employer, or
``(II) 20 percent.
``(iii) Special rule for cash balance
plans.--
``(I) In general.--If the defined
benefit plan under clause (i) is a cash
balance plan, the plan shall be treated
as meeting the requirements of clause
(i) with respect to any plan year if
the employer contribution to the
hypothetical account balance expressed
as a percentage of the participant's
compensation for the year is equal to
the percentage of compensation
determined in accordance with the
following table:
``If the participant's age as of
the
beginning of the year is-- The percentage is--
30 or less.................................... 2
Over 30 but less than 40...................... 4
40 or over but less than 50................... 6
50 or over.................................... 8.
``(II) Cash balance plan defined.--
For purposes of subclause (I), a cash
balance plan is a defined benefit plan
that defines an employee's benefits by
reference to the employee's
hypothetical account. Such hypothetical
account is determined by reference,
first, to hypothetical contribution
allocations, and, second, to
hypothetical interest credits (on an
annual or more frequent basis). The
right to future interest credits are
determined without regard to future
service.
``(III) No predecessor defined
benefit plan.--Notwithstanding
subclause (I), the requirements of
clause (i) shall not be treated as met
if, during the 3-year period
immediately preceding the effective
date of a cash balance plan meeting the
requirements of subclause (I), the
employer (or any related employer,
within the meaning of subsection (b),
(c), (m), or (o)), maintained a defined
benefit plan that was not a cash
balance plan and which benefited any
participant who is a participant in the
plan which meets the requirements of
subclause (I).
``(iv) Years of service.--For purposes of
this subparagraph, years of service shall be
determined under the rules of paragraphs (4),
(5), and (6) of section 411(a), except that the
plan may not disregard any year of service
because of a participant making, or failing to
make, any elective deferral with respect to the
qualified cash or deferred arrangement to which
subparagraph (C) applies.
``(C) Contribution requirements.--
``(i) In general.--The contribution
requirements of this subparagraph with respect
to any applicable defined contribution plan
forming part of an eligible combined plan are
met if--
``(I) the qualified cash or
deferred arrangement included in such
plan constitutes an automatic
contribution arrangement, and
``(II) the employer makes matching
contributions on behalf of each
employee eligible to participate in the
arrangement in an amount equal to 50
percent of the elective contributions
of the employee to the extent such
elective contributions do not exceed 4
percent of compensation.
Rules similar to the rules of clauses (ii) and
(iii) of section 401(k)(12)(B) shall apply of
purposes of this clause.
``(ii) Nonelective contributions.--An
applicable defined contribution plan shall not
be treated as failing to meet the requirements
of clause (i) because the employer makes
nonelective contributions under the plan but
such contributions shall not be taken into
account in determining whether the requirements
of clause (i)(II) are met.
``(iii) Other plans and arrangements.--An
applicable defined contribution plan may not be
combined with any other plan for purposes of
determining whether the requirements of section
401(a)(4) or 410(b) are met.
``(D) Vesting requirements.--The vesting
requirements of this subparagraph are met if--
``(i) in the case of a defined benefit plan
forming part of an eligible combined plan, an
employee who has completed at least 3 years of
service has a nonforfeitable right to 100
percent of the employee's accrued benefit under
the plan derived from employer contributions,
and
``(ii) in the case of an applicable defined
contribution plan forming part of eligible
combined plan--
``(I) an employee has a
nonforfeitable right to any matching
contribution made under the qualified
cash or deferred arrangement included
in such plan by an employer with
respect to any elective contribution,
including matching contributions in
excess of the contributions required
under subparagraph (C)(i)(II), and
``(II) an employee who has
completed at least 3 years of service
has a nonforfeitable right to 100
percent of the employee's accrued
benefit derived under the arrangement
from nonelective contributions of the
employer.
For purposes of this subparagraph, the rules of
section 411 shall apply to the extent not
inconsistent with this subparagraph.
``(E) Spousal consent for distributions.--The
distribution requirements of this subparagraph are met
if, in the case of a married participant, no
distribution may be made from the plan without the
written consent of the spouse of such participant.
``(3) Application of nondiscrimination rules.--
``(A) Uniform provision of benefits.--In the case
of a defined benefit plan or applicable defined
contribution plan forming part of an eligible combined
plan, all benefits, rights, and features must be
provided uniformly to all participants.
``(B) Nondiscrimination requirements for qualified
cash or deferred arrangement.--
``(i) In general.--A qualified cash or
deferred arrangement which is included in an
applicable defined contribution plan forming
part of an eligible combined plan shall be
treated as meeting the requirements of section
401(k)(3)(A)(ii) if the requirements of
paragraph (2)(C) are met with respect to such
arrangement.
``(ii) Matching contributions.--In applying
section 401(m)(11) to any matching contribution
with respect to a contribution to which
paragraph (2)(C) applies, the contribution
requirement of paragraph (2)(C) and the notice
requirements of paragraph (5)(B) shall be
substituted for the requirements otherwise
applicable under clauses (i) and (ii) of
section 401(m)(11)(A).
``(C) Requirements must be met without taking into
account social security and similar contributions and
benefits.--The requirements of subparagraphs (B) and
(C) of paragraph (2) and subparagraph (B) of this
paragraph shall not be treated as being met unless such
requirements are met without regard to section 401(l),
and, for purposes of section 402(l), employer
contributions under subparagraphs (B) and (C) of
paragraph (2) shall not be taken into account .
``(4) Satisfaction of top-heavy rules.--A defined benefit
plan and applicable defined contribution plan forming part of
an eligible combined plan for any plan year shall be treated as
meeting the requirements of section 416 for the plan year.
``(5) Automatic contribution arrangement.--For purposes of
this subsection--
``(A) In general.--A qualified cash or deferred
arrangement shall be treated as an automatic
contribution arrangement if the arrangement--
``(i) provides that each employee eligible
to participate in the arrangement is treated as
having elected to have the employer make
elective contributions in an amount equal to
the specified percentage of the employee's
compensation unless the employee specifically
elects not to have such contributions made or
to have such contributions made at a different
rate or amount, and
``(ii) meets the notice requirements under
subparagraph (B).
``(B) Notice requirements.--
``(i) In general.--The requirements of this
subparagraph are met if the requirements of
clauses (ii) and (iii) are met.
``(ii) Reasonable period to make
election.--The requirements of this clause are
met if each employee to whom subparagraph
(A)(i) applies--
``(I) receives a notice explaining
the employee's right under the
arrangement to elect not to have
elective contributions made on the
employee's behalf or to have the
contributions made at a different rate
or amount, and
``(II) has a reasonable period of
time after receipt of such notice and
before the first elective contribution
is made to make such election.
``(iii) Annual notice of rights and
obligations.--The requirements of this clause
are met if each employee eligible to
participate in the arrangement is, within a
reasonable period before any year, given notice
of the employee's rights and obligations under
the automatic contribution arrangement.
The requirements of clauses (i) and (ii) of section
401(k)(12)(D) shall be met with respect to the notices
described in clauses (ii) and (iii) of this
subparagraph.
``(C) Specified percentage.--For purposes of this
paragraph--
``(i) In general.--The term `specified
percentage' means, with respect to any
employee--
``(I) 4 percent during the period
ending on the last day of the first
plan year which begins after the date
on which the first elective
contribution described in subparagraph
(A)(i) is made with respect to such
employee, and
``(II) in the case of any
subsequent plan year, the percentage
which applied for the previous plan
year increased by one percentage point.
``(ii) Maximum percentage.--Notwithstanding
clause (i)(II), the specified percentage shall
not exceed 10 percent.
``(6) Coordination with other requirements.--
``(A) Treatment of separate plans.--Section 414(k)
shall not apply to an eligible combined plan.
``(B) Reporting.--An eligible combined plan shall
be treated as a single plan for purposes of sections
6058 and 6059.
``(7) Applicable defined contribution plan.--For purposes
of this subsection--
``(A) In general.--The term `applicable defined
contribution plan' means a defined contribution plan
which includes a qualified cash or deferred
arrangement.
``(B) Qualified cash or deferred arrangement.--The
term `qualified cash or deferred arrangement' has the
meaning given such term by section 401(k)(2).''.
(2) Additional accruals under defined benefit plan forming
part of eligible combined plan provided as matching
contributions.--
(A) Certain arrangements under defined benefit plan
satisfy definitely determinable benefit requirement.--
Subsection (a) of section 401 of the Internal Revenue
Code of 1986 is amended by adding at the end the
following new paragraph:
``(35) Qualified matching accrual under eligible combined
plan satisfies definitely determinable benefit requirement.--A
trust forming part of a defined benefit plan which forms part
of an eligible combined plan (as defined in section 414(x))
shall not be treated as failing to constitute a qualified trust
merely because such plan includes qualified matching accruals
(as defined in subsection (m)(12)).''.
(B) Matching accruals.--Subsection (m) of section
401 of such Code is amended by redesignating paragraph
(12) as paragraph (13) and by inserting after paragraph
(11) the following new paragraph:
``(12) Special rules relating to qualified matching
accruals under a eligible combined plan.--For purposes of this
section--
``(A) Qualified matching accrual.--The term
`qualified matching accrual' means an amount funded by
an employer in the form of a benefit accrual under a
defined benefit plan forming part of an eligible
combined plan (as defined in section 414(x)) to match
elective deferrals under a qualified cash or deferred
arrangement which is part of such eligible combined
plan (as so defined) and which meets the formula
requirements of subparagraph (B). The benefit accrual
shall be determined under a nondiscretionary formula
set forth in the defined benefit plan. For purposes of
determining such benefit accrual, the amount of
elective deferrals taken into account under such
formula may be limited under the plan.
``(B) Formula requirements.--A benefit accrual
meets the requirements of this subparagraph if such
accrual is a hypothetical contribution that is added to
a participant's hypothetical account balance, the
amount of which is determined, in accordance with the
matching accrual formula set forth in the plan, with
reference to the amount of the elective deferrals made
by the participant for the plan year to a qualified
cash or deferred arrangement which is part of the
eligible combined plan (as defined in section 414(x)).
Matching accruals under the formula may vary with age
or other employment-related factors.
``(C) Coordinate with employer contributions.--For
purposes of paragraph (4), the term `employer
contributions' shall not include any amount contributed
by an employer to a defined benefit plan for the
purpose of funding any qualified matching accruals.
``(D) Safe harbor formula.--A qualified matching
accrual formula shall be deemed to satisfy subsection
(a)(4) if it satisfies the requirements of clauses (i)
and (ii).
``(i) Elective deferrals at or above
maximum matchable rate.--For an employee who
makes elective deferrals at or above the
maximum matchable rate, the qualified matching
benefit accrual for the plan year is a
hypothetical allocation under a cash balance
plan that equals a percentage (not greater than
4 percent) of compensation (as defined in
section 414(s)).
``(ii) Elective deferrals below maximum
matchable rate.--For employees who make
elective deferrals at a rate that is below the
maximum matchable rate, the qualified matching
benefit accrual for such plan year shall be
prorated. The plan may prorate the qualified
benefit accrual on the basis of whole
percentages, and the plan may require that an
employee's elective deferrals be stated as
whole percentages.
``(iii) Maximum matchable rate.--For
purposes of this subparagraph, the maximum
matchable rate must be a specified percentage
of compensation which does not exceed 4
percent.
``(iv) Cash balance plan defined.--For
purposes of clause (i), a cash balance plan is
a defined benefit plan that defines an
employee's benefits by reference to the
employee's hypothetical account. Such
hypothetical account is determined by
reference, first, to hypothetical contribution
allocations, and, second, to hypothetical
interest credits (on an annual or more frequent
basis). The right to future interest credits
are determined without regard to future
service.''.
(C) Exception to benefit contingency rule.--
Subparagraph (A) of section 401(k)(4) of such Code is
amended by inserting ``or qualified matching accruals
(as defined in subsection (m)(12)'' after ``section
401(m))''.
(D) Forfeitures by reason of excess deferral.--
Subparagraph (G) of section 411(a)(3) of the Code is
amended by adding at the end the following: ``A rule
similar to the rule of the preceding sentence shall
apply with respect to qualified matching accruals (as
defined in section 401(m)(12)).''
(E) Accrued benefit requirement with respect to
matching accruals.--Paragraph (1) of section 411(b) of
such Code is amended by adding at the end the following
new subparagraph:
``(J) In the case of qualified matching accruals
(as defined in section 401(m)(12)), the requirements
for accrued benefits set forth in subparagraphs (A)
through (H) of this subsection shall be applied on the
basis of the rate of matching accruals available to
participants, without regard to the actual elective
deferrals made by participants.''.
(F) Participation requirements with respect to
qualified matching accruals.--Paragraph (26) of section
401(a) of such Code is amended by redesignating
subparagraph (I) as subparagraph (J), and by inserting
after subparagraph (H) the following new subparagraph:
``(I) Special testing rules for qualified matching
accruals.--
``(i) If an eligible combined plan (as
defined in section 414(x)) includes qualified
matching accruals (as defined in section
401(m)(12)), the rules in clauses (ii) and
(iii) shall apply.
``(ii) Qualified matching accruals only
benefit formula.--If the only benefit formula
in the defined benefit plan forming a part of
the eligible combined plan is a qualified
matching accrual formula, the requirements of
this paragraph shall be applied by treating a
participant's annual benefit accrual as the
maximum accrual that was available to the
participant for the plan year, regardless of
whether the maximum matchable elective
deferrals were actually made by the
participant. If the qualified matching accrual
formula applies to elective deferrals in excess
of 6 percent of compensation, then the
requirements of this paragraph must be applied
by taking into account the actual matching
accruals earned by participants for the plan
year.
``(iii) Multiple formulas.--If the defined
benefit plan includes one or more benefit
formulas in addition to a qualified matching
accrual formula, the employer may elect to
apply clause (ii) to the qualified matching
accrual formulas only if the requirements of
this paragraph are satisfied separately with
respect to the benefit accruals that are
determined without regard to the qualified
matching accrual formula.''.
(G) Regulations for meeting nondiscrimination
requirements.--
(i) In general.--The Secretary of the
Treasury shall prescribe regulations on ways in
which qualified matching accruals (as defined
by section 401(m)(12) of the the Internal
Revenue Code of 1986, as added by this section)
that do not satisfy the formula requirements of
section 401(m)(12)(D) of such Code (as enacted
by subsection (b) of this section) can satisfy
the nondiscrimination requirements of section
401(a)(4) of such Code. The regulations may
prescribe safe harbor formulas in addition to
those prescribed by section 401(m)(12)(D).
(ii) Temporary and final form.--The
Secretary shall prescribe the regulations
required by clause (i) in temporary form not
later than 6 months after the effective date of
this section and in final form not later than
18 months after the effective date of this
section.
(H) Plan years beginning before issuance of
regulations.--For plan years beginning prior to the
date the regulations described in subsection (g) are
issued in final form (and after the effective date of
this section), a plan's qualified matching accrual
formula must satisfy a reasonable, good faith,
interpretation of section 401(a)(4) of such Code.
(3) Updating deduction rules for combination of plans.--
(A) In general.--Subparagraph (C) of section
404(a)(7) of such Code (relating to limitation on
deductions where combination of defined contribution
plan and defined benefit plan) is amended by adding
after clause (ii) the following new clause:
``(iii) Certain excess contributions.--In
the case of employer contributions to 1 or more
defined contribution plans, this paragraph
shall only apply to the extent that such
contributions (other than elective deferrals
(as defined in section 402(g)(3)) exceed 6
percent of the compensation otherwise paid or
accrued during the taxable year to the
beneficiaries under such plans. For purposes of
this clause, amounts carried over from
preceding taxable years under subparagraph (B)
shall be treated as employer contributions to 1
or more defined contributions to the extent
attributable to employer contributions to such
plans in such preceding taxable years.''.
(B) Conforming amendment.--Subparagraph (A) of
section 4972(c)(6) of such Code (relating to
nondeductible contributions) is amended to read as
follows:
``(A) so much of the contributions to 1 or more
defined contribution plans which are not deductible
when contributed solely because of section 404(a)(7) as
does not exceed the sum of--
``(i) the amount of contributions described
in section 401(m)(4)(A), plus
``(ii) the amount of contributions
described in section 402(g)(3)(A), or''.
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
plan years beginning after December 31, 2006.
(2) PBGC premiums.--The amendments made by subsection
(a)(4) shall apply to plans first effective after December 31,
2005.
(3) Deduction rules for combination of plans.--The
amendments made by subsection (b)(3) shall apply to
contributions for taxable years beginning after December 31,
2005.
(4) Cash balance rules.-- Section 210(e)(2)(B)(iii) of the
Employee Retirement Income Security Act of 1974 (as added by
this section), section 414(w)(2)(B)(iii) of the Internal
Revenue Code of 1986 (as so added), and each of the amendments
made by subsection (b)(2) shall not apply to plan years
beginning before the effective date of an Act which provides
for clarification of the application of section 204(b)(1)(H) of
such Act, section 411(b)(1)(H) of such Code, and section 4 of
the Age Discrimination in Employment Act of 1967 (29 U.S.C.
623) to cash balance plans.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Subcommittee on Employer-Employee Relations.
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