Preservation of Defined Benefit Plans Act of 2005 - Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to require all defined benefit pension plans, including hybrid plans such as a cash balance plan, to comply with certain rules, in cases of reduction in accrued benefits because of attainment of any age, in order to be deemed nondiscriminatory as to age.
Provides certain wear-away protections with respect to the accrued benefits of participants in defined benefit pension plans during conversions to cash balance plans.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4274 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 4274
To amend the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 to provide for protections with respect to
the accrued benefits of participants during conversions of pension
plans to cash balance plans.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
November 9, 2005
Mrs. Jones of Ohio 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 Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 to provide for protections with respect to
the accrued benefits of participants during conversions of pension
plans to cash balance plans.
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 ``Preservation of Defined Benefit
Plans Act of 2005''.
SEC. 2. RULES RELATING TO REDUCTION IN ACCRUED BENEFITS BECAUSE OF
ATTAINMENT OF ANY AGE.
(a) Amendment to Internal Revenue Code of 1986.--Subparagraph (H)
of section 411(b)(1) of the Internal Revenue Code of 1986 (relating to
continued accrual beyond normal retirement age) is amended--
(1) by striking the heading and inserting the following:
``Rules relating to reduction in accrued benefits because of
attainment of any age.--''; and
(2) by adding at the end the following:
``(vi) Comparison to similarly situated,
younger individuals.--
``(I) In general.--A defined
benefit plan under which the accrued
benefit payable under the plan upon
distribution (or any portion thereof)
is expressed as the balance of an
account maintained for the participant
shall not be treated as age
discriminatory under the rules set
forth in this subsection if the
participant's accrued benefit under the
plan, as determined as of any date
under the formula as set forth in the
plan documents, would be equal to or
greater than that of any similarly
situated younger individual.
``(II) Similarly situated
individual.--For purposes of this
clause, an individual is similarly
situated to a participant if such
individual is identical to such
participant in every respect (including
period of service, compensation,
position, date of hire, work history,
and any other respect) except for
age.''.
(b) Amendment to the Employee Retirement Income Security Act of
1974.--Section 204(b)(1)(H) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1054(b)(1)(H)) is amended by adding at the end
the following new clause:
``(vii)(I) A defined benefit plan under which the accrued
benefit payable under the plan upon distribution (or any
portion thereof) is expressed as the balance of an account
maintained for the participant shall not be treated as age
discriminatory under the rules set forth in this subsection if
the participant's accrued benefit under the plan, as determined
as of any date under the formula as set forth in the plan
documents, would be equal to or greater than that of any
similarly situated younger individual.
``(II) For purposes of this clause, an individual is
similarly situated to a participant if such individual is
identical to such participant in every respect (including
period of service, compensation, position, date of hire, work
history, and any other respect) except for age.''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning before, on, or after the date of the
enactment of this Act.
SEC. 3. DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF BENEFIT
ACCOUNT.
(a) Amendment to Internal Revenue Code of 1986.--Subsection (a) of
section 411 of the Internal Revenue Code of 1986 (relating to minimum
vesting standards) is amended by adding at the end the following new
paragraph:
``(13) Maintenance of nonforfeitability of benefits
expressed as account balance.--
``(A) In general.--A defined benefit plan under
which the accrued benefit payable under the plan upon
distribution (or any portion thereof) is expressed as
the balance of an account maintained for the
participant shall not be treated as failing to meet the
requirements of paragraph (2) or 417(e) solely because
of the amount actually made available for such
distribution under the terms of the plan, in any case
in which--
``(i) the applicable interest rate that
would be required to discount the participant's
accrued benefit projected under the terms of
the plan to normal retirement age to a present
value equal to the amount actually made
available for distribution under the plan is
not greater than
``(ii) a market rate of return.
``(B) Regulations.--The Secretary may provide by
regulation for rules governing the calculation of a
market rate of return for purposes of subparagraph (A)
and for permissible methods of crediting interest to
the account (including variable interest rates)
resulting in effective rates of return meeting the
requirements of subparagraph (A).''.
(b) Amendment to Employee Retirement Income Security Act of 1974.--
Section 203 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1053) is amended by adding at the end the following new
subsection:
``(f)(1) A defined benefit plan under which the accrued benefit
payable under the plan upon distribution (or any portion thereof) is
expressed as the balance of an account maintained for the participant
shall not be treated as failing to meet the requirements of subsection
(a)(2) and section 205(g) solely because of the amount actually made
available for such distribution under the terms of the plan, in any
case in which--
``(A) the applicable interest rate that would be required
to discount the participant's accrued benefit projected under
the terms of the plan to normal retirement age to a present
value equal to the amount actually made available for
distribution under the plan is not greater than
``(B) a market rate of return.
``(2) The Secretary of the Treasury may provide by regulation for
rules governing the calculation of a market rate of return for purposes
of paragraph (1) and for permissible methods of crediting interest to
the account (including variable interest rates) resulting in effective
rates of return meeting the requirements of paragraph (1).''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after the date of the enactment of this
Act.
SEC. 4. AGE DISCRIMINATION PROTECTIONS FOR PENSION PLAN PARTICIPANTS
FROM CASH BALANCE CONVERSIONS.
(a) Amendment to Internal Revenue Code of 1986.--Section 411 of the
Internal Revenue Code of 1986 (relating to special rules) is amended by
adding at the end the following new subsection:
``(f) Age Discrimination Safe Harbor Rules for Certain Plan
Conversions.--
``(1) Age discrimination.--An applicable plan amendment
adopted by a defined benefit plan shall not be treated as
satisfying the requirements of this section unless the opening
account balance of each participant under the plan after the
adoption of the amendment is equal to at least the present
value of the participant's retirement benefit at age 65 before
the effective date of the amendment, determined under the terms
of the plan as in effect immediately before the effective date.
``(2) Applicable plan amendment.--For purposes of this
subsection, the term `applicable plan amendment' means a plan
amendment which has the effect of converting a defined benefit
plan to a plan under which the accrued benefit is expressed to
participants and beneficiaries as an amount other than an
annual benefit commencing at normal retirement age (or which
has a similar effect as determined under regulations of the
Secretary under subsection (b)(1)(I)(iv)).
``(3) Special transition rules.--
``(A) In general.--Paragraph (1) shall not apply
with respect to an applicable plan amendment adopted on
or after January 1, 1997, and before November 9, 2005,
until the date which is 2 years after the date of the
enactment of this subsection.
``(B) Participants separated from service before
enactment.--A participant who is separated from service
before November 9, 2005, need not be taken into account
for purposes of applying paragraph (1) until the date
which is 3 years after the date of the enactment of
this subsection.''.
(b) Employee Retirement Income Security Act of 1974.--Section 203
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053)
is amended by adding at the end the following new subsection:
``(f)(1) An applicable plan amendment adopted by a defined benefit
plan shall not be treated as satisfying the requirements of this
section unless the opening account balance of each participant under
the plan after the adoption of the amendment is equal to at least the
present value of the participant's retirement benefit at age 65 before
the effective date of the amendment, determined under the terms of the
plan as in effect immediately before the effective date.
``(2) For purposes of this subsection, the term `applicable plan
amendment' means a plan amendment which has the effect of converting a
defined benefit plan to a plan under which the accrued benefit is
expressed to participants and beneficiaries as an amount other than an
annual benefit commencing at normal retirement age (or which has a
similar effect as determined under regulations of the Secretary of the
Treasury under subsection (b)(1)(I)(iv)).
``(3)(A) Paragraph (1) shall not apply with respect to an
applicable plan amendment adopted on or after January 1, 1997, and
before November 9, 2005, until the date which is 2 years after the date
of the enactment of this subsection.
``(B) A participant who is separated from service before November
9, 2005, need not be taken into account for purposes of applying
paragraph (1) until the date which is 3 years after the date of the
enactment of this subsection.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 5. WEAR AWAY PROTECTIONS IN PENSION PLAN CASH BALANCE CONVERSIONS.
(a) Amendment to Internal Revenue Code of 1986.--Section 411 of the
Internal Revenue Code of 1986 (relating to special rules), as amended
by section 4, is amended by adding at the end the following new
subsection:
``(g) Treatment of Plan Amendments Wearing Away Accrued Benefit.--
``(1) In general.--An applicable plan amendment adopted by
a defined benefit plan shall not be treated as satisfying the
requirements of this section unless the applicable plan
amendment meets the requirements of paragraphs (2) and (3).
``(2) Wear away prevented.--For purposes of paragraph (1),
an applicable plan amendment meets the requirements of this
paragraph if, under the terms of the plan after the adoption of
the amendment, the accrued benefit of the participant at any
time is not less than the sum of--
``(A) the participant's accrued benefit for years
of service before the effective date of the amendment,
determined under the terms of the plan as in effect
immediately before the effective date, plus
``(B) the participant's accrued benefit determined
under the formula applicable to benefit accruals under
the current plan as applied to years of service after
such effective date.
``(3) Employer choice of method to protect certain
participants.--For purposes of paragraph (1), an applicable
plan amendment meets the requirements of this paragraph if the
plan to be amended provides each participant who has at least
10 years of service (as determined under subsection (a)) under
the plan at the time such amendment takes effect and is within
5 years of eligibility for retirement under the plan with one
of the following:
``(A) Participant election to maintain rate of
accrual in effect before plan amendment.--Each such
participant--
``(i) is provided with notice of the plan
amendment, including a comparison of the
present and projected values of the accrued
benefit determined both with and without regard
to the plan amendment, and
``(ii) may elect upon retirement to either
receive benefits under the terms of the plan as
in effect at the time of retirement or to
receive benefits under the terms of the plan as
in effect immediately before the effective date
of such plan amendment (taking into account all
benefit accruals under such terms since such
date).
``(B) Benefits of amended plan do not decrease.--
For each such participant, the benefits after the plan
amendment takes effect are not less than the greatest
benefits the participant would have received by reason
of the election described in subparagraph (A)(ii).
``(C) Maintenance of effort.--For each such
participant, for at least the first 5 years after the
plan amendment takes effect, benefits under the terms
of the plan as in effect immediately before the
effective date of such plan amendment (taking into
account all benefit accruals under such terms since
such date).
``(4) Definitions.--For purposes of this subsection--
``(A) Applicable plan amendment.--The term
`applicable plan amendment' has the meaning given such
term by subsection (f).
``(B) Protected accrued benefit.--An accrued
benefit shall include any early retirement benefit or
retirement-type subsidy (within the meaning of
subsection (d)(6)(B)(i)), but only with respect to a
participant who satisfies (either before or after the
effective date of the amendment) the conditions for the
benefit or subsidy under the terms of the plan as in
effect immediately before such date.''.
(b) Employee Retirement Income Security Act of 1974.--Section 203
of the Employee Retirement Income Security Act of 1974 (29 U.S.C.
1053), as amended by section 4, is amended by adding at the end the
following new subsection:
``(g)(1) An applicable plan amendment adopted by a defined benefit
plan shall not be treated as satisfying the requirements of this
section unless the applicable plan amendment meets the requirements of
paragraphs (2) and (3).
``(2) For purposes of paragraph (1), an applicable plan amendment
meets the requirements of this paragraph if, under the terms of the
plan after the adoption of the amendment, the accrued benefit of the
participant at any time is not less than the sum of--
``(A) the participant's accrued benefit for years of
service before the effective date of the amendment, determined
under the terms of the plan as in effect immediately before the
effective date, plus
``(B) the participant's accrued benefit determined under
the formula applicable to benefit accruals under the current
plan as applied to years of service after such effective date.
``(3) For purposes of paragraph (1), an applicable plan amendment
meets the requirements of this paragraph if the plan to be amended
provides each participant who has at least 10 years of service (as
determined under subsection (a)) under the plan at the time such
amendment takes effect and is within 5 years of eligibility for
retirement under the plan with one of the following:
``(A) Each such participant--
``(i) is provided with notice of the plan
amendment, including a comparison of the present and
projected values of the accrued benefit determined both
with and without regard to the plan amendment, and
``(ii) may elect upon retirement to either receive
benefits under the terms of the plan as in effect at
the time of retirement or to receive benefits under the
terms of the plan as in effect immediately before the
effective date of such plan amendment (taking into
account all benefit accruals under such terms since
such date).
``(B) For each such participant, the benefits after the
plan amendment takes effect are not less than the greatest
benefits the participant would have received by reason of the
election described in subparagraph (A)(ii).
``(C) For each such participant, for at least the first 5
years after the plan amendment takes effect, benefits under the
terms of the plan as in effect immediately before the effective
date of such plan amendment (taking into account all benefit
accruals under such terms since such date).
``(4) For purposes of this subsection--
``(A) The term `applicable plan amendment' has the meaning
given such term by subsection (f).
``(B) An accrued benefit shall include any early retirement
benefit or retirement-type subsidy (within the meaning of
subsection (d)(6)(B)(i)), but only with respect to a
participant who satisfies (either before or after the effective
date of the amendment) the conditions for the benefit or
subsidy under the terms of the plan as in effect immediately
before such date.''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to any amendment to a plan adopted after the date of
the enactment of this Act.
<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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