Women's Retirement Security Act of 2008 - Amends the Internal Revenue Code to: (1) require certain small employers who do not provide retirement plans for their employees to allow eligible employees to participate in a payroll deposit individual retirement account arrangement (automatic IRA); (2) expand eligibility for the tax credit for retirement savings contributions (saver's credit) and make such credit refundable; (3) allow certain part-time employees to participate in qualified cash or deferred arrangements; (4) allow the transfer of up to $500 of unused health plan benefits to qualified retirement plans; (5) treat wage replacement income (e.g., disability pay or unemployment compensation) as earned income for purposes of IRA contribution limits; (6) allow a limited tax exclusion for certain lifetime annuity payments and for qualified retirement planning services; (7) allow certain small employers a tax credit for contributions to employee pension plans; and (8) allow self-employed individuals to deduct pension plan contributions from their self-employment income.
Sets forth special rules for: (1) preservation of retirement plan assets distributed under a qualified domestic relations order; (2) eligibility of surviving and divorced spouses for benefits under the Railroad Retirement Act; and (3) military retired pay subject to court orders in domestic relations proceedings.
Authorizes the Secretary of the Treasury to make grants to qualified low-income taxpayer clinics to provide retirement savings counseling to low-income taxpayers.
Requires the Commissioner of Social Security to prepare a financial reference handbook and a retirement readiness checklist for distribution to social security recipients.
Amends the Internal Revenue Code to: (1) allow a tax deduction for long-term care insurance premiums; (2) allow a phased-in tax credit ($1,000 in 2008, increasing by $500 each year to $3,000 in 2012) for family caregivers of spouses and dependents who have long-term care needs; (3) apply certain consumer protection standards to long-term care insurance contracts; and (4) allow tax-free exchanges of such contracts.
[Congressional Bills 110th Congress]
[From the U.S. Government Printing Office]
[H.R. 5543 Introduced in House (IH)]
110th CONGRESS
2d Session
H. R. 5543
To amend the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 to increase the retirement security of
women and small business owners, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 6, 2008
Mr. Allen (for himself, Mr. English of Pennsylvania, and Ms. Berkley)
introduced the following bill; which was referred to the Committee on
Ways and Means, and in addition to the Committee on Education and
Labor, 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 increase the retirement security of
women and small business owners, 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; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Women's Retirement
Security Act of 2008''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--PROVISIONS TO INCREASE RETIREMENT SAVINGS
Subtitle A--Employee Access to Retirement Savings at Work
Sec. 101. Employees not covered by qualified retirement plans or
arrangements entitled to participate in
payroll deposit IRA arrangements.
Sec. 102. Credit for small employers maintaining payroll deposit IRA
arrangements.
Sec. 103. Establishment of automatic IRAs.
Sec. 104. Establishment of TSP II Board.
Subtitle B--Other Provisions
Sec. 111. Modifications to computation of saver's credit; saver's
credit made refundable.
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. Transfers of unused benefits of health flexible spending
arrangement to certain retirement plans.
Sec. 114. Computation of limits on IRA and Roth IRA contributions.
TITLE II--PROVISIONS PROVIDING FOR PRESERVATION OF INCOME
Sec. 201. Exclusion of certain qualified annuity payments.
Sec. 202. Exclusion for lifetime annuity payments.
Sec. 203. Joint study of application of spousal consent rules to
defined contribution plans.
Sec. 204. Facilitating longevity insurance.
TITLE III--PROVISIONS ENSURING EQUITY IN DIVORCE
Sec. 301. Special rules relating to treatment of qualified domestic
relations orders.
Sec. 302. Elimination of current connection requirement under Railroad
Retirement Act for certain survivors.
Sec. 303. Permitting divorced spouses and widows and widowers to
remarry after turning 60 without a penalty
under Railroad Retirement Act.
TITLE IV--PROVISIONS TO IMPROVE FINANCIAL LITERACY
Sec. 401. Grants to community-based taxpayer clinics to provide
retirement savings advice.
Sec. 402. Treatment of qualified retirement planning services.
Sec. 403. Retirement handbook and retirement readiness checklist.
TITLE V--INCENTIVES FOR SMALL BUSINESSES TO ESTABLISH AND MAINTAIN
RETIREMENT PLANS FOR EMPLOYEES
Sec. 501. Credit for qualified pension plan contributions of small
employers.
Sec. 502. Deduction for pension contributions allowed in computing net
earnings from self-employment.
Sec. 503. Exemption of deferral-only qualified cash or deferred
arrangements from top-heavy plan rules.
Sec. 504. Extension of time for small pension plans to adopt required
plan qualification amendments.
TITLE VI--PROVISIONS RELATING TO LONG-TERM CARE INSURANCE
Sec. 601. Treatment of premiums on qualified long-term care insurance
contracts.
Sec. 602. Credit for taxpayers with long-term care needs.
Sec. 603. Additional consumer protections for long-term care insurance.
Sec. 604. Treatment of exchanges of long-term care insurance contracts.
TITLE I--PROVISIONS TO INCREASE RETIREMENT SAVINGS
Subtitle A--Employee Access to Retirement Savings at Work
SEC. 101. EMPLOYEES NOT COVERED BY QUALIFIED RETIREMENT PLANS OR
ARRANGEMENTS ENTITLED TO PARTICIPATE IN PAYROLL DEPOSIT
IRA ARRANGEMENTS.
(a) In General.--Subpart A of part I of subchapter A of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.) is
amended by inserting after section 408A the following new section:
``SEC. 408B. RIGHT TO PAYROLL DEPOSIT IRA ARRANGEMENTS AT WORK.
``(a) Requirement To Provide Payroll Deposit IRA Arrangement.--Each
employer (other than an employer described in subsection (e)) shall
provide to each applicable employee of the employer for any calendar
year the opportunity to participate in a payroll deposit IRA
arrangement which meets the requirements of this section.
``(b) Payroll Deposit IRA Arrangement.--For purposes of this
section--
``(1) In general.--The term `payroll deposit IRA
arrangement' means a written arrangement of an employer--
``(A) under which an applicable employee eligible
to participate in the arrangement may elect to
contribute to an individual retirement plan established
by or on behalf of the employee by having the employer
make periodic direct deposit or other payroll deposit
payments (including electronic payments) to the plan by
payroll deduction, and
``(B) which meets the requirements of paragraph
(2).
``(2) Administrative requirements.--The requirements of
this paragraph are met with respect to any payroll deposit IRA
arrangement if--
``(A) the employer must make the payments elected
under paragraph (1)(A) on or before the later of--
``(i) the due date for the deposit of tax
required to be deducted and withheld under
chapter 24 (relating to collection of income
tax at source on wages) for the payroll period
to which such payments relate, or
``(ii) the 30th day following the last day
of the month with respect to which the payments
are to be made,
``(B) subject to a requirement for reasonable
notice, an employee may elect to terminate
participation in the arrangement at any time during a
calendar year, except that if an employee so
terminates, the arrangement may provide that the
employee may not elect to resume participation until
the beginning of the next calendar year,
``(C) each employee eligible to participate may
elect, during the 60-day period or other period
specified by the Secretary before the beginning of any
calendar year (and during the 60-day period or other
period specified by the Secretary before the first day
the employee is eligible to participate), to
participate in the arrangement, or to modify the
employee's election under the arrangement (including
the amounts subject to the arrangement and the manner
in which such amounts are invested), for such year,
``(D) the employer provides--
``(i) immediately before the beginning of
each period described in subparagraph (C), a
notice to each employee of the employee's
opportunity to make the election and the
maximum amount which may be contributed to an
individual retirement plan on an annual basis,
and
``(ii) if the arrangement includes an
automatic enrollment arrangement, the notices
required under subsection (h) with respect to
the automatic enrollment arrangement,
``(E) subject to subsection (f), the arrangement
provides that an employee may elect to have
contributions made to any individual retirement plan
specified by the employee, and
``(F) if the arrangement does not include an
automatic enrollment arrangement--
``(i) the arrangement requires the employer
to take all reasonable actions to solicit from
all employees eligible to participate in the
arrangement an explicit election to either
participate or not to participate in the
arrangement, and
``(ii) the arrangement provides that if an
employee fails to make an explicit election
under clause (i) within the time prescribed
under the arrangement, the employee will be
treated as having made an election to
participate in the arrangement (and amounts
shall be invested on behalf of the participant)
in the same manner as if the arrangement had
included an automatic enrollment arrangement
under subsection (g).
``(c) Applicable Employee Defined; Related Definitions and Rules.--
For purposes of this section--
``(1) Applicable employee.--
``(A) In general.--The term `applicable employee'
means, with respect to any calendar year, any
employee--
``(i) who was not eligible under a
qualified plan or arrangement maintained by the
employer for service for the preceding calendar
year, and
``(ii) with respect to whom it is
reasonable to expect that the employee will not
be eligible during the calendar year under such
a qualified plan or arrangement.
``(B) Special rules.--For purposes of subparagraph
(A)(i)--
``(i) Eligibility.--An employee shall be
treated as eligible under a plan for a
preceding calendar year if, as of the last day
of the last plan year ending in the preceding
calendar year, the employee has satisfied the
plan's eligibility requirements.
``(ii) Excluded plans.--A qualified plan or
arrangement shall not be taken into account
under this paragraph if--
``(I) the plan or arrangement is
frozen as of the first day of the
preceding calendar year, or
``(II) in the case of a plan or
arrangement under which the only
contributions are discretionary on the
part of the sponsor, there has not been
an employer contribution made to the
plan or arrangement for the 2-plan-year
period ending with the last plan year
ending in the second preceding calendar
year and it is not reasonable to assume
that an employer contribution will be
made for the plan year ending in the
preceding calendar year.
``(2) Excludable employees.--An employer may elect to
exclude from treatment as applicable employees under paragraph
(1)--
``(A) employees described in section 410(b)(3),
``(B) employees who have not attained the age of 18
before the beginning of the calendar year,
``(C) employees who have not completed at least 3
months of service with the employer,
``(D) in the case of an employer that maintains a
qualified plan or arrangement which generally excludes
employees who have not satisfied the eligibility
requirements described in section 410(a)(1)(A) (without
regard to section 410(a)(1)(B)), employees who have not
yet satisfied such requirements,
``(E) employees who are eligible to make salary
reduction contributions under an arrangement which
meets the requirements of section 403(b), and
``(F) all employees of the employer if the employer
maintains an arrangement described in section 408(p).
``(3) Qualified plan or arrangement.--The term `qualified
plan or arrangement' means a plan, contract, pension, or trust
described in section 219(g)(5).
``(4) Exception for employees of governments and
churches.--The term `applicable employee' shall not include an
employee of--
``(A) a government or entity described in section
414(d), or
``(B) a church or a convention or association of
churches which is exempt from tax under section 501,
including any employee described in section
414(e)(3)(B).
``(5) Designation of applicable employees.--The Secretary
shall issue guidelines for determining the class or classes of
employees to be covered by a payroll deposit IRA arrangement.
Such guidelines shall provide that if an employer elects under
paragraph (2) to exclude employees from the arrangement, the
employer shall specify the classification or categories of
employees who are not so covered.
``(d) Payroll Deposit IRA Contributions Treated Like Other
Contributions to Individual Retirement Plans.--
``(1) Tax treatment unaffected.--The fact that a
contribution to an individual retirement plan is made on behalf
of an employee under a payroll deposit IRA arrangement instead
of being made directly by the employee shall not affect the
deductibility or other tax treatment of the contribution or of
other amounts under this title.
``(2) Payroll savings contributions taken into account.--
Any contribution made on behalf of an employee under a payroll
deposit IRA arrangement shall be taken into account in applying
the limitations on contributions to individual retirement plans
and the other provisions of this title applicable to individual
retirement plans as if the contribution had been made directly
by the employee.
``(e) Exception for Certain Small and New Employers.--
``(1) In general.--The requirements of this section shall
not apply for any calendar year to an employer if--
``(A) the employer did not have more than 10
employees who received at least $5,000 of compensation
from the employer for the preceding calendar year, or
``(B) was not in existence at all times during the
2 preceding calendar years and did not have more than
100 employees who received at least $5,000 of
compensation from the employer on any day during either
of the 2 preceding calendar years.
``(2) Operating rules.--In determining the number of
employees for purposes of this subsection--
``(A) any rule applicable in determining the number
of employees for purposes of section 408(p)(2)(C) shall
be applicable under this subsection,
``(B) all members of the same family (within the
meaning of section 318(a)(1)) shall be treated as 1
individual, and
``(C) any reference to an employer shall include a
reference to any predecessor employer.
``(f) Deposits to Individual Retirement Plans Other Than Those
Selected by Employee.--
``(1) In general.--An employer shall not be treated as
failing to satisfy the requirements of this section or any
other provision of this title merely because the employer makes
all contributions (or all contributions on behalf of employees
who do not specify an individual retirement plan, trustee, or
issuer to receive the contributions) to individual retirement
plans specified in paragraph (2) or (4).
``(2) Plans of a designated trustee or issuer.--An employer
may elect to have contributions for all applicable employees
participating in a payroll deposit IRA arrangement made to
individual retirement plans of a designated trustee or issuer
under the arrangement. The preceding sentence shall not apply
unless each participant is notified in writing that the
participant's balance may be transferred without cost or
penalty to another individual retirement plan established by or
on behalf of the participant.
``(3) Payroll tax deposit procedure.--The Secretary, in
consultation with the TSP II Board, shall establish a procedure
under which an employer--
``(A) may include with each deposit of tax required
to be deducted and withheld under chapter 24 the
aggregate amounts, for the period covered by the
deposit, which applicable employees have designated
under subsection (b)(1)(A) (or are deemed to have
designated under subsection (b)(2)(F)(ii) or under an
automatic enrollment arrangement described in
subsection (g)) for contribution to individual
retirement plans, established on behalf of the
employees under paragraph (4), and
``(B) specifies, in such manner as the Secretary
may prescribe, the following information for each
applicable employee for whom a contribution is to be
made:
``(i) The employee's name and TIN.
``(ii) The amount of the contribution.
``(iii) The investment options selected by
the employee (or deemed to have been selected
by the employee under such automatic enrollment
arrangement) and the amount of the contribution
allocated to each option.
``(4) Establishment and maintenance of accounts under
payroll tax deposit procedure.--
``(A) In general.--Subject to the provisions of
this section and section 408C, the TSP II Board shall
provide for the establishment and maintenance of
individual retirement plans (including automatic IRAs)
into which contributions may be deposited under
paragraph (3). To the maximum extent practicable, the
TSP II Board shall--
``(i) enter into contracts with persons
eligible to be trustees of individual
retirement plans under section 408 to establish
such plans, to provide the investment funds and
investment management, and to provide notice,
record keeping, and other administrative
services, and
``(ii) ensure that the costs of investment
management and administration are kept to a
minimum, including through consideration of the
use of investments which involve passive
management and which seek to replicate the
performance of a portion of the market.
``(B) Payroll deposit features.--The TSP II Board
shall establish procedures so that contributions may be
made to individual retirement plans (including
automatic IRAs) under paragraph (3) without undue
administrative or paperwork requirements on
participating employers. Such procedures shall ensure
that only 1 such plan may be established for each TIN.
``(C) Limitation on rollovers.--If--
``(i) any amount is paid or distributed out
of an individual retirement plan established
under this paragraph, and
``(ii) such amount is paid into an
individual retirement plan which was not
established under this paragraph,
the payment described in clause (ii) shall be treated
as a rollover contribution for purposes of section
408(d)(3) if and only if the balance to the credit of
the individual in such individual retirement plan or
arrangement immediately before the payment described in
clause (i) was at least $15,000.
``(g) Coordination With Automatic Enrollment and Other Default
Election Provisions.--
``(1) In general.--Contributions under a payroll deposit
IRA arrangement may be made pursuant to an automatic enrollment
arrangement.
``(2) Automatic enrollment arrangement.--The term
`automatic enrollment arrangement' means an arrangement under a
payroll deposit IRA arrangement and subject to rules prescribed
by the Secretary--
``(A) under which an individual may elect to have
the employer make payments as contributions to an
individual account plan on behalf of the individual, or
to the individual directly in cash,
``(B) under which the individual is treated as
having elected to have the employer make such
contributions in an amount equal to a specified
percentage of compensation or dollar amount until the
individual specifically elects not to have such
contributions made (or specifically elects to have such
contributions made at a different percentage or in a
different amount), and
``(C) which meets notice requirements substantially
similar to those described in section 414(w)(4).
``(3) Default investments.--If an employee is deemed under
an automatic enrollment arrangement to have made an election to
participate in a payroll deposit IRA arrangement--
``(A) the employee shall be deemed to have made an
election to make contributions in the amount specified
in paragraph (4),
``(B) such contributions shall be transferred to--
``(i) an automatic IRA, or
``(ii) if the employer has made an election
under subsection (f)(2), to an individual
retirement plan of the designated trustee or
issuer but only if the requirements of
subparagraph (C) are met with respect to such
individual retirement plan, and
``(C) such contributions shall be invested as
provided in paragraph (5).
``(4) Amount of contributions.--
``(A) In general.--The amount specified in this
paragraph is 3 percent of compensation.
``(B) Authority of board to provide for annual
increases.--The TSP II Board may by regulation provide
for annual increases in the percentage of compensation
an employee is deemed to have elected under paragraph
(2) but in no event shall the percentage of
compensation an employee is deemed to have elected
exceed 8 percent.
``(C) Contribution limit.--The contributions under
paragraph (2) on behalf of an employee for any calendar
year shall not exceed the dollar limits applicable to
the employee for the calendar year under section 219 or
408A.
``(5) Investment in life cycle fund or other investments
specified by the board.--Amounts contributed under paragraph
(3) shall be invested in--
``(A) a life cycle fund similar to the life cycle
funds offered under the Thrift Savings Fund established
under subchapter III of chapter 84 of title 5, United
States Code, or
``(B) such other investment or investments as the
TSP II Board specifies in regulations (which shall be
promulgated after taking into account, but not
necessarily conforming to, regulations prescribed by
the Secretary of Labor under section 404(c)(5) of the
Employee Retirement Income Security Act of 1974) and
which entails asset allocation and extensive
diversification.
``(6) Coordination with withholding.--The Secretary shall
modify the withholding exemption certificate under section
3402(f) so that any notice and election requirements with
respect to an automatic enrollment arrangement which is part of
a payroll deposit IRA arrangement may be met through the use of
such certificate.
``(h) Model Notice.--The Secretary, in consultation with the TSP II
Board, shall--
``(1) provide a model notice, written in a manner
calculated to be understandable to the average worker, that is
simple for employers to use--
``(A) to notify employees of the requirement under
this section for the employer to provide certain
employees with the opportunity to participate in a
payroll deposit IRA arrangement, and
``(B) to satisfy the requirements of subsection
(b)(2)(D),
``(2) provide uniform forms for enrollment, including
automatic enrollment, in a payroll deposit IRA arrangement, and
``(3) establish a web site or other electronic means for
small employers to access and use to obtain information on
payroll deposit IRA arrangements and to obtain required notices
and forms.
``(i) Cross Reference.--For provision preempting conflicting State
laws, see section 2(g) of the Women's Retirement Security Act of
2008.''.
(b) Notice of Availability of Investment Guidelines.--Section
408(i) (relating to reports) is amended by adding at the end the
following new sentence: ``Any report furnished under paragraph (2) to
an individual shall include notice of the availability of, and methods
of acquiring, the basic investment guidelines prepared by the Secretary
of Labor.''.
(c) Development of Basic Investment Guidelines.--
(1) In general.--The Secretary of Labor shall, in
consultation with the Secretary of Treasury, develop and
publish basic guidelines for investing for retirement. Except
as otherwise provided by the Secretary of Labor, such
guidelines shall include--
(A) information on the benefits of diversification,
(B) information on the essential differences, in
terms of risk and return, between various pension plan
investments, including stocks, bonds, mutual funds, and
money market investments,
(C) information on how an individual's pension plan
investment allocations may differ depending on the
individual's age and years to retirement and on other
factors determined by the Secretary of Labor,
(D) sources of information where individuals may
learn more about pension rights, individual investing,
and investment advice, and
(E) such other information related to individual
investing as the Secretary of Labor determines
appropriate.
(2) Calculation information.--The guidelines under
paragraph (1) shall include addresses for Internet sites and
worksheets which a participant or beneficiary in a pension plan
may use to calculate--
(A) the retirement age value of the participant's
or beneficiary's nonforfeitable pension benefits under
the plan (expressed as an annuity amount and determined
by reference to varied historical annual rates of
return and annuity interest rates), and
(B) other important amounts relating to retirement
savings, including the amount which a participant or
beneficiary would be required to save annually to
provide a retirement income equal to various
percentages of their current salary (adjusted for
expected growth prior to retirement).
(3) Public comment.--The Secretary of Labor shall provide
at least 90 days for public comment on proposed guidelines
before publishing the final guidelines.
(4) Rules relating to guidelines.--The guidelines under
paragraph (1)--
(A) shall be written in a manner calculated to be
understood by the average plan participant, and
(B) may be delivered in written, electronic, or
other appropriate manner to the extent such manner
would ensure that the guidelines are reasonably
accessible to participants and beneficiaries.
(d) Penalty for Failure To Provide Access to Payroll Savings
Arrangements.--Chapter 43 (relating to qualified pension, etc., plans)
is amended by adding at the end the following new section:
``SEC. 4980H. REQUIREMENTS FOR EMPLOYERS TO PROVIDE EMPLOYEES ACCESS TO
PAYROLL DEPOSIT IRA ARRANGEMENTS.
``(a) General Rule.--There is hereby imposed a tax on any failure
by an employer to meet the requirements of subsection (d) for a
calendar year.
``(b) Amount.--
``(1) In general.--The amount of the tax imposed by
subsection (a) on any failure for any calendar year shall be
$100 with respect to each employee to whom such failure
relates.
``(2) Tax not to apply where failure not discovered and
reasonable diligence exercised.--No tax shall be imposed by
subsection (a) on any failure during any period for which it is
established to the satisfaction of the Secretary that the
employer subject to liability for the tax did not know that the
failure existed and exercised reasonable diligence to meet the
requirements of subsection (d). In no event shall the tax be
imposed with respect to any failure that ends before the
expiration of 90 days after the employer has responded or has
had a reasonable opportunity to respond to a request for
confirmation of compliance under subsection (c).
``(3) Tax not to apply to failures corrected within 30
days.--No tax shall be imposed by subsection (a) on any failure
if--
``(A) the employer subject to liability for the tax
under subsection (a) exercised reasonable diligence to
meet the requirements of subsection (d), and
``(B) the employer provides the payroll deposit IRA
arrangement described in section 408B to each employee
eligible to participate in the arrangement by the end
of the 30-day period beginning on the first date the
employer knew, or exercising reasonable diligence would
have known, that such failure existed.
``(4) Waiver by secretary.--In the case of a failure which
is due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by
subsection (a) to the extent that the payment of such tax would
be excessive or otherwise inequitable relative to the failure
involved.
``(c) Procedures for Notice.--Not later than 6 months after the
date of the enactment of this section, the Secretary shall prescribe
and implement procedures for obtaining from employers confirmation that
such employers are in compliance with the requirements of subsection
(d). The Secretary, in the Secretary's discretion, may prescribe that
the confirmation shall be obtained on an annual or less frequent basis,
and may use for this purpose the annual report or quarterly report for
employment taxes, or such other means as the Secretary may deem
advisable.
``(d) Requirement To Provide Employee Access to Payroll Deposit IRA
Arrangements.--The requirements of this subsection are met if the
employer meets the requirements of section 408B.''.
(e) Coordination With ERISA Fiduciary Duties.--Section 404(c)(2) of
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(2))
is amended--
(1) by inserting ``or an individual retirement plan
designated by the employer under section 408B of such Code''
after ``1986'',
(2) by inserting ``(7 days after notice has been given to
an employee that an individual retirement plan has been
established on behalf of the employee under section 408B of
such Code)'' after ``established'' in subparagraph (C), and
(3) by inserting ``or with respect to an individual
retirement plan designated by an employer under section 408B of
such Code'' after ``arrangement'' in the last sentence.
(f) Conforming Amendments.--
(1) The table of sections for subpart A of part I of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 408A the following new item:
``Sec. 408B. Right to payroll deposit IRA arrangements at work.''.
(2) The table of sections for chapter 43 is amended by
adding at the end the following new item:
``Sec. 4980H. Requirements for employers to provide employees access to
payroll deposit IRA arrangements.''.
(g) Preemption of Conflicting State Laws.--The amendments made by
this section shall supersede any law of a State that would directly or
indirectly prohibit or restrict the establishment or operation of a
payroll deposit IRA arrangement meeting the requirements of section
408B of the Internal Revenue Code of 1986 (including the inclusion in
any such arrangement of an automatic enrollment arrangement as defined
in section 408B(g) of such Code).
(h) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after December 31, 2008.
SEC. 102. CREDIT FOR SMALL EMPLOYERS MAINTAINING PAYROLL DEPOSIT IRA
ARRANGEMENTS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end
the following new section:
``SEC. 45O. SMALL EMPLOYER PAYROLL DEPOSIT IRA ARRANGEMENT COSTS.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible employer maintaining a payroll deposit IRA arrangement meeting
the requirements of section 408B (without regard to whether or not the
employer is required to maintain the arrangement), the small employer
payroll deposit IRA arrangement cost credit determined under this
section for any taxable year is the amount determined under subsection
(b).
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit determined
under this section for any taxable year with respect to an
eligible employer shall be equal to the lesser of--
``(A) $25 multiplied by the number of applicable
employees (within the meaning of section 408B(c)) for
whom contributions are made under the payroll deposit
IRA arrangement referred to in subsection (a) for the
calendar year in which the taxable year begins, or
``(B) $250.
``(2) Duration of credit.--No credit shall be determined
under this section for any taxable year other than a taxable
year which begins in the first 2 calendar years in which the
eligible employer maintains a payroll deposit IRA arrangement
meeting the requirements of section 408B.
``(3) Coordination with small employer startup credit.--No
credit shall be allowed under this section for any taxable year
if a credit is determined under section 45E for the taxable
year.
``(c) Eligible Employer.--For purposes of this section, the term
`eligible employer' means, with respect to any calendar year in which
the taxable year begins, an employer which maintains a payroll deposit
IRA arrangement meeting the requirements of section 408B and which, on
each day during the preceding calendar year, had no more than 100
employees.''.
(b) Credit Allowed as Part of General Business Credit.--Section
38(b) (defining current year business credit) is amended by striking
``plus'' at the end of paragraph (30), by striking the period at the
end of paragraph (31) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(32) in the case of an eligible employer (as defined in
section 45O(c)) maintaining a payroll deposit IRA arrangement
meeting the requirements of section 408B, the small employer
payroll deposit IRA arrangement cost credit determined under
section 45O(a).''
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by adding at the end
the following new item:
``Sec. 45O. Small employer payroll deposit IRA arrangement costs.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 103. ESTABLISHMENT OF AUTOMATIC IRAS.
(a) In General.--Subpart A of part I of subchapter A of chapter 1
(relating to pension, profit-sharing, stock bonus plans, etc.), as
amended by section 101, is amended by inserting after section 408B the
following new section:
``SEC. 408C. AUTOMATIC IRAS.
``(a) General Rule.--An automatic IRA shall be treated for purposes
of this title in the same manner as an individual retirement plan. An
automatic IRA may also be treated as a Roth IRA for purposes of this
title if it meets the requirements of section 408A.
``(b) Automatic IRA.--For purposes of this section, the term
`automatic IRA' means an individual retirement plan (as defined in
section 7701(a)(37)) which meets the investment and fee requirements
under the regulations under subsection (c).
``(c) Investment and Fee Requirements.--
``(1) In general.--The TSP II Board, in consultation with
the Secretary and the Secretary of Labor, shall, not later than
1 year after the date of the enactment of this section,
prescribe regulations which set forth the requirements of this
subsection which an individual retirement plan must meet in
order to be treated as an automatic IRA.
``(2) Investment options.--The regulations under paragraph
(1) shall provide that an automatic IRA shall allow the
individual on whose behalf the individual retirement plan is
established to invest contributions to, and earnings of, the
plan in all of the following investment options:
``(A) Options which are similar to all investment
options which are available (at the time the plan is
established) to a participant in the Thrift Savings
Fund established under subchapter III of chapter 84 of
title 5, United States Code.
``(B) Any other investment option specified in the
regulations.
Such regulations shall specify which of the investment options
shall be treated as default investment options for purposes of
section 408B(g)(5).
``(3) Investment fees.--
``(A) In general.--The regulations under paragraph
(1) shall provide that an automatic IRA shall not
charge any investment fees which, in the aggregate, are
not reasonable (as determined under such regulations).
``(B) Investment fees.--For purposes of this
paragraph, the term `investment fees' includes any fee,
commission, asset management fee, compensation for
services, or any other charge or fee specified in the
regulations under paragraph (1) which is imposed with
respect to the automatic IRA.''.
(b) Studies of Spousal Consent Requirements and Promotion of
Certain Lifetime Income Arrangements.--
(1) In general.--The Secretary of the Treasury and the
Secretary of Labor shall jointly conduct a separate study of
the feasibility and desirability of each of the following:
(A) Extending to automatic IRAs spousal consent
requirements similar to, or based on, those that apply
under the Federal employees' Thrift Savings Plan,
including consideration of whether modifications of
such requirements are necessary to apply them to
automatic IRAs.
(B) Promoting the use of low-cost annuities,
longevity insurance, or other guaranteed lifetime
income arrangements in automatic IRAs, including
consideration of--
(i) appropriate means of arranging for, or
encouraging, individuals to receive at least a
portion of their distributions in some form of
low-cost guaranteed lifetime income, and
(ii) issues presented by possible
additional differences in, or uniformity of,
provisions governing different IRAs.
(2) Report.--Not later than 18 months after the date of the
enactment of this Act, the Secretaries shall report the results
of each study conducted under subsection (a), together with any
recommendations for legislative changes, to the Committees on
Finance and Health, Education, Labor, and Pensions of the
Senate and the Committees on Ways and Means and Education and
Labor of the House of Representatives.
(c) Mandatory Transfers.--Section 401(a)(31)(B) is amended--
(1) by inserting ``(including an automatic IRA)'' after
``individual retirement plan'' each place it appears, and
(2) by adding at the end the following new sentence: ``Any
amount so transferred (and any earnings thereon) shall be
invested in a default investment described in section
408B(g)(5).''
(d) Clerical Amendment.--The table of sections for subpart A of
part I of subchapter A of chapter 1 is amended by inserting after the
item relating to section 408B the following new item:
``Sec. 408C. Automatic IRAs.''.
(e) Effective Date.--The amendments made by this section shall
apply to calendar years beginning on or after the date on which
proposed and temporary or final regulations described in section
408C(c) of the Internal Revenue Code of 1986 (as added by this Act) are
issued.
SEC. 104. ESTABLISHMENT OF TSP II BOARD.
(a) Establishment.--There is established in the executive branch of
the Government a TSP II Board. The board shall be established and
maintained in the same manner as the Federal Retirement Thrift
Investment Board under subchapter VII of chapter 84 of title 5, United
States Code.
(b) Executive Director.--The TSP II Board shall appoint an
Executive Director in a similar manner and with similar functions as
the Executive Director of the Federal Retirement Thrift Investment
Board under section 8474 of title 5, United States Code.
(c) Duties of Board.--The TSP II Board shall establish policies and
procedures for--
(1) establishment and maintenance of individual retirement
plans under section 408B(f)(3) of the Internal Revenue Code of
1986,
(2) the investment and management of contributions to such
individual retirement plans,
(3) the amount of contributions, and the investment of such
contributions, under automatic contribution arrangements under
section 408B(g) of such Code, including the designation of
investment funds in which such contributions may be invested,
and
(4) the establishment of automatic IRAs under section 408C
of such Code, including the issuance of regulations under
subsection (c) of such section.
(d) Best Practices.--The TSP II Board shall, on a continual basis,
prescribe and encourage best practices (including cost efficiencies and
innovations) in enrollment, investment, distribution, and other
procedures or arrangements relating to retirement savings and
investment. In carrying out its responsibilities under this section,
the TSP II Board may implement (by contract or otherwise) pilot
projects to help assess the efficacy and workability of specific
practices and arrangements.
(e) Expansion of Use of IRAs by Self-Employed and Other
Individuals.--The TSP II Board shall establish procedures to
disseminate information (through use of the Internet and other
appropriate means) to facilitate and encourage--
(1) the use by self-employed and other individuals of
automatic debit and similar arrangements for investment in
individual retirement plans, including automatic IRAs,
(2) efforts by voluntary associations to promote savings in
individual retirement plans, including automatic IRAs, by their
members and others, and
(3) the direct deposit of Federal and State income tax
refunds in individual retirement plans, including automatic
IRAs.
(f) Exclusive Interest.--The members of the TSP II Board shall
discharge their responsibilities solely in the interest of participants
and beneficiaries under individual retirement plans described in
section 408B of the Internal Revenue Code of 1986.
(g) Other Provisions Made Applicable.--The provisions of
subsections (f)(3), (g), (i), and (j) of section 8472 of title 5,
United States Code, shall apply to the TSP II Board.
Subtitle B--Other Provisions
SEC. 111. MODIFICATIONS TO COMPUTATION OF SAVER'S CREDIT; SAVER'S
CREDIT MADE REFUNDABLE.
(a) In General.--Section 25B(b) (defining applicable percentage),
as amended by section 833 of the Pension Protection Act of 2006, is
amended to read as follows:
``(b) Applicable Percentage.--For purposes of this section--
``(1) In general.--The applicable percentage is 50 percent
reduced (but not below zero) by 1 percentage point for each
phaseout amount by which the taxpayer's adjusted gross income
for the taxable year exceeds the threshold amount.
``(2) Phaseout amount; threshold amount.--The phaseout
amount and the threshold amount shall be determined as follows:
------------------------------------------------------------------------
The The
``In the case of: phaseout threshold
amount is: amount is:
------------------------------------------------------------------------
A joint return............................... $200 $50,000
A head of household return................... $150 $37,500
Any other return............................. $100 $25,000.
------------------------------------------------------------------------
``(3) Inflation adjustment.--
``(A) Joint returns.--In the case of any taxable
year beginning in a calendar year after 2009, the
$50,000 amount under paragraph (2) 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 2008'
for `calendar year 1992' in subparagraph (B)
thereof.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $500.
``(B) Other returns.--In the case of any taxable
year for which there is an increase under subparagraph
(A)--
``(i) the $37,500 under paragraph (2) shall
be increased to an amount equal to 75 percent
of the amount determined under subparagraph
(A), and
``(ii) the $25,000 amount under paragraph
(2) shall be increased to an amount equal to 50
percent of the amount determined under
subparagraph (A).''.
(b) Credit Made Refundable.--
(1) Transfer of credit to refundable credits.--
(A) In general.--Section 25B, as amended by
subsection (a), is hereby moved to subpart C of part IV
of subchapter A of chapter 1 (relating to refundable
credits) and inserted after section 35.
(B) Conforming amendments.--
(i) Section 24(b)(3)(B) is amended by
striking ``and 25B''.
(ii) Section 25(e)(1)(C)(ii) is amended by
striking ``, 25B''.
(iii) Section 25D(c)(2) is amended by
striking ``24, and 25B'' and inserting ``and
24''.
(iv) Section 26(a)(1) is amended by
striking ``24, and 25B'' and inserting ``and
24''.
(v) Section 25B, as moved by subparagraph
(A), is redesignated as section 36.
(vi) Section 904(i) is amended by striking
``24, and 25B'' and inserting `` and 24''.
(vii) Section 1400C(d)(2) is amended by
striking ``, 25B''.
(viii) The table of sections for subpart C
of part IV of subchapter A of chapter 1 is
amended by striking the item relating to
section 36 and inserting the following:
``Sec. 36. Elective deferrals and IRA contributions by certain
individuals.
``Sec. 37. Overpayments of tax.''.
(ix) The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amended
by striking the item relating to section 25B.
(x) Section 1324 of title 31, United States
Code, is amended by inserting ``, or enacted by
the Women's Retirement Security Act of 2008''
before the period at the end.
(2) Mandatory deposit into qualified account.--
(A) No reduction of tax.--Subsection (a) of section
36, as moved and redesignated by paragraph (1), is
amended by striking ``credit against the tax imposed by
this subtitle'' and inserting ``tax credit''.
(B) Deposit into qualified account.--Subsection (g)
of section 36, as moved and redesignated by paragraph
(1), is amended to read as follows:
``(g) Deposit Into Qualified Account.--
``(1) In general.--Any amount allowed as a tax credit under
subsection (a) shall not be allowed as a credit against any tax
imposed by this subtitle but instead shall be treated as an
overpayment under section 6401(b) and--
``(A) shall be paid on behalf of the individual
taxpayer to an applicable retirement plan designated by
the individual to be invested in a manner designated by
the individual, except that in the case of a joint
return, each spouse shall be entitled to designate an
applicable retirement plan and investments with respect
to payments attributable to such spouse, or
``(B) in the case of taxpayer who does not properly
designate an applicable retirement plan in a timely
manner or who designates an applicable retirement plan
that does not accept such amount in a timely manner,
shall be paid or credited on behalf of the individual
taxpayer in a manner determined under rules prescribed
by the Secretary that provides treatment comparable to
the treatment under subparagraph (A).
``(2) Applicable retirement plan.--For purposes of this
subsection, the term `applicable retirement plan' means a plan
that elects to accept deposits under this subsection and that
is described in clause (iii), (iv), (v), or (vi) of section
402(c)(8)(B) or in section 408A(b).
``(3) Treatment of direct payments.--All amounts paid under
this subsection shall be treated for purposes of this title as
income attributable to--
``(A) a Roth IRA contribution in the case of a
payments to an individual retirement plan, or
``(B) a designated Roth contribution in the case of
a payment to an applicable retirement plan described in
section 402A(e).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
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.--Subparagraph (D) of section 401(k)(2)
(defining qualified cash or deferred arrangement) 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 (14), 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.--Subsection (k) of section 401 (relating
to cash or deferred arrangements) is amended by adding at the
end the following new paragraph:
``(14) 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 paragraph (3) and
subsection (m)(2).
``(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--
``(I) the determination of whether
the plan is a top-heavy plan under
section 416, and
``(II) if the plan is a top-heavy
plan under such section, the
application of the vesting and benefit
requirements under subsections (b) and
(c) of such section.
``(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 after the date on 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, 2008, 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, 2009, shall not be taken into account.
SEC. 113. TRANSFERS OF UNUSED BENEFITS OF HEALTH FLEXIBLE SPENDING
ARRANGEMENT TO CERTAIN RETIREMENT PLANS.
(a) In General.--Section 125 (relating to cafeteria plans) is
amended by redesignating subsections (h) and (i) as subsections (i) and
(j), respectively, and by inserting after subsection (g) the following:
``(h) Contributions of Certain Unused Health Benefits.--
``(1) In general.--For purposes of this title, a plan or
other arrangement shall not fail to be treated as a cafeteria
plan solely because qualified benefits of a participant under
such plan include a health flexible spending arrangement under
which not more than $500 of unused health benefits may be
contributed on behalf of the participant to--
``(A) a qualified retirement plan (as defined in
section 4974(c)), or
``(B) an eligible deferred compensation plan (as
defined in section 457(b)) maintained by an eligible
employer described in section 457(e)(1)(A).
``(2) Treatment of contribution of unused health
benefits.--
``(A) In general.--For purposes of this title,
contributions described in paragraph (1) shall be
treated as elective contributions made pursuant to an
election by the participant between such contributions
and compensation which would otherwise be includible in
the gross income of the employee.
``(B) Exclusion or deduction.--Contributions
described in paragraph (1) shall be excluded from gross
income, or included in gross income and allowed as a
deduction, to the same extent that elective
contributions would be so treated under this title.
``(3) Health flexible spending arrangement.--For purposes
of this subsection, the term `health flexible spending
arrangement' means a flexible spending arrangement (as defined
in section 106(c)) which is a qualified benefit and only
permits reimbursement for expenses for medical care (as defined
in section 213(d)(1) without regard to subparagraphs (C) and
(D) thereof).
``(4) Unused health benefits.--For purposes of this
subsection, the term `unused health benefits' means, with
respect to a participant, the excess of--
``(A) the maximum amount of reimbursement allowable
to the participant with respect to a plan year under a
health flexible spending arrangement, taking into
account any election by the participant, over
``(B) the actual amount of reimbursement with
respect to such year under such arrangement.''.
(b) Special Rules.--The Secretary of the Treasury shall prescribe
such rules as are appropriate to carry out the purposes of the
amendments made by this section. Such rules may permit elections by
plan sponsors with respect to the year to which the contributions
relate and may provide for special treatment for purposes of applying
the requirements applicable to such contributions.
(c) Effective Date.--The amendment made by subsection (a) shall
apply to years beginning after December 31, 2008.
SEC. 114. COMPUTATION OF LIMITS ON IRA AND ROTH IRA CONTRIBUTIONS.
(a) Certain Wage Replacement Income Treated as Compensation.--
(1) Wage replacement income.--Section 219(f) (relating to
other definitions and special rules) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting
after paragraph (7) the following new paragraph:
``(8) Treatment of certain wage replacement income as
compensation.--
``(A) In general.--Notwithstanding paragraph (1),
applicable wage replacement income not otherwise
treated as compensation shall be treated as
compensation for purposes of this section.
``(B) Applicable wage replacement income.--For
purposes of this paragraph, the term `applicable wage
replacement income' means any amount received by an
individual--
``(i) as the result of the individual
having become disabled,
``(ii) as unemployment compensation (as
defined in section 85(b)),
``(iii) under workmen's compensation acts,
or
``(iv) which constitutes wage replacement
income under regulations prescribed by the
Secretary.''.
(2) Certain excludable amounts may be taken into account
for purposes of roth iras.--Section 408A(c)(2) (relating to
contribution limit) is amended by adding at the end the
following new flush sentence:
``In determining the maximum amount under subparagraph (A),
subsections (b)(1)(B) and (c) of section 219 shall be applied
by taking into account compensation described in section
219(f)(8) without regard to whether it is includible in gross
income.''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2008.
(b) Computation of Maximum IRA Deduction for Roth IRAs Using
Compensation From 2 Preceding Taxable Years.--
(1) In general.--Section 408A(c) (relating to treatment of
contributions) is amended by adding at the end the following
new paragraph:
``(8) Compensation from preceding 2 years may be taken into
account.--
``(A) In general.--A taxpayer may elect for
purposes of paragraph (2) to take into account any
unused compensation from the 2 taxable years
immediately preceding the taxable year.
``(B) Unused compensation.--For purposes of this
paragraph, the term `unused compensation' means with
respect to an individual for any taxable year the
compensation includible in the individual's gross
income for the taxable year reduced by the sum of--
``(i) the amount allowed as a deduction
under 219(a) to such individual for such
taxable year,
``(ii) the amount of any designated
nondeductible contribution (as defined in
section 408(o)) on behalf of such individual
for such taxable year,
``(iii) the amount of any contribution on
behalf of such individual to a Roth IRA under
this section for such taxable year, and
``(iv) the amount of compensation
includible in such individual's gross income
for such taxable year taken into account under
section 219(c) in determining the limitation
under section 219 or paragraph (2) for the
individual's spouse.
``(C) Application to special rule for married
individuals.--Under rules prescribed by the Secretary,
in applying section 219(c) for any taxable year for
purposes of applying paragraph (2)(A), unused
compensation of an individual or an individual's spouse
for the 2 taxable years immediately preceding the
taxable year may be taken into account.''.
(2) Effective date.--The amendment made by this subsection
shall apply to taxable years beginning after December 31, 2008,
but unused compensation for taxable years beginning before
January 1, 2009, may be taken into account for taxable years
beginning after December 31, 2008.
TITLE II--PROVISIONS PROVIDING FOR PRESERVATION OF INCOME
SEC. 201. EXCLUSION OF CERTAIN QUALIFIED ANNUITY PAYMENTS.
(a) Exclusion.--
(1) Qualified plans.--Section 402(e) (relating to exempt
trusts) is amended by adding at the end the following new
paragraph:
``(7) Exclusion of percentage of lifetime annuity
payments.--
``(A) In general.--In the case of a lifetime
annuity payment to a qualified distributee from a
qualified trust (within the meaning of subsection
(c)(8)(A)) maintained in connection with a defined
contribution plan, gross income shall not include 10
percent of the amount otherwise includible in gross
income (determined without regard to this paragraph).
For purposes of this paragraph, payments from an
annuity contract distributed by the qualified trust
shall be treated as payments from the qualified trust.
``(B) Limitation.--
``(i) In general.--If--
``(I) the aggregate amount of
lifetime annuity payments to the
distributee during the taxable year
which are includible in gross income
(determined without regard to this
paragraph) and which are subject to
this paragraph or to rules similar to
the rules of this paragraph (other than
section 72(b)(5) or 101(d)(4)), exceeds
``(II) 50 percent of the applicable
amount for the taxable year under
section 415(a),
then the aggregate amount otherwise excludable
under subparagraph (A) for the taxable year
shall be reduced by 10 percent of the portion
of such excess which is allocable under clause
(ii) to payments which are subject to this
paragraph.
``(ii) Allocation rule.--Any excess
described in clause (i) for any taxable year
shall be allocated ratably among all lifetime
annuity payments to the qualified distributee
described in clause (i)(I).
``(C) Definitions.--For purposes of this
paragraph--
``(i) Lifetime annuity payment.--
``(I) In general.--Except as
provided in this clause, the term
`lifetime annuity payment' means a
distribution from an annuity contract
which is a part of a series of
substantially equal periodic payments
(not less frequently than annually)
made over the life of the qualified
distributee or the joint lives of the
qualified distributee and the qualified
distributee's designated beneficiary.
For purposes of this paragraph, the
term `annuity contract' means a
commercial annuity (as defined in
section 3405(e)(6)), other than an
endowment or life insurance contract.
``(II) Certain fluctuating
payments.--Annuity payments shall not
fail to be treated as part of a series
of substantially equal periodic
payments merely because the amount of
the periodic payments may vary in
accordance with investment experience,
reallocations among investment options,
actuarial gains or losses, cost of
living indices, a constant percentage
(not less than zero) applied not less
frequently than annually, or similar
fluctuating criteria.
``(III) Certain changes in the mode
of payment.--Annuity payments shall not
fail to be treated as part of a series
of substantially equal periodic
payments merely because the period
between each such payment is lengthened
or shortened, but only if at all times
such period is not longer than 1 year.
``(IV) Permitted reductions.--
Annuity payments shall not fail to be
treated as part of a series of
substantially equal periodic payments
merely because, in the case of an
annuity payable over the lives of the
qualified distributee and the qualified
distributee's designated beneficiary,
the amounts paid after the death of the
qualified distributee or the qualified
distributee's designated beneficiary
are less than the amounts payable
during their joint lives.
``(V) Certain contract benefits.--
The availability of a commutation
benefit or other feature permitting
acceleration of annuity payments (or a
modification of the period during which
such a benefit is available), a minimum
period of payments or a minimum amount
to be paid in any event shall not
affect the treatment of a distribution
as a lifetime annuity payment.
``(VI) Trust payments.--In the case
of lifetime annuity payments being made
to a qualified trust, payments by the
qualified trust to a qualified
distributee of the entire amount
received by the qualified trust with
respect to the qualified distributee
shall constitute lifetime annuity
payments if such payments are made
within a reasonable period after
receipt by the qualified trust.
``(VII) Qualified domestic
relations orders.--Annuity payments
shall not fail to be treated as a
series of substantially equal periodic
payments merely because the payments
are reduced on account of a qualified
domestic relations order (within the
meaning of section 414(p)) that becomes
effective after the commencement of the
annuity payments.
``(ii) Qualified distributee.--The term
`qualified distributee' means the employee, the
surviving spouse of the employee, and an
alternate payee who is the spouse or former
spouse of the employee.
``(D) Recapture tax.--
``(i) In general.--If--
``(I) an amount is not includible
in gross income by reason of
subparagraph (A), and
``(II) the series of payments of
which such payment is a part is
subsequently modified (other than by
reason of death or disability) so that
some or all future payments are not
lifetime annuity payments,
the qualified distributee's gross income for
the first taxable year in which such
modification occurs shall be increased by an
amount, determined under rules prescribed by
the Secretary, equal to the amount which (but
for subparagraph (A)) would have been
includible in the qualified distributee's gross
income if the modification had been in effect
at all times, plus interest for the deferral
period at the underpayment rate established
under section 6621.
``(ii) Deferral period.--For purposes of
this subparagraph, the term `deferral period'
means, with respect to any amount, the period
beginning with the taxable year in which
(without regard to subparagraph (A)) the amount
would have been includible in gross income and
ending with the taxable year in which the
modification described in clause (i)(II)
occurs.
``(E) Investment in the contract.--For purposes of
section 72, the investment in the contract shall be
determined without regard to this paragraph.''.
(2) Qualified annuity plans.--Section 403(a) (relating to
qualified annuity plans) is amended by adding at the end the
following new paragraph:
``(6) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions under any annuity contract to
which this subsection applies.''.
(3) Purchased annuities.--Section 403(b) (relating to
purchased annuities) is amended by adding at the end the
following new paragraph:
``(14) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions under any annuity contract or
custodial account to which this subsection applies.''.
(4) Iras.--Section 408(d) (relating to tax treatment of
distributions), as amended by section 1201 of the Pension
Protection Act of 2006, is amended by adding at the end the
following new paragraph:
``(10) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions out of an individual retirement
plan.''.
(5) Section 457 plans.--Section 457(e) (relating to special
rules for deferred compensation plans) is amended by adding at
the end the following new paragraph:
``(19) Exclusion of percentage of lifetime annuity
payments.--Rules similar to the rules of section 402(e)(7)
shall apply to distributions from an eligible deferred
compensation plan of an eligible employer described in
subsection (e)(1)(A).''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2008.
SEC. 202. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS.
(a) Lifetime Annuity Payments Under Annuity Contracts.--Section
72(b) (relating to exclusion ratio) is amended by adding at the end the
following new paragraph:
``(5) Exclusion for lifetime annuity payments.--
``(A) In general.--In the case of lifetime annuity
payments received as an annuity under 1 or more annuity
contracts in any taxable year, gross income shall not
include the lesser of--
``(i) 50 percent of the portion of the
lifetime annuity payments which (without regard
to this paragraph) is includible in gross
income under this section for the taxable year,
or
``(ii) $20,000.
``(B) Cost-of-living adjustment.--In the case of
taxable years beginning after December 31, 2009, the
$20,000 amount in subparagraph (A)(ii) 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
[2008]' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as increased under the preceding sentence
is not a multiple of $500, such amount shall be rounded
to the next lower multiple of $500.
``(C) Application of paragraph.--Subparagraph (A)
shall not apply to--
``(i) any amount received under an eligible
deferred compensation plan (as defined in
section 457(b)) or under a qualified retirement
plan (as defined in section 4974(c)),
``(ii) any amount paid under an annuity
contract which is received by the beneficiary
under the contract--
``(I) after the death of the
annuitant in the case of payments
described in subsection
(c)(5)(A)(ii)(III), unless the
beneficiary is the surviving spouse of
the annuitant, or
``(II) after the death of the
annuitant and joint annuitant in the
case of payments described in
subsection (c)(5)(A)(ii)(IV), unless
the beneficiary is the surviving spouse
of the last to die of the annuitant and
the joint annuitant, or
``(iii) any annuity contract that is a
qualified funding asset (as defined in section
130(d)), but without regard to whether there is
a qualified assignment.
``(D) Investment in the contract.--For purposes of
this section, the investment in the contract shall be
determined without regard to this paragraph.''.
(b) Definitions.--Section 72(c) is amended by adding at the end the
following new paragraph:
``(5) Lifetime annuity payment.--
``(A) In general.--For purposes of subsection
(b)(5), the term `lifetime annuity payment' means any
amount received as an annuity under any portion of an
annuity contract, but only if--
``(i) the only person (or persons in the
case of payments described in subclause (II) or
(IV) of clause (ii)) legally entitled (by
operation of the contract, a trust, or other
legally enforceable means) to receive such
amount during the life of the annuitant or
joint annuitant is such annuitant or joint
annuitant, and
``(ii) such amount is part of a series of
substantially equal periodic payments made not
less frequently than annually over--
``(I) the life of the annuitant,
``(II) the lives of the annuitant
and a joint annuitant, but only if the
annuitant is the spouse of the joint
annuitant as of the annuity starting
date or the difference in age between
the annuitant and joint annuitant is 15
years or less,
``(III) the life of the annuitant
with a minimum period of payments or
with a minimum amount that must be paid
in any event, or
``(IV) the lives of the annuitant
and a joint annuitant with a minimum
period of payments or with a minimum
amount that must be paid in any event,
but only if the annuitant is the spouse
of the joint annuitant as of the
annuity starting date or the difference
in age between the annuitant and joint
annuitant is 15 years or less.
``(iii) Exceptions.--For purposes of clause
(ii), annuity payments shall not fail to be
treated as part of a series of substantially
equal periodic payments--
``(I) because the amount of the
periodic payments may vary in
accordance with investment experience,
reallocations among investment options,
actuarial gains or losses, cost-of-
living indices, a constant percentage
(not less than zero) applied not less
frequently than annually, or similar
fluctuating criteria,
``(II) due to the existence of, or
modification of the duration of, a
provision in the contract permitting a
lump-sum withdrawal after the annuity
starting date, or
``(III) because the period between
each such payment is lengthened or
shortened, but only if at all times
such period is no longer than 1
calendar year.
``(B) Annuity contract.--For purposes of
subparagraph (A) and subsections (b)(5) and (x), the
term `annuity contract' means a commercial annuity (as
defined by section 3405(e)(6)), other than an endowment
or life insurance contract.
``(C) Minimum period of payments.--For purposes of
subparagraph (A), the minimum period of payments is a
guaranteed term of payments which does not exceed the
greater of--
``(i) 10 years, or
``(ii) the life expectancy of--
``(I) the annuitant as of the
annuity starting date, in the case of
lifetime annuity payments described in
subparagraph (A)(ii)(III), or
``(II) the annuitant and joint
annuitant as of the annuity starting
date, in the case of lifetime annuity
payments described in subparagraph
(A)(ii)(IV).
For purposes of this subparagraph, life expectancy
shall be computed with reference to the tables
prescribed by the Secretary under paragraph (3). For
purposes of subsection (x)(1)(C)(ii), the permissible
minimum period of payments shall be determined as of
the annuity starting date and reduced by one for each
subsequent year.
``(D) Minimum amount that must be paid in any
event.--For purposes of subparagraph (A), the minimum
amount that must be paid in any event is an amount
payable to the designated beneficiary under an annuity
contract which is in the nature of a refund and does
not exceed the greater of the amount applied to produce
the lifetime annuity payments under the contract or the
amount, if any, available for withdrawal under the
contract on the date of death.''.
(c) Recapture Tax for Lifetime Annuity Payments.--Section 72 is
amended by redesignating subsection (x) as subsection (y) and by
inserting after subsection (x) the following new subsection:
``(x) Recapture Tax for Modifications To or Reductions In Lifetime
Annuity Payments.--
``(1) In general.--If--
``(A) any amount received under an annuity contract
is excluded from income by reason of subsection (b)(5)
(relating to lifetime annuity payments) for any taxable
year, and
``(B) a recapture event described in paragraph (2)
occurs in any subsequent taxable year,
then gross income for the first taxable year in which the
recapture event occurs shall be increased by the recapture
amount.
``(2) Recapture event.--For purposes of paragraph (1), a
recapture event occurs if--
``(A) the series of payments under an annuity
contract is subsequently modified so any future
payments are not lifetime annuity payments,
``(B) after the date of receipt of the first
lifetime annuity payment under the contract an
annuitant receives a lump sum and thereafter is to
receive annuity payments in a reduced amount under the
contract, or
``(C) after the date of receipt of the first
lifetime annuity payment under the contract the dollar
amount of any subsequent annuity payment is reduced and
a lump sum is not paid in connection with the
reduction, unless such reduction is--
``(i) due to an event described in
subsection (c)(5)(A)(iii), or
``(ii) due to the addition of, or increase
in, a minimum period of payments (within the
meaning of subsection (c)(5)(C)) or a minimum
amount that must be paid in any event (within
the meaning of subsection (c)(5)(D)).
``(3) Recapture amount.--
``(A) In general.--For purposes of this subsection,
the recapture amount shall be the amount, determined
under rules prescribed by the Secretary, equal to the
amount which (but for subsection (b)(5)) would have
been includible in the taxpayer's gross income if the
modification or reduction described in subparagraph
(A), (B), or (C) of paragraph (2) had been in effect at
all times, plus interest for the deferral period at the
underpayment rate established by section 6621.
``(B) Deferral period.--For purposes of this
subsection, the term `deferral period' means, with
respect to any amount, the period beginning with the
taxable year in which (without regard to subsection
(b)(5)) the amount would have been includible in gross
income and ending with the taxable year in which the
modification or reduction described in subparagraph
(A), (B), or (C) of paragraph (2) occurs.
``(4) Exceptions to recapture tax.--Paragraph (1) shall not
apply in the case of any recapture event which occurs because
an annuitant--
``(A) dies or becomes disabled (within the meaning
of subsection (m)(7)),
``(B) becomes a chronically ill individual within
the meaning of section 7702B(c)(2), or
``(C) encounters hardship.''.
(d) Lifetime Distributions of Life Insurance Death Benefits.--
(1) In general.--Section 101(d) (relating to payment of
life insurance proceeds at a date later than death) is amended
by adding at the end the following new paragraph:
``(4) Exclusion for lifetime annuity payments.--
``(A) In general.--In the case of amounts to which
this subsection applies, gross income for any taxable
year shall not include the lesser of--
``(i) 50 percent of the portion of lifetime
annuity payments which (without regard to this
paragraph) is includible in gross income under
this section, or
``(ii) the amount in effect under section
72(b)(5)(A)(ii) for the taxable year.
``(B) Rules of section 72(b)(5) to apply.--For
purposes of this paragraph, rules similar to the rules
of section 72(b)(5) and section 72(x) shall apply,
except that the term `beneficiary of the life insurance
contract' shall be substituted for the term `annuitant'
each place it appears, and the term `life insurance
contract' shall be substituted for the term `annuity
contract' each place it appears.''.
(2) Conforming amendment.--Section 101(d)(1) is amended by
inserting ``or paragraph (4)'' after ``to the extent not
excluded by the preceding sentence''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts received in calendar years beginning after the
date of the enactment of this Act.
(2) Special rule for existing contracts.--In the case of a
contract in force on the date of the enactment of this Act that
does not satisfy the requirements of section 72(c)(5)(A) of the
Internal Revenue Code of 1986 (as added by this section), or
requirements similar to such section 72(c)(5)(A) in the case of
a life insurance contract, any modification to such contract
(including a change in ownership) or to the payments under such
contract that is made to satisfy the requirements of such
section (or similar requirements) shall not result in the
recognition of any gain or loss, any amount being included in
gross income, or any addition to tax that otherwise might
result from such modification, but only if the modification is
completed before the date which is 2 years after the date of
the enactment of this Act.
SEC. 203. JOINT STUDY OF APPLICATION OF SPOUSAL CONSENT RULES TO
DEFINED CONTRIBUTION PLANS.
(a) Study.--The Secretary of Labor and the Secretary of the
Treasury shall jointly conduct a study of the feasibility and
desirability of extending the application of the requirements of
section 205 of the Employee Retirement Income Security Act of 1974 and
sections 401(a)(11) and 417 of the Internal Revenue Code of 1986
(relating to spousal consent requirements) to defined contribution
plans to which such requirements do not apply. Such study shall include
consideration of any modifications of such requirements that are
necessary to apply such requirements to such plans.
(b) Report.--Not later than 2 years after the date of the enactment
of this Act, the Secretaries shall report the results of the study,
together with any recommendations for legislative changes, to the
Committees on Finance and Health, Education, Labor, and Pensions of the
Senate and the Committees on Ways and Means and Education and Labor of
the House of Representatives.
SEC. 204. FACILITATING LONGEVITY INSURANCE.
(a) In General.--Paragraph (9) of section 401(a) is amended by
inserting after subparagraph (G) the following new subparagraph:
``(H) Longevity insurance.--
``(i) In general.--For purposes of this
paragraph, any value attributable to longevity
insurance shall be disregarded in determining
the value of an employee's interest under a
plan prior to the first date that payments are
made under the longevity insurance.
``(ii) Longevity insurance defined.--For
purposes of this subparagraph, the term
`longevity insurance' means an annuity payable
on behalf of the employee under which--
``(I) payments commence not later
than 12 months following the calendar
month in which the employee attains age
85 (or would have attained age 85),
``(II) 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,
taking into account the rules of clause
(i) of section 402(e)(7)(D), except as
otherwise provided in subclause (III)
of such section,
``(III) prior to the death of the
employee, the annuity does not make
available any commutation benefit, cash
surrender value, or other similar
feature, and
``(IV) except as provided in rules
prescribed by the Secretary, in the
case of an employee's death prior to
the date that payments commence, the
value of any death benefits paid may
not exceed the premiums paid for such
annuity, plus interest compounded
annually at 3 percent.
``(iii) Adjusting age.--For purposes of
clause (ii)(I), the Secretary shall annually
increase age 85 to reflect increases in life
expectancy (as determined by the Secretary)
that occur on or after January 1, 2008, except
that any such increased age which is not a
whole number shall be rounded to the next lower
whole number.''.
(b) Rules.--Not later than one year after the date of enactment of
this Act, the Secretary of the Treasury shall prescribe rules under
which all or a portion of a participant's benefits under any plan
described in section 402(c)(8)(B) of the Internal Revenue Code of 1986
may be treated as longevity insurance under the rules of section
401(a)(9)(H) of such Code.
(c) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2008.
TITLE III--PROVISIONS ENSURING EQUITY IN DIVORCE
SEC. 301. SPECIAL RULES RELATING TO TREATMENT OF QUALIFIED DOMESTIC
RELATIONS ORDERS.
(a) Preservation of Assets.--
(1) Amendment of 1986 code.--Section 414(p) is amended by
redesignating paragraph (13) as paragraph (14) and by inserting
after paragraph (12) the following new paragraph:
``(13) Preservation of assets.--
``(A) In general.--If a spouse or former spouse of
a participant notifies a plan in writing that--
``(i) an action is pending pursuant to a
State domestic relations law (including a
community property law), and
``(ii) all or a portion of the benefits
payable with respect to the participant under
the plan are a subject of such action,
and includes with the notice evidence of the pendency
of the action, the plan administrator shall, during the
segregation period, separately account for 50 percent
of such benefits. Any amounts so separately accounted
for may not be distributed by the plan during the
segregation period.
``(B) Segregation period.--For purposes of
subparagraph (A), the term `segregation period' means
the period--
``(i) beginning on the date of the receipt
of the notice, and
``(ii) ending as of the close of the 90-day
period beginning on such date (or, if earlier,
the date of receipt of a domestic relations
order with respect to the participant and the
spouse or former spouse or the date the action
is no longer pending).
The segregation period shall be extended for 1 or more
additional periods described in the preceding sentence
upon notice by the spouse or former spouse that the
action described in subparagraph (A) is still pending
as of the close of any prior segregation period.''
(2) Amendment of erisa.--Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3))
is amended by redesignating subparagraph (N) as subparagraph
(O) and by inserting after subparagraph (M) the following new
subparagraph:
``(N) Preservation of assets.--
``(i) In general.--If a spouse or former
spouse of a participant notifies a plan in
writing that--
``(I) an action is pending pursuant
to a State domestic relations law
(including a community property law),
and
``(II) all or a portion of the
benefits payable with respect to the
participant under the plan are a
subject of such action,
and includes with the notice evidence of the
pendency of the action, the plan administrator
shall, during the segregation period,
separately account for 50 percent of such
benefits. Any amounts so separately accounted
for may not be distributed by the plan during
the segregation period.
``(ii) Segregation period.--For purposes of
clause (i), the term `segregation period' means
the period--
``(I) beginning on the date of the
receipt of the notice, and
``(II) ending as of the close of
the 90-day period beginning on such
date (or, if earlier, the date of
receipt of a domestic relations order
with respect to the participant and the
spouse or former spouse or the date the
action is no longer pending).
The segregation period shall be extended for 1
or more additional periods described in the
preceding sentence upon notice by the spouse or
former spouse that the action described in
clause (i) is still pending as of the close of
any prior segregation period.''
(b) Penalty for Failure To Provide Information Regarding Alternate
Payees.--Section 502(c) of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1132(c)) is amended by redesignating paragraph (8)
as paragraph (9) and by inserting after paragraph (7) the following new
paragraph:
``(8) Failure to provide information regarding alternate
payees.--The Secretary may assess a civil penalty against any
plan administrator of up to $100 a day from the date of the
plan administrator's failure or refusal to provide the
information the plan administrator is required to provide under
regulations under this Act to prospective alternative payees
under a domestic relations order under section 206(d)(3) or to
the Secretary or any representative of a prospective
alternative payee in connection with such an order.''
(c) Allocation of Plan Expenses in Complying With Domestic
Relations Orders.--
(1) Amendment of 1986 code.--Section 414(p), as amended by
subsection (a), is amended by redesignating paragraph (14) as
paragraph (15) and by inserting after paragraph (13) the
following new paragraph:
``(14) Allocation of expenses.--Any expenses incurred by a
plan with respect to compliance with the requirements of this
subsection shall not be allocated to an individual participant
but rather shall be allocated among all participants on the
basis of the relative value of each participant's share of the
assets of the plan, on the basis of a flat amount per
participant, or on any other reasonable basis provided for
under the plan.''.
(2) Amendment of erisa.--Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)(3)),
as amended by subsection (a), is amended by redesignating
subparagraph (O) as subparagraph (P) and by inserting after
subparagraph (N) the following new subparagraph:
``(O) Allocation of expenses.--Any expenses
incurred by a plan with respect to compliance with the
requirements of this paragraph shall not be allocated
to an individual participant but rather shall be
allocated among all participants on the basis of the
relative value of each participant's share of the
assets of the plan, on the basis of a flat amount per
participant, or on any other reasonable basis provided
for under the plan.''.
SEC. 302. ELIMINATION OF CURRENT CONNECTION REQUIREMENT UNDER RAILROAD
RETIREMENT ACT FOR CERTAIN SURVIVORS.
(a) In General.--Section 2(d)(1) of the Railroad Retirement Act of
1974 (45 U.S.C. 231a(d)(1)), in the matter preceding paragraph (i), is
amended by inserting ``, except with respect to survivors described in
paragraph (i), (ii), or (v),'' after ``December 31, 1995) and''.
(b) Effective Dates.--
(1) In general.--The amendment made by subsection (a) shall
take effect on the date of enactment of this Act.
(2) Retroactive application to certain survivors.--If a
survivor of a deceased employee would be entitled to an annuity
by reason of the amendment made by subsection (a) but for the
fact that the employee died before the date of the enactment of
this Act, the survivor shall be entitled to such an annuity but
only with respect to annuity payments for months beginning on
or after such date. Appropriate adjustments shall be made in
annuity payments of other individuals to reflect any annuity
payable by reason of this paragraph.
SEC. 303. PERMITTING DIVORCED SPOUSES AND WIDOWS AND WIDOWERS TO
REMARRY AFTER TURNING 60 WITHOUT A PENALTY UNDER RAILROAD
RETIREMENT ACT.
(a) In General.--
(1) Divorced spouse.--Section 2(c)(4) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231a(c)(4) is amended by
adding at the end the following new sentence: ``For purposes of
paragraph (ii)(B), if a divorced wife marries after attaining
age 60, such marriage shall be deemed not to have occurred.''
(2) Widows and widowers.--Section 2(d)(1)(v) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231a(d)(1)(v)) is
amended by adding at the end the following new sentence: ``For
purposes of this paragraph, if a widow marries after attaining
age 60, such marriage shall be deemed not to have occurred.''
(b) Effective Dates.--
(1) In general.--The amendments made by this section shall
take effect on the date of enactment of this Act.
(2) Retroactive application.--If a divorced wife, widow, or
widower would be entitled to an annuity by reason of the
amendments made by this section but for the fact the individual
was married before the date of the enactment of this Act, the
individual shall be entitled to such an annuity but only with
respect to annuity payments for months beginning on or after
such date. Appropriate adjustments shall be made in annuity
payments of other individuals to reflect any annuity payable by
reason of this paragraph.
TITLE IV--PROVISIONS TO IMPROVE FINANCIAL LITERACY
SEC. 401. GRANTS TO COMMUNITY-BASED TAXPAYER CLINICS TO PROVIDE
RETIREMENT SAVINGS ADVICE.
(a) In General.--Section 7526 (relating to low-income taxpayer
clinics) is amended by adding at the end the following:
``(d) Additional Grants for Retirement Savings Advice.--
``(1) Making of grants.--The Secretary may, subject to the
availability of appropriated funds, make grants to qualified
low-income taxpayer clinics to provide retirement savings
counseling to low-income taxpayers.
``(2) Use of grant funds.--Grants under paragraph (1) shall
be used to--
``(A) develop the infrastructure necessary to carry
out retirement savings counseling for low-income
taxpayers, including the development of software to
assist low-income taxpayers in beginning a retirement
savings program, monitoring their savings behavior, and
taking advantage of tax benefits provided under this
title to assist in retirement savings,
``(B) develop partnerships with certified financial
planners and other financial experts to assist in
carrying out the retirement savings program, and
``(C) train advisors to assist low-income taxpayers
with retirement savings.
``(3) Criteria for awards.--The provisions of subsection
(c)(4) shall apply in determining whether to make a grant under
paragraph (1).
``(4) Limitations and special rules.--
``(A) Aggregate limitation.--Unless otherwise
provided by specific appropriations, the Secretary
shall not allocate more than $25,000,000 per year
(exclusive of costs of administering the program) to
grants under paragraph (1).
``(B) Limitation on annual grants to a clinic.--The
aggregate amount of grants which may be made under
paragraph (1) to a clinic for a year shall not exceed
$100,000.
``(C) Multi-year grants.--The provisions of
subsection (c)(3) shall apply to grants under paragraph
(1).
``(D) Additional amounts.--Grants under paragraph
(1) shall be in addition to any grants under subsection
(a).''
(b) Conforming Amendments.--
(1) Section 7526(c) (relating to special rules and
limitations) is amended by striking ``this section'' each place
it appears and inserting ``subsection (a)''.
(2) Section 7526(c)(3) is amended by inserting ``under
subsection (a)'' after ``award''.
(c) Authorization of Appropriations.--There is authorized to be
appropriated for each fiscal year beginning after September 30, 2008,
$25,000,000 to carry out the provisions of this section.
SEC. 402. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.
(a) In General.--Subsection (m) of section 132 (defining qualified
retirement services) is amended by adding at the end the following new
paragraph:
``(4) No constructive receipt.--
``(A) In general.--No amount shall be included in
the gross income of any employee solely because the
employee may choose between any qualified retirement
planning services provided by an eligible investment
advisor and compensation which would otherwise be
includible in the gross income of such employee. The
preceding sentence shall apply to highly compensated
employees only if the choice described in such sentence
is available on substantially the same terms to each
member of the group of employees normally provided
education and information regarding the employer's
qualified employer plan.
``(B) Limitation.--The maximum amount which may be
excluded under subparagraph (A) with respect to any
employee for any taxable year shall not exceed $1,000.
``(C) Eligible investment adviser.--For purposes of
this paragraph, the term `eligible investment adviser'
means, with respect to a plan, a person--
``(i) who--
``(I) is registered as an
investment adviser under the Investment
Advisers Act of 1940 (15 U.S.C. 80b-1
et seq.),
``(II) is registered as an
investment adviser under the laws of
the State in which such adviser
maintains the principal office and
place of business of such adviser, but
only if such State laws are consistent
with section 203A of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-
3a),
``(III) is a bank or similar
financial institution referred to in
section 408(b)(4),
``(IV) is an insurance company
qualified to do business under the laws
of a State, or
``(V) is any other comparably
qualified entity which satisfies such
criteria as the Secretary determines
appropriate, consistent with the
purposes of this subsection, and
``(ii) who meets the requirements of
subparagraph (D).
``(D) Adviser requirements.--The requirements of
this subparagraph are met if every individual employed
(or otherwise compensated) by a person described in
subparagraph (C)(i) who provides investment advice on
behalf of such person to any plan participant or
beneficiary is--
``(i) an individual described in subclause
(I) of subparagraph (C)(i),
``(ii) an individual described in subclause
(II) of subparagraph (C)(i), but only if such
State has an examination requirement to qualify
for registration,
``(iii) registered as a broker or dealer
under the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.),
``(iv) a registered representative as
described in section 3(a)(18) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or
section 202(a)(17) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-2(a)(17)), or
``(v) any other comparably qualified
individual who satisfies such criteria as the
Secretary determines appropriate, consistent
with the purposes of this paragraph.
``(E) Termination.--This paragraph shall not apply
to taxable years beginning after December 31, 2012.''.
(b) Conforming Amendments.--
(1) Section 403(b)(3)(B) is amended by inserting
``132(m)(4),'' after ``132(f)(4),''.
(2) Section 414(s)(2) is amended by inserting
``132(m)(4),'' after ``132(f)(4),''.
(3) Section 415(c)(3)(D)(ii) is amended by inserting
``132(m)(4),'' after ``132(f)(4),''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 403. RETIREMENT HANDBOOK AND RETIREMENT READINESS CHECKLIST.
(a) In General.--Section 704 of the Social Security Act is amended
by adding at the end the following new subsection:
``(f) Retirement Information.--
``(1) In general.--The Commissioner, in consultation with
the Social Security Advisory Board, shall prepare--
``(A) the financial reference handbook described in
paragraph (2), and
``(B) the retirement readiness checklist described
in paragraph (3).
``(2) Financial reference handbook.--The handbook described
in this paragraph is a pamphlet which--
``(A) includes definitions of basic financial
terms,
``(B) contains a listing of financial issues and
problems facing individuals who are retiring and
explanations of methods of dealing with the issues and
problems, and
``(C) is in a form readily understandable by the
average retiree.
``(3) Readiness checklist.--The checklist described in this
paragraph is a list of questions that individuals need to
consider in preparation for retirement, including the
following:
``(A) What annual income will the individual need
in retirement?
``(B) How many years will the individual live in
retirement?
``(C) What will be the cost of Medicare premiums?
``(D) What will be the cost of insurance necessary
to supplement Medicare?
``(E) How will savings be invested in retirement?
``(F) How will taxes affect your retirement income?
The checklist will include answers to the questions or
directions as to where information is available to answer the
questions. All information shall be in a form readily
understandable to the average recipient of the checklist.
``(4) Revisions.--The Commissioner shall periodically
revise and update the handbook and checklist prepared under
this subsection.
``(5) Distribution of materials.--
``(A) Handbook.--The financial reference handbook
described in paragraph (2) shall be included with
materials provided to an individual when the individual
first applies for benefits under title II and such
other times as the Commissioner determines appropriate.
``(B) Checklist.--The retirement readiness
checklist described in paragraph (3) shall be included
with an individual's annual social security account
statement provided under section 1143.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act, but the handbooks and
checklists required to be provided by such amendment shall be provided
on or after January 1, 2010 (or such earlier date as the Commissioner
of Social Security may provide).
TITLE V--INCENTIVES FOR SMALL BUSINESSES TO ESTABLISH AND MAINTAIN
RETIREMENT PLANS FOR EMPLOYEES
SEC. 501. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBUTIONS OF SMALL
EMPLOYERS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by section 102, is
amended by adding at the end the following new section:
``SEC. 45P. SMALL EMPLOYER PENSION PLAN CONTRIBUTIONS.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible employer, the small employer pension plan contribution credit
determined under this section for any taxable year is an amount equal
to 50 percent of the amount which would (but for subsection (f)(1)) be
allowed as a deduction under section 404 for such taxable year for
qualified employer contributions made to any qualified retirement plan
on behalf of any employee who is not a highly compensated employee.
``(b) Credit Limited to 3 Years.--The credit allowable by this
section shall be allowed only with respect to the period of 3 taxable
years beginning with the first taxable year for which a credit is
allowable with respect to a plan under this section.
``(c) Qualified Employer Contribution.--For purposes of this
section--
``(1) Defined contribution plans.--In the case of a defined
contribution plan, the term `qualified employer contribution'
means the amount of nonelective and matching contributions to
the plan made by the employer on behalf of any employee who is
not a highly compensated employee to the extent such amount
does not exceed 3 percent of such employee's compensation from
the employer for the year.
``(2) Defined benefit plans.--In the case of a defined
benefit plan, the term `qualified employer contribution' means
the amount of employer contributions to the plan made on behalf
of any employee who is not a highly compensated employee to the
extent that the accrued benefit of such employee derived from
employer contributions for the year does not exceed the
equivalent (as determined under regulations prescribed by the
Secretary and without regard to contributions and benefits
under the Social Security Act) of 3 percent of such employee's
compensation from the employer for the year.
``(d) Qualified Retirement Plan.--
``(1) In general.--The term `qualified retirement plan'
means any plan described in section 401(a) which includes a
trust exempt from tax under section 501(a), any simplified
pension (as defined in section 408(k)), or any simple
retirement account (as defined in section 408(p) if the
following requirements are met with respect to such plan,
pension, or account:
``(A) The contribution requirements of paragraph
(2).
``(B) The vesting requirements of paragraph (3).
``(C) The distribution requirements of paragraph
(4).
The contribution and vesting requirements of paragraphs (2) and
(3) shall be treated as met in the case of a simple retirement
account under a qualified salary reduction arrangement (as
defined in section 408(p)(2)) or a cash or deferred arrangement
meeting the requirements of section 401(k)(11).
``(2) Contribution requirements.--
``(A) In general.--The requirements of this
paragraph are met if, under the plan--
``(i) the employer is required to make
nonelective contributions of at least 1 percent
of compensation (or the equivalent thereof in
the case of a defined benefit plan) for each
employee who is not a highly compensated
employee who is eligible to participate in the
plan, and
``(ii) allocations of nonelective employer
contributions, in the case of a defined
contribution plan, are either in equal dollar
amounts for all employees covered by the plan
or bear a uniform relationship to the total
compensation, or the basic or regular rate of
compensation, of the employees covered by the
plan (and an equivalent requirement is met with
respect to a defined benefit plan).
``(B) Compensation limitation.--The compensation
taken into account under subparagraph (A) for any year
shall not exceed the limitation in effect for such year
under section 401(a)(17).
``(3) Vesting requirements.--The requirements of this
paragraph are met if the plan satisfies the requirements of
either of the following subparagraphs:
``(A) 3-year vesting.--A plan satisfies the
requirements of this subparagraph if 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 from employer contributions.
``(B) 5-year graded vesting.--A plan satisfies the
requirements of this subparagraph if an employee has a
nonforfeitable right to a percentage of the employee's
accrued benefit derived from employer contributions
determined under the following table:
The nonforfeitable
``Years of service: percentage is:
1...................................................... 20
2...................................................... 40
3...................................................... 60
4...................................................... 80
5...................................................... 100.
``(4) Distribution requirements.--In the case of a profit-
sharing or stock bonus plan, the requirements of this paragraph
are met if, under the plan, qualified employer contributions
are distributable only as provided in section 401(k)(2)(B).
``(e) Other Definitions.--For purposes of this section--
``(1) Eligible employer.--
``(A) In general.--The term `eligible employer'
means, with respect to any year, an employer which has
no more than 25 employees who received at least $5,000
of compensation from the employer for the preceding
year.
``(B) Requirement for new qualified employer
plans.--Such term shall not include an employer if,
during the 3-taxable year period immediately preceding
the first 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.
``(2) Highly compensated employee.--The term `highly
compensated employee' has the meaning given such term by
section 414(q) (determined without regard to section
414(q)(1)(B)(ii)).
``(f) Special Rules.--
``(1) Disallowance of deduction.--No deduction shall be
allowed for that portion of the qualified employer
contributions paid or incurred for the taxable year which is
equal to the credit determined under subsection (a).
``(2) 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.
``(3) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52, or
subsection (n) or (o) of section 414, shall be treated as one
person. All eligible employer plans shall be treated as 1
eligible employer plan.
``(g) Recapture of Credit on Forfeited Contributions.--
``(1) In general.--Except as provided in paragraph (2), if
any accrued benefit which is forfeitable by reason of
subsection (d)(3) is forfeited, the employer's tax imposed by
this chapter for the taxable year in which the forfeiture
occurs shall be increased by 35 percent of the employer
contributions from which such benefit is derived to the extent
such contributions were taken into account in determining the
credit under this section.
``(2) Reallocated contributions.--Paragraph (1) shall not
apply to any contribution which is reallocated by the employer
under the plan to employees who are not highly compensated
employees.''.
(b) Credit Allowed as Part of General Business Credit.--Section
38(b) (defining current year business credit), as amended by section
102, is amended by striking ``and'' at the end of paragraph (31), by
striking the period at the end of paragraph (32) and inserting ``,
and'', and by adding at the end the following new paragraph:
``(33) in the case of an eligible employer (as defined in
section 45P(e)), the small employer pension plan contribution
credit determined under section 45P(a).''.
(c) Conforming Amendments.--
(1) Subsection (c) of section 196 is amended by striking
``and'' at the end of paragraph (12), by striking the period at
the end of paragraph (13) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(14) the small employer pension plan contribution credit
determined under section 45P(a).''.
(2) The table of sections for subpart D of part IV of
subchapter A of chapter 1, as amended by section 102, is
amended by adding at the end the following new item:
``Sec. 45P. Small employer pension plan contributions.''.
(d) Effective Date.--The amendments made by this section shall
apply to contributions paid or incurred in taxable years beginning
after December 31, 2008.
SEC. 502. DEDUCTION FOR PENSION CONTRIBUTIONS ALLOWED IN COMPUTING NET
EARNINGS FROM SELF-EMPLOYMENT.
(a) In General.--Section 1402(a) (defining net earnings from self-
employment) is amended by striking ``and'' at the end of paragraph
(15), by striking the period at the end of paragraph (16) and inserting
``, and'', and by inserting after paragraph (16) the following new
paragraph:
``(17) any deduction allowed under section 404 by reason of
section 404(a)(8)(C) shall be allowed, except that the amount
of such deduction shall be determined without regard to this
paragraph.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 503. EXEMPTION OF DEFERRAL-ONLY QUALIFIED CASH OR DEFERRED
ARRANGEMENTS FROM TOP-HEAVY PLAN RULES.
(a) In General.--Section 416(g) (defining top-heavy plan) is
amended by adding at the end the following new paragraph:
``(5) Exception for deferral-only cash or deferred
arrangements.--In the case of a plan which consists solely of a
qualified cash or deferred arrangement (as defined in section
401(k)(2)) under which no amounts may be contributed other than
elective deferrals (as defined in section 402(g)(3)), such plan
shall not be treated as a top-heavy plan.''.
(b) Effective Date.--The amendments made by this section shall
apply to years beginning after December 31, 2008.
SEC. 504. EXTENSION OF TIME FOR SMALL PENSION PLANS TO ADOPT REQUIRED
PLAN QUALIFICATION AMENDMENTS.
(a) In General.--In the case of an eligible small plan for which a
remedial amendment period is established under Internal Revenue
Procedure 2005-66 (or any regulation, revenue ruling, revenue
procedure, or guidance providing for a similar period), no amendment to
the plan necessary for the plan to meet the qualification requirements
under the Internal Revenue Code of 1986 shall be required before the
close of such period.
(b) Additional Requirements.--Subsection (a) shall not apply to an
eligible small plan unless--
(1) any amendment described in subsection (a) applies
retroactively to the period during which such amendment would
otherwise have been required to be in effect,
(2) the plan is operated during the period described in
paragraph (1) as if the amendment were in effect, and
(3) the plan meets such requirements as the Secretary of
the Treasury may prescribe to ensure that the Secretary, the
Secretary of Labor, employers maintaining the plan, and
participants and beneficiaries of the plan are adequately
notified of the terms of the plan actually in effect during a
plan year.
(c) Eligible Small Plan.--For purposes of this section--
(1) In general.--The term ``eligible small plan'' means a
plan which, as of the beginning of a remedial amendment or
similar period described in subsection (a), had 100 or fewer
participants. For purposes of this paragraph, all defined
benefit plans which are single-employer plans and are
maintained by the same employer (or any member of such
employer's controlled group) shall be treated as 1 plan, but
only participants with respect to such employer or member shall
be taken into account.
(2) Application of certain rules in determination of plan
size.--For purposes of this subsection--
(A) Plans not in existence in preceding year.--In
the case of the first plan year of any plan,
subparagraph (B) shall apply to such plan by taking
into account the number of participants that the plan
is reasonably expected to have on days during such
first plan year.
(B) Predecessors.--Any reference in paragraph (1)
to an employer shall include a reference to any
predecessor of such employer.
(d) Effective Date.--This section shall apply to amendments
required to be adopted for plan years beginning after December 31,
2007.
TITLE VI--PROVISIONS RELATING TO LONG-TERM CARE INSURANCE
SEC. 601. TREATMENT OF PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE
CONTRACTS.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to additional itemized
deductions) is amended by redesignating section 224 as section 225 and
by inserting after section 223 the following new section:
``SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.
``(a) In General.--In the case of an individual, there shall be
allowed as a deduction an amount equal to the applicable percentage of
the amount of eligible long-term care premiums (as defined in section
213(d)(10)) paid during the taxable year for coverage for the taxpayer
and the taxpayer's spouse and dependents under a qualified long-term
care insurance contract (as defined in section 7702B(b)).
``(b) Applicable Percentage.--For purposes of subsection (a), the
applicable percentage shall be determined in accordance with the
following table:
``For taxable years beginning The applicable
in calendar year-- percentage is--
2008................................................... 25
2009................................................... 35
2010................................................... 65
2011 or thereafter..................................... 100.
``(c) Coordination With Other Deductions.--Any amount paid by a
taxpayer for any qualified long-term care insurance contract to which
subsection (a) applies shall not be taken into account in computing the
amount allowable to the taxpayer as a deduction under section 162(l) or
213(a).''.
(b) Long-Term Care Insurance Permitted to Be Offered Under
Cafeteria Plans and Flexible Spending Arrangements.--
(1) Cafeteria plans.--The last sentence of section 125(f)
of such Code (defining qualified benefits) is amended by
inserting before the period at the end ``; except that such
term shall include the payment of premiums for any qualified
long-term care insurance contract (as defined in section 7702B)
to the extent the amount of such payment does not exceed the
eligible long-term care premiums (as defined in section
213(d)(10)) for such contract''.
(2) Flexible spending arrangements.--Section 106 of such
Code (relating to contributions by an employer to accident and
health plans) is amended by striking subsection (c) and
redesignating subsection (d) as subsection (c).
(c) Conforming Amendments.--
(1) Section 62(a) of such Code is amended by inserting
before the last sentence at the end the following new
paragraph:
``(22) Premiums on qualified long-term care insurance
contracts.--The deduction allowed by section 224.''.
(2) Sections 223(b)(4)(B), 223(d)(4)(C), 223(f)(3)(B),
3231(e)(11), 3306(b)(18), 3401(a)(22), 4973(g)(1), and
4973(g)(2)(B)(i) of such Code are each amended by striking
``section 106(d)'' and inserting ``section 106(c)''.
(3) Section 6041 of such Code is amended--
(A) in subsection (f)(1) by striking ``(as defined
in section 106(c)(2))'', and
(B) by adding at the end the following new
subsection:
``(h) Flexible Spending Arrangement Defined.--For purposes of this
section, a flexible spending arrangement is a benefit program which
provides employees with coverage under which--
``(1) specified incurred expenses may be reimbursed
(subject to reimbursement maximums and other reasonable
conditions), and
``(2) the maximum amount of reimbursement which is
reasonably available to a participant for such coverage is less
than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably available
shall be determined on the basis of the underlying coverage.''.
(4) The table of sections for part VII of subchapter B of
chapter 1 of such Code is amended by striking the last item and
inserting the following new items:
``Sec. 224. Premiums on qualified long-term care insurance contracts.
``Sec. 225. Cross reference''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2007.
(2) Cafeteria plans and flexible spending arrangements.--
The amendments made by subsection (b) shall apply to taxable
years beginning after December 31, 2009.
SEC. 602. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 (relating to nonrefundable
personal credits) is amended by inserting after section 25D the
following new section:
``SEC. 25E. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.
``(a) Allowance of Credit.--
``(1) In general.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the applicable credit amount multiplied by the
number of applicable individuals with respect to whom the
taxpayer is an eligible caregiver for the taxable year.
``(2) Applicable credit amount.--For purposes of paragraph
(1), the applicable credit amount shall be determined in
accordance with the following table:
``For taxable years beginning The applicable
in calendar year-- credit amount is--
2008......................................... $1,000
2009......................................... 1,500
2010......................................... 2,000
2011......................................... 2,500
2012 or thereafter........................... 3,000.
``(b) Limitation Based on Adjusted Gross Income.--
``(1) In general.--The amount of the credit allowable under
subsection (a) shall be reduced (but not below zero) by $100
for each $1,000 (or fraction thereof) by which the taxpayer's
modified adjusted gross income exceeds the threshold amount.
For purposes of the preceding sentence, the term `modified
adjusted gross income' means adjusted gross income increased by
any amount excluded from gross income under section 911, 931,
or 933.
``(2) Threshold amount.--For purposes of paragraph (1), the
term `threshold amount' means--
``(A) $150,000 in the case of a joint return, and
``(B) $75,000 in any other case.
``(3) Indexing.--In the case of any taxable year beginning
in a calendar year after 2008, each dollar amount contained in
paragraph (2) shall be increased by an amount equal to the
product of--
``(A) such dollar amount, and
``(B) the medical care cost adjustment determined
under section 213(d)(10)(B)(ii) for the calendar year
in which the taxable year begins, determined by
substituting `August 2007' for `August 1996' in
subclause (II) thereof.
If any increase determined under the preceding sentence is not
a multiple of $50, such increase shall be rounded to the next
lowest multiple of $50.
``(c) Definitions.--For purposes of this section--
``(1) Applicable individual.--
``(A) In general.--The term `applicable individual'
means, with respect to any taxable year, any individual
who has been certified, before the due date for filing
the return of tax for the taxable year (without
extensions), by a physician (as defined in section
1861(r)(1) of the Social Security Act) as being an
individual with long-term care needs described in
subparagraph (B) for a period--
``(i) which is at least 180 consecutive
days, and
``(ii) a portion of which occurs within the
taxable year.
Notwithstanding the preceding sentence, a certification
shall not be treated as valid unless it is made within
the 39\1/2\ month period ending on such due date (or
such other period as the Secretary prescribes).
``(B) Individuals with long-term care needs.--An
individual is described in this subparagraph if the
individual meets any of the following requirements:
``(i) The individual is at least 6 years of
age and--
``(I) is unable to perform (without
substantial assistance from another
individual) at least 3 activities of
daily living (as defined in section
7702B(c)(2)(B)) due to a loss of
functional capacity, or
``(II) requires substantial
supervision to protect such individual
from threats to health and safety due
to severe cognitive impairment and is
unable to preform, without reminding or
cuing assistance, at least 1 activity
of daily living (as so defined) or to
the extent provided in regulations
prescribed by the Secretary (in
consultation with the Secretary of
Health and Human Services), is unable
to engage in age appropriate
activities.
``(ii) The individual is at least 2 but not
6 years of age and is unable due to a loss of
functional capacity to perform (without
substantial assistance from another individual)
at least 2 of the following activities: eating,
transferring, or mobility.
``(iii) The individual is under 2 years of
age and requires specific durable medical
equipment by reason of a severe health
condition or requires a skilled practitioner
trained to address the individual's condition
to be available if the individual's parents or
guardians are absent.
``(2) Eligible caregiver.--
``(A) In general.--A taxpayer shall be treated as
an eligible caregiver for any taxable year with respect
to the following individuals:
``(i) The taxpayer.
``(ii) The taxpayer's spouse.
``(iii) An individual with respect to whom
the taxpayer is allowed a deduction under
section 151 for the taxable year.
``(iv) An individual who would be described
in clause (iii) for the taxable year if section
152(d)(1)(B) were applied by substituting for
the exemption amount an amount equal to the sum
of the exemption amount, the standard deduction
under section 63(c)(2)(C), and any additional
standard deduction under section 63(c)(3) which
would be applicable to the individual if clause
(iii) applied.
``(v) An individual who would be described
in clause (iii) for the taxable year if--
``(I) the requirements of
subparagraph (B) are met with respect
to the individual in lieu of the
support test of section 152(c)(1)(D) or
152(d)(1)(C), as the case may be, and
``(II) in the case of an individual
who is not a qualifying child (as
defined in section 152(d)) for the
taxable year, the requirements of
clause (iv) are met with respect to the
individual.
``(B) Residency test.--The requirements of this
subparagraph are met if an individual has as his
principal place of abode the home of the taxpayer and--
``(i) in the case of an individual who is
an ancestor or descendant of the taxpayer or
the taxpayer's spouse, is a member of the
taxpayer's household for over half the taxable
year, or
``(ii) in the case of any other individual,
is a member of the taxpayer's household for the
entire taxable year.
``(C) Special rules where more than 1 eligible
caregiver.--
``(i) In general.--If more than 1
individual is an eligible caregiver with
respect to the same applicable individual for
taxable years ending with or within the same
calendar year, a taxpayer shall be treated as
the eligible caregiver if each such individual
(other than the taxpayer) files a written
declaration (in such form and manner as the
Secretary may prescribe) that such individual
will not claim such applicable individual for
the credit under this section.
``(ii) No agreement.--If each individual
required under clause (i) to file a written
declaration under clause (i) does not do so,
the individual with the highest adjusted gross
income shall be treated as the eligible
caregiver.
``(iii) Married individuals filing
separately.--In the case of married individuals
filing separately, the determination under this
subparagraph as to whether the husband or wife
is the eligible caregiver shall be made under
the rules of clause (ii) (whether or not one of
them has filed a written declaration under
clause (i)).
``(d) Identification Requirement.--No credit shall be allowed under
this section to a taxpayer with respect to any applicable individual
unless the taxpayer includes the name and taxpayer identification
number of such individual, and the identification number of the
physician certifying such individual, on the return of tax for the
taxable year.
``(e) Taxable Year Must Be Full Taxable Year.--Except in the case
of a taxable year closed by reason of the death of the taxpayer, no
credit shall be allowable under this section in the case of a taxable
year covering a period of less than 12 months.''.
(b) Conforming Amendments.--
(1) Section 6213(g)(2) of such Code is amended by striking
``and'' at the end of subparagraph (L), by striking the period
at the end of subparagraph (M) and inserting ``, and'', and by
inserting after subparagraph (M) the following new
subparagraph:
``(N) an omission of a correct TIN or physician
identification required under section 25E(d) (relating
to credit for taxpayers with long-term care needs) to
be included on a return.''.
(2) The table of sections for subpart A of part IV of
subchapter A of chapter 1 of such Code is amended by inserting
after the item relating to section 25D the following new item:
``Sec. 25E. Credit for taxpayers with long-term care needs''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2007.
SEC. 603. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.
(a) Additional Protections Applicable to Long-Term Care
Insurance.--Subparagraphs (A) and (B) of section 7702B(g)(2) of the
Internal Revenue Code of 1986 (relating to requirements of model
regulation and Act) are amended to read as follows:
``(A) In general.--The requirements of this
paragraph are met with respect to any contract if such
contract meets--
``(i) Model regulation.--The following
requirements of the model regulation:
``(I) Section 6A (relating to
guaranteed renewal or
noncancellability), other than
paragraph (5) thereof, and the
requirements of section 6B of the model
Act relating to such section 6A.
``(II) Section 6B (relating to
prohibitions on limitations and
exclusions) other than paragraph (7)
thereof.
``(III) Section 6C (relating to
extension of benefits).
``(IV) Section 6D (relating to
continuation or conversion of
coverage).
``(V) Section 6E (relating to
discontinuance and replacement of
policies).
``(VI) Section 7 (relating to
unintentional lapse).
``(VII) Section 8 (relating to
disclosure), other than sections 8F,
8G, 8H, and 8I thereof.
``(VIII) Section 11 (relating to
prohibitions against post-claims
underwriting).
``(IX) Section 12 (relating to
minimum standards).
``(X) Section 13 (relating to
requirement to offer inflation
protection).
``(XI) Section 25 (relating to
prohibition against preexisting
conditions and probationary periods in
replacement policies or certificates).
``(XII) The provisions of section
26 relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
``(ii) Model act.--The following
requirements of the model Act:
``(I) Section 6C (relating to
preexisting conditions).
``(II) Section 6D (relating to
prior hospitalization).
``(III) The provisions of section 8
relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
``(B) Definitions.--For purposes of this
paragraph--
``(i) Model provisions.--The terms `model
regulation' and `model Act' mean the long-term
care insurance model regulation, and the long-
term care insurance model Act, respectively,
promulgated by the National Association of
Insurance Commissioners (as adopted as of
October 2000).
``(ii) Coordination.--Any provision of the
model regulation or model Act listed under
clause (i) or (ii) of subparagraph (A) shall be
treated as including any other provision of
such regulation or Act necessary to implement
the provision.
``(iii) Determination.--For purposes of
this section and section 4980C, the
determination of whether any requirement of a
model regulation or the model Act has been met
shall be made by the Secretary.''.
(b) Excise Tax.--Paragraph (1) of section 4980C(c) of the Internal
Revenue Code of 1986 (relating to requirements of model provisions) is
amended to read as follows:
``(1) Requirements of model provisions.--
``(A) Model regulation.--The following requirements
of the model regulation must be met:
``(i) Section 9 (relating to required
disclosure of rating practices to consumer).
``(ii) Section 14 (relating to application
forms and replacement coverage).
``(iii) Section 15 (relating to reporting
requirements).
``(iv) Section 22 (relating to filing
requirements for marketing).
``(v) Section 23 (relating to standards for
marketing), including inaccurate completion of
medical histories, other than paragraphs (1),
(6), and (9) of section 23C.
``(vi) Section 24 (relating to
suitability).
``(vii) Section 29 (relating to standard
format outline of coverage).
``(viii) Section 30 (relating to
requirement to deliver shopper's guide).
The requirements referred to in clause (vi) shall not
include those portions of the personal worksheet
described in Appendix B relating to consumer protection
requirements not imposed by section 4980C or 7702B.
``(B) Model act.--The following requirements of the
model Act must be met:
``(i) Section 6F (relating to right to
return).
``(ii) Section 6G (relating to outline of
coverage).
``(iii) Section 6H (relating to
requirements for certificates under group
plans).
``(iv) Section 6J (relating to policy
summary).
``(v) Section 6K (relating to monthly
reports on accelerated death benefits).
``(vi) Section 7 (relating to
incontestability period).
``(C) Definitions.--For purposes of this paragraph,
the terms `model regulation' and `model Act' have the
meanings given such terms by section 7702B(g)(2)(B).''.
(c) Effective Date.--The amendments made by this section shall
apply to policies issued more than 1 year after the date of the
enactment of this Act.
SEC. 604. TREATMENT OF EXCHANGES OF LONG-TERM CARE INSURANCE CONTRACTS.
(a) In General.--Subsection (a) of section 1035 of the Internal
Revenue Code of 1986 (relating to exchanges of insurance policies) is
amended by striking the period at the end of paragraph (3) and
inserting ``; or'' and by adding at the end the following new
paragraph:
``(4) a qualified long-term care insurance contract for
another qualified long-term care insurance contract.''.
(b) Qualified Long-Term Care Insurance Contract.--Subsection (b) of
section 1035 of such Code (relating to definitions) is amended by
adding at the end the following new paragraph:
``(4) Qualified long-term care insurance contract.--The
term `qualified long-term care insurance contract' means--
``(A) any qualified long-term care insurance
contract (as defined in section 7702B), and
``(B) any contract which is treated as such by
section 321(f)(2) of the Health Insurance Portability
and Accountability Act of 1996.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to exchanges after December 31, 1997.
(2) Waiver of limitations.--If the credit or refund of any
overpayment of tax with respect to a taxable year ending before
the date of the enactment of this Act resulting from the
application of section 1035(a)(4) of the Internal Revenue Code
of 1986, as added by this section, is prevented at any time by
the operation of any law or rule of law (including res
judicata), such credit or refund may nevertheless be allowed or
made if the claim therefor is filed before the close of the 1-
year period beginning on the date of the enactment of this Act.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Labor, 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 Ways and Means, and in addition to the Committee on Education and Labor, 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 Ways and Means, and in addition to the Committee on Education and Labor, 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.
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