To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to protect the retirement security of American workers by ensuring that pension assets are adequately diversified and by providing workers with adequate access to, and information about, their pension plans, and for other purposes.

May 14, 2004

Mr. GRASSLEY, from the Committee on Finance, reported the following original bill; which was read twice and placed on the calendar

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to protect the retirement security of American workers by ensuring that pension assets are adequately diversified and by providing workers with adequate access to, and information about, their pension plans, 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; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `National Employee Savings and Trust Equity Guarantee Act of 2004'.

(b) TABLE OF CONTENTS-

Sec. 1. Short title; table of contents.

TITLE I--DIVERSIFICATION OF PENSION PLAN ASSETS

Sec. 101. Defined contribution plans required to provide employees with freedom to invest their plan assets.

Sec. 102. Notice of freedom to divest employer securities or real property.

TITLE II--INFORMATION TO ASSIST PENSION PLAN PARTICIPANTS

Sec. 201. Periodic pension benefit statements.

Sec. 202. Defined contribution plans required to provide adequate investment education to participants.

Sec. 203. Material information relating to investment in employer securities.

Sec. 204. Fiduciary rules for plan sponsors designating independent investment advisers.

Sec. 205. Treatment of qualified retirement planning services.

TITLE III--PROTECTION OF PENSION PLAN PARTICIPANTS

Sec. 301. Notice to participants or beneficiaries of blackout periods.

TITLE IV--OTHER PROVISIONS RELATING TO PENSIONS

Subtitle A--Provisions Relating to Pension Plan Funding

Part I--Replacement of Interest Rate on 30-Year Treasury Securities

Sec. 401. Replacement of 30-year Treasury rate for purposes of funding and PBGC premium rates.

Sec. 402. Replacement of 30-year Treasury rate for calculating lump-sum distributions.

Sec. 403. Section 415 limitation on defined benefit plans.

Part II--Other Provisions

Sec. 406. Deficit reduction contribution.

Sec. 407. Deduction limits for plan contributions.

Sec. 408. Benefit limitations for certain financially distressed plans.

Sec. 409. Updating deduction rules for combination of plans.

Subtitle B--Improvements in Portability and Distribution Rules

Sec. 411. Clarifications regarding purchase of permissive service credit.

Sec. 412. Allow rollover of after-tax amounts in annuity contracts.

Sec. 413. Clarification of minimum distribution rules.

Sec. 414. Waiver of 10 percent early withdrawal penalty tax on certain distributions of pension plans for public safety employees.

Sec. 415. Allow rollovers by nonspouse beneficiaries of certain retirement plan distributions.

Sec. 416. Faster vesting of employer nonelective contributions.

Sec. 417. Allow direct rollovers from retirement plans to Roth IRAs.

Sec. 418. Elimination of higher penalty on certain simple plan distributions.

Sec. 419. Simple plan portability.

Sec. 420. Eligibility for participation in retirement plans.

Sec. 421. Transfers to the PBGC.

Subtitle C--Administrative Provisions

Sec. 431. Employee Plans Compliance Resolution System.

Sec. 432. Extension to all governmental plans of moratorium on application of certain nondiscrimination rules applicable to State and local plans.

Sec. 433. Notice and consent period regarding distributions.

Sec. 434. Reporting simplification.

Sec. 435. Missing participants.

Sec. 436. Reduced PBGC premium for new plans of small employers.

Sec. 437. Reduction of additional PBGC premium for new and small plans.

Sec. 438. Authorization for PBGC to pay interest on premium overpayment refunds.

Sec. 439. Substantial owner benefits in terminated plans.

Sec. 440. Voluntary early retirement incentive and employment retention plans maintained by local educational agencies and other entities.

Sec. 441. Acceleration of computation of benefits attributable to recoveries of employer liability.

Sec. 442. Multiemployer plan funding and solvency notices.

Sec. 443. No reduction in unemployment compensation as a result of pension rollovers.

Sec. 444. Withholding on distributions from governmental section 457 plans.

Sec. 445. Minimum cost requirements.

Subtitle D--Studies

Sec. 451. Joint study on revitalizing defined benefit plans.

Sec. 452. Study on floor-offset ESOPs.

Subtitle E--Other Provisions

Sec. 461. Allowance of catchup payments.

Sec. 462. Treatment of distributions by ESOPs with respect to S corporation stock.

Sec. 463. Transfer of excess pension assets to multiemployer health plan.

Subtitle F--Plan Amendments

Sec. 471. Provisions relating to plan amendments.

TITLE V--PROVISIONS RELATING TO EXECUTIVES AND STOCK OPTIONS

Subtitle A--Provisions Relating to Executives

Sec. 501. Repeal of 1978 Revenue Act limitation on Secretary of the Treasury's authority to determine year of inclusion of amounts under private deferred compensation plans.

Sec. 502. Treatment of nonqualified deferred compensation plans.

Sec. 503. Prohibition on deferral of gain from the exercise of stock options and restricted stock gains through deferred compensation arrangements.

Sec. 504. Increase in withholding from supplemental wage payments in excess of $1,000,000.

Subtitle B--Stock Options

Sec. 511. Exclusion of incentive stock options and employee stock purchase plan stock options from wages.

Sec. 512. Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements.

TITLE VI--WOMEN'S PENSION PROTECTION

Sec. 600. Short title.

Subtitle A--Study of Spousal Consent for Distributions From Defined Contribution Plans

Sec. 601. Joint study of application of spousal consent rules to defined contribution plans.

Subtitle B--Division of Pension Benefits Upon Divorce

Sec. 611. Regulations on time and order of issuance of domestic relations orders.

Subtitle C--Railroad Retirement

Sec. 621. Entitlement of divorced spouses to railroad retirement annuities independent of actual entitlement of employee.

Sec. 622. Extension of tier II railroad retirement benefits to surviving former spouses pursuant to divorce agreements.

Subtitle D--Modifications of Joint and Survivor Annuity Requirements

Sec. 631. Requirement for additional survivor annuity option.

TITLE VII--TAX COURT PENSION AND COMPENSATION

Sec. 700. Amendment of 1986 Code.

Sec. 701. Annuities for survivors of Tax Court judges who are assassinated.

Sec. 702. Cost-of-living adjustments for Tax Court judicial survivor annuities.

Sec. 703. Life insurance coverage for Tax Court judges.

Sec. 704. Cost of life insurance coverage for Tax Court judges age 65 or over.

Sec. 705. Modification of timing of lump-sum payment of judges' accrued annual leave.

Sec. 706. Participation of Tax Court judges in the Thrift Savings Plan.

Sec. 707. Exemption of teaching compensation of retired judges from limitation on outside earned income.

Sec. 708. General provisions relating to magistrate judges of the Tax Court.

Sec. 709. Annuities to surviving spouses and dependent children of magistrate judges of the Tax Court.

Sec. 710. Retirement and annuity program.

Sec. 711. Incumbent magistrate judges of the Tax Court.

Sec. 712. Provisions for recall.

Sec. 713. Effective date.

TITLE VIII--OTHER PROVISIONS

Subtitle A--General Provisions

Sec. 801. Certain postsecondary educational benefits provided by an employer to children of employees excludable from gross income under educational assistance programs.

Sec. 802. Exclusion for payments to individuals under National Health Service Corps loan repayment program and certain State loan repayment programs.

Sec. 803. Exclusion for group legal services.

Sec. 804. Transfer of excess funds from black lung disability trusts to United Mine Workers of America Combined Benefit Fund.

Subtitle B--Revenue Provisions

Sec. 811. Application of basis rules to nonresident aliens.

Sec. 812. Treatment of death benefits from corporate-owned life insurance.

Sec. 813. Reporting of taxable mergers and acquisitions.

TITLE I--DIVERSIFICATION OF PENSION PLAN ASSETS

SEC. 101. DEFINED CONTRIBUTION PLANS REQUIRED TO PROVIDE EMPLOYEES WITH FREEDOM TO INVEST THEIR PLAN ASSETS.

(a) AMENDMENTS OF INTERNAL REVENUE CODE-

(1) QUALIFICATION REQUIREMENT- Section 401(a) of the Internal Revenue Code of 1986 (relating to qualified pension, profit-sharing, and stock bonus plans) is amended by inserting after paragraph (34) the following new paragraph:

`(35) DIVERSIFICATION REQUIREMENTS FOR CERTAIN DEFINED CONTRIBUTION PLANS-

`(A) IN GENERAL- A trust which is part of an applicable defined contribution plan shall

not be treated as a qualified trust unless the plan meets the diversification requirements of subparagraphs (B), (C), and (D).

`(B) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS INVESTED IN EMPLOYER SECURITIES OR REAL PROPERTY- In the case of the portion of an applicable individual's account attributable to employee contributions and elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this subparagraph if the applicable individual may elect to direct the plan to divest any such securities or real property and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).

`(C) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER SECURITIES OR REAL PROPERTY- In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities or employer real property, a plan meets the requirements of this subparagraph if each applicable individual who--

`(i) is a participant who has completed at least 3 years of service, or

`(ii) is a beneficiary of a participant described in clause (i) or of a deceased participant,

may elect to direct the plan to divest any such securities or real property and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).

`(D) INVESTMENT OPTIONS-

`(i) IN GENERAL- The requirements of this subparagraph are met if the plan offers not less than 3 investment options, other than employer securities or employer real property, to which an applicable individual may direct the proceeds from the divestment of employer securities or employer real property pursuant to this paragraph, each of which is diversified and has materially different risk and return characteristics.

`(ii) TREATMENT OF CERTAIN RESTRICTIONS AND CONDITIONS-

`(I) TIME FOR MAKING INVESTMENT CHOICES- A plan shall not be treated as failing to meet the requirements of this subparagraph merely because the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly.

`(II) CERTAIN RESTRICTIONS AND CONDITIONS NOT ALLOWED- Except as provided in regulations, a plan shall not meet the requirements of this subparagraph if the plan imposes restrictions or conditions with respect to the investment of employer securities or employer real property which are not imposed on the investment of other assets of the plan. This subclause shall not apply to any restrictions or conditions imposed by reason of the application of securities laws.

`(E) APPLICABLE DEFINED CONTRIBUTION PLAN- For purposes of this paragraph--

`(i) IN GENERAL- The term `applicable defined contribution plan' means any defined contribution plan which holds any publicly traded employer securities.

`(ii) EXCEPTION FOR CERTAIN ESOPS- Such term does not include an employee stock ownership plan if--

`(I) there are no contributions to such plan (or earnings thereunder) which are held within such plan and are subject to subsection (k) or (m), and

`(II) such plan is a separate plan for purposes of section 414(l) with respect to any other defined benefit plan or defined contribution plan maintained by the same employer or employers.

`(iii) EXCEPTION FOR ONE PARTICIPANT PLANS- Such term does not include a one-participant retirement plan.

`(iv) ONE-PARTICIPANT RETIREMENT PLAN- For purposes of clause (iii), the term `one-participant retirement plan' means a retirement plan that--

`(I) on the first day of the plan year covered only one individual (or the individual and the individual's spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or covered only one or more partners (or partners and their spouses) in the plan sponsor,

`(II) meets the minimum coverage requirements of section 410(b) without being combined with any other plan of the business that covers the employees of the business,

`(III) does not provide benefits to anyone except the individual (and the individual's spouse) or the partners (and their spouses),

`(IV) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and

`(V) does not cover a business that uses the services of leased employees (within the meaning of section 414(n)).

For purposes of this clause, the term `partner' includes a 2-percent shareholder (as defined in section 1372(b)) of an S corporation.

`(F) CERTAIN PLANS TREATED AS HOLDING PUBLICLY TRADED EMPLOYER SECURITIES-

`(i) IN GENERAL- Except as provided in regulations or in clause (ii), a plan holding employer securities which are not publicly traded employer securities shall be treated as holding publicly traded employer securities if any employer corporation, or any member of a controlled group of corporations which includes such employer corporation, has issued a class of stock which is a publicly traded employer security.

`(ii) EXCEPTION FOR CERTAIN CONTROLLED GROUPS WITH PUBLICLY TRADED SECURITIES- Clause (i) shall not apply to a plan if--

`(I) no employer corporation, or parent corporation of an employer

corporation, has issued any publicly traded employer security, and

`(II) no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.

`(iii) DEFINITIONS- For purposes of this subparagraph, the term--

`(I) `controlled group of corporations' has the meaning given such term by section 1563(a), except that `50 percent' shall be substituted for `80 percent' each place it appears,

`(II) `employer corporation' means a corporation which is an employer maintaining the plan, and

`(III) `parent corporation' has the meaning given such term by section 424(e).

`(G) OTHER DEFINITIONS- For purposes of this paragraph--

`(i) APPLICABLE INDIVIDUAL- The term `applicable individual' means--

`(I) any participant in the plan, and

`(II) any beneficiary who has an account under the plan with respect to which the beneficiary is entitled to exercise the rights of a participant.

`(ii) ELECTIVE DEFERRAL- The term `elective deferral' means an employer contribution described in section 402(g)(3)(A).

`(iii) EMPLOYER SECURITY- The term `employer security' has the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974.

`(iv) EMPLOYER REAL PROPERTY- The term `employer real property' has the meaning given such term by section 407(d)(2) of the Employee Retirement Income Security Act of 1974.