To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to provide for protections with respect to the accrued benefits of participants during conversions of pension plans to cash balance plans.

November 9, 2005

Mrs. JONES of Ohio introduced the following bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to provide for protections with respect to the accrued benefits of participants during conversions of pension plans to cash balance plans.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Preservation of Defined Benefit Plans Act of 2005'.

SEC. 2. RULES RELATING TO REDUCTION IN ACCRUED BENEFITS BECAUSE OF ATTAINMENT OF ANY AGE.

(a) Amendment to Internal Revenue Code of 1986- Subparagraph (H) of section 411(b)(1) of the Internal Revenue Code of 1986 (relating to continued accrual beyond normal retirement age) is amended--

(1) by striking the heading and inserting the following: `RULES RELATING TO REDUCTION IN ACCRUED BENEFITS BECAUSE OF ATTAINMENT OF ANY AGE- '; and

(2) by adding at the end the following:

`(vi) COMPARISON TO SIMILARLY SITUATED, YOUNGER INDIVIDUALS-

`(I) IN GENERAL- A defined benefit plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of an account maintained for the participant shall not be treated as age discriminatory under the rules set forth in this subsection if the participant's accrued benefit under the plan, as determined as of any date under the formula as set forth in the plan documents, would be equal to or greater than that of any similarly situated younger individual.

`(II) SIMILARLY SITUATED INDIVIDUAL- For purposes of this clause, an individual is similarly situated to a participant if such individual is identical to such participant in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age.'.

(b) Amendment to the Employee Retirement Income Security Act of 1974- Section 204(b)(1)(H) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(b)(1)(H)) is amended by adding at the end the following new clause:

`(vii)(I) A defined benefit plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of an account maintained for the participant shall not be treated as age discriminatory under the rules set forth in this subsection if the participant's accrued benefit under the plan, as determined as of any date under the formula as set forth in the plan documents, would be equal to or greater than that of any similarly situated younger individual.

`(II) For purposes of this clause, an individual is similarly situated to a participant if such individual is identical to such participant in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age.'.

(c) Effective Date- The amendments made by this section shall apply to plan years beginning before, on, or after the date of the enactment of this Act.

SEC. 3. DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF BENEFIT ACCOUNT.

(a) Amendment to Internal Revenue Code of 1986- Subsection (a) of section 411 of the Internal Revenue Code of 1986 (relating to minimum vesting standards) is amended by adding at the end the following new paragraph:

`(13) MAINTENANCE OF NONFORFEITABILITY OF BENEFITS EXPRESSED AS ACCOUNT BALANCE-

`(A) IN GENERAL- A defined benefit plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of an account maintained for the participant shall not be treated as failing to meet the requirements of paragraph (2) or 417(e) solely because of the amount actually made available for such distribution under the terms of the plan, in any case in which--

`(i) the applicable interest rate that would be required to discount the participant's accrued benefit projected under the terms of the plan to normal retirement age to a present value equal to the amount actually made available for distribution under the plan is not greater than

`(ii) a market rate of return.

`(B) REGULATIONS- The Secretary may provide by regulation for rules governing the calculation of a market rate of return for purposes of subparagraph (A) and for permissible methods of crediting interest to the account (including variable interest rates) resulting in effective rates of return meeting the requirements of subparagraph (A).'.

(b) Amendment to Employee Retirement Income Security Act of 1974- Section 203 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053) is amended by adding at the end the following new subsection:

`(f)(1) A defined benefit plan under which the accrued benefit payable under the plan upon distribution (or any portion thereof) is expressed as the balance of an account maintained for the participant shall not be treated as failing to meet the requirements of subsection (a)(2) and section 205(g) solely because of the amount actually made available for such distribution under the terms of the plan, in any case in which--

`(A) the applicable interest rate that would be required to discount the participant's accrued benefit projected under the terms of the plan to normal retirement age to a present value equal to the amount actually made available for distribution under the plan is not greater than

`(B) a market rate of return.

`(2) The Secretary of the Treasury may provide by regulation for rules governing the calculation of a market rate of return for purposes of paragraph (1) and for permissible methods of crediting interest to the account (including variable interest rates) resulting in effective rates of return meeting the requirements of paragraph (1).'.

(c) Effective Date- The amendments made by this section shall apply to plan years beginning after the date of the enactment of this Act.

SEC. 4. AGE DISCRIMINATION PROTECTIONS FOR PENSION PLAN PARTICIPANTS FROM CASH BALANCE CONVERSIONS.

(a) Amendment to Internal Revenue Code of 1986- Section 411 of the Internal Revenue Code of 1986 (relating to special rules) is amended by adding at the end the following new subsection:

`(f) Age Discrimination Safe Harbor Rules for Certain Plan Conversions-

`(1) AGE DISCRIMINATION- An applicable plan amendment adopted by a defined benefit plan shall not be treated as satisfying the requirements of this section unless the opening account balance of each participant under the plan after the adoption of the amendment is equal to at least the present value of the participant's retirement benefit at age 65 before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date.

`(2) APPLICABLE PLAN AMENDMENT- For purposes of this subsection, the term `applicable plan amendment' means a plan amendment which has the effect of converting a defined benefit plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations of the Secretary under subsection (b)(1)(I)(iv)).

`(3) SPECIAL TRANSITION RULES-

`(A) IN GENERAL- Paragraph (1) shall not apply with respect to an applicable plan amendment adopted on or after January 1, 1997, and before November 9, 2005, until the date which is 2 years after the date of the enactment of this subsection.

`(B) PARTICIPANTS SEPARATED FROM SERVICE BEFORE ENACTMENT- A participant who is separated from service before November 9, 2005, need not be taken into account for purposes of applying paragraph (1) until the date which is 3 years after the date of the enactment of this subsection.'.

(b) Employee Retirement Income Security Act of 1974- Section 203 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053) is amended by adding at the end the following new subsection:

`(f)(1) An applicable plan amendment adopted by a defined benefit plan shall not be treated as satisfying the requirements of this section unless the opening account balance of each participant under the plan after the adoption of the amendment is equal to at least the present value of the participant's retirement benefit at age 65 before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date.

`(2) For purposes of this subsection, the term `applicable plan amendment' means a plan amendment which has the effect of converting a defined benefit plan to a plan under which the accrued benefit is expressed to participants and beneficiaries as an amount other than an annual benefit commencing at normal retirement age (or which has a similar effect as determined under regulations of the Secretary of the Treasury under subsection (b)(1)(I)(iv)).

`(3)(A) Paragraph (1) shall not apply with respect to an applicable plan amendment adopted on or after January 1, 1997, and before November 9, 2005, until the date which is 2 years after the date of the enactment of this subsection.

`(B) A participant who is separated from service before November 9, 2005, need not be taken into account for purposes of applying paragraph (1) until the date which is 3 years after the date of the enactment of this subsection.'.

(c) Effective Date- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 5. WEAR AWAY PROTECTIONS IN PENSION PLAN CASH BALANCE CONVERSIONS.

(a) Amendment to Internal Revenue Code of 1986- Section 411 of the Internal Revenue Code of 1986 (relating to special rules), as amended by section 4, is amended by adding at the end the following new subsection:

`(g) Treatment of Plan Amendments Wearing Away Accrued Benefit-

`(1) IN GENERAL- An applicable plan amendment adopted by a defined benefit plan shall not be treated as satisfying the requirements of this section unless the applicable plan amendment meets the requirements of paragraphs (2) and (3).

`(2) WEAR AWAY PREVENTED- For purposes of paragraph (1), an applicable plan amendment meets the requirements of this paragraph if, under the terms of the plan after the adoption of the amendment, the accrued benefit of the participant at any time is not less than the sum of--

`(A) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date, plus

`(B) the participant's accrued benefit determined under the formula applicable to benefit accruals under the current plan as applied to years of service after such effective date.

`(3) EMPLOYER CHOICE OF METHOD TO PROTECT CERTAIN PARTICIPANTS- For purposes of paragraph (1), an applicable plan amendment meets the requirements of this paragraph if the plan to be amended provides each participant who has at least 10 years of service (as determined under subsection (a)) under the plan at the time such amendment takes effect and is within 5 years of eligibility for retirement under the plan with one of the following:

`(A) PARTICIPANT ELECTION TO MAINTAIN RATE OF ACCRUAL IN EFFECT BEFORE PLAN AMENDMENT- Each such participant--

`(i) is provided with notice of the plan amendment, including a comparison of the present and projected values of the accrued benefit determined both with and without regard to the plan amendment, and

`(ii) may elect upon retirement to either receive benefits under the terms of the plan as in effect at the time of retirement or to receive benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date).

`(B) BENEFITS OF AMENDED PLAN DO NOT DECREASE- For each such participant, the benefits after the plan amendment takes effect are not less than the greatest benefits the participant would have received by reason of the election described in subparagraph (A)(ii).

`(C) MAINTENANCE OF EFFORT- For each such participant, for at least the first 5 years after the plan amendment takes effect, benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date).

`(4) DEFINITIONS- For purposes of this subsection--

`(A) APPLICABLE PLAN AMENDMENT- The term `applicable plan amendment' has the meaning given such term by subsection (f).

`(B) PROTECTED ACCRUED BENEFIT- An accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of subsection (d)(6)(B)(i)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date.'.

(b) Employee Retirement Income Security Act of 1974- Section 203 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053), as amended by section 4, is amended by adding at the end the following new subsection:

`(g)(1) An applicable plan amendment adopted by a defined benefit plan shall not be treated as satisfying the requirements of this section unless the applicable plan amendment meets the requirements of paragraphs (2) and (3).

`(2) For purposes of paragraph (1), an applicable plan amendment meets the requirements of this paragraph if, under the terms of the plan after the adoption of the amendment, the accrued benefit of the participant at any time is not less than the sum of--

`(A) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect immediately before the effective date, plus

`(B) the participant's accrued benefit determined under the formula applicable to benefit accruals under the current plan as applied to years of service after such effective date.

`(3) For purposes of paragraph (1), an applicable plan amendment meets the requirements of this paragraph if the plan to be amended provides each participant who has at least 10 years of service (as determined under subsection (a)) under the plan at the time such amendment takes effect and is within 5 years of eligibility for retirement under the plan with one of the following:

`(A) Each such participant--

`(i) is provided with notice of the plan amendment, including a comparison of the present and projected values of the accrued benefit determined both with and without regard to the plan amendment, and

`(ii) may elect upon retirement to either receive benefits under the terms of the plan as in effect at the time of retirement or to receive benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date).

`(B) For each such participant, the benefits after the plan amendment takes effect are not less than the greatest benefits the participant would have received by reason of the election described in subparagraph (A)(ii).

`(C) For each such participant, for at least the first 5 years after the plan amendment takes effect, benefits under the terms of the plan as in effect immediately before the effective date of such plan amendment (taking into account all benefit accruals under such terms since such date).

`(4) For purposes of this subsection--

`(A) The term `applicable plan amendment' has the meaning given such term by subsection (f).

`(B) An accrued benefit shall include any early retirement benefit or retirement-type subsidy (within the meaning of subsection (d)(6)(B)(i)), but only with respect to a participant who satisfies (either before or after the effective date of the amendment) the conditions for the benefit or subsidy under the terms of the plan as in effect immediately before such date.'.

(c) Effective Date- The amendments made by this section shall apply with respect to any amendment to a plan adopted after the date of the enactment of this Act.

END