Securing a Strong Retirement Act of 2021
Summary
Part 1 of Report 117-283 of the 117th Congress, 2d Session, dated March 29, 2022, in which Mr. Neal reports for the Committee on Ways and Means on H.R. 2954, the Securing a Strong Retirement Act of 2021. The bill would increase retirement savings and simplify and clarify retirement plan rules, and the report includes a cost estimate of the Congressional Budget Office and reports favorably with an amendment. A passage near the close on simplified employee pensions says an employee must be eligible to participate if the employee has attained age 21, performed services for the employer in at least three of the preceding five years and received at least $650 in compensation for 2021, and gives $290,000 as the annual compensation limit for SEPs.
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“Securing a Strong Retirement Act of 2021.”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/crpt-crpt-117hrpt283-crpt-117hrpt283-pt1/
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1
117TH CONGRESS REPT. 117–283
" HOUSE OF REPRESENTATIVES !
2d Session Part 1
SECURING A STRONG RETIREMENT ACT OF
2021
R E P O R T
OF THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ON
H.R. 2954
MARCH 29, 2022.—Ordered to be printed
E:\Seals\Congress.#13
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SECURING A STRONG RETIREMENT ACT OF 2021
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117TH CONGRESS REPT. 117–283
" HOUSE OF REPRESENTATIVES !
2d Session Part 1
SECURING A STRONG RETIREMENT ACT OF 2021
MARCH 29, 2022.—Committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
Mr. NEAL, from the Committee on Ways and Means,
submitted the following
R E P O R T
[To accompany H.R. 2954]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 2954) to increase retirement savings, simplify and clarify
retirement plan rules, and for other purposes, having considered
the same, reports favorably thereon with an amendment and rec-
ommends that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND ............................................................... 39
A. Purpose and Summary ..................................................................... 39
B. Background and Need for Legislation ............................................. 39
C. Legislative History ............................................................................ 39
II. EXPLANATION OF THE BILL ................................................................... 41
TITLE I—EXPANDING COVERAGE AND INCREASING RETIREMENT
SAVINGS .............................................................................................................. 41
1. Expanding automatic enrollment in retirement plans (sec. 101
of the bill and sec. 414 of the Code) .............................................. 41
2. Modification of credit for small employer pension plan start-
up costs (sec. 102 of the bill and sec. 45E of the Code) ............... 45
3. Promotion of the Saver’s Credit (sec. 103 of the bill and sec.
25B of the Code) ............................................................................. 47
4. Enhancement of 403(b) plans (sec. 104 of the bill and sec. 403(b)
of the Code) ..................................................................................... 48
5. Increase in age for required beginning date for mandatory dis-
tributions (sec. 105 of the bill and sec. 401(a)(9) of the Code) .... 52
6. Indexing IRA catch-up limit (sec. 106 of the bill and sec. 219
of the Code) ..................................................................................... 55
7. Higher catch-up limit to apply at age 62, 63, and 64 (sec.
107 of the bill and sec. 414(v) of the Code) .................................. 56
8. Multiple employer 403(b) plans (sec. 108 of the bill and secs.
403(b), 6057, 6058 of the Code and secs. 3(43) and 3(44) of
ERISA) ............................................................................................. 58
47–191
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9. Treatment of student loan payments as elective deferrals for
purposes of matching contributions (sec. 109 of the bill and
secs. 401(m), 403(b), 408(p), and 457(b) of the Code) .................. 74
10. Application of credit for small employer pension plan start-
up costs to employers which join an existing plan (sec. 110
of the bill and sec. 45E of the Code) ............................................. 80
11. Military spouse retirement plan eligibility credit for small em-
ployers (sec. 111 of the bill and new sec. 45U of the Code) ........ 82
12. Small immediate financial incentives for contributing to a plan
(sec. 112 of the bill and secs. 401(k), 403(b), and 4975 of
the Code) ......................................................................................... 83
13. Safe harbor for corrections of employee elective deferral failures
(sec. 113 of the bill and sec. 414 of the Code) .............................. 86
14. One-year reduction in period of service requirement for long-
term, part-time workers (sec. 114 of the bill and sec. 401(k)
of the Code) ..................................................................................... 90
TITLE II—PRESERVATION OF INCOME .......................................................... 92
1. Remove required minimum distribution barriers for life annu-
ities (sec. 201 of the bill and sec. 401 of the Code) ...................... 92
2. Qualifying longevity annuity contracts (sec. 202 of the bill) ......... 95
3. Insurance-dedicated exchange-traded funds (sec. 203 of the bill
and sec. 817(h) of the Code) ........................................................... 98
TITLE III—SIMPLIFICATION AND CLARIFICATION OF RETIREMENT
PLAN RULES ....................................................................................................... 101
1. Recovery of retirement plan overpayments (sec. 301 of the bill
and secs. 402 and 414 of the Code, and sec. 206 of ERISA) ....... 101
2. Reduction in excise tax on certain accumulations in qualified
retirement plans (sec. 302 of the bill and sec. 4974 of the
Code) ................................................................................................ 107
3. Performance benchmarks for asset allocation funds (sec. 303
of the bill) ........................................................................................ 108
4. Review and report to the Congress relating to reporting and
disclosure requirements (sec. 304 of the bill) ............................... 111
5. Eliminating unnecessary plan requirements related to
unenrolled participants (sec. 305 of the bill, sec. 414 of the
Code, and new sec. 111 of ERISA) ................................................ 113
6. Retirement savings lost and found (sec. 306 of the bill, secs.
401(a)(31)(B), 402, 408, 411, 6011, 6057, and 6652 of the Code,
and secs. 404, 4005, and new sec. 4051 of ERISA) ...................... 114
7. Expansion of Employee Plans Compliance Resolution System
(sec. 307 of the bill) ........................................................................ 125
8. Eliminate the ‘‘first day of the month’’ requirement for govern-
mental section 457(b) plans (sec. 308 of the bill and sec. 457(b)
of the Code) ..................................................................................... 128
9. One-time election for qualified charitable distribution to split-
interest entity; increase in qualified charitable distribution
limitation (sec. 309 of the bill and sec. 408(d)(8) of the Code) .... 129
10. Distributions to firefighters (sec. 310 of the bill and sec. 72(t)
of the Code) ..................................................................................... 135
11. Exclusion of certain disability-related first responder retire-
ment payments (sec. 311 of the bill and sec. 139C of the
Code) ................................................................................................ 136
12. Individual retirement plan statute of limitations for excise tax
on excess contributions and certain accumulations (sec. 312
of the bill and sec. 6501 of the Code) ............................................ 138
13. Requirement to provide paper statements in certain cases (sec.
313 of the bill and sec. 105 of ERISA) .......................................... 140
14. Separate application of top heavy rules to defined contribution
plans covering excludible employees (sec. 314 of the bill and
sec. 416 of the Code) ....................................................................... 145
15. Repayment of qualified birth or adoption distributions limited
to three years (sec. 315 of the bill and sec. 72 of the Code) ........ 147
16. Employer may rely on employee certifying that deemed hard-
ship distribution conditions are met (sec. 316 of the bill and
secs. 401(k), 403(b), and 457(b) of the Code) ................................ 149
17. Penalty-free withdrawals from retirement plans for individuals
in case of domestic abuse (sec. 317 of the bill and sec. 72(t)
of the Code) ..................................................................................... 152
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18. Reform of family attribution rule (sec. 318 of the bill and
sec. 414 of the Code) ....................................................................... 155
19. Amendments to increase benefit accruals under plan for pre-
vious plan year allowed until employer tax return due date
(sec. 319 of the bill and sec. 401(b) of the Code) .......................... 157
20. Retroactive first year elective deferrals for sole proprietors
(sec. 320 of the bill and sec. 401(b) of the Code) .......................... 159
21. Limiting cessation of IRA treatment to portion of account in-
volved in a prohibited transaction (sec. 321 of the bill and
sec. 408 of the Code) ....................................................................... 160
TITLE IV—TECHNICAL AMENDMENTS ........................................................... 161
1. Amendments relating to Setting Every Community Up for Re-
tirement Enhancement Act of 2019 (sec. 401 of the bill and
secs. 401(a)(9) and 4973 of the Code) ............................................ 161
TITLE V—ADMINISTRATIVE PROVISIONS ...................................................... 162
1. Provisions relating to plan amendments (sec. 501 of the bill) ....... 162
TITLE VI—REVENUE PROVISIONS ................................................................... 164
1. SIMPLE and SEP Roth IRAs (sec. 601 of the bill and secs
408A, 408, 402 of the Code) ........................................................... 164
2. Hardship withdrawal rules for 403(b) plans (sec. 602 of the
bill and sec. 403(b) of the Code) .................................................... 167
3. Elective deferrals generally limited to the regular contribution
limit (sec. 603 of the bill and secs. 414, 402, and 457 of the
Code) ................................................................................................ 167
4. Optional treatment of employer matching contributions as Roth
contributions (sec. 604 of the bill and sec. 402A of the Code) .... 169
III. VOTES OF THE COMMITTEE .................................................................... 171
IV. BUDGET EFFECTS OF THE BILL ............................................................ 171
A. Committee Estimate of Budgetary Effects ...................................... 171
B. Statement Regarding New Budget Authority and Tax Expendi-
tures Budget Authority .................................................................. 176
C. Cost Estimate Prepared by the Congressional Budget Office ....... 176
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF
THE HOUSE .............................................................................................. 184
A. Committee Oversight Findings and Recommendations ................. 184
B. Statement of General Performance Goals and Objectives ............. 185
C. Information Relating to Unfunded Mandates ................................ 185
D. Applicability of House Rule XXI, Clause 5(b) ................................. 185
E. Tax Complexity Analysis .................................................................. 185
1. Increase in age for required beginning date for mandatory
distributions (sec. 105 of the bill) ........................................... 185
2. Repayment of qualified birth or adoption distribution limited
to three years (sec. 315 of the bill) ......................................... 186
F. Congressional Earmarks, Limited Tax Benefits, and Limited
Tariff Benefits ................................................................................. 187
G. Duplication of Federal Programs ..................................................... 187
H. Hearings ............................................................................................ 187
VI. CHANGES IN EXISTING LAW MADE BY THE BILL ............................. 187
A. Text of Existing Law Repealed by the Bill ..................................... 187
B. Changes in Existing Law Proposed by the Bill .............................. 188
The amendment is as follows:
Strike all after the enacting clause and insert the following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Securing a Strong Retirement
Act of 2021’’.
(b) TABLE OF CONTENTS.—The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—EXPANDING COVERAGE AND INCREASING RETIREMENT SAVINGS
Sec. 101. Expanding automatic enrollment in retirement plans.
Sec. 102. Modification of credit for small employer pension plan startup costs.
Sec. 103. Promotion of Saver’s Credit.
Sec. 104. Enhancement of 403(b) plans.
Sec. 105. Increase in age for required beginning date for mandatory distributions.
Sec. 106. Indexing IRA catch-up limit.
Sec. 107. Higher catch-up limit to apply at age 62, 63, and 64.
Sec. 108. Multiple employer 403(b) plans.
Sec. 109. Treatment of student loan payments as elective deferrals for purposes of matching contributions.
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Sec. 110. Application of credit for small employer pension plan startup costs to employers which join an existing
plan.
Sec. 111. Military spouse retirement plan eligibility credit for small employers.
Sec. 112. Small immediate financial incentives for contributing to a plan.
Sec. 113. Safe harbor for corrections of employee elective deferral failures.
Sec. 114. One-year reduction in period of service requirement for long-term, part-time workers.
Sec. 115. Findings relating to S corporation ESOPs.
TITLE II—PRESERVATION OF INCOME
Sec. 201. Remove required minimum distribution barriers for life annuities.
Sec. 202. Qualifying longevity annuity contracts.
Sec. 203. Insurance-dedicated exchange-traded funds.
TITLE III—SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
Sec. 301. Recovery of retirement plan overpayments.
Sec. 302. Reduction in excise tax on certain accumulations in qualified retirement plans.
Sec. 303. Performance benchmarks for asset allocation funds.
Sec. 304. Review and report to the Congress relating to reporting and disclosure requirements.
Sec. 305. Eliminating unnecessary plan requirements related to unenrolled participants.
Sec. 306. Retirement savings lost and found.
Sec. 307. Expansion of Employee Plans Compliance Resolution System.
Sec. 308. Eliminate the ‘‘first day of the month’’ requirement for governmental section 457(b) plans.
Sec. 309. One-time election for qualified charitable distribution to split-interest entity; increase in qualified
charitable distribution limitation.
Sec. 310. Distributions to firefighters.
Sec. 311. Exclusion of certain disability-related first responder retirement payments.
Sec. 312. Individual retirement plan statute of limitations for excise tax on excess contributions and certain
accumulations.
Sec. 313. Requirement to provide paper statements in certain cases.
Sec. 314. Separate application of top heavy rules to defined contribution plans covering excludible employees.
Sec. 315. Repayment of qualified birth or adoption distribution limited to 3 years.
Sec. 316. Employer may rely on employee certifying that deemed hardship distribution conditions are met.
Sec. 317. Penalty-free withdrawals from retirement plans for individuals in case of domestic abuse.
Sec. 318. Reform of family attribution rule.
Sec. 319. Amendments to increase benefit accruals under plan for previous plan year allowed until employer
tax return due date.
Sec. 320. Retroactive first year elective deferrals for sole proprietors.
Sec. 321. Limiting cessation of IRA treatment to portion of account involved in a prohibited transaction.
TITLE IV—TECHNICAL AMENDMENTS
Sec. 401. Amendments relating to Setting Every Community Up for Retirement Enhancement Act of 2019.
TITLE V—ADMINISTRATIVE PROVISIONS
Sec. 501. Provisions relating to plan amendments.
TITLE VI—REVENUE PROVISIONS
Sec. 601. Simple and SEP Roth IRAs.
Sec. 602. Hardship withdrawal rules for 403(b) plans.
Sec. 603. Elective deferrals generally limited to regular contribution limit.
Sec. 604. Optional treatment of employer matching contributions as Roth contributions.
TITLE I—EXPANDING COVERAGE AND
INCREASING RETIREMENT SAVINGS
SEC. 101. EXPANDING AUTOMATIC ENROLLMENT IN RETIREMENT PLANS.
(a) IN GENERAL.—Subpart B of part I of subchapter D of chapter 1 of the Internal
Revenue Code of 1986 is amended by inserting after section 414 the following new
section:
‘‘SEC. 414A. REQUIREMENTS RELATED TO AUTOMATIC ENROLLMENT.
‘‘(a) IN GENERAL.—Except as otherwise provided in this section—
‘‘(1) an arrangement shall not be treated as a qualified cash or deferred ar-
rangement described in section 401(k) unless such arrangement meets the auto-
matic enrollment requirements of subsection (b), and
‘‘(2) an annuity contract otherwise described in section 403(b)(1) which is pur-
chased under a salary reduction agreement shall not be treated as described in
such section unless such agreement meets the automatic enrollment require-
ments of subsection (b).
‘‘(b) AUTOMATIC ENROLLMENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—An arrangement or agreement meets the requirements of
this subsection if such arrangement or agreement is an eligible automatic con-
tribution arrangement (as defined in section 414(w)(3)) which meets the require-
ments of paragraphs (2) through (4).
‘‘(2) ALLOWANCE OF PERMISSIBLE WITHDRAWALS.—An eligible automatic con-
tribution arrangement meets the requirements of this paragraph if such ar-
rangement allows employees to make permissible withdrawals (as defined in
section 414(w)(2)).
‘‘(3) MINIMUM CONTRIBUTION PERCENTAGE.—
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‘‘(A) IN GENERAL.—An eligible automatic contribution arrangement meets
the requirements of this paragraph if—
‘‘(i) the uniform percentage of compensation contributed by the par-
ticipant under such arrangement during the first year of participation
is not less than 3 percent and not more than 10 percent (unless the
participant specifically elects not to have such contributions made or to
have such contributions made at a different percentage), and
‘‘(ii) effective for the first day of each plan year starting after each
completed year of participation under such arrangement such uniform
percentage is increased by 1 percentage point (to at least 10 percent,
but not more than 15 percent) unless the participant specifically elects
not to have such contributions made or to have such contributions
made at a different percentage.
‘‘(B) INITIAL REDUCED CEILING FOR CERTAIN PLANS.—In the case of any ar-
rangement to which this section applies (other than an arrangement that
meets the requirements of paragraph (12) or (13) of section 401(k)), for plan
years ending before January 1, 2025, subparagraph (A)(ii) shall be applied
by substituting ‘10 percent’ for ‘15 percent’.
‘‘(4) INVESTMENT REQUIREMENTS.—An eligible automatic contribution arrange-
ment meets the requirements of this paragraph if amounts contributed pursu-
ant to such arrangement, and for which no investment is elected by the partici-
pant, are invested consistent with the requirements of section 2550.404c-5 of
title 29, Code of Federal Regulations (or any successor regulations).
‘‘(c) EXCEPTIONS.—For purposes of this section—
‘‘(1) SIMPLE PLANS.—Subsection (a) shall not apply to any simple plan (within
the meaning of section 401(k)(11)).
‘‘(2) EXCEPTION FOR PLANS OR ARRANGEMENTS ESTABLISHED BEFORE ENACT-
MENT OF SECTION.—
‘‘(A) IN GENERAL.—Subsection (a) shall not apply to—
‘‘(i) any qualified cash or deferred arrangement established before the
date of the enactment of this section, or
‘‘(ii) any annuity contract purchased under a plan established before
the date of the enactment of this section.
‘‘(B) POST-ENACTMENT ADOPTION OF MULTIPLE EMPLOYER PLAN.—Subpara-
graph (A) shall not apply in the case of an employer adopting after such
date of enactment a plan maintained by more than one employer, and sub-
section (a) shall apply with respect to such employer as if such plan were
a single plan.
‘‘(3) EXCEPTION FOR GOVERNMENTAL AND CHURCH PLANS.—Subsection (a) shall
not apply to any governmental plan (within the meaning of section 414(d)) or
any church plan (within the meaning of section 414(e)).
‘‘(4) EXCEPTION FOR NEW AND SMALL BUSINESSES.—
‘‘(A) NEW BUSINESS.—Subsection (a) shall not apply to any qualified cash
or deferred arrangement, or any annuity contract purchased under a plan,
while the employer maintaining such plan (and any predecessor employer)
has been in existence for less than 3 years.
‘‘(B) SMALL BUSINESSES.—Subsection (a) shall not apply to any qualified
cash or deferred arrangement, any annuity contract purchased under a
plan, earlier than the date that is 1 year after the close of the first taxable
year with respect to which the employer maintaining the plan normally em-
ployed more than 10 employees.
‘‘(C) TREATMENT OF MULTIPLE EMPLOYER PLANS.—In the case of a plan
maintained by more than 1 employer, subparagraphs (A) and (B) shall be
applied separately with respect to each such employer, and all such employ-
ers to which subsection (a) applies (after the application of this paragraph)
shall be treated as maintaining a separate plan for purposes of this sec-
tion.’’.
(b) CLERICAL AMENDMENT.—The table of sections for subpart B of part I of sub-
chapter D of chapter 1 of the Internal Revenue Code of 1986 is amended by insert-
ing after the item relating to section 414 the following new item:
‘‘Sec. 414A. Requirements related to automatic enrollment.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning after December 31, 2022.
SEC. 102. MODIFICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
(a) INCREASE IN CREDIT PERCENTAGE FOR SMALLER EMPLOYERS.—Section 45E(e)
of the Internal Revenue Code of 1986 is amended by adding at the end the following
new paragraph:
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‘‘(4) INCREASED CREDIT FOR CERTAIN SMALL EMPLOYERS.—In the case of an em-
ployer which would be an eligible employer under subsection (c) if section
408(p)(2)(C)(i) was applied by substituting ‘50 employees’ for ‘100 employees’,
subsection (a) shall be applied by substituting ‘100 percent’ for ‘50 percent’.’’.
(b) ADDITIONAL CREDIT FOR EMPLOYER CONTRIBUTIONS BY CERTAIN SMALL EM-
PLOYERS.—Section 45E of such Code, as amended by subsection (a), is amended by
adding at the end the following new subsection:
‘‘(f) ADDITIONAL CREDIT FOR EMPLOYER CONTRIBUTIONS BY CERTAIN ELIGIBLE EM-
PLOYERS.—
‘‘(1) IN GENERAL.—In the case of an eligible employer, the credit allowed for
the taxable year under subsection (a) (determined without regard to this sub-
section) shall be increased by an amount equal to the applicable percentage of
employer contributions (other than any elective deferrals (as defined in section
402(g)(3)) by the employer to an eligible employer plan (other than a defined
benefit plan (as defined in section 414(j))).
‘‘(2) LIMITATIONS.—
‘‘(A) DOLLAR LIMITATION.—The amount determined under paragraph (1)
(before the application of subparagraph (B)) with respect to any employee
of the employer shall not exceed $1,000.
‘‘(B) CREDIT PHASE-IN.—In the case of any eligible employer which had for
the preceding taxable year more than 50 employees, the amount deter-
mined under paragraph (1) (without regard to this subparagraph) shall be
reduced by an amount equal to the product of—
‘‘(i) the amount otherwise so determined under paragraph (1), multi-
plied by
‘‘(ii) a percentage equal to 2 percentage points for each employee of
the employer for the preceding taxable year in excess of 50 employees.
‘‘(3) APPLICABLE PERCENTAGE.—For purposes of this section, the applicable
percentage for the taxable year during which the eligible employer plan is es-
tablished with respect to the eligible employer shall be 100 percent, and for tax-
able years thereafter shall be determined under the following table:
‘‘In the case of the following taxable year begin- The applicable percentage shall be:
ning after the taxable year during which
plan is established with respect to the eligi-
ble employer:
1st ............................................................................................................................................................. 100%
2nd ............................................................................................................................................................ 75%
3rd ............................................................................................................................................................. 50%
4th ............................................................................................................................................................. 25%
Any taxable year thereafter .................................................................................................................... 0%
‘‘(4) DETERMINATION OF ELIGIBLE EMPLOYER; NUMBER OF EMPLOYEES.—For
purposes of this subsection, whether an employer is an eligible employer and
the number of employees of an employer shall be determined under the rules
of subsection (c), except that paragraph (2) thereof shall only apply to the tax-
able year during which the eligible employer plan to which this section applies
is established with respect to the eligible employer.’’.
(c) DISALLOWANCE OF DEDUCTION.—Section 45E(e)(2) of such Code is amended to
read as follows:
‘‘(2) DISALLOWANCE OF DEDUCTION.—No deduction shall be allowed—
‘‘(A) for that portion of the qualified startup costs paid or incurred for the
taxable year which is equal to so much of the portion of the credit deter-
mined under subsection (a) as is properly allocable to such costs, and
‘‘(B) for that portion of the employer contributions by the employer for the
taxable year which is equal to so much of the credit increase determined
under subsection (f) as is properly allocable to such contributions.’’.
(d) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2021.
SEC. 103. PROMOTION OF SAVER’S CREDIT.
(a) IN GENERAL.—The Secretary of the Treasury shall take such steps as the Sec-
retary determines are necessary and appropriate to increase public awareness of the
credit provided under section 25B of the Internal Revenue Code of 1986.
(b) REPORT TO CONGRESS.—
(1) IN GENERAL.—Not later than 90 days after the date of the enactment of
this Act, the Secretary shall provide a report to Congress to summarize the an-
ticipated promotion efforts of the Treasury under subsection (a).
(2) CONTENTS.—Such report shall include—
(A) a description of plans for—
(i) the development and distribution of digital and print materials,
including the distribution of such materials to States for participants
in State facilitated retirement savings programs, and
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(ii) the translation of such materials into the 10 most commonly spo-
ken languages in the United States after English (as determined by ref-
erence to the most recent American Community Survey of the Bureau
of the Census), and
(B) such other information as the Secretary determines is necessary
SEC. 104. ENHANCEMENT OF 403(b) PLANS.
(a) IN GENERAL.—
(1) PERMITTED INVESTMENTS.—Section 403(b)(7)(A) of the Internal Revenue
Code of 1986 is amended by striking ‘‘if the amounts are to be invested in regu-
lated investment company stock to be held in that custodial account’’ and insert-
ing ‘‘if the amounts are to be held in that custodial account and invested in reg-
ulated investment company stock or a group trust intended to satisfy the re-
quirements of Internal Revenue Service Revenue Ruling 81–100 (or any suc-
cessor guidance)’’.
(2) CONFORMING AMENDMENT.—The heading of paragraph (7) of section 403(b)
of such Code is amended by striking ‘‘FOR REGULATED INVESTMENT COMPANY
STOCK’’.
(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply
to amounts invested after December 31, 2021.
(b) AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940.—Section 3(c)(11) of
the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(11)) is amended to read
as follows:
‘‘(11) Any—
‘‘(A) employee’s stock bonus, pension, or profit-sharing trust which meets
the requirements for qualification under section 401 of the Internal Rev-
enue Code of 1986;
‘‘(B) custodial account meeting the requirements of section 403(b)(7) of
such Code;
‘‘(C) governmental plan described in section 3(a)(2)(C) of the Securities
Act of 1933;
‘‘(D) collective trust fund maintained by a bank consisting solely of assets
of one or more—
‘‘(i) trusts described in subparagraph (A);
‘‘(ii) government plans described in subparagraph (C);
‘‘(iii) church plans, companies, or accounts that are excluded from the
definition of an investment company under paragraph (14) of this sub-
section; or
‘‘(iv) plans which meet the requirements of section 403(b) of the In-
ternal Revenue Code of 1986 if—
‘‘(I) such plan is subject to title I of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1001 et seq.);
‘‘(II) any employer making such plan available agrees to serve as
a fiduciary for the plan with respect to the selection of the plan’s
investments among which participants can choose; or
‘‘(III) such plan is a governmental plan (as defined in section
414(d) of such Code); or
‘‘(E) separate account the assets of which are derived solely from—
‘‘(i) contributions under pension or profit-sharing plans which meet
the requirements of section 401 of the Internal Revenue Code of 1986
or the requirements for deduction of the employer’s contribution under
section 404(a)(2) of such Code;
‘‘(ii) contributions under governmental plans in connection with
which interests, participations, or securities are exempted from the reg-
istration provisions of section 5 of the Securities Act of 1933 by section
3(a)(2)(C) of such Act;
‘‘(iii) advances made by an insurance company in connection with the
operation of such separate account; and
‘‘(iv) contributions to a plan described in subparagraph (D)(iv).’’.
(c) AMENDMENTS TO THE SECURITIES ACT OF 1933.—Section 3(a)(2) of the Securi-
ties Act of 1933 (15 U.S.C. 77c(a)(2)) is amended—
(1) by striking ‘‘or (D)’’ and inserting ‘‘(D) a plan which meets the require-
ments of section 403(b) of such Code if (i) such plan is subject to title I of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), (ii)
any employer making such plan available agrees to serve as a fiduciary for the
plan with respect to the selection of the plan’s investments among which par-
ticipants can choose, or (iii) such plan is a governmental plan (as defined in sec-
tion 414(d) of such Code); or (E)’’;
(2) by striking ‘‘(C), or (D)’’ and inserting ‘‘(C), (D), or (E)’’; and
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(3) by striking ‘‘(iii) which is a plan funded’’ and inserting ‘‘(iii) in the case
of a plan not described in subparagraph (D), which is a plan funded’’.
(d) AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(12)(C)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(C)) is amended—
(1) by striking ‘‘or (iv)’’ and inserting ‘‘(iv) a plan which meets the require-
ments of section 403(b) of such Code if (I) such plan is subject to title I of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), (II)
any employer making such plan available agrees to serve as a fiduciary for the
plan with respect to the selection of the plan’s investments among which par-
ticipants can choose, or (III) such plan is a governmental plan (as defined in
section 414(d) of such Code), or (v)’’;
(2) by striking ‘‘(ii), or (iii)’’ and inserting ‘‘(ii), (iii), or (iv)’’; and
(3) by striking ‘‘(II) is a plan funded’’ and inserting ‘‘(II) in the case of a plan
not described in clause (iv), is a plan funded’’.
SEC. 105. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY DISTRIBU-
TIONS.
(a) IN GENERAL.—Section 401(a)(9)(C)(i)(I) of the Internal Revenue Code of 1986
is amended by striking ‘‘age 72’’ and inserting ‘‘the applicable age’’.
(b) SPOUSE BENEFICIARIES; SPECIAL RULE FOR OWNERS.—Subparagraphs (B)(iv)(I)
and (C)(ii)(I) of section 401(a)(9) of such Code are each amended by striking ‘‘age
72’’ and inserting ‘‘the applicable age’’.
(c) APPLICABLE AGE.—Section 401(a)(9)(C) of such Code is amended by adding at
the end the following new clause:
‘‘(v) APPLICABLE AGE.—
‘‘(I) In the case of an individual who attains age 72 after Decem-
ber 31, 2021, and age 73 before January 1, 2029, the applicable age
is 73.
‘‘(II) In the case of an individual who attains age 73 after Decem-
ber 31, 2028, and age 74 before January 1, 2032, the applicable age
is 74.
‘‘(III) In the case of an individual who attains age 74 after De-
cember 31, 2031, the applicable age is 75.’’.
(d) CONFORMING AMENDMENTS.—The last sentence of section 408(b) of such Code
is amended by striking ‘‘age 72’’ and inserting ‘‘the applicable age (determined under
section 401(a)(9)(C)(v) for the calendar year in which such taxable year begins)’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to dis-
tributions required to be made after December 31, 2021, with respect to individuals
who attain age 72 after such date.
SEC. 106. INDEXING IRA CATCH-UP LIMIT.
(a) IN GENERAL.—Subparagraph (C) of section 219(b)(5) of the Internal Revenue
Code of 1986 is amended by adding at the end the following new clause:
‘‘(iii) INDEXING OF CATCH-UP LIMITATION.—In the case of any taxable
year beginning in a calendar year after 2022, the $1,000 amount under
subparagraph (B)(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, de-
termined by substituting ‘calendar year 2021’ for ‘calendar year
2016’ in subparagraph (A)(ii) thereof.
If any amount after adjustment under the preceding sentence is not a
multiple of $100, such amount shall be rounded to the next lower mul-
tiple of $100.’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2022.
SEC. 107. HIGHER CATCH-UP LIMIT TO APPLY AT AGE 62, 63, AND 64.
(a) IN GENERAL.—
(1) PLANS OTHER THAN SIMPLE PLANS.—Section 414(v)(2)(B)(i) of the Internal
Revenue Code of 1986 is amended by inserting the following before the period:
‘‘($10,000, in the case of an eligible participant who has attained age 62, but
not age 65, before the close of the taxable year)’’.
(2) SIMPLE PLANS.—Section 414(v)(2)(B)(ii) of such Code is amended by insert-
ing the following before the period: ‘‘($5,000, in the case of an eligible partici-
pant who has attained age 62, but not age 65, before the close of the taxable
year)’’.
(b) COST-OF-LIVING ADJUSTMENTS.—Subparagraph (C) of section 414(v)(2) of such
Code is amended by adding at the end the following: ‘‘In the case of a year begin-
ning after December 31, 2022, the Secretary shall adjust annually the $10,000
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9
amount in subparagraph (B)(i) and the $5,000 amount in subparagraph (B)(ii) for
increases in the cost-of-living at the same time and in the same manner as adjust-
ments under the preceding sentence; except that the base period taken into account
shall be the calendar quarter beginning July 1, 2021.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2022.
SEC. 108. MULTIPLE EMPLOYER 403(b) PLANS.
(a) IN GENERAL.—Section 403(b) of the Internal Revenue Code of 1986 is amended
by adding at the end the following new paragraph:
‘‘(15) MULTIPLE EMPLOYER PLANS.—
‘‘(A) IN GENERAL.—Except in the case of a church plan, this subsection
shall not be treated as failing to apply to an annuity contract solely by rea-
son of such contract being purchased under a plan maintained by more
than 1 employer.
‘‘(B) TREATMENT OF EMPLOYERS FAILING TO MEET REQUIREMENTS OF
PLAN.—
‘‘(i) IN GENERAL.—In the case of a plan maintained by more than 1
employer, this subsection shall not be treated as failing to apply to an
annuity contract held under such plan merely because of one or more
employers failing to meet the requirements of this subsection if such
plan satisfies rules similar to the rules of section 413(e)(2) with respect
to any such employer failure.
‘‘(ii) ADDITIONAL REQUIREMENTS IN CASE OF NON-GOVERNMENTAL
PLANS.—A plan shall not be treated as meeting the requirements of this
subparagraph unless the plan meets the requirements of subparagraph
(A) or (B) of section 413(e)(1), except in the case of a multiple employer
plan maintained solely by any of the following: A State, a political sub-
division of a State, or an agency or instrumentality of any one or more
of the foregoing.’’.
(b) ANNUAL REGISTRATION FOR 403(b) MULTIPLE EMPLOYER PLAN.—Section 6057
of such Code is amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
‘‘(g) 403(b) MULTIPLE EMPLOYER PLANS TREATED AS ONE PLAN.—In the case of an-
nuity contracts to which this section applies and to which section 403(b) applies by
reason of the plan under which such contracts are purchased meeting the require-
ments of paragraph (15) thereof, such plan shall be treated as a single plan for pur-
poses of this section.’’.
(c) ANNUAL INFORMATION RETURNS FOR 403(b) MULTIPLE EMPLOYER PLAN.—Sec-
tion 6058 of the Internal Revenue Code of 1986 is amended by redesignating sub-
section (f) as subsection (g) and by inserting after subsection (e) the following new
subsection:
‘‘(f) 403(b) MULTIPLE EMPLOYER PLANS TREATED AS ONE PLAN.—In the case of an-
nuity contracts to which this section applies and to which section 403(b) applies by
reason of the plan under which such contracts are purchased meeting the require-
ments of paragraph (15) thereof, such plan shall be treated as a single plan for pur-
poses of this section.’’.
(d) AMENDMENTS TO EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—
(1) TREATED AS POOLED EMPLOYER PLAN.—
(A) IN GENERAL.—Section 3(43)(A) of the Employee Retirement Income
Security Act of 1974 is amended—
(i) in clause (ii), by striking ‘‘section 501(a) of such Code or’’ and in-
serting ‘‘501(a) of such Code, a plan that consists of contracts described
in section 403(b) of such Code, or’’; and
(ii) in the flush text at the end, by striking ‘‘the plan.’’ and inserting
‘‘the plan, but such term shall include any program (other than a gov-
ernmental plan) maintained for the benefit of the employees of more
than 1 employer that consists of contracts described in section 403(b)
of such Code and that meets the requirements of subparagraph (A) or
(B) of section 413(e)(1) of such Code.’’.
(B) CONFORMING AMENDMENTS.—Sections 3(43)(B)(v)(II) and 3(44)(A)(i)(I)
of such Act are each amended by striking ‘‘section 401(a) of such Code or’’
and inserting ‘‘401(a) of such Code, a plan that consists of contracts de-
scribed in section 403(b) of such Code, or’’.
(2) FIDUCIARIES.—Section 3(43)(B)(ii) of such Act is amended—
(A) by striking ‘‘trustees meeting the requirements of section 408(a)(2) of
the Internal Revenue Code of 1986’’ and inserting ‘‘trustees (or other fidu-
ciaries in the case of a plan that consists of contracts described in section
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10
403(b) of the Internal Revenue Code of 1986) meeting the requirements of
section 408(a)(2) of such Code’’, and
(B) by striking ‘‘holding’’ and inserting ‘‘holding (or causing to be held
under the terms of a plan consisting of such contracts)’’.
(e) REGULATIONS RELATING TO PLAN TERMINATION.—The Secretary of the Treas-
ury (or the Secretary’s designee) shall prescribe such regulations as may be nec-
essary to clarify the treatment of a plan termination by an employer in the case
of plans to which section 403(b)(15) of such Code applies.
(f) MODIFICATION OF MODEL PLAN LANGUAGE. ETC.—
(1) PLAN NOTIFICATIONS.—The Secretary of the Treasury (or the Secretary’s
designee) shall modify the model plan language published under section
413(e)(5) of the Internal Revenue Code of 1986 to include language which noti-
fies participating employers described in section 501(c)(3), and which are ex-
empt from tax under section 501(a), that the plan is subject to the Employee
Retirement Income Security Act of 1974 and that such employer is a plan spon-
sor with respect to its employees participating in the multiple employer plan
and, as such, has certain fiduciary duties with respect to the plan and to its
employees.
(2) MODEL PLANS FOR MULTIPLE EMPLOYER 403(b) NON-GOVERNMENTAL
PLANS.—For plans to which section 403(b)(15)(A) of the Internal Revenue Code
of 1986 applies (other than a plan maintained for its employees by a State, a
political subdivision of a State, or an agency or instrumentality of any one or
more of the foregoing) the Secretary shall publish model plan language similar
to model plan language published under section 413(e)(5) of such Code.
(3) EDUCATIONAL OUTREACH TO EMPLOYERS EXEMPT FROM TAX.—The Secretary
shall provide education and outreach to increase awareness to employers de-
scribed in section 501(c)(3), and which are exempt from tax under section
501(a), that multiple employer plans are subject to the Employee Retirement In-
come Security Act of 1974 and that such employer is a plan sponsor with re-
spect to its employees participating in the multiple employer plan and, as such,
has certain fiduciary duties with respect to the plan and to its employees.
(g) NO INFERENCE WITH RESPECT TO CHURCH PLANS.—Regarding any application
of section 403(b) of the Internal Revenue Code of 1986 to an annuity contract pur-
chased under a church plan (as defined in section 414(e) of such Code) maintained
by more than 1 employer, or to any application of rules similar to section 413(e) of
such Code to such a plan, no inference shall be made from section 403(b)(15)(A) of
such Code (as added by this Act) not applying to such plans.
(h) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section shall apply to plan
years beginning after December 31, 2021.
(2) RULE OF CONSTRUCTION.—Nothing in the amendments made by subsection
(a) shall be construed as limiting the authority of the Secretary of the Treasury
or the Secretary’s delegate (determined without regard to such amendment) to
provide for the proper treatment of a failure to meet any requirement applicable
under such Code with respect to one employer (and its employees) in the case
of a plan to which section 403(b)(15) applies.
SEC. 109. TREATMENT OF STUDENT LOAN PAYMENTS AS ELECTIVE DEFERRALS FOR PUR-
POSES OF MATCHING CONTRIBUTIONS.
(a) IN GENERAL.—Section 401(m)(4)(A) of the Internal Revenue Code of 1986 is
amended by striking ‘‘and’’ at the end of clause (i), by striking the period at the end
of clause (ii) and inserting ‘‘, and’’, and by adding at the end the following new
clause:
‘‘(iii) subject to the requirements of paragraph (13), any employer
contribution made to a defined contribution plan on behalf of an em-
ployee on account of a qualified student loan payment.’’.
(b) QUALIFIED STUDENT LOAN PAYMENT.—Section 401(m)(4) of such Code is
amended by adding at the end the following new subparagraph:
‘‘(D) QUALIFIED STUDENT LOAN PAYMENT.—The term ‘qualified student
loan payment’ means a payment made by an employee in repayment of a
qualified education loan (as defined section 221(d)(1)) incurred by the em-
ployee to pay qualified higher education expenses, but only—
‘‘(i) to the extent such payments in the aggregate for the year do not
exceed an amount equal to—
‘‘(I) the limitation applicable under section 402(g) for the year
(or, if lesser, the employee’s compensation (as defined in section
415(c)(3)) for the year), reduced by
‘‘(II) the elective deferrals made by the employee for such year,
and
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11
‘‘(ii) if the employee certifies to the employer making the matching
contribution under this paragraph that such payment has been made
on such loan.
For purposes of this subparagraph, the term ‘qualified higher education ex-
penses’ means the cost of attendance (as defined in section 472 of the High-
er Education Act of 1965, as in effect on the day before the date of the en-
actment of the Taxpayer Relief Act of 1997) at an eligible educational insti-
tution (as defined in section 221(d)(2)).’’.
(c) MATCHING CONTRIBUTIONS FOR QUALIFIED STUDENT LOAN PAYMENTS.—Section
401(m) of such Code is amended by redesignating paragraph (13) as paragraph (14),
and by inserting after paragraph (12) the following new paragraph:
‘‘(13) MATCHING CONTRIBUTIONS FOR QUALIFIED STUDENT LOAN PAYMENTS.—
‘‘(A) IN GENERAL.—For purposes of paragraph (4)(A)(iii), an employer con-
tribution made to a defined contribution plan on account of a qualified stu-
dent loan payment shall be treated as a matching contribution for purposes
of this title if—
‘‘(i) the plan provides matching contributions on account of elective
deferrals at the same rate as contributions on account of qualified stu-
dent loan payments,
‘‘(ii) the plan provides matching contributions on account of qualified
student loan payments only on behalf of employees otherwise eligible
to receive matching contributions on account of elective deferrals,
‘‘(iii) under the plan, all employees eligible to receive matching con-
tributions on account of elective deferrals are eligible to receive match-
ing contributions on account of qualified student loan payments, and
‘‘(iv) the plan provides that matching contributions on account of
qualified student loan payments vest in the same manner as matching
contributions on account of elective deferrals.
‘‘(B) TREATMENT FOR PURPOSES OF NONDISCRIMINATION RULES, ETC.—
‘‘(i) NONDISCRIMINATION RULES.—For purposes of subparagraph
(A)(iii), subsection (a)(4), and section 410(b), matching contributions de-
scribed in paragraph (4)(A)(iii) shall not fail to be treated as available
to an employee solely because such employee does not have debt in-
curred under a qualified education loan (as defined in section
221(d)(1)).
‘‘(ii) STUDENT LOAN PAYMENTS NOT TREATED AS PLAN CONTRIBUTION.—
Except as provided in clause (iii), a qualified student loan payment
shall not be treated as a contribution to a plan under this title.
‘‘(iii) MATCHING CONTRIBUTION RULES.—Solely for purposes of meet-
ing the requirements of paragraph (11)(B) or (12) of this subsection, or
paragraph (11)(B)(i)(II), (12)(B), or (13)(D) of subsection (k), a plan may
treat a qualified student loan payment as an elective deferral or an
elective contribution, whichever is applicable.
‘‘(iv) ACTUAL DEFERRAL PERCENTAGE TESTING.—In determining
whether a plan meets the requirements of subsection (k)(3)(A)(ii) for a
plan year, the plan may apply the requirements of such subsection sep-
arately with respect to all employees who receive matching contribu-
tions described in paragraph (4)(A)(iii) for the plan year.
‘‘(C) EMPLOYER MAY RELY ON EMPLOYEE CERTIFICATION.—The employer
may rely on an employee certification of payment under paragraph
(4)(D)(ii).’’.
(d) SIMPLE RETIREMENT ACCOUNTS.—Section 408(p)(2) of such Code is amended
by adding at the end the following new subparagraph:
‘‘(F) MATCHING CONTRIBUTIONS FOR QUALIFIED STUDENT LOAN PAY-
MENTS.—
‘‘(i) IN GENERAL.—Subject to the rules of clause (iii), an arrangement
shall not fail to be treated as meeting the requirements of subpara-
graph (A)(iii) solely because under the arrangement, solely for purposes
of such subparagraph, qualified student loan payments are treated as
amounts elected by the employee under subparagraph (A)(i)(I) to the
extent such payments do not exceed—
‘‘(I) the applicable dollar amount under subparagraph (E) (after
application of section 414(v)) for the year (or, if lesser, the employ-
ee’s compensation (as defined in section 415(c)(3)) for the year), re-
duced by
‘‘(II) any other amounts elected by the employee under subpara-
graph (A)(i)(I) for the year.
‘‘(ii) QUALIFIED STUDENT LOAN PAYMENT.—For purposes of this sub-
paragraph—
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‘‘(I) IN GENERAL.—The term ‘qualified student loan payment’
means a payment made by an employee in repayment of a qualified
education loan (as defined in section 221(d)(1)) incurred by the em-
ployee to pay qualified higher education expenses, but only if the
employee certifies to the employer making the matching contribu-
tion that such payment has been made on such a loan.
‘‘(II) QUALIFIED HIGHER EDUCATION EXPENSES.—The term ‘quali-
fied higher education expenses’ has the same meaning as when
used in section 401(m)(4)(D).
‘‘(iii) APPLICABLE RULES.—Clause (i) shall apply to an arrangement
only if, under the arrangement—
‘‘(I) matching contributions on account of qualified student loan
payments are provided only on behalf of employees otherwise eligi-
ble to elect contributions under subparagraph (A)(i)(I), and
‘‘(II) all employees otherwise eligible to participate in the ar-
rangement are eligible to receive matching contributions on ac-
count of qualified student loan payments.’’.
(e) 403(b) PLANS.—Section 403(b)(12)(A) of such Code is amended by adding at the
end the following: ‘‘The fact that the employer offers matching contributions on ac-
count of qualified student loan payments as described in section 401(m)(13) shall not
be taken into account in determining whether the arrangement satisfies the require-
ments of clause (ii) (and any regulation thereunder).’’.
(f) 457(b) PLANS.—Section 457(b) of such Code is amended by adding at the end
the following: ‘‘A plan which is established and maintained by an employer which
is described in subsection (e)(1)(A) shall not be treated as failing to meet the re-
quirements of this subsection solely because the plan, or another plan maintained
by the employer which meets the requirements of section 401(a) or 403(b), provides
for matching contributions on account of qualified student loan payments as de-
scribed in section 401(m)(13).’’.
(g) REGULATORY AUTHORITY.—The Secretary shall prescribe regulations for pur-
poses of implementing the amendments made by this section, including regula-
tions—
(1) permitting a plan to make matching contributions for qualified student
loan payments, as defined in sections 401(m)(4)(D) and 408(p)(2)(F) of the Inter-
nal Revenue Code of 1986, as added by this section, at a different frequency
than matching contributions are otherwise made under the plan, provided that
the frequency is not less than annually;
(2) permitting employers to establish reasonable procedures to claim matching
contributions for such qualified student loan payments under the plan, includ-
ing an annual deadline (not earlier than 3 months after the close of each plan
year) by which a claim must be made; and
(3) promulgating model amendments which plans may adopt to implement
matching contributions on such qualified student loan payments for purposes of
sections 401(m), 408(p), 403(b), and 457(b) of the Internal Revenue Code of
1986.
(h) EFFECTIVE DATE.—The amendments made by this section shall apply to con-
tributions made for plan years beginning after December 31, 2021.
SEC. 110. APPLICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN STARTUP COSTS
TO EMPLOYERS WHICH JOIN AN EXISTING PLAN.
(a) IN GENERAL.—Section 45E(d)(3)(A) of the Internal Revenue Code of 1986 is
amended by striking ‘‘effective’’ and inserting ‘‘effective with respect to the eligible
employer’’.
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to eligible
employer plans which become effective with respect to the eligible employer after
the date of the enactment of this Act.
SEC. 111. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR SMALL EMPLOY-
ERS.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of chapter 1 of the Inter-
nal Revenue Code of 1986 is amended by adding at the end the following new sec-
tion:
‘‘SEC. 45U. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR SMALL EMPLOY-
ERS.
‘‘(a) IN GENERAL.—For purposes of section 38, in the case of any eligible small em-
ployer, the military spouse retirement plan eligibility credit determined under this
section for any taxable year is an amount equal to the sum of—
‘‘(1) $250 with respect to each military spouse who is an employee of such em-
ployer and who is eligible to participate in an eligible defined contribution plan
of such employer at any time during such taxable year, plus
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13
‘‘(2) so much of the contributions made by such employer to all such plans
with respect to such employee during such taxable year as do not exceed $250.
‘‘(b) LIMITATION.—An individual shall only be taken into account as a military
spouse under subsection (a) for the taxable year which includes the date on which
such individual began participating in the eligible defined contribution plan of the
employer and the 2 succeeding taxable years.
‘‘(c) ELIGIBLE SMALL EMPLOYER.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘eligible small employer’ means an eligible em-
ployer (as defined in section 408(p)(2)(C)(i)(I)).
‘‘(2) APPLICATION OF 2-YEAR GRACE PERIOD.—A rule similar to the rule of sec-
tion 408(p)(2)(C)(i)(II) shall apply for purposes of this section.
‘‘(d) MILITARY SPOUSE.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘military spouse’ means, with respect to any em-
ployer, any individual who is married (within the meaning of section 7703 as
of the first date that the employee is employed by the employer) to an indi-
vidual who is a member of the uniformed services (as defined section 101(a)(5)
of title 10, United States Code). For purposes of this section, an employer may
rely on an employee’s certification that such employee’s spouse is a member of
the uniformed services if such certification provides the name, rank, and service
branch of such spouse.
‘‘(2) EXCLUSION OF HIGHLY COMPENSATED EMPLOYEES.—With respect to any
employer, the term ‘military spouse’ shall not include any individual if such in-
dividual is a highly compensated employee of such employer (within the mean-
ing of section 414(q)).
‘‘(e) ELIGIBLE DEFINED CONTRIBUTION PLAN.—For purposes of this section, the
term ‘eligible defined contribution plan’ means, with respect to any eligible small
employer, any defined contribution plan (as defined in section 414(i)) of such em-
ployer if, under the terms of such plan—
‘‘(1) military spouses employed by such employer are eligible to participate in
such plan not later than the date which is 2 months after the date on which
such individual begins employment with such employer, and
‘‘(2) military spouses who are eligible to participate in such plan—
‘‘(A) are immediately eligible to receive an amount of employer contribu-
tions under such plan which is not less the amount of such contributions
that a similarly situated participant who is not a military spouse would be
eligible to receive under such plan after 2 years of service, and
‘‘(B) immediately have a nonforfeitable right to the employee’s accrued
benefit derived from employer contributions under such plan.
‘‘(f) AGGREGATION RULE.—All persons treated as a single employer under sub-
section (b), (c), (m) or (o) of section 414 shall be treated as one employer for purposes
of this section.’’.
(b) CREDIT ALLOWED AS PART OF GENERAL BUSINESS CREDIT.—Section 38(b) of
such Code is amended by striking ‘‘plus’’ at the end of paragraph (32), by striking
the period at the end of paragraph (33) and inserting ‘‘, plus’’, and by adding at the
end the following new paragraph:
‘‘(34) in the case of an eligible small employer (as defined in section 45U(c)),
the military spouse retirement plan eligibility credit determined under section
45U(a).’’.
(c) SPECIFIED CREDIT FOR PURPOSES OF CERTIFIED PROFESSIONAL ORGANIZA-
TIONS.—Section 3511(d)(2) of such Code is amended by redesignating subparagraphs
(F), (G), and (H) as subparagraphs (G), (H), and (I), respectively, and by inserting
after subparagraph (E) the following new subparagraph:
‘‘(F) section 45U (military spouse retirement plan eligibility credit),’’.
(d) CLERICAL AMENDMENT.—The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 of such Code is amended by adding at the end the following
new item:
‘‘Sec. 45U. Military spouse retirement plan eligibility credit for small employers.’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after the date of the enactment of this Act.
SEC. 112. SMALL IMMEDIATE FINANCIAL INCENTIVES FOR CONTRIBUTING TO A PLAN.
(a) IN GENERAL.—Subparagraph (A) of section 401(k)(4) of the Internal Revenue
Code of 1986 is amended by inserting ‘‘(other than a de minimis financial incentive)’’
after ‘‘any other benefit’’.
(b) SECTION 403(b) PLANS.—Subparagraph (A) of section 403(b)(12) of such Code,
as amended by the preceding provisions of this Act, is further amended by adding
at the end the following: ‘‘A plan shall not fail to satisfy clause (ii) solely by reason
of offering a de minimis financial incentive to employees to elect to have the em-
ployer make contributions pursuant to a salary reduction agreement.’’.
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(c) EXEMPTION FROM PROHIBITED TRANSACTION RULES.—Subsection (d) of section
4975 of such Code is amended by striking ‘‘or’’ at the end of paragraph (22), by strik-
ing the period at the end of paragraph (23) and inserting ‘‘, or’’, and by adding at
the end the following new paragraph:
‘‘(24) the provision of a de minimis financial incentive described in section
401(k)(4)(A) or 403(b)(12)(A).’’.
(d) AMENDMENT OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—Sub-
section (b) of section 408 of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1108(b)) is amended by adding at the end the following new paragraph:
‘‘(21) The provision of a de minimis financial incentive described in section
401(k)(4)(A) or 403(b)(12)(A) of the Internal Revenue Code of 1986.’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply with re-
spect to plan years beginning after the date of enactment of this Act.
SEC. 113. SAFE HARBOR FOR CORRECTIONS OF EMPLOYEE ELECTIVE DEFERRAL FAILURES.
(a) IN GENERAL.—Section 414 of the Internal Revenue Code of 1986 is amended
by adding at the end the following new subsection:
‘‘(aa) CORRECTING AUTOMATIC CONTRIBUTION ERRORS.—
‘‘(1) IN GENERAL.—Any plan or arrangement shall not fail to be treated as a
plan described in sections 401(a), 403(b), 408, or 457(b), as applicable, solely by
reason of a corrected error.
‘‘(2) CORRECTED ERROR DEFINED.—For purposes of this subsection, the term
‘corrected error’ means a reasonable administrative error in implementing an
automatic enrollment or automatic escalation feature in accordance with the
terms of an eligible automatic contribution arrangement (as defined under sub-
section (w)(3)), provided that such implementation error—
‘‘(A) is corrected by the date that is 91⁄2 months after the end of the plan
year during which the failure occurred,
‘‘(B) is corrected in a manner that is favorable to the participant, and
‘‘(C) is of a type which is so corrected for all similarly situated partici-
pants in a nondiscriminatory manner.
Such correction may occur before or after the participant has terminated em-
ployment and may occur without regard to whether the error is identified by
the Secretary.
‘‘(3) REGULATIONS AND GUIDANCE FOR FAVORABLE CORRECTION METHODS.—The
Secretary shall, by regulations or other guidance of general applicability, specify
the correction methods that are in a manner favorable to the participant for
purposes of paragraph (2)(B).’’.
(b) EFFECTIVE DATE.—The amendment made by this section shall apply with re-
spect to any errors with respect to which the date referred to in section 414(aa) (as
added by this section) is after the date of enactment of this Act.
SEC. 114. ONE-YEAR REDUCTION IN PERIOD OF SERVICE REQUIREMENT FOR LONG-TERM,
PART-TIME WORKERS.
(a) IN GENERAL.—Section 401(k)(2)(D)(ii) of the Internal Revenue Code of 1986 is
amended by striking ‘‘3’’ and inserting ‘‘2’’.
(b) CLARIFICATION OF PRIOR SERVICE FOR PURPOSES OF VESTING RULES.—Section
112(b) of the Setting Every Community Up for Retirement Enhancement Act of 2019
is amended by striking ‘‘section 401(k)(2)(D)(ii)’’ and inserting ‘‘paragraphs (2)(D)(ii)
and (15)(B)(iii) of section 401(k)’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall take effect as
if included in the enactment of section 112 of the Setting Every Community Up for
Retirement Enhancement Act of 2019.
SEC. 115. FINDINGS RELATING TO S CORPORATION ESOPs.
Congress finds the following:
(1) On January 1, 1998, nearly 25 years after the Employee Retirement In-
come Security Act of 1974 was enacted and the employee stock ownership plan
(hereafter in this section referred to as an ‘‘ESOP’’) was created, employees were
first permitted to be owners of subchapter S corporations pursuant to the Small
Business Job Protection Act of 1996 (Public Law 104–188).
(2) With the passage of the Taxpayer Relief Act of 1997 (Public Law 105–34),
Congress designed incentives to encourage businesses to become ESOP-owned
S corporations.
(3) Since that time, several thousand companies have become ESOP-owned S
corporations, creating an ownership interest for several million Americans in
companies in every State in the country, in industries ranging from heavy man-
ufacturing to construction and contracting to services.
(4) Every United States worker who is an employee-owner of an S corporation
company through an ESOP has a valuable qualified retirement savings account.
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(5) Recent studies have shown that employees of ESOP-owned S corporations
enjoy greater job stability, wages and benefits than employees of comparable
companies; and ESOP companies are better able to weather economic
downturns.
(6) Studies also show that employee-owners of S corporation ESOP companies
have amassed meaningful retirement savings through their ESOP accounts that
will give them the means to retire with dignity.
(7) It is the goal of Congress to preserve and foster employee ownership of
S corporations through ESOPs.
TITLE II—PRESERVATION OF INCOME
SEC. 201. REMOVE REQUIRED MINIMUM DISTRIBUTION BARRIERS FOR LIFE ANNUITIES.
(a) IN GENERAL.—Section 401(a)(9) of the Internal Revenue Code of 1986 is
amended by adding at the end the following new subparagraph:
‘‘(J) CERTAIN INCREASES IN PAYMENTS UNDER A COMMERCIAL ANNUITY.—
Nothing in this section shall prohibit a commercial annuity (within the
meaning of section 3405(e)(6)) that is issued in connection with any eligible
retirement plan (within the meaning of section 402(c)(8)(B), other than a
defined benefit plan) from providing one or more of the following types of
payments on or after the annuity starting date:
‘‘(i) annuity payments that increase by a constant percentage, applied
not less frequently than annually, at a rate that is less than 5 percent
per year,
‘‘(ii) a lump sum payment that—
‘‘(I) results in a shortening of the payment period with respect
to an annuity or a full or partial commutation of the future annuity
payments, provided that such lump sum is determined using rea-
sonable actuarial methods and assumptions, as determined in good
faith by the issuer of the contract, or
‘‘(II) accelerates the receipt of annuity payments that are sched-
uled to be received within the ensuing 12 months, regardless of
whether such acceleration shortens the payment period with re-
spect to the annuity, reduces the dollar amount of benefits to be
paid under the contract, or results in a suspension of annuity pay-
ments during the period being accelerated,
‘‘(iii) an amount which is in the nature of a dividend or similar dis-
tribution, provided that the issuer of the contract determines such
amount based on a reasonable comparison of the actuarial factors as-
sumed when calculating the initial annuity payments and the issuer’s
experience with respect to those factors, or
‘‘(iv) a final payment upon death that does not exceed the excess of
the total amount of the consideration paid for the annuity payments,
less the aggregate amount of prior distributions or payments from or
under the contract.’’.
(b) REGULATIONS AND ENFORCEMENT.—
(1) REGULATIONS.—By the date that is one year after the date of enactment
of this Act, the Secretary of the Treasury shall amend the regulation issued by
the Department of the Treasury relating to ‘‘Required Distributions from Retire-
ment Plans,’’ 69 Fed. Reg. 33288 (June 15, 2004), and make any corresponding
amendments to other regulations, in order to—
(A) conform such regulations to subsection (a), including by eliminating
the types of payments described in subsection (a) from the scope of the re-
quirement in Q&A–14(c) of Treasury Regulation section 1.401(a)(9)–6 that
the total future expected payments must exceed the total value being
annuitized;
(B) amend Q&A–14(c) of Treasury Regulation section 1.401(a)(9)–6 to pro-
vide that a commercial annuity that provides an initial payment that is at
least equal to the initial payment that would be required from an individual
account pursuant to Treasury Regulation section 1.401(a)(9)–5 will be
deemed to satisfy the requirement in Q&A–14(c) of Treasury Regulation
section 1.401(a)(9)–6 that the total future expected payments must exceed
the total value being annuitized; and
(C) amend Q&A–14(e)(3) of Treasury Regulation section 1.401(a)(9)–6 to
provide that the total future expected payments under a commercial annu-
ity are determined using the tables or other actuarial assumptions that the
issuer of the contract actually uses in pricing the premiums and benefits
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with respect to the contract, provided that such tables or other actuarial as-
sumptions are reasonable.
(2) ENFORCEMENT.—As of the date of enactment of this Act, the Secretary of
the Treasury shall administer and enforce the law in accordance with sub-
sections (a) and (b).
(c) EFFECTIVE DATE.—This section shall take effect on the date of the enactment
of this Act.
SEC. 202. QUALIFYING LONGEVITY ANNUITY CONTRACTS.
(a) IN GENERAL.—Not later than the date which is 1 year after the date of the
enactment of this Act, the Secretary of the Treasury or the Secretary’s delegate
(hereafter in this section referred to as the ‘‘Secretary’’) shall amend the regulation
issued by the Department of the Treasury relating to ‘‘Longevity Annuity Contracts’’
(79 Fed. Reg. 37633 (July 2, 2014)), as follows:
(1) REPEAL 25-PERCENT PREMIUM LIMIT.—The Secretary shall amend Q&A–
17(b)(3) of Treasury Regulation section 1.401(a)(9)–6 and Q&A–12(b)(3) of
Treasury Regulation section 1.408–8 to eliminate the requirement that pre-
miums for qualifying longevity annuity contracts be limited to a percentage of
an individual’s account balance, and to make such corresponding changes to the
regulations and related forms as are necessary to reflect the elimination of this
requirement.
(2) FACILITATE JOINT AND SURVIVOR BENEFITS.—The Secretary shall amend
Q&A–17(c) of Treasury Regulation section 1.401(a)(9)–6, and make such cor-
responding changes to the regulations and related forms as are necessary, to
provide that, in the case of a qualifying longevity annuity contract which was
purchased with joint and survivor annuity benefits for the individual and the
individual’s spouse which were permissible under the regulations at the time
the contract was originally purchased, a divorce occurring after the original pur-
chase and before the annuity payments commence under the contract will not
affect the permissibility of the joint and survivor annuity benefits or other bene-
fits under the contract, or require any adjustment to the amount or duration
of benefits payable under the contract, provided that any qualified domestic re-
lations order (within the meaning of section 414(p) of the Internal Revenue
Code of 1986) or any divorce or separation instrument (as defined in subsection
(b))—
(A) provides that the former spouse is entitled to the survivor benefits
under the contract;
(B) does not modify the treatment of the former spouse as the beneficiary
under the contract who is entitled to the survivor benefits; or
(C) does not modify the treatment of the former spouse as the measuring
life for the survivor benefits under the contract.
(3) PERMIT SHORT FREE LOOK PERIOD.—The Secretary shall amend Q&A–
17(a)(4) of Treasury Regulation section 1.401(a)(9)–6 to ensure that such Q&A
does not preclude a contract from including a provision under which an em-
ployee may rescind the purchase of the contract within a period not exceeding
90 days from the date of purchase.
(b) DIVORCE OR SEPARATION INSTRUMENT.—For purposes of subsection (a)(2), the
term ‘‘divorce or separation instrument’’ means—
(1) a decree of divorce or separate maintenance or a written instrument inci-
dent to such a decree,
(2) a written separation agreement, or
(3) a decree (not described in paragraph (1)) requiring a spouse to make pay-
ments for the support or maintenance of the other spouse.
(c) EFFECTIVE DATES, ENFORCEMENT, AND INTERPRETATIONS.—
(1) EFFECTIVE DATES.—
(A) Paragraph (1) of subsection (a) shall be effective with respect to con-
tracts purchased or received in an exchange on or after the date of the en-
actment of this Act.
(B) Paragraphs (2) and (3) of subsection (a) shall be effective with respect
to contracts purchased or received in an exchange on or after July 2, 2014.
(2) ENFORCEMENT AND INTERPRETATIONS.—Prior to the date on which the Sec-
retary issues final regulations pursuant to subsection (a)—
(A) the Secretary (or delegate) shall administer and enforce the law in ac-
cordance with subsection (a) and the effective dates in paragraph (1) of this
subsection; and
(B) taxpayers may rely upon their reasonable good faith interpretations
of subsection (a).
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SEC. 203. INSURANCE-DEDICATED EXCHANGE-TRADED FUNDS.
(a) IN GENERAL.—Not later than the date which is 7 years after the date of the
enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate)
shall amend the regulation issued by the Department of the Treasury relating to
‘‘Income Tax; Diversification Requirements for Variable Annuity, Endowment, and
Life Insurance Contracts’’, 54 Fed. Reg. 8728 (March 2, 1989), and make any nec-
essary corresponding amendments to other regulations, in order to facilitate the use
of exchange-traded funds as investment options under variable contracts within the
meaning of section 817(d) of the Internal Revenue Code of 1986, in accordance with
subsections (b) and (c) of this section.
(b) DESIGNATE CERTAIN AUTHORIZED PARTICIPANTS AND MARKET MAKERS AS ELI-
GIBLE INVESTORS.—The Secretary of the Treasury (or the Secretary’s delegate) shall
amend Treas. Reg. section 1.817–5(f)(3) to provide that satisfaction of the require-
ments in Treas. Reg. section 1.817–5(f)(2)(i) with respect to an exchange-traded fund
shall not be prevented by reason of beneficial interests in such a fund being held
by 1 or more authorized participants or market makers.
(c) DEFINE RELEVANT TERMS.—In amending Treas. Reg. section 1.817–5(f)(3) in
accordance with subsections (b) of this section, the Secretary of the Treasury (or the
Secretary’s delegate) shall provide definitions consistent with the following:
(1) EXCHANGE-TRADED FUND.—The term ‘‘exchange-traded fund’’ means a reg-
ulated investment company, partnership, or trust—
(A) that is registered with the Securities and Exchange Commission as
an open-end investment company or a unit investment trust;
(B) the shares of which can be purchased or redeemed directly from the
fund only by an authorized participant; and
(C) the shares of which are traded throughout the day on a national stock
exchange at market prices that may or may not be the same as the net
asset value of the shares.
(2) AUTHORIZED PARTICIPANT.—The term ‘‘authorized participant’’ means a fi-
nancial institution that is a member or participant of a clearing agency reg-
istered under section 17A(b) of the Securities Exchange Act of 1934 that enters
into a contractual relationship with an exchange-traded fund pursuant to which
the financial institution is permitted to purchase and redeem shares directly
from the fund and to sell such shares to third parties, but only if the contrac-
tual arrangement or applicable law precludes the financial institution from—
(A) purchasing the shares for its own investment purposes rather than
for the exclusive purpose of creating and redeeming such shares on behalf
of third parties; and
(B) selling the shares to third parties who are not market makers or oth-
erwise described in Treas. Reg. section 1.817–5(f) (1) and (3).
(3) MARKET MAKER.—The term ‘‘market maker’’ means a financial institution
that is a registered broker or dealer under section 15(b) of the Securities Ex-
change Act of 1934 that maintains liquidity for an exchange-traded fund on a
national stock exchange by being always ready to buy and sell shares of such
fund on the market, but only if the financial institution is contractually or le-
gally precluded from selling or buying such shares to or from persons who are
not authorized participants or otherwise described in Treas. Reg. section 1.817–
5(f) (2) and (3).
(d) EFFECTIVE DATE.—Subsections (b) and (c) shall apply to segregated asset ac-
count investments made on or after the date that is 7 years after the date of the
enactment of this Act.
TITLE III—SIMPLIFICATION AND
CLARIFICATION OF RETIREMENT PLAN RULES
SEC. 301. RECOVERY OF RETIREMENT PLAN OVERPAYMENTS.
(a) OVERPAYMENTS UNDER INTERNAL REVENUE CODE OF 1986.—
(1) QUALIFICATION REQUIREMENTS.—Section 414 of the Internal Revenue Code
of 1986, as amended by the preceding provisions of this Act, is further amended
by adding at the end the following new subsection:
‘‘(bb) SPECIAL RULES APPLICABLE TO BENEFIT OVERPAYMENTS.—
‘‘(1) IN GENERAL.—A plan shall not fail to be treated as described in clause
(i), (ii), (iii), or (iv) of section 219(g)(5)(A) (and shall not fail to be treated as
satisfying the requirements of section 401(a) or 403) merely because—
‘‘(A) the plan fails to obtain payment from any participant, beneficiary,
employer, plan sponsor, fiduciary, or other party on account of any inad-
vertent benefit overpayment made by the plan, or
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‘‘(B) the plan sponsor amends the plan to increase past or future benefit
payments to affected participants and beneficiaries in order to adjust for
prior inadvertent benefit overpayments.
‘‘(2) REDUCTION IN FUTURE BENEFIT PAYMENTS AND RECOVERY FROM RESPON-
SIBLE PARTY.—Paragraph (1) shall not fail to apply to a plan merely because,
after discovering a benefit overpayment, such plan—
‘‘(A) reduces future benefit payments to the correct amount provided for
under the terms of the plan, or
‘‘(B) seeks recovery from the person or persons responsible for such over-
payment.
‘‘(3) EMPLOYER FUNDING OBLIGATIONS.—Nothing in this subsection shall re-
lieve an employer of any obligation imposed on it to make contributions to a
plan to meet the minimum funding standards under sections 412 and 430 or
to prevent or restore an impermissible forfeiture in accordance with section 411.
‘‘(4) OBSERVANCE OF BENEFIT LIMITATIONS.—Notwithstanding paragraph (1), a
plan to which paragraph (1) applies shall observe any limitations imposed on
it by section 401(a)(17) or 415. The plan may enforce such limitations using any
method approved by the Secretary for recouping benefits previously paid or allo-
cations previously made in excess of such limitations.
‘‘(5) COORDINATION WITH OTHER QUALIFICATION REQUIREMENTS.—The Sec-
retary may issue regulations or other guidance of general applicability speci-
fying how benefit overpayments and their recoupment or non-recoupment from
a participant or beneficiary shall be taken into account for purposes of satis-
fying any requirement applicable to a plan to which paragraph (1) applies.’’.
(2) ROLLOVERS.—Section 402(c) of such Code is amended by adding at the end
the following new paragraph:
‘‘(12) In the case of an inadvertent benefit overpayment from a plan to which
section 414(bb)(1) applies which is transferred to an eligible retirement plan by
or on behalf of a participant or beneficiary—
‘‘(A) the portion of such overpayment with respect to which recoupment
is not sought on behalf of the plan shall be treated as having been paid in
an eligible rollover distribution if the payment would have been an eligible
rollover distribution but for being an overpayment, and
‘‘(B) the portion of such overpayment with respect to which recoupment
is sought on behalf of the plan shall be permitted to be returned to such
plan and in such case shall be treated as an eligible rollover distribution
transferred to such plan by the participant or beneficiary who received such
overpayment (and the plans making and receiving such transfer shall be
treated as permitting such transfer).
In any case in which recoupment is sought on behalf of the plan but is disputed
by the participant or beneficiary who received such overpayment, such dispute
shall be subject to the claims and appeals procedures of the plan that made
such overpayment, such plan shall notify the plan receiving the rollover of such
dispute, and the plan receiving the rollover shall retain such overpayment on
behalf of the participant or beneficiary (and shall be entitled to treat such over-
payment as plan assets) pending the outcome of such procedures.’’.
(b) OVERPAYMENTS UNDER ERISA.—Section 206 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1056) is amended by adding at the end the
following new subsection:
‘‘(h) SPECIAL RULES APPLICABLE TO BENEFIT OVERPAYMENTS.—
‘‘(1) GENERAL RULE.—In the case of an inadvertent benefit overpayment by
any pension plan, the responsible plan fiduciary shall not be considered to have
failed to comply with the requirements of this title merely because such fidu-
ciary determines, in the exercise of its fiduciary discretion, not to seek recovery
of all or part of such overpayment from—
‘‘(A) any participant or beneficiary,
‘‘(B) any plan sponsor of, or contributing employer to—
‘‘(i) an individual account plan, provided that the amount needed to
prevent or restore any impermissible forfeiture from any participant’s
or beneficiary’s account arising in connection with the overpayment is,
separately from and independently of the overpayment, allocated to
such account pursuant to the nonforfeitability requirements of section
203 (for example, out of the plan’s forfeiture account, additional em-
ployer contributions, or recoveries from those responsible for the over-
payment), or
‘‘(ii) a defined benefit pension plan subject to the funding rules in
part 3 of this subtitle B, unless the responsible plan fiduciary deter-
mines, in the exercise of its fiduciary discretion, that failure to recover
all or part of the overpayment faster than required under such funding
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rules would materially affect the plan’s ability to pay benefits due to
other participants and beneficiaries, or
‘‘(C) any fiduciary of the plan, other than a fiduciary (including a plan
sponsor or contributing employer acting in a fiduciary capacity) whose
breach of its fiduciary duties resulted in such overpayment, provided that
if the plan has established prudent procedures to prevent and minimize
overpayment of benefits and the relevant plan fiduciaries have followed
such procedures, an inadvertent benefit overpayment will not give rise to
a breach of fiduciary duty.
‘‘(2) REDUCTION IN FUTURE BENEFIT PAYMENTS AND RECOVERY FROM RESPON-
SIBLE PARTY.—Paragraph (1) shall not fail to apply with respect to any inad-
vertent benefit overpayment merely because, after discovering such overpay-
ment, the responsible plan fiduciary—
‘‘(A) reduces future benefit payments to the correct amount provided for
under the terms of the plan, or
‘‘(B) seeks recovery from the person or persons responsible for the over-
payment.
‘‘(3) EMPLOYER FUNDING OBLIGATIONS.—Nothing in this subsection shall re-
lieve an employer of any obligation imposed on it to make contributions to a
plan to meet the minimum funding standards under part 3 of this subtitle B
or to prevent or restore an impermissible forfeiture in accordance with section
203.
‘‘(4) RECOUPMENT FROM PARTICIPANTS AND BENEFICIARIES.—If the responsible
plan fiduciary, in the exercise of its fiduciary discretion, decides to seek
recoupment from a participant or beneficiary of all or part of an inadvertent
benefit overpayment made by the plan to such participant or beneficiary, it may
do so, subject to the following conditions:
‘‘(A) No interest or other additional amounts (such as collection costs or
fees) are sought on overpaid amounts.
‘‘(B) If the plan seeks to recoup past overpayments of a non-decreasing
periodic benefit by reducing future benefit payments—
‘‘(i) the reduction ceases after the plan has recovered the full dollar
amount of the overpayment,
‘‘(ii) the amount recouped each calendar year does not exceed 10 per-
cent of the full dollar amount of the overpayment, and
‘‘(iii) future benefit payments are not reduced to below 90 percent of
the periodic amount otherwise payable under the terms of the plan.
Alternatively, if the plan seeks to recoup past overpayments of a non-de-
creasing periodic benefit through one or more installment payments, the
sum of such installment payments in any calendar year does not exceed the
sum of the reductions that would be permitted in such year under the pre-
ceding sentence.
‘‘(C) If the plan seeks to recoup past overpayments of a benefit other than
a non-decreasing periodic benefit, the plan satisfies requirements developed
by the Secretary of the Treasury for purposes of this subparagraph.
‘‘(D) Efforts to recoup overpayments are not made through a collection
agency or similar third party and such efforts are not accompanied by
threats of litigation, unless the responsible plan fiduciary reasonably be-
lieves it could prevail in a civil action brought in Federal or State court to
recoup the overpayments.
‘‘(E) Recoupment of past overpayments to a participant is not sought from
any beneficiary of the participant, including a spouse, surviving spouse,
former spouse, or other beneficiary.
‘‘(F) Recoupment may not be sought if the first overpayment occurred
more than 3 years before the participant or beneficiary is first notified in
writing of the error.
‘‘(G) A participant or beneficiary from whom recoupment is sought is enti-
tled to contest all or part of the recoupment pursuant to the plan’s claims
and appeals procedures.
‘‘(H) In determining the amount of recoupment to seek, the responsible
plan fiduciary may take into account the hardship that recoupment likely
would impose on the participant or beneficiary.
‘‘(5) EFFECT OF CULPABILITY.—Subparagraphs (A) through (F) of paragraph (4)
shall not apply to protect a participant or beneficiary who is culpable. For pur-
poses of this paragraph, a participant or beneficiary is culpable if the individual
bears responsibility for the overpayment (such as through misrepresentations or
omissions that led to the overpayment), or if the individual knew, or had good
reason to know under the circumstances, that the benefit payment or payments
were materially in excess of the correct amount. Notwithstanding the preceding
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sentence, an individual is not culpable merely because the individual believed
the benefit payment or payments were or might be in excess of the correct
amount, if the individual raised that question with an authorized plan rep-
resentative and was told the payment or payments were not in excess of the
correct amount. With respect to a culpable participant or beneficiary, efforts to
recoup overpayments shall not be made through threats of litigation, unless a
lawyer for the plan could make the representations required under Rule 11 of
the Federal Rules of Civil Procedure if the litigation were brought in Federal
court.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply as of the
date of the enactment of this Act.
(d) CERTAIN ACTIONS BEFORE DATE OF ENACTMENT.—Plans, fiduciaries, employ-
ers, and plan sponsors are entitled to rely on—
(1) a good faith interpretation of then existing administrative guidance for in-
advertent benefit overpayment recoupments and recoveries that commenced be-
fore the date of enactment of this Act, and
(2) determinations made before such date of enactment by the responsible
plan fiduciary, in the exercise of its fiduciary discretion, not to seek recoupment
or recovery of all or part of an inadvertent benefit overpayment.
In the case of a benefit overpayment that occurred prior to the date of enactment
of this Act, any installment payments by the participant or beneficiary to the plan
or any reduction in periodic benefit payments to the participant or beneficiary,
which were made in recoupment of such overpayment and which commenced prior
to such date, may continue after such date. Nothing in this subsection shall relieve
a fiduciary from responsibility for an overpayment that resulted from a breach of
its fiduciary duties.
SEC. 302. REDUCTION IN EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED RETIRE-
MENT PLANS.
(a) IN GENERAL.—Section 4974(a) of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘50 percent’’ and inserting ‘‘25 percent’’.
(b) REDUCTION IN EXCISE TAX ON FAILURES TO TAKE REQUIRED MINIMUM DIS-
TRIBUTIONS.—Section 4974 of such Code is amended by adding at the end the fol-
lowing new subsection:
‘‘(e) REDUCTION OF TAX IN CERTAIN CASES.—
‘‘(1) REDUCTION.—In the case of a taxpayer who—
‘‘(A) corrects, during the correction window, a shortfall of distributions
from an individual retirement plan which resulted in imposition of a tax
under subsection (a), and
‘‘(B) submits a return, during the correction window, reflecting such tax
(as modified by this subsection),
the first sentence of subsection (a) shall be applied by substituting ‘10 percent’
for ‘25 percent’.
‘‘(2) CORRECTION WINDOW.—For purposes of this subsection, the term ‘correc-
tion window’ means the period of time beginning on the date on which the tax
under subsection (a) is imposed with respect to a shortfall of distributions from
an individual retirement plan, and ending on the earlier of—
‘‘(A) the date on which the Secretary initiates an audit, or otherwise de-
mands payment, with respect to the shortfall of distributions, or
‘‘(B) the last day of the second taxable year that begins after the end of
the taxable year in which the tax under subsection (a) is imposed.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2021.
SEC. 303. PERFORMANCE BENCHMARKS FOR ASSET ALLOCATION FUNDS.
(a) IN GENERAL.—Not later than 6 months after the date of the enactment of this
Act, the Secretary of Labor (or the Secretary’s delegate) shall modify the regulations
under section 404 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1104) to provide that, in the case of a designated investment alternative
which contains a mix of asset classes, a plan administrator may, but is not required
to, use a benchmark which is a blend of different broad-based securities market in-
dices if—
(1) the blend is reasonably representative of the asset class holdings of the
designated investment alternative;
(2) for purposes of determining the blend’s returns for 1-, 5-, and 10-calendar-
year periods (or for the life of the alternative, if shorter), the blend is modified
at least once per year to reflect changes in the asset class holdings of the des-
ignated investment alternative;
(3) the blend is furnished to participants and beneficiaries in a manner that
is reasonably designed to be understandable and helpful; and
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21
(4) each securities market index which is used for an associated asset class
would separately satisfy the requirements of such regulations for such asset
class.
(b) STUDY.—Not later than December 31, 2022, the Secretary of Labor (or the Sec-
retary’s delegate) shall deliver a report to the Committees on Ways and Means and
Education and Labor of the House of Representatives and the Committees on Fi-
nance and Health, Education, Labor, and Pensions of the Senate regarding the effec-
tiveness of the benchmarking requirements under section 2550.404a–5 of title 29,
Code of Federal Regulations.
SEC. 304. REVIEW AND REPORT TO THE CONGRESS RELATING TO REPORTING AND DISCLO-
SURE REQUIREMENTS.
(a) STUDY.—As soon as practicable after the date of the enactment of this Act, the
Secretary of Labor, the Secretary of the Treasury, and the Pension Benefit Guar-
anty Corporation shall review the reporting and disclosure requirements of—
(1) title I of the Employee Retirement Income Security Act of 1974 applicable
to pension plans (as defined in section 3(2) of such Act); and
(2) the Internal Revenue Code of 1986 applicable to qualified retirement plans
(as defined in section 4974(c) of such Code without regard to paragraphs (4) and
(5) thereof).
(b) REPORT.—Not later than 18 months after the date of the enactment of this Act,
the Secretary of Labor, the Secretary of the Treasury, and the Pension Benefit
Guaranty Corporation, jointly, and after consultation with a balanced group of par-
ticipant and employer representatives, shall with respect to plans referenced in sub-
section (a) report on the effectiveness of the applicable reporting and disclosure re-
quirements and make such recommendations as may be appropriate to the appro-
priate committees of the Congress to consolidate, simplify, standardize, and improve
such requirements so as to simplify reporting for such plans and ensure that plans
can simply furnish and participants and beneficiaries timely receive and better un-
derstand the information they need to monitor their plans, plan for retirement, and
obtain the benefits they have earned. Such report shall assess the extent to which
retirement plans are retaining disclosures, work records, and plan documents that
are needed to ensure accurate calculation of future benefits. To assess the effective-
ness of the applicable reporting and disclosure requirements, the report shall in-
clude an analysis, based on plan data, of how participants and beneficiaries are pro-
viding preferred contact information, the methods by which plan sponsors and plans
are furnishing disclosures, and the rate at which participants and beneficiaries
(grouped by key demographics) are receiving, accessing, and retaining disclosures.
The agencies shall conduct appropriate surveys and data collection to obtain any
needed information.
SEC. 305. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO UNENROLLED
PARTICIPANTS.
(a) AMENDMENT OF INTERNAL REVENUE CODE OF 1986.—Section 414 of the Inter-
nal Revenue Code of 1986, as amended by the preceding provisions of this Act, is
further amended by adding at the end the following new subsection:
‘‘(cc) ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO UNENROLLED
PARTICIPANTS.—
‘‘(1) IN GENERAL.—Notwithstanding any other provision of this title, with re-
spect to any defined contribution plan, no disclosure, notice, or other plan docu-
ment (other than the notices and documents described in subparagraphs (A)
and (B)) shall be required to be furnished under this title to any unenrolled par-
ticipant if the unenrolled participant receives—
‘‘(A) an annual reminder notice (in paper format, or in any electronic for-
mat consented to by the participant) of such participant’s eligibility to par-
ticipate in such plan and any applicable election deadlines under the plan,
and
‘‘(B) any document requested by such participant which the participant
would be entitled to receive without regard to this subsection.
‘‘(2) UNENROLLED PARTICIPANT.—For purposes of this subsection, the term
‘unenrolled participant’ means an employee who—
‘‘(A) is eligible to participate in a defined contribution plan,
‘‘(B) has received all required notices, disclosures, and other plan docu-
ments required to be furnished under this title and the summary plan de-
scription as provided in section 104(b) of the Employee Retirement Income
Security Act of 1974 in connection with such participant’s initial eligibility
to participate in such plan,
‘‘(C) is not participating in such plan, and
‘‘(D) does not have a balance in the plan.
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For purposes of this subsection, any eligibility to participate in the plan fol-
lowing any period for which such employee was not eligible to participate shall
be treated as initial eligibility.
‘‘(3) ANNUAL REMINDER NOTICE.—For purposes of this subsection, the term
‘annual reminder notice’ means the notice described in section 111(c) of the Em-
ployee Retirement Income Security Act of 1974.’’.
(b) AMENDMENT OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—
(1) IN GENERAL.—Part 1 of subtitle B of subchapter I of the Employee Retire-
ment Income Security Act of 1974 is amended by redesignating section 111 as
section 112 and by inserting after section 110 the following new section:
‘‘SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO UNENROLLED
PARTICIPANTS.
‘‘(a) IN GENERAL.—Notwithstanding any other provision of this title, with respect
to any individual account plan, no disclosure, notice, or other plan document (other
than the notices and documents described in paragraphs (1) and (2)) shall be re-
quired to be furnished under this title to any unenrolled participant if the
unenrolled participant receives—
‘‘(1) an annual reminder notice of such participant’s eligibility to participate
in such plan and any applicable election deadlines under the plan; and
‘‘(2) any document requested by such participant which the participant would
be entitled to receive without regard to this section.
‘‘(b) UNENROLLED PARTICIPANT.—For purposes of this section, the term ‘unenrolled
participant’ means an employee who—
‘‘(1) is eligible to participate in an individual account plan;
‘‘(2) has received all required notices, disclosures, and other plan documents,
including the summary plan description, required to be furnished under this
title in connection with such participant’s initial eligibility to participate in such
plan;
‘‘(3) is not participating in such plan; and
‘‘(4) does not have a balance in the plan.
For purposes of this section, any eligibility to participate in the plan following any
period for which such employee was not eligible to participate shall be treated as
initial eligibility.
‘‘(c) ANNUAL REMINDER NOTICE.—For purposes of this section, the term ‘annual
reminder notice’ means a notice provided in accordance with section 2520.104b–1 of
title 29, Code of Federal Regulations (or any successor regulation), which—
‘‘(1) is furnished in connection with the annual open season election period
with respect to the plan or, if there is no such period, is furnished within a rea-
sonable period prior to the beginning of each plan year;
‘‘(2) notifies the unenrolled participant of—
‘‘(A) the unenrolled participant’s eligibility to participate in the plan; and
‘‘(B) the key benefits under the plan and the key rights and features
under the plan affecting such benefits; and
‘‘(3) provides such information in a prominent manner calculated to be under-
stood by the average participant.’’.
(2) CLERICAL AMENDMENT.—The table of contents in section 1 of the Employee
Retirement Income Security Act of 1974 is amended by striking the item relat-
ing to section 111 and by inserting after the item relating to section 110 the
following new items:
‘‘Sec. 111. Eliminating unnecessary plan requirements related to unenrolled participants.
‘‘Sec. 112. Repeal and effective date.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning after December 31, 2021.
SEC. 306. RETIREMENT SAVINGS LOST AND FOUND.
(a) RETIREMENT SAVINGS LOST AND FOUND.—
(1) ESTABLISHMENT.—
(A) IN GENERAL.—Not later than 3 years after the date of the enactment
of this Act, the Secretary of Labor, the Secretary of the Treasury, and the
Secretary of Commerce, in cooperation, shall establish an online searchable
database (to be managed by the Pension Benefit Guaranty Corporation in
accordance with section 4051 of the Employee Retirement Income Security
Act of 1974) to be known as the ‘‘Retirement Savings Lost and Found’’. The
Retirement Savings Lost and Found shall—
(i) allow an individual to search for information that enables the indi-
vidual to locate the plan administrator of any plans with respect to
which the individual is or was a participant or beneficiary, and to pro-
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23
vide contact information for the plan administrator of any plan de-
scribed in subparagraph (B);
(ii) allow the corporation to assist such an individual in locating any
plan of the individual; and
(iii) allow the corporation to make any necessary changes to contact
information on record for the plan administrator based on any changes
to the plan due to merger or consolidation of the plan with any other
plan, division of the plan into two or more plans, bankruptcy, termi-
nation, change in name of the plan, change in name or address of the
plan administrator, or other causes.
The Retirement Savings Lost and Found established under this paragraph
shall include information reported under section 4051 of the Employee Re-
tirement Income Security Act of 1974 and other relevant information ob-
tained by the Pension Benefit Guaranty Corporation.
(B) PLANS DESCRIBED.—A plan described in this subparagraph is a plan
to which the vesting standards of section 203 of part 2 of subtitle B of title
I of the Employee Retirement Income Security Act of 1974 apply.
(2) ADMINISTRATION.—The Retirement Savings Lost and Found established
under paragraph (1) shall provide individuals described in paragraph (1)(A) only
with the ability to view contact information for the plan administrator of any
plan with respect to which the individual is or was a participant or beneficiary,
sufficient to allow the individual to locate the individual’s plan in order to re-
cover any benefit owing to the individual under the plan.
(3) SAFEGUARDING PARTICIPANT PRIVACY AND SECURITY.—In establishing the
Retirement Savings Lost and Found under paragraph (1), the Pension Benefit
Guaranty Corporation, in consultation with the Secretary of Labor, the Sec-
retary of Treasury, and the Secretary of Commerce, shall take all necessary and
proper precautions to ensure that individuals’ plan information maintained by
the Retirement Savings Lost and Found is protected and that persons other
than the individual cannot fraudulently claim the benefits to which any indi-
vidual is entitled, and to allow any individual to opt out of inclusion in the Re-
tirement Savings Lost and Found at the election of the individual.
(b) OFFICE OF THE RETIREMENT SAVINGS LOST AND FOUND.—
(1) IN GENERAL.—Subtitle C of title IV of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1341 et seq.) is amended by adding at the end
the following:
‘‘SEC. 4051. OFFICE OF THE RETIREMENT SAVINGS LOST AND FOUND.
‘‘(a) ESTABLISHMENT; RESPONSIBILITIES OF OFFICE.—
‘‘(1) IN GENERAL.—Not later than 2 years after the date of the enactment of
this section, the Secretary of Labor, the Secretary of Treasury, and the Sec-
retary of Commerce shall establish within the corporation an Office of the Re-
tirement Savings Lost and Found (in this section referred to as the ‘Office’).
‘‘(2) RESPONSIBILITIES OF OFFICE.—
‘‘(A) IN GENERAL.—The Office shall—
‘‘(i) carry out subsection (b) of this section;
‘‘(ii) maintain the Retirement Savings Lost and Found established
under section 306(a) of the Securing a Strong Retirement Act of 2021;
and
‘‘(iii) perform an annual audit of plan information contained in the
Retirement Savings Lost and Found and ensure that such information
is current and accurate.
‘‘(B) OPTION TO CONTRACT.—
‘‘(i) IN GENERAL.—Not later than 2 years after the date of enactment
of this section, the corporation shall conduct an analysis of the cost ef-
fectiveness of contracting with a third party to carry out the respon-
sibilities under subparagraph (A)(iii) and, upon a determination that
such contracting would be more cost effective than carrying out such
responsibilities within the Office, the corporation may enter into such
contracts as merited by such analysis.
‘‘(ii) REPORT.—The corporation shall report on the results of the anal-
ysis under clause (i) to the Committees on Finance and Health, Edu-
cation, Labor, and Pensions of the Senate and the Committees on Ways
and Means and Education and Labor of the House of Representatives.
‘‘(b) CERTAIN NON-RESPONSIVE PARTICIPANTS ENTITLED TO SMALL BENEFITS.—
‘‘(1) GENERAL RULE.—
‘‘(A) TRANSFER TO THE OFFICE OF THE RETIREMENT SAVINGS LOST AND
FOUND.—The administrator of a plan that is not terminated and to which
section 401(a)(31)(B) of the Internal Revenue Code of 1986 applies shall
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24
transfer to the Office the amount required to be transferred under section
401(a)(31)(B)(iv) of such Code for a non-responsive participant.
‘‘(B) INFORMATION AND PAYMENT TO THE OFFICE.—Upon making a transfer
under subparagraph (A), the plan administrator shall provide such informa-
tion and certifications as the Office shall specify, including with respect to
the transferred amount and the non-responsive participant.
‘‘(C) INFORMATION REQUIREMENTS AFTER TRANSFER.—In the event that,
after a transfer is made under subparagraph (A), the relevant non-respon-
sive participant contacts the plan administrator or the plan administrator
discovers information that may assist the Office in locating the non-respon-
sive participant, the plan administrator shall notify and provide such infor-
mation as the Office shall specify to the Office.
‘‘(D) SEARCH AND PAYMENT BY THE OFFICE FOLLOWING TRANSFER.—The
Office shall periodically, and upon receiving information described in sub-
paragraph (C), conduct a search for the non-responsive participant for
whom the Office has received a transfer under subparagraph (A). Upon lo-
cation of a non-responsive participant who claims benefits, the Office shall
make a single payment to the non-responsive participant in an amount
equal to the sum of—
‘‘(i) the amount transferred to the Office under subparagraph (A) for
such participant; and
‘‘(ii) the return on the investment attributable to such amount under
section 4005(j)(3).
‘‘(2) DEFINITION.—For purposes of this subsection, the term ‘non-responsive
participant’ means a participant or beneficiary of a plan described in paragraph
(1)(A)—
‘‘(A) who is entitled to a benefit subject to a mandatory transfer under
section 401(a)(31)(B)(iii) of the Internal Revenue Code of 1986; and
‘‘(B) for whom the plan has satisfied the conditions in section
401(a)(31)(B)(iv) of such Code.
‘‘(3) REGULATORY AUTHORITY.—The Office shall prescribe such regulations as
are necessary to carry out the purposes of this section, including rules relating
to the amount payable to the Office and the amount to be paid by the Office.
‘‘(c) INFORMATION COLLECTION.—Within such period after the end of a plan year
as the Office may by regulations prescribe, the administrator of a plan to which the
vesting standards of section 203 apply shall submit the following information, and
such other information as the corporation may require, to the corporation in such
form as the corporation may require:
‘‘(1) The information described in paragraphs (1) through (4) of section 6057(b)
of the Internal Revenue Code of 1986.
‘‘(2) The information described in subparagraphs (A), (B), (E), and (F) of sec-
tion 6057(a)(2) of the Internal Revenue Code of 1986.
‘‘(d) EFFECTIVE DATE.—The requirements of subsections (b) and (c) shall apply
with respect to plan years beginning after the second December 31 occurring after
the date of the enactment of this section.
‘‘(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated
such sums as may be necessary to carry out this section.’’.
(2) ESTABLISHMENT OF FUND FOR TRANSFERRED ASSETS.—Section 4005 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1305) is amended
by adding at the end the following:
‘‘(j)(1) A ninth fund shall be established for the payment of benefits under section
4051(b)(1)(D).
‘‘(2) Such fund shall be credited with the appropriate—
‘‘(A) amounts transferred to the Office of the Retirement Savings Lost and
Found under section 4051(b)(1)(A); and
‘‘(B) earnings on investments of the fund or on assets credited to the fund.
‘‘(3) Whenever the corporation determines that the moneys of any fund are in ex-
cess of current needs, it may request the investment of such amounts as it deter-
mines advisable by the Secretary of the Treasury in obligations issued or guaran-
teed by the United States.’’.
(3) CONFORMING AMENDMENT.—The table of contents for the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1001 et seq.) is amended by insert-
ing after the matter relating to section 4050 the following:
‘‘Sec. 4051. Certain non-responsive participants entitled to small benefits.’’.
(c) MANDATORY TRANSFERS OF ROLLOVER DISTRIBUTIONS.—
(1) INVESTMENT OPTIONS.—
(A) IN GENERAL.—Subparagraph (B) of section 404(c)(3) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(3)) is amended
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25
by striking the period at the end and inserting ‘‘, and, to the extent the Sec-
retary provides in guidance or regulations issued after the enactment of the
Securing a Strong Retirement Act of 2021, is made to—
‘‘(i) a target date or life cycle fund held under such account;
‘‘(ii) as described in section 2550.404a–2 of title 29, Code of Federal
Regulations, an investment product held under such account designed
to preserve principal and provide a reasonable rate of return;
‘‘(iii) the Office of the Retirement Savings Lost and Found in accord-
ance with section 401(a)(31)(B)(iv) of the Internal Revenue Code of
1986 and section 306(c)(2)(A)(ii) of the Securing a Strong Retirement
Act of 2020; or
‘‘(iv) such other option as the Secretary may so provide.’’.
(B) REGULATIONS.—Not later than 270 days after the date of the enact-
ment of this Act, the Secretary of Labor shall promulgate regulations iden-
tifying the target date or life cycle funds, or specifying the characteristics
of such a fund, that will be deemed to meet the requirements of section
404(c)(3)(B)(i) of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1104(c)(3)(B)), as amended by subparagraph (A).
(2) EXPANSION OF CAP; AUTHORITY TO TRANSFER LESSER AMOUNTS.—
(A) CAP.—Sections 401(a)(31)(B)(ii) and 411(a)(11)(A) of the Internal Rev-
enue Code of 1986 and section 203(e)(1) of the Employee Retirement Income
Security Act of 1974 are each amended by striking ‘‘$5,000’’ and inserting
‘‘$6,000’’.
(B) DISTRIBUTION OF LARGER AMOUNTS TO INDIVIDUAL RETIREMENT PLANS
ONLY.—Section 401(a)(31)(B)(i) of such Code is amended by adding at the
end the following: ‘‘The Office of the Retirement Savings Lost and Found
established by section 306 of the Securing a Strong Retirement Act shall
not be treated as a trustee or issuer that is eligible to receive such distribu-
tions.’’.
(C) LESSER AMOUNTS.—Section 401(a)(31)(B) of such Code is amended by
adding at the end the following new clauses:
‘‘(iii) TREATMENT OF LESSER AMOUNTS.—In the case of a trust which
is part of an eligible plan, such trust shall not be a qualified trust
under this section unless such plan provides that, if a participant in
the plan separates from the service covered by the plan and the non-
forfeitable accrued benefit described in clause (ii) is not in excess of
$1,000, the plan administrator shall (either separately or as part of the
notice under section 402(f)) notify the participant that the participant
is entitled to such benefit or attempt to pay the benefit directly to the
participant.
‘‘(iv) TRANSFERS TO RETIREMENT SAVINGS LOST AND FOUND.—If, after
a plan administrator takes the action required under clause (iii), the
participant does not—
‘‘(I) within 6 months of the notification under such clause, make
an election under subparagraph (A) or elect to receive a distribu-
tion of the benefit directly, or
‘‘(II) accept any direct payment made under such clause within
6 months of the attempted payment,
the plan administrator shall transfer the amount of such benefit to the
Office of the Retirement Savings Lost and Found in accordance with
section 4051(b) of the Employee Retirement Income Security Act of
1974.
‘‘(v) INCOME TAX TREATMENT OF TRANSFERS TO RETIREMENT SAVINGS
LOST AND FOUND.—For purposes of determining the income tax treat-
ment of transfers to the Office of the Retirement Savings Lost and
Found under clause (iv)—
‘‘(I) such a transfer shall be treated as a transfer to an individual
retirement plan under clause (i), and
‘‘(II) the distribution of such amounts by the Office of the Retire-
ment Savings Lost and Found shall be treated as a distribution
from an individual retirement plan.’’.
(D) EFFECTIVE DATE.—The amendments made by this paragraph shall
apply to vested benefits with respect to participants who separate from
service connected to the plan in plan years beginning after the second De-
cember 31 occurring after the date of the enactment of this Act.
(d) BETTER REPORTING FOR MANDATORY TRANSFERS.—
(1) IN GENERAL.—Paragraph (2) of section 6057(a) of the Internal Revenue
Code of 1986 is amended—
(A) in subparagraph (C)—
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26
(i) by striking ‘‘during such plan year’’ in clause (i) and inserting
‘‘during the plan year immediately preceding such plan year’’;
(ii) by adding ‘‘and’’ at the end of clause (i); and
(iii) by striking clause (iii);
(B) by redesignating subparagraph (E) as subparagraph (G);
(C) by striking ‘‘and’’ at the end of subparagraph (D); and
(D) by inserting after subparagraph (D) the following new subparagraphs:
‘‘(E) the name and taxpayer identifying number of each participant or
former participant in the plan—
‘‘(i) who, during the current plan year or any previous plan year, was
reported under subparagraph (C), and with respect to whom the bene-
fits described in subparagraph (C)(ii) were fully paid during the plan
year,
‘‘(ii) with respect to whom any amount was distributed under section
401(a)(31)(B) during the plan year, or
‘‘(iii) with respect to whom a deferred annuity contract was distrib-
uted during the plan year,
‘‘(F) in the case of a participant or former participant to whom subpara-
graph (E) applies—
‘‘(i) in the case of a participant described in clause (ii) thereof, the
name and address of the designated trustee or issuer described in sec-
tion 401(a)(31)(B)(i) and the account number of the individual retire-
ment plan to which the amount was distributed, and
‘‘(ii) in the case of a participant described in clause (iii) thereof, the
name and address of the issuer of such annuity contract and the con-
tract or certificate number, and’’.
(2) RULES RELATING TO DIRECT TRUSTEE-TO-TRUSTEE TRANSFERS.—
(A) IN GENERAL.—Paragraph (6) of section 402(e) of such Code is amend-
ed—
(i) by striking ‘‘TRANSFERS.—Any’’ and inserting ‘‘TRANSFERS.—
‘‘(A) IN GENERAL.—Any’’; and
(ii) by adding at the end the following new subparagraph:
‘‘(B) NOTIFICATION OF TRUSTEE.—In the case of a distribution under sec-
tion 401(a)(31)(B), the plan administrator shall notify the designated trust-
ee or issuer described in clause (i) thereof that the transfer is a mandatory
distribution required by such section.’’.
(B) PENALTY.—Subsection (i) of section 6652 of such Code is amended—
(i) by striking ‘‘TO RECIPIENTS’’ in the heading and inserting ‘‘OR NO-
TIFICATION’’;
(ii) by striking ‘‘402(f),’’ and inserting ‘‘402(f) or a notification as re-
quired by section 402(e)(6)(B),’’; and
(iii) by striking ‘‘such written explanation’’ and inserting ‘‘such writ-
ten explanation or notification’’.
(C) REPORTS.—Subsection (i) of section 408 of such Code is amended—
(i) by redesignating subparagraphs (A) and (B) of paragraph (2) as
clauses (i) and (ii), respectively, and by moving such clauses 2 ems to
the right;
(ii) by redesignating paragraphs (1) and (2) as subparagraphs (A) and
(B), respectively, and by moving such subparagraphs 2 ems to the right;
(iii) by striking ‘‘as the Secretary prescribes’’ in subparagraph (B)(ii),
as so redesignated, and all that follows through ‘‘a simple retirement
account’’ and inserting ‘‘as the Secretary prescribes.
‘‘(3) SIMPLE RETIREMENT ACCOUNTS.—In the case of a simple retirement ac-
count’’;
(iv) by striking ‘‘REPORTS.—The trustee of’’ and inserting ‘‘REPORTS.—
‘‘(1) IN GENERAL.—The trustee of’’;
(v) by striking ‘‘under paragraph (2)’’ in paragraph (3), as designated
by clause (iii), and inserting ‘‘under paragraph (1)(B)’’; and
(vi) by inserting after paragraph (1)(B)(ii), as redesignated by the
preceding clauses, the following new paragraph:
‘‘(2) MANDATORY DISTRIBUTIONS.—In the case of an account, contract, or annu-
ity to which a transfer under section 401(a)(31)(B) is made (including a transfer
from the individual retirement plan to which the original transfer under such
section was made to another individual retirement plan), the report required by
this subsection for the year of the transfer and any year in which the informa-
tion previously reported in subparagraph (B) changes shall—
‘‘(A) identify such transfer as a mandatory distribution required by such
section,
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27
‘‘(B) include the name, address, and taxpayer identifying number of the
trustee or issuer of the individual retirement plan to which the amount is
transferred, and
‘‘(C) be filed with the Pension Benefit Guaranty Corporation as well as
with the Secretary.’’.
(3) NOTIFICATION OF PARTICIPANTS UPON SEPARATION.—Subsection (e) of sec-
tion 6057 of such Code is amended by inserting ‘‘, and, with respect to any ben-
efit of the individual subject to section 401(a)(31)(B), a notice of availability of,
and the contact information for, the Retirement Savings Lost and Found estab-
lished under section 306(a)(1) of the Securing a Strong Retirement Act of 2021’’
before the period at the end of the second sentence.
(4) EFFECTIVE DATE.—The amendments made by this paragraph shall apply
to distributions made in, and returns and reports relating to, years beginning
after the second December 31 occurring after the date of the enactment of this
Act.
(e) REQUIREMENT OF ELECTRONIC FILING.—
(1) IN GENERAL.—Paragraph (2) of section 6011(e) of the Internal Revenue
Code of 1986 is amended—
(A) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), re-
spectively, and by moving such clauses 2 ems to the right;
(B) by striking ‘‘REGULATIONS.—In prescribing’’ and inserting ‘‘REGULA-
TIONS.—
‘‘(A) IN GENERAL.—In prescribing’’; and
(C) by adding at the end the following new subparagraph:
‘‘(B) EXCEPTIONS.—Notwithstanding subparagraph (A), the Secretary
shall require returns or reports required under—
‘‘(i) sections 6057, 6058, and 6059, and
‘‘(ii) sections 408(i), 6041, and 6047 to the extent such return or re-
port relates to the tax treatment of a distribution from a plan, account,
contract, or annuity,
to be filed on magnetic media, but only with respect to persons who are re-
quired to file at least 50 returns during the calendar year which includes
the first day of the plan year to which such returns or reports relate.’’.
(2) EFFECTIVE DATE.—The amendments made by this paragraph shall apply
to returns and reports relating to years beginning after the second December
31 occurring after the date of the enactment of this Act.
(f) RULEMAKING TO CLARIFY FIDUCIARY DUTIES.—
(1) REQUEST FOR INFORMATION.—Not later than 1 year after the date of enact-
ment of this Act, the Secretary of Labor, in consultation with the Secretary of
the Treasury, shall issue a request for information relating to the rulemaking
described in paragraph (2).
(2) ISSUANCE OF FINAL RULE.—Not later than 3 years after such date, the Sec-
retary of Labor, in consultation with the Secretary of the Treasury, shall issue
a final rule that defines the following:
(A) The steps a plan sponsor must take to locate a deferred vested partici-
pant in order to meet its fiduciary duty under section 404 of the Employee
Retirement Income Security Act of 1974 with respect to locating that partic-
ipant.
(B) The ongoing practices and procedures a plan sponsor must institute
in order to meet such fiduciary duty with respect to maintaining up-to-date
contact information on deferred vested participants.
SEC. 307. EXPANSION OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.
(a) IN GENERAL.—Except as otherwise provided in the Internal Revenue Code of
1986 or regulations prescribed by the Secretary of the Treasury or the Secretary’s
delegate (referred to in this section as the ‘‘Secretary’’), any eligible inadvertent fail-
ure to comply with the rules applicable under section 401(a), 403(a), 403(b), 408(p),
or 408(k) of such Code may be self-corrected under the Employee Plans Compliance
Resolution System (as described in Revenue Procedure 2019–19 or any successor
guidance and hereafter in this section referred to as the ‘‘EPCRS’’), except to the
extent that such failure was identified by the Secretary prior to any actions which
demonstrate a commitment to implement a self-correction. Revenue Procedure
2019–19 is deemed amended as of the date of the enactment of this Act to provide
that the correction period under section 9.02 of such Revenue Procedure (or any suc-
cessor guidance) for an eligible inadvertent failure, except as otherwise provided
under such Code or in regulations prescribed by the Secretary, is indefinite and has
no last day, other than with respect to failures identified by the Secretary prior to
any self-correction as described in the preceding sentence.
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(b) LOAN ERRORS.—In the case of an eligible inadvertent failure relating to a loan
from a plan to a participant—
(1) such failure may be self-corrected under subsection (a) according to the
rules of section 6.07 of Revenue Procedure 2019–19 (or any successor guidance),
including the provisions related to whether a deemed distribution must be re-
ported on Form 1099–R, and
(2) the Secretary of Labor shall treat any such failure which is so self-cor-
rected under subsection (a) as meeting the requirements of the Voluntary Fidu-
ciary Correction Program of the Department of Labor if, with respect to the vio-
lation of the fiduciary standards of the Employee Retirement Income Security
Act of 1974, there is a similar loan error eligible for correction under EPCRS
and the loan error is corrected in such manner.
(c) EPCRS FOR IRAS.—The Secretary shall expand the EPCRS to allow custodians
of individual retirement plans (as defined in section 7701(a)(37) of the Internal Rev-
enue Code of 1986) to address eligible inadvertent failures with respect to an indi-
vidual retirement plan (as so defined), including (but not limited to)—
(1) waivers of the excise tax which would otherwise apply under section 4974
of the Internal Revenue Code of 1986,
(2) under the self-correction component of the EPCRS, waivers of the 60-day
deadline for a rollover where the deadline is missed for reasons beyond the rea-
sonable control of the account owner, and
(3) rules permitting a nonspouse beneficiary to return distributions to an in-
herited individual retirement plan described in section 408(d)(3)(C) of the Inter-
nal Revenue Code of 1986 in a case where, due to an inadvertent error by a
service provider, the beneficiary had reason to believe that the distribution
could be rolled over without inclusion in income of any part of the distributed
amount.
(d) ADDITIONAL SAFE HARBORS.—The Secretary shall expand the EPCRS to pro-
vide additional safe harbor means of correcting eligible inadvertent failures de-
scribed in subsection (a), including safe harbor means of calculating the earnings
which must be restored to a plan in cases where plan assets have been depleted
by reason of an eligible inadvertent failure.
(e) ELIGIBLE INADVERTENT FAILURE.—For purposes of this section—
(1) IN GENERAL.—Except as provided in paragraph (2), the term ‘‘eligible inad-
vertent failure’’ means a failure that occurs despite the existence of practices
and procedures which—
(A) satisfy the standards set forth in section 4.04 of Revenue Procedure
2019–19 (or any successor guidance), or
(B) satisfy similar standards in the case of an individual retirement plan.
(2) EXCEPTION.—The term ‘‘eligible inadvertent failure’’ shall not include any
failure which is egregious, relates to the diversion or misuse of plan assets, or
is directly or indirectly related to an abusive tax avoidance transaction.
(f) APPLICATION OF CERTAIN REQUIREMENTS FOR CORRECTING ERRORS.—This sec-
tion shall not apply to any failure unless the correction of such failure under this
section is made in conformity with the general principles that apply to corrections
of such failures under the Internal Revenue Code of 1986, including regulations or
other guidance issued thereunder and including those principles and corrections set
forth in Revenue Procedure 2019–19 (or any successor guidance).’’
SEC. 308. ELIMINATE THE ‘‘FIRST DAY OF THE MONTH’’ REQUIREMENT FOR GOVERNMENTAL
SECTION 457(B) PLANS.
(a) IN GENERAL.—Paragraph (4) of section 457(b) of the Internal Revenue Code
of 1986 is amended to read as follows:
‘‘(4) which provides that compensation—
‘‘(A) in the case of an eligible employer described in subsection (e)(1)(A),
will be deferred only if an agreement providing for such deferral has been
entered into before the compensation is currently available to the indi-
vidual, and
‘‘(B) in any other case, will be deferred for any calendar month only if
an agreement providing for such deferral has been entered into before the
beginning of such month,’’.
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.
SEC. 309. ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION TO SPLIT-INTER-
EST ENTITY; INCREASE IN QUALIFIED CHARITABLE DISTRIBUTION LIMITATION.
(a) ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION TO SPLIT-INTER-
EST ENTITY.—Section 408(d)(8) of such Code is amended by adding at the end the
following new subparagraph:
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‘‘(F) ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION TO
SPLIT-INTEREST ENTITY.—
‘‘(i) IN GENERAL.—A taxpayer may for a taxable year elect under this
subparagraph to treat as meeting the requirement of subparagraph
(B)(i) any distribution from an individual retirement account which is
made directly by the trustee to a split-interest entity, but only if—
‘‘(I) an election is not in effect under this subparagraph for a pre-
ceding taxable year,
‘‘(II) the aggregate amount of distributions of the taxpayer with
respect to which an election under this subparagraph is made does
not exceed $50,000, and
‘‘(III) such distribution meets the requirements of clauses (iii)
and (iv).
‘‘(ii) SPLIT-INTEREST ENTITY.—For purposes of this subparagraph, the
term ‘split-interest entity’ means—
‘‘(I) a charitable remainder annuity trust (as defined in section
664(d)(1)), but only if such trust is funded exclusively by qualified
charitable distributions,
‘‘(II) a charitable remainder unitrust (as defined in section
664(d)(2)), but only if such unitrust is funded exclusively by quali-
fied charitable distributions, or
‘‘(III) a charitable gift annuity (as defined in section 501(m)(5)),
but only if such annuity is funded exclusively by qualified chari-
table distributions and commences fixed payments of 5 percent or
greater not later than 1 year from the date of funding.
‘‘(iii) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE.—A distribu-
tion meets the requirement of this clause only if—
‘‘(I) in the case of a distribution to a charitable remainder annu-
ity trust or a charitable remainder unitrust, a deduction for the en-
tire value of the remainder interest in the distribution for the ben-
efit of a specified charitable organization would be allowable under
section 170 (determined without regard to subsection (b) thereof
and this paragraph), and
‘‘(II) in the case of a charitable gift annuity, a deduction in an
amount equal to the amount of the distribution reduced by the
value of the annuity described in section 501(m)(5)(B) would be al-
lowable under section 170 (determined without regard to sub-
section (b) thereof and this paragraph).
‘‘(iv) LIMITATION ON INCOME INTERESTS.—A distribution meets the re-
quirements of this clause only if—
‘‘(I) no person holds an income interest in the split-interest entity
other than the individual for whose benefit such account is main-
tained, the spouse of such individual, or both, and
‘‘(II) the income interest in the split-interest entity is nonassign-
able.
‘‘(v) SPECIAL RULES.—
‘‘(I) CHARITABLE REMAINDER TRUSTS.—Notwithstanding section
664(b), distributions made from a trust described in subclause (I)
or (II) of clause (ii) shall be treated as ordinary income in the
hands of the beneficiary to whom the annuity described in section
664(d)(1)(A) or the payment described in section 664(d)(2)(A) is
paid.
‘‘(II) CHARITABLE GIFT ANNUITIES.—Qualified charitable distribu-
tions made to fund a charitable gift annuity shall not be treated
as an investment in the contract for purposes of section 72(c).’’.
(b) INFLATION ADJUSTMENT.—Section 408(d)(8) of such Code, as amended by sub-
section (a), is amended by adding at the end the following new subparagraph:
‘‘(G) INFLATION ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any taxable year beginning after
2021, each of the dollar amounts in subparagraphs (A) and (F) 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, de-
termined by substituting ‘calendar year 2020’ for ‘calendar year
2016’ in subparagraph (A)(ii) thereof.
‘‘(ii) ROUNDING.—If any dollar amount increased under clause (i) is
not a multiple of $1,000, such dollar amount shall be rounded to the
nearest multiple of $1,000.’’.
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(c) EFFECTIVE DATE.—The amendment made by this section shall apply to dis-
tributions made in taxable years ending after the date of the enactment of this Act.
SEC. 310. DISTRIBUTIONS TO FIREFIGHTERS.
(a) IN GENERAL.—Subparagraph (A) of section 72(t)(10) of the Internal Revenue
Code of 1986 is amended by striking ‘‘414(d))’’ and inserting ‘‘414(d)) or a distribu-
tion from a plan described in clause (iii), (iv), or (vi) of section 402(c)(8)(B) to an
employee who provides firefighting services’’.
(b) CONFORMING AMENDMENT.—The heading of paragraph (10) of section 72(t) of
such Code is amended—
(1) by striking ‘‘QUALIFIED’’, and
(2) by striking ‘‘IN GOVERNMENTAL PLANS’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to dis-
tributions made after December 31, 2021.
SEC. 311. EXCLUSION OF CERTAIN DISABILITY-RELATED FIRST RESPONDER RETIREMENT
PAYMENTS.
(a) IN GENERAL.—Part III of subchapter B of chapter 1 of the Internal Revenue
Code of 1986 is amended by inserting after section 139B the following new section:
‘‘SEC. 139C. CERTAIN DISABILITY-RELATED FIRST RESPONDER RETIREMENT PAYMENTS.
‘‘(a) IN GENERAL.—In the case of an individual who receives qualified first re-
sponder retirement payments for any taxable year, gross income shall not include
so much of such payments as do not exceed the annualized excludable disability
amount with respect to such individual.
‘‘(b) QUALIFIED FIRST RESPONDER RETIREMENT PAYMENTS.—For purposes of this
section, the term ‘qualified first responder retirement payments’ means, with re-
spect to any taxable year, any pension or annuity which but for this section would
be includible in gross income for such taxable year and which is received—
‘‘(1) from a plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B),
and
‘‘(2) in connection with such individual’s qualified first responder service.
‘‘(c) ANNUALIZED EXCLUDABLE DISABILITY AMOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘annualized excludable disability amount’ means,
with respect to any individual, the service-connected excludable disability
amounts which are properly attributable to the 12-month period immediately
preceding the date on which such individual attains retirement age.
‘‘(2) SERVICE-CONNECTED EXCLUDABLE DISABILITY AMOUNT.—The term ‘service-
connected excludable disability amount’ means periodic payments received by
an individual which—
‘‘(A) are not includible in such individual’s gross income under section
104(a)(1),
‘‘(B) are received in connection with such individual’s qualified first re-
sponder service, and
‘‘(C) terminate when such individual attains retirement age.
‘‘(3) SPECIAL RULE FOR PARTIAL-YEAR PAYMENTS.—In the case of an individual
who only receives service-connected excludable disability amounts properly at-
tributable to a portion of the 12-month period described in paragraph (1), such
paragraph shall be applied by multiplying such amounts by the ratio of 365 to
the number of days in such period to which such amounts were properly attrib-
utable.
‘‘(d) QUALIFIED FIRST RESPONDER SERVICE.—For purposes of this section, the term
‘qualified first responder service’ means service as a law enforcement officer, fire-
fighter, paramedic, or emergency medical technician.’’.
(b) CLERICAL AMENDMENT.—The table of sections for part III of subchapter B of
chapter 1 of such Code is amended by inserting after the item relating to section
139B the following new item:
‘‘Sec. 139C. Certain disability-related first responder retirement payments.’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to
amounts received with respect to taxable years beginning after December 31, 2026.
SEC. 312. INDIVIDUAL RETIREMENT PLAN STATUTE OF LIMITATIONS FOR EXCISE TAX ON EX-
CESS CONTRIBUTIONS AND CERTAIN ACCUMULATIONS.
Section 6501(l) of the Internal Revenue Code of 1986 is amended by adding at the
end the following new paragraph:
‘‘(4) INDIVIDUAL RETIREMENT PLANS.—
‘‘(A) IN GENERAL.—For purposes of any tax imposed by section 4973 or
4974 in connection with an individual retirement plan, the return referred
to in this section shall be the income tax return filed by the person on
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31
whom the tax under such section is imposed for the year in which the act
(or failure to act) giving rise to the liability for such tax occurred.
‘‘(B) RULE IN CASE OF INDIVIDUALS NOT REQUIRED TO FILE RETURN.—In
the case of a person who is not required to file an income tax return for
such year—
‘‘(i) the return referred to in this section shall be the income tax re-
turn that such person would have been required to file but for the fact
that such person was not required to file such return, and
‘‘(ii) the 3-year period referred to in subsection (a) with respect to the
return shall be deemed to begin on the date by which the return would
have been required to be filed (excluding any extension thereof).’’.
SEC. 313. REQUIREMENT TO PROVIDE PAPER STATEMENTS IN CERTAIN CASES.
(a) IN GENERAL.—Section 105(a)(2) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1025(a)(2)) is amended—
(1) in subparagraph (A)(iv), by inserting ‘‘subject to subparagraph (E),’’ before
‘‘may be delivered’’; and
(2) by adding at the end the following:
‘‘(E) PROVISION OF PAPER STATEMENTS.—With respect to at least 1 pension
benefit statement furnished for a calendar year with respect to an indi-
vidual account plan under paragraph (1)(A), and with respect to at least 1
pension benefit statement furnished every 3 calendar years with respect to
a defined benefit plan under paragraph (1)(B), such statement shall be fur-
nished on paper in written form except—
‘‘(i) in the case of a plan that furnishes such statement in accordance
with section 2520.104b-1(c) of title 29, Code of Federal Regulations; or
‘‘(ii) in the case of a plan that permits a participant or beneficiary
to request that the statements referred to in the matter preceding
clause (i) be furnished by electronic delivery, if the participant or bene-
ficiary requests that such statements be delivered electronically and
the statements are so delivered.’’.
(b) IMPLEMENTATION.—
(1) IN GENERAL.—The Secretary of Labor shall, not later than December 31,
2021, update section 2520.104b-1(c) of title 29, Code of Federal Regulations, to
provide that a plan may furnish the statements referred to in subparagraph (E)
of section 105(a)(2) by electronic delivery only if, in addition to meeting the
other requirements under the regulations—
(A) such plan furnishes each participant or beneficiary, including partici-
pants described in subparagraph (B), a one-time initial notice on paper in
written form, prior to the electronic delivery of any pension benefit state-
ment, of their right to request that all documents required to be disclosed
under title I of the Employee Retirement Income Security Act of 1974 be
furnished on paper in written form; and
(B) such plan furnishes each participant who is separated from service
with at least 1 pension benefit statement on paper in written form for each
calendar year, unless, on election of the participant, the participant receives
such statements electronically.
(2) OTHER GUIDANCE.—In implementing the amendment made by subsection
(a) with respect to a plan that discloses required documents or statements elec-
tronically, in accordance with applicable guidance governing electronic disclo-
sure by the Department of Labor (with the exception of section 2520.104b-1(c)
of title 29, Code of Federal Regulations), the Secretary of Labor shall, not later
than December 31, 2021, update such guidance to the extent necessary to en-
sure that—
(A) a participant or beneficiary under such a plan is permitted the oppor-
tunity to request that any disclosure required to be delivered on paper
under applicable guidance by the Department of Labor shall be furnished
by electronic delivery;
(B) each paper statement furnished under such a plan pursuant to the
amendment shall include—
(i) an explanation of how to request that all such statements, and
any other document required to be disclosed under title I of the Em-
ployee Retirement Income Security Act of 1974, be furnished by elec-
tronic delivery; and
(ii) contact information for the plan sponsor, including a telephone
number;
(C) the plan may not charge any fee to a participant or beneficiary for
the delivery of any paper statements;
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(D) each paper pension benefit statement shall identify each plan docu-
ment required to be disclosed and shall include information about how a
participant or beneficiary may access each such document;
(E) each document required to be disclosed that is furnished by electronic
delivery under such a plan shall include an explanation of how to request
that all such documents be furnished on paper in written form; and
(F) a plan is permitted to furnish a duplicate electronic statement in any
case in which the plan furnishes a paper pension benefit statement.
(c) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with re-
spect to plan years beginning after December 31, 2022.
SEC. 314. SEPARATE APPLICATION OF TOP HEAVY RULES TO DEFINED CONTRIBUTION PLANS
COVERING EXCLUDIBLE EMPLOYEES.
(a) IN GENERAL.—Section 416(c)(2) of the Internal Revenue Code of 1986 is
amended by adding at the end the following:
‘‘(C) SEPARATE APPLICATION TO EMPLOYEES NOT MEETING AGE AND SERVICE
REQUIREMENTS.—If employees not meeting the age or service requirements
of section 410(a)(1) (without regard to subparagraph (B) thereof) are cov-
ered under a plan of the employer which meets the requirements of sub-
paragraphs (A) and (B) separately with respect to such employees, such em-
ployees may be excluded from consideration in determining whether any
plan of the employer meets the requirements of subparagraphs (A) and
(B).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to plan
years beginning after the date of the enactment of this Act.
SEC. 315. REPAYMENT OF QUALIFIED BIRTH OR ADOPTION DISTRIBUTION LIMITED TO 3
YEARS.
(a) IN GENERAL.—Section 72(t)(2)(H)(v)(I) of the Internal Revenue Code of 1986
is amended by striking ‘‘may make’’ and inserting ‘‘may, at any time during the 3-
year period beginning on the day after the date on which such distribution was re-
ceived, make’’.
(b) EFFECTIVE DATE.—The amendment made by this section shall take effect as
if included in the enactment of section 113 of the Setting Every Community Up for
Retirement Enhancement Act of 2019.
SEC. 316. EMPLOYER MAY RELY ON EMPLOYEE CERTIFYING THAT DEEMED HARDSHIP DIS-
TRIBUTION CONDITIONS ARE MET.
(a) CASH OR DEFERRED ARRANGEMENTS.—Section 401(k)(14) of the Internal Rev-
enue Code of 1986 is amended by adding at the end the following new subpara-
graph:
‘‘(C) EMPLOYEE CERTIFICATION.—In determining whether a distribution is
upon the hardship of an employee, the administrator of the plan may rely
on a certification by the employee that the distribution is on account of a
financial need of a type that is deemed in regulations prescribed by the Sec-
retary to be an immediate and heavy financial need and that such distribu-
tion is not in excess of the amount required to satisfy such financial need.’’.
(b) 403(b) PLANS.—
(1) CUSTODIAL ACCOUNTS.—Section 403(b)(7) of such Code is amended by add-
ing at the end the following new subparagraph:
‘‘(D) EMPLOYEE CERTIFICATION.—In determining whether a distribution is
upon the financial hardship of an employee, the administrator of the plan
may rely on a certification by the employee that the distribution is on ac-
count of a financial need of a type that is deemed in regulations prescribed
by the Secretary to be an immediate and heavy financial need and that
such distribution is not in excess of the amount required to satisfy such fi-
nancial need.’’.
(2) ANNUITY CONTRACTS.—Section 403(b)(11) of such Code is amended by add-
ing at the end the following: ‘‘In determining whether a distribution is upon
hardship of an employee, the administrator of the plan may rely on a certifi-
cation by the employee that the distribution is on account of a financial need
of a type that is deemed in regulations prescribed by the Secretary to be an im-
mediate and heavy financial need and that such distribution is not in excess
of the amount required to satisfy such financial need.’’.
(c) 457(b) PLAN.—Section 457(d) of such Code is amended by adding at the end
the following new paragraph:
‘‘(4) PARTICIPANT CERTIFICATION.—In determining whether a distribution of a
participant is made when the participant is faced with an unforeseeable emer-
gency, the administrator of a plan maintained by an eligible employer described
in subsection (e)(1)(A) may rely on a certification by the participant that the dis-
tribution is made when the participant is faced with unforeseeable emergency
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33
of a type that is specifically described in regulations prescribed by the Secretary
as an unforeseeable emergency and that the distribution is not in excess of the
amount reasonably necessary to satisfy the emergency need.’’.
(d) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning after December 31, 2021.
SEC. 317. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR INDIVIDUALS IN
CASE OF DOMESTIC ABUSE.
(a) IN GENERAL.—Section 72(t)(2) of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new subparagraph:
‘‘(I) DISTRIBUTIONS FROM RETIREMENT PLAN IN CASE OF DOMESTIC
ABUSE.—
‘‘(i) IN GENERAL.—Any eligible distribution to a domestic abuse vic-
tim.
‘‘(ii) LIMITATION.—The aggregate amount which may be treated as an
eligible distribution to a domestic abuse victim by any individual shall
not exceed an amount equal to the lesser of—
‘‘(I) $10,000, or
‘‘(II) 50 percent of the present value of the nonforfeitable accrued
benefit of the employee under the plan.
‘‘(iii) ELIGIBLE DISTRIBUTION TO A DOMESTIC ABUSE VICTIM.—For pur-
poses of this subparagraph—
‘‘(I) IN GENERAL.—A distribution shall be treated as an eligible
distribution to a domestic abuse victim if such distribution is from
an applicable eligible retirement plan to an individual and made
during the 1-year period beginning on any date on which the indi-
vidual is a victim of domestic abuse by a spouse or domestic part-
ner.
‘‘(II) DOMESTIC ABUSE.—The term ‘domestic abuse’ means phys-
ical, psychological, sexual, emotional, or economic abuse, including
efforts to control, isolate, humiliate, or intimidate the victim, or to
undermine the victim’s ability to reason independently, including
by means of abuse of the victim’s child or another family member
living in the household.
‘‘(iv) TREATMENT OF PLAN DISTRIBUTIONS.—
‘‘(I) IN GENERAL.—If a distribution to an individual would (with-
out regard to clause (ii)) be an eligible distribution to a domestic
abuse victim , a plan shall not be treated as failing to meet any
requirement of this title merely because the plan treats the dis-
tribution as an eligible distribution to a domestic abuse victim, un-
less the aggregate amount of such distributions from all plans
maintained by the employer (and any member of any controlled
group which includes the employer) to such individual exceeds the
limitation under clause (ii).
‘‘(II) CONTROLLED GROUP.—For purposes of subclause (I), the
term ‘controlled group’ means any group treated as a single em-
ployer under subsection (b), (c), (m), or (o) of section 414.
‘‘(v) AMOUNT DISTRIBUTED MAY BE REPAID.—
‘‘(I) IN GENERAL.—Any individual who receives a distribution de-
scribed in clause (i) may, at any time during the 3-year period be-
ginning on the day after the date on which such distribution was
received, make one or more contributions in an aggregate amount
not to exceed the amount of such distribution to an applicable eligi-
ble retirement plan of which such individual is a beneficiary and
to which a rollover contribution of such distribution could be made
under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as
the case may be.
‘‘(II) LIMITATION ON CONTRIBUTIONS TO APPLICABLE ELIGIBLE RE-
TIREMENT PLANS OTHER THAN IRAs.—The aggregate amount of con-
tributions made by an individual under subclause (I) to any appli-
cable eligible retirement plan which is not an individual retirement
plan shall not exceed the aggregate amount of eligible distributions
to a domestic abuse victim which are made from such plan to such
individual. Subclause (I) shall not apply to contributions to any ap-
plicable eligible retirement plan which is not an individual retire-
ment plan unless the individual is eligible to make contributions
(other than those described in subclause (I)) to such applicable eli-
gible retirement plan.
‘‘(III) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM APPLI-
CABLE ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.—If a con-
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34
tribution is made under subclause (I) with respect to an eligible
distribution to a domestic abuse victim from an applicable eligible
retirement plan other than an individual retirement plan, then the
taxpayer shall, to the extent of the amount of the contribution, be
treated as having received such distribution in an eligible rollover
distribution (as defined in section 402(c)(4)) and as having trans-
ferred the amount to the applicable eligible retirement plan in a
direct trustee to trustee transfer within 60 days of the distribution.
‘‘(IV) TREATMENT OF REPAYMENTS FOR DISTRIBUTIONS FROM
IRAS.—If a contribution is made under subclause (I) with respect to
an eligible distribution to a domestic abuse victim from an indi-
vidual retirement plan, then, to the extent of the amount of the
contribution, such distribution shall be treated as a distribution de-
scribed in section 408(d)(3) and as having been transferred to the
applicable eligible retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
‘‘(vi) DEFINITION AND SPECIAL RULES.—For purposes of this subpara-
graph:
‘‘(I) APPLICABLE ELIGIBLE RETIREMENT PLAN.—The term ‘applica-
ble eligible retirement plan’ means an eligible retirement plan (as
defined in section 402(c)(8)(B)) other than a defined benefit plan.
‘‘(II) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE
TRANSFER AND WITHHOLDING RULES.—For purposes of sections
401(a)(31), 402(f), and 3405, an eligible distribution to a domestic
abuse victim shall not be treated as an eligible rollover distribu-
tion.
‘‘(III) DISTRIBUTIONS TREATED AS MEETING PLAN DISTRIBUTION RE-
QUIREMENTS; SELF-CERTIFICATION.—Any distribution which the em-
ployee or participant certifies as being an eligible distribution to a
domestic abuse victim shall be treated as meeting the require-
ments of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and
457(d)(1)(A).’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to dis-
tributions made after the date of the enactment of this Act.
SEC. 318. REFORM OF FAMILY ATTRIBUTION RULE.
(a) IN GENERAL.—Section 414 of the Internal Revenue Code of 1986 is amended—
(1) in subsection (b)—
(A) by striking ‘‘For purposes of’’ and inserting the following:
‘‘(1) IN GENERAL.—For purposes of’’, and
(B) by adding at the end the following new paragraphs:
‘‘(2) SPECIAL RULES FOR APPLYING FAMILY ATTRIBUTION.—For purposes of ap-
plying the attribution rules under section 1563 with respect to paragraph (1),
the following rules apply:
‘‘(A) Community property laws shall be disregarded for purposes of deter-
mining ownership.
‘‘(B) Except as provided by the Secretary, stock of an individual not at-
tributed under section 1563(e)(5) to such individual’s spouse shall not be at-
tributed to such spouse by reason of section 1563(e)(6)(A).
‘‘(C) Except as provided by the Secretary, in the case of stock in different
corporations that is attributed to a child under section 1563(e)(6)(A) from
each parent, and is not attributed to such parents as spouses under section
1563(e)(5), such attribution to the child shall not by itself result in such cor-
porations being members of the same controlled group.
‘‘(3) PLAN SHALL NOT FAIL TO BE TREATED AS SATISFYING THIS SECTION.—If ap-
plication of paragraph (2) causes two or more entities to be a controlled group,
or an affiliated service group, or to no longer be in a controlled group or an af-
filiated service group, such change shall be treated as a transaction to which
section 410(b)(6)(C) applies.’’, and
(2) in subsection (m)(6)(B), by striking ‘‘apply’’ and inserting ‘‘apply, except
that community property laws shall be disregarded for purposes of determining
ownership’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning on or after the date of the enactment of this section.
SEC. 319. AMENDMENTS TO INCREASE BENEFIT ACCRUALS UNDER PLAN FOR PREVIOUS
PLAN YEAR ALLOWED UNTIL EMPLOYER TAX RETURN DUE DATE.
(a) IN GENERAL.—Section 401(b) of the Internal Revenue Code of 1986 is amended
by adding at the end the following new paragraph:
‘‘(3) RETROACTIVE PLAN AMENDMENTS THAT INCREASE BENEFIT ACCRUALS.—If—
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35
‘‘(A) an employer amends a stock bonus, pension, profit-sharing, or annu-
ity plan to increase benefits accrued under the plan effective for the pre-
ceding plan year (other than increasing the amount of matching contribu-
tions (as defined in subsection (m)(4)(A))),
‘‘(B) such amendment would not otherwise cause the plan to fail to meet
any of the requirements of this subchapter, and
‘‘(C) such amendment is adopted before the time prescribed by law for fil-
ing the return of the employer for a taxable year (including extensions
thereof) during which such amendment is effective,
the employer may elect to treat such amendment as having been adopted as of
the last day of the plan year in which the amendment is effective.’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning after December 31, 2022.
SEC. 320. RETROACTIVE FIRST YEAR ELECTIVE DEFERRALS FOR SOLE PROPRIETORS.
(a) IN GENERAL.—Section 401(b)(2) of the Internal Revenue Code of 1986 is
amended by adding at the end the following: ‘‘In the case of an individual who owns
the entire interest in an unincorporated trade or business, and who is the only em-
ployee of such trade or business, any elective deferrals (as defined in section
402(g)(3)) under a qualified cash or deferred arrangement to which the preceding
sentence applies, which are made by such individual before the time for filing the
return of such individual for the taxable year (determined without regard to any ex-
tensions) ending after or with the end of the plan’s first year, shall be treated as
having been made before the end of such first plan year.’’.
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to plan
years beginning after the date of the enactment of this Act.
SEC. 321. LIMITING CESSATION OF IRA TREATMENT TO PORTION OF ACCOUNT INVOLVED IN
A PROHIBITED TRANSACTION.
(a) IN GENERAL.—Section 408(e)(2)(A) of the Internal Revenue Code of 1986 is
amended by striking ‘‘such account ceases to be an individual retirement account’’
and inserting the following: ‘‘the portion of such account which is used in such
transaction shall be treated as distributed to the individual’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(e)(2)(B) of such Code is amended—
(A) by striking ‘‘ALL ITS ASSETS.—In any case’’ and all that follows
through ‘‘by reason of subparagraph (A)’’ and inserting the following: ‘‘POR-
TION OF ASSETS USED IN PROHIBITED TRANSACTION.—In any case in which
a portion of an individual retirement account is treated as distributed
under subparagraph (A)’’, and
(B) by striking ‘‘all assets in the account’’ and inserting ‘‘such portion’’.
(2) Section 4975(c)(3) of such Code is amended by striking ‘‘the account
ceases’’ and all that follows and inserting the following: ‘‘the portion of the ac-
count used in the transaction is treated as distributed under paragraph (2)(A)
or (4) of section 408(e).’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after the date of the enactment of this Act.
TITLE IV—TECHNICAL AMENDMENTS
SEC. 401. AMENDMENTS RELATING TO SETTING EVERY COMMUNITY UP FOR RETIREMENT
ENHANCEMENT ACT OF 2019.
(a) TECHNICAL AMENDMENTS.—
(1) AMENDMENT RELATING TO SECTION 114.—Section 401(a)(9)(C)(iii) of the In-
ternal Revenue Code of 1986 is amended by striking ‘‘employee to whom clause
(i)(II) applies’’ and inserting ‘‘employee (other than an employee to whom clause
(i)(II) does not apply by reason of clause (ii))’’.
(2) AMENDMENT RELATING TO SECTION 116.—Section 4973(b) of the Internal
Revenue Code of 1986 is amended by adding at the end of the flush matter the
following: ‘‘Such term shall not include any designated nondeductible contribu-
tion (as defined in subparagraph (C) of section 408(o)(2)) which does not exceed
the nondeductible limit under subparagraph (B) thereof by reason of an election
under section 408(o)(5).’’.
(3) EFFECTIVE DATE.—The amendments made by this section shall take effect
as if included in section of the Setting Every Community Up for Retirement En-
hancement Act of 2019 to which the amendment relates.
(b) CLERICAL AMENDMENT.—Section 72(t)(2)(H)(vi)(IV) of the Internal Revenue
Code of 1986 is amended by striking ‘‘403(b)(7)(A)(ii)’’ and inserting ‘‘
403(b)(7)(A)(i)’’.
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TITLE V—ADMINISTRATIVE PROVISIONS
SEC. 501. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to any retirement plan or contract amend-
ment—
(1) such retirement plan or contract shall be treated as being operated in ac-
cordance with the terms of the plan during the period described in subsection
(b)(2)(A); and
(2) except as provided by the Secretary of the Treasury (or the Secretary’s del-
egate), such retirement plan shall not fail to meet the requirements of section
411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Em-
ployee Retirement Income Security Act of 1974 by reason of such amendment.
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to any amendment to any retire-
ment plan or annuity contract which is made—
(A) pursuant to any amendment made by this Act or pursuant to any reg-
ulation issued by the Secretary of the Treasury or the Secretary of Labor
(or a delegate of either such Secretary) under this Act; and
(B) on or before the last day of the first plan year beginning on or after
January 1, 2023, or such later date as the Secretary of the Treasury may
prescribe.
In the case of a governmental plan (as defined in section 414(d) of the Internal
Revenue Code of 1986), this paragraph shall be applied by substituting ‘‘2025’’
for ‘‘2023’’.
(2) CONDITIONS.—This section shall not apply to any amendment unless—
(A) during the period—
(i) beginning on the date the legislative or regulatory amendment de-
scribed in paragraph (1)(A) takes effect (or in the case of a plan or con-
tract amendment not required by such legislative or regulatory amend-
ment, the effective date specified by the plan); and
(ii) ending on the date described in paragraph (1)(B) (as modified by
the second sentence of paragraph (1)) (or, if earlier, the date the plan
or contract amendment is adopted),
the plan or contract is operated as if such plan or contract amendment were
in effect; and
(B) such plan or contract amendment applies retroactively for such pe-
riod.
(c) COORDINATION WITH OTHER PROVISIONS RELATING TO PLAN AMENDMENTS.—
(1) SECURE ACT.—Section 601(b)(1) of the Setting Every Community Up for
Retirement Enhancement Act of 2019 is amended—
(A) by striking ‘‘January 1, 2022’’ in subparagraph (B) and inserting ‘‘Jan-
uary 1, 2023’’, and
(B) by striking ‘‘substituting ‘2024’ for ‘2022’.’’ in the flush matter at the
end and inserting ‘‘substituting ‘2025’ for ‘2023’.’’.
(2) CARES ACT.—
(A) SPECIAL RULES FOR USE OF RETIREMENT FUNDS.—Section 2202(c)(2)(A)
of the CARES Act is amended by striking ‘‘January 1, 2022’’ in clause (ii)
and inserting ‘‘January 1, 2023’’.
(B) TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTIONS RULES FOR
CERTAIN RETIREMENT PLANS AND ACCOUNTS.—Section 2203(c)(2)(B)(i) of the
CARES Act is amended—
(i) by striking ‘‘January 1, 2022’’ in subclause (II) and inserting ‘‘Jan-
uary 1, 2023’’, and
(ii) by striking ‘‘substituting ‘2024’ for ‘2022’.’’ in the flush matter at
the end and inserting ‘‘substituting ‘2025’ for ‘2023’.’’.
(C) TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 2020.—Section
302(d)(2)(A) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020
is amended by striking ‘‘January 1, 2022’’ in clause (ii) and inserting ‘‘Janu-
ary 1, 2023’’.
TITLE VI—REVENUE PROVISIONS
SEC. 601. SIMPLE AND SEP ROTH IRAS.
(a) IN GENERAL.—Section 408A of the Internal Revenue Code of 1986 is amended
by striking subsection (f).
(b) RULES RELATING TO SIMPLIFIED EMPLOYEE PENSIONS.—
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(1) CONTRIBUTIONS.—Section 402(h)(1) of such Code is amended by striking
‘‘and’’ at the end of subparagraph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, and by adding at the end the following new
subparagraph:
‘‘(C) in the case of any contributions pursuant to a simplified employer
pension which are made to an individual retirement plan designated as a
Roth IRA, such contribution shall not be excludable from gross income.’’.
(2) DISTRIBUTIONS.—Section 402(h)(3) of such Code is amended by inserting
‘‘, or section 408A(d) in the case of an individual retirement plan designated as
a Roth IRA’’ before the period at the end.
(3) ELECTION REQUIRED.—Section 408(k) of such Code is amended by redesig-
nating paragraphs (7), (8), and (9) as paragraphs (8), (9), and (10), respectively,
and by inserting the after paragraph (6) the following new paragraph:
‘‘(7) ROTH CONTRIBUTION ELECTION.—An individual retirement plan which is
designated as a Roth IRA shall not be treated as a simplified employee pension
under this subsection unless the employee elects for such plan to be so treated
(at such time and in such manner as the Secretary may provide).’’.
(c) RULES RELATING TO SIMPLE RETIREMENT ACCOUNTS.—
(1) ELECTION REQUIRED.—Section 408(p) of such Code is amended by adding
at the end the following new paragraph:
‘‘(11) ROTH CONTRIBUTION ELECTION.—An individual retirement plan which is
designated as a Roth IRA shall not be treated as a simple retirement account
under this subsection unless the employee elects for such plan to be so treated
(at such time and in such manner as the Secretary may provide).’’.
(2) ROLLOVERS.—Section 408A(e) of such Code is amended by adding at the
end the following new paragraph:
‘‘(3) SIMPLE RETIREMENT ACCOUNTS.—In the case of any payment or distribu-
tion out of a simple retirement account (as defined in section 408(p)) with re-
spect to which an election has been made under section 408(p)(11) and to which
72(t)(6) applies, the term ‘qualified rollover contribution’ shall not include any
payment or distribution paid into an account other than another simple retire-
ment account (as so defined).’’.
(d) COORDINATION WITH ROTH CONTRIBUTION LIMITATION.—Section 408A(c) of
such Code is amended by adding at the end the following new paragraph:
‘‘(7) COORDINATION WITH LIMITATION FOR SIMPLE RETIREMENT PLANS AND
SEPS.—In the case of an individual on whose behalf contributions are made to
a simple retirement account or a simplified employee pension, the amount de-
scribed in paragraph (2)(A) shall be increased by an amount equal to the con-
tributions made on the individual’s behalf to such account or pension for the
taxable year, but only to the extent such contributions—
‘‘(A) in the case of a simplified retirement account—
‘‘(i) do not exceed the sum of the dollar amount in effect for the tax-
able year under section 408(p)(2)(A)(ii) and the employer contribution
required under subparagraph (A)(iii) or (B)(i), as the case may be, of
section 408(p)(2), and
‘‘(ii) do not cause the elective deferrals (as defined in section
402(g)(3)) on behalf of such individual to exceed the limitation under
section 402(g)(1) (taking into account any additional elective deferrals
permitted under section 414(v)), or
‘‘(B) in the case of a simplified employee pension, do not exceed the limi-
tation in effect under section 408(j).’’.
(e) CONFORMING AMENDMENT.—Section 408A(d)(2)(B) of such Code is amended by
inserting ‘‘, or employer in the case of a simple retirement account (as defined in
section 408(p)) or simplified employee pension (as defined in section 408(k)),’’ after
‘‘individual’s spouse’’.
(f) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2021.
SEC. 602. HARDSHIP WITHDRAWAL RULES FOR 403(b) PLANS.
(a) IN GENERAL.—Section 403(b) of the Internal Revenue Code of 1986, as amend-
ed by the preceding provisions of this Act, is amended by adding at the end the fol-
lowing new paragraph:
‘‘(16) SPECIAL RULES RELATING TO HARDSHIP WITHDRAWALS.—For purposes of
paragraphs (7) and (11)—
‘‘(A) AMOUNTS WHICH MAY BE WITHDRAWN.—The following amounts may
be distributed upon hardship of the employee:
‘‘(i) Contributions made pursuant to a salary reduction agreement
(within the meaning of section 3121(a)(5)(D)).
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‘‘(ii) Qualified nonelective contributions (as defined in section
401(m)(4)(C)).
‘‘(iii) Qualified matching contributions described in section
401(k)(3)(D)(ii)(I).
‘‘(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
‘‘(B) NO REQUIREMENT TO TAKE AVAILABLE LOAN.—A distribution shall not
be treated as failing to be made upon the hardship of an employee solely
because the employee does not take any available loan under the plan.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 403(b)(7)(A)(i)(V) of such Code is amended by striking ‘‘in the case
of contributions made pursuant to a salary reduction agreement (within the
meaning of section 3121(a)(5)(D))’’ and inserting ‘‘subject to the provisions of
paragraph (16)’’.
(2) Paragraph (11) of section 403(b) of such Code, as amended by the pre-
ceding provisions of this Act, is amended—
(A) by striking ‘‘in’’ in subparagraph (B) and inserting ‘‘subject to the pro-
visions of paragraph (16), in’’, and
(B) by striking the penultimate sentence.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan
years beginning after December 31, 2021.
SEC. 603. ELECTIVE DEFERRALS GENERALLY LIMITED TO REGULAR CONTRIBUTION LIMIT.
(a) APPLICABLE EMPLOYER PLANS.—Section 414(v)(1) of the Internal Revenue Code
of 1986 is amended by adding at the end the following: ‘‘Except in the case of an
applicable employer plan described in paragraph (6)(iv), the preceding sentence
shall only apply if contributions are designated Roth contributions (as defined in
section 402A(c)(1)).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 402(g)(1) of such Code is amended by striking subparagraph (C).
(2) Section 457(e)(18)(A)(ii) of such Code is amended by inserting ‘‘the lesser
of any designated Roth contributions made by the participant to the plan or’’
before ‘‘the applicable dollar amount’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to tax-
able years beginning after December 31, 2021.
SEC. 604. OPTIONAL TREATMENT OF EMPLOYER MATCHING CONTRIBUTIONS AS ROTH CON-
TRIBUTIONS.
(a) IN GENERAL.—Section 402A(a) of the Internal Revenue Code of 1986 is amend-
ed by redesignating paragraph (2) as paragraph (3), by striking ‘‘and’’ at the end
of paragraph (1), and by inserting after paragraph (1) the following new paragraph:
‘‘(2) any designated Roth contribution which is made by the employer to the
program on the employee’s behalf, and on account of the employee’s contribution
or elective deferral, shall be treated as a matching contribution for purposes of
this chapter, except that such contribution shall not be excludable from gross
income, and’’.
(b) MATCHING INCLUDED IN QUALIFIED ROTH CONTRIBUTION PROGRAM.—Section
402A(b)(1) of such Code is amended—
(1) by inserting ‘‘, or to have made on the employee’s behalf,’’ after ‘‘elect to
make’’, and
(2) by inserting ‘‘, or of matching contributions which may otherwise be made
on the employee’s behalf,’’ after ‘‘otherwise eligible to make’’.
(c) DESIGNATED ROTH MATCHING CONTRIBUTIONS.—Section 402A(c)(1) of such
Code is amended by inserting ‘‘or matching contribution’’ after ‘‘elective deferral’’.
(d) MATCHING CONTRIBUTION DEFINED.—Section 402A(e) of such Code is amended
by adding at the end the following:
‘‘(3) MATCHING CONTRIBUTION.—The term ‘matching contribution’ means—
‘‘(A) any matching contribution described in section 401(m)(4)(A), and
‘‘(B) any contribution to an eligible deferred compensation plan (as de-
fined in section 457(b)) by an eligible employer described in section
457(e)(1)(A) on behalf of an employee and on account of such employee’s
elective deferral under such plan.’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to con-
tributions made after the date of the enactment of this Act.
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I. SUMMARY AND BACKGROUND
A. PURPOSE AND SUMMARY
The bill, H.R. 2954, the ‘‘Securing a Strong Retirement Act of
2021’’ as amended and ordered reported by the Committee on Ways
and Means on May 5, 2021, amends the Internal Revenue Code of
1986 to encourage retirement savings, and for other purposes.
B. BACKGROUND AND NEED FOR LEGISLATION
Employer-sponsored retirement plans and Individual Retirement
Arrangements (IRAs) are valuable tools successfully used by mil-
lions of Americans to help save for retirement. The Committee be-
lieves that it should be easier for Americans to use these accounts
to save. The Committee also believes that it should be easier for
employers to offer retirement plans to their employees.
H.R. 2954 addresses these issues by expanding opportunities for
Americans to increase their savings and making administrative
simplifications to the retirement system. Specifically, H.R. 2954, as
amended, requires new 401(k) and 403(b) plans to automatically
enroll participants in the plans upon becoming eligible and expands
and increases the startup credit to encourage small businesses to
establish retirement plans. H.R. 2954 also increases the required
minimum distribution age from age 72 to age 75, reduces the max-
imum service requirement for long-term part-time workers to make
elective deferrals to 401(k) plans from 3 years to 2 years, estab-
lishes a retirement lost and found to reconnect former employees
with their benefits, and makes various other changes.
C. LEGISLATIVE HISTORY
Background
H.R. 2954 was introduced on May 4, 2021 and was referred to
the Committee on Ways and Means, and additionally to the Com-
mittees on Financial Services, and Education and Labor.
The legislation builds upon several different bills. One of those
bills, H.R. 4524, the Retirement Plan Simplification and Enhance-
ment Act of 2017, was introduced December 1, 2017, in the 115th
Congress and was referred to the Committee on Ways and Means
and to the Committee on Education and the Workforce.
H.R. 2954 largely incorporates the text of H.R. 2741, which was
introduced April 21, 2021 in the 117th Congress and referred to the
Committee on Financial Services, and in addition to the Committee
on Ways and Means. H.R. 2741, as included in H.R. 2954, elimi-
nates the requirement that a section 403(b)(7) custodial account be
invested solely in regulated investment company stock, allowing in-
vestment in collective investment trusts. H.R. 2954 also includes
provisions from H.R. 2796, introduced April 22, 2021 in the 117th
Congress and referred to the House Committee on Ways and
Means, to modernize family attribution rules for determining own-
ership of a business in community property states and when
spouses share a minor child.
H.R. 2954 also incorporates provisions from several bills intro-
duced and referred to the Committee on Ways and Means April 30,
2021 in the 117th Congress. It includes provisions from H.R. 2913,
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which increase public awareness of the Saver’s Credit, a non-
refundable income tax credit for taxpayers who make qualified re-
tirement savings contributions, and from H.R. 2933 to increase the
required minimum distribution age from age 72 to age 75. It in-
cludes provisions from H.R. 2927, also introduced on April 30 and
additionally referred to the Committee on Education and Labor, to
provide that a section 403(b) plan may be established and main-
tained as a multiple employer plan. There are included provisions
from H.R. 2917, permitting retirement plan sponsors to make
matching contributions on account of student loan payments and
from H.R. 2944 to reduce the maximum service requirement for
long-term part-time workers to make elective deferrals to 401(k)
plans from 3 years to 2 years. H.R. 2954 also incorporates H.R.
2951 which directs the Secretary of the Treasury to revise regula-
tions to facilitate the use of exchanged traded funds in variable in-
surance contracts and H.R. 2909 to index the limit on qualified
charitable distributions (QCDs) and allow for a one-time election
for QCDs to split-interest entities.
The bill also includes provisions directing the Secretary of Labor
to modify its regulations so that an investment that uses a mix of
asset classes can be benchmarked against a blend of broad-based
securities market indices per H.R. 8660, introduced October, 32,
2020, in the 116th Congress and referred to the Committee on Edu-
cation and Labor. H.R. 2954 also includes H.R. 2953, introduced
May 4, 2021, in the 117th Congress and referred to the Committee
on Ways and Means, to allow a victim of domestic violence to with-
draw retirement funds without penalty.
Committee hearings
The Committee on Ways and Means has held numerous hearings
on retirement security in multiple Congresses. In the 113th Con-
gress, the Subcommittee on Select Revenue Measures of the Com-
mittee on Ways and Means held a hearing on ‘‘Private Employer
Defined Benefit Pension Plans’’ on September 17, 2014. Witnesses
included Deborah Tully, Director of Compensation and Benefits Fi-
nance and Accounting Analysis, Raytheon; R. Dale Hall, Managing
Director of Research, Society of Actuaries; Scott Henderson, Vice
President of Pension Investment and Strategy, The Kroger Co.;
Jeremy Gold, FSA, MAAA, Jeremy Gold Pensions; and Diane Oak-
ley, Executive Director, National Institute on Retirement Security.
In the 114th Congress, the Subcommittee on Oversight of the
Committee on Ways and Means held a hearing on the ‘‘Department
of Labor’s Proposed Fiduciary Rule’’ on September 17, 2014. Wit-
nesses included Bradford Campbell, Counsel, Drinker Biddle &
Reath LLP, Washington, D.C.; Paul Schott Stevens, President and
CEO, Investment Company Institute, Washington, D.C.; Judy
VanArsdale, LPL Financial, Deer Park, IL; Kenneth Specht, Finan-
cial Services Professional, Agent, New York Life Insurance Com-
pany, Kenosha, WI; Patricia Owen, President, FACES DaySpa, Hil-
ton Head Island, SC; and Damon Silvers, Director of Policy and
Special Counsel, AFL–CIO, Washington, D.C.
In the 115th Congress, the Tax Policy Subcommittee of the Com-
mittee on Ways & Means held a hearing on ‘‘How Tax Reform Will
Simplify Our Broken Tax Code and Help Individuals and Families’’
on July 18, 2017. Witnesses included the Honorable Bill Archer,
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41
Former Chairman, Committee on Ways and Means; Bernard F.
McKay, Chairman of the Board of Directors, Council for Electronic
Revenue Communication Advancement; Jania Stout, Practice Lead-
er and Co-Founder, Fiduciary Plan Advisors at HighTower; and
Eric Rodriguez, Vice President—Office of Research, Advocacy, and
Legislation, UnidosUS.
Most recently, in the 116th Congress, on February 6, 2019, the
Committee on Ways and Means held a hearing on ‘‘Improving Re-
tirement Security for America’s Workers.’’ Witnesses included
Nancy Altman, President, Social Security Works; Andrew Biggs,
Resident Scholar, American Enterprise Institute; Roger J.
Crandall, Chairman, President & CEO, MassMutual; Robin
Diamonte, Corporate Vice President, Pension Investments, United
Technologies; Luke Huffstutter, Owner, Annastasia Salon and
Summit Salon Academy, Portland, OR; Cindy McDaniel, Co-direc-
tor, Missouri-Kansas City Committee to Protect Pensions; and
Diane Oakley Executive Director, National Institute on Retirement
Security.
Committee action
The Committee on Ways and Means met to consider H.R. 2954
on May 5, 2021, and ordered the bill, as amended, favorably re-
ported by a voice vote (with a quorum being present).
II. EXPLANATION OF THE BILL
TITLE I—EXPANDING COVERAGE AND INCREASING
RETIREMENT SAVINGS
1. EXPANDING AUTOMATIC ENROLLMENT IN RETIREMENT PLANS
(SEC. 101 OF THE BILL AND SEC. 414 OF THE CODE)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock bonus
plan that contains a qualified cash or deferred arrangement. Such
arrangements are subject to the rules generally applicable to quali-
fied defined contribution plans. In addition, special rules apply to
such arrangements. Employees who participate in a section 401(k)
plan may elect to have contributions made to the plan (referred to
as ‘‘elective deferrals’’) rather than receive the same amount as cur-
rent compensation.1 The maximum annual amount of elective de-
ferrals that can be made by an employee for a year is $19,500 (for
2021) or, if less, the employee’s compensation.2 For an employee
who attains age 50 by the end of the year, the dollar limit on elec-
tive deferrals is increased by $6,500 (for 2021) (called ‘‘catch-up
contributions’’).3 An employee’s elective deferrals must be fully
1 Elective deferrals generally are made on a pre-tax basis and distributions attributable to
elective deferrals are includible in income. However, a section 401(k) plan is permitted to in-
clude a ‘‘qualified Roth contribution program’’ that permits a participant to elect to have all or
a portion of the participant’s elective deferrals under the plan treated as after-tax Roth contribu-
tions. Certain distributions from a designated Roth account are excluded from income, even
though they include earnings not previously taxed.
2 Sec. 402(g).
3 Sec. 414(v).
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42
vested. A section 401(k) plan may also provide for employer match-
ing and nonelective contributions.
Section 403(b) plans
Tax-deferred annuity plans (referred to as section 403(b) plans)
are generally similar to qualified defined contribution plans, but
may be maintained only by (1) tax-exempt charitable organiza-
tions,4 and (2) educational institutions of State or local govern-
ments (that is, public schools, including colleges and universities).5
Section 403(b) plans may provide for employees to make elective
deferrals (in pre-tax or designated Roth form), including catch-up
contributions, or other after-tax employee contributions, and em-
ployers may make nonelective or matching contributions on behalf
of employees. Contributions to a section 403(b) plan are generally
subject to the same contribution limits applicable to qualified de-
fined contribution plans, including the limits on elective deferrals.
Automatic enrollment
Section 401(k) plans and section 403(b) plans must provide each
eligible employee with an effective opportunity to make or change
an election to make elective deferrals at least once each plan year.6
Whether an employee has an effective opportunity is determined
based on all the relevant facts and circumstances, including the
adequacy of notice of the availability of the election, the period of
time during which an election may be made, and any other condi-
tions on elections.
Section 401(k) plans, and section 403(b) plans that have salary
reduction arrangements, are generally designed so that an em-
ployee will receive cash compensation unless the employee affirma-
tively elects to make elective deferrals to the plan. Alternatively,
such plans may provide that elective deferrals are made at a speci-
fied rate (when the employee becomes eligible to participate) unless
the employee elects otherwise (i.e., affirmatively elects not to make
contributions or to make contributions at a different rate). This al-
ternative plan design is referred to as automatic enrollment.
Nondiscrimination test and automatic enrollment safe harbor
An annual nondiscrimination test, called the actual deferral per-
centage test (the ‘‘ADP’’ test) applies to elective deferrals under a
section 401(k) plan.7 The ADP test generally compares the average
rate of deferral for highly compensated employees to the average
rate of deferral for non-highly compensated employees and requires
that the average deferral rate for highly compensated employees
not exceed the average rate for non-highly compensated employees
by more than certain specified amounts. If a plan fails to satisfy
the ADP test for a plan year based on the deferral elections of
highly compensated employees, the plan is permitted to distribute
deferrals to highly compensated employees (‘‘excess deferrals’’) in a
sufficient amount to correct the failure. The distribution of the ex-
4 These are organizations exempt from tax under section 501(c)(3). Section 403(b) plans of pri-
vate, tax-exempt employers may be subject to ERISA as well as the requirements of section
403(b).
5 Sec. 403(b).
6 Treas. Reg. secs. 1. 401(k)–1(e)(2)(ii); 1.403(b)–5(b)(2).
7 Sec. 401(k)(3).
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43
cess deferrals must be made by the close of the following plan
year.8
The ADP test is deemed to be satisfied if a section 401(k) plan
includes certain minimum matching or nonelective contributions
under either of two plan designs (a ‘‘section 401(k) safe harbor
plan’’), as well as certain required rights and features, and satisfies
a notice requirement.9 One type of section 401(k) safe harbor plan
includes automatic enrollment.
An automatic enrollment section 401(k) safe harbor plan must
provide that, unless an employee elects otherwise, the employee is
treated as electing to make elective deferrals at a default rate
equal to a percentage of compensation as stated in the plan and at
least (1) three percent of compensation for the first year the
deemed election applies to the participant, (2) four percent during
the second year, (3) five percent during the third year, and (4) six
percent during the fourth year and thereafter. Although an auto-
matic enrollment section 401(k) safe harbor plan generally may
provide for default rates higher than these minimum rates, the de-
fault rate cannot exceed 15 percent for any year.
Eligible automatic contribution arrangements
Plans that include eligible automatic contribution arrangements
may allow participants to withdraw certain elective contributions
(‘‘permissive withdrawals’’).10 For this purpose, an eligible auto-
matic contribution arrangement is an arrangement under an em-
ployer plan 11 that meets the following conditions: (1) a participant
under the arrangement may elect to have the employer make pay-
ments as contributions under the plan on behalf of the participant,
or to the participant directly in cash; (2) the participant is treated
as having elected to have the employer make such contributions in
an amount equal to a uniform percentage of compensation provided
under the plan until the participant specifically elects not to have
such contributions made (or specifically elects to have such con-
tributions made at a different percentage); and (3) the adminis-
trator of the plan meets certain notice requirements described
below.12
A permissive withdrawal is an election by the employee to with-
draw elective contributions described in clause (2) above (and earn-
ings attributable thereto). Such withdrawals are excludable from
the employee’s gross income for that taxable year and are not sub-
ject to the 10-percent additional tax 13 on early distributions from
a retirement plan. The employee’s election to make a permissive
withdrawal must be made no later than 90 days after the date of
the employee’s first elective contribution under the arrangement.
8 Sec. 401(k)(8).
9 Sec. 401(k)(12) and (13). If certain additional requirements are met, matching contributions
under a section 401(k) safe harbor plan may also satisfy a nondiscrimination test applicable
under section 401(m).
10 For this purpose, elective contributions are elective deferrals under section 402(g) or con-
tributions to certain governmental plans (as described in Treas. Reg. sec. 1.457–2(f)) that would
be elective contributions if they were made under a qualified plan. Treas. Reg. sec. 1.414(w)–
1(e)(4).
11 The employer plan must be one of the following: a plan qualified under section 401(a); a
section 403(b) plan; a governmental section 457(b) plan; a simplified employer pension (‘‘SEP’’)
under section 408(k)(6) that provides for a salary reduction arrangement; or a SIMPLE IRA,
as defined in section 408(p).
12 Sec. 414(w)(3).
13 Under section 72(t).
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Under the notice requirements, the administrator must, within a
reasonable period before each plan year, give to each employee to
whom the eligible automatic contribution arrangement applies a
notice of the employee’s rights and obligations under the arrange-
ment which (1) is sufficiently accurate and comprehensive to ap-
prise the employee of such rights and obligations, and (2) is written
in a manner calculated to be understood by the average employee
to whom the arrangement applies. The notice must describe the
level of the default electronic contributions that will be made on
the employee’s behalf if the employee does not make an affirmative
election.14 It also must include an explanation of the employee’s
right under the arrangement to elect not to have elective contribu-
tions made on the employee’s behalf (or to elect to have a different
percentage of compensation or a different amount of contribution
made to the plan on his or her behalf),15 as well as an explanation
of how contributions made under the arrangement will be invested
in the absence of any investment election by the employee. If the
plan allows permissive withdrawals, it must explain the employee’s
right to make such a withdrawal and describe the procedures to
elect such withdrawal. In addition, the employee must have a rea-
sonable period of time after receipt of the notice and before the first
elective contribution is made to make an election with respect to
such contributions.16
REASONS FOR CHANGE
The Committee recognizes that one of the main reasons many
Americans reach retirement age with little or no savings is that too
few workers are offered an opportunity to save for retirement
through their employers. However, even for those employees who
are offered a retirement plan at work, many do not participate.
Automatic enrollment in section 401(k) plans significantly in-
creases participation. Since first defined and approved by Treasury
in 1998, automatic enrollment has boosted participation by eligible
employees generally, and particularly for Black, Latinx, and lower-
wage employees. For these reasons, the Committee believes it is
appropriate to generally require section 401(k) plans and section
403(b) plans established after the date of enactment to automati-
cally enroll participants in their plans.
EXPLANATION OF PROVISION
The provision generally requires newly established section 401(k)
plans and section 403(b) plans with salary reduction agreements to
provide for automatic enrollment.17 Such plans must include an eli-
gible automatic contribution arrangement that allows employees to
make permissive withdrawals,18 and that meets requirements re-
lating to the minimum contribution percentage and the investment
of the employee’s contributions.
Under the minimum contribution percentage requirements, the
eligible automatic contribution arrangement must provide that the
14 Treas. Reg. sec. 1.414(w)–1(b)(3)(ii).
15 Treas. Reg. sec. 1.414(w)–1(b)(3)(ii)(B).
16 Sec. 414(w)(4).
17 SIMPLE section 401(k) plans (section 401(k)(11)) are not subject to the requirements of this
provision.
18 As defined in section 414(w)(2).
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45
uniform percentage of compensation contributed by the participant
during the first year of participation is at least three percent, and
that such percentage increases by one percentage point each year
to at least 10 percent (but no more than 15 percent), unless the
participant specifically elects not to have such contributions made
or to have them made at a different percentage. For a plan other
than a section 401(k) safe harbor plan, the percentage of compensa-
tion contributed under the eligible automatic contribution arrange-
ment (other than due to a participant’s election to change such per-
centage) may not be greater than 10 percent in any plan year end-
ing before January 1, 2025.
The percentage increase under the eligible automatic contribu-
tion arrangement must be effective as of the first day of the first
plan year commencing after the completion of each year of partici-
pation. In addition, under the investment requirements, amounts
contributed pursuant to such arrangement for which no investment
is elected by the participant must be invested consistent with cer-
tain Department of Labor (‘‘DOL’’) regulations under which a par-
ticipant is treated as exercising control over the assets in the par-
ticipant’s account with respect to certain default investments.19
Certain plans are exempt from the requirements of the provision.
First, the provision does not apply to plans established before the
date of enactment. However, this grandfathering rule does not
apply in the case of an employer adopting a multiple employer plan
after the date of enactment. Second, governmental plans 20 and
church plans 21 are exempt from the provision. Third, the provision
does not apply to a plan while the employer maintaining the plan
has been in existence for less than three years. And fourth, the pro-
vision does not apply to a plan earlier than the date that is one
year after the close of the first taxable year with respect to which
the employer maintaining the plan normally employed more than
10 employees. In the case of a multiple employer plan, the exemp-
tions relating to new employers and to small employers apply sepa-
rately with respect to each employer.
EFFECTIVE DATE
The provision is effective for plan years beginning after Decem-
ber 31, 2022.
2. MODIFICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN
START-UP COSTS (SEC. 102 OF THE BILL AND SEC. 45E OF THE CODE)
PRESENT LAW
Present law provides a nonrefundable income tax credit equal to
50 percent of the qualified start-up costs paid or incurred during
the taxable year by an eligible employer 22 that adopts a new eligi-
ble employer plan,23 provided that the plan covers at least one non-
19 29 C.F.R. sec. 2550.404c–5, or any successor regulations.
20 Within the meaning of section 414(d).
21 Within the meaning of section 414(e).
22 An eligible employer has the meaning given such term by section 408(p)(2)(C)(i).
23 An eligible employer plan means a qualified employer plan within the meaning of section
4972(d) and includes a section 401(a) qualified retirement plan, a section 403 annuity, any sim-
plified employee pension (‘‘SEP’’) within the meaning of section 408(k), and any simple retire-
ment account (‘‘SIMPLE’’) within the meaning of section 408(p). An eligible employer plan does
Continued
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46
highly compensated employee.24 Qualified start-up costs are ex-
penses connected with the establishment or administration of the
plan and retirement-related education of employees with respect to
the plan. The amount of the credit for any taxable year is limited
to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied
by the number of non-highly compensated employees of the eligible
employer who are eligible to participate in the plan or (b) $5,000.
The credit applies for up to three consecutive taxable years begin-
ning with the taxable year the plan is first effective, or, at the elec-
tion of the employer, with the year preceding the first plan year.
An eligible employer is an employer that, for the preceding year,
had no more than 100 employees, each with compensation of
$5,000 or more.25 In addition, the employer must not have had a
qualified employer plan covering substantially the same employees
as the new plan with respect to which contributions were made or
benefits were accrued during the three years preceding the first
year for which the credit would apply. Members of controlled
groups and affiliated service groups are treated as a single em-
ployer for purposes of these requirements.26 All eligible employer
plans of an employer are treated as a single plan.
No deduction is allowed for the portion of qualified start-up costs
paid or incurred for the taxable year equal to the amount of the
credit.
REASONS FOR CHANGE
The credit for small employer pension plan start-up costs serves
to encourage small employers to provide retirement benefits to
their employees. The Committee believes the modifications to this
credit will further encourage small employers to provide these ben-
efits.
EXPLANATION OF PROVISION
The provision increases from 50 percent to 100 percent of quali-
fied start-up costs, the amount of the nonrefundable income tax
credit allowed to an eligible employer with no more than 50 em-
ployees.
The provision also increases by an additional amount up to
$1,000 per employee the credit allowed to any employer who is eli-
gible, as determined in the first taxable year in which the plan is
established. The additional amount of the credit is equal to the ap-
plicable percentage of employer contributions (not including any
elective deferrals) by the employer to an eligible employer plan (not
including a defined benefit plan). The applicable percentages are as
follow:
Taxable Year Applicable Percentage
Taxable year in which the plan is established ................................................................................... 100
1st taxable year after the taxable year in which the plan is established ......................................... 100
2nd taxable year after the taxable year in which the plan is established ........................................ 75
3rd taxable year after the taxable year in which the plan is established ........................................ 50
not include a plan maintained by a tax-exempt employer or a governmental plan, as defined
in section 414(d).
24 A non-highly compensated employee is an employee who is not a highly compensated em-
ployee as defined under section 414(q).
25 As defined in section 408(p)(2)(C).
26 Sec. 52(a) or (b) and 414(m) or (o).
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47
Taxable Year Applicable Percentage
4th taxable year after the taxable year in which the plan is established ........................................ 25
Any taxable years thereafter ................................................................................................................ 0
In the case of an eligible employer which had more than 50 em-
ployees in the year preceding the taxable year in which the plan
is established, the amount of the additional credit is reduced by an
amount equal to two percent for each employee above 50 employees
and is zero for eligible employers with 100 employees.
No deduction is allowed for the portion of qualified start-up costs
paid or incurred or for the portion of employer contributions for the
taxable year equal to the increased amounts of the credit.
EFFECTIVE DATE
The provision applies to taxable years beginning after December
31, 2021.
3. PROMOTION OF THE SAVER’S CREDIT (SEC. 103 OF THE BILL AND
SEC. 25B OF THE CODE)
PRESENT LAW
Present law provides a nonrefundable income tax credit for eligi-
ble taxpayers who make qualified retirement savings contribu-
tions.27 Subject to AGI limits, the credit is available to individuals
who are 18 or older, other than individuals who are full-time stu-
dents or claimed as a dependent on another taxpayer’s return. The
AGI limits for 2021 (as indexed for inflation) are $66,000 for mar-
ried taxpayers filing joint returns, $49,500 for head of household
taxpayers, and $33,000 for single taxpayers and married taxpayers
filing separate returns.
For purposes of the credit, qualified retirement savings contribu-
tions include (1) elective deferrals to a section 401(k) plan, a sec-
tion 403(b)plan, a governmental section 457 plan, a SIMPLE IRA,
or a SEP; (2) contributions to a traditional or Roth IRA; (3) vol-
untary after-tax employee contributions to a qualified retirement
plan or annuity or a section 403(b) plan; (4) contributions to a
501(c)(18)(D) plan; and (6) contributions made to an ABLE account
for which the taxpayer is the designated beneficiary. The maximum
amount of qualified retirement savings contributions taken into ac-
count for purposes of the credit is $2,000. The amount of any con-
tribution eligible for the credit is reduced by distributions received
by the taxpayer (or by the taxpayer’s spouse if the taxpayer files
a joint return with the spouse) from any plan or IRA to which eligi-
ble contributions can be made during the taxable year for which
the credit is claimed, the two taxable years prior to the year the
credit is claimed, and during the period after the end of the taxable
year for which the credit is claimed and prior to the due date for
filing the taxpayer’s return for the year. Distributions that are
rolled over to another retirement plan do not affect the credit.
The credit is a percentage of the taxpayer’s qualified retirement
savings contributions up to $2,000. The credit percentage may be
10 percent, 20 percent, or 50 percent, depending on the AGI of the
taxpayer, as shown in the table below. The credit is in addition to
27 Sec. 25B.
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any deduction or exclusion that would otherwise apply with respect
to the contribution. The credit offsets minimum tax liability as well
as regular tax liability.
TABLE 1.—CREDIT RATES FOR SAVER’S CREDIT (FOR 2021)
Heads of
Joint Filers All Other Filers Credit Rate
Households
$0–$39,500 ................................................. $0–$29,625 $0–$19,750 50 percent
$39,501–$43,000 ........................................ $29,626–$32,250 $19,751–$21,500 20 percent
$43,001–$66,000 ........................................ $32,251–$49,500 $21,501–$33,000 10 percent
REASONS FOR CHANGE
Many low- and middle-income individuals have inadequate sav-
ings for retirement. The Committee believes that the saver’s credit
provides an incentive for low- and middle-income individuals to
save for retirement. The principal criticisms of the effectiveness of
the credit focus on the low use of the credit owing, in part, to the
lack of awareness of the credit by taxpayers. The Committee be-
lieves that increased promotion of the credit in a variety of com-
monly spoken languages to increase public awareness of the bene-
fits will improve the effectiveness of the credit.
EXPLANATION OF PROVISION
Under the provision, the Secretary shall take steps to increase
public awareness of the benefits provided under this section and
not later than 90 days after the date of enactment provide a report
to Congress summarizing anticipated promotion efforts. The report
will include a description of plan for the development and distribu-
tion of digital and print materials as well as the translation of such
materials into the five most commonly spoken languages as deter-
mined by data from the U.S. Census Bureau, American Community
Survey.
EFFECTIVE DATE
The provision applies to taxable years beginning after the date
of enactment.
4. ENHANCEMENT OF 403(b) PLANS (SEC. 104 OF THE BILL AND SEC.
403(b) OF THE CODE)
PRESENT LAW
Tax-sheltered annuities (‘‘section 403(b) plans’’)
Section 403(b) plans are a form of tax-favored employer-spon-
sored plan that provides tax benefits similar to qualified retirement
plans. Section 403(b) plans may be maintained only by (1) chari-
table tax-exempt organizations, and (2) educational institutions of
State or local governments (that is, public schools, including col-
leges and universities). Many of the rules that apply to section
403(b) plans are similar to the rules applicable to qualified retire-
ment plans, including section 401(k) plans.
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49
Contributions to 403(b) plans
Employers may make nonelective or matching contributions to
such plans on behalf of their employees, and the plan may provide
for employees to make pre-tax elective deferrals, designated Roth
contributions (held in designated Roth accounts) 28 or other after-
tax contributions.
Annuity contracts
Generally, section 403(b) plans provide for contributions toward
the purchase of annuity contracts. The employee’s rights under the
annuity contract are nonforfeitable, except for a failure to pay fu-
ture premiums.29 Amounts contributed by an employer for an an-
nuity contract are excluded from the gross income of the employee
for the taxable year if certain requirements are satisfied.
Section 403(b) custodial accounts
Alternatively, such contributions may be held in custodial ac-
counts established for each employee if those accounts satisfy cer-
tain requirements.
Contributions to a section 403(b) plan that are held in a custodial
account are treated as contributions to an annuity contract 30 if the
assets are (1) held by a bank 31 or another person who dem-
onstrates, to the satisfaction of the Secretary, that the manner in
which the assets will be held is consistent with the requirements
for a qualified retirement plan 32 and (2) invested only in regulated
investment company stock.33
In addition, assets of a section 403(b) custodial account cannot be
commingled in a group trust with any assets other than those of
a regulated investment company.34 Contributions to a custodial ac-
count are not permitted to be distributed before the employee dies,
attains age 591⁄2, has a severance from employment, becomes dis-
abled,35 or, in the case of elective deferrals, encounters financial
hardship; or, with respect to lifetime income options, the date that
is 90 days prior to the date such lifetime income investment no
longer is held as an investment option and is distributed in the
form of a qualified distribution.36 Finally, a custodial account must
contain a written statement that the assets held in a custodial ac-
count cannot be used for, or diverted to, purposes other than for
the exclusive benefit of plan participants and their beneficiaries.37
28 Sec. 402A.
29 Sec. 403(b)(1)(C).
30 Sec. 403(b)(7).
31 A ‘‘bank’’ is defined as any bank as defined in section 581, an insured credit union within
the meaning of section 101, paragraph (6) or (7) of the Federal Credit Union Act, and a corpora-
tion which, under the laws of the State of its incorporation, is subject to supervision and exam-
ination by the Commissioner of Banking or other officer of such State in charge of the adminis-
tration of the banking laws of such State. Sec. 408(n).
32 Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)–1. A custodial account that satisfies the require-
ments of section 401(f)(2) is treated as an organization described in section 401(a) solely for pur-
poses of subchapter F of chapter 1 of Subtitle A (secs. 501–530) and subtitle F (pertaining to
procedure and administration) with respect to amounts received by the account and with respect
to any income from the investment of those amounts.
33 Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)–8(d)(2)(i).
34 Treas. Reg. sec. 1.403(b)–8(d)(2)(ii).
35 Within the meaning of section 72(m)(7).
36 In accordance with section 401(a)(38).
37 Treas. Reg. sec. 1.403(b)–8(d)(2)(iii).
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GROUP TRUST
Under the Code, a trust created or organized in the United
States and forming a part of a stock bonus, pension, or profit-shar-
ing plan of an employer for the exclusive benefit of its employees
or their beneficiaries constitutes a qualified trust if it provides
that:
• Contributions made to the trust by the applicable em-
ployer or employers, or both, are used for the purpose of dis-
tributing the corpus and income of the trust, in accordance
with the terms of the plan, to such employees or their bene-
ficiaries; 38
• A trust described in section 401(a) is exempt from income
tax; 39 and
• Under each trust instrument, it must be impossible, at any
time prior to the satisfaction of all liabilities with respect to
employees and their beneficiaries under the plan and trust, for
any part of the corpus or income of the trust to be used for or
diverted to purposes other than for the exclusive benefit of the
employees or their beneficiaries.
A group trust is an arrangement under which individual retire-
ment plan trusts pool their assets in a group trust (usually created
for the purpose of providing diversification of investments), where
the trust is declared to be part of each participating retirement
plan and the trust instruments creating both the participating and
group trusts provide that amounts are transferred from one trust
to the other at the direction of the trustee of the participating
trust.40
The tax status of the group trust is derived from the tax status
of the entities participating in the group trust to the extent of the
entities’ equitable interests in such trust if the following require-
ments are satisfied:
• The group trust is itself adopted as a part of each adopting
group trust retiree benefit plan;
• The group trust instrument expressly limits participation
to pension, profit-sharing, and stock bonus trusts or custodial
accounts qualifying under section 401(a) that are exempt under
section 501(a); individual retirement accounts that are exempt
under section 408(e); eligible governmental plan trusts or cus-
todial accounts under section 457(b) that are exempt under sec-
tion 457(g); custodial accounts under section 403(b)(7); retire-
ment income accounts under section 403(b)(9); and section
401(a)(24) governmental plans;
• The group trust instrument expressly prohibits any part of
its corpus or income that equitably belongs to any adopting
group trust retiree benefit plan from being used for, or diverted
to, any purpose other than for the exclusive benefit of the par-
ticipants and beneficiaries of the group trust retiree benefit
plan;
38 Sec. 401(a)(1).
39 Sec. 501(a).
40 See Rev. Rul. 81–100, 1981–1 C.B. 326, as modified by Rev. Rul. 2004–67, 2004–2 C.B. 28;
Rev. Rul. 2008–40, 2008–2 C.B. 166; Rev. Rul. 2011–1, 2011–2 I.R.B. 251 which was modified
by Notice 2012–6, 2012–3 I.R.B. 293, January 17, 2012; and Rev. Rul. 2014–24, 2014–37 I.R.B.
529.
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51
• Each group trust retiree benefit plan that adopts the group
trust is itself a trust, a custodial account, or a similar entity
that is tax-exempt under section 408(e) or section 501(a) (or is
treated as exempt under section 501(a));
• Each group trust retiree benefit plan that adopts the group
trust expressly provides in its governing document that it is
impossible for any part of the corpus or income of the group
trust retiree benefit plan to be used for, or diverted to, pur-
poses other than for the exclusive benefit of the plan partici-
pants and their beneficiaries;
• The group trust instrument expressly limits the assets
that may be held by the group trust to assets that are contrib-
uted by, or transferred from, a group trust retiree benefit plan
to the group trust (and the earnings thereon), and the group
trust instrument expressly provides for separate accounting to
reflect the interest that each adopting group trust retiree ben-
efit plan has in the group trust, including separate accounting
for contributions to the group trust from the adopting plan,
disbursements made from the adopting plan’s account in the
group trust, and investment experience of the group trust allo-
cable to that account;
• The group trust instrument expressly prohibits an assign-
ment by an adopting group trust retiree benefit plan of any
part of its equity or interest in the group trust; and
• The group trust is created or organized in the United
States and is maintained at all times as a domestic trust in the
United States.
With respect to section 403(b)(7) custodial accounts, under Inter-
nal Revenue Service (‘‘IRS’’) guidance, such an account fails to sat-
isfy the requirements for a group trust if the assets of the account
are invested other than in the stock of a regulated investment com-
pany, and any group trust in which the assets of a section 403(b)(7)
custodial account is invested must comply with this restriction.41
As a result of this investment restriction, the assets of a custodial
account under section 403(b)(7) generally will be commingled in a
group trust that solely contains the assets of other section 403(b)(7)
custodial accounts.
REASONS FOR CHANGE
Under present law, group trusts permit certain retirement plans
and IRAs to pool their assets for investment purposes if certain
specified requirements are satisfied providing certain cost savings
and broader investment options to such plans than might otherwise
be available. Section 403(b) investments are generally limited to
annuity contracts and mutual funds. This limitation restricts
403(b) plan participants who are generally employees of charities
and public educational organizations from access to collective in-
vestment trusts, which are often used by 401(a) plans due to their
lower fees.
The Committee believes that section 403(b) custodial accounts
would benefit from participating in a group trust.
41 Rev. Rul. 2011–1, 2011–2 I.R.B. 251.
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52
EXPLANATION OF PROVISION
The provision provides that contributions to a section 403(b) plan
that are held in a custodial account are treated as contributions to
an annuity contract if the assets are to be held in that custodial
account and invested in regulated investment company stock or a
group trust intended to satisfy the requirements of IRS Revenue
Ruling 81–100 (or any successor guidance).
EFFECTIVE DATE
The provision is applicable to amounts invested after December
31, 2021.
5. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDA-
TORY DISTRIBUTIONS (SEC. 105 OF THE BILL AND SEC. 401(a)(9) OF
THE CODE)
PRESENT LAW
Required minimum distributions
Employer-provided qualified retirement plans and IRAs are sub-
ject to required minimum distribution rules.42 A qualified retire-
ment plan for this purpose means a tax-qualified plan described in
section 401(a) (such as a defined benefit pension plan or a section
401(k) plan), an employee retirement annuity described in section
403(a), a tax-sheltered annuity described in section 403(b), and a
plan described in section 457(b) that is maintained by a govern-
mental employer.43 An employer-provided qualified retirement plan
that is a defined contribution plan is a plan that provides (1) an
individual account for each participant and (2) for benefits based
on the amount contributed to the participant’s account and any in-
come, expenses, gains, losses, and forfeitures of accounts of other
participants which may be allocated to such participant’s account.44
Required minimum distributions generally must begin by April 1
of the calendar year following the calendar year in which the indi-
vidual (employee or IRA owner) reaches age 72. Prior to January
1, 2020, the age after which required minimum distributions were
required to begin was 701⁄2.45 In the case of an employer-provided
qualified retirement plan, the required minimum distribution date
for an individual who is not a five-percent owner of the employer
maintaining the plan may be delayed to April 1 of the year fol-
lowing the year in which the individual retires, if the plan provides
for this later distribution date. For all subsequent years, including
the year in which the individual was paid the first required min-
imum distribution by April 1, the individual must take the re-
quired minimum distribution by December 31.
For IRAs and defined contribution plans, the required minimum
distribution for each year generally is determined by dividing the
account balance as of the end of the prior year by the number of
42 Secs. 401(a)(9) and 408(a)(6).
43 The required minimum distribution rules also apply to section 457(b) plans maintained by
tax-exempt employers other than governmental employers.
44 Sec. 414(i).
45 The SECURE Act, enacted as part of the Further Consolidated Appropriations Act, 2020,
Pub. L. No. 116–94, Div. O, sec. 114, increased the age after which required minimum distribu-
tions must begin from 701⁄2 to 72, effective for distributions required to be made after December
31, 2019, with respect to individuals who attain age 701⁄2 after that date.
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years in the distribution period.46 The distribution period is gen-
erally derived from the Uniform Lifetime Table.47 This table is
based on the joint life expectancies of the individual and a hypo-
thetical beneficiary 10 years younger than the individual. For an
individual with a spouse as designated beneficiary who is more
than 10 years younger, the joint life expectancy of the couple is
used (because the couple’s remaining joint life expectancy is longer
than the length provided in the Uniform Lifetime Table). There are
special rules in the case of annuity payments from an insurance
contract.
If an individual dies before the individual’s entire interest is dis-
tributed, and the individual has a designated beneficiary, unless
the designated beneficiary is an eligible designated beneficiary, the
individual’s entire account must be distributed within 10 years
after the individual’s death. This rule applies regardless of whether
the individual dies before or after the individual’s required begin-
ning date.
In the case of an eligible designated beneficiary, the remaining
required minimum distributions are distributed over the life of the
beneficiary (or over a period not extending beyond the life expect-
ancy of such beneficiary). Such distributions must begin no later
than December 31 of the calendar year immediately following the
calendar year in which the individual dies. An eligible designated
beneficiary is a designated beneficiary who is (1) the surviving
spouse of the individual; (2) a child of the individual who has not
reached majority; (3) disabled; (4) chronically ill; or (5) not more
than 10 years younger than the individual.48 If the eligible des-
ignated beneficiary is the individual’s spouse, commencement of
distributions is permitted to be delayed until December 31 of the
calendar year in which the deceased individual would have at-
tained age 72. The required minimum distribution for each year is
determined by dividing the account balance as of the end of the
prior year by a distribution period, which is determined by ref-
erence to the beneficiary’s life expectancy.49 Special rules apply in
the case of trusts for disabled or chronically ill beneficiaries.50
In the case of an individual who does not have a designated ben-
eficiary, if an individual dies on or after the individual’s required
beginning date, the distribution period for the remaining required
minimum distributions is equal to the remaining years of the de-
ceased individual’s single life expectancy, using the age of the de-
ceased individual in the year of death.51 If an individual dies before
the required beginning date, the individual’s entire account must
be distributed no later than December 31 of the calendar year that
includes the fifth anniversary of the individual’s death.52
A special after-death rule applies for an IRA if the beneficiary of
the IRA is the surviving spouse. The surviving spouse is permitted
to choose to calculate required minimum distributions both while
46 Treas. Reg. sec. 1.401(a)(9)–5.
47 Treas. Reg. sec. 1.401(a)(9)–9.
48 Sec. 401(a)(9)(E)(ii).
49 Treas. Reg. sec. 1.401(a)(9)–5, A–5.
50 Sec. 401(a)(9)(H)(iv).
51 Treas. Reg. sec. 1.401(a)(9)–5, A–5(a).
52 Treas. Reg. sec. 1.401(a)(9)–3, Q&As 1, 2.
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54
the surviving spouse is alive and after death as though the sur-
viving spouse is the IRA owner, rather than a beneficiary.53
Roth IRAs are not subject to the minimum distribution rules dur-
ing the IRA owner’s lifetime. However, Roth IRAs are subject to
the post-death minimum distribution rules that apply to traditional
IRAs. For Roth IRAs, the IRA owner is treated as having died be-
fore the individual’s required beginning date.
Failure to make a required minimum distribution triggers a 50-
percent excise tax, payable by the individual or the individual’s
beneficiary. The tax is imposed during the taxable year that begins
with or within the calendar year during which the distribution was
required.54 The tax may be waived if the failure to distribute is
reasonable error and reasonable steps are taken to remedy the vio-
lation.55
Eligible rollover distributions
With certain exceptions, distributions from an employer-provided
qualified retirement plan are eligible to be rolled over tax free into
another employer-provided qualified retirement plan or an IRA.
This can be achieved by contributing the amount of the distribution
to the other plan or IRA within 60 days of the distribution, or by
a direct payment by the plan to the other plan or IRA (referred to
as a ‘‘direct rollover’’). Distributions that are not eligible for rollover
include (i) any distribution that is one of a series of periodic pay-
ments generally for a period of 10 years or more (or a shorter pe-
riod for distributions made for certain life expectancies), and (ii)
any distribution to the extent that the distribution is a required
minimum distribution.56
For any distribution that is eligible for rollover, an employer-pro-
vided qualified retirement plan must offer the distributee the right
to have the distribution made in a direct rollover.57 Before making
the distribution, the plan administrator must provide the dis-
tributee with a written explanation of the direct rollover right and
related tax consequences.58 Unless a distributee elects to have the
distribution made in a direct rollover, the distribution is generally
subject to mandatory 20-percent income tax withholding.59
REASONS FOR CHANGE
When mandatory distributions from qualified retirement plans
based on age were added to the Code in 1962,60 the life expectancy
of Americans was shorter. In addition, increasing numbers of
Americans are continuing to work past traditional retirement ages.
For these reasons, the Setting Every Community Up for Retire-
ment (‘‘SECURE’’) Act 61 increased the age at which required min-
imum distributions generally must be made from age 701⁄2 to age
53 Treas. Reg. sec. 1.408–8, Q&A 5.
54 Sec. 4974(a).
55 Sec. 4974(d).
56 Sec. 402(c)(4). Distributions that are not eligible rollover distributions also include distribu-
tions made upon hardship of the employee.
57 Sec. 401(a)(31).
58 Sec. 402(f).
59 Sec. 3405(c). This mandatory withholding does not apply to a distributee that is a bene-
ficiary other than a surviving spouse of an employee.
60 Sec. 2(2) of the Self-Employed Individuals Tax Retirement Act of 1962, Pub. L. No. 87–792.
61 Pub. L. No. 116–94.
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55
72. The Committee believes it is appropriate to further increase
this age to more accurately reflect present-day circumstances.
EXPLANATION OF PROVISION
The provision changes the age on which the required beginning
date for required minimum distributions is based, from the cal-
endar year in which the employee or IRA owner attains age 72 to
the calendar year in which the employee or IRA owner attains age
73, for individuals who attain age 72 after December 31, 2021, and
who attain age 73 before January 1, 2029. In addition, the provi-
sion changes such age from 73 years to 74 years, for individuals
who attain age 73 after December 31, 2028, and who attain age 74
before January 1, 2032. Such age is further increased to age 75 for
individuals who attain age 74 after December 31, 2031.
EFFECTIVE DATE
The provision is effective for distributions required to be made
after December 31, 2021, for employees and IRA owners who attain
age 72 after such date.
6. INDEXING IRA CATCH-UP LIMIT (SEC. 106 OF THE BILL AND SEC.
219 OF THE CODE)
PRESENT LAW
There are two general types of individual retirement arrange-
ments (‘‘IRAs’’): traditional IRAs and Roth IRAs.62 The total
amount that an individual may contribute to one or more IRAs for
a year is generally limited to the lesser of: (1) a dollar amount
($6,000 for 2021); and (2) the amount of the individual’s compensa-
tion that is includible in gross income for the year.63 In the case
of an individual who has attained age 50 by the end of the taxable
year, the dollar amount is increased by $1,000 (referred to as a
‘‘catch-up contribution’’). In the case of a married couple, contribu-
tions can be made up to the dollar limit for each spouse if the com-
bined compensation of the spouses that is includible in gross in-
come is at least equal to the contributed amount. An individual
may make contributions to a traditional IRA (up to the contribu-
tion limit) without regard to his or her adjusted gross income.
An individual may deduct his or her contributions to a tradi-
tional IRA if neither the individual nor the individual’s spouse is
an active participant in an employer-sponsored retirement plan. If
an individual or the individual’s spouse is an active participant in
an employer-sponsored retirement plan, the deduction is phased
out for taxpayers with adjusted gross income over certain levels.64
Individuals with adjusted gross income below certain levels may
make contributions to a Roth IRA (up to the contribution limit).65
Contributions to a Roth IRA are not deductible.
62 Secs. 408 and 408A.
63 Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and (b)(2)(B) and 408A(c)(2). Under
section 4973, IRA contributions in excess of the applicable limit are generally subject to an ex-
cise tax of six percent per year until withdrawn.
64 Sec. 219(g).
65 Sec. 408A(c)(3).
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REASONS FOR CHANGE
The Committee wishes to enhance an individual’s ability to save
for retirement, and therefore believes it is appropriate to increase
the amount of catch-up contributions that an individual may con-
tribute to an IRA based on increases in cost of living.
EXPLANATION OF PROVISION
Under the provision, the $1,000 amount that may be contributed
as a catch-up contribution by individuals who attain age 50 by the
end of the taxable year is increased for cost-of-living adjustments
for taxable years beginning in 2023 or later.
EFFECTIVE DATE
The provision applies to taxable years beginning after December
31, 2022.
7. HIGHER CATCH-UP LIMIT TO APPLY AT AGE 62, 63, AND 64 (SEC.
107 OF THE BILL AND SEC. 414(v) OF THE CODE)
PRESENT LAW
Under certain types of employer-sponsored retirement plans, in-
cluding section 401(k) plans, section 403(b) plans, SIMPLE IRAs,66
and governmental section 457(b) plans, an employee may elect to
have contributions (elective deferrals) made to the plan, rather
than receive the same amount in cash. The maximum annual
amount of elective deferrals that can be made by an employee for
a year is $19,500 for 2021 ($13,500 in the case of a SIMPLE IRA
or SIMPLE section 401(k) plan 67) or, if less, the employee’s com-
pensation.68 For individuals who will attain age 50 by the end of
the taxable year, this limit is increased to allow additional ‘‘catch-
up contributions.’’ 69
A section 401(k) plan, section 403(b) plan, and governmental sec-
tion 457(b) plan may generally permit catch-up contributions up to
$6,500 in 2021 (indexed for inflation). A SIMPLE IRA or SIMPLE
section 401(k) plan may permit catch-up contributions up to $3,000
in 2021. If elective deferral and catch-up contributions are made to
both a section 401(k) plan and a section 403(b) plan for the same
employee, a single limit applies to the elective deferrals under both
plans. Special contribution limits apply to certain employees under
a section 403(b) plan maintained by a church. In addition, under
a special catch-up rule, an increased elective deferral limit applies
under a plan maintained by an educational organization, hospital,
home health service agency, health and welfare service agency,
church, or convention or association of churches in the case of em-
ployees who have completed 15 years of service. In this case, the
limit is increased by the least of (1) $3,000, (2) $15,000, reduced
by the employee’s total elective deferrals in prior years, and (3)
$5,000 times the employee’s years of service, reduced by the em-
ployee’s total elective deferrals in prior years.
66 Sec. 408(p).
67 Sec. 401(k)(11).
68 Secs. 402(g); 457(c). This limit applies to total elective deferrals under all of a participant’s
section 401(k) plans and section 403(b) plans but applies separately to any governmental section
457(b) plan. Sec. 414(v).
69 Sec. 414(v).
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57
The section 457(b) plan limits apply separately from the com-
bined limit applicable to section 401(k) and section 403(b) plan con-
tributions, so that an employee covered by a governmental section
457(b) plan and a section 401(k) or section 403(b) plan can con-
tribute the full amount to each plan. In addition, under a special
catch-up rule, for one or more of the participant’s last three years
before normal retirement age, the otherwise applicable limit is in-
creased to the lesser of (1) two times the normal annual limit
($39,000 for 2021) or (2) the sum of the otherwise applicable limit
for the year plus the amount by which the limit applicable in pre-
ceding years of participation exceeded the deferrals for that year.
Catch-up contributions are not subject to any other contribution
limits and are not taken into account in applying other contribu-
tion limits. In addition, such contributions are not subject to appli-
cable nondiscrimination rules. However, a plan fails to meet the
applicable nondiscrimination requirements under section 401(a)(4)
with respect to benefits, rights, and features unless the plan allows
all eligible individuals participating in the plan to make the same
election with respect to catch-up contributions. For purposes of this
rule, all plans of related employers are treated as a single plan. In
addition, the special nondiscrimination rule for mergers and acqui-
sitions applies for this purpose.70
An employer is permitted to make matching contributions with
respect to catch-up contributions. Any such matching contributions
are subject to the normally applicable rules.
REASONS FOR CHANGE
Under present law, the Code permits catch-up contributions at a
time when individuals are typically more advanced in their careers
and in a better financial position to contribute additional funds to
their retirement plans. In order to increase such individuals’ ability
to grow their retirement savings, the Committee believes it is ap-
propriate to increase the limit on catch-up contributions in the
three years before the individual attains age 65 (a typical normal
retirement age under a plan).
EXPLANATION OF PROVISION
Under the provision, the limit on catch-up contributions is in-
creased for individuals who have attained age 62, 63, or 64 (but
who are not older than 64) by the end of the taxable year. A section
401(k) plan (other than a SIMPLE section 401(k) plan), section
403(b) plan, or governmental section 457(b) plan may increase the
limit on catch-up contributions for such individuals to the lesser of
(1) $10,000 or (2) the participant’s compensation for the year re-
duced by any other elective deferrals of the participant for the
year.71 A SIMPLE section 401(k) plan or a SIMPLE IRA may in-
crease the limit on catch-up contributions for such individuals to
the lesser of (1) $5,000 or (2) the participant’s compensation for the
year reduced by any other elective deferrals of the participant for
the year. Both the $10,000 amount and the $5,000 amount are in-
dexed for inflation beginning in 2023.
70 Secs. 410(b)(6)(C); 414(v)(4)(B).
71 This increase also applies to catch-up contributions under a simplified employee pension
under section 408(k) that includes a salary reduction arrangement.
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EFFECTIVE DATE
The provision applies to taxable years beginning after December
31, 2022.
8. MULTIPLE EMPLOYER 403(b) PLANS (SEC. 108 OF THE BILL AND
SECS. 403(b), 6057, 6058 OF THE CODE AND SECS. 3(43) AND 3(44)
OF ERISA)
PRESENT LAW
Retirement savings under the Code and ERISA
The Code provides tax-favored treatment for various types of re-
tirement plans, including employer-sponsored plans and IRAs.
Code provisions are generally within the jurisdiction of the Sec-
retary of the Treasury (the ‘‘Secretary’’), through his or her dele-
gate, the IRS.
The most common type of tax-favored employer-sponsored retire-
ment plan is a qualified retirement plan,72 which may be a defined
contribution plan or a defined benefit plan. Under a defined con-
tribution plan, separate individual accounts are maintained for
participants, to which accumulated contributions, earnings, and
losses are allocated, and participants’ benefits are based on the
value of their accounts.73 Defined contribution plans commonly
allow participants to direct the investment of their accounts, usu-
ally by choosing among investment options offered under the plan.
Under a defined benefit plan, benefits are determined under a plan
formula and paid from general plan assets, rather than individual
accounts.74 Besides qualified retirement plans, certain tax-exempt
employers and public schools may maintain tax-deferred annuity
plans.75
An IRA is generally established by the individual for whom the
IRA is maintained.76 However, in some cases, an employer may es-
tablish IRAs on behalf of employees and provide retirement con-
tributions to the IRAs.77 In addition, IRA treatment may apply to
accounts maintained for employees under a trust created by an em-
ployer (or an employee association) for the exclusive benefit of em-
ployees or their beneficiaries, provided that the trust complies with
the relevant IRA requirements and separate accounting is main-
tained for the interest of each employee or beneficiary (referred to
herein as an ‘‘IRA trust’’).78 In that case, the assets of the trust
72 Sec. 401(a). A qualified annuity plan under section 403(a) is similar to and subject to re-
quirements similar to those applicable to qualified retirement plans.
73 Sec. 414(i). Defined contribution plans generally provide for contributions by employers and
may include a qualified cash or deferred arrangement under a section 401(k) plan, under which
employees may elect to contribute to the plan.
74 Sec. 414(j).
75 Sec. 403(b). Private and governmental employers that are exempt from tax under section
501(c)(3), including tax-exempt private schools, may maintain tax-deferred annuity plans (dis-
cussed further below). State and local governmental employers may maintain another type of
tax-favored retirement plan, an eligible deferred compensation plan under section 457(b).
76 Sections 219, 408 and 408A provide rules for IRAs. Under section 408(a)(2) and (n), only
certain entities are permitted to be the trustee of an IRA. The trustee of an IRA generally must
be a bank, an insured credit union, or a corporation subject to supervision and examination by
the Commissioner of Banking or other officer in charge of the administration of the banking
laws of the State in which it is incorporated. Alternatively, an IRA trustee may be another per-
son who demonstrates to the satisfaction of the Secretary that the manner in which the person
will administer the IRA will be consistent with the IRA requirements.
77 Simplified employee pension (‘‘SEP’’) plans under section 408(k) and SIMPLE IRA plans
under section 408(p) are employer-sponsored retirement plans funded using IRAs for employees.
78 Sec. 408(c).
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may be held in a common fund for the account of all individuals
who have an interest in the trust.
Tax-sheltered annuities (‘‘section 403(b) plans’’)
Section 403(b) plans are a form of tax-favored employer-spon-
sored plan that provide tax benefits similar to qualified retirement
plans. Section 403(b) plans may be maintained only by (1) chari-
table tax-exempt organizations, and (2) educational institutions of
State or local governments (that is, public schools, including col-
leges and universities).
Many of the rules that apply to section 403(b) plans are similar
to the rules applicable to qualified retirement plans, including sec-
tion 401(k) plans. Section 403(b) plans are generally subject to the
minimum coverage and nondiscrimination rules that apply to quali-
fied defined contribution plans. However, as in the case of a quali-
fied retirement plan, a governmental section 403(b) plan is not sub-
ject to the nondiscrimination rules.
Contributions to section 403(b) plans
Employers may make nonelective or matching contributions to
such plans on behalf of their employees, and the plan may provide
for employees to make pre-tax elective deferrals, designated Roth
contributions (held in designated Roth accounts) 79 or other after-
tax contributions.
Annuity contracts
Generally, section 403(b) plans provide for contributions toward
the purchase of annuity contracts for providing retirement benefits
for their employees. The employee’s rights under the annuity con-
tract are nonforfeitable, except for a failure to pay future pre-
miums.80 Section 403(b) generally provides that amounts contrib-
uted by an employer for an annuity contract are excluded from the
gross income of the employee for the taxable year if certain require-
ments are satisfied.
403(b) Custodial accounts
Alternatively, such contributions may be held in custodial ac-
counts established for each employee if those accounts satisfy cer-
tain requirements.
Contributions to a section 403(b) plan that are held in a custodial
account are treated as contributions to an annuity contract 81 if the
assets (1) are held by a bank 82 or another person who dem-
onstrates, to the satisfaction of the Secretary, that the manner in
which the assets will be held is consistent with the requirements
79 Sec. 402A.
80 Sec. 403(b)(1)(C).
81 Sec. 403(b)(7).
82 A ‘‘bank’’ is defined as any bank as defined in section 581, an insured credit union within
the meaning of section 101, paragraph (6) or (7) of the Federal Credit Union Act, and a corpora-
tion which, under the laws of the State of its incorporation, is subject to supervision and exam-
ination by the Commissioner of Banking or other officer of such State in charge of the adminis-
tration of the banking laws of such State. Sec. 408(n).
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60
for a qualified retirement plan 83 and (2) are invested only in regu-
lated investment company stock.84
Retirement income accounts
Assets of a section 403(b) plan generally must be invested in an-
nuity contracts or mutual funds.85 However, the restrictions on in-
vestments do not apply to a retirement income account, which is
a type of section 403(b) plan that is a defined contribution program
established or maintained by a church, or a convention or associa-
tion of churches, to provide benefits under the plan to employees
of a religious, charitable or similar tax-exempt organization.86
Certain rules prohibiting discrimination in favor of highly com-
pensated employees, which apply to section 403(b) plans generally,
do not apply to a plan maintained by a church or qualified church-
controlled organization.87 For this purpose, church means a church,
a convention or association of churches, or an elementary or sec-
ondary school that is controlled, operated, or principally supported
by a church or by a convention or association of churches, and in-
cludes a qualified church-controlled organization. A qualified
church-controlled organization is any church-controlled tax-exempt
organization other than an organization that (1) offers goods, serv-
ices, or facilities for sale, other than on an incidental basis, to the
general public, other than goods, services, or facilities that are sold
at a nominal charge substantially less than the cost of providing
the goods, services, or facilities, and (2) normally receives more
than 25 percent of its support from either governmental sources, or
receipts from admissions, sales of merchandise, performance of
services, or furnishing of facilities, in activities that are not unre-
lated trades or businesses, or from both. Church-controlled organi-
zations that are not qualified church-controlled organizations are
generally referred to as ‘‘nonqualified church-controlled organiza-
tions.’’
Church plans
A church plan is a plan established and maintained for employ-
ees (or their beneficiaries) by the church or by a convention or asso-
ciation of churches that is exempt from tax.88 Church plans include
plans maintained by an organization, whether a corporation or oth-
erwise, that has as its principal purpose or function the adminis-
tration or funding of a plan or program for providing retirement or
83 Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)–1. A custodial account that satisfies the require-
ments of section 401(f)(2) is treated as an organization described in section 401(a) solely for pur-
poses of subchapter F of chapter 1 of Subtitle A (secs. 501–530) and subtitle F (pertaining to
procedure and administration) with respect to amounts received by the account and with respect
to any income from the investment of those amounts.
84 Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)–8(d)(2)(i).
85 Sec. 403(b)(1)(A) and (7).
86 Sec. 403(b)(9)(B), referring to organizations exempt from tax under section 501(c)(3). For
this purpose, a church or a convention or association of churches includes an organization de-
scribed in section 414(e)(3)(A), that is, an organization, the principal purpose or function of
which is the administration or funding of a plan or program for the provision of retirement bene-
fits or welfare benefits, or both, for the employees of a church or a convention or association
of churches, provided that the organization is controlled by, or associated with, a church or a
convention or association of churches.
87 Sec. 403(b)(1)(D) and (12).
88 Sec. 414(e). The plan is exempt from tax under section 501.
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welfare benefits for the employees of the church or convention or
association of churches.89
ERISA
Retirement plans of private employers, including qualified retire-
ment plans and tax-deferred annuity plans, are generally subject to
requirements under the Employee Retirement Income Security Act
of 1974 (‘‘ERISA’’).90 A plan covering only business owners (or busi-
ness owners and their spouses)—that is, it covers no other employ-
ees—is exempt from ERISA.91 Thus, a plan covering only self-em-
ployed individuals is exempt from ERISA. Tax-deferred annuity
plans that provide solely for salary reduction contributions by em-
ployees may be exempt from ERISA.92 IRAs are generally exempt
from ERISA.
The provisions of Title I of ERISA are under the jurisdiction of
the Secretary of Labor.93 Many of the requirements under Title I
of ERISA parallel Code requirements for qualified retirement
plans. Under ERISA, in carrying out provisions relating to the
same subject matter, the Secretary (of the Treasury) and the Sec-
retary of Labor are required to consult with each other and develop
rules, regulations, practices, and forms that, to the extent appro-
priate for efficient administration, are designed to reduce duplica-
tion of effort, duplication of reporting, conflicting or overlapping re-
quirements, and the burden of compliance by plan administrators,
employers, and participants and beneficiaries.94 In addition, inter-
pretive jurisdiction over parallel Code and ERISA provisions relat-
ing to retirement plans is divided between the two Secretaries by
an Executive Order, referred to as the Reorganization Plan No. 4
of 1978.95
Certain church plans are exempt from the coverage, vesting,
funding, and fiduciary requirements of ERISA (‘‘non-electing’’
churches). Church plans may waive this exemption by election.96
Electing plans become subject to all section 401(a) qualification re-
quirements, Title I of ERISA, and the excise tax on prohibited
transactions.97 Such plans participate in the termination insurance
program administered by the Pension Benefit Guaranty Corpora-
tion (‘‘PBGC’’).
Fiduciary and bonding requirements
Among other requirements, ERISA requires a plan to be estab-
lished and maintained pursuant to a written instrument (that is,
89 Sec. 414(e)(3)(A). With respect to certain provisions (e.g., the exemption for church plans
from nondiscrimination rules applicable for tax-sheltered annuities), the more limited definition
of church under the employment-tax rules applies (secs. 312l(w)(3)(A) and (B)).
90 ERISA applies to employee welfare benefit plans, such as health plans, of private employ-
ers, as well as to employer-sponsored retirement (or pension) plans. Employer-sponsored welfare
and pension plans are both referred to under ERISA as employee benefit plans. Under ERISA
sec. 4(b)(1) and (2), governmental plans and church plans are generally exempt from ERISA.
91 29 C.F.R. sec. 2510.3–3(b)–(c).
92 29 C.F.R. sec. 2510.3–2(f).
93 The provisions of Title I of ERISA are codified at 29 U.S.C.1001–1191c. Under Title IV of
ERISA, defined benefit plans of private employers are generally covered by the PBGC’s pension
insurance program.
94 ERISA sec. 3004.
95 43 Fed. Reg. 47713 (October 17, 1978).
96 Section 4(b)(2) of ERISA excepts a church plan (as defined in section 3(3) of ERISA)
with respect to which no election has been made under Code section 410(d) from the provisions
of Title I of ERISA (including the fiduciary, participation and vesting, and funding rules).
97 Sec. 4975.
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a plan document) that contains certain terms.98 The terms of the
plan must provide for one or more named fiduciaries that jointly
or severally have authority to control and manage the operation
and administration of the plan.99 Among other required plan terms
are a procedure for the allocation of responsibilities for the oper-
ation and administration of the plan and a procedure for amending
the plan and for identifying the persons who have authority to
amend the plan. Among other permitted terms, a plan may provide
also that any person or group of persons may serve in more than
one fiduciary capacity with respect to the plan (including service
both as trustee and administrator) and that a person who is a
named fiduciary with respect to the control or management of plan
assets may appoint an investment manager or managers to man-
age plan assets.
In general, a plan fiduciary is responsible for the investment of
plan assets. However, a special rule applies in the case of a defined
contribution plan that permits participants to direct the investment
of their individual accounts.100 Under the special rule, if various
requirements are met, a participant is not deemed to be a fiduciary
by reason of directing the investment of the participant’s account
and no person who is otherwise a fiduciary is liable for any loss,
or by reason of any breach, that results from the participant’s in-
vestments. Defined contribution plans that provide for participant-
directed investments commonly offer a set of investment options
among which participants may choose. The selection of investment
options to be offered under a plan is subject to ERISA fiduciary re-
quirements.
Under ERISA, any plan fiduciary or person that handles plan as-
sets is required to be bonded, generally for an amount not to exceed
$500,000.101 In some cases, the maximum bond amount is $1 mil-
lion, rather than $500,000.
Tax-sheltered annuity plans under ERISA
ERISA generally applies to section 403(b) plans maintained by
tax-exempt organizations.
However, there is an exception from ERISA for certain tax-shel-
tered annuity programs established by tax-exempt entities which
consist of a program for the purchase of an annuity contract or the
establishment of a custodial account pursuant to salary reduction
agreements or agreements to forego an increase in salary where
the tax-exempt entity has very limited involvement. Under the pro-
gram: (1) participation is completely voluntary for employees, (2)
all rights under the annuity contract or custodial account are en-
forceable solely by the employee, and (3) the employer’s sole in-
volvement in the program is limited to the following, for example:
(a) permitting annuity contractors to publicize their products to
employees, (b) requesting information concerning proposed funding,
media, products, or annuity contracts, (c) summarizing or otherwise
compiling information provided, (d) collecting annuity or custodial
account contributions, or (e) holding in the employer’s name, one or
98 ERISA sec. 402.
99 Fiduciary is defined in ERISA section 3(21), and named fiduciary is defined in ERISA sec-
tion 402(a)(2).
100 ERISA sec. 404(c). Under ERISA, a defined contribution plan is also referred to as an indi-
vidual account plan.
101 ERISA sec. 412.
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more group annuity contracts covering the employees; and (4) for
which the employer receives no direct or indirect consideration or
compensation.102
Section 403(b) plans sponsored by governmental and public edu-
cation employers are generally not subject to ERISA.
Similarly, non-electing church plans funded through section
403(b) annuities are generally not subject to ERISA.103
Multiple employer plans under the Code
In general
Qualified retirement plans, either defined contribution or defined
benefit plans, are categorized as single employer plans or multiple
employer plans (‘‘MEPs’’). A single employer plan is a plan main-
tained by one employer. For this purpose, businesses and organiza-
tions that are members of a controlled group of corporations, a
group under common control, or an affiliated service group are
treated as one employer (referred to as ‘‘aggregation’’).104
A MEP generally is a single plan maintained by two or more un-
related employers (that is, employers that are not treated as a sin-
gle employer under the aggregation rules).105 MEPs are commonly
maintained by employers in the same industry and are used also
by professional employer organizations (‘‘PEOs’’) to provide quali-
fied retirement plan benefits to employees working for PEO cli-
ents.106
There is no specific provision in the Code that provides for sec-
tion 403(b) plans maintained by more than one employer.107
Application of Code requirements to MEPs
Some requirements are applied to a MEP on a plan-wide
basis.108 For example, all employees covered by the plan are treat-
ed as employees of all employers participating in the plan for pur-
poses of the exclusive benefit rule. Similarly, an employee’s service
with all participating employers is taken into account in applying
the minimum participation and vesting requirements. In applying
the limits on contributions and benefits, compensation, contribu-
tions, and benefits attributable to all employers are taken into ac-
count.109 Other requirements are applied separately, including the
minimum coverage requirements, nondiscrimination requirements
102 29 C.F.R. sec. 2510.3–2(f).
103 However, whether or not they are maintained by a church, plans that are funded through
tax-deferred custodial accounts are subject to annual reporting requirements and to the duty
to report distributions of $600 or more. This is because such an account constitutes a ‘‘funded
plan of deferred compensation described in part I of subchapter D of chapter 1.’’ Sec. 6058, 6041;
Treas. Reg. sec. 301.6058–1(a)(2).
104 Sec. 414(b), (c), (m) and (o).
105 Sec. 413(c). Multiple employer status does not apply if the plan is a multiemployer plan.
Multiemployer plans are different from single employer plans and MEPs. A multiemployer plan
is defined under section 414(f) as a plan maintained pursuant to one or more collective bar-
gaining agreements with two or more unrelated employers and to which the employers are re-
quired to contribute under the collective bargaining agreement(s). Multiemployer plans are also
known as Taft-Hartley plans.
106 Rev. Proc. 2003–86, 2003–2 C.B. 1211, and Rev. Proc. 2002–21, 2002–1 C.B. 911, address
the application of the MEP rules to qualified defined contribution plans maintained by PEOs.
107 Section 413(c) provides rules governing MEPs subject to sections 401(a), 410(a) and 411,
in other words tax-qualified retirement plans, but does not apply those rules to section 403(b)
plans.
108 Sec. 413(c).
109 Treas. Reg. sec. 1.415(a)–1(e).
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(both the general requirements and the special tests for section
401(k) plans), and the top-heavy rules.110
‘‘One bad apple’’ rule
The qualified status of the plan as a whole is determined with
respect to all employers maintaining the plan, and the failure by
one employer (or by the plan itself) to satisfy an applicable quali-
fication requirement may result in disqualification of the plan with
respect to all employers (sometimes referred to as the ‘‘one bad
apple’’ rule).111
The SECURE Act provided relief from the ‘‘one bad apple’’ rule
under the Code for certain MEPs.112 MEPs that satisfy certain re-
quirements (referred to herein as a ‘‘covered MEP’’) may avoid the
consequences of the ‘‘one bad apple rule.’’ A ‘‘covered MEP’’ is a
multiple employer qualified defined contribution plan 113 or a plan
that consists of IRAs (referred to herein as an ‘‘IRA plan’’), includ-
ing under an IRA trust,114 that either (1) is maintained by employ-
ers which have a common interest other than having adopted the
plan, or (2) in the case of a plan not described in (1), has a pooled
plan provider (referred to herein as a ‘‘pooled provider plan’’),115
and which meets certain other requirements as described below.
Relief from the ‘‘one bad apple’’ rule does not apply to a plan un-
less the terms of the plan provide that, in the case of any employer
in the plan failing to take required actions (referred to herein as
a ‘‘noncompliant employer’’):
• Plan assets attributable to employees of the noncompliant
employer (or beneficiaries of such employees) will be trans-
ferred to a plan maintained only by that employer (or its suc-
cessor), to a tax-favored retirement plan for each individual
whose account is transferred,116 or to any other arrangement
that the Secretary determines is appropriate, unless the Sec-
retary determines it is in the best interests of the employees
of the noncompliant employer (and beneficiaries of such em-
ployees) to retain the assets in the plan, and
• The noncompliant employer (and not the plan with respect
to which the failure occurred or any other employer in the
plan) is, except to the extent provided by the Secretary, liable
for any plan liabilities attributable to employees of the non-
compliant employer (or beneficiaries of such employees).
In addition, in the case of a pooled provider plan, if the pooled
plan provider does not perform substantially all the administrative
duties required of the provider (as described below) for any plan
year, the Secretary may provide that the determination as to
110 Treas. Reg. secs. 1.413–2(a)(3)(ii)–(iii) and 1.416–1, G–2.
111 Treas. Reg. sec. 1.413–2(a)(3)(iv).
112 Sec. 101 of Div. O. of Pub. L. No. 116–94, the Further Consolidated Appropriations Act,
2020, December 20, 2019. With respect to plans described under section 413(e)(1)(A), other than
providing relief from the ‘‘one bad apple’’ rule if certain requirements are met and adding cer-
tain reporting requirements, the provision generally did not change present law and related
guidance applicable to such MEPs under the Code or ERISA.
113 To which section 413(c) applies.
114 In applying the exclusive benefit requirement under section 408(c) to an IRA plan with an
IRA trust covering employees of unrelated employers, all employees covered by the plan are
treated as employees of all employers participating in the plan.
115 Sec. 413(e)(1).
116 For this purpose, a tax-favored retirement plan means an eligible retirement plan as de-
fined in section 402(c)(8)(B), that is, an IRA, a qualified retirement plan, a tax-deferred annuity
plan under section 403(b), or an eligible deferred compensation plan of a State or local govern-
mental employer under section 457(b).
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whether the plan meets the Code requirements for tax-favored
treatment will be made in the same manner as would be made
without regard to the relief under the provision.
MEP status under ERISA
Like the Code, ERISA contains rules for multiple employer re-
tirement plans.117 However, a different concept of MEP applies
under ERISA.
Under ERISA, an employee benefit plan (whether a pension plan
or a welfare plan) must be sponsored by an employer, by an em-
ployee organization, or by both.118 The definition of employer is any
person acting directly as an employer, or indirectly in the interest
of an employer, in relation to an employee benefit plan, and in-
cludes a group or association of employers acting for an employer
in such capacity.119
Historically, these definitional provisions of ERISA have been in-
terpreted as only permitting a MEP to be established or main-
tained by a cognizable, bona fide group or association of employers,
acting in the interests of its employer members to provide benefits
to their employees.120 This approach is based on the premise that
the person or group that maintains the plan is tied to the employ-
ers and employees that participate in the plan by some common
economic or representational interest or genuine organizational re-
lationship unrelated to the provision of benefits. Based on the facts
and circumstances, the employers that participate in the benefit
program must, either directly or indirectly, exercise control over
that program, both in form and in substance, in order to act as a
bona fide employer group or association with respect to the pro-
gram, or the plan is sponsored by one or more employers as defined
in section 3(5) of ERISA.121 However, an employer association does
not exist where several unrelated employers merely execute partici-
pation agreements or similar documents as a means to fund bene-
fits, in the absence of any genuine organizational relationship be-
tween the employers. In that case, each participating employer es-
tablishes and maintains a separate employee benefit plan for the
benefit of its own employees, rather than a MEP.
DOL MEP regulations
On July 31, 2019, the DOL issued final regulations 122 pursuant
to Executive Order 13847 123 which had directed the DOL to con-
sider within 180 days whether to issue a notice of proposed rule-
making, other guidance, or both, that would clarify when a group
or association of employers or other appropriate business or organi-
117 ERISA sec. 210(a).
118 ERISA secs. 3(1) and (2).
119 ERISA sec. 3(5).
120 See, e.g., Department of Labor Advisory Opinions 2012–04A, 2003–17A, 2001–04A, and
1994–07A, and other authorities cited therein.
121 See, e.g., Department of Labor Advisory Opinion 2017–02AC.
122 84 Fed. Reg. 37508, July 31, 2019. DOL noted in the preamble to the final regulations that
these final regulations differ significantly from the legislative proposals introduced in Congress,
including the SECURE Act which ‘‘makes comprehensive changes to ERISA and the Code to
facilitate open MEPs.’’ DOL indicates that the final rule is significantly more limited in scope
because it relies solely on the Department’s authority to promulgate regulations administering
title I of ERISA and unlike Congress, DOL does not have the authority to make statutory
changes to ERISA and other areas of law that govern retirement savings such as the Code.
123 83 Fed. Reg. 45321, September 6, 2018. The Executive Order was issued on August 31,
2018.
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66
zation could be an ‘‘employer’’ under ERISA.124 The final regulation
focuses its scope on MEPs sponsored by either a group or associa-
tion of employers or by a PEO and is limited to defined contribu-
tion plans.125 The final regulation does not deal with pooled em-
ployer plans.
The final regulation recognizes that a bona fide group or associa-
tion of employers may establish a MEP if such group or association
meets the following requirements: (1) the primary purpose of the
group or association may be to provide MEP coverage to its em-
ployer members and their employees, but there must also be at
least one substantial business purpose unrelated to offering and
providing MEP coverage or other employee benefits to the employer
members and their employees; (2) each employer member of the
group or association is a person acting directly as an employer of
at least one employee who is a participant covered under the plan;
(3) the group or association has a formal organizational structure
with a governing body and has by-laws or other similar indications
of formality; (4) the functions and activities of the group or associa-
tion are controlled by its employer members, and the group’s or as-
sociation’s employer members that participate in the plan control
(in form and in substance) the plan; (5) the employer members
have a commonality of interest; (6) plan participation is only per-
mitted to employees and former employees of employer members,
and their beneficiaries; and (7) the group or association is not a
bank or trust company, insurance issuer, broker-dealer or other
similar financial services firm. Under the final regulation, a bona
fide PEO may establish a MEP. Certain ‘‘working owners’’ may also
establish a MEP.
Section 403(b) Plans under ERISA
There is no specific provision in ERISA that provides for section
403(b) plans maintained by more than one employer.126
‘‘Pooled’’ MEPs under the Code and ERISA
As described above, the SECURE Act provided relief from the
‘‘one bad apple’’ rule under the Code for certain MEPs. The SE-
CURE Act also introduced the concept of a ‘‘pooled’’ MEP for pur-
poses of the Code and ERISA. Various requirements apply to a
‘‘pooled provider plan’’ under the Code, with similar, but not iden-
tical, requirements applying under ERISA.
Pooled provider plan
A ‘‘pooled provider plan’’ is a qualified defined contribution plan
that is established or maintained for the purpose of providing bene-
fits to the employees of a MEP administered by a ‘‘pooled plan pro-
vider.’’ A pooled provider plan does not include a plan maintained
by employers that have a common interest other than having
adopted the plan.
In the case of a pooled provider plan, if the pooled plan provider
does not perform substantially all the administrative duties re-
124 Within the meaning of ERISA sec. 3(5).
125 As defined in section 3(34) of ERISA.
126 ERISA section 210 provides rules related to MEPs. Section 29 C.F.R. sec. 2530.210(c) de-
fines the term ‘‘multiple employer plan’’ to mean a MEP within the meaning of sections 413(b)
and (c) of the Code and the regulations thereafter, and as previously noted, those rules are ap-
plicable to plans subject to sections 401(a), 410(a) and 411.
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67
quired of the provider (as described below) for any plan year, the
Secretary may provide that the determination as to whether the
plan meets the Code requirements for tax-favored treatment will be
made in the same manner as would be made without regard to the
relief under the provision.
Pooled plan provider
A ‘‘pooled plan provider’’ with respect to a plan means a person
that:
• Is designated by the terms of the plan as a named fidu-
ciary under ERISA,127 as the plan administrator, and as the
person responsible to perform all administrative duties (includ-
ing conducting proper testing with respect to the plan and the
employees of each employer in the plan) that are reasonably
necessary to ensure that the plan meets the Code requirements
for tax-favored treatment and the requirements of ERISA and
to ensure that each employer in the plan takes actions as the
Secretary or the pooled plan provider determines necessary for
the plan to meet Code and ERISA requirements, including pro-
viding to the pooled plan provider any disclosures or other in-
formation that the Secretary may require or that the pooled
plan provider otherwise determines are necessary to admin-
ister the plan or to allow the plan to meet Code and ERISA
requirements,
• Registers with the Secretary as a pooled plan provider and
provides any other information that the Secretary may require,
before beginning operations as a pooled plan provider,
• Acknowledges in writing its status as a named fiduciary
under ERISA and as the plan administrator, and
• Is responsible for ensuring that all persons who handle
plan assets or are plan fiduciaries are bonded in accordance
with ERISA requirements.
The Secretary may perform audits, examinations, and investiga-
tions of pooled plan providers as may be necessary to enforce and
carry out the purposes of the statute.
In addition, in determining whether a person meets the require-
ments to be a pooled plan provider with respect to any plan, all
persons who perform services for the plan and who are treated as
a single employer 128 are treated as one person.
Plan sponsor
Except with respect to the administrative duties (as a named fi-
duciary, as the plan administrator, and as the person responsible
for the performance of all administrative duties) for which the
pooled plan provider is responsible as described above, each em-
ployer in a plan which has a pooled plan provider is treated as the
plan sponsor with respect to the portion of the plan attributable to
that employer’s employees (or beneficiaries of such employees).
Guidance
The Secretary is directed to issue guidance (that the Secretary
determines appropriate) (1) to identify the administrative duties
127 Within the meaning of ERISA section 402(a)(2).
128 Under subsection (b), (c), (m), or (o) of section 414.
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68
and other actions required to be performed by a pooled plan pro-
vider, (2) that describes the procedures to be taken to terminate a
plan that fails to meet the requirements to be a covered MEP, in-
cluding the proper treatment of, and actions needed to be taken by,
any employer in the plan and plan assets and liabilities attrib-
utable to employees of that employer (or beneficiaries of such em-
ployees), and (3) to identify appropriate cases in which corrective
action will apply with respect to noncompliant employers. For pur-
poses of (3), the Secretary is to take into account whether the fail-
ure of an employer or pooled plan provider to provide any disclo-
sures or other information, or to take any other action, necessary
to administer a plan or to allow a plan to meet the Code require-
ments for tax-favored treatment, has continued over a period of
time that demonstrates a lack of commitment to compliance. An
employer or pooled plan provider is not treated as failing to meet
a requirement of guidance issued by the Secretary if, before the
issuance of such guidance, the employer or pooled plan provider
complies in good faith with a reasonable interpretation of the provi-
sions to which the guidance relates.
The Secretary is directed to publish model plan language that
meets the Code and ERISA requirements and that may be adopted
in order for the plan to be treated as a pooled employer plan under
ERISA.
The Secretary (or the Secretary’s delegate) has the authority to
provide for the proper treatment of a failure to meet any Code re-
quirement with respect to any employer (and its employees) in a
MEP.
Pooled employer plans under ERISA
In general
A pooled employer plan is treated for purposes of ERISA as a
single plan that is a MEP. A ‘‘pooled employer plan’’ is a qualified
defined contribution plan that is established or maintained for the
purpose of providing benefits to the employees of two or more em-
ployers, that meets certain requirements in order to be treated for
purposes of ERISA as a single plan. A pooled employer plan does
not include a plan maintained by employers that have a common
interest other than having adopted the plan.
In order for a plan to be a pooled employer plan, the plan terms
must:
• Designate a pooled plan provider and provide that the
pooled plan provider is a named fiduciary of the plan;
• Designate one or more trustees (other than an employer in
the plan) 129 to be responsible for collecting contributions to,
and holding the assets of, the plan, and require the trustees to
implement written contribution collection procedures that are
reasonable, diligent, and systematic;
• Provide that each employer in the plan retains fiduciary
responsibility for the selection and monitoring, in accordance
with ERISA fiduciary requirements, of the person designated
as the pooled plan provider and any other person who is also
designated as a named fiduciary of the plan, and, to the extent
not otherwise delegated to another fiduciary by the pooled plan
129 Any trustee must meet the requirements under the Code to be an IRA trustee.
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69
provider (and subject to the ERISA rules relating to self-di-
rected investments), the investment and management of the
portion of the plan’s assets attributable to the employees of
that employer (or beneficiaries of such employees) in the plan;
• Provide that employers in the plan, and participants and
beneficiaries, are not subject to unreasonable restrictions, fees,
or penalties with regard to ceasing participation, receipt of dis-
tributions, or otherwise transferring assets of the plan in ac-
cordance with applicable rules for plan mergers and transfers;
• Require the pooled plan provider to provide to employers
in the plan any disclosures or other information that the Sec-
retary of Labor may require, including any disclosures or other
information to facilitate the selection or any monitoring of the
pooled plan provider by employers in the plan, and require
each employer in the plan to take any actions that the Sec-
retary of Labor or pooled plan provider determines are nec-
essary to administer the plan or to allow for the plan to meet
the ERISA and Code requirements applicable to the plan, in-
cluding providing any disclosures or other information that the
Secretary of Labor may require or that the pooled plan pro-
vider otherwise determines are necessary to administer the
plan or to allow the plan to meet such ERISA and Code re-
quirements; and
• Provide that any disclosure or other information required
to be provided as described above may be provided in electronic
form and will be designed to ensure only reasonable costs are
imposed on pooled plan providers and employers in the plan.
In the case of a fiduciary of a pooled employer plan or a person
handling assets of a pooled employer plan, the maximum bond
amount under ERISA is $1 million.
The term ‘‘pooled employer plan’’ does not include a multiem-
ployer plan. Such term also does not include a plan established be-
fore the date of enactment of the SECURE Act unless the plan ad-
ministrator elects to have the plan treated as a pooled employer
plan and the plan meets the ERISA requirements applicable to a
pooled employer plan established on or after such date.
Pooled plan provider
The definition of pooled plan provider for ERISA purposes is gen-
erally similar to the definition under the Code, described above.130
The ERISA definition requires a person to register as a pooled plan
provider with the Secretary of Labor and provide any other infor-
mation that the Secretary of Labor may require before beginning
operations as a pooled plan provider.
The Secretary of Labor may perform audits, examinations, and
investigations of pooled plan providers as may be necessary to en-
force and carry out the purposes of the statute.
Plan sponsor
Except with respect to the administrative duties (as a named fi-
duciary, as the plan administrator, and as the person responsible
for the performance of all administrative duties) for which the
130 In determining whether a person meets the requirements to be a pooled plan provider with
respect to a plan, all persons who perform services for the plan and who are treated as a single
employer under subsection (b), (c), (m), or (o) of section 414 are treated as one person.
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70
pooled plan provider is responsible as described above, each em-
ployer in a pooled employer plan will be treated as the plan spon-
sor with respect to the portion of the plan attributable to that em-
ployer’s employees (or beneficiaries of such employees).
Guidance
The Secretary of Labor is to issue guidance that he or she deter-
mines appropriate (1) to identify the administrative duties and
other actions required to be performed by a pooled plan provider,131
and (2) that requires, in appropriate cases of a noncompliant em-
ployer, plan assets attributable to employees of the noncompliant
employer (or beneficiaries of such employees) to be transferred to
a plan maintained only by that employer (or its successor), to a tax-
favored retirement plan for each individual whose account is trans-
ferred, or to any other arrangement that the Secretary of Labor de-
termines in the guidance is appropriate,132 and the noncompliant
employer (and not the plan with respect to which the failure oc-
curred or any other employer in the plan) to be liable for any plan
liabilities attributable to employees of the noncompliant employer
(or beneficiaries of such employees), except to the extent provided
in the guidance. For purposes of (2), the Secretary of Labor is to
take into account whether the failure of an employer or pooled plan
provider to provide any disclosures or other information, or to take
any other action, necessary to administer a plan or to allow a plan
to meet the requirements of ERISA and the Code requirements for
tax-favored treatment, has continued over a period of time that
demonstrates a lack of commitment to compliance. An employer or
pooled plan provider is not treated as failing to meet a requirement
of guidance issued by the Secretary if, before the issuance of such
guidance, the employer or pooled plan provider complies in good
faith with a reasonable interpretation of the provisions to which
the guidance relates.
Form 5500 reporting
Under the Code, an employer maintaining a qualified retirement
plan generally is required to file an annual return containing infor-
mation required under regulations with respect to the qualification,
financial condition, and operation of the plan.133 ERISA requires
the plan administrator of certain pension and welfare benefit plans
to file annual reports disclosing certain
131 The DOL has issued guidance on registering as a pooled plan provider. See 85 Fed. Reg.
72934, November 16, 2020. (29 C.F.R. sec. 2510.3–44).
132 The Secretary of Labor may waive the requirement to transfer assets to another plan or
arrangement in appropriate circumstances if the Secretary of Labor determines it is in the best
interests of the employees of the noncompliant employer (and the beneficiaries of such employ-
ees) to retain the assets in the pooled employer plan.
133 Sec. 6058. In addition, under section 6059, the plan administrator of a defined benefit plan
subject to the minimum funding requirements is required to file an annual actuarial report.
Under section 414(g) and ERISA section 3(16), plan administrator generally means the person
specifically so designated by the terms of the plan document. In the absence of a designation,
the plan administrator generally is (1)in the case of a plan maintained by a single employer,
the employer, (2)in the case of a plan maintained by an employee organization, the employee
organization, or (3)in the case of a plan maintained by two or more employers or jointly by one
or more employers and one or more employee organizations, the association, committee, joint
board of trustees, or other similar group of representatives of the parties that maintain the plan.
Under ERISA, the party described in (1), (2), or (3) is referred to as the ‘‘plan sponsor.’’
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71
Information to the DOL.134 These filing requirements are met by
filing a completed Form 5500, Annual Return/Report of Employee
Benefit Plan. Forms 5500 are filed with DOL, and information from
Forms 5500 is shared with the IRS.135
In the case of a MEP (including a pooled employer plan), the
Form 5500 filing must include a list of participating employers in
the plan; a good faith estimate of the percentage of total contribu-
tions made by the participating employers during the plan year;
and the aggregate account balances attributable to each employer
in the plan (determined as the sum of the account balances of the
employees of each employer (and the beneficiaries of such employ-
ees)); and with respect to a pooled employer plan, the identifying
information for the person designated under the terms of the plan
as the pooled plan provider. The Secretary of Labor may prescribe
simplified reporting for a MEP that covers fewer than 1,000 partici-
pants, but only if no single employer in the plan has 100 or more
participants covered by the plan.
REASONS FOR CHANGE
Under present law, employers eligible to sponsor section 401(a)
tax-qualified defined contribution retirement plans may maintain a
multiple employer plan if the employers either (1) have a common
interest (other than having adopted the plan) or (2) have a pooled
plan provider. Multiple employer plans afford an opportunity to
small employers to band together to obtain more favorable retire-
ment plan investment results and more efficient and less expensive
management services. However, the ability of employers eligible to
sponsor section 403(b) arrangements to sponsor and maintain mul-
tiple employer plans is uncertain under the Code and ERISA.
The Committee believes that employers eligible to maintain sec-
tion 403(b) tax sheltered annuity arrangements should have the
same access to multiple employer plans as is provided to sponsors
of section 401(a) tax-qualified retirement plans.
EXPLANATION OF PROVISION
Section 403(b) MEPs under the Code
In general
The provision clarifies that a section 403(b) plan may be estab-
lished and maintained as a MEP. Specifically, it provides that, ex-
cept in the case of a church plan, section 403(b) annuity contracts
and 403(b) custodial accounts 136 do not fail to qualify as section
403(b) plans solely by reason of such contracts being purchased or
accounts being established under a plan maintained by more than
one employer.
For purposes of this provision, a section 403(b) plan includes
such a plan sponsored by (1) tax-exempt entities (described in sec-
134 ERISA secs. 103 and 104. Under ERISA section 4065, the plan administrator of certain
defined benefit plans must provide information to the PBGC.
135 Information is shared also with the PBGC, as applicable. Form 5500 filings are also pub-
licly released in accordance with section 6104(b) and Treas. Reg. sec. 301.6104(b)–1 and ERISA
sections 104(a)(1) and 106(a).
136 Sec. 403(b)(7) provides that amounts paid by a tax-exempt employer to a custodial account
which satisfies the requirements of section 401(f)(2) are treated as amounts contributed by him
for an annuity contract for his employee if the amounts are to be invested in regulated invest-
ment company stock to be held in that custodial account.
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72
tion 501(c)(3) which is exempt from tax under section 501(a)) and
(2) public schools (including state colleges and universities).
Relief from ‘‘one bad apple’’ rule
Under the provision, as long as such a section 403(b) plan main-
tained by more than one employer satisfies rules similar to certain
rules that apply to qualified retirement MEPs,137 the section 403(b)
plan will not fail to be treated as such merely because one or more
employers of employees covered by the plan fail to meet the re-
quirements of section 403(b). The rules applicable to qualified re-
tirement MEPs require that where one or more employers of em-
ployees covered by the MEP fails to meet the applicable qualifica-
tion requirements:
• the assets of the plan attributable to employees of such
employer (or beneficiaries of such employees) will be trans-
ferred to a plan maintained only by such employer (or its suc-
cessor), to an eligible retirement plan 138 for each individual
whose account is transferred, or to any other arrangement that
the Secretary determines is appropriate, unless the Secretary
determines it is in the best interests of the employees of such
employer (and the beneficiaries of such employees) to retain
the assets in the plan, and
• such employer (and not the plan with respect to which the
failure occurred or any other employer in such plan) will, ex-
cept to the extent provided by the Secretary, be liable for any
liabilities with respect to such plan attributable to employees
of such employer (or beneficiaries of such employees).
In addition, in the case of a section 403(b) plan maintained by
tax-exempt entities, such plans must also meet either the com-
monality rule 139 or have a pooled plan provider. This requirement
does not apply to plans maintained by governmental employers.
Section 403(b) MEPs under ERISA
The provision:
• Amends the definition of pooled employer plan under
ERISA 140 to include a section 403(b) MEP that meets the ap-
plicable requirements under the Code (as added by this provi-
sion).141
• It also amends the requirements relating to plan terms for
pooled employer plans to permit, in the case of section 403(b)
plans, fiduciaries other than trustees to hold certain respon-
sibilities relating to plan assets.142
Disclosure Rules
Special disclosure rules for tax-exempt employers joining a
section 403(b) MEP
As noted above, there is an exception from ERISA for certain tax-
sheltered annuity programs established by tax-exempt entities
which consist of a program for the purchase of annuity contracts
137 Under section 413(e)(2).
138 As defined in section 402(c)(8)(B).
139 Sec. 413(e)(1)(A).
140 ERISA sec. 3(43)(A).
141 Under section 403(b)(15), as added by this provision.
142 ERISA sec. 3(43)(B)(ii).
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73
or the establishment of custodial accounts pursuant to salary re-
duction agreements or agreements to forego an increase in salary
where the tax-exempt entity has very limited involvement in the
program. However, if a tax-exempt employer who had participated
in such a non-ERISA program decides to become a participating
employer in a section 403(b) MEP, that employer will become sub-
ject to ERISA because of the fiduciary responsibilities imposed on
each employer in a section 403(b) MEP.
To ensure that such tax-exempt employers are aware of their
ERISA fiduciary duties, the provision imposes additional disclosure
to such employers. First, the provision directs the Secretary (or the
Secretary’s delegate) to modify the model plan language applicable
to qualified retirement MEPs 143 to include language which notifies
participating tax-exempt employers that the plan is subject to
ERISA and that each such employer is a plan sponsor with respect
to its employees participating in the MEP, and, as such, has cer-
tain fiduciary duties with respect to the plan and the employees.
Second, Treasury must undertake necessary education and out-
reach efforts to increase awareness to tax-exempt employers that
MEPs are subject to ERISA, that such employers are plan sponsors
with respect to their employees participating in the MEP and, as
such, have certain fiduciary duties with respect to the plan and to
its employees.
Other disclosures
The provision also provides that the Secretary also publish model
plan language similar to the model plan language published for
qualified plan MEPs 144 for section 403(b) MEPs sponsored by non-
governmental employers.
Reporting requirements for section 403(b) MEPs
In the case of any annuity contract described in section 403(b)
that is a MEP, such plan is treated as a single plan for purposes
of the reporting requirements under the Code relating to the an-
nual registration statement and the annual return for certain
plans 145 As a result, the plan can file a single Form 8955–SSA,
Annual Registration Statement Identifying Separated Participants
With Deferred Vested Benefits, and a single Form 5500, Annual
Return/Report of Employee Benefit Plan, rather than having each
participating employer in the section 403(b) MEP file their own
form. These filing requirements only apply to tax-exempt employ-
ers because governmental employers are not subject to ERISA.
Regulations
The Secretary (or the Secretary’s designee) must prescribe such
regulations as may be necessary to clarify the treatment of a plan
termination by an employer in the case of section 403(b) MEPs.146
143 Sec. 413(e)(5).
144 Under section 413(e)(5).
145 The reporting requirement relating to the annual registration statement is under section
6057, and the requirement relating to the annual return is under 6058. These requirements only
apply in the case of a section 403(b) plan that is otherwise subject to such requirements.
146 As described in section 403(b)(15).
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No inference with respect to church plans
The provision provides that regarding any application of section
403(b) to an annuity contract purchased under a church plan,147
maintained by more than one employer, or to any application of
rules similar to the rules that apply to qualified retirement
MEPs 148 to such a plan, no inference is to be made from the rules
applicable to section 403(b) MEPs not applying to such plans.
EFFECTIVE DATE
The provision is generally effective for plan years beginning after
December 31, 2021.
Nothing in the amendments made by the general rule is to be
construed as limiting the authority of the Secretary or the Sec-
retary’s delegate (determined without regard to such amendment)
to provide for the proper treatment of a failure to meet any re-
quirement applicable under such Code with respect to one em-
ployer (and its employees) in the case of a section 403(b) MEP.149
9. TREATMENT OF STUDENT LOAN PAYMENTS AS ELECTIVE DEFER-
RALS FOR PURPOSES OF MATCHING CONTRIBUTIONS (SEC. 109 OF
THE BILL AND SECS. 401(m), 403(b), 408(p), AND 457(b) OF THE
CODE)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock bonus
plan that contains a qualified cash or deferred arrangement. Such
arrangements are subject to the rules generally applicable to quali-
fied defined contribution plans. In addition, special rules apply to
such arrangements. Employees who participate in a section 401(k)
plan may elect to have contributions made to the plan (referred to
as ‘‘elective deferrals’’) rather than receive the same amount as cur-
rent compensation.150 The maximum annual amount of elective de-
ferrals that can be made by an employee for a year is $19,500 (for
2021) or, if less, the employee’s compensation.151 For an employee
who attains age 50 by the end of the year, the dollar limit on elec-
tive deferrals is increased by $6,500 (for 2021) (called ‘‘catch-up
contributions’’).152 An employee’s elective deferrals must be fully
vested. A section 401(k) plan may also provide for employer match-
ing and nonelective contributions.
In order to constitute a qualified cash or deferred arrangement,
no benefit under the arrangement may be conditioned, directly or
indirectly, on the employee electing to have the employer make or
not make contributions under the arrangement in lieu of receiving
147 As defined in section 414(e).
148 Sec. 413(e).
149 As described in section 403(b)(15).
150 Elective deferrals generally are made on a pre-tax basis and distributions attributable to
elective deferrals are includible in income. However, a section 401(k) plan is permitted to in-
clude a ‘‘qualified Roth contribution program’’ that permits a participant to elect to have all or
a portion of the participant’s elective deferrals under the plan treated as after-tax Roth contribu-
tions. Certain distributions from a designated Roth account are excluded from income, even
though they include earnings not previously taxed.
151 Sec. 402(g).
152 Sec. 414(v).
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cash.153 However, matching contributions are exempt from this
rule.
Nondiscrimination test
Actual deferral percentage test
An annual nondiscrimination test, called the actual deferral per-
centage test (the ‘‘ADP’’ test) applies to elective deferrals under a
section 401(k) plan.154 The ADP test generally compares the aver-
age rate of deferral for highly compensated employees to the aver-
age rate of deferral for non-highly compensated employees and re-
quires that the average deferral rate for highly compensated em-
ployees not exceed the average rate for non-highly compensated
employees by more than certain specified amounts. If a plan fails
to satisfy the ADP test for a plan year based on the deferral elec-
tions of highly compensated employees, the plan is permitted to
distribute deferrals to highly compensated employees (‘‘excess de-
ferrals’’) in a sufficient amount to correct the failure. The distribu-
tion of the excess deferrals must be made by the close of the fol-
lowing plan year.155
The ADP test is deemed to be satisfied if a section 401(k) plan
includes certain minimum matching or nonelective contributions
under either of two plan designs (‘‘401(k) safe harbor plan’’), de-
scribed below, as well as certain required rights and features and
the plan satisfies a notice requirement.156
Section 401(k) safe harbor contributions
Under one type of section 401(k) safe harbor plan (‘‘basic 401(k)
safe harbor plan’’), the plan either (1) satisfies a matching contribu-
tion requirement (‘‘matching contribution basic 401(k) safe harbor
plan’’) or (2) provides for the employer to make a nonelective con-
tribution to a defined contribution plan of at least three percent of
an employee’s compensation on behalf of each non-highly com-
pensated employee who is eligible to participate in the plan (‘‘non-
elective basic 401(k) safe harbor plan’’). The matching contribution
requirement under the matching contribution basic 401(k) safe har-
bor requires a matching contribution equal to at least 100 percent
of elective contributions of the employee for contributions not in ex-
cess of three percent of compensation, and 50 percent of elective
contributions for contributions that exceed three percent of com-
pensation but do not exceed five percent, for a total matching con-
tribution of up to four percent of compensation. The required
matching contributions and the three percent nonelective contribu-
tion under the basic 401(k) safe harbor must be immediately non-
forfeitable (that is, 100 percent vested) when made.
Another safe harbor applies for a section 401(k) plan that in-
cludes automatic enrollment (‘‘automatic enrollment 401(k) safe
harbor’’). Under an automatic enrollment 401(k) safe harbor, unless
an employee elects otherwise, the employee is treated as electing
153 Sec. 401(k)(4)(A).
154 Sec. 401(k)(3). Long-term part-time workers may be excluded from this and other non-
discrimination tests. Sec. 401(k)(2)(D).
155 Sec. 401(k)(8).
156 Sec. 401(k)(12) and (13). If certain additional requirements are met, matching contributions
under 401(k) safe harbor plan may also satisfy a nondiscrimination test applicable under section
401(m).
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to make elective deferrals equal to a percentage of compensation as
stated in the plan, not in excess of 15 percent and at least (1) three
percent of compensation for the first year the deemed election ap-
plies to the participant, (2) four percent during the second year, (3)
five percent during the third year, and (4) six percent during the
fourth year and thereafter.157 The matching contribution require-
ment under this safe harbor is 100 percent of elective contributions
of the employee for contributions not in excess of one percent of
compensation, and 50 percent of elective contributions for contribu-
tions that exceed one percent of compensation but do not exceed six
percent, for a total matching contribution of up to 3.5 percent of
compensation (‘‘matching contribution automatic enrollment 401(k)
safe harbor’’). Alternatively, the plan can provide that the employer
will make a nonelective contribution of three percent, as under the
basic 401(k) safe harbor (‘‘nonelective contribution automatic en-
rollment 401(k) safe harbor’’). However, under the automatic enroll-
ment 401(k) safe harbors, the matching and nonelective contribu-
tions are allowed to become 100 percent vested after two years of
service (rather than being required to be immediately vested when
made).
Matching contribution nondiscrimination test
Employer matching contributions are also subject to a special
nondiscrimination test, the ‘‘ACP test,’’ which compares the aver-
age actual contribution percentages (‘‘ACPs’’) of matching contribu-
tions for the highly compensated employee group and the non-high-
ly compensated employee group. The plan generally satisfies the
ACP test if the ACP of the highly compensated employee group for
the current plan year is either (1) not more than 125 percent of the
ACP of the non-highly compensated employee group for the prior
plan year, or (2) not more than 200 percent of the ACP of the non-
highly compensated employee group for the prior plan year and not
more than two percentage points greater than the ACP of the non-
highly compensated employee group for the prior plan year.
A safe harbor section 401(k) plan that provides for matching con-
tributions is deemed to satisfy the ACP test (‘‘401(m) safe harbor’’)
if, in addition to meeting the safe harbor contribution and notice
requirements under section 401(k), (1) matching contributions are
not provided with respect to elective deferrals in excess of six per-
cent of compensation, (2) the rate of matching contribution does not
increase as the rate of an employee’s elective deferrals increases,
and (3) the rate of matching contribution with respect to any rate
of elective deferral of a highly compensated employee is no greater
than the rate of matching contribution with respect to the same
rate of deferral of a non-highly compensated employee.158
SIMPLE IRA plan
A small employer that employs no more than 100 employees who
earned $5,000 or more during the prior calendar year can establish
a simplified tax-favored retirement plan, which is called the SIM-
157 These automatic increases in default contribution rates are required for plans using the
safe harbor. Rev. Rul. 2009–30, 2009–39 I.R.B. 391, provides guidance for including automatic
increases in other plans using automatic enrollment, including under a plan that includes an
eligible automatic contribution arrangement.
158 Sec. 401(m)(11); 401(m)(12).
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77
PLE IRA plan. A SIMPLE IRA plan is generally a plan under
which contributions are made to an IRA for each employee (a ‘‘SIM-
PLE IRA’’).159 A SIMPLE IRA plan allows employees to make elec-
tive deferrals to a SIMPLE IRA, subject to a limit of $13,500 (for
2021). An individual who has attained age 50 before the end of the
taxable year may also make catch-up contributions under a SIM-
PLE IRA plan up to a limit of $3,000 (for 2021).
In the case of a SIMPLE IRA plan, the group of eligible employ-
ees generally must include any employee who has received at least
$5,000 in compensation from the employer in any two preceding
years and is reasonably expected to receive $5,000 in the current
year. A SIMPLE IRA plan is not subject to the nondiscrimination
rules generally applicable to qualified retirement plans.
Employer contributions to a SIMPLE IRA must satisfy one of two
contribution formulas. Under the matching contribution formula,
the employer generally is required to match employee elective con-
tributions on a dollar-for-dollar basis up to three percent of the em-
ployee’s compensation. The employer can elect a lower percentage
matching contribution for all employees (but not less than one per-
cent of each employee’s compensation); however, a lower percentage
cannot be elected for more than two years out of any five-year pe-
riod. Alternatively, for any year, an employer is permitted to elect,
in lieu of making matching contributions, to make a nonelective
contribution of two percent of compensation on behalf of each eligi-
ble employee with at least $5,000 in compensation for such year,
whether or not the employee makes an elective contribution.
The employer must provide each employee eligible to make elec-
tive deferrals under a SIMPLE IRA plan a 60-day election period
before the beginning of the calendar year and a notice at the begin-
ning of the 60-day period explaining the employee’s choices under
the plan.160
No contributions other than employee elective contributions, re-
quired employer matching contributions, or employer nonelective
contributions can be made to a SIMPLE IRA plan, and the em-
ployer may not maintain any other qualified retirement plan.
Section 403(b) and governmental 457(b) plans
Tax-deferred annuity plans (referred to as section 403(b) plans)
are generally similar to qualified defined contribution plans, but
may be maintained only by (1) tax-exempt charitable organiza-
tions,161 and (2) educational institutions of State or local govern-
ments (that is, public schools, including colleges and univer-
sities).162 Section 403(b) plans may provide for employees to make
elective deferrals (in pre-tax or designated Roth form), including
catch-up contributions, or other after-tax employee contributions,
and employers may make nonelective or matching contributions on
behalf of employees. Contributions to a section 403(b) plan are gen-
erally subject to the same contribution limits applicable to qualified
159 Sec. 408(p). Employer may also establish SIMPLE section 401(k) plans. Sec. 401(k)(11).
160 Notice 98–4, 1998–1 C.B. 269.
161 These are organizations exempt from tax under section 501(c)(3). Section 403(b) plans of
private, tax-exempt employers may be subject to ERISA as well as the requirements of section
403(b).
162 Sec. 403(b).
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defined contribution plans, including the limits on elective defer-
rals.
Contributions to a section 403(b) plan must be fully vested. The
minimum coverage and general nondiscrimination requirements
applicable to a qualified retirement plan generally apply to a sec-
tion 403(b) plan and to employer matching and nonelective con-
tributions and after-tax employee contributions to the plan.163 If a
section 403(b) plan provides for elective deferrals, the plan is sub-
ject to a ‘‘universal availability’’ requirement under which all em-
ployees must be given the opportunity to make deferrals of more
than $200.164 In applying this requirement, nonresident aliens,
students, and employees who normally work less than 20 hours per
week may be excluded.165
An eligible deferred compensation plan of a governmental em-
ployer (referred to as a governmental section 457(b) plan) is gen-
erally similar to a qualified cash or deferred arrangement under a
section 401(k) plan in that it consists of elective deferrals, that is,
contributions (in pre-tax or designated Roth form) made at the elec-
tion of an employee, including catch-up contributions. Deferrals
under a governmental section 457(b) plan are generally subject to
the same limits as elective deferrals under a section 401(k) plan or
a section 403(b) plan.
REASONS FOR CHANGE
The Committee wishes to assist employees who may not be able
to save for retirement because they are overwhelmed with student
debt, and thus are missing out on available matching contributions
under retirement plans. Thus, this provision allows a plan to pro-
vide such employees with matching contributions based on student
loan repayments.
EXPLANATION OF PROVISION
The provision modifies the definition of matching contribution 166
for purposes of defined contribution plans, including section 401(k)
plans, to include employer contributions made to the plan on behalf
of an employee on account of a qualified student loan payment. For
this purpose, a qualified student loan payment is a payment made
by an employee in repayment of a qualified education loan 167 and
incurred by the employee to pay qualified higher education ex-
penses, but only to the extent such payments in the aggregate for
the year do not exceed the amount of elective deferrals that the
employee would be permitted to contribute under the Code 168 (re-
163 These requirements do not apply to a governmental section 403(b) plan or a section 403(b)
plan maintained by a church or a qualified church-controlled organization as defined in section
3121(w).
164 Sec. 403(b)(12)(A)(ii).
165 For this purpose, nonresident alien has the meaning in section 410(b)(3)(C), and student
has the meaning in section 3121(b)(10). The universal availability requirement does not apply
to a section 403(b) plan maintained by a church or a qualified church-controlled organization.
166 Under section 401(m)(4)(A)(iii), as added by this provision.
167 As defined in section 221(d)(1), a qualified education loan is generally any indebtedness
incurred by the taxpayer solely to pay qualified higher education expenses (1) which are in-
curred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as
of the time the indebtedness was incurred; (2) which are paid or incurred within a reasonable
period of time before or after the indebtedness is incurred; and (3) which are attributable to
education furnished during a period during which the recipient was an eligible student.
168 The limitation applicable under section 402(g) for the year ($19,500 for 2021), or, if less,
the employee’s compensation as defined in section 415(c)(3) for the year.
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duced by elective deferrals made by the employee for the year).
Qualified higher education expenses are defined as the cost of at-
tendance at an eligible educational institution.169 In addition, in
order for the student loan payment to qualify, the employee must
certify to the employer making the matching contribution that the
loan payment has been made. The employer is permitted to rely on
this certification.
In order for an employer contribution made on account of a quali-
fied student loan payment to be treated as a matching contribution
under the provision, the plan must satisfy certain requirements.
The plan must provide matching contributions on account of elec-
tive deferrals at the same rate as contributions on account of quali-
fied student loan payments. The plan must provide matching con-
tributions on account of qualified student loan payments only on
behalf of employees otherwise eligible to receive matching contribu-
tions on account of elective deferrals (and, similarly, must provide
matching contributions on account of elective deferrals only on be-
half of employees eligible to receive matching contributions on ac-
count of qualified student loan payments). The plan must also pro-
vide that matching contributions on account of qualified student
loan payments vest in the same manner as matching contributions
on account of elective deferrals.
Under the provision, for purposes of certain nondiscrimination
rules and minimum coverage requirements,170 matching contribu-
tions on account of qualified student loan payments do not fail to
be treated as available to an employee solely because such em-
ployee does not have debt incurred under a qualified education
loan. In addition, the provision provides that a qualified student
loan payment is generally not treated as a plan contribution. How-
ever, a plan may treat a qualified student loan payment as an elec-
tive deferral or an elective contribution (as applicable) for purposes
of the matching contribution requirement under a basic safe harbor
401(k) plan or an automatic enrollment safe harbor 401(k) plan, as
well as for purposes of the section 401(m) safe harbors.171 A plan
is also permitted to apply the ADP test separately to employees
who receive matching contributions on account of qualified student
loan payments.
The provision also contains similar rules allowing matching con-
tributions to be made on account of qualified student loan pay-
ments in the case of SIMPLE IRAs, section 403(b) plans, and sec-
tion 457(b) plans. In the case of SIMPLE IRAs, the provision pro-
vides that a SIMPLE IRA does not fail to meet the matching con-
tribution requirement applicable to such arrangements solely be-
cause the arrangement treats qualified student loan payments as
elective employer contributions to the extent such payments do not
exceed the amount of elective employer contributions the employee
169 ‘‘Cost of attendance’’ for this purpose is defined in section 472 of the Higher Education Act
of 1965, as in effect on the day before the enactment of the Taxpayer Relief Act of 1997. ‘‘Eligi-
ble educational institution’’ is defined in section 221(d)(2) of the Code.
170 This rule applies for purposes of section 401(a)(4), section 410(b), and the rule under the
provision that all employees eligible to receive matching contributions on account of elective de-
ferrals be eligible to receive matching contributions on account of qualified student loan pay-
ments.
171 This rule applies for purposes of sections 401(k)(12)(B) and (13)(B), and sections
401(m)(11)(B) and (12). It also applies to SIMPLE section 401(k) plans under section
401(11)(B)(i)(II).
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is permitted to contribute under the Code 172 (reduced by elective
employer contributions contributed by the employee for the year).
As under a section 401(k) plan, in order for the student loan pay-
ment to qualify, the employee must certify to the employer making
the matching contribution that the loan payment has been made.
In addition, matching contributions on account of qualified student
loan payments must be provided only on behalf of employees other-
wise eligible to make elective employer contributions, and all em-
ployees otherwise eligible to participate in the arrangement must
be eligible to receive matching contributions on account of qualified
student loan payments.
In the case of a section 403(b) plan, under the provision, the fact
that the employer offers matching contributions on account of
qualified student loan payments 173 is not taken into account in de-
termining whether the plan satisfies the universal availability re-
quirement.174 Similarly, in the case of a governmental 457(b) plan,
the provision provides that a plan is not treated as failing to meet
the requirements applicable to such plans 175 solely because the
plan, or another qualified plan 176 or section 403(b) plan main-
tained by the employer provides for matching contributions on ac-
count of qualified student loan payments.177
The provision directs the Secretary to prescribe regulations for
purposes of implementing the provision, including regulations:
• Permitting a plan to make matching contributions for
qualified student loan payments 178 at a different frequency
than matching contributions are otherwise made under the
plan, provided that the frequency is not less than annually;
• Permitting employers to establish reasonable procedures to
claim matching contributions for such qualified student loan
payments under the plan, including an annual deadline (not
earlier than three months after the close of each plan year) by
which a claim must be made; and
• Promulgating model amendments which plans may adopt
to implement matching contributions on qualified student loan
payments.179
EFFECTIVE DATE
The provision is effective for contributions made for plan years
beginning after December 31, 2021.
10. APPLICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN
START-UP COSTS TO EMPLOYERS WHICH JOIN AN EXISTING PLAN
(SEC. 110 OF THE BILL AND SEC. 45E OF THE CODE)
PRESENT LAW
Present law provides a nonrefundable income tax credit equal to
50 percent of the qualified start-up costs paid or incurred during
172 The limitation applicable under section 408(p)(2)(E) for the year, including permitted catch-
up contributions under section 414(v), or, if less, the employee’s compensation as defined in sec-
tion 415(c)(3) for the year.
173 As described in section 401(m)(13), as added by this provision.
174 Sec. 403(b)(12)(A)(ii).
175 Under section 457(b).
176 Under section 401(a).
177 As described in section 401(m)(13), as added by this provision.
178 As defined in sections 401(m)(4)(D) and 408(p)(2)(F), as added by this provision.
179 For purposes of sections 401(m), 408(p), 403(b), and 457(b).
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the taxable year by an eligible employer 180 that adopts a new eligi-
ble employer plan 181, provided that the plan covers at least one
non-highly compensated employee.182 Qualified start-up costs are
expenses connected with the establishment or administration of the
plan and retirement-related education of employees with respect to
the plan. The amount of the credit for any taxable year is limited
to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied
by the number of non-highly compensated employees of the eligible
employer who are eligible to participate in the plan or (b) $5,000.
The credit applies for up to three consecutive taxable years begin-
ning with the taxable year the plan is first effective, or, at the elec-
tion of the employer, with the year preceding the first plan year.
An eligible employer is an employer that, for the preceding year,
had no more than 100 employees, each with compensation of
$5,000 or more.183 In addition, the employer must not have had a
qualified employer plan covering substantially the same employees
as the new plan with respect to which contributions were made or
benefits were accrued during the three years preceding the first
year for which the credit would apply. Members of controlled
groups and affiliated service groups are treated as a single em-
ployer for purposes of these requirements.184 All eligible employer
plans of an employer are treated as a single plan.
No deduction is allowed for the portion of qualified start-up costs
paid or incurred for the taxable year equal to the amount of the
credit.
REASONS FOR CHANGE
The credit for small employer pension plan start-up costs serves
to encourage small employers to provide retirement benefits to
their employees. The Committee believes the modifications to this
credit will clarify the application of the credit to certain small em-
ployers who join an existing plan.
EXPLANATION OF PROVISION
The provision clarifies that the first credit year is the taxable
year which includes the date that the eligible employer plan to
which such costs relate becomes effective with respect to the eligi-
ble employer.
EFFECTIVE DATE
The provision applies to eligible employer plans which become ef-
fective with respect to the eligible employer after the date of enact-
ment.
180 An eligible employer has the meaning given such term by section 408(p)(2)(C)(i).
181 An eligible employer plan means a qualified employer plan within the meaning of section
4972(d) and includes a section 401(a) qualified retirement plan, a section 403 annuity, any sim-
plified employee pension (‘‘SEP’’) within the meaning of section 408(k), and any simple retire-
ment account (‘‘SIMPLE’’) within the meaning of section 408(p). An eligible employer plan does
not include a plan maintained by a tax-exempt employer or a governmental plan, as defined
in section 414(d).
182 A non-highly compensated employee is an employee who is not a highly compensated em-
ployee as defined under section 414(q).
183 As defined in section 408(p)(2)(C).
184 Sec. 52(a) or (b) and 414(m) or (o).
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11. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR
SMALL EMPLOYERS (SEC. 111 OF THE BILL AND NEW SEC. 45U OF
THE CODE)
PRESENT LAW
Currently, there are no special credits for small employers that
provide retirement benefits to military spouses.
REASONS FOR CHANGE
The credit for military spouse retirement plan eligibility serves
to encourage small employers to offer employees who are married
to members of the uniformed services access to defined contribution
plans. The Committee believes the credit will improve the ability
of military families to save for retirement.
EXPLANATION OF PROVISION
The provision allows eligible small employers to take a new non-
refundable income tax credit with respect to each individual who
is married to a member of the uniformed services and self-certifies
as such (referred to as a military spouse), who is an employee of
the employer, who is eligible to participate in an eligible defined
contribution plan of the employer, and who is a non-highly com-
pensated employee.185 The credit is determined to be the sum of
$250 for each such employee plus the amount of the contributions
made to all eligible defined contribution plans by the employer with
respect to the employee up to a maximum of $250 for each such
employee. The credit applies for up to three consecutive years be-
ginning with the first taxable year in which the individual begins
participating in the plan.
An eligible small employer is an employer that, for the preceding
year, had no more than 100 employees, each with compensation of
$5,000 or more. In addition, the employer must not have had a
plan covering substantially the same employees as the new plan
during the three years preceding the first year for which the credit
would apply. Members of controlled groups and affiliated service
groups are treated as a single employer for purposes of these re-
quirements.186
An eligible defined contribution plan is a plan in which military
spouses are eligible to participate within two months of beginning
employment, and in which military spouses who are eligible to par-
ticipate, (1) are immediately eligible to receive employer contribu-
tions in amounts not less than that received by similarly situated
nonmilitary spouses with two years of service, and (2) have an im-
mediate, nonforfeitable right to accrued benefits derived from em-
ployer contributions under the plan.
EFFECTIVE DATE
The provision applies to taxable years beginning after the date
of enactment.
185 A non-highly compensated employee is an employee who is not a highly compensated em-
ployee as defined under section 414(q).
186 Sec. 52(a) or (b) and 414(m) or (o).
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12. SMALL IMMEDIATE FINANCIAL INCENTIVES FOR CONTRIBUTING
TO A PLAN (SEC. 112 OF THE BILL AND SECS. 401(k), 403(b), AND
4975 OF THE CODE)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock bonus
plan that contains a qualified cash or deferred arrangement. Such
arrangements are subject to the rules generally applicable to quali-
fied defined contribution plans. In addition, special rules apply to
such arrangements. Employees who participate in a section 401(k)
plan may elect to have contributions made to the plan (elective de-
ferrals) rather than receive the same amount as current compensa-
tion.187 The maximum annual amount of elective deferrals that can
be made by an employee for a year is $19,500 (for 2021) or, if less,
the employee’s compensation.188 For an employee who attains age
50 by the end of the year, the dollar limit on elective deferrals is
increased by $6,500 (for 2021) (called ‘‘catch-up contributions’’).189
An employee’s elective deferrals must be fully vested. A section
401(k) plan may also provide for employer matching and nonelec-
tive contributions.
In order to constitute a qualified cash or deferred arrangement,
no benefit under the arrangement may be conditioned, directly or
indirectly, on the employee electing to have the employer make or
not make contributions under the arrangement in lieu of receiving
cash.190 However, matching contributions are exempt from this
rule.
Tax-sheltered annuities (section 403(b) plans)
Section 403(b) plans are a form of tax-favored employer-spon-
sored plan that provide tax benefits similar to qualified retirement
plans. Section 403(b) plans may be maintained only by (1) chari-
table tax-exempt organizations, and (2) educational institutions of
State or local governments (that is, public schools, including col-
leges and universities). Many of the rules that apply to section
403(b) plans are similar to the rules applicable to qualified retire-
ment plans, including section 401(k) plans. Employers may make
nonelective or matching contributions to such plans on behalf of
their employees, and the plan may provide for employees to make
pre-tax elective deferrals, designated Roth contributions (held in
designated Roth accounts) 191 or other after-tax contributions. Gen-
erally, section 403(b) plans provide for contributions toward the
purchase of annuity contracts or provide for contributions to be
held in custodial accounts for each employee. In the case of con-
tributions to custodial accounts under a section 403(b) plan, the
187 Elective deferrals generally are made on a pre-tax basis and distributions attributable to
elective deferrals are includible in income. However, a section 401(k) plan is permitted to in-
clude a ‘‘qualified Roth contribution program’’ that permits a participant to elect to have all or
a portion of the participant’s elective deferrals under the plan treated as after-tax Roth contribu-
tions. Certain distributions from a designated Roth account are excluded from income, even
though they include earnings not previously taxed.
188 Sec. 402(g).
189 Sec. 414(v).
190 Sec. 401(k)(4)(A).
191 Sec. 402A.
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amounts must be invested only in regulated investment company
stock.192
Contributions to a section 403(b) plan must be fully vested. The
minimum coverage and general nondiscrimination requirements
applicable to a qualified retirement plan generally apply to a sec-
tion 403(b) plan and to employer matching and nonelective con-
tributions and after-tax employee contributions to the plan.193 If a
section 403(b) plan provides for elective deferrals, the plan is sub-
ject to a ‘‘universal availability’’ requirement under which all em-
ployees must be given the opportunity to make deferrals of more
than $200. In applying this requirement, nonresident aliens, stu-
dents, and employees who normally work less than 20 hours per
week may be excluded.194
Prohibited transactions
In general
The Code and ERISA prohibit certain transactions (‘‘prohibited
transaction’’) between a qualified retirement plan and a disquali-
fied person (referred to as a ‘‘party in interest’’ under ERISA).195
The prohibited transaction rules under the Code apply also to
IRAs, Archer MSAs, HSAs, and Coverdell ESAs.196
Disqualified persons include a fiduciary of the plan; a person pro-
viding services to the plan; an employer with employees covered by
the plan; an employee organization any of whose members are cov-
ered by the plan; certain owners, officers, directors, highly com-
pensated employees, family members, and related entities.197 A fi-
duciary includes any person who (1) exercises any discretionary au-
thority or discretionary control respecting management of the plan
or exercises any authority or control respecting management or dis-
position of the plan’s assets, (2) renders investment advice for a fee
or other compensation, direct or indirect, with respect to any mon-
eys or other property of the plan, or has any authority or responsi-
bility to do so, or (3) has any discretionary authority or discre-
tionary responsibility in the administration of the plan.198
Prohibited transactions include the following transactions,
whether direct or indirect, between a plan and a disqualified per-
son:
192 Sec. 403(b)(7).
193 These requirements do not apply to a governmental section 403(b) plan or a section 403(b)
plan maintained by a church or a qualified church-controlled organization as defined in section
3121(w).
194 For this purpose, nonresident has the meaning in section 410(b)(3)(C), and student has the
meaning in section 3121(b)(10). The universal availability requirement does not apply to a sec-
tion 403(b) plan maintained by a church or a qualified church-controlled organization.
195 Sec. 4975; ERISA sec. 406. The prohibited transaction rules of the Code and ERISA are
very similar; however, some differences exist between the two sets of rules. As mentioned above,
ERISA generally does not apply to governmental plans or church plans. The prohibited trans-
action rules under the Code also generally do not apply to governmental plans or church plans.
However, under section 503, the trust holding assets of a governmental or church plan may lose
its tax-exempt status in the case of a prohibited transaction listed in section 503(b). Before the
enactment of ERISA in 1974, section 503 applied to qualified retirement plans generally. In con-
nection with the enactment of section 4975 by ERISA, section 503 was amended to apply only
to governmental and church plans.
196 These are included in the definition of ‘‘plan’’ under section 4975(e)(1).
197 Sec. 4975(e)(2). Party in interest is defined similarly under ERISA section 3(14) with re-
spect to an employee benefit plan. Under ERISA, employee benefit plans, defined in ERISA sec-
tion 3(3), consist of two types: pension plans (that is, retirement plans), defined in ERISA sec-
tion 3(2), and welfare plans, defined in ERISA section 3(1).
198 Sec. 4975(d)(3); ERISA sec. 3(21)(A). Under ERISA, fiduciary also includes any person des-
ignated under ERISA section 405(c)(1)(B) by a named fiduciary (that is, a fiduciary named in
the plan document) to carry out fiduciary responsibilities.
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1. The sale or exchange or leasing of property,
2. The lending of money or other extension of credit,
3. The furnishing of goods, services, or facilities,
4. The transfer to, or use by or for the benefit of, the income
or assets of the plan,
5. In the case of a fiduciary, an act dealing with the plan’s
income or assets in the fiduciary’s own interest or for the fidu-
ciary’s own account, and
6. The receipt by a fiduciary of any consideration for the fi-
duciary’s own personal account from any party dealing with
the plan in connection with a transaction involving the income
or assets of the plan.199
Exemptions from prohibited transaction treatment
Certain transactions are statutorily exempt from prohibited
transaction treatment, for example, certain loans to plan partici-
pants and arrangements with a disqualified person for legal, ac-
counting or other services necessary for the establishment or oper-
ation of a plan if no more than reasonable compensation is paid for
the services.200
Sanctions for violations
Under the Code, if a prohibited transaction occurs, the disquali-
fied person who participated in the transaction is generally subject
to a two-tiered excise tax. The first tier tax is 15 percent of the
amount involved in the transaction. The second tier tax, imposed
if the prohibited transaction is not corrected within a certain pe-
riod, is 100 percent of the amount involved. In the case of an IRA,
HSA, Archer MSA or Coverdell ESA, the sanction for some prohib-
ited transactions is the loss of tax favored status, rather than an
excise tax. A private right of action is not available for a Code vio-
lation.
Under ERISA, DOL may assess a civil penalty against a person
who engages in a prohibited transaction, other than a transaction
with a plan covered by the prohibited transaction rules of the
Code.201 The penalty may not exceed five percent of the amount in-
volved in the transaction for each year or part of a year that the
prohibited transaction continues. If the prohibited transaction is
not corrected within 90 days after notice from DOL, the penalty
can be up to 100 percent of the amount involved in the transaction.
A prohibited transaction by a fiduciary may also be the basis for
an action for a breach of fiduciary responsibility by DOL, a plan
participant or beneficiary, or another plan fiduciary (as discussed
above).
199 Sec. 4975(c)(1)(A)–(F) and ERISA sec. 406(a)(1)(A)–(D) and (b)(1) and (3). Under ERISA
section 406(a)(1), a plan fiduciary is prohibited from causing the plan to engage in a transaction
described in paragraphs (A)–(D). ERISA section 406(b)(2) also prohibits a plan fiduciary, in the
fiduciary’s individual capacity or any other capacity, from acting in any transaction involving
the plan on behalf of a party (or represent a party) whose interests are adverse to the interests
of the plan or the interests of plan participants or beneficiaries. ERISA section 406(a)(1)(E) and
(a)(2) relate to limitations under ERISA section 407 on a plan’s acquisition or holding of em-
ployer securities and real property.
200 Sec. 4975(d) and ERISA sec. 408. The Code and ERISA also provide for the grant of admin-
istrative exemptions, on either an individual or class basis, subject to a finding that the exemp-
tion is administratively feasible, in the interests of the plan and of its participants and bene-
ficiaries, and protective of the rights of participants and beneficiaries of the plan.
201 ERISA sec. 502(i).
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REASONS FOR CHANGE
The Committee recognizes that individuals can be especially mo-
tivated by immediate financial incentives. Thus, in addition to pro-
viding matching contributions as a long-term incentive for employ-
ees to contribute to a section 401(k) plan or section 403(b) plan, the
Committee wishes to provide employers the flexibility to be able to
offer small immediate financial incentives, such as gift cards in
small amounts, to employees who participate in the plan.
EXPLANATION OF PROVISION
The provision modifies the rule applicable to section 401(k) plans
that prohibits the conditioning of benefits (other than matching
contributions) on an employee’s election to defer. As modified, the
rule exempts de minimis financial incentives in addition to match-
ing contributions. Thus, a section 401(k) plan will not fail to in-
clude a qualified cash or deferred arrangement merely because it
conditions a de minimis financial incentive on an employee’s elec-
tion to defer.
Similarly, in the case of a section 403(b) plan, the provision pro-
vides that a plan does not fail to satisfy the universal availability
requirement 202 solely by reason of offering a de minimis financial
incentive to employees to elect to have the employer make con-
tributions pursuant to a salary reduction agreement.
In addition, under the provision, the provision of such de minimis
financial incentives under a section 401(k) plan or a section 403(b)
plan is not treated as a prohibited transaction under the Code or
ERISA.203
EFFECTIVE DATE
The provision applies to plan years beginning after the date of
enactment.
13. SAFE HARBOR FOR CORRECTIONS OF EMPLOYEE ELECTIVE DE-
FERRAL FAILURES (SEC. 113 OF THE BILL AND SEC. 414 OF THE
CODE)
PRESENT LAW
Background on automatic enrollment features in retirement
plans may be found in section I.1 of this document.
Employee Plans Compliance Resolution System
A retirement plan that is intended to be a tax-qualified plan pro-
vides retirement benefits on a tax-favored basis if the plan satisfies
all of the qualification requirements under the Code.204 Similarly,
an annuity that is intended to be a tax-sheltered annuity provides
retirement benefits on a tax-favored basis if the program satisfies
all of the requirements under the Code applicable to section 403(b)
plans. Failure to satisfy all of the applicable requirements may dis-
qualify a plan or annuity for the intended tax-favored treatment.
The IRS has established the Employee Plans Compliance Resolu-
tion System (‘‘EPCRS’’), which is a comprehensive system of correc-
202 Sec. 403(b)(12)(A)(ii).
203 Under section 4975 and section 408 of ERISA.
204 Sec. 401(a).
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tion programs for sponsors of retirement plans and annuities that
are intended, but have failed, to satisfy the applicable require-
ments under the Code.205 EPCRS permits employers to correct
compliance failures and continue to provide their employees with
retirement benefits on a tax-favored basis.
The IRS designed EPCRS to (1) encourage operational and for-
mal compliance, (2) promote voluntary and timely correction of
compliance failures, (3) provide sanctions for compliance failures
identified on audit that are reasonable in light of the nature, ex-
tent, and severity of the violation, (4) provide consistent and uni-
form administration of the correction programs, and (5) permit em-
ployers to rely on the availability of EPCRS in taking corrective ac-
tions to maintain the tax-favored status of their retirement plans
and annuities.
The basic elements of the programs that comprise EPCRS are
self-correction, voluntary correction with IRS approval, and correc-
tion on audit. The Self-Correction Program (‘‘SCP’’) generally per-
mits a plan sponsor that has established practices and procedures
(formal or informal) reasonably designed to promote and facilitate
overall compliance in form and operation with applicable Code re-
quirements to correct certain insignificant failures at any time (in-
cluding during an audit), and certain significant failures within a
two-year period, without payment of any fee or sanction. The Vol-
untary Correction Program (‘‘VCP’’) permits an employer, at any
time before an audit, to pay a limited fee and receive IRS approval
of a correction. For a failure that is discovered on audit and cor-
rected, the Audit Closing Agreement Program (‘‘Audit CAP’’) pro-
vides for a sanction that bears a reasonable relationship to the na-
ture, extent, and severity of the failure and that takes into account
the extent to which correction occurred before audit.
SCP, VCP and Audit CAP are not available to correct failures re-
lating to the diversion or misuses of plan assets.206 With respect
to the SCP program, in the event that the plan or the plan sponsor
has been a party to an abusive tax avoidance transaction, SCP is
not available to correct any operational failure that is directly or
indirectly related to the abusive tax avoidance transaction.207
SEP and SIMPLE plans
SCP and VCP 208 under EPCRS are available to a SEP or SIM-
PLE plan.209 SCP is only available to such a plan to correct insig-
nificant operational failures,210 and only if the SEP or SIMPLE
plan is established and maintained on a document approved by the
IRS.
Section 457(b) plans
EPCRS does not apply to section 457(b) plans. However, the IRS
will accept submissions relating to section 457(b) plans on a provi-
205 The requirements under sections 401(a), 403(a), or 403(b), as applicable. Rev. Proc. 2019–
19, 2019–19 I.R.B. 1086.
206 Sec. 4.11 of Rev. Proc. 2019–19.
207 Sec. 4.12 of Rev. Proc. 2019–19.
208 Sec. 6.11 of Rev. Proc. 2019–9.
209 Secs. 1.01 and 1.02 of Rev. Proc. 2019–19. A SEP is a plan intended to satisfy the require-
ments of Code section 408(k); a SIMPLE plan is a plan intended to satisfy the requirements
of Code section 408(p).Secs. 5.06 and 5.07 of Rev. Proc. 2019–19.
210 Sec. 4.01(c) of Rev. Proc. 2019–19.
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sional basis outside of EPCRS through standards that are similar
to those that apply to VCP filings.211
Special safe harbor correction method for failures related to auto-
matic contribution features in a section 401(k) or 403(b) plan
Employee elective deferral failures
A safe harbor correction method is available for certain employee
elective deferral failures associated with missed elective deferrals
for eligible employees who are subject to an automatic contribution
feature in a section 401(k) or 403(b) plan (including employees who
made affirmative elections in lieu of automatic contributions but
whose elections were not implemented correctly).212
An ‘‘employee elective deferral failure’’ 213 is a failure to imple-
ment elective deferrals correctly in a section 401(k) plan or 403(b)
plan, including elective deferrals pursuant to an affirmative elec-
tion or pursuant to an automatic contribution feature under such
a plan, and a failure to afford an employee the opportunity to make
an affirmative election because the employee was improperly ex-
cluded from the plan. Automatic contribution features include auto-
matic enrollment and automatic escalation features that are affirm-
atively elected.214
If the failure to implement an automatic contribution feature for
an affected eligible employee or the failure to implement an affirm-
ative election of an eligible employee who is otherwise subject to an
automatic contribution feature does not extend beyond the end of
the nine and one-half month period after the end of the plan year
of the failure (which is generally the filing deadline of the Form
5500 series return, including automatic extensions), no qualified
nonelective contribution (‘‘QNEC’’) 215 for the missed elective defer-
rals is required, provided that the following conditions are satis-
fied:
1. Correct deferrals begin no later than the earlier of the
first payment of compensation made on or after the last day
of the nine and one-half month period after the end of the plan
year in which the failure first occurred for the affected eligible
employee or, if the plan sponsor was notified of the failure by
the affected eligible employee, the first payment of compensa-
tion made on or after the end of the month after the month of
notification;
2. Notice of the failure, that satisfies the content require-
ments described below, is given to the affected eligible em-
ployee not later than 45 days after the date on which correct
deferrals begin; and
3. If the eligible employee would have been entitled to addi-
tional matching contributions had the missed deferrals been
211 Sec. 4.09 of Rev. Proc. 2019–19.
212 Sec. 05(8) of Appendix A of Rev. Proc. 2019–19.
213 Sec. 05(10) of Appendix A of Rev. Proc. 2019–19.
214 Sec. .05(10) of Appendix A of Rev. Proc. 2019–19.
215 A QNEC, as defined in Treas. Reg. sec. 1.401(k)–6 means ‘‘employer contributions, other
than elective contributions or matching contributions, that, except as provided otherwise in
§ 1.401(k)–1(c) and (d), satisfy the requirements of § 1.401(k)–1(c) and (d) as though the contribu-
tions were elective contributions, without regard to whether the contributions are actually taken
into account under the ADP test under § 1.401(k)–2(a)(6) or the ACP test under § 1.401(m)–
2(a)(6). Thus, the nonelective contributions must satisfy the nonforfeitability requirements of
§ 1.401(k)–1(c) and be subject to the distribution limitations of § 1.401(k)–1(d) when they are al-
located to participants’ accounts.’’
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made, the plan sponsor makes a corrective allocation (adjusted
for earnings) on behalf of the employee equal to the matching
contributions that would have been required under the terms
of the plan as if the missed deferrals had been contributed to
the plan in accordance with the timing requirements under
SCP for significant operational failures. This correction method
provides an alternative safe harbor method for calculating
earnings for Employee Elective Deferral Failures under section
401(k) plans or 403(b) plans.216
Content of notice requirement
The required notice must include the following information:
1. General information relating to the failure, such as the
percentage of eligible compensation that should have been de-
ferred, and the approximate date that the compensation should
have begun to be deferred. The general information need not
include a statement of the dollar amounts that should have
been deferred;
2. A statement that appropriate amounts have begun to be
deducted from compensation and contributed to the plan (or
that appropriate deductions and contributions will begin short-
ly);
3. A statement that corrective allocations relating to missed
matching contributions have been made (or that corrective allo-
cations will be made). Information relating to the date and the
amount of corrective allocations need not be provided;
4. An explanation that the affected participant may increase
his or her deferral percentage in order to make up for the
missed deferral opportunity, subject to applicable limits for
elective deferrals; 217 and
5. The name of the plan and plan contact information (in-
cluding name, street address, email address, and telephone
number of a plan contact).
Sunset of safe harbor correction method
The safe harbor correction method is available for plans only
with respect to failures that begin on or before December 31, 2020.
REASONS FOR CHANGE
Automatic enrollment and automatic escalation features in de-
fined contribution plans enhance the opportunity for individuals to
increase their retirement savings. However, inadvertent errors in
the implementation and administration of such features may sub-
ject the plan sponsor to expensive corrections and the potential for
significant penalties when even honest mistakes are made.
The Committee believes that providing a grace period to correct,
without penalty, reasonable errors in administering these features
will encourage plan sponsors to include such features in their
plans.
216 The plan may also use the earnings adjustment methods set forth in section 3 of Appendix
B of Rev. Proc. 2019–19.
217 Under sec. 402(g).
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EXPLANATION OF PROVISION
Under the provision, a plan will not fail to be treated as a quali-
fied plan, a section 403(b) tax sheltered annuity, an IRA or a sec-
tion 457(b) plan solely by reason of a ‘‘corrected error.’’
For purposes of this provision, a ‘‘corrected error’’ means a rea-
sonable administrative error in implementing an automatic enroll-
ment or automatic escalation feature in accordance with the terms
of an eligible automatic contribution arrangement,218 provided that
such implementation error:
1. Is corrected by the date that is nine and one-half months
after the end of the plan year during which the failure oc-
curred;
2. Is corrected in a manner that is favorable to the partici-
pant; and
3. Is of a type which is so corrected for all similarly situated
participants in a nondiscriminatory manner.
The correction may occur before or after the participant has termi-
nated employment and may occur without regard to whether the
error is identified by the Secretary.
The Secretary must issue regulations or other guidance of gen-
eral applicability specifying the methods that are ‘‘in a manner fa-
vorable to the participant.’’
EFFECTIVE DATE
The provision applies to any errors with respect to which the
date that is nine and one-half months after the end of the plan
year during which the error occurred is after the date of enactment
of this Act.
14. ONE-YEAR REDUCTION IN PERIOD OF SERVICE REQUIREMENT FOR
LONG-TERM, PART-TIME WORKERS (SEC. 114 OF THE BILL AND
SEC. 401(k) OF THE CODE)
PRESENT LAW
Background on section 401(k) plans may be found in section I.9
of this document.
General participation requirements
A qualified retirement plan generally can delay participation in
the plan based on attainment of age or completion of years of serv-
ice but not beyond the later of completion of one year of service
(that is, a 12-month period with at least 1,000 hours of service) or
attainment of age 21.219 A plan also cannot exclude an employee
from participation (on the basis of age) when that employee has at-
tained a specified age.220 Employees can be excluded from plan
participation on other bases, such as job classification, as long as
the other basis is not an indirect age or service requirement. A
plan can provide that an employee is not entitled to an allocation
of employer nonelective or matching contributions for a plan year
unless the employee completes either 1,000 hours of service during
218 As defined in section 414(w)(3).
219 Secs. 401(a)(3) and 410(a)(1). Parallel requirements generally apply to plans of private em-
ployers under section 202 of ERISA. Governmental plans under section 414(d) and church plans
under section 414(e) are generally exempt from these Code requirements and from ERISA.
220 Sec. 410(a)(2).
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the plan year or is employed on the last day of the year even if the
employee previously completed 1,000 hours of service in a prior
year.
Long-term part-time workers
Section 401(k) plans generally must permit an employee to make
elective deferrals if the employee has worked at least 500 hours per
year with the employer for at least three consecutive years and has
met the minimum age requirement (age 21) by the end of the
three-consecutive-year period (for this provision, an employee is re-
ferred to as a ‘‘long-term part-time employee’’ after having com-
pleted this period of service).221 Thus, a long-term part-time em-
ployee may not be excluded from the plan merely because the em-
ployee has not completed a year of service. Once a long-term part-
time employee meets the age and service requirements, such em-
ployee must be able to commence participation no later than the
earlier of (1) the first day of the first plan year beginning after the
date on which the employee satisfied the age and service require-
ments or (2) the date six months after the date on which the indi-
vidual satisfied those requirements.
The plan is not required to provide that a long-term part-time
employee is otherwise eligible to participate in the plan. Thus, the
plan can continue to treat a long-term part-time employee as ineli-
gible under the plan for employer nonelective and matching con-
tributions based on not having completed a year of service. How-
ever, for a plan that does provide employer contributions for long-
term part-time employees, the plan must credit, for each year in
which such an employee worked at least 500 hours, a year of serv-
ice for purposes of vesting in any employer contributions. If a long-
term part-time employee under such a plan becomes a full-time
employee, the plan must continue to credit the employee with any
years of service earned under the special rule for long-term part-
time employees.
Employers are permitted to exclude long-term part-time employ-
ees from nondiscrimination testing,222 including top-heavy vesting
and top-heavy benefit requirements. However, the relief from the
nondiscrimination rules ceases to apply to any employee who be-
comes a full-time employee (as of the first plan year beginning
after the plan year in which the employee completes a 12-month
period with at least 1,000 hours of service).
The long-term part-time employee rules are effective for plan
years beginning after December 31, 2020, except that for deter-
mining whether the three-consecutive-year period has been met,
12-month periods beginning before January 1, 2021 are not taken
into account.
REASONS FOR CHANGE
The SECURE Act 223 requires employers to allow long-term, part-
time workers to participate in their section 401(k) plans after the
worker has completed three consecutive years of part-time service.
As women are more likely to work part-time than men, this provi-
221 Sec. 401(k)(2)(D). This rule does not apply to collectively bargained plans.
222 Nondiscrimination testing relief applies to sections 401(a)(4), 401(k)(3), 401(k)(12),
401(k)(13), 401(m)(2), and 410(b).
223 Pub. L. No. 116–94, Division O.
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92
sion is particularly important for women in the workforce. The
Committee wishes to make it easier for part-time workers to save
for retirement by requiring section 401(k) plans to allow part-time
workers to participate after two consecutive years of part-time
service.
EXPLANATION OF PROVISION
The provision modifies the rules that apply to long-time part-
time employees under a section 401(k) plan to reduce the service
requirement for such employees from three years to two years.
Thus, under the provision, a section 401(k) plan generally must
permit an employee to make elective deferrals if the employee has
worked at least 500 hours per year with the employer for at least
two consecutive years and has met the minimum age requirement
(age 21) by the end of the two-consecutive-year period.
In addition, the provision clarifies the effective date of the long-
term part-time employee rules. Under the provision, 12-month peri-
ods beginning before January 1, 2021 (which, under the SECURE
Act, are not taken into account in determining the consecutive 12-
month periods of part-time service) are also not taken into account
in determining a year of service for purposes of the rules applicable
to the vesting of employer contributions.
EFFECTIVE DATE
The provision is effective as if included in the enactment of sec-
tion 112 of the SECURE Act.
TITLE II—PRESERVATION OF INCOME
1. REMOVE REQUIRED MINIMUM DISTRIBUTION BARRIERS FOR LIFE
ANNUITIES (SEC. 201 OF THE BILL AND SEC. 401 OF THE CODE)
PRESENT LAW
Required minimum distributions
Background on required minimum distributions under qualified
retirement plans may be found in section I.5 of this document.
Annuities
A plan will not fail to satisfy the minimum required distribution
rules merely because distributions are made from an annuity con-
tract which is purchased with the employee’s benefit by the plan
from an insurance company.224 Prior to the date that an annuity
contract under an individual account plan commences benefits
under the contract, the interest of the employee or beneficiary
under that contract is treated as an individual account for purposes
of the required minimum distribution requirements.225 Once dis-
tributions are required to begin (on the required beginning date),
payments under the annuity contract will satisfy the required min-
imum distribution rules if distributions of the employee’s entire in-
terest are paid in the form of periodic annuity payments for the
224 Treas. Reg. sec. 1.401(a)(9)–6, A–4.
225 Treas. Reg. sec. 1.401(a)(9)–6, A–12(a).
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employee’s life (or the joint lives of the employee and beneficiary)
or over a period certain as defined in the regulations.226
All annuity payments (whether paid over an employee’s life, joint
lives, or a period certain) must be nonincreasing, or only increase
in accordance with certain exceptions.227
There are additional increases permitted for annuity payments
under annuity contracts purchased from insurance companies. If
the total future payments expected to be made under the annuity
contract (‘‘future expected payments’’) exceed the ‘‘total value being
annuitized,’’ the payments under the annuity contract will not fail
to satisfy the nonincreasing payment requirement merely because
the payments (1) are increased by a constant percentage, applied
not less frequently than annually; (2) provide for a final payment
upon the death of the employee that does not exceed the excess of
the total value being annuitized over the total of payments before
the death of the employee; (3) are increased as a result of dividend
payments or other payments that result from actuarial gains but
only if actuarial gain is measured no less frequently than annually
and the resulting payments are either paid no later than the year
following the year for which the actuarial experience is measured
or paid in the same form as the payment of the annuity over the
remaining period of the annuity; and (4) are increased for certain
accelerations of payment.228 However, in operation, this actuarial
test does not permit certain guarantees in life annuities such as
certain guaranteed annual increases, return of premium death ben-
efits and period certain guarantees for participating annuities.
REASONS FOR CHANGE
The required minimum distribution rules contain an actuarial
test, intended to limit tax deferral by precluding commercial annu-
ities from providing payments that increase excessively over time.
In operation, however, the test commonly prohibits many impor-
tant guarantees and features of commercial annuities that provide
only modest benefit increases that make these annuities attractive
to individuals participating in defined contribution plans. For ex-
ample, guaranteed annual increases of only one or two percent, re-
turn of premium death benefits, and period certain guarantees for
participating annuities are commonly prohibited by this test. With-
out these types of guarantees, many individuals are unwilling to
elect a life annuity under a defined contribution plan or IRA.
Such annuities also provide individuals in defined contribution
plans with protection against outliving their assets in retirement.
The Committee believes that making it easier for commercial annu-
ities to offer these types of benefits will encourage individuals par-
ticipating in defined contribution plans to purchase such annuities.
226 Treas. Reg. sec. 1.401(a)(9)–6, A–1, –3 and –4. If the annuity contract is purchased after
the required beginning date, the first payment must begin on or before the purchase date and
the payment required must be made no later than the end of that required period.
227 Treas. Reg. sec. 1.401(a)(9)–6, A–14(a). The exceptions include eligible cost of living in-
creases, increased benefits resulting from a plan amendment, and lump sum distributions made
to a beneficiary upon the death of the employee.
228 Treas. Reg. sec. 1.401(a)(9)–6, A–14(c).
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94
EXPLANATION OF PROVISION
The provision amends the minimum required distribution rules
to permit commercial annuities 229 that are issued in connection
with any eligible retirement plan 230 to provide one or more of the
following types of payments on or after the annuity starting date:
• Annuity payments that increase by a constant percentage,
applied not less frequently than annually, at a rate that is less
than five percent per year;
• A lump sum payment that results in a shortening of the
payment period with respect to an annuity, or a full or partial
commutation of the future annuity payments, provided that
such a lump sum is determined using reasonable actuarial
methods and assumptions, determined in good faith by the
issuer of the contract;
• A lump sum payment that accelerates the receipt of annu-
ity payments that are scheduled to be received within the en-
suing 12 months, regardless of whether such acceleration
shortens the payment period with respect to the annuity, re-
duces the dollar amount of benefits to be paid under the con-
tract, or results in a suspension of annuity payments during
the period being accelerated;
• Dividends or similar distributions determined in an actu-
arially reasonable manner; or
• A lump sum return of premium death benefits.
The provision also directs the Secretary, within one year after
the date of enactment, to conform the regulations to the foregoing
statutory amendments and thereby exempt the listed annuity bene-
fits from the actuarial test in the regulations. The Secretary is also
directed to provide that any commercial annuity that provides an
initial payment that is at least equal to the initial payment that
is required from an individual account is deemed to satisfy the ac-
tuarial test in the regulations. The Secretary is also directed to
amend the actuarial test in the regulations to provide that the cal-
culations under the test are made using the reasonable tables or
other actuarial assumptions that the issuer of the contract actually
uses in pricing the premiums and benefits under the contract, pro-
vided that such tables or other actuarial assumptions are reason-
able, rather than using the life expectancy tables in the regula-
tions.
The provision also directs the Secretary as of the date of enact-
ment to administer and enforce the law in accordance with the re-
quirements of this provision.
EFFECTIVE DATE
The provision is effective as of the date of enactment.
229 Within the meaning of section 3405(e)(6).
230 Within the meaning of section 402(c)(8)(B), other than a defined benefit plan.
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2. QUALIFYING LONGEVITY ANNUITY CONTRACTS (SEC. 202 OF THE
BILL)
PRESENT LAW
Required minimum distributions
Background on required minimum distributions under qualified
retirement plans may be found in section I.5 of this document.
Annuity distributions
The regulations provide rules for the amount of annuity distribu-
tions from a defined benefit plan, or from an annuity purchased by
the plan from an insurance company (including annuity contracts
under a defined contribution plan), that are paid over life or life ex-
pectancy. Annuity distributions are generally required to be non-
increasing with certain exceptions, which include, for example, (i)
increases to the extent of certain specified cost-of-living indices, (ii)
a constant percentage increase (for a qualified defined benefit plan,
the constant percentage cannot exceed five percent per year), (iii)
certain accelerations of payments, and (iv) increases to reflect when
an annuity is converted to a single life annuity after the death of
the beneficiary under a joint and survivor annuity or after termi-
nation of the survivor annuity under a qualified domestic relations
order.231 If distributions are in the form of a joint and survivor an-
nuity and the survivor annuitant both is not the surviving spouse
and is younger than the employee (or IRA owner), the survivor an-
nuity benefit is limited to a percentage of the life annuity benefit
for the employee (or IRA owner). The survivor benefit as a percent-
age of the benefit of the primary annuitant is required to be small-
er (but not required to be less than 52 percent) as the difference
in the ages of the primary annuitant and the survivor annuitant
become greater.
If an annuity contract held under a defined contribution plan has
not yet been annuitized, the interest of an employee or beneficiary
under that contract is treated as an individual account for purposes
of the minimum required distribution rules. Thus, the value of that
contract is included in the account balance used to determine re-
quired minimum distributions from the employee’s individual ac-
count.232
Plan amendment and anti-cutback requirements
Present law provides a remedial amendment period during
which, under certain circumstances, a qualified retirement plan
may be amended retroactively in order to comply with the quali-
fication requirements.233 In general, plan amendments to reflect
changes in the law generally must be made by the time prescribed
by law for filing the income tax return of the employer for the em-
ployer’s taxable year in which the change in law occurs.234 The Sec-
231 Treas. Reg. sec. 1.401(a)(9)–6, A–14.
232 Treas. Reg. sec. 1.401(a)(9)–6, A–12.
233 Sec. 401(b).
234 In addition, if an employer adopts a qualified retirement plan after the close of a taxable
year but before the time prescribed by law for filing the return of tax of the employer for the
taxable year (including extensions thereof), the employer may elect to treat the plan as having
been adopted as of the last day of the taxable year. See 401(b)(2), as enacted under section 201
of the SECURE Act. See also the description of the provision in section III.19 of this document,
Continued
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retary may extend the time by which plan amendments need to be
made.
The Code and ERISA generally prohibit plan amendments that
reduce accrued benefits, including amendments that eliminate or
reduce optional forms of benefit with respect to benefits already ac-
crued except to the extent prescribed in regulations.235 This prohi-
bition on the reduction of accrued benefits is commonly referred to
as the ‘‘anti-cutback rule.’’
Qualifying longevity annuity contracts
A ‘‘qualifying longevity annuity contract’’ (‘‘QLAC’’) is a deferred
annuity contract that is purchased from an insurance company for
an employee that is generally scheduled to commence payments at
an advanced age (but no later than age 85) 236 and which satisfies
each of the following requirements: 237
1. Premiums for the QLAC do not exceed the lesser of a dol-
lar or percentage limitation. The dollar limitation is (1)
$125,000 (as adjusted) ($135,000 for 2020 and 2021) over (2)
the sum of (a) the premiums previously paid with respect to
the contract and (b) the premiums previously paid with respect
to any other QLAC that is purchased for the employee under
the plan, or any other plan of the employer.238 The percentage
limitation is 25 percent of the employee’s account balance
under the plan (including the value of any QLAC held under
the plan for the employee) over the previously paid premiums
with respect to the contract or with respect to any other QLAC
that is purchased for the employee under the plan, or any
other plan of the employer.
2. The QLAC provides that distributions under the contract
must commence not later than the first day of the month fol-
lowing the individual’s attainment of age 85.
3. The QLAC provides that once distributions begin under
the contract, the distributions satisfy the minimum required
distribution rules, except for the rule that annuity payments
commence on or before the required beginning date.
4. The contract does not make available any commutation
benefit, cash surrender right, or other similar feature.
5. No benefits are provided under the contract after the
death of the employee other than those provided for in the reg-
ulations.
6. When the contract is issued, the contract (or a rider or en-
dorsement) states that it is intended to be a QLAC.
7. The contract is not a variable contract, an indexed con-
tract, or a similar contract, except as provided in guidance.
Amendments to increase benefit accruals under plan for previous plan year allowed until em-
ployer tax return due date.
235 Sec. 411(d)(6) and ERISA sec. 204(g).
236 Because under section 401(a)(9), minimum required distributions must generally begin no
later than the April 1 of the year following the year in which the individual attains age 72,
without these special rules, QLACs would violate the requirements of section 401(a)(9). See the
description of the provision in section I.5 of this document, which proposes an increase in the
age for the required beginning date for mandatory distributions.
237 Treas. Reg. sec. 401(a)(9)–6, A–17.
238 Including any other plan, annuity, or account described in sections 401(a), 403(a), 403(b),
or 408, or an eligible governmental plan under section 457(b).
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97
REASONS FOR CHANGE
QLACs are intended to be an inexpensive way for individuals to
hedge the risk of outliving their savings in defined contribution
plans and IRAs. In 2014, final regulations were published relating
to QLACs.239 However, the final regulations imposed certain limits
on QLACs in order to comply with statutory requirements. These
limits prevent QLACs from achieving their intended purpose in
providing longevity protection by, for example, limiting the percent-
age of an individual’s account that may be used to acquire such
contracts.
The Committee believes that repealing that 25 percent limita-
tion, clarifying that free-look periods up to 90 days are permitted,
and facilitating the sales of such contracts with spousal survival
rights, will eliminate certain barriers to the purchase of QLACs.
EXPLANATION OF PROVISION
Under the provision, no later than one year after the date of en-
actment, the Secretary (or the Secretary’s delegate) is directed to
amend the minimum required distribution regulation which applies
to QLACs:
• To eliminate the requirement that premiums for QLACs be
limited to 25 percent (or any other percentage) of an individ-
ual’s account balance;
• To provide that in the case of a QLAC purchased with
joint and survivor annuity benefits for the individual and his
or her spouse that were permissible under the regulations at
the time the contract was originally purchased, a divorce occur-
ring after the original purchase and before the annuity pay-
ments commence under the contract, will not affect the permis-
sibility of the joint and survivor annuity benefits or other bene-
fits under the contract, or require any adjustment to the
amount or duration of benefits payable under the contract pro-
vided that any qualified domestic relations order 240 or any di-
vorce or separation instrument (1) provides that the former
spouse is entitled to the survivor benefits under the contract,
(2) does not modify the treatment of the former spouse as bene-
ficiary under the contract who is entitled to the survivor bene-
fits, or (3) does not modify the treatment of the former spouse
as the measuring life for the survivor benefits under the con-
tract. For purposes of this provision, the term ‘‘divorce or sepa-
ration instrument’’ means (1) a decree of divorce or separate
maintenance or a written instrument incident to such a decree,
(2) a written separation agreement, or (3) a decree (not de-
scribed in (1)) requiring a spouse to make payments for the
support or maintenance of the other spouse; and
• To ensure that the regulation does not preclude a contract
from including a provision under which an employee may re-
scind the purchase of the contract within a period not exceed-
ing 90 days from the date of purchase (the ‘‘short free look pe-
riod.’’)
239 79 FR 37633.
240 Within the meaning of section 414(p).
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EFFECTIVE DATE
The provision is generally effective with respect to contracts pur-
chased or received in an exchange on or after the date of enact-
ment. The changes with respect to joint and survivor annuities and
the short free look period are effective with respect to contracts
purchased or received in an exchange on or after July 2, 2014.
Prior to the date the Secretary issues final regulations, the Sec-
retary must administer and enforce the law in accordance with the
effective dates above, and taxpayers may rely upon their reason-
able good faith interpretations of the law prior to this provision be-
coming effective.
3. INSURANCE-DEDICATED EXCHANGE-TRADED FUNDS (SEC. 203 OF
THE BILL AND SEC. 817(h) OF THE CODE)
PRESENT LAW
Income exclusion and deferred tax treatment for life insurance and
annuity contracts
An exclusion from gross income is provided for amounts received
under a life insurance contract paid by reason of the death of the
insured.241 Further, no Federal income tax generally is imposed on
a policyholder with respect to the earnings under a life insurance
contract (‘‘inside buildup’’). Distributions from a life insurance con-
tract (other than a modified endowment contract 242) that are made
prior to the death of the insured generally are includible in income
only to the extent that the amounts distributed exceed the tax-
payer’s investment in the contract. Such distributions generally are
treated first as a tax-free recovery of the investment in the con-
tract, and then as income.243 Present law provides a definition of
life insurance designed to limit the investment orientation of the
contract.244
No Federal income tax is generally imposed on a deferred annu-
ity contract holder who is a natural person with respect to the
earnings on the contract (inside buildup) in the absence of a dis-
tribution under the contract. Annuity distributions generally are
treated as partially excludable return of basis and partially ordi-
nary income under an ‘‘exclusion ratio’’ (the ratio of the investment
in the contract to the expected return under the contract as of that
date).245 Other distributions (which for this purpose include loans)
are treated as income first, then as a tax-free return of basis.246
An additional 10-percent tax is imposed on the income portion of
distributions made before age 591⁄2, and in certain other cir-
cumstances.247 An annuity contract must provide for certain re-
quired distributions if the holder dies before the entire interest in
the contract has been distributed.248 No dollar limit is imposed on
241 Sec. 101(a).
242 Sec. 7702A. A modified endowment contract is generally a life insurance contract funded
more rapidly than in seven level annual premiums. Distributions (including loans) from a modi-
fied endowment contract are generally treated as income first, then as a tax-free return of basis.
Sec. 72(e)(10).
243 Sec. 72(e).
244 Sec. 7702.
245 Sec. 72(b).
246 Sec. 72(e).
247 Sec. 72(q).
248 Sec. 72(s).
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the amount that may be paid into an annuity contract (that is not
a pension plan contract) for Federal income tax purposes.
Variable contracts
A variable contract is generally an annuity or life insurance con-
tract whose death benefit, payout, or premium amounts are based
on the return on and market value of underlying assets. For tax
purposes, a variable contract is defined by statute.249 Under the
statutory criteria, all or part of the amounts received for the con-
tract (premiums) must be allocated to a segregated asset account
of the insurer. The contract must provide for the payment of annu-
ities, must be a life insurance contract,250 or must fund insurance
on retired lives.251 The contract must reflect the investment return
and the market value of the segregated asset account, or in the
case of a life insurance contract, the amount of the death benefit
or period of coverage must be adjusted on the basis of the invest-
ment return and the market value of the segregated asset account.
The segregated asset accounts for variable contracts generally are
invested in a variety of investment funds.
Diversification requirements
The investment assets held in the segregated asset account for
a variable contract must be adequately diversified.252 If the assets
are not adequately diversified, the variable contract is not treated
as an annuity or life insurance contract.253 As a result, otherwise
tax-deferred or excluded income on the contract is treated as ordi-
nary income received or accrued by the contract holder during the
taxable year.254
When the diversification requirement for variable contracts was
added in 1984, the Conference Report stated, ‘‘[i]n authorizing
Treasury to prescribe diversification standards, the conferees in-
tend that standards be designed to deny annuity or life insurance
treatment for investments that are publicly available to investors
and investments that are made, in effect, at the direction of the in-
vestor.’’ 255
The regulatory diversification requirements impose investment
concentration limits based on percentages of the total value of the
249 Sec. 817(d).
250 As defined for Federal tax purposes in section 7702.
251 As described in section 807(c)(6) (governing life insurer reserve deductions).
252 Sec. 817(h).
253 The investor control doctrine can also apply in some fact situations. This two-pronged doc-
trine generally treats a contract as not a life insurance contract or not an annuity contract if
the contract holder has significant incidents of ownership with respect to the investments in the
insurer segregated asset account, or if segregated asset account assets are publicly available for
purchase (i.e, not exclusively available through purchase of the variable contract). See Rev. Rul.
81–225, 1981–2 C.B.12, as modified by Rev. Proc. 99–44 and as clarified and amplified by Rev.
Rul. 2007–7; Christofferson v. U.S., 749 F.2d 513 (8th Cir. 1984); Webber v. Commissioner, 144
T. C. 324 (2015).
254 Secs. 72 and 7702, and Treas. Reg. sec. 1.817–5(a).
255 H.R. Conf. Rep. No. 861, 98th Cong., 2d Sess. (1984), page 1055. Similarly, the Blue Book
for the 1984 Act states that the diversification requirements were enacted ‘‘to discourage the
use of tax-preferred variable annuities and variable life insurance primarily as investment vehi-
cles. The Congress believed that a limitation on a customer’s ability to select specific invest-
ments underlying a variable contract will help ensure that a customer’s primary motivation in
purchasing the contract is more likely to be the traditional economic protections provided by an-
nuities and life insurance.’’ Joint Committee on Taxation, General Explanation of the Revenue
Provisions of the Deficit Reduction Act of 1984, Pub. L. No. 98–369, JCS–41–84, December 31,
1984, page 607.
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assets in the segregated asset account.256 A safe harbor is provided
for a segregated asset account holding a regulated investment com-
pany (‘‘RIC’’ or mutual fund) that is at least as diversified as is re-
quired under the RIC rules of section 851(b)(4) and no more than
55 percent of the value of whose assets is in cash, cash items, gov-
ernment securities, and securities of other RICs.257
The diversification requirements provide a lookthrough rule for
assets held through a RIC, real estate investment trust (‘‘REIT’’),
partnership, or certain trusts such as a grantor trust. This
lookthrough rule provides that the RIC, REIT, partnership or trust
is not treated as a single investment of the segregated asset ac-
count, but rather, a pro rata portion of each of its assets is treated
as an asset of the account.258
However, the lookthrough rule imposes requirements.259 All the
beneficial interests in the RIC, REIT, partnership, or trust gen-
erally must be held by a segregated asset account. Public access to
the RIC, REIT, partnership, or trust must generally be available
exclusively through the purchase of a variable contract. For exam-
ple, if an investment fund’s interests are held by a market maker
or by a financial institution that, as a participant in a clearing
agency, is permitted to purchase and redeem shares directly from
the fund and sell them to third parties, then the fund does not sat-
isfy this requirement of the lookthrough rule.
REASONS FOR CHANGE
The Committee has become aware of the growing acceptance of
and increase in the number of exchange traded funds (‘‘ETFs’’), in-
vestment funds that are traded on national securities exchanges.
The Committee finds it appropriate to allow ETFs to be held in life
insurance companies’ segregated asset accounts for variable insur-
ance contracts, provided that doing so does not violate the investor
control doctrine limiting public availability of, and investor control
over, investment funds held by such accounts.
So as to allow ETFs under the diversification requirements appli-
cable to variable insurance contracts, the Committee directs the
Secretary to amend regulations interpreting those diversification
requirements. In particular, the Committee intends that under the
amended regulatory interpretation of the diversification require-
ments, the look through rule available to other investment funds
such as mutual funds also be available to ETFs notwithstanding
that beneficial interests in the ETF are held by clearing agencies
that are authorized participants, or held by market makers, as
those terms are used in the context of the Securities Exchange Act
of 1934. Due to the need for further development of market and tax
regulatory mechanisms needed to implement this intent, the effec-
tive date of the amendment to the regulations is deferred.
256 Treas. Reg. sec. 1.817–5(b).
257 Treas. Reg. sec. 1.817–5(b)(2).
258 Treas. Reg. sec. 1.817(f)(1).
259 Treas. Reg. sec. 1.817(f)(2) and (3).
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EXPLANATION OF PROVISION
Diversification requirements
The provision directs the Secretary to revise the regulations set-
ting forth diversification requirements with respect to variable con-
tracts under section 817(h) to facilitate the use of ETFs under vari-
able contracts. The provision directs that the lookthrough rule re-
quirements in the regulations be amended so that satisfaction of
those requirements with respect to an ETF is not prevented by rea-
son of beneficial interests in an investment fund being held by one
or more authorized participants or market makers.
Under the provision, an ETF means a RIC, partnership, or trust
that is registered with the SEC as an open-end investment com-
pany or unit investment trust, and the shares of which can be pur-
chased or redeemed directly from the fund only by an authorized
participant, and the shares of which are traded throughout the day
on a national stock exchange at market prices that may or may not
be the same as the net asset value of the shares. An authorized
participant means a financial institution that is a member or par-
ticipant in a clearing agency registered under section 17A(b) of the
Securities Exchange Act of 1934 that contracts with an ETF to per-
mit the financial institution to purchase or redeem shares of the
ETF and to sell the shares to third parties, provided that the finan-
cial institution is precluded from purchasing the shares for its own
investment purposes and from selling the shares to persons that
are not market makers. A market maker means a financial institu-
tion that is a registered broker or dealer under section 15(b) of the
Securities Exchange Act of 1934 and that maintains liquidity for an
ETF on a national stock exchange by always being ready to buy
and sell shares, provided that the financial institution is precluded
from buying or selling shares to or from persons who are not au-
thorized participants or who are persons not permitted to buy or
sell shares under the lookthrough rule in the regulations.
EFFECTIVE DATE
The provision relating to the amendments to the regulatory di-
versification requirements is effective for segregated asset account
investments made on or after the date that is seven years after the
date of enactment.
TITLE III—SIMPLIFICATION AND CLARIFICATION OF
RETIREMENT PLAN RULES
1. RECOVERY OF RETIREMENT PLAN OVERPAYMENTS (SEC. 301 OF
THE BILL AND SECS. 402 AND 414 OF THE CODE, AND SEC. 206 OF
ERISA)
PRESENT LAW
Employee Plans Compliance Resolution System
A general description of the Employee Plans Compliance Resolu-
tion System that this provision modifies may be found in section
I.13 of this document.
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Recoupment of overpayments
An overpayment is defined as a qualification failure due to a pay-
ment being made to a participant or beneficiary that exceeds the
amount payable to such individual under the terms of the plan or
that exceeds a limitation provided in the Code or regulations.260
Overpayments include both payments from a defined benefit plan
and from a defined contribution plan (either not made from the in-
dividual’s account under the plan or not permitted to be paid under
the Code, the regulations, or the terms of the plan).
An overpayment from a defined benefit plan generally is cor-
rected either by having the plan sponsor take reasonable steps to
have the overpayment (with appropriate interest) returned by the
recipient to the plan and then reducing future benefit payments (if
any) due to the employee or any other appropriate correction meth-
od.261 Depending on the nature of the overpayment, an appropriate
correction method may include having the employer or another per-
son contribute the amount of the overpayment (with appropriate
interest) to the plan instead of seeking recoupment from a plan
participant or beneficiary. Another appropriate correction method
may include a plan sponsor adopting a retroactive amendment to
conform the plan document to the plan’s operations.
An overpayment from a defined contribution plan or section
403(b) plan is generally corrected by having the employer take rea-
sonable steps to have the overpayment repaid to the plan, adjusted
for earnings at the plan’s earnings rate from the date of the dis-
tribution to the date of the correction of the overpayment.262 To the
extent such a repayment is not made by the participant or bene-
ficiary, the employer or another person must contribute the dif-
ference to the plan (‘‘make-whole contribution method’’). The make-
whole contribution method does not apply when the failure arises
solely because a payment was made from the plan to a participant
or beneficiary in the absence of a distributable event (but was oth-
erwise determined in accordance with the terms of the plan (for ex-
ample, an impermissible in-service distribution).
The employer must generally notify the employee that the over-
payment is not eligible for favorable tax treatment accorded to dis-
tributions from an eligible retirement plan (and specifically, is not
eligible for tax-free rollover).
260 Sec. 5.01(3)(c) of Rev. Proc. 2019–19.
261 Sec. 6.06(3) of Rev. Proc. 2019–19. Prior to 2015, the correction method for overpayments
was solely for the employer to take reasonable steps to have the overpayment returned to the
plan by the participant or beneficiary. The IRS was informed that some plans had demanded
recoupment of large amounts from plan participants and beneficiaries on account of plan admin-
istration errors made over lengthy periods of time, and that those individuals, particularly older
individuals, might have financial difficulty meeting those corrective actions including the return
of overpayments with substantial accumulated interest. As a result, IRS and Treasury issued
Revenue Procedure 2015–27, 2015–16 I.R.B. 914 providing more flexibility to plans, stating that
depending on the facts and circumstances, correcting an overpayment under EPCRS may not
need to include requesting that an overpayment be returned to the plan by plan participants
and beneficiaries but could include such options as having the employer or another person con-
tribute the amount of the overpayment (with appropriate interest) to the plan in lieu of seeking
recoupment from plan participants and beneficiaries or having a plan sponsor adopt a retro-
active amendment to conform the plan document to the plan’s operations. Treasury and IRS re-
quested comments on a number of issues, including whether, and under what circumstances,
correction should require employer make-whole contributions rather than recouping overpay-
ments from participants and beneficiaries and whether additional guidance was needed related
to unusual circumstances in which full corrective payments to a plan should not be required.
Treasury and IRS are continuing to review these comments and have indicated that they are
in the process of developing further changes.
262 Sec. 6.06(4) of Rev. Proc. 2019–19.
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However, if the total amount of an overpayment to a participant
or beneficiary is $100 or less, the plan sponsor is not required to
seek the return of the overpayment from the participant or bene-
ficiary and the plan sponsor is not required to notify the partici-
pant or beneficiary that the overpayment is not eligible for favor-
able tax treatment accorded to distributions from the plan (and
specifically, is not eligible for tax-free rollover).
PBGC overpayment recoupment policy
Private defined benefit plans are covered by the PBGC insurance
program, under which the PBGC guarantees the payment of cer-
tain plan benefits, and plans are required to pay annual premiums
to the PBGC.263 Single-employer and multiple-employer plans, in-
cluding CSEC plans, are subject to the same PBGC premium re-
quirements, consisting of flat-rate, per participant premiums and
variable rate premiums, based on the unfunded vested benefits
under the plan. For 2021, flat-rate premiums are $86 per partici-
pant, and variable rate premiums are $46 for each $1,000 of un-
funded vested benefits, subject to a limit of $582 multiplied by the
number of plan participants.264 For this purpose, unfunded vested
benefits under a plan for a plan year is the excess (if any) of (1)
the plan’s funding target for the plan year, determined by taking
into account only vested benefits and using specified interest rates,
over (2) the fair market value of plan assets.
If at any time, the PBGC determines that net benefits paid to a
participant in a PBGC-trusteed plan exceed the total amount to
which the participant or beneficiary is entitled up to that time
under Title IV of ERISA, and the participant or beneficiary is, as
of the plan termination date, entitled to receive future benefits, the
PBGC will recoup the net overpayment by calculating a monthly
account balance for each month ending after the termination date.
The PBGC will subtract from the account balance the amount of
overpayments made in that month. Only overpayments made on or
after the latest of the proposed termination date, the termination
date, or, if no notice of intent to terminate was issued, the date on
which proceedings to terminate the plan are instituted by the
PBGC.
The PBGC will recoup net overpayments of benefits by reducing
the amount of each future benefit payment to which the participant
or beneficiary is entitled by a fraction which is determined by di-
viding the amount of the net overpayment by the present value of
the benefit payable with respect to the participant or beneficiary
under Title IV of ERISA. The PBGC will reduce benefits to a par-
ticipant or beneficiary by no more than the greater of (1) 10 per-
cent per month; or (2) the amount of benefit per month in excess
of the maximum guaranteed benefit payable under ERISA, deter-
mined without adjustment for age and benefit form. Before affect-
ing a benefit reduction, the PBGC will notify the participant or
beneficiary in writing of the amount of the net overpayment and
of the amount of the reduced benefit. The PBGC may, in its discre-
tion, decide not to recoup net overpayments that it determines to
be de minimis.
263 Title IV of ERISA.
264 These premium rates have been increased several times by legislation since 2005 and are
subject to automatic increases to reflect inflation (referred to as ‘‘indexing’’).
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REASONS FOR CHANGE
On occasion, individuals may mistakenly receive more money
than they are entitled to under a retirement plan. These errors
may persist over a number of years before being discovered, cre-
ating issues when plan fiduciaries later seek to recover these over-
payments (plus interest), which may be substantial, from
unsuspecting retirees. Even small overpayment amounts may cre-
ate a hardship for a retiree living on a fixed income.
The Committee believes that allowing retirement plan fiduciaries
the discretion to determine how to correct such inadvertent fail-
ures, for example, by making additional contributions to the plan
rather than recouping such overpayments from the retiree, will al-
leviate undue burdens on unsuspecting retirees.
EXPLANATION OF PROVISION
Overpayments under the Code
Under the provision, a plan will not fail to be treated as a quali-
fied plan, section 403(a) annuity, section 403(b) tax sheltered annu-
ity or a governmental plan 265 (and will not fail to be treated as
satisfying the requirements of section 401 or 403) merely because
(1) the plan fails to obtain payment from any participant, bene-
ficiary, employer, plan sponsor, fiduciary, or other party on account
of any inadvertent benefit overpayment made by the plan, or (2)
the plan sponsor amends the plan to increase past or future benefit
payments to affected participants and beneficiaries in order to ad-
just for prior inadvertent benefit overpayments. Notwithstanding
the foregoing, the plan may instead reduce future benefit payments
to the correct amount provided for under the terms of the plan or
seek recovery from the person or persons responsible for the over-
payment. If an employer decides not to recover an overpayment,
nothing in this provision relieves that employer of any obligation
imposed upon it to make contributions to a plan to satisfy the min-
imum funding requirements 266 or to prevent or restore an imper-
missible forfeiture.267 In addition, the plan must observe any sal-
ary, compensation or benefit limitations imposed upon it,268 and
may enforce such limitations using any method approved by the
Secretary for recouping benefits previously paid or allocations pre-
viously made in excess of such limitations.
The Secretary may issue regulations or other guidance of general
applicability specifying how benefit overpayments and their
recoupment or non-recoupment from a participant or beneficiary
are to be taken into account for purposes of satisfying any require-
ment applicable to such a plan.
Rollovers
In the case of an inadvertent benefit overpayment from a plan
which is transferred to an eligible retirement plan by or on behalf
of a participant or beneficiary, (1) the portion of the overpayment
with respect to which recoupment is not sought on behalf of the
plan will be treated as having been paid in an eligible rollover dis-
265 Under section 219(g)(5)(A)(i), (ii), (iii) or (iv).
266 Under sections 412 and 430.
267 In accordance with section 411.
268 Secs. 401(a)(17) and 415.
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tribution if the payment would have been an eligible rollover dis-
tribution but for being an overpayment, and (2) the portion of such
overpayment with respect to which recoupment is sought on behalf
of the plan will be permitted to be returned to the plan, and in
such case, will be treated as an eligible rollover distribution trans-
ferred to such plan by the participant or beneficiary who received
the overpayment (and the plans making and receiving such trans-
fer will be treated as permitting such transfer).
In any case in which recoupment is sought on behalf of the plan,
but is disputed by the participant or beneficiary who received the
overpayment, where the recoupment has been transferred to an-
other eligible retirement plan, the dispute will be subject to the
claims and appeals procedures of the plan that made the overpay-
ment, that plan will notify the plan receiving the rollover of the
dispute, and the plan receiving the rollover will retain the overpay-
ment on behalf of the participant or beneficiary (and will be enti-
tled to treat the overpayment as plan assets) pending the outcome
of the procedures.
Overpayments under ERISA
Fiduciary duties
Under the provision, in the case of an inadvertent benefit over-
payment by any pension plan, the responsible plan fiduciary will
not be considered to have failed to comply with its fiduciary respon-
sibilities merely because such fiduciary determines, in the exercise
of its fiduciary discretion, not to seek recovery of all or part of such
overpayment from:
1. Any participant or beneficiary;
2. Any plan sponsor of, or contributing employer to, (a) an
individual account plan, provided that the amount needed to
prevent or restore any impermissible forfeiture from any par-
ticipant’s or beneficiary’s account arising in connection with
the overpayment is, separately from and independently of the
overpayment, allocated to such account pursuant to the non-
forfeitability requirements of ERISA 269 (for example, out of the
plan’s forfeiture account, additional employer contributions, or
recoveries from those responsible for the overpayment), or (b)
a defined benefit pension plan subject to the funding rules of
ERISA,270 unless the responsible plan fiduciary determines, in
the exercise of its fiduciary discretion, that failure to recover
all or a part of the overpayment faster than required under
such funding rules would materially affect the plan’s ability to
pay benefits due to other participants and beneficiaries; or
3. Any fiduciary of the plan, other than a fiduciary (including
a plan sponsor or contributing employer acting in a fiduciary
capacity) whose breach of its fiduciary duties resulted in such
overpayment, provided that if the plan has established prudent
procedures to prevent and minimize overpayment of benefits
and the relevant plan fiduciaries have followed such proce-
dures, an inadvertent benefit overpayment will not give rise to
a breach of fiduciary duty. Notwithstanding the foregoing, the
responsible plan fiduciary may instead reduce future benefit
269 Sec. 203 of ERISA.
270 In part 3 of subtitle B of ERISA.
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payments to the correct amount provided for under the terms
of the plan or seek recovery from the person or persons respon-
sible for the overpayment.
If an employer decides not to recover an overpayment, nothing in
this provision relieves that employer of any obligation imposed
upon it to make contributions to a plan to satisfy the minimum
funding requirements 271 or to prevent or restore an impermissible
forfeiture.272
Conditions imposed upon recoupment
If the responsible plan fiduciary, in the exercise of its fiduciary
discretion, decides to seek recoupment from a participant or bene-
ficiary of all or part of an inadvertent benefit overpayment made
by the plan to such participant or beneficiary, it may do so, subject
to the following conditions:
1. No interest or other additional amounts (such as collection
costs or fees) are sought on overpaid accounts;
2. If the plan seeks to recoup past overpayments of a non-
decreasing periodic benefit by reducing future benefit pay-
ments:
• The reduction ceases after the plan has recovered the
full dollar amount of the overpayment;
• The amount recouped each calendar year does not ex-
ceed 10 percent of the full dollar amount of the overpay-
ment; and
• Future benefit payments are not reduced to below 90
percent of the periodic amount otherwise payable under
the terms of the plan.
3. Alternatively, if the plan seeks to recoup past overpay-
ments of a non-decreasing periodic benefit through one or more
installment payments, the sum of such installment payments
in any calendar year does not exceed the sum of the reductions
that would be permitted in such year under the preceding sen-
tence;
4. If the plan seeks to recoup past overpayments of a benefit
other than a non-decreasing periodic benefit, the plan satisfies
requirements developed by the Secretary;
5. Efforts to recoup overpayments are not made through a
collection agency or similar third party and such efforts are not
accompanied by threats of litigation, unless the responsible
plan fiduciary reasonably believes it could prevail in a civil ac-
tion brought in Federal or State court to recoup the overpay-
ments;
6. Recoupment of past overpayments to a participant is not
sought from any beneficiary of the participant, including a
spouse, surviving spouse, former spouse or other beneficiary;
7. Recoupment may not be sought if the first overpayment
occurred more than three years before the participant or bene-
ficiary is first notified in writing of the error;
8. A participant or beneficiary from whom recoupment is
sought is entitled to contest all or part of the recoupment pur-
suant to the plan’s claims and appeals procedures; and
271 Under part 3 of Subtitle B of Title I of ERISA.
272 In accordance with section 203 of ERISA.
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9. In determining the amount of recoupment to seek, the re-
sponsible plan fiduciary may take into account the hardship
that recoupment likely would impose on the participant or ben-
eficiary.
Conditions (1) through (6) do not apply to protect a participant
or beneficiary who is culpable. For purposes of this rule, a partici-
pant or beneficiary is culpable if the individual bears responsibility
for the overpayment (such as through misrepresentations or omis-
sions that led to the overpayment), or if the individual knew, or
had good reason to know under the circumstances, that the benefit
payment or payments were materially in excess of the correct
amount. Notwithstanding the preceding sentence, an individual is
not culpable merely because the individual believed the benefit
payment or payments were or might be in excess of the correct
amount, if the individual raised that question with an authorized
plan representative and was told the payment or payments were
not in excess of the correct amount. With respect to a culpable par-
ticipant or beneficiary, efforts to recoup overpayments must not be
made through threats of litigation, unless a lawyer for the plan
could make the representations required under Rule 11 of the Fed-
eral Rules of Civil Procedure if the litigation were brought in Fed-
eral court.
EFFECTIVE DATE
The provision applies on the date of enactment.
Plans, fiduciaries, employers, and plan sponsors are entitled to
rely on (1) a good faith interpretation of then existing administra-
tive guidance for inadvertent benefit overpayment recoupments
and recoveries that commenced before the date of enactment and
(2) determinations made before the date of enactment by the re-
sponsible plan fiduciary, in the exercise of its fiduciary discretion,
not to seek recoupment or recovery of all or part of an inadvertent
benefit overpayment.
In the case of a benefit overpayment that occurred prior to the
date of enactment, any installment payments by the participant or
beneficiary to the plan or any reduction in periodic benefit pay-
ments to the participant or beneficiary, which were made in
recoupment of such overpayment and which commenced prior to
such date, may continue after such date. Nothing in this subsection
relieves a fiduciary from responsibility for an overpayment that re-
sulted from a breach of its fiduciary duties.
2. REDUCTION IN EXCISE TAX ON CERTAIN ACCUMULATIONS IN
QUALIFIED RETIREMENT PLANS (SEC. 302 OF THE BILL AND SEC.
4974 OF THE CODE)
PRESENT LAW
Background on required minimum distributions under qualified
retirement plans may be found in section I.5 of this document.
The Code imposes an excise tax on an individual if the amount
distributed to an individual during a taxable year is less than the
required minimum distribution under the plan for that year.273
The excise tax is equal to 50 percent of the shortfall (that is, 50
273 Sec. 4974.
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percent of the amount by which the required minimum distribution
exceeds the actual distribution). However, the Secretary may waive
the tax if the individual establishes that the shortfall was due to
reasonable error and reasonable steps are being taken to remedy
the error.
REASONS FOR CHANGE
The Committee recognizes that in many cases, failures to take a
required minimum distribution are inadvertent. The Committee
thus wishes to reduce the overall excise tax that applies to such
failures, in particular in the case of an individual who discovers
such a failure and takes steps to correct it.
EXPLANATION OF PROVISION
The provision reduces the excise tax that generally applies to the
failure to take required minimum distributions from 50 percent of
the shortfall to 25 percent.
In addition, the provision further reduces the excise tax to 10
percent in the case of an individual who, during the correction win-
dow, corrects the shortfall and submits a return reflecting the ex-
cise tax. The correction window is defined as the time period begin-
ning on the date the excise tax is imposed on the shortfall and end-
ing on the earlier of (1) the date the Secretary initiates an audit
with respect to the shortfall or otherwise demands payment, and
(2) the last day of the second taxable year that begins after the end
of the taxable year in which the excise tax is imposed.
EFFECTIVE DATE
The provision applies to taxable years beginning after December
31, 2021.
3. PERFORMANCE BENCHMARKS FOR ASSET ALLOCATION FUNDS (SEC.
303 OF THE BILL)
PRESENT LAW
Fiduciary rules under ERISA
ERISA contains general fiduciary duty standards that apply to
all fiduciary actions, including investment decisions. ERISA re-
quires that a plan fiduciary generally discharge its duties solely in
the interests of participants and beneficiaries and with the care,
skill, prudence, and diligence under the circumstances then pre-
vailing that a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a
like character and with like aims. With respect to plan assets,
ERISA requires a fiduciary to diversify the investments of the plan
so as to minimize the risk of large losses, unless under the cir-
cumstances it is clearly prudent not to do so.
Special rule for participant control of assets
ERISA provides a special rule in the case of a defined contribu-
tion plan that permits participants to exercise control over the as-
sets in their individual accounts. Under the special rule, if a partic-
ipant exercises control over the assets in his or her account (as de-
termined under regulations), the participant is not deemed to be a
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109
fiduciary by reason of such exercise, and no person who is other-
wise a fiduciary is liable for any loss, or by reason of any breach,
that results from the participant’s exercise of control.
Regulations issued by the DOL describe the requirements that
must be met in order for a participant to be treated as exercising
control over the assets in his or her account. With respect to invest-
ment options, the regulations provide, in part, that:
• The plan must provide at least three different investment
options, each of which is diversified and has materially dif-
ferent risk and return characteristics;
• The plan must allow participants to give investment in-
structions with respect to each investment option under the
plan with a frequency that is appropriate in light of the rea-
sonably expected market volatility of the investment option
(the ‘‘general volatility rule’’);
• At a minimum, participants must be allowed to give in-
vestment instructions at least every three months with respect
to at least three of the investment options, and those invest-
ment options must constitute a broad range of options (the
‘‘three-month minimum rule:);
• Participants must be provided with detailed information
about the investment options, information regarding fees, in-
vestment instructions and limitations, and copies of financial
data and prospectuses; and
• Specific requirements must be satisfied with respect to in-
vestments in employer stock to ensure that employees’’ buying,
selling, and voting decisions are confidential and free from em-
ployer influence.
Under the regulations,274 the plan administrator (or person des-
ignated by the plan administrator to act on its behalf), based on
the latest information available, must furnish to each participant
or beneficiary on or before the date on which he or she can first
direct his or her investments and at least annually thereafter, the
following information (as well as certain other information), with
respect to each designated investment alternative offered under the
plan:
• Identifying information including the name of each des-
ignated investment alternative and the type or category of the
investment (e.g., money market fund, balanced fund (stocks
and bonds), large-cap stock fund, or employer securities);
• Performance data including:
» For designated investment alternatives with respect
to which the return is not fixed, the average annual total
return of the investment for 1, 5, and 10 calendar year pe-
riods (or for the life of the alternative, if shorter) ending
on the date of the most recently completed calendar year;
as well as a statement indicating that an investment’s past
performance is not necessarily an indication of how the in-
vestment will perform in the future; and
» For designated investment alternatives with respect
to which the return is fixed or stated for the term of the
investment, both the fixed or stated annual rate of return
and the term of the investment. If, with respect to such a
274 29 C.F.R. sec. 2550.404a–5(d).
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designated investment alternative, the issuer reserves the
right to adjust the fixed or stated rate of return prospec-
tively during the term of the contract or agreement, the
current rate of return, the minimum rate guaranteed
under the contract, if any, and a statement advising par-
ticipants and beneficiaries that the issuer may adjust the
rate of return prospectively and how to obtain (e.g., tele-
phone or website) the most recent rate of return required
under this section.
• Benchmarks. For designated investment alternatives with
respect to which the return is not fixed, the name and returns
of an appropriate broad-based securities market index over the
1, 5, and 10 calendar year periods (or for the life of the alter-
native, if shorter) comparable to the performance data periods
provided for designated investment alternatives with respect to
which the return is not fixed, and which is not administered
by an affiliate of the investment issuer, its investment adviser,
or a principal underwriter, unless the index is widely recog-
nized and used.
If these and the other requirements under the regulations are
met, a plan fiduciary may be liable for the investment options
made available under the plan, but not for the specific investment
decisions made by participants. However, the regulations currently
do not provide guidance as to a designated investment alternative
which contains a mix of asset classes.
REASONS FOR CHANGE
As noted, DOL regulations require certain disclosures to partici-
pants for each designated investment alternative offered under a
plan including a benchmark comparison of the historical perform-
ance of each alternative compared to an appropriate broad-based
securities market index. Thus, for example, if the plan offers an eq-
uity fund, the plan will show participants the 1, 5 and 10 year re-
turns of that fund compared to the returns on an appropriate index
such as the S&P 500, which represents an index in the same asset
class. However, the rules do not adequately address the benchmark
to be used for increasingly popular investments, like target date
funds which include a mix of asset classes rather than a single
asset class.
The Committee believes that a modification of the regulations to
permit a designated investment alternative that uses a mix of asset
classes, such as a target date fund, to be benchmarked against a
blend of broad-based securities market indices, provided that cer-
tain conditions are satisfied, will facilitate the ability of partici-
pants to compare and decide between investment alternatives, in-
cluding those that use a mix of asset classes, offered under the
plan.
EXPLANATION OF PROVISION
Not later than six months after the date of enactment, the provi-
sion requires that the Secretary of Labor (or the Secretary’s dele-
gate) modify the regulations on fiduciary duties 275 to provide that,
in the case of a designated investment alternative which contains
275 Under section 404 of ERISA.
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a mix of asset classes, a plan administrator may, but is not re-
quired to, use a benchmark which is a blend of different broad-
based securities market indices if:
1. The blend is reasonably representative of the asset class
holdings of the designated investment alternative;
2. For purposes of determining the blend’s returns for 1, 5,
and 10 calendar-year periods (or for the life of the alternative,
if shorter), the blend is modified at least once per year to re-
flect changes in the asset class holdings of the designated in-
vestment alternative;
3. The blend is furnished to participants and beneficiaries in
a manner that is reasonably designed to be understandable
and helpful; and
4. Each securities market index which is used for an associ-
ated asset class would separately satisfy the requirements of
such regulations for such asset class.
Not later than December 31, 2022, the Secretary of Labor (or the
Secretary’s delegate) must deliver a report to the Committees on
Ways and Means and Education and Labor of the House of Rep-
resentatives and the Committees on Finance and Health, Edu-
cation, Labor, and Pensions of the U.S. Senate regarding the effec-
tiveness of the benchmarking requirements under the DOL regula-
tions.276
EFFECTIVE DATE
The provision is effective on the date of enactment.
4. REVIEW AND REPORT TO THE CONGRESS RELATING TO REPORTING
AND DISCLOSURE REQUIREMENTS (SEC. 304 OF THE BILL)
PRESENT LAW
Under the Code and ERISA, plans must satisfy requirements re-
lating to reporting and disclosure of plan information. These re-
quirements include information required to be reported to the IRS,
the DOL, and the PBGC, as well as to participants and bene-
ficiaries.277
For example, plan administrators generally must file an annual
return with the IRS, an annual report with the DOL, and certain
information annually with the PBGC. Form 5500, which consists of
a primary form and various schedules, includes the information re-
quired to be filed with all three agencies. The plan administrator
satisfies the reporting requirement with respect to each agency by
filing the Form 5500 with the DOL. Other information required to
be reported to the IRS includes plan distributions, excise taxes im-
posed on the plan, and separated participants with deferred vested
benefits.278 Defined benefit plans must report certain information
to the PBGC, including information relating funding, terminations,
and reportable events.
With respect to participants and beneficiaries, the reporting and
disclosure requirements include the provision of a summary plan
276 29 C.F.R. sec. 2550.404a–5.
277 In certain cases, plan information also must be provided to other interested parties such
as unions (in the case of multiemployer plans).
278 This information is reported on the Form 1099–R (plan distributions), Form 5330 (excise
tax), and Form 8955–SSA (separated participants with deferred vested benefits).
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description, which describes the plan’s eligibility requirements for
participation and benefits, vesting provisions, procedures for claim-
ing benefits under the plan, and other information.279 Plans must
also furnish participants and beneficiaries with periodic benefit
statements that indicate the total benefits accrued and the non-
forfeitable benefits (or the earliest date on which benefits become
nonforfeitable).280 Certain information is required to be provided
upon certain events, such as termination of employment,281 plan
termination,282 reduction in future benefit accruals,283 or a plan
distribution that is eligible for rollover treatment.284 Certain re-
quirements also apply depending on the type of plan. For example,
section 401(k) plans and section 403(b) plans must advise employ-
ees of opportunities to make or change elective deferrals under the
plan,285 and section 401(k) safe harbor plans and plans with auto-
matic enrollment features have special notice requirements.286 Cer-
tain notices must be provided to participants and beneficiaries in
individual account plans who are permitted to exercise control over
account assets.287 In the case of defined benefit plans, notices relat-
ing to plan funding, such as an annual funding notice, must be fur-
nished to participants and beneficiaries.288
REASONS FOR CHANGE
The Committee wishes to consolidate, simplify, standardize, and
improve the reporting and disclosure requirements applicable to re-
tirement plans. Thus, the Committee believes that it is appropriate
to gather information and recommendations on reporting and dis-
closure requirements from Treasury, the DOL, and the PBGC.
EXPLANATION OF PROVISION
The provision requires the Secretary, the Secretary of Labor, and
the PBGC to review the reporting and disclosure requirements that
apply to pension plans 289 under Title I of ERISA and that apply
to qualified retirement plans 290 under the Code. Such review must
take place as soon as practicable after the date of enactment, and,
no later than 18 months after such date, the agencies must report
on the effectiveness of the reporting and disclosure requirements
and make certain recommendations, as described below, to the ap-
propriate committees of the Congress. The agencies must conduct
appropriate surveys and data collection to obtain any needed infor-
mation.
The report must include the following:
279 ERISA sec. 102; 29 C.F.R. sec. 2520.102–2 and –3. Plans must also provide summaries of
material modifications to the plan. ERISA sec. 102.
280 ERISA sec. 105.
281 ERISA sec. 209.
282 29 C.F.R. sec. 2550.404a–3 (relating to termination of individual account plans); ERISA
sec. 4041(a)(2) (relating to termination of single-employer defined benefits plans). Single em-
ployer defined benefit plans also must report plan termination to the PBGC.
283 Sec. 4980F; ERISA sec. 204(h).
284 Sec. 402(f).
285 Treas. Reg. sec. 1.401(k)–1(e)(2)(ii); Treas. Reg. sec. 1.403(b)–5(b)(2). This requirement also
applies to SIMPLE plans. Sec. 408(p)(5)(C).
286 Sec. 401(k)(12)(D); sec. 401(k)(13)(E); sec. 414(w)(4).
287 ERISA sec. 404(c).
288 ERISA sec. 101. Certain notices related to plan funding also must be provided to the
PBGC.
289 ERISA sec. 3(2).
290 For this purpose, qualified retirement plans include plans qualified under section 401(a),
annuity plans described in section 403(a), and section 403(b) plans. Sec. 4974(c)(1), (2), and (3).
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• Recommendations as may be appropriate to consolidate,
simplify, standardize, and improve such requirements so as to
simplify reporting for such plans and ensure that plans can
simply furnish and participants and beneficiaries timely re-
ceive and better understand the information they need to mon-
itor their plans, plan for retirement, and obtain the benefits
they have earned;
• An assessment of the extent to which retirement plans are
retaining disclosures, work records, and plan documents that
are needed to ensure accurate calculation of future benefits;
and
• To assess the effectiveness of the applicable reporting and
disclosure requirements, an analysis, based on plan data, of
how participants and beneficiaries are providing preferred con-
tact information, the methods by which plan sponsors and
plans are furnishing disclosures, and the rate at which partici-
pants and beneficiaries (grouped by key demographics) are re-
ceiving, accessing, and retaining disclosures.
EFFECTIVE DATE
The provision is effective on date of enactment.
5. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS (SEC. 305 OF THE BILL, SEC. 414 OF
THE CODE, AND NEW SEC. 111 OF ERISA)
PRESENT LAW
Background on the reporting and disclosure requirements that
apply to plans under the Code and ERISA may be found in section
III.4 of this document.
REASONS FOR CHANGE
Under present law, employees eligible to participate in a retire-
ment plan are required to receive a broad array of notices that are
intended to inform them of their various options and rights under
the plan. In the case of eligible employees who have not elected to
participate in the plan (‘‘unenrolled participants’’), these notices,
such as notices regarding the different investment options available
under the plan, are generally unnecessary, and can even have ad-
verse effects on savings and coverage. Thus, the Committee be-
lieves it is appropriate to cease to require defined contribution
plans to provide many of these notices to unenrolled participants.
However, to further encourage participation of unenrolled partici-
pants, such plans would still be required to send an annual re-
minder notice relating to the participant’s eligibility to participate
in the plan and any otherwise required document requested by the
participant.
EXPLANATION OF PROVISION
The provision generally exempts defined contribution plans from
requirements under the Code and ERISA to provide disclosures,
notices, and other plan documents to unenrolled participants, pro-
vided that the unenrolled participant receives: (1) an annual re-
minder notice of the participant’s eligibility to participate in the
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plan and any applicable election deadlines, and (2) any document
the participant requests that the participant would be entitled to
if not for this provision.
Under the provision, the annual reminder notice must be fur-
nished in connection with the plan’s annual open season election
period (or, if there is no such period, within a reasonable period
prior to the beginning of each plan year), and must notify the par-
ticipant of (1) the participant’s eligibility to participate in the plan,
and (2) the key benefits under the plan and key rights and features
under the plan affecting such benefits. The annual reminder notice
must be provided in accordance with the DOL regulations relating
to disclosure 291 and may be provided in paper or, if the participant
consents, electronically. The notice must provide the required infor-
mation in a prominent manner calculated to be understood by the
average participant.
The provision defines ‘‘unenrolled participant’’ as an employee
who (1) is eligible to participate in a defined contribution plan; (2)
has received all required notices, disclosures, and other plan docu-
ments, including the summary plan description, required to be fur-
nished under the Code or ERISA in connection with the partici-
pant’s initial eligibility to participate in the plan; (3) is not partici-
pating the plan; and (4) does not have a balance in the plan. For
this purpose, any eligibility to participate in the plan following any
period of ineligibility is treated as initial eligibility.
EFFECTIVE DATE
The provision is effective for plan years beginning after Decem-
ber 31, 2021.
6. RETIREMENT SAVINGS LOST AND FOUND (SEC. 306 OF THE BILL,
SECS. 401(a)(31)(B), 402, 408, 411, 6011, 6057, AND 6652 OF THE
CODE, AND SECS. 404, 4005, AND NEW SEC. 4051 OF ERISA)
PRESENT LAW
Pension Benefit Guaranty Corporation Missing Participants Pro-
gram
When a defined benefit pension plan (maintained by a single em-
ployer and subject to the plan termination insurance program
under Title IV of ERISA) terminates under a standard termination,
the plan administrator generally must purchase annuity contracts
from a private insurer to provide the benefits to which participants
are entitled and distribute the annuity contracts to the partici-
pants.
If the plan administrator of a terminating single employer plan
cannot locate a participant after a diligent search (has a ‘‘missing
participant’’), the plan administrator may satisfy the distribution
requirement only by purchasing an annuity from an insurer or
transferring the participant’s designated benefit to the PBGC. The
PBGC holds the benefit of the missing participant as trustee until
the PBGC locates the missing participant and distributes the ben-
efit.292
291 29 C.F.R. sec. 2520.104(b)–1 (or any successor regulation).
292 Sec. 4041(b)(3)(A); sec. 4050 of ERISA.
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Pursuant to the Pension Protection Act of 2006,293 the PBGC
prescribed rules for terminating multiemployer plans similar to the
missing participant rules applicable to terminating single employer
plans subject to Title IV of ERISA. In addition, plan administrators
of certain types of plans not otherwise subject to the PBGC termi-
nation insurance program are permitted, but not required, to elect
to transfer missing participants’ benefits to the PBGC upon plan
termination. Specifically, the provision extends the missing partici-
pants program (in accordance with regulations) to defined contribu-
tion plans,294 defined benefit pension plans that have no more than
25 active participants and are maintained by professional service
employers, and the portion of defined benefit pension plans that
provide benefits based upon the separate accounts of participants
and therefore are treated as defined contribution plans under
ERISA.
On December 22, 2017, the PBGC established the PBGC Defined
Contribution Missing Participants Program (‘‘Missing Participants
Program’’) to hold retirement benefits for missing participants and
beneficiaries in most terminated defined contribution plans and to
help those participants and beneficiaries find and receive those
benefits.295
Department of Labor
A fiduciary safe harbor 296 may apply with respect to distribu-
tions from terminated individual account plans 297 and abandoned
plans 298 on behalf of participants and beneficiaries who fail to
make an election regarding a form of benefit distribution, including
‘‘missing participants.’’ The safe harbor generally requires that dis-
tributions be rolled over to an individual retirement account or an-
nuity (IRA), although in limited circumstances fiduciaries may
make distributions to certain bank accounts or to a state unclaimed
property fund. If the conditions of the safe harbor are met, a fidu-
ciary (including a Qualified Termination Administrator (‘‘QTA’’) in
the case of an abandoned plan) is deemed to have satisfied the re-
quirements of section 404(a) of ERISA with respect to distributing
benefits, selecting a transferee entity, and investing funds in con-
nection with the distribution.
The DOL consulted with the PBGC during the PBGC’s develop-
ment of its Missing Participants Program. As noted in the pre-
amble to the final rule adopting the Missing Participants Program,
the DOL may revise its fiduciary safe harbor regulation so that
transfers to the PBGC by terminating individual account plans
would be eligible for relief under the safe harbor.
293 Pub. L. No. 109–280, August 17, 2006.
294 The Missing Participants program for Defined Contribution plans covers common types of
defined contribution pension plans; specifically section 401(k) plans, profit sharing plans, money
purchase plans, target benefit plans, employee stock ownership plans, stock bonus plans, and
section 403(b)(7) plans subject to Title I of ERISA. Some examples of plans not covered are gov-
ernmental plans, church plans, and plans that cannot pay benefits to the PBGC in cash. See
29 C.F.R. sec. 4050.201.
295 29 C.F.R. sec. 4050.201–207.1.
296 29 C.F.R. sec. 2550.404a–3.
297 297 Sec. 3(34) of ERISA.
298 298 As described in 29 C.F.R. sec. 2578.1.
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On January 12, 2021, the DOL issued Field Assistance Bulletin
2021–01 299 in which it announced that pending further guidance,
the DOL will not pursue fiduciary violations against either respon-
sible plan fiduciaries of terminating defined contribution plans or
QTAs of abandoned plans 300 in connection with the transfer of a
missing or non-responsive participant’s or beneficiary’s account bal-
ance to the PBGC in accordance with the PBGC’s missing partici-
pant regulations (rather than to an IRA, certain bank accounts, or
to a state unclaimed property fund),301 if the plan fiduciary or QTA
complies with the guidance in the Bulletin and has acted in accord-
ance with a good faith, reasonable interpretation of the fiduciary
rules under ERISA 302 with respect to matters not specifically ad-
dressed in the guidance.
Mandatory rollovers
If a qualified retirement plan participant ceases to be employed
by the employer that maintains the plan, the plan may distribute
the participant’s nonforfeitable accrued benefit without the consent
of the participant and, if applicable, the participant’s spouse, if the
present value of the benefit does not exceed $5,000. If such an in-
voluntary distribution occurs and the participant subsequently re-
turns to employment covered by the plan, then service taken into
account in computing benefits payable under the plan after the re-
turn need not include service with respect to which a benefit was
involuntarily distributed unless the employee repays the benefit.
Generally, a participant may roll over an involuntary distribu-
tion from a qualified plan to an IRA or to another qualified plan.
Before making a distribution that is eligible for rollover, a plan ad-
ministrator must provide the participant with a written expla-
nation of the ability to have the distribution rolled over directly to
an IRA or another qualified plan and the related tax consequences.
A direct rollover is the default option for involuntary distribu-
tions that exceed $1,000 and that are eligible rollover distributions
from qualified retirement plans. The distribution must be rolled
over automatically to a designated IRA, unless the participant af-
firmatively elects to have the distribution transferred to a different
IRA or a qualified plan or to receive it directly. The written expla-
nation provided by the plan administrator is required to explain
that an automatic direct rollover will be made unless the partici-
pant elects otherwise. The plan administrator is also required to
notify the participant in writing (as part of the general written ex-
planation or separately) that the distribution may be transferred
without cost to another IRA.
Under the fiduciary rules of ERISA, in the case of an automatic
direct rollover, the participant is treated as exercising control over
the assets in the IRA upon the earlier of: (1) the rollover of any
portion of the assets to another IRA, or (2) one year after the auto-
matic rollover.
299 Field Assistance Bulletin 2021–01 can be found at: https://www.dol.gov/agencies/ebsa/em-
ployers-and-advisers/guidance/field-assistance-bulletins/2021-01.
300 As described in 29 C.F.R. sec. 2578.1.
301 As specified in 29 C.F.R. sec. 2550.404a–3.
302 Sec. 404 of ERISA.
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Lost and Found
Under present law, there is not a ‘‘Lost and Found’’ database to
collect information on benefits owed to missing, lost or non-respon-
sive participants and beneficiaries in tax-qualified retirement plans
(other than terminated plans) and to assist such plan participants
and beneficiaries in locating those benefits.
REASONS FOR CHANGE
Every year, thousands of people approach retirement, but may be
unaware of, or are unable to locate and recover, benefits that they
have earned (frequently with employers from whom they have sep-
arated service) for a number of reasons, including because that em-
ployer moved, changed its name, or merged with a different com-
pany. Similarly, every year there are employers around the country
ready to pay these benefits to retirees, but they cannot locate those
individuals.
The Committee believes that the creation of a national, online,
lost and found dedicated to matching these individuals with their
benefits would facilitate the recovery of such benefits by these indi-
viduals.
EXPLANATION OF PROVISION
Establishment of the Lost and Found Under the provision, not
later than three years after the date of enactment, the Secretary
of Labor, the Secretary of the Treasury, and the Secretary of Com-
merce, in cooperation, will establish an online searchable database
to be managed by the PBGC,303 to be known as the Retirement
Savings Lost and Found (the ‘‘Lost and Found’’), containing infor-
mation on plans, subject to the vesting standards under ERISA,304
as well as certain additional information related to the location of
certain unclaimed vested benefits of missing, lost and non-respon-
sive participants and beneficiaries in such plans.305 The Lost and
Found database will contain information: (1) provided by plan ad-
ministrators that are required to periodically report to the Office
of the Lost or Found each plan year; 306 (2) provided by plan ad-
ministrators that transfer certain small benefits of non-responsive
participants and beneficiaries to the Lost and Found; and (3) other
relevant information obtained by the PBGC.
The collection of this information in the Lost and Found will
allow the PBGC to assist participants and beneficiaries by pro-
viding contact information 307 on record for the plan administrator
of any plan in which the participant or beneficiary may have an
unclaimed benefit sufficient to allow that participant or beneficiary
to locate the individual’s plan in order to recover any benefit owing
to that individual under the plan. With respect to those plans
which have transferred such benefits to the PBGC, the PBGC will
303 The Office of the Retirement Savings Lost and Found (the ‘‘Office of the Lost and Found’’)
will be established within the PBGC to maintain the Retirement Savings Lost and Found.
304 Sec. 203 of ERISA.
305 Tax-qualified defined benefit and defined contribution plans (as set forth in 29 C.F.R. sec.
4050.201) that are subject to the vesting standards contained in section 203 of ERISA.
306 In accordance with section 4051 of ERISA, as added by this provision. See also, discussion
of Annual Reporting Requirements below.
307 Such individuals will be provided only with the ability to view contact information for the
plan administrator of any plan with respect to which the individual is or was a participant or
beneficiary.
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also be able to pay those benefits to such participants and bene-
ficiaries. Because the PBGC would be provided additional and up-
dated information from plan administrators through reporting re-
quirements, the PBGC will also be able to make any necessary
changes to the database reflecting updates to contact information
on record for the plan administrator based on any changes to such
plans including those arising from mergers or consolidations of the
plan with any other plan, division of the plan into two or more
plans, bankruptcy, termination, change in name of the plan,
change in name or address of the plan administrator, transfers of
such accounts to IRAs, purchase of annuities, or other causes.
Safeguarding participant privacy and security
In establishing the Lost and Found, the PBGC, in consultation
with the Secretary of Labor, the Secretary of Treasury, and the
Secretary of Commerce must take all necessary and proper pre-
cautions to ensure that individuals’ plan information maintained
by the Lost and Found is protected and that persons other than the
individual cannot fraudulently claim the benefits to which any indi-
vidual is entitled, and to allow any individual to opt out of inclu-
sion in the Lost and Found at the election of the individual.
Establishment and responsibilities of the Office of the Retirement
Savings Lost and Found
Not later than two years after the date of the enactment of this
Act, the Secretary of Labor, the Secretary of Treasury, and the Sec-
retary of Commerce must establish, within the PBGC, an Office of
the Retirement Savings Lost and Found (‘‘Office of the Lost and
Found’’).
The ‘‘Office of the Lost and Found’’ will (1) maintain the Lost and
Found database; (2) facilitate the transfer of small benefits of non-
responsive participants and beneficiaries 308 to the Office of the
Lost and Found by (a) collecting information, applicable fees, and
benefits related to such individuals from the applicable plan; and
(b) investing such benefits; (3) searching for and paying out bene-
fits to those participants and beneficiaries for whom benefits have
been transferred to the Office of the Lost and Found; and (4) per-
forming an annual audit of plan information contained in the Lost
and Found and ensuring that such information is current and accu-
rate.
Required transfer of small benefits of certain non-responsive
participants by plans to the Office of the Lost and Found
Under the provision, the administrator of a plan that is not ter-
minated 309 must transfer a non-responsive participant’s 310 benefit
to the Office of the Lost and Found 311 if the nonforfeitable accrued
benefit 312 is no greater than $1,000.
308 In defined benefit and defined contribution plans subject to the vesting requirements of
section 203 of ERISA.
309 And to which section 401(a)(31)(B) of the Code applies.
310 For this provision, a non-responsive participant means a participant or beneficiary of a
plan who is entitled to a benefit subject to a mandatory transfer under section 401(a)(31)(B)(iii)
and for whom the plan has satisfied the conditions in section 401(a)(31)(B)(iv).
311 Under sec. 401(a)(31)(B) and sec. 4051(b) of ERISA.
312 Under sec. 401(a)(31)(B) and sec. 4051(b) of ERISA.
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119
Upon making a transfer to the Office of the Lost and Found of
small benefits of non-responsive participants, the plan adminis-
trator must provide such information and certifications as the Of-
fice of the Lost and Found specifies including with respect to the
transferred amount of the benefit and the identification of the non-
responsive participant. In the event that, after such a transfer, the
relevant non-responsive participant contacts the plan administrator
or the plan administrator discovers information that may assist the
Office of the Lost and Found in locating the non-responsive partici-
pant, the plan administrator must notify and provide such informa-
tion to the Office of the Lost and Found as such Office specifies.
A transfer of such benefits to the Office of the Lost and Found
under this provision will be treated as a transfer to an individual
retirement plan. Such benefits will be held in a new ninth fund 313
established for the payment of such benefits 314 which fund will
also be credited with earnings on investments in the fund or on as-
sets credited to the fund. Whenever the PBGC determines that the
moneys of any fund are in excess of current needs, it may request
the investment of such amounts as it determines advisable by the
Secretary in obligations issued or guaranteed by the United States.
Following a transfer of such benefits to the Office of the Lost and
Found, the Office of the Lost and Found will periodically, and upon
receiving information from the plan administrator as described
above, conduct a search for the non-responsive participant for
whom the Office of the Lost and Found has received a transfer.
Upon location of such a non-responsive participant who claims ben-
efits, the Office of the Lost and Found will pay the non-responsive
participant the amount transferred to it in a single sum (plus an
amount reflecting the return on the investment attributable to
such amount). The PBGC has the regulatory authority to prescribe
regulations as are necessary to carry out the transfer of small ben-
efits including rules relating to the amount payable to the Office
of the Lost and Found by the plan administrator and the amount
to be paid to the non-responsive participant or beneficiary by the
Office of the Lost and Found when that individual is located.
Annual reporting requirements
Under the provision, within such period after the end of each
plan year beginning after the second December 31 occurring after
the date of enactment, as the Office of the Lost and Found may
prescribe, the plan administrator of a plan to which the vesting
standards of ERISA apply 315 will submit the following information,
and such other information as the Office of the Lost and Found
may require: 316
• The name of the plan;
• The name and address of the plan administrator;
• Any change in the name of the plan;
• Any change in the name or address of the plan adminis-
trator;
313 For amounts transferred to the Lost and Found under section 4051(b)(1)(A).
314 Pursuant to section 4005(j) as set forth in this provision.
315 Sec. 203 of ERISA.
316 Because this reporting begins approximately two years after the date of enactment, unless
the Office of the Lost and Found prescribes otherwise, this information will only be provided
to the Office of the Lost and Found prospectively.
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• The name and taxpayer identifying number of each partici-
pant or former participant in the plan:
» Who, during the current plan year or any previous
plan year, was reported to IRS 317 as a separated partici-
pant with a deferred vested benefit that had not been paid
as of the end of the previous plan year, and with respect
to whom such benefit was fully paid during the plan year;
» With respect to whom any amount was distributed as
a mandatory distribution during the plan year; or
» With respect to whom a deferred annuity contract was
distributed during the plan year;
• The termination of the plan;
• The merger or consolidation of the plan with any other
plan or its division into two or more plans;
• In the case of a participant or former participant whose
benefit was distributed as a mandatory distribution during the
plan year, the name and address of the designated trustee or
issuer and the account number of the individual retirement
plan to which the amount was distributed; and
• In the case of a participant or former participant to whom
a deferred annuity contract was distributed during the plan
year, the name and address of the issuer of such annuity con-
tract and the contract or certificate number.
Guidance
The Office of the Lost and Found will prescribe such regulations
as are necessary to carry out the purposes of this provision, includ-
ing rules relating to the amount payable to the Office of the Lost
and Found and the amount to be paid by the Office of the Lost and
Found.
Option to contract
Not later than two years after the date of enactment, the PBGC
must conduct an analysis of the cost effectiveness of contracting
with a third party to carry out the responsibilities of the Office of
the Lost and Found. If the PBGC determines that it would be more
cost effective to do so than to carry out such responsibilities within
the Office of the Lost and Found, the PBGC may enter into such
contracts as merited by the analysis. The PBGC must report on the
results of its analysis 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 Rep-
resentatives.
Authorization of appropriations
There are authorized to be appropriated such sums as may be
necessary to carry out the purposes of the Lost and Found.
317 Under sec. 6057.
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121
Mandatory transfers of rollover distributions and coordination with
distribution requirements
Investment options
The provision amends ERISA 318 to provide that in the case of a
pension plan which makes a transfer to an IRA under the manda-
tory distribution rules under the Code,319 the Secretary of Labor
may provide, in guidance or regulations issued after the enactment
of this provision, that such transfer may be made to:
• A target date or life cycle fund held under such account;
• An investment product held under such account designed
to preserve principal and provide a reasonable rate of re-
turn; 320
• The Office of the Lost and Found in accordance with the
mandatory distribution rules in the Code 321 and the rules in
this provision for the transfer of certain benefits to the Office
of the Lost and Found; or
• Such other option as the Secretary of Labor may so pro-
vide.
Not later than 270 days after the date of enactment, the Sec-
retary of Labor must promulgate regulations identifying the target
date or life cycle funds, or specifying the characteristics of such a
fund, that will be deemed to meet the applicable requirements of
ERISA.322
Expansion of cap
The provision increases the cap on mandatory distributions from
$5,000 to $6,000.323
Distribution of larger amounts only to IRAs, not to the Office
of the Lost and Found
Under the provision, the Office of the Lost and Found is not
treated as a trustee eligible to receive mandatory distributions 324
that are in excess of $1,000 but not in excess of $6,000. In other
words, the PBGC may only accept transfers of nonforfeitable ac-
crued benefits in the amount of $1,000 or less.
Mandatory distributions of lesser amounts for non-responsive
individuals to the Office of the Lost and Found
Under the provision, in the case of a plan that provides for man-
datory distributions of amounts of $6,000 or less, the trust of such
plan will not be considered a qualified trust under the Code unless
the plan provides that, if a participant in the plan separates from
the service covered by the plan and the participant’s nonforfeitable
accrued benefit is not in excess of $1,000, the plan administrator
must (either separately or as part of the written notice to recipients
of distributions eligible for rollover treatment) either (1) notify the
participant that the participant is entitled to such benefit, or (2) at-
tempt to pay the benefit directly to the participant.
318 Sec. 404(c)(3) of ERISA.
319 Sec. 401(a)(31)(B).
320 As described in 29 C.F.R. sec. 2550.404a–2.
321 Sec. 401(a)(31)(B)(iv).
322 Sec. 404(c)(3)(B) of ERISA.
323 Under section 401(a)(31)(B)(ii)(I) and section 203(e)(1) of ERISA.
324 Sec. 401(a)(31)(B).
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122
If, after a plan administrator either notifies the participant of the
entitlement to the benefit or attempts to pay the benefit directly
to the participant, the participant does not:
• Within 6 months of the notification either make an elec-
tion to have the distribution paid directly to a specified eligible
retirement plan 325 or elect to receive a distribution of the ben-
efit directly, or
• Accept any direct payment made within 6 months of the
attempted payment (in other words, does not cash the check),
• then the plan administrator must transfer the amount of
such benefit to the Office of the Lost and Found.326
A transfer of such a distribution to the Office of the Lost and
Found is treated as a transfer to an individual retirement plan,
and the distribution of such amounts by the Office of the Lost and
Found to a non-responsive participant who is subsequently located
will be treated as a distribution from an individual retirement ac-
count.
Reporting for mandatory transfers
The provision modifies the reporting requirements by plan ad-
ministrators with respect to plans that are subject to the vesting
standards of section 203 of ERISA, which include tax qualified de-
fined benefit and defined contribution plans, as follows:
• By providing that plan administrators must report 327 the
name and taxpayer identification number of each participant
in the plan who, during the plan year immediately preceding
such plan year separated from the service covered by the plan.
• By requiring that the following information must also be
included:
» The name and taxpayer identifying number of each
participant or former participant in the plan:
➢ Who, during the current plan year or any pre-
vious plan year, was reported to IRS 328 as a separated
participant with a deferred vested benefit that had not
been paid as of the end of the previous plan year, and
with respect to whom such benefit was fully paid dur-
ing the plan year;
➢ With respect to whom any amount was distrib-
uted as a mandatory distribution during the plan year;
or
➢ With respect to whom a deferred annuity con-
tract was distributed during the plan year;
• In the case of a participant or former participant whose
benefit was distributed as a mandatory distribution during the
plan year, the name and address of the designated trustee or
issuer and the account number of the individual retirement
plan to which the amount was distributed; and
• In the case of a participant or former participant to whom
a deferred annuity contract was distributed during the plan
325 Sec. 402(c)(8)(B), except that a qualified trust is considered an eligible retirement plan only
if it is a defined contribution plan that accepts rollovers.
326 In accordance with section 4051(b) of ERISA.
327 Pursuant to sec. 6057.
328 Under sec. 6057.
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year, the name and address of the issuer of such annuity con-
tract and the contract or certificate number.
Rules relating to direct trustee-to-trustee transfers
Under the provision, additional reporting is required with respect
to direct trustee-to-trustee transfers as follows:
• Notification of the Trustee: In the case of a mandatory dis-
tribution under the Code,329 the plan administrator must no-
tify the designated trustee of the account or issuer, or the plan
administrator will be subject to a penalty equal to $100 for
each such failure, up to a maximum for all such failures during
any calendar year not to exceed $50,000, unless it is shown
that the failure was due to reasonable cause and not to willful
neglect.330
• The reports required to be made to the Secretary by the
trustee of an IRA or the issuer of an endowment contract 331
are modified to require, in the case of an IRA account, endow-
ment contract or IRA annuity to which a mandatory trans-
fer 332 is made (including a transfer from the individual retire-
ment plan to which the original transfer was made to another
individual retirement plan), for the year of the transfer and
any year in which the information previously reported changes
that such report:
1. Identify the transfer as a required mandatory dis-
tribution;
2. Include the name, address, and taxpayer identifying
number of the trustee or issuer of the individual retire-
ment plan to which the amount is transferred; and
3. Be filed with the PBGC as well as with the Secretary.
There is also a similar rule for Savings Incentive Match Plan for
Employees (‘‘SIMPLE’’) plans where the benefit is transferred from
a SIMPLE plan to another individual retirement plan. The report
required for the year of the transfer and any year in which the in-
formation previously reported is changed must: (1) identify the
transfer as a required mandatory distribution; (2) include the
name, address, and taxpayer identifying number of the trustee or
issuer of the individual retirement plan to which the amount is
transferred; and (3) be filed with the PBGC as well as with the
Secretary.
Notification of participant upon separation of service
The individual registration statement that needs to be provided
to each separated participant 333 by the plan administrator must
include a notice of availability of, and the contact information for,
the Office of the Lost and Found.
Requirement of electronic filing
Under the provision, reports required with respect to separated
participants from retirement plans,334 information required with
329 Pursuant to section 401(a)(31)(B).
330 Sec. 6652(i) of the Code.
331 Sec. 408(i).
332 Under section 401(a)(31)(B.
333 Pursuant to section 6057(e).
334 Sec. 6057.
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124
respect to certain plans of deferred compensation,335 and periodic
reports of actuaries,336 as well as certain reports with respect to
IRAs, (including endowment contracts),337 information returns at
source,338 and information reports relating to certain trust and an-
nuity plans,339 (to the extent each such return or report relates to
the tax treatment of a distribution from a plan, account, contract,
or annuity) must be filed on magnetic media, but only with respect
to persons who are required to file at least 50 returns during the
calendar year which includes the first day of the plan year to which
such returns or reports relate.
Fiduciary duties under the Code and ERISA
Under the provision, not later than one year after the date of en-
actment, the Secretary of Labor, in consultation with the Secretary
of the Treasury, must issue a request for information (with a final
rule to be issued not later than three years after such date) with
respect to the following:
1. The steps a plan sponsor must take to locate a deferred
vested participant in order to meet its fiduciary duty under
ERISA with respect to locating that participant; and
2. The ongoing practices and procedures a plan sponsor must
institute in order to meet such fiduciary duty with respect to
maintaining up-to-date contact information on deferred vested
participants.
EFFECTIVE DATE
The effective date of the provision is generally on the date of en-
actment.
The provisions related to the transfer of small benefits to the Of-
fice of the Lost and Found for certain non-responsive participants
and the submission of information by plan administrators to the
Office of the Lost and Found are effective with respect to plan
years beginning after the second December 31 occurring after the
date of the enactment.
The provisions related to changes to the mandatory distribution
rules are applicable to vested benefits with respect to participants
who separate from service connected to the plan in plan years be-
ginning after the second December 31 occurring after the date of
enactment.
The provisions related to modified reporting requirements under
the Code and to filing certain reports electronically are applicable
to returns and reports relating to years beginning after the second
December 31 occurring after the date of enactment.
335 Sec. 6058.
336 Sec. 6059.
337 Pursuant to section 408(i).
338 Sec. 6047.
339 Sec. 6041.
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125
7. EXPANSION OF EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM (SEC. 307 OF THE BILL)
PRESENT LAW
Employee Plans Compliance Resolution System 340
General description of the Employee Plans Compliance Resolu-
tion System that this provision modifies may be found in section
I.13 of this document.
The current EPCRS program does not provide corrections for in-
dividual IRAs although it does provide for certain corrections for
SIMPLE plans and SEPs. SCP and VCP 341 are available to a SEP
or SIMPLE plan.342 SCP is only available to such a plan to correct
insignificant operational failures,343 and only if the SEP or SIM-
PLE plan is established and maintained on a document approved
by the IRS.
Loans
EPCRS is available for plan loans that do not comply with one
or more Code requirements (for example, the amount of the loan
must not exceed the lesser of 50 percent of the participant’s ac-
count balance or $50,000 344 (generally taking into account out-
standing balances of previous loans); the terms of the loan must
provide for a repayment period of not more than five years 345 and
provide for level amortization of loan payments (with payments not
less frequently than quarterly); and the terms of the loan must be
legally enforceable) and such errors are corrected through VCP or
Audit CAP.
Unless correction is made, a deemed distribution 346 in connec-
tion with a failure relating to a loan to a participant made from
a plan must be reported 347 with respect to the affected participant
and any applicable income tax withholding amount that was re-
quired to be paid in connection with the failure must be paid by
the employer. As part of VCP and Audit CAP, the deemed distribu-
tion may be reported with respect to the affected participant for the
year of correction (instead of the year of the failure) if the plan
sponsor requests such reporting relief. Where certain requirements
in EPCRS are met, no reporting may be required but this relief ap-
plies only if the plan sponsor requests the relief and provides an
explanation supporting the request.
340 See sec. 72(p)(2).
341 Sec. 6.11 of Rev. Proc. 2019–9.
342 Secs. 1.01 and 1.02 of Rev. Proc. 2019–19. A SEP is a plan intended to satisfy the require-
ments of Code section 408(k); a SIMPLE plan is a plan intended to satisfy the requirements
of Code section 408(p).Secs. 5.06 and 5.07 of Rev. Proc. 2019–19.
343 Sec. 4.01(c) of Rev. Proc. 2019–19.
344 There are certain exceptions to these rules for loans, for example, individuals eligible to
receive a coronavirus-related distribution under section 2202 of the Coronavirus Aid, Relief, and
Economic Security Act, Pub. L. No. 116–136, March 27, 2020, may take a loan during a specified
period of time equal to the lesser of the present value of the nonforfeitable accrued benefit of
the employee under the plan or $100,000 and certain other rules apply to such loans. Special
rules for loans also apply for certain individuals impacted by specified disasters, see, e.g., section
302 of Div. EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116–260, December
27, 2020.
345 Loans specifically for home purchases may be repaid over a longer period.
346 Under sec. 72(p)(1).
347 On IRS Form 1099–R.
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126
Voluntary Fiduciary Correction Program
The DOL also has a correction program entitled the Voluntary
Fiduciary Correction Program (‘‘VFCP’’) 348 under the Employee Re-
tirement Income Security Act (‘‘ERISA’’) 349 designed to encourage
the voluntary correction of fiduciary violations under Title I of
ERISA. VFCP also provides for the correction of certain participant
loan failures including situations where participant loans exceed
the Code section 72(p) limitations on amount or duration.
REASONS FOR CHANGE
The Committee believes that because of the ever growing com-
plexity of retirement plan administration, EPCRS needs to be ex-
panded to (1) allow more types of inadvertent errors to be corrected
through self-correction, rather than requiring the time and expense
of submitting such corrections to the IRS through VCP; (2) apply
to certain inadvertent IRA errors; and (3) direct the Secretary to
provide additional safe harbors to correct certain eligible individual
failures.
EXPLANATION OF PROVISION
In general
Under the provision, except as otherwise set forth in the Code or
regulations prescribed by the Secretary (or the Secretary’s dele-
gate), any eligible inadvertent failure to comply with the rules ap-
plicable to certain tax-qualified retirement plans 350 may be self-
corrected under EPCRS,351 except to the extent that such failure
was identified by the Secretary prior to any actions which dem-
onstrate a commitment by the plan to implement a self-correction.
As of the date of the enactment of this Act, EPCRS is deemed
amended to provide that the correction period 352 for an eligible in-
advertent failure, except as otherwise provided under the Code or
in regulations prescribed by the Secretary, is indefinite and has no
last day (other than with respect to failures identified by the Sec-
retary prior to any self-correction by the plan as noted above).
Loan errors
Under this provision, in the case of an eligible inadvertent plan
loan error:
• Such failure may be self-corrected according to the rules of
EPCRS,353 including the provisions related to whether a
deemed distribution must be reported on Form 1099–R, (rather
than being corrected in VCP or Audit CAP); and
• the Secretary of Labor must treat such correction as meet-
ing the requirements of VFCP if, with respect to the violation
of the fiduciary standards of ERISA, there is a similar loan
error eligible for correction under EPCRS and the loan error is
corrected in such manner.
348 71 Fed. Reg. 20261, April 19, 2006.
349 Pub. L. No. 93–406, Sept. 2, 1974.
350 Under sections 401(a), 403(a), 403(b), 408(p), or 408(k).
351 For purposes of this provision, references to corrections under EPCRS refers those de-
scribed under Rev. Proc. 2019–19 or any successor guidance.
352 Under sec. 9.02 of Rev. Proc. 2019–19 or any successor guidance.
353 According to the rules of section 6.07 of Rev. Proc. 2019–19 (or any successor guidance).
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127
IRAs
The provision also directs the Secretary to expand EPCRS to
allow custodians of IRAs 354 to address eligible inadvertent failures
with respect to an IRA, including, but not limited to:
1. Waivers of the excise tax 355 that would otherwise apply
to certain accumulations in an IRA where the amount distrib-
uted during a taxable year of a participant or beneficiary is
less than the minimum required distribution for such taxable
year;
2. Under the self-correction component of EPCRS, waivers of
the 60-day deadline for a rollover where the deadline is missed
for reasons beyond the reasonable control of the account owner;
and
3. Rules permitting a nonspouse beneficiary to return dis-
tributions to an inherited individual IRA 356 where, due to an
inadvertent error by a service provider, the beneficiary had
reason to believe that the distribution could be rolled over
without inclusion in income of any part of the distributed
amount.
Additional safe harbors
The Secretary is directed to expand EPCRS to provide additional
safe harbor means of correcting eligible inadvertent failures includ-
ing safe harbor means of calculating the earnings which must be
restored to a plan in cases where plan assets have been depleted
by reason of an eligible inadvertent failure.
Definition of eligible inadvertent failure
An eligible inadvertent failure means a failure that occurs de-
spite the existence of practices and procedures which either (1) sat-
isfy the standards set forth in EPCRS; 357 or (2) satisfy similar
standards in the case of an individual retirement plan. However,
an eligible inadvertent failure does not include any failure which
is egregious, relates to the diversion or misuse of plan assets, or
is directly or indirectly related to an abusive tax avoidance trans-
action.
This provision does not apply to any such failure unless the cor-
rection is made in conformity with the general principles that apply
to corrections of such failures under the Code, including regula-
tions, or other guidance issued thereunder and including those
principles and corrections set forth in EPCRS.
EFFECTIVE DATE
The provision is effective on the date of enactment.
354 As defined in section 7701(a)(37).
355 Sec. 4974.
356 As described in section 408(d)(3)(C).
357 Sec. 4.04 of Rev. Proc. 2019–19 (or any successor guidance). Section 4.04 provides that the
plan sponsor or plan administrator has established practices and procedures in place which are
reasonably designed to promote and facilitate overall compliance in form and operation with ap-
plicable Code provisions and such practices and procedures have been in place and are routinely
followed.
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8. ELIMINATE THE ‘‘FIRST DAY OF THE MONTH’’ REQUIREMENT FOR
GOVERNMENTAL SECTION 457(b) PLANS (SEC. 308 OF THE BILL
AND SEC. 457(b) OF THE CODE)
PRESENT LAW
Section 457(b) plans
Among the various types of tax-favored retirement plans under
present law are eligible deferred compensation plans under section
457(b). A section 457(b) plan is a plan maintained by a State or
local government or a tax-exempt organization that meets certain
requirements. Generally, the maximum amount that can be de-
ferred under a section 457(b) plan by an individual during any tax-
able year is limited to the lesser of 100 percent of the participant’s
includible compensation or the applicable dollar amount for the
taxable year. The applicable dollar amount for 2021 is $19,500 and
is indexed for future taxable years. For an employee who attains
age 50 by the end of the year, the dollar limit on deferrals is in-
creased by $6,500 (for 2021) 358 (called catch-up contributions).359 A
participant’s includible compensation means the compensation of
the participant from the eligible employer for the taxable year.
One of the requirements to be an eligible deferred compensation
plan under section 457(b) is that a participant’s compensation is
deferred for any calendar month only if an agreement providing for
such deferral has been entered into before the beginning of such
month.360
REASONS FOR CHANGE
Under present law, participants in a governmental section 457(b)
plan must request changes in their contribution deferral rate to the
plan prior to the beginning of the month in which the deferral is
made. This rule is inconsistent with the rule that applies to other
defined contribution plans.
The Committee believes that such elections should be permitted
to be made at any time prior to the date that the compensation
being deferred is made available to the participant.
EXPLANATION OF PROVISION
The provision provides that compensation is deferred under a
governmental section 457(b) plan only if an agreement providing
for such deferral has been entered into before the compensation is
currently available to the individual, consistent with the rule for
section 401(k) and 403(b) plans. In the case of a section 457(b) plan
maintained by a tax-exempt organization, the provision provides
that compensation is deferred under the plan for a calendar month
only if an agreement providing for such deferral has been entered
into before the beginning of such month.
EFFECTIVE DATE
The provision applies to taxable years beginning after the date
of enactment.
358 For 2020 and 2021, this amount is $6,500.
359 Sec. 414(v).
360 Sec. 457(b)(4).
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9. ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION
TO SPLIT-INTEREST ENTITY; INCREASE IN QUALIFIED CHARITABLE
DISTRIBUTION LIMITATION (SEC. 309 OF THE BILL AND SEC.
408(d)(8) OF THE CODE)
PRESENT LAW
In general
If an amount withdrawn from a traditional individual retirement
arrangement (‘‘IRA’’) or a Roth IRA is donated to a charitable orga-
nization, the rules relating to the tax treatment of withdrawals
from IRAs apply to the amount withdrawn and the charitable con-
tribution is subject to the normally applicable limitations on de-
ductibility of such contributions. An exception applies in the case
of a qualified charitable distribution.
Charitable contributions
In computing taxable income, an individual taxpayer who
itemizes deductions generally is allowed to deduct the amount of
cash and up to the fair market value of property contributed to the
following entities: (1) a charity described in section 170(c)(2); (2)
certain veterans’ organizations, fraternal societies, and cemetery
companies; 361 and (3) a Federal, State, or local governmental enti-
ty, but only if the contribution is made for exclusively public pur-
poses.362 The deduction also is allowed for purposes of calculating
alternative minimum taxable income.
The amount of the deduction allowable for a taxable year with
respect to a charitable contribution of property may be reduced de-
pending on the type of property contributed, the type of charitable
organization to which the property is contributed, and the income
of the taxpayer.363
A taxpayer who takes the standard deduction (i.e., who does not
itemize deductions) generally may not take a separate deduction
for charitable contributions.364 Under a temporary provision in ef-
fect for contributions made in any taxable year beginning in 2021,
however, a taxpayer who does not itemize deductions is permitted
to take a deduction for contributions of cash to a public charity
(other than a donor advised fund or a supporting organization) not
to exceed $300 ($600 in the case of a joint return).365
A payment to a charity (regardless of whether it is termed a
‘‘contribution’’) in exchange for which the donor receives an eco-
nomic benefit is not deductible, except to the extent that the donor
can demonstrate, among other things, that the payment exceeds
the fair market value of the benefit received from the charity. To
facilitate distinguishing charitable contributions from purchases of
goods or services from charities, present law provides that no chari-
table contribution deduction is allowed for a separate contribution
of $250 or more unless the donor obtains a contemporaneous writ-
ten acknowledgement of the contribution from the charity indi-
cating whether the charity provided any good or service (and an es-
timate of the value of any such good or service provided) to the tax-
361 Secs. 170(c)(3)–(5).
362 Sec. 170(c)(1).
363 Secs. 170(b) and (e).
364 Sec. 170(a).
365 Secs. 63(b)(4) and 170(p).
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130
payer in consideration for the contribution.366 In addition, present
law requires that any charity that receives a contribution exceeding
$75 made partly as a gift and partly as consideration for goods or
services furnished by the charity (a ‘‘quid pro quo’’ contribution) is
required to inform the contributor in writing of an estimate of the
value of the goods or services furnished by the charity and that
only the portion exceeding the value of the goods or services may
be deductible as a charitable contribution.367
Under present law, total deductible contributions of an individual
taxpayer to public charities, private operating foundations, and cer-
tain types of private nonoperating foundations generally may not
exceed 50 percent of the taxpayer’s contribution base, which is the
taxpayer’s adjusted gross income for a taxable year (disregarding
any net operating loss carryback). To the extent a taxpayer has not
exceeded the 50-percent limitation, (1) contributions of capital gain
property to public charities generally may be deducted up to 30
percent of the taxpayer’s contribution base, (2) contributions of
cash to most private nonoperating foundations and certain other
charitable organizations generally may be deducted up to 30 per-
cent of the taxpayer’s contribution base, and (3) contributions of
capital gain property to private foundations and certain other char-
itable organizations generally may be deducted up to 20 percent of
the taxpayer’s contribution base. For taxable years beginning after
December 31, 2017, and before January 1, 2026, the 50-percent
limit is increased to 60 percent for contributions of cash.368
Contributions by individuals in excess of the applicable limits
generally may be carried over and deducted over the next five tax-
able years, subject to the relevant percentage limitations on the de-
duction in each of those years.
In general, a charitable deduction is not allowed for income, es-
tate, or gift tax purposes if the donor transfers an interest in prop-
erty to a charity (e.g., a remainder) while also either retaining an
interest in that property (e.g., an income interest) or transferring
an interest in that property to a noncharity for less than full and
adequate consideration.369 Exceptions to this general rule are pro-
vided for, among other interests, remainder interests in charitable
remainder trusts (discussed below), pooled income funds, and
present interests in the form of a guaranteed annuity or a fixed
percentage of the annual value of the property.370 For such inter-
ests, a charitable deduction is allowed to the extent of the present
value of the interest designated for a charitable organization.
Charitable remainder trusts and charitable gift annuities
Both charitable remainder trusts and charitable gift annuities
are arrangements under which a taxpayer contributes assets to
charity (directly or through a trust) but retains an interest. As part
of these arrangements, a stream of payments is guaranteed to one
or more noncharitable beneficiaries (possibly including the tax-
366 Sec. 170(f)(8). For any contribution of a cash, check, or other monetary gift, no deduction
is allowed unless the donor maintains as a record of such contribution a bank record or written
communication from the donee charity showing the name of the donee organization, the date
of the contribution, and the amount of the contribution. Sec. 170(f)(17).
367 Sec. 6115.
368 Sec. 170(b)(1)(G).
369 Secs. 170(f), 2055(e)(2), and 2522(c)(2).
370 Sec. 170(f)(2).
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131
payer) over a period of time, with the remaining interest passing
to charity. The taxpayer claims a charitable deduction for the por-
tion of the transfer attributable to the charitable interest.
Charitable remainder trusts
A charitable remainder annuity trust is a trust that is required
to pay, at least annually, a fixed dollar amount of at least five per-
cent of the initial value of the trust to a noncharity for the life of
an individual or for a period of 20 years or less, with the remainder
passing to charity. A charitable remainder unitrust is a trust that
generally is required to pay, at least annually, a fixed percentage
of at least five percent of the fair market value of the trust’s assets
determined at least annually to a noncharity for the life of an indi-
vidual or for a period of 20 years or less, with the remainder pass-
ing to charity.371
A trust does not qualify as a charitable remainder annuity trust
if the annuity for a year is greater than 50 percent of the initial
fair market value of the trust’s assets. A trust does not qualify as
a charitable remainder unitrust if the percentage of assets that are
required to be distributed at least annually is less than five percent
or greater than 50 percent. A trust does not qualify as a charitable
remainder annuity trust or a charitable remainder unitrust unless
the value of the remainder interest in the trust is at least 10 per-
cent of the value of the assets contributed to the trust.
Distributions from a charitable remainder annuity trust or chari-
table remainder unitrust are treated in the following order as: (1)
ordinary income to the extent of the trust’s current and previously
undistributed ordinary income for the trust’s year in which the dis-
tribution occurred, (2) capital gains to the extent of the trust’s cur-
rent capital gain and previously undistributed capital gain for the
trust’s year in which the distribution occurred, (3) other income
(e.g., tax-exempt income) to the extent of the trust’s current and
previously undistributed other income for the trust’s year in which
the distribution occurred, and (4) corpus.372
In general, distributions to the extent they are characterized as
income are includible in the income of the beneficiary for the year
that the annuity or unitrust amount is required to be distributed
even though the annuity or unitrust amount is not distributed
until after the close of the trust’s taxable year.373
Charitable gift annuities
A charitable gift annuity is similar in concept to a charitable re-
mainder annuity trust, except that, under a contract between the
taxpayer and a charity, the assets are transferred to the charity
(not to a separate trust) in exchange for the charity’s promise to
make fixed annuity payments for life to the donor or to the donor
and one other person.
371 Sec. 664(d). Charitable remainder annuity trusts and charitable remainder unitrusts are
exempt from Federal income tax for a tax year unless the trust has any unrelated business tax-
able income for the year (including certain debt financed income). A charitable remainder trust
that loses its exemption from income tax for a taxable year is taxed as a complex trust. As such,
the trust is allowed a deduction in computing taxable income for amounts required to be distrib-
uted in a taxable year, not to exceed the amount of the trust’s distributable net income for the
year. Taxes imposed on the trust are required to be allocated to corpus. Treas. Reg. sec. 1.664–
1(d)(2).
372 Sec. 664(b).
373 Treas. Reg. sec. 1.664–1(d)(4).
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Charitable gift annuities are not treated as commercial-type in-
surance for purposes of section 501(m), under which an organiza-
tion is not described in section 501(c)(3) if a substantial part of its
activities consists of providing commercial-type insurance.374
IRA rules
Within limits, individuals may make deductible and nondeduct-
ible contributions to a traditional IRA. Amounts in a traditional
IRA are includible in income when withdrawn (except to the extent
the withdrawal represents a return of nondeductible contributions).
Certain individuals also may make nondeductible contributions to
a Roth IRA (deductible contributions cannot be made to Roth
IRAs). Qualified withdrawals from a Roth IRA are excludable from
gross income. Withdrawals from a Roth IRA that are not qualified
withdrawals are includible in gross income to the extent attrib-
utable to earnings. Includible amounts withdrawn from a tradi-
tional IRA or a Roth IRA before attainment of age 591⁄2 are subject
to an additional 10-percent early withdrawal tax unless an excep-
tion applies. Under present law, minimum distributions are re-
quired to be made from tax-favored retirement arrangements, in-
cluding IRAs. Minimum required distributions from a traditional
IRA must generally begin by April 1 of the calendar year following
the year in which the IRA owner attains age 72.375
If an individual has made nondeductible contributions to a tradi-
tional IRA, a portion of each distribution from an IRA is non-
taxable until the total amount of nondeductible contributions has
been received. In general, the amount of a distribution that is non-
taxable is determined by multiplying the amount of the distribu-
tion by the ratio of the remaining nondeductible contributions to
the account balance. In making the calculation, all traditional IRAs
of an individual are treated as a single IRA, all distributions dur-
ing any taxable year are treated as a single distribution, and the
value of the contract, income on the contract, and investment in
the contract are computed as of the close of the calendar year.
In the case of a distribution from a Roth IRA that is not a quali-
fied distribution, in determining the portion of the distribution at-
tributable to earnings, contributions and distributions are deemed
to be distributed in the following order: (1) regular Roth IRA con-
tributions; (2) taxable conversion contributions; 376 (3) nontaxable
conversion contributions; and (4) earnings. In determining the
amount of taxable distributions from a Roth IRA, all Roth IRA dis-
tributions in the same taxable year are treated as a single distribu-
tion, all regular Roth IRA contributions for a year are treated as
a single contribution, and all conversion contributions during the
year are treated as a single contribution.
Distributions from an IRA (other than a Roth IRA) are generally
subject to withholding unless the individual elects not to have
withholding apply.377 Elections not to have withholding apply are
to be made in the time and manner prescribed by the Secretary.
374 Sec. 501(m)(3)(E) and (5).
375 Minimum distribution rules also apply in the case of distributions after the death of a tra-
ditional or Roth IRA owner.
376 Conversion contributions refer to conversions of amounts in a traditional IRA to a Roth
IRA.
377 Sec. 3405.
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Qualified charitable distributions
Otherwise taxable IRA distributions from a traditional or Roth
IRA are excluded from gross income to the extent they are qualified
charitable distributions.378 The exclusion may not exceed $100,000
per taxpayer per taxable year.
An individual who receives a deduction for a contribution to a
traditional IRA for years ending on or after age 701⁄2 is not eligible
to exclude such amount from income as a qualified charitable dis-
tribution. Thus, the amount of qualified charitable distributions
otherwise excludable from an individual’s gross income for a tax-
able year is reduced (but not below zero) by the excess of (i) the
aggregate amount of deductions allowed to the taxpayer for con-
tributions to a traditional IRA for taxable years ending on or after
the individual attains age 701⁄2, over (ii) the aggregate amount of
reductions for all taxable years preceding the current year.
Special rules apply in determining the amount of an IRA dis-
tribution that is otherwise taxable. The otherwise applicable rules
regarding taxation of IRA distributions and the deduction of chari-
table contributions continue to apply to distributions from an IRA
that are not qualified charitable distributions. A qualified chari-
table distribution is taken into account for purposes of the min-
imum distribution rules applicable to traditional IRAs to the same
extent the distribution would have been taken into account under
such rules had the distribution not been directly distributed under
the qualified charitable distribution provision. An IRA does not fail
to qualify as an IRA as a result of qualified charitable distributions
being made from the IRA.
A qualified charitable distribution is any distribution from an
IRA directly by the IRA trustee to an organization described in sec-
tion 170(b)(1)(A) (generally, public charities) other than a sup-
porting organization (as described in section 509(a)(3)) or a donor
advised fund (as defined in section 4966(d)(2)). Distributions are el-
igible for the exclusion only if made on or after the date the IRA
owner attains age 701⁄2 and only to the extent the distribution
would be includible in gross income (without regard to this provi-
sion).
The exclusion applies only if a charitable contribution deduction
for the entire distribution otherwise would be allowable (under
present law), determined without regard to the generally applicable
percentage limitations. Thus, for example, if the deductible amount
is reduced because of a benefit received in exchange, or if a deduc-
tion is not allowable because the donor did not obtain sufficient
substantiation, the exclusion is not available with respect to any
part of the IRA distribution.
If the IRA owner has any IRA that includes nondeductible con-
tributions, a special rule applies in determining the portion of a
distribution that is includible in gross income (but for the qualified
charitable distribution provision) and thus is eligible for qualified
charitable distribution treatment. Under the special rule, the dis-
tribution is treated as consisting of income first, up to the aggre-
gate amount that would be includible in gross income (but for the
qualified charitable distribution provision) if the aggregate balance
378 Sec. 408(d)(8). The exclusion does not apply to distributions from employer-sponsored re-
tirement plans, including SIMPLE IRAs and simplified employee pensions (‘‘SEPs’’).
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of all IRAs having the same owner were distributed during the
same year. In determining the amount of subsequent IRA distribu-
tions includible in income, proper adjustments are to be made to
reflect the amount treated as a qualified charitable distribution
under the special rule.
Distributions that are excluded from gross income by reason of
the qualified charitable distribution provision are not taken into ac-
count in determining the deduction for charitable contributions
under section 170.
REASONS FOR CHANGE
The present-law qualified charitable distribution rules provide
senior citizens with flexibility in making gifts to charity by treating
certain charitable distributions from an IRA as required minimum
distributions while excluding these distributions from gross income.
The $100,000 annual exclusion limit, however, has not been in-
creased since the provision first went into effect in 2006. The Com-
mittee believes it is important to index the annual exclusion limit
for inflation to prevent future erosion of the qualified charitable
distribution tax benefit. In addition, the Committee wishes to build
on the success of the present-law rules by allowing additional flexi-
bility for seniors in the form of a one-time election to make quali-
fied charitable distributions to a split-interest entity, such as a
charitable gift annuity or a charitable remainder trust.
EXPLANATION OF PROVISION
First, the provision indexes the annual $100,000 exclusion limit
for inflation for taxable years beginning after 2021.
Second, the provision allows a taxpayer to elect for a taxable
year to treat certain distributions from an IRA to a split-interest
entity as if the contributions were made directly to a qualifying
charity for purposes of the exclusion from gross income for quali-
fied charitable distributions. Such an election may not have been
in effect for a preceding taxable year; thus, the election may be
made for only one taxable year during the taxpayer’s lifetime. The
aggregate amount of distributions of the taxpayer with respect to
the election may not exceed $50,000 (indexed for inflation for tax-
able years beginning after 2021).
A split-interest entity means: (1) a charitable remainder annuity
trust (as defined in section 664(d)(1)); (2) a charitable remainder
unitrust (as defined in section 664(d)(2)); or (3) a charitable gift an-
nuity (as defined in section 501(m)). In each case, the trust or ar-
rangement must be funded exclusively by qualified charitable dis-
tributions. In the case of a charitable gift annuity, fixed payments
of 5 percent or greater must commence not later than one year
from the date of funding.
In the case of a distribution from an IRA to a charitable remain-
der annuity trust or charitable remainder unitrust, the distribution
qualifies for the one-time election only if a charitable deduction for
the entire value of the charitable remainder interest would be al-
lowable under section 170 (determined without regard to this provi-
sion or the charitable deduction percentage limits under section
170(b)). In the case of a distribution to a charitable gift annuity,
the distribution qualifies for the one-time election only if a chari-
table deduction in an amount equal to the amount of the distribu-
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135
tion reduced by the value of the annuity 379 would be allowable
under section 170 (determined without regard to this provision or
the charitable deduction percentage limits under section 170(b)).
In addition, a distribution from an IRA to a split-interest entity
qualifies for the one-time election only if: (1) no person holds an in-
come interest in the split-interest entity other than the individual
for whose benefit such account is maintained, the spouse of such
individual, or both; and (2) the income interest in the split-interest
entity is nonassignable.
In the case of a charitable remainder annuity trust or a chari-
table remainder unitrust that is funded by qualified charitable dis-
tributions, distributions are treated as ordinary income in the
hands of a beneficiary to whom an annuity or unitrust payment is
made. A qualified charitable distribution made to fund a charitable
gift annuity is not treated as an investment in the contract for pur-
poses of section 72(c).
EFFECTIVE DATE
The provision is effective for distributions made in taxable years
ending after the date of enactment.
10. DISTRIBUTIONS TO FIREFIGHTERS (SEC. 310 OF THE BILL AND
SEC. 72(t) OF THE CODE)
PRESENT LAW
Distributions from tax-favored retirement plans A distribution
from a qualified retirement plan,380 a tax-sheltered annuity plan (a
‘‘section 403(b) plan’’), an eligible deferred compensation plan of a
State or local government employer (a ‘‘governmental section 457(b)
plan’’), or an IRA generally is included in income for the year dis-
tributed.381 These plans are referred to collectively as ‘‘eligible re-
tirement plans.’’ In addition, unless an exception applies, a dis-
tribution from a qualified retirement plan, a section 403(b) plan, or
an IRA received before age 591⁄2 is subject to a 10-percent addi-
tional tax (referred to as the ‘‘early withdrawal tax’’) on the amount
includible in income.382
Qualified public safety employees in governmental plans
An exception to the early withdrawal tax applies if a distribution
is made to an employee after separation from service after attain-
379 The annuity must be described in section 501(m)(5)(B), which provides that the annuity
is described in section 514(c)(5), determined as if the amount paid in cash for the issuance of
the annuity were property. Section 514(c)(5), in turn, describes when an obligation to pay an
annuity is not treated as ‘‘acquisition indebtedness’’ for purposes of the section 514 debt-financed
income rules. Under that section, the obligation to pay the annuity: (1) generally must be the
sole consideration issued in exchange for property if, at the time of the exchange, the value of
the annuity is less than 90 percent of the value of the property received in exchange; (2) is pay-
able over the life of one individual or the lives of two individuals in being at such time; and
(3) does not guarantee a minimum amount of payments or specify a maximum amount of pay-
ments and does not provide for any adjustment of the amount of the annuity payments by ref-
erence to the income received from the transferred property or any other property. Sec. 514(c)(5).
380 Qualified under section 401(a).
381 Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 3405, distributions from these
plans are generally subject to income tax withholding unless the recipient elects otherwise. In
addition, certain distributions from a qualified retirement plan, a section 403(b) plan, or a gov-
ernmental section 457(b) plan are subject to mandatory income tax withholding at a 20-percent
rate unless the distribution is rolled over.
382 Sec. 72(t). Under present law, the 10-percent early withdrawal tax does not apply to dis-
tributions from a governmental section 457(b) plan.
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ment of age 55.383 Under a special rule for distributions to quali-
fied public safety employees in a governmental plan,384 this excep-
tion applies to distributions made after separation from service
after attainment of age 50 (‘‘age 50 exception’’).385 For this purpose,
a qualified public safety employee means (1) any employee of a
State or a political subdivision of a State who provides police pro-
tection, firefighting services, or emergency medical services for any
area within the State or political subdivision’s jurisdiction; or (2)
any Federal law enforcement officer,386 any Federal customs and
border protection officer,387 any Federal firefighter,388 any Federal
employee who is an air traffic controller 389 or nuclear materials
courier,390 any member of the United States Capitol Police, any
member of the Supreme Court Police, or any diplomatic security
special agent of the Department of State.
REASONS FOR CHANGE
The Committee believes that private sector firefighters merit the
same treatment as public sector firefighters, and thus wishes to ex-
tend the age 50 exception to private sector firefighters.
EXPLANATION OF PROVISION
The provision amends the age 50 exception for qualified public
safety employees in governmental plans so that the exception also
applies to distributions from a qualified retirement plan or section
403(b) plan 391 to an employee who provides firefighting services.
Thus, the provision expands the age 50 exception to also apply to
private-sector firefighters receiving distributions from a qualified
retirement plan or section 403(b) plan.
EFFECTIVE DATE
The provision is effective for distributions made after December
31, 2021.
11. EXCLUSION OF CERTAIN DISABILITY-RELATED FIRST RESPONDER
RETIREMENT PAYMENTS (SEC. 311 OF THE BILL AND SEC. 139C OF
THE CODE)
PRESENT LAW
Qualified retirement plans (and other tax-favored employer-spon-
sored retirement plans) are accorded special tax treatment and fall
into two categories: defined benefit plans and defined contribution
plans. A defined contribution plan is a type of qualified retirement
plan whereby contributions, earnings, and losses are allocated to a
separate account for each participant. Defined contribution plans
may provide for nonelective contributions and matching contribu-
tions by employers and pre-tax (that is, contributions are either ex-
383 Sec. 72(t)(2)(A)(v).
384 As defined in section 414(d).
385 Sec. 72(t)(10).
386 As defined in 5 U.S.C. secs. 8331(20) or 8401(17).
387 As defined in 5 U.S.C. secs. 8331(31) or 8401(36).
388 As defined in 5 U.S.C. secs. 8331(21) or 8401(14).
389 As defined in 5 U.S.C. secs. 8331(30) or 8401(35).
390 As defined in 5 U.S.C. secs. 8331(27) or 8401(33).
391 The provision applies to a distribution from a qualified retirement plan, an annuity plan
described in section 403(a), or an annuity contract described in section 403(b). Sec.
402(c)(8)(B)(iii), (iv), and (vi).
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137
cluded from income or deductible) or after-tax contributions by em-
ployees.
Disability-related payments
Amounts received under worker’s compensation acts as com-
pensation for personal injuries or sickness (‘‘disability payments’’)
generally are excluded from the gross income of the recipients.392
The exclusion from gross income includes compensation for per-
sonal injuries or sickness received under a statute in the nature of
a worker’s compensation act, and also extends such exclusion to
survivors of the affected worker. However, these exclusions gen-
erally do not apply to amounts received as a retirement pension or
annuity (including retirement disability payments) to the extent
that the amounts are determined by reference to the employee’s
age, length of service, or prior contributions. Such retirement pay-
ments, which may be distributed from a section 401(a) qualified re-
tirement plan, a section 403(a) or (b) tax-sheltered annuity plan, or
an eligible deferred compensation plan of a State or local govern-
ment employer under section 457(b) (‘‘retirement distributions’’),
generally are included in income for the year distributed.
REASONS FOR CHANGE
The Committee believes that certain retirement distributions
paid to qualified first responders should be excluded from gross in-
come to the extent such payments are related to the first respond-
ers’ disability.
EXPLANATION OF PROVISION
The provision adds Section 139C to the Code to address the tax
treatment of certain disability-related retirement distributions to
qualified first responders. An individual’s gross income does not in-
clude qualified first responder retirement payments for any taxable
year to the extent such payments do not exceed an annualized ex-
cludable disability amount. A qualified first responder retirement
payment that is excluded from gross income is a pension or annuity
that would otherwise be includible in gross income, is received in
connection with the individual’s qualified first responder service,
and is paid from a qualified trust, annuity plan, governmental de-
ferred compensation plan under section 457(b), or a section 403(b)
plan.393 Also, for this purpose, qualified first responder service
means services performed as a law enforcement officer, firefighter,
paramedic, or emergency medical technician. The provision does
not limit the exclusion from gross income to individuals who pro-
vide such services in a public capacity or to individuals who ad-
dress only emergency situations.
The portion of the retirement distributions which is exempted
from gross income is the ‘‘annualized excludable disability amount.’’
This is based on the determination of the excludable amount of dis-
ability payments (‘‘service-connected excludable disability amount’’)
that the individual received during the 12-month period before the
individual attained retirement age. A service-connected excludable
392 Sec. 104(a)(1).
393 These plans are described in clauses (iii), (iv), (v), and (vi) of section 402(c)(8)(B), respec-
tively.
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138
disability amount means periodic payments which are not includ-
ible in the individual’s gross income because they are amounts re-
ceived under workmen’s compensation acts as compensation for
personal injuries or sickness,394 are received in connection with the
individual’s qualified first responder service, and terminate when
the individual attains retirement age.
The provision also provides that for an individual who only re-
ceives service-connected excludable disability amounts for a portion
of the year, the annualized excludable disability amount is deter-
mined by multiplying the service-connected excludable disability
amounts by the ratio of 365 to the number of days in such period
to which amounts were properly attributable.
Unlike worker’s compensation payments, the exclusion under the
provision that is applicable to eligible first responders does not ex-
tend to surviving spouses or other survivors once the eligible indi-
vidual is deceased.
EFFECTIVE DATE
The provision is effective for amounts received with respect to
taxable years beginning after December 31, 2026.
12. INDIVIDUAL RETIREMENT PLAN STATUTE OF LIMITATIONS FOR
EXCISE TAX ON EXCESS CONTRIBUTIONS AND CERTAIN ACCUMULA-
TIONS (SEC. 312 OF THE BILL AND SEC. 6501 OF THE CODE)
PRESENT LAW
Excise taxes
If an individual makes excess contributions to an individual re-
tirement account 395 or individual retirement annuity,396 an excise
tax in the amount equal to six percent of the amount of the excess
contributions to such individual’s IRAs (determined as of the close
of the taxable year) is imposed for each taxable year as long as the
amount of the excess contributions remain in the plan.397 However,
the amount of the tax for any taxable year is limited so that it does
not exceed six percent of the value of the account or annuity (deter-
mined as of the close of the taxable year).
An ‘‘excess contribution’’ generally means the excess (if any) of
the amount of contributions made to the individual’s IRAs (other
than a Roth IRA) for the taxable year over the amount allowable
as a deduction for such contributions.398 For 2021, the total con-
tributions an individual could make to his or her traditional and
Roth IRAs was the lesser of $6,000 ($7,000 if the participant was
age 50 or older), or the individual’s taxable compensation for the
year.
In addition, an excise tax on ‘‘certain accumulations’’ applies if
the amount distributed during a taxable year of a participant or
beneficiary of a qualified retirement plan 399 or any eligible de-
394 Sec. 104(a)(1).
395 Sec. 408(a).
396 Sec. 408(b).
397 Sec. 4973.
398 Under section 219.
399 As defined in section 4974(d) and including a section 401(a) qualified plan, a section 403(a)
annuity plan, a section 403(b) tax-sheltered annuity, and an IRA (a section 408 individual retire-
ment account or annuity).
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139
ferred compensation plan,400 is less than the minimum required
distribution for such taxable year. The excise tax is equal to 50 per-
cent of the amount by which such minimum required distribution
exceeds the actual amount distributed during the taxable year and
is imposed on the individual required to take the distribution. The
Secretary may waive the excise tax where the taxpayer establishes
(to the satisfaction of the Secretary) that the failure is due to rea-
sonable error and reasonable steps are taken to remedy the short-
fall.
Statute of limitations
In general, the statute of limitations with respect to a tax liabil-
ity starts to run within three years after the return is filed.401 The
term ‘‘return’’ means the return required to be filed by the taxpayer
relating to the particular type of tax (and does not include a return
of any person from whom the taxpayer has received an item of in-
come, gain, loss, deduction, or credit). With respect to the excise
taxes imposed on excess contributions and certain accumula-
tions,402 Form 5329, Additional Taxes on Qualified Plans (Includ-
ing IRAs) and Other Tax-Favored Accounts, is the return that
needs to be filed to start the statute of limitations.403 Unless Form
5329 is filed with the Form 1040, the statute of limitations will not
begin to run.404
REASONS FOR CHANGE
Under present law, the statute of limitations with respect to the
excise taxes imposed on excess contributions and certain accumula-
tions in connection with an IRA starts as of the date the Form
5329 is filed with the individual’s tax return with respect to the
underlying violation.
The Committee believes the statute of limitations should begin in
such circumstances when the taxpayer files an individual tax re-
turn for the year of the violation, thereby providing relief from the
possibility that the statute of limitations does not start because the
taxpayer failed to file the Form 5329 with the individual’s tax re-
turn because the taxpayer was unaware of the Form or the obliga-
tion to file it.
EXPLANATION OF PROVISION
The provision provides that for purposes of any excise tax im-
posed on excess contributions or on certain accumulations in con-
nection with an IRA, the return referred to in this section is the
income tax return filed by the person on whom the tax is imposed
for the year in which the act (or failure to act) giving rise to the
liability for such tax occurred. The filing of Form 5329 will gen-
400 As defined in section 457(b).
401 Sec. 6501(a).
402 Secs. 4973 and 4974, respectively.
403 Internal Revenue Service, Internal Revenue Manual, Forms Reporting More Than One
Item of Tax, Ch. 25.6, sec. 25.6.1.9.4.3 (May 2, 2019).
404 Ibid. at 25.6.1.9.4.3(6)(b). ‘‘The period of limitations on assessment for the miscellaneous
excise taxes does not begin with the filing of the Form 1040. The other miscellaneous excise
taxes carry their own period of assessment based on when the Form 5329 is received for assess-
ment.’’ See also, Robert K. Paschall, et ux. V. Commissioner, 137 T.C. 8 (2011). ‘‘We hold that
the filing of the Forms 1040 did not start the statute of limitations running for purposes of the
section 4973 excise tax in the absence of accompanying Forms 5329.’’
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140
erally no longer be required to start the three-year statute of limi-
tations.
In the case of a person who is not required to file an income tax
return for such year, (1) the relevant return is the income tax re-
turn that such person would have been required to file but for the
fact that such person was not required to file such return, and (2)
the three-year statute of limitations period is deemed to begin on
the date by which the return would have been required to be filed
(excluding any extension thereof).
EFFECTIVE DATE
The provision is effective on the date of enactment.
13. REQUIREMENT TO PROVIDE PAPER STATEMENTS IN CERTAIN
CASES (SEC. 313 OF THE BILL AND SEC. 105 OF ERISA)
PRESENT LAW
Pension benefit statement
ERISA requires plan administrators to periodically furnish par-
ticipants and beneficiaries with statements describing the individ-
ual’s benefit under the plan. Such requirements depend in part on
the type of plan and the individual to whom the statement is pro-
vided.405
In general, a benefit statement is required to indicate, on the
basis of the latest available information: (1) the total benefits ac-
crued; (2) the vested accrued benefit or the earliest date on which
the accrued benefit will become vested; and (3) an explanation of
any permitted disparity or floor-offset arrangement that may be ap-
plied in determining accrued benefits under the plan.406 With re-
spect to information on vested benefits, the Secretary of Labor is
required to provide that the requirements are met if, at least annu-
ally, the plan: (1) updates the information on vested benefits that
is provided in the benefit statement; or (2) provides in a separate
statement information as is necessary to enable participants and
beneficiaries to determine their vested benefits. The benefit state-
ment must be written in a manner calculated to be understood by
the average plan participant.
If a plan administrator fails to provide a required benefit state-
ment to a participant or beneficiary, the participant or beneficiary
may bring a civil action to recover from the plan administrator
$100 a day, within the court’s discretion, or other relief that the
court deems proper.
Requirements for defined contribution plans
The administrator of a defined contribution plan is required to
provide a benefit statement (1) to a participant or beneficiary who
has the right to direct the investment of the assets in his or her
account, at least quarterly, (2) to any other participant or other
405 ERISA sec. 105. The requirement does not apply to a one-participant retirement plan de-
scribed in section 101(i)(8)(B) of ERISA.
406 Sec. 401(l). Under the permitted disparity rules, contributions or benefits may be provided
at a higher rate with respect to compensation above a specified level and at a lower rate with
respect to compensation up to the specified level. In addition, benefits under a defined benefit
plan may be offset by a portion of a participant’s expected social security benefits. Under a floor-
offset arrangement, benefits under a defined benefit pension plan are reduced by benefits under
a defined contribution plan.
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141
beneficiary who has his or her own account under the plan, at least
annually, and (3) to other beneficiaries, upon written request, but
limited to one request during any 12-month period.
A benefit statement provided with respect to a defined contribu-
tion plan must include the value of each investment to which as-
sets in the individual’s account are allocated (determined as of the
plan’s most recent valuation date), including the value of any as-
sets held in the form of employer securities (without regard to
whether the securities were contributed by the employer or ac-
quired at the direction of the individual). In at least one benefit
statement provided during a 12-month period, the statement must
include a lifetime income disclosure that sets forth the lifetime in-
come stream equivalent of the total benefits accrued with respect
to the participant or beneficiary.407
A quarterly benefit statement provided to a participant or bene-
ficiary who has the right to direct investments must also include:
(1) an explanation of any limitations or restrictions on any right of
the individual to direct an investment; (2) an explanation, written
in a manner calculated to be understood by the average plan par-
ticipant, of the importance, for the long-term retirement security of
participants and beneficiaries, of a well-balanced and diversified in-
vestment portfolio, including a statement of the risk that holding
more than 20 percent of a portfolio in the security of one entity
(such as employer securities) may not be adequately diversified;
and (3) a notice directing the participant or beneficiary to the
DOL’s website for sources of information on individual investing
and diversification.
Requirements for defined benefit plans
The administrator of a defined benefit plan is required either: (1)
to furnish a benefit statement at least once every three years to
each participant who has a vested accrued benefit under the plan
and who is employed by the employer at the time the benefit state-
ments are furnished to participants; or (2) to furnish at least annu-
ally to each such participant notice of the availability of a benefit
statement and the manner in which the participant can obtain it.
The Secretary of Labor is authorized to provide that years in which
no employee or former employee benefits under the plan need not
be taken into account in determining the three-year period.
The administrator of a defined benefit pension plan is also re-
quired to furnish a benefit statement to a participant or beneficiary
upon written request, limited to one request during any 12-month
period.
In the case of a statement provided to a participant with respect
to a defined benefit plan (other than at the participant’s request),
information may be based on reasonable estimates determined
under regulations prescribed by the Secretary of Labor in consulta-
tion with the PBGC.
407 ERISA sec. 105(a)(2)(B)(iii). The term ‘‘lifetime income stream equivalent of the total bene-
fits accrued’’ means the amount of monthly payments the participant or beneficiary would re-
ceive if the total accrued benefits of such participant or beneficiary were used to provide lifetime
income streams, based on assumptions specified in rules prescribed by the Secretary. Lifetime
income streams for this purpose are a qualified joint and survivor annuity (as defined in ERISA
section 205(d)), based on assumptions specified in rules prescribed by the Secretary of Labor,
including the assumption that the participant or beneficiary has a spouse of equal age, and a
single life annuity. Such lifetime income streams may have a term certain or other features to
the extent permitted under rules prescribed by the Secretary of Labor.
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142
Delivery of pension benefit statement
The pension benefit statement may be delivered in written, elec-
tronic, or other appropriate form to the extent such form is reason-
ably accessible to the recipient. DOL regulations provide guidance
on the disclosure of the pension benefit statement, in addition to
other required statements and information.408 Under the regula-
tions, the plan administrator generally must use measures reason-
ably calculated to ensure actual receipt of the material by plan par-
ticipants, beneficiaries, and other specified individuals. The guid-
ance includes two safe harbors pursuant to which an administrator
may disclose information electronically and be treated as meeting
this requirement.
2002 safe harbor
Under the first safe harbor, provided by regulation in 2002
(‘‘2002 safe harbor’’), a plan administrator is treated as meeting the
above requirement if the administrator takes appropriate and nec-
essary measures reasonably calculated to ensure that the system
for furnishing documents (1) results in actual receipt of transmitted
information, and (2) protects the confidentiality of personal infor-
mation relating to the individual’s accounts and benefits.409 In ad-
dition, electronically-delivered documents must be prepared and
furnished in a manner that is consistent with the style, format, and
content requirements applicable to the particular document. Notice
(either electronic or non-electronic) must also be provided at the
time the document is furnished electronically that apprises the in-
dividual of the significance of the document when it is not other-
wise reasonably evident and of the right to request and obtain a
paper version. The plan must provide any paper versions that are
requested.
The 2002 safe harbor applies only to individuals who generally
either (1) have the ability to effectively access electronic documents
at work, and access to the employer or plan sponsor’s electronic in-
formation system is an integral part of the individual’s duties; or
(2) have consented to receiving documents electronically, have not
withdrawn such consent, and were provided a statement prior to
consent that contains certain required disclosures regarding such
consent. Additional information must be furnished upon certain
changes to hardware or software requirements.
Alternative safe harbor
Under a safe harbor that is an alternative to the 2002 safe har-
bor (‘‘alternative safe harbor’’), a plan administrator is deemed to
meet the requirement relating to taking measures reasonably cal-
culated to ensure actual receipt of covered documents if the plan
administrator complies with certain notice, access, and other re-
quirements described in the regulations.410 For this purpose, cov-
ered documents are generally documents that the plan adminis-
trator is required to furnish to participants and beneficiaries under
ERISA, except documents required to be furnished only upon re-
quest.
408 29 C.F.R. sec. 2520.104b–1.
409 29 C.F.R. sec. 2520.104b–1(c).
410 29 C.F.R. sec. 2520.104b–31.
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143
In order to satisfy the alternative safe harbor, a notice of inter-
net availability must be furnished at the time the covered docu-
ment is made available on the website. Subject to certain addi-
tional rules, a notice of internet availability may be provided annu-
ally and apply to multiple covered documents. The notice must
comply with certain content requirements and must be written in
a manner reasonably calculated to be understood by the average
plan participant. Certain requirements also apply to the website
where the covered documents are posted.
If an individual requests a paper version of a covered document,
under the alternative safe harbor, the plan administrator must
promptly furnish such paper version free of charge. Additional re-
quirements relating to the opting out of electronic delivery apply,
including that individual must be able to globally opt out of elec-
tronic delivery. In addition, the plan administrator must furnish to
each individual, prior to the administrator’s reliance on the safe
harbor, a paper notification that covered documents will be fur-
nished electronically. Such paper notice must include certain infor-
mation, including the electronic address that will be used for the
individual and any necessary instructions. Special rules apply to
separated participants.
Under the alternative safe harbor, a plan administrator is also
permitted to satisfy the safe harbor by using an email address to
furnish covered documents to an individual, provided certain re-
quirements are met.
The alternative safe harbor only applies to participants, bene-
ficiaries, and other individuals entitled to receive disclosures if the
individual provides an electronic address at which the individual
may receive a written notice of internet availability or email of cov-
ered documents, or if the individual is assigned an electronic ad-
dress for employment-related purposes.
REASONS FOR CHANGE
The Committee recognizes the importance of pension benefit
statements to a participant’s understanding of his or her benefit
under a retirement plan. In addition, the Committee recognizes
that some participants may be more likely to see and review their
benefit statements if they receive a statement on paper (rather
than merely electronically). Thus, the Committee believes that it is
appropriate to generally require (unless the participant elects oth-
erwise) defined contribution plans to provide at least one paper
pension benefit statement per year, and defined benefit plans to
provide at least one such statement every three years.
EXPLANATION OF PROVISION
The provision modifies the requirement under ERISA relating to
the delivery of pension benefit statements to generally require that,
for a defined contribution plan, at least one such statement with
respect to an individual must be provided on paper in written form
for each calendar year. Similarly, for a defined benefit plan, at
least one pension benefit statement with respect to an individual
must be provided on paper every three years. An exception applies
to (1) a plan that discloses documents using the 2002 safe harbor
(subject to the modifications to this safe harbor described below);
or (2) a plan that permits participants and beneficiaries to request
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144
electronic delivery of pension benefit statements, if the participant
or beneficiary makes such a request and the statement is so deliv-
ered.
The provision also directs the Secretary of Labor to make certain
amendments to its regulations. With respect to the 2002 safe har-
bor,411 the Secretary of Labor is directed to update the regulation
no later than December 31, 2021 to provide that a plan may fur-
nish pension benefit statements 412 electronically only if, in addi-
tion to meeting other requirements under the regulations, the plan
(1) furnishes each participant and beneficiary a one-time initial
paper notice, prior to the electronic delivery of any pension benefit
statement, of the participant’s right to request that all documents
required to be disclosed under title I of ERISA be furnished on
paper, and (2) furnishes each participant who is separated from
service at least one paper pension benefit statement each year, un-
less the participant requests electronic delivery of such statements
(and such statements are so delivered).
In addition, the Secretary must update guidance governing elec-
tronic disclosure (other than the 2002 safe harbor) no later than
December 31, 2021 to the extent necessary to ensure the following,
with respect to a plan that discloses required documents or state-
ments electronically:
• A participant or beneficiary under such a plan is permitted
the opportunity to request that any disclosure required to be
delivered on paper under applicable guidance by the DOL is
furnished by electronic delivery;
• Each paper statement furnished under such a plan in-
cludes (1) an explanation of how to request that all such state-
ments, and any other document required to be disclosed, be
furnished by electronic delivery; and (2) contact information for
the plan sponsor, including a telephone number;
• The plan may not charge any fee to a participant or bene-
ficiary for the delivery of paper statements;
• Each paper pension benefit statement identifies each plan
document required to be disclosed and includes information
about how a participant or beneficiary may access each such
document;
• Each document required to be disclosed that is furnished
by electronic delivery includes an explanation of how to request
that all such documents be furnished on paper; and
• A plan is permitted to furnish a duplicate electronic state-
ment in any case in which the plan furnishes a paper pension
benefit statement.
EFFECTIVE DATE
The provision applies to plan years beginning after December 31,
2022.
411 29 C.F.R. sec. 2520.104b–1(c).
412 The pension benefit statement that is required to be provided on paper under the provision
at least once per calendar year for a defined contribution plan and at least once every three
years for a defined benefit plan.
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14. SEPARATE APPLICATION OF TOP HEAVY RULES TO DEFINED CON-
TRIBUTION PLANS COVERING EXCLUDIBLE EMPLOYEES (SEC. 314
OF THE BILL AND SEC. 416 OF THE CODE)
PRESENT LAW
Top-heavy requirements
Top-heavy requirements apply to limit the extent to which accu-
mulated benefits or account balances under a qualified retirement
plan can be concentrated with key employees.413 Whereas the gen-
eral nondiscrimination requirements are designed to test annual
contributions or benefits for highly compensated employees, com-
pared to those of non-highly compensated employees, the top-heavy
rules test the portion of the total plan contributions or benefits that
have accumulated for the benefit of key employees as a group. If
a plan is top-heavy, minimum contributions or benefits must be
provided for non-key employees and, in some cases, faster vesting
is required. In general, for a defined contribution plan, this min-
imum contribution is three percent of the participant’s compensa-
tion; however, such contribution is limited by the percentage at
which contributions are made for the key employee with the high-
est percentage of contributions.
For this purpose, a key employee is an officer with annual com-
pensation greater than $185,000 (for 2021), a five-percent owner, or
a one-percent owner with compensation in excess of $150,000. A de-
fined benefit plan generally is top-heavy if the present value of cu-
mulative accrued benefits for key employees exceeds 60 percent of
the cumulative accrued benefits for all employees. A defined con-
tribution plan is top-heavy if the aggregate of accounts for key em-
ployees exceeds 60 percent of the aggregate accounts for all employ-
ees. The nature of the top-heavy test is such that a plan of a large
business with many employees is unlikely to be top-heavy. The top-
heavy requirements are therefore viewed as primarily affecting
plans of smaller employers in which the owners participate.
Minimum coverage requirements
As part of the general nondiscrimination requirements, a quali-
fied retirement plan must satisfy the minimum coverage require-
ment.414 Under the minimum coverage requirement, the plan’s cov-
erage of employees must be nondiscriminatory. This is determined
by calculating the plan’s ratio percentage, that is, the ratio of the
percentage of non-highly compensated employees (of all non-highly
compensated employees in the workforce) covered under the plan
over the percentage of highly compensated employees covered. If
the plan’s ratio percentage is 70 percent or greater, the plan satis-
fies the minimum coverage requirement. If the plan’s ratio percent-
age is less than 70 percent, a multi-part test applies.415 In addi-
tion, the average benefit percentage test must be satisfied. Under
the average benefit percentage test, the average rate of contribu-
tions or benefit accruals for all non-highly compensated employees
413 Secs. 401(a)(10)(B) and 416.
414 Sec. 410(b).
415 The plan must cover a group (or classification) of employees that is reasonable and estab-
lished under objective business criteria, such as hourly or salaried employees (referred to as a
reasonable classification), and the plan’s ratio percentage must be at or above a specific level
specified in the regulations.
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146
in the workforce (taking into account all plans of the employer)
must be at least 70 percent of the average contribution or accrual
rate of all highly compensated employees.
The minimum coverage and general nondiscrimination require-
ments apply annually on the basis of the plan year. Employees who
have not satisfied minimum age and service conditions under the
plan, certain nonresident aliens, and employees covered by a collec-
tive bargaining agreement are generally disregarded.416 However,
a plan that covers employees with less than a year of service or
who are under age 21 (‘‘otherwise excludable employees’’) must gen-
erally include those employees in any nondiscrimination test for
the year but can test the plan for nondiscrimination in two parts:
(1) by separately testing the portion of the plan covering otherwise
excludable employees and treating all such employees as the only
employees of the employer; and (2) then testing the rest of the plan
taking into account the rest of the employees of the employer and
excluding the otherwise excludable employees.
REASONS FOR CHANGE
The Committee believes that the rules allowing an employer to
separately test otherwise excludable employees for certain non-
discrimination testing purposes were intended to encourage plan
sponsors to permit employees to defer earlier than when the em-
ployee meets the minimum age and service conditions under the
Code. Such separate testing is not allowed for the top-heavy test.
Small business retirement plans often do not cover employees that
do not meet the minimum age and service requirements because if
the plan is or becomes top heavy, the employer may be required to
contribute a top-heavy employer contribution for all employees who
are eligible to participate in the plan, straining the budget for
these small businesses. Thus, the Committee believes it is appro-
priate to allow an employer to perform the top-heavy test sepa-
rately with respect to otherwise excludable employees. This policy
would remove the financial incentive to exclude employees who do
not meet minimum age and service from retirement plans and ex-
tend retirement plan coverage to more workers.
EXPLANATION OF PROVISION
Under the provision, if a top-heavy defined contribution plan cov-
ers employees who do not meet the minimum age and service re-
quirements under the Code, and the plan satisfies the top-heavy
minimum contribution requirement separately with respect to such
employees, such employees may be excluded from consideration in
determining whether any plan of the employer satisfies the top-
heavy minimum contribution requirement.
EFFECTIVE DATE
The provision applies to plan years beginning after date of enact-
ment.
416 Qualified plans generally cannot delay an employee’s participation in the plan beyond the
later of completion of one year of service (i.e., a 12-month period with at least 1,000 hours of
service) or attainment of age 21. Sec. 410(a)(1). A plan or portion of a plan covering collectively
bargained employees is generally deemed to satisfy the nondiscrimination requirements.
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147
15. REPAYMENT OF QUALIFIED BIRTH OR ADOPTION DISTRIBUTIONS
LIMITED TO THREE YEARS (SEC. 315 OF THE BILL AND SEC. 72 OF
THE CODE)
PRESENT LAW
Distributions from tax-favored retirement plans
A distribution from a qualified retirement plan, a tax-sheltered
annuity plan (a ‘‘section 403(b) plan’’), an eligible deferred com-
pensation plan of a State or local government employer (a ‘‘govern-
mental section 457(b) plan’’), or an IRA generally is included in in-
come for the year distributed.417 These plans are referred to collec-
tively as ‘‘eligible retirement plans.’’ In addition, unless an excep-
tion applies, a distribution from a qualified retirement plan, a sec-
tion 403(b) plan, or an IRA received before age 591⁄2 is subject to
a 10-percent additional tax (referred to as the ‘‘early withdrawal
tax’’) on the amount includible in income.418
In general, a distribution from an eligible retirement plan may
be rolled over to another eligible retirement plan within 60 days,
in which case the amount rolled over generally is not includible in
income. The IRS has the authority to waive the 60-day requirement
if failure to waive the requirement would be against equity or good
conscience, including cases of casualty, disaster, or other events be-
yond the reasonable control of the individual.
The terms of a qualified retirement plan, section 403(b) plan, or
governmental section 457(b) plan generally determine when dis-
tributions are permitted. However, in some cases, restrictions may
apply to distributions before an employee’s termination of employ-
ment, referred to as ‘‘in-service’’ distributions. Despite such restric-
tions, an in-service distribution may be permitted in the case of fi-
nancial hardship or an unforeseeable emergency.
Distributions in the event of a qualified birth or adoption
An exception to the 10-percent early withdrawal tax applies in
the case of a qualified birth or adoption distribution from an appli-
cable eligible retirement plan (as defined). In addition, qualified
birth or adoption distributions may be recontributed to an individ-
ual’s applicable eligible retirement plans, subject to certain require-
ments.
A qualified birth or adoption distribution is a permissible dis-
tribution from an applicable eligible retirement plan which, for this
purpose, encompasses eligible retirement plans other than defined
benefit plans, including qualified retirement plans, section 403(b)
plans, governmental section 457(b) plans, and IRAs.419
A qualified birth or adoption distribution is a distribution from
an applicable eligible retirement plan to an individual if made dur-
ing the one-year period beginning on the date on which a child of
the individual is born or on which the legal adoption by the indi-
417 Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 3405, distributions from these
plans are generally subject to income tax withholding unless the recipient elects otherwise. In
addition, certain distributions from a qualified retirement plan, a section 403(b) plan, or a gov-
ernmental section 457(b) plan are subject to mandatory income tax withholding at a 20-percent
rate unless the distribution is rolled over.
418 Sec. 72(t). Under present law, the 10-percent early withdrawal tax does not apply to dis-
tributions from a governmental section 457(b) plan.
419 A qualified birth or adoption distribution is subject to income tax withholding unless the
recipient elects otherwise. Mandatory 20-percent withholding does not apply.
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vidual of an eligible adoptee is finalized. An eligible adoptee means
any individual (other than a child of the taxpayer’s spouse) who
has not attained age 18 or is physically or mentally incapable of
self-support. The name, age, and taxpayer identification number of
the child or eligible adoptee to which any qualified birth or adop-
tion distribution relates must be provided on the tax return of the
individual taxpayer for the taxable year.
The maximum aggregate amount which may be treated as quali-
fied birth or adoption distributions by any individual with respect
to a birth or adoption is $5,000. The maximum aggregate amount
applies on an individual basis. Therefore, each spouse separately
may receive a maximum aggregate amount of $5,000 of qualified
birth or adoption distributions (with respect to a birth or adoption)
from applicable eligible retirement plans in which each spouse par-
ticipates or holds accounts.
An employer plan is not treated as violating any Code require-
ment merely because it treats a distribution (that would otherwise
be a qualified birth or adoption distribution) to an individual as a
qualified birth or adoption distribution, provided that the aggregate
amount of such distributions to that individual from plans main-
tained by the employer and members of the employer’s controlled
group 420 does not exceed $5,000. Under such circumstances an em-
ployer plan is not treated as violating any Code requirement mere-
ly because an individual might receive total distributions in excess
of $5,000 as a result of distributions from plans of other employers
or IRAs.
Recontributions to applicable eligible retirement plans
Generally, any portion of a qualified birth or adoption distribu-
tion may, at any time after the date on which the distribution was
received, be recontributed to an applicable eligible retirement plan
to which a rollover can be made. Such a recontribution is treated
as a rollover and thus is not includible in income. If an employer
adds the ability for plan participants to receive qualified birth or
adoption distributions from a plan, the plan must permit an em-
ployee who has received qualified birth or adoption distributions
from that plan to recontribute only up to the amount that was dis-
tributed from that plan to that employee, provided the employee
otherwise is eligible to make contributions (other than recontribu-
tions of qualified birth or adoption distributions) to that plan. Any
portion of a qualified birth or adoption distribution from an individ-
ual’s applicable eligible retirement plans (whether employer plans
or IRAs) may be recontributed to an IRA held by such an indi-
vidual which is an applicable eligible retirement plan to which a
rollover can be made.
REASONS FOR CHANGE
Under present law, distributions from retirement plans for the
birth or adoption of a child may be recontributed to a retirement
plan at any time after the distribution is received and are treated
as rollovers to the plan. However, a taxpayer making such a recon-
tribution more than three years after the distribution was received
420 The term ‘‘controlled group’’ means any group treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414.
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might be denied a refund for taxes paid on such distribution if such
refund is claimed after the statute of limitations period for the re-
turn has been closed, which generally occurs after three years.
Therefore, someone who took a birth or adoption distribution and
recontributes such amount more than three years later might not
be able to amend his or her return to request a refund for the taxes
that were paid in the year of the withdrawal.
The Committee believes that in order to avoid such a result, re-
contributions should be required to be made within three years of
the date the distribution is received.
EXPLANATION OF PROVISION
Under the provision, a recontribution of any portion of a qualified
birth or adoption distribution, may, at any time during the three-
year period beginning on the day after the date on which the dis-
tribution was received, be recontributed to an applicable eligible re-
tirement plan to which a rollover can be made.
EFFECTIVE DATE
The provision provides that the amendment made to this section
takes effect as if included in the enactment of section 113 of the
Setting Every Community Up for Retirement Enhancement Act of
2019.421
16. EMPLOYER MAY RELY ON EMPLOYEE CERTIFYING THAT DEEMED
HARDSHIP DISTRIBUTION CONDITIONS ARE MET (SEC. 316 OF THE
BILL AND SECS. 401(k), 403(b), AND 457(b) OF THE CODE)
PRESENT LAW
Section 401(k) plan and section 403(b) plan hardship distributions
A qualified defined contribution plan may include a qualified
cash or deferred arrangement, under which employees may elect to
have contributions made to the plan (referred to as ‘‘elective defer-
rals’’) rather than receive the same amount as current compensa-
tion (referred to as a ‘‘section 401(k) plan’’). A section 403(b) plan
may also include an elective deferral arrangement. Amounts attrib-
utable to elective deferrals under a section 401(k) plan or a section
403(b) plan generally cannot be distributed before the occurrence of
one or more specified events, including financial hardship of the
employee.422
A hardship distribution from a section 401(k) plan may include,
in addition to the employee’s elective deferrals, qualified matching
contributions, qualified nonelective contributions, and earnings on
any of these amounts.423 A hardship distribution from a section
403(b) plan may include elective deferrals, but not earnings on
those deferrals.424 Qualified matching contributions and qualified
421 Sec. 113 of Div. O of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116–
94, December 20, 2019.
422 Secs. 401(k)(2)(B)(i)(IV) and 403(b)(7)(A)(i)(V) and (11)(B). Other types of contributions may
also be subject to this restriction.
423 Sec. 401(k)(14). Qualified matching contributions (as defined in section 401(k)(3)(D)(ii)(I))
and qualified nonelective contributions (as defined in section 401(m)(4)(C)) may be used to en-
able the plan to satisfy certain nondiscrimination tests, to prevent discrimination in favor of
highly compensated employees.
424 Sec. 403(b)(11).
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nonelective contributions to a section 403(b) plan that are in a cus-
todial account are not eligible to be distributed on account of hard-
ship.425 A distribution under a section 401(k) plan is not treated
as failing to be on account of hardship solely because the employee
does not take any available plan loan. Distributions on account of
hardship may be subject to an additional 10-percent early with-
drawal tax.426
Applicable Treasury regulations provide that a distribution is
made on account of hardship only if the distribution is made on ac-
count of an immediate and heavy financial need of the employee
and is necessary to satisfy the financial need.427 Generally, the de-
termination of whether an employee has an immediate and heavy
financial need is based on the relevant facts and circumstances.
However, a distribution is deemed to be made on account of an im-
mediate and heavy financial need if it is for: (1) generally, deduct-
ible expenses for medical care; 428 (2) costs directly related to the
purchase of a principal residence for the employee (excluding mort-
gage payments); (3) payment of tuition, related educational fees,
and room and board expenses, for up to the next 12 months of post-
secondary education for the employee, the employee’s spouse, child,
or dependent,429 or for a primary beneficiary under the plan; (4)
payments necessary to prevent the eviction of the employee from
the employee’s principal residence or foreclosure on the mortgage
on that residence; (5) payments for burial or funeral expenses for
the employee’s deceased parent, spouse, child, or dependent, or for
a deceased primary beneficiary under the plan; (6) expenses for the
repair of damage to the employee’s principal residence that would
qualify for the casualty deduction; 430 or (7) expenses and losses (in-
cluding loss of income) incurred by the employee on account of a
federally-declared disaster.431
A distribution is treated as necessary to satisfy the financial
need under the Treasury regulations only to the extent that the
amount of the distribution does not exceed the amount required. In
addition, in order to be treated as necessary to satisfy the financial
need, the following requirements must be met: (1) the employee
has obtained all other currently available distributions under all
plans of the employer; (2) the employee has provided to the plan
administrator a written representation that he or she has insuffi-
cient cash or other liquid assets reasonably available to satisfy the
need; and (3) the plan administrator does not have actual knowl-
edge contrary to the representation.432
425 Treas. Reg. sec. 1.403(b)–6(c).
426 Sec. 72(t).
427 Treas. Reg. secs. 1.401(k)–1(d)(3); 1.403(b)–6(d)(2).
428 Expenses for (or necessary to obtain) medical care that would be deductible under section
213(d), determined without regard to the limitations in section 213(a) (relating to the applicable
percentage of adjusted gross income and the recipients of the medical care) provided that, if the
recipient of the medical care is not listed in section 213(a), the recipient is a primary beneficiary
under the plan.
429 As defined in section 152 without regard to section 152(b)(1), (b)(2), and (d)(1)(B).
430 Under section 165 (determined without regard to section 165(h)(5) and whether the loss
exceeds 10 percent of adjusted gross income).
431 A disaster declared by the Federal Emergency Management Agency (‘‘FEMA’’) under the
Robert T. Stafford Disaster Relief and Emergency Assistance Act, Pub. L. No. 100–707, provided
that the employee’s principal residence or principal place of employment at the time of the dis-
aster was located in an area designated by FEMA for individual assistance with respect to the
disaster.
432 Treas. Reg. sec. 1.401(k)–1(d)(3)(iii).
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Governmental section 457(b) plan distributions upon unforeseeable
emergency
An eligible deferred compensation plan of a governmental em-
ployer (referred to as a ‘‘governmental section 457(b) plan’’) is gen-
erally similar to a qualified cash or deferred arrangement under a
section 401(k) plan in that it consists of elective deferrals made at
the election of an employee. Such deferrals generally may not be
distributed from the plan before the occurrence of one or more spec-
ified events, including when the participant is faced with an un-
foreseeable emergency.433
Under Treasury regulations, the unforeseeable emergency must
be defined in the plan as a severe financial hardship of the partici-
pant or beneficiary resulting from an illness or accident of the par-
ticipant or beneficiary, or the participant’s or beneficiary’s spouse
or dependent; 434 loss of the participant’s or beneficiary’s property
due to casualty; 435 or other similar extraordinary and unforesee-
able circumstances arising as a result of events beyond the control
of the participant or the beneficiary.436 The Treasury regulations
provide the following as examples of unforeseeable emergencies: (1)
the imminent foreclosure of or eviction from the participant’s or
beneficiary’s primary residence; (2) the need to pay for medical ex-
penses, including non-refundable deductibles, as well as for the cost
of prescription drug medication; and (3) the need to pay for the fu-
neral expenses of a spouse or a dependent of a participant or bene-
ficiary. The purchase of a home and the payment of college tuition
are not unforeseeable emergencies, unless such expenses otherwise
qualify.
In general, under the regulations, whether a participant or bene-
ficiary is faced with an unforeseeable emergency permitting a dis-
tribution is to be determined based on the relevant facts and cir-
cumstances of each case, but, in any case, a distribution on account
of unforeseeable emergency may not be made to the extent that
such emergency is or may be relieved through reimbursement or
compensation from insurance or otherwise, by liquidation of the
participant’s assets, to the extent the liquidation of such assets
would not itself cause severe financial hardship, or by cessation of
deferrals under the plan. Distributions on account of an unforesee-
able emergency must be limited to the amount reasonably nec-
essary to satisfy the emergency need.
REASONS FOR CHANGE
The Committee believes that the existing administrative barriers
to taking hardship withdrawals from retirement plans should be
reduced, making it easier for participants who wish to access re-
tirement funds in times of financial need. The Committee believes
that generally allowing self-certification is a logical step in light of
the success of the coronavirus-related distribution self-certification
rules and the current hardship regulations under which employees
self-certify the unavailability of funds to address the hardship.
433 Sec. 457(d)(1)(A)(iii).
434 As defined in section 152, and, for taxable years beginning on or after January 1, 2005,
without regard to section 152(b)(1), (b)(2), and (d)(1)(B).
435 This includes the need to rebuild a home following damage to a home not otherwise cov-
ered by homeowner’s insurance, such as damage that is the result of a natural disaster.
436 Treas. Reg. sec. 1.457–6(c)(2).
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152
EXPLANATION OF PROVISION
Under the provision, in determining whether a distribution is
due to an employee hardship, the plan administrator of a section
401(k) plan or a section 403(b) plan may rely on the employee’s cer-
tification that the distribution is on account of a financial need of
a type that is deemed in Treasury regulations to be an immediate
and heavy financial need. Thus, if the employee certifies that the
financial need for the hardship distribution is one of the types of
deemed immediate and heavy financial needs that are described in
the Treasury regulations,437 such as funeral expenses for the em-
ployee’s deceased parent, the distribution is treated as being made
on account of an immediate and heavy financial need. In addition,
under the provision, the plan administrator may rely on the em-
ployee’s certification that the distribution is not in excess of the
amount required to satisfy the financial need.
Similarly, with respect to a governmental section 457(b) plan, in
determining whether a participant’s distribution is made when the
participant is faced with an unforeseeable emergency, a plan ad-
ministrator may rely on the participant’s certification that the dis-
tribution is on account of an unforeseeable emergency of a type
that is specifically described in Treasury regulations as an unfore-
seeable emergency 438 and that the distribution does not exceed the
amount reasonably necessary to satisfy the emergency need.
EFFECTIVE DATE
The provision is effective for plan years beginning after Decem-
ber 31, 2021.
17. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR IN-
DIVIDUALS IN CASE OF DOMESTIC ABUSE (SEC. 317 OF THE BILL
AND SEC. 72(t) OF THE CODE)
PRESENT LAW
Distributions from tax-favored retirement plans
A distribution from a tax-qualified plan described in section
401(a) (a ‘‘qualified retirement plan’’), a tax-sheltered annuity plan
(a ‘‘section 403(b) plan’’), an eligible deferred compensation plan of
a State or local government employer (a ‘‘governmental section
457(b) plan’’), or an individual retirement arrangement (an ‘‘IRA’’)
generally is included in income for the year distributed.439 These
plans are referred to collectively as ‘‘eligible retirement plans.’’ 440
In addition, unless an exception applies, a distribution from a
qualified retirement plan, a section 403(b) plan, or an IRA received
before age 591⁄2 is subject to a 10-percent additional tax (referred
437 Treas. Reg. sec. 1.401(k)–1(d)(3)(ii)(B), or any successor regulation.
438 Treas. Reg. sec. 1.457–6(c)(2)(i), or any successor regulation.
439 Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section 3405, distributions from these
plans are generally subject to income tax withholding unless the recipient elects otherwise. In
addition, certain distributions from a qualified retirement plan, a section 403(b) plan, or a gov-
ernmental section 457(b) plan are subject to mandatory income tax withholding at a 20-percent
rate unless the distribution is rolled over.
440 Sec. 402(c)(8)(B). Eligible retirement plans also include annuity plans described in section
403(a).
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to as the ‘‘early withdrawal tax’’) on the amount includible in in-
come.441
In general, a distribution from an eligible retirement plan may
be rolled over to another eligible retirement plan within 60 days,
in which case the amount rolled over generally is not includible in
income. The IRS has the authority to waive the 60-day requirement
if failure to waive the requirement would be against equity or good
conscience, including cases of casualty, disaster, or other events be-
yond the reasonable control of the individual.442
The terms of a qualified retirement plan, section 403(b) plan, or
governmental section 457(b) plan generally determine when dis-
tributions are permitted. However, for many types of plans, restric-
tions apply to distributions before an employee’s termination of em-
ployment, referred to as ‘‘in-service’’ distributions or withdrawals.
Despite such restrictions, an in-service distribution from a qualified
retirement plan that includes a qualified cash-or-deferred arrange-
ment (a ‘‘section 401(k) plan’’) or a section 403(b) plan may be per-
mitted in the case of financial hardship. Similarly, a governmental
section 457(b) plan may permit distributions in the case of an un-
foreseeable emergency. Under a qualified retirement plan that is a
pension plan (i.e., defined benefit pension plan or money purchase
pension plan), distributions generally may be made only in the
event of retirement, death, disability, or other separation from
service, although in-service distributions may be permitted after
age 591⁄2.443
REASONS FOR CHANGE
The Committee recognizes that a domestic abuse victim may
need funds to escape an unsafe situation. The Committee believes
that such individuals should be able to access funds from retire-
ment plans when needed, with minimal administrative hurdle and
without being subject to the 10-percent early withdrawal tax that
otherwise generally applies to early distributions from a retirement
plan. In addition, the Committee wishes to permit such individuals
to recontribute such withdrawals to a retirement plan, so that indi-
viduals who are able to later repay the funds do not miss out valu-
able retirement savings.
EXPLANATION OF PROVISION
Under the provision, an exception to the 10-percent early with-
drawal tax applies in the case of an eligible distribution to a do-
mestic abuse victim. In addition, such eligible distributions may be
recontributed to applicable eligible retirement plans, subject to cer-
tain requirements.
441 Sec. 72(t). The 10-percent early withdrawal tax does not apply to distributions from a gov-
ernmental section 457(b) plan.
442 Rev. Proc. 2016–47, 2016–37 I.R.B. 346, provides for a self-certification procedure (subject
to verification on audit) that may be used by a taxpayer claiming eligibility for a waiver of the
60-day requirement with respect to a rollover into a plan or IRA in certain specified cir-
cumstances.
443 Sec. 401(a)(36); Treas. Reg. secs. 1.401–1(b)(1)(i) and 1.401(a)–1(b)(1)(i). Section 401(k)
plans, section 403(b) plans, and governmental section 457(b) plans also may permit in-service
distributions after age 591⁄2.
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Eligible distributions to a domestic abuse victim
The provision provides that an eligible distribution to a domestic
abuse victim is a distribution from an applicable eligible retirement
plan to an individual if made during the one-year period beginning
on a date on which the individual is a victim of domestic abuse by
a spouse or domestic partner. Domestic abuse is defined under the
provision as physical, psychological, sexual, emotional, or economic
abuse, including efforts to control, isolate, humiliate, or intimidate
the victim, or to undermine the victim’s ability to reason independ-
ently, including by means of abuse of the victim’s child or another
family member living in the household. In making such a distribu-
tion, a plan administrator may rely on the participant’s certifi-
cation that the distribution is an eligible distribution to a domestic
abuse victim.
An applicable eligible retirement plan, for this purpose, encom-
passes eligible retirement plans other than defined benefit plans,
including qualified retirement plans, section 403(b) plans, govern-
mental section 457(b) plans, and IRAs.444 The maximum aggregate
amount which may be treated as an eligible distribution to a do-
mestic abuse victim by an individual is the lesser of $10,000 or 50
percent of the value of the employee’s account under the plan.445
An eligible distribution to a domestic abuse victim is treated as
meeting requirements relating to the timing of distributions under
a section 401(k) plan, section 403(b) plan, or governmental section
457(b) plan.
Under the provision, an employer plan is not treated as violating
any Code requirement merely because it treats a distribution to an
individual (that would otherwise be an eligible distribution to a do-
mestic abuse victim) as an eligible distribution to a domestic abuse
victim, provided that the aggregate amount of such distributions to
that individual from plans maintained by the employer and mem-
bers of the employer’s controlled group 446 does not exceed the less-
er of $10,000 or 50 percent of the value of the employee’s accounts
under the plans of the employer’s controlled group. Thus, under
such circumstances an employer plan is not treated as violating
any Code requirement merely because an individual might receive,
for example, total distributions in excess of $10,000 as a result of
distributions from plans of other employers or IRAs.
Recontributions to applicable eligible retirement plans
The provision provides that any portion of an eligible distribution
to a domestic abuse victim may generally, at any time after the
date on which the distribution was received, be recontributed to an
applicable eligible retirement plan to which a rollover can be made.
Such a recontribution is treated as a rollover and thus is not in-
cludible in income. If an employer adds the ability for plan partici-
pants to receive eligible distributions to domestic abuse victims
from a plan, the plan must permit an employee who has received
such an eligible distribution from that plan to recontribute only up
444 An eligible distribution to a domestic abuse victim is subject to income tax withholding un-
less the recipient elects otherwise. Mandatory 20-percent withholding does not apply.
445 50 percent of the present value of the nonforfeitable accrued benefit of the employee under
the plan.
446 The term ‘‘controlled group’’ means any group treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414.
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to the amount that was distributed from that plan to that em-
ployee, provided the employee otherwise is eligible to make con-
tributions (other than recontributions of eligible distributions to do-
mestic abuse victims) to that plan. Any portion of an eligible dis-
tribution to a domestic abuse victim from an individual’s applicable
eligible retirement plans (whether employer plans or IRAs) may be
recontributed to an IRA held by such an individual which is an ap-
plicable eligible retirement plan to which a rollover can be made.
EFFECTIVE DATE
The provision is effective for distributions made after the date of
enactment.
18. REFORM OF FAMILY ATTRIBUTION RULE (SEC. 318 OF THE BILL
AND SEC. 414 OF THE CODE)
PRESENT LAW
Nondiscrimination requirements
A qualified retirement plan is prohibited from discriminating in
favor of highly compensated employees, referred to as the non-
discrimination requirements. These requirements are intended to
ensure that a qualified retirement plan provides meaningful bene-
fits to an employer’s rank-and-file employees as well as highly com-
pensated employees so that qualified retirement plans achieve the
goal of retirement security for both lower-paid and higher-paid em-
ployees. The nondiscrimination requirements consist of a minimum
coverage requirement and general nondiscrimination require-
ments.447 For purposes of these requirements, an employee gen-
erally is treated as highly compensated if the employee (1) was a
five-percent owner of the employer at any time during the year or
the preceding year, or (2) had compensation for the preceding year
in excess of $130,000 (for 2021).448
The minimum coverage and general nondiscrimination require-
ments apply annually on the basis of the plan year. In applying
these requirements, as discussed below, employees of all members
of a controlled group or affiliated service group are treated as em-
ployed by a single employer. Employees who have not satisfied
minimum age and service conditions under the plan, certain non-
resident aliens, and employees covered by a collective bargaining
agreement are generally disregarded.449 However, a plan that cov-
ers employees with less than a year of service or who are under
age 21 must generally include those employees in any non-
discrimination test for the year but can test the plan for non-
discrimination in two parts: (1) by separately testing the portion of
the plan covering employees who have not completed a year of
service or are under age 21 and treating all of the employer’s em-
ployees with less than a year of service or under age 21 as the only
447 Sections 401(a)(3) and 410(b) address the minimum coverage requirement; section 401(a)(4)
describes the general nondiscrimination requirements, with related rules in section 401(a)(5).
Detailed regulations implement the statutory requirements. Governmental plans are generally
exempt from these requirements.
448 Sec. 414(q). At the election of the employer, employees who are highly compensated based
on compensation may be limited to the top 20 percent highest paid employees. A non-highly
compensated employee is an employee other than a highly compensated employee.
449 A plan or portion of a plan covering collectively bargained employees is generally deemed
to satisfy the nondiscrimination requirements.
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employees of the employer; and (2) then testing the rest of the plan
taking into account the rest of the employees of the employer and
excluding those employees. If a plan does not satisfy the non-
discrimination requirements on its own, it may in some cir-
cumstances be aggregated with another plan, and the two plans
tested together as a single plan.
Aggregation rules for groups under common control
In general, in applying the requirements for tax-favored treat-
ment for retirement plans, employees of employers (including cor-
porations and other entities) that are members of a group under
common control are treated as employed by a single employer (re-
ferred to as aggregation rules).450 For example, in applying the
nondiscrimination requirements, the employees of all the members
of a group, and the benefits provided under plans maintained by
any member of the group, are generally taken into account. In the
case of taxable entities, common control is generally based on the
percentage of equity ownership with a general threshold of 80 per-
cent ownership. Other tests apply for entities that do not involve
ownership.
Family attribution rules
The family attribution rules address the scenarios in which a
person, such as a family member, is treated as having an owner-
ship interest in a business.451 For example, a spouse is generally
attributed their spouse’s ownership unless certain criteria are sat-
isfied.452
One common exception to spousal attribution is for individuals
who are legally separated under a divorce decree.453 Other excep-
tions include spouses who do not directly own any stock in the
business during the taxpayer year, a spouse who is neither an em-
ployee or director nor participates in the management of the busi-
ness at any time during the year, where no more than 50 percent
of the business’ gross income derives from passive investments, and
where the stock is transferable (i.e., is not subject to restrictions)
that are in favor of the individual or his or her minor children (e.g.,
the business owner cannot be required to offer a right of first re-
fusal to his or her spouse or their children before selling the busi-
ness to a third party).
A parent is generally attributed the ownership of a minor child
under the age of 21 and is attributed the ownership of an adult
child, age 21 or older, if the parent owns more than 50 percent of
the business. A minor child is attributed the ownership of a parent
while an adult child is attributed the ownership of a parent only
if the adult child owns more than 50 percent of the business. There
is no exception to the application of the family attribution rules for
450 Sec. 414(c) and the regulations thereunder provide for aggregation of groups under common
control. Section 414(b), (m) and (o) also provide aggregation rules for a controlled group of cor-
porations and affiliated service groups. Under section 414(t), the aggregation rules apply also
for purposes of various benefits other than retirement benefits. In addition, other provisions in-
corporate the aggregation rules by reference, such as section 4980H, requiring certain employers
to offer health coverage to full-time employees.
451 Family attribution can address interests owned between spouses or among parents and
children or grandparents and grandchildren.
452 Sec. 1563(e)(5). For example, if a husband and wife each owned 25 percent of a business,
generally both spouses would be treated as owning 50 percent of that business.
453 Sec. 1563(e).
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a minor child of individuals who are separated or divorced. For ex-
ample, ownership of a business may be attributed to a divorced
spouse through his or her minor child to the extent the exceptions
for marital attribution do not apply.
The application of these rules is impacted by the laws on familial
property ownership in community property state. In such a state,
spouses may be deemed to own half of the property acquired during
a marriage, except under limited circumstances. Accordingly,
spouses in community property states may fail to satisfy the cri-
teria that a spouse does not directly own any stock in the business
during the taxpayer year.
REASONS FOR CHANGE
The Committee believes that there should be an exception to the
family attribution rules to account for community property states
and situations where spouses who are divorced or separated may
be combined in a controlled group due to the spouses’ minor child.
EXPLANATION OF PROVISION
The provision adds special rules to address family attribution
and to disregard community property laws for purposes of deter-
mining ownership of a business.454 For purposes of applying the at-
tribution rules,455 community property laws are disregarded for
purposes of determining ownership. In addition, the stock of an in-
dividual not attributed under section 1563(e)(5) to the individual’s
spouse shall not be attributed to such spouse by reason of section
1563(e)(6)(A), which addresses minor children. Except as provided
by the Secretary, stock in different corporations that is attributed
to a child under section 1563(e)(6)(A) from each parent, but that is
not attributed to such parents as spouses under section 1563(e)(5),
shall not by itself result in such corporations being members of the
same controlled group. If these modifications under the provision
causes two or more entities to be a controlled group, or an affiliated
service group, or to no longer be in a controlled group or affiliated
service group, such change shall be treated as a transaction to
which the special minimum coverage rule for certain dispositions or
acquisitions applies.456
EFFECTIVE DATE
The provision applies to plan years beginning on or after the date
of enactment.
19. AMENDMENTS TO INCREASE BENEFIT ACCRUALS UNDER PLAN
FOR PREVIOUS PLAN YEAR ALLOWED UNTIL EMPLOYER TAX RE-
TURN DUE DATE (SEC. 319 OF THE BILL AND SEC. 401(b) OF THE
CODE)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with the tax qualification
454 Sec. 414(m)(6)(B).
455 Under sec. 1563.
456 Sec. 410(b)(6)(C).
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requirements.457 In general, plan amendments to reflect changes in
the law generally must be made by the time prescribed by law for
filing the income tax return of the employer for the employer’s tax-
able year in which the change in law occurs (including extensions).
Discretionary amendments must be adopted by the end of the plan
year.458 The Secretary may extend the time by which plan amend-
ments need to be made.
Section 201 of the SECURE Act 459 provides that if an employer
adopts a qualified retirement plan after the close of a taxable year
but before the time prescribed by law for filing the return of tax
of the employer for the taxable year (including extensions thereof),
the employer may elect to treat the plan as having been adopted
as of the last day of the taxable year.
REASONS FOR CHANGE
Present law requires that discretionary plan amendments to an
existing retirement plan must generally be adopted by the last day
of the plan year in which the amendment is effective, but an em-
ployer may adopt a new retirement plan by the due date of the em-
ployer’s tax return for the fiscal year in which the plan is effective.
This rule precludes an employer from adding plan provisions to an
existing plan that may be beneficial to participants after the end
of the plan year but before the due date for the employer’s tax re-
turn.
The Committee believes that discretionary amendments to an ex-
isting plan that increase participants’ benefits to a plan for the
prior plan year should be permitted to be adopted up until the date
that the employer’s tax return is due to be filed.
EXPLANATION OF PROVISION
Under the provision, if an employer amends a stock bonus, pen-
sion, profit-sharing, or annuity plan to increase benefits accrued
under the plan effective for the preceding plan year (other than in-
creasing the amount of matching contributions),460 the amendment
would not otherwise cause the plan to fail to meet any of qualifica-
tion requirements, and the amendment is adopted before the time
prescribed by law for filing the return of the employer for a taxable
year (including extensions) during which the amendment is effec-
tive, the employer may elect to treat such amendment as having
been adopted as of the last day of the plan year in which the
amendment is effective.
EFFECTIVE DATE
The provision applies to amendments made in plan years begin-
ning after December 31, 2022.
457 Sec. 401(b).
458 Rev. Proc. 2016–37, .2016–29 I.R.B. 136, June 29, 2016.
459 Sec. 201 of Div. O. of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116–
94, December 20, 2019.
460 As defined in subsection 401(m)(4)(A).
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20. RETROACTIVE FIRST YEAR ELECTIVE DEFERRALS FOR SOLE
PROPRIETORS (SEC. 320 OF THE BILL AND SEC. 401(b) OF THE CODE)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with the tax qualification
requirements.461 In general, plan amendments to reflect changes in
the law generally must be made by the time prescribed by law for
filing the income tax return of the employer for the employer’s tax-
able year in which the change in law occurs (including extensions).
The Secretary may extend the time by which plan amendments
need to be made.
Section 201 of SECURE Act 462 provides that if an employer
adopts a qualified retirement plan after the close of a taxable year
but before the time prescribed by law for filing the return of tax
of the employer for the taxable year (including extensions thereof),
the employer may elect to treat the plan as having been adopted
as of the last day of the taxable year. That provision permits em-
ployers to establish and fund a qualified plan by the due date for
filing the employer’s return for the preceding plan year. However,
that provision does not override rules requiring certain plan provi-
sions to be in effect during a plan year, such as the provision for
elective deferrals under a qualified cash or deferral arrangement
(generally referred to as a ‘‘section 401(k) plan’’).463
Under section 201 of the SECURE Act, a section 401(k) plan of
a sole proprietor can be funded with employer contributions as of
the due date for the business’s return, but the elective deferrals
must be made as of December 31 of the prior year. However, an
individual is deemed to have made a contribution to an individual
retirement plan for a taxable year if it is contributed after the tax-
able year has ended but is made ‘‘on account of’’ that year and be-
fore the due date for filing the IRA owner’s tax return, (generally)
for that year without extensions, (generally, April 15).464
REASONS FOR CHANGE
An employer may establish a new section 401(k) plan after the
end of the taxable year, but before the due date for the employer’s
tax return and treat the plan as having been established on the
last day of the taxable year. Such plans may be funded by em-
ployer contributions for which the employer may take a deduction,
up to the employer’s tax filing date.
The Committee believes that such plans when sponsored by sole
proprietors or single-member LLCs, should be able to receive em-
ployee contributions up to the date of the employee’s tax return fil-
ing date, but only for the initial year in which the plan is estab-
lished.
461 Sec. 401(b).
462 Sec. 201 of Div. O. of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116–
94, December 20, 2019.
463 Treas. Reg. sec. 1.401(k)–1(e)(2)(ii).
464 Sec. 219(f)(3). For taxpayers affected by a federally declared disaster, the IRS has the au-
thority to postpone various tax deadlines for a period of up to one year. Sec. 7508A and ERISA
sec. 518.
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EXPLANATION OF PROVISION
Under the provision, in the case of an individual who owns the
entire interest in an unincorporated trade or business, and who is
the only employee of such trade or business, any elective defer-
ral 465 under a section 401(k) plan to which the preceding sentence
applies which is made by such individual before the time for filing
the return of such individual for the taxable year (determined with-
out regard to any extensions) ending after or with the end of the
plan’s first plan year is treated as having been made before the end
of the plan’s first plan year. This extension of time would only
apply to the first plan year in which the section 401(k) plan is es-
tablished.
EFFECTIVE DATE
The provision is effective for plan years beginning after the date
of enactment.
21. LIMITING CESSATION OF IRA TREATMENT TO PORTION OF AC-
COUNT INVOLVED IN A PROHIBITED TRANSACTION (SEC. 321 OF THE
BILL AND SEC. 408 OF THE CODE)
PRESENT LAW
Background on prohibited transactions may be found in section
I.12 of this document.
Disqualification of IRA in certain prohibited transactions
If an individual for whose benefit an IRA is established (or such
individual’s beneficiary) engages in a prohibited transaction with
respect to the IRA, the IRA loses its tax-favored status and ceases
to be an IRA as of the first day of the taxable year in which the
prohibited transaction occurs.466 As a result, the IRA is treated as
distributing to the individual on the first day of that taxable year
the fair market value of all of the assets in the account. If the fair
market value of the IRA assets exceeds the basis in the account,
the individual has taxable gain that is includible in gross income.
If the individual is under age 591⁄2, the individual may also be sub-
ject to the 10-percent tax on early distributions.467 The individual
and the individual’s beneficiaries are exempt, however, from the ex-
cise tax that otherwise applies to prohibited transactions.468
REASONS FOR CHANGE
The Committee recognizes that many prohibited transactions in-
volving IRAs are inadvertent. In addition, under present law, the
entire IRA is disqualified when the IRA owner or beneficiary en-
gages in a prohibited transaction, regardless of the size of the pro-
hibited transaction. The Committee believes it is appropriate to
treat only the portion of the IRA that is involved in the prohibited
transaction as distributed.
465 As defined in section 402(g)(3).
466 Sec. 408(e)(2). ‘‘Prohibited transaction’’ means a transaction prohibited by section 4975.
467 Sec. 72(t).
468 Sec. 4975(c)(3).
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161
EXPLANATION OF PROVISION
The provision modifies the disqualification rule that applies
when an IRA owner or beneficiary engages in a prohibited trans-
action so that only the portion of the IRA that is used in the pro-
hibited transaction is treated as distributed to the individual.
Thus, under the provision, if an IRA owner or beneficiary engages
in a prohibited transaction with respect to the IRA, the portion of
the account used in the transaction is treated as distributed to the
individual as of the first day of the taxable year in which the trans-
action occurred (using fair market value of the portion on that first
day).
EFFECTIVE DATE
The provision applies to taxable years beginning after date of en-
actment.
TITLE IV—TECHNICAL AMENDMENTS
1. AMENDMENTS RELATING TO SETTING EVERY COMMUNITY UP FOR
RETIREMENT ENHANCEMENT ACT OF 2019 (SEC. 401 OF THE BILL
AND SECS. 401(a)(9) AND 4973 OF THE CODE)
PRESENT LAW
Increase in age for required beginning date for mandatory distribu-
tions
The SECURE Act changed the age on which the required begin-
ning date for required minimum distributions was based, from age
701⁄2 to age 72.469 Background on these rules may be found in sec-
tion I.5 of this document.
Difficulty of care payments
The SECURE Act also modified certain retirement contribution
limits as they apply to ‘‘difficulty of care’’ payments.470 A difficulty
of care payment is compensation for providing the additional care
needed for certain qualified foster individuals.471 Such payments
are excludable from gross income. Generally, the amount that may
be contributed to an IRA is limited by the compensation that is in-
cludible in an individual’s gross income for the taxable year.472
However, the SECURE Act modified the limit on nondeductible
contributions to a traditional IRA to generally allow an individual
to contribute a difficulty of care payment.473 Under the SECURE
Act, if the deductible amount of IRA contributions in effect for a
taxable year (which is tied to the amount of nondeductible con-
tributions that may be made) exceeds the individual’s compensa-
tion that is includible in gross income, the individual may elect to
increase the limit on nondeductible contributions by the amount of
the difficulty of care payment (or, if less, the excess of the deduct-
ible amount of IRA contributions over the individual’s compensa-
tion for the year).
469 Pub. L. No. 116–94, Division O, sec. 114.
470 Pub. L. No. 116–94, Division O, sec. 116.
471 Sec. 131(c).
472 Secs. 408(o)(2) and 408A(c)(2).
473 Sec. 408(o)(5).
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162
EXCISE TAX ON EXCESS IRA CONTRIBUTIONS
To the extent that contributions to an IRA exceed the contribu-
tion limits, the individual is subject to an excise tax equal to six
percent of the excess amount.474 This excise tax generally applies
each year until the excess amount is distributed.
REASONS FOR CHANGE
The Committee wishes to clarify certain provisions of the SE-
CURE Act.
EXPLANATION OF PROVISION 475
The provision clarifies that the increase in the age on which the
required beginning date for required minimum distributions is
based (to age 72) does not change the general requirement to actu-
arially increase the accrued benefit of an employee who retires in
a calendar year after the year the employee attains age 701⁄2 (other
than a five-percent owner) to take into account the period after age
701⁄2 in which the employee was not receiving any benefits under
the plan.476
The provision also clarifies that the excise tax on excess contribu-
tions to an IRA generally does not apply to difficulty of care pay-
ments contributed to an IRA.477
EFFECTIVE DATE
The amendments made by the provision are effective as if in-
cluded in the section of the SECURE Act to which the amendment
relates.
TITLE V—ADMINISTRATIVE PROVISIONS
1. PROVISIONS RELATING TO PLAN AMENDMENTS (SEC. 501 OF THE
BILL)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with tax qualification re-
quirements.478 In general, plan amendments to reflect changes in
the law generally must be made by the time prescribed by law for
filing the income tax return of the employer for the employer’s tax-
able year in which the change in law occurs (including extensions).
The Secretary may extend the time by which plan amendments
need to be made.
The Code and ERISA provide that, in general, accrued benefits
cannot be reduced by a plan amendment.479 This prohibition on the
474 Secs. 4973(b) and (f).
475 In addition to the clarifications described below, the provision fixes a clerical error in sec-
tion 72(t).
476 Sec. 401(a)(9)(C)(iii).
477 The excise tax does not apply to any designated nondeductible contribution to an IRA that
does not exceed the limit on nondeductible contributions by reason of the individual’s election
to increase such limit to account for the difficulty of care payment. Sec. 4973(b) (as amended
by this provision).
478 Sec. 401(b).
479 Code sec. 411(d)(6); ERISA sec. 204(g).
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163
reduction of accrued benefits is commonly referred to as the ‘‘anti-
cut-back rule.’’
REASONS FOR CHANGE
The Committee recognizes that it may be difficult for plan spon-
sors to amend their plans in order to implement the provisions of
this bill at the time such provisions become effective. The Com-
mittee therefore believes it is appropriate to offer relief to plans
and allow for retroactive amendments.
EXPLANATION OF PROVISION
The provision permits certain plan amendments made pursuant
to the changes in the Act, or regulations issued thereunder, to be
retroactively effective. If a plan amendment meets the require-
ments of the provision, then the plan will be treated as being oper-
ated in accordance with its terms, and the amendment will not vio-
late the anti-cut-back rule. In order for this treatment to apply, the
plan must be operated as if the plan amendment were in effect,
and the amendment is required to be made on or before the last
day of the first plan year beginning on or after January 1, 2023 (or
such later date as the Secretary may prescribe). However, if the
plan is a governmental plan, the amendment is required to be
made on or before the last day of the first plan year beginning on
or after January 1, 2025 (or such later date as the Secretary may
prescribe).
If the amendment is required to be made to retain qualified sta-
tus as a result of the changes in the law (or regulations), the
amendment is required to be made retroactively effective as of the
date on which the change became effective with respect to the plan
and the plan is required to be operated in compliance until the
amendment is made. Amendments that are not required to retain
qualified status but that are made pursuant to the changes made
by the Act (or applicable regulations) may be made retroactively ef-
fective as of the first day the amendment is effective.
A plan amendment will not be considered to be pursuant to the
Act (or applicable regulations) if it has an effective date before the
effective date of the provision under the Act (or regulations) to
which it relates. Similarly, the provision does not provide relief
from the anti-cut-back rule for periods prior to the effective date of
the relevant provision (or regulations) or the plan amendment. The
Secretary (or the Secretary’s delegate) is authorized to provide ex-
ceptions to the relief from the prohibition on reductions in accrued
benefits. It is intended that the Secretary will not permit inappro-
priate reductions in contributions or benefits that are not directly
related to the provisions under the Act.
The provision also amends the deadlines for certain plan amend-
ments made pursuant to the SECURE Act and the Coronavirus
Aid, Relief, and Economic Security Act, to conform with the dead-
lines provided under this provision.480
480 The provision modifies the general deadlines for plan amendments under the SECURE Act
(section 601 of the SECURE Act), and the deadlines for amendments relating to coronavirus-
related distributions and the waiver of required minimum distributions under the Coronavirus
Aid, Relief, and Economic Security Act, Pub. L. No. 116–136, sections 2202 and 2203.
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164
EFFECTIVE DATE
The provision is effective on date of enactment.
TITLE VI—REVENUE PROVISIONS
1. SIMPLE AND SEP ROTH IRAS (SEC. 601 OF THE BILL AND SECS
408A, 408, 402 OF THE CODE)
PRESENT LAW
An IRA is generally established by an individual for whom the
IRA is maintained.481 In some cases, an employer may establish
IRAs on behalf of employees and provide retirement contributions
to the IRAs. In addition, IRA treatment may apply to accounts
maintained for employees under a trust created by an employer (or
an employee association) for the exclusive benefit of employees or
their beneficiaries, provided that the trust complies with the rel-
evant IRA requirements and separate accounting is maintained for
the interest of each employee or beneficiary.482 In that case, the as-
sets of the trust may be held in a common fund for the account of
all individuals who have an interest in the trust.
There are two basic types of IRAs: traditional IRAs, to which de-
ductible or nondeductible contributions can be made, and Roth
IRAs, contributions to which are not deductible. The total contribu-
tions made to all IRAs for a year cannot exceed $6,000 (for 2021),
plus an additional $1,000 (not indexed) in catch-up contributions
for individuals age 50 or older. Certain individuals are not per-
mitted to make deductible contributions to a traditional IRA or to
make contributions to a Roth IRA, depending on their income.
Distributions from traditional IRAs are generally includible in in-
come, except to the extent a portion of the distribution is treated
as a recovery of the individual’s basis (if any). Qualified distribu-
tions from a Roth IRA are excluded from income; 483 other distribu-
tions from a Roth IRA are includible in income to the extent of
earnings. IRA distributions generally can be rolled over to another
IRA or qualified retirement plan; however, a distribution from a
Roth IRA generally can be rolled over only to another Roth IRA or
a designated Roth account.
Savings Incentive Match Plan for Employees (‘‘SIMPLE’’) plans
and Simplified Employee Pension (‘‘SEP’’) plans are special types
of employer-sponsored retirement plans to which the employer
makes contributions to IRAs established for each of the employer’s
employees in accordance with the Code requirements for each type
of plan.484 SIMPLE IRAs and SEPs may not be designated as Roth
IRAs.485
481 Secs. 219, 408, and 408A provide the rules for IRAs. Under section 408(a)(2) and (n), only
certain entities are permitted to be the trustee of an IRA. The trustee of an IRA generally must
be a bank, an insured credit union, or a corporation subject to supervision and examination by
the Commissioner of Banking or other officer in charge of the administration of the banking
laws of the State in which it is incorporated. Alternatively, an IRA trustee may be another per-
son who demonstrates to the satisfaction of the Secretary that the manner in which the person
will administer the IRA will be consistent with the IRA requirements.
482 Sec. 408(c).
483 A qualified distribution is a distribution that (1) is made after the five-taxable-year period
beginning with the first taxable year for which the individual first made a contribution to a
Roth IRA, and (2) is made after attainment of age 591⁄2, on account of death or disability, or
is made for first-time homebuyer expenses of up to $10,000. Sec. 408A(d)(2).
484 Secs. 408(p), (k).
485 Sec. 408A(f)(1).
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SIMPLE IRA plans
An employer is generally eligible to establish a SIMPLE IRA
plan if it had no more than 100 employees who received at least
$5,000 of compensation from the employer in the preceding year.486
Contributions to a SIMPLE IRA plan may include employee salary
reduction contributions (i.e., elective deferrals) and employer con-
tributions either in the form of matching contributions up to three
percent of an employee’s compensation or nonelective contributions
of a flat two percent of compensation regardless of the employee’s
elective deferral.
SIMPLE IRA plans may be designed so that the employee will
receive cash compensation unless the employee affirmatively elects
to make elective deferrals to the plan. Alternatively, a plan may
provide that elective deferrals are made at a specified rate (when
the employee becomes eligible to participate) unless the employee
elects otherwise (i.e., affirmatively elects not to make contributions
or to make contributions at a different rate). This alternative plan
design is referred to as automatic enrollment. Starting with taxable
years after December 31, 2019, eligible employers are allowed a
credit of $500 per year for up to three years for startup costs for
new SIMPLE IRA plans that include automatic enrollment. An em-
ployer is also allowed a credit of $500 per year for up to three years
if it converts an existing plan to an automatic enrollment design.
There is an annual threshold on the amount of an elective defer-
ral that an employee may make to a SIMPLE IRA plan (subject to
cost of living adjustments). The salary reduction contributions
under a SIMPLE IRA plan count toward the overall annual limit
on elective deferrals an employee may make to this and other plans
permitting elective deferrals. For 2021, the annual contribution
limit for SIMPLE IRA plans is $13,500. If permitted by the SIM-
PLE IRA plan, participants who are age 50 or above at the end of
the calendar year may also make catch up contributions, the limit
for which is $3,000 in 2021.
SEP IRA plans
A Simplified Employee Pension (‘‘SEP’’) plan is a special type of
employer-sponsored retirement plan whereby only the employer
makes contributions to the plan.487 Unlike SIMPLE IRA plans, any
size employer may establish a SEP plan. The amount of the con-
tribution to the SEP IRA plan is up to the lesser of 25 percent of
the employee’s compensation or the dollar limit applicable to con-
tributions to a qualified defined contribution plan ($58,000 for
2021).488 A traditional IRA is set up for each eligible employee, and
all contributions must be fully vested. Any employee must be eligi-
ble to participate in the SEP if the employee has (1) attained age
21, (2) performed services for the employer during at least three of
the immediately preceding five years, and (3) received at least $650
(for 2021) in compensation from the employer for the year.489 Con-
tributions to a SEP generally must bear a uniform relationship to
compensation.
486 Sec. 408(p).
487 Sec. 408(k).
488 Ibid.
489 The annual compensation limit for SEPs is $290,000.
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