Protecting America’s Retirement Security Act of 2022
Summary
Part 1 of Report 117-557 of the 117th Congress, 2d Session, dated November 14, 2022, in which Mr. Scott of Virginia reports for the Committee on Education and Labor, together with minority views, on H.R. 7310, the Protecting America's Retirement Security Act of 2022. The committee reports the bill favorably with an amendment and recommends that the bill as amended do pass. The minority views, closing with the names of Ranking Member Virginia Foxx and other members, say that before Committee Democrats push a partisan bill, they should work with Republicans to enact the RISE Act and the SSRA.
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“Protecting America’s Retirement Security Act of 2022.”
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117TH CONGRESS REPT. 117–557
" HOUSE OF REPRESENTATIVES !
2d Session Part 1
PROTECTING AMERICA’S RETIREMENT SECURITY ACT OF
2022
NOVEMBER 14, 2022.—Ordered to be printed
Mr. SCOTT of Virginia, from the Committee on Education and
Labor, submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 7310]
The Committee on Education and Labor, to whom was referred
the bill (H.R. 7310) to protect America’s retirement security, and
for other purposes, having considered the same, reports favorably
thereon with an amendment and recommends that the bill as
amended do pass.
CONTENTS
Page
Purpose and Summary ............................................................................................ 14
Committee Action .................................................................................................... 15
Committee Views ..................................................................................................... 17
Section-by-Section Analysis .................................................................................... 23
Explanation of Amendments ................................................................................... 24
Application of Law to the Legislative Branch ....................................................... 24
Unfunded Mandate Statement ............................................................................... 24
Earmark Statement ................................................................................................. 25
Roll Call Votes ......................................................................................................... 25
Statement of Performance Goals and Objectives .................................................. 30
Duplication of Federal Programs ............................................................................ 30
Hearings ................................................................................................................... 30
Statement of Oversight Findings and Recommendations of the Committee ...... 30
New Budget Authority and CBO Cost Estimate ................................................... 30
Committee Cost Estimate ....................................................................................... 30
Changes in Existing Law Made by the Bill, as Reported ..................................... 31
Minority Views ......................................................................................................... 147
The amendment is as follows:
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Strike all after the enacting clause and insert the following:
39–006
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SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Protecting America’s Retirement
Security Act of 2022’’.
(b) TABLE OF CONTENTS.—The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Defined contribution plan fee disclosure improvements.
Sec. 3. Personal finance education portal.
Sec. 4. Increasing spousal protection under defined contribution plans.
Sec. 5. Automatic reenrollment.
Sec. 6. Employee Ownership and Participation Initiative.
Sec. 7. Refund to Rainy Day Savings Program.
SEC. 2. DEFINED CONTRIBUTION PLAN FEE DISCLOSURE IMPROVEMENTS.
Not later than 2 years after the date of enactment of this Act, the Secretary of
Labor shall review section 2550.404a-5 of title 29, Code of Federal Regulations, and
explore how the content and design of the covered disclosures may be improved to
enhance participants’ understanding of fees and expenses as well as the cumulative
effect of fees and expenses on retirement savings over time. As part of such review,
the Secretary shall conduct outreach to stakeholders, including those representing
plan sponsors and retirement plan participants.
SEC. 3. PERSONAL FINANCE EDUCATION PORTAL.
(a) IN GENERAL.—Not later than 3 years after the date of enactment of this Act,
the Secretary of Education, in consultation with the Director of the Bureau of Con-
sumer Financial Protection, the Secretary of the Treasury as chair of the Financial
Literacy and Education Commission, and the Commissioner of Internal Revenue,
shall create a personal finance education portal on a centralized and publicly avail-
able website of the Department of Education pertaining to Federal financial aid for
voluntary use by recipients of aid awarded under title IV of the Higher Education
Act of 1965.
(b) CONTENT OF PERSONAL FINANCE EDUCATION PORTAL.—The personal finance
education portal created under subsection (a) shall include information on personal
finance concepts, including the following:
(1) Core personal finance concepts, such as earning, saving, investing, spend-
ing, and borrowing, including—
(A) the concept of compound growth as it applies to savings and retire-
ment savings, with information about the different types of retirement sav-
ings accounts; and
(B) budgeting and credit usage.
(2) Managing student loan repayment, including—
(A) the interaction between savings and retirement decisions and Federal
student loan repayment plans;
(B) Federal student loan discharge or forgiveness options;
(C) the types of voluntary benefits employers may use to help workers
while they are paying down student loan debt;
(D) tax credits or deductions that are relevant to student loan borrowers
in repayment; and
(E) any other Federal policies that significantly impact student loan bor-
rowers in repayment, as determined by the Secretary.
(3) Any other personal finance concepts determined relevant by the Secretary
of Education, in consultation with the Director of the Bureau of Consumer Fi-
nancial Protection, the Secretary of the Treasury as chair of the Financial Lit-
eracy and Education Commission, and the Commissioner of Internal Revenue.
(c) PROVISION OF CONTENT.—The personal finance content included under sub-
section (b) may be provided in an interactive format through text or video.
(d) ANALYTICS.—The Secretary of Education, in consultation with the Director of
the Bureau of Consumer Financial Protection, the Secretary of the Treasury as
chair of the Financial Literacy and Education Commission, and the Commissioner
of Internal Revenue, shall review not less than once every three years the utiliza-
tion of the portal, make recommendations to improve the portal, and make such
findings and recommendations publicly available.
(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated
such sums as may be necessary to carry out this section.
SEC. 4. INCREASING SPOUSAL PROTECTION UNDER DEFINED CONTRIBUTION PLANS.
(a) AMENDMENTS TO EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.—
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(1) IN GENERAL.—Part 2 of subtitle B of title I of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1051 et seq.) is amended by inserting
after section 205 the following new section:
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‘‘SEC. 205A. ADDITIONAL SPOUSAL CONSENT REQUIREMENTS.
‘‘(a) IN GENERAL.—Each individual account plan to which section 205 does not
apply (but to which this title otherwise applies) shall provide that, except as pro-
vided in subsections (c) and (d), no distribution may be made under the plan unless
the spousal consent requirements of subsection (e) are met.
‘‘(b) COORDINATION WITH SECTION 205.—Nothing in this section shall be construed
to exempt an individual account plan from the requirements of paragraph (1)(B),
(1)(C), or (2) of section 205(b) with respect to any participant.
‘‘(c) EXCEPTIONS FOR CERTAIN DISTRIBUTIONS.—Subsection (a) shall not apply to—
‘‘(1) any distribution that is—
‘‘(A) a minimum required distribution described in section 4974(b) of the
Internal Revenue Code of 1986; or
‘‘(B) permitted under section 203(e)(1) to be made without the consent of
the participant;
‘‘(2) any distribution in the form of a qualified joint and survivor annuity (as
defined in section 205(d)(1)), a qualified optional survivor annuity (as defined
in section 205(d)(2)), a qualified preretirement survivor annuity (as defined in
section 205(e)), or a series of substantially equal periodic payments (not less fre-
quently than annually) made for the joint lives (or life expectancies) of the par-
ticipant and the participant’s spouse; or
‘‘(3) in the case of a participant who does not elect a form of benefit described
in paragraph (2) under the plan or who is participating in a plan that does not
provide such a form of benefit, any distribution of the participant’s entire non-
forfeitable accrued benefit if 50 percent of such accrued benefit is transferred
to an individual retirement plan (as defined in section 7701(a)(37) of the Inter-
nal Revenue Code of 1986) of the spouse of the participant.
A transfer described in paragraph (3) to an individual retirement plan shall be
treated in the same manner as a transfer under section 408(d)(6) of the Internal
Revenue Code of 1986.
‘‘(d) EXCEPTIONS FOR CERTAIN ROLLOVER CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—Subsection (a) shall not apply to any distribution that is
an eligible rollover distribution (as defined in section 402(f)(2)(A) of the Internal
Revenue Code of 1986) made in the form of a direct trustee-to-trustee transfer
within the meaning of section 401(a)(31) of the Internal Revenue Code of 1986—
‘‘(A) to a plan to which this section or section 205 applies; or
‘‘(B) to an individual retirement plan (as defined in section 7701(a)(37) of
the Internal Revenue Code of 1986) if—
‘‘(i) the sole beneficiary of such plan is the spouse of the participant,
or the spousal consent requirements of subsection (e) are met with re-
spect to any designation of 1 or more other beneficiaries; and
‘‘(ii) under the terms of the individual retirement plan, the bene-
ficiary of such plan (whether the spouse or other beneficiary designated
under subparagraph (A)) may not be changed unless—
‘‘(I) the spousal consent requirements of subsection (e) are met
with respect to any such change; or
‘‘(II) the spousal consent under clause (i) to the designation of a
beneficiary other than the spouse expressly permits such designa-
tion to be changed without the further consent of the spouse.
‘‘(2) REGULATORY AUTHORITY.—The Secretary of the Treasury and the Sec-
retary of Labor may jointly issue regulations to implement subparagraphs (A)
and (B) of paragraph (1).
‘‘(e) SPOUSAL CONSENT REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this section, except as provided in para-
graph (2), the spousal consent requirements of this subsection are met with re-
spect to any distribution or any designation or change of beneficiary if—
‘‘(A) the plan provides to each participant, within a reasonable period of
time before such distribution or designation or change of beneficiary is
made and consistent with such regulations as the Secretary of the Treasury
may prescribe, a written explanation of the rights of the participant and the
participant’s spouse under this section;
‘‘(B) the spouse of the participant consents in writing to the distribution
or designation or change of beneficiary;
‘‘(C) in the case of a distribution, the written consent under subparagraph
(B) is made during the consent period; and
‘‘(D) the written consent under subparagraph (B)—
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‘‘(i) acknowledges the effect of such distribution or designation or
change of beneficiary; and
‘‘(ii) is witnessed by a plan representative or a notary public.
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‘‘(2) EXCEPTIONS.—The requirements of paragraph (1) (other than subpara-
graph (A) thereof) shall not apply with respect to any distribution or designa-
tion or change of beneficiary if a participant establishes to the satisfaction of
the administrator that—
‘‘(A) there is no spouse;
‘‘(B) the participant and the participant’s spouse have not been married
for at least 1 year as of the date of the distribution or designation or change
of beneficiary; or
‘‘(C) such consent cannot be obtained because—
‘‘(i) the spouse cannot be located after taking documented search ef-
forts in accordance with guidance from the Secretary of Labor;
‘‘(ii) due to exceptional circumstances, requiring the participant to
seek the spouse’s consent would be inappropriate; or
‘‘(iii) of such other circumstances as the Secretary of the Treasury, in
consultation with the Secretary of Labor, may by regulations prescribe.
The Secretary of Labor may issue regulations to implement this paragraph.
‘‘(3) CONSENT LIMITED TO SPOUSE AND EVENT.—Any written consent by a
spouse under paragraph (1), or the establishment by a participant that an ex-
ception under paragraph (2) applies with respect to a spouse, shall be effective
only with respect to that spouse and to the distribution or designation or change
of beneficiary to which it relates.
‘‘(4) CONSENT PERIOD.—For purposes of this subsection, the term ‘consent pe-
riod’ means, with respect to any distribution—
‘‘(A) the 90-day period immediately preceding the date of such distribu-
tion; or
‘‘(B) such other period as the Secretary of the Treasury may provide.
‘‘(f) DISCHARGE OF PLAN FROM LIABILITY.—Rules similar to the rules of section
205(c)(6) shall apply for purposes of this section.’’.
(2) CLERICAL AMENDMENT.—The table of sections of part 2 of subtitle B of title
I of the Employee Retirement Income Security Act of 1974 is amended by in-
serting after the item relating to section 205 the following new item:
‘‘Sec. 205A. Additional spousal consent requirements.’’.
(3) PARALLEL AMENDMENT TO SECTION 205.—Section 205(c)(2)(B) of the Em-
ployee Retirement Income Security Act of 1974 (29 U.S.C. 1055(c)(2)(B)) is
amended by inserting ‘‘, because due to exceptional circumstances, requiring the
participant to seek the spouse’s consent would be inappropriate’’ after ‘‘located’’.
(b) CONFORMING AMENDMENT TO INTERNAL REVENUE CODE OF 1986.—Section
401(a) of the Internal Revenue Code of 1986 is amended by inserting after para-
graph (17) the following new paragraph:
‘‘(18) ADDITIONAL SPOUSAL CONSENT REQUIREMENTS.—
‘‘(A) IN GENERAL.—To the extent paragraph (11) does not apply to a de-
fined contribution plan to which title I of the Employee Retirement Income
Security Act of 1974 applies, except as provided in subparagraphs (C) and
(D), a trust forming part of such plan shall not constitute a qualified trust
under this section unless no distribution may be made under the plan un-
less the spousal consent requirements of subparagraph (E) are met.
‘‘(B) COORDINATION WITH PARAGRAPH (11).—Nothing in this paragraph
shall be construed to exempt a defined contribution plan from the require-
ments of subparagraph (B)(ii), (B)(iii), or (C) of paragraph (11) with respect
to any participant.
‘‘(C) EXCEPTIONS FOR CERTAIN DISTRIBUTIONS.—Subparagraph (A) shall
not apply to—
‘‘(i) any distribution that is—
‘‘(I) a minimum required distribution described in section
4974(b), or
‘‘(II) permitted under section 411(a)(11) to be made without the
consent of the participant,
‘‘(ii) any distribution in the form of a qualified joint and survivor an-
nuity (as defined in section 417(b)), a qualified optional survivor annu-
ity (as defined in section 417(g)), a qualified preretirement survivor an-
nuity (as defined in section 417(c)), or a series of substantially equal
periodic payments (not less frequently than annually) made for the
joint lives (or life expectancies) of the participant and the participant’s
spouse, or
‘‘(iii) in the case of a participant who does not elect a form of benefit
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described in clause (ii) under the plan or who is participating in a plan
that does not provide such a form of benefit, any distribution of the
participant’s entire nonforfeitable accrued benefit if 50 percent of such
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accrued benefit is directly transferred to an individual retirement plan
of the spouse of the participant.
A transfer described in clause (iii) to an individual retirement plan shall
be treated in the same manner as a transfer under section 408(d)(6) and
shall be deemed not to violate paragraph (2) or (13).
‘‘(D) EXCEPTIONS FOR CERTAIN ROLLOVER CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—Subparagraph (A) shall not apply to any distribu-
tion, involving a participant who has a spouse, that is an eligible roll-
over distribution (as defined in section 402(f)(2)(A)) made in the form
of a direct trustee-to-trustee transfer within the meaning of paragraph
(31)—
‘‘(I) to a plan to which this paragraph or paragraph (11) applies;
or
‘‘(II) to an individual retirement plan if—
‘‘(aa) the sole beneficiary of such plan is the spouse of the
participant, or the spousal consent requirements of subpara-
graph (E) are met with respect to any designation of 1 or more
other beneficiaries; and
‘‘(bb) under the terms of the individual retirement plan, the
beneficiary of such plan (whether the spouse or other bene-
ficiary designated under clause (i)) may not be changed un-
less—
‘‘(AA) the spousal consent requirements of subparagraph
(E) are met with respect to any such change, or
‘‘(BB) the spousal consent under subclause (I) to the des-
ignation of a beneficiary other than the spouse expressly
permits such designation to be changed without the fur-
ther consent of the spouse.
‘‘(ii) REGULATORY AUTHORITY.—The Secretary of the Treasury, in con-
sultation with the Secretary of Labor, may issue regulations to imple-
ment subparagraphs subclauses (I) and (II) or clause (i).
‘‘(E) SPOUSAL CONSENT REQUIREMENTS.—
‘‘(i) IN GENERAL.—For purposes of this paragraph, except as provided
in clause (ii), the spousal consent requirements of this subparagraph
are met with respect to any distribution or any designation or change
of beneficiary if—
‘‘(I) the plan provides to each participant, within a reasonable pe-
riod of time before such distribution or designation or change of
beneficiary is made and consistent with such regulations as the
Secretary may prescribe, a written explanation of the rights of the
participant and the participant’s spouse under this paragraph,
‘‘(II) the spouse of the participant consents in writing to the dis-
tribution or designation or change of beneficiary,
‘‘(III) in the case of a distribution, the written consent under sub-
clause (II) is made during the consent period, and
‘‘(IV) the written consent under subclause (ii)—
‘‘(aa) acknowledges the effect of such distribution or designa-
tion or change of beneficiary, and
‘‘(bb) is witnessed by a plan representative or a notary pub-
lic.
‘‘(ii) EXCEPTIONS UNDER SECTION 417(A)(2)(B) TO APPLY.—The require-
ments of clause (i) (other than subclause (I) thereof) shall not apply
with respect to any distribution or designation or change of beneficiary
if a participant establishes to the satisfaction of the administrator
that—
‘‘(I) there is no spouse,
‘‘(II) the participant and the participant’s spouse have not been
married for at least 1 year as of the date of the distribution or des-
ignation or change of beneficiary, or
‘‘(III) such consent cannot be obtained because—
‘‘(aa) the spouse cannot be located after taking documented
search efforts in accordance with guidance from the Secretary
of Labor;
‘‘(bb) due to exceptional circumstances, requiring the partici-
pant to seek the spouse’s consent would be inappropriate; or
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‘‘(cc) of such other circumstances as the Secretary, in con-
sultation with the Secretary of Labor, may by regulations pre-
scribe.
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The Secretary, in consultation with the Secretary of Labor, may issue
regulations to implement this clause.
‘‘(iii) CONSENT LIMITED TO SPOUSE AND EVENT.—Any written consent
by a spouse under clause (i), or the establishment by a participant that
an exception under clause (ii) applies with respect to a spouse, shall be
effective only with respect to that spouse and to the distribution or des-
ignation or change of beneficiary to which it relates.
‘‘(iv) CONSENT PERIOD.—For purposes of this subparagraph, the term
‘consent period’ means, with respect to any distribution—
‘‘(I) the 90-day period immediately preceding the date of such dis-
tribution, or
‘‘(II) such other period as the Secretary may provide.’’.
SEC. 5. AUTOMATIC REENROLLMENT.
(a) ELIGIBLE AUTOMATIC CONTRIBUTION ARRANGEMENTS.—
(1) AMENDMENT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974.—Section 514(e)(2) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1144(e)(2)) is amended—
(A) by redesignating subparagraphs (A) through (C) as clauses (i) through
(iii), respectively, and moving the margins of such clauses 2 ems to the
right,
(B) by striking ‘‘(2) For purposes of’’ and inserting ‘‘(2)(A) For purposes
of’’, and
(C) by adding at the end the following:
‘‘(B) In the case of an automatic contribution arrangement taking effect
after December 31, 2024, the requirements of subparagraph (A)(ii) shall be
treated as met only if, under the arrangement, at least every 3 years each
employee—
‘‘(i) who is eligible to participate in the arrangement, and
‘‘(ii) who, at the time of the determination, has in effect an affirma-
tive election pursuant to subparagraph (A)(ii) not to have contributions
described in such subparagraph made,
is treated as having made the election at the uniform percentage of com-
pensation described in subparagraph (A)(ii) unless the employee makes a
new election under such subparagraph. Such determination may be made
at one time for all employees described in the preceding sentence for a plan
year, regardless of individual employee dates of enrollment.’’.
(2) AMENDMENT TO THE INTERNAL REVENUE CODE OF 1986.—Section 414(w)(3)
of the Internal Revenue Code of 1986 is amended—
(A) by redesignating subparagraphs (A) through (C) as clauses (i) through
(iii), respectively, and moving the margins of such clauses 2 ems to the
right;
(B) by striking ‘‘ For purposes of’’ and inserting the following:
‘‘(A) IN GENERAL.—For purposes of’’
(C) by adding at the end the following new subparagraph:
‘‘(B) PERIODIC AUTOMATIC DEFERRAL REQUIRED.—In the case of an eligible
automatic contribution arrangement taking effect after December 31, 2024,
the requirements of this subsection shall be treated as met only if, under
the arrangement, at least every 3 plan years each employee—
‘‘(i) who is eligible to participate in the arrangement, and
‘‘(ii) who, at the time of the determination, has in effect an affirma-
tive election under subparagraph (A)(ii) not to have such contributions
described in such subparagraph made,
is treated as having made the election at the uniform percentage level de-
scribed in subparagraph (A)(ii) unless the employee makes a new election
under such subparagraph. Such determination may be made at one time for
all employees described in the preceding sentence for a plan year, regard-
less of individual employee dates of enrollment.’’
(b) QUALIFIED AUTOMATIC CONTRIBUTION ARRANGEMENTS.—
(1) IN GENERAL.—Section 401(k)(13)(C) of the Internal Revenue Code of 1986
is amended by adding at the end the following new clause:
‘‘(v) PERIODIC AUTOMATIC DEFERRAL REQUIRED FOR POST-2024 AR-
RANGEMENTS.—In the case of a qualified automatic contribution ar-
rangement which takes effect after December 31, 2024, the require-
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ments of this subparagraph shall be treated as met only if, under the
arrangement, at least every 3 plan years each employee—
‘‘(I) who is eligible to participate in the arrangement, and
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‘‘(II) who, at the time of the determination, has in effect an af-
firmative election pursuant to clause (ii) not to have contributions
described in clause (i) made,
is treated as having made the election described in clause (i) unless the
employee makes a new affirmative election under clause (ii). Such de-
termination may be made at one time for all employees described in the
preceding sentence for a plan year, regardless of individual employee
dates of enrollment.’’
(2) CONFORMING AMENDMENTS.—Clause (iv) of section 401(k)(13)(C) of such
Code is amended—
(A) in the heading, by inserting ‘‘for pre-2025 arrangements’’ after ‘‘re-
quired’’; and
(B) by striking ‘‘Clause (i)’’ and inserting ‘‘In the case of a qualified auto-
matic contribution arrangement in effect before January 1, 2025, clause (i)’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to ar-
rangements taking effect after December 31, 2024.
SEC. 6. EMPLOYEE OWNERSHIP AND PARTICIPATION INITIATIVE.
(a) DEFINITIONS.—In this section:
(1) EXISTING PROGRAM.—The term ‘‘existing program’’ means a program, de-
signed to promote employee ownership and employee participation in business
decisionmaking, that exists on the date on which the Secretary is carrying out
a responsibility authorized under this section.
(2) INITIATIVE.—The term ‘‘Initiative’’ means the Employee Ownership and
Participation Initiative established under subsection (b).
(3) NEW PROGRAM.—The term ‘‘new program’’ means a program, designed to
promote employee ownership and employee participation in business decision-
making, that does not exist on the date on which the Secretary is carrying out
a responsibility authorized under this section.
(4) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of Labor.
(5) STATE.—The term ‘‘State’’ has the meaning given the term under section
3 of the Workforce Innovation and Opportunity Act (29 U.S.C. 3102).
(b) EMPLOYEE OWNERSHIP AND PARTICIPATION INITIATIVE.—
(1) ESTABLISHMENT.—The Secretary of Labor shall establish within the De-
partment of Labor an Employee Ownership and Participation Initiative to pro-
mote employee ownership and employee participation in business decision-
making.
(2) FUNCTIONS.—In carrying out the Initiative, the Secretary shall—
(A) support within the States existing programs designed to promote em-
ployee ownership and employee participation in business decisionmaking;
and
(B) facilitate within the States the formation of new programs designed
to promote employee ownership and employee participation in business de-
cisionmaking.
(3) DUTIES.—To carry out the functions enumerated in paragraph (2), the Sec-
retary shall—
(A) support new programs and existing programs by—
(i) making Federal grants authorized under subsection (d); and
(ii) acting as a clearinghouse on techniques employed by new pro-
grams and existing programs within the States, and disseminating in-
formation relating to those techniques to the programs; and
(B) facilitate the formation of new programs, in ways that include holding
or funding an annual conference of representatives from States with exist-
ing programs, representatives from States developing new programs, and
representatives from States without existing programs.
(c) PROGRAMS REGARDING EMPLOYEE OWNERSHIP AND PARTICIPATION.—
(1) ESTABLISHMENT OF PROGRAM.—Not later than 180 days after the date of
enactment of this Act, the Secretary shall establish a program to encourage new
programs and existing programs within the States to foster employee ownership
and employee participation in business decisionmaking throughout the United
States.
(2) PURPOSE OF PROGRAM.—The purpose of the program established under
paragraph (1) is to encourage new and existing programs within the States that
focus on—
(A) providing education and outreach to inform employees and employers
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about the possibilities and benefits of employee ownership, business owner-
ship succession planning, and employee participation in business decision-
making, including providing information about financial education, em-
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8
ployee teams, open-book management, and other tools that enable employ-
ees to share ideas and information about how their businesses can succeed;
(B) providing technical assistance to assist employee efforts to become
business owners, to enable employers and employees to explore and assess
the feasibility of transferring full or partial ownership to employees, and to
encourage employees and employers to start new employee-owned busi-
nesses; and
(C) training employees and employers with respect to methods of em-
ployee participation in open-book management, work teams, committees,
and other approaches for seeking greater employee input.
(3) PROGRAM DETAILS.—The Secretary may include, in the program estab-
lished under paragraph (1), provisions that—
(A) in the case of activities described in paragraph (2)(A)—
(i) target key groups, such as retiring business owners, senior man-
agers, unions, trade associations, community organizations, and eco-
nomic development organizations;
(ii) encourage cooperation in the organization of workshops and con-
ferences; and
(iii) prepare and distribute materials concerning employee ownership
and participation, and business ownership succession planning;
(B) in the case of activities described in paragraph (2)(B)—
(i) provide preliminary technical assistance to employee groups, man-
agers, and retiring owners exploring the possibility of employee owner-
ship;
(ii) provide for the performance of preliminary feasibility assess-
ments;
(iii) assist in the funding of objective third-party feasibility studies
and preliminary business valuations, and in selecting and monitoring
professionals qualified to conduct such studies; and
(iv) provide a data bank to help employees find legal, financial, and
technical advice in connection with business ownership;
(C) in the case of activities described in paragraph (2)(C)—
(i) provide for courses on employee participation; and
(ii) provide for the development and fostering of networks of em-
ployee-owned companies to spread the use of successful participation
techniques; and
(D) in the case of training described in paragraph (2)(D)—
(i) provide for visits to existing programs by staff from new programs
receiving funding under this section; and
(ii) provide materials to be used for such training.
(4) GUIDANCE.—The Secretary shall issue formal guidance, for recipients of
grants awarded under subsection (d) and one-stop partners (as defined in sec-
tion 3 of the Workforce Innovation and Opportunity Act (29 U.S.C. 3102)) affili-
ated with the workforce development systems (as so defined) of the States, pro-
posing that programs and other activities funded under this section be—
(A) proactive in encouraging actions and activities that promote employee
ownership of, and participation in, businesses; and
(B) comprehensive in emphasizing both employee ownership of, and par-
ticipation in, businesses so as to increase productivity and broaden capital
ownership.
(d) GRANTS.—
(1) IN GENERAL.—In carrying out the program established under subsection
(c), the Secretary may make grants to States (except as provided in paragraph
(5)) for use in connection with new programs and existing programs within a
State for—
(A) education and outreach as provided in subsection (c)(2)(A);
(B) technical assistance as provided in subsection (c)(2)(B);
(C) training activities for employees and employers as provided in sub-
section (c)(2)(C);
(D) activities facilitating cooperation among employee-owned firms; and
(E) training as provided in subsection (c)(2)(D) for new programs provided
by participants in existing programs dedicated to the objectives of this sec-
tion, except that, for each fiscal year, the amount of the grants made for
such training shall not exceed 10 percent of the total amount of the grants
made under this section.
(2) AMOUNTS AND CONDITIONS.—The Secretary shall determine the amount
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and any conditions for a grant made under this subsection. The amount of the
grant shall be subject to paragraph (6), and shall reflect the capacity of the ap-
plicant for the grant.
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(3) APPLICATIONS.—Each entity desiring a grant under this subsection shall
submit an application to the Secretary at such time, in such manner, and ac-
companied by such information as the Secretary may reasonably require.
(4) STATE APPLICATIONS.—Each State may sponsor and submit an application
under paragraph (3) on behalf of any local entity consisting of a unit of State
or local government, State-supported institution of higher education, or non-
profit organization, meeting the requirements of this section.
(5) APPLICATIONS BY ENTITIES.—
(A) ENTITY APPLICATIONS.—If a State fails to support or establish a pro-
gram pursuant to this section during any fiscal year, the Secretary shall,
in the subsequent fiscal years, allow local entities described in paragraph
(4) from that State to make applications for grants under paragraph (3) on
their own initiative.
(B) APPLICATION SCREENING.—In any case in which a local entity makes
an application for a grant pursuant to subparagraph (A), the relevant State
may take no actions to screen such application.
(6) LIMITATIONS.—A recipient of a grant made under this subsection shall not
receive, during a fiscal year, in the aggregate, more than the following amounts:
(A) For fiscal year 2023, $300,000.
(B) For fiscal year 2024, $330,000.
(C) For fiscal year 2025, $363,000.
(D) For fiscal year 2026, $399,300.
(E) For fiscal year 2027, $439,200.
(7) ANNUAL REPORT.—For each year, each recipient of a grant under this sub-
section shall submit to the Secretary a report describing how grant funds allo-
cated pursuant to this subsection were expended during the 12-month period
preceding the date of the submission of the report.
(e) EVALUATIONS.—The Secretary is authorized to reserve not more than 10 per-
cent of the funds appropriated for a fiscal year to carry out this section for the pur-
poses of conducting evaluations of the grant programs identified in subsection (d)
and to provide related technical assistance.
(f) REPORTING.—Not later than 36 months after the date of enactment of this Act,
the Secretary shall prepare and submit to Congress a report—
(1) on progress related to employee ownership and participation in businesses
in the United States; and
(2) containing an analysis of critical costs and benefits of activities carried out
under this section.
(g) AUTHORIZATIONS OF APPROPRIATIONS.—
(1) IN GENERAL.—There are authorized to be appropriated for the purpose of
making grants pursuant to subsection (d) the following:
(A) For fiscal year 2023, $4,000,000.
(B) For fiscal year 2024, $7,000,000.
(C) For fiscal year 2025, $10,000,000.
(D) For fiscal year 2026, $13,000,000.
(E) For fiscal year 2027, $16,000,000.
(2) ADMINISTRATIVE EXPENSES.—There are authorized to be appropriated for
the purpose of funding the administrative expenses related to the Initiative, for
each of fiscal years 2022 through 2026, an amount not in excess of the lesser
of—
(A) $350,000; or
(B) 5.0 percent of the maximum amount available under paragraph (1)
for that fiscal year.
SEC. 7. REFUND TO RAINY DAY SAVINGS PROGRAM.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—Not later than December 31, 2024, the Secretary of the
Treasury or the Secretary’s delegate (referred to in this subsection as the ‘‘Sec-
retary’’) shall establish and implement a program (referred to in this subsection
as the ‘‘Refund to Rainy Day Savings Program’’) to allow participating tax-
payers, pursuant to the requirements established under this section, to defer
payment on 20 percent of the amount which would otherwise be refunded to
such taxpayer as an overpayment (as described in section 6401 of the Internal
Revenue Code of 1986).
(2) PERIOD OF DEFERRAL.—Except as provided under paragraph (3)(E), a par-
ticipating taxpayer may elect to defer payment of the amount described in para-
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graph (1) and have such amount deposited in the Rainy Day Fund (as described
in paragraph (3)).
(3) RAINY DAY FUND.—
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(A) IN GENERAL.—The Secretary shall establish in the Treasury a fund,
in such manner as the Secretary determines to be appropriate, to be known
as the ‘‘Rainy Day Fund’’, consisting of any amounts described in paragraph
(1) on which payment has been deferred by participating taxpayers.
(B) INVESTMENT.—Any amounts deposited in the Rainy Day Fund shall
be invested by the Secretary, in United States Treasury securities issued
under chapter 31 of title 31, United States Code, that are suitable for the
needs of the Rainy Day Fund.
(C) DISBURSEMENTS FROM FUND.—
(i) IN GENERAL.—On the date that is 180 days after the date of de-
posit in the Rainy Day Fund of an amount deferred by such taxpayer
under paragraph (1), the amounts in the Rainy Day Fund shall be
made available to the Secretary to distribute to such taxpayer in an
amount equal to such amount plus any interest accrued on such
amount (as determined under subparagraph (D)).
(ii) DISTRIBUTED TO TAXPAYERS.—The amounts described in clause (i)
shall be distributed to the account identified by the participating tax-
payer under paragraph (4)(B).
(D) INTEREST ACCRUED.—The amount of interest accrued on the amount
deferred by a participating taxpayer under subsection (a) shall be deter-
mined by the Secretary based upon the return on the investment of such
amounts under subparagraph (B).
(E) EARLY WITHDRAWAL.—
(i) IN GENERAL.—As soon as possible after receipt by the Secretary
of the individual income tax return of the participating taxpayer and
October 15 of the applicable year, such taxpayer may elect to terminate
the deferral of the amount described under paragraph (1) and receive
a distribution from the Rainy Day Fund equal to such amount and any
interest which has accrued on such amount up to that date.
(ii) COMPLETE WITHDRAWAL.—A participating taxpayer making an
election under clause (i) must terminate deferral of the full amount de-
scribed under paragraph (1), and such amount shall be distributed to
the bank account identified by the participating taxpayer under para-
graph (4)(B).
(4) PARTICIPATING TAXPAYER.—For purposes of this section, the term ‘‘partici-
pating taxpayer’’ means a taxpayer who—
(A) prior to the due date for filing the return of tax for such taxable year,
elects to participate in the Refund to Rainy Day Savings Program, in ac-
cordance with regulations to be issued by the Secretary; and
(B) provides the Secretary with an account and routing number or any
other financial information deemed necessary by the Secretary for purposes
of subparagraphs (C)(ii) and (E)(ii) of paragraph (3).
(5) FORMS.—The Secretary shall ensure that the election to defer payment of
the amount described in paragraph (1) may be claimed on appropriate tax
forms.
(6) IMPLEMENTATION.—
(A) EDUCATIONAL MATERIALS AND OUTREACH.—The Secretary shall—
(i) design educational materials for taxpayers regarding financial sav-
ings and the Refund to Rainy Day Savings Program,
(ii) publicly disseminate and distribute such materials during the
first calendar quarter of each calendar year and following disbursement
of amounts described in paragraph (3)(C), and
(iii) engage in outreach regarding the Refund to Rainy Day Savings
Program to the Volunteer Income Tax Assistance program and paid tax
preparers.
(B) INFORMATION FOR PARTICIPATING TAXPAYERS.—The Secretary shall en-
sure that a participating taxpayer is able to electronically verify the status
of the amount deferred by such taxpayer under paragraph (1), including
any interest accrued on such amount and the status of any distribution.
(C) FEDERALLY FUNDED BENEFITS.—Any amounts described in paragraph
(1) that are distributed to a participating taxpayer, including any interest
accrued on such amount, shall be treated in the same manner as any re-
fund made to such taxpayer under section 32 of the Internal Revenue Code
of 1986 for purposes of determining the eligibility of such taxpayer for bene-
fits or assistance, or the amount or extent of benefits or assistance, under
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any Federal program or under any State or local program financed in whole
or in part with Federal funds.
(b) ASSETS FOR INDEPENDENCE INNOVATION DEMONSTRATION PROJECTS.—
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(1) REAUTHORIZATION.—The Assets for Independence Act (42 U.S.C. 604 note)
is amended—
(A) in section 416, by inserting ‘‘, and, subject to section 417, $25,000,000
for each of fiscal years 2024, 2025, 2026, 2027, and 2028, to remain avail-
able until expended’’at the end before the period; and
(B) by adding at the end the following new section:
‘‘SEC. 417. RESERVATION OF FUNDS.
‘‘(a) IN GENERAL.—Subject to subsections (b) and (c), from the funds appropriated
for each of fiscal years 2024, 2025, 2026, 2027, and 2028 under section 416, the Sec-
retary shall reserve—
‘‘(1) $3,000,000 for general research and evaluation; and
‘‘(2) any amounts remaining after application of paragraph (1) to fund Assets
for Independence innovation projects under section 418.
‘‘(b) PILOT PROGRAM FUNDING.—From the amounts reserved under subsection (a)
for each of fiscal years 2024, 2025, and 2026, the Secretary shall make available
for operating the pilot program established under section 7(c) of the Protecting
America’s Retirement Security Act of 2022—
‘‘(1) 50 percent of the amount reserved for the relevant fiscal year under para-
graph (1) of subsection (a) (after any adjustment under subsection (c)); and
‘‘(2) 25 percent of the amount reserved for the relevant fiscal year under para-
graph (2) of subsection (a) (after any adjustment under subsection (c)).
‘‘(c) PROPORTIONAL ADJUSTMENT.—In any of fiscal years 2024, 2025, 2026, 2027,
and 2028, if the amount appropriated for such fiscal year is greater or less than the
amount authorized for such fiscal year under section 416, the amounts reserved
under subsection (a) shall be increased or decreased for such fiscal year so that each
such amount bears the same proportion to the amount appropriated as each of the
amounts reserved under such subsection bears to the amount authorized.’’.
(2) ESTABLISHMENT OF INNOVATION PROGRAM.—The Assets for Independence
Act (42 U.S.C. 604 note), as amended by paragraph (1), is further amended by
adding at the end the following new section:
‘‘SEC. 418. ASSETS FOR INDEPENDENCE INNOVATION PROJECTS.
‘‘(a) IN GENERAL.—The Secretary is authorized to make grants to qualified entities
to conduct Assets for Independence innovation projects under this section.
‘‘(b) DEFINITIONS.—For purposes of this section:
‘‘(1) ASSETS FOR INDEPENDENCE INNOVATION PROJECT.—The term ‘Assets for
Independence innovation project’ means a demonstration project carried out by
a qualified entity under this section.
‘‘(2) INNOVATION DEVELOPMENT ACCOUNT.—The term ‘innovation development
account’ means an account that is established in a federally insured financial
institution or a State insured financial institution and meets such other require-
ments as are established by the Secretary.
‘‘(c) APPLICATION.—
‘‘(1) CRITERIA AND PREFERENCES.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), in considering an applica-
tion to conduct an Assets for Independence innovation project, the Secretary
shall apply subsections (c) and (d) of section 405 to the application in the
same manner that such subsections apply to an application to conduct a
demonstration project under section 405.
‘‘(B) MODIFICATION.—For purposes of this paragraph, paragraph (1) of
section 405(c) shall be applied without regard to the phrase ‘through activi-
ties requiring one or more qualified expenses’.
‘‘(2) APPROVAL OF ASSETS FOR INDEPENDENCE INNOVATION PROJECTS.—Not
later than 12 months after the date of the enactment of this section, the Sec-
retary shall, on a competitive basis, approve such applications to conduct Assets
for Independence innovation projects as the Secretary considers to be appro-
priate, taking into account the considerations required by paragraph (1). The
Secretary shall ensure, to the maximum extent practicable, that the applica-
tions that are approved involve a range of communities (spread out both geo-
graphically and in rural and urban areas) and diverse populations.
‘‘(d) PROJECT DURATION AND GRANT AMOUNT.—
‘‘(1) DURATION.—The Secretary shall award grants under this section for a pe-
riod not to exceed 5 project years.
‘‘(2) GRANT AMOUNT.—For each project year of an Assets for Independence in-
novation project approved under this section, the Secretary may make a grant
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to the qualified entity authorized to conduct the project. In making such a
grant, the Secretary shall make the grant on the first day of the project year
in an amount not to exceed the lesser of—
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12
‘‘(A) the aggregate amount of funds committed as matching contributions
from non-Federal public or private sector sources; or
‘‘(B) $1,000,000.
‘‘(e) ELIGIBILITY AND SELECTION OF INDIVIDUALS TO PARTICIPATE IN AN ASSETS FOR
INDEPENDENCE INNOVATION PROJECT.—
‘‘(1) ELIGIBILITY CRITERIA.—Subject to the approval of the Secretary, each
qualified entity conducting an Assets for Independence innovation project shall
establish eligibility requirements for participants in the project. Such require-
ments shall—
‘‘(A) be more expansive than the requirements established under section
408; and
‘‘(B) ensure that eligibility is limited to low-income individuals.
‘‘(2) SELECTION OF INDIVIDUALS TO PARTICIPATE.—Each qualified entity con-
ducting an Assets for Independence innovation project shall select, from among
the individuals that meet the eligibility requirements established by the entity
under paragraph (1), the individuals—
‘‘(A) that the qualified entity determines to be most appropriate to partici-
pate; and
‘‘(B) to whom the qualified entity will make disbursements or deposits in
accordance with subsection (f).
‘‘(f) DISBURSEMENTS BY QUALIFIED ENTITIES.—
‘‘(1) IN GENERAL.—Each qualified entity conducting an Assets for Independ-
ence innovation project shall, in a manner consistent with the program require-
ments established by such entity, disburse to a third-party or deposit into the
innovation development account of each individual participating in the project
from the funds described in subsection (d)(2), a matching contribution of not
less than $0.50 and not more than $8 for every $1 deposited in the account by
a project participant, except that the rate of matching shall be equal for all indi-
viduals participating in the project conducted by such qualified entity.
‘‘(2) LIMITATION ON DISBURSEMENTS FOR AN INDIVIDUAL.—Not more than
$5,000 from a grant made under subsection (d)(1) shall be provided to any one
individual over the course of the Assets for Independence innovation project.
‘‘(3) LIMITATION ON DISBURSEMENTS FOR A HOUSEHOLD.—Not more than
$10,000 from a grant made under subsection (d)(1) shall be provided to any one
household over the course of the Assets for Independence innovation project.
‘‘(4) ADJUSTMENT FOR INFLATION.—
‘‘(A) IN GENERAL.—For each calendar year after 2023, the dollar amounts
in paragraphs (2) and (3) shall be increased by an amount equal to the
product of—
‘‘(i) such dollar amount, and
‘‘(ii) the cost-of-living adjustment determined under section 1(f)(3) of
the Internal Revenue Code of 1986 for the calendar year, determined
by substituting ‘2022’ for ‘2016’ in subparagraph (A)(ii) thereof.
‘‘(B) ROUNDING.—If any increase determined under subparagraph (A) is
not a multiple of $50, such increase shall be rounded up to the next lowest
multiple of $50.’’.
(3) CONFORMING AMENDMENTS.—The Assets for Independence Act (42 U.S.C.
604 note), as amended by paragraphs (1) and (2), is further amended—
(A) in section 404(2), by inserting ‘‘or section 418’’ before the period;
(B) in section 406—
(i) in subsection (a), by striking ‘‘to conduct a demonstration project
under this title’’ and inserting ‘‘under section 405’’; and
(ii) in subsection (b), by striking ‘‘conducted under this title’’ and in-
serting ‘‘approved under section 405’’;
(C) in section 407—
(i) in subsection (c)—
(I) in paragraph (1)—
(aa) in subparagraph (A), by inserting ‘‘or, in the case of a
participant in a project conducted under section 418, other per-
mitted expenses’’ after ‘‘qualified expenses’’; and
(bb) in subparagraph (B), by inserting ‘‘or subsection (f) of
section 418’’ after ‘‘section 410’’; and
(II) in paragraph (3), by inserting ‘‘or section 418(d)(1)’’after ‘‘sec-
tion 406(b)’’; and
(ii) in subsection (d)(2)(A), by inserting ‘‘or section 418(d)(1)’’ after
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‘‘section 406(b)’’;
(D) in section 408, by striking ‘‘conducted under this title’’ each place it
appears and inserting ‘‘approved under section 405’’;
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13
(E) in section 409, by striking ‘‘conducted under this title’’ and inserting
‘‘approved under section 405’’;
(F) in section 410, by striking ‘‘under this title’’ and inserting ‘‘conducting
a demonstration project approved under section 405’’;
(G) in section 413(a), by inserting ‘‘or section 418(c)’’ after ‘‘under section
405’’; and
(H) in section 415, by inserting ‘‘or innovation development account’’ after
‘‘individual development account’’.
(c) MATCHED REFUND TO RAINY DAY SAVINGS PILOT PROGRAM.—
(1) IN GENERAL.—Not later than 6 months after the date of the enactment of
this Act and using the funds made available pursuant to section 417(b) of the
Assets for Independence Act, the Secretary of Health and Human Services, act-
ing through the Director of Community Services (in this section referred to as
‘‘the Secretary’’), shall establish under this subsection a matched savings ac-
count pilot program to encourage saving by eligible individuals. Under the pilot
program, a qualified entity may apply to the Secretary for a grant to conduct
a pilot project described in paragraph (2) (in this section referred to as a ‘‘pilot
project’’). The pilot program shall operate for a period of 3 years.
(2) PILOT PROJECT DESCRIBED.—
(A) IN GENERAL.—A pilot project is a project in which a qualified entity
establishes a matched savings program that meets the requirements of sub-
paragraph (B) for eligible individuals who are selected by the entity to par-
ticipate in the program.
(B) REQUIREMENTS.—
(i) DEPOSITS INTO DIRECT DEPOSIT ACCOUNTS.—
(I) IN GENERAL.—A matched savings program established as part
of a pilot project shall match amounts saved by each eligible indi-
vidual participating in the pilot project—
(aa) with the amount matched to be equal to or less than the
amount of any payment deferred by such individual under the
Refund to Rainy Day Savings Program established in sub-
section (a)(1); and
(bb) with the rate of matching to be equal for all eligible in-
dividuals participating in the program.
(II) TIMING.—Any amount described in subclause (I) shall not be
distributed to an eligible individual until the amounts described in
subparagraphs (C)(ii) or (E)(ii) of subsection (a)(1) have been dis-
tributed to the bank account identified by such individual.
(ii) EVALUATION OF PROGRAM BY INDEPENDENT RESEARCH ORGANIZA-
TION.—
(I) IN GENERAL.—From amounts made available under section
417(b)(2) of the Assets for Independence Act, as added by sub-
section (b)(1)(B), the Secretary shall enter into a contract with an
independent research organization for purposes of evaluating pilot
projects conducted under this section.
(II) COORDINATION.—Each qualified entity that establishes a
matched savings program as part of a pilot project shall collaborate
with the independent research organization described in subclause
(I) to evaluate the outcomes and impact of the project.
(III) IMPACT.—The evaluation described in subclause (I) shall in-
clude an examination of the demographic characteristics of the in-
dividuals participating in the pilot project, such as gender, race,
age, geographic location, and family makeup, and how the impacts
of the project vary among different demographic groups and the ef-
fects of the pilot program on retirement savings for eligible individ-
uals.
(IV) PROGRAM FEATURES.—The program features to be evaluated
through the pilot projects conducted under this section may in-
clude—
(aa) different levels of matching contributions by qualified
entities;
(bb) lock-out periods during which an eligible individual may
not make withdrawals from their account; and
(cc) educational materials intended to promote savings.
(V) SAFEGUARDING PRIVACY.—Any contract entered into under
this clause shall require the selected independent research organi-
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zation to take all necessary and proper precautions to protect eligi-
ble individuals’ privacy and personally identifiable information
when conducting the evaluation.
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14
(C) DURATION.—A pilot project shall be for a duration of not more than
3 years.
(D) FEDERALLY FUNDED BENEFITS.—Any amounts described in subpara-
graph (B)(i) which are distributed to an eligible individual shall be treated
in the same manner as any refund made to such taxpayer under section
32 of the Internal Revenue Code of 1986 for purposes of determining the
eligibility of such taxpayer for benefits or assistance, or the amount or ex-
tent of benefits or assistance, under any Federal program or under any
State or local program financed in whole or in part with Federal funds.
(3) STRATEGIC COMMUNICATIONS PLAN.—The Secretary shall devise a strategic
communications plan to ensure a successful pilot program.
(4) ANNUAL REPORT TO CONGRESS.—The Secretary shall submit an annual re-
port to Congress on the progress and outcomes of the pilot program established
under this section.
(5) DEFINITIONS.—In this subsection:
(A) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible individual’’ means an indi-
vidual who—
(i) has deferred payment of the amount described in subsection (a)(1)
under the Refund to Rainy Day Savings Program established in such
subsection, and
(ii) meets the eligibility requirements under section 408 of the Assets
for Independence Act, except that subsection (a)(2) of such section shall
not apply.
(B) QUALIFIED ENTITY.—
(i) IN GENERAL.—The term ‘‘qualified entity’’ means—
(I) one or more not-for-profit organizations described in section
501(c)(3) of the Internal Revenue Code of 1986 and exempt from
taxation under section 501(a) of such Code;
(II) a State or local government agency, or a tribal government,
submitting an application to conduct a pilot project jointly with an
organization described in subclause (I);
(III) a site that offers free tax help to individuals who qualify
through the Internal Revenue Service’s Voluntary Income Tax As-
sistance or Tax Counseling for the Elderly programs; or
(IV) an entity that—
(aa) is—
(AA) a credit union designated as a low-income credit
union by the National Credit Union Administration; or
(BB) an organization designated as a community devel-
opment financial institution by the Secretary of the Treas-
ury (or the Community Development Financial Institu-
tions Fund); and
(bb) can demonstrate a collaborative relationship with a local
community-based organization whose activities are designed to
address poverty in the community and the needs of community
members for economic independence and stability.
(V) RULE OF CONSTRUCTION.—Nothing in this paragraph shall be
construed as preventing an organization described in clause (i)(I)
from collaborating with a financial institution or for-profit commu-
nity development corporation to carry out the purposes of this sec-
tion.
PURPOSE AND SUMMARY
The purpose of H.R. 7310, the Protecting America’s Retirement
Security Act (PARSA) of 2022, is to strengthen America’s retire-
ment system and help workers and families plan and save for a se-
cure retirement. It does so by requiring the Department of Labor
(DOL) to review its fee disclosure rules to help workers better un-
derstand the fees they’re paying on their retirement plan invest-
ments; directing the Department of Education to create a portal on
its website to improve financial literacy; increasing spousal protec-
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tions in 401(k) plans; providing workers additional opportunities to
enroll in their workplace retirement plans; creating a grant pro-
gram at DOL to support employee ownership initiatives; and, help-
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15
ing Americans build modest emergency savings for unexpected ex-
penses.
The PARSA of 2022 has been endorsed by the Aspen Institute Fi-
nancial Security Program, Change Machine, the ESOP Association,
Golden State Opportunity, Local Initiatives Support Corporation
(LISC), National Association for Latino Community Asset Builders
(NALCAB), National Urban League (NUL), National Women’s Law
Center (NWLC), National Alliance of Community Economic Devel-
opment Associations (NACEDA), Neighborhood Partnerships, NET-
WORK Lobby for Catholic Social Justice, Prosperity Now, and
SaverLife.
COMMITTEE ACTION
115TH CONGRESS
On October 2, 2018, Rep. Jan Schakowsky (D–IL–9) introduced
H.R. 7026, the Women’s Pension Protection Act of 2018. H.R. 7026
was referred to the Committees on Education and the Workforce
and Financial Services. No further action was taken.
116TH CONGRESS
On April 1, 2019, Rep. Lauren Underwood (D–IL–14) introduced
H.R. 2005, the Women’s Retirement Protection Act of 2019. H.R.
2005 was referred to the Committees on Education and Labor and
Financial Services. No further action was taken.
117TH CONGRESS
On July 22, 2021, Rep. Lauren Underwood (D–IL–14) introduced
H.R. 4678, the Women’s Retirement Protection Act. H.R. 4678 was
referred to the Committees on Education and Labor, Ways and
Means, and Financial Services.
On August 6, 2021, Rep. Bonnie Watson Coleman (D–NJ–12) in-
troduced H.R. 4986, the Refund to Rainy Day Savings Act. H.R.
4986 was referred to the Committee on Ways and Means.
On October 28, 2021, Rep. Teresa Leger Fernandez (D–NM–3) in-
troduced H.R. 5779, the Financial Fitness Act. H.R. 5779 was re-
ferred to the Committee on Education and Labor.
On November 18, 2021, Rep. Joe Courtney (D–CT–2) introduced
H.R. 6024, the Work Act. H.R. 6024 was referred to the Committee
on Education and Labor.
On February 18, 2022, Rep. Kathy Manning (D–NC–6) intro-
duced H.R. 6782, the Auto Reenroll Act of 2022. H.R. 6782 was re-
ferred to the Committees on Ways and Means and Education and
Labor.
On March 1, 2022, the Committee on Education and Labor’s
(Committee) Subcommittee on Health, Employment, Labor, and
Pensions (HELP Subcommittee) held a hearing entitled ‘‘Improving
Retirement Security and Access to Mental Health Benefits’’ (March
1st Hearing). The witnesses were: Ms. Amy Matsui, Director of In-
come Security and Senior Counsel, National Women’s Law Center,
Washington, DC; Ms. Karen Handorf, Senior Counsel, Berger Mon-
tague, Alexandria, VA; Mr. Andrew Biggs, Senior Fellow, American
SSpencer on DSK126QN23PROD with REPORTS
Enterprise Institute, Washington, DC; and Mr. Aron Szapiro, Head
of Retirement Studies and Public Policy, Morningstar, Inc. and
Morningstar Investment Management LLC, Chicago, IL. Relevant
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16
to developing H.R. 7310, witnesses testified about requiring spousal
consent in defined contribution plans and improving DOL’s fee dis-
closure rules.
On March 29, 2022, the Senate Committee on Health, Education,
Labor, and Pensions (HELP) held a hearing entitled ‘‘Rise and
Shine: Improving Retirement and Enhancing Savings’’ (March 29th
Senate HELP Hearing). The witnesses were: Mr. Petros
Koumantaros, Managing Director and CEO, Spectrum Pension
Consultants; Co-Founder and Chairperson, GROUPIA; Financial
Consultant, Seattle, WA; Ms. Ida Rademacher, Vice President,
Aspen Institute, Executive Director of Aspen Institute’s Financial
Security Program, Washington, DC; Ms. Cindy Hounsell, Founder
and President, Women’s Institute for a Secure Retirement
(WISER), Washington, DC; and, Mr. Doug Chittenden, Head of Cli-
ent Relationships, Teacher Insurance and Annuity Association of
America (TIAA), Charlotte, NC. Relevant to H.R. 7310, the Senate
HELP Committee heard testimony about the concept of auto re-en-
rollment in 401(k) plans. On March 30, 2022, Rep. Susan Wild (D–
PA–7) introduced H.R. 7284, the Informed Savers Act. H.R. 7284
was referred to the Committee on Education and Labor.
On March 31, 2022, Rep. Lucy McBath (D–GA–6) introduced
H.R. 7310, the Protecting America’s Retirement Security Act
(PARSA) of 2022. H.R. 7310 incorporated all or portions of H.R.
4678, H.R. 4986, H.R. 5779, H.R. 6024, H.R. 6782, and H.R. 7284.
H.R. 7310 was referred to the Committees on Education and Labor
and Ways and Means.
On April 5, 2022, the Committee marked up H.R. 7310. An
Amendment in the Nature of a Substitute (ANS) was offered by
Rep. Lucy McBath (D–GA–6) that incorporated the provisions of
H.R. 7310, as introduced, and added ‘‘of 2022’’ to the short title of
the bill.
Three amendments to the ANS were offered:
• Rep. Diana Harshbarger (R–TN–1) offered an amendment
to strike Section 4, which requires spousal consent in defined
contribution plans, and replace it with text to direct the Gov-
ernment Accountability Office (GAO) to study the effects of re-
quiring spousal consent to a defined contribution plan. The
amendment was defeated by a vote of 21 Yeas and 29 Nays.
• Rep. Tim Walberg (R–MI–7) offered an amendment to
make several changes to Section 6, which establishes a grant
program at DOL to support employee ownership. The amend-
ment also directed DOL’s ERISA Advisory Council to complete
a review of the employee stock ownership plan stock plan ap-
praisal enforcement program. The amendment was defeated by
a vote of 21 Yeas and 29 Nays.
• Rep. Scott Fitzgerald (R–WI–5) offered an amendment to
strike Section 5, which enables automatic reenrollment of ap-
plicable employees in workplace retirement plans at least
every three years. The amendment was defeated by a vote of
21 Yeas and 29 Nays.
SSpencer on DSK126QN23PROD with REPORTS
The ANS was adopted by voice vote. The Committee ordered
H.R. 7910 to be reported favorably, as amended, to the House of
Representatives by a vote of 29 Yeas and 21 Nays.
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17
COMMITTEE VIEWS
The Committee has jurisdiction over the employer-sponsored re-
tirement system and a history of advancing consequential legisla-
tion in this area. Additionally, in recent years, Congress has taken
steps to improve workers’ access to retirement savings plans and
protect their pensions.
ACTIONS TO PROTECT AND STRENGTHEN AMERICANS’ RETIREMENT
SECURITY
In 2019, Congress passed the Setting Every Community Up for
Retirement Enhancement Act (SECURE Act) 1, which provided tax
credits to help small businesses provide 401(k)s to employees and
removed barriers preventing unrelated businesses from forming
multiple employer plans (MEPs).2 According to AARP, the SE-
CURE Act would ‘‘help close the gap’’ in the number of workers
who are not offered retirement plans by their employers.3
In 2021, Congress passed the American Rescue Plan Act
(ARPA),4 which, among other things, provided much-needed relief
for failing multiemployer plans and fully protected participants’
hard-earned benefits without cuts. The ARPA’s multiemployer res-
cue solution was broadly supported by labor unions, retirees, re-
tiree organizations, participating employers, and employer associa-
tions. Had Congress and the Biden Administration not acted, mul-
tiemployer plans would have faced insolvency and been unable to
pay retirees’ benefits. The Pension Benefit Guaranty Corporation’s
(PBGC) multiemployer pension insurance program, which, as of
December 2020 only had $3.1 billion in assets to meet $66.9 billion
in liabilities, would not have been able to backstop failed plans.5
If plans failed, and if the PBGC’s multiemployer insurance pro-
gram became insolvent—which was on track to happen—retirees
would have seen their pensions reduced to nearly zero. There also
would have been catastrophic consequences for active workers. A
conservative economist conducted a macroeconomic analysis of
what would happen if Central States, the largest plan at risk,
failed in 2025 as projected. The analysis found that there would be
a loss of more than 55,000 jobs across the United States in one
year.6 Michigan and Missouri ‘‘would be hardest hit, each facing job
losses of more than 4,000. Thirteen other states—California, Flor-
ida, Georgia, Illinois, Indiana, Iowa, Kentucky, Minnesota, North
Carolina, Tennessee, Texas, Virginia, and Wisconsin—would each
lose more than 1,000 jobs.’’ 7 The impact of Central States’ potential
insolvency would have likely stretched beyond one year; the anal-
ysis acknowledged that the case study ‘‘could represent a lower-
bound of the aggregate macroeconomic impact of the pending insol-
1 Setting Every Community Up for Retirement Enhancement Act of 2019, Pub. L. No. 116–
94, div. O, 133 Stat. 3137.
2 29 U.S.C. § 1002(43)(B).
3 Kenneth Terrell, House Passes Bill to Expand Access to Retirement Savings Options, AARP
(May 24, 2019), https://www.aarp.org/politics-society/advocacy/info-2019/house-passes-secure-
act.html.
4 29 U.S.C. § 1432.
5 Pension Benefit Guar. Corp., Annual Performance & Financial Report 2020 (Dec. 2020),
https://www.pbgc.gov/sites/default/files/pbgc-annual-report-2020.pdf.
SSpencer on DSK126QN23PROD with REPORTS
6 Alex Brill, The Crisis Facing Multiemployer Pension Plans With a Macroeconomic Analysis
of the Collapse of the Central States Pension Fund, MGA, 1 (Aug. 2018), https://getmga.com/wp-
content/uploads/2022/04/The-Crisis-Facing-Multiemployer-Pension-Plans-August-2018.pdf.
7 Id. at 1.
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18
vency of Central States.’’ 8 In addition to the harm to retirees and
workers, there would have been significant costs to the federal gov-
ernment. Specifically, if Congress and the Biden Administration
took no action, total costs to taxpayers in terms of lost tax revenue
and increased social safety net spending could have been between
$170 billion and $240 billion over the ten-year budget window.9 At
the time of ARPA’s passage, the Congressional Budget Office (CBO)
estimated the cost of the multiemployer rescue program at $86 bil-
lion.10
On November 5, 2021, Education and Labor Committee Chair-
man Robert C. ‘‘Bobby’’ Scott (D–VA–3) and Ranking Member Vir-
ginia Foxx (R–NC–5), along with HELP Subcommittee Chairman
Mark DeSaulnier (D–CA–11) and Ranking Member Rick Allen (R–
GA–12), introduced H.R. 5891, the Retirement Improvement and
Savings Enhancement (RISE) Act of 2021. The RISE Act of 2021
improves America’s retirement system so it better serves workers,
employers, and retirees. It does so by establishing an online,
searchable database at DOL to help workers locate their retirement
savings plans as they move from job to job; allowing 403(b) retire-
ment plans to participate in MEPs and pooled employer plans; al-
lowing more part-time workers to join retirement savings plans;
clarifying rules regarding the recovery of inadvertent overpayments
to retirees to minimize hardships; enabling employers to provide
small financial incentives to their employees to incentivize their
participation in workplace retirement plans; and simplifying and
streamlining reporting and disclosure requirements related to re-
tirement plans. On November 10, 2021, the Committee marked up
the RISE Act of 2021 and ordered it to be reported favorably, as
amended, to the House of Representatives by voice vote.
On March 29, 2022, the U.S. House of Representatives passed
H.R. 2954, Securing a Strong Retirement Act of 2021 (SECURE 2.0
Act), by a vote of 414 Yeas and five Nays. In addition to including
the RISE Act of 2021, the SECURE 2.0 Act increases workers’ ac-
cess to retirement plans through mandating automatic enrollment
in certain 401(k) plans. Automatic enrollment is a practice by
which employers by default enroll employees into their workplace
retirement plan unless they take the initiative to opt out of it. The
bill’s automatic enrollment requirements, which fall within the
Committee on Ways and Means’ jurisdiction, do not apply to exist-
ing 401(k) plans, small businesses with ten or fewer employees,
new businesses (ones that have been in business for less than 3
years), church plans, and government plans. The SECURE 2.0 Act
also includes provisions that create new tax incentives for small
businesses to offer retirement plans; allows Americans to save for
retirement longer by increasing the required minimum distribution
age from 72 to 75; and gives individuals the option of paying down
a student loan instead of contributing to a 401(k) plan while still
8 Id. at 7.
9 The Cost of Inaction: Why Congress Must Address the Multiemployer Pension Crisis Before
the H. Subcomm. on Health, Emp., Lab., & Pensions of the H. Comm. on Educ. & Lab., 116th
Cong. 12 (2019) (written testimony of Mariah Becker, Director of Research and Education for
SSpencer on DSK126QN23PROD with REPORTS
the National Coordinating Committee for Multiemployer Plans), https://edlabor.house.gov/imo/
media/doc/BeckerTestimony030719.pdf.
10 Cong. Budget Off., Cost Estimate of Ways and Means Reconciliation Recommendations (Feb.
17, 2021), https://www.cbo.gov/system/files/2021-02/hwaysandmeansreconciliation.pdf.
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19
promoting increased retirement savings through an employer
match in their new retirement plan.
The PARSA of 2022 represents a continuation of the Committee’s
and Congress’ efforts to protect workers’ retirement savings and
help them plan and save for a secure retirement.
STRENGTHENING FEE DISCLOSURE RULES
DOL requires 401(k) plans to provide participants with a disclo-
sure of the fees they pay on their investments. In August 2018, the
then-Ranking Member of the Committee, Rep. Robert C. ‘‘Bobby’’
Scott (D–VA–3), and then-Ranking Member of the Senate Health,
Education, Labor, and Pensions (HELP) Committee, Senator Mur-
ray (D–WA), asked GAO to review DOL’s fee disclosure rules to
‘‘assess whether they are working as intended or whether revisions
are warranted to improve the rules’ effectiveness.’’ 11 In August
2020, GAO issued its report and revealed that almost forty percent
of 401(k) plan participants do not fully understand the fees they
are paying on their retirement accounts, with many unaware they
are even paying fees.12 GAO also found that consumers have dif-
ficulty understanding the information that DOL requires 401(k)
plans to provide about their fees.13 Mr. Aron Szapiro, who testified
at the March 1st Hearing, echoed GAO’s finding and said that
‘‘participants do not always understand the fees they pay.’’ 14 GAO
recommended that DOL’s fee disclosure rules be improved to en-
sure participants are fully informed about how fees impact their re-
tirement savings.
The PARSA of 2022 requires DOL to review the current fee dis-
closure regulations and explore how such regulations can be im-
proved to enhance participants’ understanding of fees and expenses
as well as the cumulative effect of fees and expenses on retirement
savings over time.
IMPROVING FINANCIAL LITERACY
Financial literacy—the ability to use knowledge and skills to
manage financial resources and make prudent decisions—has be-
come increasingly important, particularly when it comes to saving
for retirement. According to the Insured Retirement Institute (IRI),
an industry trade association that has done research and conducted
surveys on Americans’ retirement readiness, the ‘‘federal govern-
ment has mandated financial counseling for federal student loan
borrowers to improve their financial literacy when entering and
exiting college.’’ 15 However, IRI notes ‘‘these counseling sessions do
not provide any information about the many workplace retirement
11 Letter from Rep. Bobby Scott, Ranking Member, Comm. on Educ. & Workforce, and Sen.
Patty Murray, Ranking Member, Comm. on Health, Educ., Lab., & Pensions to the U.S. Gov’t
Accountability Off. (Aug. 21, 2018), https://edlabor.house.gov/download/bicameral-letter-to-gao-
on-401k-fee-disclosure.
12 U.S. Gov’t Accountability Off., GAO–21–357, 401(K) RETIREMENT PLANS Many Partici-
pants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them,
54 (July 2021), https://www.gao.gov/assets/gao-210357.pdf.
13 Id.
14 Improving Retirement Security and Access to Mental Health Benefits Before the Subcomm.
on Health Emp., Lab., & Pensions of the H. Comm. on Educ. & Lab., 117th Cong., 4 (Mar. 1,
2022) (written testimony of Aron Szapiro, Head of Retirement Studies and Public Policy for
SSpencer on DSK126QN23PROD with REPORTS
Morningstar, Inc. and Morningstar Investment Management LLC), https://edlabor.house.gov/
imo/media/doc/SzapiroAronTestimony%20030122.pdf.
15 INSURED RETIREMENT INSTITUTE, 2022 Federal Retirement Security Blueprint, 9 (2022),
https://www.irionline.org/wp-content/uploads/2022/03/IRI_FederalBlueprint_2022.pdf.
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20
savings choices presented when they graduate college and enter the
workforce.’’ 16 This ‘‘lack of education about workplace retirement
savings options is also an issue for those individuals who have com-
pleted a federally funded job training or apprentice program as
they enter the market searching for employment.’’ 17 According to
IRI:
Making information about retirement savings available
to all the recipients of these federal financial assistance
and training programs will help them better understand
the different types of retirement savings accounts and risk
options and help them make well-informed decisions to de-
velop their own sustainable retirement savings strategies
during their working years.18
To improve financial literacy, the PARSA of 2022 requires the
Secretary of Education to create a financial resources portal on a
centralized Department of Education website. The portal shall in-
clude information describing core financial literacy concepts, such
as earning, saving, investing, spending, and borrowing. The portal
also shall educate people about the concept of compound interest as
it applies to savings and retirement savings, among other relevant
issues.
INCREASING SPOUSAL PROTECTIONS
The Retirement Equity Act of 1984 (REA) 19 amended the Em-
ployee Retirement Income Security Act of 1974 (ERISA) 20 to intro-
duce mandatory spousal rights in traditional defined benefit (DB)
pension plans. Specifically, the plan participant is required to ob-
tain spousal consent when requesting a distribution in a form other
than a joint and survivor annuity.
Since then, the retirement landscape has shifted. Now, when a
private sector employer offers a retirement plan, it is likely a de-
fined contribution (DC) plan, such as a 401(k). In fact, in 1975,
there were a total of 103,346 DB plans in the United States com-
pared with 207,748 DC plans that were offered by many private
sector employers as a ‘‘supplemental way for employees to save for
retirement in addition to their primary DB plan.’’ 21 In contrast, ac-
cording to DOL, as of 2019, the most recent year data is available,
the number of total DB plans in the United States had decreased
to 46,870, while the number of DC plans had increased to
686,809.22 This shift to DC plans has transferred the risks and re-
sponsibilities of planning and managing retirement savings from
the employer to the worker. For many Americans, their 401(k) plan
is often their largest asset aside from their home, but 401(k) plans
do not provide the same spousal rights and protections as those
provided by traditional DB plans. As a result, one spouse could
take a distribution or a loan from the 401(k) plan without the other
16 Id.
17 Id.
18 Id.
19 29 U.S.C. § 1055
20 29 U.S.C. § 1001 et seq.
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21 Dep’t of Lab., Emp. Benefits Sec. Admin., Private Pension Plan Bulletin Historical Tables
and Graphs 1975–2019 (Sept. 2021), https://www.dol.gov/sites/dolgov/files/ebsa/researchers/sta-
tistics/retirement-bulletins/private-pension-plan-bulletin-historical-tables-and-graphs.pdf.
22 Id.
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21
spouse’s knowledge or consent, which could lead to negative finan-
cial consequences for the unknowing spouse and the family.
The lack of spousal rights in DC plans is particularly problematic
for women’s retirement security. According to Ms. Amy Matsui, Di-
rector of Income Security and Senior Counsel at the National Wom-
en’s Law Center, who testified at the March 1st Hearing, ‘‘[w]omen
face a higher risk of economic insecurity throughout their lives, es-
pecially in their later years.’’ 23 Ms. Matsui noted that women who
work year-round are typically paid only eighty-three cents on the
dollar compared to their male counterparts, and women are ‘‘over-
represented among part-time workers and poorly paid workers.’’ 24
These ‘‘income gaps and work-related disparities translate into
lower lifetime earnings for women.’’ 25 These gaps and disparities
have a direct effect on women’s retirement security, as ‘‘the pri-
mary sources of retirement income—Social Security, employer-
sponsored pensions, and tax-favored retirement savings accounts—
are based on employment and earnings.’’ 26 Ms. Matsui further tes-
tified that ‘‘married women tend to rely more heavily on their
spouses’’ income and savings than married men do,’’ and spousal
protections ‘‘are, understandably, more important when the spouse
has fewer assets and retirement benefits on their own. As a result,
while spousal protections are gender-neutral, they have tended to
benefit women.’’ 27
During the Committee markup of H.R. 7310, Committee Repub-
licans claimed the issue of requiring spousal consent in DC plans
warranted further study prior to Congress acting. Rep. Diana
Harshbarger (R–TN–1) offered an amendment to strike Section 4,
which requires spousal consent in DC plans, and replace it with a
requirement that GAO study the effects of requiring spousal con-
sent to DC plans. Committee Democrats opposed this amendment.
In 2014, GAO observed that, ‘‘[i]n a worst case scenario, the spouse
who participates in the DC plan could withdraw all the assets and
spend them in ways that do not provide for the couple’s retirement
security.’’ 28 Addressing this point in her testimony at the March
1st Hearing, Ms. Matsui said, ‘‘[f]or example, the participant
spouse could make risky investments, an extravagant purchase, or
a gift that the other spouse did not consent to. He could lose the
funds to a gambling habit or other addiction.’’ 29 Ms. Matsui testi-
fied that ‘‘[i]n any of those cases, those retirement savings would
be depleted and unavailable for retirement, to the spouse’s det-
riment.’’ 30 In voicing opposition to Rep. Harshbarger’s amendment,
Rep. Lucy McBath (D–GA–6) noted during the markup that an ad-
ditional GAO report would ‘‘go a long way toward shining addi-
tional light on the problem and better informing the public about
23 Improving Retirement Security and Access to Mental Health Benefits Before the Subcomm.
on Health, Emp., Lab., & Pensions of the H. Comm. on Educ. & Lab., 117th Cong. 1 (Mar. 1,
2022) [Herein Matsui Statement] (written testimony of Amy Matsui, Director of Income Security
and Senior Counsel National Women’s Law Center), https://edlabor.house.gov/imo/media/doc/
MatsuiAmyTestimony030122.pdf.
24 Id.
25 Id.
26 Id. at 2.
27 Id. at 4.
28 U.S. Gov’t Accountability Off., Trends in Marriage and Work Patterns May Increase Eco-
SSpencer on DSK126QN23PROD with REPORTS
nomic Vulnerability for Some Retirees, 48 (Jan. 15, 2014), https://www.gao.gov/assets/gao-14-
33.pdf.
29 Matsui Statement, supra note 18 at 4.
30 Id.
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22
the scope of it,’’ 31 but ‘‘the problem itself has been well-estab-
lished,’’ and ‘‘Congress should not delay acting on it.’’ 32
To address this issue, the PARSA of 2022 extends spousal protec-
tions that are currently available for traditional DB plans to DC
plans.
INCREASING WORKERS’ OPPORTUNITIES TO PARTICIPATE IN
WORKPLACE RETIREMENT SAVINGS PLANS
Over the years, 401(k) plan automatic features, such as auto-
matic enrollment and auto escalation, have been voluntarily adopt-
ed by some plan sponsors. These features are intended to increase
participation rates.
At the March 29th Senate HELP Hearing, Ms. Ida Rademacher,
testified that workers are eighteen times more likely to save for re-
tirement if their employers have automatic enrollment.33 Some em-
ployers are adding an automatic re-enrollment option to their
401(k) plan design. As its name implies, 401(k) automatic re-enroll-
ment is a process by which employers periodically ‘‘re-enroll’’ their
employees in the retirement plan; the frequency is up to the em-
ployer to determine. According to Ms. Rademacher’s testimony, ‘‘al-
lowing for automatic re-enrollment into retirement savings plans is
a promising policy that would build on the success of automatic en-
rollment to ensure we can provide multiple opportunities for work-
ers to jump start their retirement savings.’’ 34
The PARSA of 2022 enables plans to auto re-enroll eligible em-
ployees at least once every three years. Plans would be permitted
to re-enroll all eligible employees as a group, making it easier for
plan record keepers to administer rather than re-enrolling each
employee on their anniversary of employment. Employees would re-
ceive notice of this auto re-enrollment and retain the ability to opt
out if they do not wish to participate in their employer’s retirement
plan. However, auto re-enrollment is intended to provide additional
chances to employees who previously opted out to participate and
prompt them to reconsider whether participating in their work-
place retirement plan is right for them.
SUPPORTING EMPLOYEE OWNERSHIP
Many business owners do not have a succession plan, and some
businesses may be sold to overseas investors or competitors. Em-
ployee ownership is one way to stop the practice of selling busi-
nesses overseas or to competitors and provides workers with other
additional benefits. For instance, according to the ESOP Associa-
tion, ‘‘employee ownership provides an important foundation for
local job retention and economic stability as the 2.9 million baby
boomer business owners begin to retire from the workforce. These
31 Markup of H.R. 7309, Workforce Innovation and Opportunity Act of 2022, and H.R. 7310,
Protecting America’s Retirement Security Act Before H. Comm. on Educ. & Lab., 117th Cong.
(Apr. 5, 2022) (statement of Rep. Lucy McBath).
32 Id.
33 Rise and Shine: Improving Retirement and Enhancing Savings Before S. Comm on Health,
SSpencer on DSK126QN23PROD with REPORTS
Educ, Lab., & Pensions, 117th Cong. 5 (Mar. 29, 2022) (written testimony of Ida Rademacher,
Vice President, Aspen Institute & Executive Director Financial Security Program), https://
www.help.senate.gov/imo/media/doc/Rademacher.pdf.
34 Id.
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23
businesses represent over 32 million jobs, and more than $6.5 tril-
lion in revenue.’’ 35
The PARSA of 2022 creates an Employee Ownership and Partici-
pation Initiative within DOL that would be authorized to award
grants for employee ownership programs nationwide. These grants
would fund outreach about employee ownership and business suc-
cession, technical assistance to those seeking to start new em-
ployee-owned businesses, and other training to support employee
ownership. A total of $50 million is authorized over a five-year pe-
riod for these grants.
ENCOURAGING EMERGENCY SAVINGS
According to the Federal Reserve, forty percent of American fam-
ilies do not have enough emergency savings to pay for an unex-
pected expense that is greater than $400, such as a flat tire or a
burst pipe.36
The PARSA of 2022 helps encourage Americans to build emer-
gency savings. Tax filers receiving a direct deposit tax refund
would be allowed to defer twenty percent of their refund so that
the savings would accumulate interest in a Treasury-held account
before being transferred to the tax filer’s direct deposit account six
months later. The PARSA of 2022 also includes a five-year reau-
thorization of the Assets for Independence Act,37 which is a grant
program sponsored by the Department of Health and Human Serv-
ices (HHS) to help low-income families build assets through savings
accounts.
SECTION-BY-SECTION ANALYSIS
Sec. 1. Short title; Table of contents
This section states that the title of the bill is Protecting America’s
Retirement Security Act of 2022 and includes a table of contents.
Sec. 2. Defined contribution plan fee disclosure improvements
This section specifies that, within two years after the date of en-
actment, the Secretary of Labor (Secretary) shall review the exist-
ing fee disclosure regulations and explore how the content and de-
sign of the disclosures may be improved to enhance participants’
understanding of fees as well as the cumulative effect of fees on re-
tirement savings over time.
Sec. 3. Personal Finance Education Portal
This section specifies that, within three years after the date of
enactment, the Secretary of Education shall create a personal fi-
nancial education portal on a centralized website of the Depart-
ment of Education. The section specifies the kind of information
that the portal shall include. The section requires the Secretary of
Education to review the utilization of the portal at least once every
three years and make public recommendations to improve the por-
35 Press Release, The ESOP Ass’n, Rep. Lucy McBath Introduces the Protecting America’s Re-
tirement Security Act (Apr. 1, 2022), https://esopassociation.org/sites/tea-master/files/2022–04/
McBath%20Release%20April%202022.pdf.
SSpencer on DSK126QN23PROD with REPORTS
36 Bd. of Governors of the Fed. Rsrv. Sys., Report on the Economic Well-Being of U.S. House-
holds in 2020—May 2021, https://www.federalreserve.gov/publications/2021-economic-well-being-
of-us-households-in-2020-dealing-with-unexpected-expenses.htm (last updated May 19, 2021).
37 42 U.S.C. § 604 note
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24
tal. The section authorizes such sums that may be necessary to
carry out this section.
Sec. 4. Increasing spousal protection under defined contribution
plans
This section amends ERISA to extend spousal consent require-
ments that currently apply to defined benefit (DB) pension plans
to defined contribution (DC) pension plans.
Sec. 5. Automatic reenrollment
This section amends ERISA and the Internal Revenue Code
(IRC) to enable plan sponsors to reenroll non-participants at least
once every three years.
Sec. 6. Employee Ownership and Participation Initiative
This section requires the Secretary to establish an Employee
Ownership and Participation Initiative at DOL. The section re-
quires the Secretary to support existing state programs designed to
promote employee ownership and make federal grants. Such grants
would fund initiatives, including outreach about employee owner-
ship and business succession, technical assistance to those seeking
to start new employee-owned businesses, and training to support
employee participation. The section authorizes $50 million over a
five-year period for these grants.
Sec. 7. Refund to Rainy Day Savings Program
This section requires the Internal Revenue Service (IRS) to es-
tablish and implement the Refund to Rainy Day Savings Program.
This Program allows taxpayers to deposit 20 percent of their in-
come tax refunds. This section also reauthorizes the Assets for
Independence (AFI) Act for Fiscal Years 2023–2027. The IRS may
make grants to qualified entities to conduct AFI innovation
projects. The section authorizes $25 million for the AFI Act each
year for five years. The section also directs the Department of
Health and Human Services to establish a three-year matched sav-
ings account pilot program to encourage savings by participants in
the savings program.
EXPLANATION OF AMENDMENTS
The amendments, including the Amendment in the Nature of a
Substitute, are explained in the descriptive portions of this report.
APPLICATION OF LAW TO THE LEGISLATIVE BRANCH
Pursuant to section 102(b)(3) of the Congressional Accountability
Act of 1995, Pub. L. No. 104–1, H.R. 7310 does not apply to terms
and conditions of employment or to access to public services or ac-
commodations within the legislative branch.
UNFUNDED MANDATE STATEMENT
Pursuant to Section 423 of the Congressional Budget and Im-
poundment Control Act of 1974, Pub. L. No. 93–344 (as amended
SSpencer on DSK126QN23PROD with REPORTS
by Section 101(a)(2) of the Unfunded Mandates Reform Act of 1995,
Pub. L. No. 104–4), the Committee traditionally adopts as its own
the cost estimate prepared by the Director of the Congressional
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25
Budget Office (CBO) pursuant to section 402 of the Congressional
Budget and Impoundment Control Act of 1974. The Committee re-
ports that because this cost estimate was not timely submitted to
the Committee before the filing of this report, the Committee is not
in a position to make a cost estimate for H.R. 7310, as amended.
EARMARK STATEMENT
In accordance with clause 9 of rule XXI of the Rules of the House
of Representatives, H.R. 7310 does not contain any congressional
earmarks, limited tax benefits, or limited tariff benefits as de-
scribed in clauses 9(e), 9(f), and 9(g) of rule XXI.
ROLL CALL VOTES
In compliance with clause 3(b) of rule XIII of the Rules of the
House of Representatives, the Committee advises that the following
roll call votes occurred during the Committee’s consideration of
H.R. 7310:
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26
Date: 4/5/2022
COMMITTEE ON EDUCATION AND LABOR RECORD OF COMMITTEE VOTE
Roll Call:1 Bill:H.R.7310 Amendment Number:2
Disposition: Defeated by a roll call vote of 21-29
Sponsor/Amendment: Harshbarger/ H7310_AMD_01
Name&State Ay, Not Name&State Ayo No No1
No Vonng Vonng
Mr. SCOTT (VA) (Chainnan) X Mrs. FOXX (NC) (Ranking) X
Mr. GRIJALVA (AZ) X Mr. WILSON (SC) X
Mr. COURNTEY (CT) X Mr. THOMPSON (PA) X
Mr. SABLAN (MP) X Mr.WALBERG (MI) X
Ms. WILSON (FL) X Mr. GROTHMAN (WI) X
Ms. BONAMICI (OR) X Ms. STEFANIK (NY) X
Mr. TAKANO (CA) X Mr. ALLEN (GA) X
Ms. ADAMS (NC) X Mr. BANKS (IN) X
Mr. DESAULNIER (CA) X Mr. COMER (KY) X
Mr. NORCROSS (NJ) X Mr. FULCHER (ID) X
Ms. JAYAPAL(WA) X Mr. KELLER (PA) X
Mr. MORELLE (NY) X Ms. MILLER-MEEKS (IA). X
Ms. WILD (PA) X Mr. OWENS (UT) X
Mrs. MCBATH (GA) X Mr. GOOD (VA) X
Mrs. HAYES (CT) X Mrs. MCCLAIN (Ml) X
Mr. LEVIN (Ml) X Mrs. HARSHBARGER (TN) X
Ms. OMAR (MN) X Mrs. MILLER (IL) X
Ms. STEVENS (Ml) X Mrs. SPARTZ(IN) X
Ms. LEGER FERNANDEZ (NM) X Mr. FITZGERALD (WI) X
Mr. JONES (NY) X Mr. CAWTHORN (NC) X
Ms. MANNING (NC) X Mrs. STEEL (CA) X
Mr. MRVAN (IN) X Ms. LETLOW (LA) I(
Mr. BOWMAN (NY) X Mr. JACOBS /NY\ X
Mrs. CHERFILUS-MCCORMICK (FL) X Vacancy
Mr. POCAN (WI) X
Mr. CASTRO (TX) X
Ms. SHERRILL (NJ) X
Mr. ESPAILLAT (NY) X
Mr. KWEISI MFUME (MD) X
TOTALS: Ayes: 21 Nos:29 NotVoting:2
Total:53/Quorum: /Report:
(29D -24R)
'Although not present for the recorded vote, Member expressed he/she would have voted AYE if present at time of vote.
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•Although not present for the recorded vote, Member expressed he/she would have voted NO if present at time of vote.
Insert offset folio 29 here HR557.001
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27
Date: 4/5/2022
COMMITTEE ON EDUCATION AND LABOR RECORD OF COMMITTEE VOTE
Roll Call:2 Bill: H.R.7310 Amendment Number: 3
Disposition: Defeated by a roll call vote of21-29
Sponsor/Amendment: Walberg I H7310_AMD_04
Name&State Aye No Not Name& State Aye No
Not
Voting Voting
Mr. SCOTT (VA) (Chairman) X Mrs. FOXX (NC) (Ranking) X
Mr.GRIJALVA (AZ) X Mr. WILSON (SC) X
Mr. COURNTEY (CT) X Mr. THOMPSON (PA) X
Mr. SABLAN (MP) X Mr.WALBERG (Ml) X
Ms. WILSON (FL) X Mr. GROTHMAN (WI) X
Ms. BONAMIC! (OR) X Ms. STEFANIK (NY) X
Mr. TAKANO (CA) X Mr. ALLEN (GA) X
Ms. ADAMS (NC) X Mr. BANKS (IN) X
Mr. DESAULNIER (CA) X Mr. COMER (KY) X
Mr. NORCROSS (NJ) X Mr. FULCHER (ID) X
Ms. JAYAPAL (WA) X Mr. KELLER (PA) X
Mr. MORELLE (NY) X Ms. MILLER-MEEKS (IA) X
Ms. WILD (PA) X Mr. OWENS (UT) X
Mrs. MCBATH (GA) X Mr. GOOD (VA) X
Mrs. HAYES (CT) X Mrs. MCCLAIN (Ml) X
Mr. LEVIN (Ml) X Mrs. HARSHBARGER (TN) X
Ms. OMAR (MN) X Mrs. MILLER (IL) X
Ms. STEVENS (Ml) X Mrs. SPARTZ (IN) X
Ms. LEGER FERNANDEZ (NM) X Mr. FITZGERALD (WI) X
Mr. JONES (NY) X Mr. CAWTHORN (NC) X
Ms. MANNING (NC) X Mrs. STEEL (CA) X
Mr. MRVAN (IN) X Ms. LETLOW (LA) I(
Mr. BOWMAN (NY) X Mr. JACOBS /NY) X
Mrs. CHERFILUS-MCCORMICK (FL) X Vacancy
Mr. POCAN (WI) X
Mr. CASTRO (TX) X
Ms. SHERRILL (NJ) X
Mr. ESPAILLAT (NY) X
Mr. KWEISI MFUME (MD) X
TOTALS: Ayes: 21 Nos:29 NotVoting:2
Total: 53 I Quorum: I Report:
(29D-24 R)
'Although not present for the recorded vote, Member expressed he/she would have voted AYE if present at time of vote.
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•Atthough not present for the recorded vote, Member expressed he/she would have voted NO if present at time of vote.
Insert offset folio 30 here HR557.002
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28
Date: 4/5/2022
COMMITTEE ON EDUCATION AND LABOR RECORD OF COMMITTEE VOTE
Roll Call:3 Bill: H.R.7310 Amendment Number:4
Disposition: Defeated by a roll call vote of21-29
Sponsor/Amendment: Fitzgerald/ H7310_AMD_02
Not Not
Name&State Ayo No Voting Name&State Aye No
Voting
Mr. SCOTT (VA) (Chainnan) X Mrs. FOXX (NC) (Ranking) X
Mr.GRIJALVA (AZ) X Mr. WILSON (SC) X
Mr. COURNTEY (CT) X Mr. THOMPSON (PA) X
Mr. SABLAN (MP) X Mr. WALBERG (Ml) X
Ms. WILSON (FL) X Mr. GROTHMAN (WI) X
Ms. BONAMICI (OR) X Ms. STEFANIK (NY) X
Mr. TAKANO (CA) X Mr. ALLEN (GA) X
Ms. ADAMS (NC) X Mr. BANKS (IN) X
Mr. DESAULNIER (CA) X Mr. COMER (KY) X
Mr. NORCROSS (NJ) X Mr. FULCHER (ID) X
Ms. JAYAPAL (WA) X Mr. KELLER (PA) X
Mr. MORELLE (NY) X Ms. MILLER-MEEKS (IA) X
Ms. WILD (PA) X Mr. OWENS (UT) X
Mrs. MCBATH (GA) X Mr. GOOD (VA) X
Mrs. HAYES (CT) X Mrs. MCCLAIN (Ml) X
Mr. LEVIN (MI) X Mrs. HARSHBARGER (TN) X
Ms. OMAR (MN) X Mrs. MILLER (IL) X
Ms. STEVENS (Ml) X Mrs. SPARTZ (IN) X
Ms. LEGER FERNANDEZ (NM) X Mr. FITZGERALD (WI) X
Mr. JONES (NY) X Mr. CAWTHORN (NC) X
Ms. MANNING (NC) X Mrs. STEEL (CA) X
Mr.MRVAN (IN) X Ms. LETLOW (LA) ><
Mr. BOWMAN (NY) X Mr. JACOBS /NY\ X
Mrs. CHERFILUS-MCCORMICK (FL) X Vacancy
Mr. POCAN (WI) X
Mr. CASTRO (TX) X
Ms. SHERRILL (NJ) X
Mr. ESPAILLAT (NY) X
Mr. KWEISI MFUME (MD) X
TOTALS: Ayes: 21 Nos:29 NotVoting:2
Total: 53 / Quorum: I Report:
(29D-24R)
•Although not present for the recorded vote, Member expressed he/she would have voted AYE if present at time of vote.
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*Although not present for the recorded vote, Member expressed he/she would have voted NO if present at time of vote.
Insert offset folio 31 here HR557.003
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29
Date: 04/5/2022
COMMITTEE ON EDUCATION AND LABOR RECORD OF COMMITTEE VOTE
Roll Call:4 Bill: 7310 Amendment Number: Motion
Disposition:Adopted by a Full Committee Roll Call Vote 29-21
Sponsor/Amendment: McBath motion to report H.R. 7310 to the House with an amendment and with the
recommendation that the amendment be agreed to, and the bill as amended, do pass
Not Ayo
No<
Name&State Ay• No Voting
Name&State No Voting
Mr. SCOTT (VA) (Chairman) X Mrs. FOXX (NC) (Ranking) X
Mr, GRIJALVA (AZ) X Mr. WILSON (SC) X
Mr. COURNTEY (CT) X Mr. THOMPSON (PA) X
Mr. SABLAN (MP) X Mr. WALBERG (Ml) X
Ms. WILSON (FL) X Mr. GROTHMAN (WI) X
Ms. BONAMICI (OR) X Ms. STEFANIK (NY) X
Mr. TA.KANO (CA) X Mr. ALLEN (GA) X
Ms. ADAMS (NC) X Mr. BANKS (IN) X
Mr. DESAULNIER (CA) X Mr. COMER (KY) X
Mr. NORCROSS (NJ) X Mr. FULCHER (ID) X
Ms. JAYAPAL (WA) X Mr. KELLER (PA) X
Mr. MORELLE (NY) X Ms. MILLER-MEEKS (IA) X
Ms. WILD(PA) X Mr. OWENS (UT) X
Mrs. MCBATH (GA) X Mr. GOOD (VA) X
Mrs. HAYES (CT) X Mrs. MCCLAIN (MI) X
Mr. LEVIN (MI) X Mrs. HARSHBARGER (TN) X
Ms. OMAR (MN) X Mrs. MILLER (IL) X
Ms. STEVENS (MI) X Mrs. SPARTZ(IN) X
Ms. LEGER FERNANDEZ (NM) X Mr. FITZGERALD (WI) X
Mr. JONES (NY) X Mr. CAWTHORN (NC) X
Ms. MANNING (NC) X Mrs. STEEL (CA) X
Mr. MRVAN (IN) X Ms. LETLOW (LA) X
Mr. BOWMAN (NY) X Mr. JACOBS /NY\ X
Mrs. CHERFILUS-MCCORMICK (FL) X Vacancy
Mr. POCAN (WI) X
Mr, CASTRO (TX) X
Ms. SHERRILL (NJ) X
Mr. ESPAILLAT (NY) X
Mr. KWEISI MFUME (MD) X
TOTALS: Ayes: 29 Nos:21 NotVoting:2
Total: 53 / Quorum: / Report:
(29D-24R)
•Although not present for the recorded vote, Member expressed he/she would have voted AYE If present at time of vote.
"Although not present for the recorded vote, Member expressed he/she would have voted NO~ present at time of vote.
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30
STATEMENT OF PERFORMANCE GOALS AND OBJECTIVES
Pursuant to clause (3)(c) of rule XIII of the Rules of the House
of Representatives, the goals of H.R. 7310 are to improve and en-
hance retirement savings plans for workers, employers, and retir-
ees.
DUPLICATION OF FEDERAL PROGRAMS
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the House
of Representatives, the Committee states that no provision of H.R.
7310 is known to be duplicative of another federal program, includ-
ing any program that was included in a report to Congress pursu-
ant to section 21 of Pub. L. No. 111–139 or the most recent Catalog
of Federal Domestic Assistance.
HEARINGS
Pursuant to clause 3(c)(6) of rule XIII of the Rules of the House
of Representatives, the Committee’s Subcommittee on Health, Em-
ployment, Labor, and Pensions held a hearing on March 1, 2022,
entitled ‘‘Improving Retirement Security and Access to Mental
Health Benefits,’’ which was used to develop H.R. 7310. The wit-
nesses were: Ms. Amy Matsui, Director of Income Security and
Senior Counsel, National Women’s Law Center, Washington, DC;
Ms. Karen Handorf, Senior Counsel, Berger Montague, Alexandria,
VA; Mr. Andrew Biggs, Senior Fellow, American Enterprise Insti-
tute, Washington, DC; and Mr. Aron Szapiro, Head of Retirement
Studies and Public Policy, Morningstar, Inc. and Morningstar In-
vestment Management LLC, Chicago, IL. Relevant to developing
H.R. 7310, the HELP Subcommittee heard testimony about requir-
ing spousal consent in defined contribution plans and improving
DOL’s fee disclosure rules.
STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF
THE COMMITTEE
In compliance with clause 3(c)(1) of rule XIII and clause 2(b)(1)
of rule X of the Rules of the House of Representatives, the Commit-
tee’s oversight findings and recommendations are reflected in the
descriptive portions of this report.
NEW BUDGET AUTHORITY AND CBO COST ESTIMATE
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the House
of Representatives and section 308(a) of the Congressional Budget
and Impoundment Control Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of Representatives and
section 402 of the Congressional Budget and Impoundment Control
Act of 1974, the Committee has requested but not received a cost
estimate for the bill from the Director of the Congressional Budget
Office.
COMMITTEE COST ESTIMATE
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Clause 3(d)(1) of rule XIII of the Rules of the House of Rep-
resentatives requires an estimate and a comparison of the costs
that would be incurred in carrying out H.R. 7310. However, clause
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31
3(d)(2)(B) of that rule provides that this requirement does not
apply when the committee has included in its report a timely sub-
mitted cost estimate of the bill prepared by the Director of the Con-
gressional Budget Office under section 402 of the Congressional
Budget and Impoundment Control Act of 1974. The Committee re-
ports that because this cost estimate was not timely submitted to
the Committee before the filing of this report, the Committee is not
in a position to make a cost estimate for H.R. 7310, as amended.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the bill,
H.R. 7310, as reported, are shown as follows:
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the bill,
as reported, are shown as follows (existing law proposed to be omit-
ted is enclosed in black brackets, new matter is printed in italics,
and existing law in which no change is proposed is shown in
roman):
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974
* * * * * * *
SHORT TITLE AND TABLE OF CONTENTS
SECTION 1. This Act may be cited as the ‘‘Employee Retirement
Income Security Act of 1974’’.
TABLE OF CONTENTS
Sec. 1. Short title and table of contents.
TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B—Regulatory Provisions
* * * * * * *
PART 2—PARTICIPATION AND VESTING
* * * * * * *
Sec. 205A. Additional spousal consent requirements.
* * * * * * *
TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
SUBTITLE B—REGULATORY PROVISIONS
* * * * * * *
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PART 2—PARTICIPATION AND VESTING
* * * * * * *
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32
REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND
PRERETIREMENT SURVIVOR ANNUITY
SEC. 205. (a) Each pension plan to which this section applies
shall provide that—
(1) in the case of a vested participant who does not die before
the annuity starting date, the accrued benefit payable to such
participant shall be provided in the form of a qualified joint
and survivor annuity, and
(2) in the case of a vested participant who dies before the an-
nuity starting date and who has a surviving spouse, a qualified
preretirement survivor annuity shall be provided to the sur-
viving spouse of such participant.
(b)(1) This section shall apply to—
(A) any defined benefit plan,
(B) any individual account plan which is subject to the fund-
ing standards of section 302, and
(C) any participant under any other individual account plan
unless—
(i) such plan provides that the participant’s nonforfeit-
able accrued benefit (reduced by any security interest held
by the plan by reason of a loan outstanding to such partici-
pant) is payable in full, on the death of the participant, to
the participant’s surviving spouse (or, if there is no sur-
viving spouse or the surviving spouse consents in the man-
ner required under subsection (c)(2), to a designated bene-
ficiary),
(ii) such participant does not elect the payment of bene-
fits in the form of a life annuity, and
(iii) with respect to such participant, such plan is not a
direct or indirect transferee (in a transfer after December
31, 1984) of a plan which is described in subparagraph (A)
or (B) or to which this clause applied with respect to the
participant.
Clause (iii) of subparagraph (C) shall apply only with respect to the
transferred assets (and income therefrom) if the plan separately ac-
counts for such assets and any income therefrom.
(2)(A) In the case of—
(i) a tax credit employee stock ownership plan (as defined in
section 409(a) of the Internal Revenue Code of 1986), or
(ii) an employee stock ownership plan (as defined in section
4975(e)(7) of such Code),
subsection (a) shall not apply to that portion of the employee’s ac-
crued benefit to which the requirements of section 409(h) of such
Code apply.
(B) Subparagraph (A) shall not apply with respect to any partici-
pant unless the requirements of clause (i), (ii), and (iii) of para-
graph (1)(C) are met with respect to such participant.
(4) This section shall not apply to a plan which the Secretary of
the Treasury or his delegate has determined is a plan described in
section 404(c) of the Internal Revenue Code of 1986 (or a continu-
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ation thereof) in which participation is substantially limited to in-
dividuals who, before January 1, 1976, ceased employment covered
by the plan.
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33
(4) A plan shall not be treated as failing to meet the require-
ments of paragraph (1)(C) or (2) merely because the plan provides
that benefits will not be payable to the surviving spouse of the par-
ticipant unless the participant and such spouse had been married
throughout the 1-year period ending on the earlier of the partici-
pant’s annuity starting date or the date of the participant’s death.
(c)(1) A plan meets the requirements of this section only if—
(A) under the plan, each participant—
(i) may elect at any time during the applicable election
period to waive the qualified joint and survivor annuity
form of benefit or the qualified preretirement survivor an-
nuity form of benefit (or both),
(ii) if the participant elects a waiver under clause (i),
may elect the qualified optional survivor annuity at any
time during the applicable election period, and
(iii) may revoke any such election at any time during the
applicable election period, and
(B) the plan meets the requirements of paragraphs (2), (3),
and (4).
(2) Each plan shall provide that an election under paragraph
(1)(A)(i) shall not take effect unless—
(A)(i) the spouse of the participant consents in writing to
such election, (ii) such election designates a beneficiary (or a
form of benefits) which may not be changed without spousal
consent (or the consent of the spouse expressly permits des-
ignations by the participant without any requirement of fur-
ther consent by the spouse), and (iii) the spouse’s consent ac-
knowledges the effect of such election and is witnessed by a
plan representative or a notary public, or
(B) it is established to the satisfaction of a plan representa-
tive that the consent required under subparagraph (A) may not
be obtained because there is no spouse, because the spouse
cannot be located, because due to exceptional circumstances, re-
quiring the participant to seek the spouse’s consent would be in-
appropriate, or because of such other circumstances as the Sec-
retary of the Treasury may by regulations prescribe.
Any consent by a spouse (or establishment that the consent of a
spouse may not be obtained) under the preceding sentence shall be
effective only with respect to such spouse.
(3)(A) Each plan shall provide to each participant, within a rea-
sonable period of time before the annuity starting date (and con-
sistent with such regulations as the Secretary of the Treasury may
prescribe) a written explanation of—
(i) the terms and conditions of the qualified joint and sur-
vivor annuity and of the qualified optional survivor annuity,
(ii) the participant’s right to make, and the effect of, an elec-
tion under paragraph (1) to waive the joint and survivor annu-
ity form of benefit,
(iii) the rights of the participant’s spouse under paragraph
(2), and
(iv) the right to make, and the effect of, a revocation of an
election under paragraph (1).
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(B)(i) Each plan shall provide to each participant, within the ap-
plicable period with respect to such participant (and consistent
with such regulations as the Secretary may prescribe), a written
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34
explanation with respect to the qualified preretirement survivor
annuity comparable to that required under subparagraph (A).
(ii) For purposes of clause (i), the term ‘‘applicable period’’ means,
with respect to a participant, whichever of the following periods
ends last:
(I) The period beginning with the first day of the plan year
in which the participant attains age 32 and ending with the
close of the plan year preceding the plan year in which the par-
ticipant attains age 35.
(II) A reasonable period after the individual becomes a par-
ticipant.
(III) A reasonable period ending after paragraph (5) ceases
to apply to the participant.
(IV) A reasonable period ending after section 205 applies to
the participant.
In the case of a participant who separates from service before at-
taining age 35, the applicable period shall be a reasonable period
after separation.
(4) Each plan shall provide that, if this section applies to a par-
ticipant when part or all of the participant’s accrued benefit is to
be used as security for a loan, no portion of the participant’s ac-
crued benefit may be used as security for such loan unless—
(A) the spouse of the participant (if any) consents in writing
to such use during the 90-day period ending on the date on
which the loan is to be so secured, and
(B) requirements comparable to the requirements of para-
graph (2) are met with respect to such consent.
(5)(A) The requirements of this subsection shall not apply with
respect to the qualified joint and survivor annuity form of benefit
or the qualified preretirement survivor annuity form of benefit, as
the case may be, if such benefit may not be waived (or another ben-
eficiary selected) and if the plan fully subsidizes the costs of such
benefit.
(B) For purposes of subparagraph (A), a plan fully subsidizes the
costs of a benefit if under the plan the failure to waive such benefit
by a participant would not result in a decrease in any plan benefits
with respect to such participant and would not result in increased
contributions from such participant.
(6) If a plan fiduciary acts in accordance with part 4 of this sub-
title in—
(A) relying on a consent or revocation referred to in para-
graph (1)(A), or
(B) making a determination under paragraph (2),
then such consent, revocation, or determination shall be treated as
valid for purposes of discharging the plan from liability to the ex-
tent of payments made pursuant to such Act.
(7) For purposes of this subsection, the term ‘‘applicable election
period’’ means—
(A) in the case of an election to waive the qualified joint and
survivor annuity form of benefit, the 180-day period ending on
the annuity starting date, or
(B) in the case of an election to waive the qualified preretire-
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ment survivor annuity, the period which begins on the first
day of the plan year in which the participant attains age 35
and ends on the date of the participant’s death.
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35
In the case of a participant who is separated from service, the ap-
plicable election period under subparagraph (B) with respect to
benefits accrued before the date of such separation from service
shall not begin later than such date.
(8) Notwithstanding any other provision of this subsection—
(A)(i) A plan may provide the written explanation de-
scribed in paragraph (3)(A) after the annuity starting date.
In any case to which this subparagraph applies, the appli-
cable election period under paragraph (7) shall not end be-
fore the 30th day after the date on which such explanation
is provided.
(ii) The Secretary of the Treasury may by regulations
limit the application of clause (i), except that such regula-
tions may not limit the period of time by which the annu-
ity starting date precedes the provision of the written ex-
planation other than by providing that the annuity start-
ing date may not be earlier than termination of employ-
ment.
(B) A plan may permit a participant to elect (with any
applicable spousal consent) to waive any requirement that
the written explanation be provided at least 30 days before
the annuity starting date (or to waive the 30-day require-
ment under subparagraph (A)) if the distribution com-
mences more than 7 days after such explanation is pro-
vided.
(d)(1) For purposes of this section, the term ‘‘qualified joint and
survivor annuity’’ means an annuity—
(A) for the life of the participant with a survivor annuity for
the life of the spouse which is not less than 50 percent of (and
is not greater than 100 percent of) the amount of the annuity
which is payable during the joint lives of the participant and
the spouse, and
(B) which is the actuarial equivalent of a single annuity for
the life of the participant.
Such term also includes any annuity in a form having the effect of
an annuity described in the preceding sentence.
(2)(A) For purposes of this section, the term ‘‘qualified optional
survivor annuity’’ means an annuity—
(i) for the life of the participant with a survivor annuity for
the life of the spouse which is equal to the applicable percent-
age of the amount of the annuity which is payable during the
joint lives of the participant and the spouse, and
(ii) which is the actuarial equivalent of a single annuity for
the life of the participant.
Such term also includes any annuity in a form having the effect of
an annuity described in the preceding sentence.
(B)(i) For purposes of subparagraph (A), if the survivor annuity
percentage—
(I) is less than 75 percent, the applicable percentage is 75
percent, and
(II) is greater than or equal to 75 percent, the applicable per-
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centage is 50 percent.
(ii) For purposes of clause (i), the term ‘‘survivor annuity percent-
age’’ means the percentage which the survivor annuity under the
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36
plan’s qualified joint and survivor annuity bears to the annuity
payable during the joint lives of the participant and the spouse.
(e) For purposes of this section—
(1) Except as provided in paragraph (2), the term ‘‘qualified
preretirement survivor annuity’’ means a survivor annuity for
the life of the surviving spouse of the participant if—
(A) the payments to the surviving spouse under such an-
nuity are not less than the amounts which would be pay-
able as a survivor annuity under the qualified joint and
survivor annuity under the plan (or the actuarial equiva-
lent thereof) if—
(i) in the case of a participant who dies after the
date on which the participant attained the earliest re-
tirement age, such participant had retired with an im-
mediate qualified joint and survivor annuity on the
day before the participant’s date of death, or
(ii) in the case of a participant who dies on or before
the date on which the participant would have attained
the earliest retirement age, such participant had—
(I) separated from service on the date of death,
(II) survived to the earliest retirement age,
(III) retired with an immediate qualified joint
and survivor annuity at the earliest retirement
age, and
(IV) died on the day after the day on which such
participant would have attained the earliest re-
tirement age, and
(B) under the plan, the earliest period for which the sur-
viving spouse may receive a payment under such annuity
is not later than the month in which the participant would
have attained the earliest retirement age under the plan.
In the case of an individual who separated from service before
the date of such individual’s death, subparagraph (A)(ii)(I)
shall not apply.
(2) In the case of any individual account plan or participant
described in subparagraph (B) or (C) of subsection (b)(1), the
term ‘‘qualified preretirement survivor annuity’’ means an an-
nuity for the life of the surviving spouse the actuarial equiva-
lent of which is not less than 50 percent of the portion of the
account balance of the participant (as of the date of death) to
which the participant had a nonforfeitable right (within the
meaning of section 203).
(3) For purposes of paragraphs (1) and (2), any security in-
terest held by the plan by reason of a loan outstanding to the
participant shall be taken into account in determining the
amount of the qualified preretirement survivor annuity.
(f)(1) Except as provided in paragraph (2), a plan may provide
that a qualified joint and survivor annuity (or a qualified preretire-
ment survivor annuity) will not be provided unless the participant
and spouse had been married throughout the 1-year period ending
on the earlier of—
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(A) the participant’s annuity starting date, or
(B) the date of the participant’s death.
(2) For purposes of paragraph (1), if—
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37
(A) a participant marries within 1 year before the annuity
starting date, and
(B) the participant and the participant’s spouse in such mar-
riage have been married for at least a 1-year period ending on
or before the date of the participant’s death,
such participant and such spouse shall be treated as having been
married throughout the 1-year period ending on the participant’s
annuity starting date.
(g)(1) A plan may provide that the present value of a qualified
joint and survivor annuity or a qualified preretirement survivor an-
nuity will be immediately distributed if such value does not exceed
the amount that can be distributed without the participant’s con-
sent under section 203(e). No distribution may be made under the
preceding sentence after the annuity starting date unless the par-
ticipant and the spouse of the participant (or where the participant
has died, the surviving spouse) consent in writing to such distribu-
tion.
(2) If—
(A) the present value of the qualified joint and survivor an-
nuity or the qualified preretirement survivor annuity exceeds
the amount that can be distributed without the participant’s
consent under section 203(e), and
(B) the participant and the spouse of the participant (or
where the participant has died, the surviving spouse) consent
in writing to the distribution,
the plan may immediately distribute the present value of such an-
nuity.
(3)(A) For purposes of paragraphs (1) and (2), the present value
shall not be less than the present value calculated by using the ap-
plicable mortality table and the applicable interest rate.
(B) For purposes of subparagraph (A)—
(i) The term ‘‘applicable mortality table’’ means a mortality
table, modified as appropriate by the Secretary of the Treas-
ury, based on the mortality table specified for the plan year
under subparagraph (A) of section 303(h)(3) (without regard to
subparagraph (C) or (D) of such section).
(ii) The term ‘‘applicable interest rate’’ means the adjusted
first, second, and third segment rates applied under rules simi-
lar to the rules of section 303(h)(2)(C) (determined by not tak-
ing into account any adjustment under clause (iv) thereof) for
the month before the date of the distribution or such other
time as the Secretary of the Treasury may by regulations pre-
scribe.
(iii) For purposes of clause (ii), the adjusted first, second, and
third segment rates are the first, second, and third segment
rates which would be determined under section 303(h)(2)(C)
(determined by not taking into account any adjustment under
clause (iv) thereof) if section 303(h)(2)(D) were applied by sub-
stituting the average yields for the month described in clause
(ii) for the average yields for the 24-month period described in
such section.
(h) For purposes of this section—
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(1) The term ‘‘vested participant’’ means any participant who
has a nonforfeitable right (within the meaning of section 3(19))
to any portion of such participant’s accrued benefit.
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38
(2)(A) The term ‘‘annuity starting date’’ means—
(i) the first day of the first period for which an amount
is payable as an annuity, or
(ii) in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred
which entitle the participant to such benefit.
(B) For purposes of subparagraph (A), the first day of the
first period for which a benefit is to be received by reason of
disability shall be treated as the annuity starting date only if
such benefit is not an auxiliary benefit.
(3) The term ‘‘earliest retirement age’’ means the earliest
date on which, under the plan, the participant could elect to
receive retirement benefits.
(i) A plan may take into account in any equitable manner (as de-
termined by the Secretary of the Treasury) any increased costs re-
sulting from providing a qualified joint or survivor annuity or a
qualified preretirement survivor annuity.
(j) If the use of any participant’s accrued benefit (or any portion
thereof) as security for a loan meets the requirements of subsection
(c)(4), nothing in this section shall prevent any distribution re-
quired by reason of a failure to comply with the terms of such loan.
(k) No consent of a spouse shall be effective for purposes of sub-
section (g)(1) or (g)(2) (as the case may be) unless requirements
comparable to the requirements for spousal consent to an election
under subsection (c)(1)(A) are met.
(l) In prescribing regulations under this section, the Secretary of
the Treasury shall consult with the Secretary of Labor.
SEC. 205A. ADDITIONAL SPOUSAL CONSENT REQUIREMENTS.
(a) IN GENERAL.—Each individual account plan to which section
205 does not apply (but to which this title otherwise applies) shall
provide that, except as provided in subsections (c) and (d), no dis-
tribution may be made under the plan unless the spousal consent
requirements of subsection (e) are met.
(b) COORDINATION WITH SECTION 205.—Nothing in this section
shall be construed to exempt an individual account plan from the
requirements of paragraph (1)(B), (1)(C), or (2) of section 205(b)
with respect to any participant.
(c) EXCEPTIONS FOR CERTAIN DISTRIBUTIONS.—Subsection (a)
shall not apply to—
(1) any distribution that is—
(A) a minimum required distribution described in section
4974(b) of the Internal Revenue Code of 1986; or
(B) permitted under section 203(e)(1) to be made without
the consent of the participant;
(2) any distribution in the form of a qualified joint and sur-
vivor annuity (as defined in section 205(d)(1)), a qualified op-
tional survivor annuity (as defined in section 205(d)(2)), a
qualified preretirement survivor annuity (as defined in section
205(e)), or a series of substantially equal periodic payments (not
less frequently than annually) made for the joint lives (or life
expectancies) of the participant and the participant’s spouse; or
(3) in the case of a participant who does not elect a form of
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benefit described in paragraph (2) under the plan or who is
participating in a plan that does not provide such a form of
benefit, any distribution of the participant’s entire nonforfeit-
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39
able accrued benefit if 50 percent of such accrued benefit is
transferred to an individual retirement plan (as defined in sec-
tion 7701(a)(37) of the Internal Revenue Code of 1986) of the
spouse of the participant.
A transfer described in paragraph (3) to an individual retirement
plan shall be treated in the same manner as a transfer under sec-
tion 408(d)(6) of the Internal Revenue Code of 1986.
(d) EXCEPTIONS FOR CERTAIN ROLLOVER CONTRIBUTIONS.—
(1) IN GENERAL.—Subsection (a) shall not apply to any dis-
tribution that is an eligible rollover distribution (as defined in
section 402(f)(2)(A) of the Internal Revenue Code of 1986) made
in the form of a direct trustee-to-trustee transfer within the
meaning of section 401(a)(31) of the Internal Revenue Code of
1986—
(A) to a plan to which this section or section 205 applies;
or
(B) to an individual retirement plan (as defined in sec-
tion 7701(a)(37) of the Internal Revenue Code of 1986) if—
(i) the sole beneficiary of such plan is the spouse of
the participant, or the spousal consent requirements of
subsection (e) are met with respect to any designation
of 1 or more other beneficiaries; and
(ii) under the terms of the individual retirement
plan, the beneficiary of such plan (whether the spouse
or other beneficiary designated under subparagraph
(A)) may not be changed unless—
(I) the spousal consent requirements of sub-
section (e) are met with respect to any such change;
or
(II) the spousal consent under clause (i) to the
designation of a beneficiary other than the spouse
expressly permits such designation to be changed
without the further consent of the spouse.
(2) REGULATORY AUTHORITY.—The Secretary of the Treasury
and the Secretary of Labor may jointly issue regulations to im-
plement subparagraphs (A) and (B) of paragraph (1).
(e) SPOUSAL CONSENT REQUIREMENTS.—
(1) IN GENERAL.—For purposes of this section, except as pro-
vided in paragraph (2), the spousal consent requirements of this
subsection are met with respect to any distribution or any des-
ignation or change of beneficiary if—
(A) the plan provides to each participant, within a rea-
sonable period of time before such distribution or designa-
tion or change of beneficiary is made and consistent with
such regulations as the Secretary of the Treasury may pre-
scribe, a written explanation of the rights of the participant
and the participant’s spouse under this section;
(B) the spouse of the participant consents in writing to
the distribution or designation or change of beneficiary;
(C) in the case of a distribution, the written consent
under subparagraph (B) is made during the consent period;
and
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(D) the written consent under subparagraph (B)—
(i) acknowledges the effect of such distribution or
designation or change of beneficiary; and
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40
(ii) is witnessed by a plan representative or a notary
public.
(2) EXCEPTIONS.—The requirements of paragraph (1) (other
than subparagraph (A) thereof) shall not apply with respect to
any distribution or designation or change of beneficiary if a
participant establishes to the satisfaction of the administrator
that—
(A) there is no spouse;
(B) the participant and the participant’s spouse have not
been married for at least 1 year as of the date of the dis-
tribution or designation or change of beneficiary; or
(C) such consent cannot be obtained because—
(i) the spouse cannot be located after taking docu-
mented search efforts in accordance with guidance
from the Secretary of Labor;
(ii) due to exceptional circumstances, requiring the
participant to seek the spouse’s consent would be inap-
propriate; or
(iii) of such other circumstances as the Secretary of
the Treasury, in consultation with the Secretary of
Labor, may by regulations prescribe.
The Secretary of Labor may issue regulations to implement this
paragraph.
(3) CONSENT LIMITED TO SPOUSE AND EVENT.—Any written
consent by a spouse under paragraph (1), or the establishment
by a participant that an exception under paragraph (2) applies
with respect to a spouse, shall be effective only with respect to
that spouse and to the distribution or designation or change of
beneficiary to which it relates.
(4) CONSENT PERIOD.—For purposes of this subsection, the
term ‘‘consent period’’ means, with respect to any distribution—
(A) the 90-day period immediately preceding the date of
such distribution; or
(B) such other period as the Secretary of the Treasury
may provide.
(f) DISCHARGE OF PLAN FROM LIABILITY.—Rules similar to the
rules of section 205(c)(6) shall apply for purposes of this section.
* * * * * * *
PART 5—ADMINISTRATION AND ENFORCEMENT
* * * * * * *
EFFECT ON OTHER LAWS
SEC. 514. (a) Except as provided in subsection (b) of this section,
the provisions of this title and title IV shall supersede any and all
State laws insofar as they may now or hereafter relate to any em-
ployee benefit plan described in section 4(a) and not exempt under
section 4(b). This section shall take effect on January 1, 1975.
(b)(1) This section shall not apply with respect to any cause of
action which arose, or any act or omission which occurred, before
January 1, 1975.
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(2)(A) Except as provided in subparagraph (B), nothing in this
title shall be construed to exempt or relieve any person from any
law of any State which regulates insurance, banking, or securities.
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41
(B) Neither an employee benefit plan described in section 4(a),
which is not exempt under section 4(b) (other than a plan estab-
lished primarily for the purpose of providing death benefits), nor
any trust established under such a plan, shall be deemed to be an
insurance company or other insurer, bank, trust company, or in-
vestment company or to be engaged in the business of insurance
or banking for purposes of any law of any State purporting to regu-
late insurance companies, insurance contracts, banks, trust compa-
nies, or investment companies.
(3) Nothing in this section shall be construed to prohibit use by
the Secretary of services or facilities of a State agency as permitted
under section 506 of this Act.
(4) Subsection (a) shall not apply to any generally applicable
criminal law of a State.
(5)(A) Except as provided in subparagraph (B), subsection (a)
shall not apply to the Hawaii Prepaid Health Care Act (Haw. Rev.
Stat. §§ 393–1 through 393–51).
(B) Nothing in subparagraph (A) shall be construed to exempt
from subsection (a)—
(i) any State tax law relating to employee benefit plans, or
(ii) any amendment of the Hawaii Prepaid Health Care Act
enacted after September 2, 1974, to the extent it provides for
more than the effective administration of such Act as in effect
on such date.
(C) Notwithstanding subparagraph (A), parts 1 and 4 of this sub-
title, and the preceding sections of this part to the extent they gov-
ern matters which are governed by the provisions of such parts 1
and 4, shall supersede the Hawaii Prepaid Health Care Act (as in
effect on or after the date of the enactment of this paragraph ), but
the Secretary may enter into cooperative arrangements under this
paragraph and section 506 with officials of the State of Hawaii to
assist them in effectuating the policies of provisions of such Act
which are superseded by such parts 1 and 4 and the preceding sec-
tions of this part.
(6)(A) Notwithstanding any other provision of this section—
(i) in the case of an employee welfare benefit plan which is
a multiple employer welfare arrangement and is fully insured
(or which is a multiple employer welfare arrangement subject
to an exemption under subparagraph (B)), any law of any State
which regulates insurance may apply to such arrangement to
the extent that such law provides—
(I) standards, requiring the maintenance of specified lev-
els of reserves and specified levels of contributions, which
any such plan, or any trust established under such a plan,
must meet in order to be considered under such law able
to pay benefits in full when due, and
(II) provisions to enforce such standards, and
(ii) in the case of any other employee welfare benefit plan
which is a multiple employer welfare arrangement, in addition
to this title, any law of any State which regulates insurance
may apply to the extent not inconsistent with the preceding
sections of this title.
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(B) The Secretary may, under regulations which may be pre-
scribed by the Secretary, exempt from subparagraph (A)(ii), indi-
vidually or by class, multiple employer welfare arrangements
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42
which are not fully insured. Any such exemption may be granted
with respect to any arrangement or class of arrangements only if
such arrangement or each arrangement which is a member of such
class meets the requirements of section 3(1) and section 4 nec-
essary to be considered an employee welfare benefit plan to which
this title applies.
(C) Nothing in subparagraph (A) shall affect the manner or ex-
tent to which the provisions of this title apply to an employee wel-
fare benefit plan which is not a multiple employer welfare arrange-
ment and which is a plan, fund, or program participating in, sub-
scribing to, or otherwise using a multiple employer welfare ar-
rangement to fund or administer benefits to such plan’s partici-
pants and beneficiaries.
(D) For purposes of this paragraph, a multiple employer welfare
arrangement shall be considered fully insured only if the terms of
the arrangement provide for benefits the amount of all of which the
Secretary determines are guaranteed under a contract, or policy of
insurance, issued by an insurance company, insurance service, or
insurance organization, qualified to conduct business in a State.
(7) Subsection (a) shall not apply to qualified domestic relations
orders (within the meaning of section 206(d)(3)(B)(i)), qualified
medical child support orders (within the meaning of section
609(a)(2)(A)), and the provisions of law referred to in section
609(a)(2)(B)(ii) to the extent they apply to qualified medical child
support orders.
(8) Subsection (a) of this section shall not be construed to pre-
clude any State cause of action—
(A) with respect to which the State exercises its acquired
rights under section 609(b)(3) with respect to a group health
plan (as defined in section 607(1)), or
(B) for recoupment of payment with respect to items or serv-
ices pursuant to a State plan for medical assistance approved
under title XIX of the Social Security Act which would not
have been payable if such acquired rights had been executed
before payment with respect to such items or services by the
group health plan.
(9) For additional provisions relating to group health plans, see
section 731.
(c) For purposes of this section:
(1) The term ‘‘State law’’ includes all laws, decisions, rules,
regulations, or other State action having the effect of law, of
any State. A law of the United States applicable only to the
District of Columbia shall be treated as a State law rather
than a law of the United States.
(2) The term ‘‘State’’ includes a State, any political subdivi-
sions thereof, or any agency or instrumentality of either, which
purports to regulate, directly or indirectly, the terms and con-
ditions of employee benefit plans covered by this title.
(d) Nothing in this title shall be construed to alter, amend, mod-
ify, invalidate, impair, or supersede any law of the United States
(except as provided in sections 111 and 507(b)) or any rule or regu-
lation issued under any such law.
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(e)(1) Notwithstanding any other provision of this section, this
title shall supersede any law of a State which would directly or in-
directly prohibit or restrict the inclusion in any plan of an auto-
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43
matic contribution arrangement. The Secretary may prescribe regu-
lations which would establish minimum standards that such an ar-
rangement would be required to satisfy in order for this subsection
to apply in the case of such arrangement.
(2) øFor purposes of¿ (A) For purposes of this subsection, the
term ‘‘automatic contribution arrangement’’ means an arrange-
ment—
ø(A)¿ (i) under which a participant may elect to
have the plan sponsor make payments as contribu-
tions under the plan on behalf of the participant, or to
the participant directly in cash,
ø(B)¿ (ii) under which a participant is treated as
having elected to have the plan sponsor make such
contributions in an amount equal to a uniform per-
centage of compensation provided under the plan until
the participant specifically elects not to have such con-
tributions made (or specifically elects to have such
contributions made at a different percentage), and
ø(C)¿ (iii) under which such contributions are in-
vested in accordance with regulations prescribed by
the Secretary under section 404(c)(5).
(B) In the case of an automatic contribution arrangement
taking effect after December 31, 2024, the requirements of
subparagraph (A)(ii) shall be treated as met only if, under
the arrangement, at least every 3 years each employee—
(i) who is eligible to participate in the arrangement,
and
(ii) who, at the time of the determination, has in ef-
fect an affirmative election pursuant to subparagraph
(A)(ii) not to have contributions described in such sub-
paragraph made,
is treated as having made the election at the uniform per-
centage of compensation described in subparagraph (A)(ii)
unless the employee makes a new election under such sub-
paragraph. Such determination may be made at one time
for all employees described in the preceding sentence for a
plan year, regardless of individual employee dates of enroll-
ment.
(3)(A) The plan administrator of an automatic contribution ar-
rangement shall, within a reasonable period before such plan year,
provide to each participant to whom the arrangement applies for
such plan year notice of the participant’s rights and obligations
under the arrangement which—
(i) is sufficiently accurate and comprehensive to apprise the
participant of such rights and obligations, and
(ii) is written in a manner calculated to be understood by the
average participant to whom the arrangement applies.
(B) A notice shall not be treated as meeting the requirements of
subparagraph (A) with respect to a participant unless—
(i) the notice includes an explanation of the participant’s
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right under the arrangement not to have elective contributions
made on the participant’s behalf (or to elect to have such con-
tributions made at a different percentage),
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44
(ii) the participant has a reasonable period of time, after re-
ceipt of the notice described in clause (i) and before the first
elective contribution is made, to make such election, and
(iii) the notice explains how contributions made under the
arrangement will be invested in the absence of any investment
election by the participant.
* * * * * * *
INTERNAL REVENUE CODE OF 1986
Subtitle A—Income Taxes
CHAPTER 1—NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter D—DEFERRED COMPENSATION,
ETC.
* * * * * * *
PART I—PENSION, PROFIT-SHARING, STOCK BONUS
PLANS, ETC.
* * * * * * *
Subpart A—GENERAL RULE
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS
PLANS.
(a) REQUIREMENTS FOR QUALIFICATION.—A trust created or orga-
nized in the United States and forming part of a stock bonus, pen-
sion, or profit-sharing plan of an employer for the exclusive benefit
of his employees or their beneficiaries shall constitute a qualified
trust under this section—
(1) if contributions are made to the trust by such employer,
or employees, or both, or by another employer who is entitled
to deduct his contributions under section 404(a)(3)(B) (relating
to deduction for contributions to profit-sharing and stock bonus
plans), or by a charitable remainder trust pursuant to a quali-
fied gratuitous transfer (as defined in section 664(g)(1)), for the
purpose of distributing to such employees or their beneficiaries
the corpus and income of the fund accumulated by the trust in
accordance with such plan;
(2) if under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to employ-
ees and their beneficiaries under the trust, for any part of the
corpus or income to be (within the taxable year or thereafter)
used for, or diverted to, purposes other than for the exclusive
benefit of his employees or their beneficiaries (but this para-
graph shall not be construed, in the case of a multiemployer
SSpencer on DSK126QN23PROD with REPORTS
plan, to prohibit the return of a contribution within 6 months
after the plan administrator determines that the contribution
was made by a mistake of fact or law (other than a mistake
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45
relating to whether the plan is described in section 401(a) or
the trust which is part of such plan is exempt from taxation
under section 501(a), or the return of any withdrawal liability
payment determined to be an overpayment within 6 months of
such determination));
(3) if the plan of which such trust is a part satisfies the re-
quirements of section 410 (relating to minimum participation
standards); and
(4) if the contributions or benefits provided under the plan
do not discriminate in favor of highly compensated employees
(within the meaning of section 414(q)). For purposes of this
paragraph, there shall be excluded from consideration employ-
ees described in section 410(b)(3)(A) and (C).
(5) SPECIAL RULES RELATING TO NONDISCRIMINATION RE-
QUIREMENTS.—
(A) SALARIED OR CLERICAL EMPLOYEES.—A classification
shall not be considered discriminatory within the meaning
of paragraph (4) or section 410(b)(2)(A)(i) merely because
it is limited to salaried or clerical employees.
(B) CONTRIBUTIONS AND BENEFITS MAY BEAR UNIFORM
RELATIONSHIP TO COMPENSATION.—A plan shall not be con-
sidered discriminatory within the meaning of paragraph
(4) merely because the contributions or benefits of, or on
behalf of, the employees under the plan bear a uniform re-
lationship to the compensation (within the meaning of sec-
tion 414(s)) of such employees.
(C) CERTAIN DISPARITY PERMITTED.—A plan shall not be
considered discriminatory within the meaning of para-
graph (4) merely because the contributions or benefits of,
or on behalf of, the employees under the plan favor highly
compensated employees (as defined in section 414(q)) in
the manner permitted under subsection (l).
(D) INTEGRATED DEFINED BENEFIT PLAN.—
(i) IN GENERAL.—A defined benefit plan shall not be
considered discriminatory within the meaning of para-
graph (4) merely because the plan provides that the
employer-derived accrued retirement benefit for any
participant under the plan may not exceed the excess
(if any) of—
(I) the participant’s final pay with the employer,
over
(II) the employer-derived retirement benefit cre-
ated under Federal law attributable to service by
the participant with the employer.
For purposes of this clause, the employer-derived retire-
ment benefit created under Federal law shall be treated as
accruing ratably over 35 years.
(ii) FINAL PAY.—For purposes of this subparagraph,
the participant’s final pay is the compensation (as de-
fined in section 414(q)(4)) paid to the participant by
the employer for any year—
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(I) which ends during the 5-year period ending
with the year in which the participant separated
from service for the employer, and
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46
(II) for which the participant’s total compensa-
tion from the employer was highest.
(E) 2 OR MORE PLANS TREATED AS SINGLE PLAN.—For
purposes of determining whether 2 or more plans of an
employer satisfy the requirements of paragraph (4) when
considered as a single plan—
(i) CONTRIBUTIONS.—If the amount of contributions
on behalf of the employees allowed as a deduction
under section 404 for the taxable year with respect to
such plans, taken together, bears a uniform relation-
ship to the compensation (within the meaning of sec-
tion 414(s)) of such employees, the plans shall not be
considered discriminatory merely because the rights of
employees to, or derived from, the employer contribu-
tions under the separate plans do not become non-
forfeitable at the same rate.
(ii) BENEFITS.—If the employees’ rights to benefits
under the separate plans do not become nonforfeitable
at the same rate, but the levels of benefits provided by
the separate plans satisfy the requirements of regula-
tions prescribed by the Secretary to take account of
the differences in such rates, the plans shall not be
considered discriminatory merely because of the dif-
ference in such rates.
(F) SOCIAL SECURITY RETIREMENT AGE.—For purposes of
testing for discrimination under paragraph (4)—
(i) the social security retirement age (as defined in
section 415(b)(8)) shall be treated as a uniform retire-
ment age, and
(ii) subsidized early retirement benefits and joint
and survivor annuities shall not be treated as being
unavailable to employees on the same terms merely
because such benefits or annuities are based in whole
or in part on an employee’s social security retirement
age (as so defined).
(G) GOVERNMENTAL PLANS.—Paragraphs (3) and (4) shall
not apply to a governmental plan (within the meaning of
section 414(d)).
(6) A plan shall be considered as meeting the requirements
of paragraph (3) during the whole of any taxable year of the
plan if on one day in each quarter it satisfied such require-
ments.
(7) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part satisfies
the requirements of section 411 (relating to minimum vesting
standards).
(8) A trust forming part of a defined benefit plan shall not
constitute a qualified trust under this section unless the plan
provides that forfeitures must not be applied to increase the
benefits any employee would otherwise receive under the plan.
(9) REQUIRED DISTRIBUTIONS.—
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(A) IN GENERAL.—A trust shall not constitute a qualified
trust under this subsection unless the plan provides that
the entire interest of each employee—
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47
(i) will be distributed to such employee not later
than the required beginning date, or
(ii) will be distributed, beginning not later than the
required beginning date, in accordance with regula-
tions, over the life of such employee or over the lives
of such employee and a designated beneficiary (or over
a period not extending beyond the life expectancy of
such employee or the life expectancy of such employee
and a designated beneficiary).
(B) REQUIRED DISTRIBUTION WHERE EMPLOYEE DIES BE-
FORE ENTIRE INTEREST IS DISTRIBUTED.—
(i) WHERE DISTRIBUTIONS HAVE BEGUN UNDER SUB-
PARAGRAPH (A)(II).—A trust shall not constitute a
qualified trust under this section unless the plan pro-
vides that if—
(I) the distribution of the employee’s interest
has begun in accordance with subparagraph
(A)(ii), and
(II) the employee dies before his entire interest
has been distributed to him,
the remaining portion of such interest will be distributed
at least as rapidly as under the method of distributions
being used under subparagraph (A)(ii) as of the date of his
death.
(ii) 5-YEAR RULE FOR OTHER CASES.—A trust shall
not constitute a qualified trust under this section un-
less the plan provides that, if an employee dies before
the distribution of the employee’s interest has begun
in accordance with subparagraph (A)(ii), the entire in-
terest of the employee will be distributed within 5
years after the death of such employee.
(iii) EXCEPTION TO 5-YEAR RULE FOR CERTAIN
AMOUNTS PAYABLE OVER LIFE OF BENEFICIARY.—If—
(I) any portion of the employee’s interest is pay-
able to (or for the benefit of) a designated bene-
ficiary,
(II) such portion will be distributed (in accord-
ance with regulations) over the life of such des-
ignated beneficiary (or over a period not extending
beyond the life expectancy of such beneficiary),
and
(III) such distributions begin not later than 1
year after the date of the employee’s death or such
later date as the Secretary may by regulations
prescribe,
for purposes of clause (ii), the portion referred to in sub-
clause (I) shall be treated as distributed on the date on
which such distributions begin.
(iv) SPECIAL RULE FOR SURVIVING SPOUSE OF EM-
PLOYEE.—If the designated beneficiary referred to in
clause (iii)(I) is the surviving spouse of the employee—
(I) the date on which the distributions are re-
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quired to begin under clause (iii)(III) shall not be
earlier than the date on which the employee
would have attained age 72, and
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48
(II) if the surviving spouse dies before the dis-
tributions to such spouse begin, this subparagraph
shall be applied as if the surviving spouse were
the employee.
(C) REQUIRED BEGINNING DATE.—For purposes of this
paragraph—
(i) IN GENERAL.—The term ‘‘required beginning date’’
means April 1 of the calendar year following the later
of—
(I) the calendar year in which the employee at-
tains age 72, or
(II) the calendar year in which the employee re-
tires.
(ii) EXCEPTION.—Subclause (II) of clause (i) shall not
apply—
(I) except as provided in section 409(d), in the
case of an employee who is a 5-percent owner (as
defined in section 416) with respect to the plan
year ending in the calendar year in which the em-
ployee attains age 72, or
(II) for purposes of section 408(a)(6) or (b)(3).
(iii) ACTUARIAL ADJUSTMENT.—In the case of an em-
ployee to whom clause (i)(II) applies who retires in a
calendar year after the calendar year in which the em-
ployee attains age 701/2, the employee’s accrued ben-
efit shall be actuarially increased to take into account
the period after age 701/2 in which the employee was
not receiving any benefits under the plan.
(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH
PLANS.—Clauses (ii) and (iii) shall not apply in the
case of a governmental plan or church plan. For pur-
poses of this clause, the term ‘‘church plan’’ means a
plan maintained by a church for church employees,
and the term ‘‘church’’ means any church (as defined
in section 3121(w)(3)(A)) or qualified church-controlled
organization (as defined in section 3121(w)(3)(B)).
(D) LIFE EXPECTANCY.—For purposes of this paragraph,
the life expectancy of an employee and the employee’s
spouse (other than in the case of a life annuity) may be re-
determined but not more frequently than annually.
(E) DEFINITIONS AND RULES RELATING TO DESIGNATED
BENEFICIARIES.—For purposes of this paragraph—
(i) DESIGNATED BENEFICIARY.—The term ‘‘designated
beneficiary’’ means any individual designated as a
beneficiary by the employee.
(ii) ELIGIBLE DESIGNATED BENEFICIARY.—The term
‘‘eligible designated beneficiary’’ means, with respect
to any employee, any designated beneficiary who is—
(I) the surviving spouse of the employee,
(II) subject to clause (iii), a child of the em-
ployee who has not reached majority (within the
SSpencer on DSK126QN23PROD with REPORTS
meaning of subparagraph (F)),
(III) disabled (within the meaning of section
72(m)(7)),
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49
(IV) a chronically ill individual (within the
meaning of section 7702B(c)(2), except that the re-
quirements of subparagraph (A)(i) thereof shall
only be treated as met if there is a certification
that, as of such date, the period of inability de-
scribed in such subparagraph with respect to the
individual is an indefinite one which is reasonably
expected to be lengthy in nature), or
(V) an individual not described in any of the
preceding subclauses who is not more than 10
years younger than the employee.
The determination of whether a designated beneficiary is
an eligible designated beneficiary shall be made as of the
date of death of the employee.
(iii) SPECIAL RULE FOR CHILDREN.—Subject to sub-
paragraph (F), an individual described in clause (ii)(II)
shall cease to be an eligible designated beneficiary as
of the date the individual reaches majority and any re-
mainder of the portion of the individual’s interest to
which subparagraph (H)(ii) applies shall be distributed
within 10 years after such date.
(F) TREATMENT OF PAYMENTS TO CHILDREN.—Under reg-
ulations prescribed by the Secretary, for purposes of this
paragraph, any amount paid to a child shall be treated as
if it had been paid to the surviving spouse if such amount
will become payable to the surviving spouse upon such
child reaching majority (or other designated event per-
mitted under regulations).
(G) TREATMENT OF INCIDENTAL DEATH BENEFIT DISTRIBU-
TIONS.—For purposes of this title, any distribution re-
quired under the incidental death benefit requirements of
this subsection shall be treated as a distribution required
under this paragraph.
(H) SPECIAL RULES FOR CERTAIN DEFINED CONTRIBUTION
PLANS.—In the case of a defined contribution plan, if an
employee dies before the distribution of the employee’s en-
tire interest—
(i) IN GENERAL.—Except in the case of a beneficiary
who is not a designated beneficiary, subparagraph
(B)(ii)—
(I) shall be applied by substituting ‘‘10 years’’
for ‘‘5 years’’, and
(II) shall apply whether or not distributions of
the employee’s interests have begun in accordance
with subparagraph (A).
(ii) EXCEPTION FOR ELIGIBLE DESIGNATED BENE-
FICIARIES.—Subparagraph (B)(iii) shall apply only in
the case of an eligible designated beneficiary.
(iii) RULES UPON DEATH OF ELIGIBLE DESIGNATED
BENEFICIARY.—If an eligible designated beneficiary
dies before the portion of the employee’s interest to
which this subparagraph applies is entirely distrib-
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uted, the exception under clause (ii) shall not apply to
any beneficiary of such eligible designated beneficiary
and the remainder of such portion shall be distributed
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50
within 10 years after the death of such eligible des-
ignated beneficiary.
(iv) SPECIAL RULE IN CASE OF CERTAIN TRUSTS FOR
DISABLED OR CHRONICALLY ILL BENEFICIARIES.—In the
case of an applicable multi-beneficiary trust, if under
the terms of the trust—
(I) it is to be divided immediately upon the
death of the employee into separate trusts for
each beneficiary, or
(II) no individual (other than a eligible des-
ignated beneficiary described in subclause (III) or
(IV) of subparagraph (E)(ii)) has any right to the
employee’s interest in the plan until the death of
all such eligible designated beneficiaries with re-
spect to the trust,
for purposes of a trust described in subclause (I), clause (ii)
shall be applied separately with respect to the portion of
the employee’s interest that is payable to any eligible des-
ignated beneficiary described in subclause (III) or (IV) of
subparagraph (E)(ii); and, for purposes of a trust described
in subclause (II), subparagraph (B)(iii) shall apply to the
distribution of the employee’s interest and any beneficiary
who is not such an eligible designated beneficiary shall be
treated as a beneficiary of the eligible designated bene-
ficiary upon the death of such eligible designated bene-
ficiary.
(v) APPLICABLE MULTI-BENEFICIARY TRUST.—For pur-
poses of this subparagraph, the term ‘‘applicable
multi-beneficiary trust’’ means a trust—
(I) which has more than one beneficiary,
(II) all of the beneficiaries of which are treated
as designated beneficiaries for purposes of deter-
mining the distribution period pursuant to this
paragraph, and
(III) at least one of the beneficiaries of which is
an eligible designated beneficiary described in
subclause (III) or (IV) of subparagraph (E)(ii).
(vi) APPLICATION TO CERTAIN ELIGIBLE RETIREMENT
PLANS.—For purposes of applying the provisions of
this subparagraph in determining amounts required to
be distributed pursuant to this paragraph, all eligible
retirement plans (as defined in section 402(c)(8)(B),
other than a defined benefit plan described in clause
(iv) or (v) thereof or a qualified trust which is a part
of a defined benefit plan) shall be treated as a defined
contribution plan.
(I) TEMPORARY WAIVER OF MINIMUM REQUIRED DISTRIBU-
TION.—
(i) IN GENERAL.—The requirements of this para-
graph shall not apply for calendar year 2020 to—
(I) a defined contribution plan which is de-
scribed in this subsection or in section 403(a) or
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403(b),
(II) a defined contribution plan which is an eli-
gible deferred compensation plan described in sec-
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51
tion 457(b) but only if such plan is maintained by
an employer described in section 457(e)(1)(A), or
(III) an individual retirement plan.
(ii) SPECIAL RULE FOR REQUIRED BEGINNING DATES IN
2020.—Clause (i) shall apply to any distribution which
is required to be made in calendar year 2020 by rea-
son of—
(I) a required beginning date occurring in such
calendar year, and
(II) such distribution not having been made be-
fore January 1, 2020.
(iii) SPECIAL RULES REGARDING WAIVER PERIOD.—For
purposes of this paragraph—
(I) the required beginning date with respect to
any individual shall be determined without regard
to this subparagraph for purposes of applying this
paragraph for calendar years after 2020, and
(II) if clause (ii) of subparagraph (B) applies, the
5-year period described in such clause shall be de-
termined without regard to calendar year 2020.
(10) OTHER REQUIREMENTS.—
(A) PLANS BENEFITING OWNER-EMPLOYEES.—In the case
of any plan which provides contributions or benefits for
employees some or all of whom are owner-employees (as
defined in subsection (c)(3)), a trust forming part of such
plan shall constitute a qualified trust under this section
only if the requirements of subsection (d) are also met.
(B) TOP-HEAVY PLANS.—
(i) IN GENERAL.—In the case of any top-heavy plan,
a trust forming part of such plan shall constitute a
qualified trust under this section only if the require-
ments of section 416 are met.
(ii) PLANS WHICH MAY BECOME TOP-HEAVY.—Except
to the extent provided in regulations, a trust forming
part of a plan (whether or not a top-heavy plan) shall
constitute a qualified trust under this section only if
such plan contains provisions—
(I) which will take effect if such plan becomes a
top-heavy plan, and
(II) which meet the requirements of section 416.
(iii) EXEMPTION FOR GOVERNMENTAL PLANS.—This
subparagraph shall not apply to any governmental
plan.
(11) REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND
PRERETIREMENT SURVIVOR ANNUITY.—
(A) IN GENERAL.—In the case of any plan to which this
paragraph applies, except as provided in section 417, a
trust forming part of such plan shall not constitute a
qualified trust under this section unless—
(i) in the case of a vested participant who does not
die before the annuity starting date, the accrued ben-
efit payable to such participant is provided in the form
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of a qualified joint and survivor annuity, and
(ii) in the case of a vested participant who dies be-
fore the annuity starting date and who has a surviving
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52
spouse, a qualified preretirement survivor annuity is
provided to the surviving spouse of such participant.
(B) PLANS TO WHICH PARAGRAPH APPLIES.—This para-
graph shall apply to—
(i) any defined benefit plan,
(ii) any defined contribution plan which is subject to
the funding standards of section 412, and
(iii) any participant under any other defined con-
tribution plan unless—
(I) such plan provides that the participant’s
nonforfeitable accrued benefit (reduced by any se-
curity interest held by the plan by reason of a
loan outstanding to such participant) is payable in
full, on the death of the participant, to the partici-
pant’s surviving spouse (or, if there is no sur-
viving spouse or the surviving spouse consents in
the manner required under section 417(a)(2), to a
designated beneficiary),
(II) such participant does not elect a payment of
benefits in the form of a life annuity, and
(III) with respect to such participant, such plan
is not a direct or indirect transferee (in a transfer
after December 31, 1984) of a plan which is de-
scribed in clause (i) or (ii) or to which this clause
applied with respect to the participant.
Clause (iii)(III) shall apply only with respect to the trans-
ferred assets (and income therefrom) if the plan separately
accounts for such assets and any income therefrom.
(C) EXCEPTION FOR CERTAIN ESOP BENEFITS.—
(i) IN GENERAL.—In the case of—
(I) a tax credit employee stock ownership plan
(as defined in section 409(a)), or
(II) an employee stock ownership plan (as de-
fined in section 4975(e)(7)),
subparagraph (A) shall not apply to that portion of the em-
ployee’s accrued benefit to which the requirements of sec-
tion 409(h) apply.
(ii) NONFORFEITABLE BENEFIT MUST BE PAID IN FULL,
ETC.—In the case of any participant, clause (i) shall
apply only if the requirements of subclauses (I), (II),
and (III) of subparagraph (B)(iii) are met with respect
to such participant.
(D) SPECIAL RULE WHERE PARTICIPANT AND SPOUSE MAR-
RIED LESS THAN 1 YEAR.—A plan shall not be treated as
failing to meet the requirements of subparagraphs (B)(iii)
or (C) merely because the plan provides that benefits will
not be payable to the surviving spouse of the participant
unless the participant and such spouse had been married
throughout the 1-year period ending on the earlier of the
participant’s annuity starting date or the date of the par-
ticipant’s death.
(E) EXCEPTION FOR PLANS DESCRIBED IN SECTION 404(C).—
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This paragraph shall not apply to a plan which the Sec-
retary has determined is a plan described in section 404(c)
(or a continuation thereof) in which participation is sub-
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53
stantially limited to individuals who, before January 1,
1976, ceased employment covered by the plan.
(F) CROSS REFERENCE.—For—
(i) provisions under which participants may elect to
waive the requirements of this paragraph, and
(ii) other definitions and special rules for purposes of
this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part provides
that in the case of any merger or consolidation with, or trans-
fer of assets or liabilities to, any other plan after September 2,
1974, each participant in the plan would (if the plan then ter-
minated) receive a benefit immediately after the merger, con-
solidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately be-
fore the merger, consolidation, or transfer (if the plan had then
terminated). The preceding sentence does not apply to any
multiemployer plan with respect to any transaction to the ex-
tent that participants either before or after the transaction are
covered under a multiemployer plan to which title IV of the
Employee Retirement Income Security Act of 1974 applies.
(13) ASSIGNMENT AND ALIENATION.—
(A) IN GENERAL.—A trust shall not constitute a qualified
trust under this section unless the plan of which such
trust is a part provides that benefits provided under the
plan may not be assigned or alienated. For purposes of the
preceding sentence, there shall not be taken into account
any voluntary and revocable assignment of not to exceed
10 percent of any benefit payment made by any partici-
pant who is receiving benefits under the plan unless the
assignment or alienation is made for purposes of defraying
plan administration costs. For purposes of this paragraph
a loan made to a participant or beneficiary shall not be
treated as an assignment or alienation if such loan is se-
cured by the participant’s accrued nonforfeitable benefit
and is exempt from the tax imposed by section 4975 (relat-
ing to tax on prohibited transactions) by reason of section
4975(d)(1). This paragraph shall take effect on January 1,
1976 and shall not apply to assignments which were irrev-
ocable on September 2, 1974.
(B) SPECIAL RULES FOR DOMESTIC RELATIONS ORDERS.—
Subparagraph (A) shall apply to the creation, assignment,
or recognition of a right to any benefit payable with re-
spect to a participant pursuant to a domestic relations
order, except that subparagraph (A) shall not apply if the
order is determined to be a qualified domestic relations
order.
(C) SPECIAL RULE FOR CERTAIN JUDGMENTS AND SETTLE-
MENTS.—Subparagraph (A) shall not apply to any offset of
a participant’s benefits provided under a plan against an
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amount that the participant is ordered or required to pay
to the plan if—
(i) the order or requirement to pay arises—
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54
(I) under a judgment of conviction for a crime
involving such plan,
(II) under a civil judgment (including a consent
order or decree) entered by a court in an action
brought in connection with a violation (or alleged
violation) of part 4 of subtitle B of title I of the
Employee Retirement Income Security Act of
1974, or
(III) pursuant to a settlement agreement be-
tween the Secretary of Labor and the participant,
or a settlement agreement between the Pension
Benefit Guaranty Corporation and the participant,
in connection with a violation (or alleged violation)
of part 4 of such subtitle by a fiduciary or any
other person,
(ii) the judgment, order, decree, or settlement agree-
ment expressly provides for the offset of all or part of
the amount ordered or required to be paid to the plan
against the participant’s benefits provided under the
plan, and
(iii) in a case in which the survivor annuity require-
ments of section 401(a)(11) apply with respect to dis-
tributions from the plan to the participant, if the par-
ticipant has a spouse at the time at which the offset
is to be made—
(I) either such spouse has consented in writing
to such offset and such consent is witnessed by a
notary public or representative of the plan (or it
is established to the satisfaction of a plan rep-
resentative that such consent may not be obtained
by reason of circumstances described in section
417(a)(2)(B)), or an election to waive the right of
the spouse to either a qualified joint and survivor
annuity or a qualified preretirement survivor an-
nuity is in effect in accordance with the require-
ments of section 417(a),
(II) such spouse is ordered or required in such
judgment, order, decree, or settlement to pay an
amount to the plan in connection with a violation
of part 4 of such subtitle, or
(III) in such judgment, order, decree, or settle-
ment, such spouse retains the right to receive the
survivor annuity under a qualified joint and sur-
vivor annuity provided pursuant to section
401(a)(11)(A)(i) and under a qualified preretire-
ment survivor annuity provided pursuant to sec-
tion 401(a)(11)(A)(ii), determined in accordance
with subparagraph (D).
A plan shall not be treated as failing to meet the require-
ments of this subsection, subsection (k), section 403(b), or
section 409(d) solely by reason of an offset described in
this subparagraph.
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(D) SURVIVOR ANNUITY.—
(i) IN GENERAL.—The survivor annuity described in
subparagraph (C)(iii)(III) shall be determined as if—
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55
(I) the participant terminated employment on
the date of the offset,
(II) there was no offset,
(III) the plan permitted commencement of bene-
fits only on or after normal retirement age,
(IV) the plan provided only the minimum-re-
quired qualified joint and survivor annuity, and
(V) the amount of the qualified preretirement
survivor annuity under the plan is equal to the
amount of the survivor annuity payable under the
minimum-required qualified joint and survivor an-
nuity.
(ii) DEFINITION.—For purposes of this subparagraph,
the term ‘‘minimum-required qualified joint and sur-
vivor annuity’’ means the qualified joint and survivor
annuity which is the actuarial equivalent of the par-
ticipant’s accrued benefit (within the meaning of sec-
tion 411(a)(7)) and under which the survivor annuity
is 50 percent of the amount of the annuity which is
payable during the joint lives of the participant and
the spouse.
(14) A trust shall not constitute a qualified trust under this
section unless the plan of which such trust is a part provides
that, unless the participant otherwise elects, the payment of
benefits under the plan to the participant will begin not later
than the 60th day after the latest of the close of the plan year
in which—
(A) the date on which the participant attains the earlier
of age 65 or the normal retirement age specified under the
plan,
(B) occurs the 10th anniversary of the year in which the
participant commenced participation in the plan, or
(C) the participant terminates his service with the em-
ployer.
In the case of a plan which provides for the payment of an
early retirement benefit, a trust forming a part of such plan
shall not constitute a qualified trust under this section unless
a participant who satisfied the service requirements for such
early retirement benefit, but separated from the service (with
any nonforfeitable right to an accrued benefit) before satisfying
the age requirement for such early retirement benefit, is enti-
tled upon satisfaction of such age requirement to receive a ben-
efit not less than the benefit to which he would be entitled at
the normal retirement age, actuarially, reduced under regula-
tions prescribed by the Secretary.
(15) A trust shall not constitute a qualified trust under this
section unless under the plan of which such trust is a part—
(A) in the case of a participant or beneficiary who is re-
ceiving benefits under such plan, or
(B) in the case of a participant who is separated from
the service and who has nonforfeitable rights to benefits,
such benefits are not decreased by reason of any increase in
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the benefit levels payable under title II of the Social Security
Act or any increase in the wage base under such title II, if
such increase takes place after September 2, 1974, or (if later)
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56
the earlier of the date of first receipt of such benefits or the
date of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust under this
section if the plan of which such trust is a part provides for
benefits or contributions which exceed the limitations of sec-
tion 415.
(17) COMPENSATION LIMIT.—
(A) IN GENERAL.—A trust shall not constitute a qualified
trust under this section unless, under the plan of which
such trust is a part, the annual compensation of each em-
ployee taken into account under the plan for any year does
not exceed $200,000.
(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall
adjust annually the $200,000 amount in subparagraph (A)
for increases in the cost-of-living at the same time and in
the same manner as adjustments under section 415(d); ex-
cept that the base period shall be the calendar quarter be-
ginning July 1, 2001, and any increase which is not a mul-
tiple of $5,000 shall be rounded to the next lowest multiple
of $5,000.
(18) ADDITIONAL SPOUSAL CONSENT REQUIREMENTS.—
(A) IN GENERAL.—To the extent paragraph (11) does not
apply to a defined contribution plan to which title I of the
Employee Retirement Income Security Act of 1974 applies,
except as provided in subparagraphs (C) and (D), a trust
forming part of such plan shall not constitute a qualified
trust under this section unless no distribution may be made
under the plan unless the spousal consent requirements of
subparagraph (E) are met.
(B) COORDINATION WITH PARAGRAPH (11).—Nothing in
this paragraph shall be construed to exempt a defined con-
tribution plan from the requirements of subparagraph
(B)(ii), (B)(iii), or (C) of paragraph (11) with respect to any
participant.
(C) EXCEPTIONS FOR CERTAIN DISTRIBUTIONS.—Subpara-
graph (A) shall not apply to—
(i) any distribution that is—
(I) a minimum required distribution described
in section 4974(b), or
(II) permitted under section 411(a)(11) to be
made without the consent of the participant,
(ii) any distribution in the form of a qualified joint
and survivor annuity (as defined in section 417(b)), a
qualified optional survivor annuity (as defined in sec-
tion 417(g)), a qualified preretirement survivor annuity
(as defined in section 417(c)), or a series of substan-
tially equal periodic payments (not less frequently than
annually) made for the joint lives (or life expectancies)
of the participant and the participant’s spouse, or
(iii) in the case of a participant who does not elect a
form of benefit described in clause (ii) under the plan
or who is participating in a plan that does not provide
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such a form of benefit, any distribution of the partici-
pant’s entire nonforfeitable accrued benefit if 50 percent
of such accrued benefit is directly transferred to an in-
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57
dividual retirement plan of the spouse of the partici-
pant.
A transfer described in clause (iii) to an individual retire-
ment plan shall be treated in the same manner as a trans-
fer under section 408(d)(6) and shall be deemed not to vio-
late paragraph (2) or (13).
(D) EXCEPTIONS FOR CERTAIN ROLLOVER CONTRIBU-
TIONS.—
(i) IN GENERAL.—Subparagraph (A) shall not apply
to any distribution, involving a participant who has a
spouse, that is an eligible rollover distribution (as de-
fined in section 402(f)(2)(A)) made in the form of a di-
rect trustee-to-trustee transfer within the meaning of
paragraph (31)—
(I) to a plan to which this paragraph or para-
graph (11) applies; or
(II) to an individual retirement plan if—
(aa) the sole beneficiary of such plan is the
spouse of the participant, or the spousal con-
sent requirements of subparagraph (E) are met
with respect to any designation of 1 or more
other beneficiaries; and
(bb) under the terms of the individual retire-
ment plan, the beneficiary of such plan
(whether the spouse or other beneficiary des-
ignated under clause (i)) may not be changed
unless—
(AA) the spousal consent requirements
of subparagraph (E) are met with respect
to any such change, or
(BB) the spousal consent under sub-
clause (I) to the designation of a bene-
ficiary other than the spouse expressly per-
mits such designation to be changed with-
out the further consent of the spouse.
(ii) REGULATORY AUTHORITY.—The Secretary of the
Treasury, in consultation with the Secretary of Labor,
may issue regulations to implement subparagraphs
subclauses (I) and (II) or clause (i).
(E) SPOUSAL CONSENT REQUIREMENTS.—
(i) IN GENERAL.—For purposes of this paragraph, ex-
cept as provided in clause (ii), the spousal consent re-
quirements of this subparagraph are met with respect
to any distribution or any designation or change of
beneficiary if—
(I) the plan provides to each participant, within
a reasonable period of time before such distribu-
tion or designation or change of beneficiary is
made and consistent with such regulations as the
Secretary may prescribe, a written explanation of
the rights of the participant and the participant’s
spouse under this paragraph,
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(II) the spouse of the participant consents in
writing to the distribution or designation or
change of beneficiary,
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58
(III) in the case of a distribution, the written
consent under subclause (II) is made during the
consent period, and
(IV) the written consent under subclause (ii)—
(aa) acknowledges the effect of such distribu-
tion or designation or change of beneficiary,
and
(bb) is witnessed by a plan representative or
a notary public.
(ii) EXCEPTIONS UNDER SECTION 417(A)(2)(B) TO
APPLY.—The requirements of clause (i) (other than sub-
clause (I) thereof) shall not apply with respect to any
distribution or designation or change of beneficiary if
a participant establishes to the satisfaction of the ad-
ministrator that—
(I) there is no spouse,
(II) the participant and the participant’s spouse
have not been married for at least 1 year as of the
date of the distribution or designation or change of
beneficiary, or
(III) such consent cannot be obtained because—
(aa) the spouse cannot be located after tak-
ing documented search efforts in accordance
with guidance from the Secretary of Labor;
(bb) due to exceptional circumstances, re-
quiring the participant to seek the spouse’s
consent would be inappropriate; or
(cc) of such other circumstances as the Sec-
retary, in consultation with the Secretary of
Labor, may by regulations prescribe.
The Secretary, in consultation with the Secretary of
Labor, may issue regulations to implement this clause.
(iii) CONSENT LIMITED TO SPOUSE AND EVENT.—Any
written consent by a spouse under clause (i), or the es-
tablishment by a participant that an exception under
clause (ii) applies with respect to a spouse, shall be ef-
fective only with respect to that spouse and to the dis-
tribution or designation or change of beneficiary to
which it relates.
(iv) CONSENT PERIOD.—For purposes of this subpara-
graph, the term ‘‘consent period’’ means, with respect to
any distribution—
(I) the 90-day period immediately preceding the
date of such distribution, or
(II) such other period as the Secretary may pro-
vide.
(19) A trust shall not constitute a qualified trust under this
section if under the plan of which such trust is a part any part
of a participant’s accrued benefit derived from employer con-
tributions (whether or not otherwise nonforfeitable), is forfeit-
able solely because of withdrawal by such participant of any
amount attributable to the benefit derived from contributions
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made by such participant. The preceding sentence shall not
apply to the accrued benefit of any participant unless, at the
time of such withdrawal, such participant has a nonforfeitable
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59
right to at least 50 percent of such accrued benefit (as deter-
mined under section 411). The first sentence of this paragraph
shall not apply to the extent that an accrued benefit is per-
mitted to be forfeited in accordance with section
411(a)(3)(D)(iii) (relating to proportional forfeitures of benefits
accrued before September 2, 1974, in the event of withdrawal
of certain mandatory contributions).
(20) A trust forming part of a pension plan shall not be treat-
ed as failing to constitute a qualified trust under this section
merely because the pension plan of which such trust is a part
makes 1 or more distributions within 1 taxable year to a dis-
tributee on account of a termination of the plan of which the
trust is a part, or in the case of a profit-sharing or stock bonus
plan, a complete discontinuance of contributions under such
plan. This paragraph shall not apply to a defined benefit plan
unless the employer maintaining such plan files a notice with
the Pension Benefit Guaranty Corporation (at the time and in
the manner prescribed by the Pension Benefit Guaranty Cor-
poration) notifying the Corporation of such payment or dis-
tribution and the Corporation has approved such payment or
distribution or, within 90 days after the date on which such no-
tice was filed, has failed to disapprove such payment or dis-
tribution. For purposes of this paragraph, rules similar to the
rules of section 402(a)(6)(B) (as in effect before its repeal by
section 521 of the Unemployment Compensation Amendments
of 1992) shall apply.
ø(21) Repealed. Pub. L. 99–514, title XI, § 1171(b)(5), Oct.
22, 1986, 100 Stat. 2513.¿
(22) If a defined contribution plan (other than a profit-shar-
ing plan)—
(A) is established by an employer whose stock is not
readily tradable on an established market, and
(B) after acquiring securities of the employer, more than
10 percent of the total assets of the plan are securities of
the employer,
any trust forming part of such plan shall not constitute a
qualified trust under this section unless the plan meets the re-
quirements of subsection (e) of section 409. The requirements
of subsection (e) of section 409 shall not apply to any employ-
ees of an employer who are participants in any defined con-
tribution plan established and maintained by such employer if
the stock of such employer is not readily tradable on an estab-
lished market and the trade or business of such employer con-
sists of publishing on a regular basis a newspaper for general
circulation. For purposes of the preceding sentence, subsections
(b), (c), (m), and (o) of section 414 shall not apply except for
determining whether stock of the employer is not readily
tradable on an established market.
(23) A stock bonus plan shall not be treated as meeting the
requirements of this section unless such plan meets the re-
quirements of subsections (h) and (o) of section 409, except that
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in applying section 409(h) for purposes of this paragraph, the
term ‘‘employer securities’’ shall include any securities of the
employer held by the plan.
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60
(24) Any group trust which otherwise meets the require-
ments of this section shall not be treated as not meeting such
requirements on account of the participation or inclusion in
such trust of the moneys of any plan or governmental unit de-
scribed in section 818(a)(6).
(25) REQUIREMENT THAT ACTUARIAL ASSUMPTIONS BE SPECI-
FIED.—A defined benefit plan shall not be treated as providing
definitely determinable benefits unless, whenever the amount
of any benefit is to be determined on the basis of actuarial as-
sumptions, such assumptions are specified in the plan in a way
which precludes employer discretion.
(26) ADDITIONAL PARTICIPATION REQUIREMENTS.—
(A) IN GENERAL.—In the case of a trust which is a part
of a defined benefit plan, such trust shall not constitute a
qualified trust under this subsection unless on each day of
the plan year such trust benefits at least the lesser of—
(i) 50 employees of the employer, or
(ii) the greater of—
(I) 40 percent of all employees of the employer,
or
(II) 2 employees (or if there is only 1 employee,
such employee).
(B) TREATMENT OF EXCLUDABLE EMPLOYEES.—
(i) IN GENERAL.—A plan may exclude from consider-
ation under this paragraph employees described in
paragraphs (3) and (4)(A) of section 410(b).
(ii) SEPARATE APPLICATION FOR CERTAIN EXCLUDABLE
EMPLOYEES.—If employees described in section
410(b)(4)(B) are covered under a plan which meets the
requirements of subparagraph (A) separately with re-
spect to such employees, such employees may be ex-
cluded from consideration in determining whether any
plan of the employer meets such requirements if—
(I) the benefits for such employees are provided
under the same plan as benefits for other employ-
ees,
(II) the benefits provided to such employees are
not greater than comparable benefits provided to
other employees under the plan, and
(III) no highly compensated employee (within
the meaning of section 414(q)) is included in the
group of such employees for more than 1 year.
(C) SPECIAL RULE FOR COLLECTIVE BARGAINING UNITS.—
Except to the extent provided in regulations, a plan cov-
ering only employees described in section 410(b)(3)(A) may
exclude from consideration any employees who are not in-
cluded in the unit or units in which the covered employees
are included.
(D) PARAGRAPH NOT TO APPLY TO MULTIEMPLOYER
PLANS.—Except to the extent provided in regulations, this
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paragraph shall not apply to employees in a multiemployer
plan (within the meaning of section 414(f)) who are cov-
ered by collective bargaining agreements.
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61
(E) SPECIAL RULE FOR CERTAIN DISPOSITIONS OR ACQUISI-
TIONS.—Rules similar to the rules of section 410(b)(6)(C)
shall apply for purposes of this paragraph.
(F) SEPARATE LINES OF BUSINESS.—At the election of the
employer and with the consent of the Secretary, this para-
graph may be applied separately with respect to each sep-
arate line of business of the employer. For purposes of this
paragraph, the term ‘‘separate line of business’’ has the
meaning given such term by section 414(r) (without regard
to paragraph (2)(A) or (7) thereof).
(G) EXCEPTION FOR GOVERNMENTAL PLANS.—This para-
graph shall not apply to a governmental plan (within the
meaning of section 414(d)).
(H) REGULATIONS.—The Secretary may by regulation
provide that any separate benefit structure, any separate
trust, or any other separate arrangement is to be treated
as a separate plan for purposes of applying this paragraph.
(I) PROTECTED PARTICIPANTS.—
(i) IN GENERAL.—A plan shall be deemed to satisfy
the requirements of subparagraph (A) if—
(I) the plan is amended—
(aa) to cease all benefit accruals, or
(bb) to provide future benefit accruals only
to a closed class of participants,
(II) the plan satisfies subparagraph (A) (without
regard to this subparagraph) as of the effective
date of the amendment, and
(III) the amendment was adopted before April 5,
2017, or the plan is described in clause (ii).
(ii) PLANS DESCRIBED.—A plan is described in this
clause if the plan would be described in subsection
(o)(1)(C), as applied for purposes of subsection
(o)(1)(B)(iii)(IV) and by treating the effective date of
the amendment as the date the class was closed for
purposes of subsection (o)(1)(C).
(iii) SPECIAL RULES.—For purposes of clause (i)(II),
in applying section 410(b)(6)(C), the amendments de-
scribed in clause (i) shall not be treated as a signifi-
cant change in coverage under section
410(b)(6)(C)(i)(II).
(iv) SPUN-OFF PLANS.—For purposes of this subpara-
graph, if a portion of a plan described in clause (i) is
spun off to another employer, the treatment under
clause (i) of the spun-off plan shall continue with re-
spect to the other employer.
(27) DETERMINATIONS AS TO PROFIT-SHARING PLANS.—
(A) CONTRIBUTIONS NEED NOT BE BASED ON PROFITS.—
The determination of whether the plan under which any
contributions are made is a profit-sharing plan shall be
made without regard to current or accumulated profits of
the employer and without regard to whether the employer
is a tax-exempt organization.
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(B) PLAN MUST DESIGNATE TYPE.—In the case of a plan
which is intended to be a money purchase pension plan or
a profit-sharing plan, a trust forming part of such plan
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62
shall not constitute a qualified trust under this subsection
unless the plan designates such intent at such time and in
such manner as the Secretary may prescribe.
(28) ADDITIONAL REQUIREMENTS RELATING TO EMPLOYEE
STOCK OWNERSHIP PLANS.—
(A) IN GENERAL.—In the case of a trust which is part of
an employee stock ownership plan (within the meaning of
section 4975(e)(7)) or a plan which meets the requirements
of section 409(a), such trust shall not constitute a qualified
trust under this section unless such plan meets the re-
quirements of subparagraphs (B) and (C).
(B) DIVERSIFICATION OF INVESTMENTS.—
(i) IN GENERAL.—A plan meets the requirements of
this subparagraph if each qualified participant in the
plan may elect within 90 days after the close of each
plan year in the qualified election period to direct the
plan as to the investment of at least 25 percent of the
participant’s account in the plan (to the extent such
portion exceeds the amount to which a prior election
under this subparagraph applies). In the case of the
election year in which the participant can make his
last election, the preceding sentence shall be applied
by substituting ‘‘50 percent’’ for ‘‘25 percent’’.
(ii) METHOD OF MEETING REQUIREMENTS.—A plan
shall be treated as meeting the requirements of clause
(i) if—
(I) the portion of the participant’s account cov-
ered by the election under clause (i) is distributed
within 90 days after the period during which the
election may be made, or
(II) the plan offers at least 3 investment options
(not inconsistent with regulations prescribed by
the Secretary) to each participant making an elec-
tion under clause (i) and within 90 days after the
period during which the election may be made,
the plan invests the portion of the participant’s
account covered by the election in accordance with
such election.
(iii) QUALIFIED PARTICIPANT.—For purposes of this
subparagraph, the term ‘‘qualified participant’’ means
any employee who has completed at least 10 years of
participation under the plan and has attained age 55.
(iv) QUALIFIED ELECTION PERIOD.—For purposes of
this subparagraph, the term ‘‘qualified election period’’
means the 6-plan-year period beginning with the later
of—
(I) the 1st plan year in which the individual
first became a qualified participant, or
(II) the 1st plan year beginning after December
31, 1986.
For purposes of the preceding sentence, an employer may
elect to treat an individual first becoming a qualified par-
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ticipant in the 1st plan year beginning in 1987 as having
become a participant in the 1st plan year beginning in
1988.
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63
(v) EXCEPTION.—This subparagraph shall not apply
to an applicable defined contribution plan (as defined
in paragraph (35)(E)).
(C) USE OF INDEPENDENT APPRAISER.—A plan meets the
requirements of this subparagraph if all valuations of em-
ployer securities which are not readily tradable on an es-
tablished securities market with respect to activities car-
ried on by the plan are by an independent appraiser. For
purposes of the preceding sentence, the term ‘‘independent
appraiser’’ means any appraiser meeting requirements
similar to the requirements of the regulations prescribed
under section 170(a)(1).
(29) BENEFIT LIMITATIONS.—In the case of a defined benefit
plan (other than a multiemployer plan or a CSEC plan) to
which the requirements of section 412 apply, the trust of which
the plan is a part shall not constitute a qualified trust under
this subsection unless the plan meets the requirements of sec-
tion 436.
(30) LIMITATIONS ON ELECTIVE DEFERRALS.—In the case of a
trust which is part of a plan under which elective deferrals
(within the meaning of section 402(g)(3)) may be made with re-
spect to any individual during a calendar year, such trust shall
not constitute a qualified trust under this subsection unless
the plan provides that the amount of such deferrals under such
plan and all other plans, contracts, or arrangements of an em-
ployer maintaining such plan may not exceed the amount of
the limitation in effect under section 402(g)(1)(A) for taxable
years beginning in such calendar year.
(31) DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBU-
TIONS.—
(A) IN GENERAL.—A trust shall not constitute a qualified
trust under this section unless the plan of which such
trust is a part provides that if the distributee of any eligi-
ble rollover distribution—
(i) elects to have such distribution paid directly to
an eligible retirement plan, and
(ii) specifies the eligible retirement plan to which
such distribution is to be paid (in such form and at
such time as the plan administrator may prescribe),
such distribution shall be made in the form of a direct
trustee-to-trustee transfer to the eligible retirement plan
so specified.
(B) CERTAIN MANDATORY DISTRIBUTIONS.—
(i) IN GENERAL.—In case of a trust which is part of
an eligible plan, such trust shall not constitute a
qualified trust under this section unless the plan of
which such trust is a part provides that if—
(I) a distribution described in clause (ii) in ex-
cess of $1,000 is made, and
(II) the distributee does not make an election
under subparagraph (A) and does not elect to re-
ceive the distribution directly,
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the plan administrator shall make such transfer to an in-
dividual retirement plan of a designated trustee or issuer
and shall notify the distributee in writing (either sepa-
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64
rately or as part of the notice under section 402(f)) that the
distribution may be transferred to another individual re-
tirement plan.
(ii) ELIGIBLE PLAN.—For purposes of clause (i), the
term ‘‘eligible plan’’ means a plan which provides that
any nonforfeitable accrued benefit for which the
present value (as determined under section 411(a)(11))
does not exceed $5,000 shall be immediately distrib-
uted to the participant.
(C) LIMITATION.—Subparagraphs (A) and (B) shall apply
only to the extent that the eligible rollover distribution
would be includible in gross income if not transferred as
provided in subparagraph (A) (determined without regard
to sections 402(c), 403(a)(4), 403(b)(8), and 457(e)(16)). The
preceding sentence shall not apply to such distribution if
the plan to which such distribution is transferred—
(i) is a qualified trust which is part of a plan which
is a defined contribution plan and agrees to separately
account for amounts so transferred, including sepa-
rately accounting for the portion of such distribution
which is includible in gross income and the portion of
such distribution which is not so includible, or
(ii) is an eligible retirement plan described in clause
(i) or (ii) of section 402(c)(8)(B).
(D) ELIGIBLE ROLLOVER DISTRIBUTION.—For purposes of
this paragraph, the term ‘‘eligible rollover distribution’’ has
the meaning given such term by section 402(f)(2)(A).
(E) ELIGIBLE RETIREMENT PLAN.—For purposes of this
paragraph, the term ‘‘eligible retirement plan’’ has the
meaning given such term by section 402(c)(8)(B), except
that a qualified trust shall be considered an eligible retire-
ment plan only if it is a defined contribution plan, the
terms of which permit the acceptance of rollover distribu-
tions.
(32) TREATMENT OF FAILURE TO MAKE CERTAIN PAYMENTS IF
PLAN HAS LIQUIDITY SHORTFALL.—
(A) IN GENERAL.—A trust forming part of a pension plan
to which section 430(j)(4) or 433(f)(5) applies shall not be
treated as failing to constitute a qualified trust under this
section merely because such plan ceases to make any pay-
ment described in subparagraph (B) during any period
that such plan has a liquidity shortfall (as defined in sec-
tion 430(j)(4) or 433(f)(5)).
(B) PAYMENTS DESCRIBED.—A payment is described in
this subparagraph if such payment is—
(i) any payment, in excess of the monthly amount
paid under a single life annuity (plus any social secu-
rity supplements described in the last sentence of sec-
tion 411(a)(9)), to a participant or beneficiary whose
annuity starting date (as defined in section 417(f)(2))
occurs during the period referred to in subparagraph
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(A),
(ii) any payment for the purchase of an irrevocable
commitment from an insurer to pay benefits, and
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65
(iii) any other payment specified by the Secretary by
regulations.
(C) PERIOD OF SHORTFALL.—For purposes of this para-
graph, a plan has a liquidity shortfall during the period
that there is an underpayment of an installment under
section 430(j)(3) or 433(f) by reason of section 430(j)(4)(A)
or 433(f)(5), respectively.
(33) PROHIBITION ON BENEFIT INCREASES WHILE SPONSOR IS
IN BANKRUPTCY.—
(A) IN GENERAL.—A trust which is part of a plan to
which this paragraph applies shall not constitute a quali-
fied trust under this section if an amendment to such plan
is adopted while the employer is a debtor in a case under
title 11, United States Code, or similar Federal or State
law, if such amendment increases liabilities of the plan by
reason of—
(i) any increase in benefits,
(ii) any change in the accrual of benefits, or
(iii) any change in the rate at which benefits become
nonforfeitable under the plan,
with respect to employees of the debtor, and such amend-
ment is effective prior to the effective date of such employ-
er’s plan of reorganization.
(B) EXCEPTIONS.—This paragraph shall not apply to any
plan amendment if—
(i) the plan, were such amendment to take effect,
would have a funding target attainment percentage
(as defined in section 430(d)(2)) of 100 percent or
more,
(ii) the Secretary determines that such amendment
is reasonable and provides for only de minimis in-
creases in the liabilities of the plan with respect to
employees of the debtor,
(iii) such amendment only repeals an amendment
described in section 412(d)(2), or
(iv) such amendment is required as a condition of
qualification under this part.
(C) PLANS TO WHICH THIS PARAGRAPH APPLIES.—This
paragraph shall apply only to plans (other than multiem-
ployer plans or CSEC plans) covered under section 4021 of
the Employee Retirement Income Security Act of 1974.
(D) EMPLOYER.—For purposes of this paragraph, the
term ‘‘employer’’ means the employer referred to in section
412(b)(1), without regard to section 412(b)(2).
(34) BENEFITS OF MISSING PARTICIPANTS ON PLAN TERMI-
NATION.—In the case of a plan covered by title IV of the Em-
ployee Retirement Income Security Act of 1974, a trust forming
part of such plan shall not be treated as failing to constitute
a qualified trust under this section merely because the pension
plan of which such trust is a part, upon its termination, trans-
fers benefits of missing participants to the Pension Benefit
Guaranty Corporation in accordance with section 4050 of such
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Act.
(35) DIVERSIFICATION REQUIREMENTS FOR CERTAIN DEFINED
CONTRIBUTION PLANS.—
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66
(A) IN GENERAL.—A trust which is part of an applicable
defined contribution plan shall not be treated as a quali-
fied trust unless the plan meets the diversification require-
ments of subparagraphs (B), (C), and (D).
(B) EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS
INVESTED IN EMPLOYER SECURITIES.—In the case of the
portion of an applicable individual’s account attributable to
employee contributions and elective deferrals which is in-
vested in employer securities, a plan meets the require-
ments of this subparagraph if the applicable individual
may elect to direct the plan to divest any such securities
and to reinvest an equivalent amount in other investment
options meeting the requirements of subparagraph (D).
(C) EMPLOYER CONTRIBUTIONS INVESTED IN EMPLOYER
SECURITIES.—In the case of the portion of the account at-
tributable to employer contributions other than elective de-
ferrals which is invested in employer securities, a plan
meets the requirements of this subparagraph if each appli-
cable individual who—
(i) is a participant who has completed at least 3
years of service, or
(ii) is a beneficiary of a participant described in
clause (i) or of a deceased participant,
may elect to direct the plan to divest any such securities
and to reinvest an equivalent amount in other investment
options meeting the requirements of subparagraph (D).
(D) INVESTMENT OPTIONS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if the plan offers not less than 3 invest-
ment options, other than employer securities, to which
an applicable individual may direct the proceeds from
the divestment of employer securities pursuant to this
paragraph, each of which is diversified and has mate-
rially different risk and return characteristics.
(ii) TREATMENT OF CERTAIN RESTRICTIONS AND CON-
DITIONS.—
(I) TIME FOR MAKING INVESTMENT CHOICES.—A
plan shall not be treated as failing to meet the re-
quirements of this subparagraph merely because
the plan limits the time for divestment and rein-
vestment to periodic, reasonable opportunities oc-
curring no less frequently than quarterly.
(II) CERTAIN RESTRICTIONS AND CONDITIONS NOT
ALLOWED.—Except as provided in regulations, a
plan shall not meet the requirements of this sub-
paragraph if the plan imposes restrictions or con-
ditions with respect to the investment of employer
securities which are not imposed on the invest-
ment of other assets of the plan. This subclause
shall not apply to any restrictions or conditions
imposed by reason of the application of securities
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laws.
(E) APPLICABLE DEFINED CONTRIBUTION PLAN.—For pur-
poses of this paragraph—
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67
(i) IN GENERAL.—The term ‘‘applicable defined con-
tribution plan’’ means any defined contribution plan
which holds any publicly traded employer securities.
(ii) EXCEPTION FOR CERTAIN ESOPS.—Such term does
not include an employee stock ownership plan if—
(I) there are no contributions to such plan (or
earnings thereunder) which are held within such
plan and are subject to subsection (k) or (m), and
(II) such plan is a separate plan for purposes of
section 414(l) with respect to any other defined
benefit plan or defined contribution plan main-
tained by the same employer or employers.
(iii) EXCEPTION FOR ONE PARTICIPANT PLANS.—Such
term does not include a one-participant retirement
plan.
(iv) ONE-PARTICIPANT RETIREMENT PLAN.—For pur-
poses of clause (iii), the term ‘‘one-participant retire-
ment plan’’ means a retirement plan that on the first
day of the plan year—
(I) covered only one individual (or the individual
and the individual’s spouse) and the individual (or
the individual and the individual’s spouse) owned
100 percent of the plan sponsor (whether or not
incorporated), or
(II) covered only one or more partners (or part-
ners and their spouses) in the plan sponsor.
(F) CERTAIN PLANS TREATED AS HOLDING PUBLICLY TRAD-
ED EMPLOYER SECURITIES.—
(i) IN GENERAL.—Except as provided in regulations
or in clause (ii), a plan holding employer securities
which are not publicly traded employer securities shall
be treated as holding publicly traded employer securi-
ties if any employer corporation, or any member of a
controlled group of corporations which includes such
employer corporation, has issued a class of stock which
is a publicly traded employer security.
(ii) EXCEPTION FOR CERTAIN CONTROLLED GROUPS
WITH PUBLICLY TRADED SECURITIES.—Clause (i) shall
not apply to a plan if—
(I) no employer corporation, or parent corpora-
tion of an employer corporation, has issued any
publicly traded employer security, and
(II) no employer corporation, or parent corpora-
tion of an employer corporation, has issued any
special class of stock which grants particular
rights to, or bears particular risks for, the holder
or issuer with respect to any corporation described
in clause (i) which has issued any publicly traded
employer security.
(iii) DEFINITIONS.—For purposes of this subpara-
graph, the term—
(I) ‘‘controlled group of corporations’’ has the
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meaning given such term by section 1563(a), ex-
cept that ‘‘50 percent’’ shall be substituted for ‘‘80
percent’’ each place it appears,
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68
(II) ‘‘employer corporation’’ means a corporation
which is an employer maintaining the plan, and
(III) ‘‘parent corporation’’ has the meaning given
such term by section 424(e).
(G) OTHER DEFINITIONS.—For purposes of this para-
graph—
(i) APPLICABLE INDIVIDUAL.—The term ‘‘applicable
individual’’ means—
(I) any participant in the plan, and
(II) any beneficiary who has an account under
the plan with respect to which the beneficiary is
entitled to exercise the rights of a participant.
(ii) ELECTIVE DEFERRAL.—The term ‘‘elective defer-
ral’’ means an employer contribution described in sec-
tion 402(g)(3)(A).
(iii) EMPLOYER SECURITY.—The term ‘‘employer secu-
rity’’ has the meaning given such term by section
407(d)(1) of the Employee Retirement Income Security
Act of 1974.
(iv) EMPLOYEE STOCK OWNERSHIP PLAN.—The term
‘‘employee stock ownership plan’’ has the meaning
given such term by section 4975(e)(7).
(v) PUBLICLY TRADED EMPLOYER SECURITIES.—The
term ‘‘publicly traded employer securities’’ means em-
ployer securities which are readily tradable on an es-
tablished securities market.
(vi) YEAR OF SERVICE.—The term ‘‘year of service’’
has the meaning given such term by section 411(a)(5).
(H) TRANSITION RULE FOR SECURITIES ATTRIBUTABLE TO
EMPLOYER CONTRIBUTIONS.—
(i) RULES PHASED IN OVER 3 YEARS.—
(I) IN GENERAL.—In the case of the portion of an
account to which subparagraph (C) applies and
which consists of employer securities acquired in
a plan year beginning before January 1, 2007,
subparagraph (C) shall only apply to the applica-
ble percentage of such securities. This subpara-
graph shall be applied separately with respect to
each class of securities.
(II) EXCEPTION FOR CERTAIN PARTICIPANTS AGED
55 OR OVER.—Subclause (I) shall not apply to an
applicable individual who is a participant who has
attained age 55 and completed at least 3 years of
service before the first plan year beginning after
December 31, 2005.
(ii) APPLICABLE PERCENTAGE.—For purposes of
clause (i), the applicable percentage shall be deter-
mined as follows:
(36) DISTRIBUTIONS DURING WORKING RETIREMENT.—
(A) IN GENERAL.—A trust forming part of a pension plan
shall not be treated as failing to constitute a qualified
trust under this section solely because the plan provides
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that a distribution may be made from such trust to an em-
ployee who has attained age 591/2 and who is not sepa-
rated from employment at the time of such distribution.
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69
(B) CERTAIN EMPLOYEES IN THE BUILDING AND CON-
STRUCTION INDUSTRY.—Subparagraph (A) shall be applied
by substituting ‘‘age 55’’ for ‘‘age 591/2’’ in the case of a
multiemployer plan described in section 4203(b)(1)(B)(i) of
the Employee Retirement Income Security Act of 1974,
with respect to individuals who were participants in such
plan on or before April 30, 2013, if—
(i) the trust to which subparagraph (A) applies was
in existence before January 1, 1970, and
(ii) before December 31, 2011, at a time when the
plan provided that distributions may be made to an
employee who has attained age 55 and who is not sep-
arated from employment at the time of such distribu-
tion, the plan received at least 1 written determina-
tion from the Internal Revenue Service that the trust
to which subparagraph (A) applies constituted a quali-
fied trust under this section.
(37) DEATH BENEFITS UNDER USERRA-QUALIFIED ACTIVE MILI-
TARY SERVICE.—A trust shall not constitute a qualified trust
unless the plan provides that, in the case of a participant who
dies while performing qualified military service (as defined in
section 414(u)), the survivors of the participant are entitled to
any additional benefits (other than benefit accruals relating to
the period of qualified military service) provided under the
plan had the participant resumed and then terminated employ-
ment on account of death.
(38) PORTABILITY OF LIFETIME INCOME.—
(A) IN GENERAL.—Except as may be otherwise provided
by regulations, a trust forming part of a defined contribu-
tion plan shall not be treated as failing to constitute a
qualified trust under this section solely by reason of allow-
ing—
(i) qualified distributions of a lifetime income invest-
ment, or
(ii) distributions of a lifetime income investment in
the form of a qualified plan distribution annuity con-
tract,
on or after the date that is 90 days prior to the date on
which such lifetime income investment is no longer author-
ized to be held as an investment option under the plan.
(B) DEFINITIONS.—For purposes of this subsection—
(i) the term ‘‘qualified distribution’’ means a direct
trustee-to-trustee transfer described in paragraph
(31)(A) to an eligible retirement plan (as defined in
section 402(c)(8)(B)),
(ii) the term ‘‘lifetime income investment’’ means an
investment option which is designed to provide an em-
ployee with election rights—
(I) which are not uniformly available with re-
spect to other investment options under the plan,
and
(II) which are to a lifetime income feature avail-
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able through a contract or other arrangement of-
fered under the plan (or under another eligible re-
tirement plan (as so defined), if paid by means of
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70
a direct trustee-to-trustee transfer described in
paragraph (31)(A) to such other eligible retirement
plan),
(iii) the term ‘‘lifetime income feature’’ means—
(I) a feature which guarantees a minimum level
of income annually (or more frequently) for at
least the remainder of the life of the employee or
the joint lives of the employee and the employee’s
designated beneficiary, or
(II) an annuity payable on behalf of the em-
ployee under which payments are made in sub-
stantially equal periodic payments (not less fre-
quently than annually) over the life of the em-
ployee or the joint lives of the employee and the
employee’s designated beneficiary, and
(iv) the term ‘‘qualified plan distribution annuity
contract’’ means an annuity contract purchased for a
participant and distributed to the participant by a
plan or contract described in subparagraph (B) of sec-
tion 402(c)(8) (without regard to clauses (i) and (ii)
thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only
in the case of a plan to which section 411 (relating to minimum
vesting standards) applies without regard to subsection (e)(2) of
such section.
(b) CERTAIN PLAN AMENDMENTS.—
(1) CERTAIN RETROACTIVE CHANGES IN PLAN.—A stock bonus,
pension, profit-sharing, or annuity plan shall be considered as
satisfying the requirements of subsection (a) for the period be-
ginning with the date on which it was put into effect, or for
the period beginning with the earlier of the date on which
there was adopted or put into effect any amendment which
caused the plan to fail to satisfy such requirements, and end-
ing with the time prescribed by law for filing the return of the
employer for his taxable year in which such plan or amend-
ment was adopted (including extensions thereof) or such later
time as the Secretary may designate, if all provisions of the
plan which are necessary to satisfy such requirements are in
effect by the end of such period and have been made effective
for all purposes for the whole of such period.
(2) ADOPTION OF PLAN.—If an employer adopts a stock bonus,
pension, profit-sharing, or annuity plan after the close of a tax-
able year but before the time prescribed by law for filing the
return of the employer for the taxable year (including exten-
sions thereof), the employer may elect to treat the plan as hav-
ing been adopted as of the last day of the taxable year.
(c) DEFINITIONS AND RULES RELATING TO SELF-EMPLOYED INDIVID-
UALS AND OWNER-EMPLOYEES.—For purposes of this section—
(1) SELF-EMPLOYED INDIVIDUAL TREATED AS EMPLOYEE.—
(A) IN GENERAL.—The term ‘‘employee’’ includes, for any
taxable year, an individual who is a self-employed indi-
vidual for such taxable year.
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(B) SELF-EMPLOYED INDIVIDUAL.—The term ‘‘self-em-
ployed individual’’ means, with respect to any taxable year,
an individual who has earned income (as defined in para-
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71
graph (2)) for such taxable year. To the extent provided in
regulations prescribed by the Secretary, such term also in-
cludes, for any taxable year—
(i) an individual who would be a self-employed indi-
vidual within the meaning of the preceding sentence
but for the fact that the trade or business carried on
by such individual did not have net profits for the tax-
able year, and
(ii) an individual who has been a self-employed indi-
vidual within the meaning of the preceding sentence
for any prior taxable year.
(2) EARNED INCOME.—
(A) IN GENERAL.—The term ‘‘earned income’’ means the
net earnings from self-employment (as defined in section
1402(a)), but such net earnings shall be determined—
(i) only with respect to a trade or business in which
personal services of the taxpayer are a material in-
come-producing factor,
(ii) without regard to paragraphs (4) and (5) of sec-
tion 1402(c),
(iii) in the case of any individual who is treated as
an employee under subparagraph (A), (C), or (D) of
section 3121(d)(3), without regard to section 1402(c)(2),
(iv) without regard to items which are not included
in gross income for purposes of this chapter, and the
deductions properly allocable to or chargeable against
such items,
(v) with regard to the deductions allowed by section
404 to the taxpayer, and
(vi) with regard to the deduction allowed to the tax-
payer by section 164(f).
For purposes of this subparagraph, section 1402, as in ef-
fect for a taxable year ending on December 31, 1962, shall
be treated as having been in effect for all taxable years
ending before such date. For purposes of this part only
(other than sections 419 and 419A), this subparagraph
shall be applied as if the term ‘‘trade or business’’ for pur-
poses of section 1402 included service described in section
1402(c)(6).
(C) INCOME FROM DISPOSITION OF CERTAIN PROPERTY.—
For purposes of this section, the term ‘‘earned income’’ in-
cludes gains (other than any gain which is treated under
any provision of this chapter as gain from the sale or ex-
change of a capital asset) and net earnings derived from
the sale or other disposition of, the transfer of any interest
in, or the licensing of the use of property (other than good
will) by an individual whose personal efforts created such
property.
(3) OWNER-EMPLOYEE.—The term ‘‘owner-employee’’ means
an employee who—
(A) owns the entire interest in an unincorporated trade
or business, or
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(B) in the case of a partnership, is a partner who owns
more than 10 percent of either the capital interest or the
profits interest in such partnership.
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72
To the extent provided in regulations prescribed by the Sec-
retary, such term also means an individual who has been an
owner-employee within the meaning of the preceding sentence.
(4) EMPLOYER.—An individual who owns the entire interest
in an unincorporated trade or business shall be treated as his
own employer. A partnership shall be treated as the employer
of each partner who is an employee within the meaning of
paragraph (1).
(5) CONTRIBUTIONS ON BEHALF OF OWNER-EMPLOYEES.—The
term ‘‘contribution on behalf of an owner-employee’’ includes,
except as the context otherwise requires, a contribution under
a plan—
(A) by the employer for an owner-employee, and
(B) by an owner-employee as an employee.
(6) SPECIAL RULE FOR CERTAIN FISHERMEN.—For purposes of
this subsection, the term ‘‘self-employed individual’’ includes
an individual described in section 3121(b)(20) (relating to cer-
tain fishermen).
(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—A trust forming
part of a pension or profit-sharing plan which provides contribu-
tions or benefits for employees some or all of whom are owner-em-
ployees shall constitute a qualified trust under this section only if,
in addition to meeting the requirements of subsection (a), the plan
provides that contributions on behalf of any owner-employee may
be made only with respect to the earned income of such owner-em-
ployee which is derived from the trade or business with respect to
which such plan is established.
(f) CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS.—For purposes
of this title, a custodial account, an annuity contract, or a contract
(other than a life, health or accident, property, casualty, or liability
insurance contract) issued by an insurance company qualified to do
business in a State shall be treated as a qualified trust under this
section if—
(1) the custodial account or contract would, except for the
fact that it is not a trust, constitute a qualified trust under this
section, and
(2) in the case of a custodial account the assets thereof are
held by a bank (as defined in section 408(n)) or another person
who demonstrates, to the satisfaction of the Secretary, that the
manner in which he will hold the assets will be consistent with
the requirements of this section.
For purposes of this title, in the case of a custodial account or con-
tract treated as a qualified trust under this section by reason of
this subsection, the person holding the assets of such account or
holding such contract shall be treated as the trustee thereof.
(g) ANNUITY DEFINED.—For purposes of this section and sections
402, 403, and 404, the term ‘‘annuity’’ includes a face-amount cer-
tificate, as defined in section 2(a)(15) of the Investment Company
Act of 1940 (15 U.S.C., sec. 80a–2); but does not include any con-
tract or certificate issued after December 31, 1962, which is trans-
ferable, if any person other than the trustee of a trust described
in section 401(a) which is exempt from tax under section 501(a) is
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the owner of such contract or certificate.
(h) MEDICAL, ETC., BENEFITS FOR RETIRED EMPLOYEES AND THEIR
SPOUSES AND DEPENDENTS.—Under regulations prescribed by the
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73
Secretary, and subject to the provisions of section 420, a pension
or annuity plan may provide for the payment of benefits for sick-
ness, accident, hospitalization, and medical expenses of retired em-
ployees, their spouses and their dependents, but only if—
(1) such benefits are subordinate to the retirement benefits
provided by the plan,
(2) a separate account is established and maintained for such
benefits,
(3) the employer’s contributions to such separate account are
reasonable and ascertainable,
(4) it is impossible, at any time prior to the satisfaction of
all liabilities under the plan to provide such benefits, for any
part of the corpus or income of such separate account to be
(within the taxable year or thereafter) used for, or diverted to,
any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection (a)(2), upon
the satisfaction of all liabilities under the plan to provide such
benefits, any amount remaining in such separate account
must, under the terms of the plan, be returned to the em-
ployer, and
(6) in the case of an employee who is a key employee, a sepa-
rate account is established and maintained for such benefits
payable to such employee (and his spouse and dependents) and
such benefits (to the extent attributable to plan years begin-
ning after March 31, 1984, for which the employee is a key em-
ployee) are only payable to such employee (and his spouse and
dependents) from such separate account.
For purposes of paragraph (6), the term ‘‘key employee’’ means any
employee, who at any time during the plan year or any preceding
plan year during which contributions were made on behalf of such
employee, is or was a key employee as defined in section 416(i). In
no event shall the requirements of paragraph (1) be treated as met
if the aggregate actual contributions for medical benefits, when
added to actual contributions for life insurance protection under
the plan, exceed 25 percent of the total actual contributions to the
plan (other than contributions to fund past service credits) after
the date on which the account is established. For purposes of this
subsection, the term ‘‘dependent’’ shall include any individual who
is a child (as defined in section 152(f)(1)) of a retired employee who
as of the end of the calendar year has not attained age 27.
(i) CERTAIN UNION-NEGOTIATED PENSION PLANS.—In the case of a
trust forming part of a pension plan which has been determined by
the Secretary to constitute a qualified trust under subsection (a)
and to be exempt from taxation under section 501(a) for a period
beginning after contributions were first made to or for such trust,
if it is shown to the satisfaction of the Secretary that—
(1) such trust was created pursuant to a collective bar-
gaining agreement between employee representatives and one
or more employers,
(2) any disbursements of contributions, made to or for such
trust before the time as of which the Secretary determined
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that the trust constituted a qualified trust, substantially com-
plied with the terms of the trust, and the plan of which the
trust is a part, as subsequently qualified, and
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74
(3) before the time as of which the Secretary determined that
the trust constitutes a qualified trust, the contributions to or
for such trust were not used in a manner which would jeop-
ardize the interests of its beneficiaries,
then such trust shall be considered as having constituted a quali-
fied trust under subsection (a) and as having been exempt from
taxation under section 501(a) for the period beginning on the date
on which contributions were first made to or for such trust and
ending on the date such trust first constituted (without regard to
this subsection) a qualified trust under subsection (a).
(k) CASH OR DEFERRED ARRANGEMENTS.—
(1) GENERAL RULE.—A profit-sharing or stock bonus plan, a
pre-ERISA money purchase plan, or a rural cooperative plan
shall not be considered as not satisfying the requirements of
subsection (a) merely because the plan includes a qualified
cash or deferred arrangement.
(2) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—A quali-
fied cash or deferred arrangement is any arrangement which
is part of a profit-sharing or stock bonus plan, a pre-ERISA
money purchase plan, or a rural cooperative plan which meets
the requirements of subsection (a)—
(A) under which a covered employee may elect to have
the employer make payments as contributions to a trust
under the plan on behalf of the employee, or to the em-
ployee directly in cash;
(B) under which amounts held by the trust which are at-
tributable to employer contributions made pursuant to the
employee’s election—
(i) may not be distributable to participants or other
beneficiaries earlier than—
(I) severance from employment, death, or dis-
ability,
(II) an event described in paragraph (10),
(III) in the case of a profit-sharing or stock
bonus plan, the attainment of age 591/2,
(IV) subject to the provisions of paragraph (14),
upon hardship of the employee,
(V) in the case of a qualified reservist distribu-
tion (as defined in section 72(t)(2)(G)(iii)), the date
on which a period referred to in subclause (III) of
such section begins, or
(VI) except as may be otherwise provided by
regulations, with respect to amounts invested in a
lifetime income investment (as defined in sub-
section (a)(38)(B)(ii)), the date that is 90 days
prior to the date that such lifetime income invest-
ment may no longer be held as an investment op-
tion under the arrangement,
(ii) will not be distributable merely by reason of the
completion of a stated period of participation or the
lapse of a fixed number of years, and
(iii) except as may be otherwise provided by regula-
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tions, in the case of amounts described in clause
(i)(VI), will be distributed only in the form of a quali-
fied distribution (as defined in subsection (a)(38)(B)(i))
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75
or a qualified plan distribution annuity contract (as
defined in subsection (a)(38)(B)(iv)),
(C) which provides that an employee’s right to his ac-
crued benefit derived from employer contributions made to
the trust pursuant to his election is nonforfeitable, and
(D) which does not require, as a condition of participa-
tion in the arrangement, that an employee complete a pe-
riod of service with the employer (or employers) maintain-
ing the plan extending beyond the close of the earlier of—
(i) the period permitted under section 410(a)(1) (de-
termined without regard to subparagraph (B)(i) there-
of), or
(ii) subject to the provisions of paragraph (15), the
first period of 3 consecutive 12-month periods during
each of which the employee has at least 500 hours of
service.
(3) APPLICATION OF PARTICIPATION AND DISCRIMINATION
STANDARDS.—
(A) A cash or deferred arrangement shall not be treated
as a qualified cash or deferred arrangement unless—
(i) those employees eligible to benefit under the ar-
rangement satisfy the provisions of section 410(b)(1),
and
(ii) the actual deferral percentage for eligible highly
compensated employees (as defined in paragraph (5))
for the plan year bears a relationship to the actual de-
ferral percentage for all other eligible employees for
the preceding plan year which meets either of the fol-
lowing tests:
(I) The actual deferral percentage for the group
of eligible highly compensated employees is not
more than the actual deferral percentage of all
other eligible employees multiplied by 1.25.
(II) The excess of the actual deferral percentage
for the group of eligible highly compensated em-
ployees over that of all other eligible employees is
not more than 2 percentage points, and the actual
deferral percentage for the group of eligible highly
compensated employees is not more than the ac-
tual deferral percentage of all other eligible em-
ployees multiplied by 2.
If 2 or more plans which include cash or deferred arrange-
ments are considered as 1 plan for purposes of section
401(a)(4) or 410(b), the cash or deferred arrangements in-
cluded in such plans shall be treated as 1 arrangement for
purposes of this subparagraph.
If any highly compensated employee is a participant under
2 or more cash or deferred arrangements of the employer,
for purposes of determining the deferral percentage with
respect to such employee, all such cash or deferred ar-
rangements shall be treated as 1 cash or deferred arrange-
ment. An arrangement may apply clause (ii) by using the
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plan year rather than the preceding plan year if the em-
ployer so elects, except that if such an election is made, it
may not be changed except as provided by the Secretary.
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76
(B) For purposes of subparagraph (A), the actual deferral
percentage for a specified group of employees for a plan
year shall be the average of the ratios (calculated sepa-
rately for each employee in such group) of—
(i) the amount of employer contributions actually
paid over to the trust on behalf of each such employee
for such plan year, to
(ii) the employee’s compensation for such plan year.
(C) A cash or deferred arrangement shall be treated as
meeting the requirements of subsection (a)(4) with respect
to contributions if the requirements of subparagraph (A)(ii)
are met.
(D) For purposes of subparagraph (B), the employer con-
tributions on behalf of any employee—
(i) shall include any employer contributions made
pursuant to the employee’s election under paragraph
(2), and
(ii) under such rules as the Secretary may prescribe,
may, at the election of the employer, include—
(I) matching contributions (as defined in
401(m)(4)(A)) which meet the requirements of
paragraph (2)(B) and (C), and
(II) qualified nonelective contributions (within
the meaning of section 401(m)(4)(C)).
(E) For purposes of this paragraph, in the case of the
first plan year of any plan (other than a successor plan),
the amount taken into account as the actual deferral per-
centage of nonhighly compensated employees for the pre-
ceding plan year shall be—
(i) 3 percent, or
(ii) if the employer makes an election under this
subclause, the actual deferral percentage of nonhighly
compensated employees determined for such first plan
year.
(F) SPECIAL RULE FOR EARLY PARTICIPATION.—If an em-
ployer elects to apply section 410(b)(4)(B) in determining
whether a cash or deferred arrangement meets the re-
quirements of subparagraph (A)(i), the employer may, in
determining whether the arrangement meets the require-
ments of subparagraph (A)(ii), exclude from consideration
all eligible employees (other than highly compensated em-
ployees) who have not met the minimum age and service
requirements of section 410(a)(1)(A).
(G) GOVERNMENTAL PLAN.—A governmental plan (within
the meaning of section 414(d)) shall be treated as meeting
the requirements of this paragraph.
(4) OTHER REQUIREMENTS.—
(A) BENEFITS (OTHER THAN MATCHING CONTRIBUTIONS)
MUST NOT BE CONTINGENT ON ELECTION TO DEFER.—A cash
or deferred arrangement of any employer shall not be
treated as a qualified cash or deferred arrangement if any
other benefit is conditioned (directly or indirectly) on the
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employee electing to have the employer make or not make
contributions under the arrangement in lieu of receiving
cash. The preceding sentence shall not apply to any match-
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77
ing contribution (as defined in section 401(m)) made by
reason of such an election.
(B) ELIGIBILITY OF STATE AND LOCAL GOVERNMENTS AND
TAX-EXEMPT ORGANIZATIONS.—
(i) TAX-EXEMPTS ELIGIBLE.—Except as provided in
clause (ii), any organization exempt from tax under
this subtitle may include a qualified cash or deferred
arrangement as part of a plan maintained by it.
(ii) GOVERNMENTS INELIGIBLE.—A cash or deferred
arrangement shall not be treated as a qualified cash
or deferred arrangement if it is part of a plan main-
tained by a State or local government or political sub-
division thereof, or any agency or instrumentality
thereof. This clause shall not apply to a rural coopera-
tive plan or to a plan of an employer described in
clause (iii).
(iii) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—
An employer which is an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision of an In-
dian tribal government (determined in accordance
with section 7871(d)), an agency or instrumentality of
an Indian tribal government or subdivision thereof, or
a corporation chartered under Federal, State, or tribal
law which is owned in whole or in part by any of the
foregoing may include a qualified cash or deferred ar-
rangement as part of a plan maintained by the em-
ployer.
(C) COORDINATION WITH OTHER PLANS.—Except as pro-
vided in section 401(m), any employer contribution made
pursuant to an employee’s election under a qualified cash
or deferred arrangement shall not be taken into account
for purposes of determining whether any other plan meets
the requirements of section 401(a) or 410(b). This subpara-
graph shall not apply for purposes of determining whether
a plan meets the average benefit requirement of section
410(b)(2)(A)(ii).
(5) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this
subsection, the term ‘‘highly compensated employee’’ has the
meaning given such term by section 414(q).
(6) PRE-ERISA MONEY PURCHASE PLAN.—For purposes of this
subsection, the term ‘‘pre-ERISA money purchase plan’’ means
a pension plan—
(A) which is a defined contribution plan (as defined in
section 414(i)),
(B) which was in existence on June 27, 1974, and which,
on such date, included a salary reduction arrangement,
and
(C) under which neither the employee contributions nor
the employer contributions may exceed the levels provided
for by the contribution formula in effect under the plan on
such date.
(7) RURAL COOPERATIVE PLAN.—For purposes of this sub-
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section—
(A) IN GENERAL.—The term ‘‘rural cooperative plan’’
means any pension plan—
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78
(i) which is a defined contribution plan (as defined
in section 414(i)), and
(ii) which is established and maintained by a rural
cooperative.
(B) RURAL COOPERATIVE DEFINED.—For purposes of sub-
paragraph (A), the term ‘‘rural cooperative’’ means—
(i) any organization which—
(I) is engaged primarily in providing electric
service on a mutual or cooperative basis, or
(II) is engaged primarily in providing electric
service to the public in its area of service and
which is exempt from tax under this subtitle or
which is a State or local government (or an agency
or instrumentality thereof), other than a munici-
pality (or an agency or instrumentality thereof),
(ii) any organization described in paragraph (4) or
(6) of section 501(c) and at least 80 percent of the
members of which are organizations described in
clause (i),
(iii) a cooperative telephone company described in
section 501(c)(12),
(iv) any organization which—
(I) is a mutual irrigation or ditch company de-
scribed in section 501(c)(12) (without regard to the
85 percent requirement thereof), or
(II) is a district organized under the laws of a
State as a municipal corporation for the purpose
of irrigation, water conservation, or drainage, and
(v) an organization which is a national association of
organizations described in clause (i), (ii),, (iii), or (iv).
(C) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS.—A rural
cooperative plan which includes a qualified cash or de-
ferred arrangement shall not be treated as violating the
requirements of section 401(a) or of paragraph (2) merely
by reason of a hardship distribution or a distribution to a
participant after attainment of age 591/2. For purposes of
this section, the term ‘‘hardship distribution’’ means a dis-
tribution described in paragraph (2)(B)(i)(IV) (without re-
gard to the limitation of its application to profit-sharing or
stock bonus plans).
(8) ARRANGEMENT NOT DISQUALIFIED IF EXCESS CONTRIBU-
TIONS DISTRIBUTED.—
(A) IN GENERAL.—A cash or deferred arrangement shall
not be treated as failing to meet the requirements of
clause (ii) of paragraph (3)(A) for any plan year if, before
the close of the following plan year—
(i) the amount of the excess contributions for such
plan year (and any income allocable to such contribu-
tions through the end of such year) is distributed, or
(ii) to the extent provided in regulations, the em-
ployee elects to treat the amount of the excess con-
tributions as an amount distributed to the employee
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and then contributed by the employee to the plan.
Any distribution of excess contributions (and income) may
be made without regard to any other provision of law.
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79
(B) EXCESS CONTRIBUTIONS.—For purposes of subpara-
graph (A), the term ‘‘excess contributions’’ means, with re-
spect to any plan year, the excess of—
(i) the aggregate amount of employer contributions
actually paid over to the trust on behalf of highly com-
pensated employees for such plan year, over
(ii) the maximum amount of such contributions per-
mitted under the limitations of clause (ii) of paragraph
(3)(A) (determined by reducing contributions made on
behalf of highly compensated employees in order of the
actual deferral percentages beginning with the highest
of such percentages).
(C) METHOD OF DISTRIBUTING EXCESS CONTRIBUTIONS.—
Any distribution of the excess contributions for any plan
year shall be made to highly compensated employees on
the basis of the amount of contributions by, or on behalf
of, each of such employees.
(D) ADDITIONAL TAX UNDER SECTION 72(T) NOT TO
APPLY.—No tax shall be imposed under section 72(t) on
any amount required to be distributed under this para-
graph.
(E) TREATMENT OF MATCHING CONTRIBUTIONS FORFEITED
BY REASON OF EXCESS DEFERRAL OR CONTRIBUTION OR PER-
MISSIBLE WITHDRAWAL.—For purposes of paragraph (2)(C),
a matching contribution (within the meaning of subsection
(m)) shall not be treated as forfeitable merely because such
contribution is forfeitable if the contribution to which the
matching contribution relates is treated as an excess con-
tribution under subparagraph (B), an excess deferral
under section 402(g)(2)(A), a permissible withdrawal under
section 414(w), or an excess aggregate contribution under
section 401(m)(6)(B).
(F) CROSS REFERENCE.—For excise tax on certain excess
contributions, see section 4979.
(9) COMPENSATION.—For purposes of this subsection, the
term ‘‘compensation’’ has the meaning given such term by sec-
tion 414(s).
(10) DISTRIBUTIONS UPON TERMINATION OF PLAN.—
(A) IN GENERAL.—An event described in this subpara-
graph is the termination of the plan without establishment
or maintenance of another defined contribution plan (other
than an employee stock ownership plan as defined in sec-
tion 4975(e)(7)).
(B) DISTRIBUTIONS MUST BE LUMP SUM DISTRIBUTIONS.—
(i) IN GENERAL.—A termination shall not be treated
as described in subparagraph (A) with respect to any
employee unless the employee receives a lump sum
distribution by reason of the termination.
(ii) LUMP-SUM DISTRIBUTION.—For purposes of this
subparagraph, the term ‘‘lump-sum distribution’’ has
the meaning given such term by section 402(e)(4)(D)
SSpencer on DSK126QN23PROD with REPORTS
(without regard to subclauses (I), (II), (III), and (IV) of
clause (i) thereof). Such term includes a distribution of
an annuity contract from—
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80
(I) a trust which forms a part of a plan de-
scribed in section 401(a) and which is exempt
from tax under section 501(a), or
(II) an annuity plan described in section 403(a).
(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINATION
TESTS.—
(A) IN GENERAL.—A cash or deferred arrangement main-
tained by an eligible employer shall be treated as meeting
the requirements of paragraph (3)(A)(ii) if such arrange-
ment meets—
(i) the contribution requirements of subparagraph
(B),
(ii) the exclusive plan requirements of subparagraph
(C), and
(iii) the vesting requirements of section 408(p)(3).
(B) CONTRIBUTION REQUIREMENTS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if, under the arrangement—
(I) an employee may elect to have the employer
make elective contributions for the year on behalf
of the employee to a trust under the plan in an
amount which is expressed as a percentage of
compensation of the employee but which in no
event exceeds the amount in effect under section
408(p)(2)(A)(ii),
(II) the employer is required to make a match-
ing contribution to the trust for the year in an
amount equal to so much of the amount the em-
ployee elects under subclause (I) as does not ex-
ceed 3 percent of compensation for the year, and
(III) no other contributions may be made other
than contributions described in subclause (I) or
(II).
(ii) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE
CONTRIBUTION.—An employer shall be treated as meet-
ing the requirements of clause (i)(II) for any year if, in
lieu of the contributions described in such clause, the
employer elects (pursuant to the terms of the arrange-
ment) to make nonelective contributions of 2 percent
of compensation for each employee who is eligible to
participate in the arrangement and who has at least
$5,000 of compensation from the employer for the
year. If an employer makes an election under this sub-
paragraph for any year, the employer shall notify em-
ployees of such election within a reasonable period of
time before the 60th day before the beginning of such
year.
(iii) ADMINISTRATIVE REQUIREMENTS.—
(I) IN GENERAL.—Rules similar to the rules of
subparagraphs (B) and (C) of section 408(p)(5)
shall apply for purposes of this subparagraph.
(II) NOTICE OF ELECTION PERIOD.—The require-
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ments of this subparagraph shall not be treated as
met with respect to any year unless the employer
notifies each employee eligible to participate,
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81
within a reasonable period of time before the 60th
day before the beginning of such year (and, for the
first year the employee is so eligible, the 60th day
before the first day such employee is so eligible),
of the rules similar to the rules of section
408(p)(5)(C) which apply by reason of subclause
(I).
(C) EXCLUSIVE PLAN REQUIREMENT.—The requirements
of this subparagraph are met for any year to which this
paragraph applies if no contributions were made, or bene-
fits were accrued, for services during such year under any
qualified plan of the employer on behalf of any employee
eligible to participate in the cash or deferred arrangement,
other than contributions described in subparagraph (B).
(D) DEFINITIONS AND SPECIAL RULE.—
(i) DEFINITIONS.—For purposes of this paragraph,
any term used in this paragraph which is also used in
section 408(p) shall have the meaning given such term
by such section.
(ii) COORDINATION WITH TOP-HEAVY RULES.—A plan
meeting the requirements of this paragraph for any
year shall not be treated as a top-heavy plan under
section 416 for such year if such plan allows only con-
tributions required under this paragraph.
(12) ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION
REQUIREMENTS.—
(A) IN GENERAL.—A cash or deferred arrangement shall
be treated as meeting the requirements of paragraph
(3)(A)(ii) if such arrangement—
(i) meets the contribution requirements of subpara-
graph (B) and the notice requirements of subpara-
graph (D), or
(ii) meets the contribution requirements of subpara-
graph (C).
(B) MATCHING CONTRIBUTIONS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if, under the arrangement, the em-
ployer makes matching contributions on behalf of each
employee who is not a highly compensated employee
in an amount equal to—
(I) 100 percent of the elective contributions of
the employee to the extent such elective contribu-
tions do not exceed 3 percent of the employee’s
compensation, and
(II) 50 percent of the elective contributions of
the employee to the extent that such elective con-
tributions exceed 3 percent but do not exceed 5
percent of the employee’s compensation.
(ii) RATE FOR HIGHLY COMPENSATED EMPLOYEES.—
The requirements of this subparagraph are not met if,
under the arrangement, the rate of matching contribu-
tion with respect to any elective contribution of a high-
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ly compensated employee at any rate of elective con-
tribution is greater than that with respect to an em-
ployee who is not a highly compensated employee.
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82
(iii) ALTERNATIVE PLAN DESIGNS.—If the rate of any
matching contribution with respect to any rate of elec-
tive contribution is not equal to the percentage re-
quired under clause (i), an arrangement shall not be
treated as failing to meet the requirements of clause
(i) if—
(I) the rate of an employer’s matching contribu-
tion does not increase as an employee’s rate of
elective contributions increase, and
(II) the aggregate amount of matching contribu-
tions at such rate of elective contribution is at
least equal to the aggregate amount of matching
contributions which would be made if matching
contributions were made on the basis of the per-
centages described in clause (i).
(C) NONELECTIVE CONTRIBUTIONS.—The requirements of
this subparagraph are met if, under the arrangement, the
employer is required, without regard to whether the em-
ployee makes an elective contribution or employee con-
tribution, to make a contribution to a defined contribution
plan on behalf of each employee who is not a highly com-
pensated employee and who is eligible to participate in the
arrangement in an amount equal to at least 3 percent of
the employee’s compensation.
(D) NOTICE REQUIREMENT.—An arrangement meets the
requirements of this paragraph if, under the arrangement,
each employee eligible to participate is, within a reason-
able period before any year, given written notice of the em-
ployee’s rights and obligations under the arrangement
which—
(i) is sufficiently accurate and comprehensive to ap-
prise the employee of such rights and obligations, and
(ii) is written in a manner calculated to be under-
stood by the average employee eligible to participate.
(E) OTHER REQUIREMENTS.—
(i) WITHDRAWAL AND VESTING RESTRICTIONS.—An ar-
rangement shall not be treated as meeting the re-
quirements of subparagraph (B) or (C) of this para-
graph unless the requirements of subparagraphs (B)
and (C) of paragraph (2) are met with respect to all
employer contributions (including matching contribu-
tions) taken into account in determining whether the
requirements of subparagraphs (B) and (C) of this
paragraph are met.
(ii) SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS
NOT TAKEN INTO ACCOUNT.—An arrangement shall not
be treated as meeting the requirements of subpara-
graph (B) or (C) unless such requirements are met
without regard to subsection (l), and, for purposes of
subsection (l), employer contributions under subpara-
graph (B) or (C) shall not be taken into account.
(F) TIMING OF PLAN AMENDMENT FOR EMPLOYER MAKING
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NONELECTIVE CONTRIBUTIONS.—
(i) IN GENERAL.—Except as provided in clause (ii), a
plan may be amended after the beginning of a plan
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83
year to provide that the requirements of subparagraph
(C) shall apply to the arrangement for the plan year,
but only if the amendment is adopted—
(I) at any time before the 30th day before the
close of the plan year, or
(II) at any time before the last day under para-
graph (8)(A) for distributing excess contributions
for the plan year.
(ii) EXCEPTION WHERE PLAN PROVIDED FOR MATCHING
CONTRIBUTIONS.—Clause (i) shall not apply to any
plan year if the plan provided at any time during the
plan year that the requirements of subparagraph (B)
or paragraph (13)(D)(i)(I) applied to the plan year.
(iii) 4-PERCENT CONTRIBUTION REQUIREMENT.—
Clause (i)(II) shall not apply to an arrangement unless
the amount of the contributions described in subpara-
graph (C) which the employer is required to make
under the arrangement for the plan year with respect
to any employee is an amount equal to at least 4 per-
cent of the employee’s compensation.
(G) OTHER PLANS.—An arrangement shall be treated as
meeting the requirements under subparagraph (A)(i) if any
other plan maintained by the employer meets such re-
quirements with respect to employees eligible under the
arrangement.
(13) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION AR-
RANGEMENTS TO MEET NONDISCRIMINATION REQUIREMENTS.—
(A) IN GENERAL.—A qualified automatic contribution ar-
rangement shall be treated as meeting the requirements of
paragraph (3)(A)(ii).
(B) QUALIFIED AUTOMATIC CONTRIBUTION ARRANGE-
MENT.—For purposes of this paragraph, the term ‘‘qualified
automatic contribution arrangement’’ means a cash or de-
ferred arrangement—
(i) which is described in subparagraph (D)(i)(I) and
meets the applicable requirements of subparagraphs
(C) through (E), or
(ii) which is described in subparagraph (D)(i)(II) and
meets the applicable requirements of subparagraphs
(C) and (D).
(C) AUTOMATIC DEFERRAL.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if, under the arrangement, each em-
ployee eligible to participate in the arrangement is
treated as having elected to have the employer make
elective contributions in an amount equal to a quali-
fied percentage of compensation.
(ii) ELECTION OUT.—The election treated as having
been made under clause (i) shall cease to apply with
respect to any employee if such employee makes an af-
firmative election—
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(I) to not have such contributions made, or
(II) to make elective contributions at a level
specified in such affirmative election.
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84
(iii) QUALIFIED PERCENTAGE.—For purposes of this
subparagraph, the term ‘‘qualified percentage’’ means,
with respect to any employee, any percentage deter-
mined under the arrangement if such percentage is
applied uniformly, does not exceed 15 percent (10 per-
cent during the period described in subclause (I)), and
is at least—
(I) 3 percent during the period ending on the
last day of the first plan year which begins after
the date on which the first elective contribution
described in clause (i) is made with respect to
such employee,
(II) 4 percent during the first plan year fol-
lowing the plan year described in subclause (I),
(III) 5 percent during the second plan year fol-
lowing the plan year described in subclause (I),
and
(IV) 6 percent during any subsequent plan year.
(iv) AUTOMATIC DEFERRAL FOR CURRENT EMPLOYEES
NOT REQUIRED FOR PRE-2025 ARRANGEMENTS.—øClause
(i)¿ In the case of a qualified automatic contribution
arrangement in effect before January 1, 2025, clause (i)
may be applied without taking into account any em-
ployee who—
(I) was eligible to participate in the arrange-
ment (or a predecessor arrangement) immediately
before the date on which such arrangement be-
comes a qualified automatic contribution arrange-
ment (determined after application of this clause),
and
(II) had an election in effect on such date either
to participate in the arrangement or to not partici-
pate in the arrangement.
(v) PERIODIC AUTOMATIC DEFERRAL REQUIRED FOR
POST-2024 ARRANGEMENTS.—In the case of a qualified
automatic contribution arrangement which takes effect
after December 31, 2024, the requirements of this sub-
paragraph shall be treated as met only if, under the ar-
rangement, at least every 3 plan years each employee—
(I) who is eligible to participate in the arrange-
ment, and
(II) who, at the time of the determination, has in
effect an affirmative election pursuant to clause (ii)
not to have contributions described in clause (i)
made,
is treated as having made the election described in
clause (i) unless the employee makes a new affirmative
election under clause (ii). Such determination may be
made at one time for all employees described in the
preceding sentence for a plan year, regardless of indi-
vidual employee dates of enrollment.
(D) MATCHING OR NONELECTIVE CONTRIBUTIONS.—
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(i) IN GENERAL.—The requirements of this subpara-
graph are met if, under the arrangement, the em-
ployer—
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85
(I) makes matching contributions on behalf of
each employee who is not a highly compensated
employee in an amount equal to the sum of 100
percent of the elective contributions of the em-
ployee to the extent that such contributions do not
exceed 1 percent of compensation plus 50 percent
of so much of such contributions as exceed 1 per-
cent but do not exceed 6 percent of compensation,
or
(II) is required, without regard to whether the
employee makes an elective contribution or em-
ployee contribution, to make a contribution to a
defined contribution plan on behalf of each em-
ployee who is not a highly compensated employee
and who is eligible to participate in the arrange-
ment in an amount equal to at least 3 percent of
the employee’s compensation.
(ii) APPLICATION OF RULES FOR MATCHING CONTRIBU-
TIONS.—The rules of clauses (ii) and (iii) of paragraph
(12)(B) shall apply for purposes of clause (i)(I).
(iii) WITHDRAWAL AND VESTING RESTRICTIONS.—An
arrangement shall not be treated as meeting the re-
quirements of clause (i) unless, with respect to em-
ployer contributions (including matching contribu-
tions) taken into account in determining whether the
requirements of clause (i) are met—
(I) any employee who has completed at least 2
years of service (within the meaning of section
411(a)) has a nonforfeitable right to 100 percent of
the employee’s accrued benefit derived from such
employer contributions, and
(II) the requirements of subparagraph (B) of
paragraph (2) are met with respect to all such em-
ployer contributions.
(iv) APPLICATION OF CERTAIN OTHER RULES.—The
rules of subparagraphs (E)(ii) and (F) of paragraph
(12) shall apply for purposes of subclauses (I) and (II)
of clause (i).
(E) NOTICE REQUIREMENTS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if, within a reasonable period before
each plan year, each employee eligible to participate in
the arrangement for such year receives written notice
of the employee’s rights and obligations under the ar-
rangement which—
(I) is sufficiently accurate and comprehensive to
apprise the employee of such rights and obliga-
tions, and
(II) is written in a manner calculated to be un-
derstood by the average employee to whom the ar-
rangement applies.
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(ii) TIMING AND CONTENT REQUIREMENTS.—A notice
shall not be treated as meeting the requirements of
clause (i) with respect to an employee unless—
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86
(I) the notice explains the employee’s right
under the arrangement to elect not to have elec-
tive contributions made on the employee’s behalf
(or to elect to have such contributions made at a
different percentage),
(II) in the case of an arrangement under which
the employee may elect among 2 or more invest-
ment options, the notice explains how contribu-
tions made under the arrangement will be in-
vested in the absence of any investment election
by the employee, and
(III) the employee has a reasonable period of
time after receipt of the notice described in sub-
clauses (I) and (II) and before the first elective
contribution is made to make either such election.
(F) TIMING OF PLAN AMENDMENT FOR EMPLOYER MAKING
NONELECTIVE CONTRIBUTIONS.—
(i) IN GENERAL.—Except as provided in clause (ii), a
plan may be amended after the beginning of a plan
year to provide that the requirements of subparagraph
(D)(i)(II) shall apply to the arrangement for the plan
year, but only if the amendment is adopted—
(I) at any time before the 30th day before the
close of the plan year, or
(II) at any time before the last day under para-
graph (8)(A) for distributing excess contributions
for the plan year.
(ii) EXCEPTION WHERE PLAN PROVIDED FOR MATCHING
CONTRIBUTIONS.—Clause (i) shall not apply to any
plan year if the plan provided at any time during the
plan year that the requirements of subparagraph
(D)(i)(I) or paragraph (12)(B) applied to the plan year.
(iii) 4-PERCENT CONTRIBUTION REQUIREMENT.—
Clause (i)(II) shall not apply to an arrangement unless
the amount of the contributions described in subpara-
graph (D)(i)(II) which the employer is required to
make under the arrangement for the plan year with
respect to any employee is an amount equal to at least
4 percent of the employee’s compensation.
(14) SPECIAL RULES RELATING TO HARDSHIP WITHDRAWALS.—
For purposes of paragraph (2)(B)(i)(IV)—
(A) AMOUNTS WHICH MAY BE WITHDRAWN.—The following
amounts may be distributed upon hardship of the em-
ployee:
(i) Contributions to a profit-sharing or stock bonus
plan to which section 402(e)(3) applies.
(ii) Qualified nonelective contributions (as defined in
subsection (m)(4)(C)).
(iii) Qualified matching contributions described in
paragraph (3)(D)(ii)(I).
(iv) Earnings on any contributions described in
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clause (i), (ii), or (iii).
(B) NO REQUIREMENT TO TAKE AVAILABLE LOAN.—A dis-
tribution shall not be treated as failing to be made upon
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87
the hardship of an employee solely because the employee
does not take any available loan under the plan.
(15) SPECIAL RULES FOR PARTICIPATION REQUIREMENT FOR
LONG-TERM, PART-TIME WORKERS.—For purposes of paragraph
(2)(D)(ii)—
(A) AGE REQUIREMENT MUST BE MET.—Paragraph
(2)(D)(ii) shall not apply to an employee unless the em-
ployee has met the requirement of section 410(a)(1)(A)(i)
by the close of the last of the 12-month periods described
in such paragraph.
(B) NONDISCRIMINATION AND TOP-HEAVY RULES NOT TO
APPLY.—
(i) NONDISCRIMINATION RULES.—In the case of em-
ployees who are eligible to participate in the arrange-
ment solely by reason of paragraph (2)(D)(ii)—
(I) notwithstanding subsection (a)(4), an em-
ployer shall not be required to make nonelective
or matching contributions on behalf of such em-
ployees even if such contributions are made on be-
half of other employees eligible to participate in
the arrangement, and
(II) an employer may elect to exclude such em-
ployees from the application of subsection (a)(4),
paragraphs (3), (12), and (13), subsection (m)(2),
and section 410(b).
(ii) TOP-HEAVY RULES.—An employer may elect to
exclude all employees who are eligible to participate in
a plan maintained by the employer solely by reason of
paragraph (2)(D)(ii) from the application of the vesting
and benefit requirements under subsections (b) and (c)
of section 416.
(iii) VESTING.—For purposes of determining whether
an employee described in clause (i) has a nonforfeit-
able right to employer contributions (other than con-
tributions described in paragraph (3)(D)(i)) under the
arrangement, each 12-month period for which the em-
ployee has at least 500 hours of service shall be treat-
ed as a year of service, and section 411(a)(6) shall be
applied by substituting ‘‘at least 500 hours of service’’
for ‘‘more than 500 hours of service’’ in subparagraph
(A) thereof.
(iv) EMPLOYEES WHO BECOME FULL-TIME EMPLOY-
EES.—This subparagraph (other than clause (iii)) shall
cease to apply to any employee as of the first plan
year beginning after the plan year in which the em-
ployee meets the requirements of section
410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii).
(C) EXCEPTION FOR EMPLOYEES UNDER COLLECTIVELY
BARGAINED PLANS, ETC..—Paragraph (2)(D)(ii) shall not
apply to employees described in section 410(b)(3).
(D) SPECIAL RULES.—
(i) TIME OF PARTICIPATION.—The rules of section
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410(a)(4) shall apply to an employee eligible to partici-
pate in an arrangement solely by reason of paragraph
(2)(D)(ii).
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88
(ii) 12-MONTH PERIODS.—12-month periods shall be
determined in the same manner as under the last sen-
tence of section 410(a)(3)(A).
(l) PERMITTED DISPARITY IN PLAN CONTRIBUTIONS OR BENEFITS.—
(1) IN GENERAL.—The requirements of this subsection are
met with respect to a plan if—
(A) in the case of a defined contribution plan, the re-
quirements of paragraph (2) are met, and
(B) in the case of a defined benefit plan, the require-
ments of paragraph (3) are met.
(2) DEFINED CONTRIBUTION PLAN.—
(A) IN GENERAL.—A defined contribution plan meets the
requirements of this paragraph if the excess contribution
percentage does not exceed the base contribution percent-
age by more than the lesser of—
(i) the base contribution percentage, or
(ii) the greater of—
(I) 5.7 percentage points, or
(II) the percentage equal to the portion of the
rate of tax under section 3111(a) (in effect as of
the beginning of the year) which is attributable to
old-age insurance.
(B) CONTRIBUTION PERCENTAGES.—For purposes of this
paragraph—
(i) EXCESS CONTRIBUTION PERCENTAGE.—The term
‘‘excess contribution percentage’’ means the percentage
of compensation which is contributed by the employer
under the plan with respect to that portion of each
participant’s compensation in excess of the integration
level.
(ii) BASE CONTRIBUTION PERCENTAGE.—The term
‘‘base contribution percentage’’ means the percentage
of compensation contributed by the employer under
the plan with respect to that portion of each partici-
pant’s compensation not in excess of the integration
level.
(3) DEFINED BENEFIT PLAN.—A defined benefit plan meets
the requirements of this paragraph if—
(A) EXCESS PLANS.—
(i) IN GENERAL.—In the case of a plan other than an
offset plan—
(I) the excess benefit percentage does not exceed
the base benefit percentage by more than the
maximum excess allowance,
(II) any optional form of benefit, preretirement
benefit, actuarial factor, or other benefit or feature
provided with respect to compensation in excess of
the integration level is provided with respect to
compensation not in excess of such level, and
(III) benefits are based on average annual com-
pensation.
(ii) BENEFIT PERCENTAGES.—For purposes of this
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subparagraph, the excess and base benefit percentages
shall be computed in the same manner as the excess
and base contribution percentages under paragraph
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89
(2)(B), except that such determination shall be made
on the basis of benefits attributable to employer con-
tributions rather than contributions.
(B) OFFSET PLANS.—In the case of an offset plan, the
plan provides that—
(i) a participant’s accrued benefit attributable to em-
ployer contributions (within the meaning of section
411(c)(1)) may not be reduced (by reason of the offset)
by more than the maximum offset allowance, and
(ii) benefits are based on average annual compensa-
tion.
(4) DEFINITIONS RELATING TO PARAGRAPH (3).—For purposes
of paragraph (3)—
(A) MAXIMUM EXCESS ALLOWANCE.—The maximum ex-
cess allowance is equal to—
(i) in the case of benefits attributable to any year of
service with the employer taken into account under
the plan, 3/4 of a percentage point, and
(ii) in the case of total benefits, 3/4 of a percentage
point, multiplied by the participant’s years of service
(not in excess of 35) with the employer taken into ac-
count under the plan.
In no event shall the maximum excess allowance exceed
the base benefit percentage.
(B) MAXIMUM OFFSET ALLOWANCE.—The maximum offset
allowance is equal to—
(i) in the case of benefits attributable to any year of
service with the employer taken into account under
the plan, 3/4 percent of the participant’s final average
compensation, and
(ii) in the case of total benefits, 3/4 percent of the
participant’s final average compensation, multiplied by
the participant’s years of service (not in excess of 35)
with the employer taken into account under the plan.
In no event shall the maximum offset allowance exceed 50
percent of the benefit which would have accrued without
regard to the offset reduction.
(C) REDUCTIONS.—
(i) IN GENERAL.—The Secretary shall prescribe regu-
lations requiring the reduction of the 3/4 percentage
factor under subparagraph (A) or (B)—
(I) in the case of a plan other than an offset
plan which has an integration level in excess of
covered compensation, or
(II) with respect to any participant in an offset
plan who has final average compensation in ex-
cess of covered compensation.
(ii) BASIS OF REDUCTIONS.—Any reductions under
clause (i) shall be based on the percentages of com-
pensation replaced by the employer-derived portions of
primary insurance amounts under the Social Security
Act for participants with compensation in excess of
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covered compensation.
(D) OFFSET PLAN.—The term ‘‘offset plan’’ means any
plan with respect to which the benefit attributable to em-
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90
ployer contributions for each participant is reduced by an
amount specified in the plan.
(5) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of
this subsection—
(A) INTEGRATION LEVEL.—
(i) IN GENERAL.—The term ‘‘integration level’’ means
the amount of compensation specified under the plan
(by dollar amount or formula) at or below which the
rate at which contributions or benefits are provided
(expressed as a percentage) is less than such rate
above such amount.
(ii) LIMITATION.—The integration level for any year
may not exceed the contribution and benefit base in ef-
fect under section 230 of the Social Security Act for
such year.
(iii) LEVEL TO APPLY TO ALL PARTICIPANTS.—A plan’s
integration level shall apply with respect to all partici-
pants in the plan.
(iv) MULTIPLE INTEGRATION LEVELS.—Under rules
prescribed by the Secretary, a defined benefit plan
may specify multiple integration levels.
(B) COMPENSATION.—The term ‘‘compensation’’ has the
meaning given such term by section 414(s).
(C) AVERAGE ANNUAL COMPENSATION.—The term ‘‘aver-
age annual compensation’’ means the participant’s highest
average annual compensation for—
(i) any period of at least 3 consecutive years, or
(ii) if shorter, the participant’s full period of service.
(D) FINAL AVERAGE COMPENSATION.—
(i) IN GENERAL.—The term ‘‘final average compensa-
tion’’ means the participant’s average annual com-
pensation for—
(I) the 3-consecutive year period ending with the
current year, or
(II) if shorter, the participant’s full period of
service.
(ii) LIMITATION.—A participant’s final average com-
pensation shall be determined by not taking into ac-
count in any year compensation in excess of the con-
tribution and benefit base in effect under section 230
of the Social Security Act for such year.
(E) COVERED COMPENSATION.—
(i) IN GENERAL.—The term ‘‘covered compensation’’
means, with respect to an employee, the average of the
contribution and benefit bases in effect under section
230 of the Social Security Act for each year in the 35-
year period ending with the year in which the em-
ployee attains the social security retirement age.
(ii) COMPUTATION FOR ANY YEAR.—For purposes of
clause (i), the determination for any year preceding
the year in which the employee attains the social secu-
rity retirement age shall be made by assuming that
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there is no increase in the bases described in clause (i)
after the determination year and before the employee
attains the social security retirement age.
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91
(iii) SOCIAL SECURITY RETIREMENT AGE.—For pur-
poses of this subparagraph, the term ‘‘social security
retirement age’’ has the meaning given such term by
section 415(b)(8).
(F) REGULATIONS.—The Secretary shall prescribe such
regulations as are necessary or appropriate to carry out
the purposes of this subsection, including—
(i) in the case of a defined benefit plan which pro-
vides for unreduced benefits commencing before the
social security retirement age (as defined in section
415(b)(8)), rules providing for the reduction of the
maximum excess allowance and the maximum offset
allowance, and
(ii) in the case of an employee covered by 2 or more
plans of the employer which fail to meet the require-
ments of subsection (a)(4) (without regard to this sub-
section), rules preventing the multiple use of the dis-
parity permitted under this subsection with respect to
any employee.
For purposes of clause (i), unreduced benefits shall not in-
clude benefits for disability (within the meaning of section
223(d) of the Social Security Act).
(6) SPECIAL RULE FOR PLAN MAINTAINED BY RAILROADS.—In
determining whether a plan which includes employees of a
railroad employer who are entitled to benefits under the Rail-
road Retirement Act of 1974 meets the requirements of this
subsection, rules similar to the rules set forth in this sub-
section shall apply. Such rules shall take into account the em-
ployer-derived portion of the employees’ tier 2 railroad retire-
ment benefits and any supplemental annuity under the Rail-
road Retirement Act of 1974.
(m) NONDISCRIMINATION TEST FOR MATCHING CONTRIBUTIONS AND
EMPLOYEE CONTRIBUTIONS.—
(1) IN GENERAL.—A defined contribution plan shall be treat-
ed as meeting the requirements of subsection (a)(4) with re-
spect to the amount of any matching contribution or employee
contribution for any plan year only if the contribution percent-
age requirement of paragraph (2) of this subsection is met for
such plan year.
(2) REQUIREMENTS.—
(A) CONTRIBUTION PERCENTAGE REQUIREMENT.—A plan
meets the contribution percentage requirement of this
paragraph for any plan year only if the contribution per-
centage for eligible highly compensated employees for such
plan year does not exceed the greater of—
(i) 125 percent of such percentage for all other eligi-
ble employees for the preceding plan year, or
(ii) the lesser of 200 percent of such percentage for
all other eligible employees for the preceding plan
year, or such percentage for all other eligible employ-
ees for the preceding plan year plus 2 percentage
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points.
This subparagraph may be applied by using the plan year
rather than the preceding plan year if the employer so
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92
elects, except that if such an election is made, it may not
be changed except as provided by the Secretary.
(B) MULTIPLE PLANS TREATED AS A SINGLE PLAN.—If two
or more plans of an employer to which matching contribu-
tions, employee contributions, or elective deferrals are
made are treated as one plan for purposes of section
410(b), such plans shall be treated as one plan for pur-
poses of this subsection. If a highly compensated employee
participates in two or more plans of an employer to which
contributions to which this subsection applies are made,
all such contributions shall be aggregated for purposes of
this subsection.
(3) CONTRIBUTION PERCENTAGE.—For purposes of paragraph
(2), the contribution percentage for a specified group of employ-
ees for a plan year shall be the average of the ratios (cal-
culated separately for each employee in such group) of—
(A) the sum of the matching contributions and employee
contributions paid under the plan on behalf of each such
employee for such plan year, to
(B) the employee’s compensation (within the meaning of
section 414(s)) for such plan year.
Under regulations, an employer may elect to take into account
(in computing the contribution percentage) elective deferrals
and qualified nonelective contributions under the plan or any
other plan of the employer. If matching contributions are taken
into account for purposes of subsection (k)(3)(A)(ii) for any plan
year, such contributions shall not be taken into account under
subparagraph (A) for such year. Rules similar to the rules of
subsection (k)(3)(E) shall apply for purposes of this subsection.
(4) DEFINITIONS.—For purposes of this subsection—
(A) MATCHING CONTRIBUTION.—The term ‘‘matching con-
tribution’’ means—
(i) any employer contribution made to a defined con-
tribution plan on behalf of an employee on account of
an employee contribution made by such employee, and
(ii) any employer contribution made to a defined
contribution plan on behalf of an employee on account
of an employee’s elective deferral.
(B) ELECTIVE DEFERRAL.—The term ‘‘elective deferral’’
means any employer contribution described in section
402(g)(3).
(C) QUALIFIED NONELECTIVE CONTRIBUTIONS.—The term
‘‘qualified nonelective contribution’’ means any employer
contribution (other than a matching contribution) with re-
spect to which—
(i) the employee may not elect to have the contribu-
tion paid to the employee in cash instead of being con-
tributed to the plan, and
(ii) the requirements of subparagraphs (B) and (C) of
subsection (k)(2) are met.
(5) EMPLOYEES TAKEN INTO CONSIDERATION.—
(A) IN GENERAL.—Any employee who is eligible to make
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an employee contribution (or, if the employer takes elective
contributions into account, elective contributions) or to re-
ceive a matching contribution under the plan being tested
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93
under paragraph (1) shall be considered an eligible em-
ployee for purposes of this subsection.
(B) CERTAIN NONPARTICIPANTS.—If an employee con-
tribution is required as a condition of participation in the
plan, any employee who would be a participant in the plan
if such employee made such a contribution shall be treated
as an eligible employee on behalf of whom no employer
contributions are made.
(C) SPECIAL RULE FOR EARLY PARTICIPATION.—If an em-
ployer elects to apply section 410(b)(4)(B) in determining
whether a plan meets the requirements of section 410(b),
the employer may, in determining whether the plan meets
the requirements of paragraph (2), exclude from consider-
ation all eligible employees (other than highly com-
pensated employees) who have not met the minimum age
and service requirements of section 410(a)(1)(A).
(6) PLAN NOT DISQUALIFIED IF EXCESS AGGREGATE CONTRIBU-
TIONS DISTRIBUTED BEFORE END OF FOLLOWING PLAN YEAR.—
(A) IN GENERAL.—A plan shall not be treated as failing
to meet the requirements of paragraph (1) for any plan
year if, before the close of the following plan year, the
amount of the excess aggregate contributions for such plan
year (and any income allocable to such contributions
through the end of such year) is distributed (or, if forfeit-
able, is forfeited). Such contributions (and such income)
may be distributed without regard to any other provision
of law.
(B) EXCESS AGGREGATE CONTRIBUTIONS.—For purposes of
subparagraph (A), the term ‘‘excess aggregate contribu-
tions’’ means, with respect to any plan year, the excess
of—
(i) the aggregate amount of the matching contribu-
tions and employee contributions (and any qualified
nonelective contribution or elective contribution taken
into account in computing the contribution percentage)
actually made on behalf of highly compensated em-
ployees for such plan year, over
(ii) the maximum amount of such contributions per-
mitted under the limitations of paragraph (2)(A) (de-
termined by reducing contributions made on behalf of
highly compensated employees in order of their con-
tribution percentages beginning with the highest of
such percentages).
(C) METHOD OF DISTRIBUTING EXCESS AGGREGATE CON-
TRIBUTIONS.—Any distribution of the excess aggregate con-
tributions for any plan year shall be made to highly com-
pensated employees on the basis of the amount of contribu-
tions on behalf of, or by, each such employee. Forfeitures
of excess aggregate contributions may not be allocated to
participants whose contributions are reduced under this
paragraph.
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(D) COORDINATION WITH SUBSECTION (K) AND 402(G).—The
determination of the amount of excess aggregate contribu-
tions with respect to a plan shall be made after—
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94
(i) first determining the excess deferrals (within the
meaning of section 402(g)), and
(ii) then determining the excess contributions under
subsection (k).
(7) TREATMENT OF DISTRIBUTIONS.—
(A) ADDITIONAL TAX OF SECTION 72(T) NOT APPLICABLE.—
No tax shall be imposed under section 72(t) on any amount
required to be distributed under paragraph (6).
(B) EXCLUSION OF EMPLOYEE CONTRIBUTIONS.—Any dis-
tribution attributable to employee contributions shall not
be included in gross income except to the extent attrib-
utable to income on such contributions.
(8) HIGHLY COMPENSATED EMPLOYEE.—For purposes of this
subsection, the term ‘‘highly compensated employee’’ has the
meaning given to such term by section 414(q).
(9) REGULATIONS.—The Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of this
subsection and subsection (k), including regulations permitting
appropriate aggregation of plans and contributions.
(10) ALTERNATIVE METHOD OF SATISFYING TESTS.—A defined
contribution plan shall be treated as meeting the requirements
of paragraph (2) with respect to matching contributions if the
plan—
(A) meets the contribution requirements of subpara-
graph (B) of subsection (k)(11),
(B) meets the exclusive plan requirements of subsection
(k)(11)(C), and
(C) meets the vesting requirements of section 408(p)(3).
(11) ADDITIONAL ALTERNATIVE METHOD OF SATISFYING
TESTS.—
(A) IN GENERAL.—A defined contribution plan shall be
treated as meeting the requirements of paragraph (2) with
respect to matching contributions if the plan—
(i) meets the contribution requirements of subpara-
graph (B) or (C) of subsection (k)(12),
(ii) meets the notice requirements of subsection
(k)(12)(D), and
(iii) meets the requirements of subparagraph (B).
(B) LIMITATION ON MATCHING CONTRIBUTIONS.—The re-
quirements of this subparagraph are met if—
(i) matching contributions on behalf of any employee
may not be made with respect to an employee’s con-
tributions or elective deferrals in excess of 6 percent of
the employee’s compensation,
(ii) the rate of an employer’s matching contribution
does not increase as the rate of an employee’s con-
tributions or elective deferrals increase, and
(iii) the matching contribution with respect to any
highly compensated employee at any rate of an em-
ployee contribution or rate of elective deferral is not
greater than that with respect to an employee who is
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not a highly compensated employee.
(12) ALTERNATIVE METHOD FOR AUTOMATIC CONTRIBUTION AR-
RANGEMENTS.—A defined contribution plan shall be treated as
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95
meeting the requirements of paragraph (2) with respect to
matching contributions if the plan—
(A) is a qualified automatic contribution arrangement
(as defined in subsection (k)(13)), and
(B) meets the requirements of paragraph (11)(B).
(13) CROSS REFERENCE.—For excise tax on certain excess
contributions, see section 4979.
(n) COORDINATION WITH QUALIFIED DOMESTIC RELATIONS OR-
DERS.—The Secretary shall prescribe such rules or regulations as
may be necessary to coordinate the requirements of subsection
(a)(13)(B) and section 414(p) (and the regulations issued by the Sec-
retary of Labor thereunder) with the other provisions of this chap-
ter.
(o) SPECIAL RULES FOR APPLYING NONDISCRIMINATION RULES TO
PROTECT OLDER, LONGER SERVICE AND GRANDFATHERED PARTICI-
PANTS.—
(1) TESTING OF DEFINED BENEFIT PLANS WITH CLOSED CLASS-
ES OF PARTICIPANTS.—
(A) BENEFITS, RIGHTS, OR FEATURES PROVIDED TO CLOSED
CLASSES.—A defined benefit plan which provides benefits,
rights, or features to a closed class of participants shall not
fail to satisfy the requirements of subsection (a)(4) by rea-
son of the composition of such closed class or the benefits,
rights, or features provided to such closed class, if—
(i) for the plan year as of which the class closes and
the 2 succeeding plan years, such benefits, rights, and
features satisfy the requirements of subsection (a)(4)
(without regard to this subparagraph but taking into
account the rules of subparagraph (I)),
(ii) after the date as of which the class was closed,
any plan amendment which modifies the closed class
or the benefits, rights, and features provided to such
closed class does not discriminate significantly in favor
of highly compensated employees, and
(iii) the class was closed before April 5, 2017, or the
plan is described in subparagraph (C).
(B) AGGREGATE TESTING WITH DEFINED CONTRIBUTION
PLANS PERMITTED ON A BENEFITS BASIS.—
(i) IN GENERAL.—For purposes of determining com-
pliance with subsection (a)(4) and section 410(b), a de-
fined benefit plan described in clause (iii) may be ag-
gregated and tested on a benefits basis with 1 or more
defined contribution plans, including with the portion
of 1 or more defined contribution plans which—
(I) provides matching contributions (as defined
in subsection (m)(4)(A)),
(II) provides annuity contracts described in sec-
tion 403(b) which are purchased with matching
contributions or nonelective contributions, or
(III) consists of an employee stock ownership
plan (within the meaning of section 4975(e)(7)) or
a tax credit employee stock ownership plan (with-
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in the meaning of section 409(a)).
(ii) SPECIAL RULES FOR MATCHING CONTRIBUTIONS.—
For purposes of clause (i), if a defined benefit plan is
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96
aggregated with a portion of a defined contribution
plan providing matching contributions—
(I) such defined benefit plan must also be aggre-
gated with any portion of such defined contribu-
tion plan which provides elective deferrals de-
scribed in subparagraph (A) or (C) of section
402(g)(3), and
(II) such matching contributions shall be treated
in the same manner as nonelective contributions,
including for purposes of applying the rules of
subsection (l).
(iii) PLANS DESCRIBED.—A defined benefit plan is de-
scribed in this clause if—
(I) the plan provides benefits to a closed class of
participants,
(II) for the plan year as of which the class closes
and the 2 succeeding plan years, the plan satisfies
the requirements of section 410(b) and subsection
(a)(4) (without regard to this subparagraph but
taking into account the rules of subparagraph (I)),
(III) after the date as of which the class was
closed, any plan amendment which modifies the
closed class or the benefits provided to such closed
class does not discriminate significantly in favor of
highly compensated employees, and
(IV) the class was closed before April 5, 2017, or
the plan is described in subparagraph (C).
(C) PLANS DESCRIBED.—A plan is described in this sub-
paragraph if, taking into account any predecessor plan—
(i) such plan has been in effect for at least 5 years
as of the date the class is closed, and
(ii) during the 5-year period preceding the date the
class is closed, there has not been a substantial in-
crease in the coverage or value of the benefits, rights,
or features described in subparagraph (A) or in the
coverage or benefits under the plan described in sub-
paragraph (B)(iii) (whichever is applicable).
(D) DETERMINATION OF SUBSTANTIAL INCREASE FOR BEN-
EFITS, RIGHTS, AND FEATURES.—In applying subparagraph
(C)(ii) for purposes of subparagraph (A)(iii), a plan shall be
treated as having had a substantial increase in coverage or
value of the benefits, rights, or features described in sub-
paragraph (A) during the applicable 5-year period only if,
during such period—
(i) the number of participants covered by such bene-
fits, rights, or features on the date such period ends
is more than 50 percent greater than the number of
such participants on the first day of the plan year in
which such period began, or
(ii) such benefits, rights, and features have been
modified by 1 or more plan amendments in such a way
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that, as of the date the class is closed, the value of
such benefits, rights, and features to the closed class
as a whole is substantially greater than the value as
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97
of the first day of such 5-year period, solely as a result
of such amendments.
(E) DETERMINATION OF SUBSTANTIAL INCREASE FOR AG-
GREGATE TESTING ON BENEFITS BASIS.—In applying sub-
paragraph (C)(ii) for purposes of subparagraph (B)(iii)(IV),
a plan shall be treated as having had a substantial in-
crease in coverage or benefits during the applicable 5-year
period only if, during such period—
(i) the number of participants benefitting under the
plan on the date such period ends is more than 50 per-
cent greater than the number of such participants on
the first day of the plan year in which such period
began, or
(ii) the average benefit provided to such participants
on the date such period ends is more than 50 percent
greater than the average benefit provided on the first
day of the plan year in which such period began.
(F) CERTAIN EMPLOYEES DISREGARDED.—For purposes of
subparagraphs (D) and (E), any increase in coverage or
value or in coverage or benefits, whichever is applicable,
which is attributable to such coverage and value or cov-
erage and benefits provided to employees—
(i) who became participants as a result of a merger,
acquisition, or similar event which occurred during the
7-year period preceding the date the class is closed, or
(ii) who became participants by reason of a merger
of the plan with another plan which had been in effect
for at least 5 years as of the date of the merger,
shall be disregarded, except that clause (ii) shall apply for
purposes of subparagraph (D) only if, under the merger,
the benefits, rights, or features under 1 plan are con-
formed to the benefits, rights, or features of the other plan
prospectively.
(G) RULES RELATING TO AVERAGE BENEFIT.—For pur-
poses of subparagraph (E)—
(i) the average benefit provided to participants
under the plan will be treated as having remained the
same between the 2 dates described in subparagraph
(E)(ii) if the benefit formula applicable to such partici-
pants has not changed between such dates, and
(ii) if the benefit formula applicable to 1 or more
participants under the plan has changed between such
2 dates, then the average benefit under the plan shall
be considered to have increased by more than 50 per-
cent only if—
(I) the total amount determined under section
430(b)(1)(A)(i) for all participants benefitting
under the plan for the plan year in which the 5-
year period described in subparagraph (E) ends,
exceeds
(II) the total amount determined under section
430(b)(1)(A)(i) for all such participants for such
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plan year, by using the benefit formula in effect
for each such participant for the first plan year in
such 5-year period,
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98
by more than 50 percent. In the case of a CSEC plan (as
defined in section 414(y)), the normal cost of the plan (as
determined under section 433(j)(1)(B)) shall be used in lieu
of the amount determined under section 430(b)(1)(A)(i).
(H) TREATMENT AS SINGLE PLAN.—For purposes of sub-
paragraphs (E) and (G), a plan described in section 413(c)
shall be treated as a single plan rather than as separate
plans maintained by each employer in the plan.
(I) SPECIAL RULES.—For purposes of subparagraphs
(A)(i) and (B)(iii)(II), the following rules shall apply:
(i) In applying section 410(b)(6)(C), the closing of the
class of participants shall not be treated as a signifi-
cant change in coverage under section
410(b)(6)(C)(i)(II).
(ii) 2 or more plans shall not fail to be eligible to be
aggregated and treated as a single plan solely by rea-
son of having different plan years.
(iii) Changes in the employee population shall be
disregarded to the extent attributable to individuals
who become employees or cease to be employees, after
the date the class is closed, by reason of a merger, ac-
quisition, divestiture, or similar event.
(iv) Aggregation and all other testing methodologies
otherwise applicable under subsection (a)(4) and sec-
tion 410(b) may be taken into account.
The rule of clause (ii) shall also apply for purposes of de-
termining whether plans to which subparagraph (B)(i) ap-
plies may be aggregated and treated as 1 plan for purposes
of determining whether such plans meet the requirements
of subsection (a)(4) and section 410(b).
(J) SPUN-OFF PLANS.—For purposes of this paragraph, if
a portion of a defined benefit plan described in subpara-
graph (A) or (B)(iii) is spun off to another employer and
the spun-off plan continues to satisfy the requirements
of—
(i) subparagraph (A)(i) or (B)(iii)(II), whichever is
applicable, if the original plan was still within the 3-
year period described in such subparagraph at the
time of the spin off, and
(ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is
applicable,
the treatment under subparagraph (A) or (B) of the spun-
off plan shall continue with respect to such other em-
ployer.
(2) TESTING OF DEFINED CONTRIBUTION PLANS.—
(A) TESTING ON A BENEFITS BASIS.—A defined contribu-
tion plan shall be permitted to be tested on a benefits
basis if—
(i) such defined contribution plan provides make-
whole contributions to a closed class of participants
whose accruals under a defined benefit plan have been
reduced or eliminated,
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(ii) for the plan year of the defined contribution plan
as of which the class eligible to receive such make-
whole contributions closes and the 2 succeeding plan
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99
years, such closed class of participants satisfies the re-
quirements of section 410(b)(2)(A)(i) (determined by
applying the rules of paragraph (1)(I)),
(iii) after the date as of which the class was closed,
any plan amendment to the defined contribution plan
which modifies the closed class or the allocations, ben-
efits, rights, and features provided to such closed class
does not discriminate significantly in favor of highly
compensated employees, and
(iv) the class was closed before April 5, 2017, or the
defined benefit plan under clause (i) is described in
paragraph (1)(C) (as applied for purposes of paragraph
(1)(B)(iii)(IV)).
(B) AGGREGATION WITH PLANS INCLUDING MATCHING CON-
TRIBUTIONS.—
(i) IN GENERAL.—With respect to 1 or more defined
contribution plans described in subparagraph (A), for
purposes of determining compliance with subsection
(a)(4) and section 410(b), the portion of such plans
which provides make-whole contributions or other
nonelective contributions may be aggregated and test-
ed on a benefits basis with the portion of 1 or more
other defined contribution plans which—
(I) provides matching contributions (as defined
in subsection (m)(4)(A)),
(II) provides annuity contracts described in sec-
tion 403(b) which are purchased with matching
contributions or nonelective contributions, or
(III) consists of an employee stock ownership
plan (within the meaning of section 4975(e)(7)) or
a tax credit employee stock ownership plan (with-
in the meaning of section 409(a)).
(ii) SPECIAL RULES FOR MATCHING CONTRIBUTIONS.—
Rules similar to the rules of paragraph (1)(B)(ii) shall
apply for purposes of clause (i).
(C) SPECIAL RULES FOR TESTING DEFINED CONTRIBUTION
PLAN FEATURES PROVIDING MATCHING CONTRIBUTIONS TO
CERTAIN OLDER, LONGER SERVICE PARTICIPANTS.—In the
case of a defined contribution plan which provides benefits,
rights, or features to a closed class of participants whose
accruals under a defined benefit plan have been reduced or
eliminated, the plan shall not fail to satisfy the require-
ments of subsection (a)(4) solely by reason of the composi-
tion of the closed class or the benefits, rights, or features
provided to such closed class if the defined contribution
plan and defined benefit plan otherwise meet the require-
ments of subparagraph (A) but for the fact that the make-
whole contributions under the defined contribution plan
are made in whole or in part through matching contribu-
tions.
(D) SPUN-OFF PLANS.—For purposes of this paragraph, if
a portion of a defined contribution plan described in sub-
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paragraph (A) or (C) is spun off to another employer, the
treatment under subparagraph (A) or (C) of the spun-off
plan shall continue with respect to the other employer if
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100
such plan continues to comply with the requirements of
clauses (ii) (if the original plan was still within the 3-year
period described in such clause at the time of the spin off)
and (iii) of subparagraph (A), as determined for purposes
of subparagraph (A) or (C), whichever is applicable.
(3) DEFINITIONS AND SPECIAL RULE.—For purposes of this
subsection—
(A) MAKE-WHOLE CONTRIBUTIONS.—Except as otherwise
provided in paragraph (2)(C), the term ‘‘make-whole con-
tributions’’ means nonelective allocations for each em-
ployee in the class which are reasonably calculated, in a
consistent manner, to replace some or all of the retirement
benefits which the employee would have received under
the defined benefit plan and any other plan or qualified
cash or deferred arrangement under subsection (k)(2) if no
change had been made to such defined benefit plan and
such other plan or arrangement. For purposes of the pre-
ceding sentence, consistency shall not be required with re-
spect to employees who were subject to different benefit
formulas under the defined benefit plan.
(B) REFERENCES TO CLOSED CLASS OF PARTICIPANTS.—
References to a closed class of participants and similar ref-
erences to a closed class shall include arrangements under
which 1 or more classes of participants are closed, except
that 1 or more classes of participants closed on different
dates shall not be aggregated for purposes of determining
the date any such class was closed.
(C) HIGHLY COMPENSATED EMPLOYEE.—The term ‘‘highly
compensated employee’’ has the meaning given such term
in section 414(q).
(p) CROSS REFERENCE.—For exemption from tax of a trust quali-
fied under this section, see section 501(a).
* * * * * * *
Subpart B—SPECIAL RULES
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) SERVICE FOR PREDECESSOR EMPLOYER.—For purposes of this
part—
(1) in any case in which the employer maintains a plan of
a predecessor employer, service for such predecessor shall be
treated as service for the employer, and
(2) in any case in which the employer maintains a plan
which is not the plan maintained by a predecessor employer,
service for such predecessor shall, to the extent provided in
regulations prescribed by the Secretary, be treated as service
for the employer.
(b) EMPLOYEES OF CONTROLLED GROUP OF CORPORATIONS.—For
purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, all
employees of all corporations which are members of a controlled
group of corporations (within the meaning of section 1563(a), deter-
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mined without regard to section 1563(a)(4) and (e)(3)(C)) shall be
treated as employed by a single employer. With respect to a plan
adopted by more than one such corporation, the applicable limita-
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101
tions provided by section 404(a) shall be determined as if all such
employers were a single employer, and allocated to each employer
in accordance with regulations prescribed by the Secretary.
(c) EMPLOYEES OF PARTNERSHIPS, PROPRIETORSHIPS, ETC., WHICH
ARE UNDER COMMON CONTROL.—
(1) IN GENERAL.—Except as provided in paragraph (2), for
purposes of sections 401, 408(k), 408(p), 410, 411, 415, and
416, under regulations prescribed by the Secretary, all employ-
ees of trades or businesses (whether or not incorporated) which
are under common control shall be treated as employed by a
single employer. The regulations prescribed under this sub-
section shall be based on principles similar to the principles
which apply in the case of subsection (b).
(2) SPECIAL RULES RELATING TO CHURCH PLANS.—
(A) GENERAL RULE.—Except as provided in subpara-
graphs (B) and (C), for purposes of this subsection and
subsection (m), an organization that is otherwise eligible to
participate in a church plan shall not be aggregated with
another such organization and treated as a single em-
ployer with such other organization for a plan year begin-
ning in a taxable year unless—
(i) one such organization provides (directly or indi-
rectly) at least 80 percent of the operating funds for
the other organization during the preceding taxable
year of the recipient organization, and
(ii) there is a degree of common management or su-
pervision between the organizations such that the or-
ganization providing the operating funds is directly in-
volved in the day-to-day operations of the other orga-
nization.
(B) NONQUALIFIED CHURCH-CONTROLLED ORGANIZA-
TIONS.—Notwithstanding subparagraph (A), for purposes
of this subsection and subsection (m), an organization that
is a nonqualified church-controlled organization shall be
aggregated with 1 or more other nonqualified church-con-
trolled organizations, or with an organization that is not
exempt from tax under section 501, and treated as a single
employer with such other organization, if at least 80 per-
cent of the directors or trustees of such other organization
are either representatives of, or directly or indirectly con-
trolled by, such nonqualified church-controlled organiza-
tion. For purposes of this subparagraph, the term ‘‘non-
qualified church-controlled organization’’ means a church-
controlled tax-exempt organization described in section
501(c)(3) that is not a qualified church-controlled organiza-
tion (as defined in section 3121(w)(3)(B)).
(C) PERMISSIVE AGGREGATION AMONG CHURCH-RELATED
ORGANIZATIONS.—The church or convention or association
of churches with which an organization described in sub-
paragraph (A) is associated (within the meaning of sub-
section (e)(3)(D)), or an organization designated by such
church or convention or association of churches, may elect
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to treat such organizations as a single employer for a plan
year. Such election, once made, shall apply to all suc-
ceeding plan years unless revoked with notice provided to
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102
the Secretary in such manner as the Secretary shall pre-
scribe.
(D) PERMISSIVE DISAGGREGATION OF CHURCH-RELATED
ORGANIZATIONS.—For purposes of subparagraph (A), in the
case of a church plan, an employer may elect to treat
churches (as defined in section 403(b)(12)(B)) separately
from entities that are not churches (as so defined), without
regard to whether such entities maintain separate church
plans. Such election, once made, shall apply to all suc-
ceeding plan years unless revoked with notice provided to
the Secretary in such manner as the Secretary shall pre-
scribe.
(d) GOVERNMENTAL PLAN.—For purposes of this part, the term
‘‘governmental plan’’ means a plan established and maintained for
its employees by the Government of the United States, by the gov-
ernment of any State or political subdivision thereof, or by any
agency or instrumentality of any of the foregoing. The term ‘‘gov-
ernmental plan’’ also includes any plan to which the Railroad Re-
tirement Act of 1935 or 1937 applies and which is financed by con-
tributions required under that Act and any plan of an international
organization which is exempt from taxation by reason of the Inter-
national Organizations Immunities Act (59 Stat. 669). The term
‘‘governmental plan’’ includes a plan which is established and
maintained by an Indian tribal government (as defined in section
7701(a)(40)), a subdivision of an Indian tribal government (deter-
mined in accordance with section 7871(d)), or an agency or instru-
mentality of either, and all of the participants of which are employ-
ees of such entity substantially all of whose services as such an em-
ployee are in the performance of essential governmental functions
but not in the performance of commercial activities (whether or not
an essential government function).
(e) CHURCH PLAN.—
(1) IN GENERAL.—For purposes of this part, the term ‘‘church
plan’’ means a plan established and maintained (to the extent
required in paragraph (2)(B)) for its employees (or their bene-
ficiaries) by a church or by a convention or association of
churches which is exempt from tax under section 501.
(2) CERTAIN PLANS EXCLUDED.—The term ‘‘church plan’’ does
not include a plan—
(A) which is established and maintained primarily for
the benefit of employees (or their beneficiaries) of such
church or convention or association of churches who are
employed in connection with one or more unrelated trades
or businesses (within the meaning of section 513); or
(B) if less than substantially all of the individuals in-
cluded in the plan are individuals described in paragraph
(1) or (3)(B) (or their beneficiaries).
(3) DEFINITIONS AND OTHER PROVISIONS.—For purposes of
this subsection—
(A) TREATMENT AS CHURCH PLAN.—A plan established
and maintained for its employees (or their beneficiaries) by
a church or by a convention or association of churches in-
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cludes a plan maintained by an organization, whether a
civil law corporation or otherwise, the principal purpose or
function of which is the administration or funding of a
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103
plan or program for the provision of retirement benefits or
welfare benefits, or both, for the employees of a church or
a convention or association of churches, if such organiza-
tion is controlled by or associated with a church or a con-
vention or association of churches.
(B) EMPLOYEE DEFINED.—The term employee of a church
or a convention or association of churches shall include—
(i) a duly ordained, commissioned, or licensed min-
ister of a church in the exercise of his ministry, re-
gardless of the source of his compensation;
(ii) an employee of an organization, whether a civil
law corporation or otherwise, which is exempt from
tax under section 501 and which is controlled by or as-
sociated with a church or a convention or association
of churches; and
(iii) an individual described in subparagraph (E).
(C) CHURCH TREATED AS EMPLOYER.—A church or a con-
vention or association of churches which is exempt from
tax under section 501 shall be deemed the employer of any
individual included as an employee under subparagraph
(B).
(D) ASSOCIATION WITH CHURCH.—An organization,
whether a civil law corporation or otherwise, is associated
with a church or a convention or association of churches if
it shares common religious bonds and convictions with
that church or convention or association of churches.
(E) SPECIAL RULE IN CASE OF SEPARATION FROM PLAN.—
If an employee who is included in a church plan separates
from the service of a church or a convention or association
of churches or an organization described in clause (ii) of
paragraph (3)(B), the church plan shall not fail to meet the
requirements of this subsection merely because the plan—
(i) retains the employee’s accrued benefit or account
for the payment of benefits to the employee or his
beneficiaries pursuant to the terms of the plan; or
(ii) receives contributions on the employee’s behalf
after the employee’s separation from such service, but
only for a period of 5 years after such separation, un-
less the employee is disabled (within the meaning of
the disability provisions of the church plan or, if there
are no such provisions in the church plan, within the
meaning of section 72(m)(7)) at the time of such sepa-
ration from service.
(4) CORRECTION OF FAILURE TO MEET CHURCH PLAN REQUIRE-
MENTS.—
(A) IN GENERAL.—If a plan established and maintained
for its employees (or their beneficiaries) by a church or by
a convention or association of churches which is exempt
from tax under section 501 fails to meet one or more of the
requirements of this subsection and corrects its failure to
meet such requirements within the correction period, the
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plan shall be deemed to meet the requirements of this sub-
section for the year in which the correction was made and
for all prior years.
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104
(B) FAILURE TO CORRECT.—If a correction is not made
within the correction period, the plan shall be deemed not
to meet the requirements of this subsection beginning with
the date on which the earliest failure to meet one or more
of such requirements occurred.
(C) CORRECTION PERIOD DEFINED.—The term ‘‘correction
period’’ means—
(i) the period, ending 270 days after the date of
mailing by the Secretary of a notice of default with re-
spect to the plan’s failure to meet one or more of the
requirements of this subsection;
(ii) any period set by a court of competent jurisdic-
tion after a final determination that the plan fails to
meet such requirements, or, if the court does not speci-
fy such period, any reasonable period determined by
the Secretary on the basis of all the facts and cir-
cumstances, but in any event not less than 270 days
after the determination has become final; or
(iii) any additional period which the Secretary deter-
mines is reasonable or necessary for the correction of
the default,
whichever has the latest ending date.
(5) SPECIAL RULES FOR CHAPLAINS AND SELF-EMPLOYED MIN-
ISTERS.—
(A) CERTAIN MINISTERS MAY PARTICIPATE.—For purposes
of this part—
(i) IN GENERAL.—A duly ordained, commissioned, or
licensed minister of a church is described in paragraph
(3)(B) if, in connection with the exercise of their min-
istry, the minister—
(I) is a self-employed individual (within the
meaning of section 401(c)(1)(B), or
(II) is employed by an organization other than
an organization which is described in section
501(c)(3) and with respect to which the minister
shares common religious bonds.
(ii) TREATMENT AS EMPLOYER AND EMPLOYEE.—For
purposes of sections 403(b)(1)(A) and 404(a)(10), a
minister described in clause (i)(I) shall be treated as
employed by the minister’s own employer which is an
organization described in section 501(c)(3) and exempt
from tax under section 501(a).
(B) SPECIAL RULES FOR APPLYING SECTION 403(B) TO SELF-
EMPLOYED MINISTERS.—In the case of a minister described
in subparagraph (A)(i)(I)—
(i) the minister’s includible compensation under sec-
tion 403(b)(3) shall be determined by reference to the
minister’s earned income (within the meaning of sec-
tion 401(c)(2)) from such ministry rather than the
amount of compensation which is received from an em-
ployer, and
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(ii) the years (and portions of years) in which such
minister was a self-employed individual (within the
meaning of section 401(c)(1)(B)) with respect to such
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105
ministry shall be included for purposes of section
403(b)(4).
(C) EFFECT ON NON-DENOMINATIONAL PLANS.—If a duly
ordained, commissioned, or licensed minister of a church
in the exercise of his or her ministry participates in a
church plan (within the meaning of this section) and in the
exercise of such ministry is employed by an employer not
otherwise participating in such church plan, then such em-
ployer may exclude such minister from being treated as an
employee of such employer for purposes of applying sec-
tions 401(a)(3), 401(a)(4), and 401(a)(5), as in effect on Sep-
tember 1, 1974, and sections 401(a)(4), 401(a)(5),
401(a)(26), 401(k)(3), 401(m), 403(b)(1)(D) (including sec-
tion 403(b)(12)), and 410 to any stock bonus, pension, prof-
it-sharing, or annuity plan (including an annuity described
in section 403(b) or a retirement income account described
in section 403(b)(9)). The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry
out the purpose of, and prevent the abuse of, this subpara-
graph.
(D) COMPENSATION TAKEN INTO ACCOUNT ONLY ONCE.—
If any compensation is taken into account in determining
the amount of any contributions made to, or benefits to be
provided under, any church plan, such compensation shall
not also be taken into account in determining the amount
of any contributions made to, or benefits to be provided
under, any other stock bonus, pension, profit-sharing, or
annuity plan which is not a church plan.
(E) EXCLUSION.—In the case of a contribution to a
church plan made on behalf of a minister described in sub-
paragraph (A)(i)(II), such contribution shall not be in-
cluded in the gross income of the minister to the extent
that such contribution would not be so included if the min-
ister was an employee of a church.
(f) MULTIEMPLOYER PLAN.—
(1) DEFINITION.—For purposes of this part, the term ‘‘multi-
employer plan’’ means a plan—
(A) to which more than one employer is required to con-
tribute,
(B) which is maintained pursuant to one or more collec-
tive bargaining agreements between one or more employee
organizations and more than one employer, and
(C) which satisfies such other requirements as the Sec-
retary of Labor may prescribe by regulation.
(2) CASES OF COMMON CONTROL.—For purposes of this sub-
section, all trades or businesses (whether or not incorporated)
which are under common control within the meaning of sub-
section (c) are considered a single employer.
(3) CONTINUATION OF STATUS AFTER TERMINATION.—Notwith-
standing paragraph (1), a plan is a multiemployer plan on and
after its termination date under title IV of the Employee Re-
SSpencer on DSK126QN23PROD with REPORTS
tirement Income Security Act of 1974 if the plan was a multi-
employer plan under this subsection for the plan year pre-
ceding its termination date.
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106
(4) TRANSITIONAL RULE.—For any plan year which began be-
fore the date of the enactment of the Multiemployer Pension
Plan Amendments Act of 1980, the term ‘‘multiemployer plan’’
means a plan described in this subsection as in effect imme-
diately before that date.
(5) SPECIAL ELECTION.—Within one year after the date of the
enactment of the Multiemployer Pension Plan Amendments
Act of 1980, a multiemployer plan may irrevocably elect, pur-
suant to procedures established by the Pension Benefit Guar-
anty Corporation and subject to the provisions of section
4403(b) and (c) of the Employee Retirement Income Security
Act of 1974, that the plan shall not be treated as a multiem-
ployer plan for any purpose under such Act or this title, if for
each of the last 3 plan years ending prior to the effective date
of the Multiemployer Pension Plan Amendments Act of 1980—
(A) the plan was not a multiemployer plan because the
plan was not a plan described in section 3(37)(A)(iii) of the
Employee Retirement Income Security Act of 1974 and sec-
tion 414(f)(1)(C) (as such provisions were in effect on the
day before the date of the enactment of the Multiemployer
Pension Plan Amendments Act of 1980); and
(B) the plan had been identified as a plan that was not
a multiemployer plan in substantially all its filings with
the Pension Benefit Guaranty Corporation, the Secretary
of Labor and the Secretary.
(6) ELECTION WITH REGARD TO MULTIEMPLOYER STATUS.—(A)
Within 1 year after the enactment of the Pension Protection
Act of 2006—
(i) An election under paragraph (5) may be revoked, pur-
suant to procedures prescribed by the Pension Benefit
Guaranty Corporation, if, for each of the 3 plan years prior
to the date of the enactment of that Act, the plan would
have been a multiemployer plan but for the election under
paragraph (5), and
(ii) a plan that meets the criteria in subparagraph (A)
and (B) of paragraph (1) of this subsection or that is de-
scribed in subparagraph (E) may, pursuant to procedures
prescribed by the Pension Benefit Guaranty Corporation,
elect to be a multiemployer plan, if—
(I) for each of the 3 plan years immediately pre-
ceding the first plan year for which the election under
this paragraph is effective with respect to the plan,
the plan has met those criteria or is so described,
(II) substantially all of the plan’s employer contribu-
tions for each of those plan years were made or re-
quired to be made by organizations that were exempt
from tax under section 501, and
(III) the plan was established prior to September 2,
1974.
(B) An election under this paragraph shall be effective for all
purposes under this Act and under the Employee Retirement
Income Security Act of 1974, starting with any plan year be-
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ginning on or after January 1, 1999, and ending before Janu-
ary 1, 2008, as designated by the plan in the election made
under subparagraph (A)(ii).
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107
(C) Once made, an election under this paragraph shall be ir-
revocable, except that a plan described in subparagraph (A)(ii)
shall cease to be a multiemployer plan as of the plan year be-
ginning immediately after the first plan year for which the ma-
jority of its employer contributions were made or required to
be made by organizations that were not exempt from tax under
section 501.
(D) The fact that a plan makes an election under subpara-
graph (A)(ii) does not imply that the plan was not a multiem-
ployer plan prior to the date of the election or would not be a
multiemployer plan without regard to the election.
(E) A plan is described in this subparagraph if it is a plan
sponsored by an organization which is described in section
501(c)(5) and exempt from tax under section 501(a) and which
was established in Chicago, Illinois, on August 12, 1881.
(F) MAINTENANCE UNDER COLLECTIVE BARGAINING AGREE-
MENT.—For purposes of this title and the Employee Retirement
Income Security Act of 1974, a plan making an election under
this paragraph shall be treated as maintained pursuant to a
collective bargaining agreement if a collective bargaining
agreement, expressly or otherwise, provides for or permits em-
ployer contributions to the plan by one or more employers that
are signatory to such agreement, or participation in the plan
by one or more employees of an employer that is signatory to
such agreement, regardless of whether the plan was created,
established, or maintained for such employees by virtue of an-
other document that is not a collective bargaining agreement.
(g) PLAN ADMINISTRATOR.—For purposes of this part, the term
‘‘plan administrator’’ means—
(1) the person specifically so designated by the terms of the
instrument under which the plan is operated;
(2) in the absence of a designation referred to in paragraph
(1)—
(A) in the case of a plan maintained by a single em-
ployer, such employer,
(B) in the case of a plan maintained by two or more em-
ployers 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 represent-
atives of the parties who maintained the plan, or
(C) in any case to which subparagraph (A) or (B) does
not apply, such other person as the Secretary may by regu-
lation, prescribe.
(h) TAX TREATMENT OF CERTAIN CONTRIBUTIONS.—
(1) IN GENERAL.—Effective with respect to taxable years be-
ginning after December 31, 1973, for purposes of this title, any
amount contributed—
(A) to an employees’ trust described in section 401(a), or
(B) under a plan described in section 403(a), shall not be
treated as having been made by the employer if it is des-
ignated as an employee contribution.
(2) DESIGNATION BY UNITS OF GOVERNMENT.—For purposes of
SSpencer on DSK126QN23PROD with REPORTS
paragraph (1), in the case of any plan established by the gov-
ernment of any State or political subdivision thereof, or by any
agency or instrumentality of any of the foregoing, or a govern-
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108
mental plan described in the last sentence of section 414(d) (re-
lating to plans of Indian tribal governments), where the con-
tributions of employing units are designated as employee con-
tributions but where any employing unit picks up the contribu-
tions, the contributions so picked up shall be treated as em-
ployer contributions.
(i) DEFINED CONTRIBUTION PLAN.—For purposes of this part, the
term ‘‘defined contribution plan’’ means a plan which provides for
an individual account for each participant and for benefits based
solely on the amount contributed to the participant’s account, and
any income, expenses, gains and losses, and any forfeitures of ac-
counts of other participants which may be allocated to such partici-
pant’s account.
(j) DEFINED BENEFIT PLAN.—For purposes of this part, the term
‘‘defined benefit plan’’ means any plan which is not a defined con-
tribution plan.
(k) CERTAIN PLANS.—A defined benefit plan which provides a
benefit derived from employer contributions which is based partly
on the balance of the separate account of a participant shall—
(1) for purposes of section 410 (relating to minimum partici-
pation standards), be treated as a defined contribution plan,
(2) for purposes of sections 72(d) (relating to treatment of
employee contributions as separate contract), 411(a)(7)(A) (re-
lating to minimum vesting standards), 415 (relating to limita-
tions on benefits and contributions under qualified plans), and
401(m) (relating to nondiscrimination tests for matching re-
quirements and employee contributions), be treated as con-
sisting of a defined contribution plan to the extent benefits are
based on the separate account of a participant and as a defined
benefit plan with respect to the remaining portion of benefits
under the plan, and
(3) for purposes of section 4975 (relating to tax on prohibited
transactions), be treated as a defined benefit plan.
(l) MERGER AND CONSOLIDATIONS OF PLANS OR TRANSFERS OF
PLAN ASSETS.—
(1) IN GENERAL.—A trust which forms a part of a plan shall
not constitute a qualified trust under section 401 and a plan
shall be treated as not described in section 403(a) unless in the
case of any merger or consolidation of the plan with, or in the
case of any transfer of assets or liabilities of such plan to, any
other trust plan after September 2, 1974, each participant in
the plan would (if the plan then terminated) receive a benefit
immediately after the merger, consolidation, or transfer which
is equal to or greater than the benefit he would have been enti-
tled to receive immediately before the merger, consolidation, or
transfer (if the plan had then terminated). The preceding sen-
tence does not apply to any multiemployer plan with respect
to any transaction to the extent that participants either before
or after the transaction are covered under a multiemployer
plan to which Title IV of the Employee Retirement Income Se-
curity Act of 1974 applies.
(2) ALLOCATION OF ASSETS IN PLAN SPIN-OFFS, ETC..—
SSpencer on DSK126QN23PROD with REPORTS
(A) IN GENERAL.—In the case of a plan spin-off of a de-
fined benefit plan, a trust which forms part of—
(i) the original plan, or
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109
(ii) any plan spun off from such plan,
shall not constitute a qualified trust under this section un-
less the applicable percentage of excess assets are allo-
cated to each of such plans.
(B) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A), the term ‘‘applicable percentage’’ means, with
respect to each of the plans described in clauses (i) and (ii)
of subparagraph (A), the percentage determined by divid-
ing—
(i) the excess (if any) of—
(I) the sum of the funding target and target nor-
mal cost determined under section 430, over
(II) the amount of the assets required to be allo-
cated to the plan after the spin-off (without regard
to this paragraph), by
(ii) the sum of the excess amounts determined sepa-
rately under clause (i) for all such plans.
(C) EXCESS ASSETS.—For purposes of subparagraph (A),
the term ‘‘excess assets’’ means an amount equal to the ex-
cess (if any) of—
(i) the fair market value of the assets of the original
plan immediately before the spin-off, over
(ii) the amount of assets required to be allocated
after the spin-off to all plans (determined without re-
gard to this paragraph).
(D) CERTAIN SPUN-OFF PLANS NOT TAKEN INTO AC-
COUNT.—
(i) IN GENERAL.—A plan involved in a spin-off which
is described in clause (ii), (iii), or (iv) shall not be
taken into account for purposes of this paragraph, ex-
cept that the amount determined under subparagraph
(C)(ii) shall be increased by the amount of assets allo-
cated to such plan.
(ii) PLANS TRANSFERRED OUT OF CONTROLLED
GROUPS.—A plan is described in this clause if, after
such spin-off, such plan is maintained by an employer
who is not a member of the same controlled group as
the employer maintaining the original plan.
(iii) PLANS TRANSFERRED OUT OF MULTIPLE EM-
PLOYER PLANS.—A plan as described in this clause if,
after the spin-off, any employer maintaining such plan
(and any member of the same controlled group as such
employer) does not maintain any other plan remaining
after the spin-off which is also maintained by another
employer (or member of the same controlled group as
such other employer) which maintained the plan in ex-
istence before the spin-off.
(iv) TERMINATED PLANS.—A plan is described in this
clause if, pursuant to the transaction involving the
spin-off, the plan is terminated.
(v) CONTROLLED GROUP.—For purposes of this sub-
SSpencer on DSK126QN23PROD with REPORTS
paragraph, the term ‘‘controlled group’’ means any
group treated as a single employer under subsection
(b), (c), (m), or (o).
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110
(E) PARAGRAPH NOT TO APPLY TO MULTIEMPLOYER
PLANS.—This paragraph does not apply to any multiem-
ployer plan with respect to any spin-off to the extent that
participants either before or after the spin-off are covered
under a multiemployer plan to which title IV of the Em-
ployee Retirement Income Security Act of 1974 applies.
(F) APPLICATION TO SIMILAR TRANSACTION.—Except as
provided by the Secretary, rules similar to the rules of this
paragraph shall apply to transactions similar to spin-offs.
(G) SPECIAL RULES FOR BRIDGE DEPOSITORY INSTITU-
TIONS.—For purposes of this paragraph, in the case of a
bridge depository institution established under section
11(i) of the Federal Deposit Insurance Act (12 U.S.C.
1821(i))—
(i) such bank shall be treated as a member of any
controlled group which includes any insured bank (as
defined in section 3(h) of such Act (12 U.S.C.
1813(h)))—
(I) which maintains a defined benefit plan,
(II) which is closed by the appropriate bank reg-
ulatory authorities, and
(III) any asset and liabilities of which are re-
ceived by the bridge depository institution, and
(ii) the requirements of this paragraph shall not be
treated as met with respect to such plan unless during
the 180-day period beginning on the date such insured
bank is closed—
(I) the bridge depository institution has the
right to require the plan to transfer (subject to the
provisions of this paragraph) not more than 50
percent of the excess assets (as defined in sub-
paragraph (C)) to a defined benefit plan main-
tained by the bridge depository institution with
respect to participants or former participants (in-
cluding retirees and beneficiaries) in the original
plan employed by the bridge depository institution
or formerly employed by the closed bank, and
(II) no other merger, spin-off, termination, or
similar transaction involving the portion of the ex-
cess assets described in subclause (I) may occur
without the prior written consent of the bridge de-
pository institution.
(m) EMPLOYEES OF AN AFFILIATED SERVICE GROUP.—
(1) IN GENERAL.—For purposes of the employee benefit re-
quirements listed in paragraph (4), except to the extent other-
wise provided in regulations, all employees of the members of
an affiliated service group shall be treated as employed by a
single employer.
(2) AFFILIATED SERVICE GROUP.—For purposes of this sub-
section, the term ‘‘affiliated service group’’ means a group con-
sisting of a service organization (hereinafter in this paragraph
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referred to as the ‘‘first organization’’) and one or more of the
following:
(A) any service organization which—
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111
(i) is a shareholder or partner in the first organiza-
tion, and
(ii) regularly performs services for the first organiza-
tion or is regularly associated with the first organiza-
tion in performing services for third persons, and
(B) any other organization if—
(i) a significant portion of the business of such orga-
nization is the performance of services (for the first or-
ganization, for organizations described in subpara-
graph (A), or for both) of a type historically performed
in such service field by employees, and
(ii) 10 percent or more of the interests in such orga-
nization is held by persons who are highly com-
pensated employees (within the meaning of section
414(q)) of the first organization or an organization de-
scribed in subparagraph (A).
(3) SERVICE ORGANIZATIONS.—For purposes of this sub-
section, the term ‘‘service organization’’ means an organization
the principal business of which is the performance of services.
(4) EMPLOYEE BENEFIT REQUIREMENTS.—For purposes of this
subsection, the employee benefit requirements listed in this
paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section
401(a), and
(B) sections 408(k), 408(p), 410, 411, 415, and 416.
(5) CERTAIN ORGANIZATIONS PERFORMING MANAGEMENT FUNC-
TIONS.—For purposes of this subsection, the term ‘‘affiliated
service group’’ also includes a group consisting of—
(A) an organization the principal business of which is
performing, on a regular and continuing basis, manage-
ment functions for 1 organization (or for 1 organization
and other organizations related to such 1 organization),
and
(B) the organization (and related organizations) for
which such functions are so performed by the organization
described in subparagraph (A).
For purposes of this paragraph, the term ‘‘related organiza-
tions’’ has the same meaning as the term ‘‘related persons’’
when used in section 144(a)(3).
(6) OTHER DEFINITIONS.—For purposes of this subsection—
(A) ORGANIZATION DEFINED.—The term ‘‘organization’’
means a corporation, partnership, or other organization.
(B) OWNERSHIP.—In determining ownership, the prin-
ciples of section 318(a) shall apply.
(n) EMPLOYEE LEASING.—
(1) IN GENERAL.—For purposes of the requirements listed in
paragraph (3), with respect to any person (hereinafter in this
subsection referred to as the ‘‘recipient’’) for whom a leased em-
ployee performs services—
(A) the leased employee shall be treated as an employee
of the recipient, but
SSpencer on DSK126QN23PROD with REPORTS
(B) contributions or benefits provided by the leasing or-
ganization which are attributable to services performed for
the recipient shall be treated as provided by the recipient.
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112
(2) LEASED EMPLOYEE.—For purposes of paragraph (1), the
term ‘‘leased employee’’ means any person who is not an em-
ployee of the recipient and who provides services to the recipi-
ent if—
(A) such services are provided pursuant to an agreement
between the recipient and any other person (in this sub-
section referred to as the ‘‘leasing organization’’),
(B) such person has performed such services for the re-
cipient (or for the recipient and related persons) on a sub-
stantially full-time basis for a period of at least 1 year, and
(C) such services are performed under primary direction
or control by the recipient.
(3) REQUIREMENTS.—For purposes of this subsection, the re-
quirements listed in this paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section
401(a),
(B) sections 408(k), 408(p), 410, 411, 415, and 416, and
(C) sections 79, 106, 117(d), 125, 127, 129, 132, 137,
274(j), 505, and 4980B.
(4) TIME WHEN FIRST CONSIDERED AS EMPLOYEE.—
(A) IN GENERAL.—In the case of any leased employee,
paragraph (1) shall apply only for purposes of determining
whether the requirements listed in paragraph (3) are met
for periods after the close of the period referred to in para-
graph (2)(B).
(B) YEARS OF SERVICE.—In the case of a person who is
an employee of the recipient (whether by reason of this
subsection or otherwise), for purposes of the requirements
listed in paragraph (3), years of service for the recipient
shall be determined by taking into account any period for
which such employee would have been a leased employee
but for the requirements of paragraph (2)(B).
(5) SAFE HARBOR.—
(A) IN GENERAL.—In the case of requirements described
in subparagraphs (A) and (B) of paragraph (3), this sub-
section shall not apply to any leased employee with respect
to services performed for a recipient if—
(i) such employee is covered by a plan which is
maintained by the leasing organization and meets the
requirements of subparagraph (B), and
(ii) leased employees (determined without regard to
this paragraph) do not constitute more than 20 per-
cent of the recipient’s nonhighly compensated work
force.
(B) PLAN REQUIREMENTS.—A plan meets the require-
ments of this subparagraph if—
(i) such plan is a money purchase pension plan with
a nonintegrated employer contribution rate for each
participant of at least 10 percent of compensation,
(ii) such plan provides for full and immediate vest-
ing, and
(iii) each employee of the leasing organization (other
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than employees who perform substantially all of their
services for the leasing organization) immediately par-
ticipates in such plan.
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113
Clause (iii) shall not apply to any individual whose com-
pensation from the leasing organization in each plan year
during the 4-year period ending with the plan year is less
than $1,000.
(C) DEFINITIONS.—For purposes of this paragraph—
(i) HIGHLY COMPENSATED EMPLOYEE.—The term
‘‘highly compensated employee’’ has the meaning given
such term by section 414(q).
(ii) NONHIGHLY COMPENSATED WORK FORCE.—The
term ‘‘nonhighly compensated work force’’ means the
aggregate number of individuals (other than highly
compensated employees)—
(I) who are employees of the recipient (without
regard to this subsection) and have performed
services for the recipient (or for the recipient and
related persons) on a substantially full-time basis
for a period of at least 1 year, or
(II) who are leased employees with respect to
the recipient (determined without regard to this
paragraph).
(iii) COMPENSATION.—The term ‘‘compensation’’ has
the same meaning as when used in section 415; except
that such term shall include—
(I) any employer contribution under a qualified
cash or deferred arrangement to the extent not in-
cluded in gross income under section 402(e)(3) or
402(h)(1)(B),
(II) any amount which the employee would have
received in cash but for an election under a cafe-
teria plan (within the meaning of section 125),
and
(III) any amount contributed to an annuity con-
tract described in section 403(b) pursuant to a sal-
ary reduction agreement (within the meaning of
section 3121(a)(5)(D)).
(6) OTHER RULES.—For purposes of this subsection—
(A) RELATED PERSONS.—The term ‘‘related persons’’ has
the same meaning as when used in section 144(a)(3).
(B) EMPLOYEES OF ENTITIES UNDER COMMON CONTROL.—
The rules of subsections (b), (c), (m), and (o) shall apply.
(o) REGULATIONS.—The Secretary shall prescribe such regula-
tions (which may provide rules in addition to the rules contained
in subsections (m) and (n)) as may be necessary to prevent the
avoidance of any employee benefit requirement listed in subsection
(m)(4) or (n)(3) or any requirement under section 457 through the
use of—
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include provi-
sions to minimize the recordkeeping requirements of subsection (n)
in the case of an employer which has no top-heavy plans (within
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the meaning of section 416(g)) and which uses the services of per-
sons (other than employees) for an insignificant percentage of the
employer’s total workload.
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114
(p) QUALIFIED DOMESTIC RELATIONS ORDER DEFINED.—For pur-
poses of this subsection and section 401(a)(13)—
(1) IN GENERAL.—
(A) QUALIFIED DOMESTIC RELATIONS ORDER.—The term
‘‘qualified domestic relations order’’ means a domestic rela-
tions order—
(i) which creates or recognizes the existence of an al-
ternate payee’s right to, or assigns to an alternate
payee the right to, receive all or a portion of the bene-
fits payable with respect to a participant under a plan,
and
(ii) with respect to which the requirements of para-
graphs (2) and (3) are met.
(B) DOMESTIC RELATIONS ORDER.—The term ‘‘domestic
relations order’’ means any judgment, decree, or order (in-
cluding approval of a property settlement agreement)
which—
(i) relates to the provision of child support, alimony
payments, or marital property rights to a spouse,
former spouse, child, or other dependent of a partici-
pant, and
(ii) is made pursuant to a State domestic relations
law (including a community property law).
(2) ORDER MUST CLEARLY SPECIFY CERTAIN FACTS.—A domes-
tic relations order meets the requirements of this paragraph
only if such order clearly specifies—
(A) the name and the last known mailing address (if
any) of the participant and the name and mailing address
of each alternate payee covered by the order,
(B) the amount or percentage of the participant’s bene-
fits to be paid by the plan to each such alternate payee,
or the manner in which such amount or percentage is to
be determined,
(C) the number of payments or period to which such
order applies, and
(D) each plan to which such order applies.
(3) ORDER MAY NOT ALTER AMOUNT, FORM, ETC., OF BENE-
FITS.—A domestic relations order meets the requirements of
this paragraph only if such order—
(A) does not require a plan to provide any type or form
of benefit, or any option, not otherwise provided under the
plan,
(B) does not require the plan to provide increased bene-
fits (determined on the basis of actuarial value), and
(C) does not require the payment of benefits to an alter-
nate payee which are required to be paid to another alter-
nate payee under another order previously determined to
be a qualified domestic relations order.
(4) EXCEPTION FOR CERTAIN PAYMENTS MADE AFTER EARLIEST
RETIREMENT AGE.—
(A) IN GENERAL.—A domestic relations order shall not be
treated as failing to meet the requirements of subpara-
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graph (A) of paragraph (3) solely because such order re-
quires that payment of benefits be made to an alternate
payee—
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115
(i) in the case of any payment before a participant
has separated from service, on or after the date on
which the participant attains (or would have attained)
the earliest retirement age,
(ii) as if the participant had retired on the date on
which such payment is to begin under such order (but
taking into account only the present value of the bene-
fits actually accrued and not taking into account the
present value of any employer subsidy for early retire-
ment), and
(iii) in any form in which such benefits may be paid
under the plan to the participant (other than in the
form of a joint and survivor annuity with respect to
the alternate payee and his or her subsequent spouse).
For purposes of clause (ii), the interest rate assumption
used in determining the present value shall be the interest
rate specified in the plan or, if no rate is specified, 5 per-
cent.
(B) EARLIEST RETIREMENT AGE.—For purposes of this
paragraph, the term ‘‘earliest retirement age’’ means the
earlier of—
(i) the date on which the participant is entitled to a
distribution under the plan, or
(ii) the later of—
(I) the date the participant attains age 50, or
(II) the earliest date on which the participant
could begin receiving benefits under the plan if
the participant separated from service.
(5) TREATMENT OF FORMER SPOUSE AS SURVIVING SPOUSE FOR
PURPOSES OF DETERMINING SURVIVOR BENEFITS.—To the extent
provided in any qualified domestic relations order—
(A) the former spouse of a participant shall be treated as
a surviving spouse of such participant for purposes of sec-
tions 401(a)(11) and 417 (and any spouse of the participant
shall not be treated as a spouse of the participant for such
purposes), and
(B) if married for at least 1 year, the surviving former
spouse shall be treated as meeting the requirements of sec-
tion 417(d).
(6) PLAN PROCEDURES WITH RESPECT TO ORDERS.—
(A) NOTICE AND DETERMINATION BY ADMINISTRATOR.—In
the case of any domestic relations order received by a
plan—
(i) the plan administrator shall promptly notify the
participant and each alternate payee of the receipt of
such order and the plan’s procedures for determining
the qualified status of domestic relations orders, and
(ii) within a reasonable period after receipt of such
order, the plan administrator shall determine whether
such order is a qualified domestic relations order and
notify the participant and each alternate payee of such
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determination.
(B) PLAN TO ESTABLISH REASONABLE PROCEDURES.—Each
plan shall establish reasonable procedures to determine
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116
the qualified status of domestic relations orders and to ad-
minister distributions under such qualified orders.
(7) PROCEDURES FOR PERIOD DURING WHICH DETERMINATION
IS BEING MADE.—
(A) IN GENERAL.—During any period in which the issue
of whether a domestic relations order is a qualified domes-
tic relations order is being determined (by the plan admin-
istrator, by a court of competent jurisdiction, or otherwise),
the plan administrator shall separately account for the
amounts (hereinafter in this paragraph referred to as the
‘‘segregated amounts’’) which would have been payable to
the alternate payee during such period if the order had
been determined to be a qualified domestic relations order.
(B) PAYMENT TO ALTERNATE PAYEE IF ORDER DETER-
MINED TO BE QUALIFIED DOMESTIC RELATIONS ORDER.—If
within the 18-month period described in subparagraph (E)
the order (or modification thereof) is determined to be a
qualified domestic relations order, the plan administrator
shall pay the segregated amounts (including any interest
thereon) to the person or persons entitled thereto.
(C) PAYMENT TO PLAN PARTICIPANT IN CERTAIN CASES.—
If within the 18-month period described in subparagraph
(E)—
(i) it is determined that the order is not a qualified
domestic relations order, or
(ii) the issue as to whether such order is a qualified
domestic relations order is not resolved,
then the plan administrator shall pay the segregated
amounts (including any interest thereon) to the person or
persons who would have been entitled to such amounts if
there had been no order.
(D) SUBSEQUENT DETERMINATION OR ORDER TO BE AP-
PLIED PROSPECTIVELY ONLY.—Any determination that an
order is a qualified domestic relations order which is made
after the close of the 18-month period described in sub-
paragraph (E) shall be applied prospectively only.
(E) DETERMINATION OF 18-MONTH PERIOD.—For purposes
of this paragraph, the 18-month period described in this
subparagraph is the 18-month period beginning with the
date on which the first payment would be required to be
made under the domestic relations order.
(8) ALTERNATE PAYEE DEFINED.—The term ‘‘alternate payee’’
means any spouse, former spouse, child or other dependent of
a participant who is recognized by a domestic relations order
as having a right to receive all, or a portion of, the benefits
payable under a plan with respect to such participant.
(9) SUBSECTION NOT TO APPLY TO PLANS TO WHICH SECTION
401(A)(13) DOES NOT APPLY.—This subsection shall not apply to
any plan to which section 401(a)(13) does not apply. For pur-
poses of this title, except as provided in regulations, any dis-
tribution from an annuity contract under section 403(b) pursu-
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ant to a qualified domestic relations order shall be treated in
the same manner as a distribution from a plan to which sec-
tion 401(a)(13) applies.
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117
(10) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—With
respect to the requirements of subsections (a) and (k) of section
401, section 403(b), section 409(d), and section 457(d), a plan
shall not be treated as failing to meet such requirements solely
by reason of payments to an alternative payee pursuant to a
qualified domestic relations order.
(11) APPLICATION OF RULES TO CERTAIN OTHER PLANS.—For
purposes of this title, a distribution or payment from a govern-
mental plan (as defined in subsection (d)) or a church plan (as
described in subsection (e)) or an eligible deferred compensa-
tion plan (within the meaning of section 457(b)) shall be treat-
ed as made pursuant to a qualified domestic relations order if
it is made pursuant to a domestic relations order which meets
the requirement of clause (i) of paragraph (1)(A).
(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457
PLAN.—If a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursu-
ant to a qualified domestic relations order, rules similar to the
rules of section 402(e)(1)(A) shall apply to such distribution or
payment.
(13) CONSULTATION WITH THE SECRETARY.—In prescribing
regulations under this subsection and section 401(a)(13), the
Secretary of Labor shall consult with the Secretary.
(q) HIGHLY COMPENSATED EMPLOYEE.—
(1) IN GENERAL.—The term ‘‘highly compensated employee’’
means any employee who—
(A) was a 5-percent owner at any time during the year
or the preceding year, or
(B) for the preceding year—
(i) had compensation from the employer in excess of
$80,000, and
(ii) if the employer elects the application of this
clause for such preceding year, was in the top-paid
group of employees for such preceding year.
The Secretary shall adjust the $80,000 amount under subpara-
graph (B) at the same time and in the same manner as under
section 415(d), except that the base period shall be the cal-
endar quarter ending September 30, 1996.
(2) 5-PERCENT OWNER.—An employee shall be treated as a 5-
percent owner for any year if at any time during such year
such employee was a 5-percent owner (as defined in section
416(i)(1)) of the employer.
(3) TOP-PAID GROUP.—An employee is in the top-paid group
of employees for any year if such employee is in the group con-
sisting of the top 20 percent of the employees when ranked on
the basis of compensation paid during such year.
(4) COMPENSATION.—For purposes of this subsection, the
term ‘‘compensation’’ has the meaning given such term by sec-
tion 415(c)(3).
(5) EXCLUDED EMPLOYEES.—For purposes of subsection (r)
and for purposes of determining the number of employees in
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the top-paid group, the following employees shall be excluded—
(A) employees who have not completed 6 months of serv-
ice,
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118
(B) employees who normally work less than 171/2 hours
per week,
(C) employees who normally work during not more than
6 months during any year,
(D) employees who have not attained age 21, and
(E) except to the extent provided in regulations, employ-
ees who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a col-
lective bargaining agreement between employee represent-
atives and the employer.
Except as provided by the Secretary, the employer may elect
to apply subparagraph (A), (B), (C), or (D) by substituting a
shorter period of service, smaller number of hours or months,
or lower age for the period of service, number of hours or
months, or age (as the case may be) than that specified in such
subparagraph.
(6) FORMER EMPLOYEES.—A former employee shall be treated
as a highly compensated employee if—
(A) such employee was a highly compensated employee
when such employee separated from service, or
(B) such employee was a highly compensated employee
at any time after attaining age 55.
(7) COORDINATION WITH OTHER PROVISIONS.—Subsections (b),
(c), (m), (n), and (o) shall be applied before the application of
this subsection.
(8) SPECIAL RULE FOR NONRESIDENT ALIENS.—For purposes of
this subsection and subsection (r), employees who are non-
resident aliens and who receive no earned income (within the
meaning of section 911(d)(2)) from the employer which con-
stitutes income from sources within the United States (within
the meaning of section 861(a)(3)) shall not be treated as em-
ployees.
(9) CERTAIN EMPLOYEES NOT CONSIDERED HIGHLY COM-
PENSATED AND EXCLUDED EMPLOYEES UNDER PRE-ERISA RULES
FOR CHURCH PLANS.—In the case of a church plan (as defined
in subsection (e)), no employee shall be considered an officer,
a person whose principal duties consist of supervising the work
of other employees, or a highly compensated employee for any
year unless such employee is a highly compensated employee
under paragraph (1) for such year.
(r) SPECIAL RULES FOR SEPARATE LINE OF BUSINESS.—
(1) IN GENERAL.—For purposes of sections 129(d)(8) and
410(b), an employer shall be treated as operating separate
lines of business during any year if the employer for bona fide
business reasons operates separate lines of business.
(2) LINE OF BUSINESS MUST HAVE 50 EMPLOYEES, ETC..—A
line of business shall not be treated as separate under para-
graph (1) unless—
(A) such line of business has at least 50 employees who
are not excluded under subsection (q)(5),
(B) the employer notifies the Secretary that such line of
business is being treated as separate for purposes of para-
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graph (1), and
(C) such line of business meets guidelines prescribed by
the Secretary or the employer receives a determination
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119
from the Secretary that such line of business may be treat-
ed as separate for purposes of paragraph (1).
(3) SAFE HARBOR RULE.—
(A) IN GENERAL.—The requirements of subparagraph (C)
of paragraph (2) shall not apply to any line of business if
the highly compensated employee percentage with respect
to such line of business is—
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated employees are of
all employees of the employer. An employer shall be treat-
ed as meeting the requirements of clause (i) if at least 10
percent of all highly compensated employees of the em-
ployer perform services solely for such line of business.
(B) DETERMINATION MAY BE BASED ON PRECEDING
YEAR.—The requirements of subparagraph (A) shall be
treated as met with respect to any line of business if such
requirements were met with respect to such line of busi-
ness for the preceding year and if—
(i) no more than a de minimis number of employees
were shifted to or from the line of business after the
close of the preceding year, or
(ii) the employees shifted to or from the line of busi-
ness after the close of the preceding year contained a
substantially proportional number of highly com-
pensated employees.
(4) HIGHLY COMPENSATED EMPLOYEE PERCENTAGE DEFINED.—
For purposes of this subsection, the term ‘‘highly compensated
employee percentage’’ means the percentage which highly com-
pensated employees performing services for the line of business
are of all employees performing services for the line of busi-
ness.
(5) ALLOCATION OF BENEFITS TO LINE OF BUSINESS.—For pur-
poses of this subsection, benefits which are attributable to
services provided to a line of business shall be treated as pro-
vided by such line of business.
(6) HEADQUARTERS PERSONNEL, ETC..—The Secretary shall
prescribe rules providing for—
(A) the allocation of headquarters personnel among the
lines of business of the employer, and
(B) the treatment of other employees providing services
for more than 1 line of business of the employer or not in
lines of business meeting the requirements of paragraph
(2).
(7) SEPARATE OPERATING UNITS.—For purposes of this sub-
section, the term ‘‘separate line of business’’ includes an oper-
ating unit in a separate geographic area separately operated
for a bona fide business reason.
(8) AFFILIATED SERVICE GROUPS.—This subsection shall not
apply in the case of any affiliated service group (within the
meaning of section 414(m)).
(s) COMPENSATION.—For purposes of any applicable provision—
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(1) IN GENERAL.—Except as provided in this subsection, the
term ‘‘compensation’’ has the meaning given such term by sec-
tion 415(c)(3).
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120
(2) EMPLOYER MAY ELECT NOT TO TREAT CERTAIN DEFERRALS
AS COMPENSATION.—An employer may elect not to include as
compensation any amount which is contributed by the em-
ployer pursuant to a salary reduction agreement and which is
not includible in the gross income of an employee under section
125, 132(f)(4), 402(e)(3), 402(h), or 403(b).
(3) ALTERNATIVE DETERMINATION OF COMPENSATION.—The
Secretary shall by regulation provide for alternative methods
of determining compensation which may be used by an em-
ployer, except that such regulations shall provide that an em-
ployer may not use an alternative method if the use of such
method discriminates in favor of highly compensated employ-
ees (within the meaning of subsection (q)).
(4) APPLICABLE PROVISION.—For purposes of this subsection,
the term ‘‘applicable provision’’ means any provision which spe-
cifically refers to this subsection.
(t) APPLICATION OF CONTROLLED GROUP RULES TO CERTAIN EM-
PLOYEE BENEFITS.—
(1) IN GENERAL.—All employees who are treated as employed
by a single employer under subsection (b), (c), or (m) shall be
treated as employed by a single employer for purposes of an
applicable section. The provisions of subsection (o) shall apply
with respect to the requirements of an applicable section.
(2) APPLICABLE SECTION.—For purposes of this subsection,
the term ‘‘applicable section’’ means section 79, 106, 117(d),
125, 127, 129, 132, 137, 274(j), 505, or 4980B.
(u) SPECIAL RULES RELATING TO VETERANS’ REEMPLOYMENT
RIGHTS UNDER USERRA AND TO DIFFERENTIAL WAGE PAYMENTS TO
MEMBERS ON ACTIVE DUTY.—
(1) TREATMENT OF CERTAIN CONTRIBUTIONS MADE PURSUANT
TO VETERANS’ REEMPLOYMENT RIGHTS.—If any contribution is
made by an employer or an employee under an individual ac-
count plan with respect to an employee, or by an employee to
a defined benefit plan that provides for employee contributions,
and such contribution is required by reason of such employee’s
rights under chapter 43 of title 38, United States Code, result-
ing from qualified military service, then—
(A) such contribution shall not be subject to any other-
wise applicable limitation contained in section 402(g),
402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall
not be taken into account in applying such limitations to
other contributions or benefits under such plan or any
other plan, with respect to the year in which the contribu-
tion is made,
(B) such contribution shall be subject to the limitations
referred to in subparagraph (A) with respect to the year to
which the contribution relates (in accordance with rules
prescribed by the Secretary), and
(C) such plan shall not be treated as failing to meet the
requirements of section 401(a)(4), 401(a)(26), 401(k)(3),
401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3),
408(k)(6), 408(p), 410(b), or 416 by reason of the making
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of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective deferral or
employee contribution made under paragraph (2) shall be
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121
treated as required by reason of the employee’s rights under
such chapter 43.
(2) REEMPLOYMENT RIGHTS UNDER USERRA WITH RESPECT
TO ELECTIVE DEFERRALS.—
(A) IN GENERAL.—For purposes of this subchapter and
section 457, if an employee is entitled to the benefits of
chapter 43 of title 38, United States Code, with respect to
any plan which provides for elective deferrals, the em-
ployer sponsoring the plan shall be treated as meeting the
requirements of such chapter 43 with respect to such elec-
tive deferrals only if such employer—
(i) permits such employee to make additional elec-
tive deferrals under such plan (in the amount deter-
mined under subparagraph (B) or such lesser amount
as is elected by the employee) during the period which
begins on the date of the reemployment of such em-
ployee with such employer and has the same length as
the lesser of—
(I) the product of 3 and the period of qualified
military service which resulted in such rights, and
(II) 5 years, and
(ii) makes a matching contribution with respect to
any additional elective deferral made pursuant to
clause (i) which would have been required had such
deferral actually been made during the period of such
qualified military service.
(B) AMOUNT OF MAKEUP REQUIRED.—The amount deter-
mined under this subparagraph with respect to any plan
is the maximum amount of the elective deferrals that the
individual would have been permitted to make under the
plan in accordance with the limitations referred to in para-
graph (1)(A) during the period of qualified military service
if the individual had continued to be employed by the em-
ployer during such period and received compensation as
determined under paragraph (7). Proper adjustment shall
be made to the amount determined under the preceding
sentence for any elective deferrals actually made during
the period of such qualified military service.
(C) ELECTIVE DEFERRAL.—For purposes of this para-
graph, the term ‘‘elective deferral’’ has the meaning given
such term by section 402(g)(3); except that such term shall
include any deferral of compensation under an eligible de-
ferred compensation plan (as defined in section 457(b)).
(D) AFTER-TAX EMPLOYEE CONTRIBUTIONS.—References
in subparagraphs (A) and (B) to elective deferrals shall be
treated as including references to employee contributions.
(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT REQUIRED.—For
purposes of this subchapter and subchapter E, no provision of
chapter 43 of title 38, United States Code, shall be construed
as requiring—
(A) any crediting of earnings to an employee with re-
spect to any contribution before such contribution is actu-
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ally made, or
(B) any allocation of any forfeiture with respect to the
period of qualified military service.
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122
(4) LOAN REPAYMENT SUSPENSIONS PERMITTED.—If any plan
suspends the obligation to repay any loan made to an employee
from such plan for any part of any period during which such
employee is performing service in the uniformed services (as
defined in chapter 43 of title 38, United States Code), whether
or not qualified military service, such suspension shall not be
taken into account for purposes of section 72(p), 401(a), or
4975(d)(1).
(5) QUALIFIED MILITARY SERVICE.—For purposes of this sub-
section, the term ‘‘qualified military service’’ means any service
in the uniformed services (as defined in chapter 43 of title 38,
United States Code) by any individual if such individual is en-
titled to reemployment rights under such chapter with respect
to such service.
(6) INDIVIDUAL ACCOUNT PLAN.—For purposes of this sub-
section, the term ‘‘individual account plan’’ means any defined
contribution plan (including any tax-sheltered annuity plan
under section 403(b), any simplified employee pension under
section 408(k), any qualified salary reduction arrangement
under section 408(p), and any eligible deferred compensation
plan (as defined in section 457(b))).
(7) COMPENSATION.—For purposes of sections 403(b)(3),
415(c)(3), and 457(e)(5), an employee who is in qualified mili-
tary service shall be treated as receiving compensation from
the employer during such period of qualified military service
equal to—
(A) the compensation the employee would have received
during such period if the employee were not in qualified
military service, determined based on the rate of pay the
employee would have received from the employer but for
absence during the period of qualified military service, or
(B) if the compensation the employee would have re-
ceived during such period was not reasonably certain, the
employee’s average compensation from the employer dur-
ing the 12-month period immediately preceding the quali-
fied military service (or, if shorter, the period of employ-
ment immediately preceding the qualified military service).
(8) USERRA REQUIREMENTS FOR QUALIFIED RETIREMENT
PLANS.—For purposes of this subchapter and section 457, an
employer sponsoring a retirement plan shall be treated as
meeting the requirements of chapter 43 of title 38, United
States Code, only if each of the following requirements is met:
(A) An individual reemployed under such chapter is
treated with respect to such plan as not having incurred
a break in service with the employer maintaining the plan
by reason of such individual’s period of qualified military
service.
(B) Each period of qualified military service served by an
individual is, upon reemployment under such chapter,
deemed with respect to such plan to constitute service with
the employer maintaining the plan for the purpose of de-
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termining the nonforfeitability of the individual’s accrued
benefits under such plan and for the purpose of deter-
mining the accrual of benefits under such plan.
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123
(C) An individual reemployed under such chapter is enti-
tled to accrued benefits that are contingent on the making
of, or derived from, employee contributions or elective de-
ferrals only to the extent the individual makes payment to
the plan with respect to such contributions or deferrals. No
such payment may exceed the amount the individual
would have been permitted or required to contribute had
the individual remained continuously employed by the em-
ployer throughout the period of qualified military service.
Any payment to such plan shall be made during the period
beginning with the date of reemployment and whose dura-
tion is 3 times the period of the qualified military service
(but not greater than 5 years).
(9) TREATMENT IN THE CASE OF DEATH OR DISABILITY RESULT-
ING FROM ACTIVE MILITARY SERVICE.—
(A) IN GENERAL.—For benefit accrual purposes, an em-
ployer sponsoring a retirement plan may treat an indi-
vidual who dies or becomes disabled (as defined under the
terms of the plan) while performing qualified military
service with respect to the employer maintaining the plan
as if the individual has resumed employment in accord-
ance with the individual’s reemployment rights under
chapter 43 of title 38, United States Code, on the day pre-
ceding death or disability (as the case may be) and termi-
nated employment on the actual date of death or dis-
ability. In the case of any such treatment, and subject to
subparagraphs (B) and (C), any full or partial compliance
by such plan with respect to the benefit accrual require-
ments of paragraph (8) with respect to such individual
shall be treated for purposes of paragraph (1) as if such
compliance were required under such chapter 43.
(B) NONDISCRIMINATION REQUIREMENT.—Subparagraph
(A) shall apply only if all individuals performing qualified
military service with respect to the employer maintaining
the plan (as determined under subsections (b), (c), (m), and
(o)) who die or became disabled as a result of performing
qualified military service prior to reemployment by the em-
ployer are credited with service and benefits on reasonably
equivalent terms.
(C) DETERMINATION OF BENEFITS.—The amount of em-
ployee contributions and the amount of elective deferrals
of an individual treated as reemployed under subpara-
graph (A) for purposes of applying paragraph (8)(C) shall
be determined on the basis of the individual’s average ac-
tual employee contributions or elective deferrals for the
lesser of—
(i) the 12-month period of service with the employer
immediately prior to qualified military service, or
(ii) if service with the employer is less than such 12-
month period, the actual length of continuous service
with the employer.
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(10) PLANS NOT SUBJECT TO TITLE 38.—This subsection shall
not apply to any retirement plan to which chapter 43 of title
38, United States Code, does not apply.
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124
(11) REFERENCES.—For purposes of this section, any ref-
erence to chapter 43 of title 38, United States Code, shall be
treated as a reference to such chapter as in effect on December
12, 1994 (without regard to any subsequent amendment).
(12) TREATMENT OF DIFFERENTIAL WAGE PAYMENTS.—
(A) IN GENERAL.—Except as provided in this paragraph,
for purposes of applying this title to a retirement plan to
which this subsection applies—
(i) an individual receiving a differential wage pay-
ment shall be treated as an employee of the employer
making the payment,
(ii) the differential wage payment shall be treated as
compensation, and
(iii) the plan shall not be treated as failing to meet
the requirements of any provision described in para-
graph (1)(C) by reason of any contribution or benefit
which is based on the differential wage payment.
(B) SPECIAL RULE FOR DISTRIBUTIONS.—
(i) IN GENERAL.—Notwithstanding subparagraph
(A)(i), for purposes of section 401(k)(2)(B)(i)(I),
403(b)(7)(A)(ii), 403(b)(11)(A), or 457(d)(1)(A)(ii), an in-
dividual shall be treated as having been severed from
employment during any period the individual is per-
forming service in the uniformed services described in
section 3401(h)(2)(A).
(ii) LIMITATION.—If an individual elects to receive a
distribution by reason of clause (i), the plan shall pro-
vide that the individual may not make an elective de-
ferral or employee contribution during the 6-month pe-
riod beginning on the date of the distribution.
(C) NONDISCRIMINATION REQUIREMENT.—Subparagraph
(A)(iii) shall apply only if all employees of an employer (as
determined under subsections (b), (c), (m), and (o)) per-
forming service in the uniformed services described in sec-
tion 3401(h)(2)(A) are entitled to receive differential wage
payments on reasonably equivalent terms and, if eligible to
participate in a retirement plan maintained by the em-
ployer, to make contributions based on the payments on
reasonably equivalent terms. For purposes of applying this
subparagraph, the provisions of paragraphs (3), (4), and (5)
of section 410(b) shall apply.
(D) DIFFERENTIAL WAGE PAYMENT.—For purposes of this
paragraph, the term ‘‘differential wage payment’’ has the
meaning given such term by section 3401(h)(2).
(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.—
(1) IN GENERAL.—An applicable employer plan shall not be
treated as failing to meet any requirement of this title solely
because the plan permits an eligible participant to make addi-
tional elective deferrals in any plan year.
(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—
(A) IN GENERAL.—A plan shall not permit additional
elective deferrals under paragraph (1) for any year in an
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amount greater than the lesser of—
(i) the applicable dollar amount, or
(ii) the excess (if any) of—
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125
(I) the participant’s compensation (as defined in
section 415(c)(3)) for the year, over
(II) any other elective deferrals of the partici-
pant for such year which are made without regard
to this subsection.
(B) APPLICABLE DOLLAR AMOUNT.—For purposes of this
paragraph—
(i) In the case of an applicable employer plan other
than a plan described in section 401(k)(11) or 408(p),
the applicable dollar amount is $5,000.
(ii) In the case of an applicable employer plan de-
scribed in section 401(k)(11) or 408(p), the applicable
dollar amount is $2,500.
(C) COST-OF-LIVING ADJUSTMENT.—In the case of a year
beginning after December 31, 2006, the Secretary shall ad-
just annually the $5,000 amount in subparagraph (B)(i)
and the $2,500 amount in subparagraph (B)(ii) for in-
creases in the cost-of-living at the same time and in the
same manner as adjustments under section 415(d); except
that the base period taken into account shall be the cal-
endar quarter beginning July 1, 2005, and any increase
under this subparagraph which is not a multiple of $500
shall be rounded to the next lower multiple of $500.
(D) AGGREGATION OF PLANS.—For purposes of this para-
graph, plans described in clauses (i), (ii), and (iv) of para-
graph (6)(A) that are maintained by the same employer (as
determined under subsection (b), (c), (m) or (o)) shall be
treated as a single plan, and plans described in clause (iii)
of paragraph (6)(A) that are maintained by the same em-
ployer shall be treated as a single plan.
(3) TREATMENT OF CONTRIBUTIONS.—In the case of any con-
tribution to a plan under paragraph (1)—
(A) such contribution shall not, with respect to the year
in which the contribution is made—
(i) be subject to any otherwise applicable limitation
contained in sections 401(a)(30), 402(h), 403(b), 408,
415(c), and 457(b)(2) (determined without regard to
section 457(b)(3)), or
(ii) be taken into account in applying such limita-
tions to other contributions or benefits under such
plan or any other such plan, and
(B) except as provided in paragraph (4), such plan shall
not be treated as failing to meet the requirements of sec-
tion 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k),
410(b), or 416 by reason of the making of (or the right to
make) such contribution.
(4) APPLICATION OF NONDISCRIMINATION RULES.—
(A) IN GENERAL.—An applicable employer plan shall be
treated as failing to meet the nondiscrimination require-
ments under section 401(a)(4) with respect to benefits,
rights, and features unless the plan allows all eligible par-
ticipants to make the same election with respect to the ad-
SSpencer on DSK126QN23PROD with REPORTS
ditional elective deferrals under this subsection.
(B) AGGREGATION.—For purposes of subparagraph (A),
all plans maintained by employers who are treated as a
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126
single employer under subsection (b), (c), (m), or (o) of sec-
tion 414 shall be treated as 1 plan, except that a plan de-
scribed in clause (i) of section 410(b)(6)(C) shall not be
treated as a plan of the employer until the expiration of
the transition period with respect to such plan (as deter-
mined under clause (ii) of such section).
(5) ELIGIBLE PARTICIPANT.—For purposes of this subsection,
the term ‘‘eligible participant’’ means a participant in a plan—
(A) who would attain age 50 by the end of the taxable
year,
(B) with respect to whom no other elective deferrals may
(without regard to this subsection) be made to the plan for
the plan (or other applicable) year by reason of the appli-
cation of any limitation or other restriction described in
paragraph (3) or comparable limitation or restriction con-
tained in the terms of the plan.
(6) OTHER DEFINITIONS AND RULES.—For purposes of this
subsection—
(A) APPLICABLE EMPLOYER PLAN.—The term ‘‘applicable
employer plan’’ means—
(i) an employees’ trust described in section 401(a)
which is exempt from tax under section 501(a),
(ii) a plan under which amounts are contributed by
an individual’s employer for an annuity contract de-
scribed in section 403(b),
(iii) an eligible deferred compensation plan under
section 457 of an eligible employer described in section
457(e)(1)(A), and
(iv) an arrangement meeting the requirements of
section 408(k) or (p).
(B) ELECTIVE DEFERRAL.—The term ‘‘elective deferral’’
has the meaning given such term by subsection (u)(2)(C).
(C) EXCEPTION FOR SECTION 457 PLANS.—This subsection
shall not apply to a participant for any year for which a
higher limitation applies to the participant under section
457(b)(3).
(w) SPECIAL RULES FOR CERTAIN WITHDRAWALS FROM ELIGIBLE
AUTOMATIC CONTRIBUTION ARRANGEMENTS.—
(1) IN GENERAL.—If an eligible automatic contribution ar-
rangement allows an employee to elect to make permissible
withdrawals—
(A) the amount of any such withdrawal shall be includ-
ible in the gross income of the employee for the taxable
year of the employee in which the distribution is made,
(B) no tax shall be imposed under section 72(t) with re-
spect to the distribution, and
(C) the arrangement shall not be treated as violating
any restriction on distributions under this title solely by
reason of allowing the withdrawal.
In the case of any distribution to an employee by reason of an
election under this paragraph, employer matching contribu-
tions shall be forfeited or subject to such other treatment as
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the Secretary may prescribe.
(2) PERMISSIBLE WITHDRAWAL.—For purposes of this sub-
section—
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127
(A) IN GENERAL.—The term ‘‘permissible withdrawal’’
means any withdrawal from an eligible automatic con-
tribution arrangement meeting the requirements of this
paragraph which—
(i) is made pursuant to an election by an employee,
and
(ii) consists of elective contributions described in
paragraph (3)(B) (and earnings attributable thereto).
(B) TIME FOR MAKING ELECTION.—Subparagraph (A)
shall not apply to an election by an employee unless the
election is made no later than the date which is 90 days
after the date of the first elective contribution with respect
to the employee under the arrangement.
(C) AMOUNT OF DISTRIBUTION.—Subparagraph (A) shall
not apply to any election by an employee unless the
amount of any distribution by reason of the election is
equal to the amount of elective contributions made with
respect to the first payroll period to which the eligible
automatic contribution arrangement applies to the em-
ployee and any succeeding payroll period beginning before
the effective date of the election (and earnings attributable
thereto).
(3) ELIGIBLE AUTOMATIC CONTRIBUTION ARRANGEMENT.—øFor
purposes of¿
(A) IN GENERAL.—For purposes of this subsection, the
term ‘‘eligible automatic contribution arrangement’’ means
an arrangement under an applicable employer plan—
ø(A)¿ (i) under which a participant may elect to
have the employer make payments as contributions
under the plan on behalf of the participant, or to the
participant directly in cash,
ø(B)¿ (ii) under which the participant is treated as
having elected to have the employer make such con-
tributions in an amount equal to a uniform percentage
of compensation provided under the plan until the par-
ticipant specifically elects not to have such contribu-
tions made (or specifically elects to have such con-
tributions made at a different percentage), and
ø(C)¿ (iii) which meets the requirements of para-
graph (4).
(B) PERIODIC AUTOMATIC DEFERRAL REQUIRED.—In the
case of an eligible automatic contribution arrangement tak-
ing effect after December 31, 2024, the requirements of this
subsection shall be treated as met only if, under the ar-
rangement, at least every 3 plan years each employee—
(i) who is eligible to participate in the arrangement,
and
(ii) who, at the time of the determination, has in ef-
fect an affirmative election under subparagraph (A)(ii)
not to have such contributions described in such sub-
paragraph made,
is treated as having made the election at the uniform per-
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centage level described in subparagraph (A)(ii) unless the
employee makes a new election under such subparagraph.
Such determination may be made at one time for all em-
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128
ployees described in the preceding sentence for a plan year,
regardless of individual employee dates of enrollment.
(4) NOTICE REQUIREMENTS.—
(A) IN GENERAL.—The administrator of a plan containing
an arrangement described in paragraph (3) shall, within a
reasonable period before each plan year, give to each em-
ployee to whom an arrangement described in paragraph
(3) applies for such plan year notice of the employee’s
rights and obligations under the arrangement which—
(i) is sufficiently accurate and comprehensive to ap-
prise the employee of such rights and obligations, and
(ii) is written in a manner calculated to be under-
stood by the average employee to whom the arrange-
ment applies.
(B) TIME AND FORM OF NOTICE.—A notice shall not be
treated as meeting the requirements of subparagraph (A)
with respect to an employee unless—
(i) the notice includes an explanation of the employ-
ee’s right under the arrangement to elect not to have
elective contributions made on the employee’s behalf
(or to elect to have such contributions made at a dif-
ferent percentage),
(ii) the employee has a reasonable period of time
after receipt of the notice described in clause (i) and
before the first elective contribution is made to make
such election, and
(iii) the notice explains how contributions made
under the arrangement will be invested in the absence
of any investment election by the employee.
(5) APPLICABLE EMPLOYER PLAN.—For purposes of this sub-
section, the term ‘‘applicable employer plan’’ means—
(A) an employees’ trust described in section 401(a) which
is exempt from tax under section 501(a),
(B) a plan under which amounts are contributed by an
individual’s employer for an annuity contract described in
section 403(b),
(C) an eligible deferred compensation plan described in
section 457(b) which is maintained by an eligible employer
described in section 457(e)(1)(A),
(D) a simplified employee pension the terms of which
provide for a salary reduction arrangement described in
section 408(k)(6), and
(E) a simple retirement account (as defined in section
408(p)).
(6) SPECIAL RULE.—A withdrawal described in paragraph (1)
(subject to the limitation of paragraph (2)(C)) shall not be
taken into account for purposes of section 401(k)(3) or for pur-
poses of applying the limitation under section 402(g)(1).
(x) SPECIAL RULES FOR ELIGIBLE COMBINED DEFINED BENEFIT
PLANS AND QUALIFIED CASH OR DEFERRED ARRANGEMENTS.—
(1) GENERAL RULE.—Except as provided in this subsection,
the requirements of this title shall be applied to any defined
SSpencer on DSK126QN23PROD with REPORTS
benefit plan or applicable defined contribution plan which is
part of an eligible combined plan in the same manner as if
each such plan were not a part of the eligible combined plan.
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129
In the case of a termination of the defined benefit plan and the
applicable defined contribution plan forming part of an eligible
combined plan, the plan administrator shall terminate each
such plan separately.
(2) ELIGIBLE COMBINED PLAN.—For purposes of this sub-
section—
(A) IN GENERAL.—The term ‘‘eligible combined plan’’
means a plan—
(i) which is maintained by an employer which, at the
time the plan is established, is a small employer,
(ii) which consists of a defined benefit plan and an
applicable defined contribution plan,
(iii) the assets of which are held in a single trust
forming part of the plan and are clearly identified and
allocated to the defined benefit plan and the applicable
defined contribution plan to the extent necessary for
the separate application of this title under paragraph
(1), and
(iv) with respect to which the benefit, contribution,
vesting, and nondiscrimination requirements of sub-
paragraphs (B), (C), (D), (E), and (F) are met.
For purposes of this subparagraph, the term ‘‘small em-
ployer’’ has the meaning given such term by section
4980D(d)(2), except that such section shall be applied by
substituting ‘‘500’’ for ‘‘50’’ each place it appears.
(B) BENEFIT REQUIREMENTS.—
(i) IN GENERAL.—The benefit requirements of this
subparagraph are met with respect to the defined ben-
efit plan forming part of the eligible combined plan if
the accrued benefit of each participant derived from
employer contributions, when expressed as an annual
retirement benefit, is not less than the applicable per-
centage of the participant’s final average pay. For pur-
poses of this clause, final average pay shall be deter-
mined using the period of consecutive years (not ex-
ceeding 5) during which the participant had the great-
est aggregate compensation from the employer.
(ii) APPLICABLE PERCENTAGE.—For purposes of
clause (i), the applicable percentage is the lesser of—
(I) 1 percent multiplied by the number of years
of service with the employer, or
(II) 20 percent.
(iii) SPECIAL RULE FOR APPLICABLE DEFINED BENEFIT
PLANS.—If the defined benefit plan under clause (i) is
an applicable defined benefit plan as defined in section
411(a)(13)(B) which meets the interest credit require-
ments of section 411(b)(5)(B)(i), the plan shall be treat-
ed as meeting the requirements of clause (i) with re-
spect to any plan year if each participant receives a
pay credit for the year which is not less than the per-
centage of compensation determined in accordance
with the following table:
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(iv) YEARS OF SERVICE.—For purposes of this sub-
paragraph, years of service shall be determined under
the rules of paragraphs (4), (5), and (6) of section
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130
411(a), except that the plan may not disregard any
year of service because of a participant making, or fail-
ing to make, any elective deferral with respect to the
qualified cash or deferred arrangement to which sub-
paragraph (C) applies.
(C) CONTRIBUTION REQUIREMENTS.—
(i) IN GENERAL.—The contribution requirements of
this subparagraph with respect to any applicable de-
fined contribution plan forming part of an eligible
combined plan are met if—
(I) the qualified cash or deferred arrangement
included in such plan constitutes an automatic
contribution arrangement, and
(II) the employer is required to make matching
contributions on behalf of each employee eligible
to participate in the arrangement in an amount
equal to 50 percent of the elective contributions of
the employee to the extent such elective contribu-
tions do not exceed 4 percent of compensation.
Rules similar to the rules of clauses (ii) and (iii) of section
401(k)(12)(B) shall apply for purposes of this clause.
(ii) NONELECTIVE CONTRIBUTIONS.—An applicable
defined contribution plan shall not be treated as fail-
ing to meet the requirements of clause (i) because the
employer makes nonelective contributions under the
plan but such contributions shall not be taken into ac-
count in determining whether the requirements of
clause (i)(II) are met.
(D) VESTING REQUIREMENTS.—The vesting requirements
of this subparagraph are met if—
(i) in the case of a defined benefit plan forming part
of an eligible combined plan an employee who has
completed at least 3 years of service has a nonforfeit-
able right to 100 percent of the employee’s accrued
benefit under the plan derived from employer con-
tributions, and
(ii) in the case of an applicable defined contribution
plan forming part of eligible combined plan—
(I) an employee has a nonforfeitable right to any
matching contribution made under the qualified
cash or deferred arrangement included in such
plan by an employer with respect to any elective
contribution, including matching contributions in
excess of the contributions required under sub-
paragraph (C)(i)(II), and
(II) an employee who has completed at least 3
years of service has a nonforfeitable right to 100
percent of the employee’s accrued benefit derived
under the arrangement from nonelective contribu-
tions of the employer.
For purposes of this subparagraph, the rules of section 411
shall apply to the extent not inconsistent with this sub-
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paragraph.
(E) UNIFORM PROVISION OF CONTRIBUTIONS AND BENE-
FITS.—In the case of a defined benefit plan or applicable
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131
defined contribution plan forming part of an eligible com-
bined plan, the requirements of this subparagraph are met
if all contributions and benefits under each such plan, and
all rights and features under each such plan, must be pro-
vided uniformly to all participants.
(F) REQUIREMENTS MUST BE MET WITHOUT TAKING INTO
ACCOUNT SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS
AND BENEFITS OR OTHER PLANS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if the requirements of clauses (ii) and
(iii) are met.
(ii) SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS.—
The requirements of this clause are met if—
(I) the requirements of subparagraphs (B) and
(C) are met without regard to section 401(l), and
(II) the requirements of sections 401(a)(4) and
410(b) are met with respect to both the applicable
defined contribution plan and defined benefit plan
forming part of an eligible combined plan without
regard to section 401(l).
(iii) OTHER PLANS AND ARRANGEMENTS.—The re-
quirements of this clause are met if the applicable de-
fined contribution plan and defined benefit plan form-
ing part of an eligible combined plan meet the require-
ments of sections 401(a)(4) and 410(b) without being
combined with any other plan.
(3) NONDISCRIMINATION REQUIREMENTS FOR QUALIFIED CASH
OR DEFERRED ARRANGEMENT.—
(A) IN GENERAL.—A qualified cash or deferred arrange-
ment which is included in an applicable defined contribu-
tion plan forming part of an eligible combined plan shall
be treated as meeting the requirements of section
401(k)(3)(A)(ii) if the requirements of paragraph (2)(C) are
met with respect to such arrangement.
(B) MATCHING CONTRIBUTIONS.—In applying section
401(m)(11) to any matching contribution with respect to a
contribution to which paragraph (2)(C) applies, the con-
tribution requirement of paragraph (2)(C) and the notice
requirements of paragraph (5)(B) shall be substituted for
the requirements otherwise applicable under clauses (i)
and (ii) of section 401(m)(11)(A).
(4) SATISFACTION OF TOP-HEAVY RULES.—A defined benefit
plan and applicable defined contribution plan forming part of
an eligible combined plan for any plan year shall be treated as
meeting the requirements of section 416 for the plan year.
(5) AUTOMATIC CONTRIBUTION ARRANGEMENT.—For purposes
of this subsection—
(A) IN GENERAL.—A qualified cash or deferred arrange-
ment shall be treated as an automatic contribution ar-
rangement if the arrangement—
(i) provides that each employee eligible to partici-
pate in the arrangement is treated as having elected
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to have the employer make elective contributions in an
amount equal to 4 percent of the employee’s com-
pensation unless the employee specifically elects not to
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132
have such contributions made or to have such con-
tributions made at a different rate, and
(ii) meets the notice requirements under subpara-
graph (B).
(B) NOTICE REQUIREMENTS.—
(i) IN GENERAL.—The requirements of this subpara-
graph are met if the requirements of clauses (ii) and
(iii) are met.
(ii) REASONABLE PERIOD TO MAKE ELECTION.—The
requirements of this clause are met if each employee
to whom subparagraph (A)(i) applies—
(I) receives a notice explaining the employee’s
right under the arrangement to elect not to have
elective contributions made on the employee’s be-
half or to have the contributions made at a dif-
ferent rate, and
(II) has a reasonable period of time after receipt
of such notice and before the first elective con-
tribution is made to make such election.
(iii) ANNUAL NOTICE OF RIGHTS AND OBLIGATIONS.—
The requirements of this clause are met if each em-
ployee eligible to participate in the arrangement is,
within a reasonable period before any year, given no-
tice of the employee’s rights and obligations under the
arrangement.
The requirements of clauses (i) and (ii) of section
401(k)(12)(D) shall be met with respect to the notices de-
scribed in clauses (ii) and (iii) of this subparagraph.
(6) COORDINATION WITH OTHER REQUIREMENTS.—
(A) TREATMENT OF SEPARATE PLANS.—Section 414(k)
shall not apply to an eligible combined plan.
(B) REPORTING.—An eligible combined plan shall be
treated as a single plan for purposes of sections 6058 and
6059.
(7) APPLICABLE DEFINED CONTRIBUTION PLAN.—For purposes
of this subsection—
(A) IN GENERAL.—The term ‘‘applicable defined contribu-
tion plan’’ means a defined contribution plan which in-
cludes a qualified cash or deferred arrangement.
(B) QUALIFIED CASH OR DEFERRED ARRANGEMENT.—The
term ‘‘qualified cash or deferred arrangement’’ has the
meaning given such term by section 401(k)(2).
(y) COOPERATIVE AND SMALL EMPLOYER CHARITY PENSION
PLANS.—
(1) IN GENERAL.—For purposes of this title, except as pro-
vided in this subsection, a CSEC plan is a defined benefit plan
(other than a multiemployer plan)—
(A) to which section 104 of the Pension Protection Act of
2006 applies, without regard to—
(i) section 104(a)(2) of such Act;
(ii) the amendments to such section 104 by section
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202(b) of the Preservation of Access to Care for Medi-
care Beneficiaries and Pension Relief Act of 2010; and
(iii) paragraph (3)(B);
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133
(B) that, as of June 25, 2010, was maintained by more
than one employer and all of the employers were organiza-
tions described in section 501(c)(3);
(C) that, as of June 25, 2010, was maintained by an em-
ployer—
(i) described in section 501(c)(3),
(ii) chartered under part B of subtitle II of title 36,
United States Code,
(iii) with employees in at least 40 States, and
(iv) whose primary exempt purpose is to provide
services with respect to children; or
(D) that, as of January 1, 2000, was maintained by an
employer—
(i) described in section 501(c)(3),
(ii) who has been in existence since at least 1938,
(iii) who conducts medical research directly or indi-
rectly through grant making, and
(iv) whose primary exempt purpose is to provide
services with respect to mothers and children.
(2) AGGREGATION.—All employers that are treated as a single
employer under subsection (b) or (c) shall be treated as a single
employer for purposes of determining if a plan was maintained
by more than one employer under subparagraphs (B) and (C)
of paragraph (1).
(3) ELECTION.—
(A) IN GENERAL.—If a plan falls within the definition of
a CSEC plan under this subsection (without regard to this
paragraph), such plan shall be a CSEC plan unless the
plan sponsor elects not later than the close of the first plan
year of the plan beginning after December 31, 2013, not to
be treated as a CSEC plan. An election under the pre-
ceding sentence shall take effect for such plan year and,
once made, may be revoked only with the consent of the
Secretary.
(B) SPECIAL RULE.—If a plan described in subparagraph
(A) is treated as a CSEC plan, section 104 of the Pension
Protection Act of 2006, as amended by the Preservation of
Access to Care for Medicare Beneficiaries and Pension Re-
lief Act of 2010, shall cease to apply to such plan as of the
first date as of which such plan is treated as a CSEC plan.
(z) CERTAIN PLAN TRANSFERS AND MERGERS.—
(1) IN GENERAL.—Under rules prescribed by the Secretary,
except as provided in paragraph (2), no amount shall be includ-
ible in gross income by reason of—
(A) a transfer of all or a portion of the accrued benefit
of a participant or beneficiary, whether or not vested, from
a church plan that is a plan described in section 401(a) or
an annuity contract described in section 403(b) to an annu-
ity contract described in section 403(b), if such plan and
annuity contract are both maintained by the same church
or convention or association of churches,
(B) a transfer of all or a portion of the accrued benefit
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of a participant or beneficiary, whether or not vested, from
an annuity contract described in section 403(b) to a church
plan that is a plan described in section 401(a), if such plan
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134
and annuity contract are both maintained by the same
church or convention or association of churches, or
(C) a merger of a church plan that is a plan described
in section 401(a), or an annuity contract described in sec-
tion 403(b), with an annuity contract described in section
403(b), if such plan and annuity contract are both main-
tained by the same church or convention or association of
churches.
(2) LIMITATION.—Paragraph (1) shall not apply to a transfer
or merger unless the participant’s or beneficiary’s total accrued
benefit immediately after the transfer or merger is equal to or
greater than the participant’s or beneficiary’s total accrued
benefit immediately before the transfer or merger, and such
total accrued benefit is nonforfeitable after the transfer or
merger.
(3) QUALIFICATION.—A plan or annuity contract shall not fail
to be considered to be described in section 401(a) or 403(b)
merely because such plan or annuity contract engages in a
transfer or merger described in this subsection.
(4) DEFINITIONS.—For purposes of this subsection—
(A) CHURCH OR CONVENTION OR ASSOCIATION OF CHURCH-
ES.—The term ‘‘church or convention or association of
churches’’ includes an organization described in subpara-
graph (A) or (B)(ii) of subsection (e)(3).
(B) ANNUITY CONTRACT.—The term ‘‘annuity contract’’
includes a custodial account described in section 403(b)(7)
and a retirement income account described in section
403(b)(9).
(C) ACCRUED BENEFIT.—The term ‘‘accrued benefit’’
means—
(i) in the case of a defined benefit plan, the employ-
ee’s accrued benefit determined under the plan, and
(ii) in the case of a plan other than a defined benefit
plan, the balance of the employee’s account under the
plan.
* * * * * * *
ASSETS FOR INDEPENDENCE ACT
* * * * * * *
TITLE IV—ASSETS FOR INDEPENDENCE
* * * * * * *
SEC. 404. DEFINITIONS.
In this title:
(1) APPLICABLE PERIOD.—The term ‘‘applicable period’’
means, with respect to amounts to be paid from a grant made
for a project year, the calendar year immediately preceding the
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calendar year in which the grant is made.
(2) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible individual’’
means an individual who is selected to participate in a dem-
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135
onstration project by a qualified entity under section 409 or
section 418.
(3) EMERGENCY WITHDRAWAL.—The term ‘‘emergency with-
drawal’’ means a withdrawal by an eligible individual that—
(A) is a withdrawal of only those funds, or a portion of
those funds, deposited by the individual in the individual
development account of the individual;
(B) is permitted by a qualified entity on a case-by-case
basis; and
(C) is made for—
(i) expenses for medical care or necessary to obtain
medical care, for the individual or a spouse or depend-
ent of the individual described in paragraph (8)(D);
(ii) payments necessary to prevent the eviction of
the individual from the residence of the individual, or
foreclosure on the mortgage for the principal residence
of the individual, as defined in paragraph (8)(B); or
(iii) payments necessary to enable the individual to
meet necessary living expenses following loss of em-
ployment.
(4) HOUSEHOLD.—The term ‘‘household’’ means all individ-
uals who share use of a dwelling unit as primary quarters for
living and eating separate from other individuals.
(5) INDIVIDUAL DEVELOPMENT ACCOUNT.—
(A) IN GENERAL.—The term ‘‘individual development ac-
count’’ means a trust created or organized in the United
States exclusively for the purpose of paying the qualified
expenses of an eligible individual, or enabling the eligible
individual to make an emergency withdrawal, but only if
the written governing instrument creating the trust con-
tains the following requirements:
(i) No contribution will be accepted unless the con-
tribution is in cash or by check.
(ii) The trustee is a federally insured financial insti-
tution, or a State insured financial institution if no
federally insured financial institution is available.
(iii) The assets of the trust will be invested in ac-
cordance with the direction of the eligible individual
after consultation with the qualified entity providing
deposits for the individual under section 410.
(iv) The assets of the trust will not be commingled
with other property except in a common trust fund or
common investment fund.
(v) Except as provided in clause (vi), any amount in
the trust that is attributable to a deposit provided
under section 410 may be paid or distributed out of
the trust only for the purpose of paying the qualified
expenses of the eligible individual.
(vi) Any balance in the trust on the day after the
date on which the individual for whose benefit the
trust is established dies shall be distributed within 30
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days of that date as directed by that individual to an-
other individual development account established for
the benefit of an eligible individual.
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(B) CUSTODIAL ACCOUNTS.—For purposes of subpara-
graph (A), a custodial account shall be treated as a trust
if the assets of the custodial account are held by a bank
(as defined in section 408(n) of the Internal Revenue Code
of 1986) or another person who demonstrates, to the satis-
faction of the Secretary, that the manner in which such
person will administer the custodial account will be con-
sistent with the requirements of this title, and if the custo-
dial account would, except for the fact that it is not a
trust, constitute an individual development account de-
scribed in subparagraph (A). For purposes of this title, in
the case of a custodial account treated as a trust by reason
of the preceding sentence, the custodian of that custodial
account shall be treated as the trustee of the account.
(6) PROJECT YEAR.—The term ‘‘project year’’ means, with re-
spect to a demonstration project, any of the 5 consecutive 12-
month periods beginning on the date the project is originally
authorized to be conducted.
(7) QUALIFIED ENTITY.—
(A) IN GENERAL.—The term ‘‘qualified entity’’ means—
(i) one or more not-for-profit organizations described
in section 501(c)(3) of the Internal Revenue Code of
1986 and exempt from taxation under section 501(a) of
such Code;
(ii) a State or local government agency, or a tribal
government, submitting an application under section
405 jointly with an organization described in clause (i);
or
(iii) an entity that—
(I) is—
(aa) a credit union designated as a low-in-
come credit union by the National Credit
Union Administration (NCUA); or
(bb) an organization designated as a com-
munity development financial institution by
the Secretary of the Treasury (or the Commu-
nity Development Financial Institutions
Fund); and
(II) can demonstrate a collaborative relationship
with a local community-based organization whose
activities are designed to address poverty in the
community and the needs of community members
for economic independence and stability.
(B) RULE OF CONSTRUCTION.—Nothing in this paragraph
shall be construed as preventing an organization described
in subparagraph (A)(i) from collaborating with a financial
institution or for-profit community development corpora-
tion to carry out the purposes of this title.
(8) QUALIFIED EXPENSES.—The term ‘‘qualified expenses’’
means one or more of the following, as provided by a qualified
entity:
(A) POSTSECONDARY EDUCATIONAL EXPENSES.—Postsec-
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ondary educational expenses paid from an individual de-
velopment account directly to an eligible educational insti-
tution. In this subparagraph:
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(i) POSTSECONDARY EDUCATIONAL EXPENSES.—The
term ‘‘postsecondary educational expenses’’ means the
following:
(I) TUITION AND FEES.—Tuition and fees re-
quired for the enrollment or attendance of a stu-
dent at an eligible educational institution.
(II) FEES, BOOKS, SUPPLIES, AND EQUIPMENT.—
Fees, books, supplies, and equipment required for
courses of instruction at an eligible educational in-
stitution.
(ii) ELIGIBLE EDUCATIONAL INSTITUTION.—The term
‘‘eligible educational institution’’ means the following:
(I) INSTITUTION OF HIGHER EDUCATION.—An in-
stitution described in section 101 or 102 of the
Higher Education Act of 1965.
(II) POSTSECONDARY VOCATIONAL EDUCATION
SCHOOL.—An area vocational education school (as
defined in subparagraph (C) or (D) of section
521(4) of the Carl D. Perkins Vocational and Ap-
plied Technology Education Act (20 U.S.C.
2471(4))) which is in any State (as defined in sec-
tion 521(33) of such Act), as such sections are in
effect on the date of enactment of this title.
(B) FIRST-HOME PURCHASE.—Qualified acquisition costs
with respect to a principal residence for a qualified first-
time homebuyer, if paid from an individual development
account directly to the persons to whom the amounts are
due. In this subparagraph:
(i) PRINCIPAL RESIDENCE.—The term ‘‘principal resi-
dence’’ means a main residence, the qualified acquisi-
tion costs of which do not exceed 120 percent of the
average area purchase price applicable to such resi-
dence.
(ii) QUALIFIED ACQUISITION COSTS.—The term ‘‘quali-
fied acquisition costs’’ means the costs of acquiring,
constructing, or reconstructing a residence. The term
includes any usual or reasonable settlement, financ-
ing, or other closing costs.
(iii) QUALIFIED FIRST-TIME HOMEBUYER.—
(I) IN GENERAL.—The term ‘‘qualified first-time
homebuyer’’ means an individual participating in
the project involved (and, if married, the individ-
ual’s spouse) who has no present ownership inter-
est in a principal residence during the 3-year pe-
riod ending on the date of acquisition of the prin-
cipal residence to which this subparagraph ap-
plies.
(II) DATE OF ACQUISITION.—The term ‘‘date of
acquisition’’ means the date on which a binding
contract to acquire, construct, or reconstruct the
principal residence to which this subparagraph
applies is entered into.
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(C) BUSINESS CAPITALIZATION.—Amounts paid from an
individual development account directly to a business cap-
italization account that is established in a federally in-
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138
sured financial institution (or in a State insured financial
institution if no federally insured financial institution is
available) and is restricted to use solely for qualified busi-
ness capitalization expenses. In this subparagraph:
(i) QUALIFIED BUSINESS CAPITALIZATION EXPENSES.—
The term ‘‘qualified business capitalization expenses’’
means qualified expenditures for the capitalization of
a qualified business pursuant to a qualified plan.
(ii) QUALIFIED EXPENDITURES.—The term ‘‘qualified
expenditures’’ means expenditures included in a quali-
fied plan, including capital, plant, equipment, working
capital, and inventory expenses.
(iii) QUALIFIED BUSINESS.—The term ‘‘qualified busi-
ness’’ means any business that does not contravene
any law or public policy (as determined by the Sec-
retary).
(iv) QUALIFIED PLAN.—The term ‘‘qualified plan’’
means a business plan, or a plan to use a business
asset purchased, which—
(I) is approved by a financial institution, a mi-
croenterprise development organization, or a non-
profit loan fund having demonstrated fiduciary in-
tegrity;
(II) includes a description of services or goods to
be sold, a marketing plan, and projected financial
statements; and
(III) may require the eligible individual to ob-
tain the assistance of an experienced entrepre-
neurial adviser.
(D) TRANSFERS TO IDAS OF FAMILY MEMBERS.—Amounts
paid from an individual development account directly into
another such account established for the benefit of an eligi-
ble individual who is—
(i) the individual’s spouse; or
(ii) any dependent of the individual with respect to
whom the individual is allowed a deduction under sec-
tion 151 of the Internal Revenue Code of 1986.
(9) QUALIFIED SAVINGS OF THE INDIVIDUAL FOR THE PERIOD.—
The term ‘‘qualified savings of the individual for the period’’
means the aggregate of the amounts contributed by an indi-
vidual to the individual development account of the individual
during the period.
(10) SECRETARY.—The term ‘‘Secretary’’ means the Secretary
of Health and Human Services, acting through the Director of
Community Services.
(11) TRIBAL GOVERNMENT.—The term ‘‘tribal government’’
means a tribal organization, as defined in section 4 of the In-
dian Self-Determination and Education Assistance Act (25
U.S.C. 450b) or a Native Hawaiian organization, as defined in
section 6207 of the Native Hawaiian Education Act.
* * * * * * *
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SEC. 406. DEMONSTRATION AUTHORITY; ANNUAL GRANTS.
(a) DEMONSTRATION AUTHORITY.—If the Secretary approves an
application øto conduct a demonstration project under this title¿
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139
under section 405, the Secretary shall, not later than 10 months
after the date of enactment of this title, authorize the applicant to
conduct the project for 5 project years in accordance with the ap-
proved application and the requirements of this title.
(b) GRANT AUTHORITY.—For each project year of a demonstration
project øconducted under this title¿ approved under section 405,
the Secretary may make a grant to the qualified entity authorized
to conduct the project. In making such a grant, the Secretary shall
make the grant on the first day of the project year in an amount
not to exceed the lesser of—
(1) the aggregate amount of funds committed as matching
contributions from non-Federal public or private sector sources;
or
(2) $1,000,000.
SEC. 407. RESERVE FUND.
(a) ESTABLISHMENT.—A qualified entity under this title, other
than a State or local government agency or a tribal government,
shall establish a Reserve Fund that shall be maintained in accord-
ance with this section.
(b) AMOUNTS IN RESERVE FUND.—
(1) IN GENERAL.—As soon after receipt as is practicable, a
qualified entity shall deposit in the Reserve Fund established
under subsection (a)—
(A) all funds provided to the qualified entity from any
public or private source in connection with the demonstra-
tion project; and
(B) the proceeds from any investment made under sub-
section (c)(2).
(2) UNIFORM ACCOUNTING REGULATIONS.—The Secretary
shall prescribe regulations with respect to accounting for
amounts in the Reserve Fund established under subsection (a).
(c) USE OF AMOUNTS IN THE RESERVE FUND.—
(1) IN GENERAL.—A qualified entity shall use the amounts in
the Reserve Fund established under subsection (a) to—
(A) assist participants in the demonstration project in
obtaining the skills (including economic literacy, budg-
eting, credit, and counseling skills) and information nec-
essary to achieve economic self-sufficiency through activi-
ties requiring qualified expenses or, in the case of a partici-
pant in a project conducted under section 418, other per-
mitted expenses;
(B) provide deposits in accordance with section 410 or
subsection (f) of section 418 for individuals selected by the
qualified entity to participate in the demonstration project;
(C) administer the demonstration project; and
(D) provide the research organization evaluating the
demonstration project under section 414 with such infor-
mation with respect to the demonstration project as may
be required for the evaluation.
(2) AUTHORITY TO INVEST FUNDS.—
(A) GUIDELINES.—The Secretary shall establish guide-
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lines for investing amounts in the Reserve Fund estab-
lished under subsection (a) in a manner that provides an
appropriate balance between return, liquidity, and risk.
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(B) INVESTMENT.—A qualified entity shall invest the
amounts in its Reserve Fund that are not immediately
needed to carry out the provisions of paragraph (1), in ac-
cordance with the guidelines established under subpara-
graph (A).
(3) LIMITATION ON USES.—Not more than 15 percent of the
amounts provided to a qualified entity under section 406(b) or
section 418(d)(1) shall be used by the qualified entity for the
purposes described in subparagraphs (A), (C), and (D) of para-
graph (1), of which not less than 2 percent of the amounts
shall be used by the qualified entity for the purposes described
in paragraph (1)(D). Of the total amount specified in this para-
graph, not more than 7.5 percent shall be used for administra-
tive functions under paragraph (1)(C), including program man-
agement, reporting requirements, recruitment and enrollment
of individuals, and monitoring. The remainder of the total
amount specified in this paragraph (not including the amount
specified for use for the purposes described in paragraph
(1)(D)) shall be used for nonadministrative functions described
in paragraph (1)(A), including case management, budgeting,
economic literacy, and credit counseling. If the cost of non-
administrative functions described in paragraph (1)(A) is less
than 5.5 percent of the total amount specified in this para-
graph, such excess funds may be used for administrative func-
tions. If two or more qualified entities are jointly administering
a project, no qualified entity shall use more than its propor-
tional share for the purposes described in subparagraphs (A),
(C), and (D) of paragraph (1).
(d) UNUSED FEDERAL GRANT FUNDS TRANSFERRED TO THE SEC-
RETARY WHEN PROJECT TERMINATES.—Notwithstanding subsection
(c), upon the termination of any demonstration project authorized
under this section, the qualified entity conducting the project shall
transfer to the Secretary an amount equal to—
(1) the amounts in its Reserve Fund at the time of the termi-
nation; multiplied by
(2) a percentage equal to—
(A) the aggregate amount of grants made to the qualified
entity under section 406(b) or section 418(d)(1); divided by
(B) the aggregate amount of all funds provided to the
qualified entity from all sources to conduct the project.
SEC. 408. ELIGIBILITY FOR PARTICIPATION.
(a) IN GENERAL.—Any individual who is a member of a household
that is eligible for assistance under the State temporary assistance
for needy families program established under part A of title IV of
the Social Security Act (42 U.S.C. 601 et seq.), or that meets each
of the following requirements shall be eligible to participate in a
demonstration project øconducted under this title¿ approved under
section 405:
(1) INCOME TEST.—The adjusted gross income of the house-
hold is equal to or less than 200 percent of the poverty line (as
determined by the Office of Management and Budget) or the
earned income amount described in section 32 of the Internal
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Revenue Code of 1986 (taking into account the size of the
household).
(2) NET WORTH TEST.—
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(A) IN GENERAL.—The net worth of the household, as of
the end of the calendar year preceding the determination
of eligibility, does not exceed $10,000.
(B) DETERMINATION OF NET WORTH.—For purposes of
subparagraph (A), the net worth of a household is the
amount equal to—
(i) the aggregate market value of all assets that are
owned in whole or in part by any member of the
household; minus
(ii) the obligations or debts of any member of the
household.
(C) EXCLUSIONS.—For purposes of determining the net
worth of a household, a household’s assets shall not be
considered to include the primary dwelling unit and one
motor vehicle owned by a member of the household.
(b) INDIVIDUALS UNABLE TO COMPLETE THE PROJECT.—The Sec-
retary shall establish such regulations as are necessary to ensure
compliance with this title if an individual participating in the dem-
onstration project moves from the community in which the project
is conducted or is otherwise unable to continue participating in
that project, including regulations prohibiting future eligibility to
participate in any other demonstration project øconducted under
this title¿ approved under section 405.
SEC. 409. SELECTION OF INDIVIDUALS TO PARTICIPATE.
From among the individuals eligible to participate in a dem-
onstration project øconducted under this title¿ approved under sec-
tion 405, each qualified entity shall select the individuals—
(1) that the qualified entity determines to be best suited to
participate; and
(2) to whom the qualified entity will provide deposits in ac-
cordance with section 410.
SEC. 410. DEPOSITS BY QUALIFIED ENTITIES.
(a) IN GENERAL.—Not less than once every 3 months during each
project year, each qualified entity øunder this title¿ conducting a
demonstration project approved under section 405 shall deposit in
the individual development account of each individual participating
in the project, or into a parallel account maintained by the quali-
fied entity—
(1) from the non-Federal funds described in section 405(c)(4),
a matching contribution of not less than $0.50 and not more
than $4 for every $1 of earned income (as defined in section
911(d)(2) of the Internal Revenue Code of 1986) deposited in
the account by a project participant during that period;
(2) from the grant made under section 406(b), an amount
equal to the matching contribution made under paragraph (1);
and
(3) any interest that has accrued on amounts deposited
under paragraph (1) or (2) on behalf of that individual into the
individual development account of the individual or into a par-
allel account maintained by the qualified entity.
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(b) LIMITATION ON DEPOSITS FOR AN INDIVIDUAL.—Not more than
$2,000 from a grant made under section 406(b) shall be provided
to any one individual over the course of the demonstration project.
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142
(c) LIMITATION ON DEPOSITS FOR A HOUSEHOLD.—Not more than
$4,000 from a grant made under section 406(b) shall be provided
to any one household over the course of the demonstration project.
(d) WITHDRAWAL OF FUNDS.—The Secretary shall establish such
guidelines as may be necessary to ensure that funds held in an in-
dividual development account are not withdrawn, except for one or
more qualified expenses, or for an emergency withdrawal. Such
guidelines shall include a requirement that a responsible official of
the qualified entity conducting a project approve a withdrawal from
such an account in writing. The guidelines shall provide that no in-
dividual may withdraw funds from an individual development ac-
count earlier than 6 months after the date on which the individual
first deposits funds in the account.
(e) REIMBURSEMENT.—An individual shall reimburse an indi-
vidual development account for any funds withdrawn from the ac-
count for an emergency withdrawal, not later than 12 months after
the date of the withdrawal. If the individual fails to make the reim-
bursement, the qualified entity administering the account shall
transfer the funds deposited into the account or a parallel account
under this section to the Reserve Fund of the qualified entity, and
use the funds to benefit other individuals participating in the dem-
onstration project involved.
* * * * * * *
SEC. 413. SANCTIONS.
(a) AUTHORITY TO TERMINATE DEMONSTRATION PROJECT.—If the
Secretary determines that a qualified entity under this title is not
operating a demonstration project in accordance with the entity’s
approved application under section 405 or section 418(c) or the re-
quirements of this title (and has not implemented any corrective
recommendations directed by the Secretary), the Secretary shall
terminate such entity’s authority to conduct the demonstration
project.
(b) ACTIONS REQUIRED UPON TERMINATION.—If the Secretary ter-
minates the authority to conduct a demonstration project, the Sec-
retary—
(1) shall suspend the demonstration project;
(2) shall take control of the Reserve Fund established pursu-
ant to section 407;
(3) shall make every effort to identify another qualified enti-
ty (or entities) willing and able to conduct the project in ac-
cordance with the approved application (or, if modification is
necessary to incorporate the recommendations, the application
as modified) and the requirements of this title;
(4) shall, if the Secretary identifies an entity (or entities) de-
scribed in paragraph (3)—
(A) authorize the entity (or entities) to conduct the
project in accordance with the approved application (or, if
modification is necessary to incorporate the recommenda-
tions, the application as modified) and the requirements of
this title;
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(B) transfer to the entity (or entities) control over the
Reserve Fund established pursuant to section 407; and
(C) consider, for purposes of this title—
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143
(i) such other entity (or entities) to be the qualified
entity (or entities) originally authorized to conduct the
demonstration project; and
(ii) the date of such authorization to be the date of
the original authorization; and
(5) if, by the end of the 1-year period beginning on the date
of the termination, the Secretary has not found a qualified en-
tity (or entities) described in paragraph (3), shall—
(A) terminate the project; and
(B) from the amount remaining in the Reserve Fund es-
tablished as part of the project, remit to each source that
provided funds under section 405(c)(4) to the entity origi-
nally authorized to conduct the project, an amount that
bears the same ratio to the amount so remaining as the
amount provided from the source under section 405(c)(4)
bears to the amount provided from all such sources under
that section.
* * * * * * *
SEC. 415. NO REDUCTION IN BENEFITS.
Notwithstanding any other provision of Federal law (other than
the Internal Revenue Code of 1986) that requires consideration of
one or more financial circumstances of an individual, for the pur-
pose of determining eligibility to receive, or the amount of, any as-
sistance or benefit authorized by such law to be provided to or for
the benefit of such individual, funds (including interest accruing) in
an individual development account or innovation development ac-
count under this Act shall be disregarded for such purpose with re-
spect to any period during which such individual maintains or
makes contributions into such an account.
SEC. 416. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to carry out this title,
$25,000,000 for each of fiscal years 1999, 2000, 2001, 2002, and
2003, to remain available until expended, and, subject to section
417, $25,000,000 for each of fiscal years 2024, 2025, 2026, 2027,
and 2028, to remain available until expended.
SEC. 417. RESERVATION OF FUNDS.
(a) IN GENERAL.—Subject to subsections (b) and (c), from the
funds appropriated for each of fiscal years 2024, 2025, 2026, 2027,
and 2028 under section 416, the Secretary shall reserve—
(1) $3,000,000 for general research and evaluation; and
(2) any amounts remaining after application of paragraph (1)
to fund Assets for Independence innovation projects under sec-
tion 418.
(b) PILOT PROGRAM FUNDING.—From the amounts reserved under
subsection (a) for each of fiscal years 2024, 2025, and 2026, the Sec-
retary shall make available for operating the pilot program estab-
lished under section 7(c) of the Protecting America’s Retirement Se-
curity Act of 2022—
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(1) 50 percent of the amount reserved for the relevant fiscal
year under paragraph (1) of subsection (a) (after any adjust-
ment under subsection (c)); and
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144
(2) 25 percent of the amount reserved for the relevant fiscal
year under paragraph (2) of subsection (a) (after any adjust-
ment under subsection (c)).
(c) PROPORTIONAL ADJUSTMENT.—In any of fiscal years 2024,
2025, 2026, 2027, and 2028, if the amount appropriated for such
fiscal year is greater or less than the amount authorized for such
fiscal year under section 416, the amounts reserved under sub-
section (a) shall be increased or decreased for such fiscal year so
that each such amount bears the same proportion to the amount ap-
propriated as each of the amounts reserved under such subsection
bears to the amount authorized.
SEC. 418. ASSETS FOR INDEPENDENCE INNOVATION PROJECTS.
(a) IN GENERAL.—The Secretary is authorized to make grants to
qualified entities to conduct Assets for Independence innovation
projects under this section.
(b) DEFINITIONS.—For purposes of this section:
(1) ASSETS FOR INDEPENDENCE INNOVATION PROJECT.—The
term ‘‘Assets for Independence innovation project’’ means a dem-
onstration project carried out by a qualified entity under this
section.
(2) INNOVATION DEVELOPMENT ACCOUNT.—The term ‘‘innova-
tion development account’’ means an account that is established
in a federally insured financial institution or a State insured
financial institution and meets such other requirements as are
established by the Secretary.
(c) APPLICATION.—
(1) CRITERIA AND PREFERENCES.—
(A) IN GENERAL.—Subject to subparagraph (B), in consid-
ering an application to conduct an Assets for Independence
innovation project, the Secretary shall apply subsections (c)
and (d) of section 405 to the application in the same man-
ner that such subsections apply to an application to con-
duct a demonstration project under section 405.
(B) MODIFICATION.—For purposes of this paragraph,
paragraph (1) of section 405(c) shall be applied without re-
gard to the phrase ‘‘through activities requiring one or more
qualified expenses’’.
(2) APPROVAL OF ASSETS FOR INDEPENDENCE INNOVATION
PROJECTS.—Not later than 12 months after the date of the en-
actment of this section, the Secretary shall, on a competitive
basis, approve such applications to conduct Assets for Inde-
pendence innovation projects as the Secretary considers to be
appropriate, taking into account the considerations required by
paragraph (1). The Secretary shall ensure, to the maximum ex-
tent practicable, that the applications that are approved involve
a range of communities (spread out both geographically and in
rural and urban areas) and diverse populations.
(d) PROJECT DURATION AND GRANT AMOUNT.—
(1) DURATION.—The Secretary shall award grants under this
section for a period not to exceed 5 project years.
(2) GRANT AMOUNT.—For each project year of an Assets for
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Independence innovation project approved under this section,
the Secretary may make a grant to the qualified entity author-
ized to conduct the project. In making such a grant, the Sec-
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145
retary shall make the grant on the first day of the project year
in an amount not to exceed the lesser of—
(A) the aggregate amount of funds committed as match-
ing contributions from non-Federal public or private sector
sources; or
(B) $1,000,000.
(e) ELIGIBILITY AND SELECTION OF INDIVIDUALS TO PARTICIPATE
IN AN ASSETS FOR INDEPENDENCE INNOVATION PROJECT.—
(1) ELIGIBILITY CRITERIA.—Subject to the approval of the Sec-
retary, each qualified entity conducting an Assets for Independ-
ence innovation project shall establish eligibility requirements
for participants in the project. Such requirements shall—
(A) be more expansive than the requirements established
under section 408; and
(B) ensure that eligibility is limited to low-income indi-
viduals.
(2) SELECTION OF INDIVIDUALS TO PARTICIPATE.—Each quali-
fied entity conducting an Assets for Independence innovation
project shall select, from among the individuals that meet the
eligibility requirements established by the entity under para-
graph (1), the individuals—
(A) that the qualified entity determines to be most appro-
priate to participate; and
(B) to whom the qualified entity will make disbursements
or deposits in accordance with subsection (f).
(f) DISBURSEMENTS BY QUALIFIED ENTITIES.—
(1) IN GENERAL.—Each qualified entity conducting an Assets
for Independence innovation project shall, in a manner con-
sistent with the program requirements established by such enti-
ty, disburse to a third-party or deposit into the innovation de-
velopment account of each individual participating in the
project from the funds described in subsection (d)(2), a match-
ing contribution of not less than $0.50 and not more than $8
for every $1 deposited in the account by a project participant,
except that the rate of matching shall be equal for all individ-
uals participating in the project conducted by such qualified en-
tity.
(2) LIMITATION ON DISBURSEMENTS FOR AN INDIVIDUAL.—Not
more than $5,000 from a grant made under subsection (d)(1)
shall be provided to any one individual over the course of the
Assets for Independence innovation project.
(3) LIMITATION ON DISBURSEMENTS FOR A HOUSEHOLD.—Not
more than $10,000 from a grant made under subsection (d)(1)
shall be provided to any one household over the course of the
Assets for Independence innovation project.
(4) ADJUSTMENT FOR INFLATION.—
(A) IN GENERAL.—For each calendar year after 2023, the
dollar amounts in paragraphs (2) and (3) shall be in-
creased by an amount equal to the product of—
(i) such dollar amount, and
(ii) the cost-of-living adjustment determined under
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section 1(f)(3) of the Internal Revenue Code of 1986 for
the calendar year, determined by substituting ‘‘2022’’
for ‘‘2016’’ in subparagraph (A)(ii) thereof.
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(B) ROUNDING.—If any increase determined under sub-
paragraph (A) is not a multiple of $50, such increase shall
be rounded up to the next lowest multiple of $50.
* * * * * * *
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MINORITY VIEWS
INTRODUCTION
All Americans should have the opportunity to save enough
money for a long and comfortable retirement. Workers save for re-
tirement through employer-provided benefit plans, individual re-
tirement accounts, and other tax-preferred savings vehicles. In
1974, Congress enacted the Employee Retirement Income Security
Act (ERISA), which governs and sets minimum standards for em-
ployee benefit plans, including retirement plans. Since the enact-
ment of ERISA, the Committee and Congress have worked on a bi-
partisan basis to address the financial needs of the nation’s retire-
ment savers and retirees.
The two major forms of employer-sponsored retirement plans are
defined benefit plans, often referred to as traditional pensions, and
defined contributions plans, which establish an individual account
for the worker that is funded by contributions from the employer,
the worker, or both, and is then invested. Defined contribution
plans are the nation’s most common form of employer-sponsored re-
tirement plan. More than 109 million Americans participate in a
defined contribution plan, including 91 million participants in
401(k) plans. Americans hold $7.4 trillion in defined contribution
plans, including $6.2 trillion in 401(k) plans.1
More Americans than ever are saving for their future through
employer sponsored-retirement plans. At a recent retirement policy
hearing, Dr. Andrew Biggs with the American Enterprise Institute
stated the following:
Compared to the 1970s, when participation in traditional
‘‘defined benefit’’ pensions peaked at less than 40 percent
of the private sector workforce, more Americans are saving
for retirement; they are contributing a larger share of their
salaries toward retirement; they have amassed over seven
times the total retirement savings, with savings increasing
among every age, income, education and racial or ethnic
group; they are working longer and delaying claiming So-
cial Security benefits; more retirees are receiving benefits
from private retirement plans.2
Despite these positive trends, Committee Republicans acknowl-
edge the current system is not perfect. More work is necessary to
improve the retirement readiness of America’s workers and their
families. That is precisely why Committee Republicans are working
with Committee Democrats on a bipartisan basis to pass much-
1 https://www.dol.gov/sites/dolgov/files/EBSA/researchers/statistics/retirement-bulletins/private-
pension-plan-bulletins-abstract-2019.pdf.
2 Improving Retirement Security and Access to Mental Health Benefits: Hearing Before the
Subcomm. on Health, Emp., Lab., & Pensions of the H. Comm. on Educ. & Labor., 117th Cong.
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(2022) (statement of Dr. Andrew Biggs, Senior Fellow, Am. Enterprise Inst., at 1).
(147)
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needed reforms to the retirement system. On November 10, 2021,
the Committee reported by voice vote H.R. 5891, the Retirement
Improvement and Savings Enhancement Act (RISE Act), which in-
cludes 11 commonsense improvements to ensure the retirement
system better serves workers, retirees, and employers. On March
29, 2022, the House of Representatives passed H.R. 2954, the Se-
curing a Strong Retirement Act (SSRA), which includes the RISE
Act provisions, by an overwhelming majority vote of 414–5.
Unfortunately, Committee Democrats are rushing ahead with
H.R. 7310, a partisan retirement bill that misses the mark. H.R.
7310 takes a heavy-handed, government-knows-best approach to
retirement saving. This legislation second-guesses employees and
spends taxpayer dollars on new and unnecessary government pro-
grams. The bill also makes it more difficult—sometimes impos-
sible—for workers and retirees to access savings during emer-
gencies or hardships. Further, H.R. 7310 places additional burdens
on plan sponsors, which will ultimately increase the costs of pro-
viding benefits to workers.
H.R. 7310 LACKS SUFFICIENT RESEARCH
Under current law, 401(k) plans require a married participant to
obtain written consent from his or her spouse only if the partici-
pant wishes to name a primary beneficiary other than the spouse.
Section 4 of H.R. 7310 goes beyond current law and requires writ-
ten consent of the spouse witnessed by a notary public or plan ad-
ministrator to receive distributions from an individual account plan
other than required minimum distributions. There are no excep-
tions for hardship distributions, plan loans, or qualified birth or
adoption distributions.
Section 4 in effect extends defined benefit pension plan rules to
all individual account plans. Federal law requires the default form
of benefit for married participants of defined benefit plans to be a
joint-and-survivor annuity.3 The participant in defined benefit
plans must receive written consent from his or her spouse wit-
nessed by a notary public or plan administrator to change the man-
ner of benefit distribution.
H.R. 7310 lacks sufficient research on whether applying blanket
spousal consent requirements to defined contribution plans would
harm the retirement system, including its effects on participants
and plan sponsors. It remains unclear how often a spouse uses re-
tirement plan assets for non-retirement expenses without the
knowledge of the other spouse, according to the American Retire-
ment Association:
At this time, no study or data has been produced that
shows how often a spouse uses 401(k) plan assets for non-
retirement expenses without the knowledge of the other
spouse. . . . A new requirement imposed on all distribu-
tions that will disrupt the retirement system and partici-
pants should not be implemented if there is insufficient
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3 Retirement Equity Act of 1984, Pub. L. No. 98–397 (1984).
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analysis on whether this proposed solution is the proper
course of action.4
Further, H.R. 7310 fails to consider the important differences be-
tween defined contribution plans and traditional pensions. Most
401(k) plans permit plan participants to take loans from the plan
and receive benefit distributions before retirement during times of
hardship because of an immediate financial need, birth or adoption
of a child, or purchase of a first home.5 In contrast, a defined ben-
efit plan generally may not make distributions to a participant
prior to retirement, and very few defined benefit plans allow par-
ticipants to take loans. Data from EBSA’s Private Pension Bulletin
indicates that in 2019, defined benefit plans had $86 million in out-
standing loans to participants, which accounts for an infinitesimal
0.00027 percent of total defined benefit plan assets. In comparison,
defined contributions plans had $73.8 billion in outstanding loans
to participants, which was 1.06 percent of total defined contribution
plan assets.6 Moreover, according to a survey conducted by the
Plan Sponsor Council of America (PSCA), roughly 84 percent of
401(k) and profit-sharing plans permitted loans and roughly 92
percent permitted hardship withdrawals in 2020.
By applying defined benefit plan spousal consent rules to defined
contribution plans, the bill represents a major shift in plan admin-
istration and participant access to savings. Recognizing this lack of
data, on March 24, 2022, Senate Committee on Health, Education,
Labor, and Pensions Chair Patty Murray (D–WA) and Ranking
Member Richard Burr (R–NC) sent a letter to the Government Ac-
countability Office (GAO) requesting it examine spousal consent re-
quirements in defined contribution plans.7 The House should not
rush to pass such a major change to the retirement system without
fully understanding the consequences.
H.R. 7310 WILL DELAY ACCESS TO FUNDS IN EMERGENCIES
H.R. 7310’s spousal consent requirements may have unintended
consequences to the detriment of workers and families. The U.S.
Chamber of Commerce identified potential adverse effects of the
bill in a written statement to the Committee:
[H.R. 7310 would] add administrative costs and burdens
not only for plans but for participants that it is aimed at
protecting by: Increasing the time to process distributions
by at least 6 days, if not more, which is especially trou-
bling for hardship or natural disaster distributions, which
generally are used within a week of a request.8
The American Retirement Association highlighted similar con-
cerns:
4 Letter from Brian H. Graff, Exec. Dir./CEO, Am. Ret. Ass’n, to Reps. Bobby Scott and Vir-
ginia Foxx (Apr. 5, 2022).
5 https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-par-
ticipants-general-distribution-rules.
6 https://www.dol.gov/sites/dolgov/files/EBSA/researchers/statistics/retirement-bulletins/private-
pension-plan-bulletins-abstract-2019.pdf#page=11.
7 PSCA’S 64TH ANNUAL SURVEY OF PROFIT SHARING AND 401(K) PLANS: REFLECTING 2020
PLAN EXPERIENCE, https://www.psca.org/research/401k/64thAR.
8 Improving Retirement Security and Access to Mental Health Benefits: Hearing Before the
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Subcomm. on Health, Emp., Lab., & Pensions of the H. Comm. on Educ. & Lab., 117th Cong.
(2022) (statement of U.S. Chamber of Com. at 6).
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If an individual needs to take a hardship distribution
due to a medical emergency, repair their home following a
disaster, or some other immediate financial need, [H.R.
7310] would delay access to needed funds by days or even
weeks due to the onerous consent requirements.9
Plan participants would also be burdened by the added steps of
locating and traveling to a notary public and paying for the serv-
ice.10
At the start of the COVID–19 pandemic, Congress recognized the
needs of workers to access savings quickly during emergencies by
passing the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act).11 The CARES Act temporarily removed the 10 per-
cent tax penalty for early withdrawals from retirement accounts for
individuals affected by COVID–19. Data released from financial
services firms suggests that 4–7 percent of participants in plans
that adopted the CARES Act relief took coronavirus-related dis-
tributions from their plans in 2020.12 A report from the Depart-
ment of the Treasury (Treasury) and the Joint Committee on Tax-
ation found that total withdrawals from retirement plans increased
by 25 percent in 2020 compared to 2019 and that the total amount
of penalized distributions fell by 50 percent.13 This data indicates
that CARES Act relief was used by plan participants; had H.R.
7310 been enacted at that time, it would have inhibited and de-
layed worker and retiree access to such distributions.
Finally, the SSRA as passed by the House included an important
provision allowing victims of domestic abuse to take penalty-free
distributions from their retirement accounts. Under H.R. 7310,
these victims would either need to receive the consent of their
abuser or disclose their situation to their employer before accessing
the retirement account—hurdles that inappropriately limit access
to funds.
H.R. 7310 INTERFERES WITH EMPLOYEE DECISIONS
H.R. 7310 requires retirement plans that adopt an automatic
contribution arrangement (also known as automatic enrollment) to
reenroll participants every three years who have already affirma-
tively opted not to participate. In other words, the bill forces indi-
viduals back into the plan every three years, even though they
have already chosen not to participate. Committee Republicans
support the objective of having more Americans participating in
employer-sponsored retirement plans and saving for the future.
However, Republicans also recognize that a worker’s decision not
to participate should be respected and not second-guessed by the
federal government.
Under current law, employers may already automatically enroll
workers in 401(k) plans subject to certain conditions. Existing auto-
9 Graff letter, supra note 4.
10 Requiring workers and retirees to find and pay a notary public to witness the spousal con-
sent is an added cost to plan participants. The U.S. Chamber of Commerce noted, ‘‘The costs
of witnessing a document range from $5 to $15 in most states that set a maximum charge. Some
states do not set any maximum, such as Alaska and Maine, where cost could be higher.’’ Cham-
ber statement, supra note 6.
11 Pub. L. No. 116–136 (2020).
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12 https://www.crs.gov/Reports/R46837.
13 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4072053.
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151
matic enrollment features are an effective tool to increase employee
participation in retirement plans, and the vast majority of workers
do not opt out. The data is clear:
• Fidelity Investments found that 90 percent of employees
who are automatically enrolled do not opt out.14
• In plans serviced by T. Rowe Price, the participation rate
for plans offering auto enrollment was 85 percent compared
with 39 percent for those without automatic enrollment.15
• According to a Vanguard study of newly hired employees,
retirement plan participation rates triple to 91 percent under
automatic enrollment.16
• The Plan Sponsor Council of America found that 92.5 per-
cent of surveyed 401(k) and profit-sharing plans that automati-
cally enroll participants have an employee opt-out rate of 10
percent or less.17
The SSRA includes a bipartisan provision requiring new retire-
ment plans to enroll employees in the plan automatically. Given
that opt-out rates are low, requiring plans to reenroll employees
automatically every three years simply second-guesses employee
decisions without producing a meaningful increase in participation.
H.R. 7310’s auto-reenrollment provision would also increase the
costs of offering and administering a plan. The ERISA Industry
Committee expressed this concern in a letter to the Committee
ahead of the April 5, 2022, markup:
Retirement policy changes should not make retirement
plans more costly and less flexible. . . . Specifically, Sec-
tions 4 and 5 (expanding consent requirements and requir-
ing automatic reenrollment after three years where par-
ticipants had previously opted-out) are new requirements
that will increase plan costs and may also have negatives
consequences on participants.18
H.R. 7310 INAPPROPRIATELY EXPANDS GOVERNMENT AND EXPENDS
TAXPAYER DOLLARS
Section 7 of H.R. 7310 directs the Department of Labor (DOL or
Department) to establish an ‘‘Employee Ownership and Participa-
tion Initiative’’ and authorizes a new federal grant program to pro-
mote employee ownership and employee participation in business
decision-making. In carrying out the Initiative, the Secretary of
Labor must support existing state programs and facilitate the for-
mation of new programs in states or other entities.
The authorization of new grant programs inappropriately ex-
pands the role of the federal government in retirement and busi-
ness succession planning. H.R. 7310 would promote, with the use
of taxpayer dollars, one form of retirement savings and business
succession at the expense of others. While proponents of the provi-
14 https://fmr.my.salesforce.com/sfc/p/#300000000ZLP/a/2J0000007ufb/
7BDlUF0PHcwb671dBcRLaWXaeX9bAv0zqf1_al9flGg.
15 https://www.troweprice.com/content/dam/retirement-plan-services/pdfs/insights/savings-in-
sights/REFERENCE_POINT_2022.pdf.
16 https://institutional.vanguard.com/iam/pdf/ISGAE_022020.pdf.
17 PSCA’S 64TH ANNUAL SURVEY OF PROFIT SHARING AND 401(K) PLANS, supra note 7, at 61.
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18 Letter from Andrew Banducci, Senior Vice President, Retirement & Comp. Pol’y, The
ERISA Indus. Comm., to H. Comm. on Educ. & Lab. Members? (Apr. 5, 2022)
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sion argue that it is intended to promote the formation of employee
stock ownership plans (ESOPs), the underlying text is broad and
allows for grants to be distributed to other organizations, such as
unions or worker centers, for purposes unrelated to ESOPs. For in-
stance, if a state does not apply for a grant under the program,
‘‘nonprofit organizations,’’ which are not defined, may apply for
grants.
Employee-owned businesses are an important piece of the Amer-
ican business fabric. Unfortunately, H.R. 7310 adopts a misguided
approach to employee ownership. The bill puts taxpayers on the
hook for programs that many states are already sponsoring to pro-
mote employee ownership. Rather than authorize more government
spending, the Committee can foster employee ownership by exam-
ining DOL’s aggressive enforcement against ESOPs through litiga-
tion, which has had a chilling effect on employee ownership.19 Fi-
nally, the SSRA already includes a provision simplifying how small
businesses may offer stock ownership to employees, including tax
incentives for small employer ESOPs.
H.R. 7310 DISRUPTS A BALANCED REVIEW OF REPORTING AND
DISCLOSURE REQUIREMENTS
Section 2 of H.R. 7310 directs DOL to review ERISA regulations
regarding the disclosure of fees in defined contribution plans. The
SSRA already includes a balanced provision directing DOL, Treas-
ury, and the Pension Benefit Guaranty Corporation to review
ERISA and tax code reporting as well as disclosure requirements
and to make recommendations to Congress to consolidate, simplify,
standardize, and improve such requirements. Section 2 of H.R.
7310 would divert DOL’s attention away from reviewing and sim-
plifying all of ERISA’s extensive disclosure and reporting require-
ments. DOL, which H.R. 7310 tasks with reviewing fee disclosures,
has acknowledged as much. In response to GAO recommendations
on 401(k) fee information, DOL stated the following:
Implementation of recommendations would also require
the Department to undertake a lengthy, resource-inten-
sive, and demanding notice and comment rulemaking proc-
ess. Such a major rulemaking initiative would require the
Department to forego other regulatory initiatives, includ-
ing other disclosure and reporting initiatives that may be
important to plans and plan participants. Before under-
taking such a demanding project, we would have to care-
fully consider other EBSA regulatory priorities . . . as
well as the likelihood that the project would appreciably
change retirement investor understanding and outcomes.20
Plan sponsors are also concerned with H.R. 7310’s emphasis on
fee disclosure and prefer the approach taken in the SSRA. Accord-
ing to the ERISA Industry Committee, H.R. 7310 ‘‘should be im-
proved to provide direction to regulators to avoid new complex
19 https://esopassociation.org/sites/tea-master/files/2019-12/
ESOPS%20and%20DOL%20Leave%20Behind%20Final.docx.
20 GAO, 401(K) RETIREMENT PLANS: MANY PARTICIPANTS DO NOT UNDERSTAND FEE INFORMA-
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TION, BUT DOL COULD TAKE ADDITIONAL STEPS TO HELP THEM 114 (July 2021), https://
www.gao.gov/assets/gao-21-357.pdf.
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mandatory disclosures, consistent with the bipartisan goal of sim-
plification endorsed in SSRA.’’ 21
Finally, H.R. 7310’s emphasis on fee disclosures is out of touch
with what plan participants view as the most important informa-
tion on account statements. A recent SPARK Institute report found
that participants ‘‘show very little interest in reviewing the make-
up of the investment and administrative fees, despite recent trends
emphasizing fee transparency.’’ 22 According to the report, 401(k)
plan participants view current account balance, investment per-
formance, and projected monthly income in retirement as the most
important information in account statements. In comparison, only
2 percent of participants view explanation of investment fees and
administrative fees as the most important information.
REJECTED AMENDMENTS THAT WOULD HAVE IMPROVED THE BILL
During consideration of H.R. 7310, Committee Republicans of-
fered several amendments to improve the bill, which were rejected
by the Democrats. Rep. Diana Harshbarger (R–TN) offered an
amendment to ensure that the Committee receives needed data
and evidence as it considers H.R. 7310. The amendment strikes
section 4 of the bill and replaces it with a requirement that GAO
conduct a study on the effects on workers, retirees, and plan spon-
sors of applying spousal consent requirements to defined contribu-
tion plans.
Before considering any legislation, the Committee should first de-
termine whether the proposal is actually needed and then should
always carefully study the legislation to determine whether it will
adequately and positively address the issue. Section 4 is a signifi-
cant departure from current law’s requirements on withdrawing
funds from an individual account plan. The Committee lacks infor-
mation on the prevalence of misuse of retirement funds by a
spouse. There are situations when requiring spousal consent would
be impossible, inappropriate, or unnecessary. Sens. Murray and
Burr’s GAO request is a step towards providing insight on the
issue, and Rep. Harshbarger’s amendment recognizes the need for
such clarity. Passing H.R. 7310 without more information would be
premature at best. Choosing instead to legislate in the dark, Demo-
crats unanimously rejected this prudent amendment.
A second amendment was offered by Rep. Tim Walberg (R–MI)
to protect taxpayers from new government spending and to shed
light on DOL’s aggressive enforcement of ESOPs. The amendment
strikes the authorization of a new federal grant program adminis-
tered by DOL. The amendment also clarifies that unions or worker
centers may not be recipients of funds, and that no funds may be
used to hold or fund annual conferences. Finally, the amendment
directs DOL’s ERISA Advisory Council (EAC) 23 to complete a re-
view of DOL’s ESOP stock appraisal litigation program and the
history of the Department’s approach to resolving ESOP litigation,
21 Banducci letter, supra note 18.
22 SPARK INSTITUTE, MARKETPLACE UPDATE 2021, at 10.
23 The ERISA Advisory Council consists of representatives of employee organizations, employ-
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ers, the general public, and industry experts; it advises the Secretary of Labor by submitting
recommendations regarding his functions under ERISA.
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including whether the conditions the Department has required in
its settlement agreements are consistent with ERISA.
Rather than authorize more government spending, the Com-
mittee can foster employee ownership by examining DOL’s aggres-
sive litigation against ESOPs. DOL has released very little guid-
ance on substantive issues facing ESOPs, including their valuation.
This makes it difficult for ESOP companies to make business deci-
sions and to find a willing plan fiduciary. The EAC has yet to tack-
le the important issue DOL’s approach to resolving ESOP litiga-
tion, and the amendment is an important first step in addressing
the challenges facing ESOPs and employee ownership. Choosing in-
stead to expand government and burden taxpayers, Democrats
unanimously rejected this amendment.
Lastly, Rep. Scott Fitzgerald (R–WI) offered an amendment to
protect employee decisions not to participate in a retirement plan.
The amendment strikes the provision of H.R. 7310 that forces indi-
viduals who have already affirmatively opted out of participating
in a retirement plan back into the plan unless they affirmatively
opt out again. The SSRA already includes a provision that, for the
first time, requires all new retirement plans to enroll workers auto-
matically. As previously discussed, automatic enrollment is already
an effective mechanism for increasing participation. However, if a
worker has already taken the proactive step to unenroll from a
plan, that decision should be respected. Unfortunately, Democrats
insisted on a paternalistic approach and unanimously rejected this
amendment.
CONCLUSION
The way Americans plan for retirement has evolved. Neither em-
ployers nor employee benefit plans fit into the same cookie-cutter
mold they may have when ERISA was enacted in 1974. That is
why Committee Republicans supported the RISE Act and the pas-
sage of the SSRA. Unfortunately, H.R. 7310 fails to improve retire-
ment policies for workers and retirees. Before Committee Demo-
crats push a partisan bill, they should work with Republicans to
enact the RISE Act and the SSRA.
VIRGINIA FOXX,
Ranking Member.
JOE WILSON.
GLENN ‘‘GT’’ THOMPSON.
TIM WALBERG.
GLENN GROTHMAN.
ELISE M. STEFANIK.
RICK W. ALLEN.
JIM BANKS.
JAMES COMER.
RUSS FULCHER.
FRED KELLER.
MARIANNETTE MILLER-MEEKS,
M.D.
BURGESS OWENS.
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BOB GOOD.
LISA C. MCCLAIN.
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DIANA HARSHBARGER.
MARY E. MILLER.
SCOTT FITZGERALD.
MADISON CAWTHORN.
CHRIS JACOBS.
Æ
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