Comprehensive Retirement Security and Pension Reform Act of 2001

H.R. 10 ~ Comprehensive Retirement Security and Pension Reform

Act of 2001 Part 5

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H.R.10

Comprehensive Retirement Security and Pension Reform Act of 2001 (Engrossed in House )

`(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B).'.

(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS- Subparagraph (B) of section 401(a)(31) (relating to limitation) is amended by adding at the end the following:

`The preceding sentence shall not apply to such distribution if the plan to which such distribution is transferred--

`(i) agrees to separately account for amounts so transferred, including separately 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).'.

(c) RULES FOR APPLYING SECTION 72 TO IRAS- Paragraph (3) of section 408(d) (relating to special rules for applying section 72) is amended by inserting at the end the following:

`(H) APPLICATION OF SECTION 72-

`(i) IN GENERAL- If--

`(I) a distribution is made from an individual retirement plan, and

`(II) a rollover contribution is made to an eligible retirement plan described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part of such distribution,

then, notwithstanding paragraph (2), the rules of clause (ii) shall apply for purposes of applying section 72.

`(ii) APPLICABLE RULES- In the case of a distribution described in clause (i)--

`(I) section 72 shall be applied separately to such distribution,

`(II) notwithstanding the pro rata allocation of income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate income on the contract from all individual retirement plans of the distributee), and

`(III) appropriate adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.

SEC. 404. HARDSHIP EXCEPTION TO 60-DAY RULE.

(a) EXEMPT TRUSTS- Paragraph (3) of section 402(c) (relating to transfer must be made within 60 days of receipt) is amended to read as follows:

`(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT-

`(A) IN GENERAL- Except as provided in subparagraph (B), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.

`(B) HARDSHIP EXCEPTION- The Secretary may waive the 60-day requirement under subparagraph (A) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.

(b) IRAS- Paragraph (3) of section 408(d) (relating to rollover contributions), as amended by section 403, is amended by adding after subparagraph (H) the following new subparagraph:

`(I) WAIVER OF 60-DAY REQUIREMENT- The Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.

SEC. 405. TREATMENT OF FORMS OF DISTRIBUTION.

(a) PLAN TRANSFERS-

(1) AMENDMENT OF INTERNAL REVENUE CODE- Paragraph (6) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by adding at the end the following:

`(D) PLAN TRANSFERS-

`(i) IN GENERAL- A defined contribution plan (in this subparagraph referred to as the `transferee plan') shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the `transferor plan') to the extent that--

`(I) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan,

`(II) the terms of both the transferor plan and the transferee plan authorize the transfer described in subclause (I),

`(III) the transfer described in subclause (I) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,

`(IV) the election described in subclause (III) was made after the participant or beneficiary received a notice describing the consequences of making the election, and

`(V) the transferee plan allows the participant or beneficiary described in subclause (III) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.

`(ii) EXCEPTION- Clause (i) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

`(E) ELIMINATION OF FORM OF DISTRIBUTION- Except to the extent provided in regulations, a defined contribution plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of a form of distribution previously available thereunder. This subparagraph shall not apply to the elimination of a form of distribution with respect to any participant unless--

`(i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and

`(ii) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.'.

(2) AMENDMENT OF ERISA- Section 204(g) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at the end the following:

`(4)(A) A defined contribution plan (in this subparagraph referred to as the `transferee plan') shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the `transferor plan') to the extent that--

`(i) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan;

`(ii) the terms of both the transferor plan and the transferee plan authorize the transfer described in clause (i);

`(iii) the transfer described in clause (i) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan;

`(iv) the election described in clause (iii) was made after the participant or beneficiary received a notice describing the consequences of making the election; and

`(v) the transferee plan allows the participant or beneficiary described in clause (iii) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.

`(B) Subparagraph (A) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.

`(5) Except to the extent provided in regulations promulgated by the Secretary of the Treasury, a defined contribution plan shall not be treated as failing to meet the requirements of this subsection merely because of the elimination of a form of distribution previously available thereunder. This paragraph shall not apply to the elimination of a form of distribution with respect to any participant unless--

`(A) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated; and

`(B) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to years beginning after December 31, 2001.

(b) REGULATIONS-

(1) AMENDMENT OF INTERNAL REVENUE CODE- Paragraph (6)(B) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by inserting after the second sentence the following new sentence: `The Secretary shall by regulations provide that this subparagraph shall not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants and does not adversely affect the rights of any participant in a more than de minimis manner.'.

(2) AMENDMENT OF ERISA- Section 204(g)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) is amended by inserting before the last sentence the following new sentence: `The Secretary of the Treasury shall by regulations provide that this paragraph shall not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants and does not adversely affect the rights of any participant in a more than de minimis manner.'.

(3) SECRETARY DIRECTED- Not later than December 31, 2003, the Secretary of the Treasury is directed to issue regulations under section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974, including the regulations required by the amendment made by this subsection. Such regulations shall apply to plan years beginning after December 31, 2003, or such earlier date as is specified by the Secretary of the Treasury.

SEC. 406. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

(a) MODIFICATION OF SAME DESK EXCEPTION-

(1) SECTION 401(k)-

(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash or deferred arrangements) is amended by striking `separation from service' and inserting `severance from employment'.

(B) Subparagraph (A) of section 401(k)(10) (relating to distributions upon termination of plan or disposition of assets or subsidiary) is amended to read as follows:

`(A) IN GENERAL- An event described in this subparagraph 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 section 4975(e)(7)).'.

(i) in subparagraph (B)--

(I) by striking `An event' in clause (i) and inserting `A termination'; and

(II) by striking `the event' in clause (i) and inserting `the termination';

(ii) by striking subparagraph (C); and

(iii) by striking `OR DISPOSITION OF ASSETS OR SUBSIDIARY' in the heading.

(2) SECTION 403(b)-

(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are each amended by striking `separates from service' and inserting `has a severance from employment'.

(B) The heading for paragraph (11) of section 403(b) is amended by striking `SEPARATION FROM SERVICE' and inserting `SEVERANCE FROM EMPLOYMENT'.

(3) SECTION 457- Clause (ii) of section 457(d)(1)(A) is amended by striking `is separated from service' and inserting `has a severance from employment'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.

SEC. 407. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT PLANS.

(a) 403(b) PLANS- Subsection (b) of section 403 is amended by adding at the end the following new paragraph:

`(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--

`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.

(b) 457 PLANS- Subsection (e) of section 457 is amended by adding after paragraph (16) the following new paragraph:

`(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--

`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or

`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to trustee-to-trustee transfers after December 31, 2001.

SEC. 408. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT AMOUNTS.

(a) QUALIFIED PLANS-

(1) AMENDMENT OF INTERNAL REVENUE CODE- Section 411(a)(11) (relating to restrictions on certain mandatory distributions) is amended by adding at the end the following:

`(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS- A plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term `rollover contributions' means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).'.

(2) AMENDMENT OF ERISA- Section 203(e) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is amended by adding at the end the following:

`(4) A plan shall not fail to meet the requirements of this subsection if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term `rollover contributions' means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code of 1986.'.

(b) ELIGIBLE DEFERRED COMPENSATION PLANS- Clause (i) of section 457(e)(9)(A) is amended by striking `such amount' and inserting `the portion of such amount which is not attributable to rollover contributions (as defined in section 411(a)(11)(D))'.

SEC. 409. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 457 PLANS.

(a) MINIMUM DISTRIBUTION REQUIREMENTS- Paragraph (2) of section 457(d) (relating to distribution requirements) is amended to read as follows:

`(2) MINIMUM DISTRIBUTION REQUIREMENTS- A plan meets the minimum distribution requirements of this paragraph if such plan meets the requirements of section 401(a)(9).'.

(b) INCLUSION IN GROSS INCOME-

(1) YEAR OF INCLUSION- Subsection (a) of section 457 (relating to year of inclusion in gross income) is amended to read as follows:

`(a) YEAR OF INCLUSION IN GROSS INCOME-

`(1) IN GENERAL- Any amount of compensation deferred under an eligible deferred compensation plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income--

`(A) is paid to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(A), and

`(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(B).

`(2) SPECIAL RULE FOR ROLLOVER AMOUNTS- To the extent provided in section 72(t)(9), section 72(t) shall apply to any amount includible in gross income under this subsection.'.

(2) CONFORMING AMENDMENTS-

(A) So much of paragraph (9) of section 457(e) as precedes subparagraph (A) is amended to read as follows:

`(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC- In the case of an eligible deferred compensation plan of an employer described in subsection (e)(1)(B)--'.

(B) Section 457(d) is amended by adding at the end the following new paragraph:

`(3) SPECIAL RULE FOR GOVERNMENT PLAN- An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A).'.

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