Comprehensive Retirement Security and Pension Reform Act of 2001

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

Act of 2001 Part 6

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H.R.10

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

TITLE V--STRENGTHENING PENSION SECURITY AND ENFORCEMENT

SEC. 501. REPEAL OF PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

(a) AMENDMENT OF INTERNAL REVENUE CODE- Section 412(c)(7) (relating to full-funding limitation) is amended--

(1) by striking `the applicable percentage' in subparagraph (A)(i)(I) and inserting `in the case of plan years beginning before January 1, 2004, the applicable percentage'; and

(2) by amending subparagraph (F) to read as follows:

`(F) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

`In the case of any plan year

--The applicable

beginning in--

--percentage is--

2002

--165

2003

--170.'.

(b) AMENDMENT OF ERISA- Section 302(c)(7) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is amended--

(1) by striking `the applicable percentage' in subparagraph (A)(i)(I) and inserting `in the case of plan years beginning before January 1, 2004, the applicable percentage'; and

(2) by amending subparagraph (F) to read as follows:

`(F) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:

`In the case of any plan year

--The applicable

beginning in--

--percentage is--

2002

--165

2003

--170.'.

SEC. 502. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO ALL DEFINED BENEFIT PLANS.

(a) IN GENERAL- Subparagraph (D) of section 404(a)(1) (relating to special rule in case of certain plans) is amended to read as follows:

`(D) SPECIAL RULE IN CASE OF CERTAIN PLANS-

`(i) IN GENERAL- In the case of any defined benefit plan, except as provided in regulations, the maximum amount deductible under the limitations of this paragraph shall not be less than the unfunded termination liability (determined as if the proposed termination date referred to in section 4041(b)(2)(A)(i)(II) of the Employee Retirement Income Security Act of 1974 were the last day of the plan year).

`(ii) PLANS WITH LESS THAN 100 PARTICIPANTS- For purposes of this subparagraph, in the case of a plan which has less than 100 participants for the plan year, termination liability shall not include the liability attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2 years before the termination date.

`(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS- For purposes of determining whether a plan has more than 100 participants, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group (within the meaning of section 412(l)(8)(C))) shall be treated as one plan, but only employees of such member or employer shall be taken into account.

`(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE EMPLOYERS- Clause (i) shall not apply to a plan described in section 4021(b)(13) of the Employee Retirement Income Security Act of 1974.'.

(b) CONFORMING AMENDMENT- Paragraph (6) of section 4972(c), as amended by section 207, is amended to read as follows:

`(6) EXCEPTIONS- In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account so much of the contributions to one or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the greater of--

`(A) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or

`(B) the sum of--

`(i) the amount of contributions described in section 401(m)(4)(A), plus

`(ii) the amount of contributions described in section 402(g)(3)(A).

For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (B).'.

SEC. 503. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

(a) IN GENERAL- Subsection (c) of section 4972 (relating to nondeductible contributions) is amended by adding at the end the following new paragraph:

`(7) DEFINED BENEFIT PLAN EXCEPTION- In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except to the extent that such contributions exceed the full-funding limitation (as defined in section 412(c)(7), determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.'.

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

SEC. 504. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

(a) AMENDMENT OF INTERNAL REVENUE CODE-

(1) IN GENERAL- Chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:

`SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

`(a) IMPOSITION OF TAX- There is hereby imposed a tax on the failure of any applicable pension plan to meet the requirements of subsection (e) with respect to any applicable individual.

`(b) AMOUNT OF TAX-

`(1) IN GENERAL- The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period with respect to such failure.

`(2) NONCOMPLIANCE PERIOD- For purposes of this section, the term `noncompliance period' means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the notice to which the failure relates is provided or the failure is otherwise corrected.

`(c) LIMITATIONS ON AMOUNT OF TAX-

`(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED AND REASONABLE DILIGENCE EXERCISED- No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that any person subject to liability for the tax under subsection (d) did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (e).

`(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS- No tax shall be imposed by subsection (a) on any failure if--

`(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and

`(B) such person provides the notice described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence would have known, that such failure existed.

`(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES-

`(A) IN GENERAL- If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.

`(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS- For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.

`(4) WAIVER BY SECRETARY- In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.

`(d) LIABILITY FOR TAX- The following shall be liable for the tax imposed by subsection (a):

`(1) In the case of a plan other than a multiemployer plan, the employer.

`(2) In the case of a multiemployer plan, the plan.

`(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING BENEFIT ACCRUALS-

`(1) IN GENERAL- If an applicable pension plan is amended to provide for a significant reduction in the rate of future benefit accrual, the plan administrator shall provide written notice to each applicable individual (and to each employee organization representing applicable individuals).

`(2) NOTICE- The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary) to allow applicable individuals to understand the effect of the plan amendment. The Secretary may provide a simplified form of notice for, or exempt from any notice requirement, a plan--

`(A) which has fewer than 100 participants who have accrued a benefit under the plan, or

`(B) which offers participants the option to choose between the new benefit formula and the old benefit formula.

`(3) TIMING OF NOTICE- Except as provided in regulations, the notice required by paragraph (1) shall be provided within a reasonable time before the effective date of the plan amendment.

`(4) DESIGNEES- Any notice under paragraph (1) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.

`(5) NOTICE BEFORE ADOPTION OF AMENDMENT- A plan shall not be treated as failing to meet the requirements of paragraph (1) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment is adopted.

`(f) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) APPLICABLE INDIVIDUAL- The term `applicable individual' means, with respect to any plan amendment--

`(A) each participant in the plan, and

`(B) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)),

whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.

`(2) APPLICABLE PENSION PLAN- The term `applicable pension plan' means--

`(A) any defined benefit plan, or

`(B) an individual account plan which is subject to the funding standards of section 412.

Such term shall not include a governmental plan (within the meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.

`(3) EARLY RETIREMENT- A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of section 411(d)(6)(B)(i)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.

`(g) NEW TECHNOLOGIES- The Secretary may by regulations allow any notice under subsection (e) to be provided by using new technologies.'.

(2) CLERICAL AMENDMENT- The table of sections for chapter 43 is amended by adding at the end the following new item:

`Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy notice requirements.'.

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

`(3)(A) An applicable pension plan to which paragraph (1) applies shall not be treated as meeting the requirements of such paragraph unless, in addition to any notice required to be provided to an individual or organization under such paragraph, the plan administrator provides the notice described in subparagraph (B) to each applicable individual (and to each employee organization representing applicable individuals).

`(B) The notice required by subparagraph (A) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary of the Treasury) to allow applicable individuals to understand the effect of the plan amendment. The Secretary of the Treasury may provide a simplified form of notice for, or exempt from any notice requirement, a plan--

`(i) which has fewer than 100 participants who have accrued a benefit under the plan, or

`(ii) which offers participants the option to choose between the new benefit formula and the old benefit formula.

`(C) Except as provided in regulations prescribed by the Secretary of the Treasury, the notice required by subparagraph (A) shall be provided within a reasonable time before the effective date of the plan amendment.

`(D) Any notice under subparagraph (A) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.

`(E) A plan shall not be treated as failing to meet the requirements of subparagraph (A) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment is adopted.

`(F) The Secretary of the Treasury may by regulations allow any notice under this paragraph to be provided by using new technologies.

`(4) For purposes of paragraph (3)--

`(A) The term `applicable individual' means, with respect to any plan amendment--

`(i) each participant in the plan; and

`(ii) any beneficiary who is an alternate payee (within the meaning of section 206(d)(3)(K)) under an applicable qualified domestic relations order (within the meaning of section 206(d)(3)(B)(i)),

whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.

`(B) The term `applicable pension plan' means--

`(i) any defined benefit plan; or

`(ii) an individual account plan which is subject to the funding standards of section 412 of the Internal Revenue Code of 1986.

`(C) A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of subsection (g)(2)(A)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.'.

(1) IN GENERAL- The amendments made by this section shall apply to plan amendments taking effect on or after the date of the enactment of this Act.

(2) TRANSITION- Until such time as the Secretary of the Treasury issues regulations under sections 4980F(e)(2) and (3) of the Internal Revenue Code of 1986, and section 204(h)(3) of the Employee Retirement Income Security Act of 1974, as added by the amendments made by this section, a plan shall be treated as meeting the requirements of such sections if it makes a good faith effort to comply with such requirements.

(3) SPECIAL NOTICE RULE-

(A) IN GENERAL- The period for providing any notice required by the amendments made by this section shall not end before the date which is 3 months after the date of the enactment of this Act.

(B) REASONABLE NOTICE- The amendments made by this section shall not apply to any plan amendment taking effect on or after the date of the enactment of this Act if, before April 25, 2001, notice was provided to participants and beneficiaries adversely affected by the plan amendment (or their representatives) which was reasonably expected to notify them of the nature and effective date of the plan amendment.

(d) STUDY- The Secretary of the Treasury shall prepare a report on the effects of conversions of traditional defined benefit plans to cash balance or hybrid formula plans. Such study shall examine the effect of such conversions on longer service participants, including the incidence and effects of `wear away' provisions under which participants earn no additional benefits for a period of time after the conversion. As soon as practicable, but not later than 60 days after the date of the enactment of this Act, the Secretary shall submit such report, together with recommendations thereon, to the Committee on Ways and Means and the Committee on Education and the Workforce of the House of Representatives and the Committee on Finance and the Committee on Health, Education, Labor, and Pensions of the Senate.

SEC. 505. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

(a) COMPENSATION LIMIT-

(1) IN GENERAL- Paragraph (11) of section 415(b) (relating to limitation for defined benefit plans) is amended to read as follows:

`(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER PLANS- In the case of a governmental plan (as defined in section 414(d)) or a multiemployer plan (as defined in section 414(f)), subparagraph (B) of paragraph (1) shall not apply.'.

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