Retirement Security Preservation Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2352 To amend the Internal Revenue Code of 1986 to modify nondiscrimination rules to protect older, longer service participants in retirement plans. IN THE SENATE OF THE UNITED STATES JULY 31, 2019 Mr. CARDIN (for himself and Mr. PORTMAN) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to modify nondiscrimination rules to protect older, longer service participants in retirement plans. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Retirement Security 4 Preservation Act of 2019’’. 5 SEC. 2. MODIFICATION OF NONDISCRIMINATION RULES TO 6 PROTECT OLDER, LONGER SERVICE PARTICI- 7 PANTS. 8 (a) IN GENERAL.—Section 401 of the Internal Rev- 9 enue Code of 1986 is amended— 10 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 2 •S 2352 IS (1) by redesignating subsection (o) as sub- 1 section (p); and 2 (2) by inserting after subsection (n) the fol- 3 lowing new subsection: 4 ‘‘(o) SPECIAL RULES FOR APPLYING NON- 5 DISCRIMINATION RULES TO PROTECT OLDER, LONGER 6 SERVICE AND GRANDFATHERED PARTICIPANTS.— 7 ‘‘(1) TESTING OF DEFINED BENEFIT PLANS 8 WITH CLOSED CLASSES OF PARTICIPANTS.— 9 ‘‘(A) BENEFITS, RIGHTS, OR FEATURES 10 PROVIDED TO CLOSED CLASSES.—A defined 11 benefit plan which provides benefits, rights, or 12 features to a closed class of participants shall 13 not fail to satisfy the requirements of sub- 14 section (a)(4) by reason of the composition of 15 such closed class or the benefits, rights, or fea- 16 tures provided to such closed class, if— 17 ‘‘(i) for the plan year as of which the 18 class closes and the 2 succeeding plan 19 years, such benefits, rights, and features 20 satisfy the requirements of subsection 21 (a)(4) (without regard to this subpara- 22 graph but taking into account the rules of 23 subparagraph (I)), 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 3 •S 2352 IS ‘‘(ii) after the date as of which the 1 class was closed, any plan amendment 2 which modifies the closed class or the ben- 3 efits, rights, and features provided to such 4 closed class does not discriminate signifi- 5 cantly in favor of highly compensated em- 6 ployees, and 7 ‘‘(iii) the class was closed before April 8 5, 2017, or the plan is described in sub- 9 paragraph (C). 10 ‘‘(B) AGGREGATE TESTING WITH DEFINED 11 CONTRIBUTION PLANS PERMITTED ON A BENE- 12 FITS BASIS.— 13 ‘‘(i) IN GENERAL.—For purposes of 14 determining compliance with subsection 15 (a)(4) and section 410(b), a defined benefit 16 plan described in clause (iii) may be aggre- 17 gated and tested on a benefits basis with 18 one or more defined contribution plans, in- 19 cluding with the portion of one or more de- 20 fined contribution plans which— 21 ‘‘(I) provides matching contribu- 22 tions (as defined in subsection 23 (m)(4)(A)), 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 4 •S 2352 IS ‘‘(II) provides annuity contracts 1 described in section 403(b) which are 2 purchased with matching contribu- 3 tions or nonelective contributions, or 4 ‘‘(III) consists of an employee 5 stock ownership plan (within the 6 meaning of section 4975(e)(7)) or a 7 tax credit employee stock ownership 8 plan (within the meaning of section 9 409(a)). 10 ‘‘(ii) SPECIAL RULES FOR MATCHING 11 CONTRIBUTIONS.—For purposes of clause 12 (i), if a defined benefit plan is aggregated 13 with a portion of a defined contribution 14 plan providing matching contributions— 15 ‘‘(I) such defined benefit plan 16 must also be aggregated with any por- 17 tion of such defined contribution plan 18 which provides elective deferrals de- 19 scribed in subparagraph (A) or (C) of 20 section 402(g)(3), and 21 ‘‘(II) such matching contribu- 22 tions shall be treated in the same 23 manner as nonelective contributions, 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 5 •S 2352 IS including for purposes of applying the 1 rules of subsection (l). 2 ‘‘(iii) PLANS DESCRIBED.—A defined 3 benefit plan is described in this clause if— 4 ‘‘(I) the plan provides benefits to 5 a closed class of participants, 6 ‘‘(II) for the plan year as of 7 which the class closes and the 2 suc- 8 ceeding plan years, the plan satisfies 9 the requirements of section 410(b) 10 and subsection (a)(4) (without regard 11 to this subparagraph but taking into 12 account the rules of subparagraph 13 (I)), 14 ‘‘(III) after the date as of which 15 the class was closed, any plan amend- 16 ment which modifies the closed class 17 or the benefits provided to such closed 18 class does not discriminate signifi- 19 cantly in favor of highly compensated 20 employees, and 21 ‘‘(IV) the class was closed before 22 April 5, 2017, or the plan is described 23 in subparagraph (C). 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 6 •S 2352 IS ‘‘(C) PLANS DESCRIBED.—A plan is de- 1 scribed in this subparagraph if, taking into ac- 2 count any predecessor plan— 3 ‘‘(i) such plan has been in effect for 4 at least 5 years as of the date the class is 5 closed, and 6 ‘‘(ii) during the 5-year period pre- 7 ceding the date the class is closed, there 8 has not been a substantial increase in the 9 coverage or value of the benefits, rights, or 10 features described in subparagraph (A) or 11 in the coverage or benefits under the plan 12 described in subparagraph (B)(iii) (which- 13 ever is applicable). 14 ‘‘(D) DETERMINATION OF SUBSTANTIAL 15 INCREASE FOR BENEFITS, RIGHTS, AND FEA- 16 TURES.—In applying subparagraph (C)(ii) for 17 purposes of subparagraph (A)(iii), a plan shall 18 be treated as having had a substantial increase 19 in coverage or value of the benefits, rights, or 20 features described in subparagraph (A) during 21 the applicable 5-year period only if, during such 22 period— 23 ‘‘(i) the number of participants cov- 24 ered by such benefits, rights, or features 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 7 •S 2352 IS on the date such period ends is more than 1 50 percent greater than the number of 2 such participants on the first day of the 3 plan year in which such period began, or 4 ‘‘(ii) such benefits, rights, and fea- 5 tures have been modified by one or more 6 plan amendments in such a way that, as of 7 the date the class is closed, the value of 8 such benefits, rights, and features to the 9 closed class as a whole is substantially 10 greater than the value as of the first day 11 of such 5-year period, solely as a result of 12 such amendments. 13 ‘‘(E) DETERMINATION OF SUBSTANTIAL 14 INCREASE FOR AGGREGATE TESTING ON BENE- 15 FITS BASIS.—In applying subparagraph (C)(ii) 16 for purposes of subparagraph (B)(iii)(IV), a 17 plan shall be treated as having had a substan- 18 tial increase in coverage or benefits during the 19 applicable 5-year period only if, during such pe- 20 riod— 21 ‘‘(i) the number of participants bene- 22 fitting under the plan on the date such pe- 23 riod ends is more than 50 percent greater 24 than the number of such participants on 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 8 •S 2352 IS the first day of the plan year in which such 1 period began, or 2 ‘‘(ii) the average benefit provided to 3 such participants on the date such period 4 ends is more than 50 percent greater than 5 the average benefit provided on the first 6 day of the plan year in which such period 7 began. 8 ‘‘(F) CERTAIN EMPLOYEES DIS- 9 REGARDED.—For purposes of subparagraphs 10 (D) and (E), any increase in coverage or value 11 or in coverage or benefits, whichever is applica- 12 ble, which is attributable to such coverage and 13 value or coverage and benefits provided to em- 14 ployees— 15 ‘‘(i) who became participants as a re- 16 sult of a merger, acquisition, or similar 17 event which occurred during the 7-year pe- 18 riod preceding the date the class is closed, 19 or 20 ‘‘(ii) who became participants by rea- 21 son of a merger of the plan with another 22 plan which had been in effect for at least 23 5 years as of the date of the merger, 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 9 •S 2352 IS shall be disregarded, except that clause (ii) 1 shall apply for purposes of subparagraph (D) 2 only if, under the merger, the benefits, rights, 3 or features under 1 plan are conformed to the 4 benefits, rights, or features of the other plan 5 prospectively. 6 ‘‘(G) RULES RELATING TO AVERAGE BEN- 7 EFIT.—For purposes of subparagraph (E)— 8 ‘‘(i) the average benefit provided to 9 participants under the plan will be treated 10 as having remained the same between the 11 2 dates described in subparagraph (E)(ii) 12 if the benefit formula applicable to such 13 participants has not changed between such 14 dates, and 15 ‘‘(ii) if the benefit formula applicable 16 to one or more participants under the plan 17 has changed between such 2 dates, then 18 the average benefit under the plan shall be 19 considered to have increased by more than 20 50 percent only if— 21 ‘‘(I) the total amount determined 22 under section 430(b)(1)(A)(i) for all 23 participants benefitting under the 24 plan for the plan year in which the 5- 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 10 •S 2352 IS year period described in subparagraph 1 (E) ends, exceeds 2 ‘‘(II) the total amount deter- 3 mined under section 430(b)(1)(A)(i) 4 for all such participants for such plan 5 year, by using the benefit formula in 6 effect for each such participant for 7 the first plan year in such 5-year pe- 8 riod, 9 by more than 50 percent. In the case of a 10 CSEC plan (as defined in section 414(y)), 11 the normal cost of the plan (as determined 12 under section 433(j)(1)(B)) shall be used 13 in lieu of the amount determined under 14 section 430(b)(1)(A)(i). 15 ‘‘(H) TREATMENT AS SINGLE PLAN.—For 16 purposes of subparagraphs (E) and (G), a plan 17 described in section 413(c) shall be treated as 18 a single plan rather than as separate plans 19 maintained by each employer in the plan. 20 ‘‘(I) SPECIAL RULES.—For purposes of 21 subparagraphs (A)(i) and (B)(iii)(II), the fol- 22 lowing rules shall apply: 23 ‘‘(i) In applying section 410(b)(6)(C), 24 the closing of the class of participants shall 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 11 •S 2352 IS not be treated as a significant change in 1 coverage under section 410(b)(6)(C)(i)(II). 2 ‘‘(ii) Two or more plans shall not fail 3 to be eligible to be aggregated and treated 4 as a single plan solely by reason of having 5 different plan years. 6 ‘‘(iii) Changes in the employee popu- 7 lation shall be disregarded to the extent at- 8 tributable to individuals who become em- 9 ployees or cease to be employees, after the 10 date the class is closed, by reason of a 11 merger, acquisition, divestiture, or similar 12 event. 13 ‘‘(iv) Aggregation and all other testing 14 methodologies otherwise applicable under 15 subsection (a)(4) and section 410(b) may 16 be taken into account. 17 The rule of clause (ii) shall also apply for pur- 18 poses of determining whether plans to which 19 subparagraph (B)(i) applies may be aggregated 20 and treated as 1 plan for purposes of deter- 21 mining whether such plans meet the require- 22 ments of subsection (a)(4) and section 410(b). 23 ‘‘(J) SPUN-OFF PLANS.—For purposes of 24 this paragraph, if a portion of a defined benefit 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 12 •S 2352 IS plan described in subparagraph (A) or (B)(iii) 1 is spun off to another employer and the spun- 2 off plan continues to satisfy the requirements 3 of— 4 ‘‘(i) subparagraph (A)(i) or 5 (B)(iii)(II), whichever is applicable, if the 6 original plan was still within the 3-year pe- 7 riod described in such subparagraph at the 8 time of the spin off, and 9 ‘‘(ii) subparagraph (A)(ii) or 10 (B)(iii)(III), whichever is applicable, 11 the treatment under subparagraph (A) or (B) 12 of the spun-off plan shall continue with respect 13 to such other employer. 14 ‘‘(2) TESTING OF DEFINED CONTRIBUTION 15 PLANS.— 16 ‘‘(A) TESTING ON A BENEFITS BASIS.—A 17 defined contribution plan shall be permitted to 18 be tested on a benefits basis if— 19 ‘‘(i) such defined contribution plan 20 provides make-whole contributions to a 21 closed class of participants whose accruals 22 under a defined benefit plan have been re- 23 duced or eliminated, 24 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2352.IS S2352 kjohnson on DSK79L0C42 with BILLS 13 •S 2352 IS ‘‘(ii) for the plan year of the defined 1 contribution plan as of which the class eli- 2 gible to receive such make-whole contribu- 3 tions closes and the 2 succeeding plan 4 years, such closed class of participants sat- 5 isfies the requirements of section 6 410(b)(2)(A)(i) (determined by applying 7 the rules of paragraph (1)(I)), 8 ‘‘(iii) after the date as of which the 9 class was closed, any plan amendment to 10 the defined contribution plan which modi- 11 fies the closed class or the allocations, ben- 12 efits, rights, and features provided to such 13 closed class does not discriminate signifi- 14 cantly in favor of highly compensated em- 15 ployees, and 16 ‘‘(iv) the class was closed before April 17 5, 2017, or the defined benefit plan under 18 clause (i) is described in paragraph (1)(C) 19 (as applied for purposes of paragraph 20 (1)(B)(iii)(IV)). 21 ‘‘(B) AGGREGATION WITH PLANS INCLUD- 22 ING MATCHING CONTRIBUTIONS.— 23 ‘‘(i) IN GENERAL.—With respect to 24 one or more defined contribution plans de- 25 VerDate Sep 11 2014 23:52 Aug 09, 2019 Jkt 089200 PO 00000 F [Text truncated for display. 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