Public Pension Equity Restoration Act of 1993

Summary: Public Pension Equity Restoration Act of 1993 - Amends the Internal Revenue Code to allow deferred compensation to be included in governmental retirement plans. 
Removes the special rule for governmental plans which limits benefits to 100 percent of the average compensation for the highest three years. 
Removes excess benefit arrangements and survivor and disability benefits from limitations on governmental plans. 
Provides a mechanism to pay benefits above limitations to certain employees.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Public Pension Equity Restoration 
Act of 1993''.

SEC. 2. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) Definition of Compensation.--Subsection (k) of section 415 of 
the Internal Revenue Code of 1986 (regarding limitations on benefits 
and contributions under qualified plans) is amended by adding 
immediately after paragraph (2) thereof the following new paragraph:
            ``(3) Definition of compensation for governmental plans.--
        For purposes of this section, in the case of a governmental 
        plan (as defined in section 414(d)), the term `compensation' 
        includes, in addition to the amounts described in subsection 
        (c)(3)--
                    ``(A) any elective deferral (as defined in section 
                402(g)(3)), and
                    ``(B) any amount which is contributed by the 
                employer at the election of the employee and which is 
                not includible in the gross income of an employee under 
                section 125 or 457.''
    (b) Compensation Limit.--Subsection (b) of section 415 of such Code 
is amended by adding immediately after paragraph (10) the following new 
paragraph:
            ``(11) Special limitation rule for governmental plans.--In 
        the case of a governmental plan (as defined in section 414(d)), 
        subparagraph (B) of paragraph (1) shall not apply.''
    (c) Treatment of Certain Excess Benefit Plans.--
            (1) In general.--Section 415 of such Code is amended by 
        adding at the end thereof the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
            ``(1) Governmental plan not affected.--In determining 
        whether a governmental plan (as defined in section 414(d)) 
        meets the requirements of this section, benefits provided under 
        a qualified governmental excess benefit arrangement shall not 
        be taken into account. Income accruing to a governmental plan 
        (or to a trust that is maintained solely for the purpose of 
        providing benefits under a qualified governmental excess 
        benefit arrangement) in respect of a qualified governmental 
        excess benefit arrangement shall constitute income derived from 
        the exercise of an essential governmental function upon which 
        such governmental plan (or trust) shall be exempt from tax 
        under section 115.
            ``(2) Taxation of participant.--For purposes of this 
        chapter--
                    ``(A) the taxable year or years for which amounts 
                in respect of a qualified governmental excess benefit 
                arrangement are includible in gross income by a 
                participant, and
                    ``(B) the treatment of such amounts when so 
                includible by the participant,
        shall be determined as if such qualified governmental excess 
        benefit arrangement were treated as a plan for the deferral of 
        compensation which is maintained by a corporation not exempt 
        from tax under this chapter and which does not meet the 
        requirements for qualification under section 401.
            ``(3) Qualified governmental excess benefit arrangement.--
        For purposes of this subsection, the term `qualified 
        governmental excess benefit arrangement' means a portion of a 
        governmental plan if--
                    ``(A) such portion is maintained solely for the 
                purpose of providing to participants in the plan that 
                part of the participant's annual benefit otherwise 
                payable under the terms of the plan that exceeds the 
                limitations on benefits imposed by this section,
                    ``(B) under such portion no election is provided at 
                any time to the participant (directly or indirectly) to 
                defer compensation, and
                    ``(C) benefits described in subparagraph (A) are 
                not paid from a trust forming a part of such 
                governmental plan unless such trust is maintained 
                solely for the purpose of providing such benefits.''
            (2) Coordination with section 457.--Subsection (e) of 
        section 457 of such Code is amended by adding at the end 
        thereof the following new paragraph:
            ``(15) Treatment of qualified governmental excess benefit 
        arrangements.--Subsections (b)(2) and (c)(1) shall not apply to 
        any qualified governmental excess benefit arrangement (as 
        defined in section 415(m)(3)), and benefits provided under such 
        an arrangement shall not be taken into account in determining 
        whether any other plan is an eligible deferred compensation 
        plan.''
            (3) Conforming amendment.--Paragraph (2) of section 457(f) 
        of such Code is amended by striking the word ``and'' at the end 
        of subparagraph (C), by striking the period after subparagraph 
        (D) and inserting the words ``, and'', and by inserting 
        immediately thereafter the following new subparagraph:
                    ``(E) a qualified governmental excess benefit 
                arrangement described in section 415(m).''
    (d) Exemption for Survivor and Disability Benefits.--Paragraph (2) 
of section 415(b) of such Code is amended by adding at the end thereof 
the following new subparagraph:
                    ``(I) Exemption for survivor and disability 
                benefits provided under governmental plans.--
                Subparagraph (B) of paragraph (1), subparagraph (C) of 
                this paragraph, and paragraph (5) shall not apply to--
                            ``(i) income received from a governmental 
                        plan (as defined in section 414(d)) as a 
                        pension, annuity, or similar allowance as the 
                        result of the recipient becoming disabled by 
                        reason of personal injuries or sickness, or
                            ``(ii) amounts received from a governmental 
                        plan by the beneficiaries, survivors, or the 
                        estate of an employee as the result of the 
                        death of the employee.''
    (e) Revocation of Grandfather Election.--Subparagraph (C) of 
section 415(b)(10) of such Code is amended by adding at the end thereof 
the following new sentence: ``An election made pursuant to the 
preceding sentence to have the provisions of this paragraph applied to 
the plan may be revoked not later than the last day of the 3rd plan 
year beginning after the date of enactment with respect to all plan 
years as to which such election has been applicable and all subsequent 
plan years: Provided, That any amount paid by the plan in a taxable 
year ending after revocation of such election in respect of benefits 
attributable to a taxable year during which such election was in effect 
shall be includible in income by the recipient in accordance with the 
rules of this chapter in the taxable year in which such amount is 
received (except that such amount shall be treated as received for 
purposes of the limitations imposed by this section in the earlier 
taxable year or years to which such amount is attributable).''
    (f) Effective Date.--
            (1) In general.--The amendments made by subsections (a), 
        (b), (c), and (d) shall apply to taxable years beginning on or 
        after the date of the enactment of this Act. The amendments 
        made by subsection (e) shall apply with respect to election 
        revocations adopted after the date of the enactment of this 
        Act.
            (2) Treatment for years beginning before date of 
        enactment.--In the case of a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986), such plan 
        shall be treated as satisfying the requirements of section 415 
        of such Code for all taxable years beginning before the date of 
        the enactment of this Act.