To amend the Internal Revenue Code of 1986 to establish a pilot program to encourage the use of medical savings accounts by certain current and retired public employees of the State of Minnesota and political jurisdictions thereof.

Summary: Minnesota MSA Empowerment Act of 2002 - Amends the Internal Revenue Code to allow a deduction, of up to $10,000, for a Minnesota public employee, who is either retired or at least age 45, for amounts contributed to the individual's Minnesota public employee medical savings account.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Minnesota MSA Empowerment Act of 
2002''.

SEC. 2. DEDUCTION FOR MINNESOTA PUBLIC EMPLOYEE MSA PILOT PROGRAM.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions) is amended by redesignating section 223 as section 224 and 
by inserting after section 222 the following new section:

``SEC. 223. MINNESOTA PUBLIC EMPLOYEE MSAS.

    ``(a) In General.--In the case of an eligible individual, there 
shall be allowed as a deduction an amount equal to the amount 
contributed during the taxable year by such individual to the Minnesota 
public employee MSA of such individual.
    ``(b) Limitation.--The amount allowed as a deduction by subsection 
(a) for a taxable year shall not exceed $10,000.
    ``(c) Eligible Individual.--For purposes of this section, the term 
`eligible individual' means an individual who--
            ``(1) is in receipt of retirement benefits for the taxable 
        year from the State of Minnesota or a political subdivision 
        thereof, or
            ``(2)(A) has attained age 45 as of the end of the taxable 
        year,
            ``(B) is an employee of the State of Minnesota or a 
        political subdivision thereof,
            ``(C) as of the last day the of taxable year, is 100 
        percent vested in the defined benefit plan provided by such 
        State or political subdivision, and
            ``(D) made a contribution during the taxable year to such 
        defined benefit plan.
    ``(d) Minnesota Public Employee MSA.--
            ``(1) In general.--The term `Minnesota public employee MSA' 
        means an Archer MSA which is created or organized exclusively 
        for the purpose of paying the qualified medical expenses of the 
        eligible individual and--
                    ``(A) which is designated as a Minnesota public 
                employee MSA,
                    ``(B) with respect to which no contribution may be 
                made other than--
                            ``(i) a contribution made by the eligible 
                        individual or the employer of the eligible 
                        individual, and
                            ``(ii) a trustee-to-trustee transfer 
                        referred to in paragraph (4),
                    ``(C) the governing instrument of which provides 
                that the trustee of such account may only be a 
                Federally chartered credit union with multiple service 
                locations throughout the Minneapolis-St. Paul 
                metropolitan area that serves a substantial number of 
                eligible individuals, and
                    ``(D) the governing instrument of which provides 
                that trustee-to-trustee transfers described in section 
                220(f)(5) may be made to and from such account only 
                from and to, respectively, another Minnesota public 
                employee MSA.
            ``(2) Archer msa; qualified medical expenses.--For purposes 
        of this section, the terms `Archer MSA' and `qualified medical 
        expenses' shall have the respective meanings given to such 
        terms by section 220(d).
    ``(e) Special Rules.--In applying section 220 to a Minnesota public 
employee MSA--
            ``(1) subsection (d)(1)(A)(ii) shall not apply, and
            ``(2) subsection (f)(3) shall be treated as including a 
        reference to this section.
    ``(f) Inflation Adjustment.--
            ``(1) In general.--In the case of a taxable year beginning 
        after 2003, the dollar amount in subsection (b) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2002' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $100, such amount shall 
        be rounded to the next lowest multiple of $100.
    ``(g) Reports.--In the case of a Minnesota public employee MSA, the 
report under section 220(h)--
            ``(1) shall include the fair market value of the assets in 
        such Minnesota public employee MSA as of the close of each 
        calendar year, and
            ``(2) shall be furnished to the account holder--
                    ``(A) not later than January 31 of the calendar 
                year following the calendar year to which such reports 
                relate, and
                    ``(B) in such manner as the Secretary prescribes.
    ``(h) Coordination With Limitation on Number of Taxpayers Having 
Archer MSAs.--Subsection (i) of section 220 shall not apply to an 
individual with respect to a Minnesota public employee MSA, and 
Minnesota public employee MSAs shall not be taken into account in 
determining whether the numerical limitations under section 220(j) are 
exceeded.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes.--Subsection 
(a) of section 62 is amended by inserting after paragraph (18) the 
following new item:
            ``(19) Minnesota public employee msas.--The deduction 
        allowed by section 223.''.
    (c) Tax on Excess Contributions.--Section 4973(d) of such Code 
(relating to excess contributions to Archer MSAs) is amended--
            (1) in paragraph (1) by inserting ``or 223'' after ``220'', 
        and
            (2) in paragraph (2) by inserting ``or 223(b)'' after 
        ``220(b)(1)''.
    (d) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the last 
item and inserting the following new items:

                              ``Sec. 223. Minnesota public employee 
                                        MSAs.
                              ``Sec. 224. Cross reference.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.